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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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TTR INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 0-22055 11-3223672
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION)
1841 BROADWAY, NEW YORK, NY 10023
(Address of Principal Executive Offices)
212-333-3355
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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[MARK ONE]
[x] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 1997
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
Securities registered under Section 12(b) of the Exchange Act:
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TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
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SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: None
Common Stock, par value $0.001
(Title of Class)
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [x] No
[ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this Form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
Issuer's revenues for the Fiscal year ended December 31, 1997: None
The aggregate market value of the Registrant's Common Stock at March 30,
1998 held by persons deemed to be non-affiliates was approximately $13,620,255.
As of March 30, 1998, the Registrant had outstanding 4,052,548 shares of
$0.001 par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Registrant's definitive proxy material for the
1998 annual meeting of shareholders are incorporated by reference into Part III
of the Form 10-KSB.
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ITEM 1. BUSINESS
INTRODUCTION
TTR Inc. ('TTR' or the 'Company') is engaged in the design, development and
commercialization of proprietary software security products designed to combat
the unauthorized reproduction and use of computer software programs and other
electronic content. TTR's core anti-copying technologies are designed to be used
by software or other electronic content publishers for purposes of protecting
software applications or other electronic content from unauthorized
reproduction. DiscGuard'tm', the Company's proprietary technology designed to
combat unauthorized reproduction of CD-ROM and DVD based software and other
electronic content, first became commercially available in February 1998.
DiscGuard is designed to provide a comprehensive anti-copying solution for
optical media (e.g., CD-ROM, CD-R, DVD-ROM, DVD-R) based software and other
electronic content. The underlying technology utilizes an indelible
identification code or 'signature' which is integrated into the CD-ROM and DVD
mastering and replication process and through which DiscGuard enhanced CD-ROM
and DVD discs are mass produced using standard replication procedures. The
software or other electronic content to be protected is imprinted on DiscGuard
enhanced CD-ROM and DVD discs containing the indelible 'signature', without
which the software or other electronic content cannot be used as intended. The
'signature' is designed to be non-reproducible. Thus, any software pirate who is
attempting to reproduce illicit copies of the software or other content
contained on the DiscGuard protected optical media would be able to reproduce
the content but not the embedded signature. The content resides on the disc in
encrypted form. The 'signature' is necessary for decrypting the content so that
it can be used as intended. As an unauthorized copy does not contain the
signature, it cannot run as intended.
The Company and Doug Carson & Associates ('DCA'), one of the world's
leading suppliers of mastering interface or other signal processing systems
which are used to create compact discs (CD) and digital versatile discs (DVD)
recording (or glass) masters ('Signal Processors'), entered into an agreement to
integrate the DiscGuard technology into DCA's Signal Processor. DCA's Signal
Processor has, to the Company's best knowledge, an installed base in over 75% of
the world's mastering machines used to mass produce CD-ROMs and DVDs. The
DiscGuard enhanced Signal Processor was installed into the mastering machines of
Nimbus CD International Inc. ('Nimbus'), a leading independent manufacturer of
CDs distributed throughout North America, the United Kingdom and continental
Europe and one of the world's first authorized manufacturers of the DVD format,
to produce sample runs of DiscGuard enhanced optical media. Pending the
Company's license of DiscGuard to other optical media replicators, DiscGuard
protected media will initially be available to software and other content
publishers through Nimbus. Additional DiscGuard components which are designed to
be integrated into the software program or other application to be protected are
obtained directly from the Company.
DiscGuard is completely transparent to the end-user and, unlike standard
commercially available anti-copying solutions, does not necessitate the use of
any hardware component such as a key or 'dongle'. With the advent of the DVD
market, the Company believes that DiscGuard will be particularly attractive to
the music and recording, video and motion picture industries. While the
development of DVD as a medium of distribution has been delayed for reasons
including technical problems relating to playback systems, the Company believes
that the availability of the anti-copying protection afforded by DiscGuard may
in fact advance the adoption of the DVD format by the entertainment industry.
The Company has also developed DiscAudit, a unique product for audio CDs that
permits the identification of illegal counterfeit copies.
The Company has completed development of SoftGuard'tm', its non-optical
media based software protection for use on Windows 3.x and MS-DOS based systems.
The company has leveraged a substantial part of SoftGuard's encryption and
protection technology into DiscGuard. DiscGuard can now protect software and
content running either from the CD-ROM or from the hard disk. The Company has
not released SoftGuard since, in management view, the software distribution
market is increasingly characterized by the use of optical media, such as
CD-ROMs and, in the foreseeable future,
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DVDs. Accordingly, management determined that it was in the Company's best
interests to devote its research and development efforts on completing the
design and development of DiscGuard and to bring to market as soon as
practicable effective optical media anti-copying protection. The Company does
not intend on currently releasing SoftGuard to the public unless prevailing
market conditions dictate otherwise.
BUSINESS STRATEGY
The company's primary objective is to make DiscGuard the `market standard'
in optical media authenticity verification and software piracy prevention.
Toward that end, the Company is pursuing a business strategy that targets these
principal markets:
Mastering Machines Market: The Company's core business strategy has
been to introduce DiscGuard to providers of mastering interface or other
signal processing systems. Thus, in October 1997, the Company licensed
DiscGuard to DCA to integrate the DiscGuard technology with DCA's widely
distributed signal processing system.
Replication Services Market: In November 1997, TTR licensed DiscGuard
to Nimbus (NASDAQ: NMBS), Charlottesville, Va., for use in the replication
of CD-ROMs, DVDs and audio discs. Nimbus is a leading independent
manufacturer of CD-ROMs and DVDs. TTR is working to sign on additional
large replicators.
Software and Content Providers Market: A third strategic area is the
software publisher and content provider community. TTR plans to reach this
audience through replicators who have an economic incentive to sell
DiscGuard. There are a few things replicators can do to gain market share;
DiscGuard provides replicators with important added value to differentiate
the services they offer in the marketplace.
TTR is also directly approaching publishers regionally in the following
ways:
United States: The Company expects to market directly and anticipates
forging strategic relationships with companies well-established in the
software and content publishing and video entertainment markets.
Europe, Middle East and Africa: TTR expects to market directly from
Israel.
Far East: TTR expects market through locally based distributors.
No assurance can however be given that the Company will succeed in
finalizing such or other types of collaborative arrangements or that such
collaborative or other arrangements, if entered into, will be successful.
CD-ROM replicators will be authorized by the Company to replicate DiscGuard
enhanced CD-ROMs for publishers who have obtained directly from the Company or
an authorized distributor the right to use DiscGuard. Only a replicator who has
purchased the DiscGuard option from DCA for its mastering machines can offer
DiscGuard protection to its customers. As is the case with Nimbus, the Company
anticipates that all DiscGuard enhanced replicators will be required to report
sales volumes of DiscGuard enhanced CD-ROMs to the Company. The DiscGuard
enhanced mastering machine is designed to contain a journalling feature enabling
the Company to audit the replicator's production of DiscGuard protected discs.
The Company anticipates that it will charge publishers on a per-disc basis for
the right to use the DiscGuard technology. Publishers will also be required to
report sales volumes to the Company, to enable verification.
To stay competitive in the tide of rapid technological advancements, the
Company's research staff includes 10 personnel (including two PhDs) who are
conducting research on optical media and enhancing the Company's technology. The
Company has developed, in management's belief, the world's only optical media
simulator and is researching the application of DiscGuard technology to DVDs.
The Company is a member of various industry standard groups and is seeking ways
to leverage its expanding expertise and technology into other products.
The Company is also focusing its research and development activities toward
the design and development of new and complementary products and the enhancement
of existing products. In
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addition to growing internally, the Company does not rule out the possibility of
growing through strategic acquisitions. Although the Company may seek to acquire
new products or complementary product lines for integration into the Company's
product offerings and its business, the Company at the present time has no
plans, agreements, understandings or arrangements for any acquisition.
PRODUCTS
DiscGuard
TTR's unique and proprietary technology underlying DiscGuard places an
indelible digital identification code or 'signature', at the manufacturing
stage, on the glass masters used to mass produce CD-ROMs and DVDs. The DiscGuard
technology is integrated into the signal processing system which is used to
create compact discs (CD) and digital versatile discs (DVD) recording (or glass)
masters. DiscGuard enhanced CDs are mass-produced from DiscGuard enhanced glass
masters using standard replication procedures. The software or other electronic
content to be protected can then be imprinted onto the DiscGuard enhanced
optical media. The 'signature' is designed to be non-reproducible. Thus, any
software pirate who attempts to reproduce illicit copies of the software or
other content contained on the DiscGuard protected optical media will be able to
reproduce the content but not the embedded signature. An illicit pirated copy
not containing the DiscGuard signature cannot run as intended.
In order to disable the counterfeit disc from running as intended, the
optical media content is encrypted in the pre-mastering process. DiscGuard
utilizes published encryption algorithms and its own unique technology to
develop encryption keys. The encryption process is performed on a proprietary
DiscGuard workstation unit (hereinafter, the 'Workstation Software'). The key
used to decrypt the content is derived directly from the DiscGuard enhanced
disc. If the disc does not contain the DiscGuard 'signature', the content cannot
be decrypted, as there is then no way to derive the decryption key. The content
cannot be viewed or run in an encrypted form. DiscGuard detecting software is
placed on the disc to enable the optical disc retrieval (playback) system to
ascertain the presence of the 'signature' (and thus run as intended) (the
'Detection Software'). The Detection Software, whose purpose is to detect the
presence (or absence of the digital signature) on the optical media disc,
enables the identification of counterfeit disc copies, thus assisting in efforts
aimed at the removal from the general market of counterfeit products and
identifying purported counterfeiters.
The Detection Software is leased directly to the software or other content
publisher. Currently, the Company has at its premises in Israel one workstation
unit which operates in conjunction with the Workstation Software. An additional
unit is currently installed at Nimbus' premises.
The Company believes that DiscGuard will be particularly attractive to the
music and recording, video and motion picture industries. The DVD format is
widely hailed by industry experts to be superior to CD-ROM, as the DVD format is
believed to provide a very accurate representation of the original digital
format recording. Additionally, one DVD can contain the same amount of data as
7-8 CDs currently contain. Experts believe that in the future one DVD disc will
be able to hold the same amount of data currently contained on 30-40 CDs.
Accordingly, the DVD format is especially attractive to the motion picture and
video publishers. Nonetheless, the adoption of the DVD format has been delayed
for a number of reasons, including the absence of a wide selection of
appropriate DVD playback units. An additional reason for the delay in the
adoption of the DVD format is the increasing fear by software and other
publishers, especially music and video publishers, that without appropriate
anti-copying protection, the anticipated losses due to software piracy would be
great. It is the Company's view that DiscGuard may be instrumental in
contributing to the further adoption of the DVD format.
A DiscGuard version to be used in conjunction with CD-R recorders is
currently in the design and development stage. CD-Recorders may be used to copy
onto recordable CDs (CD-Rs) the desired software or other content. CD-R
recorders are typically used to produce small runs. The Company expects to
complete a DiscGuard version to be used with CD-R recorders by the third quarter
of 1998.
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DiscAudit
The technology underlying DiscGuard was utilized to develop DiscAudit, a
unique proprietary product intended for audio CD content. As with DiscGuard, an
indelible digital signature is applied to the audio CD. The signature cannot be
copied and can therefore be used to differentiate between an authentic CD and an
unauthorized copy. DiscAudit enables the traceability and detection of
unauthorized copies of audio CDs. Audio CDs are verified using the Company's
DiscAudit portable work station, which provides immediate verification of the
authenticity of the audio CDs. The system is user friendly and can be used at
any location and at any time. Results are stored for subsequent comparisons to
aid in identifying counterfeiters. DiscAudit provides a highly effective means
of assisting the safeguarding of music publishers' intellectual property at
minimal cost.
DiscAudit became commercially available to the recording industry in
October, 1997. DiscAudit portable workstations can be bought directly from TTR.
DiscAudit enhanced audio CDs will be replicated initially by Nimbus.
PRODUCT DISTRIBUTION & MARKETING
As part of the collaborative arrangement with DCA to produce the DiscGuard
enhanced Signal Processor, the Company and DCA entered into a Development and
OEM Licensing Agreement as of October 31, 1997, whereby DCA has been accorded an
exclusive, non-transferable, royalty free world-wide license to merge the
DiscGuard technology into its Signal Processor to produce and market the
DiscGuard Enhanced DCA Signal Processor for CD-ROMs and DVDs (the 'DCA License')
through December 31, 1998, provided, that, if by such date DCA shall have sold
or upgraded at least 100 units of its mastering interface or other signal
processing systems into which DiscGuard can be integrated, then the Exclusive
License is to be extended through December 31, 1999. Otherwise, the exclusivity
provision in the DCA License as per CD-ROMs and DVDs terminates and the such
license is to become a non-exclusive license. Should these minimum sales/upgrade
criteria be met, TTR and DCA have undertaken to confer, by September 31, 1999,
for purposes of establishing mutually acceptable minimum unit sales or upgrade
requirements to retain the exclusivity provisions beyond their scheduled
expiration. The replicator is to lease DiscGuard enabling software directly from
the Company.
The Company and Nimbus have, as of November 24, 1997, entered into a
Development and OEM Licensing Agreement whereby Nimbus was accorded the right to
use DiscGuard for the purpose of replicating DiscGuard enhanced optical media.
Nimbus has been accorded a six month exclusive license to produce protected
media, which six month period has commenced on March 16, 1998. Under the license
with Nimbus, the Company is to receive a percentage of the proceeds of the
premium charged by Nimbus on any DiscGuard protected media. Nimbus is required
to provide sales reports to enable the Company to verify compliance. The Company
is undertaking efforts to sign on additional large replicators.
The Company has entered into agreements with certain software publishers to
use DiscGuard. In March 1998, the Company and Mach-Shevet, an Israeli
distributor of multimedia software, entered into an agreement whereby
Mach-Shevet will employ DiscGuard technology to protect the multi-media CD-ROM
program 'Barbie' by Mattel, from illegal replication. Nimbus will provide
mastering services for this project and a local Israeli replicator will handle
the disk pressing. In March 1998 the Company entered into an agreement with EHQ
Inc. ('EHQ'), a Delaware company which publishes educational software, whereby
the Company licensed to EHQ DiscGuard technology to protect EHQ's software
applications from illegal replication. Under the license agreement the Company
will integrate DiscGuard with EHQ's software and deliver the integrated EHQ
DisGuard protected software to a DiscGuard authorized replicator. The license
agreement provides for payment to the Company of a percentage of revenue
received by EHQ from sales of its DiscGuard protected software.
The Company's main office in New York City acts as the Company's sales
coordinator for North America. The Company is considering opening future
locations throughout the continental United States, the United Kingdom and
Europe. The Company intends to center its marketing efforts around advertising
and promotional campaigns designed to enhance brand name recognition. Toward
this end, the Company is in the process of interviewing appropriate candidates
to staff its marketing and sales
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forces. The Company views the rapid penetration and consolidation of the North
American and European business as a key strategic element in the success of its
business, and intends to devote significant marketing efforts in these areas.
Furthermore the Company will be exploring the possibility of establishing
strategic alliances with appropriate software distributors efforts in North
America, Israel, Europe and the Far East. In addition to the DCA and Nimbus
relationship, the Company is exploring with CD recording equipment manufacturers
the option of incorporating the DiscGuard technology into their CD recorders. No
assurance can however be provided that any such agreements will result.
The Company has a web site where it promotes DiscGuard and other products
electronically (http:/www.ttrtech.com).
CUSTOMER SUPPORT
The Company is of the view that highly efficient, responsive and prompt
customer service is essential to the Company's success in building and retaining
customer confidence.
The Company anticipates assembling and 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.
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 include 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 hard-drive
based software security products. Additionally, there are several commercially
available products, such as CDCOPS and LaserLock, which claim to provide
comprehensive optical media based anti-copying protection. Further, there can be
no assurance that existing software companies will not enter the market in the
future. Except for CDCOPS and Laserlock, from which the Company believes that
DiscGuard is favorably distinguishable, most of the software and other content
protection products distributed by each of the Company's competitors are not
oriented to optical media authentication, and many typically utilize a hardware
device such as a dongle or a key. None, to the Company's best knowledge, can
assist in 'tracing' and removing from the market counterfeit media and
identifying purported counterfeiters. Although the Company believes that its
product line is 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.
The Company believes that its principal competitive advantages are its
ability to offer a comprehensive and sophisticated optical media based
anti-copying solution for use by software and other electronic content
publishers. DiscGuard is not based, as is the case with, in the Company's view,
most of the commercially available protection schemes, on the presence of 'bad
sectors' on the original disc. The Company believes that its products 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. 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.
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 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
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Japan with respect to the technology underlying the DiscGuard optical media
based protection and the technology underlying the imprinting of the protection
diskettes used in SoftGuard. There can be no assurance that any patent 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
proper labeling of confidential documents and non-disclosure agreements, to
protect its processes, concepts, ideas and documents associated with 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 'DiscGuard', 'DiscAudit',
'NetGuard', 'SoftGuard' trademarks in connection with its marketing activities.
The Company pursues the registration of its trademarks in the United States and
internationally. The Company has been granted the trademark SoftGuard in Israel
and the United Kingdom. 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 these jurisdictions, in which case the Company might
thereby be precluded from registering and/or using such mark in such
jurisdiction. 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 or services.
It is the Company's policy to require its employees, consultants, outside
collaborators and sponsored researchers and other advisors to execute
confidentiality agreements upon the commitment of employment or consulting or
advisory relationships with the Company. These agreements generally provide that
all confidential information developed or made known to the individual during
the course of the individual's relationship with the Company is to be kept
confidential and not disclosed to third parties except in specific
circumstances. In the case of employees and certain consultants, the agreements
provide that all inventions conceived by the individual in the course of their
employment or consulting relationship shall be the exclusive property of the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection or adequate remedies for the Company's trade secrets in
the event of unauthorized use or disclosure of such information.
HUMAN RESOURCES
As of February, 1998, the Company had 18 full time employees, all of whom
are located in Israel except for the Company's Chief Financial Officer who works
out of the Company's New York Office. Ten of the Company's employees are engaged
in research and development. All of the Company's product and design development
are undertaken out of the Company's premises in Israel.
The Company's employees are not covered by a collective bargaining
agreement. The Company has never experienced employment-related work stoppages
and considers its employee relations to be excellent.
RESEARCH & DEVELOPMENT
The software industry in general is characterized by rapid product changes
resulting from new technological developments, performance improvements and
lower production costs. The Company's research & development activities to date
have focused on developing products responsive to perceived immediate market
demands. The Company believes that its future growth in the software protection
filed, 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 has a staff of 10 research and development personnel working on
improvements and enhancements to current and anticipated product as developing
new products for the software security industry. The Company has a policy of
recruiting highly qualified technical personnel. The Company
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intends to capitalize on the highly-skilled pool of computer and engineering
professionals in Israel pursuing its product research and development efforts.
TTR-Israel, has been approved for funding from the Chief Scientist of the
Israel Ministry of Industry and Trade (the 'Chief Scientist') in the aggregate
approximate amount of $210,000. The Company has received approximately $173,000
under such agreements through December 31, 1997. Funding is repayable on the
basis of royalties from the sale of products developed as a result of the
research activities conducted with such funds. The obligation to pay royalties
is limited to the amount of such funding received, linked to the exchange rate
of the U.S. dollar and the New Israeli Shekel. Additionally, funding by the
Chief Scientist places certain legal restrictions on the transfer of know-how
and the manufacture of resulting products outside of Israel. 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. Such restrictions do
not apply to exports from Israel of products developed with such technologies.
CONDITIONS IN ISRAEL
The Company conducts significant operations in Israel through its
subsidiary, TTR Ltd., and therefore is affected by the political, economic and
military conditions to which that country is subject.
CORPORATE HISTORY
TTR was organized as a holding company in Delaware on July 14, 1994. The
Company currently also conducts business through its wholly owned subsidiary,
TTR Technologies Ltd. ('TTR-Israel'), an Israeli company formed on December 5,
1994. The Company's current product design, research and development operations
are conducted at TTR- Israel's premises in Kfar Saba, Israel. The Company's US
marketing efforts are coordinated from the United States. European and Far
Eastern marketing efforts are coordinated from Israel. The Company is an
emergent software company and has not generated any revenues to date. As used
herein, the term 'Company' includes the operations of TTR and TTR Israel, unless
the context otherwise requires.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases facilities used in the operation of its research and
development and administrative activities in Kfar Saba, Israel, which facilities
are comprised of 4,860 square feet leased at a monthly rental of approximately
$4,045 pursuant to lease with a scheduled expiration date of December 31, 1999,
subject to two optional annual renewals through May 2001. These facilities have
been improved to meet the special requirements necessary for the operation of
the Company's research and development activities. The Company also leases
office space in New York City for its executive offices, comprised of 650 square
feet leased at a monthly rental of $1,660 with a scheduled expiration date of
June 30, 2002. In the opinion of management, these facilities are sufficient to
meet the current and anticipated future requirements of the Company. Management
believes that it has sufficient ability to renew its present leases related to
these facilities or obtain suitable replacement facilities.
ITEM 3. LEGAL PROCEDINGS
On May 6, 1997, the Company settled a suit filed with the District Court in
Tel Aviv-Jaffa, Israel, by Henry Israel, a former consultant to the Company,
alleging that an oral agreement exists between the Company and Mr. Israel
according to which he is entitled to 5% of 'the rights' in DiscGuard and
SoftGuard, including any further developments and enhancements therein, as well
as any proceeds received therefrom. Management believes that the allegations are
without merit. Under the terms of the settlement reached, Mr. Israel dismissed
the law suit with prejudice in consideration of the Company's issuance to him of
15,000 shares of common stock and guaranteeing, under certain circumstances, a
gross sale price in an ordinary brokerage transaction in the over-the-counter
market of $15.50 per share.
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In January 1998, Mr. Israel sold the shares issued to him in an
over-the-counter transaction. Under the terms of the settlement, the Company
owed Mr. Israel approximately $155,000 in connection with such sale, plus an
additional $7,000 in related costs. Pursuant to an understanding between the
Company and Mr. Israel, the Company paid to Mr. Israel approximately a third of
such amount, with the balance payable by June 15, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the OTC Electronic Bulletin Board
under the symbol 'TTRE'. The following table sets forth the range of high and
low bid prices for the Common Stock as reported on the OTC Electronic Bulletin
Board by the National Association of Securities Dealers, Inc., Automated
Quotations System for the periods indicated.
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YEAR ENDED DECEMBER 31, 1997 HIGH LOW
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1st Quarter............................................................... $16.23 $9 1/4
2nd Quarter............................................................... $ 157/8 $11
3rd Quarter............................................................... $ 133/4 $11
4th Quarter............................................................... $ 1115/16 $5 5/8
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The foregoing represent inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
On March 30, 1998, there were 71 record holders of the Common Stock of the
Company.
The Company has paid no dividends on its Common Stock and does not expect
to pay cash dividends in the foreseeable future. It is the present policy of the
Board of Directors to retain all earnings to provide funds for the growth of the
Company. The declaration and payment of dividends in the future will be
determined by the Board of Directors based upon the Company's earnings,
financial condition, capital requirements and such other factors as the Board of
Directors may deem relevant. The Company is not under any contractual
restriction as to its present or future ability to pay dividends.
CHANGE IN SECURITIES & USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
On December 24, 1997, the Company issued to Biscount Overseas Ltd.
('Biscount') 48,000 shares of Common Stock, par value $0.001 (the 'Common
Stock') and, in connection therewith, the Company issued in January, 1998, four
(4) year warrants to purchase up to an additional 25,000 shares of Common Stock,
at an exercise price of $7.80 per share; provided, that, in lieu of cash
payments for exercising the shares, Biscount is entitled to accept a smaller
number of shares of Common Stock based on the spread between the per share
exercise price and the then public market price of a share of Common Stock.
(a) There were no underwriters with respect to the above transaction.
(b) The Common Stock and the Warrants were issued in consideration of the
payment of $300,000 and $250, respectively.
(c) The Company believes that the shares of Common Stock and 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.
In connection with the transaction with Biscount, the Company issued in
February 1998 an additional 16,000 shares of Common Stock and four (4) year
warrants to purchase up to an additional 8,000 shares of Common Stock, on the
terms noted above, upon Biscount's payment of an additional $100,000.
Additionally, Biscount was accorded an option to purchase an additional 10,000
shares of the Common Stock ('Option Shares') upon the payment of $62,500,
provided, that Biscount is required to notify the Company by April 30, 1998,
whether it will elect to exercise its option. The Company
9
<PAGE>
<PAGE>
undertook to register the shares of Common Stock and Warrants issued to
Biscount, as well as any Option Shares on FORM S-3 by April 30, 1998.
USE OF PROCEEDS
On February 10, 1997, the Company's Registration Statement covering the
offering of 920,000 shares of the Company's common Stock, commission file number
333-11829, was declared effective. The offering commenced on February 12, 1997
and was managed by First Metropolitan Securities Inc., as the underwriter named
in the Registration Statement (the 'underwriter'). Of the 920,000 shares sold
pursuant to the offering, 860,000 shares were sold by the company and 60,000
were sold by certain selling stockholders (the 'Selling Stockholders'). In
connection with the offering, the company issued to the underwriter, at a
purchase price of $0.001 per warrant, warrants to purchase up to an aggregate of
80,000 shares of common stock at an exercise price equal to $11.20 per share.
The shares were sold at $7.00 per share, for aggregate proceeds of
$6,020,000 and $420,000 to the company and the Selling Stockholders,
respectively. The amount of expenses incurred for the company's account in
connection with the offering is as follows:
<TABLE>
<CAPTION>
Underwriting Discounts and Commissions................................ $ 602,000
<S> <C>
Non Accountable Expense Allowance..................................... 180,600
Expense paid to or for the Underwriters............................... 99,948
Other expense:........................................................ 436,104
----------
Total Expenses................................................... $1,318,652
----------
----------
</TABLE>
All of the foregoing expenses were direct or indirect payment to persons
other than (i) directors, officers or their associates, (ii) persons owning ten
percent (10%) or more of the company's Common stock or (iii) affiliates of the
Company.
The net proceeds of the offering to the Company after deducting the above
noted expense were $4,701,348. From the effective date of the registration
statement through December 31, 1997, a reasonable estimate of the utilization of
the net proceeds of the offering is as follows:
<TABLE>
<S> <C>
Purchase and installation of machinery & equipment.................... $ 175,507
Repayment of indebtedness............................................. 2,329,045
Additional facilities and working capital............................. 645,252
Research & Development................................................ 820,110
Marketing............................................................. 581,434
Temporary investments, including cash and cash equivalents............ 150,000
----------
$4,701,348
----------
----------
</TABLE>
ITEM 6. PLAN OF OPERATIONS
The Company is an emergent company in the software anti-copying protection
business and, to date, the Company has not generated any revenues from
operations. The Company premier optical media anti-copying protection product,
DiscGuard, has been commercially released in February 1998. Since its inception,
the Company's activities have been principally involved in capitalization
activities, recruitment of executive personnel, designing and developing the
technology underlying DiscGuard and related software protection product lines,
entering into collaborative relationships with third parties for purposes of
commercializing. DiscGuard to software and other electronic content
designers/publishers and establishing a sales and customer support
infrastructure.
The Company believes that its collaborative relationships with Doug Carson
& Associates ('DCA'), one of the world leading suppliers of mastering interface
and other signal processing systems for compact discs (CDs) and digital
versatile discs (DVDs) and with Nimbus CD International Inc. ('Nimbus'), one of
the world's leading optical media manufacturers, to produce DiscGuard enhanced
optical media for ruse by software and other electronic content publishers,
should be instrumental in establishing and consolidating DiscGuard's name
recognition. The Company anticipates broadening its marketing activities in
North America, Israel and Europe to increase product awareness. The Company
10
<PAGE>
<PAGE>
anticipates that it will be undertaking efforts to establish an adequate sales
and customer support infrastructure.
The Company also anticipates that it will be undertaking efforts to enter
into collaborative relationships with participants in the recording and music,
video and related entertainment industries. With the advent of the DVD market,
the Company believes that DiscGuard will be particularly attractive to the music
and recording, video and motion picture industries. While the development of DVD
as a medium of distribution has been delayed for reasons including technical
problems relating to playback systems, the Company believes that the
availability of the anti-copying protection afforded by DiscGuard may in fact
advance the adoption of the DVD format by the entertainment industry. The
Company has also developed DiscAudit, a unique product for audio CDs that
permits the identification of illegal counterfeit copies.
On April 1, 1998, the Company entered into a letter of an intent with an
underwriter respecting a firm commitment public offering of 2,500,000 shares of
the Company's Common Stock (the 'Public Offering'). The Company anticipates that
the Common Stock offering price at the Public Offering will be at or about the
market price of the Company's Common Stock immediately prior to the effective
date of the registration statement. Additionally, on April 6, 1998 the Company
commenced a private offering of a maximum of 20 units of its securities, each
unit consisting of a 10% promissory notes in a principal amount of $50,000 and
warrants to purchase 10,000 shares of Common Stock (the 'Private Placement').
The notes bear interest at a rate of 10% per annum and are repayable at the
earlier to occur of (i) one year from closing or (ii) the 30th day following the
closing by the Company of any public or private financing in an amount exceeding
$1,000,000. The warrants are exercisable for a 4-year period at an exercise
price equal to the lower of (i) the price of the Common Stock to be sold in the
Public Offering or (ii) $8.00. The closing of the Private Placement is subject
to the sale of a minimum of 10 units. No assurance can be given that the Company
will be successful in obtaining such financing or that such financing will be
available on terms favorable to the Company. The Company believes that existing
cash balances and cash flows from activities will be sufficient to meet its
financing needs through the first half of the second quarter of 1998.
For the year ended on December 31, 1997, the Company has incurred total
operating losses of $3,865,736 reflecting principally research and development
expenses, marketing and general and administrative expenses and activities.
The Company's operating expenses reflect the Company's growth and expansion
in all operating areas since its initial public offering. The Company believes
that continued expansion of operations is essential to achieving and maintaining
a strong competitive position. The Company's relatively high operating expenses
is due to a great extent to non-cash charges associated with the compensation of
senior Company personnel through the issuance of incentive equity stock options
and non-recurring charges incurred in settling a lawsuit against the Company. In
the first quarter of 1997, the Company recorded deferred compensation of
$2,352,311 in connection with stock options and stock grants issued to its chief
executive officer and to its chief financial officer. The amortization of this
deferred compensation resulted in non-cash charges for the year ended December
31, 1997 of $972,567. Non-cash charges of $282,625 and $50,000 were also charged
to sales and marketing and research and development, respectively, in connection
with stock grants to consultants of the Company. The Company believes that these
compensation levels were necessary to retain the services of competent
individuals.
Cash used by operations for the year ended on December 31, 1997, was
approximately $2,735,400. This amount included the repayment of accrued interest
in the amount of $305,000, including current period interest of $71,000 in
February, 1997, when the Company repaid substantially all of its debt from the
proceeds of the public offering. In addition, the Company pre-paid $120,000 of
fees under a consulting agreement with a two year term.
The Company believes that ongoing investment in research and development
and marketing activities will be critical to the ability of the Company to
generate revenues and operate profitably. For the year ended 1997, the Company
expended approximately $967,155 on its research and development activities.
Management anticipates that the Company will continue to expend funds in product
development and marketing activities.
11
<PAGE>
<PAGE>
In April, 1997, the Company was approved by the Office of the Chief
Scientist of the State of Israel for an additional grant of $112,500, which
amount was subsequently increased to $210,000. To date, the Company has received
approximately $173,000. These funds will partially offset research & development
costs.
In October 1997, TTR Israel entered into a two-year management agreement
with Ultimus Ltd., an Israeli company ('Ultimus'). Under the agreement, the
Company is to provide certain management and administrative services relating to
Ultimus' day-to-day operations. The fees for such services will be fixed by the
parties from time to time but not exceed $100,000 per annum. Through December
31, 1997, the Company has earned fees totaling $50,000.
ITEM 7. FINANCIAL STATEMENTS
The information called for by this Item 7 is included following the 'Index
to Financial Statements' contained in this Annual Report on Form 10KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH
SECTION 16(A) OF THE EXCHANGE ACT
The information required by this item is contained in the definitive proxy
material of the Company to be filed in connection with its 1998 annual meeting
of shareholders, except for the information regarding executive officers of the
Company which is presented below. The information required by this item
contained in such definitive proxy material is incorporated herein by reference.
As of March 30, 1998, the executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
41 Chairman of the Board, Chief Executive Officer,
President and Treasurer; and President and
Director of TTR Israel
Mark D. Tokayer.................................
48 Director and Vice President; Chief Executive
Officer and Director of TTR Israel
Arik Shavit ....................................
51 Director, Vice President -- Product Research and
Development and Secretary; Director of Product
Research and Development and Director of TTR
Israel
Baruch Sollish..................................
35 Chief Financial Officer
Robert Friedman ................................
</TABLE>
All officers serve until the next annual meeting of directors and until
their successors are elected and qualified.
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 1992
until he joined TTR, 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., an Israeli company, where he managed the
development of the Central Inventory Control System.
Arik Shavit, has been a Director and Vice President of the Company and
Chief Executive Officer of TTR Israel since September, 1996. Prior thereto, Mr.
Shavit was a Manager of Business Development at IBM (Israel) Ltd., where he had
this position since August 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 assisted engineering
(CAE) Software Applications
12
<PAGE>
<PAGE>
and provided marketing and support services. Mr. Shavit also served as Corporate
Vice-President and Director of the US company.
Baruch Sollish, Ph.D, has been a Director of the Company and 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 DiscGuard 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 hold six United States
patents in the fields of electro optics, ultrasound and electronics and has
published and lectured extensively.
Robert Friedman has been chief financial officer since he joined the
Company in March, 1997. Previous to joining the Company, from 1993 through 1996
he was a Vice President of Oppenheimer & Co., Inc., where he managed the Israel
Desk and was responsible for sales of equity and fixed income products primarily
to leading Israeli financial institutions. From 1989 to 1993, he was Vice
President of The Castle Group Ltd. in New York, a venture capital firm, where he
performed financial and strategic marketing analysis for seed capital
investments and equity private placements for hi-tech companies. From 1989 to
1990 he also served as CEO of The Metropolitan Media Group, a Los Angeles-based
start-up company. He has a Master's Degree from Yale University's School of
Management and a B.A. in Economics, with Honors, from Yeshiva University.
There are no family relationships, as defined, between any of the above
executive officers, and there is no arrangement or understanding between any of
the above executive officers and any other person pursuant to which he was
selected as an officer. Each of the above executive officers was elected by the
Board of Directors to hold office until the next annual election of officers and
until his successor is elected and qualified or until his earlier resignation or
removal. The Board of Directors elects the officers in conjunction with each
annual meeting of the stockholders.
SECTION 16 FILINGS
No person who, during the fiscal year ended December 31, 1997, was a
director, officer or beneficial owner of more than ten percent of the Company's
Common Stock [which is the only class of securities of the Company registered
under Section 12 of the Securities Exchange Act of 1934 (the 'Act') ], a
'Reporting Person' failed to file on a timely basis, reports required by Section
16 of the Act during the most recent fiscal year. The foregoing is based solely
upon a review by the Company of Forms 3 and 4 during the most recent fiscal year
as furnished to the Company under Rule 16a-3(d) under the Act, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, and any representation received by the Company from any reporting
person that no Form 5 is required.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is contained in the definitive proxy
statement of the Company to be filed in connection with its 1998 annual meeting
of shareholders, which information is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in the definitive proxy
statement of the Company to be filed in connection with its 1998 annual meeting
of shareholders, which information is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in the definitive proxy
statement of the Company to be filed in connection with its 1998 annual meeting
of shareholders, which information is incorporated herein by reference.
13
<PAGE>
<PAGE>
ITEM 13. EXHIBITS, REPORTS ON FORM 8-K AND FINANCIAL STATEMENTS
(i) Exhibits
<TABLE>
<C> <S>
-- Articles of Incorporation of the Company (Filed as an Exhibit to the Registration Statement of
the Company on Form SB-2, dated February 10, 1997, No. 333-11829, and incorporated herein by
3.1 reference)
-- Bylaws of the Company (Filed as an Exhibit to the Registration Statement on of the Company Form
SB-2, dated February 10, 1997, No. 333-11829, and incorporated herein by reference)
3.2
-- Specimen of Common Stock Certificate (Filed as an Exhibit to the Registration Statement of the
Company on Form SB-2, dated February 10, 1997, No. 333-11829, and incorporated herein by
reference)
4.1
-- Employee Incentive and Non-Qualified Stock Option Plan Stock Option Plan (Filed as an Exhibit to
the Registration Statement of the Company on Form SB-2, dated February 10, 1997, No. 333-11829,
and incorporated herein by reference).
10.1
-- Employment Agreement between TTR Israel and Marc D. Tokayer (Filed as an Exhibit to the
Registration Statement of the Company on Form SB-2, dated February 10, 1997, No. 333-11829, and
incorporated herein by reference).
10.2
-- Employment Agreement between TTR Israel and Baruch D. Sollish (Filed as an Exhibit to the
Registration Statement of the Company on Form SB-2, dated February 10, 1997, No. 333-11829, and
incorporated herein by reference).
10.3
-- Employment Agreement between TTR Israel and Arik Shavit, as amended (Filed as an Exhibit to the
Registration Statement of the Company on Form SB-2, dated February 10, 1997, No. 333-11829, and
incorporated herein by reference).
10.4
-- Employment Agreement between TTR Israel and Robert Friedman (filed herewith)
10.5
-- Consulting Agreement dated November 1, 1994 between the Company and Shane Alexander Unterburgher
Securities Inc. (Filed as an Exhibit to the Registration Statement of the Company on Form SB-2,
dated February 10, 1997, No. 333-11829, and incorporated herein by reference).
10.6
-- Consulting Agreement dated October 1, 1995 between the Company and Holborn System Ltd. (Filed as
an Exhibit to the Registration Statement of the Company on Form SB-2, No. 333-11829, and
incorporated herein by reference).
10.7
-- Financial Consulting Agreement between the Company and First Metropolitan Securities Inc. (Filed
as an Exhibit to the Registration Statement of the Company on Form SB-2, dated February 10, 1997,
No. 333-11829, and incorporated herein by reference).
10.8
-- Consulting Agreement between the Company and Pioneer Management Corporation (Filed as an Exhibit
to the Registration Statement of the Company on Form SB-2, dated February 10, 1997, No. 333-11829,
and incorporated herein by reference).
10.9
-- Loan and Security Agreement dated September 30, 1996 between the Company and 732498 Ontario Ltd.
(Filed as an Exhibit to the Registration Statement of the Company on Form SB-2, dated February 10,
1997, No. 333-11829, and incorporated herein by reference).
10.10
-- Form of Note Extension Agreement (Filed as an Exhibit to the Registration Statement of the
Company on Form SB-2, dated February 10, 1997, No. 333-11829, and incorporated herein by
reference).
10.11
-- Settlement Agreement dated May 6, 1997 between the Company and Henry Israel settling certain
outstanding claims. (filed herewith)
10.12
-- Agreement dated January 19, 1998 between the Company and Henry Israel.
10.12(a)
-- Development and OEM Licensing Agreement dated October 31, 1997 between the Company and Doug
Carson & Associates Inc. (filed herewith) (1)
10.13
-- Development and OEM Licensing Agreement dated November 24, 1997 among the Company, Doug Carson &
Associates Inc. and Nimbus CD International, Inc. (filed herewith) (1)
10.14
-- Management Agreement dated October 1, 1997 between the Company and Ultimus Ltd. (filed herewith)
10.15
-- Stock Purchase Agreement dated December 24, 1997 between the Company and Biscount Overseas Ltd.
(filed herewith)
10.16
-- Financial Data Schedule (filed herewith)
27.1
</TABLE>
(footnotes on next page)
14
<PAGE>
<PAGE>
(footnotes from previous page)
- ------------
(1) Confidential information contained therein is omitted and identified by a *
and filed separately with the SEC.
(b) Reports on Form 8-K.
The Company filed the following Reports on From 8-K during the fourth
quarter of 1997:
(i) Report filed on November 5, 1997 relating to the execution of a
Development and OEM Licensing Agreement between the Company and Doug Carson
& Associates, Inc.
(ii) Report filed on December 1, 1997 relating to the execution of a
Development and OEM Licensing Agreement among the Company, Doug Carson &
Associates Inc. and Nimbus CD International, Inc.
(c) Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statement of Operations for the years ended December 31,
1997 and 1996
Consolidated Statement of changes in Shareholders' Equity for the
years ended December 31, 1997 and 1996
Consolidated Statement of Cash Flows for the years ended December 31,
1997 and 1996
Notes to Consolidated Financial Statements
15
<PAGE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TTR INC.
Registrant
By: /s/ MARC D. TOKAYER
...................................
MARC D. TOKAYER,
CHAIRMAN OF THE BOARD, PRESIDENT,
CHIEF EXECUTIVE OFFICER, TREASURER
Date: April 15, 1998
In accordance with the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, in the capacities and on the dates indicated
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ --------------------------------- ---------------------------------
<C> <S> <C>
/s/ ARIK SHAVIT
......................................... Vice-President and Director April 15, 1998
(ARIK SHAVIT)
/s/ DR. BARACH SOLLISH Secretary and Director April 15, 1998
.........................................
(DR. BARUCH SOLLISH)
</TABLE>
16
<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
Notes to Consolidated Financial Statements............................................................ F-8 - F-19
</TABLE>
F-1
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of TTR Inc.
Kfar Saba, Israel
We have audited the accompanying consolidated balance sheet of TTR Inc. and
its Subsidiary (A Development Stage Company) as of December 31, 1997 and 1996,
and the related consolidated statements of operations, cash flows, and
stockholders' deficit for the years then ended and for the period from July 14,
1994 (date of inception) to December 31, 1997. 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 $555,342 and $692,102 as of December 31, 1997 and 1996, respectively,
and net losses of $2,927,080 and $790,536 for the years then ended,
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, 1997 and 1996 and the results of their operations and their cash
flows for the years then ended and for the period from July 14, 1994 (date of
inception) to December 31, 1997 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 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, 1997 of
$6,179,571. 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
March 16, 1998, except for Note 17, as to
which the date is April 6, 1998
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, 1997 and 1996 and
the related statements of operations, changes in shareholders' deficiency and
cash flows for each of the two years in the period ended December 31, 1997, and
for the period December 5, 1994 (date of inception) to December 31, 1997. 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 whether 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
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the abovementioned financial statements present fairly in
all material respects, the financial position of the Company (a development
stage company) as of December 31, 1997 and 1996 and the results of its
operations, changes in shareholders' deficiency, and cash flows for each of the
two years in the period ended December 31, 1997, and for the period December 5,
1994 (date of inception) to December 31, 1997, in comformity 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 T.T.R Inc.
BDO Almagor & Co.
Certified Public Accountants
Ramat-Gan, Israel,
March 16, 1998
F-3
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................................ $ 63,656 $ 450,040
Stock subscription receivable.................................................... -- 100,000
Other current assets............................................................. 135,828 131,538
---------- ----------
Total current assets........................................................ 199,484 681,578
Property and equipment -- net......................................................... 373,444 416,045
Deferred financing costs, net of accumulated amortization of $181,310 for 1996........ 62,101 --
Deferred stock offering costs......................................................... 515,664
Due from officer...................................................................... 26,000 16,000
Other assets.......................................................................... 14,995 75,004
---------- ----------
Total assets................................................................ $1,191,688 $1,188,627
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
Current liabilities
Current portion of long-term debt................................................ $1,065,365 $ 5,564
Short-term borrowings............................................................ 849,602 --
Accounts payable................................................................. 170,323 118,558
Accrued expenses................................................................. 443,594 139,972
Interest payable................................................................. 234,508 --
---------- ----------
Total current liabilities................................................... 2,763,392 264,094
Long-term debt, less current portion.................................................. 22,153 14,804
---------- ----------
Total liabilities........................................................... 2,785,545 278,898
Common stock issued with guaranteed selling price -- $.001 par value 15,000 shares
issued and out...................................................................... -- 232,500
---------- ----------
COMMITMENTS AND CONTINGENCIES
Stockholders' Equity (Deficit)
Common stock, $.001 par value; 20,000,000 shares authorized, 3,050,000 and 4,271,548
issued and outstanding, respectively, including 1,000,000 shares placed in escrow... 3,050 4,272
Common stock subscribed, $.001 par value; 16,000 shares at December 31, 1997.......... -- 100,000
Additional paid-in capital............................................................ 405,356 8,117,275
Cumulative translation adjustments.................................................... 57,696 38,029
Deficit accumulated during the development stage...................................... (2,059,959) (6,179,571)
Less: deferred compensation........................................................... -- (1,402,776)
---------- ----------
Total stockholders' equity (deficit)........................................ (1,593,857) 677,229
---------- ----------
Total liabilities and stockholders' equity (deficit)........................ $1,191,688 $1,188,627
---------- ----------
---------- ----------
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FROM
INCEPTION
YEAR ENDED (JULY 14,
DECEMBER 31, 1994) TO
-------------------------- DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
Revenue............................................................. $ -- $ -- $ --
Expenses
Research and development....................................... 344,305 967,155 1,587,708
Sales and marketing............................................ 169,840 1,421,496 1,855,294
General and administrative..................................... 382,634 1,477,085 2,121,821
----------- ----------- ------------
Total expenses............................................ 896,779 3,865,736 5,564,823
----------- ----------- ------------
Operating loss...................................................... (896,779) (3,865,736) (5,564,823)
Other (income) expense
Legal settlement............................................... -- 232,500 232,500
Loss on investment............................................. -- -- 17,000
Other income................................................... -- (50,000) (50,000)
Interest income................................................ -- (42,069) (54,893)
Interest expense............................................... 224,432 113,445 470,141
----------- ----------- ------------
Total other (income) expenses............................. 224,432 253,876 614,748
----------- ----------- ------------
Net loss............................................................ $(1,121,211) $(4,119,612) $ (6,179,571)
----------- ----------- ------------
----------- ----------- ------------
Per share data:
Basic and diluted.............................................. $ (0.62) $ (1.35)
----------- -----------
----------- -----------
Number of common shares used in basic and diluted loss per share.... 1,801,366 3,054,519
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK FOREIGN ACCUMULATED
COMMON STOCK SUBSCRIBED ADDITIONAL CURRENCY DURING
------------------ ----------------- PAID-IN TRANSLATION DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT STAGE
--------- ------ ------ -------- ---------- ---------- -----------
<S> <C> <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
Cash at $.0208 per share.............. 1,200,000 1,200 23,800
Net loss.................................. (42,085)
--------- ------ ------ -------- ---------- ---------- -----------
Balances at December 31, 1994............. 2,400,000 2,400 -- -- 23,800 (42,085)
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
Issuance of common stock purchase warrants
Services rendered at $.04 per warrant... 600
Foreign currency translation adjustment... 22,652
Net loss.................................. (896,663)
--------- ------ ------ -------- ---------- ---------- -----------
Balances at December 31, 1995............. 2,200,000 2,200 -- -- 42,673 22,652 (938,748)
Issuances of common stock, par value $.001
Cash at $.307 per share............... 650,000 650 199,350
Cash at $.50 per share (net of stock
offering costs of $11,467).......... 150,000 150 63,383
Cash at $2.00 per share............... 50,000 50 99,950
Foreign currency translation adjustment... 35,044
Net loss.................................. (1,121,211)
--------- ------ ------ -------- ---------- ---------- -----------
Balances at December 31, 1996............. 3,050,000 $3,050 -- $ -- $ 405,356 $ 57,696 $(2,059,959)
Common stock contributed.................. (135,000) (135) 135
Issuances of common stock, par value $.001
Cash at $7.00 per share (net of stock
offering costs of $1,318,652........ 860,000 860 4,700,488
Cash at $6.25 per share............... 48,000 48 299,952
Services rendered at $10.00 per
share............................... 55,000 55 549,945
Exercise of options at $.01 per
share............................... 374,548 375 3,370
Services rendered at $14.875 per
share............................... 19,000 19 282,606
Common stock subscriptions................ 16,000 100,000
Sale of Underwriters warrants 80
Stock options and warrants granted........ 1,875,343
Amortization of deferred compensation.....
Foreign currency translation adjustment... (19,667)
Net loss.................................. (4,119,612)
--------- ------ ------ -------- ---------- ---------- -----------
Balances at December 31, 1997............. 4,271,548 $4,272 16,000 $100,000 $8,117,275 $ 38,029 $(6,179,571)
--------- ------ ------ -------- ---------- ---------- -----------
--------- ------ ------ -------- ---------- ---------- -----------
<CAPTION>
DEFERRED
COMPENSATION TOTAL
------------ ----------
<S> <<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
Cash at $.0208 per share.............. 25,000
Net loss.................................. (42,085)
------------ ----------
Balances at December 31, 1994............. -- (15,885)
Common stock contributed..................
Issuances of common stock, par value $.001
Services rendered at $.05 per share....... 18,073
Issuance of common stock purchase warrants
Services rendered at $.04 per warrant... 600
Foreign currency translation adjustment... 22,652
Net loss.................................. (896,663)
------------ ----------
Balances at December 31, 1995............. -- (871,223)
Issuances of common stock, par value $.001
Cash at $.307 per share............... 200,000
Cash at $.50 per share (net of stock
offering costs of $11,467).......... 63,533
Cash at $2.00 per share............... 100,000
Foreign currency translation adjustment... 35,044
Net loss.................................. (1,121,211)
------------ ----------
Balances at December 31, 1996............. $ -- (1,593,857)
Common stock contributed..................
Issuances of common stock, par value $.001
Cash at $7.00 per share (net of stock
offering costs of $1,318,652........ 4,701,348
Cash at $6.25 per share............... 300,000
Services rendered at $10.00 per
share............................... (500,000) 50,000
Exercise of options at $.01 per
share............................... 3,745
Services rendered at $14.875 per
share............................... 282,625
Common stock subscriptions................ 100,000
Sale of Underwriters warrants 80
Stock options and warrants granted........ (1,875,343)
Amortization of deferred compensation..... 972,567 972,567
Foreign currency translation adjustment... (19,667)
Net loss.................................. (4,119,612)
------------ ----------
Balances at December 31, 1997............. $(1,402,776) $ 677,229
------------ ----------
------------ ----------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FROM
INCEPTION
YEAR ENDED (JULY 14,
DECEMBER 31, 1994) TO
-------------------------- DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities
Net loss....................................................... $(1,121,211) $(4,119,612) $ (6,197,571)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization............................. 155,273 184,290 440,331
Translation adjustment.................................... (967) -- (1,528)
Amortization of deferred compensation..................... -- 972,567 972,567
Stock and warrants issued for services and legal
settlement.............................................. -- 565,125 583,798
Increase (decrease) in cash attributable to changes in
assets and liabilities
Accounts receivable.................................. 1,310 478 163
Other current assets................................. (105,222) (7,204) (125,918)
Other assets......................................... -- (72,700) (72,700)
Accounts payable..................................... 137,825 (72,401) 105,768
Accrued expenses..................................... 44,043 48,596 168,347
Interest payable..................................... 138,485 (234,508) --
----------- ----------- ------------
Net cash used by operating activities..................... (750,464) (2,735,369) (4,108,743)
----------- ----------- ------------
Cash flows from investing activities
Purchases of property and equipment............................ (240,836) (175,507) (611,400)
Increase in organization costs................................. -- -- (7,680)
----------- ----------- ------------
Net cash used by investing activities..................... (240,836) (175,507) (619,080)
----------- ----------- ------------
Cash flows from financing activities
Proceeds from issuance of common stock......................... 363,533 5,520,837 5,910,570
Loans to officer............................................... -- 10,000 (16,000)
Deferred stock offering costs.................................. (166,099) (309,565) (475,664)
Deferred financing costs....................................... (89,980) (19,000) (262,241)
Proceeds from short-term borrowings............................ 849,602 200,000 1,049,602
Proceeds from long-term debt................................... 25,096 -- 1,114,137
Repayment of short-term borrowings............................. -- (1,049,602) (1,049,602)
Repayments of long-term debt................................... (14,403) (1,053,455) (1,089,471)
----------- ----------- ------------
Net cash provided by financing activities................. 967,749 3,299,215 5,181,161
----------- ----------- ------------
Effect of exchange rates on cash.................................... (659) (1,955) (3,298)
----------- ----------- ------------
Increase (decrease) in cash and cash equivalent..................... (24,210) 386,384 450,040
Cash at beginning of period......................................... 87,866 63,656 --
----------- ----------- ------------
Cash and cash equivalents at end of period.......................... $ 63,656 $ 450,040 $ 450,040
----------- ----------- ------------
----------- ----------- ------------
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest.................................................. $ 15,788 $ 345,258 $ 379,502
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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., ('TTR Israel') 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 design, development and commercialization of
proprietary software security products.
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. The Company's
primary product, DiscGuard'tm', based on its proprietary technology, became
commercially available in the first quarter of 1998.
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. (See Note 3).
In February 1997 the Company closed on an initial public offering (IPO) in
which it sold 860,000 shares of its Common Stock at a price of $7.00 per share
and realized net proceeds of approximately $4.7 million after stock offering
costs (See Note 12).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING 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.
STOCK BASED COMPENSATION
Compensation expense arising from stock grants, and options and warrants
issued at exercise prices below the quoted market price of the underlying Common
Stock as of the grant date, is recognized over the vesting periods of the
related grants. Such stock-based compensation resulted in an aggregate charge to
operations of approximately $1,305,000 for the year ended December 31, 1997.
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
stockholders' deficit (cumulative translation adjustment).
F-8
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NET LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No.128
(SFAS 128), 'Earnings per Share,' which supersedes APB Opinion No. 15 (APB No.
15), 'Earnings per Share,' and which is effective for all periods ending after
December 15, 1997. SFAS 128 requires dual presentation of basic and diluted
earnings per share (EPS) for complex capital structures on the face of the
Statements of Operations. Basic EPS is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution from the exercise or conversion of other
securities into common stock. None of the stock options and warrants issued in
1997 and 1996 has been included in the net loss per share computation for the
years presented, because their inclusion would be anti-dilutive. Shares held in
escrow are not treated as outstanding during any period (See Note 12). Earnings
per share data for 1996 has been restated to conform with the provisions of SFAS
No. 128.
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.
DEPRECIATION AND AMORTIZATION
Equipment and leasehold improvements are stated at cost. Equipment is
depreciated over the estimated useful lives of the related assets, which range
from five to seven years. Leasehold improvements are amortized over the related
lease term. Depreciation is computed on the straight-line method.
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 ccounting
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.
DEFERRED STOCK OFFERING COSTS
Costs incurred in connection with the Company's public offering of common
stock were charged to capital upon the completion of the offering in February
1997.
LONG-LIVED ASSETS
In accordance with SFAS No. 121, 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of', the Company
records impairment losses on long-lived assets used in operations, including
goodwill and intangible assets, when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
F-9
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, 'Accounting for Stock-based Compensation'. SFAS No. 123 requires that the
Company either recognize in its financial statements costs related to its
employee stock-based compensation plans, such as stock option and stock purchase
plans, using the fair value method, or make pro forma disclosures of such costs
in a footnote to the financial statements. The Company has elected to continue
to use the intrinsic value-based method of APB Opinion No. 25, as allowed under
SFAS No. 123, to account for its employee stock-based compensation plans, and to
include the required pro forma disclosures based on fair value accounting. The
adoption of SFAS No. 123 has not had a material effect on the Company's
financial position or results of operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS 130, 'Reporting Comprehensive Income,' and SFAS 131,
'Disclosures About Segments of an Enterprise and Related Information,' were
issued. SFAS 130 addresses standards for reporting and display of comprehensive
income and its components, and SFAS 131 requires disclosure of reportable
operating segments. In February 1998, SFAS 132, 'Employers' Disclosures About
Pensions and Other Post-retirement Plans' was issued. SFAS 132 standardizes
pensions disclosures. These statements are effective in 1998. The Company will
be reviewing these pronouncements to determine their applicability to the
Company, if any.
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 has an
accumulated deficit at December 31, 1997 of $6,179,571. The Company faces a
number of risks, including uncertainties regarding demand and market acceptance
of its 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, that may affect the future results
of the Company, such as the nature of its distribution channels, ability to
manage growth, loss of key personnel and the effects of planned expansion of
operations.
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 its
business, as discussed above. The Company is not yet generating sufficient
revenues from its operations to fund its activities and is therefore dependent
on continued financing from external sources.
In November 1997, the Company entered into licensing agreements with a
leading supplier of mastering interface systems (MIS) for compact discs (CDs)
and digital versatile discs (DVDs), and a leading optical media manufacturer, to
produce DiscGuard'tm' enhanced CD's and DVD's for use by software and other
electronic content publishers (see Note 16). The Company believes these
relationships should be instrumental in establishing and consolidating
DiscGuard's'tm' name recognition. DiscGuard'tm' was in the product testing stage
in the fourth quarter of 1997 and has recently become commercially available.
Presently, the Company is broadening its marketing activities in North America,
Israel and Europe to increase product awareness and is undertaking efforts to
establish an adequate sales and customer support infrastructure. The Company is
also pursuing various alternatives for additional financing, including a private
placement and a secondary offering (see Note 17).
The ability of the Company to continue as a going concern is dependent upon
the success of the Company's products and its access to sufficient funding to
enable it to continue operations. There is no assurance that sufficient revenues
will be generated nor that adequate financing will be available to the
F-10
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company. Insufficient funds from operations or the inability to obtain such
financing would have a material adverse effect on the Company.
NOTE 4 -- OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Chief Scientist(1)........................................................ $ 98,432 $ 39,678
Management income receivable(2)........................................... -- 50,000
Other..................................................................... 37,396 41,860
------------ ------------
$135,828 $131,538
------------ ------------
------------ ------------
</TABLE>
- ------------
(1) In November 1996, TTR Israel received an approval from the Office of the
Chief Scientist of the Government of Israel (OCS) according to which 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. On April 8, 1997, the OCS agreed to increase the
approved budget to $420,000.
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 150% of the
grant.
(2) In October 1997, TTR Israel entered into a two-year management agreement
with Ultimas LTD, (Ultimas) an Israeli company. Under the agreement, the
Company will provide management and administrative services relating to
Ultimas' day-to-day operations. The fee for such services will be agreed
upon from time to time but will never exceed $100,000 per annum. The
agreement is automatically renewable for additional one year terms unless
terminated by either party with sixty days notice.
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Leasehold improvements.......................................... $ 80,085 $126,906
Office equipment................................................ 98,938 144,501
Computer equipment.............................................. 168,103 219,895
Vehicles........................................................ 94,358 86,732
------------ ------------
441,484 578,034
Less: Accumulated depreciation.................................. 68,040 161,989
------------ ------------
$373,444 $416,045
------------ ------------
------------ ------------
</TABLE>
Depreciation expense was $38,669 and $88,311 for the years ended December
31, 1996 and 1997, respectively.
F-11
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- DUE FROM OFFICER
This amount represents non-interest bearing advances to an officer of the
Company.
NOTE 7 -- ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Accrued payroll and payroll taxes............................... $ 14,513 $ 49,750
Deferred stock offering costs................................... 349,565 --
Other........................................................... 79,516 90,222
------------ ------------
$443,594 $139,972
------------ ------------
------------ ------------
</TABLE>
NOTE 8 -- SHORT-TERM BORROWINGS
(a) TTR Israel borrowed a total of $50,000 from a bank. Interest on the
loan was calculated at the rate of 8% per annum and was repaid in full in
December 1996.
(b) 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 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. In January
1997, certain of these investors returned a total of 135,000 shares of the
Company's Common Stock to treasury. The principal and accrued interest on these
notes became due upon the completion of the Company's IPO and was paid in
February 1997.
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.
(c) In 1996, the Company borrowed a total of $133,400 in unsecured funds
from a private lender. Interest is calculated at the rate of 22% per annum on
outstanding financings. The principal and accrued interest became due upon the
completion of the Company's IPO and was paid in full in February 1997.
(d) In December 1996 and January 1997, the Company issued short-term
promissory notes aggregating $450,000. Interest is calculated at the rate of 15%
per annum.
The notes and accrued interest thereon became due upon the completion of
the Company's IPO and was paid in full in February 1997.
Fees totaling $45,000 which were incurred in connection with this financing
were amortized over the life of the loan using the straight-line method.
F-12
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Bank loans(1)............................................................. $ 46,438 $ 20,368
Promissory notes(2)....................................................... 1,041,080 --
------------ ------------
1,087,518 20,368
Current portion........................................................... 1,065,365 5,564
------------ ------------
Non-current portion....................................................... $ 22,153 $ 14,804
------------ ------------
------------ ------------
</TABLE>
- ------------
(1) These loans are denominated in 'New Israeli Shekel' (NIS), bear interest at
the rate of prime plus 2.4% - 3% per annum and are secured by substantially
all the assets of TTR Israel. Principal payments are due in various
installments through 2000.
(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 were
exercisable during the period between the effective date and the closing
date of the Company's IPO. The Company paid the placement agent, Shane,
Alexander, Unterburgher Securities, Inc. (SAU) a commission of 10% of the
gross proceeds and an additional 4% of such proceeds as a non-accountable
expense. These fees, totaling approximately $145,000, have been capitalized
as deferred financing costs were amortized over the term of the loan using
the straight-line method. Amortization was $68,337 and $8,919 for the years
ended December 31, 1996 and 1997. In February 1997, the entire principal
balance plus accrued interest on these notes was repaid.
------------------------
The aggregate maturities of long-term debt for the next three years ending
December 31, are as follows: 1998 -- $5,564; 1999 -- $8,753 and 2000 -- $6,051.
NOTE 10 -- INCOME TAXES
At December 31, 1997, the Company had available $2,016,849 of net operating
loss carryforwards for U.S. federal income tax purposes which expire in the
years 2014 through 2018, and $2,912,000 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 for U.S.
federal and Israel income taxes are as follows:
F-13
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Net operating loss carryforwards.......................................... $ 548,000 $ 1,839,669
Research and developments costs........................................... 89,000 --
Stock based compensation.................................................. -- 17,813
Accrued vacation and severance............................................ 25,000 20,000
------------ ------------
Total deferred tax assets............................................ 662,000 1,877,481
Valuation allowance.................................................. (662,000) (1,877,481)
------------ ------------
Net deferred tax assets.............................................. $ -- $ --
------------ ------------
------------ ------------
</TABLE>
Pre-tax losses from foreign (Israeli) operations were $790,536 and
$2,927,080 for the years ended December 31, 1996 and 1997, respectively.
NOTE 11 -- 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.
A summary of the status of the Plan as of December 31, 1997 and changes
during the year ending on that date is presented below:
<TABLE>
<CAPTION>
RANGE OF
EXERCISE
SHARES PRICES
-------- ---------------
<S> <C> <C>
Options outstanding, January 1, 1996......................................... -- $ --
Granted................................................................. 5,000 6.00
Canceled................................................................ -- --
Exercised............................................................... -- --
-------- ---------------
Options outstanding, December 31, 1996....................................... 5,000 6.00
Granted................................................................. 175,600 5.00 - 13.94
Canceled................................................................ (19,500) 7.00 - 13.94
Exercised............................................................... -- --
-------- ---------------
Options outstanding, December 31, 1997....................................... 161,100 $ 5.00 - 13.88
-------- ---------------
-------- ---------------
Shares of common available for future grant.................................. 288,900
--------
--------
</TABLE>
F-14
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options under the
plan outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
------------------------ ------------------------
REMAINING
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$5.00 50,000 9.25 $ 5.00 -- --
5.81 12,500 10.00 5.81 -- --
6.00 5,000 8.50 6.00 1,250 $ 6.00
7.00 27,000 9.00 7.00 -- --
10.00 50,000 9.25 10.00 -- --
10.25 1,600 9.75 10.25 -- --
13.88 15,000 9.50 13.88 -- --
----------- ----------- -------- ----------- --------
$5.00 - $13.88 161,100 9.27 $ 7.86 1,250 $ 6.00
----------- ----------- -------- ----------- --------
----------- ----------- -------- ----------- --------
</TABLE>
In the first quarter of 1998, the Company granted an additional 4,000
incentive stock options under the plan which are exercisable at $5.875 per
share.
The Company has elected to use the intrinsic value-based method of APB
Opinion No. 25 to account for all of its employee stock-based compensation
plans. Accordingly, no compensation cost has been recognized in the accompanying
financial statements for stock options issued to employees where the exercise
price of the option equals or exceeds the fair value of the underlying common
stock as of the grant date for each stock option. Weighted-average grant date
fair value of options granted during year under the Black-Scholes option pricing
model was $3.17 per option.
The Company has adopted the pro forma disclosure provisions of SFAS No.
123. Had compensation cost for all of the Company's stock-based compensation
grants been determined in a manner consistent with the fair value approach
described in SFAS No. 123, the Company's net loss and net loss per share as
reported would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Net loss
As reported............................................... $(1,121,211) $(4,119,612)
Proforma.................................................. $(1,122,249) $(4,342,194)
Loss per share
As reported............................................... $ (.62) $ (1.35)
Proforma.................................................. $ (.62) $ (1.42)
</TABLE>
The fair value of each option granted in 1996 is estimated on the date of
grant using the minimum value method with the following weighted average
assumptions: No dividends, an expected life of 4 years, and a risk-free interest
rate of 6.05%. The fair value of each option granted in 1997 is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: No dividends, an expected life of 2.5 years,
risk-free interest rate of 6.23% and expected volatility of 46.5%.
NOTE 12 -- CAPITAL TRANSACTIONS
PRIVATE PLACEMENTS
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 for a period
of three years commencing after the IPO at an exercise price equal to $7.00 per
share.
F-15
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INITIAL PUBLIC OFFERING
In February 1997, the Company completed an initial public offering of
860,000 shares of its Common Stock and realized net proceeds of approximately
$4,700,000 after stock offering costs. In connection with this offering, the
Company sold to the underwriter, for $80, warrants to purchase up to an
additional 80,000 shares of the Company's Common Stock at an excersice price
equal to $11.20 per share. The Company has also agreed to retain the Underwriter
as management and financial consultants for a two-year period at an annual rate
of $60,000 per annum, payable in advance. In connection with the IPO, certain
securityholders have agreed not to sell their shares for up to two years from
the offering date, without the prior written consent of the Underwriter.
STOCK GRANTS
In 1997 the Company issued 24,000 shares of its Common Stock for services
rendered. The Company has recorded a charge to operations in the amount of
$332,625 due to the issuance of these shares.
STOCK SUBSCRIPTION
On December 24, 1997, the Company entered into a stock subscription
agreement for the sale of 64,000 shares of its Common Stock for an aggregate
purchase price of $400,000. Pursuant to the agreement, 48,000 shares were paid
for and issued on that date and the remaining 16,000 shares were paid for and
issued on February 20, 1998. In connection therewith, the Company also issued
four (4) year warrants to purchase up to an additional 33,000 shares of Common
Stock, at an exercise price of $7.80 per share; provided, that, in lieu of cash
payments for exercising the shares, the warrant holder is entitled to accept a
smaller number of shares of Common Stock based on the spread between the per
share exercise price and the then public market price of a share of the
Company's Common Stock. Under the agreement, the Company is required to register
these shares no later than April 30, 1998.
An option was also granted, to purchase, on or before June 30, 1998, an
additional 10,000 shares of Common Stock at an aggregate purchase price of
$62,500. In connection therewith, the Company will also issue four (4) year
warrants to purchase up to an additional 5,000 shares of Common Stock, under the
same terms as the previous warrants.
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
F-16
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
As shares are released from escrow, 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 with an offset to permanent capital. These
charges will not be deductible for income tax purposes.
In February 1998, pursuant to the terms of the escrow agreement 250,000
shares were forfeited and returned to the Company.
NOTE 13 -- COMMON STOCK ISSUED WITH GUARANTEED SELLING PRICE
On March 31, 1997, the Company and TTR Israel were served with claims by an
individual demanding, among other things, royalties at the rate of 5% of the
proceeds from the sales of products in which the plaintiff claims to have
provided consulting services towards its development.
On May 6, 1997, the Company entered into a settlement agreement whereby the
Company issued the plaintiff 15,000 shares of its Common Stock, subject to the
following: (a) If the Company registers any additional shares for sale it will
include these shares in its registration statement; (b) Following the
registration of these shares and continuing for a 180 day period, if the share
price averages in excess of $15.50 per share over two consecutive days the
Company's obligation to the consultant terminates. If the share price is not
met, then during the three days commencing after 180 days the Company will remit
to the consultant the difference between $15.50 per share and the actual
consideration received. The Company has established a temporary equity account
to record its maximum liability from the guarantee. Payment of any shortfall
will be charged to this account. Any balance remaining at the end of the holding
period will be credited to permanent capital. The Company recorded an expense of
$232,500 due to the issuance of these shares.
In January 1998, the Plaintiff sold the shares at an aggregate price of
$77,156. Under the terms of the settlement agreement, the Company was required
to remit to him approximately $155,344. On January 19, 1998, the Company
remitted to the plaintiff $57,344 and agreed to remit the balance of $100,000 by
June 15, 1998, together with an additional $5,000 in consideration of deferring
the payment. The deferred amount has been secured by a guarantee issued by an
Israeli Bank.
NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value of Financial
Instruments, which requires that all entities disclose the fair value of
financial instruments, as defined, for both assets and liabilities recognized
and not recognized in the statement of financial condition. Substantially all of
the Company's financial instruments, consisting primarily of short-term
borrowings and promissory notes payable, are carried at, or approximate, fair
value because of their short-term nature or because they carry market rates of
interest.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
CONSULTING AND EMPLOYMENT AGREEMENTS
a) In August 1994, TTR Israel 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. In the event the termination is without cause then the
officer will be entitled to continue to receive his salary for an additional
twelve
F-17
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
month period. At the end of the initial three-year term, the agreement
automatically renews for one-year periods.
b) In October 1995, the Company entered into a three-year marketing
consulting agreement, pursuant to which the consultant receives a monthly fee of
$4,800 per month. On April 15, 1997, the Board of Directors approved the grant
of 15,000 shares of its Common Stock to the consultant for consulting services
rendered. The Company recorded a charge to operations of $223,125 upon the
issuance of these shares.
c) In December 1995, TTR Israel 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. In consideration of eliminating
the provision for royalty payments, the agreement was amended to increase the
annual base compensation to $96,000 plus fringe benefits. The Company has also
agreed to pay a one time bonus of $50,000, subject to completion of the IPO.
d) In September 1996, TTR Israel entered into a three-year employment
agreement with its Chief Executive Officer. 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.
The Company has also agreed to grant, on the date on which the Company's
IPO is declared effective, warrants to purchase up to 217,473 shares of Common
Stock, at an exercise price of $.01 per share. The company recorded deferred
compensation expense of $1,522,300 and is amortizing this amount over the
vesting period. The warrants will vest over a four-year period.
e) In December 1996, TTR Israel entered into a two-year consulting
agreement. The agreement provides for monthly fees of $6,100 and is renewable
for one additional year. The agreement may be terminated by either party with 30
days' prior notice. Subsequently, the consultant was also granted options to
purchase 15,000 shares of the Company's Common Stock at $7.00. The options will
vest over a four-year period commencing with the date of grant.
f) In February 1997, TTR Israel entered into an agreement with the
University of Arizona ('the University'), to become a sponsor of the Optical
Data Storage Center ('ODSC') at the University. Funding for the ODSC is provided
by industrial organizations, including TTR Israel. TTR Israel has undertaken to
contribute $50,000 to the ODSC each year for a period of three years, payable
quarterly. In consideration of this sponsorship, TTR Israel will receive voting
power in the decision-making body of the ODSC, proportional to its contribution.
In August 1997, TTR Israel decided to terminate the agreement.
g) On March 11, 1997, the Company entered into a one-year employment
agreement with an officer of the Company. The agreement provides for monthly
compensation of $5,000 and is automatically renewable for additional one-year
terms. The agreement may be terminated by either party with 30 or 60 days' prior
notice during the first and second anniversary, respectively, and with 90 day's
notice thereafter. The Company has also agreed, subject to underwriters
approval, to issue to the employee 50,000 shares of its Common Stock. Pursuant
to an escrow agreement, 25,000 shares will be released from escrow on July 31,
1997 and 25,000 on January 31, 1998. The grant of these shares will result in a
charge to deferred compensation in the amount of $500,000 which is being
amortized over one year. The officer was also granted 40,000 qualified and
60,000 nonqualified options to purchase shares of the Company's Common Stock, at
an exercise price of $10.00 and $5.00 per share, respectively. The options will
vest over a four-year period commencing with the date of grant. The issuance of
the nonqualified options resulted in a charge to deferred compensation in the
amount of $300,000. This amount is being amortized over the vesting period.
h) On March 1, 1997, the Company entered into a one year consulting
agreement which provided for a lump-sum payment of $100,000 to be paid upon
signing.
F-18
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING LEASES
The Company and TTR Israel have each entered into a lease agreements for
office space. Future minimum rentals on this lease as of December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
- --------------------------------------------------------------
<S> <C>
1998.......................................................... $ 68,549
1999.......................................................... 68,549
2000.......................................................... 68,549
2001.......................................................... 40,785
2002.......................................................... 10,263
--------
$256,695
--------
--------
</TABLE>
NOTE 16 -- LICENSING AGREEMENTS
In October 1997, the Company entered into a five-year Development and OEM
Licensing Agreement with Doug Carson & Associates (DCA), a supplier of mastering
interface systems (MIS) that produce CD-Roms and DVD optical media. The Company
granted DCA an exclusive, nontransferable, royalty free, world-wide license to
produce and market DiscGuard'tm' enhanced MIS for CD's and DVD's through
December 31, 1998. In the event that DCA sells or upgrades at least 100 units of
its enhanced MIS systems, then the exclusivity provision will be extended
through December 31, 1999. After December 31, 1999, the Company and DCA will
negotiate mutually acceptable minimum sales and upgrade levels to retain the
exclusivity provision.
In November 1997, the Company entered into a five-year Development and OEM
License Agreement with Nimbus CD International Inc. (Nimbus), an optical media
manufacturer, whereby Nimbus was granted an exclusive license to produce
DiscGuard'tm' enhanced media. The exclusivity provision of the agreement is due
to terminate in September 1998. Under the licensing agreement, the Company will
be entitled to a percentage of the proceeds of the premium charged by Nimbus for
DiscGuard'tm' enhanced media.
NOTE 17 -- SUBSEQUENT EVENTS
PROPOSED PUBLIC OFFERING
On April 1, 1998, the Company entered into a letter of intent with an
underwriter for a firm commitment public offering of 2,500,000 shares of the
Company's Common Stock. The offering price will be at or about the market price
of the Common Stock of the Company immediately prior to the effective date of a
Registration Statement. In connection therewith, the Company also entered into a
consulting agreement with the underwriter. The agreement provides for an advance
payment of $50,000, four-year warrants to purchase up to 25,000 shares of the
Company Stock at an exercise price of $5 5/8, and a fee of 5% of the exercise
price of certain outstanding warrants that are converted to Common Stock.
CONSULTING AGREEMENT
On April 1, 1998, the Company retained the services of a consultant under a
one-year consulting agreement. The agreement provides for a $10,000
non-refundable retainer and upon the consummation of the Company's proposed
public offering, the Company has agreed to pay $250,000 to the consultant and
issue 50,000 unregistered shares of its Common Stock. In the event the Company
does not consummate the offering with its current Underwriter the agreement
becomes null and void.
F-19
<PAGE>
<PAGE>
TTR INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRIVATE PLACEMENT
On April 6, 1998, the Company commenced a private offering of up to 20
Units, each unit consisting of $50,000 principal amount of 10% Promissory Notes
and Warrants to purchase 10,000 shares of Common Stock. The notes bear interest
at the rate of 10% per annum and become due and payable together with accrued
interest at the earlier of one year or 30 days following the consummation by the
Company of any public or private equity or debt financing exceeding $1,000,000.
The warrants are exercisable for a four-year period at an exercise price equal
to the lower of the offering price of Common Stock to be sold in a subsequent
firm commitment underwriting of at least $1,000,000, or $8.00. The closing of
the private placement is subject to the sale of a minimum of 10 units.
F-20
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as......................... 'tm'
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENT
WITH
ROBERT FRIEDMAN
AGREEMENT entered into as of March 11, 1997, between Robert Friedman
residing at ________________________ (the "Employee") and TTR Inc. c/o TTR
Technologies Ltd. P.O. Box 2295 Kfar Saba Israel 44425 (the "Company" or "TTR").
W I T N E S S E T H
WHEREAS, the Company is in the business of developing and marketing
computer products ("Business"); and
WHEREAS, the Company desires to employ Employee initially as Chief
Financial Officer (CFO) of the Company.
NOW THEREFORE, in consideration of the premises and mutual agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment
With effect from the effective date (as defined in section 3), the Company
employs Employee and Employee accepts employment with the Company upon the terms
and conditions set forth herein.
2. Duties
2.1 TTR hereby engages Employee to serve as its Chief Financial Officer
("CFO"). The Employee's authority shall be subject to the authority of the
President or the Board of Directors of the Company.
2.2 Employee shall devote his full time and attention to the Business of
the Company and shall perform his duties diligently and promptly for the benefit
of the Company. Notwithstanding the above the Company acknowledges and agrees
that Employee may devote up to ten hours per month in rendering services to
American Corporate Services.
2.3 Employee shall report regularly and as requested to the President of
the Company. Employee shall pre-clear with the President of the Company all
activities.
2.4 The Employee shall further have such duties and responsibilities
commensurate with his position as may be assigned to him from time to time by
the President.
2.5 The Employee's services under this Agreement will be performed
primarily at the Company's United States office. The Parties acknowledge and
agree however that the nature of the Employee's duties hereunder will also
require substantial domestic and international travel.
<PAGE>
<PAGE>
2
3. Term
3.1 Employee's employment under this Agreement shall commence on March 18,
1997 (the "Effective Date") and shall end on the earlier of : (i) the death or
disability (as defined herein ) of the Employee, (ii) termination of Employee's
employment with cause (as defined herein); (iii) termination by either party
without cause as provided in Section 3.4 hereof; (iv) one (1) year from the date
of this Agreement. After the expiration of such initial term (other than for
reasons set forth in clauses (i), (ii) and (iii)), this Agreement shall
automatically be renewed for additional one (1) year periods on the same terms
and conditions set forth herein (unless mutually agreed otherwise).
3.2 For the purpose of this paragraph 3, "disability" shall mean any
physical or mental illness or injury as a result of which Employee remains
absent from work for a period of two (2) successive months, or an aggregate of
two (2) months in any twelve (12) month period. Disability shall occur at the
end of any such period.
3.3 For the purpose of this paragraph 3, "cause" shall exist if Employee
(i) breaches any of the material terms or conditions of this Agreement; (ii)
substantially fails to perform the Employee's areas of responsibility set forth
herein, (iii) engages in willful misconduct or acts in bad faith with respect to
the Company, in connection with and related to the employment hereunder, (iv) is
convicted of a felony, (v) fails to comply with the instructions of the
Company's President or Board of Directors in a manner materially detrimental to
the Company, provided that with respect to clauses (i), (ii) and (v), if
Employee has cured any such condition (that is reasonably susceptible to cure)
within 30 days following delivery of the advance notice (as defined herein) then
"cause" shall be deemed to not exist. For purposes of this Paragraph 3, "advance
notice" shall constitute a written notice delivered to Employee that sets forth
with particularity the facts and circumstances relied upon by the Company as the
basis for cause.
3.4 During the period commencing on the Effective date through the first
anniversary thereof, either Employee or Company may terminate this Agreement and
the employment hereunder without cause and for whatever reason upon furnishing
the other with thirty (30) days' advance written notice. Thereafter, during the
period up to the third (3rd) anniversary of the Effective Date, either party may
terminate this Agreement and the employment hereunder upon sixty (60) days
advance written notice to the other. For any period of employment hereunder
beyond the third anniversary of the effectiveness hereof, either party may
terminate this Agreement and the employment hereunder upon ninety (90) months
advance written notice to the other.
3.4.1. Notwithstanding the foregoing, the Company, in its sole and
absolute discretion, is entitled to make payment to Employee in lieu of the
notice period specified under Clause in this Section 3.4. Additionally, it
is hereby agreed that should the Employee be or become entitled to
severance pay under applicable law as a result of the termination
hereunder, the amounts payable hereunder shall be in lieu thereof and in
full and final substitution therefor.
3.5 During the period following notice of termination by either party
for whatever reason, the Employee shall cooperate with the Company and use
his best efforts to assist the
<PAGE>
<PAGE>
3
integration into the Company the person or persons who will assume the
Employee's responsibilities.
4. Compensation
4.1 During the term hereof, and subject to the performance of the services
required to be performed hereunder by Employee, the Company shall pay to the
Employee for all services rendered hereunder, as salary, payable not less often
than once per month and in accordance with the Company's normal and reasonable
payroll practices, a monthly gross amount of U.S. $5,000 (the "Gross Salary").
4.2 The Board shall undertake an evaluation of the Employee's performance
from time to time and may increase the monthly Gross Salary or grant a
performance bonus if it should determine in its absolute discretion that such
increase or bonus is justifiable and appropriate. It is understood and agreed
that Employee's compensation hereunder will not be increased for at least the
first eighteen (18) months that this Agreement is in effect.
4.3 In addition to the Salary the Company agrees to provide the Employee
incentive compensation as set out below in Section 4.4 and shall provide the
Employee a health care plan in accordance with the Company's policies from time
to time.
4.4 Incentive Compensation.
Subject to the written approval of First Metropolitan Securities, Inc. (the
"Underwriter"), the Company shall issue to the Employee 50,000 shares of Common
Stock of the Company Such shares shall be held in escrow by Brounstein -Aboudi
Trustees Ltd. in accordance with the terms and conditions of the Escrow
Agreement attached hereto as Exhibit II.
4.5 The Employee shall devote his full time to the affairs of the Company
as required without any right or entitlement to additional or overtime
compensation except as expressly provided herein.
5. Expenses
Employee is authorized to incur reasonable and proper expenses for
promoting the Business of TTR including expenses for entertainment, travel,
lodging, and similar items. TTR will reimburse Employee promptly for all such
expenses upon presentation by Employee, of receipts or other appropriate
evidence of expenses.
6. Vacation
Employee shall be entitled to 15 working days of paid vacation during each
year that this Agreement is in affect, to be taken at times as agreed upon by
the parties.
7. Development Rights
The Employee agrees and declares that all proprietary information including
but not limited to trade secrets, know-how, patents and other rights in
connection therewith developed
<PAGE>
<PAGE>
4
by or with the contribution of Employee's efforts during his employment with TTR
shall be the sole property of TTR.
8. Employee Representations
The Employee represents and warrants to TTR that the execution and delivery
of this Agreement and the fulfillment of the terms hereof (i) will not
constitute a breach of any agreement or other instrument to which he is party,
(ii) does not require the consent of any person, and (iii) shall not utilize
during the term of his employment any proprietary information of any third
party, including prior employers of the Employee.
9. Benefit & Assignment
This Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, including any subsidiary or affiliated
entity. The rights and obligations of the Employee under this Agreement may not
be assigned by him.
10. Entire Agreement
This Agreement constitutes the entire understanding and agreement between
the parties, and supersedes any and all prior discussions and agreements and
correspondence, and may not be amended or modified in any respect except by a
subsequent writing executed by both parties.
11. Confidentiality & Non-Competition
The Employee shall execute the attached Confidential Disclosure &
Non-Competition Agreement.
12. Notices
All notices or other communications required or desired to be sent to either
Party shall be in writing and shall be sent by hand or by Registered or
Certified mail, postage prepaid, return receipt requested, or sent by telegram
or facsimile to the address set forth in the Preamble to this Agreement or to
such other address as the recipient may designate by notice in accordance with
the provisions of this Clause.
Any such notice shall have been deemed to have been delivered if served by
hand when delivered, if by Registered or Certified Mail 48 hours after posting
if within the same country or 14 days if posted from another country, and by
telex or facsimile transmission when dispatched and receipt confirmed by
recipient party.
13. Severability:
Any term or provision of this Agreement which is found by a court, tribunal
or arbitration panel to be invalid or unenforceable shall be ineffective to the
extent of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms or provisions of this Agreement or affecting
the validity or enforceability of any of the other terms or provisions of this
Agreement. In the event that any term or provision of this Agreement is
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5
found to be unenforceable or ineffective, then the reviewing court, tribunal or
arbitration panel may modify such term or provision to the extent necessary to
render it enforceable and the parties agree to be bound by and perform this
Agreement as modified.
14. Applicable Law
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly signed by
the date stated above.
TTR Inc.
- -------------------- ----------------------
Marc Tokayer Robert Friedman
President
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1
EX. 10.12
AGREEMENT
AGREEMENT made this 6th day of May, 1997, between HENRY ISRAEL, Israeli
Identity No.: 030203425, residing at 39 Ben Zakai Street, Bnei Barak, Israel
(hereinafter "Henry Israel") on the one hand, and TTR TECHNOLOGIES LTD., an
Israeli company with offices at 2 Hanagar Street, Kfar Saba, Israel ("TTR Ltd.")
and TTR INC., an Delaware corporation with offices in New York, New York ("TTR
Inc."; TTR Ltd. and TTR Inc., collectively referred to as the "TTR Companies")
on the other hand.
W I T N E S S E T H
WHEREAS, disputes between Henry Israel and TTR Ltd. have arisen in
connection with the retention and termination of Henry Israel as a consultant to
TTR Ltd., which disputes have resulted in claims brought by Henry Israel,
inter-alia, for breach of contract against the TTR Companies. Henry Israel's
claims are fully set forth in Civil File 368/97, District Court for Tel
Aviv-Jaffa and Summary Judgment File 32591/97a, Magistrate Court for Tel
Aviv-Jaffa (hereinafter, the "Lawsuit");
WHEREAS, each of the TTR Companies expressly denies each and every claim
and allegation set forth in the Lawsuit; and
WHEREAS, the parties desire to resolve all disputes between them;
Accordingly, the parties are entering into this Agreement.
NOW, THEREFORE, the parties agree hereafter as follows:
1. Consideration & Undertakings of the Parties
1.1 Consideration. In consideration of Henry Israel's full and final
release of all claims, as set forth in the Lawsuit, the TTR Companies, jointly
and severally, agree to the following:
(i) within three (3) days after the due execution by the parties of this
Agreement, pay to Henry Israel the amount of NIS 38,000, plus VAT (at a
rate of 17%) (hereinafter, the "Back Fees"); and
(ii) issue to Henry Israel within ten (10) business days following the
effectiveness of this Agreement, 15,000 shares of the Common Stock, par
value $0.001, of TTR Inc. (hereinafter, the "Shares"). The parties agree
that for purposes of this Agreement, issuance of the Shares shall be
deemed to have fully and finally occurred upon presentation to Henry
Israel of the opinion of
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2
Aboudi & Brounstein, Law Offices, to the effect that all actions
necessary for the issuance of the Shares hereunder have been completed.
1.2 Other Undertakings of the TTR Companies.
(i) At any time that TTR Inc. proposes to register (including for this
purpose a registration effected by TTR Inc. for any of its existing
shareholders) any of its share capital or other securities under the
Securities Act of 1933 (hereinafter, the "Securities Act"), as amended,
the Company shall, at such time, cause to be registered under the Act
all of the Shares. TTR Inc. acknowledges that registration under this
Section 1.2(i) comprises a fundamental provision of this Agreement and,
accordingly, will use its best efforts to facilitate and expedite the
registration of the Shares.
(b) At any time following the 180th day after registration of the Shares
in accordance with the provisions of Section 1.2(i) and continuing for
three (3) business (trading) days thereafter, upon and subject to the
sale, transfer or other disposition of the Shares (or any part thereof)
in a bona-fide arms-length ordinary brokerage transaction in the
over-the-counter market (and not by way of a private sale) (hereinafter,
the "Share Disposition"), TTR Inc. will remit to Henry Israel, at Henry
Israel's written request, an amount per Share, equal to the difference
between $15.50 and the actual gross consideration (the actual price at
which the trade is completed, as recorded by the broker) received by
Henry Israel (or his designee) in connection with such Share
Disposition; PROVIDED, THAT, TTR Inc.'s, obligation under this
Sub-section 1.2(ii) shall terminate and be of no force or effect if at
any time after registration of the Shares as provided under Section
1.2(i) above, the per Share sale price at which TTR Inc.'s publicly
traded Common Stock trades in the over-the-counter market averages in
excess of $15.50 per Share for a two (2) consecutive day period ;
PROVIDED, FURTHER, that, TTR Inc.'s obligation hereunder shall be
exercised, at the request of Henry Israel as herein provided, on only
one (1) occasion. In determining the average price at which TTR Inc.'s
publicly traded Common Stock trades in the over-the-counter market in a
given one (1) day period, the sale price per share of Common Stock
traded shall be multiplied by the number of shares traded at that price
(the product being the "Traded Dollar Amount per Transaction") for all
transactions, and the aggregate Dollar amount of all Traded Dollar
Amount per Transaction shall be divided by the total number of shares
traded on such day.
Notwithstanding anything to the contrary contained herein, TTR Inc.'s
obligation hereunder shall terminate and be of no further force or
effect with respect to any part of such Shares that are transferred,
sold or otherwise disposed of at any time after their issuance hereunder
and prior to the 180th day after registration of such Shares (under
Section 1.2(i) above).
1.3 Undertaking of Henry Israel. Immediately upon the effectiveness of this
Agreement and the payment by the TTR Companies of the Back Fees, Henry Israel
shall transfer to the Company a Philips CDD 2000, Plextor 4.5 speed external CD,
SCSI Card and cables.
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3
2. Mutual Releases. Upon the issuance of the Shares as in accordance with the
provisions of Section 1.1(ii) hereunder, Henry Israel does hereby absolutely and
unconditionally release and forever discharge each of the TTR Companies, their
respective officers, directors, employees, agents, attorneys, insurers,
successors and assigns from any claims, demands, rights and causes of action and
damages, whether liquidated or unliquidated, absolute or contingent, known or
unknown, arising prior to or concurrent with the date hereof, including
specifically, but without limiting the generality of the foregoing, any and all
claims Henry Israel could have asserted against the TTR Companies.
Upon the issuance of the Shares as in accordance with the provisions of
Section 1.1(ii) hereunder, each of the TTR Companies does hereby absolutely and
unconditionally release and forever discharge Henry Israel, his heirs,
executors, beneficiaries, counsel and assigns from any claims, demands, rights
and causes of action and damages, whether liquidated or unliquidated, absolute
or contingent, known or unknown, arising prior to or concurrent with the date
hereof, including specifically, but without limiting the generality of the
foregoing, any and all claims the TTR Companies could have asserted against
Henry Israel.
3. Confidentiality. Each of Henry Israel and the TTR Companies hereby undertakes
(i) to keep confidential and (ii) not to disclose to any party - any and all
matters relating to this Agreement and the Lawsuit, unless required by
applicable law, the Act, the Securities Exchange Act of 1934, as amended, or
relevant regulations. Henry Israel acknowledges that this provision is
fundamental to the TTR Companies and that without it the TTR Companies would not
enter into this Agreement. Henry Israel acknowledges that any actual or
threatened violation of this restriction set forth in this section 3 may cause
irreparable harm to the TTR Companies to which there may be no adequate legal
remedy in damages. In the event of an actual or threatened violation of the
foregoing restrictions, each of the TTR Companies and Henry Israel shall be
entitled to temporary and permanent injunctive relief, in addition to any other
remedy available to it under applicable law.
4. Stipulation of Dismissal: Concurrently with the issuance of the Shares in
accordance with the provisions of Section 1.1(ii), the parties, through their
respective counsel, shall enter into and file with the District Court in Tel
Aviv-Jaffa, within twenty four (24) hours of the issuance of the Shares
hereunder, a dismissal of the Lawsuit with prejudice. However, the Court in Tel
Aviv-Jaffa shall expressly retain exclusive jurisdiction over the action for
purpose of enforcing this Agreement, but, unless a Party breaches this
Agreement, this Agreement shall not be filed with the Court.
5. Reliance and Complete Agreement. The parties acknowledge and agree that in
the execution of this Agreement, neither has relied upon any representation by
any party or attorney, except as expressly stated herein. Moreover, this
Agreement shall represent the complete and entire agreement between the parties,
to the exclusion of any and all other prior or concurrent terms, written or
oral.
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4
6. Modification. The terms of this Agreement may be modified only upon written
consent of the parties.
IN WITNESS WHEREOF, each of the parties has set forth his signature as
of the date first written above.
TTR LTD.
By: ________________
Title:
TTR INC.
By: ________________
Title:
____________________
HENRY ISRAEL
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AGREEMENT
AGREEMENT made this 19th day of January, 1998, between HENRY ISRAEL,
Israeli Identity No.: 030203425, residing at 39 Ben Zakai Street, Bnei Barak,
Israel (hereinafter "HI") on the one hand, and TTR TECHNOLOGIES LTD., an Israeli
company, registered No: 51-205917-1, with offices at 2 Hanagar Street, Kfar
Saba, Israel (hereinafter "TTR LTD.") and TTR Inc., a Delaware corporation with
offices at 2 Hanager Street, Kfar Saba, Israel (hereinafter "TTR INC." (TTR
Ltd. and TTR Inc., collectively hereinafter referred to as "TTR Companies")
on the other hand.
W I T N E S S E T H
WHEREAS, the parties have previously entered into an agreement dated as
of May 6, 1997 resolving certain outstanding disputes among them (hereinafter,
the "PREVIOUS AGREEMENT").
WHEREAS, pursuant to section 1.2 (ii) of the Previous Agreement, the
parties agree that the TTR Companies, jointly and severally, are indebted to HI
an aggregate amount of US $157,344 (one hundred fifty seven thousand, three
hundred and forty four) (hereinafter, the "DEBT"), in respect of the sale of
Shares (as defined in the Previous Agreement) and related costs;
WHEREAS, the TTR Companies have requested HI to postpone the payment of
a part of the Debt, according to the terms set forth in this Agreement.
WHEREAS, HI has agreed, to the suggested postponement by the TTR
Companies, subject to the terms set forth in this Agreement.
WHEREAS, the parties agree hereafter as follows:
1. PAYMENT OF THE DEBT & GUARANTEE. The TTR Companies shall deliver to HI,
upon signing of this Agreement the following:
1.1 A wire transfer, instructed by TTR Inc. at the date first written
above, in the amount of US $57,344 (fifty seven thousand, three
hundred and forthy four), to Dollar Account No. 072626, Branch
No. 655 - Bnei Barak of Bank Hapoalim Ltd. (herein after "THE
ACCOUNT"). Promptly upon wiring, Ophir Keshet Adv. will be
provided with notice from TTR Inc's Bank that the foregoing
amount was wired to the Account as herein provided. It is hereby
agreed and clarified that the fulfillment of the obligation of
the TTR Companies under this section 1.1 shall be deemed to be
executed, only upon the full and complete execution of the wire
transfer.
1.2 A cheque, issued by TTR Inc., at the amount of 105,000 US Dollars
(one hundred and five thousand US Dollars) (100,000 $ plus 5,000
$ interest) payable on the 15th day of June, 1998 (hereinafter
"THE TTR DEFERRED CHECKQUE"). It is hereby agreed and clarified
that the fulfillment of the obligation
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-2-
of the TTR Companies under this secton 1.2 shall be deemed to be
executed, only upon the full and complete redemption of the TTR
Deferred Cheque.
1.3 Two irrevocable, unconditonal and autonomic Bank Guarantees, at
the aggregate amount of US $ 105,000 (one hundred and five
thousand) issued by The First International Bank Ltd., that
secure any and all obligations of the TTR Companies under secton
1.2 above. It is hereby clarified and agreed that the Bank
Guarantees shall be redeemable in whole, upon any breach of
section 1.2 above. The Bank Guarantees shall be canceled and/or
returned to TTR Companies only upon the full and complete
fulfillment of TTR Companies obligations under section 1.2 above.
It is further clarified and agreed that both Bank Guarantees may
be exercised in favor of HI, only upon written notice from Ophir
Keshet Adv., given to Aboudi & Brounstein, Adv. and the Issuing
Bank, to the effect that any violation of section 1.2 above, has
occurred.
2. AVOIDANCE OF ACTION. The parties hereby undertake to avoid any legal
action, and not to file any claim, suit or request, inter alia any
request for temporary and/or permanent injunctive relief, with any
court, civil or religious, regarding the Debt or any other matter
regulated in this Agreement. Each of HI on the one hand and the TTR
Companies on the other hand shall be released from their undertakings
under this section 2, upon any violation of this agreement by the other
party.
3. UNDERTAKINGS OF THE TTR COMPANIES. In the event that it is established
that the TTR Companies or any one of them, or any officer thereof or any
other person acting upon their express behest (hereinafter, the
"OFFICERS") has in fact violated and/or caused the TTR Companies to
violate, any of the terms of section 2 above, HI will be owed, by the
TTR Companies, jointly and severally, an additional amount of 50,000 US
$ (fifty thousand), as liquidation damages, for HI's consent to postpone
the payment of a part of the Debt as set forth herein, and damages
inflicted to him thereunder. For avoidance of doubt it is hereby agreed
and clarified that, for the purpose of this section 3, any acton of any
of the Officers shall be deemed to be an action of the TTR Companies.
4. MUTUAL RELEASES. Upon the full and complete execution of this agreement,
each of the TTR Companies and HI, individually, hereby absolutely and
unconditionally releases and forever discharges any of the other
parties, their respective officers, directors, employees, agents,
attorneys, insurers, successors, and assign from any and all claims,
demands, rights and causes of action and damages, whether liquidated or
unliquidated, absolute or contingent, known or unknown, including,
without limitation, any claims arising under the Previous Agreement,
arising prior to or concurrent with the date thereof, that any of the
parties has from and/or against any of the other parties.
5. APPLICABLE LAW & JURISDICTION. This Agreement shall be governed solely
by the laws of the state of Israel. The civil court in Tel-Aviv - Jaffa
shall expressly retain exclusive Jurisdiction over any dispute arising
out of, or in connection with this Agreement.
6. RELIANCE AND COMPLETE AGREEMENT. The parties acknowledge and agree that
in the execution of this Agreement, neither has relied upon any
representation by any party or attorney, except as expressly stated
herein. Moreover, this Agreement shall represent the complete and entire
agreement between the parties, to the exclusion of any and all other
prior or concurrent terms, written or oral, all subject to the complete
and full fulfillment of terms contained therein.
7. MODIFICATION. The terms of this Agreement may be modified only upon
written consent of the parties.
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IN WITNESS WHEREOF, each of the parties has set forth his signature
as of the date first written above.
TTR TECHNOLOGIES LTD. TTR INC. H. ISRAEL
By: By: By: H. ISRAEL
------------------ -------------------- ----------------
Title: Title: 19 JAN 98
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1
EX. 10.13
DEVELOPMENT & OEM LICENSING AGREEMENT
This DEVELOPMENT & OEM LICENSING AGREEMENT is entered into and made
effective as of the 31st day of October, 1997 by and between TTR TECHNOLOGIES
LTD., a company formed under the laws of the State of Israel with an address at
2 Hanagar Street, Kfar Saba, Israel 44425 ("TTR") and DOUG CARSON & ASSOCIATES
INC. , an Oklahoma corporation with its principal offices at 1515 East Pine St.,
Cushing Oklahoma 74023-9161 ("Licensee").
W I T N E S S E T H
WHEREAS, TTR is in the business of designing, developing, marketing and
distributing, inter-alia, optical media authenticity verification and software
protection products designed to prevent the unauthorized reproduction of
protected software applications and has developed proprietary technology which
prevents the faithful reproduction of optical media;
WHEREAS, Licensee is in the business inter alia of designing,
developing, marketing and supplying signal processing mastering interface system
configurations for use in the pressed optical media industry;
WHEREAS, TTR desires to grant Licensee, on an OEM basis, certain
exclusive, non-transferable rights to merge, link, bundle or otherwise integrate
TTR's DiscGuard System (as defined below) into Licensee's products, including
signal processing systems and to advertise, promote, market, distribute and
service the Enhanced MIS (as defined below), and Licensee wishes to accept and
exercise these rights, all on the terms contained herein.
NOW, THEREFORE, in consideration of the terms and conditions hereafter set
forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall, unless the context otherwise
requires, have the following meanings ascribed to them:
1.1 "Enhanced MIS" shall mean the DiscGuard System integrated into a
MIS (as defined below) where such Enhanced MIS operating in
conjunction with DiscGuard Enabling Software and with a laser
beam recorder is able to produce a glass master capable of
producing DiscGuard Fingerprinted Discs
1.2 "Development License" is defined in Section 2.1.
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2
1.3 "Customer" shall mean an end-user of the Enhanced MIS or a
DiscGuard enhanced Signal Processing System.
1.4 "Confidential Information" means any (i) information or material
disclosed by one party hereto to the other orally or in writing
which the disclosing party designates in writing as confidential
at the time of disclosure, (ii) information disclosed orally by
one party hereto to the other that is designated orally as
confidential at the time of disclosure and that is described and
designated as confidential in a written notice from the
disclosing party to the receiving party within thirty (30) days
after such disclosure, (iii) secret information regarding the
internals of the DiscGuard System, whether or not specifically
designated as confidential, (iv) secret information regarding the
internals of the Licensee's products, whether or not specifically
designated as confidential and (v) information regarding
Licensee's customers, business or plans, whether or not
specifically designated as confidential. Notwithstanding the
foregoing, "Confidential Information" shall not include
information which: (i) becomes generally known other than through
the receiving party's breach of this Agreement or violation of
the disclosing party's rights under trade secrets or other law,
(ii) the receiving party independently develops without reference
to confidential information of the disclosing party or any third
party, or (iii) the receiving party acquires from a third party,
or develops based in part on information acquired from a third
party, without incurring any obligations of confidentiality
provided the third party acquired such information without there
having been a breach of a valid confidentiality agreement.
1.5 "DiscGuard System" is a TTR proprietary technology which prevents
the faithful reproduction of all types of optical media (CD-ROM,
CD-R, DVD-ROM, DVD-R etc.).
1.6 "DiscGuard Detecting Software" is software [utilizing a distinct
identification code] that enables an optical disc retrieval
system to determine whether a disc is protected by the DiscGuard
System.
1.7 "DiscGuard Enabling Software" is software used in conjunction
with an Enhanced MIS and which permits the Enhanced MIS to
produce DiscGuard protected CD-ROMs and DVDs.
1.7 "DiscGuard Workstation Software" is a graphical user interface
and software used to encrypt publisher applications to protect
them from running unless such applications are on an authentic
original disc;
1.8 "Fingerprinted Disc" is a CD-ROM or DVD disc with a
non-reproducible DiscGuard digital fingerprint that can be
detected during retrieval to verify that the media is an
authentic original.
1.9 "Distributor" shall mean a party that is authorized by Licensee
to market or license or distribute any MIS.
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3
1.10 "Licensed Intellectual Property" means all Israel and foreign
copyrights (including without limitation all renewals and
extensions thereof), registrations and applications for
registration of copyright, patents (including without limitation
continuations, continuations-in-part, reissues and extensions
thereof), applications for patent (including without limitation
divisions thereof), trade secrets and other intellectual property
rights, whether now existing or hereafter created, developed,
arising or otherwise coming into being, that relate to or cover
any of DiscGuard System or part thereof, including without
limitation any intellectual property rights that could be
violated, infringed or misappropriated by any copying,
manufacture, use, performance, distribution or other exploitation
of DiscGuard system or part thereof.
1.11 "Mastering Interface System(s) ("MIS")" includes a
software/hardware configuration which formats data and feeds the
same to a laser beam recorder (the "LBR") that is used in the
pressed optical media industry to produce a glass master (used to
produce metal stampers which are, in turn used in replicating
machines to mass-produce CD-ROMs and DVDs), where such MIS
utilizes a Signal Processing System (as defined below) that is
proprietary to the Licensee; and where such MIS is proprietary to
the Licensee or for which Licensee has exclusive manufacturing
rights and sells or leases such MIS to a Customer in the regular
course of business.
1.12 "Subsidiaries" shall mean companies in which a party owns more
than 50% of the equity and has voting control.
1.13 "Signal Processing System" shall mean any system configuration
designed to provide a modulated signal for creating pre-recorded
master discs used to produce CDs and DVDs.
ARTICLE II
GRANT OF LICENSE; UNDERTAKING TO INTEGRATE DISCGUARD;
2.1 Grant of Development License. TTR hereby grants to Licensee an
exclusive, non-transferable license under the Licensed
Intellectual Property to merge, link, bundle or otherwise
integrate the DiscGuard System into the MIS and Licensee's Signal
Processing Systems in order to complete the Development defined
in Section 3.2 (the "Development License").
2.2 Grant of License. Upon and subject to the completion of the First
Run, as specified in Section 3.4, TTR hereby grants to Licensee
an exclusive, non-transferable, royalty-free world-wide license
under the Licensed Intellectual Property to (hereinafter, the
"License"):
(i) merge, link, bundle or otherwise integrate the DiscGuard
System into the MIS or Licensee's Signal Processing System
to produce the Enhanced MIS or a DiscGuard enhanced Signal
Processing System; and
(ii) market, distribute, sell and/or license the Enhanced MIS
or DiscGuard
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4
enhanced Signal Processing System, directly and indirectly
through Subsidiaries and Distributors (the "Sublicensees")
to Customers.
The license granted pursuant to this Section 2.2 (ii) shall be
exclusive for the period from the date of its grant up to and
including December 31, 1998; PROVIDED, THAT, in the event
Licensee shall have sold or upgraded 100 units of MIS to which
DiscGuard can be integrated to become an Enhanced MIS by such
date, then the exclusivity granted hereunder shall thereafter be
extended through December 31, 1999 (the "Exclusive License").
Within three (3) months preceding December 31, 1999, the Company
and Licensee shall confer for the purpose of establishing
mutually acceptable annual minimum unit sales or upgrading
requirements for purposes of renewing or extending the Exclusive
License. Subsequent extensions of the period of the Exclusive
License, if any, shall be subject to the negotiation and approval
by each of the parties of such additional terms and conditions,
including minimum unit sales or upgrading requirements, as each
may, in its sole discretion, deem necessary or desirable.
So long as the Exclusive License shall remain in effect in
accordance herewith, with respect to pre-recorded CD and DVD
discs, TTR shall not authorize any party other than Licensee to
provide Signal Processing Systems which utilize or work in
conjunction with the DiscGuard System.
2.3 TTR Direct Sales and Additional OEM Agreements; Restrictions. It
is understood between the parties that the intent of this
Agreement is that Licensee will use its best efforts to cause its
Enhanced MIS or DiscGuard enhanced Signal Processing System
products to function in harmony with TTR's DiscGuard System and
that TTR will market and sell the DiscGuard System directly to
Customers, software and electronic content providers, title
publishers and others. Nothing contained herein grants, or shall
be deemed or interpreted to grant, to Licensee a license or the
right to distribute or exploit in any manner (i) the DiscGuard
System (or any component thereof) as a stand-alone product (ii)
the DiscGuard Detecting Software or (iii) the DiscGuard
Workstation Software or (iv) the DiscGuard Enabling Software.
Additionally, this Agreement shall not be construed to limit or
restrict TTR (other than as set out in Section 2.2(ii) above with
respect to MIS or DiscGuard enhanced Signal Processing Systems)
in any way from (i) promoting, granting licenses to and
installing the DiscGuard System and other TTR products at any
location and at any end-user customer's facilities, whether
directly, indirectly, or through a distributor, agent or
subsidiary and (ii) granting resale, distribution and OEM
licenses relating to the DiscGuard System to third-parties.
2.4 Restricted Uses. Licensee is prohibited from changing,
developing, enhancing or otherwise modifying the DiscGuard System
(or any component thereof) in any way whatsoever. Licensee shall
obtain written undertakings from its Sublicensees or to ensure
that such persons are bound by a like covenant of restriction
with respect to the use of the Product.
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5
ARTICLE III
DEVELOPMENT OF ENHANCED MIS
3.1 General. This section sets forth the detailed agreement under
which the DiscGuard System will be integrated into MIS for
purposes of developing the Enhanced MIS. It is expected that the
above integration will proceed with all due diligence and that
the milestone dates set forth in Exhibit A will be met. Each of
TTR and Licensee recognizes that the completion of this project
within the time schedule set forth herein is fundamental to this
Agreement and contemplates the continuing cooperation and good
will of each party and the assignment to the project of competent
personnel from each side. Except for any work product developed
which relates to the DiscGuard System, the Licensed Intellectual
Property and other related technologies that are proprietary to
TTR, Licensee shall be the sole owner of all work product
developed pursuant to this Agreement (whether or not embodied
within any of Licensee's products) and TTR shall have no rights,
title and interest therein.
3.2 Development Tasks. Licensee and TTR shall perform their
respective development tasks specified in Exhibit A in accordance
with the development schedule specified therein and the design
specifications specified in Exhibit B (the "Development").
3.3 Acceptance Testing. Upon completion of the Development as herein
provided, TTR shall have ten (10) days in which to review and
conduct testing of the Development to determine, in its sole
discretion, whether same is acceptable. In the event that
following such tests TTR reasonably determines that the
Development is not acceptable, TTR shall so notify Licensee in a
writing, setting forth in reasonable detail its objections.
Within thirty (30) days after delivery of such notice, Licensee
and TTR shall use their best efforts to deliver an Acceptable
version of such Development.
3.4 First Run Sample CDs. Subject to the terms and conditions of a
written agreement to be entered into by TTR and Nimbus CD
International Inc., a Delaware corporation ("Nimbus") which is in
the business of replicating optical media, upon acceptance by TTR
of Development as provided in Section 3.3, Licensee shall use its
best efforts to (i) install the Enhanced MIS into a mastering
machine owned and operated by Nimbus at Nimbus's facility in
Virginia, and (ii) support a sample test run with respect to the
processing component of Licensee's Signal Processing System,
according to the specifications described in a written agreement
with Nimbus, of 1,000 sample Fingerprinted Discs (CD-ROMs) (the
"First Run"). Any financial arrangements related to Nimbus
procuring Licensee's signal processing equipment for use in the
First Run shall be determined between Licensee and Nimbus.
3.5 Termination of Development License. In the event that TTR does
not accept the Development as provided in Section 3. then TTR
may, at its option and upon written notice to Licensee, terminate
forthwith the Development License.
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6
ARTICLE IV
MANNER OF DISTRIBUTION TO LICENSEE; UNDERTAKINGS OF LICENSEE
4.1 Copies to Licensee; Accompanying Documentation. (i) Promptly upon
the execution of this Agreement, TTR shall provide Licensee with
all of the methods, processes, procedures, knowhow, software and
other materials to use the Licensed Intellectual Property as
provided for herein to the extent necessary for the Development
License.
In the event that a License is entered into pursuant to Section
2.2 hereunder, for the duration of the License, TTR shall provide
to Licensee, within five (5) Business Days' of its availability
for commercial distribution, DiscGuard System upgrades or
improvements, if any.
4.2 Undertakings of Licensee. Licensee hereby undertakes that for so
long as this Agreement is in force and effect, it will use its
best efforts, in order to complete the Development of the
Enhanced MIS and to bundle and integrate the DiscGuard System
with MIS, as provided for hereunder.
In the event that the License is granted in accordance with the
provisions of Section 2.2, the Licensee undertakes to perform
each of the following:
(i) Integration of the Product. For the duration of the
Exclusive License, Licensee will integrate the DiscGuard
System with all of its MIS, as provided for hereunder;
(ii) Sale of Enhanced MIS. For the duration of the Exclusive
License the Licensee shall use its best efforts to sell
the Enhanced MIS to new Customers and to prior purchasers
of MIS;
(iii) Sublicensees. Every agreement entered into by Licensee
with a Sublicensee shall be no less protective of TTR's
rights than as provided for in this Agreement. In
addition, Licensee agrees to provide to its Customers the
documentation attached to this Agreement as Exhibit C
informing them of the DiscGuard System. This information
documentation may be changed from time to time as agreed
to in writing by the parties hereto. Both parties shall
act in good faith in the development of such
documentation. It is understood that this documentation is
to be of approximately one (1) sheet of printed material;
(iv) Networking. TTR understands that Licensee, by the
nature of its products and position in the industry,
supports and enables a variety of formats, technologies
and functionalities, some of which are
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7
competitive to TTR. Given Licensee's unique position, it
must maintain a proper balance of advocacy and objectivity
with respect to the various formats, technologies and
functionalities. Licensee is willing and able, however, to
provide TTR with certain information which may be used by
TTR in its efforts to promote, market and sell its
DiscGuard System. On or before the first day of January,
April, July and October of each year during the term of
this Agreement, Licensee shall provide TTR with a written
statement setting forth, in reasonable detail, in respect
of the previous three month period, information relating
to (A) the number and type of Enhanced MISs or DiscGuard
enhanced Signal Processing Systems developed and sold or
licensed and the (B) names and addresses of all
Sublicensees and Customers. Licensee agrees that it will
in good faith advocate no less than balanced treatment of
TTR's technology vis a vis other competing technologies
when the issue arises with respect to standard setting
groups under circumstances wherein Licensee is involved in
providing input to such groups related to such technology.
(v) Competitive Products. TTR understands that Licensee
supports and facilitates a wide variety of third party
technologies, some of which may be competitive with the
DiscGuard System. In the course of carrying out Licensee's
business, Licensee will maintain objectivity with respect
to the various technologies which may be competitive with
the DiscGuard System and will not advocate any particular
technology (or derivative product or component) at the
expense of DiscGuard.
4.3 Undertakings of TTR. TTR shall use its best efforts to introduce
Licensee to software and electronic content developers and title
publishers who are customers of TTR.
ARTICLE V
PROPRIETARY RIGHTS
5.1 Title to Products. Licensee acknowledges that all of the Licensed
Intellectual Property is the sole property of TTR., and Licensee
shall not obtain any interest of any kind in the DiscGuard System
by or through this Agreement except as contemplated herein. Any
modifications, enhancements or improvements relating to the
DiscGuard System (whether or not resulting from the
implementation of this Agreement) which are discovered, invented
or first reduced to practice by the Licensee shall be the sole
and exclusive property of TTR, subject to a license, on the terms
set forth herein, in favor of Licensee. License acknowledges that
this declaration is vital to TTR and without it TTR would not
enter into this Agreement. TTR shall provide Licensee with form
of TTR's patent notice which will be included with each Enhanced
MIS.
Likewise, TTR acknowledges that all of the Licensee's products
are the sole property of Licensee (including but not limited to
the components of such products which interact with, enable or in
any way facilitate the functioning of
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8
the DiscGuard System in coordination them), and TTR shall not
obtain any interest of any kind in the Licensee's products or any
part of them by or through this Agreement. Any modifications,
enhancements or improvements relating to the Licensee's products
(whether or not resulting from the implementation of this
Agreement) which are discovered, invented or first reduced to
practice by the Licensee shall be the sole and exclusive property
of the Licensee. TTR acknowledges that this declaration is vital
to Licensee and without it Licensee would not enter into this
Agreement.
5.2 Trade Secrets. Licensee acknowledges that the DiscGuard System
contains trade secrets which are the sole property of TTR and
which are confidential and are not in the public domain, the
unauthorized use or disclosure of which may cause irreparable
harm to TTR.
TTR acknowledges that the Licensee's products contain trade
secrets which are the sole property of Licensee and which are
confidential and are not in the public domain, the unauthorized
use or disclosure of which may cause irreparable harm to
Licensee.
5.3 Trade Names, Trademarks and Service Marks. Licensee acknowledges
that the trade names, trademarks and service marks used by TTR in
relation to its DiscGuard System, are the exclusive property of
TTR. Licensee agrees that it shall not hold itself out as having
acquired any proprietary right to any trade name, trademark, or
service mark of TTR by virtue of its use thereof or anything
herein, except as specifically set forth in this Agreement, and
any such right shall immediately cease upon the termination or
cancellation of this Agreement.
Licensee is expressly authorized to use such trade names,
trademarks and service marks in promoting, marketing, selling,
licensing and supporting its products with respect to their
functionality in supporting the DiscGuard System.
The authorization contained herein to use and authorize the use
of any trademarks or tradenames shall cease by the ninetieth
(90th) day after Licensee has received written notice from TTR to
the effect that such tradenames or trademark has been superseded
or replaced by a new tradename or trademark.
TTR acknowledges that the trade names, trademarks and service
marks used by Licensee in relation to its products are the
exclusive property of Licensee. TTR agrees that it shall not hold
itself out as having acquired any proprietary right to any trade
name, trademark, or service mark of Licensee by virtue of its use
thereof or anything herein, except as specifically set forth in
this Agreement, and any such right shall immediately cease upon
the termination or cancellation of this Agreement. TTR is
expressly authorized to use such trade names, trademarks and
service marks in promoting, marketing, selling, licensing and
supporting its DiscGuard System with respect to such products'
functionality in supporting the DiscGuard System.
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9
The authorization contained herein to use and authorize the use
of any trademarks or tradenames shall cease by the ninetieth
(90th) day after TTR has received written notice from Licensee to
the effect that such tradenames or trademark has been superseded
or replaced by a new tradename or trademark.
ARTICLE VI
REPRESENTATIONS & WARRANTIES
6.1 TTR's Representations and Warranties. TTR hereby represents and
warrants to Licensee that:
(i) TTR is a private company duly formed and validly existing
under the laws of the State of Israel;
(ii) TTR has the necessary corporate power and authority to
enter into this Agreement and to perform hereunder, and
TTR's execution, delivery and performance of this
Agreement has been duly authorized by all necessary
corporate actions;
(iii) Neither the execution or delivery of this Agreement nor
the performance by TTR hereunder will violate any
provision of TTR's charter documents or articles any
agreement by which it is currently bound;
(iv) TTR owns and has all of the rights to the intellectual
property incorporated into the DiscGuard System which are
necessary for TTR to grant the Licenses and perform all of
its obligations under this Agreement.
6.2 Licensee's Representations and Warranties. Licensee hereby
represents and warrants to TTR that:
(i) Licensee is a private company duly formed and validly
existing under the laws of the State of Oklahoma;
(ii) Licensee has the necessary corporate power and authority
to enter into this Agreement and to perform hereunder, and
Licensee's execution, delivery and performance of this
Agreement has been duly authorized by all necessary
corporate actions; and,
(iii) Neither the execution or delivery of this Agreement nor
the performance by Licensee hereunder will violate any
provision of Licensee's charter documents or articles or
any agreement by which it is currently bound.
ARTICLE VII
WARRANTIES, LIABILITY & INDEMNIFICATION
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10
7.1 Warranties. IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR
PURPOSE, SATISFACTION AND MERCHANTABILITY SHALL NOT APPLY TO
DISCGUARD SYSTEMS, OR TO MIS, ENHANCED MIS OR ANY OTHER OF
LICENSEE'S PRODUCTS.
7.2 Limitation on Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE
IN RESPECT OF OR ARISING OUT OF THE PERFORMANCE AND/OR BREACH OF
ITS OBLIGATIONS HEREUNDER FOR ANY INDIRECT, INCIDENTAL OR SPECIAL
OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS, REVENUE,
DATA OR USE, INCURRED BY THE OTHER PARTY WHETHER IN AN ACTION IN
CONTRACT OR TORT, EVEN IF THAT PARTY OR ANY OTHER PERSON HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
7.3 Indemnity. TTR shall indemnify and hold Licensee and its
Subsidiaries and their customers harmless from all loss, damage
and/or expenses (including attorney's fees) arising out of any
claims by third parties that the use of the DiscGuard System
furnished to Licensee hereunder infringes any patent, trademark,
copyright or other proprietary interest. Licensee shall promptly
notify TTR in writing of such claim and permits TTR to control
the defense or settlement thereof. TTR shall vigorously defend
against any such claim. TTR may, at its sole option and expense
(i) procure for the Licensee the right to continue using the
infringing product (ii) modify the infringing product so that it
is noninfringing (iii) procure a replacement product that has
substantially the same functionality, or if none of the above
options is reasonably available (iv) terminate this Agreement and
all sublicenses granted hereunder. The foregoing obligation will
not cover any claim of infringement solely resulting from the use
of the Enhanced MIS or Licensee's DiscGuard enhanced Signal
Processing Systems, if such infringement could have been avoided
by use of the DiscGuard System alone.
Licensee shall indemnify and hold TTR harmless from all loss,
damage and/or expenses (including attorney's fees) arising out of
any claims by third parties that the use of its products in
combination with the DiscGuard System furnished to the Licensee
hereunder infringes any patent, trademark, copyright or other
proprietary interest. TTR shall promptly notify Licensee in
writing of such claim and permit Licensee to control the defense
or settlement thereof. Licensee may, at its sole option and
expense (i) procure for the TTR the right to continue using the
infringing product (ii) modify the infringing product so that it
is noninfringing (iii) procure a replacement product that has
substantially the same functionality, or if none of the above
options is reasonably available (iv) terminate this Agreement.
The foregoing obligation will not cover any claim of infringement
solely resulting from the use of such product in combination with
DiscGuard, if such infringement could have been avoided by use of
the License's product alone.
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11
7.4 No Unauthorized Use or Disclosure. Each party shall: (i) hold in
confidence, and not disclose or reveal to any person or entity,
any Confidential Information of the other party without the clear
and express prior written consent of a duly authorized
representative of such other party, except that a party receiving
Confidential Information from the other party may reveal such
information solely to its employees or contractors or consultants
who require such disclosure to allow such receiving party to
perform its obligations or exercise its rights under this
Agreement and who agree in writing to refrain from making any
unauthorized use or disclosure thereof; and (ii) not use any
Confidential Information of the other party for any purpose at
any time, other than for the purpose(s) of performing its
obligations or exercising its rights under this Agreement. Each
party shall protect the Confidential Information of the other
party using at least the same degree of care it uses to protect
its own proprietary and confidential information and materials of
like importance, but in no event less care than a reasonably
prudent business person would take in a like or similar
situation. Each party shall return any Confidential Information
of the other upon written request, except to the extent that
doing so would undermine or interfere with the exercise by the
receiving party of its rights under this Agreement. These
obligations of confidentiality shall relate back to the date of
the original nondisclosure agreement between the parties and to
the Memorandum of Understanding dated April 14, 1997, and shall
cover all confidential information exchanged between the parties
pursuant to those documents.
7.5 Disclosure Of Confidential Information Pursuant To Subpoena. If a
party to this Agreement is served with a subpoena which seeks to
compel the production of Confidential Information of the other
party to this Agreement, the party upon whom such subpoena is
served shall immediately give written notice of such subpoena to
the other party to this Agreement, unless such party is
prohibited by law from providing such notice. The parties to this
Agreement shall then cooperate with one another for the purpose
of obtaining such relief as will protect the Confidential
Information. Should a motion be timely filed and served and the
party upon whom such subpoena is served is notified in writing
thereof before the date upon which such production is requested,
the party upon whom such subpoena is served shall not comply with
such subpoena until after such time as the court rules on the
subject motion. Should such order be obtained, the party upon
whom such subpoena is served shall comply with the order. Should
no such motion be filed before the scheduled production date, the
party upon whom such subpoena is served may comply with such
subpoena.
7.6 Terms of Agreement. Each party shall treat the terms of this
Agreement as confidential and shall not disclose such terms,
except that disclosure of such terms shall be permitted (i) as
provided in Section 7.5 with respect to Confidential Information,
(ii) to accountants, attorneys and other professionals providing
services to the disclosing party to the extent that such
professionals are notified of the confidential nature of such
terms.
7.7 No Compete. ******* Confidential material omitted and separately
filed with the SEC.
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12
ARTICLE VIII
DEFAULT & TERMINATION
8.1 Effectiveness; Term of Agreement. This Agreement shall become
effective upon signature by each of the parties hereto and,
unless terminated as herein provided, shall continue in full
force and effect for five (5) years thereafter, unless extended
in accordance with the provisions of Section 2.2(ii); provided,
that, this Agreement shall be automatically renewable for
additional one (1) year periods upon expiry subject to the mutual
written agreement of the parties
8.2 Right to Terminate.
(i) TTR shall be entitled to terminate the Development License
and this Agreement in the event that TTR shall determine
the Development is not acceptable in accordance with the
provisions of Section 3.3 hereof,
(ii) TTR shall be entitled to terminate the Development License
and this Agreement in the event that the First Run is not
completed to TTR's satisfaction by in accordance with the
provisions of Section 3.4,
(iii) Either party may terminate this Agreement upon the other's
breach of a material term, covenant or undertaking in this
Agreement if, within thirty (30) days following the
delivery of a written notice to the defaulting party
setting forth in reasonable detail the basis of such
default and the remedial action required to be taken to
rectify such default, the defaulting party has not
rectified such default to the reasonable satisfaction of
the non-defaulting party .
(iv) Either Party hereto may, at its option terminate this
Agreement should the other Party hereto:
(a) Admit in writing its inability to pay its debts
generally as they become due
(b) Make a general assignment for the benefit of
creditors.
(c) Institute proceedings to be adjudicated a voluntary
bankrupt, or consent to the filing of a petition of
bankruptcy against it.
(d) Be adjudicated by a court of competent jurisdiction
as being bankrupt or insolvent.
(e) Seek reorganization under any bankruptcy act, or
consent to the filing of a petition seeking such
reorganization; or
(f) Have a decree entered against it by a court of
competent
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13
jurisdiction appointing a receiver, liquidator,
trustee, or assignee in bankruptcy or in insolvency
covering all or substantially all of such party's
property or providing for the liquidation of such
party's property or business affairs.
Notwithstanding anything to the contrary contained herein, for a
period not exceeding ninety (90) days following the effective
termination (for whatever reason) of this Agreement, Licensee and
Sublicensees shall be permitted to continue to distribute their
existing inventory of the Enhanced MIS, subject to (and in
accordance with) the terms and conditions contained in this
Agreement.
8.3 Effect of Termination or Expiration. Upon the termination
of this Agreement for any reason whatsoever:
(a) the rights of Licensee and its Sublicensees to
continue distributing the Enhanced MISs shall cease;
provided, however, that all end-user Enhanced MIS licenses
properly granted by Licensee or Sublicensees prior to such
termination shall continue in full force and effect in
accordance with their terms;
(b) Licensee shall, and shall cause its Sublicensees,
promptly return to TTR, erase and/or destroy all
materials, copies of documentation and all information and
literature relating to DiscGuard System which shall have
been provided by TTR to Licensee or reproduced by Licensee
(or by such Sublicensees); provided, however, that
Licensee may retain sufficient and reasonable material and
a number of copies of the documentation to enable Licensee
to continue to provide maintenance services to its
installed base of Customers. Upon such return, erasure
and/or destruction, Licensee shall confirm in writing to
TTR that it has complied with its obligations under this
paragraph.
(c) Each party shall promptly return to the Disclosing
Party, and/or erase or destroy all copies of any
Confidential Information in the possession of such party
or its Subsidiaries, provided, however, that Licensee may
retain sufficient and reasonable material and a number of
copies of the documentation to enable Licensee to continue
to provide maintenance services to its installed base of
Customers.. Upon such return, erasure and/or destruction,
such party shall confirm in writing to the Disclosing
Party that it has complied with its obligations under this
section.
8.4 Survival. Articles V, VII, VIII, and IX of this Agreement shall
survive the termination and/or expiration of this Agreement for
any reason whatsoever.
ARTICLE
MISCELLANEOUS
9.1 Relationship. The relationship between TTR and Licensee is that
of
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14
independent contractors and parties to a license for the Products
in accordance with this Agreement. Neither party is in any way
the agent or attorney in fact of the other, nor shall either
party or any of its respective agents or employees have any power
or authority to assume any obligation of any kind, implied or
expressed, on behalf of the other or to bind the other to any
contract, commitment or agreement whatsoever, or to make any
representation on the other's behalf. This Agreement shall not be
construed as constituting either party as the partner or joint
venture of the other, nor to create any form of legal association
which would impose liability upon one party for the acts or
failures to act of the other.
9.2 Force Majeure. Neither party shall be liable for reasonable
delays in the performance of its obligations under this Agreement
which result from causes beyond its reasonable control, including
without limitation acts of God, strikes, war, riot, civil
disorder, embargo, acts of civil and military authorities, fire,
earthquake, flood or inability to obtain labor or materials.
9.3 Assignability; Binding Effect. Licensee may not assign this
Agreement without the prior written consent of TTR, which consent
shall not be unreasonably withheld or delayed, except that, upon
notice to the other party but without any requirement to obtain
consent, (i) Licensee may assign this Agreement in connection
with the sale or other transfer of substantially all of its
operating assets relating to all of its MIS, other than a sale to
a direct competitor (or affiliate of a direct competitor) of TTR.
Subject to the provisions of this Section, this Agreement shall
be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
9.4 Entire Agreement. This Agreement, including all recitals in the
preamble hereto and Exhibits attached hereto, sets forth the
entire agreement and understanding between the parties, contains
all the understandings, inducements, promises and representations
between the parties relating to the matters referred to herein,
and merges and supersedes all prior agreements, commitments,
arrangements, representations, writings and discussions between
them, whether written or oral, provided, however, that the
confidentiality provisions of any prior nondisclosure agreement
between the parties shall remain in full force and effect
according to their terms.
This Agreement may not be modified or amended except by a written
supplement, duly executed by each of the parties.
9.5 Notices. Any notice, demand or communication which under the
terms of this Agreement or otherwise must or may be given or made
by TTR or Licensee shall be in writing and shall be given or made
by facsimile with confirmation of receipt, certified or
registered air mail, return receipt requested, or any delivery
services, requiring signature of receipt, addressed to the
respective parties as follows:
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15
Licensee
TTR
TTR TECHNOLOGIES LTD.
2 HANAGAR ST.
KFAR SAVA, 42225
ISRAEL
FAX: +972 9 766-2394
Such notice, demand or other communications shall be deemed to
have been given on the date confirmed as the actual date of
delivery by the delivery service if sent by such service, and in
the case of certified or registered air mail - fifteen (15) days
following the date on which it was deposited postage prepaid in
the U.S. or Israeli mail (or the date shown on the actual mail
receipt if it is earlier).
The above addresses may be changed at any time by giving prior
written notice as provided above.
9.6 Severability. Each provision of this Agreement or part thereof
shall be severable. If, for any reason, any such provision or
part thereof is finally determined, by a court of agency having
valid jurisdiction, to be invalid and contrary to, or in
conflict with, any existing or future law or regulation, such
determination shall not impair the operation of or affect the
remaining provisions of this Agreement, and such remaining
provisions will continue to be given full force and effect and
shall continue to bind the parties.
9.7 Enforcement. The respective rights and remedies of each party are
cumulative, and no exercise or enforcement by either party of any
right or remedy hereunder shall preclude the exercise or
enforcement by such party of any other right or remedy hereunder,
or which such party is entitled by law to enforce. Each party may
waive any obligation of or restriction upon the other party under
this Agreement only in writing. No failure, refusal, neglect,
delay, waiver, forbearance or omission of either party to
exercise any right under this Agreement or to insist upon full
compliance by the other with its obligations hereunder shall
constitute a waiver or any provision of this Agreement.
9.8 Construction. The headings appearing at the beginning of each
section of this Agreement are for convenience only and shall not
in any way affect the meaning or interpretation of this
Agreement. The recitals shall be deemed to be part of
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16
this Agreement. From time to time this Agreement and any of the
Exhibits hereto may be modified by the parties in accordance with
Section 9.4 of this Agreement. As so modified, such exhibits
shall be considered part of this Agreement.
9.9 Dispute Resolution; Governing Law. This Agreement shall be
construed and enforced in accordance with the substantive laws of
(i) the State of Oklahoma applicable to contracts wholly executed
and performed therein in any action instituted by TTR and
(ii) the State of New York, in any action instituted by the
Licensee. The Parties agree and consent to the jurisdiction
of the courts in the location of the defendant in any action
(which in the case of TTR shall be New York, NY and in the case
of Licensee shall be Cushing, Oklahoma).
9.10 Press Releases. The parties shall issue a media release to the
public (in a form that has been approved in writing by both
parties) to announce the business relationship being created by
this Agreement.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
duly executed on its behalf as of the date first written above.
TTR TECHNOLOGIES LTD.
By: ________________
Title:
DOUG CARSON AND ASSOCIATES INC.
By: __________________
Title:
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17
Exhibit "A"
3.2: Development Tasks and Development Schedule; Milestone Dates
***** material omitted for reasons of confidentiality and filed separately with
the Securities and Exchange Commission
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18
Exhibit "B"
3.2: Design Specifications
******* Confidential material omitted and filed separately with the Securities
and Exchange Commission
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19
Exhibit "C"
4.2 (iii): Sample Documentation to be provided with Enhanced MIS
******* Confidential material omitted and filed separately with the Securities
and Exchange Commission.
<PAGE>
<PAGE>
EX. 10.14
DEVELOPMENT & OEM LICENSING AGREEMENT
This DEVELOPMENT & OEM LICENSING AGREEMENT is entered into and made
effective as of the 24th day of November, 1997 by and between TTR Technologies
Ltd., a company formed under the laws of the State of Israel with an address at
2 Hanagar Street, Kfar Saba, Israel 44425 ("TTR") and Doug Carson & Associates
Inc., an Oklahoma corporation with its principal offices at 1515 East Pine
Street, Cushing, Oklahoma 74023-9161, ("Developer") and Nimbus CD International,
Inc., a Delaware corporation with principle offices at 623 Welsh Run Road,
Ruckersville, Virginia and its subsidiaries ("Licensee").
W I T N E S S E T H
WHEREAS, TTR is in the business of designing, developing, marketing and
distributing, inter-alia, optical media authenticity verification and software
protection products designed to prevent the unauthorized reproduction of
protected software applications and content and has developed proprietary
technology which prevents the faithful reproduction of optical media;
WHEREAS, Developer is in the business of designing, developing,
marketing and supplying mastering interface systems ("MIS" as defined below)
used to create CD and DVD optical disc glass masters;
WHEREAS, Developer is developing a MIS which integrates the DiscGuard
System (as defined below) for use on laser mastering machines (the "Enhanced
MIS") ;
WHEREAS, Licensee is in the business of replicating optical media;
WHEREAS, Licensee desires to integrate the Enhanced MIS into its laser
mastering machines in order to produce DiscGuard System enhanced glass masters
which are used to produce metal stampers which, in turn, produce CD-ROMs and
DVDs, all on the terms contained herein.
NOW, THEREFORE, in consideration of the terms and conditions hereafter set
forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall, unless the context otherwise
required, have the following meanings ascribed to them:
1
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1.1 "Customer" shall mean a software developer, title publisher or
electronic content provider.
1.2 "Confidential Information" means any (i) information or material
disclosed by one party hereto to the other in writing which the
disclosing party designates in writing as confidential at the
time of disclosure, (ii) information disclosed orally by one
party hereto to the other that is designated orally as
confidential at the time of disclosure and that is described and
designated as confidential in a written notice from the
disclosing party to the receiving party within thirty (30) days
after such disclosure, (iii) hardware and secret information
regarding the internals of the DiscGuard System, DiscGuard System
enhanced discs, MIS, Enhanced MIS and Licensee's Mastering
Machines, whether or not specifically designated as confidential,
and (iv) information regarding a Party's customers, whether or
not specifically designated as confidential. Notwithstanding the
foregoing, "Confidential Information" shall not include
information which: (i) becomes generally known other than through
the receiving party's breach of this Agreement or violation of a
disclosing party's rights under trade secrets or other law, (ii)
the receiving party independently develops without reference to
confidential information of the disclosing party or any third
party, or (iii) the receiving party acquires from a third party,
or develops based in part on information acquired from a third
party, without incurring any obligations of confidentiality.
1.3 "DCA Intellectual Property" means all United States and foreign
copyrights (including without limitation all renewals and
extensions thereof), registrations and applications for
registration of copyright, patents (including without limitation
continuations, continuations-in-part, reissues and extensions
thereof), applications for patent (including without limitation
divisions thereof), trade secrets and other intellectual property
rights, whether now existing or hereafter created, developed,
arising or otherwise coming into being, that relate to or cover
any of MIS (as defined below) or part thereof, including without
limitation any intellectual property rights that could be
violated, infringed or misappropriated by any copying,
manufacture, use, performance, distribution or other exploitation
of MIS or part thereof.
1.4 "DiscGuard System" is a TTR proprietary technology which prevents
the faithful reproduction of all types of optical media (CD-ROM,
CD-R, DVD-ROM, DVD-R etc.).
1.5 "DiscGuard Detecting Software" is software utilizing a distinct
identification code that enables an optical disc retrieval system
to determine whether a disc is a Fingerprinted Disc.
1.6 "DiscGuard Enabling Software" is software used in conjunction
with an Enhanced MIS and which enables the Enhanced MIS to
produce Fingerprinted Discs.
2
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1.7 "DiscGuard Workstation Software" is a graphical user interface
and software used to encrypt publisher applications to protect
them from running unless such applications are on a Fingerprinted
disc. This software also provides authorization capability so
that only a run authorized by TTR is allowed.
1.8 "Fingerprinted Disc" is a CD-ROM or DVD disc with a
non-reproducible digital fingerprint that can be detected during
retrieval to verify that the disc is authentic.
1.9 "Licensed Intellectual Property" means all Israel and foreign
copyrights (including, without limitation, all renewals and
extensions thereof), registrations and applications for
registration of copyright, patents (including, without
limitation, continuations, continuations-in-part, reissues and
extensions thereof), applications for patent (including, without
limitation, divisions thereof), trade secrets and other
intellectual property rights, whether now existing or hereafter
created, developed, arising or otherwise coming into being, that
relate to or cover any of DiscGuard System or part thereof,
including without limitation any intellectual property rights
that could be violated, infringed or misappropriated by any
copying, manufacture, use, performance, distribution or other
exploitation of DiscGuard System or part thereof.
1.10 "Mastering Interface System(s) ("MIS")" means a software
configuration which formats data and feeds the same to a laser
beam recorder (the "LBR") that is used solely in the pressed
optical media industry to produce a glass master (used to produce
metal stampers which, in turn, are used in replicating machines
to produce optical media); and where such MIS is proprietary to
the Developer or for which Developer has exclusive manufacturing
rights and sells or leases such MIS in the regular course of
business.
1.11 "Subsidiaries" means any company in which a party hereto holds
more than 50% of the voting equity.
3
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ARTICLE II
GRANT OF LICENSE; UNDERTAKING TO INTEGRATE DISCGUARD
2.1 Grant of TTR Development License. TTR hereby grants to Licensee a
non-exclusive, non-transferable license to merge, link, bundle or
otherwise integrate the DiscGuard Enabling Software into
Licensee's laser mastering machines ("Licensee Mastering
Machine(s)") which produce glass masters which are used to
produce metal stampers which, in turn, are used in replicating
machines to produce CD-ROMs and DVDs (hereafter sometimes
referred to as "disc(s)") in order to complete the Test Samples
described in Section 3.1.
2.2 Grant of Developer Development License. Developer hereby grants
to Licensee a non-exclusive, non-transferable license to
integrate into and use the Enhanced MIS with one Licensee
Mastering Machine in order to complete the Test Samples described
in Section 3.1
2.3 Grant of Exclusive Production License. Upon and subject to
completion of the First Run, as defined in Section 3.4, TTR
hereby grants to Licensee an exclusive, non-transferable,
worldwide license to;
i. merge, link, bundle or otherwise integrate the DiscGuard
Enabling Software into Licensee's Mastering Machines;
ii. duplicate the DiscGuard Enabling Software for purposes
related to integration; and
iii. use the DiscGuard Enabling Software to replicate
Fingerprinted Discs for Customers.
The license granted pursuant to this sub-section 2.3 (iii)
shall be exclusive for a period of six (6) months from the
date of its grant (the "Exclusive License period").
Notwithstanding the above, during the Exclusive License
Period, TTR and Developer shall each be authorized to
market, distribute and integrate directly and indirectly
the DiscGuard Enabling Software on third party laser
mastering machines and to produce Fingerprinted Discs so
long as no Fingerprinted Discs are sold thereon during the
Exclusive License Period. The license granted pursuant to
this Section 2.3 shall be called the "License".
2.4 Grant of Non-Exclusive Production License. Upon the end of the
Exclusive License Period, TTR hereby grants to Licensee a non-
exclusive, non-transferable, world-wide license to;
i. merge, link, bundle or otherwise integrate the DiscGuard
Enabling Software into Licensee's Mastering Machines;
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ii. duplicate the DiscGuard Enabling Software for purposes
related to integration; and
iii. use the DiscGuard Enabling Software to replicate
Fingerprinted Discs for Customers.
The parties acknowledge that the provisions of sections 2.1-2.4, inter
alia, apply separately to both CD-ROMs and DVDs.
2.5 Additional OEM Agreements; Restrictions. Nothing contained herein
grants, or shall be deemed or interpreted to grant to Licensee a
license or the right to distribute or exploit in any manner (i)
the DiscGuard System or Enhanced MIS (or any component thereof)
as a stand-alone product or (ii) the DiscGuard Detecting Software
or (iii) the DiscGuard Workstation Software. Additionally, this
Agreement shall not be construed to limit or restrict TTR (other
than as set out in Section 2.3 above) or Developer in any way
from (i) promoting, granting licenses to and installing the
DiscGuard System and other TTR products or the Enhanced MIS and
other Developer products at any location and at customer's
facilities, whether directly, indirectly, or through a
distributor, agent or subsidiary and (ii) granting resale,
distribution and OEM licenses relating to the DiscGuard System or
Enhanced MIS to third-parties.
2.6 Restricted Uses. Licensee is prohibited from changing,
developing, enhancing or otherwise modifying the DiscGuard System
or Enhanced MIS (or any component thereof) in any way whatsoever.
2.7 Compliance. Each Party will comply with all applicable laws and
regulations and ordinances including, but not limited to, the
regulations of the U.S. Government relating to the export of
commodities and technical data insofar as they relate to the
activities under this Agreement and the laws of the European
Economic Commission, to the extent such laws and regulations are
applicable.
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ARTICLE III
DEVELOPMENT OF DISCGUARD ENHANCED MASTERING MACHINE
3.1 General. This section sets forth the detailed agreement for the
setting up of work procedures and under which the Enhanced MIS
and DiscGuard Enabling Software will be integrated into a
Licensee Mastering Machine for the purposes of producing a
DiscGuard System enhanced glass master and a test run of twenty
(20) DiscGuard System protected CD-ROMs and a test run of twenty
(20) DiscGuard System protected DVDs (the "Test Sample(s)"). It
is expected that the above integration will proceed with all due
diligence and that the milestone dates set forth in Exhibit A
will be met. The CD-ROM Test Sample and the DVD Test Sample are
expected to be completed at different dates as set out in the
Exhibits attached hereto. Each of TTR , Developer and Licensee
recognizes that the completion of this project within the time
schedule set forth herein is fundamental to this Agreement and
contemplates the continuing cooperation and good will of each
party and the assignment to the project of competent personnel
from each side.
3.2 Development Tasks. Licensee, Developer and TTR shall perform
their respective development tasks specified in Exhibit A in
accordance with the development schedule specified therein and
the design specifications specified in Exhibit B (the
"Development").
3.3 Acceptance Testing. Upon completion of each of the Tests Samples
as herein provided, TTR shall review and conduct testing of the
discs to determine, in its sole discretion, whether such CD-ROM
Test Sample or DVD Test Sample is acceptable and shall notify
Developer and Licensee of such approval ("Acceptable"). In the
event that following such tests TTR determines that either of the
Test Samples is not Acceptable, all parties will undertake to
make process adjustments and will undertake continuing test runs
and TTR agrees to pay 50% of Licensee's costs.
3.4 Samples. Within 14 days after the CD-ROM or DVD Test Sample is
found Acceptable, Licensee shall, at its expense, provide TTR
with 1,000 Fingerprinted discs (CD-ROM or DVD as the case may
be), packaged in Jewel boxes with booklets (2 pages maximum) and
inlays and overwrapped ("First Run"). TTR shall provide Licensee
with artwork to be used in the above packaging, booklets and
inlays. TTR shall bear the cost of shipping these 1,000 discs.
3.5 Termination of Development License. In the event that TTR does
not find a Test Sample Acceptable as provided in Section 3.3 or
for whatever reason a Test Sample is not completed by January 31,
1998, then TTR may, at its option
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and upon written notice to Licensee and Developer, terminate
forthwith this Agreement with respect to the media of such Test
Sample (CD-ROM or DVD as the case may be).
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ARTICLE IV
UNDERTAKINGS OF PARTIES
4.1 Undertakings of TTR. (i) Promptly upon the execution of this
Agreement, and for the duration of the Development, TTR shall
provide Licensee with DiscGuard Enabling Software and other
materials to the extent necessary for its integration into a
Licensee Mastering Machine.
In the event that the License is entered into pursuant to
Sections 2.3 and 2.4, for the duration of the License, TTR shall
provide to Licensee, within five (5) Business Days' of its
availability for commercial distribution, DiscGuard Enabling
Software upgrades or improvements, if any.
4.2 For the duration of the Exclusive License Period, TTR shall refer
all potential Customers interested in the DiscGuard System to the
Licensee.
4.3 Undertakings of Licensee. The Licensee undertakes to perform each
of the following:
i. Integration of the Product. For the duration of the
Exclusive License Period, Licensee will integrate the
DiscGuard Enabling Software and Enhanced MIS, as provided
for hereunder;
ii. Non-Compete. *** [Omitted material; Confidential Treatment
Requested]
iii. Sublicense. Every agreement entered into by Licensee with
a Customer shall be no less protective of TTR's rights
than as provided for in this Agreement. Licensee shall
notify its Customers and provide documentation, with each
Fingerprinted Disc order, about the DiscGuard System,
stating that the DiscGuard System shall only be used with
DiscGuard Detecting Software and DiscGuard Workstation
Software which must be licensed from TTR under a separate
agreement.
iv. Networking. Within thirty (30) days after the end of each
Calendar Quarter, Licensee shall provide TTR with a
written statement setting forth, in reasonable detail, in
respect of the previous three month period, with prior
approval of Licensee's customers (for which Licensee shall
use reasonable commercial efforts to obtain), names and
addresses of all Customers for that period. Such
information will be treated as Confidential Information.
v. Purchase of Enhanced MIS. Within forty five (45) days of
expiration of the Exclusive License Period, Licensee shall
return to the Developer the Enhanced MIS and any
improvements and documentation concerning the same, unless
Licensee shall have purchased the Enhanced MIS from the
Developer for a purchase price agreed to by TTR, Licensee
and Developer.
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4.4 Undertaking of Developer. Promptly upon the execution of this
Agreement, Developer shall provide Licensee with the Enhanced MIS
and other materials to the extent necessary for the integration
into a Licensee Mastering Machine. For the duration of the
Development and Exclusive License Period, Developer shall provide
to Licensee, within five (5) Business Days' of its availability
for commercial distribution, upgrades or improvements, if any, to
the Enhanced MIS.
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ARTICLE V
LICENSE FEES
5.1 Royalties. In consideration of the rights granted to Licensee
pursuant to Section 2.3 and 2.4, Licensee shall, within
thirty (30) days after the end of each calender quarter, pay
TTR fifty (50%) percent of the premium charged and received by
Licensee for each Fingerprinted disc sold by or on behalf of
Licensee, and in any event not less than $0.075 shall be paid
to TTR per such disc (the "Royalties"). *** [Omitted material;
Confidential treatment requested] Confidential Material omitted
and separately filed with the Securities and Exchange Commission
5.2 Mastering Charge. With respect to each DiscGuard System protected
title sold or distributed by or on behalf of Licensee, Licensee
shall charge Customer a premium mastering charge. Within thirty
(30) days after the end of each calendar quarter, Licensee shall
pay TTR $1,000 from each such mastering premium charge received.
Such charge shall be collected on a per title and on a per
production site basis and not per glass master used in producing
such title.
5.3 Royalty and Mastering Charge Review. *** Confidential material
omitted and separately filed with the Securities and Exchange
Commission
5.4 Reports. Within thirty (30) days after the end of each calendar
quarter, Licensee shall submit to TTR a report detailing its
calculation of any amounts owing to TTR pursuant to this Article
5 for such quarter, broken down as reasonably requested by TTR to
the extent required to ensure the accuracy of payments hereunder.
5.5 Audit. TTR may request an audit of Licensee's books and records
by a nationally recognized independent public accounting firm not
more than twice in any one (1) year period upon ten (10) days
prior written notice to Licensee to confirm Licensee's compliance
with its obligations under this Article 5. Any such audit shall
be performed at Licensee's offices during its regular business
hours in a manner intended not to interfere with its operations.
Licensee shall assist and cooperate with the auditors to any
reasonable extent necessary to allow them to perform their
functions. If any audit reveals an underpayment, Licensee shall
immediately pay such underpayment; if any audit reveals a net
underpayment of more than five percent (5%), Licensee shall pay
the costs of the audit and TTR may conduct a follow up audit at
any time upon ten (10) days prior written notice, and Licensee
shall pay interest on such underpayment at the prime rate then
most recently published by the largest bank in New York (in terms
of assets) plus one (1) point; and if any audit reveals an
underpayment of more than ten percent (10%), TTR may terminate
this Agreement upon thirty (30) days prior written notice to
Licensee unless such underpayment was inadvertent, in which event
Licensee shall promptly use its best efforts to correct its
procedures to avoid such underpayments in the future, and TTR may
in any event terminate this Agreement upon thirty (30) days
notice if any subsequent audit reveals a net underpayment of more
than ten percent (10%).
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ARTICLE VI
PROPRIETARY RIGHTS
6.1 Title to Products. Licensee and Developer acknowledge that all of
the Licensed Intellectual Property is the sole property of TTR,
and Licensee and Developer shall not obtain any interest of any
kind in the DiscGuard System by or through this Agreement except
as contemplated herein. Any modifications, enhancements or
improvements relating to the DiscGuard System (whether or not
resulting from the implementation of this Agreement) which are
discovered, invented or first reduced to practice by the Licensee
or Developer shall be the sole and exclusive property of TTR,
subject to a license, on the terms set forth herein, in favor of
Licensee. Licensee and Developer acknowledge that this
declaration is vital to TTR and without it TTR would not enter
into this Agreement. All DiscGuard System protected media sold by
Licensee and all related documentation shall bear TTR's patent
notice in a form mutually agreed by the Parties.
6.2 Title. Licensee and TTR acknowledge that all of the DCA
Intellectual Property is the sole property of Developer, and
Licensee shall not obtain any interest of any kind in the MIS by
or through this Agreement except as contemplated herein. Any
modifications, enhancements or improvements relating to the MIS
(whether or not resulting from the implementation of this
Agreement) which are discovered, invented or first reduced to
practice by the Licensee or TTR shall be the sole and exclusive
property of Developer, subject to a license, on the terms set
forth herein, in favor of Licensee. Licensee acknowledges that
this declaration is vital to Developer and without it Developer
would not enter into this Agreement.
6.3 Trade Secrets. Licensee and Developer acknowledge that the
DiscGuard System contains trade secrets which are the sole
property of TTR and which are confidential and are not in the
public domain, the unauthorized use or disclosure of which may
cause irreparable harm to TTR.
6.4 Trade Names, Trademarks and Service Marks. Licensee and Developer
acknowledge that the trade names, trademarks and service marks
used by TTR in relation to its DiscGuard System, are the
exclusive property of TTR. Licensee agrees that it shall not hold
itself out as having acquired any proprietary right to any trade
name, trademark, or service mark of TTR by virtue of its use
thereof or anything herein, except as specifically set forth in
this Agreement, and any such right shall immediately cease upon
the termination or cancellation of this Agreement. Licensee shall
be permitted to use exclusively the name DiscGuard in any
advertising or promotional material during the Exclusive License
Period and non-exclusively thereafter.
The authorization contained herein to use and authorize the use of any
trademarks or tradenames shall cease by the ninetieth (90th) day after
Licensee has received written
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notice from TTR to the effect that such tradenames or trademark
has been superseded or replaced by a new tradename or trademark.
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ARTICLE VII
REPRESENTATIONS & WARRANTIES
7.1 TTR's Representations and Warranties. TTR hereby represents and
warrants to Licensee that:
i. TTR is a private company duly formed and validly existing
under the laws of the State of Israel;
ii. TTR has the necessary corporate power and authority to
enter into this Agreement and to perform hereunder, and
TTR's execution, delivery and performance of this
Agreement has been duly authorized by all necessary
corporate actions;
iii. Neither the execution or delivery of this Agreement nor
the performance by TTR hereunder will violate any
provision of TTR's charter documents or articles any
agreement by which it is currently bound;
iv. TTR owns and has all of the rights to the Licensed
Intellectual Property incorporated into the DiscGuard
System which are necessary for TTR to grant the Licenses
and perform all of its obligations under this Agreement;
v. TTR is wholly owned by TTR Inc., a Delaware corporation.
vi. TTR represents and warrants that the digital fingerprint
contained in a Fingerprinted Disc that is produced under
License, in accordance with the specifications of
Developer and TTR,
(a) will not be reproducible by conventional CD
mastering machines or conventional CD recording
systems; and
(b) will not materially hinder the playback function in
units of CD-ROM drives listed on Schedule 7.4
hereof, subject to the terms provided therein.
This warranty shall be null and void if Licensee is in default
under this Agreement or if the non-conformance is due to:
(a) unauthorized modification of the DiscGuard System; or
(b) misuse, errors or negligence of Licensee, its employees or
agents in operating the Enhanced MIS or the DiscGuard System or
any related technology used in conjunction herewith to produce
the Fingerprinted Discs; or
(c ) replication of Fingerprinted Discs not in accordance with
the specifications of the Developer and TTR; or
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(d) non-compliance of the units of the CD-ROM drives used with
the criteria set out in Schedule 7.4 hereof.
In the event of a breach of this warranty TTR shall, at its
option, (i) cure the error or defect, (ii) replace such
Fingerprinted Disc or (iii) remit to Licensee in respect any fee
received by TTR in respect of such Fingerprinted Disc. TTR shall
not be obligated to cure any defect, replace any Fingerprinted
Disc or pay any amount unless Licensee notifies TTR of the
existence and nature of such defect upon discovery.
7.2 Licensee's Representations and Warranties. Licensee hereby
represents and warrants to TTR that:
i. Licensee is a public company duly formed and validly
existing under the laws of the State of Delaware;
ii. Licensee has the necessary corporate power and authority
to enter into this Agreement and to perform hereunder, and
Licensee's execution, delivery and performance of this
Agreement has been duly authorized by all necessary
corporate actions; and
iii. Neither the execution or delivery of this Agreement nor
the performance by Licensee hereunder will violate any
provision of Licensee's charter documents or articles or
any agreement by which it is currently bound.
7.3 Developer's Representations and Warranties. Developer hereby
represents and warrants to TTR and Licensee that:
i. Developer is a private company duly formed and validly
existing under the laws of the State of Oklahoma;
ii. Developer has the necessary corporate power and authority
to enter into this Agreement and to perform hereunder, and
Developer's execution, delivery and performance of this
Agreement has been duly authorized by all necessary
corporate actions;
iii. Neither the execution or delivery of this Agreement nor
the performance by Developer hereunder will violate any
provision of Developer's charter documents or articles or
any agreement by which it is currently bound;
iv. Developer owns and has all of the rights to the
intellectual property incorporated into the MIS which are
necessary for Developer to grant the license and perform
all of its obligations under this Agreement; and
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v. The Enhanced MIS is compatible with the Licensee's laser
mastering system and, when used in accordance with
procedures established for the First Run, allows
consistent mastering of DiscGuard glass masters.
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ARTICLE VIII
WARRANTIES, LIABILITY & INDEMNIFICATION
8.1 Warranties. IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR
PURPOSE, SATISFACTION AND MERCHANTABILITY SHALL NOT APPLY TO
DISCGUARD SYSTEMS, ENHANCED MIS, MIS OR LICENSEE'S MASTERING
MACHINES.
8.2 Limitation on Liability. IN NO EVENT SHALL ANY PARTY BE LIABLE IN
RESPECT OF OR ARISING OUT OF THE PERFORMANCE AND/OR BREACH OF ITS
OBLIGATIONS HEREUNDER FOR ANY INDIRECT, INCIDENTAL OR SPECIAL OR
CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS, REVENUE, DATA
OR USE, INCURRED BY THE OTHER PARTY WHETHER IN AN ACTION IN
CONTRACT OR TORT, EVEN IF THAT PARTY OR ANY OTHER PERSON HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
8.3 Indemnity. Each party shall indemnify and hold the other parties
and their subsidiaries and their customers harmless from all
loss, damage and/or expenses (including attorney's fees) arising
out of any claims by third parties that the use of other party's
products furnished hereunder infringes any third party patent,
trademark, copyright or other proprietary interest. The
indemnified parties shall promptly notify the indemnifying Party
in writing of such claim and permits the indemnifying party to
control the defense or settlement thereof. The indemnifying party
shall vigorously defend against any such claim. The indemnifying
party may, at its sole option and expense (i) procure for the
Licensee the right to continue using the infringing product (ii)
modify the infringing product so that it is non-infringing (iii)
procure a replacement product that has substantially the same
functionality, or if none of the above options is reasonably
available (iv) terminate this Agreement and all sublicenses
granted hereunder.
8.4 No Unauthorized Use or Disclosure. Each party shall: (i) hold in
confidence, and not disclose or reveal to any person or entity,
any Confidential Information of the other party without the clear
and express prior written consent of a duly authorized
representative of such other party, except that a party receiving
Confidential Information from the other party may reveal such
information solely to its employees or contractors or consultants
who require such disclosure to allow such receiving party to
perform its obligations or exercise its rights under this
Agreement and who agree in writing to refrain from making any
unauthorized use or disclosure thereof; and (ii) not use any
Confidential Information of the other party for any purpose at
any time, other than for the purpose(s) of performing its
obligations or exercising its rights under this Agreement. Each
party shall protect the Confidential Information of the other
party using at least the same degree of
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care it uses to protect its own proprietary and confidential
information and materials of like importance, but in no event
less care than a reasonably prudent business person would take in
a like or similar situation. Each party shall return any
Confidential Information of the other upon written request,
except to the extent that doing so would undermine or interfere
with the exercise by the receiving party of its rights under this
Agreement.
8.5 Disclosure of Confidential Information Pursuant To Subpoena. If a
party to this Agreement is served with a subpoena which seeks to
compel the production of Confidential Information of the other
party to this Agreement, the party upon whom such subpoena is
served shall immediately give written notice of such subpoena to
the other party to this Agreement, unless such party is
prohibited by law from providing such notice. The parties to this
Agreement shall then cooperate with one another for the purpose
of obtaining such relief as will protect the Confidential
Information. Should a motion be timely filed and served and the
party upon whom such subpoena is served is notified in writing
thereof before the date upon which such production is requested,
the party upon whom such subpoena is served shall not comply with
such subpoena until after such time as the court rules on the
subject motion. Should such order be obtained, the party upon
whom such subpoena is served shall comply with the order. Should
no such motion be filed before the scheduled production date, the
party upon whom such subpoena is served may comply with such
subpoena.
8.6 Terms of Agreement. Each party shall treat the terms of this
Agreement as confidential and shall not disclose such terms,
except that disclosure of such terms shall be permitted (i) as
provided in Section 8.5 with respect to Confidential Information,
(ii) to accountants, attorneys and other professionals providing
services to the disclosing party to the extent that such
professionals are notified of the confidential nature of such
terms.
8.7 Employment of Other Party's Employees. Each party agrees that
during the continuance of this Agreement and for a period of six
months after its termination, in whole or in part, it will not
hire or otherwise contract the services of, whether directly or
indirectly (i) an employee of the other party (ii) a former
employee of the other party whose employment with the other party
ended less than six months prior to the date of such hiring, or
(iii) any corporation or entity in which such employee or former
employee is an officer, director or shareholder holding 25% of
the equity or is employed providing service to that corporation
or entity, provided, however, that this provision shall not apply
if the employer or former employer of such individual consents in
writing to such hiring.
8.8 Noncompetition. **** Confidential material omitted and filed
separately with the Securities and Exchange Commission.
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ARTICLE IX
DEFAULT & TERMINATION
9.1 Effectiveness; Term of Agreement. This Agreement shall become
effective upon signature by each of the parties hereto and,
unless terminated as herein provided, shall continue in full
force and effect for five (5) years thereafter; PROVIDED, THAT,
this Agreement shall be automatically renewable for additional
one (1) year periods upon expiry subject to the mutual written
agreement of the parties.
9.2 Right to Terminate.
i. TTR shall be entitled to terminate this Agreement in the
event that TTR shall determine the Development of a Test
Sample is not Acceptable in accordance with the provisions
of Section 3.3 hereof.
ii. Any party may terminate this Agreement upon any other
party's breach of a material term, covenant or undertaking
in this Agreement if, within thirty (30) days following
the delivery of a written notice to the defaulting party
setting forth in reasonable detail the basis of such
default and the remedial action required to be taken to
rectify such default, the defaulting party has not
rectified such default to the reasonable satisfaction of
the non-defaulting party.
iii. A party hereto may, at its option, terminate this
Agreement should any other party hereto:
a) Admit in writing its inability to pay its debts
generally as they become due.
b) Make a general assignment for the benefit of
creditors.
c) Institute proceedings to be adjudicated a voluntary
bankrupt, or consent to the filing of a petition of
bankruptcy against it.
d) Be adjudicated by a court of competent jurisdiction
as being bankrupt or insolvent.
e) Seek reorganization under any bankruptcy act, or
consent to the filing of a petition seeking such
reorganization; or
f) Have a decree entered against it by a court of
competent jurisdiction appointing a receiver,
liquidator, trustee, or assignee in bankruptcy or
in insolvency covering all or substantially all of
such party's property or providing for the
liquidation of such party's property or business
affairs.
9.3 Phase Out. Notwithstanding anything to the contrary contained
herein, for a period not exceeding ninety (90) days following the
effective termination (for whatever reason) of this Agreement,
Licensee shall be permitted to continue to manufacture discs
under the License in order to complete accepted orders and to
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distribute its existing inventory of Fingerprinted discs, subject
to (and in accordance with) the terms and conditions contained in
this Agreement.
9.4 Effect of Termination or Expiration. Upon the termination of this
Agreement for any reason whatsoever:
i. except as set forth in Section 9.3, the rights of Licensee
to continue distributing Fingerprinted discs shall cease;
ii. Licensee may give its customers a list of licensed
replicators;
iii. the rights of all Parties to continue the Development
shall cease
iv. Licensee shall promptly return to TTR, erase and/or
destroy all copies of the DiscGuard Enabling Software and
documentation and all information and literature relating
thereto which shall have been provided to Licensee or
reproduced by Licensee. Upon such return, erasure and/or
destruction, Licensee shall confirm in writing to TTR that
it has complied with its obligations under this section;
v. Licensee's obligation to pay the Royalties shall cease,
without prejudice to any obligation which has accrued and
become due to the termination of this Agreement as herein
provided;
vi. Licensee shall promptly return to Developer the Enhanced
MIS and documentation and all information and literature
relating thereto which shall have been provided to
Licensee or reproduced by Licensee. Upon such return
Licensee shall confirm in writing to Developer that it has
complied with its obligations under this section; and
vii. Each party shall promptly return to the disclosing party,
and/or erase or destroy all copies of any Confidential
Information in the possession of such party or its
Subsidiaries. Upon such return, erasure and/or
destruction, such party shall confirm in writing to the
disclosing party that it has complied with its obligations
under this section.
9.5 Survival. Articles 5, 6, 8, 9 and 10 of this Agreement shall
survive the termination and/or expiration of this Agreement for
any reason whatsoever.
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ARTICLE X
MISCELLANEOUS
10.1 Relationship. The relationship between TTR, Licensee and
Developer is that of independent contractors and parties to
certain licenses in accordance with this Agreement. Neither party
is in any way the agent or attorney in fact of the other, nor
shall any party or any of its respective agents or employees have
any power or authority to assume any obligation of any kind,
implied or expressed, on behalf of any other or to bind others to
any contract, commitment or agreement whatsoever, or to make any
representation on the others' behalf. This Agreement shall not be
construed as constituting either party as the partner or joint
venture of the others, nor to create any form of legal
association which would impose liability upon one party for the
acts or failures to act of the others.
10.2 Force Majeure. No party shall be liable for reasonable delays in
the performance of its obligations under this Agreement which
result from causes beyond its reasonable control, including
without limitation acts of God, strikes, war, riot, civil
disorder, embargo, acts of civil and military authorities, fire,
earthquake, flood or inability to obtain labor or materials.
10.3 Assignability; Binding Effect. Licensee and Developer may not
assign this Agreement without the prior written consent of TTR,
which consent shall not be unreasonably withheld or delayed,
except that, upon notice to the other party but without any
requirement to obtain consent, (i) Licensee and Developer may
assign this Agreement in connection with the sale or other
transfer of substantially all of its operating assets relating to
this Agreement, other than a sale to a direct competitor (or
affiliate of a direct competitor) of TTR.
Subject to the provisions of this Section, this Agreement shall
be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
10.4 Entire Agreement. This Agreement, including all recitals in the
preamble hereto and Exhibits attached hereto, sets forth the
entire agreement and understanding between the parties, contains
all the understandings, inducements, promises and representations
between the parties relating to the matters referred to herein,
and merges and supersedes all prior agreements, commitments,
arrangements, representations, writings and discussions between
them, whether written or oral.
This Agreement may not be modified or amended except by a written
supplement, duly executed by each of the parties.
10.5 Notices. Any notice, demand or communication which under the
terms of this Agreement or otherwise must or may be given or made
by TTR, Developer or Licensee shall be in writing and shall be
given or made by facsimile with
20
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confirmation of receipt, certified or registered air mail, return
receipt requested, or any delivery services, requiring signature
of receipt, addressed to the respective parties as follows:
Licensee: Nimbus CD International, Inc.
POB 7427
Charlottesville, Virginia, 22906
Attn: Patrick Byrne, Vice President, Engineering
TTR: TTR Technologies Ltd.
POB 2295
Kfar Saba, 44425, Israel
Attn: Arik Shavit, Chief Executive Officer
Or Fax: +972-9-766-2394
Developer: Doug Carson & Associates
1515 E. Pine St.
Cushing, Oklahoma 74023-9161
Attn: Doug Carson, Chief Executive Officer
Such notice, demand or other communications shall be deemed to have been
given on the date confirmed as the actual date of delivery by the
delivery service if sent by such service, and in the case of certified
or registered air mail - fifteen (15) business days following the date
on which it was deposited postage prepaid in the U.S. or Israeli mail
(or the date shown on the actual mail receipt if it is earlier).
The above addresses may be changed at any time by giving prior written
notice as provided above.
10.6 Severability. Each provision of this Agreement or part thereof
shall be severable. If, for any reason, any such provision or
part thereof is finally determined, by a court of agency having
valid jurisdiction, to be invalid and contrary to, or in conflict
with, any existing or future law or regulation, such
determination shall not impair the operation of or affect the
remaining provisions of this Agreement, and such remaining
provisions will continue to be given full force and effect and
shall continue to bind the parties.
10.7 Enforcement. The respective rights and remedies of each party are
cumulative, and no exercise or enforcement by either party of any
right or remedy hereunder shall preclude the exercise or
enforcement by such party of any other right or remedy hereunder,
or which such party is entitled by law to enforce. Each party may
waive any obligation of or restriction upon the other party under
this Agreement only in writing. No failure, refusal, neglect,
delay, waiver, forbearance or omission of either party to
exercise any right under this Agreement or to insist upon full
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compliance by the other with its obligations hereunder shall
constitute a waiver or any provision of this Agreement.
10.8 Construction. The headings appearing at the beginning of each
section of this Agreement are for convenience only and shall not
in any way affect the meaning or interpretation of this
Agreement. The recitals shall be deemed to be part of this
Agreement. From time to time this Agreement and any of the
Exhibits hereto may be modified by the parties in accordance with
Section 10.5 of this Agreement. As so modified, such exhibits
shall be considered part of this Agreement.
10.9 Dispute Resolution; Governing Law. This Agreement shall be
construed and enforced in accordance with the internal laws of
the State of New York applicable to contracts wholly executed and
performed therein.
10.10 Press Releases. The parties shall issue a media release to the
public (in a form that has been approved in writing by all
parties) to announce the business relationship being created by
this Agreement
22
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
duly executed on its behalf as of the date first written above.
DOUG CARSON AND ASSOCIATES, INC. TTR TECHNOLOGIES LTD.
By:__________________ By: ________________
Title: Title: President
NIMBUS CD INTERNATIONAL INC.
By: __________________
Title:
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EXHIBIT "A"
DEVELOPMENT TASKS AND DEVELOPMENT SCHEDULE; MILESTONE DATES
******* Confidential material omitted and filed with the SEC.
24
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EXHIBIT "B"
DESIGN SPECIFICATIONS
****** Confidential material omitted and filed separately with the SEC.
25
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SCHEDULE 7.1
CD-ROM Drives
******* Confidential material omitted and filed separately with the SEC.
26
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Ex. 10.15
MANAGEMENT AGREEMENT
TTR AGREEMENT, made this 1st day of October, 1997 by and between ULTIMUS
LTD., an Israeli company ("Ultimus") and TTR TECHNOLOGIES LTD., an Israeli
company with offices at 2 Hanagar Street, Kfar Saba 44425, Israel ("TTR").
W I T N E S S E T H
WHEREAS, Ultimus is engaged in the business of smart-card based advanced
electronic based consumer retail payment systems;
WHEREAS, TTR is enganged in the business of software protection;
WHEREAS, Ultimus desires that TTR manage, or provide for the management
of Ultimus's affairs, and TTR is willing, in the terms and conditions set forth
herein, to provide to Ultimus such TTR services.
NOW, THEREFORE, the parties hereto agree as follows:
1. Management of Daily Affairs. So long as this Agreement is in effect, TTR
shall provide for the management of the day-to-day affairs of Ultimus, in
accordance with the instructions from time to time of the Board of Directors of
Ultimus ("TTR Services"). Without limiting the generality of the foregoing, the
TTR Services shall include, but not be limited to,
(i) opening and managing a bank account(s) for the Company
(ii) overseeing administration of and providing Company's offices,
equipment and manpower;
(iii) overseeing administration of Company's research and development;
(iv) coordinating and overseeing administration of any professionals,
consultants or agents hired or retained by the Company;
(v) coordinating and overseeing the marketing and distribution of the
Company's products and its future business developments;
2. Except as otherwise provided for in this Agreement, TTR shall exercise its
powers in relation to the Company so as to ensure that:
(a) the Company carries on its affairs in a proper and efficient manner and
for its own benefit;
(b) the Company transacts all its business on a arms length basis;
(c) the Company shall not enter into any agreement or arrangement
restricting its competitive freedom;
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2
(d) all business of the Company, other than routine day to day business,
shall be undertaken and transacted as instructed by the Directors;
(e) keep the Directors fully informed as to all material developments
regarding its financial and business affairs;
(f) deliver to the Directors as promptly as practical financial or other
information as requested;
2. Compensation
2.1 For services rendered hereunder, TTR shall be entitled to such management
fee in monthly amounts as shall be agreed upon from time to time by the Parties
which shall not exceed more than $100,000 per year plus VAT.
2.2 The Company shall reimburse TTR for all actual costs and expenses incurred
by TTR in rendering the TTR Services hereunder in accordance with its general
corporate policy in this matter.
2.3 Payment of TTR fees and reimbursable costs and expenses shall be made only
against delivery by TTR to the Company of requisite tax receipts or other
appropriate documentation thereof.
2.4 Translations to Israeli currency shall be calculated on the basis of the
representative rate of exchange published by a daily newspaper in Israel on the
date of payment.
3. Term and Termination
3.1 This Agreement shall become effective on the date that it is signed
by both parties hereto and, unless terminated as provided below, shall continue
in full force and effect for a period of two (2) years from date of such
signature (the "Initial Term") and shall automatically be renewed for additional
one (1) year terms unless either part terminates this Agreement upon sixty (60)
days written notice prior to the end of any term or in accordance with sections
3.2 or 3.3 below.
3.2 Either Party shall be entitled to terminate this Agreement
forthwith, by written notice, should the other party fail to comply with its
obligations in this Agreement and does not remedy such non-compliance within
sixty (60) days after receipt of notice from the other party that it intends to
terminate this Agreement if such failure is not corrected.
3.3 Either party may terminate this Agreement forthwith, by notice, if
the other party is declared insolvent or bankrupt, or makes an assignment for
the benefit of creditors, or shall have a receiver or trustee appointed for its
business or property or is dissolved or liquidated or otherwise ceases business,
and such declaration or execution, or appointment is not canceled within forty
five (45) days.
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3
5 Proprietary Information
5.1 TTR acknowledges and agrees that the Company possesses and will continue to
possess information and technology that has been created discovered or
developed, or has otherwise become known to the Company in the field of smart
card technology, including without limitation, information and technology which
has been assigned or otherwise conveyed to the Company, which information or
technology has commercial value in the business in which the Company is engaged.
Such information, whether documentary, oral or computer generated, shall be
deemed to be and is referred to as "proprietary information", which, by way of
illustration but not limitation, shall include trade secrets, processes,
formulae, data and knowhow, improvements, inventions, techniques, products
(actual or planned), marketing plans, strategies, forecasts and customer lists.
5.1 Proprietary information shall be deemed to include any and all proprietary
information disclosed by or on behalf of the Company, irrespective of form but
excluding information that (i) shall have become a part of the public knowledge
except as a result of the breach of this Agreement by TTR; (ii) shall have been
received by TTR form a third party having no obligation to the Company; (iii)
reflects general skills and experience gained during TTR's engagement by the
Company; or (iv) reflects data and information generally known within the
industries or trades in which the Company competes.
5.3 TTR agrees that all proprietary information, patents and other rights in
connection therewith shall be the sole property of the Company and its assigns.
At all times, both during the engagement by the Company and after its
termination, TTR will keep in confidence and trust all proprietary information,
and TTR will not use or disclose any proprietary information or anything
relating to it without the written consent of the Company except as may be
necessary in the ordinary course or performing TTR's duties as Manager to the
Company.
5.4 TTR agrees to assume full responsibility for the proprietary information
disclosed to it and to take appropriate measures with any persons acting on its
behalf to ensure that such persons are bound by a like covenant of secrecy.
5.5 TTR's undertakings under this section shall remain in full force and effect
for two (2) years following the termination of this agreement or any renewal
thereof.
6. Warranty
TTR represents and warrants that on the date hereof it free to be engaged by the
Company upon the terms contained in this Agreement and that there are no
agreements or arrangements restricting full performance of TTR's duties
hereunder.
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4
7. Indemnity
The Company shall indemnify and hold TTR, its employees, agents, parent company
and subsidiaries harmless from all loss, damage and/or expenses (including
attorney's fees) arising out of any claims by third parties that arise as a
result of TTR carrying out its duties under this Agreement. TTR shall promptly
notify the Company in writing of such claim. TTR shall be entitled to
participate in the defense at its own cost in cooperation with the Company. The
Company shall vigorously defend against any such claim. The foregoing obligation
will not cover any claim solely resulting from an act or omission amounting to
gross negligence or criminal fraud, as determined by a court of law, by TTR.
8. Release
The Company does hereby fully and finally release, TTR, its oficers, directors,
employees, agents, counsellors, parent company and subsidiaries of any and all
claims, liabilities, demands, causes of action, koown or unknown, suspected or
unsuspected, of every kind and nature whatsoever, which now or hereafter may
exist, with respect to TTR's obligations under this Agreement, except for those
relating to claims, liabilities, demands and causes of action resulting from
gross negligence or criminal fraud, as determined by a court of law, by TTR.
9. Force Majeure
9.1 No liability shall result to any Party due to a delay in
performance caused by circumstances beyond the reasonable control of the Party
affected, including, but not limited to acts of God, flood, war, terrorism,
embargo, accident, and governmental laws, or request, or any ruling of a court
or tribunal;
9.2 Each Party affected by an event of force majeure shall (a) promptly
notify the other Party hereto of the expected duration thereof, and its
anticipated effect on the Party effected in terms of the performance required
hereunder; and (b) make reasonable efforts to remedy any such event of force
majeure. Performance that is delayed by any event of force majeure shall be
extended for such time as the event shall continue.
10. Miscellaneous
10.1 Severability:
Any term or provision of this Agreement which is found by a court, tribunal or
arbitration panel to be invalid or unenforceable shall be ineffective to the
extent of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms or provisions of this Agreement or affecting
the validity or enforceability of any of the other terms or provisions of this
Agreement. In the event that any term or provision of this Agreement is found to
be unenforceable or ineffective, then the reviewing court, tribunal or
arbitration panel may modify such term or provision to the extent necessary to
render it enforceable and the parties agree to be bound by and perform this
Agreement as modified.
10.2 Entire Agreement:
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5
This Agreement contains the full and complete understanding between the Parties
and supersedes all prior understandings, whether written or oral, pertaining to
the subject matter hereof (including the Memorandum of Understanding dated
November 4, 1996 which the parties agree shall not be referred to in any
subsequent dispute). The Parties expressly acknowledge that any representation,
promise or inducement by any Party to any other Party that is not embodied in
this Agreement is not part of this Agreement; and they agree that no party shall
be bound or liable for any such alleged representation, promise, or inducement
not set forth herein.
10.3 Assignment:
Except as otherwise provided in this Agreement the rights and obligations of TTR
shall not be assignable without the prior written consent of the Company
provided, however that TTR shall be entitled to assign this Agreement to its
parent company or a corporation in which it owns not less than 51% of the total
issued and outstanding voting shares, upon notice to the Company.
10.4 Amendments and Waivers
This Agreement cannot be amended, modified or altered except by written
instrument signed by the Parties hereto. In the event that any Party seeks a
waiver of any part or portion of this Agreement, such waiver must be by written
instrument signed by the Party waiving compliance. The failure of any Party at
any time to require performance of any Provision in this Agreement shall in no
manner affect its right at a later time to enforce the same. And, no waiver by
either party of the breach of any term or covenant contained in this Agreement,
whether by conduct or otherwise in any or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such breach or a waiver
of the breach of any other term or covenant contained in this Agreement.
10.5 Notices
Unless otherwise provided, any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery to
the other party to be notified or five (5) business days after deposit in the
mail by prepaid registered mail or facsimile transmission (with dispatch and
receipt confirmed) and addressed to the party to be notified at the address set
forth in Preamble above or at such other address as such party may designate by
written notice to the other party from time to time.
10.6 Headings
The headings herein are for reference only and shall not affect the construction
of this Agreement.
10.7 Successors & Assigns
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties.
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6
10.8 Counterparts & Execution
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument. Execution of this Agreement shall be valid if served on the
other party by facsimile and such other party confirms in writing receipt and
acceptance of service.
10.9 Governing Law; Forum
This Agreement, its validity, construction and effect shall be governed by and
construed under the laws of the State of Israel. The appropriate court sitting
in Tel Aviv-Jaffa shall have sole and exclusive jurisdiction and the parties
hereby consent to such jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly signed on
the date stated above.
Ultimus Ltd. TTR Technologies Ltd.
__________________ ___________________
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EX. 10.16
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT made as of the 24th day of December, 1997 by
and between TTR INC., a private company established under the laws of the State
of Delaware (the "Company") with offices at 1841 Broadway, New York, N.Y. and
BISCOUNT OVERSEAS LTD., a private company established under the laws of ________
with offices at _____________________________, Switzerland (the "Purchaser").
W I T N E S S E T H
WHEREAS, the Purchaser desires to subscribe for and purchase 64,000
shares of Common Stock, par value $0.001, of the Company (the "Shares"), for an
aggregate purchase price of $400,000 (the "Purchase Price") and to acquire
warrants ("Warrants") to purchase additional shares of the Company's Common
Stock (the "Common Stock");
WHEREAS, the Company is willing to sell the Shares and the Warrants to
the Purchaser on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements and
considerations set forth herein, the parties hereby agree as follows.
1. Subscription for and Purchase of Stock; Issuance of Warrants
1.1 Purchase of Stock. Subject to the terms and conditions stated
herein, the Purchaser hereby subscribes for and agrees to purchase, and the
Company agrees to sell to the Purchaser, the Shares in consideration of the
payment by the Purchaser of the Purchase Price, in the manner and on each of the
dates set forth below (each such date being a "Purchase Date"):
(i) on the Initial Closing Date (as defined below in Section 1.4),
48,000 Shares upon payment of an aggregate Purchase Price of $300,000;
and
(ii) on the Second Closing Date (as defined below Section 1.4), 16,000
Shares upon payment of an aggregate Purchase Price of $100,000.
1.2 Delivery. The Purchaser shall deliver to the Company, on each of
the Purchase Dates, the full amount of the Purchase Price then payable hereunder
in immediately available funds by wire transfer to a bank account designated by
the Company or by check made payable to Company or as Company designates. Upon
and subject to receipt of the full amount of the Purchase Price then due, the
Company shall deliver to the Purchaser stock certificate(s), registered in the
Purchaser's name for such number of the Shares then purchased.
1.3 Purchase of Warrants. Contemporaneous with the purchase of the
Shares as provided above, the Purchaser will purchase from the Company, and the
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2
Company will sell to the Purchaser, warrants to purchase an additional 33,000
shares of Common Stock, for an aggregate purchase warrant purchase price of
$330, on the terms and conditions contained in the Warrant attached hereto as
Exhibit A ("Warrants"). The Warrants will be issued as follows:
(i) on the Initial Closing Date, Warrants for 25,000 Shares will be
issued upon payment of $250; and
(ii) on the Second Closing Date, Warrants for 8,000 Shares will be
issued upon payment of $80.00
1.4 Closings. The "Initial Closing Date" shall be the later of (i)
December 20, 1997 and (ii) the date on which the consent referred to in Section
7 shall have been obtained. The Second Closing Date shall be the date which is
30 days after the Initial Closing Date.
2. Representations of the Purchaser; Restrictions on Transfer
2.1 General Restriction on Transfer. Except for transfers otherwise
permitted by this Agreement or applicable law, the Purchaser agrees that it will
not transfer any of the Shares, Warrants, Option Shares (as defined in Section
6), the Option Warrants (as defined in Section 6) or the shares of Common Stock
issuable upon the exercise of the Warrants or the Option Warrants (collectively,
the "Securities").
2.2 Not for Resale. The Purchaser represents that it is acquiring the
Securities for investment for its own account and not with a view to, or for
resale in connection with, the distribution or other disposition thereof. The
Purchaser agrees that it will not, directly or indirectly, offer, transfer,
sell, assign, pledge, hypothecate or otherwise dispose of (each a "Transfer")
any of the Securities unless such Transfer complies with the provisions of this
Agreement and (i) the Transfer is pursuant to an effective registration
statement under the Securities Act of 1933, as amended, and the rules and
regulations in effect thereunder (the "Securities Act"), or (ii) counsel for the
Purchaser shall have furnished the Company with an opinion, reasonably
acceptable to the Company, that no such registration is required because of the
availability of an exemption under the Securities Act.
2.3 Certain Permitted Transfers. Notwithstanding the general
prohibition on Transfers contained herein and subject to Section 4 (Lock Up),
the Company acknowledges and agrees that any Transfer in a private transaction
which does not include a public distribution is permitted and need not require
an opinion of counsel, provided, that prior to such Transfer, the transferee
shall deliver to the Company a valid written undertaking to be bound by the
terms of this Agreement.
2.4 Rule 144 Sales. Subject to the provisions of Section 4 (Lock Up),
the Purchaser may sell at any time any of the Securities in a Rule 144
Transaction (as hereinafter defined); provided, that, each such sale shall be
made in compliance with this Section 2.4. If any of the Securities are disposed
of according to Rule 144 ("Rule 144 Transaction") under the Securities Act or
otherwise, the Purchaser shall promptly
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3
notify the Company of such intended disposition and shall deliver to the Company
at or prior to the time of such disposition such documentation as the Company
may reasonably request in connection with such sale and, in the case of a
disposition pursuant to Rule 144, shall deliver to the Company an executed copy
of any notice on Form 144 required to filed with the Securities and Exchange
Commission.
2.5 Legend. Each certificate representing the Shares shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNLESS SUCH TRANSFER, SALE OR ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A STOCK PURCHASE
AGREEMENT DATED AS OF DECEMBER__, 1997 (A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY)."
2.6 Qualified Investor The Purchaser hereby represents and warrants to
the Company as follows:
(a) it has the requisite knowledge and experience in financial
and business matters to be capable of evaluating the merits and risks of this
investment and to make an informed investment decision with respect thereto, and
it or its advisors have received such information requested by them concerning
the Company in order to evaluate the merits or risks of making this investment.
Further, it is acknowledged that the Purchaser or its attorney, accountant or
advisor have had the opportunity to ask questions of, and receive answers from,
the officers of the Company concerning the terms and conditions of this
investment and to obtain information relating to the Company.
(b) The purchase of the Securities involves risks which it has
evaluated, and is able to bear the economic risk of such purchase including the
total loss of its investment. It has been advised of the current financial
condition of the Company and of the possible adverse effects of such financial
condition on the Company's general business.
3. Company's Representations and Warranties
3.1 The Company has all requisite power and authority to issue, sell
and deliver the Securities in accordance with and upon the terms and conditions
set forth in this Agreement, and all corporate action required to be taken by
the Company for the due and proper authorization, issuance and delivery of the
Securities will, upon delivery thereof, have been validly and sufficiently
taken. The Securities, when sold and paid for as contemplated in this Agreement,
will be duly authorized, validly issued, fully paid and non-assessable and,
except as otherwise provided by applicable law, free of all liens, claims and
encumbrances.
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4
3.2 The Company has full corporate right, power and authority to enter
into this Agreement and to issue the Securities, and this Agreement and the
Securities have been or will be duly authorized, executed and delivered by the
Company and constitutes or will constitute the valid and binding agreement of
the Company.
4. Lock Up
Notwithstanding anything to the contrary contained herein, the Purchaser
undertakes that it will not undertake a Transfer of any of the Securities until
the end of the sixth (6th) month following the initial Purchase Date hereunder.
5. Registration Rights
5.1 Within TEN (10) business days following the filing of the Company's
annual report on FORM 10KSB under the Securities and Exchange Act, as amended,
for the period ended December 31, 1996, but in no event later than April 30,
1998, the Company agrees to file a registration statement [ON FORM S-3 OR OTHER
APPROPRIATE FORM] under the Securities Act of 1933, as amended (hereinafter, the
"Registration Statement"), respecting the resale of the Shares, the Option
Shares and the shares issuable upon exercise of the Warrants and the Option
Warrants (hereinafter, the Registrable Securities) and to use reasonable efforts
to cause such registration statement to become effective as soon as practicable
thereafter. The Purchaser, or its counsel, shall assist the Company in
completing the Registration Statement.
5.2 Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligations under this Section 5.1 to file the
Registration Statement and to use its reasonable efforts to cause the
Registration Statement to become effective shall be suspended in the event and
during such period as unforeseen circumstances (including, without limitation,
pending negotiations relating to, or the consummation of, a transaction or the
occurrence of any event) which, based upon advice of the Company's counsel,
would require additional disclosure of material information by the Company in
the Registration Statement as to which the Company has a bona fide business
purpose for preserving the confidentiality thereof or which, based upon the
advice of such counsel, renders the Company unable to comply with SEC
requirements. Any such suspension shall continue only for so long as such event
is continuing.
Following the effectiveness of the Registration Statement, except as may
be permitted under Section 2.4 of this Agreement, the Purchaser will not effect
any sales of the Registrable Securities at any time after it has received notice
from the Company to suspend sales as a result of a stop order or the occurrence
of any suspension event so that the Company may correct or update the
Registration Statement. The Purchaser may recommence effecting sales of the
Registrable Securities as provided above following further notice to such effect
from the Company, which notice shall be given by the Company promptly after the
withdrawal of any stop order or the conclusion of such suspension event.
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5
6. Option
Subject to the terms and conditions set forth herein, the Purchaser
shall be entitled to acquire, on or before June 30, 1998 (such date of exercise
being the "Option Purchase Date"), an additional 10,000 shares of Common Stock
("Option Shares"), for an aggregate purchase price of $62,500 ("Option Purchase
Price"), PROVIDED, THAT, the Purchaser shall give the Company written notice of
its election to purchase the Option Shares as herein provided no later than the
date on which the Registration Statement referred to in Section 5 has been
initially filed. The Purchaser shall deliver to the Company, on the Option
Purchase Date, the full amount of the Option Purchase Price payable hereunder in
immediately available funds by wire transfer to a bank account designated by the
Company or by check made payable to Company or as Company designates. Upon and
subject to receipt of the full amount of the Option Purchase Price then due, the
Company shall deliver to the Purchaser stock certificate(s), registered in the
Purchaser's name for such number of the Shares then purchased.
Contemporaneous with the purchase of the Option Shares as provided
above, the Purchaser will purchase from the Company, and the Company will sell
to the Purchaser, warrants to purchase an additional 5,000 shares of Common
Stock (the "Option Warrants"), for an aggregate purchase warrant purchase price
of $50, on the terms and conditions contained in the Warrant attached hereto as
Exhibit A.
The Option Shares and the Option Warrants shall be subject to the terms
and conditions set forth herein.
7. Conditions Precedent
The Purchaser acknowledges and understands that the Company and First
Metropolitan Securities Inc., a Delaware corporation ("First Met") entered into
the Underwriting Agreement, dated as of February 10, 1997 (hereinafter, the
"Underwriter Agreement") relating to an initial public offering of Common Stock
of the Company. Under the terms of the Underwriter Agreement, the written
consent of First Met must be obtained in respect of the issuance of the
Securities. Accordingly, the terms of this Agreement shall be subject to such
consent.
8. Miscellaneous
8.1 Notices. All notices and other communications provided herein shall
be in writing and shall be deemed to have been duly given if delivered
personally or sent by certified mail, postage prepaid, to a party's designated
address set froth above, if sent by facsimile, to its facsimile number at such
address.
8.2 Counterparts; Entire Agreement. This Agreement may be executed in
counterparts. This Agreement and the Warrant annexed hereto constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof.
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6
8.3 Binding Effect. The provisions of this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns.
8.4 Amendment. This Agreement may be amended only by a written
instrument signed by the parties hereto which specifically states that it is
amending this Agreement.
8.5 Applicable Governing Law. This Agreement and the rights and
obligations of the parties hereto shall be governed by and construed and
enforced in accordance with, the laws of the State of New York.
8.6 Headings. The headings herein are for convenience of reference
only, do not constitute a part of this Agreement, and shall not be deemed
to limit, expand or otherwise affect any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
TTR INC.
By:_______________
Marc D. Tokayer
President
BISCOUNT OVERSEAS LTD.
By:___________________
Title:
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the consolidated financial statements accompanying the filing of
Form 10-KSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
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0
0
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