<PAGE>
<PAGE>
As filed with the Securities and Exchange Commission on November 12, 1997
Registration No. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM SB-2
Registration Statement
Under the
Securities Act of 1933
AMBIENT CORPORATION
(Name of Small Business Issuer in Its Charter)
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<S> <C> <C>
Delaware 3674 98-0166007
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(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
</TABLE>
Jerusalem Technological Park
Building One
Malha, Jerusalem, Israel
011-972-649-0611
(Address and Telephone Number of Principal Executive Offices and Principal
Place of Business)
Jacob Davidson
Chairman of the Board and
Chief Executive officer
Ambient Corporation
Jerusalem Technological Park
Building One
Malha, Jerusalem, Israel
011-972-649-0611
(Name, Address and Telephone Number of Agent For Service)
-----------------
Copies to:
Samuel F. Ottensoser, Esq. Stuart Neuhauser, Esq.
Baer Marks & Upham LLP Bernstein & Wasserman, LLP
805 Third Avenue 950 Third Avenue
New York, New York 10022 New York, New York 10022
Tel.: (212) 702-5700 Tel: (212) 826-0730
Fax: (212) 702-5941 Fax: (212) 371-4730
-----------------
Approximate Date of Commencement of Proposed Sale to the Public:
As soon as practicable after the Registration Statement becomes effective.
<PAGE>
<PAGE>
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
* * * * *
CALCULATION OF REGISTRATION FEE
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<CAPTION>
================================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Amount to be Offering Price Aggregate Registration
Registered Per Share(1) Offering Price Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 690,000(2) $7.00 $4,830,000 $1,463.64
par value per share
- --------------------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants(3) 60,000 $.001 $60 $0.02
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 60,000(4) $8.40 $504,000 $152.73
par value per share
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL $5,334,060 $1,616.39
================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as
amended.
(2) Includes 90,000 shares of common stock issuable upon exercise in full
of an option granted to the Underwriter to cover over-allotments, if
any.
(3) Underwriter's Warrants to be issued to the Underwriter consisting of
warrants to purchase 60,000 shares of common stock.
(4) Shares issuable upon exercise of the Underwriter's Warrant.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
-ii-
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED NOVEMBER 12, 1997
PROSPECTUS
AMBIENT CORPORATION
600,000 SHARES OF COMMON STOCK
----------------
All of the 600,000 shares (the "Shares") of Common Stock, par value
$.001 per share (the "Common Stock"), offered hereby (the "Offering"), are being
sold by Ambient Corporation, a Delaware corporation (the "Company"), through
Roan Capital Partners L.P. (the "Underwriter").
Prior to this offering (the "Offering"), there has been no public
market for the Common Stock. There can be no assurance that any such market will
develop or, if developed, be sustained. It is currently estimated that the
initial public offering price per share will be $7.00. The offering price of the
Shares has been determined in negotiations between the Company and the
Underwriter on an arbitrary basis and bears no relationship to the assets,
earnings or any other recognized criteria of value. The offering price should in
no event be regarded as an indication of any future market price of the Shares.
See "Underwriting" for a discussion of the factors considered in determining the
public offering price of the Common Stock. After the Offering, the Company's
current directors, executive officers and principal stockholders will
beneficially own approximately ______% of the outstanding shares of Common Stock
of the Company. Accordingly, the Company's present principal shareholders,
including management, will have the ability to elect all of the members of the
Board of Directors of the Company. See "Description of Securities."
The Company anticipates that, upon completion of the Offering, the
Common Stock will be quoted on the OTC Electronic Bulletin Board under the
symbol "AMBT." The OTC Bulletin Board System is an unorganized, inter-dealer,
over-the-counter market which provides significantly less liquidity than The
Nasdaq Stock Market, and quotes for stocks included on the OTC Bulletin Board
are not listed in the financial sections of newspapers as are those for The
Nasdaq Stock Market, as well as other securities exchanges. In the event the
Shares are not included on the OTC Bulletin Board, quotes for the Shares may be
included in the "pink sheets" for the over-the-counter market. An OTC Electronic
Bulletin Board quote does not imply that a liquid and active market will develop
or be sustained for the securities upon completion of the Offering. See "Risk
Factors."
----------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK AND SUBSTANTIAL DILUTION. SEE "RISK
FACTORS" BEGINNING ON PAGE __.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================================================
Price Underwriting Discounts
to Public and Commissions (1) Proceeds to Company(2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $7.00 $.70 $6.30
- ------------------------------------------------------------------------------------------------------------------------
Total(3).......................... $4,200,000 $420,000 $3,780,000
========================================================================================================================
</TABLE>
(1) Does not include: (i) a 3% nonaccountable expense allowance payable to
the Underwriter at the closing of the Offering; (ii) warrants (the
"Underwriter's Warrants") to purchase up to 60,000 shares of Common
Stock; and (iii) a two-year financial advisory agreement with the
Underwriter for an aggregate of $100,000, payable at the closing of the
Offering. In addition, the Company has agreed to indemnify the
Underwriter against certain liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting certain expenses payable by the Company to the
Underwriter, including a nonaccountable expense allowance in the amount
of $126,000 ($144,900 if the Underwriter's over-allotment option is
exercised in full), estimated at $__________.
<PAGE>
<PAGE>
(3) The Company has granted the Underwriter an option (the "Over-allotment
Option"), exercisable within 45 days from the date of this Prospectus,
to purchase in the aggregate up to an additional 90,000 shares of
Common Stock on the same terms as the Shares, solely to cover
over-allotments, if any. If the Over-allotment Option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $4,830,000, $483,000 and $4,347,000,
respectively. See "Underwriting."
The Common Stock being offered through the Underwriter is being sold by
the Company on a "firm commitment" basis subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to approval of certain
legal matters by counsel to the Underwriter and certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify the Offering and to
reject any order in whole or in part. It is expected that delivery of the
certificates representing the securities offered hereby will be made against
payment therefor at the offices of the Underwriter in New York City on or
about_________, 1997.
----------------
ROAN CAPITAL PARTNERS L.P.
The date of this Prospectus is __________, 1997
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<PAGE>
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE
OF THE SHARES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-
COVERING TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
----------------
The Company is not currently a reporting Company. Following the
Offering, the Company will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, will file reports, proxy and information statements and
other information with the Securities and Exchange Commission (the
"Commission"). The Company intends to furnish to its stockholders annual reports
containing audited financial statements and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.
----------------
Ambient is a trademark of the Company. Certain other trademarks of the
Company and other companies are used in this Prospectus.
-3-
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements and notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. As used herein, the term "Company" includes the
operations of the Company and its subsidiary, Ambient, Ltd. ("Ambient Israel"),
unless the context otherwise requires.
This Prospectus contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such differences include, but are not limited to, those discussed in "Risk
Factors."
THE COMPANY
Ambient Corporation ("Ambient" or the "Company"), a development stage
company, was founded in June 1996 to design and develop advanced smart card
interface technology. A smart card is a credit card-sized, plastic card equipped
with an integrated circuit ("IC") that contains a memory and, in its more
evolved form, a microprocessor, or a "mini-computer," that stores and transfers
information in electronic form. Smart cards are used in a variety of
applications including (i) access to restricted areas (replacing keys and
identification cards), (ii) public transportation fare collection (replacing
tokens and tickets), (iii) point of sale purchases (replacing cash or credit
cards at cafeterias, newsstands and related point of sale locations where speed
of purchase is important), (iv) vending machines, (v) public telephones, (vi)
industrial applications such as quality control, warehousing, inventory control,
distribution and warranty, and (vii) health care (replacing patients' paper
files in hospitals and HMOs). In 1996, the Company filed patent applications in
the United States and Israel covering its smart card interface design and
terminal architecture. Ambient has not generated any revenues. In
September 1997, the Company commenced the installation of smart card terminals
at a public school in Israel where the Company plans to launch its first pilot
project to demonstrate Ambient's technology.
The Company is developing contactless interface technology for
multi-purpose smart cards that will be capable of storing and transferring large
amounts of data in a secure environment at costs similar to typical
contact-based systems. Existing smart cards depend largely on "contact"
technology, requiring the card to be inserted into a terminal where a receptor
clamps down on the card making precise contact with an exposed metal plate on
the card's surface creating a metal-to-metal electrical connection. Due to the
disadvantages inherent in requiring contact for the transfer of information in
many applications, such as slow transaction time and high terminal and card
maintenance costs, the industry has produced "contactless" smart card
technology, where information is transferred electronically without the need for
metal-to-metal contact. Contactless smart cards currently on the market utilize
inductive coupling (commonly known as "radio frequency" radiation) to transfer
information. This technology creates several disadvantages, such as the
potential security hazard of data interception by scanners, the lack of ease of
use, since the card often must be carefully positioned over a terminal antenna
at a certain angle, power limitations and environmental emissions. The Company's
technology is not based on "radio frequency" radiation; rather, it relies on
capacitive close coupling. Capacitive close coupling allows for a
closed-circuit, high energy, rapid data rate connection between the card and the
terminal within a two millimeter range. Ambient's technology enables the
transmission of both data and energy over the same capacitive pads (one pad is
located in each of the card and the terminal) at high rates of speed and
accuracy. The Company believes that its technology
-4-
<PAGE>
<PAGE>
will provide the following advantages over existing contact-based and
contactless smart card systems: high security, quicker transaction time, low
terminal maintenance due to the absence of moving parts, long card life due to
rugged construction and low wear-and-tear, significantly higher levels of power,
and significant memory capability allowing for multi-purpose applications.
The Company's dual goal is to become a licensor of smart card
technology and a vendor of smart card systems. The Company's business strategy
is: (i) to launch pilot projects that exhibit the benefits of the Ambient
systems; (ii) to form strategic alliances with system integrators, as well as
individual IC, smart card and terminal manufacturers who in turn can incorporate
Ambient contactless interface technology into the overall design of their smart
card products; and (iii) to integrate its own smart card systems that utilize
Ambient's contactless interface technology that it can market directly to
end-users.
The Company is currently preparing to launch its first pilot project in
the city of Ashdod, Israel (the "Ashdod Project"), which has a population of
approximately 150,000 people. Ashdod is considering a resident smart card system
for its citizenry and, initially, plans to install Ambient smart card terminals
and distribute Ambient smart cards in the city's largest public school of
approximately 2,000 students and staff members. The Ambient smart cards will
function as the medium for payment at the school's vending machines, cafeterias,
copiers and similar outlets, as well as act as passes for transportation, the
library and access to buildings and a mechanism for tracking attendance. In
September 1997, the Company commenced the installation of the terminals at the
public school.
Ambient Corporation, a Delaware company, was organized in June 1996. In
August 1996, Ambient Corporation purchased substantially all of the assets,
properties, business and goodwill of Gen Technologies, Inc., a Delaware company
("GTI"), including the capital stock of GTI's subsidiary, GenTec, Ltd., a
corporation organized under the laws of the State of Israel. In November, 1996,
the Company changed the name of its subsidiary from GenTec, Ltd. to Ambient,
Ltd. ("Ambient Israel"). The Company owns 95% of Ambient Israel's outstanding
capital stock. The Company's current operations are conducted through Ambient
Israel at the Company's corporate headquarters in Jerusalem, Israel. The
Company's corporate headquarters and executive offices are located at Jerusalem
Technological Park, Building One, Malha, Jerusalem, Israel and its telephone
number is 011-972-649-0611.
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<PAGE>
<PAGE>
THE OFFERING
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<S> <C>
Securities offered by the Company........ 600,000 shares of Common Stock.
See "Description of Securities."
Common Stock outstanding
prior to the Offering.................. 2,419,333(1)
Common Stock to be outstanding
after the Offering..................... 3,019,333(1)
Use of Proceeds.......................... The Company intends to apply the
net proceeds from the Offering
for marketing, research and
product development, the
repayment of indebtedness, the
purchase of capital equipment,
renting additional facilities and
working capital and general
corporate purposes. See "Use of
Proceeds."
Risk Factors and Dilution................ Prospective investors should
carefully consider the matters
set forth under the captions
"Risk Factors" and "Dilution." An
investment in the securities
offered hereby involves a high
degree of risk and immediate and
substantial dilution.
Proposed OTC Electronic Bulletin
Board Symbol (2)............................ AMBT
</TABLE>
- ------------------
(1) Does not include: (i) 250,000 shares of Common Stock reserved for
issuance upon exercise of stock options granted or which may be granted
under the Company's Incentive & Non-Qualified Stock Option Plan (the
"1997 Plan"); (ii) 60,000 shares of Common Stock issuable upon exercise
of the Underwriter's Warrants; and (iii) 90,000 shares of Common Stock
issuable upon exercise of the Over-allotment Option. See "Management"
and "Underwriting."
(2) The Company anticipates that after the completion of the Offering, the
Common Stock will be quoted on the OTC Electronic Bulletin Board. An
OTC Electronic Bulletin Board quotation does not imply that a liquid
and active market will develop or be sustained for the Shares upon
completion of the Offering. See "Risk Factors--OTC Electronic Bulletin
Board; Absence of Public Market; Determination of Offering Price."
-6-
<PAGE>
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from the
Consolidated Financial Statements included elsewhere in this Prospectus and
should be read in conjunction with such Consolidated Financial Statements and
the Notes thereto.
<TABLE>
<CAPTION>
JULY 1, 1996 NINE MONTHS
(INCEPTION) ENDED
TO DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------- ------------
(unaudited)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Research and development expenses.................... $160,972 $245,820
Less participation by the Chief Scientist of the
State of Israel.................................. 95,976 --
------------- ------------
(64,816) (245,820)
Operating, general and administrative
expenses......................................... 434,735 488,103
Purchased in process research and
development...................................... 180,474 --
-------------- ------------
Operating loss....................................... (680,025) (733,923)
Financing expenses, net.............................. 62,370 73,359
-------------- ------------
Net loss............................................. (742,395) (807,282)
============== ============
Loss per share....................................... $(0.33) $(0.35)
Weighted average number of shares of
Common Stock outstanding......................... 2,257,452 2,331,087
OTHER FINANCIAL DATA:
Capital expenditures................................. (193,590) (28,701)
Cash used in operating activities.................... (623,936) (450,043)
Cash used in investing activities.................... (223,590) (28,701)
Cash provided by financing activities................ 951,848 473,344
<CAPTION>
AT SEPTEMBER 30, 1997
------------------------------------
ACTUAL AS ADJUSTED(1)
-------------- ---------------
(unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 98,922 $1,917,522
Total assets......................................... 578,832 2,397,432
Short-term loans and current portion
of long-term loans............................... 34,913 34,913
Long-term debt....................................... 1,514,441 124,041
Stockholders' equity (deficiency)(2)................. (1,202,233) 2,086,767
</TABLE>
- ---------------------
(1) As adjusted to give effect to the receipt by the Company of the estimated
net proceeds from the sale of the Shares offered hereby, after deducting
underwriting discounts and commissions, the non-accountable expense
allowance, the financial consulting fees payable to the Underwriter, and
the estimated expenses of the Offering payable by the Company, and the
application of an aggregate
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<PAGE>
<PAGE>
of $1,390,400 of the net proceeds to repay (i) the principal on the notes
issued in the Private Financing (as defined herein) ($968,000); (ii) the
principal on the notes issued in September in the 1997 Private Placement
(as defined herein) ($300,000); and (iii) the principal and accrued
interest on certain loans ($122,400). See "Use of Proceeds," "Plan of
Operations" and "Description of Securities--Prior Financings."
(2) Actual column does not include 20,000 shares of Common Stock issued in
October 1997 as part of the Company's 1997 Private Placement. As adjusted
column does include 20,000 shares of Common Stock issued in October 1997
as part of the Company's 1997 Private Placement.
-8-
<PAGE>
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree
of risk and should not be purchased by persons who cannot afford the loss of
their entire investment. Prospective investors should carefully consider the
following risk factors, as well as all other information set forth elsewhere in
this Prospectus.
Except for the historical information contained herein, the following
discussion contains forwardlooking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
projected in the forward-looking statements discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in this section, as well as in the sections entitled "Plan of
Operation" and "Business."
DEVELOPMENT STAGE COMPANY; HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT;
WORKING CAPITAL DEFICIENCY; NO REVENUES TO DATE; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company is a development stage company and has an accumulated
deficit from inception of operations in July 1996 through September 30, 1997, of
$1,549,677. As a development stage company, the Company has a limited operating
history upon which investors may rely to evaluate the Company's prospects. The
Company's prospects must be considered in light of the problems, expenses,
delays and complications associated with a new business. At September 30, 1997,
the Company had a working capital deficit of $92,705. Losses have resulted
principally from costs incurred in the research and development of the Company's
technology, as well as general and administrative costs. The Company has not
realized any operating revenue to date. The Company expects to continue to incur
operating losses for the foreseeable future until such time, if ever, as the
Company is able to achieve sufficient levels of revenues from operations. There
can be no assurance that the Company will ever generate significant revenues or
achieve profitability. See "Plan of Operation."
EXPLANATORY PARAGRAPH IN INDEPENDENT AUDITORS' REPORT
The Company's independent auditors have included an explanatory
paragraph in their report on the Company's financial statement stating that
certain factors raise substantial doubt about the Company's ability to continue
as a going concern. The Company's continuation as a going-concern is dependent
upon its ability to obtain additional financing, including from this Offering,
and to generate sufficient cash flow to meet its obligations on a timely basis.
As a result of the start-up nature of the Company's business, additional
operating losses can be expected in the foreseeable future. There can be no
assurance that the Company can be operated profitably in the future. See "Plan
of Operation" and Consolidated Financial Statements.
NEED FOR SUBSTANTIAL ADDITIONAL FUNDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company's cash requirements may vary materially from those now
planned depending on numerous factors, including the status of the Company's
marketing efforts, the Company's business development activities, the results of
future research and development and competition. The Company believes that the
net proceeds of this Offering, together with its projected cash flow from
operations, if any, will be sufficient to fund its working and other capital
requirements for a period of approximately 12 to 18 months from the date of this
Prospectus. Thereafter, or sooner if conditions
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make it necessary, the Company will need to raise additional funds to finance
its capital requirements through public or private financings. Such financing
potentially includes equity financing, which may be dilutive to stockholders, or
additional debt financing, which would likely restrict the Company's ability to
make acquisitions, borrow from other sources and pay dividends to stockholders
in certain cases. The Company does not currently have any commitments for any
additional financing. There can be no assurance that additional funds will be
available on terms attractive to the Company or at all. If adequate funds are
not available, the Company may be required to curtail research and development
activities or otherwise materially reduce its current and proposed operations.
See "Use of Proceeds" and "Plan of Operation."
ROYALTY PAYMENTS
In July 1997, the Company terminated the employment of Alexander Rozin
as Chief Scientist of Ambient Israel. Pursuant to the terms of a certain
purchase agreement between GTI and Mr. Rozin dated December 5, 1995 and assumed
by the Company in connection with its purchase of GTI's assets, Mr. Rozin is
entitled to receive royalties of 20% of the Company's net profits (as defined in
the agreement) from sales of products predominantly utilizing an electronic data
communication system as described in a certain patent application. The Company
has not to date utilized this technology in the development of Ambient systems
and does not presently intend to do so. The agreement also entitles Mr. Rozin to
receive 15% of the net profits (as defined in the agreement) from all sales of
products and technology by Ambient Israel, the Company's subsidiary. As a result
of the termination of Mr. Rozin's employment, the Company intends to enter into
discussions with Mr. Rozin to modify or cancel these provisions. There can be no
assurance that the Company will be successful in its attempts to cancel the
provisions to pay Mr. Rozin royalties or otherwise modify these provisions on
favorable terms.
DEVELOPING MARKET; UNCERTAINTY OF MARKET ACCEPTANCE OF AMBIENT TECHNOLOGY
AND PRODUCTS
The smart card market is developing and rapidly evolving and is
characterized by an increasing number of market entrants who have developed or
are developing a wide variety of products. As is typical in a developing and
rapidly evolving industry, demand and market acceptance for new products are
subject to a high level of uncertainty. There can be no assurance that the smart
card technology, systems and products designed by the Company will become widely
accepted. Because the market for the Company's smart cards is developing and
evolving, it is also difficult to predict with any assurance the future growth
rate, if any, and size of the market. If a substantial market fails to develop,
develops more slowly than expected or becomes saturated with competitors, or if
the Company's smart card technology, systems and products do not achieve market
acceptance, the Company's business, operating results and financial condition
will be materially adversely affected.
The Company's technology and products are intended to be marketed and
sold, to a large extent, to IC, smart card and terminal manufacturers for
inclusion in the smart card products and equipment marketed and sold by them. As
with other new products designed to enhance or replace existing products or
change product designs, these potential partners may be reluctant to integrate
the Company's smart card technology and products into their systems unless the
technology and products are proven to be both reliable and available at a
competitive price. Even assuming product acceptance, the Company's potential
partners may be required to redesign their systems to effectively use the
Company's smart card technology and products. The time and costs necessary for
such redesign could delay or prevent market acceptance of the Company's smart
card products. A lack of, or delay in,
-10-
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<PAGE>
market acceptance of the Company's smart card systems could adversely affect the
Company's operations.
The Company is ultimately dependent upon the acceptance of Ambient
technology and products by issuing institutions and end-users. Many issuing
institutions, such as public transportation systems and banks, may be unwilling
to incur the costs and utilize other resources necessary to either switch from
their existing smart card systems to Ambient systems or to install any smart
card systems in the first instance. Moreover, the end-users of such systems,
such as public transportation riders and bank customers, may be resistant to
such changes. While the Company believes that its technology can significantly
improve transactions for these and many other applications, there can be no
assurance that issuing institutions and/or end-users will elect to switch to or
utilize the Company's proposed technology and products, or, if they do, that
such products will be accepted by the market at large. There can be no assurance
that the Company will be able to market its technology and proposed products
successfully or that any of its technology or products will be accepted in the
marketplace. See "Business--The Ambient System," "--Proposed Ambient Smart
Cards" and "--Sales and Marketing."
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
The market for the Company's proposed products is characterized by
rapidly changing technology, evolving industry standards and frequent new
product introductions. The Company's success will depend in part on its ability
to enhance its planned technologies and products and to introduce new products
and technologies to meet changing customer requirements and evolving industry
standards. The Company is currently devoting, and intends to continue to devote,
significant resources toward the development of smart card systems that will
accommodate its close coupling contactless cards and technology as well as
existing remote coupling, or radio frequency, contactless smart cards. There can
be no assurance that the Company will successfully complete the development of
these technologies and related products in a timely fashion or that the
Company's current or future products will satisfy the needs of the smart card
market. There can also be no assurance that smart card products and technologies
developed by others will not adversely affect the Company's competitive position
or render its products or technologies non-competitive or obsolete. See
"--Competition," "Use Of Proceeds" and "Business--Research and Development."
COMPETITION
The smart card industry is extremely competitive. Competitive factors
in the industry include transaction speed, the extent and flexibility of smart
card memory, reliability, transaction accuracy, security and cost. The Company's
primary competitors are expected to include companies with substantially greater
financial, technological, marketing, personnel and research and development
resources than those of the Company. Anticipated competitors include such
multinational firms as Gemplus Ltd., Schlumberger Ltd., and Group Bull Ltd.,
which primarily offer contact cards, and Philips GmbH, Sony Corporation, Inc.,
Kapsch Communications Ltd., Matsushita Electronics Corporation and Micron
Communications, GmbH, which offer primarily contactless smart cards. There can
be no assurance that the Company will be able to compete successfully in this
market. Further, there can be no assurance that existing and new companies will
not enter the smart card market in the future, especially those in related
fields, such as computer software. Although the Company believes that its
products will be distinguishable from those of its competitors on the basis of
their technological features and functionality at an attractive
price/performance ratio, there can be no assurance that the Company will be able
to penetrate any of its anticipated competitors' portions
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of the market. Many of the Company's anticipated competitors have existing
relationships with smart card equipment manufacturers and other system
integrators which may impede the Company's ability to market its technology to
those potential customers and build market share. There can be no assurance the
Company will be able to compete successfully against currently anticipated or
future competitors or that competitive pressures will not materially adversely
affect its business, operating results and financial condition. See
"Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The success of the Company will be largely dependent upon the personal
efforts of Dr. Yehuda Cern, Dr. George Kaplun and Jacob Davidson. The loss of
the services of any of such persons could have a material adverse effect on the
Company's business and prospects. Although the Company has entered into
employment agreements with each of the aforementioned individuals, there can be
no assurance that the Company will be able to retain their services. The Company
does not maintain and is not contemplating obtaining key-man life insurance
policies on any of its employees, except for a policy in the amount of
$1,000,000 on the life of Jacob Davidson. The Company is also dependent to a
substantial degree on its other technical and research staff. The success of the
Company will be dependent upon its ability to hire and retain additional
qualified technical, research, management, marketing, and financial personnel.
The Company will compete with other companies with greater financial and other
resources for such other personnel. There can be no assurance that the Company
will be able to retain its present personnel or acquire additional qualified
personnel as and when needed. See "Management."
LIMITED MARKETING CAPABILITY
The Company has limited marketing capabilities and resources. Achieving
market penetration will require significant efforts and expenditures by the
Company to create awareness of and demand for the Company's technology and
products. The Company's ability to penetrate the market and build its customer
base will be substantially dependent on its marketing efforts, including its
ability to establish an effective internal sales organization and establish
strategic marketing arrangements with IC, smart card and terminal manufacturers.
The Company currently has no plan, agreement, understanding or arrangement with
any such company, and no assurance can be given that any will be entered into.
In addition, although the Company recently hired a marketing and sales director
and plans to hire two to three additional full-time marketing and sales
personnel after the Offering, the Company does not have a marketing team
currently in place. The failure by the Company to successfully develop its
marketing capabilities, both internally and through third-party alliances, would
have a material adverse effect on the Company's business, operating results and
financial condition. Further, there can be no assurance that, if developed, such
marketing capabilities will lead to sales of the Company's technologies and
products. See "Use of Proceeds," "Plan of Operations" and "Business--Sales and
Marketing."
DEPENDENCE ON MANUFACTURERS AND SUPPLIERS
The Company currently purchases, and intends to continue to purchase,
ICs for its smart card systems from several manufacturers, including Motorola
Corporation, SGS Thompson, Ltd. and National Semiconductor Inc., and purchases
other components used in assembly of its smart card systems from other key
suppliers. The Company does not intend to manufacture any of the equipment to be
used in its smart card systems, except smart card terminals in limited numbers.
The Company's reliance upon outside manufacturers and suppliers is expected to
continue and involves several risks,
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including limited control over the availability of components, delivery
schedules, pricing and product quality. The Company may experience, delays,
expenses and lost sales should it be required to locate and qualify alternative
manufacturers and suppliers. See "Business--Suppliers; Manufacturing and
Assembly."
In addition, ICs with microprocessors and electrically erasable
programmable read only memory ("EEPROM") are produced by a relatively small
number of chip makers. The five principal chip manufacturers comprise
approximately 70% of the market. Similarly, five smart card manufacturers
comprise approximately 90% of the card manufacturing market. Should the Company
for any reason be precluded from obtaining chips and cards, respectively, from
these manufacturers, the Company may experience difficulty in locating
alternative sources of supply or, even if alternatives are located, the Company
may experience substantial delays because such sources may be unable to produce
the quantities that may be required in a timely manner, and the Company may be
required to pay higher costs for its components. See "Business--Suppliers;
Manufacturing and Assembly."
UNCERTAIN ABILITY TO PROTECT PATENT-PENDING TECHNOLOGY
The Company's ability to compete effectively depends on its success in
protecting its proprietary technology, both in the United States and abroad. The
Company has filed for patent protection in the United States and Israel (the
"Patent Rights"). No assurance can be given that any patents will be issued from
the United States or Israeli patent offices for the Patent Rights, that the
Company will receive any patents in the future based on its continued
development of its technology, or that the Company's patent protection within
and/or outside of the United States and Israel will be sufficient to deter
others, legally or otherwise, from developing or marketing competitive products
utilizing the Ambient technologies.
The Company believes that the protection afforded by the Patent Rights
is material to its future revenues and earnings. There can be no assurance that
the Patent Rights will be found to be valid or that the Patent Rights will be
enforceable to prevent others from developing and marketing competitive products
or methods. A successful challenge to the validity of the Patent Rights would
have a material adverse effect on the Company, and could jeopardize its ability
to engage in its contemplated business activities. An infringement action on
behalf of the Company may require the diversion of substantial funds from the
Company's operations and may require management to expend efforts that might
otherwise be devoted to the Company's operations. Furthermore, there can be no
assurance that the Company will be successful in enforcing the Patent Rights.
There can be no assurance that patent infringement claims in the United
States, Israel or in other countries will not be asserted against the Company by
a competitor or others, or if asserted, that the Company will be successful in
defending against such claims. In the event one of the Company's proposed
products is adjudged to infringe patents of others with the likely consequence
of a damage award, the Company may be enjoined from using and selling such
product or be required to obtain a royalty-bearing license, if available on
acceptable terms. Alternatively, in the event a license is not offered, the
Company might be required, if possible, to redesign those aspects of the product
held to infringe so as to avoid infringement liability. Any redesign efforts
undertaken by the Company might be expensive, could delay the introduction or
the re-introduction of the Company's products into certain markets, or may be so
significant as to be impractical. There can be no assurance that the Company
would be able to redesign an infringing product, or aspect thereof, so as to
avoid infringement liability. See "Business--Proprietary Information" and "Risk
Factors--Competition."
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UNCERTAIN PROTECTION OF PROPRIETARY TECHNOLOGY AND INFORMATION
The Company will also rely on trade secrets, know-how and continuing
technological advancement to achieve and thereafter maintain a competitive
position. Although the Company has entered into confidentiality and invention
agreements with its employees, consultants and advisors, no assurance can be
given that such agreements will be honored or that the Company will be able to
effectively protect its rights to its unpatented trade secrets and know-how.
Moreover, no assurance can be given that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets and know-how. See
"Business--Proprietary Information" and "Management."
TRADEMARK REGISTRATION
The Company intends to promote the Ambient trademark in connection with
its proposed marketing activities. The Company filed an application to register
Ambient as a trademark in the United States. There can be no assurance that
prior registrations and/or uses of such mark (or a confusingly similar mark)
does not exist, in which case the Company might thereby be precluded from
registering and/or using the Ambient mark in the United States. See
"Business--Proprietary Information."
RISKS ASSOCIATED WITH PROPOSED EXPANSION
The Company intends to use a significant portion of the net proceeds of
this Offering to expand its operations through the expansion of its research and
development activities, the establishment of sales and marketing efforts, and,
potentially, through acquisitions, although no companies have yet been
identified by the Company as possible acquisitions. The Company believes that
the net proceeds of the Offering will be sufficient to enable the Company to
carry out its business plan, including plans for expansion, for approximately 12
to 18 months, although there can be no assurance it will be able to do so.
The Company may seek to expand its operations through acquisitions. In
such event, the Company may use a portion of the net proceeds from the Offering
to acquire all or a portion of existing companies in businesses which the
Company believes are compatible with its business, which may include,
competitors of the Company. Any decision to make an acquisition will be based
upon a variety of factors, including, among others, the purchase price and other
financial terms of the transaction, the business prospects and the extent to
which any acquisition would enhance the Company's prospects. To the extent that
the Company may, depending upon the opportunities available to it, finance an
acquisition with a combination of cash and equity securities, any such issuance
of equity securities could result in dilution to the interests of the Company's
stockholders. Additionally, to the extent that the Company, or the acquisition
or merger candidate itself, issues debt securities in connection with an
acquisition, the Company may be subject to risks associated with incurring
indebtedness, including the risks of interest rate fluctuations and
insufficiency of cash flow to pay principal and interest. The Company is not
currently engaged in identifying any potential acquisition and has no plans,
agreements, understandings or arrangements for any acquisitions. There can be no
assurance that the Company will successfully consummate any acquisition or
successfully integrate into its business any acquired business or portion
thereof.
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The anticipated growth in activities, including expenditures, will
require expansion of the Company's management and financial controls, and could
place a significant strain on the Company's administrative, operational and
financial resources. None of the Company's current officers have had experience
in managing a public company or a company with expenditures as large as the
anticipated expenditures of the Company. While the Company intends to hire
additional personnel, as appropriate, there can be no assurance that the Company
will be successful in hiring qualified personnel to implement its growth
strategy or that it will be able to rapidly and efficiently integrate any new
personnel with its existing work force. In addition to hiring support to
accommodate its planned expansion, the Company will likely be required to
install or enhance any existing information and other administrative systems.
There can be no assurance that the Company's administrative, operational and
financial resources and systems will be adequate to maintain and efficiently
monitor and support any future growth. See "Use of Proceeds" and "Business."
SUBSTANTIAL PORTION OF PROCEEDS TO SATISFY INDEBTEDNESS; BROAD DISCRETION IN
APPLICATION OF PROCEEDS
Approximately 47% ($1,495,000) of the net proceeds of the Offering will
be used to repay indebtedness. See "Use of Proceeds."
While the Company presently intends to use the net proceeds of this
Offering as set forth herein, management will have broad discretion in the
application of the net proceeds allocated to working capital and general
corporate purposes. Due to the number and variability of factors that will be
analyzed before the Company determines how to use such net proceeds, the Company
will have broad discretion in allocating a significant portion of the net
proceeds from the Offering without any action or approval of the Company's
stockholders. Accordingly, investors will not have the opportunity to evaluate
the economic, financial and other relevant information which will be considered
by the Company in determining the application of such net proceeds. See "Use of
Proceeds."
IMMEDIATE SUBSTANTIAL DILUTION
The Company's present stockholders acquired their shares of the
Company's Common Stock at costs substantially below the anticipated offering
price of the Shares to be sold in the Offering. Therefore, investors purchasing
Common Stock in this Offering will incur an immediate and substantial dilution
in net tangible book value per share of $6.41 (91.6%). Accordingly, investors
will bear a disproportionate part of the financial risk associated with the
Company's business while effective control will remain with existing
stockholders. See "Dilution."
OTC ELECTRONIC BULLETIN BOARD; ABSENCE OF PUBLIC MARKET; DETERMINATION OF
OFFERING PRICE
The Company's Common Stock will be traded in the over-the-counter
market. It is anticipated that the Shares will be quoted on the OTC Electronic
Bulletin Board (the "OTC Bulletin Board"). The OTC Bulletin Board, which is
sponsored and operated by the National Association of Securities Dealers, Inc.,
is an unorganized, inter-dealer automated quotation system for equity securities
not included for listing on The Nasdaq SmallCap Market or Nasdaq National
Market. The OTC Bulletin Board provides significantly less liquidity than The
Nasdaq SmallCap Market or Nasdaq National Market, and quotes for stocks included
on the OTC Bulletin Board are not listed in the financial sections of newspapers
as are those for The Nasdaq SmallCap Market and Nasdaq National Market.
Therefore, prices for securities traded solely on the OTC Bulletin Board may be
difficult to obtain and
-15-
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purchasers of the Shares may be unable to resell the Shares at or near their
original offering price or at any price. In the event the Shares are not
included on the OTC Bulletin Board, quotes for the securities may be included in
the "pink sheets" for the over-the-counter market. See "--Penny Stock
Regulation" and "Underwriting." Prior to this Offering, there has been no public
trading market for the Common Stock and there can be no assurance that an active
public market for the Common Stock will develop or, if developed, continue
following the Offering. Until such time, if ever, that an active trading market
develops, investors will, in all likelihood, be unable to readily liquidate
their investment in the Company's securities following this Offering.
The initial public offering price of the Common Stock has been
determined by negotiations between the Underwriter and the Company and does not
necessarily bear any relationship to the Company's assets, book value, revenues
or other established criteria of value, and should not be considered indicative
of the price at which the Common Stock will trade after completion of the
Offering. There can be no assurance that the market price of the Common Stock
will not decline below the initial public offering price. See "Underwriting."
PENNY STOCK REGULATION
Broker-dealer practices in connection with transactions in "penny
stocks" are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the Nasdaq system, provided that current
prices and volume information with respect to transactions in such securities
are provided by the exchange or system). The Company's Shares will not be listed
on any exchange or quoted on a Nasdaq system. Accordingly, after the Offering,
if broker-dealers make a market in the Shares, then the penny stock rules could
affect the sale of Ambient Shares if the price per share falls below $5.00. The
penny stock rules require a broker-dealer, prior to a purchase or sale of a
penny stock not otherwise exempt from the rules, to deliver to the customer a
standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and monthly account statements showing the market value of each penny stock held
in the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock the broker-dealer make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. If the Company's Shares become subject to the penny stock
rules, investors in the Offering may find it more difficult to sell their
securities.
POSSIBLE VOLATILITY OF SECURITIES PRICES
If a public trading market develops, trading volume and prices for the
Common Stock could be subject to wide fluctuations in response to quarterly
variations in operations, financial results, announcements with respect to sales
and earnings, technological innovations, new product developments, the sale or
attempted sale of a large amount of securities in the public market, and other
events or factors which cannot be foreseen or predicted by the Company. In
addition, various factors affecting the smart card or computer industry
generally may have a significant impact on the market
-16-
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price of the Common Stock, as well as price and volume volatility affecting
small and emerging growth companies, in general, and not necessarily related to
the operating performance of such companies.
UNDERWRITER'S LIMITED UNDERWRITING EXPERIENCE
The Underwriter has been actively engaged in the securities brokerage
and investment banking business since 1994. However, the Underwriter has engaged
in only limited underwriting activities, and this Offering is only the second
public offering in which the Underwriter has acted as the sole or managing
underwriter. The Underwriter has limited experience acting as a member of a
syndicate in underwritten offerings. There can be no assurance that the
Underwriter's limited experience as an underwriter of public offerings will not
adversely affect the proposed public offering of the Shares or the subsequent
development of a trading market for the Company's securities. Therefore,
purchasers of the securities offered hereby may suffer a lack of liquidity in
their investment or a material diminution of the value of their investment.
NO DIVIDENDS
To date, the Company has not paid any cash dividends. After the
consummation of the Offering, the Company does not intend, for the foreseeable
future, to declare or pay any dividends and intends to retain earnings, if any,
for the future operation and expansion of the Company's business. The
declaration and payment of any cash dividends in the future will be determined
by the Board of Directors of the Company in light of conditions and
circumstances then existing, including the Company's financial condition and
requirements. See "Dividends."
PREFERRED STOCK
The Company's Amended and Restated Certificate of Incorporation
authorizes the issuance of 5,000,000 shares of Preferred Stock, $.001 par value
per share, in one or more series, with each series to have such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the Common Stock. In addition, the Preferred Stock
could be utilized, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of the Company. Although the Company
does not have any current intentions to issue any shares of Preferred Stock,
there can be no assurance that the Company will not do so in the future. The
Company has agreed not to issue any shares of Preferred Stock without the
Underwriter's consent for a period of 24 months.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares of Common Stock by existing stockholders
pursuant to Rule 144 ("Rule 144") promulgated under the Securities Act, or
otherwise, could have an adverse effect on the price of the shares of Common
Stock. Upon completion of this Offering, the Company will have 3,019,333 shares
of Common Stock outstanding. In addition, the Company has reserved for issuance
250,000 shares upon exercise of options to be granted under the 1997 Plan,
60,000 shares upon exercise of the Underwriter's Warrants, and 90,000 shares
upon exercise of the Over-allotment Option.
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The 600,000 shares of Common Stock offered hereby will be freely
transferable without restriction or further registration under the Securities
Act except for any shares purchased by an "affiliate" of the Company within the
meaning of Rule 144. The remaining 2,419,333 outstanding shares of Common Stock
are "restricted securities," as that term is defined in Rule 144, and may only
be sold pursuant to a registration statement under the Securities Act or an
applicable exemption from registration thereunder, including exemptions provided
by Rule 144. Of such shares, 2,229,166 will be eligible for resale under Rule
144 commencing 90 days following the completion of this Offering, 66,000 shares
will be eligible for resale under Rule 144 commencing September 1998, 20,000
shares will be eligible for resale under Rule 144 commencing October 1998,
20,000 shares will be eligible for resale under Rule 144 commencing March 1998
and 84,167 shares will be eligible for resale under Rule 144 commencing August
1998. However, all of the Company's officers, directors and shareholders have
agreed with the Company not to sell their Shares for a period of 18 months from
the date of this Prospectus without the express written consent of the
Underwriter. No prediction can be made as to the effect that future sales of
Common Stock, or the availability of shares of Common Stock for future sales,
will have on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Stock and could impair the Company's ability to raise capital through the future
sale of its equity securities. See "Principal Stockholders" and "Shares Eligible
for Future Sale."
UNDERWRITER'S WARRANTS
The Company will sell to the Underwriter and/or its designees, for
nominal consideration, the Underwriter's Warrants to purchase an aggregate of up
to 60,000 shares of Common Stock. The Underwriter's Warrants are exercisable for
a four-year period commencing one year from the date of this Prospectus, at an
exercise price per share equal to 120% of the initial public offering price of
the Common Stock. For the life of the Underwriter's Warrants, the holders are
given, at nominal cost, the opportunity to profit from a rise in the market
price of the Common Stock without assuming the risk of ownership, with a
resulting dilution in the interest of other security holders. As long as the
Underwriter's Warrants remain unexercised, the terms under which the Company
could obtain additional capital elsewhere may be adversely affected. Moreover,
the holders of the Underwriter's Warrants may be expected to exercise them at a
time when the Company would, in all likelihood, be able to obtain any needed
capital through a new offering of its securities on terms more favorable than
those provided by the Underwriter's Warrants. Additionally, if the holders of
the Underwriter's Warrants were to effect a distribution of the Underwriter's
Warrants or the underlying shares of Common Stock, the Underwriter, prior to and
during such distribution, may be unable to make a market in the Company's Shares
and may be required to comply with other limitations on trading set forth in
Regulation M under the Exchange Act. Such rules restrict the solicitation of
purchasers of a security by a distribution participant (or its affiliated
purchasers) that is the subject of the distribution and also limit market making
activities by a distribution participant (or its affiliated purchasers) until
the completion of the distribution. If the Underwriter was required to cease
making a market in the Shares during the restricted period, the market and
market price for such Shares may be adversely affected and holders of the Shares
may be unable to sell them. See "Underwriting."
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
Certain provisions of Delaware law may discourage third party attempts
to acquire control of the Company. In particular, Section 203 of the Delaware
General Corporation Law generally prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which such person
became
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an interested stockholder, unless certain restrictive requirements are met. The
Company has not opted to include any provisions in its Certificate of
Incorporation or By-laws electing not to be governed by Section 203 of the
Delaware General Corporation Law. The provisions of Section 203 of the Delaware
General Corporation Law may have a depressive effect on the market price of the
Common Stock because they could impede any merger, consolidating takeover or
other business combination involving the Company or discourage a potential
acquiror from making a tender offer or otherwise attempting to obtain control of
the Company. See "Description of Securities."
RISKS ASSOCIATED WITH ANTICIPATED INTERNATIONAL SALES
The Company intends to initially market its products in Europe, North
America, Israel and certain Asian countries. If it successfully markets its
products internationally, the Company will be subject to the risks inherent in
international business activities, including unexpected changes in regulatory
requirements and the burdens of complying with a wide variety of laws and
regulations. Moreover, if for any reason exchange or price controls or other
restrictions on the conversion of foreign currencies were imposed, the Company's
business could be materially adversely affected.
RISKS ASSOCIATED WITH OPERATIONS IN ISRAEL
The Company's principal executive offices and research and development
facilities are located in the State of Israel and are directly affected by the
economic, military and political conditions in that country. For information
with respect to certain factors concerning the State of Israel, including risks
related to the political and economic situation, see "Business--Conditions in
Israel."
RESTRICTIONS OF ISRAELI GOVERNMENT FUNDING FOR RESEARCH AND DEVELOPMENT
Ambient Israel has received from the Office of the Chief Scientist of
the Israeli Ministry of Industry & Trade (the "OCS") certain research and
development grants in the amount of $95,976. As a condition to its participation
in the funding program of the OCS, Ambient Israel may not transfer the
technologies developed using such funds out of Israel without the consent of the
OCS. Ambient Israel is also obligated to pay a specified level of royalties on
sales of products developed using such grants. Moreover, OCS grant programs as
are currently in effect require the Company to comply with various conditions in
order for Ambient Israel to continue to be eligible for participation. The
Company anticipates that for so long as such grants continue to be available,
Ambient Israel will likely seek from time to time to utilize such grants. No
assurance can be given, however, that the Company's participation will so
continue or that the programs, or their current conditions of participation and
eligibility, will be maintained in their current form or at all. See
"Business--Research and Development."
SERVICE OF PROCESS AND ENFORCEMENT OF JUDGMENTS
Service of process upon directors and officers of the Company, all of
whom reside outside the United States, may be difficult to obtain within the
United States. Furthermore, since substantially all of the Company's and such
persons' assets are located outside the United States, any judgment obtained in
the United States against the Company or such persons may not be collectible
within the United States.
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The Company has been informed by its Israeli legal counsel that, in
such counsel's opinion, there is doubt as to the enforceability of civil
liabilities under the Securities Act and the Exchange Act, in original actions
instituted in Israel. However, subject to certain limitations, Israeli courts
may enforce United States final executory judgments for liquidated amounts in
civil matters, obtained after a trial before a court of competent jurisdiction
(according to the rules of private international law currently prevailing in
Israel) which enforce similar Israeli judgments, provided that (i) due service
of process has been effected, (ii) such judgments or the enforcement thereof are
not contrary to the law, public policy, security or sovereignty of the State of
Israel, (iii) such judgments were not obtained by fraud and do not conflict with
any other valid judgments in the same matter between the same parties and (iv)
an action between the same parties in the same matter is not pending in any
Israeli court at the time the lawsuit is instituted in the foreign court. The
Company and its executive officers and directors have appointed Baer Marks &
Upham LLP as its agent to receive service of process in any action against the
Company in any federal or state court in the State of New York.
Foreign judgments enforced by Israeli courts generally will be payable
in Israeli currency, and a specific permit of the Controller of Foreign Exchange
will be required to convert the Israeli currency into dollars and to transfer
such dollars out of Israel. Judgment creditors must bear the risk that they will
be unable to convert their award into foreign currency that can be transferred
out of Israel and the risk of unfavorable exchange rates.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," "plans" and words of similar import, constitute
"forward-looking statements." Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or the industry to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: prospects for the smart card industry; market
acceptance of the Ambient technology and products; the Company's success in
penetrating the market; competition; changes in the Company's business strategy
or development plans; the loss of key personnel; patent protection; the
availability of capital; general economic and business conditions; and other
factors referenced in this Prospectus, including, without limitation, under the
captions "Prospectus Summary," "Risk Factors," "Plan of Operations" and
"Business." Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
results of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered
hereby (after deducting underwriting discounts and commissions and other
expenses of the Offering), are estimated to be approximately $3,209,000
($3,758,000 if the Over-allotment Option is exercised in full). The Company
expects to use the net proceeds in approximately the manner set forth in the
following table:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Application of Proceeds Dollar Amount Net Proceeds
- ----------------------- ------------- -------------
<S> <C> <C>
Marketing (1)................................................... $350,000 10.91%
Additional Facilities (2)....................................... 20,000 .62%
Research and Product
Development (3)............................................. 594,000 18.51%
Repayment of Indebtedness (4)................................... 1,495,000 46.59%
Capital Equipment (5)........................................... 100,000 3.12%
Working Capital and General
Corporate Purposes.......................................... 650,000 20.25%
----------- --------
Total..................................................... $3,209,000 100.00%
========== =======
</TABLE>
- ----------------
(1) Represents (i) salaries for the Company's recently appointed sales and
marketing director and the up to three additional full-time sales and
marketing personnel the Company intends to hire, and (ii) expenses
associated with the Company's anticipated participation in trade show
exhibitions.
(2) Represents estimated costs associated with leasing and operating a
manufacturing facility for the Company's planned small scale production of
Ambient smart card reader/writer terminals.
(3) Represents (i) salaries for 13 existing research and development personnel
and up to seven additional research and development personnel; and (ii)
costs associated with retaining subcontractors to assist in the design and
development of the proposed Ambient ASIC.
(4) Includes: (i) $968,000 for the repayment of principal on the promissory
note issued in the Debt Financing (as defined herein); (ii) $122,400 for
repayment of principal and accrued interest (8% per annum) on a certain
loan to the Company due upon the consummation of this Offering; and (iii)
$404,600 for repayment of principal and estimated interest on notes issued
in September and October 1997 in connection with the Company's 1997 Private
Placement (as defined herein). See "Plan of Operation" and "Description of
Securities--Prior Financings."
(5) Represents costs associated with leasing or buying additional computers and
the additional machinery required to commence the Company's planned
small-scale production operations.
-21-
<PAGE>
<PAGE>
If the Underwriter exercises the Over-allotment Option in full, the
Company will realize additional net proceeds of approximately $549,000, which
will be added to the Company's working capital.
The Company anticipates, based on currently proposed plans and
assumptions relating to its operations, that the net proceeds of this Offering,
together with its projected cash flow from operations, if any, will be
sufficient to satisfy the Company's contemplated cash requirements for
approximately 12 to 18 months following the closing date of this Offering. In
the event that the Company's plans change or its assumptions change or prove to
be inaccurate or if the net proceeds of this Offering or the Company's projected
cash flow prove to be insufficient to fund operations (due to unanticipated
expenses, manufacturing problems, marketing difficulties or otherwise), the
Company may find it necessary or advisable to reallocate some of the proceeds
within the above-described categories, or to use portions of the net proceeds
for other purposes or may be required to seek additional financing or curtail
its operations. The Company has no current arrangements with respect to, or
sources of, additional financing and it is not anticipated that existing
stockholders will provide any portion of the Company's future financing
requirements. There can be no assurance that any such additional financing will
be available to the Company on commercially reasonable terms, or at all. Any
inability to obtain additional financing when needed would have a material
adverse effect on the Company, requiring it to curtail or possibly cease
operations. See "Risk Factors--Need for Substantial Additional Funds;
Uncertainty of Additional Financing" and "Plan of Operation."
The Company may use all or a portion of the $650,000, or 20.25% of the
net proceeds from the Offering allocated to working capital, to acquire all or a
portion of existing companies in businesses which the Company believes are
compatible with its business including, but not limited to, competitors of the
Company. Any decision to make an acquisition will be based upon a variety of
factors, including, among others, the purchase price and other financial terms
of the transaction, the business prospects and competitive position of and the
nature of any formulations, designs or products and the extent to which any
acquisition would enhance the Company's prospects. The Company is not currently
engaged in identifying any potential acquisition and has no plans, agreements,
understandings or arrangements for any acquisitions. There can be no assurance
that the Company will be able to successfully consummate any acquisition or, if
it does, that it will successfully integrate into its business any acquired
product or business. See "Risk Factors--Risks Associated with Proposed
Expansion."
Pending utilization of the net proceeds of the Offering, the Company
may make temporary investments, in among other things, bank certificates of
deposit, interest-bearing investments, prime commercial paper, United States
government obligations, or money-market funds.
DIVIDEND POLICY
To date, the Company has not paid any cash dividends on its Common
Stock. The payment of future cash dividends, if any, is within the discretion of
the Board of Directors and will depend upon the Company's earnings, if any,
capital requirements and financial condition and other relevant factors. The
Board does not intend to declare any cash or other dividends in the foreseeable
future, rather it intends to retain future earnings, if any, to provide for the
operation and expansion of the Company's business. See "Plan of Operation."
-22-
<PAGE>
<PAGE>
DILUTION
At September 30, 1997, the negative net tangible book value of the
Company was $(1,442,233) or $(0.60) per share of Common Stock based on 2,419,333
shares of Common Stock issued and outstanding. After giving effect to the sale
of 600,000 shares of Common Stock offered by the Company hereby (less broker
commissions and estimated expenses of the Offering and the application of the
estimated net proceeds therefrom), the pro forma as adjusted net tangible book
value of the Company at September 30, 1997 would have been $1,766,767, or $0.59
per share, based on 3,019,333 shares, representing an immediate increase in net
tangible book value of $1.19 per share to existing stockholders and an immediate
dilution of $6.41 per share (91.6%) to the purchasers of Common Stock in the
Offering.
The difference between the public offering price per share of Common
Stock and the net tangible book value per share of Common Stock after the
Offering constitutes the dilution per share of Common Stock to investors in the
Offering. Net tangible book value per share of Common Stock on any given date is
determined by dividing the net tangible book value of the Company (total
tangible assets less total liabilities) on such date by the number of
outstanding shares of Common Stock.
The following table illustrates the dilution to the purchasers of
Common Stock in the Offering on a per-share basis:
<TABLE>
<S> <C> <C>
Offering price............................................................................ $7.00
Net tangible book value before the Offering.....................................$(0.60)
Increase attributable to new investors...........................................$1.19
Pro forma as adjusted net tangible book value after the Offering.......................... $0.59
Dilution to new investors................................................................. $6.41
====
</TABLE>
The following table summarizes as of September 30, 1997, the total
consideration paid and the average price per share of Common Stock paid by
existing stockholders and by purchasers of Common Stock in the Offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------------- -----------------------------
Average
Price
Amount Percentage Amount Percentage Per Share
--------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders 2,419,333(1) 80.1% $ 733,001(1) 14.9% $0.30
New Investors 600,000 19.9% 4,200,000 85.1% 7.00
--------- ----- --------- -----
Total 3,019,333 100.0% $4,933,001 100.0%
========= ====== ========= ======
</TABLE>
- -----------------------
(1) Includes 20,000 shares of Common Stock issued in October 1997 as part of the
Company's 1997 Private Placement.
-23-
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, and as adjusted to reflect the issuance and sale of the
Shares offered hereby and the application of the estimated $3,209,000 of net
proceeds therefrom, after deducting underwriting discounts and commissions, the
non-accountable expense allowance, the financial consulting fees payable to the
Underwriter and the estimated expenses of the Offering payable by the Company,
and the application of $1,390,400 of such proceeds to repay certain
indebtedness. This table should be read in conjunction with the consolidated
financial statements and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
September 30, 1997
----------------------------------------
(unaudited)
Actual As Adjusted
--------- ----------
<S> <C> <C>
Short-term loans and current portion of long-term loans. $ 34,913 $ 34,913
=========== ==========
Long-term debt.......................................... 1,514,441 124,041
--------- ----------
Stockholders' equity (deficit):
Common Stock, $0.001 par value;
20,000,000 shares authorized;
2,419,333(1) shares issued and
outstanding; 3,019,333 shares issued and outstanding
as adjusted........................................... 2,399 3,019
Additional paid-in capital............................ 650,602 3,938,982
Deferred compensation................................. (305,557) (305,557)
Accumulated deficit................................... (1,549,677) (1,549,677)
--------- ---------
Total stockholders' equity (deficit)............. (1,202,233) 2,086,767
--------- ---------
Total capitalization....................... $ 312,208 $2,210,808
========= =========
</TABLE>
- -----------------------
(1) Includes 20,000 shares of Common Stock issued in October 1997 as part of
Company's 1997 Private Placement. See "Description of Securities--Prior
Financings."
-24-
<PAGE>
<PAGE>
PLAN OF OPERATION
The Company is a development stage company. Since inception in June
1996, the Company's activities have been principally limited to organizational
and initial capitalization activities, designing and developing smart card
technology and recruitment of executive personnel. As a development stage
company, the Company has a limited relevant operating history upon which an
evaluation of the Company's prospects can be made. The Company's prospects must
therefore be evaluated in light of the problems, expenses, delays and
complications associated with a new business. See "Business."
The Company has not generated any revenues from operations. For the
period from its inception to September 30, 1997, the Company has incurred net
losses aggregating approximately $1,549,677, reflecting principally research and
development expenses and general and administrative expenses. The Company
expects to incur significant up-front expenditures in connection with the
expansion of its operations, including the implementation of marketing and sales
efforts and the commercialization of the Company's technology, and operating
losses are expected to continue for the foreseeable future. There can be no
assurance that the Company can be operated profitably in the future. The
Company's independent auditors included an explanatory paragraph in their report
dated May 8, 1997, indicating that there is substantial doubt regarding the
Company's ability to continue as a going concern. The Company's continuation as
a going-concern is dependent upon its ability to obtain additional financing,
including from this Offering, and to generate sufficient cash flow to meet its
obligations on a timely basis. See "Risk Factors--Development Stage Company;
History of Operating Losses; Accumulated Deficit; Working Capital Deficiency; No
Revenues To Date; Uncertainty of Future Profitability," "--Explanatory Paragraph
in Independent Auditors' Report" and the Consolidated Financial Statements.
The Company's marketing activity to date has consisted of formulating a
marketing strategy. The Company's strategy focuses initially on approaching and
establishing relationships with large and mid-sized system integrators already
established in the smart card market, as well as those integrators involved in
ancillary markets such as health care, access control, and transport ticketing.
The Company also intends to target potential volume customers. The Company
recently hired a marketing and sales director and plans to hire two to three
additional full-time marketing and sales personnel after the Offering. In an
effort to promote recognition of the Ambient name within the industry, the
Company plans to exhibit its technology at selected industry trade shows, such
as Card Tech/Secure Tech in the United States and Cartes 97 in France, and
design and distribute marketing materials. The Company also plans to launch and
publicize pilot projects to demonstrate the benefits of the Ambient system. In
connection with the Ashdod Project, the Company commenced the installation of
terminals at a public school in Ashdod, where the Company plans to launch its
first pilot project to demonstrate Ambient's technology. The Company is
incurring substantially all of the costs associated with the Ashdod Project. As
of September 30, 1997, the Company incurred $7,500 in connection with the Ashdod
Project and the Company expects to incur additional expenses of approximately
$3,000 in connection with the installation, design and operation of this
system. The Company has not entered into any arrangements to design any
additional pilot projects. See "Use of Proceeds" and "Business."
The Company is dependent upon the proceeds of this Offering to
implement its business plans. The Company anticipates that the proceeds of the
Offering will be sufficient to satisfy the Company's contemplated cash
requirements for the next 12 to 18 months following the consummation of the
Offering, based upon the Company's present plans and certain assumptions
relating to general economic
-25-
<PAGE>
<PAGE>
and industry conditions, market factors, and the Company's future revenues and
expenditures. If any of these factors change or the Company's assumptions change
or prove to be incorrect, the Company will be required to raise additional funds
during the next 12 to 18 months. The Company intends, in any event, to seek
additional financing following the completion of this Offering. The Company has
no present intention, agreement, understanding or commitment with respect to any
such financing. Any inability to obtain additional financing when needed would
have a material adverse effect on the Company, requiring it to curtail or
possibly cease operations. See "Risk Factors--Need For Substantial Additional
Funds; Uncertainty of Additional Financing."
As of September 30, 1997, the Company had an aggregate of approximately
$9,132 outstanding on a loan from Bank Leumi, for which principal payments are
due in various installments through June 1998. This loan is linked to the
Israeli Consumer Price Index, bears interest at a rate of 4.65% per annum and is
secured by a motor vehicle owned by the Company. The Company also has a $30,000
line of credit with The First International Bank of Israel for which the Company
has agreed to maintain a restricted compensating balance of $30,000. As of
September 30, 1997, the amount of credit utilized was not material. The Company
does not currently have any alternative sources of credit or capital financing.
As of September 30, 1997, the Company had a working capital deficit of
$92,705. Since inception, the Company has relied, for its capital requirements,
solely on the Debt Financing (as defined herein), government funding from the
State of Israel, bank loans, a loan from a third party during the second quarter
of 1997 in the principal amount of $120,000 which bears interest at 8% per
annum, stockholder loans in the aggregate principal amount of $25,781 (of which
$12,042 was repaid during the fourth quarter of 1997) and the 1997 Private
Placement. See "Risk Factors--Restrictions of Israeli Government Funding for
Research and Development," "Business--Research and Development," "Use of
Proceeds," "Description of Securities--Prior Financings" and "Certain
Relationships and Related Transactions."
The Company's product development is centralized out of Ambient
Israel's facilities in Israel. During the next 12 months, the Company plans to
utilize approximately $100,000 of the net proceeds hereof for capital
expenditures to purchase additional equipment for the planned small scale
production of Ambient smart card terminals.
The Company requires the net proceeds of this Offering to continue its
product development efforts and to commence initial marketing of its smart card
technology. To date, the Company has expended approximately $407,000 on its
research and development activities, and plans to spend approximately $594,000
of the net proceeds of the Offering to continue such activities. Over the next
12 months, the Company plans to spend approximately $350,000 of the Offering
proceeds on marketing related activities. See "Use of Proceeds" and
"Business--Research and Development" and "--Sales and Marketing."
The Company currently has 20 full-time and part-time employees, and
depending on its level of business activity, expects to hire up to 10 additional
employees in the next 12 months, including marketing and sales, research and
development, customer support, and administrative personnel. The Company has
allocated approximately $_______ of the net proceeds of this Offering for the
recruitment and related payroll expenses for approximately 10 additional
employees over the next 12-month period. See "Risk Factors--Proposed Expansion"
and "Use of Proceeds."
-26-
<PAGE>
<PAGE>
BUSINESS
Ambient Corporation, a development stage company, was founded in June
1996 to design and develop advanced smart card interface technology. A smart
card is a credit card-sized, plastic card equipped with an IC that contains a
memory and, in its more evolved form, a microprocessor, or a "mini-computer,"
that stores and transfers information in electronic form. Smart cards are used
in a variety of applications including (i) access to restricted areas (replacing
keys and identification cards), (ii) public transportation fare collection
(replacing tokens and tickets), (iii) point of sale purchases (replacing cash or
credit cards at cafeterias, newsstands and related point of sale locations where
speed of purchase is important), (iv) vending machines, (v) public telephones,
(vi) industrial applications such as quality control, warehousing, inventory
control, distribution and warranty, and (vii) health care (replacing patients'
paper files in hospitals and HMOs). In 1996, the Company filed patent
applications in the United States and Israel covering its smart card interface
design and terminal architecture. Ambient has not generated any revenues. In
September 1997, the Company commenced the installation of smart card terminals
at a public school in Israel where the Company plans to lunch the Ashdod Project
to demonstrate Ambient's technology.
The Company is developing a contactless interface technology for
multi-purpose smart cards that will be capable of storing and transferring large
amounts of data in a secure environment at costs similar to typical
contact-based systems. Existing smart cards depend largely on "contact"
technology, requiring the card to be inserted into a terminal where a receptor
clamps down on the card making precise contact with an exposed metal plate on
the card's surface creating a metal-to-metal electrical connection. Due to the
disadvantages inherent in requiring contact for the transfer of information in
many applications, such as slow transaction time and high terminal and card
maintenance costs, the industry has produced "contactless" smart card
technology, where information is transferred electronically without the need for
metal-to-metal contact. Contactless smart cards currently on the market utilize
inductive coupling (commonly known as "radio frequency" radiation) to transfer
information. This technology creates several disadvantages, such as the
potential security hazard of data interception by scanners, the lack of ease of
use, since the card often must be carefully positioned over a terminal antenna
at a certain angle, power limitations and environmental emissions. The Company's
technology is not based on "radio frequency" radiation; rather, it relies on
capacitive close coupling. Capacitive close coupling allows for a
closed-circuit, high energy, rapid data rate connection between the card and the
terminal within a two millimeter range. Ambient technology enables the
transmission of both data and energy over the same capacitive pads (one pad is
located in each of the card and the terminal) at high rates of speed and
accuracy. The Company believes that its technology will provide the following
advantages over existing contact-based and contactless smart card systems: high
security, quicker transaction time and low terminal maintenance due to the
absence of moving parts, long card life due to rugged construction and low
wear-and-tear, significantly higher levels of power and significant memory
capability allowing for multi-purpose applications.
The Company's dual goal is to become a licensor of smart card
technology and a vendor of smart card systems. The Company's business strategy
is: (i) to launch pilot projects that exhibit the benefits of the Ambient
systems; (ii) to form strategic alliances with systems integrators, as well as
individual IC, smart card and terminal manufacturers who in turn can incorporate
Ambient contactless interface technology into the overall design of their smart
card products; and (iii) to integrate its own smart card systems that utilize
Ambient's contactless interface technology that it can market directly to
end-users.
-27-
<PAGE>
<PAGE>
The Company is currently preparing to launch the Ashdod Project in the
city of Ashdod, Israel, which has a population of approximately 150,000 people.
Ashdod is considering a resident smart card system for its citizenry and is
initially installing Ambient smart card terminals in the city's largest public
school of approximately 2,000 students and staff members. The Ambient smart
cards will function as the medium for payment at the school's vending machines,
cafeterias, copiers and similar outlets, as well as act as passes for
transportation, the library and access to buildings and a mechanism for tracking
attendance.
INDUSTRY BACKGROUND
There are two basic types of smart cards, memory cards and
microprocessor cards, each of which can interface between the smart card and a
terminal on a contact or contactless basis. Memory cards are typically used to
store and retrieve information only and do not have the capability of performing
complex processing of information. Microprocessor cards are truly "smart" cards
in that they contain a central processing unit within a chip which can perform a
number of functions, including complex arithmetic operations required for
security. Current smart card technology is based largely on contact cards and,
to a lesser extent, contactless cards that utilize radio frequencies to transfer
data. The Company is developing what it believes to be next generation, close
coupling contactless interface technology for microprocessor cards.
In excess of 90% of all smart cards sold in 1995 were memory cards with
contact interfaces used as disposable phone cards. Contact technology requires
the card to be inserted into a terminal where a receptor clamps down on the card
making precise contact with an exposed metal plate on the card's surface.
Contact cards present several inherent disadvantages including long transaction
times, relatively short card life due to corrosion of exposed metal and damage
to the metal from physical abuse, such as being sat upon or housed in an
over-stuffed wallet. There is also the potential for expensive terminal
maintenance due to moving clamps and other parts. While contact smart cards have
found broad use in high volume, cost sensitive applications such as public
telephones, these cards are, in general, cumbersome and not user-friendly and
systems using contact smart cards are expensive to maintain, less reliable and
are too slow for many applications such as transportation. In the early 1990s,
several companies developed various "contactless" smart cards, where information
is transferred electronically without the need for metal-to-metal contact.
Contactless smart cards currently on the market utilize radio frequencies to
transfer information, creating the potential security hazard of data
interception. Other disadvantages include the lack of ease of use, since the
card often must be carefully positioned over a terminal antenna at a certain
angle, power limitations and environmental emissions. In response to these
limitations, the Company is developing its close coupling, contactless interface
technology for smart cards that will be capable of storing and transferring
large amounts of data in a secure environment at costs similar to typical
contact-based systems. The Company believes that its technology will provide the
following advantages over existing smart card systems: high security,
significant memory capability, long card life due to rugged construction and low
wear-and-tear, significantly higher levels of power, quicker transaction time
and low terminal maintenance due to the absence of moving parts. See
"--Proprietary Information."
There are several levels of smart cards utilized for different
applications. The "dumb" smart card is simply a memory card with some hard wired
logic, and can only be loaded with information one time. The next level is a
memory card with a simple controller upon which information can be recorded and
erased many times. This memory is usually in the form of EEPROM, which can be
written on and erased many times, or the more advanced flash memory products
being developed by
-28-
<PAGE>
<PAGE>
companies such as Sandisk Israel Ltd., Intel Corporation Inc., M-Systems Ltd.,
and others. The heart of the truly smart card is a microprocessor with EEPROM
memory that is contained within the IC. Such a smart card acts as a
mini-computer, without a monitor or keyboard. This type of IC is produced by a
relatively small number of chip makers. The five principal chip manufacturers
comprise approximately 70% of the market. See "Risk Factors--Dependence on
Manufacturers and Suppliers." The Company intends to engage subcontractors to
produce initially an Application Specific Integrated Circuit ("ASIC") of its
contactless interface technology which will be integrated in a multi-chip
solution with various microprocessor and memory modules. The next stage of the
company's development will be to create a product line of one-chip solutions,
combining on one piece of silicon the analog interface of Ambient, along with
various levels of memory and microprocessors.
BUSINESS STRATEGY
Initially, the Company plans to target its marketing efforts on "niche"
markets that require the storage and transfer of large quantities of
information, as well as security protocols and have a preference for contactless
solutions, but cannot, for various reasons, use radio frequency cards. The
Company has identified the health care, vending systems and high security access
control markets for initial entry. The Company intends to target users of
existing contact-based smart cards that it believes could benefit from switching
to Ambient's contactless system.
In order to gain access to these markets, the Company intends to enter
into strategic relationships with system integrators, as well as individual IC,
terminal and card manufacturers, that could integrate the Ambient contactless
close coupling interface technology with their product for joint marketing and
distribution of smart card systems that use Ambient technology.
To create a market presence, the Company intends to launch pilot
projects that exhibit to the public the benefits of the Ambient systems, such as
the Ashdod Project, which is scheduled to begin in late November 1997. In
addition to Ashdod, the Company intends to enter into discussions with other
municipalities and governmental authorities in Israel and elsewhere in an effort
to implement additional pilot projects. There can be no assurance that the
Company will launch any additional pilot projects. In addition to demonstrating
its technology, the Company believes that pilot projects will serve to provide
it with valuable feedback on its technology, enabling the Company to fine-tune
its systems prior to commercial marketing and application. See "Plan of
Operation" and "--Pilot Projects: Ashdod."
THE AMBIENT SYSTEM
Ambient's principal product is a smart card interface for transmitting
energy and data between the terminal and the smart card. The energy and data
transmission is galvanically contactless utilizing capacitive technology.
Capacitive transfer technology is the result of placing plates of conductive
material both on the card, which are covered in plastic, and in the terminal
that act as a virtual capacitor when coming in close range of each other (i.e.,
two millimeters). The Company believes that the Ambient technology will provide
a reliable close coupling solution for contactless cards, combining the best
attributes of both traditional contact cards and radio frequency contactless
cards. The Ambient technology is designed to enable the construction of a
rugged, high energy, high memory, true multi-application smart card.
-29-
<PAGE>
<PAGE>
Smart cards utilizing the Ambient technology are being designed to have
robust functionality without the security handicaps of radio frequency cards and
the mechanical liabilities of contact cards. The Ambient system is being
designed to be easily integrated with existing technology and easily adapted to
any of the current IC smart cards. Moreover, Ambient's platform is designed to
handle the energy requirements of future generations of smart card
microprocessors and memory chips.
The Ambient smart card system consists of smart cards and terminals
that can be configured utilizing three different transaction methods:
Insertion -- this method, much like traditional contact cards and
ATM terminals, allows Ambient's smart cards to be inserted into a
terminal, while maintaining the advantage of significantly lower
terminal maintenance due to the absence of electrical contact and
moving parts within the terminal.
Flat Reading -- this design allows the card to simply be placed
on a reader/writer terminal.
Swiping-- this method contains a swiping terminal allowing the
Ambient smart card to be swiped in substantially the same manner
as the standard magnetic credit card reader, except that the
Ambient card can be swiped through the terminal in any manner at
any speed, still creating a capacitive connection. This
transaction method significantly reduces the error rate to almost
zero, since end-users will simply swipe the cards through the
terminals. This method will also allow Ambient to enter the
market without substantial consumer education since the swiping
mechanism is already commonly used for various day-to-day
transactions.
The Company believes that the following features of the Ambient system
provide it with significant advantages over existing smart cards:
Security. As a result of the low amounts of energy capable of
being transmitted through the radio waves, existing radio
frequency contactless cards have limited memory capacity and lack
internal microcomputers. As a consequence, many of these cards
are not capable of offering high level security protocols. The
transmission of sensitive financial and personal information via
radio frequency is therefore subject to security leaks since the
transmitted information can be intercepted or forged by a simple
scanner. Ambient's capacitive information transfer method
contains substantial physical security prohibiting data from
being "leaked" or "listened to," which is critical for certain
applications, such as health care and electronic commerce. This
security is built into the hardware technology itself, as the
connection between the card and terminal is a closed circuit, and
attempts to listen in to the dialogue will cause the connection
to be broken immediately.
Memory capabilities. Ambient's capacitive power transfer method
allows for significant memory expansion possibilities. Existing
radio frequency cards supply up to several kilobytes of EEPROM
memory; Ambient technology can supply up to 20 megabytes of on
board EEPROM memory. Ambient is currently developing flash memory
products of up to two megabytes that can fit into an ISO 7816
smart card. Memory
-30-
<PAGE>
<PAGE>
capacity is a critical element in enabling smart cards to store
large amounts of various data and be utilized as a
multi-application tool.
Rugged Construction. Existing microprocessor cards utilize
standard "8-pin" contact technology, meaning that with every
transaction, an electrical connection must be made between the
card and the terminal. This requirement for a metal-to-metal
connection is the basis for the substantial disadvantages in the
standard contact smart card technology. Industry estimates view
the life span of a standard contact card at 10,000 insertions,
not including damage from regular wear and tear, corrosion from
contact with moisture and physical damage from being sat on,
played with or otherwise physically abused. Ambient cards will
not contain any exposed parts as the whole card will be encased
in plastic, thereby substantially reducing exposure to the wear
and tear of everyday life. The Ambient smart card's rugged
construction guarantees a longer card life, which lowers overall
costs. This feature is especially significant considering the
introduction of multi-application cards, which, it is
anticipated, will be used with higher frequencies and therefore
exposed to significantly more damage-inducing elements.
Low terminal maintenance. Unlike standard contact terminals,
Ambient's reader/writer terminals will not contain any moving
parts or exposed electrical connections, which, it is expected,
will result in lower maintenance costs, virtually trouble and
vandalism free terminals, as well as the system's ability to
withstand exposure from the environmental elements. The ability
to leave the smart card terminal exposed to the elements is
especially critical for vending, access control, public
telephones and other outdoor applications.
Faster throughput. The Company anticipates that Ambient's
terminals will be available in a variety of configurations
including swiping and flat reading. These configurations reduce
transaction times, allowing each terminal to be used by a larger
number of people per hour. Contact systems require longer
transaction time since the card has to be inserted into the
terminal and direct contact achieved. The time factor is critical
for many applications that require quick transaction time, such
as public transportation and toll roads.
Environmental considerations. Little or no harmful radiation is
emitted into the environment during transactions using the
Ambient system. Radio frequency systems depend on spread
spectrums that emanate from the terminals at all times, which
means that radio waves are being continuously emitted from the
device. This emission can lead to harmful radiation effects to
the environment, as well as interference with surrounding devices
that are sensitive to radio frequency waves.
PROPOSED AMBIENT SMART CARDS
The Company intends to produce and market, along with strategic
partners, three types of contactless smart cards: the Standard Card, the Secure
Card and the Mega Card. As currently planned, each card will have two capacitive
plates embedded on both sides to act as receivers and transmitters of energy and
data between the card and reader/writer terminal, which terminal will be
equipped with similar plates. These plates will be completely covered and sealed
in plastic, resulting in a card without
-31-
<PAGE>
<PAGE>
any exposed metal or galvanic electrical contact points. This configuration
enables the card to be utilized in a high-speed swiping mechanism, as well as
flat reading and insertion. The cards will be hermetically sealed with durable
plastic lamination.
The Ambient Standard Card -- The Ambient Standard Card will target all
existing smart card applications with a special emphasis on access
control, mass transit and vending applications. Mass transit and access
control system managers are frequently required to choose between the
slower throughput of traditional contact cards, or the lower security
and unreliability of radio frequency contactless cards. The Ambient
smart card is designed to offer quick throughput, high reliability and
security. The Ambient contactless interface operates with swiping
technology which has been proven by credit card and metro users to be a
reliable and rapid means of executing a transaction. The standard card
will contain limited memory and processing power and will emphasize low
cost and ease of use.
The Ambient Secure Card -- The Ambient Secure Card will incorporate all
the features of the Ambient Standard Card with additional security
provided by an on board crypto controller responsible for the
encryption of data. The combination of an onboard central processing
unit ("CPU"), which allows for high-level security programs to be run
directly on the card, a crypto controller and the absence of radiation
and data leakage produces what the Company believes will be the most
secure contactless smart card available. This card will be targeted for
high security applications such as access to sensitive installations,
electronic banking, high value monetary transactions and confidential
data storage.
The Ambient Mega Card -- The Ambient Mega Card will combine the
security of the Ambient Secure Card with memory capacity of at least
0.5 megabytes of flash memory. This combination will offer currently
unavailable options for secure data storage applications. The Mega Card
will be targeted for applications such as the health care industry. A
holder will be able to carry around in a wallet all of his medical
insurance information combined with his full medical history,
including, depending on the card's memory capacity, x-rays, lab
results, allergies, medicine sensitivities, previous illnesses and
operations, E.K.G. results and any other vital information. The card's
significant memory capacity (dependent upon memory chip size) will
provide adequate storage for each application, from transportation, to
electronic commerce, to health care, achieving a true multi-purpose
card.
The Ambient card will conform to the mechanical criteria laid out in
ISO 7816-1 and ISO 10536, which are international standards regarding physical
dimensions and flexibility of the card itself. The system will not comply with
sections of ISO 7816 relevant to contact technology, such as positioning and
dimensions of the contact itself, as they are not relevant to the Ambient card.
PILOT PROJECTS: ASHDOD
The Company is preparing to launch the Ashdod Project in November 1997.
Ashdod has a population of 150,000 people and is considering a resident smart
card system for its citizenry. The city, initially, plans to install Ambient
smart card terminals and distribute Ambient smart cards in the city's largest
public school of approximately 2,000 students and staff members. The Ambient
smart cards will function as the medium for payment at the school's vending
machines, cafeterias, copiers and similar outlets, as well as act as passes for
transportation, the library and access to buildings and a mechanism to track
school attendance. In September 1997, the Company commenced the installation of
the
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terminals at the public school. The Company is incurring substantially all of
the costs associated with the Ashdod Project. As of September 30, 1997, the
Company incurred expenses of $7,500 in connection with the Ashdod Project and
the Company expects to incur additional expenses of approximately $3,000 in
connection with the installation, design and operation of this system.
The Company intends to engage in discussions with other municipalities
and governmental authorities in Israel and elsewhere to promote the
implementation of additional pilot projects. There can be no assurance that the
Company will be successful in these discussions or that any additional pilot
projects will be launched. See "Plan of Operation."
RESEARCH AND DEVELOPMENT
The Company's research and development activities are conducted
primarily in Israel through its subsidiary, Ambient Israel. The Company
currently has 13 full-time employees engaged in research and development.
The Company's research and development operations are conducted through
three main departments:
Electrical engineering -- The electrical engineering department is led
by Dr. George Kaplun and is responsible for designing and developing
Ambient's interface technology.
Mechanical Engineering -- Ambient's mechanical engineers have created
prototypes of the Ambient cards and terminals, and are laying the
groundwork for full volume production of the Ambient system.
Software development -- At present, Ambient's software programmers are
devoted to creating the basic communication drivers that allow
communication through the Ambient interface between the card and the
terminal. In addition this department is responsible for creating
development tools that will allow future partners to integrate
existing applications with the Ambient protocols.
The Company has made limited use of outside sub contractors from time
to time, and is in the process of selecting outside developers to assist in the
design and production of the proposed Ambient ASIC. The Company intends to use a
portion of the proceeds of this Offering to hire experienced subcontractors to
serve as project managers for chip design and production. See "Use of Proceeds."
The Company believes that there are several advantages to centering its
development efforts in Israel, including the potential for substantial
government assistance from one or more of Israel's numerous incentive programs,
the availability of skilled labor and significant potential tax relief. Since
the Company's inception, the Office of the Chief Scientist at the Ministry of
Industry and Trade (the "OCS") has granted the Company $95,976 for research and
development. Generally, in Jerusalem where Ambient Israel is located, grants
from OCS constitute up to 50% of certain research and development expenses for
the development of products intended for export. Under terms of the OCS's
participation, OCS is entitled to a royalty of 3% to 5% of the net sales of
products developed from a project funded by OCS, beginning with the commencement
of sales of products developed with grant funds and ending when 100% of the
grant is repaid. The terms of OCS participation also require that the
manufacture of products developed with government grants be forever performed in
Israel, even
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after all of the required royalty payments are made, unless a special approval
has been granted. Separate Government of Israel consent is required to transfer
to third parties technologies developed through projects in which the OCS
participates. The Company believes that these restrictions and obligations will
not have a material adverse effect on the operations of the Company since the
Company does not presently anticipate manufacturing its products outside of
Israel or transferring technology developed by it to third parties. Further,
such restrictions do not apply to exports from Israel of products developed with
such technologies. Additionally, OCS may not unreasonably withhold consent to
use less offensive third party manufacturing sites outside of Israel. See "Risk
Factors--Restrictions on Israeli Government Funding For Research and
Development."
For the period from July 1, 1996 (inception of operations) to December
31, 1996 and for the nine months ended September 30, 1997, the Company's
aggregate expenditures for research and development before amounts received
from OCS, were $406,612.
Following the completion of the Offering, the Company plans to expand
its research and development activities. The company intends to hire up to seven
additional employees for its research and development operations. Ambient has
allocated $594,000 of the net proceeds of this Offering for research and
development activities. See "Use of Proceeds."
SALES AND MARKETING; DISTRIBUTION
The Company intends to center its marketing and sales operations in
Jerusalem, and focus on those geographic areas where smart card acceptance is
already at a high level, such as Europe, Asia, and the Middle East. The Company
intends to focus initial marketing efforts on building recognition of the
Ambient system. Towards that end, the Company intends to engage, at the
Company's cost, in pilot projects in Israel and other locations to demonstrate
its technology and participate in trade show exhibitions. The Company intends to
enter the commercial market by bidding on smart card system projects. The
Company also intends to market itself to systems integrators active in smart
card projects, as well as individual IC, smart card and terminal manufacturers.
The Company recently hired a sales and marketing director. Upon
completion of the Offering, the Company intends to hire up to three additional
full-time sales and marketing associates. The Company intends to devote $200,000
of the net proceeds of this Offering to pay the salaries of existing and
additional sales and marketing personnel and to participate in trade shows to
exhibit Ambient technology. See "Use of Proceeds."
The Company plans to focus sales efforts initially on the following
industries:
Access control: The access control market consists of systems
integrators who, by contract, provide security control systems for
large buildings and other enclosures. Within the access control
market, there is a wide spectrum of potential users, ranging from
those entities requiring only limited security levels to those who
require high security. Ambient intends to cover this spectrum by
offering simple memory cards to the low end of the market and secure
cards to the high end of the market. Secure cards will require large
amounts of memory to handle biometric security and sophisticated
microprocessors for encryption.
Hotel services: Hotel service is an example of a niche market that can
benefit from a multiapplication card that can serve as a room key, a
stored value card for phones, vending
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machines and pay TV, an access control card for entry into hotel
buildings and many other potential applications. Ambient has commenced
discussions with a proposed hotel chain being developed in Israel, and
plans to continue to propose smart card systems to others within this
market.
Amusement parks: Ambient management believes there is a large volume
potential in stored value/access control cards for the amusement park
industry. This industry is currently largely dependent on paper and
coin money. Ambient management believes that large amusement and theme
parks will begin incorporating smart cards as "passports" to the
parks, capable of payment, allowing access into and out of the park
for one-day or multi-day passes, and allowing parents to grant freedom
to their children by purchasing cards for their use with cash limits
loaded directly onto the smart card.
Health care: There are two separate markets within health care for
smart cards, state and private health management organizations
("HMOs"), and individual hospitals. Within each of these markets, the
patient paper trail is costly, time consuming, and can even be life
threatening when an emergency situation arises and the patient's basic
medical data is needed immediately. With an Ambient system solution,
for example, in an HMO context, each member could be issued an Ambient
Standard Card containing all basic information such as blood type,
allergies, and other most recent vital statistics. In a hospital, each
admitted patient's paper records could be replaced by an Ambient Mega
Card, containing all patient care notes, test results, recent EKGs and
the like.
The Company also intends to focus sales and marketing efforts on the
transportation industry as well as, campus cards and multiapplication cards
suitable for city services and government benefits programs.
SUPPLIERS; MANUFACTURING AND ASSEMBLY
A smart card system consists essentially of the plastic card, within
which is embedded one or more silicon ICs, and the corresponding terminal. The
Company currently purchases ICs for its smart card systems in development from
Motorola Corporation Inc., National Semiconductor, Inc. and other manufacturers,
and purchases other components used in the assembly of its smart card systems,
such as the cards and the terminal components, from other key suppliers. While
the Company does not intend to produce ICs or cards itself (it intends to rely
on subcontractors for such manufacture), it does plan, depending on the
availability of funds, either from revenues or additional financing, of which
there can be no assurance, to establish one or more factories in Jerusalem and
other locations to produce Ambient sub-assemblies and, to a limited extent,
smart card terminals. It is currently anticipated that Ambient's subassembly
will include the IC, which will incorporate ROM, RAM and EEPROM or flash
memories, plus Ambient's proprietary capacitative data and energy
transmitter/receiver. At the proposed factories, the chip will be connected to
the capacitive plates to form self-contained micro modules. As completed, these
subassemblies will be sold to smart card manufacturers for incorporation into
their cards. In the event that the Company builds up large card volume, of which
there can be no assurance, Ambient plans to complete the card package itself.
See "Risk Factors--Dependence on Manufacturers and Suppliers" and "Use of
Proceeds."
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COMPETITION AND RAPIDLY CHANGING TECHNOLOGY
The market for smart card products is developing, intensely
competitive, quickly evolving and subject to rapid technological change.
Competitors may develop superior technology and products or products of similar
quality for sale at lower prices. Moreover, there can be no assurance that the
Company's smart card technology will not be rendered obsolete by changing
technology or new industry standards. The Company expects competition to persist
and increase in the future. The Company's currently anticipated and potential
competitors are primarily subsidiaries of multinational companies with
established contact card and contactless smart card businesses who have longer
operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than the
Company. This intense level of competition could materially adversely affect the
Company's business, operating results and financial condition. See "Risk
Factors--Competition" and "--New Products and Rapid Technological Change."
Competitive factors in the industry include transaction speed, the
extent and flexibility of smart card memory, security, reliability, transaction
accuracy and cost. There can be no assurance that the Company will be able to
compete successfully against currently anticipated or future competitors or that
competitive pressures will not materially adversely affect its business,
operating results and financial condition. Many of the Company's anticipated
competitors have the financial resources necessary to enable them to withstand
substantial price and product competition, which are expected to increase, and
to implement extensive advertising and promotional programs, both generally and
in response to efforts by other competitors to enter into existing markets or
introduce new products. The industry is also characterized by frequent
introductions of new products. The Company's ability to compete successfully
will be largely dependent on its ability to anticipate and respond to various
competitive factors affecting the smart card industry, including new products
which may be introduced, changes in customer preferences, demographic trends,
pricing strategies by competitors and consolidation in the industry where
smaller companies with leading edge technologies may be acquired by larger
multinational companies. See "Risk Factors--Competition."
Radio frequency contactless cards and standard contact cards, represent
the Company's primary competition. The Company believes that it will be able to
compete favorably with contact cards because the Company's contactless smart
cards (i) will operate at higher speeds, (ii) will not require the time and
effort involved in inserting the smart card into a terminal, (iii) will use
reliable electronics without moving parts, exposed contact points or magnetic
stripes that can be erased by a magnetic field, and (iv) are lower in cost over
the product life. The Company believes it will be able to compete favorably with
current radio frequency contactless smart cards because Ambient contactless
cards (i) will provide for the secure transfer of information that cannot be
achieved when data is transferred over radio frequencies which are not powerful
enough to sustain high level security protocols and can be intercepted with
scanners, (ii) will provide significant memory expansion capabilities, enabling
the Company to offer a true multi-purpose card, while radio frequency cards, by
their nature, can only supply a limited EEPROM memory, and (iii) will be
environmentally sound since, unlike radio frequency smart cards, radiation is
not emitted during a transaction or between transactions.
The Company believes that its main competitors over the next one to
three years will be primarily companies developing and marketing contactless
smartcards that depend on radio frequency radiation, such as Mikron GmbH, On
Track Innovations, Ltd., Motorola, and others. In addition, the Company expects
to compete with those contact card vendors who have vested interests in
continuing to produce and sell contact card systems by virtue of the fact that
these entities have invested large
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sums of money in contact card production machinery. See "Risk Factors --
Competition" and "--New Products and Rapid Technological Change."
PROPRIETARY INFORMATION
The Company relies on patents, trade secrets, trademarks, and
proprietary information and nondisclosure agreements to establish and protect
its proprietary rights in its technologies and planned products. Despite these
precautions, it may be possible for unauthorized third parties to utilize the
Company's technology or to obtain and use information that the Company regards
as proprietary. The laws of some foreign countries do not protect the Company's
proprietary rights in its processes and products to the same extent as the laws
of the United States.
The Company is seeking patent protection in the United States and
Israel relating to the electrical design of the card and the terminal. The
Company filed its first patent application in Israel in June 1996 and one
application in the United States in November 1996. As of the date of this
Prospectus, these patents are pending. With respect to certain of the Company's
proprietary technology, the former Chief Scientist of Ambient Israel is entitled
to receive royalties of 20% of the Company's net profits from sales of products
predominantly utilizing an electronic data communication system as described in
a certain patent application. The Company has not to date utilized this
technology in the development of Ambient systems and does not presently intend
to do so. See "Risk Factors--Royalty Payments," "Uncertain Ability to Protect
Patent-Pending Technology" and "Management."
The Company's competitive position is dependent upon protecting its
trade secrets. The Company has developed and is continuing to develop a
substantial database of information concerning its research and development and
has taken security measures to protect its data. However, trade secrets are
difficult to protect. In an effort to protect its trade secrets, the Company has
a policy of requiring its employees, consultants, and advisors to execute
proprietary information and non-disclosure agreements. These agreements provide
that all confidential information developed or made known to an individual
during the course of his relationship with the Company must be kept
confidential, except in specified circumstances. There can be no assurance,
however, that these agreements will provide meaningful protection for the
Company's trade secrets, know-how or other proprietary information in the event
of unauthorized use or disclosure of confidential information. See "Risk
Factors--Uncertain Protection of Proprietary Technology and Information."
The Company may be required to take legal action in order to defend
against or assert claims of patent infringement, to enforce patents or licenses
issued to the Company, to protect trade secrets or know-how owned by the
Company, or to determine the scope and validity of the proprietary rights of
others, and could result in substantial costs to and diversion of effort by, and
may have a material adverse impact on, the Company's financial condition or
results of operations. There can be no assurance that any legal action by the
Company will be successful. In addition, while the Company believes that its
planned products and technology do not infringe any valid patents of others,
there can be no assurance that third parties will not commence legal action
against the Company to enforce their alleged patent rights.
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CONDITIONS IN ISRAEL
The following information is intended to advise prospective investors
of certain conditions in Israel that could affect the Company.
Political Conditions
Since the establishment of the State of Israel in 1948, a state of
hostility existed, varying as to degree, among Israel and various Arab
countries. A peace agreement was signed between Israel and Egypt in 1979 and
limited relations have been established. A peace treaty with the Hashemite
Kingdom of Jordan was signed in 1995, ending the state of war along Israel's
longest border.
Since December 1987, civil unrest has existed in the territories which
came under Israel's control in 1967. In April 1994, negotiations between Israel
and the Palestine Liberation Organization resulted in the signing of an interim
agreement to grant Palestinian Arabs limited autonomy in certain of the
Territories administered by Israel. The interim agreement was followed by a
series of agreements and understandings expanding the areas subject to
autonomous administration. No prediction can be made as to whether a final
resolution of the area's problems will be achieved, as to the nature of any such
resolution or whether the civil unrest in the administered territories will
continue and to what extent the unrest will have an adverse impact on Israel's
economic development or on the operations of the Company in the future.
All adult male permanent residents of Israel under the age of 50 are,
unless exempt, obligated to perform up to 30 days of military reserve duty
annually. Additionally, all such residents are subject to being called to active
duty at any time under emergency circumstances. Many of the male employees of
the Company (including its President) are currently obligated to perform annual
reserve duty. While the Company has operated effectively under these
requirements in the past, no assessment can be made as to the full impact of
such requirements on the Company in the future, particularly if emergency
circumstances occur.
Certain countries and companies continue to participate in a boycott of
Israeli companies and others doing business in Israel or with Israel companies.
The Company does not believe that any such boycott will have a material adverse
impact on the Company's current or proposed operations.
Economic Conditions
Israel's economy has been subject to numerous de-stabilizing factors,
including a period of rampant inflation in the early to mid 1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and civil unrest. For these and associated reasons, the Israeli Government has
intervened in sectors of the Israeli economy, utilizing among other means,
fiscal and monetary policies, import duties, foreign currency restrictions and
control of wages, prices and exchange rates, and has frequently reversed or
modified its policies in all these areas. There can be no assurance that the
Israeli government will be successful in any attempts to keep prices and
exchange rates stable. To the extent that a significant portion of the Company's
business is conducted in Israel and any future revenues are collected in Israeli
shekels ("NIS"), price and exchange rate instability could have a material
adverse effect on the Company.
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Since the institution of the Israeli Economic Program in 1985, the rate
of inflation, while continuing, has been significantly reduced, and the rate of
devaluation has been substantially diminished. During the calendar years 1991
through 1996, the annual rates of inflation were approximately 18.0%, 9.4%,
11.2%, 14.4%, 8.1% and 10.8%, respectively. During the calendar years 1991
through 1996, Israel effected devaluations of the NIS in relation to the U.S.
dollar of approximately 11.5%, 21.1%, 8.0%, 1.1%, 3.9% and 3.7%, respectively.
Trade Agreements
Israel is a member of the United Nations, the international Monetary
Fund, the International Bank for Reconstruction & Development and the
International Finance Corporation. Israel is a signatory to the General
Agreement on Tariffs and Trade, which provides for reciprocal lowering of trade
barriers among its members.
Israel became associated with the European Union by an agreement
concluded in 1975 which confers certain advantages with respect to Israeli
exports to most of the European countries and obliges Israel to lower its
tariffs with respect to imports from those countries over a number of years.
In 1985, Israel and the United States entered into an agreement to
establish a Free Trade Area ("FTA"), that has resulted in the elimination of all
tariff barriers on most trade between the two countries. The FTA agreement with
the United States has also resulted in the elimination of certain non-tariff
barriers to trade between the two countries.
On January 1, 1993, an agreement between Israel and the European Free
Trade Association ("EFTA"), which presently includes Austria, Norway, Finland,
Sweden, Switzerland, Iceland and Liechtenstein, established a free-trade zone
between Israel and the EFTA nations. The agreement entitles the exporting
countries of EFTA trading with Israel to conditions similar to those which
Israel enjoys when trading with the United States. Under the agreement,
manufactured and some agricultural goods and processed foods are exempt from
customs duties, while duties on other goods have been reduced.
Israel has also recently entered into trade agreements with China and
India.
PROPERTIES
Ambient Israel currently leases approximately 2,691 square feet for its
executive offices and research and development facilities in Jerusalem, Israel,
at a monthly rental fee of approximately NIS 13,229, excluding VAT
(approximately $___________ as of ______________, 1997), linked to the Israeli
Consumer Price Index, plus maintenance fees, pursuant to a five-year lease.
The lease expires March 31, 2001 and the Company has an option to extend such
lease for an additional 59 months. Pursuant to certain provisions of the lease,
if Ambient Israel does not receive from the Israeli government "approved
enterprise" status, the Company will be subject to additional retroactive
payments for the period from January 1, 1997 through the date of such rejection,
as well as an increase in the rental fee on a going forward basis. The amounts
of the retroactive payments and increase in the rental fee are expected to be
immaterial. Ambient Israel has applied for "approved enterprise" status but
there can be no assurance that it will be granted.
EMPLOYEES
The Company presently has 20 full-time and part-time employees, of whom
13 are employed in research and development, two in sales and marketing, three
in management and two in administration.
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LEGAL PROCEEDINGS
The Company is not a party to any material litigation that would have a
material adverse effect on the Company or its business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the directors, executive officers and
key employees of the Company are as follows:
Name Age Position
- ---- --- --------
Jacob Davidson 28 Chairman of the Board, President, and
Chief Executive Officer
Dr. Yehuda Cern 54 Chief Technical Officer
Aryeh Weinberg 40 Chief Financial Officer
Elie Wurtman 28 Director and Secretary
Dr. George Kaplun 56 Senior Electrical Engineer
The business experience, principal occupations and employment, as well
as the periods of service, of each of the directors and executive officers of
the Company during at least the last five years are set forth below.
Jacob Davidson is a co-founder of the Company and has been Chairman of
the Board and Chief Executive Officer of the Company since its inception in June
1996. From 1991 to 1996, Mr. Davidson managed several high-tech start-up
companies in Israel, as a venture capitalist and as a management consultant.
In May 1995, Mr. Davidson co-founded Pioneer Management Corporation ("Pioneer")
and has served as an officer and director thereof since such date. In
May 1996, Mr. Davidson became a director of Delta Three Inc., an Internet
communications company ("Delta Three"). From _______________, Mr. Davidson was
employed by the law firm of Wolf Haldenstein Adler Freeman & Herz, where he
specialized in securities litigation. Mr. Davidson received a J.D. from
Georgetown University Law Center and received both a B.A. and a B.S. from the
City College of New York.
Dr. Yehuda Cern has been Chief Technical Officer of the Company since
August 1997. Dr. Cern worked at AirOptics, Inc., an infrared communications
company located in Lancaster, Pennsylvania and a subsidiary of JOLT, Ltd. in
Jerusalem, as Chief Operating Officer and Senior Vice President of AirOptics
from 1996 to 1997 and as Chief Technical Officer from 1993 to 1996. From 1991
to 1993, Dr. Cern served as R&D Manager and then Chief Operating Officer of
News Datacom Research Ltd., a subsidiary of News Corp. located in Israel. Dr.
Cern received a B.S. degree and an M.Sc. degree in electrical engineering from
Wayne State University in Detroit and a Ph.D. in medical electronics from the
Weizmann Institute in Israel.
Aryeh Weinberg has been Chief Financial Officer of the Company since
January 1997. Since February 1997, Mr. Weinberg has served as Chief Financial
Officer for Delta Three. From 1980 to 1996, Mr. Weinberg, a certified public
accountant, worked at Schiller Holinsky & Garolyn P.A., a public accounting
firm in the United States, becoming audit and accounting partner there in 1991.
Mr. Weinberg earned a Bachelor's degree in business administration from Towson
State University in Baltimore, Maryland.
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Elie Wurtman is a co-founder of the Company and has been a Director of
the Company since its inception in June 1996. From April 1995 to December 1996,
Mr. Wurtman served as the Director of Marketing for TTR Technologies Ltd., an
Israel-based software security company and wholly-owned subsidiary of the
publicly owned TTR Inc. Mr. Wurtman has served as Chief Executive Officer and
a director of Delta Three since May 1996. In May 1995, Mr. Wurtman co-founded
Pioneer and has served as an officer and a director thereof since such date.
Since 1994, Mr. Wurtman has been a managing director of a small equities
trading fund in Israel and has been retained as a consultant in financial
consulting and strategic marketing planning by several technology companies in
Israel. Mr. Wurtman served as a commander in the Israel Defense Forces,
including two years as the Commander of the Allenby Bridge tourist border
crossing between Israel and Jordan. Mr. Wurtman sits on the central committee
of Yisrael B'ALIYA, a new Israeli political party, and often serves as a
political advisor. Mr. Wurtman holds a B.A. in political science from Columbia
University and a B.A. in Talmud from the Jewish Theological Seminary.
Dr. George Kaplun has been Senior Electrical Engineer of the Company
since its inception in January 1996. Dr. Kaplun is a veteran electrical
engineer, with many years of experience in both the academic and development
sectors. His experience includes: designing an IR System for telecommunications
at OPLINK Communication Ltd., in Jerusalem; developing an automatic projection
interface program at RADA Ltd., in Beit Shean; and 15 years as a Docent and
Senior Lecturer, Chief Engineer and Team Manager in the computer science
division for hardware development at the Polytechnic Institute in the former
Soviet Union. Dr. Kaplun has received numerous patents in various electrical
engineering fields and holds a Ph.D. in electronics, as well as a masters of
science degree in electronic engineering from the Tel Aviv University.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Directors currently
receive no cash compensation for serving on the Board of Directors. Officers are
elected annually by the Board of Directors and serve at the discretion of the
Board. The Underwriter may designate a director to the Board during the three
(3) year period commencing on the Effective Date. The Underwriter has not
identified any director designees.
SPECIAL ADVISOR
The Company consults from time to time with Yuli Kosharovsky, Special
Advisor to the Company, and makes arrangements from time to time with other
smart card design experts to work with the Company's management and the Special
Advisor. The Special Advisor assists management in identifying promising
technology and reviews with management the progress of specific design projects.
Mr. Kosharovsky does not receive a fee for such services, but the Company
reimburses Mr. Kosharovsky for reasonable out-of-pocket expenses incurred in
connection with his assistance to the Company.
Mr. Kosharovsky has been Special Advisor to the Company since June
1996. Mr. Kosharovsky serves as a private consultant between Russian immigrant
scientists and American business enterprises seeking scientific expertise. Mr.
Kosharovsky holds a masters degree in radio-electronics engineering from the
Ural Polytechnic Institute in Russia and completed post graduate studies in
telemetrical electronics at the Sverdlovsk Scientific Research Institute of
Labor and Professional Diseases in Russia. Mr. Kosharovsky is Chairman of the
Board of Tekol, Ltd., a private consulting firm in Israel. Tekol, Ltd. owns
42,083 shares of Common Stock and provides certain consulting services to the
Company. See "Certain Relationships and Related Transactions."
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EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by,
or paid for all services rendered to the Company from July 1996 (inception of
operations) through December 31, 1996 by the Company's Chief Executive Officer.
No other executive officers received compensation in excess of $100,000 during
such period.
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
=========================================================================================================================
Annual Compensation Long-Term Compensation
---------------------------------------------------------------------------
Awards Payouts
--------------------------------------------
Securities
Other Under-
Annual Restricted lying All Other
Compen- Stock Options/ LTIP Compen-
Name and Salary(2) Bonus sation Award(s) SARs Pay-outs sation
Principal Position (1) ($) ($) ($) ($) (#) ($) ($)
(a) Year (b) (c) (d) (e) (f) (g) (h) (i)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jacob Davidson
Chairman of the Board, President 1996 $30,000 -- (1) -- -- -- --
and Chief Executive Officer
=========================================================================================================================
</TABLE>
(1) The above compensation figures do not include the cost to the Company
of the use of automobiles leased by the Company, the cost to the
Company of benefits, including premiums for life and health insurance
and any other personal benefits provided by the Company to such persons
in connection with the Company's business.
(2) Includes $30,000 paid to Mr. Davidson pursuant to a consulting
agreement with Ambient. See "Employment Agreements" for a description
of the compensation arrangement between the Company and Mr. Davidson.
The Company did not grant any options or warrants during 1996 to any of
its executive officers. The Company does not have any long-term incentive plans
for compensating its executive officers.
EMPLOYMENT AGREEMENTS
On May 1, 1996, Messrs. Wurtman and Davidson entered into a management
consulting agreement with GTI, which Ambient assumed in August 1996 in
connection with the acquisition of substantially all of GTI's assets. Pursuant
to such agreement, each of Messrs. Wurtman and Davidson earned $55,000 from
January 1997 through November 1997, of which $25,000 has been paid. Effective as
of November 1, 1997, Messrs. Davidson and Wurtman became employees of Ambient
Corporation
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and such consulting agreements were terminated by the mutual consent of Messrs.
Davidson and Wurtman and the Company. See "Certain Relationships and Related
Transactions."
On August 1, 1997, Ambient Israel entered into an employment agreement
with Dr. Yehuda Cern as Chief Technical Officer, which agreement may be
terminated upon six weeks notice after six months of employment and three months
notice after 18 months of employment. The agreement provides for a monthly
salary of NIS 30,000 ($__________ based on the exchange rate as of ________,
1997) (subject to adjustment by mandated cost of living increases in Israel), of
which the payment of NIS 10,000 ($__________ based on the exchange rate as of
________, 1997) per month is deferred until the earlier of (i) Ambient Israel's
or Ambient's receipt of cumulative capital investments of at least $2,000,000 or
(ii) December 1, 1997. In addition, under the agreement, Dr. Cern is entitled to
receive 10% of the proceeds from the sale by the Company of any inventions that
are covered by patents assigned by Dr. Cern to Ambient Israel. Pursuant to the
agreement, the Company issued to Dr. Cern 84,167 shares of Common Stock of
Ambient. The agreement also provides that Dr. Cern shall not, for a period of
two years after termination of his employment agreement, accept employment at a
competitor of the Company.
On January 1, 1996, Ambient Israel entered into a one-year employment
agreement with George Kaplun as Senior Electrical Engineer, with automatic
one-year renewal periods, unless otherwise terminated in accordance with the
terms of the Agreement. The agreement provides for a monthly salary of NIS 7,000
($__________ based on the exchange rate as of ________, 1997) . Pursuant to the
agreement, Ambient Israel issued to Dr. Kaplun a warrant to purchase 1.6% of the
shares of common stock of Ambient Israel. The agreement also provides that Dr.
Kaplun shall not, for a period of one year after termination of his employment
agreement, accept employment with a direct competitor of the Company.
1997 STOCK OPTION PLAN
In __________, the Board of Directors adopted, subject to stockholder
approval, the Company's Incentive & Non-Qualified Stock Option Plan (the "1997
Plan"). The 1997 Plan provides for the grant to qualified employees (including
officers and directors) of the Company of options to purchase shares of Common
Stock. A total of 250,000 shares of Common Stock have been reserved for issuance
upon exercise of stock options granted under the 1997 Plan. The 1997 Plan is
administered by the Board of Directors or a committee of the Board of Directors
(the "Compensation Committee") whose members are not entitled to receive options
under the Plan (excluding options granted exclusively for directors fees). The
Compensation Committee has complete discretion to select the optionee and to
establish the terms and conditions of each option, subject to the provisions of
the Plan. Options granted under the Plan may or may not be "incentive stock
options" as defined in Section 422 of the Internal Revenue Code ("Incentive
Options") depending upon the terms established by the Compensation Committee at
the time of grant, but the exercise price of options granted may not be less
than 100% of the fair market value of the Common Stock as of the date of grant
(110% of the fair market value if the grant is an Incentive Option to an
employee who owns more than 10% of the outstanding Common Stock). Options may
not be exercised more than 10 years after the grant (five years if the grant is
an Incentive Option to any employee who owns more than 10% of the outstanding
Common Stock). Options granted under the Plan are not transferable and may be
exercised only by the respective grantees during their lifetimes or by their
heirs, executors or administrators in the event of death. Under the 1997 Plan,
shares subject to canceled or terminated options are reserved for subsequently
granted options. The number of options outstanding and the exercise price
thereof are subject to adjustment in the case
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of certain transactions such as mergers, recapitalizations, stock splits or
stock dividends. As of the date of this Prospectus, the Company has not granted
any options under the 1997 Plan.
INDEMNIFICATION
Pursuant to the Company's Amended and Restated Certificate of
Incorporation and By-laws, officers and directors of the Company shall be
indemnified by the Company to the fullest extent allowed under Delaware law for
claims brought against them in their capacities as officers or directors.
Indemnification is not allowed if the officer or director does not act in good
faith and in a manner reasonably believed to be in the best interests of the
Company, or if the officer or director had no reasonable cause to believe his
conduct was lawful. Accordingly, indemnification may occur for liabilities
arising under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted for directors, officers and
controlling persons of the Company pursuant to the foregoing provisions or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
AGREEMENT WITH FORMER OFFICER OF AMBIENT ISRAEL
In July 1997, the Company terminated the employment of Alexander Rozin
as Chief Scientist of Ambient Israel. Pursuant to a certain purchase agreement
between GTI and Mr. Rozin dated December 5, 1995 and assumed by the Company in
connection with its purchase of GTI's assets, Mr.Rozin is entitled to receive
royalties of 20% of the Company's net profits (as defined in the agreement) from
sales of products predominantly utilizing an electronic data communication
system as described in a certain patent application. The Company has not to date
utilized this technology in the development of Ambient systems and does not
presently intend to do so. The agreement also entitles Mr. Rozin to receive 15%
of the net profits (as defined in the agreement) from all sales of products and
technology by Ambient Israel. As a result of the termination of Mr. Rozin's
employment, the Company intends to enter into discussions with Mr. Rozin to
modify or cancel these provisions. Mr. Rozin owns five percent of the
outstanding capital stock of Ambient Israel. See "Risk Factors--Royalty
Payments."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus and
as adjusted to reflect the sale of 600,000 shares of Common Stock offered by the
Company hereby, certain information, with respect to the beneficial ownership of
Common Stock by (i) each person known by the Company to be the owner of more
than 5% of the outstanding Common Stock, (ii) each director, (iii) each
executive officer named in the Summary Compensation Table and (iv) all directors
and executive officers as a group:
<TABLE>
<CAPTION>
Percentage of Outstanding
Shares Owned
-----------------------------
Amount and
Nature of
Name and Address Beneficial Before After
of Beneficial Owner (1) Ownership(2) Offering (3) Offering (4)
----------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Jacob Davidson(5)........................ 245,549 10.15% 8.13%
Dr. Yehuda Cern.......................... 84,167 3.48% 2.79%
Aryeh Weinberg........................... 20,000 .83% .66%
Elie Wurtman(6) ......................... 235,646 9.74% 7.80%
Directors and executive officers
as a group (5 persons)................... 585,362 24.20% 19.39%
</TABLE>
- --------------------
(1) Except as otherwise indicated, the address of each beneficial owner is c/o
Ambient Corporation, Jerusalem Technological Park, Building One, Malha,
Jerusalem, Israel.
(2) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the date hereof upon the exercise of warrants or options.
Each beneficial owner's percentage ownership is determined by assuming
that options or warrants that are held by such person (but not those held
by any other person) and which are exercisable within 60 days from the
date hereof have been exercised.
(3) Based on 2,419,333 shares outstanding.
(4) Based on 3,019,333 shares outstanding.
(5) Does not include 235,646 shares of Common Stock owned of record by Pioneer
Management Corporation ("Pioneer"), of which Mr. Davidson is a principal,
of which shares Mr. Davidson disclaims beneficial ownership.
(6) Includes 235,646 shares of Common Stock owned of record by Pioneer.
Mr. Davidson and Mr. Wurtman each own 50% of the outstanding equity and
are officers and directors of Pioneer. Pursuant to an agreement between
Mr. Davidson and Mr. Wurtman, Mr. Wurtman has sole voting and investment
control over the
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<PAGE>
235,646 shares of Common Stock owned of record by Pioneer and may,
therefore, be deemed to be the beneficial owner of such 235,646 shares
of Common Stock.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to management consulting agreements with each of Jacob
Davidson, chairman of the board, president and chief executive officer, and Elie
Wurtman, a director and secretary, the Company pays Mr. Davidson $5,000 per
month and Mr. Wurtman $5,000 per month. These fees have been accruing since
January 1997, except for an aggregate of $25,000 which has been paid through
October 1997. Effective as of November 1, 1997, Messrs. Davidson and Wurtman
became employees of Ambient Corporation and such consulting agreements were
terminated by the mutual consent of Messrs. Davidson and Wurtman and the
Company.
In August 1996, the Company purchased substantially all of the assets,
properties, business and goodwill of GTI, including the capital stock of GTI's
subsidiary, GenTec Ltd., a corporation organized under the laws of the State of
Israel, for an aggregate purchase price of $1.00. After the acquisition, the
Company changed the name of its subsidiary from GenTec, Ltd to Ambient, Ltd. Mr.
Davidson is chief executive officer and a principal stockholder of GTI. GTI has
not conducted any substantial business operations since the sale to the Company
of substantially all of its assets in August 1996.
In November 1996, the Company entered into a six-month consulting
agreement with Tekol, Ltd. ("Tekol"). Pursuant to this consulting agreement,
Tekol managed the Company's research and development operations and oversaw the
Company's government funding applications in return for $1,000 per month. Tekol
also received 42,083 shares of Common Stock and a $6,000 fee for meeting certain
designated funding targets set forth in the agreement. All of the outstanding
capital stock of Tekol is owned by the Special Advisor to the Company. See
"Management."
The Company rents from Pioneer, on a month-to-month basis, a small
office in New York City for $800 per month. Mr. Wurtman and Mr. Davidson own
all of the outstanding equity and are officers and directors of Pioneer. See
"Principal Stockholders."
In September 1997, Mr. Davidson and Mr. Wurtman loaned the Company an
aggregate of $25,781, at no interest, of which $12,042 has been repaid through
October 1997. The Company used the proceeds from such loans for general working
capital purposes. See "Use of Proceeds."
All future transactions between the Company and its affiliates will be
on terms no less favorable to the Company than the Company could obtain from
non-affiliated third parties.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock,
$.001 par value per share, of which 2,419,333 shares are currently outstanding
and held of record by approximately _____ holders. See "Description of
Securities--Prior Financings." Holders of shares of Common Stock are entitled to
one vote for each share held of record on all matters to be voted on by
stockholders. There are no preemptive, subscription, conversion or redemption
rights pertaining to the shares of Common Stock. Holders of shares of Common
Stock are entitled to receive dividends when, as and if declared by the Board of
Directors from funds legally available therefor and to share ratably in the
assets of the
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Company available upon liquidation, dissolution or winding up. The holders of
shares of Common Stock do not have cumulative voting rights for the election of
directors and, accordingly, the holders of more than 50% of the shares of Common
Stock are able to elect all directors. All of the outstanding shares of Common
Stock are, and the Common Stock offered hereby, upon issuance and when paid for,
will be duly authorized, validly issued, fully paid and non-assessable. The
Company has agreed not to issue any shares of its capital stock for a period of
24 months from the date hereof without the prior written consent of the
Underwriter.
PREFERRED STOCK
The Amended and Restated Certificate of Incorporation authorizes the
issuance of 5,000,000 shares of Preferred Stock, $.001 par value per share, in
one or more series, with each series to have such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue Preferred Stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Common Stock. In addition, the Preferred Stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or preventing
a change in control of the Company. Although the Company does not have any
current intentions to issue any shares of Preferred Stock, there can be no
assurance that the Company will not do so in the future. The Company has agreed
not to issue any shares of its capital stock for a period of 24 months from the
date hereof without the prior written consent of the Underwriter.
PRIOR FINANCINGS
In August 1996, Ambient purchased substantially all of the assets,
properties, business and goodwill of GTI for an aggregate purchase price of
$1.00. Prior to such acquisition, in December 1995, GTI issued to an investment
fund a promissory note in the aggregate principal amount of $968,000, bearing
interest at 10% per annum, and 650,000 shares of common stock of GTI (the "Debt
Financing"). As part of Ambient's acquisition of GTI, Ambient assumed the
promissory note issued in the Debt Financing. In addition, the 650,000 shares of
common stock of GTI were cancelled and Ambient issued, in their place, 650,000
shares of Common Stock of Ambient. The Company used the net proceeds from the
Debt Financing that it received in the acquisition for research and development
activities, employee salaries and other operating expenses. The principal and
accrued interest on the promissory note is due and payable in December 1998. The
Company intends to use $968,000 of the net proceeds of this Offering to pay the
principal on the notes issued in the Debt Financing. See "Risk Factors--Shares
Eligible For Future Sale," "Use of Proceeds," and "Certain Relationships and
Related Transactions."
In September and October 1997, the Company sold in a private offering
(the "1997 Private Placement") 13.3 units ("Units"), each Unit consisting of a
promissory note in the principal amount of $30,000 bearing interest at 7% per
annum and 6,000 shares of Common Stock, at a purchase price of $30,000 per Unit.
The principal and accrued interest on such notes are due the earlier of March
1999, with respect to $300,000 of the notes, and April 1999, with respect to
$100,000 of the notes, or the Company's consummation of an initial public
offering. The gross proceeds from the 1997 Private Placement amounted to
$400,000. The Company intends to use approximately $404,600 of the net proceeds
of this Offering to pay the principal and estimated accrued interest on the
notes. See "Risk Factors--Shares Eligible For Future Sale" and "Use of
Proceeds."
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LIMITATIONS UPON TRANSACTIONS WITH "INTERESTED STOCKHOLDERS"
Section 203 of the Delaware General Corporation Law prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date the business combination is
approved by the board of directors and by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own), 15% or more of the corporation's voting stock. The
restrictions of Section 203 do not apply, among other things, if a corporation,
by action of its stockholders, adopts an amendment to its certificate of
incorporation or by-laws expressly electing not to be governed by Section 203,
provided that, in addition to any other vote required by law, such amendment to
the certificate of incorporation or by-laws must be approved by the affirmative
vote of a majority of the shares entitled to vote. Moreover, an amendment so
adopted is not effective until twelve months after its adoption and does not
apply to any business combination between the corporation and any person who
became an interested stockholder of such corporation on or prior to such
adoption. The Company's Certificate of Incorporation and By-laws do not
currently contain any provisions electing not to be governed by Section 203 of
the Delaware General Corporation Law. The provisions of Section 203 of the
Delaware General Corporation Law may have a depressive effect on the market
price of the Common Stock because they could impede any merger, consolidating
takeover or other business combination involving the Company or discourage a
potential acquiror or from making a tender offer or otherwise attempting to
obtain control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 3,019,333 shares
of Common Stock outstanding. Of the Common Stock to be issued and outstanding
after the Offering, the 600,000 shares of Common Stock sold in the Offering will
be freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by an "affiliate" of the Company
within the meaning of Rule 144 under the Securities Act ("Rule 144"). The
remaining 2,419,333 outstanding shares of Common Stock are "restricted
securities," as that term is defined under Rule 144, and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption provided by Rule 144. Of such
shares, 2,229,166 will be eligible for sale under Rule 144 commencing 90 days
after the consummation of the Offering, 66,000 shares will be eligible for
resale under Rule 144 commencing September 1998, 20,000 shares will be
eligible for resale under Rule 144 commencing October 1998, 20,000 shares will
be eligible for resale under Rule 144 commencing March 1998 and 84,167 shares
will be eligible for resale under Rule 144 commencing August 1998. However, all
of the Company's officers, directors and shareholders have agreed not to sell
their shares for a period of 18 months from
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the date of this Prospectus without the express written consent of the
Underwriter. No prediction can be made as to the effect that future sales of
Common Stock, or the availability of shares of Common Stock for future sales,
will have on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Stock and could impair the Company's ability to raise capital through the future
sale of its equity securities. See "Risk Factors--Shares Eligible for Future
Sale" and "Principal Stockholders."
In general, under Rule 144, as currently in effect, a person, including
an "affiliate" of the Company as defined under the Securities Act, (or persons
whose shares are aggregated), who for at least one year has beneficially owned
restricted securities acquired directly or indirectly from the Company or an
affiliate of the Company in a private transaction, is entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of
1% of the total number of outstanding shares of the same class or the average
weekly trading volume during the four calendar weeks preceding the day notice is
given to the Securities and Exchange Commission with respect to such sale. A
person (or persons whose shares are aggregated) who is not an affiliate and has
not been an affiliate of the Company at any time during the three months
immediately preceding the sale and who has beneficially owned shares of Common
Stock for at least two years is entitled to sell such shares pursuant to
subparagraph (k) of Rule 144 without regard to the volume limitations described
above.
Prior to this Offering, there has been no public trading market for the
Common Stock, and there can be no assurance that a regular trading market will
develop after the Offering, or that if developed, that it will be sustained. In
addition, no prediction can be made as to the effect, if any, that any market
sales of Common Stock or the availability of such shares for sale will have on
the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of shares of Common Stock may be sold in the public
market may adversely affect prevailing market prices for the Common Stock and
could impair the Company's ability to raise capital through the sale of its
equity securities.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement
between the Company and the Underwriter (the "Underwriting Agreement"), the
Underwriter has agreed to purchase from the Company and the Company has agreed
to sell to the Underwriter, 600,000 Shares offered hereby on a "firm commitment"
basis, if any are purchased.
The Shares offered hereby are being offered by the Underwriter subject
to prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to certain other conditions. The Underwriter reserves the right to
withdraw, cancel or modify the Offering and to reject any order in whole or in
part.
The Underwriter has advised the Company that it proposes to offer the
Shares to the public at the initial public offering price as set forth on the
cover page of this Prospectus and that it may allow to certain dealers who are
NASD members concessions not to exceed $_______ per Share of which not in excess
of $_______ per Share may be reallowed to other dealers who are members of the
NASD. After the Offering, the public offering price, concession and reallowance
may be changed by the Underwriter.
The Company has granted an option to the Underwriter, exercisable during
the forty-five (45) day period from the date of this Prospectus, to purchase up
to a maximum of 90,000 additional Shares of Common Stock at the initial public
offering price, less the underwriting discount, to cover over-allotments, if
any.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriter against certain liabilities in
connection with the Registration Statement, including liabilities arising under
the Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be provided to officers, directors or persons controlling the
Company, the Company has been informed that in the opinion of the Commission,
such indemnification is against public policy and is therefore unenforceable.
The Company has agreed to pay to the Underwriter a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds derived from
the sale of the Shares offered hereby, including any Shares purchased pursuant
to the Over-allotment Option.
The Company has agreed to sell to the Underwriter, or to its designees,
for an aggregate purchase price of $60.00, warrants (the "Underwriter's
Warrant") to purchase up to an aggregate of 60,000 Shares of Common Stock. The
Underwriter's Warrant shall be exercisable during a four (4) year period
commencing one (1) year from the Effective Date. The Underwriter's Warrant may
not be assigned, transferred, sold or hypothecated by the Underwriter until
twelve (12) months after the Effective Date, except to officers of the
Underwriter or to officers and partners of the selling group members in this
Offering. The Underwriter's Warrant grants to the holders thereof certain
piggyback and demand registration rights for a period of five years from the
Effective Date. The Underwriter's Warrant is exercisable at 120% of the initial
public offering price of the Shares. The exercise of the Underwriter's Warrant
and the number of shares of Common Stock covered thereby are subject to
adjustment in certain events to prevent dilution.
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Pursuant to the Underwriting Agreement, the Company has agreed not to
issue shares of its capital stock or options, warrants or other securities
convertible into shares of its capital stock (other than shares issuable upon
exercise of options to be granted under the 1997 Plan) for a period of 24 months
from the date of this Prospectus. In addition, the officers, directors and
shareholders of the Company have agreed not to sell, assign or transfer any of
the Shares held by them without the Underwriter's prior written consent for a
period of 18 months from the Effective Date.
The Underwriter may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934, as amended. Over-allotment involves
syndicate sales in excess of the offering size, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specific maximum.
Syndicate covering transactions involve purchases of the Company's securities in
the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Underwriter to reclaim a
selling concession from a syndicate member when the securities originally sold
by such syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the securities to
be higher than they would otherwise be in the absence of such transactions.
The Underwriter may designate a director to the Board during the three
(3) year period commencing on the Effective Date. The Underwriter has not
identified any director designees.
The Underwriter has informed the Company that no sales will be made to
any account over which the Underwriter exercises discretionary authority.
The foregoing is a summary of certain provisions of the Underwriting
Agreement and the Underwriter's Warrant which have been filed as exhibits
hereto.
As part of the Underwriting Agreement, the Company will enter into a
two-year financial consulting agreement with the Underwriter commencing as of
the Effective Date for an aggregate fee of $100,000, payable in full upon the
consummation of the Offering.
Prior to the Offering, there has been no public market for the Shares.
The initial public offering price of the Shares has been determined by
negotiations between the Company and the Underwriter. Among the factors
considered in the negotiations were areas of activity in which the Company is
engaged, the present state of the Company's business, the Company's financial
condition, the Company's prospects, an assessment of management, and the general
condition of the securities market at the time of this Offering. The public
offering price of the Shares does not necessarily bear any relationship to the
assets, earnings, book value or any other criteria of value applicable to the
Company.
The Company anticipates that, upon completion of the Offering, the
Common Stock will be quoted on the OTC Bulletin Board under the symbol "AMBT,"
but there can be no assurance that an active trading market will develop, or if
developed, be sustained. The Underwriter intends to make a market in all of the
publicly-traded securities of the Company. See "Risk Factors--Inexperienced
Underwriter."
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LEGAL MATTERS
The legality of the securities offered by this Prospectus will be passed
upon for the Company by Baer Marks & Upham LLP, New York, New York. In addition,
certain other matters in connection with this Offering with respect to Israeli
law will be passed upon for the Company by Ephraim Abramson & Company. Certain
legal matters will be passed upon for the Underwriter by Bernstein & Wasserman,
LLP, New York, New York.
EXPERTS
The audited consolidated financial statements of Ambient Corporation
for the period from July 1, 1996 (inception of operations) through December 31,
1996 included in this Prospectus and elsewhere in the Registration Statement
have been audited by Luboshitz, Kasierer & Co., Member Firm of Andersen
Worldwide, SC, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports. Reference is made to said report which
includes an explanatory fourth paragraph with respect to the Company's ability
to continue as a going concern.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 including all amendments
thereto (the "Registration Statement") under the Securities Act with respect to
the Securities offered by this Prospectus. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulation of the Commission.
For further information with respect to the Company and the Offering, reference
is made to the Registration Statement, including the exhibits filed therewith.
The Registration Statement may be inspected and copies may be obtained from the
Public Reference Section at the Commission's principal office, located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at the Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611, and the Northeast Regional Office, Seven World Trade Center,
Suite 1300, New York, New York 10048, upon payment of the fees prescribed by the
Commission. The Registration Statement has been filed electronically with the
Commission. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, at http://www.sec.gov. Statements contained
in this Prospectus as to the contents of any contract or other document are not
necessarily complete and where the contract or other document has been filed as
an exhibit to the Registration Statement, each such statement is qualified in
all respects by such reference to the applicable document filed with the
Commission.
-54-
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
C O N T E N T S
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet F-3
Consolidated Statement of Operations F-4
Consolidated Statement of Changes in Shareholders' Deficiency F-5
Consolidated Statement of Cash Flows F-6
Notes to the Consolidated Financial Statements F-7 - F-12
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF
AMBIENT CORPORATION
We have audited the accompanying consolidated balance sheet of Ambient
Corporation (a development stage company) and subsidiary as of December 31,
1996, and the related consolidated statement of operations, changes in
shareholders' deficiency and cash flows for the period from July 1, 1996 (date
of inception) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ambient
Corporation and subsidiary as of December 31, 1996, and the results of their
operations and their cash flows for the period from July 1, 1996 to December 31,
1996, in conformity with accounting principles generally accepted in the United
States.
As discussed in Note 1 to the consolidated finical statements, the Company is in
the development stage and its continued existence is dependent on obtaining
additional financing for product development and commercialization. The Company
incurred a net loss in 1996 and anticipates that it will continue to incur
losses for some time. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
LUBOSHITZ, KASIERER & CO.
MEMBER FIRM OF ANDERSEN WORLDWIDE, SC
Tel-Aviv, May 8, 1997
F-2
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
NOTE 1996
------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 104,322
Restricted cash (3) 30,000
Receivables and prepaid expenses 36,232
Due from shareholders 2,229
-----------
Total current assets 172,783
-----------
PROPERTY AND EQUIPMENT (4)
Cost 193,590
Less - accumulated depreciation 19,166
-----------
174,424
-----------
DEPOSITS FOR SEVERANCE PAY (7) 8,927
-----------
Total assets $ 356,134
-----------
-----------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Current maturities of long-term bank loan $ 12,565
Accounts payable 20,324
Other current liabilities (5) 59,354
-----------
Total current liabilities 92,243
-----------
LONG-TERM LIABILITIES
Loans from shareholders (6) 984,441
Loan from bank 6,283
Accrued severance pay (7) 13,333
-----------
Total long-term liabilities 1,004,057
-----------
Total liabilities 1,096,300
-----------
SHAREHOLDERS' DEFICIENCY
Common stock of $0.001 par value; authorized 20,000,000
shares; issued and outstanding 2,229,166 shares (9) 2,229
Deficit accumulated during the development stage (742,395)
-----------
Total shareholders' deficiency (740,166)
-----------
Total liabilities and shareholders' deficiency $ 356,134
-----------
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-3
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
JULY 1, 1996
TO
DECEMBER 31, 1996
-----------------
<S> <C>
Research and development expenses $ 160,792
Less - participation by the Chief Scientist of the State of
Israel (Note 10) 95,976
------------
64,816
Operating, general and administrative expenses 434,735
Purchased in process research and development 180,474
------------
Operating loss 680,025
Financing expenses, net 62,370
------------
Net loss $ (742,395)
------------
------------
Net loss per share $ (0.33)
------------
------------
Weighted average number of shares outstanding 2,257,452
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-4
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
NUMBER SHARE DEVELOPMENT
OF SHARES CAPITAL STAGE TOTAL
------------ ---------- --------------- ------------
<S> <C> <C> <C> <C>
Issuance of common stock
in July 1996 2,028,833 $2,029 $ - $ 2,029
Issuance of common stock
in September 1996 5,000 5 - 5
Issuance of common stock
in October 1996 195,333 195 - 195
Net loss for the period from
July 1, 1996 to
December 31, 1996 - - (742,395) (742,395)
------------ ---------- --------------- ------------
Balance as of
December 31, 1996 2,229,166 $2,229 $(742,395) $(740,166)
------------ ---------- --------------- ------------
------------ ---------- --------------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-5
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JULY 1, 1996
TO
DECEMBER 31,
1996
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(742,395)
Adjustments to reconcile net loss to net cash used in
operating activities -
Items not involving cash flows:
Depreciation 19,166
Accrued interest on loans from shareholders 51,441
Severance pay, net 4,406
Changes in operating assets and liabilities:
Increase in receivables and prepaid expenses (36,232)
Increase in accounts payable 20,324
Increase in other current liabilities 59,354
---------
Net cash used in operating activities (623,936)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (193,590)
Restricted cash (30,000)
---------
Net cash used in investing activities (223,590)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Receipt of loans from shareholders 933,000
Receipt of loan from bank 18,848
---------
Net cash provided by financing activities 951,848
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 104,322
CASH AND CASH EQUIVALENTS BEGINNING
OF PERIOD --
---------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 104,322
---------
---------
INTEREST PAID $ 1,428
---------
---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-6
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 1 - GENERAL
A. Ambient Corporation (the "Company"), a development stage company,
was founded in June 1996 to design and develop advanced smart card
interface technology. A smart card is a credit card-sized plastic
card equipped with an integrated circuit that can store and
transfer information in electronic form. The Company has not
generated revenues. In September 1997, the Company commenced the
installation of smart card terminals at a public school in Israel
where the Company plans to launch its first pilot project to
demonstrate its technology.
In August 1996, the Company purchased substantially all of the
assets and liabilities of Gen Technologies, Inc., a smart card
research and development company, at their approximate book value,
including the capital stock Gen Technologies' subsidiary, GenTec
Ltd. The results of operations of Gen Technologies, Inc. prior to
the acquisition were not material. In process research and
development arising on this acquisition, amounting to $180,474 was
charged to the statement of operations on acquisition. In November
1996, the Company changed the name of its subsidiary to Ambient
Ltd.
The Company incurred a net loss in 1996 and anticipates that it
will continue to incur losses for some time. The Company's
continued existence is dependent on obtaining additional financing
for product development and commercialization from its
shareholders and outside sources. These matters raise substantial
doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that
might be necessary should the Company be unable to continue as a
going concern. The Company intends to raise additional capital
through a private placement and an initial public offering in
1997. In addition, the Company is applying to receive additional
funding for its research and development from the chief scientist
of the government of Israel.
F-7
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 1 - GENERAL (CONT.)
B. The accompanying consolidated financial statements have been
prepared in U.S. dollars, as the currency of the primary's
economic environment in which the operations of the Company and
its subsidiary are conducted is the U.S. dollar.
Transactions and balances originally denominated in U.S. dollars
are presented at their original amounts. Transactions and balances
in other currencies are remeasured into U.S. dollars in accordance
with the principles identical to those set forth in Statement No.
52 of the Financial Accounting Standards Board of the United
States ("FASB"), as follows:
Monetary items - at the current exchange rate at balance sheet
date.
Nonmonetary items - at historical exchange rates.
Income and expenditure items - at exchange rates current as of
date of recognition of those items (excluding depreciation and
other items deriving from nonmonetary items).
C. The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of expenses during the reporting period. Actual
results could differ from those estimates.
F-8
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 2 - ACCOUNTING POLICIES
The consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States. The significant accounting policies followed in the
preparation of the financial statements are:
A. CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three
months or less are considered cash equivalents.
B. PROPERTY AND EQUIPMENT
These assets are presented at cost. Depreciation is calculated by
the straight-line method over the estimated useful lives of the
assets, ranging as follows:
YEARS
-------------
Furniture and office equipment 14 (mainly)
Machinery and equipment 7
Motor vehicles 7
Leasehold improvements 5
Computers 4
C. LOSS PER SHARE
Loss per share is computed based on the weighted average number of
ordinary shares outstanding during the period. Retroactive
recognition has been given in the calculation of loss per share,
using the treasury stock method, to shares granted in the
twelve-month period preceding the Company's initial public
offering for consideration below the initial public offering price
per Ordinary share, although the effect is antidilutive.
F-9
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 3 - RESTRICTED CASH
The Company has a $30,000 line of credit from a bank in Israel for
which the Company agreed to maintain a compensating balance of $30,000
which is restricted for a period of up to one year. As of December 31,
1996 the amount of credit utilized was not material.
NOTE 4 - PROPERTY AND EQUIPMENT
Computers $ 45,306
Machinery and equipment 45,500
Furniture and office equipment 37,255
Leasehold improvements 32,930
Motor vehicle (*) 32,599
---------
193,590
Less - accumulated depreciation 19,166
---------
Net book value $ 174,424
---------
---------
(*) Motor vehicle is pledged as collateral for a bank loan.
NOTE 5 - OTHER CURRENT LIABILITIES
Accrued salaries and related expenses $ 23,354
Accrued expenses and others 36,000
---------
$ 59,354
---------
---------
F-10
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 6 - LOANS FROM SHAREHOLDERS
Loans received from shareholders bear interest of 10% per annum and
mature on December 1, 1998. The loan balance includes accrued interest
amounting to $51,441.
NOTE 7 - SEVERANCE PAY
The Company's liability for severance pay to its employees is
principally covered by monthly deposits with a severance pay fund. The
balance of the Company's liability for severance pay, in excess of the
amounts funded, is reflected in the accrual for severance pay.
NOTE 8 - COMMITMENTS
A. In connection with its research and development, the Company
received participation payments from the Office of the Chief
Scientist of the Government of Israel in the total amount of
$95,976 in 1996. In return for the participation, the Company is
committed to pay royalties at a rate of 3%-5% of sales of the
developed product, up to 100% of the amount of grants received.
B. The Company is committed to pay a shareholder of the subsidiary
royalties, in connection with technology transferred by him to the
Company, at rates of 15%-20% of net sales less the cost of
components as defined in an agreement with the shareholder.
NOTE 9 - SHARE CAPITAL
Authorized share capital -- 20,000,000 shares of common stock, $0.001
par value per share, and 5,000,000 shares of preferred stock, $0.001
par value per share. Issued and outstanding -- 2,229,166 shares of
common stock, $0.001 par value per share.
F-11
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE 10 - TAXES ON INCOME
Carryforward losses for tax purposes approximate reported losses. Due
to the uncertainty of realizing the benefit of the loss carryforwards,
a valuation allowance for the related deferred tax assets has been
recorded.
The Company's subsidiary in Israel is subject to the Income Tax Law
(Inflationary Adjustments), 1985, measuring income on the basis of
changes in the Israeli Consumer Price Index.
NOTE 11 - TRANSACTIONS WITH RELATED PARTIES
Transactions with related parties for the period ended December 31,
1996, are as follows:
Consulting fees $ 164,863
Rent $ 9,600
# # # # # #
F-12
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
C O N T E N T S
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet F-14
Consolidated Statements of Operations F-15
Consolidated Statements of Changes in Shareholders' Deficiency F-16
Consolidated Statements of Cash Flows F-17
Notes to the Interim Consolidated Financial Statements F-18 - F-19
</TABLE>
F-13
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30
1997
------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 98,922
Restricted cash 30,000
Receivables and prepaid expenses 25,058
------------
Total current assets 153,980
------------
PROPERTY AND EQUIPMENT
Cost 222,291
Less - accumulated depreciation 46,971
------------
175,320
------------
DEPOSITS FOR SEVERANCE PAY 9,532
------------
DEBT ISSUANCE COSTS 240,000
------------
Total assets $ 578,832
------------
------------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Current maturities of long-term bank loan $ 9,132
Accounts payable 59,186
Short-term loans from related parties 25,781
Other current liabilities 152,586
------------
Total current liabilities 246,685
------------
LONG-TERM LIABILITIES
Loans from shareholders 1,092,441
Long-term loan (Note 2) 120,400
Long-term notes (Note 3) 300,000
Severance pay 19,939
------------
Total long-term liabilities 1,534,380
------------
Total liabilities 1,781,065
------------
SHAREHOLDERS' DEFICIENCY
Common stock of $0.001 par value - authorized 20,000,000
shares; issued and outstanding 2,399,333 shares 2,399
Additional paid in capital 650,602
Deferred compensation (305,557)
Deficit accumulated during the development stage (1,549,677)
------------
Total shareholders' deficiency (1,202,233)
------------
Total liabilities and shareholders' deficiency $ 578,832
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-14
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
FOR THE NINE MONTHS FROM
ENDED INCEPTION UNTIL
SEPTEMBER 30 SEPTEMBER 30
1997 1997
---------------- ---------------
<S> <C> <C>
Research and development expenses $ 245,820 $ 406,612
Less - Participation by the Chief Scientist of
the State of Israel -- 95,976
----------- -----------
245,820 310,636
Operating, general and administrative expenses 488,103 922,838
Purchased in process research and development -- 180,474
----------- -----------
Operating loss (733,923) (1,413,948)
Financing expenses, net 73,359 135,729
----------- -----------
Net loss $ (807,282) $(1,549,677)
----------- -----------
----------- -----------
Net loss per share $ (0.35)
-----------
-----------
Weighted average number of shares outstanding 2,331,087
-----------
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-15
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' DEFICIENCY
(Unaudited)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
NUMBER SHARE PAID IN DEFERRED DEVELOPMENT
OF SHARES CAPITAL CAPITAL COMPENSATION STAGE TOTAL
----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1997 2,229,166 $ 2,229 $ -- $ -- $ (742,395) $ (740,166)
Issuance of common stock
in March 1997 20,000 20 50,000 -- -- 50,020
Issuance of common stock
in August 1997 150,167 150 600,602 -- -- 600,752
Deferred compensation -- -- -- (386,668) -- (386,668)
Amortization of deferred
compensation -- -- -- 81,111 -- 81,111
Net loss -- -- -- -- (807,282) (807,282)
----------- ----------- ----------- ----------- ----------- -----------
Balance as of
September 30, 1997 2,399,333 $ 2,399 $ 650,602 $ (305,557) $(1,549,677) $(1,202,233)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-16
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE CUMULATIVE
MONTHS FROM INCEPTION
ENDED UNTIL
SEPTEMBER 30 SEPTEMBER 30
1997 1997
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (807,282) $(1,549,677)
Adjustments to reconcile net loss to net cash used
in operating activities -
Items not involving cash flows:
Depreciation and amortization 132,916 152,082
Severance pay, net 6,001 10,407
Accrued interest on loans from shareholders 72,600 124,041
Accrued interest on long-term loan 2,400 2,400
Changes in operating assets and liabilities:
Decrease (increase) in receivables and prepaid
expenses 11,228 (25,004)
Increase in accounts payable 38,862 59,186
Increase in other current liabilities 93,232 152,586
----------- -----------
Net cash used in operating activities (450,043) (1,073,979)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (28,701) (222,291)
Restricted cash -- (30,000)
----------- -----------
Net cash used in investing activities (28,701) (252,291)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of share capital 2,279 2,279
Issuance of long-term notes 300,000 300,000
Receipt of loans from shareholders 35,000 968,000
Receipt of long-term loan 120,000 120,000
Receipt (repayment) of loan from bank (9,716) 9,132
Receipt of short-term loans 25,781 25,781
----------- -----------
Net cash provided by financing activities 473,344 1,425,192
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (5,400) 98,922
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 104,322 --
----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 98,922 $ 98,922
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-17
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
The accompanying condensed interim financial statements have been
prepared in accordance with generally accepted accounting principles
relating to the provision of interim financial information.
Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the nine
month period ended September 30, 1997, are not necessarily indicative
of the results that may be expected for the year ending December 31,
1997. For further information, refer to the financial statements and
notes for the period ended December 31, 1996.
NOTE 2 - LONG-TERM LOAN
The loan was received in June 1997. The loan bears interest of 8% per
annum and is repayable from the proceeds of the Company`s initial
public offering. The balance as of September 30, 1997, includes accrued
interest of $2,400.
NOTE 3 - LONG-TERM NOTES
The Company issued in September 1997 long-term notes amounting to
$300,000 and 60,000 common shares in a private placement. The notes
bear interest at 7% per annum and are repayable at the earliest of
March 1999 or at the Company's initial public offering (see Note 4).
F-18
<PAGE>
<PAGE>
AMBIENT CORPORATION
(A Development Stage Company)
NOTES TO THE CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(Unaudited)
NOTE 4 - COMMON STOCK
The Company issued 60,000 shares at par value, as part of the private
placement in 1997 (see Note 3). In addition, the Company issued 6,000
shares at par value to a general consultant of the Company. The Company
recorded debt issuance costs and consulting expense in respect of the
above issuances.
In addition the Company issued to certain employees 104,167 shares
with a vesting period of one year. The Company recorded deferred
compensation in respect of these shares which will be amortized over
the vesting period. Unamortized balance as of September 30, 1997 is
$305,557.
Subsequent to balance sheet date, the Company issued long-term notes
amounting to $100,000 and 20,000 shares as part of the private
placement in 1997 (see Note 3).
# # # # # #
F-19
<PAGE>
<PAGE>
====================================== =======================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY, BY ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF BY
ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY .......................................................
SUMMARY FINANCIAL INFORMATION ............................................
RISK FACTORS .............................................................
USE OF PROCEEDS ..........................................................
DIVIDEND POLICY ..........................................................
DILUTION .................................................................
CAPITALIZATION ...........................................................
PLAN OF OPERATION ........................................................
BUSINESS .................................................................
MANAGEMENT ...............................................................
PRINCIPAL STOCKHOLDERS ...................................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...........................
DESCRIPTION OF SECURITIES ................................................
SHARES ELIGIBLE FOR FUTURE SALE ..........................................
UNDERWRITING .............................................................
LEGAL MATTERS ............................................................
EXPERTS ..................................................................
AVAILABLE INFORMATION ....................................................
INDEX TO FINANCIAL STATEMENTS ............................................
------------------------
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
600,000 SHARES OF
COMMON STOCK
AMBIENT CORPORATION
------------
PROSPECTUS
------------
ROAN CAPITAL PARTNERS L.P.
, 1997
====================================== =======================================
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law, the Issuer
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Issuer's Bylaws provide that
the Issuer will indemnify its directors, executive officers, other officers,
employees and agents to the fullest extent permitted by Delaware law.
The Issuer's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Issuer and its stockholders. These provisions do not eliminate the
directors' duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Issuer, for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
does not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
broker commissions, payable by the Issuer in connection with the issuance and
distribution of the securities being registered hereunder. All of the amounts
shown are estimates (except for the SEC registration fees).
SEC filing fee.......................................................$1,616.39
NASD fee................................................................920.00
Transfer agent's fee..................................................3,000.00
Printing and engraving expenses......................................40,000.00
Legal fees and expenses.............................................175,000.00
Blue sky filing fees and expenses....................................30,000.00
(including counsel fees)
Accounting fees and expenses.........................................90,000.00
Miscellaneous expenses................................................4,463.61
Total.....................................................$345,000.00
===========
II-1
<PAGE>
<PAGE>
Item 26. Recent Sale of Unregistered Securities
In August 1996, Ambient purchased substantially all of the assets,
properties, business and goodwill of Gen Technologies, Inc ("GTI"), an affiliate
of the Company. Prior to such acquisition, in December 1995, GTI issued to an
investment fund a promissory note in the aggregate principal amount of $968,000,
bearing interest at 10% per annum and 650,000 shares of common stock of GTI (the
"Debt Financing"). As part of the acquisition of GTI, Ambient assumed the
promissory note issued in the Debt Financing. In addition, the 650,00 shares of
common stock of GTI were cancelled and Ambient issued, in their place, 650,000
shares of common stock of Ambient. The Company relied on Section 4(2) of the
Securities act of 1933, as amended, for such issuance.
In September and October 1997, the Company sold in a private offering
(the "1997 Private Placement") 13.3 units ("Units"), each Unit consisting of a
7% promissory note in the principal amount of $30,000 and 6,000 shares of Common
Stock, at a purchase price of $30,000 per Unit. The gross proceeds from the 1997
Private Placement was $400,000. The Company relied on Section 4(2) of the
Securities act of 1933, as amended, for such issuance.
Item 27. Exhibits
1.1 Underwriting Agreement
1.2 Underwriter's Warrant Agreement
1.3 Selected Dealer Agreement
1.4 Financial Consulting Agreement
3.1 Certificate of Incorporation of the Company, as amended.
3.2 By-Laws of the Company, as amended.
3.3 Memorandum of Association of Ambient Israel.
3.4 Articles of Association of Ambient Israel.
*5.1 Securities Opinion of Baer Marks & Upham LLP.
*10.1 The Company's 1997 Stock Option Plan.
*10.2 Employment Agreement between the Company and Jacob Davidson.
10.3 Employment Agreement between Ambient Israel and Dr. Yehuda Cern.
10.4 Employment Agreement between Ambient Israel and Dr. George Kaplun.
*10.5 Lease between Ambient Israel and Jerusalem Technological Park.
*10.6 Agreement with City of Ashdod.
21.1 Subsidiaries of the Company.
*23.1 The consent of Baer Marks & Upham LLP (included in Exhibit 5.1).
*23.2 The consent of Ephraim Abramson & Company.
23.3 The consent of Luboshitz, Kasierer & Co., Member Firm of
Andersen Worldwide, SC, certified public accountants, is
included in Part II of this Registration Statement.
24.1 Powers of Attorney (included on the signature page of this
Registration Statement.
- ----------
*To be filed by amendment to this Registration Statement.
II-2
<PAGE>
<PAGE>
Item 28. Undertakings
The Company hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement;
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a Director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(6) For determining any liability under the Act, to treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Act as part of this registration statement as of the time the
Commission declared it effective.
(7) For determining any liability under the Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the
II-3
<PAGE>
<PAGE>
registration statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
II-4
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the State of Israel, on the 12th day of November, 1997.
AMBIENT CORPORATION
By: /s/ Jacob Davidson
----------------------------------
Jacob Davidson
Chairman of the Board, President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below, hereby constitutes and
appoints Jacob Davidson his true and lawful attorney-in-fact and agent, with
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying all that said
attorney-in-fact and agent or his substitute or substitutes, or any of them, may
lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jacob Davidson Chairman of the Board, President November 12, 1997
- --------------------------------- and Chief Executive Officer
Jacob Davidson (Principal Executive Officer)
/s/ Elie Wurtman Director and Secretary November 12, 1997
- ---------------------------------
Elie Wurtman
/s/ Aryeh Weinberg Chief Financial Officer (Principal November 12, 1997
- --------------------------------- Financial Officer and Principal
Aryeh Weinberg Accounting Officer)
</TABLE>
II-5
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we here consent to the use of
our report (and to all references to our firm) included in or made a part
of this Registration Statement of Ambient Corporation on Form SB-2.
Luboshitz Kasierer & Co.,
Member Firm of Andersen Worldwide, SC
Tel-Aviv, Israel
November 12, 1997
II-6
<PAGE>
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
1.1 Underwriting Agreement
1.2 Underwriter's Warrant Agreement
1.3 Selected Dealer Agreement
1.4 Financial Consulting Agreement
3.1 Certificate of Incorporation of the Company, as amended.
3.2 By-Laws of the Company, as amended.
3.3 Memorandum of Association of Ambient Israel.
3.4 Articles of Association of Ambient Israel.
*5.1 Securities Opinion of Baer Marks & Upham LLP.
*10.1 The Company's 1997 Stock Option Plan.
*10.2 Employment Agreement between the Company and Jacob Davidson.
10.3 Employment Agreement between Ambient Israel and Dr. Yehuda Cern.
10.4 Employment Agreement between Ambient Israel and Dr. George Kaplun.
*10.5 Lease between Ambient Israel and Jerusalem Technological Park.
*10.6 Agreement with City of Ashdod.
21.1 Subsidiaries of the Company.
*23.1 The consent of Baer Marks & Upham LLP (included in Exhibit 5.1).
*23.2 The consent of Ephraim Abramson & Company.
23.5 The consent of Luboshitz Kasierer & Co., Member Firm of Andersen
Worldwide, SC, certified public accountants, is included in Part II of
this Registration Statement.
24.1 Powers of Attorney (included on the signature page of this Registration
Statement.
- ----------
*To be filed by amendment.
II-7
<PAGE>
<PAGE>
700,000 Shares of Common Stock
AMBIENT CORPORATION
UNDERWRITING AGREEMENT
New York, New York
___________, 1997
Roan Capital Partners L.P.
40 East 52nd Street
New York, NY 10022
Ambient Corporation, a Delaware corporation (the "Company"), proposes to
issue and sell to you (the "Underwriter") an aggregate of 700,000 shares of
Common Stock, par value $.001 per share (the "Shares"). In addition, the Company
proposes to grant to the Underwriter the option referred to in Section 2(b) to
purchase all or any part of an aggregate of 105,000 additional Shares.
Unless the context otherwise requires, the aggregate of 600,000 shares
of Common Stock to be sold by the Company, together with all or any part of the
105,000 Shares which the Underwriter has the option to purchase are herein
called the "Shares."
You have advised the Company that you desire to purchase the Shares. The
Company confirms the agreements made by it with respect to the purchase of the
Shares by the Underwriter as follows:
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with you that:
<PAGE>
<PAGE>
(a) A registration statement (File No. 333-______) on Form SB-2
relating to the public offering of the Shares, including a form of prospectus
subject to completion, copies of which have heretofore been delivered to you,
has been prepared in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission under the Act and one or more
amendments to such registration statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed, in such registration statement),
with such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by you prior to the execution of this Agreement, or (ii) if such registration
statement, as it may have been amended, has not been declared by the Commission
to be effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been furnished to
and approved by you prior to the execution of this Agreement. As used in this
Agreement, the term "Registration Statement" means such registration statement,
as amended at the time when it was or is declared effective, including all
financial schedules and exhibits thereto and including any information omitted
therefrom pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act, or, if no prospectus
is required to be filed pursuant to said Rule 424(b), such term means the
prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement, the terms
"Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term
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<PAGE>
<PAGE>
"Prospectus" shall include the prospectus as so supplemented, or both, as the
case may be.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on the
First Closing Date (as hereinafter defined) or the Option Closing Date, as the
case may be, (i) the Registration Statement and Prospectus will in all respects
conform to the requirements of the Act and the Rules and Regulations; and (ii)
neither the Registration Statement nor the Prospectus will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make statements therein not misleading; provided,
however, that the Company makes no representations, warranties or agreements as
to information contained in or omitted from the Registration Statement or
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of the Underwriter specifically for use
in the preparation thereof. It is understood that the statements set forth in
the Prospectus on page __ with respect to stabilization, the paragraph under the
heading "Underwriting" relating to concessions to certain dealers, and the
identity of counsel to the Underwriter under the heading "Legal Matters"
constitute for purposes of this Section and Section 6(b) the only information
furnished in writing by or on behalf of the Underwriter for inclusion in the
Registration Statement and Prospectus, as the case may be.
(c) The Company and each of its subsidiaries (the "Subsidiaries")
have been duly incorporated and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of incorporation with
full corporate power and authority to own their properties and conduct their
business as described in the Prospectus and each other jurisdiction in which the
nature of their business or the character or location of their properties
require such qualification, except where the failure to so qualify will not
materially adversely affect their business, properties or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company, including the predecessors of the Company, as of the date of the
Prospectus is as set forth in the Prospectus under
3
<PAGE>
<PAGE>
"Capitalization"; the shares of issued and outstanding capital stock of
the Company set forth thereunder have been duly authorized, validly issued and
are fully paid and nonassessable; except as set forth in the Prospectus, no
options, warrants, or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company have been granted or entered into by the
Company; and the capital stock conforms to all statements relating thereto
contained in the Registration Statement and Prospectus.
(e) The Shares are duly authorized, and when issued and delivered
pursuant to this Agreement, will be duly authorized, validly issued, fully paid
and nonassessable and free of preemptive rights of any security holder of the
Company. Neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated in this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any Shares, except as described in the Registration Statement.
The Shares contained in the Underwriter's Options (as defined in
the Registration Statement) have been duly authorized and, when duly issued and
delivered, the Shares will constitute valid and legally binding obligations of
the Company enforceable in accordance with their terms and entitled to the
benefits provided by the Underwriter's Options, except as enforceability may be
limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally or by general equitable principles and the indemnification
contained in paragraph 7 of the Underwriter's Options may be unenforceable. The
Shares included in the Underwriter's Options when issued and sold, will be duly
authorized, validly issued, fully paid and non-assessable and free of preemptive
rights and no personal liability will attach to the ownership thereof.
(f) This Agreement and the Underwriter's Options and the
financial consulting agreement referred to in Paragraph 3(u) below, have been
duly and validly authorized, executed, and delivered by the Company and on the
First Closing Date will be duly and validly executed and delivered by the
Company. The Company has full power and authority to authorize, issue, and sell
the Shares to be sold by it hereunder on the terms and conditions set forth
herein, and
4
<PAGE>
<PAGE>
no consent, approval, authorization or other order of any governmental authority
is required in connection with such authorization, execution and delivery or in
connection with the authorization, issuance, and sale of the Shares or the
Underwriter's Options, except such as may be required under the Act, state
securities laws or by the National Association of Securities Dealers, Inc. (The
"NASD").
(g) Except as described in the Prospectus, or except for those
which would not have a material adverse effect on the condition (financial or
otherwise), business prospects, net worth or properties of the Company or the
Subsidiaries taken as a whole (a "Material Adverse Effect"), the Company and the
Subsidiaries are not in violation, breach, or default of or under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge, or encumbrance upon
any of the property or assets of the Company or the Subsidiaries pursuant to the
terms of, any material indenture, mortgage, deed of trust, loan agreement, or
other agreement or instrument to which the Company or the Subsidiaries is a
party or by which the Company or the Subsidiaries may be bound or to which any
of the property or assets of the Company or the Subsidiaries is subject, nor
will such action result in any violation of the provisions of the articles of
incorporation or the by-laws of the Company or the Subsidiaries, as amended, or
any statute or any order, rule or regulation applicable to the Company or the
Subsidiaries of any court or of any regulatory authority or other governmental
body having jurisdiction over the Company or the Subsidiaries.
(h) Subject to the qualifications stated in the Prospectus, the
Company and the Subsidiaries have good and marketable title to all properties
and assets described in the Prospectus as owned by it, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to its business; all of the material leases
and subleases under which the Company or the Subsidiaries is the lessor or
sublessor of properties or assets or under which the Company or the Subsidiaries
holds properties or assets as lessee or sublessee as described in the Prospectus
are in full force and effect, and, except as described in the Prospectus,
5
<PAGE>
<PAGE>
the Company and the Subsidiaries are not in default in any material respect with
respect to any of the terms or provisions of any of such leases or subleases,
and, to the best knowledge of the Company, no claim has been asserted by anyone
adverse to rights of the Company or the Subsidiaries as lessor, sublessor,
lessee, or sublessee under any of the leases or subleases mentioned above, or
affecting or questioning the right of the Company or the Subsidiaries to
continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus; and
the Company and the Subsidiaries own or lease all such properties described in
the Prospectus as are necessary to its operations as now conducted and, except
as otherwise stated in the Prospectus, as proposed to be conducted as set forth
in the Prospectus.
(i) ___________________________, who have given their report on
certain financial statements filed with the Commission as a part of the
Registration Statement, are with respect to the Company, independent public
accountants within the meaning of the Act and the Rules and Regulations.
(j) The financial statements, and schedules together with related
notes, set forth in the Prospectus or the Registration Statement present fairly
the financial position and results of operations and changes in cash flow
position of the Company and the Subsidiaries on the basis stated in the
Registration Statement, at the respective dates and for the respective periods
to which they apply. Said statements and schedules and related notes have been
prepared in accordance with generally accepted accounting principles applied on
a basis which is consistent during the periods involved except as disclosed in
the Prospectus and Registration Statement. The information set forth under the
caption "Selected Financial Data" in the Prospectus fairly present, on the basis
stated in the Prospectus, the information included therein.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, the Company and the Subsidiaries have not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the ordinary
course of business, which would have a Material Adverse Effect, and
6
<PAGE>
<PAGE>
except as described in the Prospectus, there has not been any change in the
capital stock of, or any incurrence of long-term debt by, the Company and the
Subsidiaries or any issuance of options, warrants or other rights to purchase
the capital stock of the Company and the Subsidiaries or any material adverse
change or any development involving, so far as the Company and the Subsidiaries
can now reasonably foresee a prospective adverse change in the condition
(financial or other), net worth, results of operations, business, key personnel
or properties of them which would have a Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company or the Subsidiaries are a party before or by any
court or governmental agency or body, which might result in a Material Adverse
Effect on the Company or the Subsidiaries, nor are there any actions, suits or
proceedings related to environmental matters or related to discrimination on the
basis of age, sex, religion or race; and no labor disputes involving the
employees of the Company or the Subsidiaries exist or to the knowledge of the
Company or the Subsidiaries are threatened which might be expected to have a
Material Adverse Effect.
(m) Except as disclosed in the Prospectus, the Company and the
Subsidiaries have filed all necessary federal, state, and foreign income and
franchise tax returns required to be filed as of the date hereof (taking into
account all extensions of time to file) and have paid all taxes shown as due
thereon; and there is no tax deficiency which has been asserted against the
Company or the Subsidiaries.
(n) Except as disclosed in the Registration Statement, the
Company and the Subsidiaries have sufficient licenses, permits, and other
governmental authorizations currently necessary for the conduct of its business
or the ownership of its properties as described in the Prospectus and is in all
material respects complying therewith and owns or possesses adequate rights to
use all material patents, patent applications, trademarks, service marks,
trade-names, trademark registrations, service mark registrations, copyrights,
and licenses necessary for the conduct of such business and had not received any
notice of conflict with the asserted rights of others in respect thereof. To the
best knowledge of the Company, none of the activities or business of the
7
<PAGE>
<PAGE>
Company or its subsidiaries are in violation of, or cause the Company or its
subsidiaries to violate, any law, rule, regulation, or order of the United
States, Israel, any state, county, or locality, or of any agency or body of the
United States, Israel or of any state, county or locality, the violation of
which would have a Material Adverse Effect.
(o) The Company and the Subsidiaries have not, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. The Company's and the Subsidiaries' internal accounting controls and
procedures are sufficient to cause the Company to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (as hereinafter defined) all transfer or
other taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Shares hereunder will have been
fully paid or provided for by the Company or the Subsidiaries, as the case may
be, and all laws imposing such taxes will have been complied with in all
material respects.
(q) All contracts and other documents of the Company and the
Subsidiaries which are, under the Rules and Regulations, required to be filed as
exhibits to the Registration Statement have been so filed.
(r) The Company has not entered into any agreement pursuant to
which any person is entitled either directly or indirectly to compensation from
the Company for services as a finder in connection with the proposed public
offering.
(s) Except as disclosed in the Prospectus, no officer, director,
or stockholder of the Company or its subsidiaries has any NASD affiliation.
8
<PAGE>
<PAGE>
(t) No other firm, corporation or person has any rights to
underwrite an offering of any of the Company's securities.
(u) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Shares to facilitate the sale or resale of such
Shares hereby.
(v) The Company has no subsidiaries other than
_________________________________________________ ("__________")and
__________________________________________________ ("____") the "Subsidiaries")
and the Company does not own, directly or indirectly, any share capital or other
equity ownership or proprietary interests in any other corporation, association,
trust, partnership, joint venture or other entity. Each Subsidiary is a
corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation. Except as disclosed in the Prospectus, the
Company owns all of the share capital of _____ and _____ free and clear of all
liens, security interests and encumbrances.
(w) The Company is not, and upon receipt of the proceeds from the
sale of the Shares will not be, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(x) The Company has not distributed and will not distribute prior
to the First Closing Date any offering material in connection with the offering
and sale of the Shares other than the Preliminary Prospectus, Prospectus, the
Registration Statement or the other materials permitted by the Act, if any.
(y) There are no business relationships or related-party
transactions of the nature described in Item 404 of Regulation S-K involving the
Company, the Subsidiaries and any person directed in such Item that are required
to be disclosed in the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) and that have not been so disclosed
therein.
2. Purchase, Delivery and Sale of the Shares.
9
<PAGE>
<PAGE>
(a) Subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties, and agreements contained
herein, the Company agrees to issue and sell to the Underwriter, and the
Underwriter agrees to buy from the Company at $6.30 per Share, at the place and
time hereinafter specified, 700,000 Shares (the "First Shares").
Delivery of the First Shares against payment therefor shall
take place at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue, New
York, New York (or at such other place as may be designated by agreement between
the Underwriter and the Company) at 10:00 a.m., New York time, ____________,
1997, or at such later time and date as the Underwriter may designate in writing
to the Company at least two business days prior to such purchase, but not later
than _________, 1997, such time and date of payment and delivery for the First
Shares being herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
contained herein, the Company hereby grants an option to the Underwriter to
purchase all or any part of an aggregate of an additional 105,000 Shares (a)at
the same price per Share as the Underwriter shall pay for the First Shares being
sold pursuant to the provisions of subsection (a) of this Section 2 (such
additional Shares being referred to herein as the "Option Shares"). This option
may be exercised within 45 days after the effective date of the Registration
Statement upon written notice by the Underwriter to the Company advising as to
the amount of Option Shares as to which the option is being exercised, the names
and denominations in which the certificates for such Option Shares are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by the Underwriter but shall not be
earlier than four nor later than ten full business days after the exercise of
said option (but in no event more than 40 days after the First Closing Date),
nor in any event prior to the First Closing Date, and such time and date is
referred to herein as the "Option Closing Date." Delivery of the Option Shares
against payment therefor shall take place at the offices of Bernstein &
Wasserman, LLP, 950 Third Avenue, New York, New York (or at such other place as
may be designated by agreement between the Underwriter and the Company). The
Option granted hereunder may be exercised only to cover over-allotments in the
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sale by the Underwriter of First Shares referred to in subsection (a) above. No
Option Shares shall be delivered unless all First Shares shall have been
delivered to the Underwriter as provided herein.
(c) The Company will make the certificates for the Shares to be
purchased by the Underwriter hereunder available to the Underwriter for checking
at least two full business days prior to the First Closing Date or the Option
Closing Date (which are collectively referred to herein as the "Closing Dates").
The certificates shall be in such names and denominations as the Underwriter may
request, at least three full business days prior to the Closing Dates. Delivery
of the certificates at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Shares to be
purchased by the Underwriter hereunder will be delivered by the Company to the
Underwriter for the account of the Underwriter against payment of the respective
purchase prices by the Underwriter, by wire transfer in immediately available
funds, payable to the Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Shares pursuant to
the provisions of subsection (b) above, payment for such Shares shall be made to
or upon the order of the Company by wire transfer, certified or bank cashier's
checks payable in immediately available funds at the offices of Bernstein &
Wasserman, LLP, 950 Third Avenue, New York, New York (or at such other place as
may be designated by agreement between the Underwriter and the Company), at the
time and date of delivery of such Shares as required by the provisions of
subsection (b) above, against receipt of the certificates for such Shares by the
Underwriter for the Underwriter's account registered in such names and in such
denominations as the Underwriter may reasonably request.
It is understood that the Underwriter proposes to offer the
Shares to be purchased hereunder to the public upon the terms and conditions set
forth in the Registration Statement, after the Registration Statement is
declared effective by the Securities and Exchange Commission (the "SEC").
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3. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to be declared effective. If required, the Company will
file the Prospectus and any amendment or supplement thereto with the Commission
in the manner and within the time period required by Rule 424(b) under the Act.
Upon notification from the Commission that the Registration Statement has become
effective, the Company will so advise the Underwriter and will not at any time,
whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which the Underwriter
shall not previously have been advised and furnished with a copy or to which the
Underwriter or its counsel shall have reasonably objected in writing or which is
not in compliance with the Act and the Rules and Regulations. At any time prior
to the later of (A) the completion by the Underwriter of the distribution of the
Shares contemplated hereby (but in no event more than nine months after the date
on which the Registration Statement shall have been declared effective) and (B)
25 days after the date on which the Registration Statement shall have been
declared effective, the Company will prepare and file with the Commission,
promptly upon the Underwriter's request, any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel to the
Company and the Underwriter, may be reasonably necessary or advisable in
connection with the distribution of the Shares.
As soon as the Company is advised thereof, the Company will
advise the Underwriter, and provide the Underwriter with copies of any written
advice, of the receipt of any comments of the Commission, of the effectiveness
of any post-effective amendment to the Registration Statement, of the filing of
any supplement to the Prospectus or any amended Prospectus, of any request made
by the Commission for an amendment of the Registration Statement or for
supplementing of the Prospectus or for additional information with respect
thereto, of the issuance by the Commission or any state or regulatory body of
any stop order or other order or threat thereof suspending the effectiveness of
the Registration Statement or any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the Shares
for offering in any jurisdiction, or of the institution of any proceedings for
any of such purposes, and will use its best efforts
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to prevent the issuance of any such order, and, if issued, to obtain as soon as
possible the lifting thereof.
The Company has caused to be delivered to the Underwriter copies
of each Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriter and dealers to use the Prospectus in
connection with the sale of the Shares for such period as in the opinion of
counsel to the Underwriter and the Company the use thereof is required to comply
with the applicable provisions of the Act and the Rules and Regulations. In case
of the happening, at any time within such period as a Prospectus is required
under the Act to be delivered in connection with sales by the Underwriter or
dealer, of any event of which the Company has knowledge and which materially
affects the Company or the securities of the Company, or which in the opinion of
counsel for the Company and counsel for the Underwriter should be set forth in
an amendment of the Registration Statement or a supplement to the Prospectus in
order to make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be delivered to
a purchaser of the Shares or in case it shall be necessary to amend or
supplement the Prospectus to comply with law or with the Rules and Regulations,
the Company will notify the Underwriter promptly and forthwith prepare and
furnish to the Underwriter copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities as the
Underwriter may reasonably request, in order that the Prospectus, as so amended
or supplemented, will not contain any untrue statement of a material fact or
omit to state any material facts necessary in order to make the statements in
the Prospectus, in the light of the circumstances under which they are made, not
misleading. The preparation and furnishing of any such amendment or supplement
to the Registration Statement or amended Prospectus or supplement to be attached
to the Prospectus shall be without expense to the Underwriter, except that in
case the Underwriter is required, in connection with the sale of the Shares to
deliver a Prospectus nine months or more after the effective date of the
Registration Statement, the Company will upon request of and at the expense of
the Underwriter, amend or supplement the Registration Statement and Prospectus
and furnish the Underwriter with reasonable quantities of prospectuses complying
with Section 10(a)(3) of the Act.
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The Company will comply with the Act, the Rules and Regulations
and the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder in connection with the offering and issuance of the
Shares.
(b) The Company will furnish such information as may be required
and will otherwise cooperate and use its best efforts to qualify to register the
Shares for sale under the securities or "Blue Sky" laws of such jurisdictions as
the Underwriter may reasonably designate and will make such applications and
furnish such information as may be required for that purpose and to comply with
such laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent of service
of process in any jurisdiction in any action other than one arising out of the
offering or sale of the Shares. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the counsel to the Company and
the Underwriter deem reasonably necessary, but not for a period of less than
three (3) years.
(c) If the sale of the Shares provided for herein is not
consummated as a result of the Company's actions or failure to take such actions
as the Underwriter believes are reasonably required to complete the transaction,
the Company shall pay all costs and expenses incurred by it which are incident
to the performance of the Company's obligations hereunder, including but not
limited to, all of the expenses itemized in Section 8, including the actual
accountable out-of-pocket expenses of the Underwriter which shall not exceed
$75,000 (including the reasonable fees and expenses of counsel to the
Underwriter). If the sale of the Shares provided herein is not consummated and
the reasons therefore are reasonably related to a Material Adverse Effect on the
Company, the Company shall pay the Underwriter promptly its actual out-of-pocket
expenses not to exceed $75,000. In the event of the sale or merger of the
Company, any significant subsidiaries or any significant assets thereof prior to
the First Closing Date, as defined herein, and the Closing does not occur, the
Company shall pay the Underwriter $100,000 for services provided, which expenses
shall be limited to actual accountable out-of-pocket expenses.
(d) The Company will use its best efforts (i) to cause a
registration statement under the Exchange Act to be declared
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effective concurrently with the completion of this offering and will notify the
Underwriter in writing immediately upon the effectiveness of such registration
statement, and (ii) to obtain and keep current a listing in the Standard & Poors
or Moody's OTC Industrial Manual for a period of five (5) years from the
Effective Date.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to the Underwriter during the period ending five
(5) years from the date hereof, (i) as soon as practicable after the end of each
fiscal year, but no earlier than the filing of such information with the
Commission, a balance sheet of the Company and any of its subsidiaries as at the
end of such fiscal year, together with statements of income, surplus and cash
flow of the Company and any subsidiaries for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent accountants; (ii) as soon as practicable after the end of each of
the first three fiscal quarters of each fiscal year, but no earlier than the
filing of such information with the Commission, consolidated summary financial
information of the Company for such quarter in reasonable detail; (iii) as soon
as they are publicly available, a copy of all reports (financial or other)
mailed to security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with the
Commission or any securities exchange or automated quotation system on which any
class of securities of the Company is listed; and (v) such other information as
you may from time to time reasonably request. In addition, the Company shall
deliver to the Underwriter for a three (3) year period following the effective
date, copies of all transfer sheets relating to the Company's securities.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above will
be on a consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
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(g) The Company will deliver to the Underwriter at or before the
First Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon the Underwriter's order, from time
to time until the effective date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the effective
date of the Registration Statement as the Underwriter may reasonably request.
The Company will deliver to the Underwriter on or promptly after the effective
date of the Registration Statement and thereafter for so long as a Prospectus is
required to be delivered under the Act, from time to time, as many copies of the
Prospectus, in final form, or as thereafter amended or supplemented, as the
Underwriter may from time to time reasonably request.
(h) The Company will deliver to the Underwriter as soon as it is
practicable copies of all reports filed with the Commission under the Exchange
Act.
(i) The Company will apply the net proceeds from the sale of the
Shares substantially for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Shares and the application of the proceeds therefrom as may be
required pursuant to Rule 463 under the Act.
(j) The Company will promptly prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
opinion of counsel to the Underwriter and counsel to the Company, may be
reasonably necessary or advisable in connection with the distribution of the
Shares, and will use its best efforts to cause the same to become effective as
promptly as possible.
(k) The Company will reserve and keep available that maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Underwriter's Options.
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(l) For a period of twenty-four (24) months from the Effective
Date, no officers or directors, nor any shareholder of the Company's securities
prior to the offering, as well as all holders of restricted securities of the
Company, will, directly or indirectly, offer, sell (including any short sale),
grant any option for the sale of, transfer or gift (except for estate planning
or charitable transfers or other privates sales, provided the transferees agree
to be bound by the same restrictions on transfer), acquire any option to dispose
of, or otherwise dispose of any shares of capital stock without the prior
written consent of the Underwriter, other than as set forth in the Registration
Statement. In order to enforce this covenant, the Company shall impose
stop-transfer instructions with respect to the shares owned by such persons
prior to the offering until the end of such period (subject to any exceptions to
such limitation on transferability set forth in the Registration Statement). In
addition, all such persons shall waive any of their registration rights with
respect to all such securities for such twenty-four (24) month period. In
addition, the Company agrees not to file any other registration statement
(excluding a registration statement on Form S-8 or successor form so long as the
shares of Common Stock offered thereby are also subject to this paragraph 3(l))
to register any securities of the Company for such twenty-four (24) month
period, and will not grant any future registration rights without the prior
written consent of the Underwriter for the same twenty-four (24) month periods.
If necessary to comply with any applicable Blue-sky Law, the shares held by such
shareholders will be escrowed, as required by such Blue-Sky Laws. In addition,
the Company shall not issue any shares of its capital stock (or securities
convertible into capital stock) for a twenty four (24) month period following
the Effective Date without the Underwriter's consent, which shall not be
unreasonably withheld. The Company may grant options to purchase up to 250,000
shares of Common Stock under employee stock option plans to the Company's
employees, officers, directors or other consultants or advisors during the
twenty-four (24) month period following the Effective Date without the prior
written consent of the Underwriter. The grant of additional options during such
period will require the Underwriter's prior written consent. With respect to
such 250,000 the options to purchase such 250,000 shares, the Company may not
grant options at exercise prices which are less than the Market Price at the
date of the grant without the prior written consent of the Underwriter.
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For purposes of this Agreement, Market Price shall mean (i) the average
closing bid price for any ten (10) consecutive trading days within a period of
thirty (30) consecutive trading days ending within five (5) days prior to the
date of issuance of the Common Stock as reported by the National Association of
Securities Dealers, Inc. Automatic Quotation System or the NASD Electronic
Bulletin Board, or (ii) the last reported sale price, for ten (10) consecutive
business days ending within five (5) days of the date of issuance on the primary
exchange on which the Common Stock is traded, if the Common Stock is traded on a
national securities exchange.
(m) Upon completion of this offering, the Company will make all
filings required, including registration under the Exchange Act to obtain the
listing of the Shares on the NASD Electronic Bulletin Board, and will use its
best efforts to effect and maintain such listing for at least five years from
the date of this Agreement to the extent that the Company has at least 300
record holders of Common Stock.
(n) Except for the transactions contemplated by this Agreement,
the Company represents that it has not taken and agrees that it will not take,
directly or indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Shares or to facilitate the sale or resale of
the Shares.
(o) On the First Closing Date and simultaneously with the
delivery of the Shares, the Company shall execute and deliver to you the
Underwriter's Options. The Underwriter's Options will be substantially in the
form filed as an Exhibit to the Registration Statement.
(p) Intentionally omitted.
(q) Upon the Closing Dates, the Company will have in force key
person life insurance policies on the lives of Jacob Davidson and such other
members of management as requested by the Underwriter, in the amount of
$1,000,000.00 and will maintain such insurance during the three year period
commencing with the First Closing Date.
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(r) Intentionally omitted.
(s) For a period of five (5) years from the Effective Date, the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit) the Company's financial statements
for each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information and the filing of the Company's 10-Q quarterly
report, provided that the Company shall not be required to file a report of such
accountants relating to such review with the Commission.
(t) The Underwriter shall have the right to request the Company
to use its best efforts to nominate one (1) nominee of the Underwriter for
election to the Board of Directors for three (3) years following the Effective
Date, and in each case the Company will use its best efforts to cause such
nominee to be elected to the Board of Directors. Until such time as the
Underwriter exercises its right to require the Company to use its best efforts
to cause a nominee of the Underwriter to be elected to the Board of Directors
and until such time as such nominee begins to serve on the Board of Directors,
the Company agrees to allow a representative designated by the Underwriter from
time to time to receive timely, written notice of all Board of Directors
meetings and notice of all telephonic Board meetings and the right to attend all
Board meetings and participate in all telephonic Board meetings. The Underwriter
shall also have the right to obtain copies of the minutes from all Board of
Directors meetings for three (3) years following the Effective Date of the
Registration Statement, whether or not a representative of the Underwriter
attends or participates in any such Board meeting. The Company agrees to
reimburse the Underwriter immediately upon the Underwriter's request therefor of
any reasonable travel and lodging expenses directly incurred by the Underwriter
in connection with its representative attending Company Board meetings on the
same basis for other Board members. In addition, the Company shall compensate
such representative as it does all other outside directors of the Company.
(u) The Company agrees to enter into a two year financial
consulting agreement with the Underwriter whereby the Underwriter shall provide
the Company with financial advisory services following the closing in exchange
for which the Company
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shall pay the Underwriter an aggregate amount of $100,000 on the First Closing
Date.
(v) Intentionally omitted.
(w) Intentionally omitted.
(x) Intentionally omitted.
(y) On or prior to the date hereof, the Company shall have
entered into employment agreements with Jacob Davidson and such other members of
management as requested by the Underwriter, on terms and conditions satisfactory
to the Underwriter.
4. Conditions of Underwriters' Obligation. The obligations of the
Underwriter to purchase and pay for the Shares which it has agreed to purchase
hereunder are subject to the accuracy (as of the date hereof, and as of the
Closing Dates) of and compliance with the representations and warranties of the
Company herein, to the performance by the Company of its obligations hereunder,
and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 a.m., New York time,
on the day following the date of this Agreement, or at such later time or on
such later date as to which the Underwriter may agree in writing; on or prior to
the Closing Dates no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to the Underwriter's
knowledge or to the knowledge of the Company, shall be contemplated by the
Commission; any request on the part of the Commission for additional information
shall have been complied with to the satisfaction of the Commission; and no stop
order shall be in effect denying or suspending effectiveness of such
qualification nor shall any stop order proceedings with respect thereto be
instituted or pending or threatened. If required, the Prospectus shall have been
filed with the Commission in the manner and within the time period required by
Rules 434 and 424(b) under the Act.
(b) (A) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Baer
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Marks & Upham, LLP, counsel for the Company, in form and substance satisfactory
to counsel for the Underwriter, to the effect that:
(i) The Company and the Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, with all requisite
corporate power and authority to own their properties and conduct their business
as described in the Registration Statement and Prospectus and, to its knowledge,
are duly qualified or licensed to do business as a foreign corporation and is in
good standing in the State of Israel and each other jurisdiction in which the
ownership or leasing of its properties or conduct of its business requires such
qualification except where the failure to qualify or be licensed will not have a
Material Adverse Effect;
(ii) the authorized capitalization of the Company as of
the date of the prospectus is as set forth under "Capitalization" in the
Prospectus; all shares of the Company's outstanding capital stock have been duly
authorized, validly issued, fully paid and non-assessable and conform in all
material respects to the description thereof contained in the Prospectus; to
such counsel's knowledge the outstanding shares of capital stock of the Company
have not been issued in violation of the preemptive rights of any shareholder
and the shareholders of the Company do not have any preemptive rights or other
rights to subscribe for or to purchase, nor are there any restrictions upon the
voting or transfer of any of the capital stock except as provided in the
Prospectus; the Common Stock and the Underwriter's Options conform in all
material respects to the respective descriptions thereof contained in the
Prospectus; the Shares have been, and the shares of Common Stock to be issued
upon exercise of the Underwriter's Options will have been duly authorized and,
when issued and delivered in accordance with their respective terms and
applicable Delaware law, will be duly and validly issued, fully paid,
non-assessable, free of preemptive rights and no personal liability will attach
to the ownership thereof; all prior sales by the Company of the Company's
securities have been made in compliance with or under an exemption from
registration under the Act and applicable state securities laws; a sufficient
number of shares of Common Stock has been reserved for issuance upon exercise of
the Underwriter's Options and to the best of such counsel's knowledge, neither
the filing of the Registration Statement nor the offering
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or sale of the Shares as contemplated by this Agreement gives rise to any
registration rights other than (i) those which have been waived or satisfied for
or relating to the registration of any shares of Common Stock or (ii) those
contained in the Underwriter's Options.
(iii) this Agreement and the Underwriter's Options have
been duly and validly authorized, executed, and delivered by the Company;
(iv) the certificates evidencing the Shares comply with
the Delaware General Corporation Law;
(v) except as otherwise disclosed in the Registration
Statement, such counsel knows of no pending or threatened United States or New
York legal or governmental proceedings to which the Company is a party which
would materially adversely affect the business, property, financial condition,
or operations of the Company; or which question the validity of the Securities,
this Agreement, the financial consulting agreement or the Underwriter's Options,
or of any action taken or to be taken by the Company pursuant to this Agreement,
or the Underwriter's Options; to such counsel's knowledge there are no
governmental United States or New York proceedings or regulations required to be
described or referred to in the Registration Statement which are not so
described or referred to;
(vi) the execution and delivery of this Agreement, the
Underwriter's Options, or the financial consulting agreement and the incurrence
of the obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, will not result in a breach or
violation of, or constitute a default under the certificate or articles of
incorporation or by-laws of the Company, or to the best knowledge of counsel, in
the performance or observance of any material obligations, agreement, covenant,
or condition contained in any bond, debenture, note, or other evidence of
indebtedness or in any material contract, indenture, mortgage, loan agreement,
lease, joint venture, or other agreement or instrument to which the Company is a
party or by which they or any of their properties is bound or in violation of
any order, rule, regulation, writ, injunction, or decree of any government,
governmental
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instrumentality, or court, domestic or foreign, the result of which would have a
Material Adverse Effect;
(vii) the Registration Statement has become effective
under the Act, and to the best of such counsel's knowledge, (a) no stop order
suspending the effectiveness of the Registration Statement is in effect, and (b)
no proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and the Prospectus as
of the Effective Date comply as to form in all material respects with the
applicable requirements of the Act and the Rules and Regulations (except, in the
case of both the Registration Statement and any amendment thereto and the
Prospectus and any supplement thereto, for the financial statements, notes
thereto and other financial information (including without limitation, the pro
forma financial information) and schedules contained therein, as to which such
counsel need express no opinion);
(viii) in the course of preparation of the Registration
Statement and the Prospectus such counsel has participated in conferences with
the President of the Company with respect to the Registration Statement and
Prospectus and such discussions did not disclose to such counsel any information
which gives such counsel reason to believe that the Registration Statement or
any amendment thereto at the time it became effective contained any untrue
statement of a material fact required to be stated therein or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make statements therein, in light of the
circumstances under which they were made, not misleading (except, in the case of
both the Registration Statement and any amendment thereto and the Prospectus and
any supplement thereto, for the financial statements, notes thereto and other
financial information (including without limitation, the pro forma financial
information) and schedules contained therein, as to which such counsel need
express no opinion);
(ix) all descriptions in the Registration Statement and
the Prospectus, and any amendment or supplement thereto, of contracts and other
agreements to which the Company is a party are
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accurate and fairly present in all material respects the information required to
be shown, and such counsel is familiar with all contracts and other agreements
referred to in the Registration Statement and the Prospectus and any such
amendment or supplement or filed as exhibits to the Registration Statement, and
such counsel does not know of any contracts or agreements to which the Company
is a party of a character required to be summarized or described therein or to
be filed as exhibits thereto which are not so summarized, described or filed and
such counsel does not know of any defaults under such contracts or agreements
that are not otherwise disclosed therein;
(x) no authorization, approval, consent, or license of any
United States or New York governmental or regulatory authority or agency is
necessary in connection with the authorization, issuance, transfer, sale, or
delivery of the Shares by the Company, in connection with the execution,
delivery, and performance of this Agreement by the Company or in connection with
the taking of any action contemplated herein, or the issuance of the
Underwriter's Options or the Shares underlying the Underwriter's Options, other
than registrations or qualifications of the Shares under applicable state or
foreign securities or Blue Sky laws and registration under the Act and the NASD;
and
(xi) the Shares have been duly authorized for quotation on
the NASD Electronic Bulletin Board.
(xii) except as disclosed in the Registration Statement,
to the best knowledge of such counsel, the Company has sufficient licenses,
permits, and other United States and New York governmental authorizations
currently necessary for the conduct of its business or the ownership of its
properties as described in the Prospectus and is in all material respects
complying therewith. To the best knowledge of such counsel, the business of the
Company is not in violation of, or will not cause the Company to violate any
law, rule, regulation, or order of the United States, any state, county, or
locality, or of any agency or body of the United States, or of any state,
county, or locality, the violation of which would have a Material Adverse Effect
and are in compliance with all rules and regulations pertaining to the business
of the Company.
(xiii) the statements in the Registration Statement under
the caption "Certain U.S. Income Tax Considerations Regarding
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Shares Acquired by U.S. Taxpayers" have been reviewed by such counsel and
insofar as such statements summarize or describe statements of United States tax
law or legal conclusions thereunder, have been reviewed by such counsel and
constitute an accurate description of the legal matters stated therein in all
material respects;
(xiv) to such counsel's knowledge, there are no business
relationships or related-party transactions of the nature described in Item 404
of Regulation S-K involving the Company, and any person described in such Item
that are required to be disclosed in the Prospectus and which have not been so
disclosed; and
(xv) the Company is not in violation of or default under,
nor will the execution and delivery of this Agreement, the Underwriter's
Purchase Option, or the financial consulting agreement, and the incurrence of
the obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, result in a breach or violation of
any material order, rule, regulation, writ, injunction or decree (known to such
counsel with respect to orders, writs, injunctions or decrees) of any United
States or New York government, governmental instrumentality or court except
where such violations or defaults would not have a Material Adverse Effect.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the law of
the United States or of the State of Delaware upon opinions of counsel
satisfactory to the Underwriter, in which case the opinion shall state that they
have no reason to believe that the Underwriter and they are not entitled to so
rely.
(B) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of ___________________________,
Israeli counsel for the Company, in form satisfactory to counsel for the
Underwriter, to the effect that:
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(i) Ambient Israel, the Company's wholly owned subsidiary
(the "Subsidiary") has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Israel, with all
requisite corporate power and authority to own its properties and conduct its
business as described in the Registration Statement and Prospectus;
(ii) all shares of the Subsidiary's outstanding share
capital requiring authorization for issuance by the Subsidiary's Board of
Directors have been duly authorized, validly issued, fully paid and
non-assessable; to such counsel's knowledge the outstanding shares of share
capital of the Subsidiary have not been issued in violation of the preemptive
rights of any shareholder and the shareholders of the Subsidiary do not have any
preemptive rights or other rights to subscribe for or to purchase, nor are there
any restrictions upon the voting or transfer of any of the share capital except
as provided in the Prospectus; the Shares, the Underwriter's Option, and the
financial consulting agreement conform in all material respects to the
respective descriptions thereof contained in the Prospectus; the Shares have
been, and the shares issued upon exercise of the Underwriter's Option, will have
been duly authorized and, when issued and delivered in accordance with their
respective terms will be duly and validly issued, fully paid, non-assessable,
free of preemptive rights; all prior sales by the Subsidiary of the Subsidiary's
securities have been made in compliance with Israeli law; a sufficient number of
Shares has been reserved for issuance upon exercise of the Underwriter's Option
and to the best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated by
this Agreement gives rise to any registration rights other than (i) those which
have been waived or satisfied for or relating to the registration of any Shares
or (ii) those contained in the Underwriter's Option.
(iii) this Agreement, the Underwriter's Option and the
financial consulting agreement have been duly and validly authorized, executed,
and delivered by the Company and, assuming due execution by each other party
hereto or thereto, each constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of
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general application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law);
(iv) except as otherwise disclosed in the Registration
Statement, such counsel knows of no pending or threatened Israeli legal or
governmental proceedings to which the Company or Subsidiary is a party which
would materially adversely affect the business, property, financial condition,
or operations of the Company or Subsidiary; or which question the validity of
the Shares, this Agreement, the financial consulting agreement or the
Underwriter's Option, or of any action taken or to be taken by the Company
pursuant to this Agreement, the financial consulting agreement or the
Underwriter's Option; and no such proceedings are known to such counsel to be
contemplated against the Company or Subsidiary; to such counsel's knowledge
there are no such Israeli governmental proceedings or regulations required to be
described or referred to in the Registration Statement which are not so
described or referred to;
(v) to the best knowledge of such counsel, the Company and
Subsidiary are not in violation of or default under nor will the execution and
delivery of this Agreement, the Underwriter's Option, or the financial
consulting agreement and the incurrence of the obligations herein and therein
set forth and the consummation of the transactions herein or therein
contemplated, result in a breach or violation of, or constitute a default under
the Memorandum of Association or Articles of Association of the Subsidiary or to
the best knowledge of counsel, in the performance or observance of any material
obligations, agreement, covenant, or condition contained in any bond, debenture,
note, or other evidence of indebtedness or in any material contract, indenture,
mortgage, loan agreement, lease, joint venture, or other agreement or instrument
to which the Company or Subsidiary is a party or by which they or any of their
properties is bound or in violation of any Israeli order, rule, regulation,
writ, injunction, or decree of any Israeli governmental instrumentality, or
court, the result of which would have a Material Adverse Effect;
(vi) in the course of preparation of the Registration
Statement and the Prospectus such counsel has participated in conferences with
the President of the Company with
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respect to the contents of the Registration Statement and Prospectus and such
discussions did not disclose to such counsel any information which gives such
counsel reason to believe that the Registration Statement or any amendment
thereto at the time it became effective contained any untrue statement of a
material fact required to be stated therein or omitted to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus or any supplement thereto contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make statements therein, in light of the circumstances under which
they were made, not misleading (except, in the case of both the Registration
Statement and any amendment thereto and the Prospectus and any supplement
thereto, for the financial statements, notes thereto and other financial
information (including without limitation, the pro forma financial information)
and schedules contained therein, as to which such counsel need express no
opinion);
(vii) all descriptions in the Registration Statement and
the Prospectus, and any amendment or supplement thereto, of contracts and other
agreements to which the Company is a party are accurate and fairly present in
all material respects the information required to be shown, and such counsel is
familiar with all contracts and other agreements referred to in the Registration
Statement and the Prospectus and any such amendment or supplement or filed as
exhibits to the Registration Statement, and such counsel does not know of any
contracts or agreements to which the Company is a party of a character required
to be summarized or described therein or to be filed as exhibits thereto which
are not so summarized, described or filed and such counsel does not know of any
defaults under such contracts or agreements that are not otherwise disclosed
therein;
(viii) no authorization, approval, consent, or license of
any Israeli governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale, or delivery of the
Shares by the Company, in connection with the execution, delivery, and
performance of this Agreement by the Company or in connection with the taking of
any action contemplated herein, or the issuance of the Underwriter's Option or
the securities underlying the Underwriter's Option, other than registrations or
qualifications of the Units under applicable state or foreign securities or Blue
Sky laws, registration under
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the Act and approval by the NASD of the fairness of the underwriting
arrangements (as to which such counsel need express no opinion) and such permits
and approvals required under Israeli law which shall have been obtained on or
before the Closing;
(ix) except as disclosed in the Registration Statement, to
the best knowledge of such counsel, the Company and Subsidiary have sufficient
licenses, permits, and other governmental authorizations currently necessary
under Israeli law for the conduct of its business or the ownership of its
properties as described in the Prospectus, such licenses, permits and other
governmental authorizations obtained are in full force and effect, and the
Company and Subsidiary are in all material respects complying therewith except
where the failure to have any such licenses, permits or governmental
authorization would not have a Material Adverse Effect. To the best knowledge of
such counsel, and except as disclosed in the Registration Statement, the
business of the Company and Subsidiary are not in violation of any Israeli law,
rule or regulation, the violation of which would have a Material Adverse Effect
and are in compliance in all material respects with all material rules and
regulations pertaining to the business of the Company;
(x) to the best of such counsel's knowledge, except as
disclosed in the Prospectus, neither the filing of the Registration Statement
nor the offering or sale of the Shares as contemplated by this Agreement gives
rise to any registration rights or other rights, other than those which have
been waived or satisfied for or relating to the registration of any Ordinary
Shares;
(xi) the Company and Subsidiary have obtained all
consents, approvals, authorizations, exemptions or other orders from, and has
made all registrations or filings with, any Israeli court, regulatory body,
administrative agency or other governmental body, official or agency as is
required by Israeli law for the execution, delivery and performance of the
Underwriting Agreement and the consummation of the transactions contemplated
thereby (including, but not limited to, the issuance and sale of Shares as
contemplated by the Underwriting Agreement); to the best of our knowledge, no
proceedings to rescind or modify such consents, approvals, authorizations,
exemptions or orders have been instituted or are pending or contemplated by any
Israeli authority;
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the Israeli Securities Authority has granted the Company an exemption from the
obligation to publish the Prospectus in the manner required under prevailing
laws of the state of Israel, subject to compliance with the terms of Section
12(d) of this Agreement;
(xii) the statements in the Registration Statement under
the captions "Business - Government Regulation," "Management," and "Description
of Securities," "Israeli Taxation and Foreign Exchange Regulations" and
"Conditions in Israel" have been reviewed by such counsel and insofar as they
refer to descriptions of statements of Israeli law, descriptions of Israeli
statutes, rules or regulations or legal conclusions, are correct in all material
respects.
In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law other than the law of the United
States or of the State of Israel upon opinions of counsel satisfactory to the
Underwriter.
(C) At the First Closing Date, you shall have received the
opinion of ___________, special patent counsel, in form and substance
satisfactory to you, identifying any patent searches conducted with respect to
the Company's and the Subsidiaries' patents and patent applications and
providing that the description in the Registration Statement with respect to the
status of such patents and patent applications is accurate, that the Company and
its Subsidiary own the entire right, title and interest in and to such patents
and patent applications as described in the Prospectus and have not received any
notice of conflict with the asserted rights of others in respect thereof and
that the statements in the Prospectus under the captions _______ and _______ are
true and correct. In addition, the Company and its Subsidiaries own or possess
free and clear of all liens and encumbrances and rights thereto or therein by
third parties, all patents, patent applications, trademarks, service marks,
trade-names, trademark registrations, service mark registrations, copyrights,
and licenses ("Intangibles") necessary for the conduct of their business, and
have not received any notice of conflict with the asserted rights of others in
respect thereof. To the best of such counsel's knowledge, the Company's and the
Subsidiaries' Intangibles and the Company's and the Subsidiaries' products,
services or processes do
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not infringe on any Intangibles held by third parties and no others have
infringed on the Intangibles of the Company. The Company's and the Subsidiaries'
Intangibles which have been registered in the United States Patent and Trademark
Office have been fully maintained and are in full force and effect.
(c) All corporate proceedings and other legal matters relating to
this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Bernstein & Wasserman, LLP,
counsel to the Underwriter.
(d) The Underwriter shall have received a letter prior to the
effective date of the Registration Statement and again on and as of the First
Closing Date from ____________________________, independent public accountants
for the Company, substantially in the form reasonably acceptable to the
Underwriter.
(e) At the Closing Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects with the same effect as if made on and as of the Closing Dates
taking into account for the Option Closing Date the effect of the transactions
contemplated hereby and the Company shall have performed all of its obligations
hereunder and satisfied all the conditions on its part to be satisfied at or
prior to such Closing Dates; (ii) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; (iii) there shall have
been, since the respective dates as of which information is given, no material
adverse change, or to the Company's knowledge, any development involving a
prospective material adverse change, in the business, properties, condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt, or general affairs of the Company or the Subsidiaries from that
set forth in the Registration Statement and the Prospectus, except changes which
the Registration Statement and Prospectus indicate might occur after the
effective date of the Registration Statement,
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and neither the Company nor the Subsidiaries shall have incurred any material
liabilities or entered into any material agreement not in the ordinary course of
business other than as referred to in the Registration Statement and Prospectus;
(iv) except as set forth in the Prospectus, no action, suit, or proceeding at
law or in equity shall be pending or threatened against the Company or the
Subsidiaries which would be required to be set forth in the Registration
Statement, and no proceedings shall be pending or threatened against the Company
or the Subsidiaries before or by any commission, board, or administrative agency
in the United States or elsewhere, wherein an unfavorable decision, ruling, or
finding would materially and adversely affect the business, property, condition
(financial or otherwise), results of operations, or general affairs of the
Company or the Subsidiaries and (v) the Underwriter shall have received, at the
First Closing Date, a certificate signed by each of the President and the
principal operating officer of the Company, dated as of the First Closing Date,
evidencing compliance with the provisions of this subsection (e).
(f) Intentionally Omitted.
(g) Upon exercise of the option provided for in Section 2(b)
hereof, the obligations of the Underwriter to purchase and pay for the Option
Shares will be subject (as of the date hereof and of the Option Closing Date) to
the following additional conditions:
(i) The Registration Statement shall remain effective at
the Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to your knowledge or the knowledge of the
Company, shall be contemplated by the Commission, and any reasonable request on
the part of the Commission for additional information shall have been complied
with to the satisfaction of the Commission.
(ii) At the Option Closing Date there shall have been
delivered to you the signed opinions of Baer Marks & Upham, LLP, U.S. counsel,
__________________, Israeli counsel and _____________, special patent counsel to
the Company, respectively, dated as of the Option Closing Date, in form and
substance reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Underwriter, which opinions shall be substantially the same in
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scope and substance as the opinions furnished to you at the initial Closing Date
pursuant to Sections 4(b) hereof, except that such opinions, where appropriate,
shall cover the Option Shares.
(iii) At the Option Closing Date there shall have been
delivered to you a certificate of the President and the principal operating
officer of the Company, dated the Option Closing Date, in form and substance
reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Underwriter, substantially the same in scope and substance as the certificate
furnished to you at the First Closing Date pursuant to Section 4(e) hereof.
(iv) At the Option Closing Date there shall have been
delivered to you a letter in form and substance satisfactory to you from
____________________________, dated the Option Closing Date and addressed to the
Underwriter confirming the information in their letter referred to in Section
4(d) hereof and stating that nothing has come to their attention during the
period from the ending date of their review referred to in said letter to a date
not more than five business days prior to the Option Closing Date, which would
require any change in said letter if it were required to be dated the Option
Closing Date.
(v) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and issuance of the Option Shares shall
be reasonably satisfactory in form and substance to you, and you and Bernstein &
Wasserman, LLP, counsel to the Underwriter, shall have been furnished with all
such documents, certificates, and opinions as you may reasonably request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company or its compliance with any of the covenants or conditions contained
herein.
(h) No action shall have been taken by the Commission or the NASD
the effect of which would make it improper, at any time prior to either of the
Closing Dates, for members of the NASD to execute transactions (as principal or
agent) in the Shares and no proceedings for the taking of such action shall have
been instituted or shall be pending, or, to the knowledge of the Underwriter or
the Company, shall be contemplated by the Commission or the NASD. The Company
represents that at the date hereof it has
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no knowledge that any such action is in fact contemplated by the Commission or
the NASD.
(i) If any of the conditions herein provided for in this Section
shall not have been fulfilled in all material respects as of the date indicated,
this Agreement and all obligations of the Underwriter under this Agreement may
be canceled at, or at any time prior to, either of the Closing Dates by the
Underwriter notifying the Company of such cancellation in writing or by telegram
at or prior to the applicable Closing Date. Any such cancellation shall be
without liability of the Underwriter to the Company.
5. Conditions of the Obligations of the Company. The obligation of the
Company to sell and deliver the Shares is subject to the following conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 a.m. New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Underwriter may agree in
writing.
(b) At the Closing Dates, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the Act
or any proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for
in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Shares on
exercise of the option provided for in Section 2(b) hereof shall be affected.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any losses, claims, damages, or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to which
such Underwriter or such controlling
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person may become subject, under the Act or otherwise, and (ii) to reimburse, as
incurred, the Underwriter and such controlling persons for any legal or other
expenses reasonably incurred in connection with investigating, defending against
or appearing as a third party witness in connection with any losses, claims,
damages, or liabilities; insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) relate to and arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
(A) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, (B) any Blue Sky application or other
document executed by the Company specifically for that purpose or containing
written information specifically furnished by the Company and filed in any state
or other jurisdiction in order to qualify any or all of the Units under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be required to indemnify the Underwriter and any
controlling person or be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage, or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto, provided, further that the indemnity with respect to any
Preliminary Prospectus shall not be applicable on account of any losses, claims,
damages, liabilities, or litigation arising from the sale of Units to any person
if the misstatement or omission was corrected in the Prospectus but a copy of
the Prospectus was not delivered to such person by the Underwriter in accordance
with this Agreement at or prior to the written confirmation of the sale to such
person. This indemnity will be in addition to any liability which the Company
may otherwise have.
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(b) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against any losses, claims,
damages, or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and
reasonable attorneys' fees) to which the Company or any such director, nominee,
officer, or controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or any Blue
Sky Application in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for use in the
preparation thereof and for any violation by the Underwriter in the sale of such
Shares of any applicable state or federal law or any rule, regulation or
instruction thereunder relating to violations based on unauthorized statements
by Underwriter or its representative, provided that such violation is not based
upon any violation of such law, rule, or regulation or instruction by the party
claiming indemnification or inaccurate or misleading information furnished by
the Company or its representatives, including information furnished to the
Underwriter as contemplated herein. This indemnity agreement will be in addition
to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it
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from any liability which it may have to any indemnified party otherwise than
under this Section unless the omission so to notify prejudices the indemnifying
party. In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, subject to the provisions herein stated, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that the reasonable fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party and in the reasonable judgment of
the counsel to the indemnified party, there is a conflict of interest between
the indemnifying party and the indemnified party in the conduct of the defense
(in which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for the indemnified party, which firm shall be designated in writing
by the indemnified party). No settlement of any action against an indemnified
party shall be made without the consent of the indemnified party, which shall
not be unreasonably withheld in light of all factors of importance to such
indemnified party. If it is ultimately determined that indemnification is not
permitted,
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then an indemnified party will return all monies advanced to the indemnifying
party with interest thereon.
7. Contribution. In order to provide for just and equitable contribution
under the Act in any case in which the indemnification provided in Section 6
hereof is requested but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case,
then the Company and the Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) (after
contribution from others) such proportional amount of such losses, claims,
damages, or liabilities represented by the percentage that the underwriting
discount per Share appearing on the cover page of the Prospectus plus all other
compensation paid to the Underwriter bears to the public offering price
appearing thereon and the Company shall be responsible for the remaining
portion, provided, however, that if such allocation is not permitted by
applicable law, then allocated in such proportion as is appropriate to reflect
relative benefits but also the relative fault of the Company and the Underwriter
and controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
of a material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company or the Underwriter and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such untrue statement or omission. The Company and the
Underwriter agree that it would not be just and equitable if the respective
obligations of the Company and the Underwriter to contribute pursuant to this
Section 7 were to be determined by pro rata or per capita allocation of the
aggregate damages or by any other method of allocation that does not take
account of the equitable considerations referred to in this Section 7. No person
guilty of a fraudulent misrepresentation (within the meaning of Section 1(f) of
the Act) shall be entitled to contribution from any
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person who is not guilty of such fraudulent misrepresentation. As used in this
paragraph, the word "Company" includes any officer, director, or person who
controls the Company within the meaning of Section 15 of the Act. If the full
amount of the contribution specified in this paragraph is not permitted by law,
then the Underwriter and each person who controls the Underwriter shall be
entitled to contribution from the Company, its officers, directors, and
controlling persons, and the Company, its officers, directors, and controlling
persons shall be entitled to contribution from the Underwriter to the full
extent permitted by law. The foregoing contribution agreement shall in no way
affect the contribution liabilities of any persons having liability under
Section 11 of the Act other than the Company and the Underwriter. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement; provided, however, that such
consent shall not be unreasonably withheld in light of all factors of importance
to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the sale
of the Shares by the Underwriter is consummated, the Company will pay all costs
and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing, and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus, and the Prospectus, as
amended or supplemented, the fee of the NASD in connection with the filing
required by the NASD relating to the offering of the Shares contemplated hereby;
all expenses, including reasonable fees and disbursements of counsel to the
Underwriter, in connection with the qualification of the Shares under the state
securities or Blue Sky laws which the Underwriter shall designate (which legal
fees (not including filing fees or expenses) shall be $30,000); the cost of
printing and furnishing to the Underwriter copies of the Registration Statement,
each Preliminary Prospectus, if applicable, the Prospectus, this Agreement, and
the Blue Sky Memorandum, any fees relating to the listing of the Units, Common
Stock, and Warrants on NASDAQ or any other securities exchange; the cost of
printing the certificates representing the securities comprising the Shares; the
fees of the transfer agent and warrant
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agent, reasonable and traditional advertising costs, meetings and presentation
costs; and costs of bound volumes (3 sets for the Underwriter) and prospectus
memorabilia (12 for the Underwriter). The Company shall pay any and all taxes
(including any transfer, franchise, capital stock, or other tax imposed by any
jurisdiction) on sales of the Shares hereunder. The Company will also pay all
costs and expenses incident to the furnishing of any amended Prospectus or of
any supplement to be attached to the Prospectus as called for in Section 3(a) of
this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the Company shall at
the First Closing Date pay to the Underwriter a non-accountable expense
allowance of $126,000. In the event the over-allotment option is exercised, the
Company shall pay to the Underwriter at the Option Closing Date an additional
amount in the aggregate equal to 3.0% of the gross proceeds received upon
exercise of the over-allotment option. In the event the transactions
contemplated hereby are not consummated by reason of any action by the
Underwriter (except if such prevention is based upon a breach by the Company of
any covenant, representation, or warranty contained herein or because any other
condition to the Underwriter's obligations hereunder required to be fulfilled by
the Company is not fulfilled, including the obligation to provide due diligence
materials reasonably required in writing by counsel to the Underwriter, the
Company shall not be liable for any expenses of the Underwriter, including the
Underwriter's legal fees (but shall be required to pay Blue Sky counsel fees and
expenses). In the event the transactions contemplated hereby are not consummated
by reason of the Company's actions or failure to take such actions as the
Underwriter believes are reasonably required to complete the transaction
contemplated herein, the Company shall be liable for the actual accountable
out-of-pocket expenses of the Underwriter, including reasonable legal fees which
shall not exceed $75,000 (less any amount previously paid or payable pursuant to
the next sentence). In the event the transactions contemplated hereby are not
consummated due to a material adverse change in the business or financial
results, prospects or condition of the Company or to adverse market conditions,
the Company shall be liable for the actual out-of-pocket expenses of the
Underwriter, including reasonable legal fees, not to exceed in the aggregate
$75,000.
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(c) Except as disclosed in the Registration Statement, no person
is entitled either directly or indirectly to compensation from the Company, from
the Underwriter or from any other person for services as a finder in connection
with the proposed offering, and the Company agrees to indemnify and hold
harmless the Underwriter, against any losses, claims, damages, or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all reasonable
attorneys' fees), to which the Underwriter or person may become subject insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an employee
of the party claiming indemnity) or entity that he or it is entitled to a
finder's fee in connection with the proposed offering by reason of such person's
or entity's influence or prior contact with the indemnifying party.
9. Effective Date. The Agreement shall become effective upon its
execution except that the Underwriter may, at its option, delay its
effectiveness until 11:00 a.m., New York time on the first full business day
following the effective date of the Registration Statement, or at such earlier
time on such business day after the effective date of the Registration Statement
as the Underwriter in its discretion shall first commence the initial public
offering of the Units. This Agreement may be terminated by the Underwriter at
any time before it becomes effective as provided above, except that Sections
3(c), 6, 7, 8, 12, 13, 14, and 15 shall remain in effect notwithstanding such
termination.
10. Termination.
(a) After this Agreement becomes effective, this Agreement,
except for Sections 3(c), 6, 7, 8, 12, 13, 14, and 15 hereof, may be terminated
at any time prior to the Closing Date, by the Underwriter if in the
Underwriter's judgment it is impracticable to offer for sale or to enforce
contracts made by the Underwriter for the resale of the Shares agreed to be
purchased hereunder by reason of (i) the Company having sustained a material
loss, whether or not insured, by reason of fire, earthquake, flood, accident, or
other calamity, or from any labor dispute or court or government action, order,
or decree, (ii) trading in securities on Nasdaq having been suspended or
limited, (iii) material governmental restrictions having been imposed on trading
in
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securities generally (not in force and effect on the date hereof), (iv) a
banking moratorium having been declared by federal or New York state
authorities, (v) an outbreak of major international hostilities involving the
United States, Israel or other substantial national or international calamity
having occurred, (vi) a pending or threatened legal or governmental proceeding
or action relating generally to the Company's or the Subsidiaries business, or a
notification having been received by the Company or the Subsidiaries of the
threat of any such proceeding or action, which would materially adversely affect
the Company or the Subsidiaries; (vii) except as contemplated by the Prospectus,
the Company or the Subsidiary is merged with or consolidated into or acquired by
another company or group or there exists a binding legal commitment for the
foregoing or any other material change of ownership or control occurs; (viii)
the adoption of a federal law, rule or regulation which, in the reasonable
belief of the Underwriter, would have a material adverse impact on the business
or financial condition of the Company or the Subsidiaries, (ix) any material
adverse change in the financial or securities markets beyond normal market
fluctuations having occurred since the date of this Agreement, or (x) any
material adverse change having occurred, since the respective dates of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects, or general condition of the Company or the
Subsidiaries, financial or otherwise, whether or not arising in the ordinary
course of business.
(b) If the Underwriter elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
10, the Company shall be promptly notified by the Underwriter, by telephone or
telegram, confirmed by letter.
11. Underwriter's Options. At or before the First Closing Date, the
Company will sell the Underwriter or its designees for a consideration of $.001
per option and upon the terms and conditions set forth in the form of the
Underwriter's Options annexed as an exhibit to the Registration Statement, to
purchase 60,000 Shares. In the event of conflict in the terms of this Agreement
and the Underwriter's Options with respect to language relating to the
Underwriter's Options, the language of the Underwriter's Options shall control.
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12. Covenants of the Underwriter. You covenant and agree with the
Company as follows:
(a) Compliance with Laws. In connection with the offer and sale
of Shares, you shall comply with any applicable requirements of the Act, the
Exchange Act, the NASD and the applicable state securities or "Blue Sky" laws,
and the rules and regulations thereunder.
(b) Accuracy of Information. No information supplied by you for
use in the Registration Statement, Preliminary Prospectus, Prospectus or Blue
Sky Application will contain any untrue statements of a material fact or omit to
state any material fact necessary to make such information not misleading.
(c) No Additional Information. You will not give any information
or make any representation in connection with the offering of the Shares other
than that contained in the Prospectus.
(d) Sale of Shares. You shall solicit, directly or through
Selected Dealers, purchasers of the Shares only in the jurisdictions in which
you have been advised by the Company that such solicitation can be made, and in
which you or the soliciting Selected Dealer, as the case may be, are qualified
to so act.
13. Representations, Warranties and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties, and other
statements of the Company and the Underwriter and the undertakings set forth in
or made pursuant to this Agreement will remain in full force and effect until
three years from the date of this Agreement, regardless of any investigation
made by or on behalf of the Underwriter, the Company, or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Shares and the termination of this Agreement.
14. Notice. Any communications specifically required hereunder to be in
writing, if sent to the Underwriter, will be mailed, delivered, or telecopied
and confirmed to them at Roan Capital Partners L.P., 40 East 52nd Street, 10th
Floor, New York, NY 10022, with a copy sent to Bernstein & Wasserman, LLP, 950
Third Avenue, New York, NY 10022, Attention: Stuart Neuhauser, Esq., or if sent
to the Company, will be mailed, delivered, or telecopied
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and confirmed to it at __________________________________________, Attention:
_________________ with a copy sent to Baer Marks & Upham, LLP, 805 Third Avenue,
New York, NY 10022, Attention: Samuel F. Ottensoser, Esq. Notice shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication.
15. Parties in Interest. The Agreement herein set forth is made solely
for the benefit of the Underwriter, the Company, any person controlling the
Company or the Underwriter, and directors of the Company, nominees for directors
(if any) named in the Prospectus, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors, assigns
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser, as
such purchaser, from the Underwriter of the Shares.
16. Applicable Law. This Agreement will be governed by, and construed in
accordance with, of the laws of the State of New York applicable to agreements
made and to be entirely performed within New York.
17. Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed to constitute an original and shall
become effective when one or more counterparts have been signed by each of the
parties hereto and delivered to the other parties (including by fax, followed by
original copies by overnight mail).
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18. Entire Agreement; Amendments. This Agreement constitutes the entire
agreement of the parties hereto and supersedes all prior written or oral
agreements, understandings, and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in writing, signed by the
Underwriter and the Company.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
AMBIENT CORPORATION
By: ____________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
ROAN CAPITAL PARTNERS L.P.
By: __________________________
Name:
Title:
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Option to Purchase
60,000 Shares
AMBIENT CORPORATION
SHARE PURCHASE OPTION
Dated: ______, 1997
THIS CERTIFIES that ROAN CAPITAL PARTNERS L.P., 40 East 52nd Street, New
York, NY 10022 (hereinafter sometimes referred to as the "Holder"), is entitled
to purchase from AMBIENT CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), at the prices and during the periods as
hereinafter specified, 60,000 shares of the Company's common stock (the
"Shares").
The Shares have been registered under a Registration Statement on Form
SB-2 (File No. 333-_____) declared effective by the Securities and Exchange
Commission on ________, 1997 (the "Registration Statement"). This Option (the
"Option") to purchase 60,000 Shares (the "Option Shares") was originally issued
pursuant to an underwriting agreement between the Company and Roan Capital
Partners L.P., as underwriter (the "Underwriter"), in connection with a public
offering of 600,000 Shares (the "Public Shares") through the Underwriter, in
consideration of $.001 per Option Share.
Except as specifically otherwise provided herein, the Common Stock
issued pursuant to this Option shall bear the same terms and conditions as
described under the caption "Description of Securities" in the Registration
Statement, and except that the holder shall have registration rights under the
Securities Act of 1933, as amended (the "Act"), for the Common Stock as more
fully described in paragraph 6 of this Option.
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with paragraph 8 of this Option, and
during the periods as follows:
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(a) Between ____________, 1998 and _______, 2002, inclusive, the
Holder shall have the option to purchase Shares hereunder at a price of $8.40
per Share (subject to adjustment pursuant to paragraph 8 hereof) (the "Exercise
Price").
(b) After _________, 2002 (five (5) years from the Effective Date),
the Holder shall have no right to purchase any Shares hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the Exercise Price then in effect for the number of Shares specified in the
above-mentioned purchase form together with applicable stock transfer taxes, if
any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of paragraph 6 and subparagraphs (b), (c)
and (d) of paragraph 7 hereof. This Option shall be deemed to have been
exercised, in whole or in part to the extent specified, immediately prior to the
close of business on the earliest date that both this Option is surrendered and
payment is made in accordance with the foregoing provisions of this paragraph 2,
and other provisions are complied with and the person or persons in whose name
or names the certificates for shares of Common Stock shall be issuable upon such
exercise shall become the holder or holders of record of such Common Stock at
that time and date. The Common Stock and the certificates for the Common Stock
so purchased shall be delivered to the Holder within a reasonable time, not
exceeding ten (10) days, after the rights represented by this Option shall have
been so exercised.
3. For a period of one (1) year from the Effective Date, this Option
shall not be transferred, sold, assigned, or hypothecated, except that it may be
transferred to successors of the Holder, and may be assigned in whole or in part
to any person who is an officer of the Holder during such period. After such one
(1) year period any such assignment must be accompanied by an immediate exercise
of such assigned portion of this Option. Any
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such assignment shall be effected by the Holder (i) executing the form of
assignment at the end hereof and (ii) surrendering this Option for cancellation
at the office or agency of the Company referred to in paragraph 2 hereof,
accompanied by a certificate (signed by an officer of the Holder if the Holder
is a corporation), stating that each transferee is a permitted transferee under
this paragraph 3 hereof; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder) a new Option or Options of like
tenor and representing in the aggregate rights to purchase the same number of
Shares as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock
which may be purchased hereunder will, upon issuance, be duly and validly
issued, fully paid and nonassessable, and no personal liability will attach to
the holder thereof. The Company further covenants and agrees that during the
periods within which this Option may be exercised, the Company will at all times
have authorized and reserved a sufficient number of shares of its Common Stock
to provide for the exercise of this Option.
5. This Option shall not entitle the Holder to any voting, dividend, or
other rights as a stockholder of the Company.
6. (a) During the period set forth in paragraph l(a) hereof, the Company
shall advise the Holder or its transferee, by written notice at least 30 days
prior to the filing of any post-effective amendment to the Registration
Statement or of any new registration statement or post-effective amendment
thereto under the Act covering any securities of the Company, for its own
account or for the account of others (other than a registration statement on
Form S-4 or S-8 or any successor forms thereto), and will for a period of seven
(7) years from the effective date of the Registration Statement, upon the
request of the Holder, include in any such post-effective amendment or
registration statement, such information as may be required to permit a public
offering of, all or any of the Shares underlying the Option (the "Registrable
Securities"). The Company shall supply prospectuses and such other documents as
the Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its reasonable efforts to
register and qualify any of the Registrable Securities for sale in such states
as such Holder designates provided that the Company shall not be required to
qualify as a foreign corporation or a dealer in securities or
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execute a general consent to service of process in any jurisdiction in any
action and do any and all other acts and things which may be reasonably
necessary or desirable to enable such Holders to consummate the public sale or
other disposition of the Registrable Securities, and furnish indemnification in
the manner provided in paragraph 7 hereof. The Holder shall furnish information
and indemnification as set forth in paragraph 7 except that the maximum amount
which may be recovered from the Holder shall be limited to the amount of
proceeds received by the Holder from the sale of the Registrable Securities. The
Company shall use its best efforts to cause the managing underwriter or
underwriters of a proposed underwritten offering to permit the holders of
Registrable Securities requested to be included in the registration to include
such securities in such underwritten offering on the same terms and conditions
as any similar securities of the Company included therein. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering advises
the holders of Registrable Securities that the total amount of securities which
they intend to include in such offering is such as to materially and adversely
affect the success of such offering, then the amount of securities to be offered
for the accounts of holders of Registrable Securities shall be eliminated,
reduced, or limited to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount, if any, recommended by
such managing underwriter or underwriters (any such reduction or limitation in
the total amount of Registrable Securities to be included in such offering to be
borne by the holders of Registrable Securities proposed to be included therein
pro rata). The Holder will pay its own legal fees and expenses and any
underwriting discounts and commissions on the securities sold by such Holder and
shall not be responsible for any other expenses of such registration.
(b) If any 50% holder (as defined below) shall give notice to the
Company at any time during the period set forth in paragraph l(a) hereof, to the
effect that such holder desires to register under the Act, the Shares, under
such circumstances that a public distribution (within the meaning of the Act) of
any such securities will be involved, then the Company will promptly, but no
later than 60 days after receipt of such notice, file a post-effective amendment
to the current Registration Statement or a new registration statement pursuant
to the Act, to the end that the Shares may be publicly sold under the Act as
promptly as practicable thereafter and the Company will use its best efforts to
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cause such registration to become and remain effective for a period of 120 days
(including the taking of such steps as are reasonably necessary to obtain the
removal of any stop order); provided that such holder shall furnish the Company
with appropriate information in connection therewith as the Company may
reasonably request in writing. The 50% holder (which for purposes hereof shall
mean any direct or indirect transferee of such holder provided it owns at least
50% of the Option) may, at its option, request the filing of a post-effective
amendment to the current Registration Statement or a new registration statement
under the Act with respect to the Registrable Securities on only one occasion
during the term of this Option. The Holder may at its option request the
registration of any of the securities underlying the Option in a registration
statement made by the Company as contemplated by Section 6(a) or in connection
with a request made pursuant to this Section 6(b) prior to acquisition of the
Shares issuable upon exercise of the Option and even though the Holder has not
given notice of exercise of the Option. The 50% holder may, at its option,
request such post-effective amendment or new registration statement during the
described period with respect to the Shares as a unit, and such registration
rights may be exercised by the 50% holder prior to or subsequent to the exercise
of the Option. Within ten business days after receiving any such notice pursuant
to this subsection (b) of paragraph 6, the Company shall give notice to the
other holders of the Options, advising that the Company is proceeding with such
post-effective amendment or registration statement and offering to include
therein the securities underlying the Options of the other holders. Each holder
electing to include its Registrable Securities in any such offering shall
provide written notice to the Company within twenty (20) days after receipt of
notice from the Company. The failure to provide such notice to the Company shall
be deemed conclusive evidence of such holder's election not to include its
Registrable Securities in such offering. Each holder electing to include its
Registrable Securities shall furnish the Company with such appropriate
information (relating to the intentions of such holders) in connection therewith
as the Company shall reasonably request in writing. All costs and expenses of
such post-effective amendment or new registration statement shall be borne by
the Company, except that the holders shall bear the fees of their own counsel
and any underwriting discounts or commissions applicable to any of the
securities sold by them.
The Company shall be entitled to postpone the filing of any
registration statement pursuant to this Section 6(b)
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otherwise required to be prepared and filed by it if (i) the Company is engaged
in a material acquisition, reorganization, or divestiture, (ii) the Company is
currently engaged in a self-tender or exchange offer and the filing of a
registration statement would cause a violation of Rule 10b-6 under the
Securities Exchange Act of 1934, (iii) the Company is engaged in an underwritten
offering and the managing underwriter has advised the Company in writing that
such a registration statement would have a material adverse effect on the
consummation of such offering; (iv) for the period of the financial statements
called for in such filing, the Company has only unaudited financial statements,
unless the underwriter agrees that such filing need not include audited
financial statements or (v) the Company is subject to an underwriter's lock-up
as a result of an underwritten public offering and such underwriter has refused
in writing, the Company's request to waive such lock-up. In the event of such
postponement, the Company shall be required to file the registration statement
pursuant to this Section 6(b), within 60 days of the consummation of the event
requiring such postponement.
The Company will use its best efforts to maintain such registration
statement or post-effective amendment current under the Act for a period of 120
days (and for up to an additional three months if requested by the Holder) from
the effective date thereof. The Company shall supply prospectuses, and such
other documents as the Holder may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities, use its best
efforts to register and qualify any of the Registrable Securities for sale in
such states as such holder designates, provided that the Company shall not be
required to qualify as a foreign corporation or a dealer in securities or
execute a general consent to service of process in any jurisdiction in any
action and furnish indemnification in the manner provided in paragraph 7 hereof.
The demand registration rights granted hereunder will expire no later than five
(5) years from the effective date of this offering.
(c) The term "50% holder" as used in this paragraph 6 shall mean the
holder of more than 50% of the Common Stock underlying the Option, as if
exercised, (considered in the aggregate) and shall include any owner or
combination of owners of such securities, which ownership shall be calculated by
determining the number of shares of Common Stock held by such owner or owners.
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7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to any shares of Common Stock issued or issuable upon the exercise of
any Options, is filed under the Act, or is amended or supplemented, the Company
will indemnify and hold harmless each holder of the securities covered by such
registration statement, amendment, or supplement (such holder being hereinafter
called the "Distributing Holder"), and each person, if any, who controls (within
the meaning of the Act) the Distributing Holder, and each underwriter (within
the meaning of the Act) of such securities and each person, if any, who controls
(within the meaning of the Act) any such underwriter, against any losses,
claims, damages, or liabilities, joint or several, to which the Distributing
Holder, any such controlling person or any such underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or supplement thereto,
or which arise out of or are based upon the omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; and will reimburse the Distributing Holder and each such
controlling person and underwriter for any legal or other expenses reasonably
incurred by the Distributing Holder or such controlling person or underwriter in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, said
preliminary prospectus, said final prospectus, or said amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
by such Distributing Holder or any other Distributing Holder, for use in the
preparation thereof; provided, further, that the indemnity with respect to any
preliminary prospectus shall not be applicable on account of any losses, claims,
damages, liabilities, or litigation arising from the sale of such securities to
any person if the misstatement or omission was corrected in the final prospectus
related thereto but such final prospectus was not delivered by the Distributing
Holder to such person at or prior to sale of such securities.
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(b) Each Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who controls the Company (within the meaning of the Act) and each other
Distributing Holder, if any, against any losses, claims, damages, or
liabilities, joint and several, to which the Company or any such director,
officer, or controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages, or liabilities arise out of or are
based upon any untrue or alleged untrue statement of any material fact contained
in said registration statement, said preliminary prospectus, said final
prospectus, or said amendment or supplement, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the preparation
thereof; and will reimburse the Company or any such director, officer, or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not unless it is prejudiced
thereby relieve it from any liability which it may have to any indemnified party
otherwise than under this Paragraph 7.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense
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thereof, the indemnifying party will not be liable to such indemnified party
under this paragraph 7 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof.
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Subsection (e) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the number of shares then comprising an Option Share
by the product of the Exercise Price in effect immediately prior to the date of
such issuance multiplied by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock
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outstanding on the record date mentioned below and the number of additional
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current market price
per share of the Common Stock, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date and the
number of additional shares of Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are convertible). Such
adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration of such
rights or warrants the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock) actually
delivered.
(c) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the number of shares
then comprising an Option Share by the product of the Exercise Price in effect
immediately prior thereto multiplied by a fraction, the numerator of which shall
be the total number of shares of Common Stock outstanding multiplied by the
current market price per share of Common Stock (as defined in Subsection (e)
below), less the fair market value per share (as determined by the Company's
Board of Directors) of said assets or evidences of indebtedness so distributed
or of such rights or warrants, and the denominator of which shall be the total
number of shares of Common Stock outstanding multiplied by such current market
price per share of Common Stock. Such adjustment shall be made successively
whenever such a record date is fixed. Such adjustment shall be made whenever any
such distribution is made and shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
distribution.
(d) Whenever the Exercise Price payable upon exercise of this Option
is adjusted pursuant to Subsections (a), (b) or (c) above, the number of Option
Securities purchasable upon exercise of this Option shall simultaneously be
adjusted by multiplying the number of Option Securities initially issuable upon
exercise of this Option by the Exercise Price in effect on the date hereof and
10
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<PAGE>
dividing the product so obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under Subsections (b) or
(c)above, the current market price per share of Common Stock at any date shall
be deemed to be the average of the daily closing prices for 20 consecutive
business days before such date. The closing price for each day shall be the last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted to trading
on such exchange, the average of the highest reported bid and lowest reported
asked prices as reported by NASDAQ, or other similar organization if NASDAQ is
no longer reporting such information, or if not so available, the fair market
price as determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
Subsection (f) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section 8 shall be made to the nearest cent or to the
nearest one-tenth of a share, as the case may be. Anything in this Section 8 to
the contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Section 8, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Common Stock,
or any subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal income tax liability to the
holders of Common Stock or securities convertible into Common Stock.
(g) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly, but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Shares issuable upon exercise of this Option
and, if requested, information describing the transactions giving rise to such
adjustments, to be mailed to the Holder, at the address set
11
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<PAGE>
forth herein, and shall cause a certified copy thereof to be mailed to its
transfer agent, if any. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section 8, and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
(h) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder thereafter shall become entitled to
receive any shares of the Company, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of this Option shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in Subsections (a) to (f), inclusive above.
9. No adjustment pursuant to Section 8 hereof to the Exercise Price of
the Option will be made, however,
(i) upon the sale of any shares of Common Stock included in the
Company's initial public offering, including, without limitation, shares sold
upon the exercise of any over-allotment option granted to the Underwriters in
connection with such offering; or
(ii) upon the issuance or sale of Common Stock upon the exercise of
any rights or warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock; or
(iii) upon the issuance or sale of Common Stock in a private
placement unless the issuance or sale price is less than 85% of the fair market
value of the Common Stock on the date of issuance, in which case the adjustment
shall only be for the difference between 85% of the fair market value and the
issue or sale price;
(iv) upon the issuance or sale of Common Stock to (a) shareholders
of any corporation which merges into the Company or from which the Company
acquires assets and some or all of the consideration consists of equity
securities of the Company, in proportion to their stock holdings of such
corporation immediately prior to the acquisition or (b) to any corporation or
person from
12
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<PAGE>
which the Company acquires assets but only if no adjustment is required pursuant
to any other provision of this Section 9; or
(v) upon the issuance or sale of (i) up to 250,000 options for the
purchase of Common Stock to employees, officers, directors, advisors or
consultants under the Company's Stock Option Plan at Market Price (as defined in
the Underwriting Agreement) or (ii) Common Stock issued upon the exercise of
options granted under such Stock Option Plan.
10. This Agreement shall be governed by and in accordance with the laws
of the State of New York.
IN WITNESS WHEREOF, Ambient Corporation has caused this Option to be
signed by its duly authorized officers under its corporate seal, and this Option
to be dated as of the date first above written.
AMBIENT CORPORATION
By:____________________________________
Name:
Title:
(Corporate Seal)
<PAGE>
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder,
____ Shares of Ambient Corporation and herewith makes payment of $______________
therefor, and requests that the certificates for shares of Common Stock be
issued in the name(s) of, and delivered to ________________________ whose
address(es) is (are)_________________________________________.
-----------------------
Dated:
2
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<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _________________________________ the right to purchase Shares represented
by the foregoing Option to the extent of _____ Shares, and appoints
_________________________________ attorney to transfer such rights on the books
of Ambient Corporation with full power of substitution in the premises.
Dated:
------------------------------
Name:
Address:
------------------------------
------------------------------
------------------------------
In the presence of:
<PAGE>
<PAGE>
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE.
AMBIENT CORPORATION
600,000 SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
_____________________, 1997
Dear Sirs:
1. Roan Capital Partners L.P., named as the underwriter in the enclosed
Preliminary Prospectus (the "Underwriter"), proposes to offer on a firm
commitment basis, subject to the terms and conditions and execution of the
Underwriting Agreement, 600,000 shares of common stock, $.001 par value
("Shares") (including any additional Shares offered pursuant to an
over-allotment option, the "Firm Shares") of Ambient Corporation (the
"Company"). The Firm Shares are more particularly described in the enclosed
Preliminary Prospectus, additional copies of which as well as the Prospectus
(after effective date) will be supplied in reasonable quantities upon request.
2. The Underwriter is soliciting offers to buy Shares upon the terms and
conditions hereof, from Selected Dealers, who are to act as principals,
including you, who are (i) registered with the Securities and Exchange
Commission ("the Commission") as broker-dealers under the Securities Exchange
Act of 1934, as amended ("the 1934 Act"), and members in good standing with the
National Association of Securities Dealers, Inc. ("the NASD"), or (ii) dealers
of institutions with their principal place of business located outside the
United States, its territories and possessions and not registered under the 1934
Act who agree to make no sales within the United States, its territories and
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation with respect to
free-riding and withholding. Shares are to be offered to the public at a price
of $7.00 per Share. Selected Dealers will be allowed a concession of ___% of the
offering price. You will be notified of the precise amount of such concession
prior to the effective date of the Registration Statement. The offer is
solicited subject to the issuance and delivery of the Shares and their
acceptance by the Underwriter to the approval of legal matters by counsel and to
the terms and conditions as herein set forth.
<PAGE>
<PAGE>
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the registration
statement covering the Shares has become effective with the Commission. Subject
to the foregoing, upon execution by you of the Offer to Purchase below and the
return of same to us, you shall be deemed to have offered to purchase the number
of Shares set forth in your offer on the basis set forth in paragraph 2 above.
Any oral notice by us of acceptance of your offer shall be immediately followed
by written or telegraphic confirmation preceded or accompanied by a copy of the
Prospectus. If a contractual commitment arises hereunder, all the terms of this
Selected Dealers Agreement shall be applicable. We may also make available to
you an allotment to purchase Shares, but such allotment shall be subject to
modification or termination upon notice from us any time prior to an exchange of
confirmations reflecting completed transactions. All references hereafter in
this Agreement to the purchase and sale of the Shares assume and are applicable
only if contractual commitments to purchase are completed in accordance with the
foregoing.
4. You agree that in re-offering the Shares, if your offer is accepted
after the Effective Date, you will make a bona fide public distribution of same.
You will advise us upon request of the Shares purchased by you remaining unsold,
and we shall have the right to repurchase such Shares upon demand at the public
offering price less the concession as set forth in paragraph 2 above. Any of the
Shares purchased by you pursuant to this Agreement are to be re-offered by you
to the public at the public offering price, subject to the terms hereof and
shall not be offered or sold by you below the public offering price before the
termination of this Agreement.
5. Payment for Shares which you purchase hereunder shall be made by you
on such date as we may determine by certified or bank cashier's check payable in
New York Clearinghouse funds to Roan Capital Partners L.P. Certificates for the
securities shall be delivered as soon as practicable at the offices of Roan
Capital Partners L.P., 40 East 52nd Street, New York, NY 10022. Unless
specifically authorized by us, payment by you may not be deferred until delivery
of certificates to you.
6. A registration statement covering the offering has been filed with
the Commission in respect to the Shares. You will be promptly advised when the
registration statement becomes effective. Each Selected Dealer in selling the
Shares pursuant hereto agrees (which agreement shall also be for the benefit of
the Company) that it will comply with the applicable requirements of the
Securities Act of 1933 and of the 1934 Act and any applicable rules and
regulations issued under said Acts. No person is authorized by the Company or by
the Underwriter to give any information or to make any representations other
than those contained in the Prospectus in connection with the sale of the
Shares. Nothing contained herein shall render the Selected Dealers a member of
the underwriting group or partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Shares have been qualified for sale or are exempt under
the respective securities or
2
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<PAGE>
Blue Sky laws of such states, but we have not assumed and will not assume any
obligation or responsibility as to the right of any Selected Dealer to sell
Shares in any state.
8. The Underwriter shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Underwriter shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933 and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part shall
be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Shares; such contractual commitment can only be made in
accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("Association") and registered as a
broker-dealer or are not eligible for membership under Section I of the By-Laws
of the Association who agree to make no sales within the United States, its
territories, or possessions or to persons who are nationals thereof or residents
therein and, in making sales, to comply with the NASD's interpretation with
respect to free-riding and withholding. Your attention is called to the
following: (a) Rules 2730, 2740, 2420 and 2750 of the NASD Conduct Rules of the
Association and the interpretations of said Section promulgated by the Board of
Governors of such Association including the interpretation with respect to
"Free-Riding and Withholding"; (b) Section 10(b) of the 1934 Act and Rules 10b-6
and 10b-10 of the general rules and regulations promulgated under said Act; (c)
Securities Act Release #3907; (d) Securities Act Release #4150; and (e)
Securities Act Release #4968 requiring the distribution of a Preliminary
Prospectus to all persons reasonably expected to be purchasers of Shares from
you at least 48 hours prior to the time you expect to mail confirmations. You,
if a member of the Association, by signing this Agreement, acknowledge that you
are familiar with the cited law, rules, and releases, and agree that you will
not directly and/or indirectly violate any provisions of applicable law in
connection with your participation in the distribution of the Shares.
11. In addition to compliance with the provisions of paragraph 10
hereof, you will not, until advised by us in writing or by wire that the entire
offering has been distributed and closed, bid for or purchase Shares or its
component securities in the open market or otherwise make a market in such
securities or otherwise attempt to induce others to purchase such securities in
the open market. Nothing contained in this paragraph 11 shall, however, preclude
you from acting as agent in the execution of unsolicited orders of customers in
transactions effectuated for them through a market maker.
12. You understand that the Underwriter may in connection with the
offering engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in
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<PAGE>
connection with such stabilization any Shares sold to you hereunder and not
effectively placed by you, the Underwriter may charge you the Selected Dealer's
concession originally allowed you on the Shares so purchased, and you agree to
pay such amount to us on demand.
13. You agree that (i) you shall not recommend to a customer the
purchase of Firm Shares unless you shall have reasonable grounds to believe that
the recommendation is suitable for such customer on the basis of information
furnished by such customer concerning the customer's investment objectives,
financial situation and needs, and any other information known to you, (ii) in
connection with all such determinations, you shall maintain in your files the
basis for such determination, and (iii) you shall not execute any transaction in
Firm Shares in a discretionary account without the prior specific written
approval of the customer.
14. All communications from you should be directed to us at the office
of the Underwriter, Roan Capital Partners L.P., 40 East 52nd Street, New York,
NY 10022. All communications from us to you shall be directed to the address to
which this letter is mailed.
Very truly yours,
ROAN CAPITAL PARTNERS L.P.
____________________________________
Name:
Title:
ACCEPTED AND AGREED TO AS OF THE _____
DAY OF _____________________, 1997
[Name of Dealer]
____________________________________
Name:
Title:
<PAGE>
<PAGE>
To: Roan Capital Partners L.P.
40 East 52nd Street
New York, NY 10022
We hereby subscribe for _____________ Shares of Ambient Corporation, in
accordance with the terms and conditions stated in the foregoing letter. We
hereby acknowledge receipt of the Prospectus referred to in the first paragraph
thereof relating to said Shares. We further state that in purchasing said Shares
we have relied upon said Prospectus and upon no other statement whatsoever,
whether written or oral. We confirm that we are a dealer actually engaged in the
investment banking or securities business and that we are either (i) a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD") or (ii) a dealer with its principal place of business located outside
the United States, its territories and its possessions and not registered as a
broker or dealer under the Securities Exchange Act of 1934, as amended, who
hereby agrees not to make any sales within the United States, its territories or
its possessions or to persons who are nationals thereof or residents therein. We
hereby agree to comply with the provisions of Rule 2740 of the NASD Conduct
Rules, and if we are a foreign dealer and not a member of the NASD, we also
agree to comply with the NASD's interpretation with respect to free-riding and
withholding, to comply, as though we were a member of the NASD, with the
provisions of Rules 2730 and 2750 of the NASD Conduct Rules.
[Name of Dealer]
___________________________________
By:______________________________
Address
___________________________________
___________________________________
Dated _____________________, 1997
2
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<PAGE>
FINANCIAL CONSULTING AGREEMENT
Agreement made this _________ day of __________, 1997 by and between
Roan Capital Partners L.P. ("Consultant") and Ambient Corporation
(the "Company").
WHEREAS, the Company desires to obtain Consultant's consulting
services in connection with the Company's business and financial affairs, and
Consultant is willing to render such services as hereinafter more fully set
forth.
NOW, THEREFORE, the parties hereby agree as follows:
1. The Company hereby engages and retains Consultant and Consultant
hereby agrees to use its best efforts, to render to the Company the consulting
services hereinafter described for a period of two years commencing as of, and
conditioned upon, the closing of the underwriting contemplated in the
Registration Statement on Form SB-2, No. 333-______ declared effective by the
Securities and Exchange Commission on ____________, 1997.
2. Consultant's services hereunder shall consist of consultations
with the Company concerning investment banking and other financial matters to be
determined by the Company.
3. The Company agrees that Consultant shall not be precluded during
the term of this Agreement from providing other consulting services or engaging
in any other business activities whether or not such consulting services or
business activities are pursued for gain, profit or other pecuniary advantage
and whether or not such consulting activities are in direct or indirect
competition with the business activities of the Company.
4. The Company agrees to pay to Consultant for its services
hereunder the sum of Fifty Thousand Dollars ($50,000) per annum, an aggregate
amount of One Hundred Thousand Dollars ($100,000). The Company agrees that the
entire sum due to Consultant hereunder shall be paid in full on the date hereof.
5. All final decisions with respect to consultations or services
rendered by Consultant pursuant to this Agreement shall be those of the Company,
and there shall be no liability on the part of the Consultant in respect
thereof. This Agreement and the Underwriting Agreement contain the entire
agreement of the parties hereto with respect to the subject matter hereof, and
there are no representations or warranties other than as shall be herein or
therein set forth. No waiver or modification hereof shall be valid unless in
writing. No waiver of any term, provision or condition of this Agreement, in any
one or more instance, shall constitute a waiver of any other provision thereof,
whether or not similar, nor shall such waiver constitute a continuing waiver.
<PAGE>
<PAGE>
6. This Agreement shall be governed, construed and enforced in
accordance with the laws of the State of New York, without regard to the
principals of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have caused the agreement to
be signed as of the day and year first above written.
AMBIENT CORPORATION
By:____________________________
Name:
Title:
ROAN CAPITAL PARTNERS L.P.
By:____________________________
Name:
Title:
2
<PAGE>
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
AMBIENT CORPORATION
AMBIENT CORPORATION, a corporation organized under the General
Corporation Law of the State of Delaware (the "Corporation" ) on June 26, 1996
under its current name, certifies as follows:
That the Corporation has not received any payment for any of its stock,
and the Corporation's Certificate of Incorporation has been amended and restated
in its entirety to read as follows in accordance with sections 241 and 245 of
the General Corporation Law:
"FIRST: The name of this corporation is Ambient Corporation.
SECOND: The registered agent and the address of the registered
office in the State of Delaware are:
CorpAmerica, Inc.
1050 S. State Street
Dover, Delaware 19901
County of Kent
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which a corporation may be organized under the
Delaware General Corporation Law.
FOURTH: The Corporation is authorized to issue two classes of
stock to be designated respectively as "Common Stock" and "Preferred
Stock." The total number of shares which the Corporation is authorized
to issue consists of twenty million (20,000,000) shares of Common Stock
and five million (5,000,000) shares of Preferred Stock. Each share of
Common Stock and Preferred Stock shall have a par value of $.001.
FIFTH: The name and mailing address of the incorporator is as
follows:
Adam T. Ettinger
Pillsbury Madison & Sutro LLP
2700 Sand Hill Road
Menlo Park, CA 94025-7020
-1-
<PAGE>
<PAGE>
SIXTH: The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors. In
addition to the powers and authority expressly conferred upon them by
Statute or by this Certificate of Incorporation or the Bylaws of the
Corporation, the directors are hereby empowered to exercise a11 such
powers and do all such acts and things as may be exercised or done by
the Corporation. Election of directors need not be by written ballot
unless the Bylaws so provide.
SEVENTH: The Board of D1rectors is authorized to make, adopt,
amend, alter or repeal the Bylaws of the Corporation. The stockholders
shall also have power to make, adopt, amend, alter or repeal the Bylaws
of the Corporation.
EIGHTH: The Corporation reserves the right to amend or repeal
any of the provisions contained in this Certificate of Incorporation in
any manner now or hereafter permitted by law, and the rights of the
stockholders of this Corporation are granted subject to this
reservation.
NINTH: To the fullest extent permitted by the Delaware General
Corporation Law, a director of the Corporation shall not be liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. Any repeal or modification of the
foregoing provisions of this Article NINTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification."
I, THE UNDERSIGNED, being the sole incorporator, do make, file and record
this Restated Certificate of Incorporation, do certify that the facts herein
stated are true, and accordingly, have hereto set my hand this 5th day of
November, 1996.
/s/ Adam T. Ettinger
--------------------------
Adam T. Ettinger
Incorporator
-2-
<PAGE>
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "AMBIENT CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-SIXTH
DAY OF JUNE, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
____________________________________
[SEAL] Edward J. Freel, Secretary of State
2638252 8100 AUTHENTICATION: 8005208
960187961 DATE: 06-26-96
<PAGE>
<PAGE>
CERTIFICATE OF INCORPORATION
OF
AMBIENT CORPORATION
FIRST: The name of this corporation is Ambient Corporation (the
"Corporation").
SECOND: The registered agent and the address of the registered
office in the State of Delaware are:
CorpAmerica, Inc.
1050 S. State Street
Dover, Delaware 19901
County of Kent
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Delaware General
Corporation Law.
FOURTH: The Corporation is authorized to issue one class of stock to be
designated as "Common Stock". The total number of Common Stock shares which the
Corporation is authorized to issue is one million (1,000,000) shares, each such
Common Stock share having a par value of $.001.
FIFTH: The name and mailing address of the incorporator is as follows:
Adam T. Ettinger
Pillsbury Madison & Sutro LLP
2700 Sand Hill Road
Menlo Park, CA 94025-7020
SIXTH: The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by Statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation. Election of directors need not be by
written ballot unless the Bylaws so provide.
SEVENTH: The Board of Directors is authorized to make, adopt, amend,
alter or repeal the Bylaws of the Corporation. The stockholders shall also have
power to make, adopt, amend, alter or repeal the Bylaws of the Corporation.
<PAGE>
<PAGE>
EIGHTH: The Corporation reserves the right to amend or repeal any of
the provisions contained in this Certificate of Incorporation in any manner now
or hereafter permitted by law, and the rights of the stockholders of this
Corporation are granted subject to this reservation.
NINTH: To the fullest extent permitted by the Delaware General
Corporation Law, a director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Any repeal or modification of the foregoing provisions of
this Article NINTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming
a corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereto set my hand this 24th day of June, 1996.
/s/ ADAM T. ETTINGER
_________________________________________
Adam T. Ettinger
Incorporator
<PAGE>
<PAGE>
BYLAWS
OF
AMBIENT CORPORATION
(a Delaware corporation)
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 Offices ........................................................... 1
1.1 Principal Office .................................................. 1
1.2 Additional Offices ................................................ 1
ARTICLE 2 Meeting of Stockholders ........................................... 1
2.1 Place of Meeting .................................................. 1
2.2 Annual Meeting .................................................... 1
2.3 Special Meetings .................................................. 1
2.4 Notice of Meetings ................................................ 2
2.5 Business Matter of a Special Meeting .............................. 2
2.6 List of Stockholders .............................................. 2
2.7 Organization and Conduct of Business .............................. 2
2.8 Quorum and Adjournments ........................................... 3
2.9 Voting Rights ..................................................... 3
2.10 Majority Vote ..................................................... 3
2.11 Record Date for Stockholder Notice and Voting ..................... 3
2.12 Proxies ........................................................... 4
2.13 Inspectors of Election ............................................ 4
2.14 Action Without Meeting by Written Consent ......................... 4
ARTICLE 3 Directors
3.1 Number; Qualifications ............................................ 5
3.2 Resignation and Vacancies ......................................... 5
3.3 Removal of Directors .............................................. 5
3.4 Powers ............................................................ 5
3.5 Place of Meetings ................................................. 5
3.6 Annual Meetings ................................................... 7
3.7 Regular Meetings .................................................. 7
3.8 Special Meetings .................................................. 7
3.9 Quorum and Adjournments ........................................... 7
3.10 Action Without Meeting ............................................ 7
3.11 Telephone Meetings ................................................ 7
3.12 Waiver of Notice .................................................. 7
3.13 Fees and Compensation of Directors ................................ 8
3.14 Rights of Inspection .............................................. 8
ARTICLE 4 Committees of Directors ........................................... 8
4.1 Selection ......................................................... 8
4.2 Power ............................................................. 8
4.3 Committee Minutes ................................................. 9
ARTICLE 5 Officers .......................................................... 9
5.1 Officers Designated ............................................... 9
5.2 Appointment of Officers ........................................... 9
5.3 Subordinate Officers .............................................. 9
5.4 Removal and Resignation of Officers ............................... 9
5.5 Vacancies in Offices .............................................. 10
5.6 Compensation ...................................................... 10
5.7 The Chairman of the Board ......................................... 10
5.8 The President ..................................................... 10
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5.9 The Vice President ................................................ 10
5.10 The Secretary ..................................................... 11
5.11 The Assistant Secretary ........................................... 11
5.12 The Treasurer ..................................................... 11
5.13 The Assistant Treasurer ........................................... 11
ARTICLE 6 Stock Certificates ................................................ 12
6.1 Certificates for Shares ........................................... 12
6.2 Signatures on Certificates ........................................ 12
6.3 Transfer of Stock ................................................. 12
6.4 Registered Stockholders ........................................... 12
6.5 Record Date ....................................................... 13
6.6 Lost, Stolen or Destroyed Certificates ............................ 13
ARTICLE 7 Notices ........................................................... 13
7.1 Notice ............................................................ 13
7.2 Waiver ............................................................ 14
ARTICLE 8 General Provisions ................................................ 14
8.1 Dividends ......................................................... 14
8.2 Dividend Reserve .................................................. 14
8.3 Annual Statement .................................................. 14
8.4 Checks ............................................................ 14
8.5 Corporate Seal .................................................... 14
8.6 Execution of Corporate Contracts and Instruments .................. 14
ARTICLE 9 Amendments ........................................................ 15
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BYLAWS
OF
AMBIENT CORPORATION
(a Delaware corporation)
ARTICLE 1
Offices
1.1 Principa1 Office. The Board of Directors shall fix the location of the
principal executive office of the corporation at any place within or outside the
State of Delaware.
1.2 Additional Offices. The Board of Directors (the "Board") may at any
time establish branch or subordinate offices at any place or places.
ARTICLE 2
Meeting of Stockholders
2.1 Place of Meeting. All meetings of the stockholders for the election of
directors shall be held at the principal office of the Corporation, at such
place as may be fixed from time to time by the Board or at such other place
either within or without the State of Delaware as shall be designated from time
to time by the Board and stated in the notice of the meeting. Meetings of
stockholders for any purpose may be held at such time and place within or
without the State of Delaware as the Board may fix from time to time and as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
2.2 Annual Meeting. Annual meetings of stockholders shall be held at such
date and time as shall be designated from time to time by the Board and stated
in the notice of the meeting. At such annual meetings, the stockholders shall
elect a Board and transact such other business as may properly be brought before
the meetings.
2.3 Special Meetings. Special meetings of the stockholders may be called
for any purpose or purposes, unless otherwise prescribed by the statute or by
the Certificate of Incorporation, at the request of the Board, the Chairman of
the Board, the President or the holders of shares entitled to cast not less than
ten percent (10%) of the votes at the meeting or such additional persons as may
be provided in the certificate of incorporation or bylaws. Such request shall
state the purpose or purposes of the proposed meeting. Upon request in writing
that
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a special meeting of stockholders be called for any proper purpose, directed to
the chairman of the board of directors, the president, the vice president or the
secretary by any person (other than the board of directors) entitled to call a
special meeting of stockholders, the person forthwith shall cause notice to be
given to the stockholders entitled to vote that a meeting will be held at a time
requested by the person or persons calling the meeting, such time not to be less
than thirty-five (35) nor more than sixty (60) days after receipt of the
request. Such request shall state the purpose or purposes of the proposed
meeting.
2.4 Notice of Meetings. Written notice of stockholders' meetings, stating
the place, date and time of the meeting and the purpose or purposes for which
the meeting is called, shall be given to each stockholder entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days prior to the
meeting.
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
2.5 Business Matter of a Special Meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in
the notice.
2.6 List of Stockholders. The officer in charge of the stock ledger of the
Corporation or the transfer agent shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, at a place within the
city where the meeting is to be held, which place, if other than the place of
the meeting, shall be specified in the notice of the meeting. The list shall
also be produced and kept at the place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present in person
thereat.
2.7 Organization and Conduct of Business. The Chairman of the Board or, in
his or her absence, the President of the Corporation or, in their absence, such
person as the Board may have
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designated or, in the absence of such a person, such person as may be chosen by
the holders of a majority of the shares entitled to vote who are present, in
person or by proxy, shall call to order any meeting of the stockholders and act
as Chairman of the meeting. In the absence of the Secretary of the Corporation,
the Secretary of the meeting shall be such person as the Chairman appoints.
The Chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seems to him or her in order.
2.8 Quorum and Adjournments. Except where otherwise provided by law or the
Certificate of Incorporation or these By-Laws, the holders of a majority of the
stock issued and outstanding and entitled to vote, present in person or
represented in proxy, shall constitute a quorum at all meetings of the
stockholders. The stockholders present at a duly called or held meeting at which
a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to have less than a quorum
if any action taken (other than adjournment) is approved by at least a majority
of the shares required to constitute a quorum. At such adjourned meeting at
which a quorum is present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If, however, a
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat who are present in person or
represented by proxy shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented.
2.9 Voting Rights. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.
2.10 Majority Vote. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation or of these By-Laws, a different vote is
required in which case such express provision shall govern and control the
decision of such question.
2.11 Record Date for Stockholder Notice and Voting. For purposes of
determining the stockholders entitled to notice of any meeting or to vote, or
entitled to receive payment of any dividend or other distribution, or entitled
to exercise any
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right in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of any such meeting nor more than sixty (60) days before any
other action.
If the Board does not so fix a record date, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held.
2.12 Proxies. Every person entitled to vote for directors or on any other
matter shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the Secretary
of the Corporation. A proxy shall be deemed signed if the stockholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the stockholder or the stockholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) revoked by the
person executing it, before the vote pursuant to that proxy, by a writing
delivered to the Corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the Corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven months from the date of the proxy,
unless otherwise provided in the proxy.
2.13 Inspectors of Election. Before any meeting of stockholders the Board
may appoint any person other than nominees for office to act as inspectors of
election at the meeting or its adjournment. If no inspectors of election are so
appointed, the Chairman of the meeting may, and on the request of any
stockholder or a stockholder's proxy shall, appoint inspectors of election at
the meeting. The number of inspectors shall be either one (1) or three (3). If
inspectors are appointed at a meeting on the request of one or more stockholders
or proxies, the holders of a majority of shares or their proxies present at the
meeting shall determine whether one (1) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, the Chairman of the meeting may, and upon the request of any
stockholder or a stockholder's proxy shall, appoint a person to fill that
vacancy.
2.14 Action Without Meeting by Written Consent. All actions required to be
taken at any annual or special meeting may be taken without a meeting, without
prior notice and without
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a vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the corporation by delivery to its registered office,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings or stockholders are
recorded.
ARTICLE 3
Directors
3.1 Number; Qualifications. The number of the directors shall be determined
from time to time by resolution of the Board and the initial Board shall consist
of three (3) directors. All directors shall be elected at the annual meeting or
any special meeting of the stockholders, except as provided in Section 3.2, and
each director so elected shall hold office until the next annual meeting or any
special meeting or until his successor is elected and qualified or until his
earlier resignation or removal. Directors need not be stockholders.
3.2 Resignation and Vacancies. A vacancy or vacancies in the Board shall be
deemed to exist in the case of the death, resignation or removal of any
director, or if the authorized number of directors be increased. Vacancies may
be filled by a majority of the remaining directors, though less than a quorum,
or by a sole remaining director, unless otherwise provided in the Certificate of
Incorporation. The stockholders may elect a director or directors at any time to
fill any vacancy or vacancies not filled by the directors. If the Board accepts
the resignation of a director tendered to take effect at a future time, the
Board shall have power to elect a successor to take office when the resignation
is to become effective. If there are no directors in office, then an election of
directors may be held in the manner provided by statute.
3.3 Removal of Directors. Unless otherwise restricted by statute, the
Certificate of Incorporation or these By-Laws, any director or the entire Board
may be removed, with or without cause, by the holders of at least a majority of
the shares entitled to vote at an election of directors.
3.4 Powers. The business of the Corporation shall be managed by or under
the direction of the Board which may exercise all such powers of the Corporation
and do all such lawful acts and things which are not by statute or by the
Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
Without prejudice to these general powers, and subject to the same
limitations, the directors shall have the power to:
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(a) Select and remove all officers, agents, and employees of the
Corporation; prescribe any powers and duties for them that are consistent
with law, with the Certificate of Incorporation, and with these By-Laws;
fix their compensation; and require from them security for faithful
service;
(b) Confer upon any office the power to appoint, remove and suspend
subordinate officers, employees and agents;
(c) Change the principal executive office or the principal business
office in the State of California or any other state from one location to
another; cause the Corporation to be qualified to do business in any other
state, territory, dependency or country and conduct business within or
without the State of California; and designate any place within or without
the State of California for the holding of any stockholders meeting, or
meetings, including annual meetings;
(d) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates;
(e) Authorize the issuance of shares of stock of the Corporation on
any lawful terms, in consideration of money paid, labor done, services
actually rendered, debts or securities canceled, tangible or intangible
property actually received;
(f) Borrow money and incur indebtedness on behalf of the Corporation,
and cause to be executed and delivered for the Corporation's purposes, in
the corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations and other evidences of debt and
securities;
(g) Declare dividends from time to time in accordance with law;
(h) Adopt from time to time such stock option, stock purchase, bonus
or other compensation plans for directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine; and
(i) Adopt from time to time regulations not inconsistent with these
By-Laws for the management of the Corporation's business and affairs.
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3.5 Place of Meetings. The Board may hold meetings, both regular and
special, either within or without the State of Delaware.
3.6 Annual Meetings. The annual meetings of the Board shall be held
immediately following the annual meeting of stockholders, and no notice of such
meeting shall be necessary to the Board, provided a quorum shall be present. The
annual meetings shall be for the purposes of organization, and an election of
officers and the transaction of other business.
3.7 Regular Meetings. Regular meetings of the Board may be held without
notice at such time and place as may be determined from time to time by the
Board.
3.8 Special Meetings. Special meetings of the Board may be called by the
Chairman of the Board, the President, a Vice President or a majority of the
Board upon one (1) day's notice to each director.
3.9 Quorum and Adjournments. At all meetings of the Board, a majority of
the directors then in office shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board, except as may otherwise
be specifically provided by law or the Certificate of Incorporation. If a quorum
is not present at any meeting of the Board, the directors present may adjourn
the meeting from time to time, without notice other than announcement at the
meeting at which the adjournment is taken, until a quorum shall be present. A
meeting at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved of
by at least a majority of the required quorum for that meeting.
3.10 Action Without Meeting. Unless otherwise restricted by the Certificate
of Incorporation or these By-Laws, any action required or permitted to be taken
at any meeting of the Board or of any committee thereof may be taken without a
meeting, if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
3.11 Telephone Meetings. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, any member of the Board or any committee may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.12 Waiver of Notice. Notice of a meeting need not be given to any
director who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof,
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whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
3.13 Fees and Compensation of Directors. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, the Board shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board and may be paid a
fixed sum for attendance at each meeting of the Board or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.14 Rights of Inspection. Every director shall have the absolute right at
any reasonable time to inspect and copy all books, records and documents of
every kind and to inspect the physical properties of the Corporation and also of
its subsidiary corporations, domestic or foreign. Such inspection by a director
may be made in person or by agent or attorney and includes the right to copy and
obtain extracts.
ARTICLE 4
Committees of Directors
4.1 Selection. The Board may, by resolution passed by a majority of the
entire Board, designate one or more committees, each committee to consist of one
or more of the directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or she or they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member.
4.2 Power. Any such committee, to the extent provided in the resolution of
the Board, shall have and may exercise all the powers and authority of the Board
in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation (except that a committee may, to
the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board as provided in
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Section 151(a) of the General Corporation Law of Delaware, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of dissolution, removing or
indemnifying directors or amending the By-Laws of the Corporation; and, unless
the resolution or the Certificate of Incorporation expressly so provides, no
such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of ownership and
merger. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board.
4.3 Committee Minutes. Each committee shall keep regular minutes of its
meetings and report the same to the Board when required.
ARTICLE 5
Officers
5.1 Officers Designated. The officers of the Corporation shall be chosen by
the Board and shall be a President, a Secretary and a Treasurer. The Board may
also choose a Chairman of the Board, one or more Vice Presidents, and one or
more assistant Secretaries and assistant Treasurers. Any number of offices may
be held by the same person, unless the Certificate of Incorporation or these
By-Laws otherwise provide.
5.2 Appointment of Officers. The officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of Section 5.3 or
5.5 of this Article 5, shall be appointed by the Board, and each shall serve at
the pleasure of the Board, subject to the rights, if any, of an officer under
any contract of employment.
5.3 Subordinate Officers. The Board may appoint, and may empower the
President to appoint, such other officers and agents as the business of the
Corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the By-Laws or as the
Board may from time to time determine.
5.4 Removal and Resignation of Officers. Subject to the rights, if any, of
an officer under any contract of employment, any officer may be removed, either
with or without cause, by an affirmative vote of the majority of the Board, at
any regular or
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special meeting of the Board, or, except in case of an officer chosen by the
Board, by any officer upon whom such power of removal may be conferred by the
Board.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
5.5 Vacancies in Offices. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these By-Laws for regular appointment to that office.
5.6 Compensation. The salaries of all officers of the Corporation shall be
fixed from time to time by the Board and no officer shall be prevented from
receiving a salary because he is also a director of the Corporation.
5.7 The Chairman of the Board. The Chairman of the Board, if such an
officer be elected, shall, if present, perform such other powers and duties as
may be assigned to him from time to time by the Board. If there is no President,
the Chairman of the Board shall also be the Chief Executive Officer of the
Corporation and shall have the powers and duties prescribed in Section 5.8 of
this Article 5.
5.8 The President. Subject to such supervisory powers, if any, as may be
given by the Board to the Chairman of the Board, if there be such an officer,
the President shall be the Chief Executive Officer of the Corporation, shall
preside at all meetings of the stockholders and in the absence of the Chairman
of the Board, or if there be none, at all meetings of the Board, shall have
general and active management of the business of the Corporation and shall see
that all orders and resolutions of the Board are carried into effect. He or she
shall execute bonds, mortgages and other contracts requiring a seal, under the
seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board to some other officer or agent of the
Corporation.
5.9 The Vice President. The Vice President (or in the event there be more
than one, the Vice Presidents in the order designated by the directors, or in
the absence of any designation, in the order of their election), shall, in the
absence of the President or in the event of his disability or refusal to act,
perform the duties of the President, and when so acting, shall have the powers
of and subject to all the restrictions upon the President. The Vice President(s)
shall perform such
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other duties and have such other powers as may from time to time be prescribed
for them by the Board, the President, the Chairman of the Board or these
By-Laws.
5.10 The Secretary. The Secretary shall attend all meetings of the Board
and the stockholders and record all votes and the proceedings of the meetings in
a book to be kept for that purpose and shall perform like duties for the
standing committees, when required. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and special meetings of the Board,
and shall perform such other duties as may from time to time be prescribed by
the Board, the Chairman of the Board or the President, under whose supervision
he or she shall act. The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix the same to any instrument requiring it, and, when so affixed, the seal
may be attested by his or her signature or by the signature of such Assistant
Secretary. The Board may give general authority to any other officer to affix
the seal of the Corporation and to attest the affixing thereof by his or her
signature. The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, as determined by resolution of the Board, a share register, or a
duplicate share register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same and the number and date of cancellation of
every certificate surrendered for cancellation.
5.11 The Assistant Secretary. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order designated by the Board (or in
the absence of any designation, in the order of their election) shall, in the
absence of the Secretary or in the event of his or her inability or refusal to
act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as may from time to time be
prescribed by the Board.
5.12 The Treasurer. The Treasurer shall have the custody of the Corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the Board, taking
proper vouchers for such disbursements, and shall render to the President and
the Board, at its regular meetings, or when the Board so requires, an account of
all his or her transactions as Treasurer and of the financial condition of the
Corporation.
5.13 The Assistant Treasurer. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the
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order designated by the Board (or in the absence of any designation, in the
order of their election) shall, in the absence of the Treasurer or in the event
of his or her inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as may from time to time be prescribed by the Board.
ARTICLE 6
Stock Certificates
6.1 Certificates for Shares. The shares of the Corporation shall be
represented by certificates or shall be uncertificated. Certificates shall be
signed by, or in the name of the Corporation by, the Chairman of the Board, or
the President or a Vice President and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation.
Within a reasonable time after the issuance or transfer of uncertified
stock, the Corporation shall send to the registered owner thereof a written
notice containing the information required by the General Corporation Law of
the State of Delaware or a statement that the Corporation will furnish without
charge to each stockholder who so requests the powers, designations, preferences
and relative participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
6.2 Signatures on Certificates. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
6.3 Transfer of Stock. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate of shares duly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer, it shall
be the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated share, such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the Corporation.
6.4 Registered Stockholders. The Corporation shall be entitled to recognize
the exclusive right of a person registered
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<PAGE>
<PAGE>
on its books as the owner of shares to receive dividends, and to vote as such
owner, and to hold liable for calls and assessments a percent registered on its
books as the owner of shares, and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
6.5 Record Date. In order that the Corporation may determine the
stockholders of record who are entitled to receive notice of, or to vote at, any
meeting of stockholders or any adjournment thereof or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or to exercise
any rights in respect of any change, conversion, or exchange of stock or for the
purpose of any lawful action, the Board may fix, in advance, a record date which
shall not be more than sixty (60) nor less than ten (10) days prior to the date
of such meeting, nor more than sixty (60) days prior to the date of any other
action. A determination of stockholders of record entitled to notice or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
6.6 Lost, Stolen or Destroyed Certificates. The Board may direct thee a new
certificate or certificates be issued to replace any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing the
issue of a new certificate or certificates, the Board may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of the lost,
stolen or destroyed certificate or certificates, or his or her legal
representative, to advertise the same in such manner as it shall require, and/or
to give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
ARTICLE 7
Notices
7.1 Notice. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these By-Laws, notice is required to be given
to any director or stockholder it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his or her address as it appears on the records of
the Corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram or telephone.
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<PAGE>
<PAGE>
7.2 Waiver. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE 8
General Provisions
8.1 Dividends. Dividends upon the capital stock of the Corporation, subject
to any restrictions contained in the General Corporation Laws of Delaware or the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board at any regular or special meeting. Dividends may be paid in cash, in
property or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.
8.2 Dividend Reserve. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
8.3 Annual Statement. The Board shall present at each annual meeting, and
at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
8.4 Checks. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board may from time to time designate.
8.5 Corporate Seal. The Board may provide a suitable seal, containing the
name of the Corporation, which seal shall be in charge of the Secretary. If and
when so directed by the Board or a committee thereof, duplicates of the seal may
be kept and used by the Treasurer or by an Assistant Secretary or Assistant
Treasurer.
8.6 Execution of Corporate Contracts and Instruments. The Board, except as
otherwise provided in these By-Laws, may authorize any officer or officers, or
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the Corporation; such authority may be general or
confined to specific instances. Unless so authorized or ratified by the Board or
within the agency power of an officer, no
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<PAGE>
<PAGE>
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
ARTICLE 9
Amendments
In addition to the right of the stockholders of the corporation to make,
alter, amend, change, add to or repeal the bylaws of the corporation, the Board
of Directors shall have the power (without the assent or vote of the
stockholders) to make, alter, amend, change, add to or repeal the bylaws of the
corporation.
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<PAGE>
<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, hereby certify:
1. That I am the duly elected, acting and qualified Secretary of Ambient
Corporation, a Delaware corporation; and
2. That the foregoing Bylaws, comprising 15 pages, constitute the Bylaws of
such corporation as duly adopted by action of the sole incorporator of such
corporation pursuant to written consent dated November 6, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name this ______ day of
December, 1996.
/s/ Elie Wartman
...........................
Elie Wartman, Secretary
<PAGE>
<PAGE>
THE COMPANIES ORDINANCE (1983)
MEMORANDUM OF ASSOCIATION
OF
GENTEC LTD
[HEBREW CHARACTERS]
1. The name of the Company in English is: GENTEC LTD. The name of the Company in
Hebrew is [HEBREW CHARACTERS].
2. The purposes for which the Company is established are:
(a) To market and develop any products and services as shall be determined by
the Company from time to time.
(b) To engage in and conduct any business as shall be determined by the Company
from time to time.
3. The liability of the members is limited.
4. The share capital of the Company is 28,000 New Israeli Shekels divided into
28,000 ordinary Shares of one New Israeli Shekel each.
We, the undersigned, want to incorporate as a Company, in pursuance of this
Memorandum of Association, and we respectively agree to take the number of
shares in the capital of the Company set opposite our respective names.
<TABLE>
<CAPTION>
Name and Number of shares
Addresses of I.D. and taken by each
subscribers Description Signature Subscriber
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gen Technologies Delaware /s/ 99
Inc. Ramban 19/8, corporation
Jerusalem
Brounstein-Aboudi Limited Company /s/ 1
Trustees Ltd 51-200476-3
Chen Blvd. 6
Tel Aviv
[copy illegible]
DATED this 26 day of October, 1995
WITNESS to the above signatures: /s/ GERALD BROUNSTEIN
---------------------
Gerald Brounstein
Advocate
<PAGE>
<PAGE>
NOTICE OF A SPECIAL RESOLUTION
(In accordance with Section 118 of the Companies Ordinance (New Version)
5743-1983)
GENTEC, LTD. [HEBREW CHARACTERS]
51-223293-5 [HEBREW CHARACTERS]
(herein "The Company")
Notice is hereby given in accordance with Section 118 of the Companies Ordinance
(New Version) 5743-1983 that in an extraordinary meeting which took place in
Jerusalem on the 21st day of October 1996 the Company adopted the following
special resolution to change the Company's name:
The Shareholders of the Company resolved to change the Company's name
to "AMBIeNT, LTD." (in Hebrew "[HEBREW CHARACTERS]") or a similar
name as will be approved by the Registrar of Companies.
I hereby confirm that the above mentioned special resolution was adopted by the
Company:
/s/ ELIE C. WURTMAN
----------------------------------
Elie C. Wurtman, Chairman
Jerusalem, the 21st day of October 1996.
<PAGE>
<PAGE>
MINUTES OF AN EXTRAORDINARY GENERAL MEETING
OF THE SHAREHOLDERS OF GENTEC, LTD.
521-223293 [HEBREW CHARACTERS]
(herein "The Company")
Duly convened and held in Jerusalem on this 21st day of October, 1996
Present were: All the shareholders of the Company.
Chairman of the Meeting: Mr. Elie C. Wurtman.
All shareholders of the Company waive all the requirements to prior notice
necessary for the adoption of the following special resolution, to the extent
that same were not fulfilled.
After discussion and upon motion duly made, the following special resolution was
adopted:
IT IS HEREBY RESOLVED:
1. THAT the Company's name be changed to "AMBIeNT LTD." (in Hebrew "[HEBREW
CHARACTERS"]) or a similar name as will be approved by the Registrar of
Companies.
2. THAT the Registrar of Companies be notified of the above resolutions at the
earliest date possible.
There being no further business, the meeting was duly adjourned.
/s/ ELIE C. WURTMAN
----------------------------------
Elie C. Wurtman, Chairman
<PAGE>
</TABLE>
<PAGE>
THE COMPANIES ORDINANCE (1983)
COMPANY LIMITED BY SHARES
ARTICLES OF ASSOCIATION
OF
GenTec Ltd
[Hebrew characters]
The regulations contained in the Second Schedule to the Companies Ordinance (New
Version) (the "Regulations") shall apply to GenTec Ltd. (the "Company") subject
to the modifications hereinafter expressed.
(a) The Articles of Association of the Company shall be numbered in the same
manner as the Regulations, except with respect to Regulations not adopted, and
the word "deleted" shall appear next to the number of such deleted provision.
(b) After Clause I of the Regulations, the following clause shall be inserted:
1(a) The Company is a private limited Company and accordingly:
(i) The number of members of the Company at any time shall not
exceed 50 (not including persons who are in the employment to the Company, and
persons who, having been formerly in the employment of the Company were while in
that employment and have continued after the termination of that employment to
be members of the Company). However for the purposes of this provision, where
two or more persons hold one or more shares in the Company jointly they shall be
treated as a single member;
(ii) No invitation shall be issued to the public to subscribe for
any shares or debenture stocks of the Company;
(iii) The right to transfer shares of the company shall be
restricted in accordance with the provisions of these Articles; and
(iv) Any transfer of shares in the Company shall require the
authorization of the Board of Directors.
(c) clause 5 of the Regulations shall be deleted.
<PAGE>
<PAGE>
2
(d) Clause 19 (1) of the Regulations shall be amended by deleting the words 'not
paid up in full.'
(e) Clauses 34-39, 48(b) and 51 of the Regulations shall be deleted.
(f) After Clause 67 at the Regulations, the following clause shall be inserted:
67(a) A resolution in writing signed by all members of the
Company then entitled to attend and vote at General Meetings or to which all
such members have given their written consent (by letter, telegram, telex,
telefax or otherwise) shall be deemed to have been unanimously adopted by a
General Meeting duly convened and held.
67(b) Where all the directors present at or participating in the
meeting have consented thereto, any director may participate in a meeting of the
board by means of conference telephone, electronic or other communication
facilities as permit all persons participating in the meeting to communicate
with each other simultaneously and instantaneously and a director participating
in such a meeting by such means is deemed to be present at the meeting.
(g) Clauses 68-70 of the Regulations shall be deleted and after clause 70 the
following clause shall be inserted:
70(a) The number of the members of the Board of Directors, their
duties and the manner of their appointment and termination will be determined
from time to time by a general meeting of the Company.
(h) Clauses 73,79, 80(5) and 81-89 of the Regulations shall be deleted.
(i) Clause 91 of the Regulations shall be deleted and after it the following
clause shall be inserted:
91 (a) The Board of Directors can set the size of the quorum
required to conduct the business affairs of the Company and can define the
signatory rights of the Company. Until resolved to the contrary the quorum for a
meeting of the Board of Directors shall be one.
(i) After clause 95 of the Regulations.the following clauses shall be inserted
95(a) A resolution in writing signed by all the members of the
Board of Directors or such resolution that all the members of the Board of
Directors have given their written consent (by letter, telegram, telex, telefax
or otherwise) shall be valid for every purpose as a resolution adopted at a
Board of Directors meeting that was duly convened and held.
95 (b)(i) The Company may enter into a contract for the
insurance of part or all of its officers' liability in respect of any of the
following:
<PAGE>
<PAGE>
(1) violations of his obligation toward the Company or
toward any other to act with circumspection;
(2) violations of his obligation of loyalty toward it,
provided the officer acted in good faith and had
reasonable cause to assume that his act would not
injure the Company;
(3) financial obligations imposed on him in favor of a
third party, in respect of an act performed by
virtue of his position as officer of the Company.
(ii) The Company may indemnify any of its officers for
the following matters:
(1) a financial obligation imposed on the officer in
favor of a third party by a court judgment,
including a compromise judgment or an arbitrator's
decision approved by a court, for an act performed
by virtue of his position as officer of the Company;
and
(2) reasonable legal expenses, including attorney's
fees, expended by or charged to an officer or
adjudged against him by a court in an action lodged
against him by the Company or on its behalf by
another person, or in a criminal charge in which he
was found innocent, all for an act performed by
virtue of his position as officer of the Company.
(k) Clause 100 of the Regulations shall be deleted.
<TABLE>
<CAPTION>
Addresses & Descriptions of
Name Subscribers Signatures
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Gen Technologies Inc. 19/8 Ramban Jerusalem /s/
Delaware corporation
Brounstein-Aboudi Chen Blvd. 6 /s/
Trustees Ltd Tel Aviv 64071
Israel company
</TABLE>
Dated this 26 day of October, 1995
Witness to the above signatures /s/ GERALD BROUNSTEIN
___________________________
Gerald Brounstein
Advocate
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENT
Whereas Ambient Ltd. of the Jerusalem Technological Park, Bldg. One, Malha,
Jerusalem (hereinafter the "Company") wishes to employ Dr. Yehuda Cern of 23
Rimon St., POB 1054, Efrat 90435, (hereinafter "Employee") in a full time
position as Chief Technical Officer, and
Whereas Company has examined the Employee's qualifications and finds him
qualified for the position offered, and
Whereas said Employee is available and willing to accept such employment,
It is agreed that
RESPONSIBILITIES AND CHAIN OF COMMAND
1. The Employee will be responsible for product development, transfer from
prototype to production, quality assurance, intellectual property protection and
all other matters relating to the creation and production of the Company's
technical products.
2. The Employee will manage the technical staff, with authority to hire and fire
technical staff, however all hiring shall be within budget approved by Board of
Directors.
3. The Employee will have the authority to use Company resources and initiate
purchase orders for equipment and components, consistent with a budget and
schedule to be created, after said budgets and schedules are approved
periodically by the CEO.
4. The Employee will report directly to the CEO, initially Jacob Davidson
TERMS OF EMPLOYMENT
1. Employment shall commence on August 1, 1997, and continue until terminated.
Employment shall be terminated by written notice from one party to the other,
after the Notice Period. Such Notice Period shall initially be two weeks,
increasing to six weeks after the first six months of employment, and increasing
to three months after the first 18 months of employment.
<PAGE>
<PAGE>
In consideration of the Company's limited initial resources, the Employee
compensation shall continence at NIS 30,000 per month, with NIS 10,000 of that
deferred, as detailed below, resulting in initial gross paid salary of NIS
20,000. Considering the extremely fast process of initiating employment, the
Company understands that the Employee has affairs in Israel and the US which
require his attention and cause him to miss work days. The Employee will either
make up this time by the end of the third month of his employment or have these
days deducted from his vacation days.
The Company is wholly owned by its parent firm, Ambient Corporation of Delaware
(hereinafter the "Parent Company"). Starting with the month during which the
Company or the Parent Company receives a cumulative capital investment of at
least $2,000,000 but no later than four months after the start of employment,
the Employee's gross salary shall be increased to NIS 30,000 per month.
In addition, without time limitation, the deferred salary shall be paid to the
Employee after the Company or the Parent Company receives investment of at least
$2,000,000 cumulative from the start of employment.
In consideration of the Company's limited initial resources, the Employee will
use his own transportation initially (a 1983 car), and Company agrees to cover
all fuel, oil, license and insurance costs (the latter proportional to the time
car is so used), and up to NIS 2,000 of repairs, exclusive of VAT. Such payments
will be against receipts and be taxable as per applicable law.
Starting with the month during which the Company receives cumulative capital
investment of at least $2,000,000, the Company shall lease a car for the
Employee's use, provide security windows, and cover all its operating and
related expenses. Company shall deduct applicable imputed income tax from
Employee's salary.
To clarify, this car is not considered a personal privilege for the Employee,
but rather is considered needed by him to carry out his duties, for as long as
the CEO deems necessary. The Employee and his immediate family may also make
personal use of the car. If not specifically needed by the Company during the
Employee's absence abroad for Company taps, his family may use the car during
this period.
Company shall provide additional computer and communications equipment for the
Employee's use, as it sees fit.
Employee shall use his home phone and fax lines, and his personal fax machine as
required for business, with the Employer covering his telephone bills,
excluding personal calls abroad, deducting tax as required by law.
<PAGE>
<PAGE>
For the purposes of this Agreement, gross salary shall include nationally
mandated Cost of Living increments, as these are applied to similar companies in
the Israeli economy, from time to time.
Company shall contribute 8.33% of the Employee's gross salary to Employee's
existing Executive Insurance Policy for Severance Pay, and shall release its
ownership rights to the Policy back to the Employee upon termination of
employment, regardless of which party initiated the termination, unless the
Employee has committed criminal acts related to his employment, or committed a
gross violation of this Agreement and not corrected this violation within
15 days of written request to do so by Employer. Gross violations shall be
considered acts which substantially damage or place at risk the value of the
Company or Parent Company.
Upon termination, sums in the Severance Account in excess of that due as per the
Severance Pay Law of 1963-5723 shall be refunded back to the Company. If there
is a shortfall in the Severance Account relative to the legally mandated amount,
it shall be paid by the Company.
Company and Employee shall each contribute 5% of the gross salary to the
Executive Insurance Policy pension fund, with Company deducting Employee's
portion and transferring it to the insurance company in a timely manner.
Company shall provide disability insurance for the Employee.
Company shall provide the Employee access to the Education Fund by allowing
Employee to make such contributions out his gross salary.
In consideration of his general seniority in similar firms, the Employee is
entitled to 22 working days vacation per year, in addition to nationally
recognized religious and national holidays, and optional days, as per the
Company's policy. The Employee may accumulate up to two years' worth of unused
vacation days, after which the Company shall redeem the excess, at the end of
each calendar year.
The Employee is entitled to 30 Sick Days per year, and may accumulate up to 90
Sick Days, at a rate based on Company's policy. Should the disability insurance
cover all or part of the Employee's salary for certain Sick Days, the Company is
exempt from paying the covered portion. Unused Sick Days cannot be cashed in.
The Company shall pay Vacation Allowance as mandated by law.
Should Company request Employee to travel, Company shall cover direct costs, and
a per diem shall be paid to cover all other expenses, as per Israeli tax exempt
levels
<PAGE>
<PAGE>
The Employee shall be entitled to compensation for his inventions that are
covered by any patents assigned to the Company. This compensation shall comprise
10% of the sale value of the intellectual property covered by the patent(s),
whether through technology sale, licensing, or sale of the company. The initial
evaluation of the proportion of the transaction related to the Employee's
inventions shall be made by the Company's representative involved in the
negotiations with the party receiving the intellectual property rights.
6. Company's parent firm, Ambient Corporation of Delaware (hereinafter Parent
Company), shall grant stock to the Employee in the amount of 3.61% of the
current number of outstanding shares. Stock shall be returned to Company if
Employee terminates before one year.
The parent firm shall guarantee the execution of this Agreement, and itself pay
the Employee any sums overdue for more than 60 days.
7. Employee shall devote his best efforts, time, energy, talents and experience
to increase the value of the Company. Employee will accept no other compensated
work without the express written consent of the Company. Employee may devote an
average of between 10-15% of his time off site at seminars, libraries or surfing
the 'Net to stay up to date on Company-related technology and market.
8. The Employee agrees to be transferred to other companies owned by the Parent
Company, so long as there is no diminution of position or compensation,
continuity of rights is guaranteed, and the location is within Jerusalem or
considered equally accessible by the Employee.
9. Employee will treat Company proprietary information with confidentiality, not
make use of Company confidential information, nor do anything which might
substantially damage its reputation nor accept employment at competing firms for
a period of two years after termination of employment.
10. No other agreements exist between Company and Employee prior to this
Agreement, neither verbal nor written. Employer-Employee relations are
terminated at the end of the Notice Period. Notification is considered received
three business days after sent by registered mail. Jurisdiction for this
Agreement is the Labor Court of Jerusalem.
<PAGE>
<PAGE>
11. Should a dispute arise as to the interpretation of this Agreement, the
parties agree in advance to carry out the findings of binding arbitration.
Either party may request appointment of an arbitrator, who shall be appointed by
a committee comprising a representative of the Company _____________________ and
the Employee's representative, Naftali Shimrat of Mivza Kadesh 17a, Maoz Aviv,
Israel. The request is to be sent by registered mail to the two representatives.
These representatives will be requested within 10 working days to identify and
appoint an arbitrator for What They consider to be reasonable fees.
/s/ Jacob Davidson
- ------------------------------ --------------------------------
Jacob Davidson Date
/s/ Jacob Davidson
- ------------------------------ --------------------------------
For Ambient Corporation (USA) Date
Jacob Davidson
/s/ Yehuda Cern
- ------------------------------ --------------------------------
Dr. Yehuda Cern, Employee Date
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENT
with
GEORGE KAPLUN
AGREEMENT entered as of January 1, 1996 between George Kaplun, identification
#306388182 residing at 4/D/202 Hanurit St., Jerusalem ("Employee"), and GenTec
Ltd., An Israeli company ("Company", or "GenTec").
W I T N E S S E T H
WHEREAS, the Company is in the business of developing and marketing various
smart card and computer technologies; and
WHEREAS, the Company desires to employ Employee initially as a Senior Electrical
Engineer at the Company,
NOW THEREFORE, in consideration of the premises and mutual agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment
With effect from January 1, 1996, the Company employs Employee and Employee
accepts employment with the Company upon the terms and conditions set forth
herein.
2. Duties
2.1 GenTec hereby engages Employee to serves as a Senior Electrical
Engineer.
2.2 Employee shall devote his full business time and attention to the
Business of the Company and shall perform his duties diligently and promptly for
the benefit of the Company.
2.3 Employee shall not be employed or perform professional services for
another entity without the express written consent of the CEO and the Chief
Scientist of the Company.
2.4 Employee shall report regularly and as requested to the President or
the Chief Scientist of the Company or as the President or the Chief Scientist
shall direct from time to time or as otherwise requested by the Board of
Directors.
2.5 The employee shall work all necessary overtime, in the case that it is
needed, without receiving any additional consideration or compensation.
3. Term
<PAGE>
<PAGE>
3.1 Employee's employment under this Agreement shall commence on January 1,
1996 (the "Effective Date") and shall end on the earlier of: (I) the death or
disability (as defined herein) of the Employee, (ii) termination of Employee's
employment with cause (as defined herein), (iii) termination by either party
without cause upon sixty (60) days advance written notice, but in no event prior
to the expiration of the Initial Term or (iv) one (1) year from the date of this
Agreement. After the expiration of such initial term (other than for reasons set
forth in clauses (I), (ii) and (iii), this Agreement shall automatically be
renewed for additional one (1) year periods on the same terms and conditions set
forth herein (unless mutually agreed otherwise).
3.2 For the purpose of this paragraph 3, "disability" shall mean any
physical or mental illness or injury as a result of which Employee remains
absent from work for a period of two (2) successive months, or an aggregate of
two (2) months in any twelve (12) months period. Disability shall occur at the
end of any such period.
3.3 For the purpose of this paragraph 3, "cause" shall exist if Employee
(I) breaches any of the material terms or conditions of this Agreement; (ii)
substantially fails to perform the Employee's areas of responsibility set forth
herein; (iii) engages in willful misconduct or acts in bad faith with respect to
the Company, in connection with and related to the employment hereunder, (iv) is
convicted of a felony, (v) fails to comply with the instructions of the
President or Company's Board of Directors in a manner materially detrimental to
the Company, provided that with respect to clauses (I), (ii) and (v), if
Employee has cured any such condition (that is reasonably susceptible to cure)
within 30 days of the advance notice (as defined herein) then "cause" shall
constitute a written notice delivered to Employee that sets forth with
particularly the facts and circumstances relied upon by the Company as the basis
for cause.
3.4 During the period following notice termination by either party for
whatever reason, the Employee shall cooperate with the Company and use his best
efforts to assist the integration into the Company the person or persons who
will assume the Employee's responsibilities.
4. Compensation
4.1 During the term hereof, and subject to the performance of the services
required to be performed hereunder by Employee, the Company shall pay the
Employee for all services rendered hereunder, a salary, payable not less often
than once per month and in accordance with the Company's normal and reasonable
payroll practices, a monthly gross amount of [copy illegible] (the
"Gross Salary").
4.2 The Employee shall receive the Gross Salary payable in respect of
period of the Employee's military reserve duty. The Company shall be entitled to
receive and retain any amounts payable by the National Insurance Institute or
any other agency in respect of such periods.
4.3 The Board shall undertake an evaluation of the Employee's performance
from time to time and may increase the monthly Gross Salary or grant a
<PAGE>
<PAGE>
performance bonus if it should determine in its absolute discretion that such
increase or bonus is justifiable and appropriate.
4.4 Furthermore and on condition that the Employee has worked for the
Company for at least one year, the Company undertakes to issue to the Employee
in accordance with the Company's policy and practice, a warrant for 1.6% shares
of the Company being offered under any form of stock option benefit plan of the
Company without any consideration.
4.5 With three (3) months of the Effective Date of this Agreement the
Company and the Employee will obtain and maintain Manager's Insurance
(Bituach Menahalim) for the exclusive benefit of the Employee in the customary
form. Each of the Company and the Employee shall contribute toward premiums
payable in respect of such insurance those which would be recognized under
applicable law, but in now event shall such contributed amounts be more than
five percent (5%) of each monthly Gross Salary payment for the Company and five
percent (5%) of such amount for Employee. It is hereby agreed that should the
Employee be or become entitled to severance pay under applicable law, his
benefits under said insurance shall be in lieu thereof and in full and final
substitution therefore.
5. Vacation
The Employee shall be entitled to 16 working days to be taken at times as agreed
upon by the parties, during each year that this Agreement is in effect.
6. Secrecy and Nondisclosure
Without derogating from the terms of any separate Confidential Disclosure &
Non-Competition Agreement entered into between the parties, the Employee shall
treat as secret and confidential all of the processes, methods, formulas,
procedures, techniques, software, designs, data, and other information which are
not of public knowledge or record pertaining to Company's business (existing,
potential and future), including without limitation. All business information
relating to customers and supplies and products of which the employee becomes
aware during and as a result of employment with the Company, and Employee shall
not disclose, use, publish or in any other manner reveal, directly or
indirectly, at any time during and after the term of this Agreement, any such
information detailed herein. For purposes hereof 'public knowledge' shall not
include information filed with the Patent Office in Israel.
7. Non-Competition
7.1 Without derogating from the terms of any separate Confidential
Disclosure & Non-Competition Agreement entered into between the Parties, during
the term of this Agreement and for a term of one (1) year after Employee ceases
to be employed by the Company, Employee will not, directly or indirectly, for
his own account or as an employee, officer, director, partner, joint venturer,
shareholder, investor, consultant or otherwise (except as an investor in a
corporation whose stock is publicly traded and in which Employee holds less than
5% of the outstanding shares)
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interests himself in or engage in any business enterprise, in Israel, that
directly competes with the Business of the Company, now or hereafter existing.
7.2 Employee acknowledges that the restricted period of time and geographic
location specified under this section 7 are reasonable, in view of the nature of
the business in which the Company is engaged and Employee's knowledge of the
Company's business and products. If such period of time or geographical location
should be determined to be unreasonable in any judicial proceeding, then the
period of time and area of restriction shall be reduced so that this Agreement
may be enforced in such area and during such period of time as shall be
determined to be reasonable by such judicial proceeding.
8. Development Rights
The Employee agrees and declares that all proprietary information including but
not limited to trade secrets, know-how, patents and other rights in connection
herewith developed by or with the contribution of Employee's efforts during his
employment with GenTec shall be the sole property of GenTec.
9. Employee Representations
The Employee represents and warrants to the Company that the execution and
delivery of this Agreement and fulfillment of the terms hereof (1) will not
constitute a breach of any agreement or other instrument to which he is party,
(ii) does not require the consent of any person, and (iii) shall not utilize
during the term of his employment any proprietary information any third party,
including prior employers of the Employee.
10. Benefit
This agreement shall insure to the benefit of and be binding upon the Company,
its successors and assigns, including any subsidiary or affiliated entity.
11. Entire Agreement
This Agreement constitutes the entire understanding and agreement between the
parties, and supersedes any and all prior discussions and agreements and
correspondence, and may not be amended or modified in any respect except by a
subsequent writing executed by both parties.
12. Notices
All notices or other commission required or desired to be sent to either party
shall be in writing and shall be sent by hand or Registered or Certified mail,
postage prepaid, return receipt requested, or sent by telegram of facsimile to
the address set forth below or to such other address as the recipient may
designate by notice in accordance with the provisions of this Section.
Employee 4/D/202 Hanurit St., Jerusalem
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Company 19/8 Ramban St., Jerusalem 92422
Any such notice shall have been deemed to have been delivered if served by hand
when delivered, if by Registered or Certified Mail 48 hours after posting if
within the same country or 14 days if posted from another country, and by telex
or facsimile transmission when dispatched and receipt confirmed by recipient
party.
13. Applicable Law
This Agreement shall be governed by and construed in accordance with the laws of
the State of Israel. All disputes, differences or questions arising out of or
relating to this Agreement, or pertaining to its validity, interpretation,
breach or violation shall be decided exclusively by the appropriate court
sitting in Tel Aviv-Jaffa.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly signed by
the date stated above.
GenTec, Ltd. [HEBREW CHARACTERS]
223293-5 [HEBREW CHARACTERS]
/s/ /s/ GEORGE KAPLUN
__________________________________ _______________________________
By: George Kaplun
[HEBREW CHARACTERS]
[HEBREW CHARACTERS]
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Subsidiaries of the Company
Ambient Ltd.
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