<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1997
REGISTRATION NO. 333-11829
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TTR INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3577 11-3223672
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
2 HANAGAR STREET
KFAR SABA, ISRAEL 44425
011-972-9-766-2393
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE
OF BUSINESS)
------------------------
MR. MARC D. TOKAYER
CHAIRMAN OF THE BOARD
TTR INC.
2 HANAGAR STREET
KFAR SABA, ISRAEL 44425
011-972-9-766-2393
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
SAMUEL F. OTTENSOSER, ESQ. MITCHELL LAMPERT, ESQ.
BAER MARKS & UPHAM LLP LAMPERT & LAMPERT
805 THIRD AVENUE, NEW YORK, NY 10022 10 E. 40TH STREET, NEW YORK, NY 10016
TEL: (212) 702-5700 FAX: (212) 702-5941 TEL: (212) 889-7300 FAX: (212) 889-5732
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED AMOUNT TO BE REGISTERED PER SHARE(1) OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value..................... 920,000 shares(2) $ 7.00 $ 6,440,000 $1,951.52
Representative's Warrants......................... 80,000 warrants(3) $ .001 $ 80 $ .02
Common Stock, $.001 par value..................... 80,000 shares $11.20 $ 896,000 $ 271.52
Common Stock, $.001 par value..................... 1,274,548 shares(4) $ 7.00 $ 8,921,836 $2,703.59
Common stock, $.001 par value..................... 217,473 shares(5) $ 0.01 $ 2,175 $ .66
-------------- ---------
Total........................................ $ 16,260,091 $4,927.31(6)
</TABLE>
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.
(footnotes on next page)
<PAGE>
<PAGE>
(footnotes from front cover)
(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 120,000 shares of Common Stock subject to an over-allotment option
granted to the Underwriters.
(3) Representative's Warrants to be issued to the Representative consist of
warrants to purchase 80,000 shares of Common Stock.
(4) Consists of shares of Common Stock offered by the Selling Securityholders.
(5) Consists of Common Stock issuable upon exercise of warrants exercisable at
$.01 per share being offered by a Selling Securityholder.
(6) This amount has been previously paid.
------------------------
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one
prospectus to be used in connection with an offering by the Company of 800,000
shares of Common Stock (the 'Offering Prospectus'), and another prospectus to be
used in connection with the sale by Selling Securityholders of the Company of
1,492,021 shares of Common Stock, including 217,473 shares of Common Stock
issuable upon the exercise of warrants (the 'Selling Securityholders'
Prospectus'). The Offering Prospectus and the Selling Securityholders'
Prospectus will be identical in all respects except for the alternative pages
for the Selling Securityholders' Prospectus included herein which are labeled
'Alternate Page for Selling Securityholders' Prospectus.'
<PAGE>
<PAGE>
TTR INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NO.
CAPTION IN FORM SB-2 LOCATION IN PROSPECTUS
- ----------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus................................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors................. Prospectus Summary; Summary Financial Information;
and Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Underwriting
6. Dilution............................................. Dilution
7. Selling Security-Holders............................. Selling Stockholders
8. Plan of Distribution................................. Selling Securityholders and Plan of Distribution
9. Legal Proceedings.................................... Business -- Legal Proceedings
10. Directors, Executive Officers, Promoters and Control
Persons............................................ Management
11. Security Ownership of Certain Beneficial Owners and
Management......................................... Principal Stockholders
12. Description of Securities............................ Description of Securities
13. Interest of Named Experts and Counsel................ Legal Matters and Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Management -- Indemnification
15. Organization Within Last Five Years.................. *
16. Description of Business.............................. Business
17. Management's Discussion and Analysis or Plan of
Operation.......................................... Plan of Operation
18. Description of Property.............................. Business -- Properties.
19. Certain Relationships and Related Transactions....... Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................ Dividend Policy
21. Executive Compensation............................... Management -- Executive Compensation
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure................ *
</TABLE>
- ------------
* Not Applicable
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JANUARY 21, 1997
PROSPECTUS
TTR INC.
800,000 SHARES OF COMMON STOCK
[LOGO]
All of the 800,000 shares of Common Stock, par value $.001 per share (the
'Common Stock') offered hereby (the 'Offering') are being sold by TTR Inc., a
Delaware corporation (the 'Company') through First Metropolitan Securities,
Inc., the representative of the Underwriters (the 'Representative'). See
'Description of Securities.'
Prior to this offering (the 'Offering'), no public market exists for the
Common Stock. There can be no assurance that any such markets will develop. The
offering price of the shares of Common Stock 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 price should in no event, however, be regarded as an indication of any
future market price of the Common Stock. After the Offering, the Company's
current directors, executive officers and principal stockholders will
beneficially own approximately 26.5% of the outstanding shares of Common Stock
of the Company. Marc D. Tokayer, Chairman of the Board, the Tokayer Family
Trust, Baruch Sollish, Director and four other stockholders with an aggregate of
1,137,430 shares of Common Stock (35.3% after the Offering) have entered into a
voting arrangement whereby they have agreed to vote their respective shares to
elect directors and in support of positions favored by a majority of the shares
held among them. Accordingly, the Company's present Management will in all
likelihood continue to control the Company. The Company anticipates that the
Common Stock will be quoted on the OTC Electronic Bulletin Board under the
symbol 'TTRF.' 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 'Underwriting' for a discussion of the factors
considered in determining the public offering price of the Common Stock. See
'Risk Factors.'
Only the Common Stock is being sold as part of the underwritten Offering.
This Registration Statement also relates to the offer and sale of an aggregate
of 1,492,021 shares of Common Stock, including 217,473 shares of Common Stock
issuable upon the exercise of warrants (collectively, the 'Selling
Securityholders'
(Cover continued on next page)
- ----------------------------------------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SUBSTANTIAL DILUTION. SEE 'DILUTION' AND 'RISK FACTORS' BEGINNING ON
PAGE 7.
------------------------
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
TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
<S> <C> <C> <C>
Per Share........................................................................ $7.00 $.70 $6.30
Total....................................................................... $5,600,000 $560,000 $5,040,000
</TABLE>
(1) Does not include a 3% nonaccountable expense allowance payable to the
Representative, of which $50,000 has been paid as at the date of this
Prospectus. The Company has also agreed to sell to the Representative
warrants (the 'Representative's Warrants') to purchase up to 80,000 shares
of Common Stock, to retain the Representative as a financial consultant and
to indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the 'Securities
Act'). See 'Underwriting.'
(2) Before deducting certain expenses payable by the Company, including the
nonaccountable expense allowance in the amount of $168,000 ($193,200 if the
Underwriters' overallotment option is exercised in full), estimated at
$743,000.
(3) The Company and certain stockholders have granted the several Underwriters
an option (the 'Over-allotment Option'), exercisable with 45 days from the
date of this Prospectus, to purchase in the aggregate up to an additional
120,000 shares of Common Stock on the same terms as set forth above, solely
to cover over- allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, and Proceeds
to Company will be $6,440,000, $640,000 and $5,800,000, respectively. See
'Underwriting.'
------------------------
FIRST METROPOLITAN SECURITIES, INC.
The date of this Prospectus is , 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
<PAGE>
(Cover continued from previous page)
Shares'). The Selling Securityholders' Shares are being registered pursuant to
registration rights agreements entered into by the Company and the selling
securityholders (the 'Selling Securityholders'). The Selling Securityholders
have each agreed (except for certain Selling Securityholders who have agreed to
lock-up an aggregate of 150,000 shares, for a period of 18 months; and except
for a certain Selling Securityholder with respect to up to 60,000 shares of
Common Stock included in the Over-allotment Option) not to sell any of the
securities being registered in the Selling Securityholders' Offering for a
period of 24 months from the Effective Date without the prior written consent of
the Representative. The Representative will not consent to the release of such
lock-ups prior to the exercise or expiration of the Over-allotment Option. The
Company will not receive any of the proceeds from the sale of such securities.
See 'Selling Securityholders,' 'Selling Securityholders' Offering,' 'Selling
Stockholders,' 'Plan of Operation' and 'Underwriting.'
The Common Stock being offered through the Underwriters 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 several Underwriters named herein and subject
to approval of certain legal matters by counsel to the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify the Offering and to reject any order in whole or in part. It is expected
that delivery of the certificates representing the securities offered hereby
will be made against payment therefor at the offices of the Representative in
New York City on or about , 1997.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
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 there
with, 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.
------------------------
SoftGuard'tm', DiscGuard'tm', NetGuard'tm' and Remote Activation Center'tm'
are trademarks of the Company. Certain other trademarks of the Company and other
companies, including Microsoft Windows, Windows 95, Windows NT, MS-DOS, Apple
Macintosh and NEC, are used in this Prospectus.
2
<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. Unless otherwise indicated, all share, per share and
financial information set forth herein assumes the exercise of 374,548 warrants
into 374,548 shares of Common Stock upon completion of this Offering and no
exercise of the Over-allotment Option or the Representative's Warrants. See
'Description of Securities -- Prior Financings.'
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
TTR Inc. ('TTR' or the 'Company') is primarily engaged in the design and
development, and intends to commence marketing of, a family of proprietary
software security products that are designed to prevent the unauthorized
reproduction and use of computer software programs. TTR's proposed core product,
SoftGuard, is designed to be used by software developers for inclusion in their
software packages sold to end-users. The current version of SoftGuard, although
out of the development stage and ready for commercialization, has not yet been
released. Since its inception, the Company has been engaged primarily in product
design and testing, and has not had any sales revenue to date. The Company's
primary objective is to make SoftGuard the market standard for software
protection.
Annual losses incurred by software developers due to software piracy was
estimated by the Business Software Alliance to exceed $15 billion worldwide in
1994. SoftGuard is intended to provide comprehensive protection against
unauthorized software reproduction. Unlike most currently available software
security systems which are dependent on hardware peripherals, SoftGuard does not
entail the use of any dongles (keys) or similar devices. It is comprised of a
protection diskette, which provides anti-copying protection while the software
resides on a distribution diskette, CD-ROM or other distribution media, and a
software-based solution that protects against unauthorized reproduction once the
software is installed onto the end-user's system. The protection diskette is
used by the end-user only at the initial installation of the protected software
or upon an authorized transfer of protected software to another computer.
Without the protection diskette, the protected software will not properly
install. The Company plans on selling the SoftGuard protection diskette to
software developers who will include the protection diskette with their software
program that is ultimately sold to the legitimate end-user. When included with
such software, the developer's software program would be further protected by
the SoftGuard software licensed from the Company. The Company believes that
SoftGuard will provide an effective, versatile and relatively inexpensive,
comprehensive software protection solution.
For software distributed electronically over the Internet, the Company is
developing a system that is intended to insure that the payment for the
downloaded software has been received and that the software's use will be
restricted to one site per payment. The Company's proposed Remote Activation
Center will utilize the core technology incorporated in SoftGuard to provide
both payment confirmation and conventional software protection. Although
currently in a program design and program development phase, the Company expects
the product to begin beta testing in November 1996 with a targeted release date
by the first quarter of 1997.
For software that does not require installation on an end-user's hard drive
and is run directly from a CD-ROM, such as educational or entertainment
software, the Company is developing a technology designed to protect against the
unauthorized reproduction of the CD-ROM. The decreasing costs of CD-Recorders,
which can be used to faithfully reproduce unauthorized copies of the CD-ROM, and
the increased availability of other mass reproduction machines, have contributed
to the increase in CD-ROM piracy. Conventional protection technologies are
believed by the Company to be generally impractical and cost ineffective. The
Company's solution involves modifications to the laser optics
3
<PAGE>
<PAGE>
system of the CD-ROM mastering machine. This technology would prevent the
faithful reproduction of the CD-ROM itself, without reference to the data
contained on it. The Company expects to commercially release its initial
DiscGuard CD-ROM product by the third quarter of 1997.
TTR believes that the principal competitive advantages featured in its
proposed products will include the following:
A software application protected by SoftGuard will only be able to
be installed onto the end-user's system in the presence of an authentic
protection diskette containing the appropriate identification code. Once
installed onto the end-user's system, the protected software will run only
on that unit.
SoftGuard can be programmed by the software developer to permit a
limited number of installations of authorized copies of the protected
software including limited time period trial offers.
SoftGuard's avoidance of any hardware peripherals such as dongles or
keys is expected to save the end-user the inconvenience associated with
such hardware use.
Per-unit production costs associated with SoftGuard protection
diskettes will be significantly lower compared to dongle or key based
solutions.
Once the SoftGuard protected software program is installed, the
product safety features will be self-executing and entirely 'transparent'
to the end-user who will not be aware of their operation.
A software program sold over the Internet that utilizes the Remote
Activation Center would be protected against unauthorized copying and use
in a similar fashion to conventional software protected by SoftGuard.
CD-ROMs utilizing the DiscGuard CD-ROM product in their
manufacturing would be non-reproducible.
The Company intends to market its SoftGuard line of products to software
developers. The Company's strategy is to distribute its products to software
developers through independent distributors or direct marketing through the
establishment of regional based subsidiaries or affiliates. The Company intends
to market its proposed CD-ROM product directly to CD-ROM replicators.
The Company's objective is to be a leading provider of software security
products with its SoftGuard product line. Some key elements of the Company's
strategy include (i) expansion of existing software security markets; (ii)
penetration of leading geographic marketing areas; (iii) continued product
expansion and enhancement; (iv) pursue strategic acquisitions; and (v)
strengthen competitive advantages.
TTR was organized as a holding company in Delaware on July 14, 1994. The
Company currently conducts its business through its wholly-owned subsidiary, TTR
Technologies Ltd. ('TTR Israel'), a private company formed under the laws of the
State of Israel on December 5, 1994. The Company's current product design,
marketing, research and development operations are conducted at TTR Israel's
premises in Kfar Saba, Israel. As used herein, the term 'Company' includes the
operations of TTR and TTR Israel, unless the context otherwise requires.
The Company's executive offices are located at 2 Hanagar Street, Kfar Saba,
ISRAEL 44425. Its telephone number is 011-972-9-766-2393.
4
<PAGE>
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities offered by the Company......... 800,000 shares of Common Stock.
Securities Offered Concurrently by the
Selling Securityholders................. 1,492,021 shares of Common Stock, including 217,473 shares of Common
Stock issuable upon exercise of warrants. See 'Selling
Securityholders' Offering.'
Common Stock outstanding prior to the
Offering................................ 2,424,548(1)(2)
Common Stock to be outstanding after the
Offering................................ 3,224,548(1)(2)
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; 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(3)............................... Common Stock: TTRF
</TABLE>
- ------------
(1) Does not include 450,000 shares of Common Stock reserved for issuance upon
exercise of stock options granted or which may be granted under the
Company's Employee Stock Option Plan (the '1996 Plan').
(2) Excludes 1,000,000 shares of Common Stock which have been deposited into
escrow by the holders thereof. The Escrow Shares are subject to cancellation
and will be contributed to the capital of the Company if the Company does
not attain certain earnings levels or the market price of the Common Stock
does not achieve certain levels. If such earnings or market price levels are
met, the Company will record a substantial non-cash charge to earnings, for
financial reporting purposes, as compensation expense relating to the value
of the Escrow Shares released to Company officers and employees. See 'Risk
Factors -- Charge to Income in the Event of Release of Escrow Shares,'
'Capitalization' and 'Principal Stockholders.'
(3) The Company anticipates that the Common Stock will be quoted on the OTC
Electronic Bulletin Board. An OTC Electronic Bulletin Board quotation
listing does not imply that a liquid and active market will develop or be
sustained for the securities upon completion of the Offering.
5
<PAGE>
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from the
Financial Statements included elsewhere in this Prospectus and should be read in
conjunction with such Financial Statements and the Notes thereto.
<TABLE>
<CAPTION>
FROM INCEPTION NINE MONTHS ENDED
(JULY 14, 1994) YEAR ENDED SEPTEMBER 30,
TO DECEMBER 31, DECEMBER 31, ---------------------------
1994 1995 1995 1996
--------------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
Income Statement Data:
Revenue...................................... $ -- $ -- $ -- $ --
Total expenses............................... 36,441 765,867 545,650 760,872
Operating loss............................... (36,441) (765,867) (545,650) (760,872)
Net loss..................................... (42,085) (896,663) (612,811) (897,039)
--------------- ------------ ------------- ----------
--------------- ------------ ------------- ----------
Net loss per share(1)........................ $ (0.02) $ (0.37) $ (0.26) $ (0.39)
--------------- ------------ ------------- ----------
--------------- ------------ ------------- ----------
Weighted average shares outstanding.......... 2,778,533 2,399,793 2,339,337 2,641,034
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
-----------------------------
DECEMBER 31, PRO FORMA AS
1995 ACTUAL ADJUSTED(2)
--------------- ------------ -------------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiencies)............................. $ (616,839) $(1,955,281 ) $ 2,488,900
Total assets............................................... 403,204 646,985 4,384,298
Total liabilities.......................................... 1,274,427 2,026,377 1,526,377
Total stockholders' equity (deficit)....................... (871,223) (1,379,392 ) 2,857,921
</TABLE>
- ------------
(1) Earnings per share are presented for 1995 and the nine months ended
September 30, 1996 on a pro forma basis to reflect the exercise of 374,548
warrants as if it occurred on January 1, 1995. See 'Financial Statements.'
(2) Gives pro forma effect to (i) the exercise of 374,548 warrants and (ii) the
consummation of this Offering and the application of the estimated net
proceeds thereof. See 'Use of Proceeds' and 'Capitalization.'
6
<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 forward-looking 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; Stockholders' Deficit; Uncertainty of
Future Profitability. The Company is a development stage company with a limited
history of operations, and has an accumulated deficit from inception in July
1994 through September 30, 1996, of approximately $1,835,787. 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. At September 30, 1996, the Company
had a working capital deficiency of approximately $1,955,000 and a stockholders'
deficit of approximately $1,379,000. Losses have resulted principally from costs
incurred in research and development of the SoftGuard technologies and from
general and administrative costs. The current version of SoftGuard, although out
of the development stage and ready for commercialization, has not yet been
released. Accordingly, the Company has not realized any operating revenues 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 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, 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.
Future Capital Needs; 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. Notwithstanding, the Company believes that the net
proceeds of this Offering, together with its projected cash flow from
operations, if any, will be sufficient to finance its working and other capital
requirements for a period of approximately 12 months from the date of this
Prospectus. Thereafter, or sooner if conditions make it necessary, the Company
may need to raise additional funds through public or private financings,
including equity financings which may be dilutive to stockholders. Any future
equity financings within the next 36 months would be subject to the approval of
the Representative. There can be no assurance that the Company will be able to
raise additional funds if its capital resources are exhausted, or that 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 reduce materially its
proposed operations. See 'Use of Proceeds,' 'Underwriting' and 'Plan of
Operation.'
Dependence of Single Product Line and Limited Market. The Company proposes
to initially market one line of products to a limited market of customers
desiring to protect their software products. The Company estimates that
worldwide sales of software protection products was approximately $120,000,000
in 1995. The Company believes that future sales growth will be dependent
primarily upon expansion of the software protection products market as well as
the Company's ability to market its
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products. There can be no assurance that the Company will successfully market
its products or that the market for software security products will grow. See
'Business -- Sales and Marketing.'
Uncertainty of End-User Acceptance of SoftGuard Products. The Company's
SoftGuard product line is intended to be sold to software developers for
inclusion in the applications programs marketed and sold by them. However, the
Company is ultimately dependent upon the end-user's acceptance of SoftGuard.
Many software development houses have elected to not include software protection
with their software programs because end-users have encountered operational
difficulties with, or have indicated an unwillingness to use, such software
protection. While the Company believes that SoftGuard is intended to address and
solve many of the operational difficulties encountered by end-users in using
many of the commercially available software protection products, there can be no
assurance that software developers will elect to include the Company's proposed
products in their software products or that if such products are included, the
products will be accepted by the general market. There can be no assurance that
the Company will be able to market its software protection successfully or that
future products, if any, will be accepted in the marketplace. See
'Business -- SoftGuard Software Protection' 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 new product introductions. The Company's future success
will depend in part on its ability to enhance its planned products and to
introduce new products and technologies to meet changing customer requirements.
The Company is currently devoting significant resources toward the development
of enhancements to its planned software protection line of products. There can
be no assurance that the Company will successfully complete the development of
these products in a timely fashion or that the Company's current or future
products will satisfy the needs of the software security market. There can also
be no assurance that security related products or technologies developed by
others will not adversely affect the Company's competitive position or render
its products or technologies non-competitive or obsolete. Moreover, the Company
is committed to devote a substantial portion of its revenues to research and
development efforts. There can be no assurance that these efforts will be
successful. See 'Use Of Proceeds' and 'Business -- Research and Development' and
' -- Competition.'
Proposed Expansion; Risks Associated with Acquisitions. The Company intends
to use a significant portion of the net proceeds of this Offering to expand its
operations through the establishment of its sales and marketing efforts, the
expansion of its research and development activities, or through possible
acquisitions. The Company believes that the net proceeds of the Offering will be
sufficient to enable the Company to carry out its planned growth, although there
can be no assurance it will be able to do so.
The Company may also seek to expand its operations through potential
acquisitions. The Company may use a portion of the net proceeds from this
Offering 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 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. However, any future equity financings within the
next 36 months would be subject to the approval of the Representative.
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 be able to successfully consummate any acquisition or
successfully integrate into its business any acquired business or portion
thereof.
The management of the anticipated growth in expenditures will require
expansion of the Company's management and financial controls, and could place a
significant strain on the Company's resources. None of the Company's current
officers have had experience in managing a public company
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or a company having expenditures as large as the anticipated expenditures of the
Company. While the Company intends to hire additional appropriate personnel,
there can be no assurance that these or other measures implemented by the
Company will effectively increase the Company's capabilities to manage such
growth or to do so in a timely and cost effective manner. See 'Use of Proceeds'
and 'Business.'
Limited Marketing Capability. The Company has limited marketing
capabilities and resources. Achieving market penetration will require
significant efforts by the Company to create awareness of and demand for the
Company's products. Accordingly, the Company's ability to build its customer
base will be dependent on its marketing efforts, including its ability to
establish an effective internal sales organization, or establish strategic
marketing arrangements with other companies. The Company currently has no plan,
agreement, understanding or arrangement with any distributors, and no assurance
can be given that any will be entered into. The failure by the Company
successfully to develop its marketing capabilities, both internally and through
distributors, would have a material adverse effect on the Company's business.
Further, there can be no assurance that the development of such marketing
capabilities will lead to sales of the Company's products. See 'Use of Proceeds'
and 'Business -- Sales and Marketing.'
Risks Associated with International Sales. The Company intends to initially
market its products primarily in North America and Israel with subsequent
efforts in Europe and the Far East. 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 offices and
production 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.'
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, Israel, Germany, France, Great
Britain, the Netherlands and Japan for the process by which it imprints the
protection diskette used in the proposed SoftGuard line of products and in the
United States for the technology underlying the proposed DiscGuard CD-ROM based
protection (the 'Patent Rights'). No assurance can be given that any patents
will be issued from the United States or other patent offices for the Patent
Rights, that the Company will receive any patents in the future based on its
continued development in the technology, or that the Company's patent protection
within and/or outside of the United States will be sufficient to deter others,
legally or otherwise, from developing or marketing competitive products
utilizing the SoftGuard 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.
The Company has received a letter from attorneys in Israel relating to
allegations that the technologies comprising the Company's proposed products
infringe certain proprietary rights of others. Although the Company believes
that the allegations are without merit, there can be no assurance that the
Company will be successful in defending against such claims. There can be no
assurance that other 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
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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. 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. See
'Business -- Legal Proceedings,' 'Business -- Patents, Trademarks and
Proprietary Information' and 'Risk Factors -- Competition.'
Trademark Registration. The Company intends to promote the 'SoftGuard,'
'NetGuard,' 'Remote Activation Center' and 'DiscGuard' trademarks in connection
with its marketing activities. The Company pursues the registration of its
trademarks in the United States and (based upon anticipated use)
internationally, and has applied for the registration of certain of its
trademarks, including 'SoftGuard,' and intends to apply for others. There can be
no assurance that prior registrations and/or uses of one or more of such marks
(or a confusingly similar mark) does not exist in one or more of such countries,
in which case the Company might thereby be precluded from registering and/or
using such mark in such country. See 'Business -- Patents, Trademarks and
Proprietary Information.'
Competition. The software protection industry is extremely competitive. The
Company's primary competitors include companies with substantially greater
financial, technological, marketing, personnel and research and development
resources than those of the Company. There can be no assurance that the Company
will be able to compete successfully in this market. In particular, Rainbow
Technologies Inc. and Aladdin Knowledge Systems Ltd., each have an established
installed product base in the limited market that exists for software security
products. Further, there can be no assurance that existing software companies
will not enter the market in the future. Although the Company believes that its
products are 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 competitors' portion of the market. Many of the Company's competitors
have existing relationships with major software development houses in the United
States, some of which are dominant software producers worldwide, and those
existing relationships may impede the Company's ability to sell to those
customers and expand its market share. Furthermore, there can be no assurance
that the Company will be able to continue developing products with innovative
features and functions, or that developments by others of similar or more
effective products will not render the Company's products or technologies
noncompetitive or obsolete. Since the Company's proposed products will be new to
the market and sold in competition with the products of companies with greater
financial and other resources, there can be no assurance that a market for the
Company's products will develop. See 'Business -- Competition.'
Protection of Proprietary Technology and Information. The Company will also
rely on trade secrets, know-how and continuing technological advancement to
maintain its proposed competitive position. Although the Company has entered
into confidentiality and invention agreements with its employees and
consultants, 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 -- Patents, Trademarks and Proprietary
Information.'
Manufacture of Production Machinery. The Company utilizes a specially
designed laser based machine (the 'Diskette Marking Machine') in mass-producing
the protection diskette used in its proposed SoftGuard products. The Diskette
Marking Machine was built by an independent third-party and specially made to
the Company's order. The Company currently has one fully-operating Diskette
Marking Machine, which it believes can meet its foreseeable needs. Although the
Company does not have a written contract with the manufacturer of its Diskette
Marking Machine, the Company believes, based upon the experience of Management
and the Company's working relationship with such manufacturer, that it will be
able to have additional Diskette Marking Machines produced on an as needed
basis. There can be no assurance that the Company will be able to purchase or
will not experience delays in shipment of future Diskette Marking Machines or
that it will have a sufficient number of such machines to produce protection
diskettes at full capacity.
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The Company believes that it could arrange for the assembly of these
machines with alternate sources if required to do so, but that any alternate
arrangement could result in temporary disruptions of its design and
manufacturing operations. Most of the sources and components used in the
manufacture and assembly of the Diskette Marking Machine are obtainable from
local sources, except for the laser device that specially marks each protection
diskette. Although the Company believes that there are adequate alternative
sources for such devices, there can be no assurance that the usage of an
alternative source for the laser device will not render the Diskette Marking
Machine cost ineffective or that the Company will not experience delays in its
operations.
Dependence on Key Personnel. The success of the Company will be largely
dependent upon the personal efforts of Marc D. Tokayer, Dr. Baruch Sollish,
Ph.D. and Arik Shavit. 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 is seeking to obtain prior to closing
of this Offering key-man life insurance on Mr. Tokayer and Dr. Sollish with
benefits of $1,000,000 payable to the Company in the event of each person's
death. The benefits receivable under these proposed policies might not be
sufficient to compensate the Company for the loss of Mr. Tokayer's or Dr.
Sollish's services should a suitable replacement not be employed. The Company is
also dependent to a substantial degree on its other technical and research
staff. Further, the success of the Company will also be dependent upon its
ability to hire and retain additional qualified management, marketing, and
financial personnel, including a chief financial officer. The Company will
compete with other companies with greater financial and other resources for
other such personnel. Although the Company has not experienced to date any
difficulty in attracting qualified 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 -- Employment and
Consulting Agreements.'
Control by Management and Current Stockholders. Upon consummation of this
Offering, Management of the Company and current stockholders will own 2,349,548
shares of Common Stock, or approximately 72.9% of the then issued and
outstanding shares of Common Stock. Marc D. Tokayer, Chairman of the Board, the
Tokayer Family Trust, Baruch Sollish, Director and four other stockholders with
an aggregate of 1,137,430 shares of Common Stock (35.3% after the Offering) have
entered into a voting arrangement whereby they have agreed to vote their
respective shares to elect directors and in support of positions favored by a
majority of the shares held among them. Accordingly, the Company's present
Management may be able to effectively control the Company, elect all of the
Company's directors, increase the authorized capital, dissolve, merge or sell
all of the assets of the Company, and generally direct the affairs of the
Company. See 'Principal Stockholders.'
Broad Discretion in Application of Proceeds. While the Company presently
intends to use the net proceeds of this Offering as set forth herein, Management
has broad discretion in the application of the net proceeds allocated to working
capital and general corporate purposes, which may be used, among other things,
for payment of executive salaries. As a result of the foregoing, the success of
the Company will be substantially dependent upon the discretion and judgment of
Management. 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 Common Stock to be sold in this Offering.
Therefore, investors purchasing Common Stock in this Offering will incur an
immediate and substantial dilution in net tangible book value per share of $6.32
(90%). 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.'
Charge to Earnings in the Event of Release of Escrow Shares. The Company
has outstanding 1,000,000 Escrow Shares which will be released from escrow if
the Company attains certain earnings levels over the next one to three years or
if the Common Stock trades at certain levels over the next three years. The
position of the Securities and Exchange Commission (the 'Commission') with
respect to such escrow arrangements provides that in the event any shares are
released from escrow to the stockholders of the Company who are officers,
directors, employees or consultants of the Company, a compensation expense will
be recorded for financial reporting purposes. Accordingly, the Company will,
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in the event of the release of the Escrow Shares, recognize during the period in
which the earnings thresholds are met or such stock levels achieved, a
substantial noncash charge to earnings equal to the fair value of such shares on
the date of their release, which would have the effect of significantly
increasing the Company's loss or reducing or eliminating earnings, if any, at
such time. The recognition of such compensation expense may have a depressive
effect on the market price of the Company's securities. See 'Plan of Operation,'
'Principal Stockholders' and 'Description of Securities.' Notwithstanding the
foregoing discussion, there can be no assurance that the Escrow Shares will be
released from escrow.
No Dividends. To date, the Company has not paid any cash dividends. After
the consummation of this 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 earnings and its
financial conditions and requirements. See 'Dividends.'
OTC Electronic Bulletin Board; Absence of Prior Public Market;
Determination of Offering Price. The Company's Common Stock will be traded in
the over-the-counter market. It is anticipated that it will be quoted on the OTC
Electronic Bulletin Board, an NASD-sponsored and operated inter-dealer automated
quotation system for equity securities not included in the Nasdaq SmallCap
Market or Nasdaq National Market, and will also be quoted in the NQB Pink Sheets
published by the National Quotation Bureau Incorporated. 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
continue following the Offering. There can be no assurance that an active
trading market for the securities will develop, or if a trading market does
develop, that it will continue. Until such time, if ever, that an active trading
market develops, investors will, in all likelihood, be unable readily to
liquidate their investment in the Company's securities following this Offering.
The initial public offering price of the Common Stock has been determined
by negotiation between the Company and the Representative and may 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 their initial public offering price. See 'Underwriting.'
Possible Volatility of Securities Prices. 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 computer industry generally may have a
significant impact on the market 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.
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 of 1933, as amended (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 3,224,548 shares of Common
Stock outstanding (excluding 1,000,000 Escrow Shares). In addition, the Company
has reserved for issuance 217,473 shares upon exercise of warrants at $.01 per
share, 5,000 shares upon exercise of options granted under the 1996 Plan,
445,000 shares upon exercise of options to be granted under the 1996 Plan,
1,000,000 shares for issuance upon exercise of warrants at $7.00 per share and
up to 80,000 shares for issuance upon exercise of the securities contained in
the Representative's Warrants.
The 800,000 shares of Common Stock offered hereby and the 1,274,548 shares
of Common Stock (excluding 217,473 shares issuable upon exercise of warrants
subject to a four-year vesting schedule) being offered by the Selling
Securityholders (all of which shares are subject to lock-up agreements described
below) 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 1,150,000 outstanding
shares of Common Stock will be 'restricted securities,'
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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.
Approximately 653,547 of such shares will be eligible for resale under Rule 144
commencing 90 days following the completion of this Offering; however, all of
such shares are subject to the lock-up agreements described hereafter. The
remaining shares will become eligible for resale under Rule 144 between July
1997 through February 1998. In addition, the Company has granted to some
securityholders certain registration rights. 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. The Company, its
officers, directors and stockholders beneficially owning 5% or more of the
Common Stock, all Selling Securityholders (except for the certain Selling
Securityholders who have agreed to lock-up their 150,000 shares, for a period of
18 months) and certain other stockholders (holding an aggregate of approximately
2,214,548 shares, excluding up to 60,000 shares included in the Over-allotment
Option) have agreed, for a period of 24 months from the date of this Prospectus,
not to sell or otherwise dispose of any securities of the Company, without the
prior written consent of the Representative. See 'Principal Stockholders,'
'Certain Transactions,' 'Shares Eligible for Future Sale' and 'Underwriting.'
Effect of Outstanding Warrants and Options. The exercise of the
Representative's Warrants, other warrants and stock options granted or to be
granted may adversely affect prevailing market prices for the Common Stock and
may dilute the interests of existing stockholders. Moreover, the terms upon
which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of such outstanding securities can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in the Representative's Warrants, other warrants or the options.
The Company has granted certain demand and 'piggy-back' registration rights to
the Representative with respect to the securities issuable upon exercise of the
Representative's Warrants. See 'Description of Securities' and 'Underwriting.'
Antitakeover 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 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.'
Restrictions on Israeli Government Funding for Research and Development.
TTR 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 approximate amount of $97,500. As a condition to its participation in the
funding program of the OCS, TTR Israel may not transfer the technologies
developed using such funds out of Israel without the consent of the OCS. TTR
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 TTR Israel to continue to be eligible for participation. The Company
anticipates that for so long as such grants continue to be available, TTR Israel
will likely seek from time to time to utilize such grants. While the Company
believes that TTR Israel will continue to participate in these grant programs,
no assurance can be given that this will be the case or that the programs, or
their conditions of participation, will be maintained in their current form or
at all. See 'Business -- Research and Development.'
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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 assets are located outside the United States,
any judgment obtained in the United States against the Company may not be
collectible within the United States.
The Company has been informed by its Israeli legal counsel that there is
doubt as to the enforceability of civil liabilities under the Securities Act and
the Securities Exchange Act of 1934, as amended, 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. All of the Company's
executive officers and Directors have irrevocably appointed Samuel F.
Ottensoser, Esq. of Baer Marks & Upham as their agent to receive service of
process in any action against them in any Federal or state court of 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.
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
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver 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 securities become subject to the penny stock
rules, investors in this Offering may find it more difficult to sell their
securities.
Possible Conflicts of Directors. In lieu of the Representative's right to
designate two non-voting advisors to the Company's Board of Directors at any
time within the five years commencing in fiscal 1996, the Representative has the
right during such five-year period, in its sole discretion, to designate two
persons for election as directors of the Company. If and when the Representative
designates such persons to serve as directors of the Company, those individuals
may be associated persons of the Representative who may have conflicting
obligations to the Company and the Representative when serving on the Board of
Directors. See 'Underwriting.'
Lack of Experience of the Representative. First Metropolitan Securities,
Inc. commenced operations in November 1995, and has acted as an underwriter of
only one public offering of securities. First Metropolitan's lack of experience
may have an adverse impact on the development of a trading market for the
Company's securities following this Offering. See 'Underwriting.'
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby (after deducting underwriting discounts and commissions and other
expenses of this Offering), are estimated to be approximately $4,297,000
($4,662,400 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
APPLICATION OF APPROXIMATE PERCENTAGE OF
PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- ------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Repayment of Indebtedness(1)............................................ $ 2,215,000 51.6%
Research and Product Development(2)..................................... 615,000 14.3
Additional Facilities(3)................................................ 500,000 11.6
Marketing(4)............................................................ 473,000 11.0
Capital Equipment(5).................................................... 150,000 3.5
Working Capital and General Corporate Purposes(6)....................... 344,000 8.0
------------- ------
Total.............................................................. $ 4,297,000 100.0%
------------- ------
------------- ------
</TABLE>
- ------------
(1) Represents the repayment of the outstanding Bridge Notes in the aggregate
principal amount of $500,000 plus estimated accrued interest thereon at the
rate of 10% per annum to the date of consummation of this Offering. The
Company used the net proceeds from the sale of such notes to pay for
research and product development, operating expenses, and various expenses
related to this Offering. Also represents the repayment of approximately
$1,041,000 from the 1995 Debt Financing plus estimated accrued interest
thereon at the rate of 10% per annum, $133,400 payable to 732498 Ontario
Ltd., plus estimated accrued interest thereon at the rate of 22% per annum
and $300,000 payable to six investors, plus estimated accrued interest
thereon at the rate of 15%. See 'Description of Securities -- Prior
Financings,' 'Plan of Operation' and Note 8 of Notes to Financial
Statements.
(2) Anticipated expenditures include hardware and software development,
electronics engineering and prototype and tooling costs, and the hiring of
additional personnel. The Company intends to use this allocation of net
proceeds to expand its research and development department into three
groups: a research group, a development group and a quality assurance group.
The Company anticipates hiring between 15 and 18 additional employees to
staff these groups. The Company estimates the first year's salaries of these
persons to be paid from this allocation of proceeds of this Offering to be
approximately $19,000 to $38,000 per person per annum based on the
qualifications and position of each employee. See 'Business -- Research and
Development,' ' -- Production and Supplies' and 'Plan of Operation.'
(3) The Company intends to use this allocation of net proceeds to open a sales
office in the United States over the next nine months at an estimated
initial cost of $500,000 depending on the amount of equipment, inventory and
personnel, exclusive of working capital needs. It is anticipated that the
office would be staffed with three to eight salespersons, who will be
responsible for managing and servicing the Company's business in the
respective areas, as well as developing new business. The Company estimates
the first year's salaries of these persons to be paid from this allocation
of proceeds of this Offering to be approximately $35,000 per person per
annum based on the qualifications and position of each employee. See
'Business -- Sales and Marketing.'
(4) This allocation includes approximately $358,000 of expenditures for print
media such as advertising and sales literature, and trade show
participation. The Company plans to hire two internal sales people, each at
approximately $20,000 per annum (excluding sales commissions), and three
customer service people, each at approximately $25,000 per annum, following
the completion of this Offering. See 'Business -- Sales and Marketing.'
(5) In connection with the Company's proposed expansion and the hiring of up to
20 additional employees, the Company intends to purchase for each new
employee a computer work station at an estimated cost of $7,500 per station.
See 'Plan of Operation.'
(footnotes continued on next page)
15
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<PAGE>
(footnotes continued from previous page)
(6) Includes general and administrative expenses, including, but not limited to,
the payment of rent for the Company's offices and other office overhead,
executive salaries, and anticipated professional fees, as well as potential
acquisitions as described below.
------------------------
If the Underwriters exercise the Over-allotment Option in full, the Company
will realize additional net proceeds of approximately $365,400, which will be
added to the Company's marketing 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 a minimum of 12 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. See 'Risk Factors -- Future
Capital Needs; Uncertainty of Additional Financing' and 'Plan of Operation.'
The Company may use all or a portion of the $344,000, or 8.0%, 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. 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. However, any future equity financings within the next 36 months
would be subject to the approval of the Representative. Additionally, to the
extent that the Company 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 be able to successfully consummate any
acquisition or successfully integrate into its business any acquired product or
business.
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.'
16
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<PAGE>
DILUTION
At September 30, 1996, the negative net tangible book value of the Company
was $(1,586,368), or $(.52) per share of Common Stock based on 3,050,000 shares
of Common Stock issued and outstanding. After giving retroactive effect to the
exercise of 374,548 warrants into 374,548 shares of Common Stock upon the
consummation of this Offering and the receipt of an aggregate of $3,745.48 from
all of such exercises, the pro forma negative net tangible book value of the
Company was $(1,582,623) or $(.46) per share based on 3,424,548 shares issued
and outstanding. See 'Description of Securities -- Prior Financings.' After
giving effect to the sale of 800,000 shares of Common Stock offered by the
Company hereby (less underwriting discounts 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, 1996
would have been $2,857,921, or $.68 per share, based on 4,224,548 shares
representing an immediate increase in net tangible book value of $1.14 per share
to existing stockholders and an immediate dilution of $6.32 per share (90%) 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
Pro forma net tangible book value before the Offering........................ $(.46)
-----
Increase attributable to new investors....................................... $1.14
-----
-----
Pro forma as adjusted net tangible book value after the Offering............. $ .68
-----
-----
Dilution to new investors.................................................... $6.32
-----
-----
</TABLE>
The following table summarizes as of September 30, 1996, 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 PER
AMOUNT PERCENTAGE AMOUNT(1) PERCENTAGE SHARE
--------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders....................... 3,424,548(2) 81.1% $ 412,151 6.9% $ .12
---------
New Investors............................... 800,000 18.9 5,600,000 93.1% $7.00
--------- ---------- ---------- ---------- ---------
---------
Total.................................. 4,224,548 100.0% $6,012,151 100.0%
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
- ------------
(1) Prior to deduction of costs of issuances.
(2) Includes 1,000,000 Escrow Shares. See 'Principal Stockholders -- Escrow
Shares.'
17
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 (including the 1,000,000 Escrow Shares), and as adjusted to
reflect the exercise of 374,548 warrants and the receipt of $3,745.48 therefrom,
the issuance and sale of the shares of Common Stock hereby and the application
of the estimated net proceeds therefrom. 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, 1996
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED)
<S> <C> <C>
Total liabilities.......................................................... $ 2,026,377 $1,526,377
----------- -----------
Stockholders' equity (deficit)
Common Stock, $.001 par value; 20,000,000 shares authorized; 3,050,000
shares issued and outstanding; 4,224,548, pro forma as adjusted..... 3,050 4,225
Additional paid-in capital............................................ 405,356 4,704,926
Cumulative translation adjustment..................................... 47,989 47,989
Accumulated deficit................................................... (1,835,787) (1,899,219)
----------- -----------
Total stockholders' equity (deficit)............................. (1,379,392) 2,857,921
----------- -----------
Total capitalization........................................ $ 646,985 $4,384,298
----------- -----------
----------- -----------
</TABLE>
PLAN OF OPERATION
To date, the Company has had a limited operating history, is in
development-stage and has not realized any operating revenues. The current
version of SoftGuard, although out of the development stage and ready for
commercialization, has not yet been released. Since inception, the Company's
activities have been principally limited to organizational and initial
capitalization activities, designing and developing the technology underlying
its proposed software protection product lines and recruitment of executive
personnel. See 'Business.'
The current version of SoftGuard is intended to be compatible for use on
Windows 3.x and MS-DOS based systems. Although ready for release, the Company
does not intend on releasing the product to the general public until it develops
a sales and other customer support infrastructure. The Company is actively
engaged in the development of expanding its SoftGuard product line for
multi-platform versatility and compatibility with other operating systems and
networks. The Company anticipates introducing versions of SoftGuard for use with
Windows 95 and the TTR Remote Activation Center for software being distributed
through the Internet (electronic distribution), by the second quarter of 1997,
although no assurance can be given. A version for Windows NT is in the system
design stage, and versions for NEC based operation systems and networks are
being investigated. The Company is also actively engaged in developing DiscGuard
for CD-ROM copy protection, and anticipates releasing the initial version by the
third quarter of 1997. The Company is exploring other compatible or
complementary product offerings. There can be no assurance that the Company will
successfully develop or ultimately commercialize any of these proposed products.
See 'Business.'
The Company anticipates undertaking marketing efforts in North America,
Israel, Europe and the Far East to increase awareness of the Company's products.
In this respect, the Company will be exploring the possibility of establishing
strategic relationships with appropriate significant software distributors.
Further, it is anticipated that TTR Israel's new Chief Executive Officer, who
assumed his duties in September 1996, will devote a significant portion of his
time in developing appropriate marketing strategies. In addition, the Company is
actively seeking an independent marketing professional with experience in
introducing new hi-tech products to market. The Company would utilize the
marketing professional's services to explore the possibilities of establishing
strategic relationships with well-known software developers and distributors.
See 'Management' and 'Business -- Sales and Marketing.'
The Company anticipates that the proceeds of this Offering will be
sufficient to satisfy the Company's contemplated cash requirements for the next
12 months following the consummation of the Offering, based upon the Company's
present plans and certain assumptions relating to general economic and industry
conditions, market factors, and the Company's future revenues and expenditures.
If any of
18
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<PAGE>
these factors change, the Company may be required to raise additional funds
during the next 12 months. The Company may, in any event, seek additional
financing following the completion of this Offering, even though the Company has
no present intention, agreement, understanding or commitment with respect to any
such financing.
As of September 30, 1996, the Company had an aggregate of approximately
$51,490 in bank loans of which principal payments are due in various
installments through 1998. These loans bear interest at rates of prime plus
2.4%-3% per annum and are secured by substantially all of the assets of TTR
Israel.
In September 1996, the Company entered into a loan and security agreement
with 732498 Ontario Ltd. ('Ontario') pursuant to which the Company borrowed and
aggregate of $133,400 at a per annum interest rate of 22%. The principal and
accrued interest on these loans are payable in full on the earlier of March 30,
1997 or the consummation of this Offering. To secure the repayment of all
amounts due, Ontario has been granted a floating security interest and lien,
subject to existing liens, on all tangible and intangible property of the
Company. See 'Use of Proceeds.'
At September 30, 1996, the Company had a working capital deficit of
approximately $1,955,000. Since inception, the Company has relied for all of its
funding on private sales of its debt and equity securities. See 'Description of
Securities -- Prior Financings' for a description of these sales.
The Company's product development is centralized out of TTR Israel's
facilities in Israel. The Company does not have any commitments or plans to
undertake significant capital expenditures in plant or equipment, other than the
purchase of approximately $140,000 of computer equipment. See 'Use of Proceeds.'
The Company requires the net proceeds of this Offering to continue its
product development efforts and to commence full-scale marketing of its version
of SoftGuard available for commercial release. To date, the Company has expended
approximately $616,000 on its research and development activities, and plans to
spend approximately $615,000 of the net proceeds of the Offering to continue
such activities. Over the next 12 months, the Company plans to spend
approximately $473,000 of the Offering proceeds on marketing related activities.
See 'Use of Proceeds' and 'Business -- Research and Development' and ' -- Sales
and Marketing.'
As of January 15, 1997, $626,203 of note principal and interest with
respect to two-year promissory notes issued in connection with the 1995 Debt
Financing (as defined hereafter) became due and payable. The holders of $619,525
note principal and interest extended the due date of such notes to March 31,
1997. The Company anticipates that the remaining holder of $5,515 note principal
will grant a similar extension. Accordingly, to date the Company has not made
payment with respect to such note. See 'Business -- Prior Financings.'
In December 1996, the Company borrowed, on an unsecured basis, an aggregate
of $300,000 from six unaffiliated investors at a per annum interest rate of 15%.
The principal and accrued interest on these loans are payable in full on the
earlier of the first anniversary of the borrowings or the consummation of this
Offering. See 'Use of Proceeds.'
To date, the Company has not generated any revenues from operations. For
the period from its inception to September 30, 1996, the Company has incurred
net losses aggregating approximately $1,835,787, reflecting principally research
and development expenses associated with SoftGuard and general and
administrative expenses. Accordingly, the Company's independent auditors
included an explanatory paragraph in their report dated July 1, 1996, 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, to
generate sufficient cash flow to meet its obligations on a timely basis. 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. 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 'Risk Factors -- Development Stage
Company; History of Operating Losses; Accumulated Deficit; Working Capital
Deficiency; Uncertainty of Future Profitability,' 'Risk Factors -- Explanatory
Paragraph in Independent Auditors' Report' and the Financial Statements.
19
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<PAGE>
The Company currently has ten employees, and depending on its level of
business activity, expect to hire additional employees in the next 12 months,
including marketing and sales, research and development, customer support,
production and administrative personnel, and has allocated approximately
$780,000 of the proceeds of this Offering for the recruitment and related
payroll expenses for approximately 20 additional employees over the next
12-month period. See 'Risk Factors -- Proposed Expansion' and 'Use of Proceeds.'
The Company expects that any release of the Escrow Shares to officers,
directors, employees and consultants of the Company will be deemed compensatory,
and accordingly, will result in a substantial non-cash charge to reportable
earnings equal to the fair market value of such shares on the date of release.
Such charge could substantially increase the Company's loss or reduce or
eliminate the Company's net income, if any, for financial reporting purposes for
the period(s) during which such shares are, or become probable of being,
released from escrow. Although the amount of compensation expense recognized by
the Company will not affect the Company's total stockholders' equity, it may
have a depressive effect on the market price of the Company's securities. See
'Risk Factors -- Charge to Earnings in the Event of Release of Escrow Shares.'
20
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<PAGE>
BUSINESS
The Company is primarily engaged in the design and development, and intends
to commence marketing of, a family of proprietary software security products
that are designed to prevent the unauthorized reproduction and use of computer
software programs. TTR's proposed core product, SoftGuard, is designed to be
used by software developers for inclusion in their software packages sold to
end-users. The current version of SoftGuard, although out of the development
stage and ready for commercialization, has not yet been released. Since its
inception, the Company has been engaged primarily in product design and testing,
and has not had any sales revenue to date. The Company's primary objective is to
make SoftGuard the market standard for software protection.
INDUSTRY BACKGROUND
Losses related to the unauthorized use of software present an increasing
concern for software developers and publishers. The Business Software Alliance
estimated that software-piracy related losses exceeded $15 billion worldwide in
1994. In the United States, total losses from software piracy exceeded $3
billion in 1994. Illegal copies of widely-recognized software programs can
frequently be purchased in certain parts of Eastern Europe and the Far East at
retail prices that are a fraction of those prevailing in the United States and
Europe.
Additionally, the increasing use of CD-ROMs poses new dangers. Unlike
standard distribution diskettes, CD-ROMs enable the processing, storing and
distribution of vast amounts of information. Increasingly, the data contained on
the CD-ROM is of a purely informative or entertainment nature and is not
intended to be installed permanently on the user's hard-drive. Until recently,
CD-ROM software has been relatively protected from unauthorized reproduction
owing to the relatively high-cost of CD-recording technology. With the advent of
low-cost CD Recorders and mass reproduction machines, software pirates are able
to duplicate the software applications contained on the CD-ROM with no
significant impediment. The unauthorized reproduction (and distribution) of
unprotected software applications residing on CD-ROMs can represent significant
potential revenue-losses.
Software protection is a relatively new market. Until the mid-1980's,
software developers and publishers traditionally relied on copyright and
intellectual property laws to police software piracy. However, as the frequency
and sophistication of software piracy increased, continued reliance on legal
sanctions frequently proved ineffective. Software developers began to seek ways
to aggressively and effectively halt the proliferation of unauthorized copies of
their software, thereby triggering the development of the software protection
market. Most of the security solutions which were commercially available
typically required that the software to be protected be stored in an 'encrypted'
mode so as to prevent its copying. In addition, a hardware component such as a
'dongle' (key), a physical device that plugs into a computer's parallel port,
was ordinarily utilized. The device must be present in order for the protected
software to execute (or 'decrypt'). Without the key or the plug, the protected
program wouldn't ordinarily execute. The dongle acts as 'identification code,'
enabling the protected software to execute. Dongles and keys are provided
directly to the software vendor and are frequently customized for particular
software applications. The technology underlying these solutions came to
represent the 'market standard' in terms of affording effective
software-protection.
Security solutions utilizing hardware components such as dongles present
significant operational difficulties and inconveniences for legitimate
end-users. By its very nature, the key is not 'transparent,' and needs to be
physically present on a parallel port each time that the protected application
is run. Frequently, keys are not interchangeable among different applications,
necessitating a different key for each application, giving rise to a 'daisy
chain' of plugs protruding out of the back of operating units. Furthermore,
dongles cannot currently be mass-produced. Each device must be custom made or
programmed, invariably resulting in relatively high production costs.
Accordingly, dongles are ordinarily used for higher priced applications
whose retail price typically exceeds $300. Software developers of many of the
commercially available popular software applications, such as well-known
word-processing and other business related programs, have elected to forego any
software anti-copying protection. Further, the relatively high-cost of the
dongles and other peripherals
21
<PAGE>
<PAGE>
render their use impractical for relatively lower priced CD-ROM applications,
such as games or other entertainment packages.
SoftGuard does not entail the use of any hardware peripherals such as
dongles, and requires the end-user to use a protection diskette only once at the
installation of the protected software onto the end-user's system. Thereafter,
the safety measures are transparent to the legitimate end-user, who need not be
aware of their operation. Furthermore, the utilization of SoftGuard does not
necessitate the software developer to implement design or code changes in the
software. Additionally, the Company expects to be able to mass-produce
SoftGuard, significantly decreasing the per-unit production costs. DiscGuard,
the proposed CD-ROM protection product, is intended to modify the laser optics
system of the CD-ROM mastering machine, rendering the CD-ROM non-reproducible
and thereby thwarting CD-ROM pirates' efforts to faithfully reproduce the
contents of the CD-ROM.
TTR believes that its proposed SoftGuard products will provide a versatile,
transparent, easy-to-use, effective and relatively inexpensive anti-copying
security solution that will not require the software developer to effect any
basic design changes to the protected software application program.
BUSINESS STRATEGY
The Company's primary objective is to make SoftGuard the 'market standard'
in software anti-copying protection. The Company intends to pursue a business
strategy that incorporates the following principal components:
Penetration of Software Security Markets. The Company intends to begin
marketing by the first quarter of 1997 its proposed SoftGuard product to
large well-known software developers whose products enjoy wide geographic
dispersion but who have previously disregarded the software security
market. By emphasizing SoftGuard's reduced costs and end-user transparency,
the Company hopes to promote the penetration of the software security
market beyond the current $300 and above retail software market. In
addition, new developments such as the proposed DiscGuard CD-ROM product
may enable the Company to expand its potential customer base from software
developers to CD-ROM replicators. See 'Business -- Sales and Marketing.'
Penetration of Leading Geographic Marketing Areas. The Company intends
to launch its marketing and distribution efforts initially in Israel by the
first quarter of 1997 and in North America by the second quarter of 1997.
The Company also expects to expand its marketing efforts to subsequently
include Europe and the Far East. The Company also intends to develop a
version of SoftGuard that is compatible with Japanese-standard NEC based
operating systems, which it expects to introduce by the second quarter of
1997. See 'Business -- Sales and Marketing' and ' -- SoftGuard Software
Protection System.'
Continued Product Expansion and Enhancement. The Company is committed
to continuous product expansion and enhancement to stay competitive with
rapid technological advancement and other changes affecting the computer
industry. The Company is focusing its research and development activities
toward lowering the cost of its existing proposed products, the design and
development of new products, and the enhancement of existing proposed
products. For example, the Company intends on increasing the SoftGuard
product line by introducing new products for multi-platform versatility
with interoperability and compatibility with operating systems including
the Apple Macintosh, the Japanese-standard NEC computers, network
environments, Microsoft's Windows 95 and Windows NT, and the Internet. See
'Business -- SoftGuard Software Protection System' and ' -- Research and
Development' and 'Use of Proceeds.'
Pursue Strategic Acquisitions. In addition to growing internally, the
Company desires to grow through strategic acquisitions. The Company plans
to seek to acquire new products or complementary product lines for
integration into the Company's product offerings and its business. The
Company is not currently engaged in identifying any potential acquisitions
and currently has no plans, agreements, understandings or arrangements for
any acquisitions. See 'Risk Factors -- Proposed Expansion' and 'Use of
Proceeds.'
Strengthen Competitive Advantages. The Company believes that the key
to competition is to offer an effective security product which is more
convenient to use and more cost-effective than the
22
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<PAGE>
competition. Research and development efforts are being focused towards
making SoftGuard even more user-friendly and cost-effective. In addition,
the Company is developing novel approaches to software security such as its
DiscGuard for CD-ROM based software, that are unavailable to its
competition. See 'Business -- Research and Development'; ' -- SoftGuard
Software Protection System' and ' -- Competition.'
SOFTGUARD SOFTWARE PROTECTION SYSTEM
The proposed SoftGuard software protection products are intended to provide
comprehensive protection against unauthorized software copying. SoftGuard is to
be comprised of a specially designed protection diskette, which provides
anti-copying protection while the software resides on a distribution diskette,
CD-ROM or other distribution medium, as is the case when the software is
initially purchased by the end-user, and a software-based solution that protects
against unauthorized reproduction once the software is installed onto the
legitimate end-user's system. SoftGuard will not include any hardware
peripherals such as dongles.
The software applications to be protected will be encrypted by the software
developer using an encryption key derived from the protection diskette. The
protection diskette will be a standard commercially available diskette which is
physically altered by means of a novel and proprietary method to imprint an
identification code that is unique to the particular software house and the
specific application. The protected software will be purchased by the end-user
in the encrypted format, and such protected software will not execute or run as
intended unless it is installed in the presence of an authentic protection
diskette containing the appropriate identification code. Without the protection
diskette, the protected software will not properly install onto the end-user's
system and cannot be used. The protection diskette will be sold to the developer
and included in the applications package that is finally distributed to the
end-user. The protection diskette will be designed to be used only once by the
end-user at the time of the initial installation of the protected software.
It is intended that the developer's software program will further be
protected by the SoftGuard software licensed from the Company. As part of the
installation of the protected software onto the legitimate end-user's hard
drive, SoftGuard re-encrypts the protected software. The re-encryption effected
by SoftGuard is designed to adapt to certain unique characteristics of the
computer on which the protected software is being installed. When the authorized
or legitimate end-user tries to run the protected software (after installation
on the end-user's system), SoftGuard verifies the validity of the installed
software, decrypts the protected file and permits execution to take place.
Protected software subsequently installed or copied onto a different unit will
not work unless so authorized by the software developer, and thus will not
execute. The software developer will fix a pre-determined number of times that
the protected software can be installed (or reinstalled in the event of hard
disk failure) by the legitimate end-user. Any attempted installation beyond such
authorized number will not properly execute. Furthermore, SoftGuard will provide
the software developer with the option of limiting any installs of the protected
software for a pre-determined time-period. Thus, the end-user can try the
protected software for a limited time-period. This option will provide the
software developer with a powerful marketing tool, enabling it to expose the
benefits and applications of its software to the market without incurring the
risk of unauthorized mass-copying and distribution of the software.
The encryption key derived from the protection diskette is based on a
published algorithm. SoftGuard utilizes a unique technology to develop the
encryption keys. The encryption key is based in part upon the pattern created by
a series of marks on the diskette generated by physically altering the diskette
to remove magnetic material from its surface in pre-determined areas. The
resulting distinct pattern, or key, is used as a parameter in creating an
encryption key that can produce different encryption formats upon a
corresponding change in the key. In Management's view, this creates a highly
effective product since the unlikely event of the successful cracking of one
encryption key by an unauthorized user will not assist in the cracking of
another key.
Additionally, most commercially available anti-copying software-based
solutions utilize an 'envelope' method of encryption whereby the executable file
to be protected is encrypted in such a manner which requires a 'jump' to the
beginning of the protected file on the system's memory when such file is
executed. For someone running a debugger, such as a potential hacker, the
envelope method
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acts as a beacon indicating where, on a system's memory, the protected file
resides. Once the hacker knows where the protected file begins in the system's
memory, he is able to take a snapshot of the protected file in its unencrypted
and unprotected format and download it to a disk, thereby effectively 'cracking'
the program. Unlike the envelope method of encryption protection, SoftGuard will
utilize a program that monitors all program executions. Upon execution of a
SoftGuard protected file, the SoftGuard monitor will validate the protected file
and remove the encryption, thereby allowing successful execution. The SoftGuard
method of encryption requires no 'jump' to the beginning of the protected file
on the system's memory. Thus, the potential hacker is not informed as to where
the protected file begins in the system's memory. In Management's view, these
features present significant impediments to 'cracking.'
The Company intends on using a specially designed and highly accurate
laser-based duplicating machine to mass-produce the protection diskettes (the
'Diskette Marking Machine'). Mass-production of the protection diskettes will
significantly reduce the production costs of the protected software, affording
the software developer with a low-cost effective solution to unauthorized
software copying. Since the protection diskettes will only be able to be
produced by the Company's specially designed Diskette Marking Machine,
Management believes that it is highly unlikely for an unauthorized person to
make usable copies of protection diskettes.
SoftGuard is intended to be used to safeguard MS-DOS and Microsoft Windows
EXE executable files, as well as non-executable files including Windows DLL's
and runtime applications.
SOFTGUARD SOFTWARE PROTECTION PRODUCT LINE AND DEVELOPMENTS
The Company expects to initially market a version of SoftGuard that is
compatible for use on Windows 3.X and DOS based systems. The Company is planning
on expanding the proposed SoftGuard product line for multi-platform versatility
with interoperability and compatibility with other operating systems. There can
be no assurance given that the Company will successfully develop any new
products, or if developed, that they will be developed in a timely fashion
and/or result in sales. See 'Risk Factors -- New Products and Rapid
Technological Change.' The Company is currently developing or planning on
developing the following new features to the SoftGuard product line:
SoftGuard for Windows 95. The proposed SoftGuard for Windows 95 is
intended to support protected applications that are compatible with Windows
95. Upon finalization, SoftGuard for Windows 95 is expected to include all
of the features of the Windows 3.x version of SoftGuard. The program
development is completed and the system is being tested by the Company's
quality assurance staff. It is currently anticipated that it will be
available for beta testing during the first quarter of 1997. When a program
is in beta testing, it is being used at actual customer sites. The Company
receives feedback from the customers and responds to problems as they
arise. The length of the beta test depends to a large extent on the results
of the testing. The Company expects SoftGuard for Windows 95 to be
available for commercial release by the second quarter of 1997.
SoftGuard for Windows NT. This version is intended to support
protected applications (both 16 and 32 bit) under Windows NT. It is
expected to include all of the features found in the Windows 3.x version of
SoftGuard. The program is currently in a system design phase, which occurs
after the functional specifications of the software system have been
determined, whereby the system files, databases, logical processes and
interfaces with other systems and with a user are designed. The Company
expects SoftGuard for Windows NT to be available for commercial release by
the third quarter of 1997.
SoftGuard for NEC and SoftGuard for Macintosh. The overwhelming
majority of the Japanese software market utilize NEC based operating
systems. In addition, many software developers design their software to run
on Macintosh operating systems in addition to DOS/Windows. TTR is in the
functional definition stage of adapting SoftGuard to operate on these
systems, whereby the functional specifications are being developed.
NetGuard. The proposed networks version of SoftGuard is being designed
to be used on any type of network server. The networks version is intended
to support tandem servers, RAID and disk stripping, as well as automatic
crash recovery. Additionally, it is being designed to enable any
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desired combination of fixed and floating licensing. The proposed product
is currently in a program design and program development stage. In program
design, the individual programs which comprise the processes of the system
are designed. In the program development stage, programmers use the program
design documents to write the programs which are then tested individually.
The Company expects the program to be ready for beta testing in the first
quarter of 1997, with a targeted commercial release by the third quarter of
1997.
TTR REMOTE ACTIVATION CENTER FOR INTERNET (ELECTRONIC) DISTRIBUTION
Companies desiring to distribute protected software electronically need to
insure that payment for the downloaded software is received and that such
software is restricted to use to one site per payment. Utilizing the core
technology incorporated in SoftGuard, the Company believes that it is addressing
these concerns with the Remote Activation Center for Internet (Electronic)
Distribution. The Remote Activation Center as proposed is based on a triangular
communication design, linking the end-user's system, the software distributor's
Internet server and the Company's Internet server. This will permit companies
that would like to sell protected software via electronic distribution such as
the Internet to protect their software utilizing similar procedures as in the
conventional version of SoftGuard. Once the end-user downloads and pays for the
protected (encrypted) software, the distributor's server would activate a
utility which automatically notifies the Company's Internet web server. All of
this would happen automatically and transparently to the end-user. It is
intended that when the end-user installs the protected software, the Company's
Internet server will be automatically contacted. Upon verification of payment,
the Company's server would pass a decryption key to unlock the protected
software. This part of the process is similar to the install process which takes
place in the current conventional version, with the Company's server acting like
the protection diskette. Unlike other remote activation schemes, the SoftGuard
electronic distribution product will not require the end-user to enter a
key-code in order to activate the downloaded software. Once the downloaded
software is installed onto the end-user's hard drive, it will be protected in
the same way as conventionally distributed SoftGuard treated software. Thus, the
Remote Activation Center is intended to insure payment by the end-user in
addition to providing conventional software protection. The Remote Activation
Center is currently in a program design and program development phase. The
Company expects the proposed system to begin beta testing during the second
quarter of 1997 with a targeted commercial release date by the third quarter of
1997.
DISCGUARD FOR CD-ROM BASED SOFTWARE
Increasingly, popular game, video, educational materials (i.e.,
encyclopedias), business and other professional applications are distributed via
CD-ROM. A CD-ROM is able to store vast amounts of data, rendering it a more
efficient distribution vehicle than the standard diskette. Ordinarily, the user
does not install onto a hard-drive the data contained on the CD-ROM, but merely
accesses it from time to time for educative, entertainment or professional
purposes.
Until recently, CD-ROM based applications have enjoyed some immunity from
unauthorized reproduction due to the high cost of the copying hardware. However,
the decreasing costs of CD-Recorders, which can be used to faithfully reproduce
unauthorized copies of the CD-ROM, and the increased availability of other mass
reproduction machines, have contributed to the increase in CD-ROM piracy. By use
of a CD-Recorder, a software pirate is able to read the software application
program contained on the CD-ROM and to faithfully reproduce a copy of such
program on a parallel CD-ROM. Conventional encryption based technologies that
encrypt data contained on the CD-ROM are impractical if the user does not
ordinarily install the CD-ROM data onto a hard-drive. Also, dongles are
prohibitively expensive for the popular CD-ROM applications.
The Company is developing a proprietary technology that permits it to
programmatically distinguish between an authentic original CD-ROM designed by
the software developer and an unauthorized reproduction. Thus, a software pirate
who is attempting to copy a CD-ROM will be prevented from faithfully reproducing
the software program. The Company's proposed solution involves modifications to
the laser optics system of the CD-ROM mastering machine. This technology is
intended to prevent the faithful reproduction of the CD-ROM itself, without
reference to the data
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contained on it. The Company expects to commercially release its DiscGuard
CD-ROM product by the third quarter of 1997.
ADVANTAGES OF SOFTGUARD
From an end-user's viewpoint, copy protection is not necessarily the most
welcome feature in a software program. Many software development houses have
elected to not include software protection with their software programs because
end-users have encountered operational difficulties with, or have indicated an
unwillingness to use, such software protection. The Company believes that its
proposed SoftGuard products will address many of the operational difficulties
previously encountered by end-users. Significant features of SoftGuard available
to the end-user will include the following:
Avoids the Inconvenience Associated with Hardware Components or
Peripherals. Unlike most commercially available anti-copying solutions
utilizing hardware peripherals such as dongles, SoftGuard is proposed to be
a hardware-based solution in a software format that utilizes one diskette
that is typically used by the end-user only once at the time of
installation of the protected software onto the desired computer.
Thereafter, the solution is entirely software based. With SoftGuard, the
end-user avoids the inconvenience associated with hardware peripherals each
time the software is accessed. This renders SoftGuard versatile and
especially attractive for the growing number of laptop users.
Transparent Safety Features. Upon installation by the legitimate
end-user, the anti-copying features of SoftGuard are intended to integrate
onto the operating system and will not require any subsequent end-user
interaction. The software will be able to be accessed and used by the
legitimate end-user without any inconvenient procedures or steps on the
legitimate end-user's part. Accordingly, once the protected software
program is installed utilizing the protection diskette, the SoftGuard
safety features will be self-executing and transparent to the end-user.
Competitive Pricing. Unlike most commercially available solutions
utilizing dongles, where such peripherals need to be custom made, the
protection diskettes are expected to be mass-produced, resulting in a cost
savings to the software developer that can be passed onto the end-user.
Anti-virus protection. Computer viruses typically attach themselves to
executable files. Since SoftGuard protected executable files will be
maintained in an encrypted format, a by-product of SoftGuard protection is
that viruses will not be able to attach themselves to SoftGuard protected
files.
Authorized Transfers. Increasingly, end-users work outside of, or in
addition to, the traditional office setting. If the software developer
chooses, SoftGuard will be able to enable the legitimate end-user to
perform an authorized install of the protected application on both the
office-based unit and the additional portable or home-based unit, as
needed. Authorization can thus be transferred using a built in utility to
the unit where the end-user would like to work.
RESEARCH AND DEVELOPMENT
The computer industry in general is characterized by rapid product changes
resulting from new technological developments, performance improvements and
lower production costs. The Company's research and development activities to
date have focused on developing products responsive to perceived immediate
demands in the market. The Company believes that its future growth in the
software protection field, of which no assurance can be given, depends in large
part on its ability to be an innovator in the development and application of its
proprietary technology and know-how. The Company intends to work closely with
software developers to determine their requirements and to design enhancements
and new releases to meet their needs.
The Company has a staff of six full-time and two part-time research and
development personnel working on improvements and enhancements to current and
anticipated products as well as developing new products for the software
security industry. The Company has a policy of recruiting highly qualified
technical personnel and anticipates expanding its research and development
personnel in order to
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maintain its technological expertise. The Company intends to capitalize on the
highly-skilled pool of computer and engineering professionals in Israel in
pursuing its product research and development efforts.
Following the completion of this Offering, the Company intends to expand
its research and development department into three groups: a research group, a
development group and a quality assurance group. The Company anticipates hiring
between 15 and 18 additional employees to staff these groups. The development
team will be responsible for developing new products identified by the research
group and the maintenance and enhancement of current products. The quality
assurance group will be responsible for the quality of all products and customer
support. See 'Business -- Customer Support' and 'Plan of Operation.'
TTR Israel has received grants from the OCS aggregating approximately
$97,500. Generally, grants from OCS constitute up to 50% of certain research and
development expenses on the development of products intended for export. Under
terms of the OCS's participation, a royalty of 3% of the net sales of products
developed from a project funded by OCS must generally be paid, beginning with
the commencement of sales of products developed with grant funds and ending when
150% of the grant is repaid. The terms of the Israeli government participation
also require that the manufacture of products developed with government grants
be forever performed in Israel, even 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,
government consent to use less offensive third party manufacturing sites outside
of Israel is not unreasonably withheld.
The Company's research and development efforts are currently focused on the
compatibility of its products with the most widely used software functioning on
different platforms. From the date of inception through September 30, 1996, the
Company has expended approximately $616,000 on its research and development
activities including no expenses for the year ended December 31, 1994 and
approximately $276,000 for the year ended December 31, 1995. The Company expects
the level of its research and development expense to increase in the future. The
Company has allocated approximately $615,000 of the net proceeds for research
and development activities. See 'Use of Proceeds.'
SALES AND MARKETING
The Company's objective is to make SoftGuard the market standard for
software anti-copying protection. The Company has allocated approximately
$473,000 of the net proceeds to be used to launch a marketing and distribution
effort initially in Israel and North America with subsequent efforts in Europe
and the Far East. See 'Use of Proceeds.'
The Company currently employs one salesman to identify beta sites locally
but anticipates expanding its sales and marketing personnel following the
completion of this Offering. See 'Use of Proceeds.' Initially, the Company plans
to open a North America sales office in Boston, Massachusetts by the second
quarter of 1997. The Company is also considering future locations in Chicago,
Illinois and Houston, Texas. The Company intends to center its marketing efforts
around advertising and promotional campaigns designed to enhance brand name
recognition. See 'Business -- Patents, Trademarks and Proprietary Information.'
Mr. Arik Shavit, the new Chief Executive Officer of TTR Israel, has
extensive experience in the hi-tech marketing field and it is anticipated that
Mr. Shavit will devote a significant amount of his business time to developing
and implementing appropriate marketing strategies designed to expand recognition
of the Company and its products. See 'Management.' Additionally, the Company has
entered into an agreement with an independent marketing professional with
experience in the introduction of new hi-tech products and concepts to the
market. Management believes that utilizing the services of a market professional
is instrumental in establishing strategic relationships with certain of the
larger and
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internationally recognized software developers and distributors. However, no
assurance can be given that such an agreement will result in strategic
relationships with well-known software developers and distributors.
The Company intends to establish a distribution network, although no
assurance can be given, that will attempt to penetrate the relevant markets. The
Company anticipates that its marketing strategy will include original equipment
manufacturer ('OEM') arrangements with software vendors and distributors and
direct sales over the Internet. The Company views the rapid penetration of the
North American, European and Far Eastern markets as a key strategic element in
the success of its business, and it intends to devote significant marketing
efforts in these areas.
The Company intends on selling the protection diskette to software
developers or to their packagers who will include the protection diskette with
their software program that is ultimately sold to the end-user. In addition, the
Company will license its protection software to the developer. The Company will
receive a licensing fee from the developer, which is expected to be determined
on a case-by-case basis, dependent, among others, upon the retail price and the
expected sales of the software.
The Company has established an Internet web site whereby it will promote
its proposed products electronically. The Company intends on using the site, at
http:/www.ttr.co.il, to permit software houses to be able to download
demonstration test versions of its proposed Remote Activation Center. See
'Business -- TTR Remote Activation Center for Internet (Electronic)
Distribution.' Following the demonstration, the software developer will be able
to contact the Company and obtain an authorization code if it wishes to purchase
the product. The Company anticipates that electronic distribution will assume an
increasingly larger role in the product distribution efforts of software
developers. The Company plans on charging a fee to the software developer each
time the Company's Internet server is contacted by the end-user as well as a
license for including the Company's software protection in the downloaded
software, similar to conventional SoftGuard.
The Company's proposed DiscGuard CD-ROM protection technology, premised on
distinguishing between authentic and replicated CD-ROMs, will involve changes to
the circuitry controlling the laser writing of CDs on CD presses and recorders.
There is no need, however, to open up CD presses physically to modify the
circuitry. These machines are designed to accept 'plug-ins.' The Company is
developing a black box (electronic circuit), although no assurance can be given,
which can be attached to a CD press. The Company intends to license use of these
black boxes to CD-ROM replicators. The replicator may then use the machines to
produce either conventional or non-reproducible CDs for those clients requesting
it. Clients of the replicators are expected to pay a premium for the
non-reproducible CDs, a portion of which would go to the Company.
PRODUCTION AND SUPPLIES
The Diskette Marking Machine, used to specially mark the protection
diskettes used in SoftGuard, is specially made to the Company's order.
Management estimates that each Diskette Marking Machine is capable of supporting
the annual production, at full capacity, of 750,000 protection diskettes. The
Company currently has one fully-operating Diskette Marking Machine, which it
believes can meet its needs for a minimum of 12 months following the completion
of this Offering. Although the Company does not have a written contract with
Pylon Technologies Ltd., the manufacturer of its Diskette Marking Machine, the
Company believes, based upon the experience of Management and the Company's
working relationship with such manufacturer, that it will be able to have
additional Diskette Marking Machines produced on an as needed basis. All of the
sources and components used in the manufacture and assembly of the Diskette
Marking Machine are obtainable from local sources, except for the laser device
that specially marks each protection diskette. However, the Company believes
that there are adequate alternative sources for such devices.
The manufacture of the protection diskettes requires that standard
commercially available diskettes, specially formatted, be physically altered by
the Diskette Marking Machine to create the identification code from which the
encryption is derived. The Company obtains the specially formatted diskettes
from a local source, at an approximate cost to the Company of $.50 per formatted
diskette. The Company does not regard any one supplier as essential to its
operations, since equivalent
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replacements for the diskettes are either available from one or more of the
Company's other suppliers or are available from various other sources at
competitive prices.
The Company anticipates that it will be able to fill orders for its
products within several hours to no longer than several weeks after receipt of a
firm purchase order. Consequently, the Company believes that backlog will be
kept at low levels as a result of the Company's ability to fill orders
relatively quickly. Due to the nature of its intended sales and marketing
efforts and the expected resulting close contact with the customer prior to the
receipt of a purchase order, the Company anticipates being able to plan its
production and component purchases in advance in order to enable it, although no
assurance can be given, to deliver its products quickly after receipt of an
order.
The Company intends to manufacture in-house the black boxes for its
proposed DiscGuard product. All of the sources and components used in the
manufacture and assembly of the black boxes are obtainable from local sources.
The Company currently does not have a written contract with any supplier of
these parts; however, the Company believes that there are adequate alternative
sources for each component.
CUSTOMER SUPPORT
The Company believes that highly efficient, responsive and prompt customer
service is essential for the Company's success in building and retaining
customer confidence.
Upon the commencement of commercialization of its proposed products, the
Company anticipates maintaining an appropriately sized staff of customer service
personnel, which will offer direct technical support. The Company anticipates
that it will geographically disperse its support staff as needed. On a routine
basis, the support staff will be expected to provide feed-back to the Company's
research and development and marketing staffs. The Company intends to use a
portion of the net proceeds of this Offering to increase its customer service
capabilities.
COMPETITION
The software protection industry is extremely competitive. The Company
faces tough competition from companies that are more established, benefit from
greater market recognition and have greater resources, financial and otherwise,
than the Company. The Company's primary competitors are Rainbow Technologies
Inc. and Aladdin Knowledge Systems Ltd., whom the Company believes to have the
largest installed product base in the limited market that exists for software
security products. Further, there can be no assurance that existing software
companies will not enter the market in the future. Most of the software
protection products distributed by each of these competitors utilize a hardware
device such as a dongle. Although the Company believes that its proposed
SoftGuard line of products will be favorably distinguishable from those of its
competitors, there can be no assurance that the Company will be able to
penetrate any of its competitor's portion of the market. See 'Risk
Factors -- Competition.'
The Company believes that its principal competitive advantages will be its
ability to offer a relatively inexpensive and effective software-protection
solution that does not utilize any hardware components (other than a protection
diskette) such as a dongle, plug, key or similar device that is compatible with
a wide variety of operating systems and platforms. The Company believes that its
proposed products will provide an additional competitive advantage in that they
are transparent to the end-user and do not interfere with the operation of the
computer or the protected application. Additionally, the Company's expected
ability to mass-produce the protection diskettes may provide it with an
additional competitive advantage in that it is anticipated to significantly
reduce the protected software's per-unit production costs. There can, however,
be no assurance that the Company will be able to continue developing products
with innovative features and functions, or that competitive pressures will not
result in price reductions that could materially adversely affect the Company.
See 'Risk Factors -- Competition.'
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PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION
The Company currently relies on a combination of trade secret, copyright
and trademark law, as well as non-disclosure agreements and invention-assignment
agreements, to establish and protect the technologies used in its proposed
products and other proprietary information. In addition, the Company has filed
patent applications in the United States, Israel, Germany, France, Great
Britain, the Netherlands and Japan with respect to the technology underlying the
imprinting of the protection diskettes to be used in SoftGuard and has filed a
patent application in the United States for the technology underlying the
proposed DiscGuard CD-ROM based protection and intends on filing additional
applications in other countries. There can be no assurance that any patents will
be granted or that the Company's proprietary technology will remain a secret or
that others will not develop similar technology and use such technology to
compete with the Company.
The Company is of the view that its software products are proprietary and
are protected by copyright law, non-disclosure and secrecy agreements. The
Company also relies on proprietary know-how and employs various methods, such as
the proper labeling of confidential documents and non-disclosure agreements, to
protect its processes, concepts, ideas and documentation associated with its
proprietary products. However, such methods may not afford complete protection
and there can be no assurance that others will not independently develop such
processes, concepts, ideas and documentation.
The Company believes that product recognition is an important competitive
factor. Accordingly, the Company intends to promote the 'SoftGuard,' 'NetGuard,'
'Remote Activation Center' and 'DiscGuard' trademarks in connection with its
marketing activities. The Company pursues the registration of its trademarks in
the United States and (based upon anticipated use) internationally, and has
applied for the registration of certain of its trademarks, including
'SoftGuard.' The Company intends on making additional applications for
registration with respect to other marks. There can be no assurance that prior
registrations and/or uses of one or more of such marks (or a confusingly similar
mark) does not exist in one or more of such countries, in which case the Company
might thereby be precluded from registering and/or using such mark in such
country. The Company's use and registration rights with respect to any trademark
does not ensure that the Company has superior rights to others that may register
or use identical or similar marks on related goods and services. See 'Risk
Factors -- Trademark Registration.'
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 51 are,
unless exempt, obligated to perform up to 45 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
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the Company (including its President) are currently obligated to perform annual
reserve duty. While the Company and its personnel have operated effectively
under these requirements, no assessments can be made as to the full impact on
the Company's work force or business if conditions should change and no
prediction can be made as to the effect on the Company of any expansion or
reduction of these obligations.
Certain countries and companies participate in a boycott of Israeli
companies and others doing business in Israel or with Israel companies. The
Company, however, believes that the boycott will not have an material adverse
impact on the Company's business.
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, employing 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. The New Israeli Shekel ('NIS') is
linked to a weighted basket of major currencies, of which the US Dollar
constitutes 50%. Periodically, the central Bank of Israel resets the target
exchange rate of the NIS in relation to the currency basket, and allows the
actual exchange rate to float within a range of 5% of the target rate.
Israel has recently experience a wave of immigration from the former Soviet
Union and its satellite countries. Almost 600,000 new immigrants have arrived
since 1989. The rate of recent immigration, however, has declined dramatically.
If immigration were to resume to its former levels, increased strains on
government services, economic development and resources could be expected.
Notwithstanding, it could be expected that such increased immigration would also
result in an increase in the highly-skilled labor pool.
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, which is intended to ultimately eliminate all
tariff and certain non-tariff trade between the two countries. Under the
Agreement, most products received immediate duty free status in 1985, staged
reductions are taking place on others and reductions on tariffs relative to a
third category may be accelerated prior to 1995, by which all tariffs are to be
eliminated.
PROPERTIES
The Company, through TTR Israel, currently leases approximately 4,860
square feet for its executive offices, research and production facilities in
Kfar Saba, Israel at a monthly rental of approximately $4,025 pursuant to a
three-year lease expiring in May 1999, subject to two optional annual renewals
through May 2001.
EMPLOYEES
The Company presently has ten full-time employees, of whom six were
employed in research and development, one in sales, two in management and one in
administration. In addition, the Company employs an electrical engineer and a
quality assurance engineer as consultants on an as needed per project basis.
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LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of
any pending or threatened litigation; except as follows:
On October 31, 1996, the Company received a letter from attorneys
representing Smart Chip Group USA ('Smart Chip') in Israel relating to
allegations that the Company was infringing certain proprietary rights of Smart
Chip and/or its affiliates. Specifically, Smart Chip alleged that the
technologies comprising the Company's proposed products use or are derived from
technologies developed by Dr. Baruch Sollish, the Company's Vice
President -- Product Research and Development, as part of his prior consulting
services provided to Smart Chip. The Company has denied these allegations.
Management believes that the allegations are without merit and intends, should
it become necessary, to vigorously defend against those claims. However, there
can be no assurance that the Company will be successful in defending against
such claims. See 'Risk Factors -- Uncertain Ability to Protect Patent-Pending
Technology.'
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the executive officers and Directors of
the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- -------------------------------------------------------------------------
<S> <C> <C>
Marc D. Tokayer................. 40 Chairman of the Board, President and Treasurer; and President and
Director of TTR Israel
Baruch Sollish.................. 50 Director, Vice President -- Product Research and Development and
Secretary; and Director of Product Research and Development and
Director of TTR Israel
Arik Shavit..................... 47 Director and Vice President; and Chief Executive Officer and Director of
TTR Israel
</TABLE>
Marc D. Tokayer is the founder of the Company and has been Chairman of the
Board of Directors, President and Treasurer of the Company since its inception
in July 1994 and Chairman of the Board of Directors, President and Chief
Executive Officer of TTR Israel since its inception in December 1994. From
September 1992 until he joined the Company, Mr. Tokayer worked as an independent
consultant primarily in the areas of business applications. From October 1990
through August 1992, Mr. Tokayer was employed by Yael Ltd., a software company,
where he managed the development of the Central Inventory Control System.
Baruch Sollish, Ph.D. has been a Director of the Company and the Manager of
Product Research and Development for TTR Israel since December 1994. He was
elected the Vice President -- Product Research and Development and Secretary of
the Company in September 1996. Dr. Sollish created the core technology that
makes up the SoftGuard protection process. Prior to joining the Company, from
June 1987 through December 1994, Dr. Sollish founded and managed Peletronics
Ltd., an Israel software company, engaged primarily in the field of smart cards
and software design for personnel administration, municipal tax authorities and
billing procedures at bank clearance centers. Dr. Sollish holds six United
States Patents in the fields of Electro Optics, Ultrasound & Electronics and has
published and lectured extensively.
Arik Shavit has been a Director and Vice President of the Company and the
Chief Executive Officer of TTR Israel since September 1996. Prior thereto, Mr.
Shavit was a Manager of Business Development, Smart Card Services at IBM Israel
Ltd., where he had held this position since August 1994. From August 1990
through July 1994, Mr. Shavit founded and managed Silvaco (Israel) Ltd., an
Israeli subsidiary of SILVACO International, Inc., a California based software
company which develops state-of-the-art computer aided engineering (CAE)
Software Applications and provided development, marketing and support services.
Mr. Shavit also served as Corporate Vice-President and Director of the United
States company.
In accordance with the by-laws of the Company, the number of directors of
the Company shall be three, unless such number is increased or decreased by a
vote of the majority of the outstanding shares of the Company. The Company
currently has three directors, Messrs. Tokayer, Sollish and Shavit. 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. The Representative has
the right during the five-year period following the date of this Prospectus, in
its sole discretion, to designate two persons for the election as directors, or
alternatively to designate two individuals to serve as non-voting advisors to
the Company's Board of Directors. The Representative has no intention to select
either designee in the immediate future. Officers are elected annually by the
Board of Directors and serve at the discretion of the Board.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid for all services rendered to the Company during Fiscal 1996, Fiscal 1995
and Fiscal 1994 by the Company's President and Vice President -- Research and
Development. No executive officers received compensation in excess of $100,000
during such periods.
33
<PAGE>
<PAGE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------ PAYOUTS
------------------------------------------- RESTRICTED SECURITIES -------
OTHER ANNUAL STOCK UNDERLYING LTIP
NAME AND PRINCIPAL POSITION COMPENSATION AWARD(S) OPTIONS/ PAYOUTS
(1)(2)(3) YEAR SALARY ($) BONUS ($) ($) ($) SARS (#) ($)
(a) (b) (c) (d) (e) (f) (g) (h)
- ---------------------------------- ------- ------------ ----------- ------------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Marc D. Tokayer .................. 1996 $ 60,000 0 (1) 0 0 0
Chairman, President and CEO 1995 $ 60,000 0 (1) 0 0 0
1994 $ 60,000 0 (1) 0 0 0
Baruch Sollish ................... 1996 $ 65,000 0 (1) 0 0 0
Vice President - Research and 1995 $ 60,000 0 (1) 0 0 0
Development 1994 n/a n/a n/a n/a n/a n/a
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION
(1)(2)(3) ($)
(a) (i)
- ---------------------------------- ------------
<S> <C>
Marc D. Tokayer .................. 0
Chairman, President and CEO 0
0
Baruch Sollish ................... 0
Vice President - Research and 0
Development n/a
</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, all of which in the aggregate does not exceed the
lesser of $50,000 or 10% of such person's annual salary and bonus.
(2) See 'Employment Arrangements' for a description of Marc D. Tokayer's
employment agreement as President of TTR Israel and Baruch Sollish's
employment agreement as Director of Product Research & Development of TTR
Israel.
(3) Mr. Tokayer's compensation commenced effectively on October 15, 1994. Dr.
Sollish's compensation commenced effectively on January 1, 1995. Arik Shavit
assumed the position of Chief Executive Officer of TTR Israel in September
1996 pursuant to an employment agreement more fully described in 'Employment
Arrangements.'
------------------------
The Company did not grant any options in the last three fiscal years to any
of its executive officers. The Company does not have any long-term incentive
plans for compensating its executive officers.
EMPLOYMENT ARRANGEMENTS
TTR Israel has entered into an employment agreement with Marc Tokayer,
pursuant to which Mr. Tokayer is employed as the President and General Manager
for a term of three years commencing in August 1994. Pursuant to the employment
agreement, Mr. Tokayer will devote his full business time in consideration of a
monthly salary of $5,000, subject to adjustment. If Mr. Tokayer is terminated
without cause, as defined in the agreement, then he shall be entitled to
continue to receive his salary and benefits for an additional 12 months subject
to certain limitations.
TTR Israel has entered into an employment agreement with Baruch Sollish,
pursuant to which Dr. Sollish is employed as the Director of Product Research &
Development for a term of one year commencing in December 1995 and renewed for
an additional year. Pursuant to the employment agreement, Dr. Sollish will
devote his full business time in consideration of a monthly salary of $5,000
plus incentive compensation, payable quarterly, equal to one (1%) percent of the
initial $1,000,000 of gross receipts from the sale of certain products of the
Company (including SoftGuard), and two (2%) percent for gross receipts in excess
of such amount. If Dr. Sollish is terminated without cause, as defined in the
agreement, then such incentive compensation shall convert to royalty payments
under certain circumstances.
TTR Israel has entered into an employment agreement with Arik Shavit,
pursuant to which Mr. Shavit shall be employed as the Chief Executive Officer
for a term of three years commencing in September 1996. Pursuant to the
employment agreement, Mr. Shavit will devote his full business time in
consideration of a monthly salary of $8,334, subject to adjustment. Pursuant to
the employment agreement, Mr. Shavit will be issued warrants to purchase an
aggregate of 217,473 shares of Common Stock upon the date of this Prospectus.
The warrants are exercisable at $.01 per share until September 2002, subject to
a four-year vesting schedule, whereby the first 72,491 warrants are not
exercisable until
34
<PAGE>
<PAGE>
September 1997, 48,328 in September 1998, 48,327 in September 1999 and 48,327 in
September 2000. See 'Certain Transactions.'
EMPLOYEE BENEFIT PLANS
1996 STOCK OPTION PLAN
In June 1996, the Board of Directors adopted, subject to stockholder
approval, the Company's Incentive & Non-Qualified Stock Option Plan (the '1996
Plan'). The 1996 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 450,000 shares of Common Stock have been reserved for issuance
upon exercise of stock options granted under the 1996 Plan. The 1996 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 1996 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 of certain transactions such as
mergers, recapitalizations, stock splits or stock dividends.
As of the date of this Prospectus, the Company has granted to a former
director of the Company options exercisable for a period of four and one-half
years to purchase an aggregate of 5,000 shares of Common Stock, at an exercise
price of $6.00 per share.
INDEMNIFICATION
Pursuant to the Company's 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. The
Company and the Representative have agreed to indemnify each other (including
officers and directors) against certain liabilities, including liabilities under
the Securities Act. See 'Underwriting.' 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.
35
<PAGE>
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus and as
adjusted to reflect the sale of 800,000 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
AMOUNT AND OUTSTANDING SHARES OWNED
NATURE OF --------------------------
NAME AND ADDRESS BENEFICIAL BEFORE AFTER
OF BENEFICIAL OWNER(1) OWNERSHIP(2) OFFERING(3) OFFERING(4)
- ------------------------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Marc D. Tokayer(5)....................................................... 753,547 31.1% 23.3%
Baruch Sollish........................................................... 100,000 4.1 3.1
Arik Shavit(6)........................................................... 0 0 0
Canova Finance Inc.(7)................................................... 639,375 22.7 17.7
Etilon Trading Ltd.(8)................................................... 639,375 22.7 17.7
Joe Ohayon(9)............................................................ 253,275 9.8 7.5
Chana Sasha Foundation Inc.(10).......................................... 167,975 6.7 5.1
All directors and executive officers as a group (3 persons)(5)(6)........ 853,547 35.2 26.5
</TABLE>
- ------------
(1) Except as otherwise indicated, the address of each beneficial owner is c/o
TTR Inc., 2 Hanagar Street, Kfar Saba, ISRAEL 44425.
(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 2,424,548 shares outstanding (excluding 1,000,000 Escrow Shares).
(4) Based on 3,224,548 shares outstanding (excluding 1,000,000 Escrow Shares),
including 800,000 shares of Common Stock offered by the Company hereby.
(5) Includes 384,274 shares held by the Tokayer Family Trust (the 'Trust'). The
wife of Mr. Tokayer is the Trustee for the Trust, and the income
beneficiaries of the Trust are Mr. Tokayer's children. Mr. Tokayer does not
have or share any voting power or investment power with respect to
securities held by the Trust, and accordingly, disclaims beneficial
ownership of all such securities. After the Offering, the Trust may be
deemed to own 11.9% of the outstanding shares of Common Stock.
The amount of beneficial ownership for Mr. Tokayer excludes 269,274 Escrow
Shares in the name of Mr. Tokayer and 730,726 Escrow Shares in the name of
the Trust. Including the Escrow Shares would increase Mr. Tokayer's
percentage of outstanding shares owned before and after the Offering to
51.2% and 41.5%, respectively. See 'Principal Stockholders -- Escrow
Shares.'
See 'Principal Stockholders -- Voting Arrangements' for a description of a
voting arrangement entered into among Mr. Tokayer, the Trust, Dr. Sollish
and four other stockholders with an aggregate of 1,137,430 shares of Common
Stock (35.3% after the Offering) whereby they have agreed to vote their
respective shares to elect directors and in support of positions favored by
a majority of the shares held among them.
(6) Excludes 217,473 shares issuable upon exercise of a like number of warrants
to be issued upon the date of this Prospectus, which will not be
immediately exercisable. See 'Management -- Employment Arrangement' and
'Certain Transactions.'
(footnotes continued on next page)
36
<PAGE>
<PAGE>
(footnotes continued from previous page)
(7) Includes 387,500 shares issuable upon exercise of a like number of
warrants. The address of Canova Finance Inc. is 3 New Burlington Street,
London WIX 1FE United Kingdom and its principals are Mariana Hubli and
Angela Sanchez.
(8) Includes 387,500 shares issuable upon exercise of a like number of
warrants. The address of Etilon Trading Limited is 4, Lower Hatch Street,
Dublin 2, Republic of Ireland and its principals are James Graffick, Simon
Elmont and Gilles Corset.
(9) Includes 153,500 shares issuable upon exercise of a like number of
warrants.
(10) Includes 71,500 shares issuable upon exercise of a like number of warrants.
Chana Sasha Foundation, Inc. is a charitable foundation managed by Morris
Wolfson and Ariel Wolfson, whose address is 1 State Street Plaza, New York,
NY 10004.
------------------------
By virtue of his ownership of Common Stock and position with the Company,
Marc D. Tokayer may be deemed a 'parent' and 'founder' of the Company as such
terms are defined under the Federal securities laws.
ESCROW SHARES
The 1,000,000 Escrow Shares are not assignable or transferable. The Escrow
Shares were deposited in escrow pursuant to an Escrow Agreement by and among the
Company, Mark D. Tokayer (269,274 shares), the Trust (730,726 shares) and Aboudi
& Brounstein Trustees Ltd. (the 'Escrow Agent') dated as of January 8, 1995 (the
'Escrow Agreement'). The Escrow Shares will be released from escrow, on a pro
rata basis, unless otherwise agreed to by the Representative, if one or more of
the following conditions are met:
(a) 250,000 Escrow Shares (67,319 shares to Mr. Tokayer and 182,681
shares to the Trust) shall be released if (i) the Company's net income
before provision for income taxes and exclusive of any extraordinary
earnings (all as audited by the Company's independent public accountants)
(the 'Minimum Pretax Income') amounts to at least $1,800,000 for the fiscal
year ending December 31, 1997; or (ii) the Bid Price (as defined in the
Escrow Agreement) of the Common Stock averages in excess of $15.00 per
share for 30 consecutive business days during the 12 month period
commencing on the date of this Prospectus;
(b) 300,000 Escrow Shares (80,782 shares to Mr. Tokayer and 219,218
shares to the Trust) shall be released if (i) the Company's Minimum Pretax
Income amounts to at least $4,000,000 for the fiscal year ending December
31, 1998; or (ii) the Bid Price (as defined in the Escrow Agreement) of the
Common Stock averages in excess of $20.00 per share for 30 consecutive
business days during the 12 month period commencing 12 months from the date
of this Prospectus;
(c) 450,000 Escrow Shares (121,173 shares to Mr. Tokayer and 328,827
shares to the Trust) shall be released if (i) the Company's Minimum Pretax
Income amounts to at least $6,000,000 for the fiscal year ending December
31, 1999; or (ii) the Bid Price (as defined in the Escrow Agreement) of the
Common Stock averages in excess of $25.00 per share for 30 consecutive
business days during the 12 month period commencing 24 months from the date
of this Prospectus;
(d) During the periods specified in (a), (b) or (c) above, the Company
is acquired by or merged into another entity in a transaction in which the
value of the per share consideration received by the stockholders of the
Company on the date of such transaction or at any time during the
applicable period set forth in (a), (b) or (c), respectively, equals or
exceeds the applicable levels set forth in (a), (b) or (c), respectively,
then such respective amount of Escrow Shares shall be released.
(e) Notwithstanding the conditions of release specified in (a), (b)
and (c) above, all remaining Escrow Shares not otherwise released or
cancelled and contributed to the capital of the Company shall be released
as of the date on which (i) the Underwriters and their customers own less
than
37
<PAGE>
<PAGE>
20% of the public float of the Common Stock or (ii) if none of the
Underwriters have made the high Bid Price on the Common Stock for 50
consecutive business days.
The Minimum Pretax Income amounts set forth above shall (i) be calculated
exclusively of any extraordinary earnings including, but not limited to, any
charge to income resulting from release of the Escrow Shares and (ii) be
increased proportionately, with certain limitations, in the event additional
shares of Common Stock or securities convertible into, exchangeable for or
exercisable into Common Stock are issued after completion of this Offering. The
Bid Price amounts set forth above are subject to adjustment in the event of any
stock splits, reverse stock splits or other similar events.
Pursuant to the Escrow Agreement, any money, securities, rights or property
distributed in respect of the Escrow Shares, including any property distributed
as dividends or pursuant to any stock split, merger, recapitalization,
dissolution, or total or partial liquidation of the Company, shall be held in
escrow by the Escrow Agent until release of the Escrow Shares. During the time
the Escrow Shares are held in escrow, the Escrow Agent will vote the Escorw
Shares in the same manner as the majority of all other shares of the Company's
outstanding Common Stock is voted. If the applicable Minimum Pretax Income, the
Bid Price or alternative tests set forth above have not been met by March 31 of
the following fiscal year, then the Escrow Shares, as well as any dividends or
other distributions made with respect thereto, will be cancelled and contributed
to the capital of the Company. The Company expects that the release, if any, of
the Escrow Shares to officers, directors, employees and consultants of the
Company will be deemed compensatory and, accordingly, will result in a
substantial charge to reportable earnings, which would equal the fair market
value of such shares on the date of release. Such charge could substantially
increase the loss or reduce or eliminate the Company's net income for financial
reporting purposes for the period(s) during which such shares are, or become
probable of being, released from escrow. Although the amount of compensation
expense recognized by the Company will not affect the Company's total
stockholders' equity, it may have a negative effect on the market price of the
Company's securities. See 'Plan of Operation,' 'Risk Factors -- Charge to
Earnings in the Event of Release of Escrow Shares' and Note 11 of Notes to
Financial Statements.
The Minimum Pretax Income and Bid Price levels set forth above were
determined by negotiation between the Company and the Representative and should
not be construed to imply or predict any future earnings by the Company or any
increase in the market price of its securities.
VOTING ARRANGEMENTS
Marc D. Tokayer, Chairman of the Board, the Tokayer Family Trust, Baruch
Sollish, Director and four other stockholders with an aggregate of 1,137,430
shares of Common Stock (35.3% after the Offering), have entered into a voting
arrangement whereby they have agreed to vote their respective shares to elect
directors and in support of positions favored by a majority of the shares held
among them. See 'Risk Factors -- Control by Management and Current
Stockholders.'
CERTAIN TRANSACTIONS
In July 1994, the Company sold 1,200,000 shares of its Common Stock to Marc
D. Tokayer, Chairman of the Board of Directors of the Company. Mr. Tokayer
subsequently contributed 561,453 shares to the Company which were immediately
cancelled by the Company and deposited 269,274 shares into escrow. The shares
were issued in consideration of services performed and Mr. Tokayer's shares of
Common Stock of TBR Systems Inc. ('TBR') (representing approximately 22% of the
then issued equity of TBR), in the aggregate valued at $1,200 ($.001 per share)
(ascribing no value to the shares of TBR). In August 1994, the Company sold
1,200,000 shares of its Common Stock to the Trust, which may be deemed an
affiliate of the Issuer, in consideration of $25,000. The Trust subsequently
transferred 85,000 shares to an unaffiliated third party in exchange for
services and deposited 730,726 shares into escrow. See 'Principal Stockholders.'
TTR Inc. retained Shane, Alexander, Unterburgher Securities, Inc. ('SAU')
to assist it in the establishment of a United States-based sales and
representative office at a fee of $7,900 per month and the issuance of warrants
for 185,000 shares of Common Stock for the period from November 1, 1994 through
December 31, 1995. SAU subsequently transferred the warrants to non-affiliated
third parties,
38
<PAGE>
<PAGE>
and the shares of Common Stock issuable upon exercise of such warrants are
included in the Selling Securityholders Offering. See 'Selling Securityholders'
Offering.'
In November 1994, the Company loaned SAU $256,000, which was repaid in its
entirety in 1995. The terms of the loan included an interest rate of 8% per
annum, with principal and interest payable by December 31, 1995.
In January 1995, TTR Israel acquired the technology underlying certain of
the features of SoftGuard from Rina Marketing R&D Ltd., an Israeli software
company ('Rina'). Until December 1994, Dr. Baruch Sollish, a director of the
Company, was affiliated with Rina. Dr. Sollish was responsible for developing
the technology purchased by the Company from Rina. In consideration of the
purchase of such technology, the Company paid to Rina at closing $50,000.
Following purchase of the technology, the Company developed, enhanced and added
to such technology to develop the SoftGuard line of products.
In January 1996, the Company sold 50,000 shares of its Common Stock to
Chana Sasha Foundation, Inc. ('CSF') for $100,000. In April 1996, the Company
completed a private placement of 650,000 shares of Common Stock and warrants to
purchase an additional 1,000,000 shares of Common Stock to Canova Finance Inc.
(251,875 shares and 387,500 warrants), Etilon Trading Ltd. (251,875 shares and
387,500 warrants), Joe Ohayon (99,775 shares and 153,500 warrants) and CSF
(46,475 shares and 71,500 warrants) for an aggregate purchase price of $200,000,
including $10,000 ascribed to the warrants. The warrants are exercisable at
$7.00 per share. See 'Description of Securities -- Prior Financings.'
In September 1996, the Company agreed to issue upon the date of this
Prospectus 217,473 warrants to Arik Shavit, a director of the Company, pursuant
to his employment agreement with TTR Israel as its Chief Executive Officer. The
warrants are exercisable at $.01 per share until September 2002 subject to a
four-year vesting schedule, whereby the first 72,491 warrants are not
exercisable until September 1997. See 'Management -- Employment Arrangements.'
For information concerning employment and consulting agreements with, and
compensation of, the Company's executive officers and directors, see
'Management -- Executive Compensation; Employment Arrangements; and Employee
Benefit Plans.' See 'Principal Stockholders -- Voting Arrangements' for a
description of a voting arrangement to be entered into among certain members of
Management and other stockholders.
The Company believes that the terms of each of the foregoing transactions
and those which will exist after the consummation of the Offering are no less
favorable to the Company than could have been obtained from non-affiliated third
parties, although no independent appraisals were obtained. In the future, all
transactions between the Company and its affiliates will also be on terms which
the Company believes will continue to be no less favorable to the Company than
the Company could obtain from non-affiliated 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 2,424,548 shares (assuming the pro forma exercise
of 374,548 warrants into 374,548 shares of Common Stock and excluding 1,000,000
Escrow Shares) are currently outstanding and held of record by approximately 60
holders. See 'Description of Securities -- Prior Financings' for a description
of the 374,548 warrants and 'Principal Stockholders -- Escrow Shares' for a
description of the Escrow Shares. 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 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. After the completion of
this Offering, the officers and directors of
39
<PAGE>
<PAGE>
the Company will be entitled to vote 26.5% of the shares of Common Stock. Marc
D. Tokayer, Chairman of the Board, the Trust, Baruch Sollish, Director and four
other stockholders with an aggregate of 1,137,430 shares of Common Stock (35.3%
after the Offering) have entered into a voting arrangement whereby they have
agreed to vote their respective shares to elect directors and in support of
positions favored by a majority of the shares held among them. Accordingly, in
all likelihood they will be able to elect all of the Company's 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.
PRIOR FINANCINGS
From November 1994 through July 1995, the Company consummated a private
placement to 26 accredited investors of two-year 10% promissory notes
aggregating approximately $1,041,000 (the '1995 Debt Financing'). In November
1996, a total of $392,500 of such notes plus accrued interest thereon of $78,500
became due and payable. In November 1996, the holders of $441,000 note principal
and interest of such notes extended the due date of the notes to March 31, 1997.
In connection with the Debt Financing, the Company issued warrants (the 'Debt
Financing Warrants') to the noteholders to purchase up to a total of 174,548
shares of Common Stock for $.01 per share. The 174,548 shares of Common Stock
issuable upon exercise of the Debt Financing Warrants are included in the
Selling Securityholders Offering. The 1995 Debt Financing will be repaid from
the proceeds of this Offering as the promissory notes become due and payable, or
sooner at the discretion of the Company. See 'Use of Proceeds.' The proceeds
from the 1995 Debt Financing were used for the initial activities of the
Company, including recruitment of personnel, acquisition of equipment and office
premises, and for general corporate purposes. Also in connection with the 1995
Debt Financing, the Company paid commissions and non-accountable expense
allowances in the aggregate amount of approximately $146,000 to SAU. See 'Plan
of Operation,' 'Selling Securityholders Offering' and 'Principal Stockholders.'
In April 1996, the Company completed a private placement of 650,000 shares
of Common Stock and warrants to purchase an additional 1,000,000 shares of
Common Stock to four sophisticated investors for an aggregate purchase price of
$200,000 (the 'Equity Financing'). The securities issued in connection with the
Equity Financing are included in the Selling Securityholders Offering. The
proceeds from the Equity Financing were used for product development and for
general corporate purposes. See 'Selling Securityholders Offering.'
In June 1996, the Company issued in a private placement to 6 accredited
investors one-year 10% promissory notes in the aggregate amount of $500,000 (the
'Bridge Financing'). By its terms, the Bridge Financing must be repaid from the
proceeds of this Offering. See 'Use of Proceeds.' The net proceeds to the
Company of the Bridge Financing were approximately $423,000 after deducting
related placement expenses. The proceeds were used for product development and
working capital purposes. In connection with the Bridge Financing, the Company
issued an aggregate of 150,000 shares of Common Stock. The securities issued in
connection with the Bridge Financing are included in the Selling Securityholders
Offering. Also in connection with the Bridge Financing, the Company paid
commissions and non-accountable expense allowances in the aggregate amount of
approximately $55,000 to the Representative. See 'Selling Securityholders
Offering.'
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
40
<PAGE>
<PAGE>
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 from making a tender
offer or otherwise attempting to obtain control of the Company.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The transfer agent and registrar for the Common Stock and the warrant agent
for the Warrants is North American Transfer Co., 147 W. Merrick Road, Freeport,
New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 3,224,548 shares of
Common Stock outstanding. Of the Common Stock to be issued and outstanding after
the Offering, an aggregate of 2,074,548 shares of Common Stock, consisting of
the 800,000 shares of Common Stock sold in the Offering and the 1,274,548 shares
of Common Stock (all of which shares will be subject to a lock-up agreement as
described below) being offered by the Selling Securityholders 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
1,150,000 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. Approximately 653,547 of such shares will be
eligible for sale under Rule 144 commencing 90 days after the consummation of
the Offering; however, all of such shares will be subject to the following
lock-up agreement. The Company's officers, directors, stockholders each
beneficially owning 5% or more of the Common Stock, all Selling Securityholders
(except for certain selling stockholders who have agreed to lock-up their
150,000 shares for a period of 18 months) and certain other stockholders
(covering an aggregate of approximately 2,214,548 shares excluding 60,000 shares
included in the Over-allotment Option) have agreed, for a period of 24 months
from the date of this Prospectus, not to sell or otherwise dispose of any
securities of the Company, without the prior written consent of the
Representative.
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 two years 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 three 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 it will be sustained. In
addition, no prediction can be made as to the effect, if any, that market sales
of
41
<PAGE>
<PAGE>
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.
Rule 701 under the Securities Act provides that, beginning 90 days after
the date of this Prospectus, shares of Common Stock acquired on the exercise of
outstanding options may be resold by persons other than affiliates subject only
to the manner of sale provisions of Rule 144, and by affiliates subject to all
provisions of Rule 144 except its two-year minimum holding period. The Company
intends to file a registration statement under the Securities Act (on Form S-8
or any successor form) to register the shares of Common Stock issued and
reserved for issuance in compensatory arrangements and under its stock plan.
Registration would permit the resale of such shares by non-affiliates in the
public market without restriction under the Securities Act.
REGISTRATION RIGHTS
The holders of 800,000 shares of Common Stock, 374,548 shares of Common
Stock of the Company issuable upon exercise of warrants at an exercise price of
$.01 per share and 1,000,000 shares of Common Stock issuable upon exercise of
warrants at an exercise price of $7.00 per share have been granted certain
incidental and/or demand registration rights. These securities were purchased in
private transactions with the Company in November 1994 through July 1995, April
1996 and June 1996. The piggyback registration rights do not apply to
registrations relating to initial public offerings, mergers, acquisitions or
pursuant to Form S-8 (or any successor form). Notwithstanding, all of such
shares of Common Stock, except for 1,000,000 shares issuable upon exercise of
warrants; are included in the Selling Securityholders' Offering.
UNDERWRITING
Subject to the terms of the Underwriting Agreement, the Underwriters,
severally and not jointly, have agreed to purchase from the Company, 800,000
shares of Common Stock, as follows:
<TABLE>
<CAPTION>
NAME SHARES
- ----------------------------------------------------------------------------------- -------
<S> <C>
First Metropolitan Securities, Inc. ...............................................
-------
Total.................................................................... 800,000
-------
-------
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent. The Underwriters are
committed to purchase all of the securities offered hereby on a 'firm
commitment' basis, if any are purchased.
The Underwriters have advised the Company that they propose to initially
offer the Common Stock to the public at the prices set forth on the cover page
of this Prospectus and to certain dealers at such prices less concessions not in
excess of $ per share of Common Stock.
Neither the Company nor any of its officers, directors, affiliates and
associates will recommend, encourage or advise investors to open brokerage
accounts with any broker-dealer that is obtained to make a market in the
Company's Securities. Furthermore, no promoter or anyone acting at the direction
of the Company's officers, directors, affiliates, associates or promoters will
engage in such activities.
There are no current or future plans, proposals, arrangements or
understandings of the Representative or any of the Underwriters, or known to the
Representative or any of the Underwriters, with respect to engaging in any
transactions with the Selling Securityholders.
42
<PAGE>
<PAGE>
The Company and the Trust, which may be deemed an affiliate of the Company,
have granted to the Underwriters an option, exercisable during the 45 calendar
day period after the closing of the Offering, to purchase from the Company at
the initial public offering price less underwriting discounts and the
non-accountable expense allowance, up to an aggregate of 120,000 shares of
Common Stock (on a pro rata basis) for the sole purpose to cover
over-allotments, if any.
The Company has agreed that it will not issue any other securities (except
with respect to the shares of Common Stock issuable upon the exercise of
outstanding options or warrants, pursuant to the 1996 Plan, or the
Representative's Warrants) for three years from the Effective Date without the
prior written consent of the Representative. The Company has agreed to pay to
the Representative a non-accountable expense allowance of 3% of the gross
proceeds of this Offering, of which $50,000 has been paid by the Company as of
the date of this Prospectus. Further, the Company has agreed to reimburse the
Representative for certain accountable expenses relating to this Offering.
The Representative has informed the Company that no shares of Common Stock
offered hereby will be issued to discretionary accounts.
The Representative acted as Placement Agent for the Bridge Financing in
June 1996 for which it received a Placement Agent fee and a non-accountable
expense allowance of approximately $55,000.
Each of the Company's stockholders who beneficially own more than five (5%)
percent of the Company's outstanding Common Stock, or warrants or options to
purchase Common Stock or other securities convertible into Common Stock, the
Selling Securityholders (except for certain Selling Securityholders who have
agreed to lock-up their 150,000 shares, for a period of 18 months) and certain
other stockholders, and each officer and director of the Company or relative of
such officer or director have agreed not to sell or otherwise dispose of any of
their Common Stock (covering an aggregate of approximately 2,214,548 shares,
excluding 60,000 shares included in the Over-allotment Option) or other
securities of the Company owned directly or indirectly by him or beneficially by
him on the date of this Prospectus for a period of 24 months from the date of
this Prospectus without the prior written consent of the Representative, which
consent may be granted prior to the expiration of the lock-up period, but not
prior to the exercise or expiration of the Over-allotment Option. The
Representative has no present intention to waive or shorten the lock-up
agreements. Notwithstanding these lock-up agreements, such persons may make
private transfers, provided that the transferees agree to be bound by the same
restrictions. An appropriate legend will be marked on the face of certificates
representing all such securities.
The Company has agreed, if required by the Representative at any time
within the five years commencing in fiscal 1996, to designate two individuals to
serve as non-voting advisors to the Company's Board of Directors. The
Representative's designees will receive the same compensation, if any, for such
service as other non-officer directors. In lieu of the Representative's right to
designate the non-voting advisors, the Representative shall have the right
during such five-year period, in its sole discretion, to designate two persons
for election as directors of the Company. The Representative has advised the
Company that it has no intention to select its designees as non-voting advisors
or directors in the immediate future. If and when the Representative designates
such persons to serve as directors of the Company, those individuals may be
associated persons of the Representative who may have conflicting obligations to
the Company and the Representative when serving on the Board of Directors. The
Company will utilize its best efforts to obtain the election of such persons,
each of whom shall be entitled to receive the same compensation, expense
reimbursements and other benefits as any other director. See 'Risk
Factors -- Possible Conflicts of Directors.'
The Company has also agreed to retain the Representative, pursuant to a
consulting agreement (the 'Consulting Agreement'), as the Company's management
and financial consultants for the two-year period commencing at or prior to the
closing of this Offering, for an annual rate of $50,000 payable in advance on
the Closing of this Offering. Pursuant to the Consulting Agreement, the
Representative will render certain financial advisory and investment banking
services to the Company, including advice as to the Company's financial public
relations, internal operations, corporate finance matters, and other related
matters. As part of the Consulting Agreement, the Company has agreed, for a
period of three years following the Effective Date, to pay the Representative a
cash finder's fee of (i) five percent of the first $1,000,000; (ii) four percent
of the second $1,000,000; (iii) three percent of the third $1,000,000; and
43
<PAGE>
<PAGE>
(iv) two percent of any consideration over $4,000,000 upon the completion of any
transaction in which the Representative was responsible for introducing a merger
or acquisition candidate to the Company. Notwithstanding, the Representative has
no current plans, proposals, arrangements or understandings with respect to
introducing a merger or acquisition candidate to the Company.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
80,000 shares of Common Stock at 160% of the offering price (the
'Representative's Warrants'). The shares of Common Stock and the Warrants
issuable upon exercise of the Representative's Warrants will be identical to the
securities offered hereby. The Representative's Warrants contain anti-dilution
provisions providing for adjustment of the exercise price upon the occurrence of
certain events.
The Representative's Warrants will be nontransferable for a period of one
year from the date of this Prospectus except to officers of the Representative,
other underwriters, selected dealers, or their respective officers or partners.
The holders of the Representative's Warrants will have no voting, dividend or
other rights of stockholders of the Company until such time as the
Representative's Warrants are exercised.
At the request of a majority of the holders of the Representative's
Warrants and/or underlying securities during the five-year period commencing one
year after the date of this Prospectus, the Company has agreed to file, at its
expense and on one occasion, and to use its best efforts to cause to become
effective, a new registration statement or prospectus required to permit the
public sale of the securities underlying the Representative's Warrants. In
addition, if at any time during the six-year period commencing one year after
the date of this Prospectus, the Company registers any of its securities or
exempts such securities from registration under the provisions of Regulation A
or any equivalent thereto, the holders of the Representative's Warrants will
have the right, subject to certain conditions, to include in such registration
statement at the Company's expense, all or any part of the securities underlying
the Representative's Warrants.
A new registration statement will be required to be filed and declared
effective before distribution to the public of the securities underlying the
Representative's Warrants. The Company will be responsible for the cost of
preparing such a registration statement.
During the term of the Representative's Warrants, the holders of the
Representative's Warrants are given the opportunity to profit from a rise in the
market price of the Common Stock. To the extent that the Representative's
Warrants are exercised, dilution of the interests of the Company's stockholders
will occur. The Representative and its transferees may be deemed to be
'underwriters' under the Securities Act with respect to the sale of the Common
Stock to be received upon exercise of the Representative's Warrants, and any
profit realized upon such sale may be deemed to be additional underwriting
compensation. Further, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected since the holder of the
Representative's Warrants can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in the Representative's
Warrants.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement of which this Prospectus forms a part, including
liabilities under the Securities Act. To the extent this section may purport to
provide exculpation from possible liabilities arising under the Federal
securities laws, it is the opinion of the Commission that such indemnification
is against public policy and is therefore unenforceable.
The foregoing is a summary of the principal terms of the Underwriting
Agreement, the Representative's Warrants and the Consulting Agreement and does
not purport to be complete. Reference is made to the copies of the Underwriting
Agreement, the Representative's Warrants Agreement and the Consulting Agreement
which are filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
First Metropolitan Securities, Inc. commenced operations in November 1995,
and has acted as an underwriter of only one public offering of securities. First
Metropolitan's lack of experience may have
44
<PAGE>
<PAGE>
an adverse impact on the development of a trading market for the Company's
securities following this Offering. See 'Risk Factors -- Lack of Experience of
the Representative.'
Prior to this Offering, no public market exists for the Common Stock
offered hereby. Consequently, the public offering price of the Common Stock has
been determined by the Company and the Representative; and are not necessarily
related to the Company's asset value, earnings, book value or other such
criteria of value. Factors considered in determining the public offering price
of the Common Stock include primarily the prospects for the industry in which
the Company operates, the Company's Management, the general condition of the
securities markets and the demand for securities in similar industries.
SELLING SECURITYHOLDERS' OFFERING
Concurrently with this Offering, 1,492,021 shares of Common Stock,
including 217,473 shares of Common Stock issuable upon the exercise of 217,473
warrants have been registered under the Securities Act for resale on behalf of
the Selling Securityholders. The Selling Securityholders have agreed (except for
certain Selling Securityholders who have agreed to lock-up their 150,000 shares
for a period of 18 months; and except for a certain Selling Securityholder with
respect to up to 60,000 shares of Common Stock included in the Over-allotment
Option) not to sell such securities for a period of 24 months after the date of
this Prospectus without the prior written consent of the Representative, which
consent may be granted prior to the expiration of the lock-up period.
The Company will not receive any proceeds from the sales of the Selling
Securityholders' Shares by the Selling Securityholders. Sales of the Selling
Securityholders' Shares, or even the potential of such sales, would likely have
an adverse effect on the market price of the Company's securities.
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 Aboudi & Brounstein, Tel Aviv,
Israel. Certain legal matters will be passed upon for the Representative by
Lampert and Lampert, New York, New York.
45
<PAGE>
<PAGE>
EXPERTS
The consolidated financial statements of TTR Inc. for the period from July
14, 1994 (date of inception) to December 31, 1994 and the year ended December
31, 1995 included in this Prospectus have been included in reliance upon the
report of Schneider Ehrlich & Wengrover LLP, independent certified public
accountants, given upon the authority of said firm as experts in accounting and
auditing. The financial statements of TTR Technologies Ltd. for the period from
December 5, 1994 (date of inception) to December 31, 1994 and the year ended
December 31, 1995 included in this Prospectus in the consolidated financial
statements of TTR Inc. have been included in reliance upon the report of BDO
Almagor & Co., independent certified public accountants, given upon the
authority of said firm as experts in accounting and auditing.
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.
46
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Independent Auditors' Report......................................................................... F-2
Report of Independent Public Accountants............................................................. F-3
Consolidated Balance Sheet........................................................................... F-4
Consolidated Statement of Operations................................................................. F-5
Consolidated Statement of Stockholders' Deficit...................................................... F-6
Consolidated Statement of Cash Flows................................................................. F-7 - F-8
Notes to Consolidated Financial Statements........................................................... F-9 - F-18
</TABLE>
F-1
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
TTR INC.
Immanuel, Israel
We have audited the accompanying consolidated balance sheet of TTR Inc. and
its Subsidiary (A Development Stage Company) as of December 31, 1995, and the
related consolidated statements of operations, cash flows, and stockholders'
deficit for the year ended December 31, 1995 and for the period from July 14,
1994 (Date of Inception) to December 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements of TTR
Technologies, Ltd. a wholly owned subsidiary, which statements reflect total
assets of $218,392 as of December 31, 1995, and net losses of $571,924 and
$2,193 for the years ended December 31, 1995 and the period from December 5,
1994 to December 31, 1994, respectively. Those statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included for TTR Technologies Ltd. is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of TTR Inc. and its Subsidiary as of
December 31, 1995 and the results of their operations and their cash flows for
the year ended December 31, 1995 and for the period from July 14, 1994 (Date of
Inception) to December 31, 1994 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements
and as discussed in note 3 to the financial statements, the Company has incurred
recurring losses since its inception in 1994, and has an accumulated deficit at
December 31, 1995 of $938,748. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 3. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
SCHNEIDER, EHRLICH & WENGROVER LLP
Woodbury, New York
July 1, 1996
F-2
<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
T.T.R. TECHNOLOGIES LTD.
(A Development Stage Company)
We have audited the accompanying balance sheet of T.T.R. Technologies Ltd.
(a development stage company) ('the Company') as of December 31, 1995 and the
related statements of operations, changes in shareholders' deficiency and cash
flows for the year ended December 31, 1995 and for the period December 5, 1994
(date of inception) to December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditor's Regulations
(Auditor's Mode of Performance), 1973. Such auditing standards are substantially
identical to generally accepted auditing standards in the United States. Those
standards require that we plan and perform the audit to obtain reasonable
assurance that the financial statements are free of material misstatement. An
audit includes examining on a test basis, evidence supporting the amounts and
disclosure in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the management of
the Company, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the above financial statements present fairly in all
material respects, the financial position of the Company (a development stage
company) as of December 31, 1995 and the results of its operations, changes in
shareholders' deficiency, and cash flows for the year ended December 31, 1995
and for the period December 5, 1994 (date of inception) to December 31, 1994 in
conformity with accounting principles generally accepted in Israel and in the
United States. As applicable to these financial statements, such accounting
principles are substantially identical.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency and shareholders' deficiency that raise
substantial doubt about its ability to continue as a going concern. The
Company's plans are also referred to in Note 3. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
The financial statements have been translated into dollars for the purpose
of their inclusion in the financial statements of TTR Inc.
BDO ALMAGOR & CO.
Certified Public Accountants
Ramat-Gan, Israel
July 1, 1996
F-3
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash.......................................................................... $ 87,866 $ 19,336
Accounts receivable........................................................... 1,680 596
Other current assets.......................................................... 15,939 22,379
------------ -------------
Total current assets..................................................... 105,485 42,311
Property and equipment -- net...................................................... 175,619 354,184
Deferred financing costs, net of accumulated amortization of $76,175 and $154,979,
for 1995 and 1996................................................................ 77,256 63,432
Deferred stock offering costs...................................................... -- 143,544
Due from officer................................................................... 26,000 26,000
Other assets....................................................................... 18,844 17,514
------------ -------------
Total assets............................................................. $ 403,204 $ 646,985
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities
Current liabilities
Current portion of long-term debt............................................. $ 528,130 $ 1,512,639
Bank loans payable............................................................ -- 50,000
Accounts payable.............................................................. 34,958 89,014
Accrued expenses.............................................................. 63,213 157,726
Interest payable.............................................................. 96,023 188,213
------------ -------------
Total current liabilities................................................ 722,324 1,997,592
Long-term debt, less current portion............................................... 552,103 28,785
------------ -------------
Total liabilities........................................................ 1,274,427 2,026,377
------------ -------------
Commitments and contingencies -- See Notes
Stockholders' deficit
Common stock, $.001 par value;
20,000,000 shares authorized,
2,200,000 and 3,050,000 issued and outstanding including 1,000,000 shares
placed in escrow............................................................. 2,200 3,050
Additional paid-in capital......................................................... 42,673 405,356
Cumulative translation adjustments................................................. 22,652 47,989
Deficit accumulated during the development stage................................... (938,748) (1,835,787)
------------ -------------
Total stockholders' deficit.............................................. (871,223) (1,379,392)
------------ -------------
Total liabilities and stockholders' deficit.............................. $ 403,204 $ 646,985
------------ -------------
------------ -------------
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FROM FROM FROM
INCEPTION INCEPTION INCEPTION
(JULY 14, (JULY 14, NINE MONTHS ENDED (JULY 14,
1994) TO YEAR ENDED 1994) TO SEPTEMBER 30, 1994) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------------ SEPTEMBER 30,
1994 1995 1995 1995 1996 1996
------------ ------------ ------------ ---------- ---------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue............................ $ -- $ -- $ -- $ -- $ -- $ --
Expenses
Research and development....... 276,248 276,248 193,363 339,769 616,017
Sales and marketing............ 15,800 248,158 263,958 169,572 101,121 365,079
General and administrative..... 20,641 241,461 262,102 182,715 319,982 582,084
------------ ------------ ------------ ---------- ---------- -------------
Total expenses............. 36,441 765,867 802,308 545,650 760,872 1,563,180
------------ ------------ ------------ ---------- ---------- -------------
Operating loss..................... (36,441) (765,867) (802,308) (545,650) (760,872) (1,563,180)
Other (income) expense
Loss on investment............. 17,000 17,000 10,000 17,000
Interest income................ (500) (12,324) (12,824) (12,324) (12,824)
Interest expense............... 6,144 126,120 132,264 69,485 136,167 268,431
------------ ------------ ------------ ---------- ---------- -------------
Total other (income)
expenses................. 5,644 130,796 136,440 67,161 136,167 272,607
------------ ------------ ------------ ---------- ---------- -------------
Net loss........................... $ (42,085) $ (896,663) $ (938,748) $ (612,811) $ (897,039) $(1,835,787)
------------ ------------ ------------ ---------- ---------- -------------
------------ ------------ ------------ ---------- ---------- -------------
Net loss per share................. $ (0.02) $ (0.37) $ (0.39) $ (0.26) $ (0.34) $ (0.70)
------------ ------------ ------------ ---------- ---------- -------------
------------ ------------ ------------ ---------- ---------- -------------
Weighted average number of shares
outstanding...................... 2,778,533 2,399,793 2,399,793 2,339,337 2,641,034 2,641,034
------------ ------------ ------------ ---------- ---------- -------------
------------ ------------ ------------ ---------- ---------- -------------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
DEFICIT
FOREIGN ACCUMULATED
ADDITIONAL CURRENCY DURING
COMMON STOCK PAID-IN TRANSLATION DEVELOPMENT
SHARES AMOUNT CAPITAL ADJUSTMENT STAGE TOTAL
------------ ------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at July 14, 1994
(date of inception)....................... -- $ -- $ -- $-- $ -- $ --
Issuances of common stock, par value $.001
Services rendered at $.001 per share.... 1,200,000 1,200 1,200
Cash at $.0208 per share................ 1,200,000 1,200 23,800 25,000
Net loss.................................... (42,085) (42,085)
------------ ------- ---------- ----------- ----------- -----------
Balances at December 31, 1994............... 2,400,000 2,400 23,800 -- (42,085) (15,885)
Common stock contributed.................... (561,453) (561) 561
Issuances of common stock, par value $.001
Services rendered at $.05 per share..... 361,453 361 17,712 18,073
Issuance of common stock purchase warrants
Services rendered at $.04 per warrant... 600 600
Foreign currency translation adjustment..... 22,652 22,652
Net loss.................................... (896,663) (896,663)
------------ ------- ---------- ----------- ----------- -----------
Balances at December 31, 1995............... 2,200,000 2,200 42,673 22,652 (938,748) (871,223)
Issuances of common stock, par value $.001
Cash at $.307 per share................. 650,000 650 199,350 200,000
Cash at $.50 per share (net of stock
offering costs of $11,467)............ 150,000 150 63,383 63,533
Cash at $2.00 per share................. 50,000 50 99,950 100,000
Foreign currency translation adjustment..... 25,337 25,337
Net loss.................................... (897,039) (897,039)
------------ ------- ---------- ----------- ----------- -----------
Balances at September 30, 1996
(unaudited)............................... 3,050,000 $3,050 $405,356 $47,989 $(1,835,787) $(1,379,392)
------------ ------- ---------- ----------- ----------- -----------
------------ ------- ---------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FROM FROM
INCEPTION INCEPTION
(JULY 14, (JULY 14,
1994) TO YEAR ENDED 1994) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss....................................................... $ (42,085) $ (896,663) $ (938,748)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization............................. 5,470 95,298 100,768
Translation adjustment.................................... -- (561) (561)
Stock and warrants issued for services.................... -- 18,673 18,673
Increase (decrease) in cash attributable to changes in
assets and liabilities
Accounts receivable.................................. (203) (1,422) (1,625)
Escrow............................................... (14,572) 14,572 --
Other current assets................................. -- (13,492) (13,492)
Accounts payable..................................... 161 40,183 40,344
Accrued expenses..................................... 1,070 74,638 75,708
Interest payable..................................... 4,808 91,215 96,023
------------ ------------ ------------
Net cash used by operating activities..................... (45,351) (577,559) (622,910)
------------ ------------ ------------
Cash flows from investing activities
Loans receivable............................................... (125,500) 125,500 --
Purchases of property and equipment............................ (1,402) (193,655) (195,057)
Increase in organization costs................................. (7,680) -- (7,680)
------------ ------------ ------------
Net cash used by investing activities..................... (134,582) (68,155) (202,737)
------------ ------------ ------------
Cash flows from financing activities
Proceeds from issuance of common stock......................... 26,200 -- 26,200
Loans to officer............................................... (20,000) (6,000) (26,000)
Deferred financing costs....................................... (75,319) (78,112) (153,431)
Proceeds from long-term debt................................... 483,277 605,764 1,089,041
Payments on long-term debt..................................... -- (21,613) (21,613)
------------ ------------ ------------
Net cash provided by financing activities................. 414,158 500,039 914,197
------------ ------------ ------------
Effect of exchange rates on cash.................................... (334) (350) (684)
------------ ------------ ------------
Increase (decrease) in cash......................................... 233,891 (146,025) 87,866
Cash at beginning of period......................................... -- 233,891 --
------------ ------------ ------------
Cash at end of period............................................... $ 233,891 $ 87,866 $ 87,866
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest.................................................. $ 207 $ 2,461 $ 2,668
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FROM
INCEPTION
NINE MONTHS ENDED (JULY 14,
SEPTEMBER 30, 1994) TO
----------------------- SEPTEMBER 30,
1995 1996 1996
---------- --------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities
Net loss........................................................... $(612,811) $(897,039) $(1,835,787)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization................................. 69,401 110,965 211,733
Amortization of discount on long-term debt.................... -- 23,854 23,854
Translation adjustment........................................ (190) 3,408 2,847
Stock and warrants issued for services........................ 18,673 -- 18,673
Increase (decrease) in cash attributable to changes in assets
and liabilities
Accounts receivable...................................... (505) 1,181 (444)
Escrow................................................... 14,572 -- --
Other current assets..................................... (6,743) 1,600 (11,892)
Accounts payable......................................... 14,636 54,577 94,921
Accrued expenses......................................... 47,300 101,356 177,064
Interest payable......................................... 65,073 92,190 188,213
---------- --------- -------------
Net cash used by operating activities......................... (390,594) (507,908) (1,130,818)
---------- --------- -------------
Cash flows from investing activities
Loans receivable................................................... 1,800 -- --
Purchases of property and equipment................................ (178,217) (201,232) (396,289)
Increase in organization costs..................................... (7,680)
---------- --------- -------------
Net cash used by investing activities......................... (176,417) (201,232) (403,969)
---------- --------- -------------
Cash flows from financing activities
Proceeds from issuance of common stock............................. -- 363,533 389,733
Loans to officer................................................... (6,000) -- (26,000)
Deferred financing costs........................................... (78,112) (64,980) (218,411)
Deferred stock offering costs...................................... (143,544) (143,544)
Proceeds from bank loans payable................................... 50,000 50,000
Proceeds from long-term debt....................................... 606,008 452,705 1,541,746
Payments on long-term debt......................................... (17,760) (16,612) (38,225)
---------- --------- -------------
Net cash used by financing activities......................... 504,136 641,102 1,555,299
---------- --------- -------------
Effect of exchange rates on cash........................................ 1,109 (492) (1,176)
---------- --------- -------------
Increase (decrease) in cash............................................. (61,766) (68,530) 19,336
Cash at beginning of period............................................. 233,891 87,866 --
---------- --------- -------------
Cash at end of period................................................... $ 172,125 $ 19,336 $ 19,336
---------- --------- -------------
---------- --------- -------------
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest........................................................... $ 249 $ -- $ 2,668
---------- --------- -------------
---------- --------- -------------
</TABLE>
See Notes to Financial Statements.
F-8
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 ARE
UNAUDITED]
NOTE 1 -- DESCRIPTION OF BUSINESS
TTR Inc. (the 'Company') was incorporated on July 14, 1994 under the laws
of the State of Delaware. TTR Technologies Ltd., was formed under the laws of
the State of Israel on December 5, 1994 as a wholly owned research and
development subsidiary of the Company.
The Company is engaged in the development and enhancement of computer
software products which it intends to market.
The Company is considered to be in the development stage and has earned no
revenues to date. Business activities to date have focused on product and
marketing research, product development, and raising capital.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, TTR Technologies Ltd. All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities and the reported revenues
and expenses. Actual results could vary from the estimates that were used.
REVENUE RECOGNITION
The Company anticipates that revenues from software will be recognized upon
delivery to the customer, provided that the Company's obligations, if any, are
insignificant and collectability is probable. Revenues from maintenance and
engineering services will be recognized over the term of the respective
contracts.
FOREIGN CURRENCY TRANSLATIONS
The financial statements of the Company's Israeli subsidiary have been
translated into U.S. dollars in accordance with Statement No. 52 of the
Financial Accounting Standards Board (FASB). Assets and liabilities have been
translated at year-end (period-end) exchange rates and statement of operations
have been translated at average rates prevailing during the year. The
translation adjustments have been recorded as a separate component of
shareholders' deficit (cumulative translation adjustment).
NET LOSS PER SHARE
Net loss per share of common stock is computed based on the weighted
average number of common stock and common stock equivalent shares outstanding
during the period. Pursuant to SEC rules, common stock and warrants issued for
consideration below the proposed public offering price within the last twelve
months have been included in the calculation of common stock equivalents, using
the treasury stock method, as if they had been outstanding for all periods
presented. Shares held in escrow are not treated as outstanding during any
period (Note 12).
F-9
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 ARE
UNAUDITED]
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNT POLICIES -- (CONTINUED)
STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or less
to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Fixed assets are depreciated on
a straight-line basis over their estimated useful lives as follows:
<TABLE>
<S> <C>
Office furniture and equipment.............................. 5-7 years
Computer equipment.......................................... 5 years
Vehicles.................................................... 6.5 years
</TABLE>
RESEARCH AND DEVELOPMENT COSTS
Research and development expenditures are charged to operations as
incurred. Software development costs are required to be capitalized when a
product's technological feasibility has been established by completion of a
working model of the product and ending when a product is available for general
release to customers. To date, completion of a working model of the Company's
products and general release have substantially coincided. As a result, the
Company has not capitalized any software development costs since such costs have
not been significant.
INCOME TAXES
The Company accounts for its income taxes using the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109, 'Accounting
for Income Taxes' (SFAS No. 109), which requires the establishment of a deferred
tax asset or liability for the recognition of future deductible or taxable
amounts and operating loss carryforwards. Deferred tax expense or benefit is
recognized as a result of the changes in the assets and liabilities during the
year. Valuation allowances are established when necessary, to reduce deferred
tax assets to amounts expected to be realized.
INTERIM FINANCIAL STATEMENTS
In the opinion of management of the Company, the unaudited financial
statements as of September 30, 1996, and for the nine months ended September 30,
1995 and 1996, have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the results of the interim
periods.
NOTE 3 -- GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has a limited
operating history, has sustained losses since its inception and the accumulated
deficit at December 31, 1995 and at September 30, 1996 (unaudited) are $938,748
and $1,835,787, respectively. The Company faces a number of risks, including
uncertainties regarding demand and market acceptance of the Company's products,
dependence on a single product line, the effects of technological change,
competition and the development of new products. Additionally, there are other
risk factors such as the nature of the Company's distribution channels, ability
to manage growth, loss of key personnel and the effects of planned expansion of
operations on the future results of the Company.
F-10
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 ARE
UNAUDITED]
NOTE 3 -- GOING CONCERN -- (CONTINUED)
The Company anticipates that it will continue to incur significant
operating costs and losses in connection with the development of its products
and increased marketing efforts and is subject to other risks affecting the
business of the Company, as discussed above. The Company is not generating
sufficient revenues from its operations to fund its activities and is therefore
dependent on additional financing from external sources. In addition, in
November 1996, the Company will be required to commence repayment of its
long-term debt (see Note 9 and 18). The ability of the Company to continue as a
going concern is dependent upon the success of the Company's product and its
access to sufficient funding to enable it to continue operations. The Company is
investigating various possibilities for long-term financing including a proposed
initial public offering. There is no assurance that such financing will be
available to the Company and the inability to obtain such financing would have a
material adverse effect on the Company.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Leasehold improvements......................................... $ -- $ 77,531
Office equipment............................................... 22,646 86,852
Computer equipment............................................. 112,941 144,982
Vehicles....................................................... 59,470 95,266
------------ -------------
195,057 404,631
Less: Accumulated depreciation................................. 19,438 50,447
------------ -------------
$175,619 $ 354,184
------------ -------------
------------ -------------
</TABLE>
Depreciation expense was $57, $13,560, $8,654 and $24,012 for the periods
ended December 31, 1994, December 31, 1995, September 30, 1995 and September 30,
1996.
NOTE 5 -- DUE FROM OFFICER
This amount represents non-interest bearing advances to an officer of the
Company.
NOTE 6 -- OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Loan receivable, employee...................................... $ 13,468 $13,290
Organization costs, net of accumulated amortization............ 5,376 4,224
------------ -------------
Total..................................................... $ 18,844 $17,514
------------ -------------
------------ -------------
</TABLE>
The loan receivable represents non-interest bearing advances to an employee
of the Company. The loan is to be repaid over a four year period commencing in
1996.
Organization costs are being amortized over a five year period using the
straight-line method.
F-11
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 ARE
UNAUDITED]
NOTE 7 -- ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Accrued payroll and payroll taxes.............................. $ 20,128 $ 56,864
Deferred stock offering costs.................................. -- 54,150
Other.......................................................... 43,085 46,712
------------ -------------
$ 63,213 $ 157,726
------------ -------------
------------ -------------
</TABLE>
NOTE 8 -- BANK LOAN PAYABLE
The Company's subsidiary borrowed a total of $50,000 from a bank. The loan
bears interest at the rate of 8% per annum and must be repaid in full by
December 31, 1996.
NOTE 9 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
(1) Bank loans............................................... $ 39,153 $ 51,490
(2) Promissory notes......................................... 1,041,080 1,041,080
(3) Promissory notes (net of unamortized discount of
$51,146)............................................... -- 448,854
------------ -------------
1,080,233 1,541,424
Current portion.......................................... 528,130 1,512,639
------------ -------------
Non-current portion...................................... $ 552,103 $ 28,785
------------ -------------
------------ -------------
</TABLE>
- ------------
(1) These loans are denominated in NIS, bear interest at the rate of prime plus
2.4%-3% per annum and are secured by substantially all the assets of the
Company's subsidiary. Principal payments are due in various installments
through 1998.
(2) The Company issued two-year promissory notes aggregating $1,041,080 in a
private placement. The notes bear interest at the rate of 10% per annum
payable at the maturity date. In connection with this offering the Company
issued warrants to the noteholders to purchase up to a total of 174,548
shares of the Company's common stock for $.01 per share. The warrants are
exercisable from the date on which a registration statement with respect to
an initial public offering (IPO) becomes effective until the IPO closes. In
addition the Company utilized the services of Shane, Alexander, Unterburgher
Securities, Inc. (SAU) as a placement agent. SAU received a commission of
10% of the gross proceeds and an additional 4% of such proceeds as a
non-accountable expense allowance. These fees, totaling approximately
$145,000, have been capitalized as deferred financing costs and are being
amortized over a two-year period using the straight-line method.
Amortization was $4,645, $71,530, $55,887 and $60,467 for the periods ended
December 31, 1994, 1995, September 1995 and September 1996. The maturity
date of certain notes have been extended (See Note 18).
(3) In June 1996, the Company realized net proceeds of $423,552 from a private
placement of 10 units of its securities at a purchase price of $50,000 per
unit. Each unit consisted of $50,000 Principal
(footnotes continued on next page)
F-12
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 ARE
UNAUDITED]
NOTE 9 -- LONG-TERM DEBT -- (CONTINUED)
(footnotes continued from previous page)
Amount 10% promissory notes and 15,000 shares of its common stock. The
Company has allocated $7,500 per unit to the Common Stock sold in the
private placement, and the balance to promissory note principal. The
difference between the face value of the notes ($50,000) and the amount
allocated to note principal represents a discount which is being amortized
over the term of the note based upon the interest method. The principal and
accrued interest become due and payable at the earlier of one year or the
date the Company receives proceeds from any form of public or private equity
financing or debt financing exceeding $350,000.
In connection with this offering a placement agent received a commission of
10% of the gross proceeds and an additional 3% of such proceeds as a
non-accountable expense allowance. Certain of the investors in the private
placement have an ownership interest in the placement agent.
The aggregate maturities of long-term debt for the next three years ending
December 31, are as follows: 1996 -- $536,786; 1997 -- $1,047,273 and
1998 -- $8,511.
NOTE 10 -- LOSS ON INVESTMENT
In August 1994, the Company's president contributed to the Company his 22%
interest in the common stock of TBR, Inc. (TBR), a Florida corporation. TBR's
only asset is a software product developed by its shareholders. TBR has no other
assets or liabilities and has had no significant business operations to date.
During fiscal 1995, the Company purchased an additional 4.8% of TBR common stock
for $17,000, which funds were used in a marketing effort for TBR's software
product. As of December 31, 1995, the Company elected to write off its
investment in TBR in full.
NOTE 11 -- INCOME TAXES
At December 31, 1995, the Company had available $364,000 of net operating
loss carryforwards for U.S. federal income tax purposes which expire in the
years 2009 through 2010 and $325,000 of foreign net operating loss carryforwards
with no expiration date. Due to the uncertainty of their realization, no income
tax benefit has been recorded by the Company for these net operating loss
carryforwards as valuation allowances have been established for any such
benefits. The use of the U.S. federal net operating loss carryforwards is
subject to limitations under section 382 of the Internal Revenue code pertaining
to changes in stock ownership.
Significant components of the Company's deferred tax assets and liabilities
for U.S. federal and Israel income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 225,000 $ 434,000
Research and developments costs........................... 65,000 119,900
Accrued vacation and severance............................ 13,000 39,700
------------ -------------
Total deferred tax assets............................ 303,000 593,600
Valuation allowance.................................. (303,000) (593,600)
------------ -------------
Net deferred tax assets................................... $ -- $ --
------------ -------------
------------ -------------
</TABLE>
Pre-tax losses from foreign (Israeli) operations were $2,193, $571,924,
$378,727 and $661,031 for the periods ended December 31, 1994, 1995, September
1995 and September 1996, respectively.
F-13
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 ARE
UNAUDITED]
NOTE 12 -- STOCKHOLDERS' DEFICIT
CONTRIBUTED SHARES
In January 1995, the Company's President contributed a total of 561,453
shares of common stock held by him. The Company subsequently cancelled these
shares.
WARRANTS
On May 15, 1995, the Company issued warrants as compensation to a
consultant to purchase up to a total of 15,000 shares of the Company's common
stock for $.01 per share. The warrants are exercisable until January 15, 2001.
PRIVATE PLACEMENT
In April 1996, the Company completed a private placement of 650,000 shares
of its Common Stock and warrants for an additional 1,000,000 shares, for an
aggregate purchase price of $200,000. The warrants are exercisable after an
initial public offering of the Company's Common stock at an exercise price equal
to the exercise price of any warrants issued at the IPO. The terms of these
warrants were subsequently amended. (See note 18).
ESCROW SHARES
An aggregate of 1,000,000 shares of the Company's common stock, owned
beneficially by its President, have been designated as escrow shares. The escrow
shares are not assignable nor transferable until certain earnings or market
price criteria have been met. If the conditions have not been met, such shares
will be cancelled and contributed to the Company's capital.
The escrow shares will be released from escrow on a pro-rata basis, if and
only if, one or more of the following conditions are met:
1. 250,000 shares will be released if the Company's pre-tax income,
exclusive of extraordinary items amounts to at least $1,800,000 for the
year ended December 31, 1997 or the average bid price of the Common Stock
averages in excess of $15 per share for 30 consecutive days during the 12
month period commencing on the date of a proposed public offering.
2. 300,000 shares will be released if the Company's pre-tax income,
exclusive of extraordinary items amounts to at least $4,000,000 for the
year ended December 31, 1998 or the average bid price of the Common Stock
averages in excess of $20 per share for 30 consecutive days during the 12
month period commencing 12 months from the date of a proposed public
offering.
3. 450,000 shares will be released if the Company's pre-tax income,
exclusive of extraordinary items amounts to at least $6,000,000 for the
year ended December 31, 1999 or the average bid price of the Common Stock
averages in excess of $25 per share for 30 consecutive days during the 12
month period commencing 24 months from the date of a proposed public
offering.
The shares will also be released under certain circumstances of the Company
is acquired or merged. In addition, the shares will be released as of the date
the underwriters and their customers own less than 20% of the public float of
the Company's Common Stock or if none of the underwriters have made the high bid
price on the Common Stock for 50 consecutive business days.
As restriction on such shares are removed, they will be accounted for as
reissued for services rendered and the fair value of such shares will be charged
to operations as compensation expense. The charge will not affect the Company's
equity, nor will it be deductible for income tax purposes.
F-14
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 ARE
UNAUDITED]
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company adopted SFAS 107, which requires
disclosing fair value to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed therein are not necessarily representative of
the amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement. The following table
summarizes financial instruments by individual balance sheet accounts as of
December 31, 1995.
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Debt maturing within one year..................................... $ 528,130 $ 528,130
Long-term debt.................................................... 552,103 552,103
---------- ----------
Totals....................................................... $1,080,233 $1,080,233
---------- ----------
---------- ----------
</TABLE>
For debt classified as current, it was assumed that the carrying amount
approximated fair value for these instruments because of their short maturities.
The fair value of long-term debt is based on current rates at which the Company
could borrow funds with similar remaining maturities. The carrying amount of
long-term debt approximates fair value.
NOTE 14 -- RELATED PARTY TRANSACTIONS
In November 1994, the Company entered into a fourteen month agreement with
SAU to assist in the establishment of a U.S. based sales office and to provide
marketing consulting services to the Company. Pursuant to the contract SAU
received a fee of $7,900 per month and was issued Warrants to purchase up to
185,000 shares of the Company's Common Stock under the same terms as the
promissory note holders. SAU subsequently assigned its rights to the Warrants to
certain of the promissory note holders.
The Company loaned a total of $256,000 to SAU under a short term loan
agreement. The loan was repaid in 1995 with interest at the rate of 8% per
annum.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
CONSULTING AND EMPLOYMENT AGREEMENT
a) In August 1994, the Company's subsidiary entered into an employment
agreement with one of its officers. The agreement has a three-year term which
provides for annual compensation of $60,000, subject to adjustment. The
agreement may terminate with 60 days prior notice and if the termination is
without cause then the general manager will be entitled to continue to receive
his salary for an additional twelve months. At the end of the initial three-year
term the agreement automatically renews for one-year periods.
b) In December 1995, the Company's subsidiary entered into an employment
agreement with its director of product research and development. The agreement
has a one-year term, renewable for additional one-year terms and provides for
annual base compensation of $60,000 plus incentive compensation, payable
quarterly, equal to 1% of the initial $1,000,000 of gross receipts from certain
products of the Company and 2% for gross receipts in excess thereof. In the
event the agreement is terminated or not renewed without cause, and if a
properly registered patent, as defined, is in effect, the Company's subsidiary
will be required to pay royalties in the amount of the incentive compensation
for the duration of the patent.
F-15
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 ARE
UNAUDITED]
NOTE 15 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
c) The Company has entered into a three-year marketing consulting agreement
which is due to expire in October 1998. Under the agreement, the consultant
receives a monthly fee of $4,800 per month.
d) In July 1996, the Company's subsidiary entered into a three-year
employment agreement with its new President and general manager to commence no
later than September 8, 1996. The agreement provides for annual compensation of
approximately $100,000, subject to adjustment and is renewable for additional
one-year periods at the end of the initial term. Within the initial term the
employee may terminate the agreement with 60 days prior notice and with 90 days
notice thereafter.
In addition the Company has agreed to grant, on the date on which the
Company's IPO Registration Statement is declared effective, warrants to purchase
up to 217,473 shares of Common Stock at an exercise price of $.01 per share. The
Company estimates that it will record deferred compensation expense amounting to
$1,522,300, or $7.00 per share, and will amortize this amount over the period
that services are to be provided. The options will vest over a four year period
commencing with the date of grant.
OPERATING LEASES
On June 1, 1996, the Company entered into an operating lease agreement for
office space. Future minimum rentals on this lease as of December 31 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------------------------------------------------------------------
<S> <C>
1996................................................................ $ 22,218
1997................................................................ 48,624
1998................................................................ 48,624
1999................................................................ 24,312
--------
$143,778
--------
--------
</TABLE>
NOTE 16 -- STOCK OPTION PLAN
In July 1996, the Board of Directors adopted the Company's Incentive and
Non-qualified Stock Option Plan (the 'Plan') and has reserved up to 450,000
shares of Common Stock for issuance thereunder. The Plan provides for the
granting of options to officers, directors, employees and advisors of the
Company. The exercise of incentive stock options ('ISOs') issued to employees
who are less than 10% stockholders shall not be less than the fair market value
of the underlying shares on the date of grant or not less than 100% of the fair
market value of the shares in the case of an employee who is a 10% stockholder.
The exercise price of restricted stock options shall not be less than the par
value of the shares to which the option relates. Options are not exercisable for
a period of one year from the date of grant. Thereafter, options may be
exercised as determined by the Board of Directors, with maximum terms of ten and
five years, respectively, for ISOs issued to employees who are less than 10%
stockholders and employees who are 10% stockholders. In addition, under the
plan, no individual will be given the opportunity to exercise ISO's valued in
excess of $100,000, in any calendar year, unless and to the extent the options
have first become exercisable in the preceding year. The Plan will terminate in
2006.
In July 1996, the Company issued 5,000 options under the plan to a former
director. The options are exercisable at $6.00 per share until January 15, 2001.
F-16
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 ARE
UNAUDITED]
NOTE 17 -- PROPOSED PUBLIC OFFERING
On September 3, 1996, the Company's board of directors approved the filing
of a registration statement by TTR Inc. with the Securities and Exchange
Commission covering the proposed sale of its common stock to the public.
NOTE 18 -- SUBSEQUENT EVENTS -- (UNAUDITED)
LEGAL MATTER
In October 1996, a claim was made against the Company's subsidiary alleging
intellectual property rights infringement. The claim threatens to seek
injunctive relief as well as damages in the amount of $1,000,000. The Company
has denied any liability and its legal advisors believe the claim is totally
without merit.
SHORT-TERM BORROWINGS
In October 1996, the Company borrowed a total of $66,700, evidenced by a
loan agreement executed in September 1996. Pursuant to the agreement the Company
may borrow, at the exclusive discretion of the lender, an additional $66,700
every 30 days up to a total of $200,100. The loans bear interest at the rate of
22% per annum. The principal and accrued interest become due and payable at the
earlier of the date the Company receives the proceeds from a proposed IPO or
March 31, 1997.
In December 1996 and January 1997, the Company issued short-term promissory
notes aggregating $300,000. The notes bear interest at the rate of 15% per
annum. The notes and accrued interest thereon become due and payable at the
earlier of the date the Company receives the proceeds from a proposed IPO or one
year from the date of issue.
WARRANTS
In January 1997, the Company amended the 1,000,000 warrants issued in the
April 1996 private placement, to provide that the exercise price of the warrants
will be equal to the IPO price of the Company's Common Stock.
RESEARCH AND DEVELOPMENT GRANT
In January 1997, the Company's Israeli Subsidiary received an approval from
the Office of the Chief Scientist of the Government of Israel (OCS) whereby the
OCS will fund certain research and development of the Company by way of grants.
The amount of the approved budget is $195,000 and the amount of the approved
grant is 50% of the budget or $97,500. The Company has since received an advance
on the account of the grant in the amount of $23,000.
The Company will be required to pay royalties to the OCS on proceeds from
the sale of products derived from the research and development in which the OCS
has participated by way of its grant. The royalties are computed at the rate of
3% of the proceeds from such sales, up to a maximum of the amount of the grant.
PROMISSORY NOTES
As of January 15, 1997, a total of $514,081 of the Company's two-year
promissory notes plus accrued interest thereon of $112,122 became due. The
Company has obtained extensions to March 1997 with respect to note principal and
interest totaling $619,525 and is awaiting a response from one other noteholder.
F-17
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
[INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 ARE
UNAUDITED]
NOTE 19 -- RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, SFAS No. 121, 'Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of' was issued which establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain intangibles to be disposed of. SFAS
No. 121 requires that long-lived assets and certain intangibles to be held and
leased by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. SFAS No. 121 must be implemented by the Company no later than the
year ended December 31, 1996. The adoption of SFAS No. 121 is not expected to
have material impact on the Company's financial position or operating results.
In October 1995, SFAS No. 123, 'Accounting for Stock-Based Compensation'
was issued which establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, SFAS No. 123 permits the Company to
continue to measure compensation costs for its stock option plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, 'Accounting for Stock Issued to Employees'.
If the Company elects to remain with its current accounting, in 1996 the
Company must make pro forma disclosures of 1995 and 1996 net income (loss) and
earnings (loss) per share as if the fair value based method of accounting had
been applied. The Company has not yet determined the valuation method it will
employ or the effect on operating results of implementing SFAS No. 123. In
addition, SFAS No. 123 requires that transactions whereby the Company issues its
equity instruments to acquire goods or services from non-employees entered into
after December 15, 1995 must be accounted for based on the fair value.
F-18
<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 OR THE REPRESENTATIVE.
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................................................................... 3
Summary Financial Information.............................................................................................. 6
Risk Factors............................................................................................................... 7
Use of Proceeds............................................................................................................ 15
Dividend Policy............................................................................................................ 16
Dilution................................................................................................................... 17
Capitalization............................................................................................................. 18
Plan of Operation.......................................................................................................... 18
Business................................................................................................................... 21
Management................................................................................................................. 33
Principal Stockholders..................................................................................................... 36
Certain Transactions....................................................................................................... 38
Description of Securities.................................................................................................. 39
Shares Eligible for Future Sale............................................................................................ 41
Underwriting............................................................................................................... 42
Selling Securityholders' Offering.......................................................................................... 45
Legal Matters.............................................................................................................. 45
Experts.................................................................................................................... 46
Available Information...................................................................................................... 46
Index to Financial Statements.............................................................................................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 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.
800,000 SHARES OF
COMMON STOCK
TTR INC.
--------------------------
PROSPECTUS
--------------------------
FIRST METROPOLITAN
SECURITIES, INC.
, 1997
_____________________________ _____________________________
<PAGE>
<PAGE>
[Alternative Page for Selling Securityholders' Prospectus]
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JANUARY 21, 1997
PROSPECTUS
TTR INC.
1,492,021 SHARES OF COMMON STOCK
- ----------------------------------------------------------
This Prospectus relates to 1,492,021 shares of Common Stock (the 'Selling
Securityholders' Shares'), $.001 par value (the 'Common Stock'), of TTR Inc.
(the 'Company'), which are being offered for sale by certain selling
securityholders, including members of Management (the 'Selling
Securityholders'), including 1,274,548 shares of Common Stock and 217,473 shares
of Common Stock issuable upon exercise of warrants. See 'Selling Securityholders
and Plan of Distribution.'
The Company will not receive any of the proceeds from the sales of the
Selling Securityholders' Shares by the Selling Securityholders. The Selling
Securityholders' Shares may be offered from time to time by the Selling
Securityholders, their transferees, pledgees and/or their donees, through
ordinary brokerage transactions in the over-the-counter market, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale or at
negotiated prices. The Selling Securityholders (except for certain Selling
Securityholders who have agreed to lock-up 150,000 shares for a period of 18
months; and except for a certain Selling Securityholder with respect to up to
60,000 shares of Common Stock included in the Over-allotment Option) have each
agreed not to sell any of the securities being registered hereunder for a period
of 24 months from the date of the Prospectus without the prior written consent
of the Representative.
The Selling Securityholders, their pledgees and/or their donees, may be
deemed to be 'underwriters' as defined in the Securities Act of 1933, as amended
(the 'Securities Act'). If any broker-dealers are used by the Selling
Securityholders, their pledgees and/or their donees, any commission paid to
broker-dealers and, if broker-dealers purchase any Selling Securityholders'
Shares as principals, any profits received by such broker-dealers on the resale
of the Selling Securityholders' Shares, may be deemed to be underwriting
discounts or commissions under the Securities Act. In addition, any profits
realized by the Selling Securityholders, their pledgees and/or their donees, may
be deemed to be underwriting commissions. All costs, expenses and fees in
connection with the registration of the Selling Securityholders' Shares will be
borne by the Company except for any commission paid to broker-dealers.
The Selling Securityholders' Shares offered by this Prospectus may be sold
from time to time by the Selling Securityholders, their pledgees and/or their
donees. No underwriting arrangements have been entered into by the Selling
Securityholders. The distribution of the Selling Securityholders' Shares by the
Selling Securityholders, their pledgees and/or their donees, may be effected in
one or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more dealers for resale of such shares as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders, their pledgees and/or their donees, in connection with sales of
the Selling Securityholders' Shares.
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering (the
'Underwritten Offering') of 800,000 shares of Common Stock (without giving
effect to the Underwriters' Over-allotment Option granted to the Representative
to purchase up to an additional 120,000 shares of Common Stock) was declared
effective by the Securities and Exchange Commission. In connection with the
Underwritten Offering, the Company granted the Representative a warrant to
purchase 80,000 shares of Common Stock (the 'Representative's Warrants').
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE 'RISK
FACTORS' BEGINNING ON PAGE 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE OFFERING
<TABLE>
<S> <C>
Securities Registered(1).................. 1,492,021 shares of Common Stock. See 'Description of Securities' and 'Selling
Securityholders and Plan of Distribution.'
Risk Factors.............................. This offering involves a high degree of risk and immediate substantial dilution.
See 'Risk Factors' and 'Dilution.'
</TABLE>
- ------------
(1) Includes 217,473 shares of Common Stock issuable upon the exercise of a like
number of warrants.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
<PAGE>
[Alternative Page for Selling Securityholders' Prospectus]
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
The Company has issued an aggregate of 1,492,021 shares of Common Stock,
including 1,274,548 shares of Common Stock and 217,473 shares of Common Stock
issuable upon exercise of warrants. See 'Principal Stockholders.' The Selling
Securityholders have advised the Company that sales of the Selling
Securityholders' Shares may be effected from time-to-time by themselves, their
pledgees and/or their donees, in transactions (which may including block
transactions) in the over-the-counter market, in negotiated transactions,
through the writing of options on the Selling Securityholders' Shares, or a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. The
Selling Securityholders, their pledgees and/or their donees, may effect such
transactions by selling the Selling Securityholders' Shares directly to
purchasers or through broker-dealers that may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders and/or the purchasers of Selling
Securityholders' Shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Securityholders, their pledgees and/or their donees, and any
broker-dealers that act in connection with the sale of the Selling
Securityholders' Shares as principals may be deemed to be 'underwriters' within
the meaning of Section 2(11) of the Securities Act and any commissions received
by them and any profit on the resale of the Selling Securityholders' Shares as
principals might be deemed to be underwriting discounts and commissions under
the Securities Act. The Selling Securityholders' Shares being registered on
behalf of the Selling Securityholders are restricted securities while held by
the Selling Securityholders and the resale of such securities by the Selling
Securityholders is subject to the prospectus delivery and other requirements of
the Act. The Selling Securityholders, their pledgees and/or their donees, may
agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the Selling Securityholders' Shares against
certain liabilities, including liabilities arising under the Securities Act. The
Company will not receive any proceeds from the sale of the Selling
Securityholders' Shares by the Selling Securityholders. Sales of the Selling
Securityholders' Shares by the Selling Securityholders, or even the potential of
such sales, would likely have an adverse effect on the market price of the
Company's securities.
At the time a particular offer of any securities is made by or on behalf of
the Selling Securityholders, to the extent required, a prospectus supplement
will be distributed which will set forth the number of securities being offered
and the terms of the offering, including the names or names of any underwriters,
dealers or agents, the purchase price paid by any underwriter for shares
purchased from the Selling Securityholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.
Under the Securities Exchange Act of 1934, as amended (the 'Exchange Act'),
and the regulations thereto, any person engaged in distribution of Company
securities offered by this Prospectus may not simultaneously engage in
market-making activities with respect to Company securities during the
applicable 'cooling off' period prior to the commencement of such distribution.
In addition, and without limiting the foregoing, the Selling Securityholders
will be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation, Rules 10b-6 and 10b-7, in
connection with transactions in the securities, which provisions may limit the
timing of purchases and sales of Company securities by the Selling
Securityholders.
The following table set forth certain information with respect to persons
for whom the Company is registering the Selling Securityholders' Shares for
resale to the public. The Company will not receive any of the proceeds from the
sale of the Selling Securityholders' Shares. Beneficial ownership of the Selling
Securityholders' Shares by such Selling Securityholders after the Offering will
depend on the number of Selling Securityholders' Shares sold by each Selling
Securityholders. The securities held by the Selling Securityholders are
restricted securities while held by such Selling Securityholders and the resale
of such securities by the Selling Securityholders is subject to prospectus
delivery and other requirements of the Act. The Selling Securityholders' Shares
offered by the Selling Securityholders are not being underwritten by the
Representative.
Alt-2
<PAGE>
<PAGE>
[Alternative Page for Selling Securityholders' Prospectus]
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP PRIOR PERCENTAGE OWNERSHIP
TO SELLING OF AMOUNT OF AFTER SELLING
SECURITYHOLDERS' COMMON STOCK SHARES SECURITYHOLDERS'
OFFERING OWNED BEFORE BEING OFFERING IF ALL
SELLING SECURITYHOLDER(1) SHARES(2) OFFERING(3) REGISTERED SHARES ARE SOLD
- ---------------------------------------- ---------------- ------------ -------------- ------------------
<S> <C> <C> <C> <C>
Arnold Ackerman......................... 78,000 3.2% 78,000Shs. 0
Adelaide Corl Trust..................... 4,000 * 4,000Shs. 0
Marvin Barish........................... 8,000 * 8,000Shs. 0
Grafton Cooper.......................... 3,680 * 3,680Shs. 0
Richard Denton.......................... 12,498 * 12,498Shs. 0
Alice Fischlewitz....................... 24,000 * 24,000Shs. 0
Bertha Fischlewitz...................... 24,000 * 24,000Shs. 0
The Garrison Third Family Limited
Partnership........................... 5,920 * 5,920Shs. 0
John Hess............................... 951 * 951Shs. 0
Kaminsky Chana and Yecheskal............ 4,000 * 4,000Shs. 0
John McDonnell.......................... 3,760 * 3,760Shs. 0
Modern Technology Corp.................. 4,000 * 4,000Shs. 0
Larry Morris............................ 8,320 * 8,320Shs. 0
Yosef Muskin............................ 2,000 * 2,000Shs. 0
Dana Resnick............................ 4,000 * 4,000Shs. 0
Solomon Ross............................ 4,000 * 4,000Shs. 0
Ivan Roth............................... 1,680 * 1,680Shs. 0
Morris Rubin............................ 4,000 * 4,000Shs. 0
Doris Saltz............................. 2,000 * 2,000Shs. 0
Louis Sammut............................ 4,000 * 4,000Shs. 0
Sandra Satt............................. 8,000 * 8,000Shs. 0
Walter Scott............................ 51,500 * 51,500Shs. 0
Arthur Sterenbuck....................... 8,000 * 8,000Shs. 0
George Taylor........................... 12,743 * 12,743Shs. 0
John Winter............................. 3,033 * 3,033Shs. 0
Wissman Ulrich and Dagmar............... 10,000 * 10,000Shs. 0
Alcuin Bennet........................... 12,000 * 12,000Shs. 0
Richard Larry -- IRA.................... 6,000 * 6,000Shs. 0
Lawrence Radbell........................ 9,000 * 9,000Shs. 0
Richard Ross............................ 6,000 * 6,000Shs. 0
Yossi Simpson........................... 6,000 * 6,000Shs. 0
Jerome and Mildred Toder................ 6,000 * 6,000Shs. 0
Wayne Saker............................. 24,000 * 24,000Shs. 0
Charna Radbell.......................... 3,000 * 3,000Shs. 0
Nicole Radbell.......................... 3,000 * 3,000Shs. 0
Stuart Elfland.......................... 9,000 * 9,000Shs. 0
Jack Hirschfield........................ 3,000 * 3,000Shs. 0
Nicole Kubin............................ 6,000 * 6,000Shs. 0
Jericho Investments Ltd................. 15,000 * 15,000Shs. 0
Canova Finance Inc...................... 639,375(3) 22.7% 251,875Shs. 387,500(3)
10.7%(8)
Etilon Trading Ltd...................... 639,375(4) 22.7% 251,875Shs. 387,500(4)
10.7%(8)
Joe Ohayon.............................. 253,275(5) 9.8% 99,775Shs. 153,500(5)
4.5%(8)
</TABLE>
(table continued on next page)
Alt-3
<PAGE>
<PAGE>
[Alternative Page for Selling Securityholders' Prospectus]
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP PRIOR PERCENTAGE OWNERSHIP
TO SELLING OF AMOUNT OF AFTER SELLING
SECURITYHOLDERS' COMMON STOCK SHARES SECURITYHOLDERS'
OFFERING OWNED BEFORE BEING OFFERING IF ALL
SELLING SECURITYHOLDER(1) SHARES(2) OFFERING(3) REGISTERED SHARES ARE SOLD
- ---------------------------------------- ---------------- ------------ -------------- ------------------
<S> <C> <C> <C> <C>
Chana Sasha Foundation, Inc............. 167,975(6) 6.7% 46,475Shs. 121,500(6)
3.7%(8)
Richard H. Schneider.................... 22,500 * 22,500Shs. 0
Gary Pope............................... 37,500 1.5% 37,500Shs. 0
Joseph P. Colwin........................ 30,000 * 30,000Shs. 0
Donald K. Currie........................ 22,500 * 22,500Shs. 0
Tokayer Family Trust.................... 384,274(7) 15.8% 100,000Shs. 284,274
Arik Shavit............................. 217,473(9) 8.2% 217,473Shs. 0
Total:........................ 2,558,822(10) 74.7% 1,492,021Shs. 1,334,274Shs.(11)
------------ ----- ------------ ------------
------------ ----- ------------ ------------
31.6%(8)
--------
--------
</TABLE>
(footnotes on next page)
Alt-4
<PAGE>
<PAGE>
[Alternative Page for Selling Securityholders' Prospectus]
* Less than 1% of the issued and outstanding shares of Common Stock.
(1) Except as otherwise indicated, no Selling Securityholder is an officer,
director or affiliate of the Company.
(2) Based on 2,424,548 shares issued and outstanding (excluding 1,000,000
Escrow Shares). 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) Includes 387,500 shares issuable upon the exercise of a like number of
warrants.
(4) Includes 387,500 shares issuable upon the exercise of a like number of
warrants.
(5) Includes 153,500 shares issuable upon the exercise of a like number of
warrants.
(6) Includes 71,500 shares issuable upon the exercise of a like number of
warrants.
(7) The wife of Marc D. Tokayer, the Company's Chairman, is the Trustee for the
Tokayer Family Trust (the 'Trust'), and the income beneficiaries of the
Trust are Mr. Tokayer's children. Accordingly, the Trust may be deemed an
affiliate of the Company. The amount of beneficial ownership excludes
730,726 Escrow Shares.
(8) Based on 3,224,548 shares issued and outstanding (excluding 1,000,000
Escrow Shares) after the Offering.
(9) A director and Vice President of the Company. Includes 217,473 shares
issuable upon the exercise of warrants issuable upon the date of this
Prospectus. The warrants are subject to a four-year vesting schedule,
whereby the first 72,491 warrants are not exercisable until September 1997.
(10) Includes an aggregate of 1,217,473 shares issuable upon the exercise of a
like number of warrants.
(11) Includes an aggregate of 1,000,000 shares issuable upon the exercise of a
like number of warrants.
Alt-5
<PAGE>
<PAGE>
[ALTERNATIVE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
_____________________________ _____________________________
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
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary........................................................................................................ 3
Summary Financial Information............................................................................................. 6
Risk Factors.............................................................................................................. 7
Use of Proceeds........................................................................................................... 16
Dividend Policy........................................................................................................... 17
Dilution.................................................................................................................. 18
Capitalization............................................................................................................ 19
Plan of Operation......................................................................................................... 19
Business.................................................................................................................. 21
Management................................................................................................................ 32
Principal Stockholders.................................................................................................... 35
Certain Transactions...................................................................................................... 37
Description of Securities................................................................................................. 38
Shares Eligible for Future Sale........................................................................................... 41
Underwriting.............................................................................................................. 42
Legal Matters............................................................................................................. 46
Experts................................................................................................................... 46
Available Information..................................................................................................... 47
Selling Securityholders and Plan of Distribution.......................................................................... Alt-2
Index to Financial Statements............................................................................................. F-1
</TABLE>
1,492,021 SHARES OF
COMMON STOCK
TTR INC.
--------------------------
PROSPECTUS
--------------------------
, 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.
Reference is made to Section 8 of the Underwriting Agreement (Exhibit 1.1
to this Registration Statement) which provides for indemnification by the
Underwriter and its controlling persons, on the one hand, and of the Issuer and
its controlling persons on the other hand, against certain civil liabilities,
including liabilities under the Securities Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and 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 and the NASD registration
fees).
<TABLE>
<S> <C>
SEC filing fee........................................................................... $ 10,648.46
NASD, Inc. filing fee.................................................................... 3,588.02
Transfer agent's fee..................................................................... 5,000.00
Printing and engraving expenses.......................................................... 125,000.00
Legal fees and expenses.................................................................. 250,000.00
Blue sky filing fees and expenses (including counsel fees)............................... 57,500.00
Accounting fees and expenses............................................................. 100,000.00
Miscellaneous expenses................................................................... 23,263.52
-----------
Total.......................................................................... $575,000.00
-----------
-----------
</TABLE>
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES
1. (a) In July 1994, the Company sold 1,200,000 shares of its Common Stock
to Marc D. Tokayer, Chairman of the Board of Directors of the Issuer. Mr.
Tokayer subsequently contributed 561,453 shares to the Company which were
immediately cancelled by the Company and deposited 269,274 shares into escrow to
be released from escrow if the Company attains certain future earnings levels or
if the Common Stock trades at certain levels.
(b) There were no underwriters with respect to the above transaction.
(c) The shares were issued in consideration of services performed and Mr.
Tokayer's shares of Common Stock of TBR Systems Inc. (representing approximately
22% of the then issued equity) in the aggregate valued at $1,200 ($.001 per
share) (ascribing no value to the shares of TBR Systems Inc.).
II-1
<PAGE>
<PAGE>
(d) The Company believes that the shares of Common Stock were issued in a
transaction not involving a public offering in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
2. (a) In August 1994, the Company sold 1,200,000 shares of its Common
Stock to the Tokayer Family Trust (the 'Trust'), which may be deemed an
affiliate of the Issuer. The Trust subsequently transferred 85,000 shares to an
unaffiliated third party in exchange for services and deposited 730,726 shares
into escrow to be released from escrow if the Company attains certain future
earnings levels or if the Common Stock trades at certain levels.
(b) There were no underwriters with respect to the above transaction.
(c) The shares were issued in consideration of $25,000 ($.0208 per share).
(d) The Company believes that the shares of Common Stock were issued in a
transaction not involving a public offering in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
3. (a) From November 1994 through July 1995, the Company consummated a
private placement (the '1995 Debt Financing') to 26 accredited investors of
units (the 'Units') consisting of $25,000 principal amount 10% promissory notes
(the 'Notes') and 4,000 warrants exercisable at $.01 per share (the 'Debt
Financing Warrants') . In connection with the Debt Financing, the Company sold
41.6425 Units and issued warrants to the noteholders to purchase up to a total
of 174,548 shares of Common Stock for $.01 per share.
(b) The Company paid commissions (10%) and non-accountable expense
allowances (4%) in the aggregate amount of approximately $146,000 to Shane,
Alexander, Unterburgher Securities, Inc. ('SAU').
(c) The total offering price was $1,041,080.40 (ascribing no value to the
Debt Financing Warrants), and the total underwriting discount was $104,108.
(d) The Company believes that the Units, Notes and Debt Financing Warrants
were issued in a transaction not involving a public offering in reliance upon an
exemption from registration provided by Sections 4(2) and 4(6) of the Securities
Act of 1933, as amended, and Regulation D promulgated thereunder.
4. (a) In November 1994, the Company issued 185,000 Debt Financing Warrants
to SAU. SAU subsequently transferred all of the warrants to 17 unaffiliated
individuals.
(b) There were no underwriters with respect to the above transaction.
(c) The warrants were issued in consideration of consulting services
performed.
(d) The Company believes that the warrants were issued in a transaction not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended.
5. (a) In June 1995, the Company issued an aggregate of 361,453 shares of
Common Stock to six consultants, including 100,000 shares to Dr. Baruch Sollish,
a director of the Company.
(b) There were no underwriters with respect to the above transaction.
(c) The shares were issued in consideration of consulting services
performed valued at $18,073 ($.05 per share).
(d) The Company believes that the shares of Common Stock were issued in a
transaction not involving a public offering in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
6. (a) In May 1995, the Company issued 15,000 Debt Financing Warrants to
Jericho Investments Ltd.
(b) There were no underwriters with respect to the above transaction.
(c) The warrants were issued in consideration of financial consulting
services performed.
II-2
<PAGE>
<PAGE>
(d) The Company believes that the warrants were issued in a transaction not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended.
7. (a) In January 1996, the Company sold 50,000 shares of Common Stock to
the Chana Sasha Foundation.
(b) There were no underwriters with respect to the above transaction.
(c) The shares were issued in consideration of $100,000 ($2.00 per share).
(d) The Company believes that the shares of Common Stock were issued in a
transaction not involving a public offering in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
8. (a) In April 1996, the Company completed a private placement of 650,000
shares of Common Stock and warrants to purchase an additional 1,000,000 shares
of Common Stock (the 'Warrants') to four sophisticated investors (the 'Equity
Financing').
(b) There were no underwriters with respect to the above transaction.
(c) The aggregate purchase price of the securities sold in the Equity
Financing was $200,000, including $10,000 ascribed to the Warrants.
(d) The Company believes that the shares of Common Stock and Warrants were
issued in a transaction not involving a public offering in reliance upon an
exemption from registration provided by Section 4(6) of the Securities Act of
1933, as amended, and Regulation D promulgated thereunder.
9. (a) In June 1996, the Company issued in a private placement to 6
accredited investors one-year 10% promissory notes (the 'Bridge Financing'). In
connection with the Bridge Financing, the Company issued to such investors an
aggregate of 150,000 shares of Common Stock.
(b) The Company paid commissions and non-accountable expense allowances in
the aggregate amount of approximately $55,000 to First Metropolitan Securities,
Inc.
(c) The total offering price was $500,000 (ascribing $75,000 to the shares
of Common Stock), and the total underwriting discount was $50,000.
(d) The Company believes that the promissory notes and the shares of Common
Stock were issued in a transaction not involving a public offering in reliance
upon an exemption from registration provided by Section 4(6) of the Securities
Act of 1933, as amended, and Regulation D promulgated thereunder.
10. (a) In July 1996, the Company issued 5,000 options to Sheldon Rich, a
former director of the Company. The options are exercisable at $6.00 per share
until January 15, 2001.
(b) There were no underwriters with respect to the above transaction.
(c) The warrants were issued in consideration of services performed
pursuant to the Company's 1996 Stock Option Plan.
(d) The Company believes that the options were issued in a transaction not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended.
11. (a) In September 1996, the Company agreed to issue 217,473 warrants
upon the date of this Prospectus to Arik Shavit, a director of the Company. The
warrants are exercisable at $.01 per share until September 2002 and are subject
to a four-year vesting schedule.
(b) There were no underwriters with respect to the above transaction.
(c) The warrants were issued in consideration of services to be performed
prior to vesting.
(d) The Company believes that the warrants were issued in a transaction not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended.
II-3
<PAGE>
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<C> <S>
*1.1 -- Form of Underwriting Agreement, as amended.
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 TTR Israel.
3.4 -- Articles of Association of TTR Israel.
*4.1 -- Form of Underwriter's Warrants, as amended.
4.2 -- Specimen Common Stock Certificate.
4.3 -- Escrow Agreement.
4.4 -- Form of Registration Rights between the Company and certain securityholders.
4.5 -- Form of Lock-up Agreement between the Company's securityholders and the Underwriter.
4.6 -- Form of Lock-up Agreement between certain selling stockholders and the Underwriter.
*5.1 -- Securities Opinion of Baer Marks & Upham LLP.
9.1 -- Voting Agreement.
*10.1 -- Form of Financial Consulting Agreement between the Underwriter and the Company.
10.2 -- The Company's 1996 Stock Option Plan.
10.3 -- Employment Agreement between TTR Israel and Marc D. Tokayer.
10.4 -- Employment Agreement between TTR Israel and Baruch Sollish.
10.5 -- Employment Agreement between TTR Israel and Arik Shavit, as amended.
10.6 -- Unprotected Tenancy Agreement between TTR Israel and Pharmastate Ltd. dated June 10, 1996.
10.7 -- Consulting Agreement dated November 1, 1994 between the Company and Shane Alexander Unterburgher
Securities Inc.
10.8 -- Consulting Agreement dated October 1, 1995 between the Company and Holborn Systems Ltd.
10.9 -- Consulting Agreement between the Company and Pioneer Management Corporation.
10.10 -- Purchase Agreement and Assignment dated January 5, 1995 between TTR Israel and Rina Marketing R&D Ltd.
10.11 -- Loan and Security Agreement dated September 30, 1996 between the Company and 732498 Ontario Ltd.
10.12 -- Form of Note Extension Agreement.
*10.13 -- Form of Promissory Note.
21.1 -- Subsidiaries of the Company.
*23.1 -- The consent of Baer Marks & Upham LLP is included in its opinion which was filed as Exhibit 5.1 to this
Registration Statement.
*23.2 -- The consent of Aboudi & Brounstein is included in Part II of this Registration Statement.
*23.3 -- The consent of Schneider, Ehrlich & Wengrover LLP, certified public accountants, is included in Part II
of this Registration Statement.
*23.4 -- The consent of BDO Almagor & Co., 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).
27 -- Financial Data Schedule.
</TABLE>
- ------------
* Filed with this Amendment.
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.
II-4
<PAGE>
<PAGE>
(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 registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-5
<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 20th day of January 1997.
TTR INC.
By: /s/ MARC D. TOKAYER
...................................
MARC D. TOKAYER
CHAIRMAN
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
- ----------------------------------------- ---------------------------------------------- -------------------
<C> <S> <C>
/s/ MARC D. TOKAYER Chairman of the Board, President (Principal January 20, 1997
........................................ Executive Officer) and Treasurer (Principal
MARC D. TOKAYER Financial Officer)
/s/ ARIK SHAVIT Director and Vice President January 20, 1997
........................................
ARIK SHAVIT
/s/ BARUCH SOLLISH Director and Vice President - Product Research January 20, 1997
........................................ and Development and Secretary
BARUCH SOLLISH
</TABLE>
II-6
<PAGE>
<PAGE>
CONSENT OF COUNSEL
The consent of Baer Marks & Upham LLP is contained in its opinion which was
filed as Exhibit 5.1 to this Registration Statement.
II-7
<PAGE>
<PAGE>
CONSENT OF COUNSEL
We hereby consent to the reference to our firm under the caption 'Legal
Matters' in the Prospectus contained in this Registration Statement.
ABOUDI & BROUNSTEIN
Tel Aviv, Israel
January 20, 1997
II-8
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Experts' and to
the use of our report dated July 1, 1996, in the Registration Statement on Form
SB-2 and related Prospectus of TTR Inc.
SCHNEIDER EHRLICH & WENGROVER LLP
Woodbury, New York
January 20, 1997
II-9
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
As independent auditors of T.T.R. Technologies Ltd., we hereby consent to
the inclusion of our report dated July 1, 1996 and to the reference to our firm
under the heading 'Experts' in the Registration Statement on Form SB-2 and
related prospectus of TTR Inc.
BDO ALMAGOR & CO.
Ramat-Gan, Israel
January 20, 1997
II-10
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- -------- --------------------------------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 -- Form of Underwriting Agreement, as amended. ....................................................
4.1 -- Form of Underwriter's Warrants, as amended. ....................................................
5.1 -- Securities Opinion of Baer Marks & Upham LLP. ..................................................
10.1 -- Form of Financial Consulting Agreement between the Underwriter and the Company. ................
10.13 -- Form of Promissory Note. .......................................................................
23.1 -- The consent of Baer Marks & Upham LLP is included in its opinion which was filed as Exhibit 5.1
to this Registration Statement. ..............................................................
23.2 -- The consent of Aboudi & Brounstein is included in Part II of this Registration Statement. ......
23.3 -- The consent of Schneider, Ehrlich & Wengrover LLP, certified public accountants, is included in
Part II of this Registration Statement. ......................................................
23.4 -- The consent of BDO Almagor & Co., certified public accountants, is included in Part II of this
Registration Statement. ......................................................................
</TABLE>
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as .....'tm'
The section symbol shall be expressed as ......'SS'
<PAGE>
<PAGE>
DRAFT
[Proposed Form of Underwriting
Agreement -- Subject to
Additional Internal Review]
TTR INC.
800,000 shares of Common Stock, $.001 par value
per share
UNDERWRITING AGREEMENT
, 1997
First Metropolitan Securities, Inc.
17 State Street
New York, New York 10004
Ladies and Gentlemen:
TTR Inc., a Delaware corporation (the "Company"), confirms its agreement
with First Metropolitan Securities, Inc. (the "Underwriter"), with respect to
the proposed sale by the Company and the purchase by the Underwriter, of the
respective number of shares of the Company's common stock, par value $.001 per
share ("Common Stock"), and with respect to the grant by the Company, to the
Underwriter, of the option described in Section 3(b) hereof to purchase all or
any part of 120,000 shares of Common Stock, from the Company, for the purpose of
covering over-allotments, if any. The aforesaid 800,000 shares (the "Shares") of
Common Stock and all or any part of the Shares subject to the option described
in Section 3(b) hereof (the "Option Securities") are hereinafter collectively
referred to as the "Securities." The Company also proposes to issue and sell to
the Underwriter warrants (the "Underwriter's Warrants") pursuant to the
Underwriter's Warrant Agreement (the "Underwriter's Warrant Agreement") for the
purchase of an aggregate of an additional 80,000 shares of Common Stock. The
shares of Common Stock issuable upon exercise of the Underwriter's Warrants are
hereinafter sometimes referred to as the "Warrant Shares." The Shares, the
Underwriter's Warrants, and the Warrant Shares are more fully described in the
Registration Statement and the Prospectus referred to below.
<PAGE>
<PAGE>
1. Representations and Warranties of the Company. The Company represents
and warrants to and agrees with the Underwriter as of the date hereof, and as of
the Closing Date and the Option Closing Date (as defined in Subsection 3(c)
hereof, if any, as follows:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form SB-2 (No. 333-11829), including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Securities under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The Company
will promptly file a further amendment to said registration statement in the
form heretofore delivered to the Underwriter and will not, before the
registration statement becomes effective (the "Effective Date"), file any other
amendment thereto unless the Underwriter shall have consented thereto after
having been furnished with a copy thereof. Except as the context may otherwise
require, such registration statement, as amended, on file with the Commission at
the time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including, but not limited to those
documents or information incorporated by reference therein under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and all information deemed
to be a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of
the Regulations), is hereinafter called the "Registration Statement" and the
form of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations, is hereinafter called the "Prospectus." For purposes
hereof, "Rules and Regulations" mean the rules and regulations adopted by the
Commission under either the Act or the Exchange Act, as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or part thereof and no proceedings for
a stop order have been instituted or are pending or, to the best knowledge of
the Company, threatened. Each of the Preliminary Prospectus, the Registration
Statement and Prospectus at the time of filing thereof conformed in all material
respects with the requirements of the Act and the Rules and Regulations, and
none of the Preliminary Prospectus the Registration Statement or Prospectus at
the time of filing thereof contained an untrue statement of a material fact or
omitted to stale a material fact required to be stated therein and necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except that this representation and warranty does not
apply to statements made in reliance upon and in conformity with written
information furnished to the Company with respect to the Underwriter by or on
behalf of the Underwriter expressly for use in such Preliminary Prospectus.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date and each Option Closing Date (as
defined in Subsection 3(c) hereof, if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriter or a dealer, the Registration Statement and the
2
<PAGE>
<PAGE>
Prospectus will contain all material statements which are required to be stated
therein in compliance with the Act and the Rules and Regulations, and will in
all material respects conform to the requirements of the Act and the Rules and
Regulations; neither the Registration Statement or the Prospectus, nor any
amendment or supplement thereto, will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with information supplied to the
Company in writing by or on behalf of any Underwriter expressly for use in the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto.
(d) The Company and its subsidiary are validly existing as
corporations in good standing under the laws of their states of incorporation or
jurisdictions, foreign or domestic, as applicable. The Company and its
subsidiary are duly qualified and licensed and in good standing as a foreign
corporations in each jurisdiction in which their ownership or leasing of
properties or the character of its operations require such qualification or
licensing. The Company and its subsidiary have all requisite power and authority
(corporate and other), and have obtained any and all necessary applications,
approvals, orders, licenses, certificates, franchises and permits of and from
all governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or similar matters), to
own or lease their properties and conduct their business as described in the
Prospectus; the Company and its subsidiary have been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state, local and foreign
laws, rules and regulations; neither the Company nor its subsidiary have
received any notice of proceedings relating to the revocation or modification of
any such authorization, approval, order, license, certificate, franchise, or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs, position, prospects,
value, operation, properties, business or results of operation of the Company or
its subsidiary. The disclosures in the Registration Statement concerning the
effects of federal, state, local, and foreign laws, rules and regulations on the
Company's and its subsidiary businesses as currently conducted and as
contemplated are correct in all respects and do not omit to state a material
fact necessary to make the statements contained therein not misleading in light
of the circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization", and will
have the adjusted capitalization set forth therein on the Closing Date based
upon the assumptions set forth therein, and the Company and its subsidiary are
not a party to or bound by any instrument, agreement or other arrangement
providing for the Company and its subsidiary to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement and as
described in the Prospectus. The Shares, the Underwriters Warrants, and the
Warrant Shares and all other securities issued or issuable by the Company or its
subsidiary, conform or, when issued and paid for will conform in all respects to
all statements with respect thereto contained in the Registration Statement and
the
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Prospectus. All issued and outstanding securities of the Company and its
subsidiary have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with respect
thereto, and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company or its subsidiary, or
similar contractual rights granted by the Company or its subsidiary. The Shares
and Underwriter's Warrants to be issued and sold by the Company hereunder and
the Warrant Shares issuable upon exercise of the Underwriter's Warrants and
payment therefor; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company, or similar
contractual rights granted by the Company have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform in all respects
to the description thereof contained in the Prospectus; all corporate action
required to be taken for the authorization, issue and sale of the Securities,
the Underwriter's Warrants, and the Warrant Shares has been duly and validly
taken; and the certificates representing the Securities, the Underwriter's
Warrants, and the Warrant Shares will be in due and proper form. Upon the
issuance and delivery pursuant to the terms hereof of the Securities to be sold
by the Company hereunder, the Underwriter will acquire good and marketable title
to such Securities free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever.
(f) The financial statements of the Company and its subsidiary,
together with the related notes and schedules thereto, included in the
Registration Statement, the Preliminary Prospectus and the Prospectus fairly
present the financial position and the results of operations of the Company and
its subsidiary at the respective dates and for the respective periods to which
they apply; and such financial statements have been prepared in conformity with
generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved. There has been no material
adverse change or development involving a prospective change in the condition,
financial or otherwise, or in the earnings, business affairs, position,
prospects, value, operation, properties, business, or results of operation of
the Company and its subsidiary, whether or not arising in the ordinary course of
business, since the dates of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company and its
subsidiary, conforms in all respects to the descriptions thereof contained in
the Registration Statement and in the Prospectus.
(g) The Company and its subsidiary (i) has paid all federal,
state, local, and foreign taxes for which it is liable, including, but not
limited to, withholding taxes and taxes payable under Chapters 21 through 24 of
the Internal Revenue Code of 1986 (the "Code"), (ii) have furnished all
information returns required to furnish pursuant to the Code, and have
established adequate reserves for such taxes which are not due and payable, and
(iii) do not have any tax deficiency or claims outstanding, proposed or assessed
against them.
(h) No transfer tax, stamp duty or other similar tax is payable
by or on behalf of the Underwriter in connection with (i) the issuance by the
Company of the Securities, (ii) the
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purchase by the Underwriter of the Securities from the Company or (iii) the
consummation by the Company of any of its obligations under this Agreement.
(i) The Company maintains insurance of the types and in the
amounts which they reasonably believe to be adequate for their businesses, all
of which insurance is in full force and effect.
(j) Except as disclosed in the Prospectus, there is no action,
suit, proceeding, inquiry, investigation, litigation or governmental proceeding
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the properties or
business of the Company which (i) questions the validity of the capital stock of
the Company or this Agreement or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or in the earnings, business affairs,
position, prospects, value, operation, properties, business or results of
operations of the Company.
(k) The Company has full legal right, power and authority to
enter into this Agreement, the Underwriter's Warrant Agreement and the
Consulting Agreement (as defined in Section 7(n) hereof) and to consummate the
transactions provided for in such agreements; and this Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement have each been duly
and properly authorized, executed and delivered by the Company. Each of this
Agreement, the Underwriter's Warrant Agreement and the Consulting Agreement,
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of 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), and none of the Company's execution or delivery of
this Agreement, the Underwriter's Warrant Agreement and the Consulting
Agreement, its performance hereunder and thereunder, its consummation of the
transactions contemplated herein and therein, or the conduct of its business as
described in the Registration Statement, the Prospectus, and any amendments or
supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company pursuant to the terms of, (i)
the articles of incorporation or by-laws of the Company, (ii) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which any of them is or may be
bound or to which any of their properties or assets (tangible or intangible) is
or may be subject to any indebtedness, or (iii) any statute, judgment, decree,
order, rule or regulation applicable to the
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Company of any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of their respective activities or
properties.
(l) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Securities pursuant to
the Prospectus and the Registration Statement, the performance of this Agreement
and the transactions contemplated hereby, except such as have been or may be
obtained under the Act or may be required under state securities or Blue Sky
laws in connection with the Underwriter's purchase and distribution of the
Securities to be sold by the Company hereunder.
(m) All executed agreements or copies of executed agreements
filed as exhibits to the Registration Statement to which the Company or its
subsidiary are a party or by which any of them may be bound or to which any of
their respective assets, properties or businesses may be subject have been duly
and validly authorized, executed and delivered by the Company and/or its
subsidiary, and constitute the legal, valid and binding agreements of the
Company and/or its subsidiary, as the case may be, enforceable against each of
them in accordance with their respective terms. The descriptions in the
Registration Statement of contracts and other documents are accurate and fairly
present the information required to be shown with respect thereto by Form SB-2
and there are no contracts or other documents which are required by the Act to
be described in the Registration Statement or filed as exhibits to the
Registration Statement which are not described or filed as required, and the
Exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of its capital stock. The Company has
one subsidiary, TTR Technologies, Ltd., of which it owns 100% of the outstanding
shares of common stock.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement, or any other agreement
or instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which any of the property or assets (tangible or intangible)
of the Company is subject or affected.
(p) The Company and its subsidiary generally enjoy satisfactory
employer-employee relationships with their employees and both are in compliance
in all material respects
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with all federal, state, local, and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours. There are no pending investigations involving the Company or
any subsidiary, by the U.S. Department of Labor, or any other governmental or
foreign agency responsible for the enforcement of such federal, state, local, or
foreign laws and regulations. There is no unfair labor practice charge or
complaint against the Company or its subsidiary, pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or threatened against or involving the Company, or any
predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company or its subsidiary, and no
collective bargaining agreement or modification thereof is currently being
negotiated by the Company or any subsidiary. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company or of its subsidiary. No labor dispute with the
employees of the Company exists, or, to the best knowledge of the Company, is
imminent; and the Company is not aware (having made no independent investigation
for purposes of this statement) of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, manufacturers or contractors
which might be expected to result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs,
position, prospects, value, operation, properties, business or results of
operations of the Company.
(q) Since its inception, the Company has not incurred any
material liability arising under or as a result of the application of the
provisions of the Act.
(r) The Company does not maintain, sponsor or contribute to any
program or arrangement that is an "employee pension benefit plan," an "employee
welfare benefit plan" or a "multiemployer plan" as such terms are defined in
Sections 3(2), 3(1) and 3(37) respectively, of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not
maintains or contributes, now or at any time previously, to a defined benefit
plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company to any tax penalty on prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from the
Internal Revenue Service with respect to each ERISA Plan which is intended to
comply with Code Section 401(a), stating that such ERISA Plan and the attendant
trust are qualified thereunder. The Company has not ever completely or partially
withdrawn from a "multiemployer plan."
(s) The Company is not (nor the manner in which it conducts its
business or proposes to conduct its business) in violation of any domestic or
foreign laws ordinances or governmental rules or regulations to which it is
subject.
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(t) No holders of any securities of the Company or of any
options, warrants or other convertible or exchangeable securities of the Company
exercisable for or convertible or exchangeable for securities of the Company
have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company
within eighteen (18) months of the date hereof or to require the Company to file
a registration statement under the Act during such eighteen (18) month period.
(u) None of the Company, nor any of its respective employees,
directors, stockholders or affiliates (within the meaning of the Rules and
Regulations) has taken or will take, directly or indirectly, any action designed
to or which has constituted or which might reasonably be expected to cause or
result in, under the Exchange Act, or otherwise, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Securities or otherwise.
(v) None of the patents, patent applications, trademarks, service
marks, trade names, copyrights, know-how, technology or other intangible asset
and licenses and rights to the foregoing presently owned or held by the Company
or its subsidiary, are in dispute so far as known by the Company or are in any
conflict with the right of any other person or entity. To the best of the
Company's knowledge, the Company and its subsidiary (i) own or have the right to
use, free and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or equities of any kind
whatsoever, all patents, trademarks, service marks, trade names and copyrights,
technology and licenses and rights with respect to the foregoing, used in the
conduct of its business as now conducted or proposed to be conducted without
infringing upon or otherwise acting adversely to the right or claimed right of
any person, corporation or other entity under or with respect to any of the
foregoing, and (ii) except as set forth in the Prospectus, is not obligated or
under any liability whatsoever to make any payments by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(w) The Company and its subsidiary own and have the unrestricted
right to use all trade secrets, know-how (including all other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
inventions, designs, processes, works of authorship, computer programs and
technical data and information (collectively herein "intellectual properly")
required for or incident to the development, manufacture, operation and sale of
all products and services sold or proposed to be sold by the Company or its
subsidiary, free and clear of and without violating any right, lien, or claim of
others, including without limitation, former employers of its employees;
provided, however, that the possibility exists that other persons or entities,
completely independently of the Company, as the case may be, or their respective
employees or agents, could have developed trade secrets or items of technical
information similar or identical to those of the Company or its subsidiary. The
Company and its subsidiary are not aware of any such development of similar or
identical trade secrets or technical information by others.
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(x) The Company and its subsidiary have taken reasonable security
measures to protect the secrecy, confidentiality and value of all the
intellectual property.
(y) The Company and its subsidiary have good and marketable title
to, or valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus, to be owned or leased by it free and
clear of all liens, charges, claims, encumbrances, pledges, security interests,
defects, or other restrictions or equities of any kind whatsoever, other than
those referred to in the Prospectus and liens for taxes not yet due and payable.
(z) Schneider, Ehrlich & Weingrover LLP, independent certified
public accounts, whose report is filed with the Commission as a part of the
Registration Statement, are independent certified public accountants as required
by the Act and the Rules and Regulations.
(aa) On or before the Effective Date of the Registration
Statement, the Company shall cause to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors and stockholders, or any person or entity deemed to be an affiliate of
the Company pursuant to the Rules and Regulations has agreed not to, directly or
indirectly, offer to sell, sell, grant any option for the sale of, assign,
transfer, pledge, hypothecate or otherwise encumber any of their shares of
Common Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) or dispose of any beneficial interest therein for a period of not
less than 24 months following such Effective Date without the prior written
consent of the Underwriter, except with regards to the stockholders listed in
Schedule III, the term for each stockholder listed shall be adjusted as provided
therein. The Company will cause the Transfer Agent, as defined below, to mark an
appropriate legend on the face of stock certificates representing all of such
shares of Common Stock and other securities owned by such holders.
(bb) There are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or any other arrangements,
agreements, understandings, payments or issuance with respect to the Company or
any of its officers, directors, employees or affiliates that may affect the
Underwriter's compensation, as determined by the National Association of
Securities Dealers Inc. ("NASD").
(cc) The Securities has not been approved for quotation on the
SmallCap Market of the Nasdaq Stock Market.
(dd) Neither the Company, nor any of its respective officers,
employees agents or any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for
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office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (a) might subject any
of Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (b) if
not given in the past, might have had a materially adverse effect on the assets,
business or operations of the Company, or (c) if not continued in the future,
might adversely affect the assets, business, operations or prospects of the
Company. Each of the Company's internal accounting controls are sufficient to
cause the Company to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
(ee) Except as set forth in the Prospectus, no officer, director
or stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any such
person or entity or the Company, has or has had, either directly or indirectly,
(i) an interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficiary interest in any contract or agreement
to which the Company is a party or by which any of them may be bound or
affected. Except as set forth in the Prospectus under "Certain Relationships and
Related Transactions," there are no existing material agreements, arrangements,
understandings or transactions, or proposed material agreements, arrangements,
understandings or transactions, between or among the Company, and any officer,
director, or Principal Stockholder of the Company, or any affiliate or associate
of any such person or entity.
(ff) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to the Underwriter's counsel shall be deemed a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
(gg) The Company has not entered into any employment agreements,
except as described in the Prospectus.
2. Reserved.
3. Purchase, Sale and Delivery of the Securities and Underwriter's
Warrants.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriter and the Underwriter
agrees to purchase from the Company the Firm Securities at the price per Share
as set forth in subsection (c) below.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements, herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase up to an additional 120,000 shares of Common Stock at
the price per Share set forth in subsection (c) below. The option
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granted hereby will expire 45 days after the date of this Agreement, and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Underwriter to the
Company setting forth the number of Option Securities as to which the
Underwriter is then exercising the option and the time and date of payment and
delivery for such Option Securities. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Underwriter, but shall not be
later than seven full business days after the exercise of said option, nor in
any event prior to Closing Date, as hereinafter defined, unless otherwise agreed
to between the Underwriter and the Company. In the event such option is
exercised the Underwriter shall purchase the total number of Option Securities
then being purchased. Nothing herein contained shall obligate the Underwriter to
purchase any over-allotments. No Option Securities shall be delivered unless the
Firm Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of the
Underwriter at 17 State Street, New York, New York 10004, or at such other place
as shall be agreed upon by the Underwriter and the Company. Such delivery and
payment shall be made at 10:00 a.m. (New York City time) on ___________, 1997 or
at such other time and date as shall be agreed upon by the Underwriter and the
Company but not less than three (3) nor more than thirty (30) business days
after the Effective Date of the Registration Statement (such time and date of
payment and delivery being hereafter called "Closing Date"). In addition, in the
event that any or all of the Option Securities are purchased by the Underwriter,
payment of the purchase price for, and delivery of certificates for such Option
Securities shall be made at the above mentioned office of the Underwriter or at
such other place as shall be agreed upon by the Underwriter and the Company on
each Option Closing Date as specified in the notice from the Underwriter to the
Company. Delivery of the certificates for the Firm Securities and the Option
Securities, if any, shall be made to the Underwriter against payment of the
purchase price for the Firm Securities and the Option Securities, if any, to the
order of the Company, by New York Clearing House funds, certificates for the
shares of Common Stock underlying the Firm Securities and the Option Securities,
if any, shall be in definitive, fully registered form, shall bear no restrictive
legends and shall be in such denominations and registered in such names as the
Underwriter may request in writing at least two (2) business days prior to
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates for the shares of Common Stock underlying the Firm Securities and
the Option Securities, if any, shall be made available to the Underwriter at
such office or such other place as the Underwriter may designate for inspection,
checking and packaging no later than 9:30 a.m. on the last business day prior to
Closing Date or the relevant Option Closing Date, as the case may be.
The purchase price per Share to be paid by the Underwriter to the
Company for the Securities purchased hereunder will be the same for each Share
and will be $6.30. The Company shall not be obligated to sell any Securities
hereunder unless all Firm Securities to be sold by the Company are purchased
hereunder. The Company agrees to issue and sell 800,000 Shares to the
Underwriter.
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(d) On Closing Date, the Company shall issue and sell to the
Underwriter Underwriter's Warrants at a purchase price of $11.20, which warrants
shall entitle the holders thereof to purchase an aggregate of 80,000 Shares. The
Underwriter's Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the Effective Date of the Registration Statement at
an initial exercise price equal to one hundred sixty percent (160%) of the
initial public offering price of the Shares. The Underwriter's Warrant Agreement
and form of Warrant Certificate shall be substantially in the form filed as
Exhibit to the Registration Statement. Payment for the Underwriter's Warrants
shall be made on the Closing Date.
4. Public Offering of the Securities. As soon after the Registration
Statement becomes effective as the Underwriter deems advisable, the Underwriter
shall make a public offering of the Securities (other than to residents of or in
any jurisdiction in which qualification of the Securities is required and has
not become effective) at the price and upon the other terms set forth in the
Prospectus. The Underwriter may from time to time increase or decrease the
public offering price after distribution of the Securities has been completed to
such extent as the Underwriter, in its sole discretion deems advisable.
5. Covenants of the Company. The Company covenants and agrees with the
Underwriter as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
Effective Date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Exchange Act before termination of the offering of the Securities by
the Underwriter of which the Underwriter shall not previously have been advised
and furnished with a copy, or to which the Underwriter shall have objected or
which is not in compliance with the Act, the Exchange Act or the Rules and
Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriter and confirm the notice in
writing, (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution or proceeding for that purpose, (iii) of the issuance by any state
securities commission of any proceedings for the suspension of the qualification
of the Securities for offering or sale in any jurisdiction or of the initiation,
or the threatening, of any proceeding for that purpose, (iv) of the receipt of
any comments from the Commission; and (v) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information. If the Commission or any state
securities commission authority shall enter a stop order or suspend
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such qualification at any time, the Company will make every effort to obtain
promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Underwriter pursuant to
Rule 424(b)(4)) not later than the Commission's close of business on the earlier
of (i) the second business day following the execution and delivery of this
Agreement and (ii) the fifth business day after the Effective Date of the
Registration Statement.
(d) The Company will give the Underwriter notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriter in connection with the offering of the Securities which differs from
the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
will furnish the Underwriter with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such prospectus to which the Underwriter or Lampert &
Lampert ("Underwriter's Counsel"), shall object.
(e) The Company shall endeavor in good faith, in cooperation with
the Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Underwriter may reasonably designate, and
shall make such applications, file such documents and furnish such information
as may be required for such purpose; provided, however, the Company shall not be
required to qualify as a foreign corporation or file a general or limited
consent to service of process in any such jurisdiction. In each jurisdiction
where such qualification shall be effected, the Company will, unless the
Underwriter agrees that such action is not at the time necessary or advisable,
use all reasonable efforts to file and make such statements or reports at such
times as are or may reasonably be required by the laws of such jurisdiction to
continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriter's Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is
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necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Underwriter promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be reasonably satisfactory to
Underwriter's Counsel, and the Company will furnish to the Underwriter a
reasonable number of copies of such amendment or supplement.
(g) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriter, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the Effective Date of
the Registration Statement.
(h) During a period of five years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports (if requester by the Underwriter) of earnings, and
will deliver to the Underwriter:
(i) concurrently with furnishing such quarterly reports to
its stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders and certified by the Company' s
principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to
its stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity, and
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate thereon of independent public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the Commission, the NASD or
any securities exchange;
(v) every press release and every material news item or
article of interest to the financial community in respect of the Company or
their affairs which is intended for release by the Company; and
(vi) any additional information of a public nature
concerning the Company, and any future subsidiary or their respective businesses
which the Underwriter may reasonably request.
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During such five-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which may
be the same entity as the Transfer Agent) for its Common Stock.
(j) The Company will furnish to the Underwriter or on the
Underwriter's order, without charge, at such place as the Underwriter may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the Effective Date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriter may reasonably
request.
(k) Except for the offering contemplated by this Agreement, for a
period of 24 months from the Effective Date of the Registration Statement none
of the Company, its officers or directors, or holders of the Company's
securities, except as listed in Schedule III, including options, warrants and
other like rights, prior to the Effective Date, or any person or entity deemed
to be an affiliate of the Company pursuant to the Rules and Regulations, will,
directly or indirectly, issue, offer to sell, sell, grant an option for the sale
of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose of
any shares of Common Stock or securities convertible into or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior written consent of
the Underwriter (the "Lock-up"). On or before the Effective Date of the
Registration Statement, the Company shall cause to be duly executed legally
binding and enforceable agreements pursuant to which each of persons enumerated
in the preceding sentence who are subject to the Lock-up, has agreed to be bound
by the Lock-up. During the 36 month period commencing with the Effective Date of
the Registration Statement, the Company shall issue no shares of capital stock,
except shares issuable upon the exercise of options or warrants referred to in
the Registration Statement, inclusive of up to an aggregate of 450,000 shares
pursuant to options which may be granted under the Company's 1996 Stock Option
Plan and the 1,000,000 shares held in escrow on behalf of management, or in
connection with any acquisition from, or business combination with, an
unaffiliated entity or securities convertible into or exchangeable for shares of
Common Stock or, except in conformity and compliance with the terms of this
Agreement, grant any options or warrants.
(l) None of the Company, nor any of its respective officers or
directors, nor affiliates of any of them (within the meaning of the Rules and
Regulations) will take, directly or indirectly, any action designed to, or which
might in the future reasonably be expected to cause or result in, stabilization
or manipulation of the price of any securities of the Company.
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(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used
directly or indirectly to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or
other documents as may be required (including but not limited to a Form SR as
may be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(o) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Section 7(j) hereof.
(p) The Company shall cause the Securities to be quoted on the
SmallCap Market of the Nasdaq Stock Market at such time as the Securities are
accepted for listing.
(q) For a period of three (3) years from the Closing Date, the
Company shall furnish to the Underwriter at the Company's sole expense, (i)
daily consolidated transfer sheets relating to the Common Stock; (ii) a list of
holders of Common Stock upon the Underwriter's reasonable requests; and (iii) a
weekly listing of the securities positions of participants in the Depository
Trust Company.
(r) For a period of three (3) years the Company shall notify the
Underwriter of each meeting of the Board, which meetings shall be held at least
quarterly. An individual selected by the Underwriter shall be permitted to
attend all meetings of the Board and to receive all notices and other
correspondence and communications sent by the Company to members of the Board.
The Company shall reimburse the Underwriter's designee for his or her
out-of-pocket expenses reasonably incurred in connection with his or her
attendance of the Board meetings.
(s) For a period equal to the lesser of (i) seven (7) years from
the date hereof, and (ii) the sale to the public of the Warrant Shares, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Forms S-1 or, if applicable, S-2 and S-3 (or other appropriate
form) for the registration under the Act of the Warrant Shares.
(t) Intentionally omitted.
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(u) Intentionally omitted.
(v) On or before the Effective Date of the Registration
Statement, retain or make arrangements to retain a financial public relations
firm reasonably satisfactory to the Underwriter which shall be continuously
engaged from such engagement date to a date twenty-four months from Closing
Date.
(w) As soon as practicable, but in no event more than 30 business
days from the Effective Date of the Registration Statement, (i) file a Form 8-A
with the Commission providing for the registration under the Exchange Act of the
Company's securities and (ii) take all necessary and appropriate actions to be
included in Standard and Poor's Corporation Descriptions and Moody's OTC Manual
and to continue such inclusion for a period of not less than five (5) years.
(x) The Company shall furnish to the Underwriter, within ninety
(90) days following the Option Closing Date, three (3) bound volumes of all
papers and documents utilized in the offering.
(y) Following the Effective Date of the Registration Statement,
the Company shall, at its sole cost and expense, prepare and file such blue sky
trading applications with such jurisdictions as the Underwriter may reasonably
request after consultation with the Company.
(z) The Company shall not amend or alter any term of any written
employment agreement, if any, between the Company and any executive officer or
director, during the term thereof, in a manner more favorable to such employee
or director, without the express written consent of the Underwriter.
6. Payment of Expenses.
(a) The Company hereby agrees to pay on each of Closing Date and
the Option Closing Date (to the extent not paid at Closing Date) all expenses
and fees (other than fees of counsel to the Underwriter, except as provided in
(iv) below) incident to the performance of the obligations of the Company under
this Agreement, including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing, filing, delivery and
mailing (including the payment of postage with respect thereto) of the
Registration Statement and the Prospectus and any amendments and supplements
thereto and the printing, mailing and delivery of this Agreement, the Selected
Dealer Agreements and related documents, including the cost of all copies
thereof and of the Preliminary Prospectuses and of the Prospectus and any
amendments thereof or supplements thereto supplied to the Underwriter in
quantities as hereinabove stated, (iii) the printing, engraving, issuance and
delivery of the Securities including any transfer or other taxes payable
thereon, (iv) the qualification of the Securities under state or foreign
securities or "Blue Sky" laws and determination of the status of such securities
under legal
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investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal
Investments Survey," if any, and disbursements and fees of counsel in connection
therewith, (v) advertising costs and expenses, including but not limited to
costs and expenses in connection with the "road show", information meetings and
presentations, bound volumes and prospectus memorabilia, (vi) costs and expenses
in connection with due diligence investigations, including but not limited to
the fees of any independent counsel or consultant retained, (vii) fees and
expenses of the transfer agent, (viii) applications for assignments of a rating
of the Securities by qualified rating agencies and (ix) the fees payable to the
NASD.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 7, Section 11(b) or Section 12, the
Company shall reimburse and indemnify the Underwriter for all of their
out-of-pocket expenses including the fees and disbursements of counsel for the
Underwriter.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 6, it will pay to the
Underwriter a non-accountable expense allowance equal to three percent (3%) of
the gross proceeds received by the Company from the sale of the Firm Securities,
$50,000 of which has been paid to date to the Underwriter. The Company will pay
the remainder on the Closing Date by certified or bank cashier's check or, at
the election of the Underwriter, by deduction from the proceeds of the offering
contemplated herein. In the event the Underwriter elects to exercise the
over-allotment option described in Section 3(b) hereof, the Company further
agrees to pay to the Underwriter on the Option Closing Date (by certified or
bank cashier's check or, at the Underwriter's election, by deduction from the
proceeds of the offering) a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Option Securities.
7. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations, statements and warranties of the Company and the officers and
directors of the Company made pursuant to the provisions hereof, as of the
Effective Date and as at the Closing Date and each Option Closing Date, if any,;
and the performance by the Company on and as of the Closing Date and each Option
Closing Date, if any, of each of its or his covenants and obligations hereunder
and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M., New York time, on the date of this Agreement or such later
date and time as shall be consented to in writing by the Underwriter, and, at
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriter's Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the
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price of the Securities and any price-related information previously omitted
from the effective Registration Statement pursuant to such Rule 430A shall have
been transmitted to the Commission for filing pursuant to Rule 424(b) of the
Rules and Regulations within the prescribed time period, and prior to Closing
Date the Company shall have provided evidence satisfactory to the Underwriter of
such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriter's opinion, is material or omits to state a
fact which, in the Underwriter's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Underwriter's opinion, is material, or omits to state a fact
which, in the Underwriter's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall have
received the favorable opinion of Baer Marks Upham LLP, counsel to the Company,
addressed to the Underwriter and in form and substance reasonably satisfactory
to the Underwriter's Counsel, to the effect that:
(i) the Company and its subsidiary (A) have been duly
organized and are validly existing as corporations in good standing under the
laws of their jurisdictions, (B) are duly qualified and licensed and in good
standing as foreign corporations in each jurisdiction in which their ownership
or leasing of any properties or the character of their operations requires such
qualification or licensing, except where the failure to so qualify would not
have a material adverse effect on the Company and/or its subsidiary, and (C)
have all requisite power and authority (corporate and other), and have obtained
any and all necessary authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease their properties and conduct
their business as described in the Prospectus; to the best of such counsel's
knowledge, the Company and its subsidiary have been doing business in compliance
with all such authorizations, approvals, orders, licenses, certificates,
franchises and permits and all federal, state, local and foreign laws, rules and
regulations; and to the best of such counsel's knowledge, neither the Company
nor its subsidiary have received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singularly or in the aggregate, is the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, of the earnings,
business affairs, position, prospects, value, operation, properties, business or
results of operation of any of the Company or its subsidiary.
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The disclosures in the Registration Statement concerning the effects of
federal, state, local, and foreign laws, rules and regulations on each of the
Company's businesses as currently conducted and as contemplated are correct in
all respects and do not omit to state a material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which they were made.
(ii) except as described in the Prospectus, to the best of
such counsel's knowledge, the Company owns, directly or indirectly no
Subsidiaries;
(iii) except as described in the Prospectus, to the best
knowledge of such counsel, the Company does not own an interest in any
corporation, partnership, joint venture, trust or other business entity;
(iv) the Company has a duly authorized, issued and
outstanding 20,000,000 shares of Common Stock, $.001 par value, of which
2,424,548 exclusive of the 1,000,000 shares issued and held in escrow for the
benefit of management) shares are issued and outstanding, and no shares of
preferred stock, as set forth in the Prospectus, and any amendment or supplement
thereto, under "Capitalization", and the Company is not a party to or bound by
any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement and as described in the Prospectus. The Securities, the Underwriter's
Warrants, the Warrant Shares and all other securities issued or issuable by the
Company conform in all respects to all statements with respect thereto contained
in the Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no rights of rescission
with respect thereto and are not subject to personal liability by reason of
being such holders, and none of such securities were issued in violation of the
preemptive rights of any insiders of any security of the Company, if any. The
Securities, the Underwriter's Warrants and the Warrant Shares to be sold by the
Company hereunder are not and will not be subject to any preemptive or other
similar rights of any stockholder, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms thereof, are validly issued,
fully paid and non-assessable and conform to the description thereof contained
in the Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and validly taken;
and the certificates representing the Securities and securities underlying the
Securities and the Underwriter's Warrants are in due and proper form. The
Underwriter's Warrants constitute valid and binding obligations of the Company,
to issue and sell, upon exercise thereof and payment therefor, the number and
type of securities of the Company called for thereby. Upon the issuance and
delivery pursuant to the Agreement of the Securities to be sold by the Company,
the Underwriter will acquire good and marketable title to such securities free
and clear of any pledge, lien, charge, claim, encumbrance, pledge, security
interest or other restriction of any kind whatsoever.
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(v) the Registration Statement is effective under the Act,
and, if applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and no stop order suspending the
effectiveness of the Registration Statement has been issued and to the best of
such counsel's knowledge, no proceedings for that purpose have been instituted
or are pending or threatened or contemplated under the Act;
(vi) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto (other
than the financial statements and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations. Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Registration Statement, the
Prospectus, and related matters were discussed and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and Prospectus, on the basis of the foregoing, no facts have come to
the attention of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto, at the time such Registration
Statement or amendment became effective or the Preliminary Prospectus or
Prospectus or amendment or supplement thereto as of the date of such opinion
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading (it being understood that such counsel need express no opinion
with respect to the financial statements and schedules and other financial and
statistical data included in the Preliminary Prospectus, the Registration
Statement or Prospectus).
(vii) to the best of such counsel's knowledge, (A) there
are no contracts or other documents required to be described in the Registration
Statement and the Prospectus and filed as exhibits to the Registration Statement
other than those described in the Registration Statement (or required to be
filed under the Exchange Act if upon such filing they would be incorporated, in
whole or in part, by reference therein) and the Prospectus and filed as exhibits
thereto, and the exhibits which have been filed are correct copies of the
documents of which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or amendment
thereto of contracts and other documents to which the Company is a party or by
which it is bound, including any document to which the Company is a party or by
which it is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate and fairly represent the
information required to be shown by Form SB-2; (C) there is not pending or
threatened against the Company any action suit, proceeding, inquiry,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of the Company
which (x) is required to be disclosed in the Registration Statement which is not
so disclosed (and such proceedings as are summarized in the Registration
Statement are accurately summarized in all respects), (y) questions the validity
of the capital
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stock of the Company or this Agreement or of any action taken or to be taken by
the Company pursuant to or in connection with this Agreement, or (z) might
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs, position, prospects, value, operation, properties,
business or results of operation of the Company; (D) no statute or regulation or
legal or governmental proceeding required to be described in the Prospectus is
not described as required; and (E) there is no action, suit or proceeding
pending, or threatened, against or affecting, the Company before any court or
arbitrator or governmental body, agency or official (or any basis thereof known
to such counsel) in which there is a reasonable possibility of an adverse
decision which may result in a material adverse change in the assets, business,
operations, financial condition or prospects of the Company, which could
materially, adversely affect the present or prospective ability of the Company
to perform its obligations under this Agreement or which in any manner draws
into question the validity or enforceability of this Agreement;
(viii) The Company has full legal right, power and
authority to enter into each of this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement, and the Consulting Agreement, and to
consummate the transactions provided for therein; and each of this Agreement,
the Underwriter's Warrant Agreement and the Consulting Agreement has been duly
authorized, executed and delivered by the Company. This Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement, assuming due
authorization, execution and delivery by each other party thereto and further
assuming that they are valid and binding agreements of the Underwriter, so as
the case may be, constitutes legal, valid and binding agreements of the Company
enforceable as against the Company in accordance with their terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of 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), and none of the Company's
execution or delivery of this Agreement, the Underwriter's Warrant Agreement and
the Consulting Agreement, its performance hereunder or thereunder, its
consummation of the transactions contemplated herein or therein, or the conduct
of its business as described in the Registration Statement, the Prospectus, and
any amendments or supplements thereto, to the best knowledge of such counsel,
conflicts with or will conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of, (A) the articles of
incorporation or by-laws of the Company, (B) any indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company is a party
or by which any of them is or may be bound or to which any of their properties
or assets (tangible or intangible) is or may be subject, or any indebtedness, or
(C) any statute, judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without limitation, those having
jurisdiction over
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environmental or similar matters), domestic or foreign, having jurisdiction over
the Company or any of its respective activities or properties.
(ix) no consent, approval, authorization or order, and no
filing with any court, regulatory body, government agency or other body,
domestic or foreign, (other than such as may be required under Blue Sky laws, as
to which no opinion need be rendered) is required in connection with the
issuance of the Securities pursuant to the Prospectus and the Registration
Statement, the performance of the Agreement, the Underwriter's Warrant and the
Consulting Agreement, and the transactions contemplated thereby;
(x) To the best of such counsel's knowledge, the
properties and business of the Company and its subsidiary conform to the
description thereof contained in the Registration Statement and the Prospectus;
and the Company and its subsidiary have good and marketable title to, or valid
and enforceable leasehold estates in, all items of real and personal property
stated in the Prospectus to be owned or leased by it, in each case free and
clear of all liens, charges, claims, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind whatsoever, other than
those referred to in the Prospectus and liens for taxes not yet due and payable;
(xi) To the best of such counsel's knowledge, neither the
Company nor its subsidiary is in breach of, or in default under, any term or
provision of any indenture, mortgage, installment sale agreement, deed of trust,
lease, voting trust agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which the Company or its
subsidiary is a party or by which the Company may be bound or to which any of
the property or assets (tangible or intangible) of the Company or its subsidiary
is subject or affected, except such as would not have a material adverse effect
on the Company or its subsidiary; and neither the Company nor its subsidiary is
in violation of any term or provision of their Articles of Incorporation or
By-Laws or in violation of any franchise, license, permit, judgment, decree,
order, statute, rule or regulation;
(xii) the statements in the Prospectus under "BUSINESS,"
"MANAGEMENT," "PRINCIPAL SECURITY HOLDERS," "CERTAIN TRANSACTIONS," "DESCRIPTION
OF SECURITIES" and "SHARES ELIGIBLE FOR FUTURE SALE" have been reviewed by such
counsel, and insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are correct in
all material respects;
(xiii) the Securities have not been accepted for quotation
on the SmallCap Market of the Nasdaq Stock Market;
(xiv) except as and to the extent set forth in the
Prospectus, the Company and its subsidiary, own or possess, free and clear of
all liens or encumbrances and rights thereto or therein by third parties, the
requisite licenses or other rights to use all trademarks, service marks,
copyrights, service names, trade names, patents, patent applications and
licenses
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necessary to conduct their businesses (including, without limitation any such
licenses or rights described in the Prospectus as being owned or possessed by
the Company), and there is no claim or action by any person pertaining to, or
proceeding, pending, or threatened, which challenges the exclusive rights of the
Company and/or its subsidiary with respect to any trademarks, service marks,
copyrights, service names, trade names, patents, patent applications and
licenses used in the conduct of the Company's and/or its subsidiary's businesses
(including without limitations any such licenses or rights described in the
Prospectus as being owned or possessed by the Company); the Company's and its
subsidiary's current products, services and processes do not and will not
infringe on the patents currently held by third parties;
(xv) to the best knowledge of such counsel, except as and
to the extent set forth in the Prospectus, neither the Company nor its
subsidiary are under any obligation to pay to any third-party royalties or fees
of any kind whatsoever with respect to any technology or intellectual properties
developed, employed or used;
(xvi) to the best of such counsel's knowledge, the persons
listed under the caption "PRINCIPAL STOCKHOLDERS" in the Prospectus are the
respective "beneficial owners" (as such phrase is defined in regulation 13d-3
under the Exchange Act) of the securities set forth opposite their respective
names thereunder as and to the extent set forth therein;
(xvii) to the best of such counsel's knowledge, except as
described in the Prospectus, no person, corporation, trust, partnership,
association or other entity has the right to include and/or register any
securities of the Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any security in such
registration statement for eighteen months from the date hereof;
(xviii) to the best of such counsel's knowledge and except
as described in the Prospectus, there are no claims, payments, issuances,
arrangements or understandings for services in the nature of a finder's or
origination fee with respect to the sale of the Securities hereunder or
financial consulting arrangement or any other arrangements, agreements
understandings, payments or issuances that may affect the Underwriter's
compensation, as determined by the NASD;
(xix) to the best of such counsel's knowledge, except as
set forth in the Prospectus under "Certain Transactions," there are no existing
material agreements, arrangements, understandings or transactions, or proposed
material agreements, arrangements, understandings or transactions between or
among the Company, its subsidiary and any officer, director, or Principal
Stockholder of the Company or its subsidiary, or any affiliate or associate of
any such person or entity;
(xx) to the best of such counsel's knowledge, the minute
books of the Company has been made available to Underwriter's Counsel and
contains a complete summary of all meetings and actions of the respective
directors and stockholders of the Company since
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the time of their respective incorporations and reflect all transactions
referred to in such minutes accurately in all respects.
(xxi) the organization of the Company has been duly and
validly consummated in accordance and in compliance with applicable law and does
not violate the charter or by-laws or give rise to any claim or entitlement by
or to any stockholder.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance reasonably satisfactory to Underwriter's
Counsel) of other counsel reasonably acceptable to Underwriter's Counsel,
familiar with the applicable laws; (B) as to matters of fact, to the extent they
deem proper, on certificates and written statements of responsible officers of
the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company, provided that copies of any
such statements or certificates shall be delivered to Underwriter's Counsel if
requested. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel and,
in their opinion, the Underwriter and they are justified in relying thereon.
At each Option Closing Date, if any, the Underwriter shall have received
the favorable opinion of Baer Marks & Upham, LLP, counsel to the Company, dated
the Option Closing Date, addressed to the Underwriter and in form and substance
satisfactory to Underwriter's Counsel confirming as of Option Closing Date the
statements made by Baer Marks & Upham, LLP in their opinion delivered on the
Closing Date.
(d) Intentionally omitted.
(e) On or prior to each of the Closing Date and the Option
Closing Date, Underwriter's Counsel shall have been furnished such documents
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (b)
of this Section 7, or in order to evidence the accuracy, completeness or
satisfaction of any of the representation, warranties or conditions herein
contained.
(f) On or prior to each of the Closing Date and the Option
Closing Date, Underwriter's Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 7, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(g) Prior to each of Closing Date and each Option Closing Date,
if any, (i) there shall have been no material adverse change nor development
involving a prospective change in
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the condition, financial or otherwise, prospects or the business activities of
the Company, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company, from the latest date as of
which the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is materially adverse to the Company; (iii) the
Company does not, shall be in default under any provision of any instrument
relating to any outstanding indebtedness; (iv) no material amount of the assets
of the Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (v) no action, suit or proceeding, at law
or in equity, shall have been pending or to its knowledge threatened against the
Company, or affecting any of their respective properties or businesses before or
by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus; and (vi) no stop order shall have been issued under
the Act and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission.
(h) At each of the Closing Date and each Option Closing Date, if
any, the Underwriter shall have received a certificate of the Company signed by
the principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the Closing Date or
the Option Closing Date, as the case may be, and the Company has complied with
all agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such Closing
Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and,
if any, each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and neither the Preliminary Prospectus or any supplement thereto included any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and
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(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company shall not have incurred up to and including the Closing Date or the
Option Closing Date, as the case may be, other than in the ordinary course of
its business, any material liabilities or obligations, direct or contingent; the
Company shall not have paid or declared any dividends or other distributions on
its capital stock; the Company shall not have entered into any transactions not
in the ordinary course of business; there shall not have been any change in the
capital stock or long-term debt or any increase in the short-term borrowings
(other than any increase in the short-term borrowings in the ordinary course of
business) of the Company; the Company does not have sustained any material loss
or damage to its property or assets, whether or not insured; there shall not be
any litigation which is pending or threatened against the Company which is
required to be set forth in an amended or supplemented Prospectus which has not
been set forth; and there shall not have occurred any event required to be set
forth in an amended or supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this
subsection (g) are to such documents as amended and supplemented at the date of
such certificate.
(i) By the Closing Date, the Underwriter will have received
clearance from NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement
(j) At the time this Agreement is executed, the Underwriter shall
have received a letter, dated such date, addressed to the Underwriter in form
and substance satisfactory in all respects (including the non-material nature of
the changes or decreases, if any, referred to in clause (iii) below) to the
Underwriter and Underwriter's Counsel, from Schneider, Ehrlich & Weingrover LLP,
independent certified public accounts:
(i) confirming that they are independent public
accountants with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) stating that it is their opinion, the financial
statements and supporting schedules of the Company included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations thereunder and
that the Underwriter may rely upon the opinion of Schneider, Ehrlich &
Weingrover LLP, independent certified public accounts with respect to the
financial statements and-supporting schedules included in the Registration
Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the boards of directors of the Company, consultations with
officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and
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inquiries, nothing has come to their attention which would lead them to believe
that (A) the unaudited financial statements and supporting schedules of the
Company included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Rules and Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements of the Company included in the
Registration Statement, or (B) at a specified date not more than five (5) days
prior to the Effective Date of the Registration Statement, there has been any
change in the capital stock or long-term debt of the Company, or any decrease in
the stockholders' equity or net current assets or net assets of the Company as
compared with amounts shown in the Company's balance sheet included in the
Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting forth
the amount of such change or decrease, and (C) during the period from
__________, 199_ to a specified date not more than five (5) days prior to the
Effective Date of the Registration Statement, there was any decrease in net
revenues, net earnings or increase in net earnings per common share of the
Company, in each case as compared with the corresponding period beginning
_________, 199_ other than as set forth in or contemplated by the Registration
Statement, or, if there was any such decrease, setting forth the amount of such
decrease;
(iv) setting forth, at a date not later than five (5) days
prior to the date of the Registration Statement, the amount of liabilities of
the Company (including a breakdown of commercial paper and notes payable to
banks);
(v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement; and
(vi) stating that they have not during the immediately
preceding five (5) year period brought to the attention of the Company's
management any "weakness", as defined in Statement of Auditing Standard No. 60
"Communication of Internal Control Structure Related Matters Noted in an
Audit," in the Company's internal controls; and
(vii) Intentionally omitted.
(viii) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may reasonably request.
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(k) On the Closing Date, and each Option Closing Date, if any,
the Underwriter shall have received from Schneider, Ehrlich & Weingrover LLP,
independent certified public accounts a letter, dated as of the Closing Date,
and each Option Closing Date, if any, to the effect that they reaffirm that
statements made in the letter furnished pursuant to Subsection (j) of this
Section, except that the specified date referred to shall be a date not more
than five days prior to Closing Date and each Option Closing Date, if any, and,
if the Company has elected to rely on Rule 430A of the Rules and Regulations, to
the further effect that they have carried out procedures as specified in clause
(v) of subsection (i) of this Section with respect to certain amounts,
percentages and financial information as specified by the Underwriter and deemed
to be a part of the Registration Statement pursuant to Rule 430A(b) and have
found such amounts, percentages and financial information to be in agreement
with the records specified in such clause (v).
(l) On each of Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Underwriter for the several
Underwriter's accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriter pursuant to subsection (e) of Section
5 hereof shall have been issued on either the Closing Date or the Option Closing
Date, if any, and no proceedings for that purpose shall have been instituted or
to its knowledge or that of the Company shall be contemplated.
(n) On or before the Closing Date the Company shall have (i)
executed and delivered to the Underwriter the consulting agreement,
substantially in the form filed as an Exhibit to the Registration Statement (the
"Consulting Agreement") and (ii) paid to the Underwriter $100,000 representing
the two year retainer fee pursuant to the Consulting Agreement.
If any condition to the Underwriter's obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, and each person, if any, who controls the Underwriter ("controlling
person") within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions in respect thereof), whatsoever
(including but not limited to any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which such Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law
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arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained (i) in any Preliminary Prospectus, (except that the
indemnification contained in this paragraph with respect to any preliminary
prospectus shall not inure to the benefit of the Underwriter or to the benefit
of any person controlling the Underwriter) on account of any loss, claim,
damage, liability or expense arising from the sale of the Shares by the
Underwriter to any person if a copy of the Prospectus, as amended or
supplemented, shall not have been delivered or sent to such person within the
time required by the Act, and the untrue statement or alleged untrue statement
or omission or alleged omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus, as amended and supplemented, and
such correction would have eliminated the loss, claim, damage, liability or
expense), the Registration Statement or the Prospectus (as from time to time
amended and supplemented); (ii) in any post-effective amendment or amendments or
any new registration statement and prospectus in which is included securities of
Common Stock of the Company issued or issuable upon exercise of the
Underwriter's Warrants; or (iii) in any application or other document or written
communication (in this Section 8 collectively called "application") executed by
the Company or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Common Stock under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
NASDAQ or any other securities exchange; or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), unless such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto, or in
any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which any of the Company may have at common law or otherwise.
(b) The Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering;
provided, further, that the liability of each Underwriter to the Company shall
be limited to the product of the Underwriter's discount or commission and the
number of Shares sold by such Underwriter hereunder. The Company acknowledges
that the statements with
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respect to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus and the statement
as to the anticipated date of delivery of the certificates representing the
Shares have been furnished by the Underwriters expressly for use therein and
constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 8, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with one counsel
reasonably satisfactory to such indemnified party. Notwithstanding the foregoing
the indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnifying party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses of one additional counsel shall be borne by
the indemnifying parties. In no event shall the indemnifying parties be liable
for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 8 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided however, that such consent was not
unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 8, 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 this Section 8 provide for indemnification in such
case, or (ii) contribution under
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the Act may be required on the part of any indemnified party, then each
indemnifying party shall contribute to the amount paid as a result of such
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
(A) in such proportion as is appropriate to reflect the relative benefits
received by each of the contributing parties, on the one hand, and the party to
be indemnified on the other hand, from the offering of the Shares or (B) if the
allocation provided by clause (A) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is the contributing
party and the Underwriters are the indemnified party, the relative benefits
received by the Company on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Shares (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subdivision (d), the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Shares purchased by the Underwriters hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls the Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the Company
shall have the same rights to contribution as the Company, subject in each case
to this subparagraph (d). Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect to which a claim for contribution may be made
against another party or parties under this subparagraph (d), notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
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9. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations. warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 8 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the Underwriter.
10. Effective Date.
(a) This Agreement shall become effective at 10:00 a.m.,
New York City time. on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Underwriter, in its discretion, shall release the Securities for the sale to the
public, provided, however that the provisions of Sections 6, 8 and 11 of this
Agreement shall at all times be effective. For purposes of this Section 10, the
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Underwriter of telegrams to securities
dealers releasing such shares for offering or the release by the Underwriter for
publication of the first newspaper advertisement which is subsequently published
relating to the Securities.
11. Termination.
(a) Subject to subsection (d) of this Section 11, the
Underwriter shall have the right to terminate this Agreement, (i) if any
calamitous domestic or international event or act or occurrence has materially
disrupted, or in the Underwriter's opinion will in the immediate future
materially disrupt general securities markets in the United States; or (ii) if
trading on the New York Stock Exchange, the American Stock Exchange, or in the
over-the-counter market shall have been suspended or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required on the over-the-counter market by the NASD or by order
of the Commission or any other government authority having jurisdiction; or
(iii) if the United States shall have become involved in a war or major
hostilities; or (iv) if a banking moratorium has been declared by a New York
State or federal authority; or (v) if a moratorium in foreign exchange trading
has been declared; or (vi) if the Company shall nave sustained a loss material
or substantial to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which whether or not such
loss shall have been insured, will, in the Underwriter's opinion, make it
inadvisable to proceed with the delivery of the Securities; or (vii) if there
shall have been such material adverse change in the conditions or prospects of
the Company, or such material adverse general market conditions as in the
Underwriter's judgment would make it inadvisable to proceed with the offering,
sale and/or delivery of the Securities.
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(b) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 10 and 11 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 6 and Section 8 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
12. Default by the Company. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriter may
at the Underwriter's option, by notice from the Underwriter to the Company,
terminate the Underwriter's several obligations to purchase Securities from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 6 and Section 8 hereof. No action taken
pursuant to this Section shall relieve the Company from liability, if any, in
respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at First Metropolitan Securities, Inc., 17 State Street, New York,
New York 10004, Attention: Syndicate Department, with a copy to Lampert &
Lampert, 10 East 40th Street, New York, New York 10007, Attention: Mitchell
Lampert, Esq. Notices to the Company shall be directed to the Company at 2
Hanagar Street, Kfar Saba, Israel, 44425 Attention: Marc D. Tokayer, with a copy
to Baer Marks & Upham, LLP at 805 Third Avenue, New York, New York 10022-7513,
attention: Sam Ottensoser, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriter, the Company and the controlling persons,
directors and officers referred to in Section 9 hereof and their respective
successors, legal representatives and assigns, and their respective heirs and
legal representatives and no other person shall have or be construed to have any
legal or equitable right, remedy or claim under or in respect of or by virtue of
this Agreement or any provisions herein contained. No purchaser of Securities
from any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
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If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
TTR INC.
By: ___________________________
Marc D. Tokayer
President
Confirmed and accepted as of the date first above written.
FIRST METROPOLITAN SECURITIES, INC.
By: _____________________________
Name:
Title:
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TTR INC.
AND
FIRST METROPOLITAN SECURITIES, INC.
UNDERWRITER'S
WARRANT AGREEMENT
DATED AS OF ______________, 1997
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<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of ____________, 1997 among TTR
Inc., a Delaware corporation (the "Company") and First Metropolitan Securities,
Inc., a Delaware corporation (hereinafter referred to variously as the "Holder"
or the "Underwriter").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue to the Underwriter warrants to
purchase up to an aggregate of 80,000 shares of common stock, par value $.001
per share, of the Company ("Common Stock"); and
WHEREAS, the Underwriter has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Underwriter and the Company, to underwrite the Company's proposed public
offering of 800,000 shares of Common Stock, at a public offering price of $7.00
per share (the "Public Offering"); and
WHEREAS, the Underwriter's Warrants to be issued pursuant to this
Agreement will be issued on the Closing Date (as such term is defined in the
Underwriting Agreement) by the Company to the Underwriter in consideration for,
and as part of the compensation in connection with the Public Offering;
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of an aggregate of ten dollars ($10.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
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1. Grant. The Holder is hereby granted the right to purchase, at any
time from _________________, 1997 until; 5:30 p.m., New York time, on
______________________, 2002 up to an aggregate 80,000 shares of Common Stock
(subject to adjustment as provided in Section 8 hereof) at a price of $11.20
(160% of the initial public offering price), subject to the terms and conditions
of this Agreement. Except as set forth herein, the Common Stock issuable upon
exercise of the Underwriter's Warrants is in all respects identical to the
shares of Common Stock being purchased by the Underwriter for resale to the
public pursuant to the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant. The Warrants initially are exercisable at an
aggregate initial exercise price (subject to adjustment as provided in Section 8
hereof) as set forth in Section 6 hereof payable by certified or official bank
check in New York Clearing House funds, subject to adjustment as provided in
Section 8 hereof. Upon surrender at the Company's principal offices in New York
(presently located at 2 Hanagar Street, Kfar Sab, Israel, 44425), of a Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Purchase Price
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(as hereinafter defined) for the shares of Common Stock, the registered holder
of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased. The
purchase rights represented by each Underwriter's Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional shares of the Common Stock). In the case of the purchase of less
than all the shares purchasable under any Warrant Certificate, the Company shall
cancel the Warrant Certificate upon the surrender thereof and shall execute
and deliver a new Warrant Certificate of like tenor for the balance of the
securities purchasable thereunder.
4. Issuance of Certificates. Upon the exercise of the Underwriter's
Warrants, the issuance of certificates for the Common Stock or other securities,
properties or rights underlying such Underwriter's Warrants, shall be made
forthwith (and in any event within three (3) business days thereafter) without
charge to the Holder thereof including, without limitation, any tax which may be
payable in respect of the issuance thereof, and such certificates shall (subject
to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in
such names as may be directed by, the Holder thereof; provided, however, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificates
in a name other than that of the Underwriter and the Company shall not be
required to issue or deliver such certificates
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unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Underwriter's Warrant Certificates and the certificates representing
the Common Stock issuable upon exercise of the Underwriter's Warrants shall be
executed on behalf of the Company by the manual or facsimile signature of the
then present Chairman or Vice Chairman of the Board of Directors or President or
Vice President of the Company under its corporate seal reproduced thereon,
attested to by the manual or facsimile signature of the then present Secretary
or Assistant Secretary of the Company. Underwriter's Warrant Certificates shall
be dated the date of execution by the Company upon initial issuance, division,
exchange, substitution or transfer.
5. Restriction On Transfer of the Underwriter's Warrants. The Holder of
a Underwriter's Warrant Certificate, by its acceptance thereof, covenants and
agrees that the Underwriter's Warrants are being acquired as an investment and
not with a view to the distribution thereof; and that the Underwriter's Warrants
may not be sold, transferred, assigned, hypothecated or otherwise disposed of,
in whole or in part, for a period of one (1) year from the date of the Public
Offering, except to officers or partners of the Underwriter or members of the
selling group and/or their officers and partners.
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6. Exercise Price.
'SS'6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each of the shares
of Common Stock underlying the Underwriter's Warrants shall be $11.20 (160% of
the initial public offering price). The adjusted exercise price shall be the
price which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Section 8 hereof.
'SS'6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
'SS'7.1 Registration Under the Securities Act of 1933. The Underwriter's
Warrants, the shares of Common Stock issuable upon exercise of the Underwriter's
Warrants have been registered pursuant to a registration statement on form SB-2
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Act").
'SS'7.2 Piggyback Registration. If, at any time commencing after
____________, 1997, through and including ____________, 2003 (84 months from the
Effective Date), the Company proposes to register any of its securities under
the Act (other than in connection with a merger or pursuant to Form S-8) it will
give written notice by registered mail, at least thirty (30) days prior to the
filing of each such registration statement, to the Underwriter and to all other
Holders of the Underwriter's Warrants and/or the Common Stock
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underlying same of its intention to do so. If any of the Underwriter or other
Holders of the Underwriter's Warrants and/or Common Stock underlying same notify
the Company within twenty (20) days after receipt of any such notice of its or
their desire to include any such securities in such proposed registration
statement, the Company shall afford each of the Underwriter and such Holders of
the Underwriter's Warrants and/or Common Stock underlying same the opportunity
to have any such Common Stock underlying same registered under such registration
statement.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
'SS'7.3 Demand Registration.
(a) At any time commencing after ______________, 1997 (12 months from
the Effective Date) through and including ______________, 2001 (60 months from
the Effective Date), the Holders of the Underwriter's Warrants and/or Common
Stock underlying same representing a "Majority" (as hereinafter defined) of such
securities (assuming the exercise of all of the Underwriter's Warrants) shall
have the right (which right is in addition to the registration rights under
Section 7.2 hereof), exercisable by written notice to the Company, to have the
Company
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prepare and file with the Commission, on one occasion, a registration statement
and such other documents, including a prospectus, as may be necessary in the
opinion of both counsel for the Company and counsel for the Underwriter and
Holders, in order to comply with the provisions of the Act, so as to permit a
public offering and sale of their respective Common Stock underlying same for
nine (9) consecutive months by such Holders and any other Holders of the
Underwriter's Warrants and/or Common Stock underlying same who notify the
Company within ten (10) days after receiving notice from the Company of such
request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Underwriter's Warrants and the Common Stock
underlying same within ten (10) days from the date of the receipt of any such
registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing after ______________,
1997 (12 months from the Effective Date) through and including ______________,
2001 (60 months from the Effective Date), any Holder or Holders of a Majority of
Underwriter's Warrants and/or shares of Common Stock underlying same shall have
the right, exercisable by written request to the Company, to have the Company
prepare and file, on one occasion, with the Commission a registration statement
so as to permit a public offering and sale for nine (9) consecutive months by
any such Holder or Holders, provided, however, that the provisions of
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Section 7.4(b) hereof shall not apply to any such registration request and
registration and all costs incident thereto shall be at the expense of the
Holder or Holders making such request.
(d) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the shares of Common
Stock underlying the Underwriter's Warrants within the time period specified in
Section 7.4(a) hereof pursuant to the written notice specified in Section 7.3(a)
of a Majority of the Holders of the Underwriter's Warrants and/or shares of
Common Stock underlying same, the Company agrees that upon the written notice of
election of a Majority of the Holders of the Underwriter's Warrants and/or
Common Stock underlying same it shall repurchase (i) any and all Common Stock
underlying the Underwriter's Warrants at the higher of the Market Price per
share of Common Stock on (x) the date of the notice sent pursuant to Section
7.3(a) or (y) the expiration of the period specified in Section 7.4(a). Such
repurchase shall be in immediately available funds and shall close within two
(2) days after the later of (i) the expiration of the period specified in
Section 7.4(a) or (ii) the delivery of the written notice of election specified
in this Section 7.3(d).
'SS'7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any
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demand therefor, shall use its best efforts to have any registration statement
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Common Stock underlying the Underwriter's Warrants, such number
of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s) counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, and blue sky fees and expenses.
The Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c). If the Company shall
fail to comply with the provisions of Section 7.4(a), the Company shall, in
addition to any other equitable or other relief available to the Holder(s), be
liable for any or all incidental, special and consequential damages and damages
due to loss of profit sustained by the Holder(s) requesting registration of
their Warrant Shares.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Common Stock underlying the Underwriter's Warrants
included in a registration statement for offering and sale under the securities
or blue sky laws of such states as reasonably are requested by the Holder(s),
provided that the Company shall not be obligated to execute or file any general
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consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Common Stock
underlying same to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect as the provisions
pursuant to which the Company has agreed to indemnify the Underwriter contained
in Section 7 of the Underwriting Agreement.
(e) The Holder(s) of the Common Stock underlying the Underwriter's
Warrants to be sold pursuant to a registration statement, and their successors
and assigns, shall severally, and not jointly, indemnify the Company, its
officers and directors and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against all loss, claim, damage or expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such Holders,
or their
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successors or assigns, for specific inclusion in such registration statement to
the same extent and with the same effect as the provisions contained in Section
7 of the Underwriting Agreement pursuant to which the Underwriter has agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Underwriter's Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Common Stock underlying the Underwriter's Warrants to be included in
any registration statement filed pursuant to Section 7.3 hereof, or permit any
other registration statement to be or remain effective during the effectiveness
of a registration statement filed pursuant to Section 7.3 hereof, without the
prior written consent of the Holders of the Underwriter's Warrants and Common
Stock underlying same representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration
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statement (and, if such registration includes an underwritten public offering, a
letter dated the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, have
made "generally available to its security holders" (within the meaning of Rule
158 under the Act) an earnings statement (which need not be audited) complying
with Section 11(a) of the Act and covering a period of at least 12 consecutive
months beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below, and
the managing underwriters, copies of all correspondence between the Commission
and the Company, its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff with respect to the registration
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statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder shall reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Common Stock underlying same requested to be included in such
underwriting. Such agreement shall be satisfactory in form and substance to the
Company, each Holder and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter.
The Holders shall be parties to any underwriting agreement relating to
an underwritten sale of their Common Stock underlying same and may, at their
option, require that any or all the representations, warranties and covenants of
the Company to or for the benefit of such underwriters shall also be made to and
for the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the
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Company or the underwriters except as they may relate to such Holders, their
intended methods of distribution, and except for matters related to disclosures
with respect to such Holders, contained or required to be contained, in such
registration statement under the Act and the rules and regulations thereunder.
(1) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Underwriter's Warrants, shall mean in excess of fifty percent
(50%) of the then outstanding Underwriter's Warrants assuming full exercise
thereof that (i) are not held by the Company, an affiliate, officer, creditor,
employee or agent thereof or any of their respective affiliates, members of
their families, persons acting as nominees or in conjunction therewith or (ii)
have not been resold to the public pursuant to Rule 144 under the Act or a
registration statement filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
'SS'8.1 Intentionally Omitted.
'SS'8.2 Intentionally Omitted.
'SS'8.3 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
'SS'8.4 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
shares of Common Stock underlying the Underwriter's
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Warrants shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock underlying same issuable upon
exercise of the Underwriter's Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
'SS'8.5 Definition of Common Stock. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Certificate of Incorporation of the Company as amended as of the
date hereof, or (ii) any other class of stock resulting from successive changes
or reclassifications of such Common Stock, consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that the Company shall after the date hereof issue a class of Common
Stock with greater or superior voting rights than the shares of Common Stock
outstanding as of the date hereof, the Holder, at its option, may receive upon
exercise of any Warrant either shares of Common Stock or a like number of such
securities with greater or superior voting rights.
'SS'8.6 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
each Holder a supplemental warrant agreement providing that each Holder shall
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have the right thereafter (until the expiration of such Warrant) to receive,
upon exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of shares of Common Stock of the Company for which such
Warrant might have been exercised immediately prior to such consolidation or
merger. Such supplemental warrant agreement shall provide for adjustments which
shall be identical to the adjustments provided in Section 8. The above provision
of this subsection shall similarly apply to successive consolidations or
mergers.
'SS'8.7 No Adjustment of Exercise Price in Certain Cases. No adjustment
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Underwriter's Warrants or the
shares of Common Stock issuable upon the exercise of (i) the Underwriter's
Warrants, (ii) the options and warrants outstanding on the date hereof and
described in the prospectus relating to the Public Offering or (iii) up to an
aggregate of 450,000 shares issuable upon the exercise of options granted under
the Company's 1996 Stock Option Plan; or
(b) If the amount of such adjustment shall be less than two cents ($.02)
per share, provided, however, that in such case any adjustment that would
otherwise be required then to be made shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment which, together
with any adjustment so carried forward, shall amount to at least two cents
($.02) per share.
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'SS'8.9 Dividends and Other Distributions. In the event that the Company
shall at any time prior to the exercise of all Underwriter's Warrants declare a
dividend (other than a dividend consisting solely of shares of Common Stock) or
otherwise distribute to its stockholders any assets, property, rights, evidences
of indebtedness, securities (other than shares of Common Stock), whether issued
by the Company or by another, or any other thing of value, the Holders of the
unexercised Underwriter's Warrants shall thereafter be entitled, in addition to
the shares of Common Stock or other securities and property receivable upon the
exercise thereof, to receive, upon the exercise of such Underwriter's Warrants,
the same property, assets, rights, evidences of indebtedness, securities or any
other thing of value that they would have been entitled to receive at the time
of such dividend or distribution as if the Underwriter's Warrants had been
exercised immediately prior to the record date for such dividend or
distribution. At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this subsection 8.9.
'SS'8.10 Reserved.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of shares of Common Stock underlying same
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in such denominations as shall be designated by the Holder thereof at the time
of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Underwriter's
Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Underwriter's Warrants underlying same, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
or other securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Underwriter's
Warrants, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof. The Company covenants
and agrees that, upon exercise of the Underwriter's Warrants and payment of the
exercise prices therefor, all shares of Common Stock
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and other securities issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any stockholder. As long as the Underwriter's Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Underwriter's Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on NASDAQ.
12. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Underwriter's Warrants and their exercise, any of
the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the
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Company or securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the Company (other than
in connection with a consolidation or merger) or a sale of all or
substantially all of its property assets and business as an entirety shall be
proposed; then, in any one or more of such events the Company shall give
written notice of such event at least fifteen (15) days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled to
vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer
books, as the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with the
declaration or payment of any such dividend, or the issuance of any
convertible or exchangeable securities, or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
13. Notices.
All notices requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly
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made when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Underwriter's Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof or
to such other address as the Company may designate by notice to the Holders.
14. Supplements and Amendments. The Company and the Underwriter may from
time to time supplement or amend this Agreement without the approval of any
holders of Warrant Certificates (other than the Underwriter) in order to cure
any ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any provisions herein or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Underwriter may deem necessary or desirable and which the Company and
the Underwriter deem shall not adversely affect the interests of the Holders of
Warrant Certificates.
15. Successors. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close of business
on ___________, 2003. Notwithstanding the foregoing,
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the indemnification provisions of Section 7 shall survive such termination until
the close of business on ____________, 2006.
17. Governing Law: Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of such State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Underwriter and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
New York or of the United States of America for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriter and the Holders hereby irrevocably waive
any objection to such exclusive jurisdiction or inconvenient forum. Any such
process or summons to be served upon any of the Company, the Underwriter and the
Holders (at the option of the party bringing such action, proceeding or claim)
may be served by transmitting a copy thereof, by registered or certified mail,
return receipt requested, postage prepaid, addressed to it at the address set
forth in Section 3 hereof. Such mailing shall be deemed personal service and
shall be legal and binding upon the party so served in any action, proceeding or
claim. The Company, the Underwriter and the Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to
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recover from the other party(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
18. Entire Agreement: Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits or this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered Holder(s) of the Warrant Certificates or
Common Stock underlying same any legal or equitable right, remedy or claim under
this Agreement; and this Agreement shall be for the sole and exclusive benefit
of the Company and the Underwriter and any other Holder(s) of the Warrant
Certificates or Warrant Shares.
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22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
[SEAL] TTR Inc.
By
--------------------------------------
Marc D. Tokayer
President
Attest:
----------------------------------
Secretary
FIRST METROPOLITAN SECURITIES, INC.
By
--------------------------------------
Name:
Title:
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[LETTERHEAD OF BAER MARKS & UPHAM LLP]
January 20, 1997
TTR Inc.
2 Hanagar Street
Kfar Saba, 44425, Israel
RE: Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel to TTR Inc., a Delaware corporation (the
"Company"), in connection with (a) the proposed public offering by the Company
of up to 920,000 shares of Common Stock, $.001 par value (the "Common Stock"),
including up to 120,000 shares of Common Stock solely to cover over-allotments;
(b) the proposed public offering by certain selling securityholders of the
Company of up to 1,492,021 shares of Common Stock, including up to 217,473
shares of Common Stock issuable upon exercise of a like number of warrants; and
(c) the issuance by the Company to First Metropolitan Securities, Inc. (the
"Representative") of warrants (the "Representative's Warrants") to purchase up
to 80,000 shares of Common Stock, pursuant to a registration statement on Form
SB-2 (the "Registration Statement"), as amended, originally filed by the Company
with the Securities and Exchange Commission on September 12, 1996, pursuant
to the Securities Act of 1933, as amended.
The shares of Common Stock issuable pursuant to the above proposed
public offerings are hereinafter referred to as the "Offered Shares." The shares
of Common Stock issuable upon exercise of the Representative's Warrants are
hereinafter referred to as the "Representative's Warrant Shares." The Offered
Shares, the Representative's Warrants and the Representative's Warrant Shares
are hereinafter referred to as the "Securities."
In connection with the foregoing, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Certificate of
Incorporation of the Company, as amended, the By-laws of the Company, as
amended, the form of Underwriting Agreement, and
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TTR Inc.
January 20, 1997
Page 2
the form of Representative's Warrant filed as exhibits to the Registration
Statement, your records of corporate proceedings, and such other documents as we
have deemed necessary or appropriate as a basis for the opinions set forth
below. In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the accuracy and
completeness of all documents submitted to us as copies and the authenticity of
the originals of such latter documents. As to any facts material to such
opinions which we did not independently establish or verify, we have relied upon
statements or representations of officers and other representatives of the
Company, public officials or others.
Based upon the foregoing, we are of the opinion that:
1. The Company has been duly organized and is validly existing and in
good standing under the laws of the State of Delaware.
2. The sale and issuance of the Securities have been duly authorized by
the Board of Directors of the Company, and the Offered Shares, and the
Representative's Warrant Shares when issued and paid for, as contemplated by
the Registration Statement and as provided for in the Representative's Warrants
will be validly issued, fully paid and non-assessable, and no personal liability
will attach to the ownership thereof.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the inclusion
of this opinion as Exhibit 5.1 to the Registration Statement. In giving such
consent, we do not thereby concede that we are in the category of persons whose
consent is required under Section 7 of the Securities Act, or the rules and
regulations thereunder, or that we are 'experts' within the meaning of the
Securities Act or such rules and regulations.
Very truly yours,
BAER MARKS & UPHAM LLP
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FIRST METROPOLITAN SECURITIES, INC.
_________________, 1997
TTR Inc.
2 Hanagar Street
Kfar Saba, Israel 44425
Attention: Mr. Marc D. Tokayer, President
Gentlemen:
This letter, when executed by the parties hereto, will constitute
an agreement between TTR Inc. (the "Company") and First Metropolitan Securities,
Inc. ("First Metropolitan") pursuant to which the Company agrees to retain First
Metropolitan and First Metropolitan agrees to be retained by the Company under
the terms and conditions set forth below.
1. The Company hereby retains First Metropolitan to perform
consulting services related to corporate finance and other financial services
matters, and First Metropolitan hereby accepts such retention. In this regard,
subject to the terms set forth below, First Metropolitan shall furnish to the
Company advice and recommendations with respect to such aspects of the business
and affairs of the Company as the Company shall, from time to time, reasonably
request upon reasonable notice.
2. As compensation for the services described in paragraph 1
above, the Company shall pay to First Metropolitan a yearly fee of $50,000, for
a period of two years, both years fee to be paid in advance, in full on the date
hereof. In addition, the Company will reimburse First Metropolitan for any and
all reasonable expenses incurred by First Metropolitan in the performance of its
duties hereunder, and First Metropolitan shall account for such expenses to the
Company. Such reimbursement shall accumulate and be paid monthly. Nothing
contained herein shall prohibit First Metropolitan from receiving any additional
compensation under paragraphs 3 and 4 herein or otherwise.
3. In addition, First Metropolitan shall hold itself ready to
assist the Company in evaluating and negotiating particular contracts or
transactions, if requested to do so by the Company, upon reasonable notice, and
will undertake such evaluations and negotiations upon prior written agreement as
to additional compensation to be paid by the Company to First Metropolitan with
respect to such evaluations and negotiations. Nothing herein shall require the
Company to utilize First Metropolitan's services in any particular transactions
nor shall limit the Company's obligations arising under any other agreement or
understanding.
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4. The Company and First Metropolitan further acknowledge and
agree that First Metropolitan may act as a finder or financial consultant in
various business transactions in which the Company may be involved, such as
mergers, acquisitions or joint ventures. The Company hereby agrees that in the
event First Metropolitan shall introduce to the Company another party or entity,
and that as a result of such introduction, a transaction is consummated, the
Company shall pay to First Metropolitan a fee equal to (i) five percent (5%) of
the first $1,000,000; (ii) four percent (4%) of the second $1,000,000; (iii)
three percent (3%) of the third $1,000,000; and (iv) two percent (2%) of any
consideration over $4,000,000 involved in any transaction. Such fee shall be
paid in cash at and subject to the closing of the transaction to which it
relates, and shall be payable whether or not the transaction involves stock, or
a combination of stock and cash, or is made on the installment sale basis. In
addition, if the Company shall, within 36 months immediately following the
termination of this Agreement, consummate a transaction with any party or entity
introduced by First Metropolitan to the Company, the Company shall pay to First
Metropolitan a fee with respect to such transaction calculated in accordance
with this paragraph. Nothing herein shall prevent the Company from utilizing
other individuals or entities in such capacities nor shall limit the Company's
obligations arising under any other agreement or understanding. As used herein,
"Company" shall include any and all subsidiaries and/or affiliates of the
Company.
5. All obligations of First Metropolitan contained herein shall
be subject to First Metropolitan's reasonable availability for such performance,
in view of the nature of the requested service and the amount of notice
received. First Metropolitan shall devote such time and effort to the
performance of its duties hereunder as First Metropolitan shall determine is
reasonably necessary for such performance. First Metropolitan may look to such
others for such factual information, investment recommendations, economic advice
and/or research, upon which to base its advice to the Company hereunder, as it
shall deem appropriate. The Company shall furnish to First Metropolitan all
information relevant to the performance by First Metropolitan of its obligations
under this Agreement, or particular projects as to which First Metropolitan is
acting as advisor, which will permit First Metropolitan to know all facts
material to the advice to be rendered, and all material or information
reasonably requested by First Metropolitan. In the event that the Company fails
or refuses to furnish any such material or information reasonably requested by
First Metropolitan, and thus prevents or impedes First Metropolitan's
performance hereunder, any inability of First Metropolitan to perform shall not
be a breach of its obligations hereunder.
6. Nothing contained in this Agreement shall limit or restrict
the right of First Metropolitan or of any partner, employee, agent or
representative of First Metropolitan, to be a partner, director, officer,
employee, agent or representative of, or to engage in, any other business,
whether of a similar nature or not, nor to limit or restrict the right of First
Metropolitan to render services of any kind to any other corporation, firm,
individual or association.
7. First Metropolitan will hold in confidence any confidential
information which the Company provides to First Metropolitan pursuant to this
Agreement which is
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designated by an appropriate stamp or legend as being confidential.
Notwithstanding the foregoing, First Metropolitan shall not be required to
maintain confidentiality with respect to information (i) which is or becomes
part of the public domain not due to the breach of this agreement by First
Metropolitan; (ii) of which it had independent knowledge prior to disclosure;
(iii) which comes into the possession of First Metropolitan in the normal and
routine course of its own business from and through independent non-confidential
sources; or (iv) which is required to be disclosed by First Metropolitan by
governmental requirements. If First Metropolitan is requested or required (by
oral questions, interrogatories, requests for information or document subpoenas,
civil investigative demands, or similar process) to disclose any confidential
information supplied to it by the Company, or the existence of other
negotiations in the course of its dealings with the Company or its
representatives, First Metropolitan shall, unless prohibited by law, promptly
notify the Company of such request(s) so that the Company may seek an
appropriate protective order.
8. The Company agrees to indemnify and hold harmless First
Metropolitan, its partners, employees, agents, representatives and controlling
persons (and the officers, directors, employees, agents, representatives and
controlling persons of each of them) from and against any and all losses,
claims, damages, liabilities, costs and expenses (and all actions, suits,
proceedings or claims in respect thereof) and any legal or other expenses in
giving testimony or furnishing documents in response to a subpoena or otherwise
(including, without limitation, the cost of investigating, preparing or
defending any such action, suit, proceeding or claim, whether or not in
connection with any action, suit, proceeding or claim in which First
Metropolitan is a party), as and when incurred, directly or indirectly, caused
by, relating to, based upon or arising out of First Metropolitan's service
pursuant to this Agreement so long as First Metropolitan shall not have
committed an intentional or willful misconduct, or shall have acted grossly
negligent, in connection with the services which form the basis of the claim for
indemnification. The Company further agrees that First Metropolitan shall incur
no liability to the Company or any other party on account of this Agreement or
any acts or omissions arising out of or related to the actions of First
Metropolitan relating to this Agreement or the performance or failure to perform
any services under this Agreement except for First Metropolitan's intentional or
wilful misconduct. This paragraph shall survive the termination of this
Agreement.
9. This Agreement may not be transferred, assigned or delegated
by any of the parties hereto without the prior written consent of the other
party hereto.
10. The failure or neglect of the parties hereto to insist, in
any one or more instances, upon the strict performance of any of the terms or
conditions of this Agreement, or their waiver of strict performance of any of
the terms or conditions of this Agreement, shall not be construed as a waiver or
relinquishment in the future of such term or condition, but the same shall
continue in full force and effect.
11. This Agreement is for a term of twenty-four (24) months and
may not be terminated by the Company. This Agreement may be terminated by First
Metropolitan at any
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time upon 30 days' notice; provided First Metropolitan shall repay any portion
of their fee which was not earned on the effective date of such termination
($6,250.00 multiplied by the number of months paid in advance). Paragraphs 4, 7
and 8 shall survive the expiration or termination of this Agreement under all
circumstances.
12. Any notices hereunder shall be sent to the Company and to
First Metropolitan at their respective addresses set forth above. Any notice
shall be given by certified mail, return receipt requested, postage prepaid, and
shall be deemed to have been given when deposited in the United States mail.
Either party may designate any other address to which notice shall be given, by
giving written notice to the other of such change of address in the manner
herein provided.
13. This Agreement has been made in the State of New York and
shall be construed and governed in accordance with the laws thereof without
giving effect to principles governing conflicts of law.
14. This Agreement contains the entire agreement between the
parties, may not be altered or modified, except in writing and signed by the
party to be charged thereby, and supersedes any and all previous agreements
between the parties relating to the subject matter hereof.
15. This Agreement shall be binding upon the parties hereto, the
indemnified parties referred to in the Indemnification Provisions, and their
respective heirs, administrators, successors and permitted assigns.
If you are in agreement with the foregoing, please execute two
copies of this letter in the space provided below and return them to the
undersigned.
Very truly yours,
FIRST METROPOLITAN SECURITIES, INC.
By: _____________________________
Name:
Title:
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN
TTR INC.
By: ___________________________
Marc D. Tokayer, President
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LOAN AGREEMENT
LOAN AND SECURITY AGREEMENT made and entered into as of the 2nd day of December
1996 by and between Comtelo Express Inc. (the "Lender") and TTR Inc. (the
"Borrower"), a company organized under the laws of the State of Delaware;
W I T N E S S E T H
WHEREAS, Lender desires to make a loan to Borrower under the terms and
conditions contained herein; and
NOW, THEREFORE, the parties hereto agree as follows:
1. Loan. Upon execution of this Agreement Lender hereby loans to Borrower the
amount of U.S. $50,000 (all sums loaned to Company herein shall be referred to
as the "Loan Amount").
The Loan Amount is to be repaid as follows:
(i) The Loan Amount, with accrued interest, shall be payable in full upon
the earlier of (i) closing of a Company IPO or (ii) 1 year from the date first
written above, provided, that, Borrower shall have the privilege of prepaying
the whole or any part of the monies owing hereunder at any time without notice
or bonus.
(ii) Interest will accrue, from the period commencing from the date of
actual advance of the Loan Amount, until the repayment thereof in full, and both
before and after maturity (whether due by scheduled maturity, by required
payment, by acceleration, by demand or otherwise), at the rate of interest equal
to 10% per annum (the "Interest"). The accrued Interest will be repaid at the
time of repayment of part or all of the Loan Amount. Interest shall be payable
net of any taxes payable under applicable law.
(iii) The full amount of this loan with accrued Interest shall be repaid no
later than December 1, 1997.
(iv) Notwithstanding anything to the contrary contained herein, the full
amount of the Loan Amount, together with accrued Interest, shall be immediately
due and payable upon (i) the filing by or against Borrower of any petition for
the liquidation or dissolution of its business, or (ii) the commencement by
Borrower of any action to liquidate or dissolve its business, or (iii) a general
assignment by Borrower for the benefit of its creditors, or (iv) Borrower's
failure or inability to pay its debts as they become due.
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2. Miscellaneous. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of Delaware. This Agreement
constitutes the entire agreement and understanding of the parties with respect
to the subject matter hereof, and no provision hereof may be amended or
otherwise modified without the written consent of the parties. This Agreement
shall be binding upon the successors and assigns of the parties hereto. In the
event that any one or more of the provisions contained herein shall be found to
be invalid, illegal or unenforceable in any respect, the legality, validity and
enforceability of the remaining provisions thereof shall not be affected or
impaired in any way.
IN WITNESS WHEREOF, each of the undersigned have set forth their signature as of
the date first written above.
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<S> <C>
Comtelo Express Inc. TTR Inc.
per ___________________________ per ___________________________________
</TABLE>
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