As filed with the Securities and Exchange Commission on August 12, 1999
Registration No. 333-______
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
TTR TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Delaware 3577 11-3223672
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation of organization) Classification Code) Identification No.)
TTR Technologies, Inc.
1841 Broadway
New York, New York 10023
(212) 333-3355
(Address and telephone number of principal executive
offices and principal place of business)
---------------------------
Marc D. Tokayer, President
TTR Technologies, Inc.
1841 Broadway
New York, New York 10023
(212) 333-3355
(Name, address and telephone number of agent for service)
Copies to:
Lawrence M. Bell, Esq.
Golenbock, Eiseman, Assor & Bell
437 Madison Avenue
New York, New York 10022-7302
(212) 907-7300
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed` Proposed
Title of each maximum maximum
class of offering aggregate Amount of
securities to Amount to be price per offering registration
be registered registered share price fee
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 5,581,394(1) $2.91(5) $16,241,856 $ 4,515
2,790,698(2) 2.91(5) 8,120,931 2,258
1,613,551(3) 2.91(5) 4,695,433 1,305
1,776,981(4) 2.91(5) 5,171,015 1,438
400,000(4) 2.75(6) 1,100,000 306
33,000(4) 7.80(6) 257,400 72
15,000(4) 6.00(6) 90,000 25
Total 12,210,624 $35,676,635 $_9,919
</TABLE>
(1) Represents 200% of (a) up to 2,325,581 shares of Registrant's common stock,
par value $0.001 ("Common Stock"), issuable upon conversion of $2 million in
aggregate principal amount of the Registrant's 10% Convertible Debentures due
April 30, 2001 ("Debentures"), at an assumed conversion price of $0.86 plus (b)
up to 465,116 shares of common stock issuable upon conversion of the Debentures
with respect to interest accrued thereon through the maturity date thereof.
(2) Represents 200% of up to 1,395,349 shares of Common Stock issuable upon
exercise of warrants ("Warrants") issuable upon conversion of such Debentures.
(3) Represents shares of Common Stock held by certain selling stockholders.
(4) Represents shares of Common Stock issuable upon exercise of certain other
warrants and options ("Other Warrants") held by certain selling stockholders.
In accordance with Rules 416 and 457 under the Securities Act, this Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may be issuable upon conversion of the Debentures and exercise of the
Warrants and Other Warrants to prevent dilution resulting from stock splits,
stock dividends or similar transactions.
(5) Pursuant to Rule 457(c) and (g) the proposed maximum offering price per
share is $2.91, the average of the high and low price of the Common Stock as
reported on the OTC Electronic Bulletin Board as of August 6, 1999.
<PAGE>
(6) Pursuant to Rule 457(c) and (g), the proposed maximum offering price per
share is based on the exercise price therefor on the date hereof.
- --------------------------------------------------------------------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effectiveness until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 12, 1999
TTR TECHNOLOGIES, INC.
8,024,578 shares of Common Stock
We design, develop and market proprietary anti-piracy software
technologies that provide encryption and copy protection for software
applications distributed on CD-ROMs. Our proprietary product, DiscGuard, is
designed to prevent unauthorized CD-ROMs from operating as intended.
Holders of our common stock identified in this prospectus are offering all
of the shares to be sold in the offering. These shares may be offered any time
after the date of this prospectus in one or more types of transactions,
including through broker-dealers, in over-the-counter markets or directly by the
selling stockholders in negotiated transactions. Prices for the shares may be
the market prices prevailing at the time of sale or may be negotiated by the
selling stockholder and the buyer. For additional information on the methods of
sale, you should refer to the section entitled "Plan of Distribution." We will
not receive any of the proceeds from the offering.
Each of the selling stockholders may be deemed to be an "underwriter," as
such term is defined in the Securities Act of 1933.
Shares of our common stock trade on the OTC Electronic Bulletin Board
under the symbol "TTRE". The closing sale price of the common stock on August 6,
1999 on the OTC Electronic Bulletin Board was $2 7/8 per share.
----------------------
This Investment Involves a High Degree of Risk. You Should Purchase Shares
Only If You Can Afford a Complete Loss. See "Risk Factors" beginning on Page 5
of this Prospectus.
----------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------------
The information in this prospectus is not complete and may be changed. The
stockholders selling our common stock pursuant to this prospectus may not sell
these shares until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer to sell these
shares and it is not an offer to buy these shares in any state where the offer
or sale is not permitted.
----------------------
The date of this prospectus is _____________, 1999
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary..................................................... 1
Risk Factors........................................................... 5
Disclosure Regarding Forward-Looking Statements ....................... 14
Dividend Policy........................................................ 15
Use of Proceeds ....................................................... 15
Price Range of Common Stock............................................ 16
Selected Consolidated Financial Data................................... 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 19
Business............................................................... 26
Conditions in Israel................................................... 36
Management............................................................. 39
Certain Relationships and Related Transactions......................... 44
Principal and Selling Stockholders..................................... 46
Description of Securities.............................................. 49
Plan of Distribution................................................... 51
Legal Matters.......................................................... 55
Experts................................................................ 55
Available Information.................................................. 55
Index to Financial Statements.......................................... F-1
(1)
<PAGE>
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, especially the
risks of investing in our common stock discussed under "Risk Factors." Except as
otherwise noted, the information in this prospectus does not give effect to the
conversion of outstanding convertible securities or to the exercise of
outstanding options and warrants. Unless otherwise noted, references in this
prospectus to "TTR," "we," "our" and "us" refer to TTR Technologies, Inc., a
Delaware corporation, and our wholly-owned subsidiary, TTR Technologies, Ltd.,
an Israeli corporation.
We design, develop and market anti-piracy software technologies that
provide encryption and copy protection for software applications distributed on
CD-ROMs. Our proprietary product, DiscGuard, is designed to prevent unauthorized
CD-ROMS from operating as intended. Our copy protection technologies are
transparent to the legitimate end-user and do not require the user to install
hardware "keys" or "dongles" on the user's desk top or to obtain an "unlock
code" in order to run the protected application.
We believe that DiscGuard addresses a significant need in the rapidly
growing CD-ROM market. According to InfoTech, Inc., a market research firm
specializing in the optical media industry, worldwide sales of CD-ROMs and
Digital Versatile Discs (or DVDs) more than doubled between 1996 and 1998, and
will exceed $75 billion by 2000. The 1999 Global Software Piracy Report (a May
1999 study conducted by International Planning and Research Corp. for the
Business Software Alliance and Software & Information Industry Association)
indicates that losses from the unauthorized replication of business software are
estimated to have exceeded $11 billion worldwide in 1998.
We believe that in 1998 only approximately 3.0 million of the 1.6 billion
discs sold worldwide included some form of copy protection, and that sales of
all CD-ROM copy-protection products was approximately $170 million. The CD-ROM
copy protection market is currently dominated by companies that offer the use of
a hardware device, such as a "key" or "dongle," that plugs into the back of a
computer as an anti-piracy strategy. Due to its relatively high cost and
inconvenience, the dongle is generally used in the United States only in the
high-end market for expensive software, including scientific and computer-aided
design software, although it is used more frequently outside the United States
for other applications. We believe that the global market for CD-ROM copy
protection for the high-volume, multi-media consumer software market, including
games, entertainment and reference software, and other install-to-use
applications, is currently undeveloped, and that DiscGuard offers a
technologically superior, cost-effective, convenient, software-based solution
for this segment of the CD-ROM copy protection market.
Since our inception in 1994, we have focused on
o developing our proprietary anti-privacy technologies; and
o in the last year, licensing a broad base of replicators,
representing a significant percentage of the world replication
market by disc volume, to use DiscGuard in their mastering
equipment, making DiscGuard readily available to software
publishers.
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With our network of licensed replicators in place to have
DiscGuard-protected software mass-produced on CD-ROMs, since the first
commercial release of DiscGuard in February 1998, we have begun marketing
DiscGuard to software publishers, directly and through distributors.
Approximately 24 software publishers market some or all of their titles on
DiscGuard-protected discs, representing approximately 400,000 CD-ROMs and
approximately 71 software titles.
Our goal is to establish DiscGuard as the leading product in our target
market segment of software-based CD-ROM copy protection for high-volume
multi-media consumer software, including games, entertainment and reference
software, and other install-to-use applications. To achieve this objective, the
key elements of our strategy are to:
o Continue to have DiscGuard Integrated into the Mastering Equipment
of a Broad Base of Replicators of CD-ROMS. We intend to continue to
license DiscGuard to leading mastering facilities and replicators
and to support such mastering facilities and replicators.
o Leverage Replicator Relationships and Increase Market Penetration
among Software Publishers. We intend to license DiscGuard to an
increasing number of software publishers, through direct marketing
in the United States, Europe and the Middle East, through
distributors in Asia, and through referrals from our licensed
replicators. We may also seek a strategic alliance with an
international marketing partner or increase our use of distributors
in particular countries outside of Asia. We are targeting publishers
of high-volume, multi-media consumer software such as games,
entertainment and reference software, and other install-to-use
applications, because unauthorized disc replication is the most
common form of piracy of such applications.
o Introduce New Product Applications. We intend to expand our
technological base and extend DiscGuard protection to other segments
of the software publishing industry. In addition, we believe that
software developed for CD-ROM is beginning to migrate to DVDs, a
format with much greater storage capacity than CD-ROMs. We
anticipate that we will complete the development of a DiscGuard
protection product for DVD's by the time DVD recorders become widely
available, which we believe will occur over the next twelve to
twenty four months.
o Pursue Royalty-Based Licensing Model. We are pursuing a
royalty-based licensing model that results in a high margin,
transaction-oriented business with recurring revenues. We typically
license our technology under unit-based pricing schedules. Royalties
and other fees are currently paid by software publishers and, to a
lesser extent, by commercial replicators. We intend whenever
feasible to continue to license our technologies to third parties
for unit or transaction-based royalties and fees.
o Protect Patent Position. We believe that our future success will
depend, in part, on the continued protection or our proprietary
technologies. We have applied for patents to protect our copy
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protection technologies and intend to pursue patent protection
aggressively.
o Expand and Maintain Customer Support. We intend to expand and
maintain our customer service capability as the number of our
licensed publishers grows. To date, we have been able to provide
satisfactory service and support to the relatively small number of
our licensed publishers.
We were organized in July 1994. We have an Israeli subsidiary, organized
in December 1994, through which we conduct research and development. Our
principle executive offices are located at 1841 Broadway, New York, New York
10023, telephone (212) 333-3355. Our Web site is www.ttrtech.com. Information
contained on our Web site is not, and should not be deemed to be, a part of this
prospectus.
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The Offering
Securities offered................. 8,024,578 shares of common stock. (1)
Shares outstanding................. 5,646,971 shares of common stock. (2)
Use of proceeds.................... We will not receive any proceeds from the
sale of common stock by the selling
stockholders. We will receive the net
proceeds from the sale of an additional $1.0
million in principal amount of our 10%
Convertible Debentures due April 30, 2001
not later than five days after the effective
date of this prospectus (of which $400,000
has been pre-funded). The Securities
Purchase Agreement between us and the
holders of the Debentures generally provides
that we must use those proceeds for internal
working capital purposes. See "Risk
Factors-We will require at least $4.6
million in additional financing to continue
operating through December 2000;" "Use of
Proceeds" and "Management's Discussion and
Analysis of Financial Conditions and Results
of Operations."
- ----------
(1) Includes (i) 2,325,581 shares of our common stock issuable upon conversion
of $2.0 million in aggregate principal amount of our 10% Convertible Debentures
due April 30, 2001 at an assumed conversion price of $0.86, (ii) up to 465,116
shares of common stock issuable upon conversion of the Debentures with respect
to interest accrued thereon through the maturity date thereof, (iii) 1,395,349
shares of common stock issuable upon exercise of Warrants issuable upon
conversion of the Debentures, (iv) 1,613,551 shares of common stock held by
certain selling stockholders, and (v) 2,224,981 shares of common stock issuable
upon exercise of certain other warrants and options held by certain selling
stockholders.
(2) Does not include (a) up to an aggregate of 423,770 shares of common stock
issuable upon exercise of options granted under our 1996 Stock Option Plan, (b)
any of the shares described in clauses (i) through (iii) and (v) in footnote (1)
above, or (c) 236,000 shares issuable upon exercise of certain outstanding
options and warrants that are not held by the selling stockholders.
We are registering the shares offered hereby in order to satisfy our
obligations to the holders of our 10% Convertible Debentures due April 30, 2001.
Under a Securities Purchase Agreement and a related Registration Rights
Agreement dated May 13, 1999 between us and the holders of the Debentures, we
are obligated to register with the SEC 200% of the number of shares issuable on
conversion of $2.0 million in aggregate principal amount of the Debentures
together with interest accrued thereon through the maturity date thereof,
represented by the shares described in clauses (i) and (ii) of footnote 1 above,
and 200% of the number of shares of common stock issuable upon exercise of the
Warrants that are issuable upon conversion of the Debentures, represented by the
shares described in clause (iii) of footnote 1 above. We are also obligated to
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<PAGE>
keep the Registration Statement of which this prospectus forms a part effective
for two years after the date of this prospectus. See "Plan of Distribution."
RISK FACTORS
This offering involves a high degree of risk. You should be able to bear a
complete loss of your investment. You should carefully consider the risks
described below and the other information in this prospectus before deciding to
invest in shares of our common stock. If any of the following risks actually
occur, our business, financial condition and results of operations would likely
suffer. In such case, the market price of our common stock could decline, and
you may lose all or a part of the money you pay to buy our common stock
We will require at least $4.6 million in additional financing to continue
operating through December 2000.
We have approximately $1.5 million in aggregate principal amount of
indebtedness currently due and payable together with interest thereon. The
holders of an aggregate of $562,500 in principal amount of such indebtedness
have agreed to extend the maturity thereof until various dates from April
through July 2000. We are attempting to obtain similar extensions from the
holders of the balance of such indebtedness. There can be no assurance that any
extensions will be granted with regard to all or any part of such balance. We
will need to obtain additional financing or otherwise reallocate our available
funds in order to repay any amount of such indebtedness as to which no extension
is granted.
If we receive extensions with respect to the entire balance of such
indebtedness, we anticipate that our cash on hand, together with the net
proceeds from the sale of an additional $1.0 million in principal amount of our
10% Convertible Debentures due April 30, 2001 not later than five days after the
effective date of this prospectus (of which $400,000 has been pre-funded) will
allow us to bring certain suppliers and vendors current and to maintain
operations through November 1999. Thereafter, from December 1999 through
December 2000, we will need additional financing of at least $4.6 million of
investment capital, funding by strategic partner(s) or operating revenues to
continue operating, pay suppliers and other creditors and retire an aggregate of
approximately $1.9 million in outstanding principal amount of indebtedness other
than the Debentures. We are currently reviewing possible private sales of equity
or debt with equity features and arrangements with strategic partners. We have
no commitments for any such financing and there can be no assurance that we will
obtain additional capital when needed or that any such additional capital will
not have a dilutive effect on current stockholders.
We do not have any commitments for any additional financing other than the
sale of the additional $1.0 million in principal amount of Debentures (of which
$400,000 has been pre-funded). We do not anticipate receiving any funding from
commercial lenders. There can be no assurance that any additional financing can
be obtained on favorable terms, if at all. Any additional equity financing may
result in dilution to our stockholders.
5
<PAGE>
We have lost money in every quarter and year, and we expect these losses to
continue in the foreseeable future.
Since we began our operations in 1994, we have lost money in every quarter
and year. As of March 31, 1999, we had an accumulated deficit of approximately
$12.9 million. If our revenue does not increase and we cannot adjust our level
of spending adequately, we may not generate sufficient revenue to become
profitable. Even if we do become profitable, we may not be able to sustain or
increase profitability on a quarterly or annual basis in the future. Our ability
to generate revenue depends primarily upon our ability to attract replicators
and software publishers as clients.
"Going concern" statement in auditor's report may make it difficult to raise new
capital.
We have not had any significant revenues to date. As of March 31, 1999, we
had an accumulated deficit of $12,916,457 from July 14, 1994 (date of
inception). The report of the independent auditors on our financial statements
for the year ended December 31, 1998 includes an explanatory paragraph relating
to the uncertainty of our ability to continue as a going concern, which may make
it more difficult for us to raise additional capital.
We have only been in business for a short period of time, so your basis for
evaluating us is limited.
We are a development stage company with a limited history of operations.
Before DiscGuard first became commercially available in February 1998, we were
engaged primarily in research and development. As a result, there is a limited
history of operations for evaluating our business. You must consider the risks
and difficulties frequently encountered by early stage companies in new and
rapidly evolving markets, including the software copy protection and anti-piracy
market. Some of these risks and uncertainties relate to our ability to:
o license DiscGuard to additional replicators and software publishers
in order to generate significant revenue;
o maintain our current relationships with leading replicators and
manufacturers of the mastering equipment used by replicators.
o stay ahead of the efforts of hackers and counterfeiters to
circumvent our copy protection technology;
o respond effectively to actions taken by our competitors;
o build our organizational and technical infrastructures to manage our
growth effectively;
o design, develop and implement effective products for existing
clients and new clients;
o increase awareness of our brand among replicators and software
publishers;
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o extend DiscGuard protection to DVD discs;
o attract, retain and motivate qualified personnel.
If we are unsuccessful in addressing these risks and uncertainties, our
business, financial condition and results of operations will be materially and
adversely affected.
The market for computer software copy protection is unproven.
The market for copy protection technology for CD-ROM software products,
especially in the consumer multi-media market, is unproven. For us to be
successful in entering this market segment, producers and publishers of
multi-media CD-ROMs must accept copy protection generally and also adopt the
DiscGuard-based solution that we have developed. There can be no assurance that
copy protection of multi-media CD-ROMs will be commercially accepted. For
example, consumers may react negatively to the introduction of copy protected
CD-ROMs if they are prevented from copying the content of their favorite
applications. Moreover, copy protection may not be effective or compatible with
all hardware platforms or configurations or may prove to be easily circumvented.
Also, software developed for CD-ROM is beginning to migrate to DVD-ROM, a format
in which we have not completed the development of copy protection technology.
Further, our DiscGuard-based technology may not achieve or sustain market
acceptance under emerging industry standards or may not meet, or continue to
meet, the changing demands of multi-media software providers. If the market for
CD-ROM copy protection fails to develop or develops more slowly than expected,
or if DiscGuard does not achieve or sustain market acceptance, our business,
financial condition and results of operations would be materially adversely
affected.
You should not rely on our quarterly operating results as an indication of how
we will do in the future.
Our quarterly operating results may vary significantly in the foreseeable
future due to a number of factors that could affect our revenue, expenses or
prospects during any particular quarter. These factors include:
o the demand for software anti-piracy protection in general and for
CD-ROMs, in particular, and, potentially, for DVDs;
o the degree of acceptance of our copy protection technologies by
software publishers;
o changes in our operating expenses;
o the development of our direct and indirect distribution channels;
o our continued ability to license DiscGuard to leading mastering
equipment manufacturers and replicators;
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o our ability to attract and retain other replicators and software
publishers that are seeking anti-piracy protection;
o changes in fees paid for anti-piracy software resulting from
competition or other factors;
o economic conditions specific to the CD-ROM and DVD industries;
o anticipated seasonality of revenues relating to sales of software to
consumers in our target market-segment.
In any given quarter, we may expend substantial funds and management
resources and yet not obtain adequate revenue, and we may not be able to adjust
spending in a timely manner to compensate for any unexpected shortfall in our
revenue. Any significant shortfall could have an immediate material and adverse
effect on our business, financial condition and results of operations.
Due to all of the foregoing factors, and the other risks discussed in this
section, you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. It is possible that in some
future periods our operating results will be below the expectations of public
market analysts and investors. In this event, the price of our common stock
would likely fall.
We currently derive all of our net revenues and operating income from fees
for the application of our copy protection technology to prerecorded CD-ROM
discs that are sold to consumers. We expect these fees to account for
substantially all of our net revenues and operating income at least through
2000. There can be no assurance that revenues from these fees will grow
significantly or at all. Any future growth in revenues from these fees will
depend on the use of our copy protection technology by a larger number of
software publishers. In order to increase our market penetration, we must
continue to persuade software publishers that the cost of licensing our
technology is outweighed by the increase in revenues from additional sales of
the copy protected material that the software publishers would achieve as a
result of using DiscGuard copy protection.
In the event that the customers of our copy protection technology were to
determine that the benefits of using our technology did not justify the cost of
licensing the technology, demand for our technology would decline. Any factor
that results in a decline in demand for our copy protection technology,
including CD-ROM discs that are encoded with our copy protection technology,
would have a material adverse effect on our business, financial condition and
result of operations.
There are many competitors in the software protection industry and we may not be
able to compete effectively against them.
The CD-ROM copy protection industry is extremely competitive. Our primary
competitors include companies with substantially greater financial,
technological, marketing, personnel and research and development resources than
ours. There can be no assurance that we will be able to compete successfully in
this market. In particular, certain companies, such as C-Dilla Limited, Sony
DADC Austria AG, MLS LaserLock International Inc. and Link Data Security, claim
to provide comprehensive optical media-based anti-piracy protection. For
example, the copy protection product of C-Dilla is based on a technology which
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attempts to prevent unauthorized copying by encoding a disc with unreadable "bad
sectors." This alternate copy-protection technology may prove to be more
successful than DiscGuard, which embeds a digital signature in authorized discs.
In addition, Rainbow Technologies Inc. and Aladdin Knowledge Systems Ltd. each
have an established installed product base in the market for hardware key or
dongle-based software copy protection products and could expand into our target
market of copy protection products for software contained on optical media such
as CD-ROMs. There can be no assurance that other software companies will not
enter the market in the future. Many of our competitors have existing
relationships with major software developers in the United States, some of which
are dominant software producers worldwide, and those existing relationships may
impede our ability to sell our products to those customers and expand our market
share. For example, C-Dilla has recently been acquired by Macrovision
Corporation, a leader in the market for video security technology and products.
There can be no assurance that we will be able to continue developing products
with innovative features and functions, or that development by others of similar
or more effective products will not render our products or technologies
noncompetitive or obsolete.
Third parties may be able to circumvent our anti-piracy technology.
We must continually enhance and upgrade DiscGuard to stay ahead of the
efforts of counterfeiters and hackers to circumvent our technologies, even in
the face of the new United States Digital Millennium Copyright Act. The Act
outlaws copy protection circumvention devices and technologies beginning in May
2000 and currently provides for both criminal and civil penalties for companies
or individuals who import, produce or distribute devices designed to circumvent
copy protection devices and technologies. It is conceivable that counterfeiters
and hackers could develop a way to circumvent our copy protection techniques,
which may result in a potentially substantial decrease in the demand for our
products. Additionally, software publishers could choose not to use our
anti-piracy technology if software publishers believe that our technology will
be unable to deter counterfeiters or if they believe it interferes with
legitimate consumer use of the original copyrighted product. In this regard, our
copy protection technologies are intended to prevent both consumer copying and
professional remastering and replication. Any reduction in demand for our
products could have a material adverse effect on our business, financial
condition and results of operations.
We are vulnerable to technological obsolescence.
DiscGuard is currently our only product and is based upon a single set of
core technologies. The market for our technology and products is characterized
by rapid change and evolving industry standards, often resulting in product
obsolescence or short product lifecycles. Although we are not aware of any
developments in the software protection industry which would render our current
or planned product less competitive or obsolete (other than the incipient
migration of software from CD-ROM to DVD), there can be no assurance that future
technological changes or the development of new or competitive products by
others will not do so.
Our relationship with DCA is important.
In October 1997, we signed an agreement with Doug Carson & Associates,
Inc., under which DCA has a license (exclusive through December 31, 1999) to
integrate DiscGuard into its mastering interface system for sale to replicators.
The mastering interface system (or MIS) is a key component of the mastering
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equipment used by replicators to produce the glass masters which are, in turn,
used to mass-produce CD-ROMs. We believe that DCA's MIS is currently installed
in more than 50% of the world's CD-ROM mastering equipment. The termination of
our relationship with DCA could have a material adverse effect on us because we
could lose access to a significant portion of the replicators. In addition,
there can be no assurance that DCA will be able to sell or upgrade its
DiscGuard-enhanced MIS to or for replicators or that, if it does, DCA's efforts
will generate significant revenues for us.
We have limited marketing experience and capabilities.
We commenced marketing activities in 1998 and have limited marketing
experience and limited financial, personnel and other resources to undertake
marketing and advertising activities. To date, DiscGuard has generated minimal
licensing revenues, and has achieved only limited market acceptance. Demand for
DiscGuard will depend principally upon the demand by software publishers in our
target market-segment for copy protection. As is typically the case with
newly-introduced products, the ultimate level of demand for our products is
subject to a high degree of uncertainty. Developing market acceptance for our
existing and proposed product will require substantial marketing efforts and the
expenditure of a significant amount of funds to inform software publishers of
the perceived advantages of our products. There can be no assurance that our
marketing efforts will result in increased demand for, or market acceptance of,
our product. There can be no assurance that we will be able to market DiscGuard
successfully or that our efforts will result in any significant revenues. If we
do not succeed in significantly increasing the number of licensed publishers
generated through our existing marketing efforts, we may seek a strategic
alliance with a partner with an international marketing capability, or increase
our use of distributors in particular countries outside of Asia. We are not
currently engaged in negotiations with any potential strategic partner and there
can be no assurance that we will be able to identify a suitable partner or that,
if so, we will be able to sign an agreement on acceptable terms.
Software may migrate from CD-ROM to DVD before we are able to adapt DiscGuard to
DVD.
We believe that software products developed for CD-ROM have begun to
migrate to DVD and may complete the process within the next twelve to
twenty-four months, as DVD drives become widely available. Our future growth and
operating results may depend to a large extent on the successful introduction,
marketing and commercial viability of DVDs that utilize our copy protection
technologies. A number of factors will affect our ability to derive revenues
from DVD protection. These factors include the cost and effectiveness of our
copy protection technology in various applications, the development of
alternative technologies or standards for DVD copy protection, the uncertainty
in the marketplace engendered by alternative standards for DVD and for DVD
recordable devices, and the relative ease of copying, as well as the quality of
the copies of unprotected materials distributed in new digital formats. Because
of its early stage of development, demand for and market acceptance of DVD, as
well as demand for associated copy protection, are subject to a high level of
uncertainty. Much of the DVD technology and infrastructure is unproven, and it
is difficult to predict with any assurance whether, or to what extent, these
evolving markets will grow. In this regard, our future growth could be adversely
affected if DVD discs that do not include our copy protection components achieve
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market acceptance. If there is consumer dissatisfaction that cannot be managed,
or if there are technical compatibility problems, our business, financial
condition and results of operations could be materially adversely affected. If
the market for DVD copy protection fails to develop or develops more slowly than
expected, or if our solution does not achieve or sustain market acceptance, our
business, financial condition and results of operations would be materially
adversely affected.
We have very few employees and are particularly dependent on our Vice
President-Research and Development.
We have a small number of employees. Although we believe we maintain a
core group sufficient for us to effectively conduct our operations, the loss of
certain of our key personnel could, to varying degrees, have an adverse effect
on our operations and product development. The loss of Dr. Baruch Sollish, our
Vice President-Research and Development, would have a material adverse affect.
We have not obtained "key-man" life insurance on the life of Dr. Sollish. Our
key employees and corporate officers all reside in Israel.
We are subject to risks associated with international operations.
We conduct business from our facilities in Israel and the United States,
and through distributors in Asia. Our international operations and activities
subject us to a number of risks, including the risk of political and economic
instability, difficulty in managing foreign operations, potentially adverse
taxes, higher expenses and difficulty in collection of accounts receivable. In
addition, although we receive most of our revenue in U.S. dollars, a substantial
portion of our payroll and other expenses are paid in the currency of Israel,
where most of our employees reside and our research and development operations
are located. Because our financial results are reported in U.S. dollars, they
are affected by changes in the value of the various foreign currencies that we
use to make payments in relation to the U.S. dollar. We do not cover known or
anticipated operating exposures through foreign currency exchange option or
forward contracts.
We are subject to risks associated with operations in Israel.
Our Israeli subsidiary maintains offices and research and development
facilities in Israel and is directly affected by prevailing economic, military
and political conditions that affect Israel.
We need to establish and maintain licensing relationships with companies in
related fields.
Our future success will depend in part upon our ability to establish and
maintain licensing relationships with companies in related business fields,
including CD-ROM and DVD mastering facilities and replicators, owners of
mastering interface systems, software copyright owners and publishers, and
international distributors. We believe that these current and future
relationships can allow us greater access to manufacturing, sales and
distribution resources. However, the amount and timing of resources to be
devoted to these activities by these other companies are not within our control.
We may not be able to maintain our existing relationships or enter into
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<PAGE>
beneficial relationships in the future. Other parties may not perform their
obligations as expected. Our reliance on others for the development,
manufacturing and distribution of our technologies and products may result in
unforeseen problems. Substantially all of our license agreements are
non-exclusive, and therefore these licensees are free to enter into similar
agreements with third parties, including our current or potential competitors.
There can be no assurance that our licensees will not develop or pursue
alternative technologies either on their own or in collaboration with others,
including our competitors, as a means of developing or marketing products
targeted by the collaborative programs and by our products.
Our efforts to protect our intellectual property rights may not be adequate.
Our success is heavily dependent upon our proprietary technologies. We
rely on a combination of patent, trademark, copyright and trade secret laws,
nondisclosure and other contractual provisions, and technical measures to
protect our intellectual property rights. Our patents, trademarks or copyrights
may be challenged and invalidated or circumvented. Any patents that issue from
our pending or future patent applications or the claims in pending patent
applications may not be of sufficient scope or strength or be issued in all
countries where our products can be sold or our technologies can be licensed to
provide meaningful protection or any commercial advantage to us. Others may
develop technologies that are similar or superior to our technologies, duplicate
our technologies or design around our patents. Effective intellectual property
protection may be unavailable or limited in certain foreign countries. Despite
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise use aspects of processes and devices that we regard as
proprietary. Policing unauthorized use of our proprietary information is
difficult, and there can be no assurance that the steps we have taken will
prevent misappropriation of our technologies. In the event that our intellectual
property protection is insufficient to protect our intellectual property rights,
we could face increased competition in the market for our products and
technologies, which could have a material adverse effect on our business,
financial condition and results of operations.
Litigation may be necessary in the future to enforce any patents that may
issue and other intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. There can
be no assurance that any litigation of these types will be successful.
Litigation could result in substantial costs, including indemnification of
customers, and diversion of resources and could have a material adverse effect
on our business, financial condition and results of operations, whether or not
such litigation is determined adversely to us. In the event of an adverse ruling
in any litigation, we might be required to pay substantial damages, discontinue
the use and sale of infringing products, expend significant resources to develop
non-infringing technology or obtain licenses to infringed technology. Our
failure to develop or license a substitute technology could have a material
adverse effect on our business, financial condition and results of operations.
We face Year 2000 risks.
Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates
because such systems may have been developed using two digits rather than four
to determine the applicable year. This could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
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<PAGE>
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced to comply with such "Year
2000" requirements. Our business is dependent on the operation of numerous
systems that could potentially be affected by Year 2000 related problems. Those
systems include, among others: hardware and software systems used internally by
us in the management of our business; hardware and software products developed
by us, including DiscGuard; the internal systems of our customers and suppliers;
and non-information technology systems and services used by us in the management
of our business, such as telephone systems and building systems. We believe that
DiscGuard is Year 2000 ready; however, success of our Year 2000 readiness
efforts may depend on the success of our customers in dealing with their Year
2000 issues. We sell our products to companies in several different industries,
each experiencing different issues with Year 2000 readiness. Customer
difficulties with Year 2000 issues could interfere with the use of DiscGuard,
which might require us to devote additional resources to resolve the underlying
problems. Although we believe that our Year 2000 readiness efforts are designed
to appropriately identify and address those Year 2000 issues that are within our
control, there can be no assurance that our efforts will be fully effective or
that the Year 2000 issues will not have a material adverse effect on our
business, financial condition or results of operations. We do not presently have
a contingency plan for handling Year 2000 issues that are not detected and
corrected prior to their occurrence. Any failure by us to address any unforeseen
Year 2000 issue could adversely affect our business, financial condition and
results of operations. For more details on our Year 2000 risks, please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issues."
Future sales of our common stock by our holders of outstanding stock and options
could have an adverse effect on the market price of our common stock.
We anticipate that some or all of the selling stockholders may from time
to time sell all or part of the shares offered hereby. In addition, there are
currently outstanding options or warrants (other than the Warrants issuable upon
conversion of the Debentures) to purchase 2,884,751 shares of our common stock
(including 423,770 options granted under our 1996 Stock Option Plan, 2,146,648
options and warrants held by selling stockholders and 236,000 other options and
warrants not held by selling stockholders). The market price of our common stock
could decline as a result of sales by our existing stockholders of a large
number of shares of common stock in the market after this offering, or the
perception that these sales may occur. These sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate.
Our stock price is volatile and could continue to be volatile.
Investment interest in our common stock may not lead to the development of
an active or liquid trading market. The market price of our common stock has
fluctuated in the past and is likely to continue to be volatile and subject to
wide fluctuations. In addition, the stock market has experienced extreme price
and volume fluctuations. The stock prices and trading volumes for many software
companies fluctuate widely for reasons that may be unrelated to their business
or results of operations. The market price of our common stock may decline below
the offering price. General economic, market and political conditions could also
materially and adversely affect the market price of our common stock and
investors may be unable to resell their shares of common stock at or above the
offering price.
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<PAGE>
It may be difficult for a third party to acquire us.
Provisions of our certificate of incorporation, our by-laws and Delaware
law could make it more difficult for a third party to acquire us, even if it
would be beneficial to our stockholders.
Penny Stock Regulation is applicable to investment in our shares.
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the Nasdaq system, provided that current
prices and volume information with respect to transactions in such securities
are provided by the exchange or system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "Forward-Looking Statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this prospectus, including, without
limitation, statements regarding our future financial position, business
strategy, budgets, project costs and plans and objectives of management for
future operations, are Forward-Looking Statements. In addition, Forward-Looking
Statements generally can be identified by the use of forward-looking terminology
such as "may," "will," "except," "should," "intend," "estimate," "anticipate,"
"believe," or "continue" or the negative thereof or variations thereon or
similar terminology. Although we believe that the expectations reflected in such
Forward-Looking Statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. Important factors (or Cautionary
Statements) that could cause actual results to differ materially from our
expectations are disclosed under "Risk Factors" and elsewhere in this
prospectus. All subsequent written and oral Forward-Looking Statements
attributable to us, or to persons acting on our behalf, are expressly qualified
in their entirety by the Cautionary Statements.
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<PAGE>
DIVIDEND POLICY
We have never paid a cash dividend on our common stock. Payment of
dividends is at the discretion of the board of directors. The board of directors
plans to retain earnings, if any, for operations and does not intend to pay
dividends in the foreseeable future.
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
selling stockholders. We will receive the net proceeds from the sale of an
additional $1.0 million in principal amount of our 10% Convertible Debentures
due April 30, 2001 not later than five days after the effective date of this
prospectus (of which $400,000 has been pre-funded). The Securities Purchase
Agreement between the holders of the Debentures and us generally provides that
we must use those proceeds for internal working capital purposes. See "Risk
Factors-We will require at least $4.6 million in additional financing to
continue operating through December 2000;" and "Management's Discussion and
Analysis of Financial Conditions and Results of Operations."
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<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the OTC Electronic Bulletin Board of the
National Association of Securities Dealers, Inc., Automated Quotation System
under the symbol "TTRE". Although trading in our common stock has occurred on a
relatively consistent basis, the volume of shares traded has been sporadic.
There can be no assurance that an established trading market will develop, that
the current market will be maintained or that a liquid market for our common
stock will be available in the future. Investors should not rely on historical
stock price performance as an indication of future price performance.
The following table summarizes the high and low bid prices of TTR's common
stock as reported on the OTC Electronic Bulletin Board for the periods
indicated. The closing price of our common stock on August 6, 1999 was $2 7/8
per share.
Common Stock
Quarter Ended High Low
1999
June 30 $ 3 1/8 $ 3/4
March 31 $ 1 7/16 $ 3/4
1998
March 31 $ 6 $ 4
June 30 $ 5 1/2 $ 2 5/8
September 30 $ 3 1/4 $ 7/8
December 31 $ 3 1/16 $ 11/16
1997
March 31 $16 23/32 $ 9 1/4
June 30 $15 7/8 $11
September 30 $13 3/4 $11
December 31 $11 15/16 $ 5 5/8
The foregoing represent inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
As of July 30, 1999 there were approximately 147 holders of record of our
common stock, excluding stockholders whose stock is held either in nominee name
or street name brokerage accounts. Based on information obtained from our
transfer agent, as of such date, there were approximately 859 stockholders of
our common stock whose stock is held in either nominee name or street name
brokerage accounts.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our consolidated financial data for the two
years ended December 31, 1998, and for the quarters ended March 31, 1998 and
1999. The selected consolidated financial data for the two years are derived
from our consolidated financial statements, which have been audited by Brightman
Almagor & Co. (formerly known as BDO Almagor & Co.), a member of Deloitte Touch
Tohmatsu, independent auditors. The selected consolidated financial data for the
quarter ended March 31, 1998 and 1999 have been derived from the unaudited
consolidated financial statements, which in the opinion of management, reflect
all adjustments consisting of normal recurring accruals necessary for a fair
presentation of the financial position and the results of operations of these
periods. The consolidated financial data set forth below should be read in
conjunction with our Consolidated Financial Statements and related Notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The results of operations for
the quarter ended March 31, 1999 are not necessarily indicative of results for
the full year.
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31, From Inception
---------------------- --------------------- (July 14, 1994)
Income Statement Data 1997 1998 1998 1999 To March 31, 1999
---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C>
Revenues $ -- 54,922 -- 26,984 81,906
Total expenses 3,865,736 5,251,160 844,784 991,667 11,807,650
Operating loss (3,865,736) (5,196,238) (844,784) (986,683) (11,725,744)
Net loss (4,119,612) (5,578,540) (850,964) (1,158,346) (12,916,457)
Net loss per share $ (1.35) (1.54) (0.26) (0.23)
Weighted average shares
Outstanding (1) 3,054,519 3,615,908 3,293,481 4,989,391
<CAPTION>
December 31, March 31, March 31, 1999
Balance Sheet Data 1998 1999 As Adjusted(2)
------------ --------- --------------
<S> <C> <C> <C>
Working deficiency (2,834,448) (3,160,221) (1,420,221)
Total assets 490,545 357,129 2,379,129
Total liabilities 3,588,712 3,900,556 5,900,556
Total stockholders' deficit (3,098,167) (3,521,427) (3,521,427)
</TABLE>
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- -------------
(1) Does not include (i) up to an aggregate of 423,770 shares of common stock
issuable upon exercise of options granted under our 1996 Stock Option
Plan, (ii) 2,325,581 shares of our common stock issuable upon conversion
of $2.0 million in aggregate principal amount of our 10% Convertible
Debentures due April 30, 2001 at an assumed conversion price of $0.86,
(iii) up to 465,116 shares of common stock issuable upon conversion of the
Debentures with respect to interest accrued thereon through the maturity
date thereof, (iv) 1,395,349 shares of common stock issuable upon exercise
of Warrants issuable upon conversion of the Debentures, (v) 2,224,981
shares issuable upon exercise of other outstanding warrants and options
held by certain selling stockholders or (vi) 236,000 shares issuable upon
exercise of certain outstanding options and warrants that are not held by
the selling stockholders.
(2) Gives effect to the sale of $2.0 million in aggregate principal amount of
10% Convertible Debentures due April 30, 2001.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and the notes thereto included elsewhere in
this prospectus.
General
Overview
We design, develop and market anti-piracy software technologies that
provide encryption and copy protection for software applications distributed on
CD-ROMs. Our proprietary product, DiscGuard, is designed to prevent unauthorized
CD-ROMS from operating as intended. Our copy protection technologies are
transparent to the legitimate end-user and do not require the user to install
hardware "keys" or "dongles" on the user's desk top or to obtain an "unlock
code" in order to run the protected application.
Since our inception in 1994, we have focused on
o developing our proprietary anti-privacy technologies; and
o in the last year, licensing a broad base of replicators,
representing a significant percentage of the world replication
market by disc volume, to use DiscGuard in their mastering
equipment, making DiscGuard readily available to software
publishers.
With our network of licensed replicators in place to have
DiscGuard-protected software mass-produced on CD-ROMs, since the first
commercial release of DiscGuard in February 1998, we have begun marketing
DiscGuard to software publishers, directly and through distributors.
Approximately 24 software publishers market some or all of their titles on
DiscGuard-protected discs, representing approximately 400,000 CD-ROMs and
approximately 71 software titles.
Our goal is to establish DiscGuard as the leading product in our target
market segment of software-based CD-ROM copy protection for high-volume
multi-media consumer software, including games, entertainment and reference
software and other install-to-use applications.
In 1997, we completed an initial public offering to raise working capital.
We have had difficulty in the past twelve months in raising financing needed to
fund our operations and have, therefore, significantly curtailed our activities.
In the summer of 1998, we abandoned a proposed public offering of our common
stock after filing a registration statement therefor, due to a correction in the
stock market.
We have $1.5 million in aggregate principal amount of indebtedness
currently due and payable together with interest thereon. The holders of an
aggregate of $562,500 in principal amount of such indebtedness have agreed to
extend the maturity thereof until various dates from April through July 2000. We
are attempting to obtain similar extensions from the holders of the balance of
such indebtedness. There can be no assurance that any extensions will be granted
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<PAGE>
with regard to all or any part of such balance. We will need to obtain
additional financing or otherwise reallocate our available funds in order to
repay any amount of such indebtedness as to which no extension is granted.
If we receive extensions with respect to the entire balance of such
indebtedness, we anticipate that our cash on hand, together with the proceeds
(before deducting approximately $112,000 in fees and commissions) from the sale
of an additional $1.0 million in principal amount of our 10% Convertible
Debentures due April 30, 2001 not later than five days after the effective date
of this prospectus (of which $400,000 has been pre-funded) will allow us to
maintain operations through November 1999. Thereafter, from December 1999
through December 2000, we will need additional financing of at least $4.6
million of investment capital, funding by strategic partner(s) or operating
revenues to continue operating, pay suppliers and other creditors and retire an
aggregate of $1.9 million in outstanding principal amount of indebtedness other
than the Debentures. We do not have any commitments for any additional financing
other than the sale of the additional $1.0 million in principal amount of
Debentures (of which $400,000 has been pre-funded).
We have not had any significant revenues to date. As of March 31, 1999, we
had an accumulated deficit of approximately $12.9 million. Our expenses have
related primarily to expenditures on research and development, marketing,
recruiting and retention of personnel, costs of raising capital and operating
expenses. The report of the independent auditors on our financial statements for
the year ended December 31, 1998 includes an explanatory paragraph relating to
the uncertainty of our ability to continue as a going concern, which may make it
more difficult for us to raise additional capital.
Subject to our raising sufficient financing in the future, we intend to
increase our research and development efforts. We believe that the software
developed for CD-ROMs has begun to migrate to DVDs, a medium with greater
storage capacity. We hope to complete the development of DiscGuard protection
for DVDs by the time DVD drives become widely available and software is
distributed on DVDs.
We intend to ensure that DiscGuard remains integrated into the mastering
equipment of a broad base of replicators (i.e., mass producers of CD-ROMs),
affording software publishers convenient access to DiscGuard-licensed
replicators. We will continue our marketing efforts by directly distributing our
product in the United States, Europe and the Middle East, utilizing distributors
in Asia and acting on referrals from our replicators. If we do not succeed in
significantly increasing the number of licensed publishers generated by our
existing marketing efforts, we may also seek a strategic alliance with an
international marketing partner or increase our use of distributors in
particular countries outside of Asia. On June 1, 1999, we hired a Chief
Operating Officer to oversee our marketing efforts.
Revenue Sources
Our main source of revenue is from royalties payable by software
publishers under non-exclusive license agreements between us and the software
publishers. Typically, our license agreements relate to some or all of a
publisher's software titles on CD-ROMs. These license agreements have unit-based
pricing schedules, based on the number of CD-ROMs produced by a replicator. We
recognize revenue when CD-ROM discs are produced for our licensed
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<PAGE>
software publishers by our licensed replicators. We also receive a limited
amount of revenue from our licensed replicators.
Stock Based Compensation
Compensation expense arising from stock grants, and options and warrants
issued at exercise prices below the quoted market price as of the date of grant
is recognized over the period that services are rendered. As more fully
described below in "Results of Operations," we have recorded expense in
connection with stock based compensation during the years ended December 31,
1997 and 1998, as well as deferred compensation expense for the value of the
grants that were not yet earned as of such dates. We currently expect to
amortize $399,420 million in 1999 and $6,422 in 2000 as deferred compensation
expense in respect of options outstanding at December 31, 1998.
Results of Operations
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
1998.
Revenues for the three months ended March 31, 1999 totaled $26,984 and
were derived from licensing fees of our DiscGuard product. We had no revenues
for the same period in 1998.
Research and development costs for the three months ended March 31, 1999
were $315,842 as compared to $188,692 for the same period in 1998. This increase
was primarily due to non-cash charges of $163,000 in 1999 relating to the
issuance of employee stock options.
Sales and marketing expenses for the three months ended March 31, 1999
were $178,367 as compared to $251,700 for the same period in 1998. This decrease
was primarily due to reduced staffing in 1999.
General and administration expenses for the three months ended March 31,
1999 were $497,458 as compared to $404,392 for the same period in 1998. The
increase in general and administrative spending was primarily due to the
amortization of stock based compensation in 1999 of approximately $224,750 as
compared to $123,000 in 1998.
Total operating expenses include $421,775 and $221,376 of stock-based
compensation for the three months ended March 31, 1999 and 1998, respectively.
Interest expense for the three months ended March 31, 1999 increased to
$193,663 compared to $6,324 during the same period in 1998 due to the increase
in debt financing activity in the period. Included in interest expense is
non-cash amortization of note discount of $140,929 for 1999. Note discounts were
imputed to reflect the equity component of the related financings.
Net loss for the three months ended March 31, 1999 increased to $1,158,346
as compared to $850,964 for the same period in 1998. This increase was a result
of the increased operating and interest expenses for the period.
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<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997.
We reported revenues for the first time in 1998, totaling $54,922. All of
the revenues were derived from license fees received from licensees of
DiscGuard.
Research and development costs for the year ended December 31, 1998 were
$1,032,253 as compared to $967,155 for 1997. Research and development costs in
1998 were expended in developing improved versions of DiscGuard following its
commercial introduction in February 1998.
Sales and marketing expenses for the year ended December 31, 1998 were
$1,837,931 as compared to $1,421,496 for 1997. This increase reflects our
intensified marketing activities when DiscGuard became commercially available in
the first quarter of 1998.
General and administration expenses for the year ended December 31, 1998
were $2,380,976 as compared to $1,477,085 for 1997. The increase in general and
administrative spending was primarily due to increased staffing, public
relations and professional fees relating to a proposed secondary public offering
of common stock in July 1998.
Operating expenses include $1,305,000 and $1,173,000 of stock-based
compensation for the years ended December 31, 1998 and 1997, respectively.
Interest expense for the year ended December 31, 1998 increased to
$410,715 as compared to $113,445 during 1997 due to the increase in debt
financing activity in the year. Included in interest expense is non-cash
amortization of note discount in the amount of $272,009 for the year ended
December 31, 1998. Note discounts were imputed to reflect the equity component
of the related financings.
Interest income was $3,413 for the year ended December 31, 1998 as
compared to $42,069 for 1997. The decrease was a result of higher average cash
holdings during 1997.
For the year ended December 31, 1998 we had a loss of $5,578,540 as
compared to $4,119,612 for 1997. This increase was a result of the increased
operating and interest expenses for the year.
Liquidity and Capital Resources
At March 31, 1999, we had cash of approximately $2,600, representing a
decrease of approximately $72,000 over December 31, 1998. During the three
months ended March 31, 1999 we used net cash for operations of $175,099 as
compared to $444,572 for the same period in 1998. During the year ended December
31, 1998 we used net cash for operations of $2,235,231 as compared to $2,735,369
in 1997.
We have curtailed expenses in many areas, including reductions in
personnel. We believe that ongoing investment in research and development
activities and marketing, especially to software publishers, will be critical to
our ability to generate revenue and operate profitably. We anticipate that we
will continue to expend significant funds in research and development activities
and marketing.
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In May 1999, we issued $1.0 in aggregate principal amount of our 10%
Convertible Debentures due April 30, 2001. The Debentures were issued pursuant
to an agreement which provides that, subject to certain conditions, the
Debenture holders will purchase an additional $1.0 million in aggregate
principal amount of 10% Debentures not later than five days after the effective
date of this prospectus (of which $0.4 million was pre-funded in July 1999).
We have approximately $1.5 million in aggregate principal amount of
indebtedness currently due and payable together with interest thereon. The
holders of an aggregate of $562,500 in principal amount of such indebtedness
have agreed to extend the maturity thereof until various dates from April
through July 2000. We are attempting to obtain similar extensions from the
holders of the balance of such indebtedness. There can be no assurance that any
extensions will be granted with regard to all or any part of such balance. We
will need to obtain additional financing or otherwise reallocate our available
funds in order to repay any amount of such indebtedness as to which no extension
is granted.
If we receive extensions with respect to the entire balance of such
indebtedness, we anticipate that cash on hand, as well as the $1.0 million
(before deducting approximately $112,000 in fees and commissions) due to be
invested upon purchase of the additional Debentures (of which $400,000 has been
pre-funded), will allow us to bring several supplier and vendors current and to
maintain operations through November 1999. Thereafter, from December 1999
through December 2000, we will need additional financing of at least $4.6
million of investment capital, funding by strategic partner(s) or operating
revenues to continue operating, pay suppliers and other creditors and retire an
aggregate of $1.9 million in outstanding principal amount of indebtedness other
than the Debentures. We are currently reviewing possible private sales of equity
or debt with equity features and arrangements with strategic partners. We have
no commitments for any such financing and there can be no assurance that we will
obtain additional capital when needed or that any such additional capital will
not have a dilutive effect on current stockholders.
Year 2000 Issues
Background
Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates
because these systems may have been developed using two digits rather than four
to determine the applicable year. For example, computer systems that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This error could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced to comply with such "Year
2000" requirements.
State of Readiness
Our business is dependent on the operation of numerous systems that could
potentially be affected by Year 2000 related problems. Those systems include,
among others:
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o hardware and software systems that we use internally in the
management of our business;
o software products that we have developed;
o the internal systems of our customers and suppliers; and
o non-information technology systems and services that we use in the
management of our business, such as telephone systems and building
systems.
Based on an analysis of the systems potentially affected by conducting
business in the twenty-first century, we are applying a phased approach to
making such systems, and accordingly our operations, Year 2000 ready. Beyond
awareness of the issues and scope of systems involved, the phases of activities
in progress include:
o an assessment of specific underlying computer systems, programs
and/or hardware;
o rededication or replacement of Year 2000 non-compliant technology;
o validation and testing of technologically Year 2000 ready solutions;
and
o implementation of the Year 2000 ready systems.
The table below provides the status and timing of these phased activities:
Affected Systems Status
- ---------------- ------
Software Assessment completed; conducting
products that we ongoing validation and testing
license or sell (see details below)
Hardware and software Assessment completed;
systems that we use certain components replaced;
conducting validation and testing
Internal systems of our Assessment not yet completed
customers and suppliers
Non-information technology No assessment made
systems and certain services that
we use in the management of our business,
internal and external, such as telephone
systems and building systems
Product Status
DiscGuard is not date or time sensitive. We have tested and verified
DiscGuard as Year 2000 ready. Year 2000 readiness does not include the
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performance or functionality of third party products, including hardware or
software with which DiscGuard interfaces.
Costs to Address Year 2000 Readiness
We have expensed as incurred all costs directly related to Year 2000
readiness, even in cases where non-compliant information technology systems have
been replaced. To date, these costs have been insignificant. The replacement
cost of non-information technology systems would have been incurred, regardless
of the Year 2000 issue.
We do not believe that future expenditures to upgrade internal systems and
applications will have a material adverse effect on our business, financial
condition and results of operations. In addition, while the potential costs of
redeployment of personnel and any delays in implementing other projects is not
known, the costs are anticipated to be immaterial.
Risks of Year 2000 Issues
We believe that DiscGuard is Year 2000 ready; however, success of our Year
2000 readiness efforts may depend on the success of our customers in dealing
with their Year 2000 issues. We license DiscGuard to customers in several
different industries--i.e., to manufacturers of mastering equipment, replicators
and software publishers--each of which are experiencing different issues with
Year 2000 readiness. Customer difficulties with Year 2000 issues could interfere
with the use of DiscGuard, which might require us to devote additional resources
to resolve the underlying problems. If the problem is found to lie in DiscGuard,
our business, financial condition and results of operations could be materially
adversely affected.
Furthermore, the purchasing patterns of these customers or potential
customers may be affected by Year 2000 issues as companies expend significant
resources to become Year 2000 ready. The costs of becoming Year 2000 ready for
current or potential customers may result in reduced funds available to purchase
and implement our products. In addition, we rely on various entities that are
common to many businesses, such as public utilities. If these entities were to
experience Year 2000 failures, our ability to conduct business would be
disrupted.
Although we believe that our Year 2000 readiness efforts are designed to
appropriately identify and address those Year 2000 issues that are within our
control, there can be no assurance that our efforts will be fully effective or
that the Year 2000 issues will not have a material adverse effect on our
business, financial condition or results of operations. The novelty and
complexity of the issues presented and our dependence on the preparedness of
third parties are among the factors that could cause our efforts to be less than
fully effective. Moreover, Year 2000 issues present many risks that are beyond
our control, such as the potential effects of Year 2000 issues on the economy in
general and on our business partners and customers in particular.
Contingency Plans
We have conducted an assessment of certain of our Year 2000 exposure areas
in order to determine what steps beyond those identified by our internal review
were advisable and no additional work was recommended. We do not presently have
a contingency plan for handling Year 2000 issues that are not detected and
corrected prior to their occurrence. Any failure by us to address any unforeseen
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Year 2000 issue could adversely affect our business, financial condition and
results of operations. Any such occurrence could adversely affect our business.
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BUSINESS
Introduction
We design, develop and market anti-piracy software technologies that
provide encryption and copy protection for software applications distributed on
CD-ROMs. Our proprietary product, DiscGuard, is designed to prevent unauthorized
CD-ROMS from operating as intended. Our copy protection technologies are
transparent to the legitimate end-user and do not require the user to install
hardware "keys" or "dongles" on the user's desk top or to obtain an "unlock
code" in order to run the protected application.
Since our inception in 1994, we have focused on
o developing our proprietary anti-privacy technologies; and
o in the last year, licensing a broad base of replicators,
representing a significant percentage of the world replication
market by disc volume, to use DiscGuard in their mastering
equipment, making DiscGuard readily available to software
publishers.
With our manufacturing and replication infrastructure in place to have
DiscGuard-protected software mass-produced on CD-ROMs by our network of licensed
replicators, since the first commercial release of DiscGuard in February 1998,
we have begun marketing DiscGuard to software publishers, directly and through
distributors. Approximately 24 software publishers market some or all of their
titles on DiscGuard-protected discs, representing approximately 400,000 CD-ROMs
and approximately 71 software titles.
Our goal is to establish DiscGuard as the leading product in our target
market segment of software-based CD-ROM copy protection for high-volume
multi-media consumer software, including games, entertainment and reference
software and other install-to-use applications.
Industry Background
Losses related to the unauthorized reproduction and use of software and
other electronic content present a continuing concern for software publishers.
Illegal copies of widely recognized software programs can be frequently
purchased in several parts of the world at retail prices that are a fraction of
those prevailing in the United States and Western Europe. The 1999 Global
Software Piracy Report (a May 1999 study conducted by International Planning and
Research Corp. for the Business Software Alliance and Software & Information
Industry Association) estimates that losses from the piracy of business software
exceeded $11.4 billion worldwide in 1997 and $11 billion in 1998. This amount
represents more than one of every three new business software applications. In
the United States alone, total losses from the piracy of business software
reached nearly $2.9 billion in 1998. Further, approximately 76% of business
software applications used in Eastern Europe, and approximately 36% of the
business software applications used in Western Europe, were illegally copied.
The Interactive Digital Software Association, the trade group representing
interactive entertainment software publishers, estimates that worldwide piracy
of entertainment software cost U.S. based computer and game publishers $3.2
billion in 1998.
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The widespread use of CD-ROMs and other optical media exacerbates the
consequences of piracy since CD-ROMs are capable of storing significantly more
information than standard diskettes. Popular games, videos, educational
materials, business and other professional applications are routinely
distributed on CD-ROMs. According to Infotech Inc., a market research firm
specializing in the optical media industry, content distributed on CD-ROMs and
DVDs more than doubled between 1996 and 1998, and will exceed $75 billion by
2000. Such amounts represent estimated sales of approximately 1.6 billion units
in 1998, and 2.4 billion units in 2000. Until recently, CD-ROM based
applications have enjoyed some immunity from unauthorized reproduction due to
the relatively high cost of the copying hardware. However, the wide availability
and increasing affordability of CD recorders have greatly contributed to the
increase in CD-ROM piracy. With a CD recorder, even the casual user can copy an
unprotected application without significant impediment.
Attempts by third parties to circumvent copy protection technologies have
been and are expected to be a persistent problem, even in the face of the new
United States Digital Millennium Copyright Act, which was signed in October
1998. The Act outlaws copy protection circumvention devices and technologies
beginning in May 2000 and currently provides for both criminal and civil
penalties for companies or individuals who import, produce or distribute devices
designed to circumvent copy protection devices and technologies.
Since prior laws to combat software piracy have not served as an effective
deterrent, software publishers are seeking more effective methods to prevent the
replication of unauthorized copies of their proprietary products. Software
publishers presently use three primary strategies to protect content distributed
on CD-ROMs, as follows.
o Copy Protection prevents the unauthorized reproduction of CD-ROMs.
Copy protection is a software solution designed to detect the
difference between a legitimate copy and an unauthorized copy of the
software application, and prevent the unauthorized copy from
operating. We compete in the copy protection segment of the
anti-piracy market.
o Restricted Usage prevents the protected application from operating
on more than one unit at the same time, but does not deter
unauthorized reproduction. Included within this category are
solutions which utilize a hardware component known as a "key" or
"dongle." A dongle is a device that plugs into the computer and acts
as a key to unlock the protected software. Dongles are typically
provided directly to the software vendor and are frequently
customized for particular software applications. We believe that the
use of dongles presents significant operating difficulties and
inconveniences for legitimate end-users. Dongles are not
interchangeable among different applications, and require a separate
key for each application, resulting in a "daisy chain" of dongles
protruding out of the back of the computer. Due to its relatively
high cost and inconvenience, the dongle is generally used in the
United States only in high-end markets for expensive software,
including scientific and computer-aided design software, although it
is used more frequently outside the United States, particularly in
Europe and Asia, for other applications. The use of dongles and
other hardware components can be especially burdensome for
high-
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volume, multi-media consumer software such as games, entertainment
and reference software, and other install-to-use applications. Such
software is not ordinarily installed onto a hard drive, but accessed
from time to time from the CD-ROM. As a result, the dongle is needed
each time the application is used.
o Audit Trail protection does not prevent piracy or unauthorized
copying of CDs and DVDs. Audit trail merely furnishes information
identifying illegal use and perhaps the source of the illegal
reproduction. Examples of this are holograms and watermarks.
We believe that in 1998, only approximately 3.0 million of the 1.6 billion
discs sold included some form of copy protection, and that sales of all CD-ROM
copy-protection products was approximately $170 million. The CD-ROM copy
protection market is currently dominated by companies that offer the use of a
hardware device such as a key or dongle that plugs into the back of a computer
as an anti-piracy strategy. We believe that piracy is a critical issue in the
software and electronic content publishing industry and that, as a result,
software publishers, especially in the games and multi-media segment of the
software market, are increasingly demanding copy protection from replicators. We
believe that the global market for CD-ROM copy protection for the high-volume,
multi-media consumer software market, including games, designs and reference
software, and other install-to-use applications, is currently undeveloped.
Our Solution - DiscGuard
We believe that copy protection offers software publishers the most
effective solution to protect their products distributed on CD-ROMs and DVDs,
while offering convenience and cost effectiveness to the software publisher and
end-user. We believe that DiscGuard, our only commercially released product,
provides a technologically superior, cost-effective, convenient, software-based
anti-piracy solution for software distributed on CD-ROMs. DiscGuard
distinguishes between an authentic CD-ROM and an unauthorized copy and controls
the operation of the software on the DiscGuard protected CD-ROM. In particular,
DiscGuard embeds an indelible and non-reproducible digital identification code
or signature on CD-ROMs. Our technologies do not use keys or dongles or other
hardware on the consumer's desktop.
To protect a CD-ROM with DiscGuard, the software publisher first
integrates its application with DiscGuard's proprietary detecting software. At
the mastering facility, a DiscGuard-enhanced mastering machine adds a digital
signature to the glass master that is used to mass-produce CD-ROMs. The
remainder of the production process is the same as that for CD-ROMS that are not
DiscGuard protected. When DiscGuard detecting software identifies a CD-ROM as
authentic (i.e., containing a signature), it will allow the software application
to operate as intended. DiscGuard will prevent a copy that does not contain this
signature from operating as intended. DiscGuard is intended to prevent both
consumer copying and professional remastering and replication. DiscGuard does
not prevent the unauthorized multiple installation of hard-drive copies.
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Our Strategy
Our goal is to become the market leader in CD-ROM copy protection. To
achieve this objective, the key elements of our strategy are to:
o Continue to have DiscGuard Integrated into the Mastering Equipment
of a Broad Base of Replicators of CD-ROMS. We intend to continue to
license DiscGuard to leading mastering facilities and replicators
and to support such mastering facilities and replicators.
o Leverage Replicator Relationships and Increase Market Penetration
among Software Publishers. We intend to license DiscGuard to an
increasing number of software publishers, through direct marketing
in the United States, Europe and the Middle East, through
distributors in Asia, and through referrals from our licensed
replicators. We may also seek a strategic alliance with an
international marketing partner or increase our use of distributors
in particular countries outside of Asia. We are targeting publishers
of high-volume, multi-media consumer software such as games,
entertainment and reference software, and other install-to-use
applications, because unauthorized disc replication is the most
common form of piracy of such applications.
o Introduce New Product Applications. We intend to expand our
technological base and extend DiscGuard protection to other segments
of the software publishing industry. In addition, we believe that
software developed for CD-ROM is beginning to migrate to DVDs, a
format with much greater storage capacity than CD-ROMs. We
anticipate that we will complete the development of a DiscGuard
protection product for DVD's by the time DVD recorders become widely
available, which we believe will occur over the next twelve to
twenty-four months.
o Pursue Royalty-Based Licensing Model. We are pursuing a
royalty-based licensing model that results in a high margin,
transaction-oriented business with recurring revenues. We typically
license our technology under unit-based pricing schedules. Royalties
and other fees are currently paid by software publishers and, to a
lesser extent, by commercial replicators. We intend whenever
feasible to continue to license our technologies to third parties
for unit or transaction-based royalties and fees.
o Protect Patent Position. We believe that our future success will
depend, in part, on the continued protection or our proprietary
technologies. We have applied for patents to protect our copy
protection technologies and intend to pursue patent protection
aggressively.
o Expand and Maintain Customer Support. We intend to expand and
maintain our customer service capability as the number of our
licensed publishers grows. To date, we have been able to provide
satisfactory service and support to the relatively small number of
our licensed publishers.
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Customers
Our efforts to date have largely been devoted to integrating DiscGuard
into the mastering equipment of a broad base of licensed replicators, in order
to provide our licensed publishers with a broad base of DiscGuard-licensed
replicators. This, in turn, required us to ensure that DiscGuard was licensed to
leading mastering equipment manufacturers in order to integrate DiscGuard into
the mastering interface system used by leading replicators. In February 1998, we
began marketing to software publishers.
Mastering Equipment Manufacturers
In order to produce DiscGuard-enhanced CD-ROMs, modifications to the laser
optics system of CD-ROM mastering equipment are required. In October 1997, we
signed an agreement with Doug Carson & Associates, Inc. to permit DCA to
integrate DiscGuard into its mastering interface system (or MIS) for sale to
replicators. The MIS is a key component of the mastering equipment used by
replicators to produce the glass masters which are, in turn, used to
mass-produce CD-ROMs and DVDs. Under this agreement, we granted DCA an
exclusive, non-transferable, royalty free world-wide license, originally through
December 31, 1998. Because DCA sold or upgraded a minimum number of units of the
version of its MIS that supports DiscGuard prior to December 31, 1998, the
exclusive license was extended until December 31, 1999. Under this agreement,
DCA must use its best efforts to sell DiscGuard-enhanced units. We believe that
DCA's MIS is installed in over 50% of the world's mastering equipment. We
believe that our relationship with DCA has facilitated the commercial adoption
of DiscGuard by making DiscGuard readily available to a broad base of
replicators. Although our relationship with DCA is important, we believe that,
if our exclusive license to DCA is not renewed or if our relationship with DCA
is otherwise terminated, we will be able to establish relationships on
acceptable terms with one or more other significant manufacturers of mastering
equipment. We also believe that DiscGuard is or could readily be made compatible
with the MIS of the other leading manufacturers, and that the MIS of the other
manufacturers is, in turn, compatible with the mastering equipment of our
existing DiscGuard-licensed replicators.
Mastering and Replicators
Our goal is to ensure that DiscGuard remains licensed to a significant
number of replicators so that software publishers will continue to have access
to DiscGuard from a conveniently located, regional replicator. We believe that
the replication industry is characterized by thin margins and intense
competition, and that DiscGuard provides added value to replicators by allowing
them to offer an anti-piracy option to their software publishing customers.
DiscGuard is currently available through several leading mastering and
replication facilities.
We authorize our licensed replicators to replicate DiscGuard-protected
CD-ROMs for software publishers who have obtained the right to use DiscGuard
directly from us or from an authorized distributor. Only a replicator that has
purchased the DiscGuard option for its mastering equipment can offer DiscGuard
protection to its customers. Licensed replicators of DiscGuard are required to
report sales volumes of DiscGuard protected CD-ROMs to us. We have licensed the
following replicators:
o Nimbus CD International, Inc., a leading British CD manufacturer and
replicator, installed DCA's DiscGuard-enhanced MIS in its mastering
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equipment under a Development and OEM Licensing Agreement dated
November 24, 1997 among DCA, Nimbus and us. Nimbus has a
non-exclusive license to produce DiscGuard protected CD-ROMs. The
agreement has a five-year term which is automatically renewable for
successive one-year periods unless either party gives notice of its
desire not to renew the term. Under this agreement, Nimbus is
obligated to pay us a percentage of the proceeds of any premium it
charges on any DiscGuard-protected CD-ROM that Nimbus manufactures.
Nimbus now offers DiscGuard protection to its software publishing
clients in North America and Europe.
o SKC Co. Ltd., the leading South Korean replicator, was granted a
three-year license in July 1998 (currently non-exclusive) to
integrate DiscGuard into SKC's mastering equipment and distribute
DiscGuard-protected CD-ROMs in South Korea. SKC is obligated to pay
us a per disc fee based on the number of DiscGuard-protected CD-ROMs
it sells. SKC also distributes and promotes DiscGuard to software
publishers in South Korea.
o Sonopress Gmbh, a leading German mastering and replication company
and the world's largest CD-ROM producer, entered into a sales and
marketing agreement with us in February 1999. Sonopress's eleven
plants throughout the world produce more than 2.5 million CDs daily.
Sonopress has agreed to promote DiscGuard to its clients in the
software publishing and CD-ROM replication industries. Sonopress can
now master DiscGuard-protected applications at two of its eleven
plants and replicate DiscGuard-protected applications at all eleven
of its plants.
We also signed a Technology Evaluation Agreement with MPO Disque Compact,
a leading French mastering and replication company, and are currently
negotiating a license and marketing agreement with MPO.
We are currently pilot testing DiscGuard with additional replicators and
are actively marketing DiscGuard to other replicators, sometimes in conjunction
with sales representatives of DCA. We believe that the continued success of our
efforts to integrate DiscGuard in the mastering equipment of a broad base of
replicators will be a key factor in whether DiscGuard becomes the market
standard for software anti-piracy protection.
Software Publishers
As part of our marketing strategy, we attempt to demonstrate to software
publishers that, for a relatively modest investment per disc, DiscGuard can
offer anti-piracy protection and give them the opportunity to reduce the loss of
sales related to the unauthorized reproduction of their products. Since early
1998, we have signed license agreements with approximately 24 software
publishers pursuant to which we have licensed DiscGuard to protect some or all
of their software applications from unauthorized replication. Our licensed
publishers include Software Manufacturing Corporation Ltd., Hed-Artzi
Multi-media Ltd. (the largest Israeli software publisher), Codemasters Software
and Compedia Ltd. The agreements typically require the software publisher to pay
a license fee for each CD-ROM produced with DiscGuard. To date, DiscGuard
protects more than 400,000 CD-ROMs, representing more than 71 software titles.
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We are currently in various stages of pilot testing DiscGuard with a
number of publishers. In pilot testing, the software publisher distributes a
relatively small number of discs of a CD-ROM software title to evaluate the
effectiveness of DiscGuard.
Marketing and Sales
We currently market to the North American market directly through our
offices in New York City and Campbell, California, and to the European and
Middle Eastern markets from our offices in Israel. We market to Asia through
distributors.
In June 1998, we entered into a non-exclusive two-year distribution
agreement with Eagle International Co., Ltd., under which Eagle will sell and
market DiscGuard to software publishers and replicators in Japan. The agreement
is automatically renewable for additional one-year periods unless terminated by
either party. Eagle pays a fee for each disc sold with DiscGuard and for
equipment sold based upon our suggested end-user list prices. In October 1998,
we signed a distribution agreement with the China Intercontinental Communication
Center, a government-authorized agency, to exclusively supply China's CD-ROM
manufacturers and software publishers with DiscGuard. The Software and
Information Industry Association estimates a $1.2 billion loss to China's
software industry from software piracy in 1998. We are exploring the possibility
of establishing relationships with additional software distributors.
To maintain our focus on product development and to avoid the expense of
establishing our own global sales and marketing staff, we do not anticipate
significantly expanding our currently limited internal sales and marketing
capability. Nevertheless, if we do not succeed in significantly increasing the
number of licensed publishers generated through our existing marketing efforts,
we may seek a strategic alliance with a partner with an international marketing
capability, or increase our use of distributors in particular countries outside
of Asia. We are not currently engaged in negotiations with any potential
strategic partner and there can be no assurance that we will be able to identify
a suitable partner or that, if so, we will be able to sign an agreement on
acceptable terms.
Research And Development; New Products
The software industry in general is characterized by rapid product changes
resulting from new technological developments, performance improvements and
lower production costs. Our research and development activities have focused on
developing products responsive to perceived immediate market demands. We believe
that our future growth in the software anti-piracy industry will depend in large
part on our ability to develop and apply our proprietary technology and
know-how. We believe that the key to establishing DiscGuard as an effective
product for software-based CD-ROM copy protection lies in our ability to
continually enhance and upgrade DiscGuard so as to stay ahead of the efforts of
counterfeiters and hackers to circumvent our technology. To date, due a lack of
funding, our research and development efforts in this regard have been
responsive rather than pro-active. We believe, nevertheless, that DiscGuard
continues to provide effective CD-ROM copy protection, and that our technology
is intrinsically less susceptible to circumvention and counterfeiting than the
other software technologies used by our competitors in the consumer, multi-media
software copy protection market segment.
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DiscGuard is currently available for the Microsoft Windows family of
operating systems (including Windows 98 and NT). We intend to expand DiscGuard's
capabilities to include other operating systems, and to protect DVDs. Although
no assurance can be given, we believe that we will complete the development of
DiscGuard protection for DVDs by the time DVD recorders become widely available.
The DVD format is expected by industry experts to be superior to CD-ROM since
the DVD format provides a very accurate playback of the original digital format
recording. Additionally, one DVD can contain the same amount of data that seven
to eight CDs currently contain. Industry experts believe that in the future, one
DVD will be able to hold the same amount of data currently contained on 30 to 40
CDs.
Our Israeli subsidiary has received a grant of $210,000 from the Chief
Scientist of the State of Israel. We pay royalties to the Chief Scientist on
proceeds from the sale of products derived from the research and development
funded by the grant at the rate of 3% of the sales revenue for the first three
years of such sales, 4% for the following three years, and 5% thereafter, up to
a maximum of 100% of the grant. Our obligation to pay royalties to the Chief
Scientist is limited to the amount of the grant received and is linked to the
exchange rate of the dollar and the New Israeli Shekel. The Chief Scientist
places certain restrictions on companies that receive funding relating to the
transfer of know-how. We believe that these restrictions and obligations will
not have a material adverse effect on our operations since we do not presently
anticipate transferring ownership of the technology developed by us to third
parties. The restrictions do not apply to the exports from Israel of products
developed with such technologies.
From the date of inception through March 31, 1999, we have expended
approximately $2.9 million on research and development activities, including
approximately $1.0 million for the year ended December 31, 1998, and
approximately $316,000 for the three months ended March 31, 1999. We expect to
maintain our research and development expense at approximately the current level
for the foreseeable future.
We are a member of the Software and Information Industry Association and
of the Israeli Export Institute.
Competition
The CD-ROM copy protection industry is extremely competitive. Our primary
competitors include companies with substantially greater financial,
technological, marketing, personnel and research and development resources than
ours. There can be no assurance that we will be able to compete successfully in
this market. In particular, certain companies, such as C-Dilla Limited, Sony
DADC Austria AG, MLS LaserLock International Inc. and Link Data Security, claim
to provide comprehensive optical media-based anti-piracy protection. Two of
these competitors have relationships with DCA to make their products available.
The copy protection products of C-Dilla, for example, are based on a technology
which attempts to prevent unauthorized copying by encoding a disc with
unreadable "bad sectors." This alternate copy-protection technology may prove to
be more successful than DiscGuard, which embeds a digital signature in
authorized discs and is designed to prevent discs which lack the signature from
operating as intended. In addition, Rainbow Technologies Inc. and Aladdin
Knowledge Systems Ltd. each have an established installed product base in the
market for hardware key-based software copy protection products and could expand
into our target market of copy protection products for consumer software
contained on optical media such as CD-ROMs. There can be no assurance that other
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software companies will not enter the market in the future. Many of our
competitors have existing relationships with major software developers in the
United States, some of which are dominant software producers worldwide, and
those existing relationships may impede our ability to sell our products to
those customers and expand our market share. For example, C-Dilla has been
acquired by Macrovision Corporation, a leader in the market for video security
technology and products. There can be no assurance that we will be able to
continue developing products with innovative features and functions, or that
development by others of similar or more effective products will not render our
products or technologies noncompetitive or obsolete.
Proprietary Rights
We currently rely on a combination of trade secret, copyright and
trademark law, as well as non-disclosure agreements and invention-assignment
agreements, to protect the technologies used in our products and other
proprietary information. In addition, we have filed patent applications in the
United States and Israel and under the Patent Cooperation Treaty with respect to
the technology underlying DiscGuard. There can be no assurance that any patent
will be issued or that our proprietary technology will remain a secret or that
others will not develop similar technology and use such technology to compete
with us.
We believe that our software product is proprietary and are protected by
copyright law, non-disclosure and secrecy agreements. We also rely on
proprietary know-how and employ various methods, such as proper labeling of
confidential documents and non-disclosure agreements, to protect our 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.
We believe that product recognition is an important competitive factor.
Accordingly, we intend to promote the DiscGuard trademark in connection with our
marketing activities. We have filed an application for the DiscGuard trademark
in the United States and Canada. An application with the Community Trademark
Office for the trademark rights to DiscGuard was recently denied. We are
considering the possibility of applying for the trademark in certain European
countries. There can be no assurance that prior registrations and/or uses of one
or more of such marks (or a confusingly similar mark) do not exist in one or
more of these jurisdictions, in which case we might thereby be precluded from
registering and/or using such marks in such jurisdiction. Our use and
registration rights with respect to any trademark do not ensure that we have
superior rights to others that may register or use identical or similar marks on
related goods or services.
Our policy is to require our employees, consultants, and other advisors to
execute confidentiality agreements upon the commencement of employment,
consulting or advisory relationships with us. These agreements generally provide
that all confidential information developed or made known to the individual by
us during the course of the individual's relationship with us is to be kept
confidential and not to be disclosed to third parties except in specific
circumstances. In the case of employees and consultants, the agreements provide
that all inventions conceived by the individual in the course of their
employment or consulting relationship with us shall be our exclusive property.
There can be no assurance, however, that these agreements will provide
35
<PAGE>
meaningful protection or adequate remedies for our trade secrets in the event of
unauthorized use or disclosure of such information.
36
<PAGE>
Employees
We have 11 full-time employees, including seven in Israel and four in the
U.S., including two in New York and two in California. None of our employees is
covered by a collective bargaining agreement or is represented by a labor union.
We have not experienced any organized work stoppages and considers our relations
with our employees to be good.
Our future performance is highly dependent upon the continued service of
members of our senior management and of Dr. Baruch Sollish, our
Vice-President-Research and Development, in particular. We believe that our
future success will also depend upon our continuing ability to identify,
attract, train and retain other highly skilled managerial, technical, sales and
marketing personnel. Hiring for such personnel is competitive, and there can be
no assurance that we will be able to retain our key employees or attract,
assimilate or retain the qualified personnel necessary for the development of
its business.
Properties
We lease a 4,860 square foot facility used in our research and development
and administrative activities in Kfar Saba, Israel. The lease provides for a
monthly rent of approximately $4,045 and an expiration date of May 31, 1999,
subject to two optional annual renewals through May 2001. We have improved these
facilities to meet the requirements of our research and development activities.
We lease executive offices in New York City, comprised of 650 square feet leased
at a monthly rental of $1,660 with a scheduled expiration date of June 30, 2002.
We lease offices in Campbell, California which are used for sales and marketing.
This lease is for 663 square feet at a monthly rental of $1,591 with an
expiration date of January 31, 2000. We believe that these facilities are
sufficient to meet the current and anticipated future requirements. We believe
that we will be able either to renew our present leases or obtain suitable
replacement facilities. In the opinion of management, our leased facilities in
the United States are adequately covered by insurance. Our facilities in Israel
are not insured.
Litigation
In June 1999 we received notice from Biscount Overseas Ltd., a selling
stockholder, threatening to commence litigation for damages suffered as a result
of our failure to register shares of our common stock purchased by Biscount.
Biscount alleges that we owe it $400,000, the full amount of its investment,
plus approximately $60,000 in interest to date. We are attempting to settle this
matter.
Several suits have been filed and threats of litigation have been made
against us and our Israeli subsidiary by various vendors and former employees
for unpaid invoices and other amounts in an aggregate amount of approximately
$147,000.
37
<PAGE>
CONDITIONS IN ISRAEL
The following information discusses certain conditions in Israel that
could affect our Israeli subsidiary, TTR Technologies, Ltd. All figures and
percentages are approximate. A portion of the information with respect to Israel
presented hereunder has been taken from Annual Reports of the Bank of Israel and
publications of the Israeli Central Bureau of Statistics.
Political Conditions
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan
was signed in 1994 and, since 1993, several agreements between Israel and the
Palestine Liberation Organization ("PLO")--Palestinian Authority representatives
have been signed. In addition, Israel and several other Arab states have
announced their intention to establish trade and other relations and are
discussing certain projects. As of the date hereof, Israel has not entered into
any peace agreement with Syria or Lebanon. Recently there has been stagnation in
the peace process in the Middle East. There can be no assurance as to whether or
how the "peace process" will develop or what effect it may have upon us.
Beginning in 1948, nearly all Arab countries formally adhered to a boycott of
Israel and Israeli companies and, since the early 1950's of non-Israeli
companies doing business in Israel or with such companies. Despite measures to
counteract the boycott, including anti-boycott legislation in the United States,
the boycott has had an indeterminate negative effect upon trade with and foreign
investment in Israel. We do not believe that the boycott has had a material
adverse effect on us, but there can be no assurance that restrictive laws,
policies or practices directed toward Israel or Israeli businesses will not have
an adverse impact on the operation or expansion of our business.
Generally, all male adult citizens and permanent residents of Israel under
the age of 54 are, unless exempt, obligated to perform certain military duty
annually. Additionally, all such residents are subject to being called to active
duty at any time under emergency circumstances. Some of the employees of our
Israeli subsidiary currently are obligated to perform annual reserve duty. While
our Israeli subsidiary has operated effectively under these and similar
requirements in the past, no assessment can be made of the full impact of such
requirements on us in the future, particularly if emergency circumstances occur.
Economic Conditions
Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts,
security incidents and for at least the five years preceding 1997, expansion.
The Israeli government has, for these and other reasons, intervened in the
economy by utilizing, among other means, fiscal and monetary policies, import
duties, foreign currency restrictions and control of wages, prices and exchange
rates. The Israeli government periodically changes its policies in all these
areas.
The economic recession which began in 1997 continued during 1998, with a
further decline in the rate of GDP growth and an increase in unemployment,
despite a significant decrease in the balance of payments deficit and in the
38
<PAGE>
growth rate of the public sector deficit. These developments reflect the
continued slow growth of domestic demand, the global economic slowdown,
instability in international financial markets and continued tight fiscal and
monetary policies aimed at maintaining economic stability and achieving budget
deficit and inflation targets determined by the government. Other factors
contributing to the continued economic slowdown were security and political
uncertainty, and changes in the labor market, such as increases in the minimum
wage and public sector employment.
Despite improvements during 1998, Israel maintains a significant balance
of payments deficit, primarily as a result of its defense burden, the absorption
of immigrants, especially from the former Soviet Union, the provision of a
minimum standard of living for lower income segments of the community and the
maintenance of a minimum level of net foreign reserves. In order to finance this
deficit, Israel must sustain an adequate inflow of capital from abroad. The
major sources of the country's capital imports include U.S. military and
economic aid, personal remittances from abroad, sales of Israeli government
bonds (primarily in the United States) and loans from foreign governments,
international institutions and the private sector.
Assistance From The United States
The State of Israel receives significant amounts of economic and military
assistance from the United States, averaging approximately $3 billion annually
over the last several years. In addition, in 1992, the United States approved
the issuance of up to $10 billion in loan guarantees during United States fiscal
years 1993-1998 to help Israel absorb a large influx of new immigrants,
primarily from the republics of the former Soviet Union. Under the loan
guarantee program, Israel may issue up to $2 billion in principal amount of
guaranteed loans each year, subject to reduction in certain circumstances. There
is no assurance that foreign aid from the United States will continue at or near
amounts received in the past. If the grants for economic and military assistance
or the United States loan guarantees are eliminated or reduced significantly,
the Israeli economy could suffer material adverse consequences.
Trade Agreements
Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is also a signatory to the General Agreement on
Tariffs and Trade, which provides for reciprocal lowering of trade barriers
among its members. In addition, Israel has been granted preferences under the
Generalized System of Preferences from the United States, Australia, Canada and
Japan. These preferences allow Israel to export the products covered by such
programs either duty-free or at reduced tariffs.
Israel and the European Union concluded a Free Trade Agreement in July,
1975 which confers certain advantages with respect to Israeli exports to most
European countries and obligates Israel to lower its tariffs with respect to
imports from these countries over a number of years.
In 1985, Israel and the United States entered into an agreement to
establish a Free Trade Area, under which most products received immediate
duty-free status, and by 1995 all other tariffs and certain non-tariff barriers
on most trade between the two countries were ultimately eliminated.
39
<PAGE>
On January 1, 1993, an agreement between Israel and EFTA, which at present
includes Norway, Switzerland, Iceland and Liechtenstein, established a
free-trade zone between Israel and the EFTA nations.
In recent years, Israel has established commercial and trade relations
with a number of other nations, including Russia, China and nations in Eastern
Europe, with which Israel had not previously had such relations.
Employees
Our Israel subsidiary is subject to various Israeli labor laws and
collective bargaining agreements between Histadrut and the federation of
industrial employers. Such laws and agreements cover a wide range of areas,
including hiring practices, wages, promotions, employment conditions (such as
working hours, overtime payment, vacations, sick leave and severance pay),
benefits programs (such as pension plans and education funds) and special
issues, such as equal pay for equal work, equal opportunity in employment and
employment of women. The collective bargaining agreements also cover the
relations between management and the employees' representatives, including
Histadrut's involvement in certain aspects of hiring and dismissing employees
and procedures for settling labor disputes. Our Israel subsidiary continues to
operate under the terms of Israel's national collective bargaining agreement,
portions of which expired in 1994. Israeli employers and employees are required
to pay predetermined sums to the National Insurance Institute, an organization
similar to the United States Social Security Administration. These contributions
entitle the employees to receive a range of medical services and other benefits.
Certain employees of our Israel subsidiary are covered by individual employment
agreements.
40
<PAGE>
MANAGEMENT
Directors and Officers
Our directors, officers and key employees are as follows:
Name Age Position
Marc D. Tokayer 42 Chairman of the Board, Chief Executive
Officer, President and Treasurer; and
President and Director of our Israeli
subsidiary
Emanuel Kronitz 40 Chief Operating Officer
Baruch Sollish 52 Director, Vice President-Research
and Development, Secretary; Chief
Technology Officer of our Israeli
subsidiary
All officers serve until the next annual meeting of directors and until
their successors are elected and qualified.
Marc. D. Tokayer, has been Chairman of the Board of Directors, President,
and Treasurer of TTR since he founded TTR in July 1994 and has been Chief
Executive Officer of TTR since he resumed the position in January 1999. He has
served as President and Chairman of the Board of Directors of TTR's Israeli
subsidiary since its inception in December 1994.
Emanuel Kronitz, has been the Chief Operating Officer of TTR since June 1,
1999. From January through May 1999 he served as CEO of Smart Vending Solutions
Inc., a Delaware corporation, which developed a novel vending machine based on
free access technology. From November 1997 through January 1999, he was
president of Orgad Creations Ltd., an Israeli company engaged in the
electroforming of gold jewelry. From January 1996 through November 1997, he was
a Senior Investment Manager at Leumi & Co, Investment Bankers Ltd., an Israeli
investment bank, where he was in charge of investment portfolio of approximately
30 high-tech and industrial companies. Between January 1994 and December 1995,
he was a Vice President of Business Development at the Elul Group, an Israeli
high tech marketing and investment company, where he was primarily responsible
for identifying and negotiating new business ventures. He received an LLB (law
degree) from Bar Ilan University, Tel Aviv in 1983 and an MBA from York
University in Toronto in 1988.
Baruch Sollish, Ph.D, has been a Director of TTR since December 1994 and
has served as Vice President--Research and Development and Secretary of TTR
since September 1996. From June 1987 through December 1994, Dr. Sollish founded
and managed Peletronics Ltd., an Israel software company, engaged primarily in
the field of smart cards and software design for personnel administration,
municipal tax authorities and billing procedures at bank clearance centers. Dr.
Sollish holds six United States patents in the fields of electro optics,
ultrasound and electronics and has published and lectured extensively. Dr.
Sollish received a Ph.D. in Electrical Engineering from Columbia University in
1973.
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<PAGE>
There are no family relationships 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.
Our Board of Directors is currently comprised of two Directors. All
directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors. Directors receive no cash
compensation for serving on the Board of Directors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
The Board of Directors has created a Stock Option Committee to administer
our 1996 Stock Option Plan. This Committee is currently composed of Marc
Tokayer.
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to, or earned by, the Chief Executive
Officer of TTR and to all other executive officers (the "Named Executive
Officers") serving as such at the end of 1998 whose compensation exceeded
$100,000 for fiscal 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
------------------------------------- ---------------------- -------
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Awards Options Payouts Compensation
- ------------------ ---- ------ ----- ------------ ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marc D. Tokayer 1998 $64,430 $12,019 $14,423(1)
Chairman, 1997 73,850 7,647 26,307(1) 0 0 0 0
President & CEO 1996 66,686 12,876 19,278(1) 0 0 0 0
Baruch Sollish 1998 $91,678 $42,015 $13,927 0 0 0 0
Vice-President- 1997 99,931 50,000(2) 24,875(1) 0 0 0 0
Research and 1996 69,517 0 14,037(1) 0 0 0 0
Development
Steven L. Barsh 1998 93,334(4) 0 0 0 250,000(5) 0 0
Former Chief 1997 0 0 0 0 0 0 0
Executive Officer (3) 1996 0 0 0 0 0 0 0
</TABLE>
(1) Includes contributions to insurance premiums, car allowance and car
expenses.
(2) Comprises a one-time payment made in consideration of Dr. Sollish's waiver
of incentive bonus payments due to him under his employment agreement.
(3) Mr. Barsh's employment commenced in July 1998 and terminated as of January
1, 1999. See "Certain Relationships and Related Transactions."
(4) Reflects a reduction in annual salary from $210,000 to $70,000 in October
1998. See "Certain Relationships and Related Transactions."
(5) Reflects the exchange on October 20, 1998 of 250,000 options granted under
the 1996 Stock Option Plan at an exercise price of $2 15/16 per share for
250,000 non-plan options with an exercise price of $15/16 per share. In
July 1999 such options were exchanged for 150,000 shares of our common
stock. See "Certain Relationships and Related Transactions."
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<PAGE>
Options Granted In Last Fiscal Year
The following table sets forth certain information concerning options
granted to the Named Executive Officers during 1998:
<TABLE>
<CAPTION>
Number of % of Total
Shares Options
Underlying Granted to Exercise or Market
Options Employees Base Price Price on Expiration
Name Granted in 1998 ($/Share) Grant Date Date
- ---- ------- ------- --------- ---------- ----
<S> <C> <C> <C> <C> <C>
Steven Barsh 250,000(1) 86% $.93(1) $.93(1)(2) 2007
</TABLE>
(1) Reflects the exchange on October 20, 1998 of 250,000 options granted under
the 1996 Stock Option Plan at an exercise price of $2 15/16 per share for
250,000 non-plan options with an exercise price of $15/16 per share. In
July 1999 such options were exchanged for 150,000 shares of our common
stock. See "Certain Relationships and Related Transactions."
(2) Based on the closing price of the common stock ($.93) on October 20, 1998,
as reported on the OTC Electronic Bulletin Board.
Aggregate Options Exercised In Last Fiscal year
And Fiscal Year End Option Values
The following table sets forth information with respect to option
exercises during the year ended December 31, 1998 and the number and value of
options outstanding at December 31, 1998 held by the Named Executive Officers:
<TABLE>
<CAPTION>
Number of Shares
Underlying
Unexercised
Shares Options at
Acquired December 31, 1998 Value of Unexercised
on Value Exercisable ("E") In-the-Money Options at
Name Exercise Realized Unexercisable ("U") December 31, 1998 (1)__
- ---- -------- -------- ------------------- -----------------------
<S> <C> <C> <C> <C>
Steven Barsh 0 0 250,000(E)/0(U) $48,750
</TABLE>
(1) Based upon the difference between the exercise price of such options
($.93) and the closing price of the common stock ($1.125) on December 31,
1998, as reported on the OTC Electronic Bulletin Board.
Stock Option Plans
1996 Stock Option Plan. Our current policy is that all full time key
employees be considered annually for the possible grant of stock options,
depending upon employee performance. The criteria for the awards are experience,
uniqueness of contribution to TTR and level of performance shown during the
year. Stock options are intended to improve loyalty to TTR and help make each
employee aware of the importance of our business success.
We have adopted our 1996 Incentive and Non-Qualified Stock Option Plan.
The 1996 Option Plan provides for the grant to qualified employees (including
officers and directors) of options to purchase shares of common stock. A total
of 750,000 shares of common stock have been reserved for issuance upon exercise
of stock options granted under the 1996 Option Plan.
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<PAGE>
The 1996 Option Plan is administered by a Stock Option Committee of the
Board of Directors. The Committee consists of Mr. Tokayer. Members of the
Committee are not eligible for awards. The Committee has discretion to select
the optionee and to establish the terms and conditions of each option, subject
to the provisions of the 1996 Option Plan. Options granted under the 1996 Option
Plan may be non-qualified stock options or Incentive Stock Options (an option
which qualifies under Section 422 of the Internal Revenue Code) but in any case
the exercise price of options granted may not be less than 100% of the fair
market value of the common stock as of the date of grant (110% of the fair
market value if the grant is an Incentive Stock Option to an employee who owns
more than 10% of the outstanding common stock). Options may not be exercised
more than 10 years after the grant (five years if the grant is an Incentive
Stock Option to any employee who owns more than 10% of the outstanding common
stock). The Committee may, in its discretion (i) accelerate the date or dates on
which all or any particular option or options granted under the 1996 Stock Plan
may be exercised, or (ii) extend the dates during which all, or any particular,
option or options granted under the 1996 Stock Plan may be exercised, provided,
that no such extension shall be permitted if it would cause the 1996 Option Plan
to fail to comply with Section 422 of the Code or with Rule 16b-3 of the
Securities and Exchange Act of 1934, as amended. Except as otherwise determined
by the Committee at the date of the grant of the option, and subject to the
provisions of the 1996 Option Plan, an optionee may exercise an option at any
time within one year (or within such lesser period as may be specified in the
applicable option agreement) following termination of the optionee's employment
or other relationship with us if such termination was due to the death or
Disability (as defined) of the optionee but in no event later than the
expiration date of the Option. Except as otherwise determined by the Board of
Directors or the Committee at the date of the grant of an Option, if the
termination of the optionee's employment or other relationship is for any other
reason the Option shall expire immediately upon such termination. Options
granted under the 1996 Option Plan are not transferable and may be exercised
only by the respective grantees during their lifetimes or by their heirs,
executors or administrators in the event of death. Under the 1996 Option Plan,
shares subject to canceled or terminated options are reserved for subsequently
granted options. The number of options outstanding and the exercise price
thereof are subject to adjustment in the case of certain transactions such as
mergers, recapitalizations, stock splits or stock dividends.
As of June 30, 1999, 423,700 options to purchase shares of common stock
were outstanding under the 1996 Option Plan.
Non-Executive Directors Stock Option Plan. We adopted our 1998
Non-Executive Director Stock Option Plan in July 1998 to provide an incentive
for attracting and retaining on our Board the service of qualified individuals
who are not otherwise employed by us or any subsidiary.
The Directors Plan is administered by the Board of Directors. We have
reserved 25,000 shares of common stock under the Directors Plan for issuance
upon the exercise of stock options. Options are exercisable upon the date of
grant and expire five years from the date of grant. Upon termination of any
director, the options expire within two months of such termination. The exercise
price of the option will be the fair market value of the Common Stock on the
date of the grant of the option. The number of options and prices at which they
are exercisable are subject to adjustment in the case of certain transactions
such as mergers, recapitalizations, stock splits or
44
<PAGE>
stock dividends. No options may be granted under the Directors Plan after July
2008. As of June 30, 1999, no options were outstanding under the Directors Plan.
Employment Agreements
Our Israeli subsidiary signed an employment agreement in August 1994 with
Marc Tokayer, pursuant to which Mr. Tokayer is employed as its General Manager
for a term which is automatically renewable from year to year unless either
party gives notice of termination at least 90 days prior to the current
expiration date. Mr. Tokayer receives an annual salary of $74,232, subject to
increase and the grant of a performance bonus in the Board's discretion. If Mr.
Tokayer is terminated other than for engaging in willful misconduct or acts of
bad faith or conviction of a felony, he will be entitled to continue to receive
his salary and benefits for an additional 12 months, subject to certain
limitations.
We signed an employment agreement with Emanuel Kronitz as of June 1, 1999,
pursuant to which Mr. Kronitz is employed as our Chief Operating Officer. The
agreement is for a term of one year and is automatically renewable for
additional one year terms, unless terminated by either party upon 90 days prior
notice. Mr. Kronitz is paid a monthly salary of $5,000 plus benefits and was
granted options under the 1996 Option Plan to purchase 235,000 shares of our
common stock, at an exercise price of $0.01 per share, which options vest in
equal monthly installments over three years.
Our Israeli subsidiary entered into an employment agreement with Dr.
Baruch Sollish in December 1994, pursuant to which Dr. Sollish is employed as
Director of Product Research and Development of TTR Israel. The agreement is
renewable from year-to-year, subject to termination by either party on not less
than 60 days notice prior to the end of any calendar year. Dr. Sollish receives
an annual base salary of $91,678 subject to increase and the grant of a
performance bonus in the Board's discretion. In March 1997, in consideration of
Dr. Sollish's waiver of certain incentive bonus payments due payable to him
under the agreement based on revenues from certain products, Dr. Sollish
received a one-time bonus payment of $50,000.
Each of the executives with an agreement has agreed to certain customary
confidentiality and non-compete provisions that prohibit him from competing with
us for one year, or soliciting our employees for one year, following the
termination of his employment.
Report on Repricing of Options
In connection with the termination of Steven Barsh as our Chief Executive
Officer, the Board of Directors approved the exchange of 250,000 options granted
to Mr. Barsh under the 1996 Stock Option Plan at an exercise price of $2 15/16
per share, the fair market value of the common stock on the date of the original
grant, for 250,000 immediately exercisable, non-plan options with an exercise
price of $15/16 per share, the fair market value of the common stock on October
20, 1998, the effective date of the exchange. In approving the exchange and the
repricing of the non-plan options granted in
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<PAGE>
exchange for the plan options surrendered, the Board based the repricing on a
comparison of the fair market value of the common stock on the date of the
original grant to its fair market value on the date of the exchange and on the
desirability of effecting a settlement with Mr. Barsh. See "Certain
Relationships and Related Transactions."
46
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1998 Mr. Tokayer and The Tokayer Family Trust waived their rights
to 750,000 shares of Common Stock which had been placed in escrow and were
subject to release upon our achieving certain revenue or stock price levels.
Such shares have been returned to treasury and cancelled.
In February 1999, we issued to Dr. Sollish 50,000 vested options.
In June 1999, we granted 235,000 options under the 1996 Stock Option Plan
to Emanuel Kronitz, our Chief Operating Officer. Subject to Mr. Kronitz's
continued employment with us, these options vest in 36 equal monthly
installments and have a nominal exercise price. We have agreed to register, and
Mr. Kronitz is offering for sale, under this prospectus 78,333 of the shares
issuable upon exercise of such options, representing the number of shares
expected to vest during the first year of his employment.
Marc D. Tokayer, Chairman of the Board, The Tokayer Family Trust, Baruch
Sollish, Director, and four other stockholders with an aggregate of 1,137,430
shares of common stock, entered into a voting arrangement dated August 10, 1996,
whereby they agreed to vote their respective shares to elect directors and in
support of positions favored by a majority of the shares held among them. This
arrangement was terminated in July 1999.
We signed an employment agreement in July 1998 with Mr. Steven L. Barsh
pursuant to which Mr. Barsh was employed as Chief Executive Officer through
January 1999. Under the agreement, Mr. Barsh received an annual salary of
$210,000 and pursuant to the 1996 Stock Option Plan, we issued to him 250,000
stock options which were to vest equally over a five-year period, and have an
exercise price of $2-15/16 per share. In October 1998, Mr. Barsh agreed to
accept $70,000 per annum and to defer payment of the balance owed until such
time as we raised $3,000,000. In connection with the salary adjustment, Mr.
Barsh returned the options issued to him, and we issued to Mr. Barsh, on October
20, 1998, non-plan options for 250,000 shares of common stock, with an exercise
price of $15/16 per share. Mr. Barsh resigned effective February 12, 1999. The
employment agreement provided that we would owe Mr. Barsh salary and benefits
for six months following his resignation. We also owed Mr. Barsh approximately
$40,000 in unreimbursed expenses and $60,000 in unpaid salary earned prior to
his resignation. In consideration of the waiver by Mr. Barsh of the amounts owed
to him and in settlement of a dispute as to the number of stock options to which
he was entitled, in July 1999 we issued to Mr. Barsh 150,000 shares of common
stock and Mr. Barsh waived his rights and released his claims to the 250,000
options previously issued to him, which options have been cancelled. Mr. Barsh
is offering the 150,000 shares for sale pursuant to this prospectus. Mr. Barsh
has agreed not to sell more than 10% of such shares in any 30-day period.
Our Israeli subsidiary signed a three-year employment agreement in July
1996 with Arik Shavit, pursuant to which Mr. Shavit was employed as President
and General Manager. Pursuant to the agreement, Mr. Shavit received an annual
salary of $110,628, subject to adjustment, and was issued options to purchase an
aggregate of 217,473 shares of common stock. The options are exercisable for a
price of $.01 per share until September 2006, subject to a vesting schedule
pursuant to which 72,491 and 48,328 options vested in September 1997 and 1998,
respectively, and 48,327 options vest in each of September 1999 and September
2000. Effective December 1, 1998, Mr. Shavit resigned from all positions he held
with us and our Israeli subsidiary. In connection with his
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<PAGE>
resignation, we, signed an agreement pursuant to which Mr. Shavit is to continue
to receive the salary and benefits received at the time of his resignation
through September 1999. Additionally, warrants for 48,326 shares which would
have otherwise vested in September 2000 were terminated. To date, Mr. Shavit has
exercised options for 128,872 shares. Mr. Shavit and we released each other from
any claims arising prior to his termination, except that Mr. Shavit's
obligations respecting confidentiality, non-competition and non-solicitation
remain in effect for one year following his termination. In consideration of Mr.
Shavit's waiver of certain amounts owed to him under the separation agreement,
we agreed to vest his remaining 40,273 options and to register the shares
issuable upon the exercise thereof for sale under this prospectus. Mr. Shavit
has agreed that he will not sell more than 25,000 shares during the 180 days
after the effective date of this prospectus. See "Plan of Distribution."
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table provides information as of June 30, 1999 concerning
the beneficial ownership of our common stock by (i) each director, (ii) each of
the Named Executive Officers, (iii) each stockholder (or group) known by us to
be the beneficial owner of more than 5% of its outstanding common stock, (iv)
the directors and officers as a group and (v) each selling stockholder.
<TABLE>
<CAPTION>
Common Stock to be
Beneficially Owned if all
Shares Offered
Shares of Shares Hereunder Are Sold
Name of Common Stock Percent of Offered ----------------------------
Beneficial Owner(1) Beneficially Owned(1) Class(2) Hereby Shares (3) Percent(2)(3)
- ------------------- --------------------- -------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Wall & Broad Equities, Inc. 1,300,000(4) 18.71 1,300,000 0 0
Blumfield Investment Inc. 837,209(5) 12.91 837,209 0 0
Wayne Invest & Trade Inc. 837,209(5) 12.91 837,209 0 0
Burstein & Lindsay
Securities Corp. 837,209(5) 12.91 837,209 0 0
Madison Trading 837,209(5) 12.91 837,209 0 0
Marc D. Tokayer (7) 618,547(8) 10.95 0 618,547 10.98
L&H Foundation 418,605(9)(6) 6.90 418,605 0 0
Econor Investment
Corporation 418,605(9) 6.90 418,605 0 0
K & D Equities, Inc. 400,000(4) 6.61 400,000 0 0
Jarvis Developments
Limited 287,426 5.09 287,426 0 0
Machtec Ltd. 200,000 3.54 200,000 0 0
Arik Shavit 169,145(10) 2.91 40,273 128,872 2.23
Dalimore Consulting
Limited 150,758 2.67 150,758 0 0
Steven L. Barsh 150,000 2.66 150,000 0 0
Baruch Sollish (7)(11) 150,000 2.66 0 150,000 2.66
Tuva Financial Ltd. 111,111 1.97 111,111 0 0
Solomon Mayer 99,500(12) 1.75 134,500 0 0
Yeshiva Darchei Torah
(Rabbis Fund) 84,500(12) 1.49 84,500 0 0
Biscount Overseas Ltd. 77,000(13) 1.36 77,000 0 0
Parnell Limited 75,000 1.33 75,000 0 0
Mylock Holdings Inc. 74,500(9) 1.31 74,500 0 0
Yaakov Bender 53,191 * 53,191 0 0
Yeshiva Darchei Torah
(Building Fund) 53,191 * 53,191 0 0
Abraham Stephansky 51,637 * 51,637 0 0
CYGNI S.A 50,000 * 50,000 0 0
Neve Yerushalayim 43,750 * 43,750 0 0
Mordecai Lerer 40,000 * 40,000 0 0
Bnos Bais Yaaakov 38,096(14) * 38,096 0 0
Emanuel Kronitz (7) 32,639(4) * 32,639 0 0
Mitchell Hirth 26,596 * 26,596 0 0
Plans Inc. 25,000(4) * 25,000 0 0
Cherson Ltd. 23,000(4) * 23,000 0 0
Catamaran Corp. 23,000(4) * 23,000 0 0
Wayne M. Wilde
Revocable Trust 23,000(4) * 23,000 0 0
Rivka Perlstein 23,000(4) * 23,000 0 0
Abraham &
Barabara Stefansky 17,613 * 17,613 0 0
Yitzchak Stefansky 15,682 * 15,682 0 0
Philip Kenneth Wood 14,000(15) * 14,000 0 0
Ralph Cotton 11,500(4) * 11,500 0 0
Leon Goldstein 11,500(4) * 11,500 0 0
Earl Freeman 11,500(4) * 11,500 0 0
K.David Isaacs 11,500(4) * 11,500 0 0
Donald K. Currie 11,500(4) * 11,500 0 0
Ralph Falk 11,500(4) * 11,500 0 0
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Common Stock to be
Beneficially Owned if all
Shares Offered
Shares of Shares Hereunder Are Sold
Name of Common Stock Percent of Offered ----------------------------
Beneficial Owner(1) Beneficially Owned(1) Class(2) Hereby Shares (3) Percent(2)(3)
- ------------------- --------------------- -------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Murray Kimmel 11,500(4) * 11,500 0 0
Judith Wohlberg 11,500(4) * 11,500 0 0
Robert D. Zucker 11,500(4) * 11,500 0 0
Lawrence & Karen
Dalessandri 7,000(16) * 7,000 0 0
PJ Realty Trust 7,000(16) * 7,000 0 0
Tom McCann IRA
CIBA Oppenheimer
Corp., as Cust. 7,000(16) * 7,000 0 0
Sarki Galbut 7,000 * 7,000 0 0
Estee Margules 7,000 * 7,000 0 0
Shana Margules 7,000 * 7,000 0 0
Rena Margules 7,000 * 7,000 0 0
Raphael Margules 7,000 * 7,000 0 0
Jack's Coffee House Inc. 5,750(4) * 5,750 0 0
Rothschild & Banks, Inc. 5,750(4) * 5,750 0 0
William T. Grifffin 5,750(4) * 5,750 0 0
Tim Martin 5,750(4) * 5,750 0 0
Abe Katzman 2,875(4) * 2,875 0 0
Eliot Brody 2,000 * 2,000 0 0
All directors and officers,
as a group (3 persons) 801,106(17) 12.43 78,333(16) 768,547 11.98
</TABLE>
* Indicates less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes voting
or investment power with respect to securities. In accordance with SEC
rules, shares which may be acquired upon exercise of stock options which
are currently exercisable or which become exercisable within 60 days after
the date of the information in the table are deemed to be beneficially
owned by the optionee. Except as indicated by footnote, and subject to
community property laws where applicable, to our knowledge, the persons or
entities named in the table above are believed to have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them.
(2) For purposes of calculating the percentage of outstanding shares held by
each person named below, any shares which such person has the right to
acquire within 60 days after the date of the information in the table (or
later with respect to the persons subject to notes 5 and 9 below) are
deemed to be outstanding, but not for the purpose of calculating the
percentage ownership of any other person. For purposes of presentation in
this table, the 9.99% limit referred to in notes 5 and 9 below has been
disregarded.
(3) Assumes the sale of all of the shares offered hereby. We have agreed to
maintain the effectiveness of the registration statement of which this
prospectus forms a part for two years following the date of this
prospectus.
(4) Represents shares issuable upon the exercise of warrants or options.
(5) Represents (i) shares issuable upon conversion of the entire $400,000 in
aggregate principal amount of 10% Convertible Debentures due April 30,
2001 held by the selling stockholder, based on an assumed conversion price
of $.86, together with interest thereon accrued through the maturity date
thereof, and (ii) 279,070 shares issuable upon the exercise of Warrants
issuable upon conversion of the Debentures at such assumed conversion
price.
(6) We are registering 200% of the total number of all such shares. In
accordance with the terms of the Debentures, the assumed conversion price
reflects the average of the closing trading prices of the common stock on
the three days during the 30 day period preceding May 19, 1999, the
initial closing date of sales of the Debentures, on which the closing
price of the common stock was lowest. The actual conversion price will be
based on a formula stated in the Debentures and may be higher or lower
than the assumed price. As required by SEC regulations, the number of
shares shown as beneficially owned includes shares which could be
purchased within 60 days after the date of this prospectus. However, the
terms of the Debentures and Warrants of this selling shareholder specify
that the shareholder can not convert the Debentures or exercise its
Warrants to the extent that such conversion or exercise would result in
the selling shareholder and its affiliates beneficially owning more than
9.99% of our then outstanding common stock. Thus, although some of the
shares listed in the table might not be subject to purchase by the selling
shareholder during that 60 day period, they are nevertheless included in
this table. The actual number of shares of common stock issuable upon the
conversion of the Debentures and exercise of the Warrants is subject to
adjustment and could be materially less or more than the number estimated
in the table. This variation is due to factors that cannot be predicated
by us at this time. The most significant of these factors is the future
market price of our common stock.
(7) The address of such person is c/o TTR Technologies Ltd., 2 Hanagar Street,
Kfar Saba, Israel.
(8) Includes 324,274 shares held by The Tokayer Family Trust. Mr. Tokayer's
wife is the trustee and Mr. Tokayer's children are the income
beneficiaries of the Trust. Mr. Tokayer disclaims beneficial ownership of
all such shares. Mr. Tokayer disclaims beneficial interest in 15,000
shares issuable upon exercise of options held by Gershon Tokayer, Mr.
Tokayer's brother.
(9) Represents (i) shares issuable upon conversion of the entire $200,000 in
aggregate principal amount of 10% Convertible Debentures due April 30,
2001 held by this selling stockholder, based on an assumed conversion
price of $.86, together with interest thereon accrued through the maturity
date thereof, and (ii) 139,535 shares issuable upon the exercise of
Warrants issuable upon conversion of the Debentures at such assumed
conversion price.
50
<PAGE>
(10) Includes 40,273 shares issuable upon exercise of warrants.
(11) Includes 50,000 shares issuable upon exercise of options.
(12) Includes 34,500 shares issuable upon exercise of warrants.
(13) Includes 33,000 shares issuable upon exercise of warrants.
(14) Includes 11,500 shares issuable upon exercise of warrants.
(15) Includes 4,000 shares issuable upon the exercise of warrants.
(16) Includes 2,000 shares issuable upon the exercise of warrants.
(17) See notes 8 and 11 above. Includes 78,333 shares issuable upon the
exercise of options held by Emmanuel Kronitz, of which 32,639 are
currently exercisable.
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<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 15,000,000 shares of common stock, $.001 par
value per share, of which 5,646,971 shares were outstanding and held of record
as of July 30, 1999, by approximately 147 shareholders of record and
approximately 859 stockholders of our common stock whose stock is held in either
nominee name or street name brokerage accounts. Holders of shares of common
stock are entitled to one vote for each share held of record on all matters to
be voted on by stockholders. There are no preemptive, subscription, conversion
or redemption rights pertaining to the shares of common stock. Holders of shares
of common stock are entitled to receive dividends when, as and if declared by
the Board of Directors from funds legally available therefor and to share
ratably in our assets available upon liquidation, dissolution or winding up. The
holders of shares of common stock do not have cumulative voting rights for the
election of directors and, accordingly, the holders of more than 50% of the
shares of common stock are able to elect all directors.
Preferred Stock
We are authorized to issue 5,000,000 shares of preferred stock, $.001 par
value per share, of which no shares are issued and outstanding. The shares of
preferred stock may be issued from time to time in one or more series, in any
manner permitted by law, as determined from time to time by the Board of
Directors, and stated in the resolution or resolutions providing for the
issuance of such shares adopted by the Board of Directors pursuant to authority
vested in it. Without limiting the generality of the foregoing, shares in such
series shall have voting powers, full or limited, or no voting powers, and shall
have such designations, preferences and relative, participating, optional, or
other special rights, and qualifications, limitations, or restrictions thereof,
permitted by law, as shall be stated in the resolution or resolutions providing
for the issuance of such shares adopted by the Board of Directors. The number of
shares of any such series so set forth in the resolution or resolutions may be
increased (but not above the total number of authorized shares of preferred
stock) or decreased (but not below the number of shares thereof then
outstanding) by further resolution or resolutions adopted by the Board of
Directors.
Effect of Delaware Anti-takeover Statute
We are subject to Section 203 of the DGCL (the anti-takeover law), which
regulates corporate acquisitions. The anti-takeover law prevents certain
Delaware corporations, including those whose securities are listed for trading
on the Nasdaq National Market, from engaging, under certain circumstances in a
"business combination" with any "interested stockholder" for three years
following the date that such stockholder became an interested stockholder. For
purposes of the anti-takeover law, a "business combination" includes, among
other things, a merger or consolidation involving us and the interested
shareholder and the sale of more than 10% of our assets. In general, the
anti-takeover law defines an "interested stockholder" as any entity or person
beneficially owning 15% or more our outstanding voting stock and any entity or
person affiliated with or controlling or controlled by such entity or person. A
Delaware corporation may "opt out" of the anti-takeover law with an express
provision in its original articles of incorporation or an express provision in
its certificate of incorporation or bylaws resulting from amendments approved by
the holders of at least a majority
52
<PAGE>
of our outstanding voting shares. We have not "opted out" of the provisions of
the anti-takeover law.
Anti-takeover Effects of By-laws
Under Delaware law, all stockholder actions must be effected at a duly
called annual or special meeting or by written consent. Our by-laws provide
that, except as otherwise required by law, special meetings of the stockholders
can only be called by the president, the board of directors, the Chairman of the
Board, the President or the holders of a majority of all shares entitled to vote
at the meeting.
Transfer Agent
North America Transfer Co., 147 W. Merrick Road, Freeport, New York, is
the transfer agent for our common stock.
Certain Limited Liability and Indemnification Provisions
Pursuant to our Certificate of Incorporation and By-laws, as amended, our
officers and directors shall be indemnified by us to the fullest extent allowed
under Delaware law for claims brought against them in their capacities as
officers and directors. Indemnification is not allowed if the officer or
director does not act in good faith and in a manner reasonably believed to be in
our best interest, or if the officer or director had no reasonable cause to
believe his conduct was lawful. Accordingly, indemnification may occur for
liabilities arising under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted for our directors,
officers and controlling persons pursuant to the foregoing provisions or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
53
<PAGE>
PLAN OF DISTRIBUTION
Our obligations to Debenture Holders
We are registering the shares offered hereby in order to satisfy our
obligations to the holders of our 10% Convertible Debentures due April 30, 2001.
Under a Securities Purchase Agreement and a related Registration Rights
Agreement dated May 13, 1999 between us and the holders of the Debentures, we
are obligated to register with the SEC 200% of the number of shares issuable on
conversion of $2.0 million in aggregate principal amount of the Debentures plus
interest thereon accrued through the maturity date thereof and 200% of the
number of shares of common stock issuable upon exercise of the Warrants that are
issuable upon conversion of the Debentures. We are also obligated to keep the
Registration Statement of which this prospectus forms a part effective for two
years after the date of this prospectus. The Debentures are convertible into
shares of our common stock at a rate based on the lower of the closing trading
prices of the common stock during certain specified periods prior to the closing
date of the sale of the Debentures or the conversion date of the Debentures,
subject to certain minimum conversion rates. We have the right to pay accrued
interest in shares of our common stock at the same conversion price instead of
cash. Upon conversion of the Debentures, the holders thereof will also receive
Warrants to purchase a number of additional shares of common stock equal to 50%
of the shares of common stock issued upon conversion of the Debentures,
exercisable at a price per share equal to 120% of the conversion rate, subject
to certain maximum exercise prices. The Warrants expire in April 2002. We are
also registering 1,613,551 shares held by certain other selling stockholders and
2,224,981 shares issuable upon exercise of certain other warrants and options
held by certain selling stockholders.
The Securities Purchase Agreement between us and the Debenture holders
provides as follows:
We have agreed that we will not, without the prior consent of the
Debenture holders, enter into any offer or sale of our common stock (or
securities convertible into common stock) with any third party pursuant to a
transaction which permits the sale of such common stock or convertible
securities on any date which is earlier than 180 days after the effective date
of this prospectus, provided that this restriction will not apply to (a) the
issuance of securities (other than for cash) in connection with an acquisition,
merger, consolidation, or a sale or disposition of assets, (b) the exchange of
capital stock for assets, stock or other joint venture interests so long as any
registration rights granted in connection with such action do not require the
filing of a registration statement in respect of such stock or convertible
securities prior to 180 days after the effective date of this prospectus, (c)
the issuance of securities to a Strategic Partner (as defined) or (d) the
issuance of securities under our 1996 Stock Option Plan or our Directors Stock
Option Plan.
Each of our directors and principal officers and their respective family
members (including The Tokayer Family Trust) has signed a Principal's Agreement
which provides that, without the prior consent of the Debenture holders in each
instance, he will not sell or otherwise transfer or offer to sell or otherwise
transfer (except in a private transaction in which the transferee agrees to be
bound by the Principal's Agreement) any shares of common stock directly or
indirectly held by him prior to 180 days after the date of this prospectus;
provided, that 25,000 shares of common stock held by each of Marc D. Tokayer,
54
<PAGE>
Emmanuel Kronitz, Robert Friedman and Baruch Sollish are excluded from such
restrictions.
If we breach our obligations relating to any such third party transactions
or the Principal's Agreements, the Conversion Rate (as defined in the
Debentures) will be amended to be equal to (x) 90% of (y) the amount otherwise
determined in accordance with the Debentures and the Debenture holders will be
entitled to require us to immediately redeem all outstanding Debentures.
If we are limited in the number of shares of common stock we may issue by
virtue of (i) the number of authorized shares or (ii) the applicable rules and
regulations of the principal securities market on which the common stock is
listed or traded, including, but not limited to, NASDAQ, (i) we must take all
steps reasonably necessary to be in a position to issue shares of common stock
on conversion of the Debentures without violating such rules and regulations and
(ii) if, despite taking such steps, we still cannot issue such shares of common
stock without violating such rules and regulations, the holder of a Debenture
which can not be converted as result of such rules and regulations shall have
the option, (x) if permitted by the regulations, require us to issue shares of
common stock at a conversion purchase price equal to the average of the closing
price per share of common stock for any five consecutive trading days (subject
to certain equitable adjustments for certain events occurring during such
period) during the 60 trading days immediately preceding the date of notice of
conversion or (y) require us to redeem each unconverted Debenture for an amount,
payable in cash, determined pursuant to a formula provided in the Debentures.
We have agreed that if, during the 270 day period after the date of this
prospectus, we elect to enter into any transaction other than with a Strategic
Partner for the sale of new common stock or securities convertible into common
stock, we must offer the Debenture holders the right, pro rata to their
respective holdings, to participate in all or any part of the proposed
transaction on the same terms thereof.
If we consummate such a transaction at any time prior to the 90th day
after the effective date of this prospectus on terms providing for (x) either a
sale price equal to or computed or based on, or a determination of a conversion
price based on, a lower percentage of the then current market price than
provided in the Debentures for determining the Conversion Rate through or a
lower Base Price (however defined or computed) and/or (y) the issuance of
warrants at an exercise price lower than that provided in the Warrants issuable
upon issuance of the Debentures, the terms of any unissued or unconverted
Debentures or any unissued or unexercised Warrants shall be modified to reduce
the relevant Conversion Rate, Base Price or Warrant exercise price (as defined)
to be equal to that provided in the transaction as so consummated.
Under the Registration Rights Agreement, we are obligated to pay
liquidated damages to the Debenture holders in the following circumstances:
first, if the Registration Statement of which this prospectus forms a part is
not filed by the Required Filing Date (i.e., June 15, 1999), and second, if the
Registration Statement is not effective by the relevant Required Effective Date
(initially August 19, 1999) or if the Debenture holders are restricted from
making sales of the shares offered hereby covered by a previously effective
Registration Statement at any time (the date such restriction commences, a
"Restricted Sale Date") after the date of the prospectus other than during a
Permitted Suspension Period (as defined); provided, that if the Registration
Statement of which this prospectus forms a part is declared effective before
September 16, 1999, no damages will be payable due to the Registration Statement
55
<PAGE>
not being declared effective before August 17, 1999. The amount (the "Periodic
Amount") that we must pay to the Debenture holders shall be determined as of
each Computation Date (as defined) and such amount shall be equal to the
Periodic Amount Percentage of the aggregate principal amount of all Debentures
for the period from the date following the relevant Required Filing Date,
Required Effective Date or Restricted Sale Date, as the case may be, to the
first relevant Computation Date, and thereafter to each subsequent Computation
Date. The "Periodic Amount Percentage" means (A) 2% of the principal amount of
all the Debentures for the period from the date following the relevant Required
Filing Date, Required Effective Date or Restricted Sale Date, as the case may
be, to the first relevant Computation Date, and (B) 3% of the Purchase Price of
all Debentures to each Computation Date thereafter. After the date of this
prospectus the Purchase Price shall be deemed to refer to the sum of (X) the
principal amount of all Debentures not yet converted and (Y) the Held Shares
Value. The "Held Shares Value" means, with certain exceptions, for shares
acquired upon a conversion of a Debenture within the 30 day preceding the
Restricted Sale Date, but not yet sold, the principal amount of the Debentures
converted into such Conversion Shares.
Our Obligations to all Selling Stockholders; Sales of Registered Shares.
As used in this prospectus, stockholders selling our shares pursuant to
this prospectus includes donees and pledgees selling shares received after the
date of this prospectus from a selling stockholder named in this prospectus.
Upon our being notified by a selling stockholder that a donee or pledgee intends
to sell more than 500 shares, a supplement to this prospectus will be filed.
We have agreed to bear all costs, expenses and fees of registration of the
shares of common stock offered by the selling stockholders for resale other than
the legal fees and expenses of counsel or other advisors to the selling
stockholders. Any brokerage commissions, discounts, concessions or other fees,
if any, payable to broker-dealers in connection with any sale of the shares of
common stock will be borne by the selling stockholders selling those shares or
by the purchasers of such shares.
Sales of shares may be effected by selling stockholders from time to time
in one or more types of transactions, including block transactions,
over-the-counter markets, negotiated transactions, put or call options on the
shares and short sales of shares. Shares may be sold at market prices prevailing
at the time of sale or at negotiated prices. The stockholders selling shares
pursuant to this prospectus may effect such transactions by selling shares
directly to purchasers or to or through broker-dealers as principals or agents
or to broker-dealers who may purchase shares of common stock as principals and
thereafter sell the shares from time to time in any one or more of such
transactions. In effecting sales, broker-dealers engaged by a selling
stockholder may arrange for other broker-dealers to participate. Such
brokers-dealers may receive compensation in the form of discounts, concessions
or commissions from the selling stockholders and/or the purchasers of the shares
for whom such broker-dealers may act as agents or to whom they may sell as
principals, or both (which compensation, as a particular broker-dealer, might be
in excess of customary commissions). The selling stockholders have advised us
that they have not entered into any agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of their shares, nor
is there an underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling stockholders.
56
<PAGE>
The selling stockholders and any broker-dealers that act in connection
with the sale of shares might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act. We have agreed to indemnify each
Debenture holder against certain liabilities, including liabilities arising
under the Securities Act. The selling stockholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares against certain liabilities, including liabilities arising under
the Securities Act.
Because selling stockholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the selling stockholders will be
subject to the prospectus delivery requirements of the Securities Act. We have
informed the selling stockholders that the anti-manipulative provisions of
Regulation M promulgated under the Exchange Act may apply to their sales in the
market.
Selling stockholders also may resell all or a portion of the shares under
this prospectus in open market transactions in reliance upon Rule 144 under the
Securities Act, provided they meet the criteria and conform to the requirements
of that rule.
Upon our being notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the Act,
disclosing:
o The name of each such selling stockholder and of the participating o
broker-dealer(s);
o The number of securities involved;
o The price at which such securities were sold;
o The commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
o That such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this
prospectus; and
o Other facts material to the transaction.
We have agreed to indemnify certain selling stockholders or their
transferees or assignees against certain liabilities, including liabilities
under the Securities Act of 1933, or to contribute to payments to which such
selling stockholders or their respective pledgees, donees, transferees or other
successors in interest may be required to make in respect thereof.
Pursuant to the Registration Rights Agreement, each of the Selling
Stockholders (other than the Debenture holders and Wall and Broad Equities,
57
<PAGE>
Inc.) has agreed with the Debenture holders not to sell more than 25% of the
shares offered by such Selling Stockholder under this prospectus in any 30 day
period. Each of such other Selling Stockholders who holds warrants has also
agreed with the Debenture holders not to sell any of the common stock underlying
such warrants for 30 days after the effective date of this prospectus.
58
<PAGE>
LEGAL MATTERS
The legality of the securities offered by this prospectus will be passed
upon for us by Golenbock, Eiseman, Assor & Bell, New York, New York.
EXPERTS
The consolidated financial statements of TTR for the years ended December
31, 1998, and December 31, 1997, included in this prospectus have been included
in reliance upon the report of Brightman Almagor & Co. (formerly known as BDO
Almagor & Co.), a member of Deloitte Touche Tohmatsu , independent certified
public accountants, given upon the authority of said firm as experts in
accounting and auditing.
Auditor Change
On June 30, 1998, we appointed Brightman Almagor & Co. to re-issue a
report on our consolidated financial statements for the year ended December 31,
1997. On July 3, 1998, Schneider Ehrlich & Wengrover LLP (or SE&W) resigned as
our independent auditors by mutual agreement. The decision to change accountants
was approved by the Board of Directors.
During the fiscal years ended December 31, 1997 and 1996 and the period
between January 1, 1998, up to and including the day of its resignation, there
were no disagreements between us and SE&W on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedures
which if not resolved to SE&W's satisfaction would have caused them to make
reference in connection with their opinion to the subject matter of the
disagreement. SE&W's report on our financial statements for such fiscal years
indicated that substantial doubt exists regarding our ability to continue as a
going concern.
The audit of Brightman Almagor & Co., a member of Deloitte Touche
Tohmatsu, as our independent accountants did not result in any changes to such
financial statements, and the related audit report of Brightman Almagor & Co., a
member of Deloitte Touche Tohmatsu, also states that substantial doubt exists
regarding our ability to continue as a going concern.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission"). You may
read and copy any reports, statements or other information on file at the
Commission's public reference room in Washington, D.C. You can request copies of
those documents, upon payment of a duplicating fee, by writing to the
Commission.
We have filed a Registration Statement on Form SB-2 with the Commission.
This prospectus, which forms a part of the Registration Statement, does not
contain all of the information included in the Registration Statement. Certain
information is omitted and you should refer to the Registration Statement and
its exhibits. With respect to references made in this prospectus to any contract
or other document, such references are not necessarily complete and you should
refer to the exhibits attached to the Registration Statement for copies of the
actual contract or document. You may review a copy
59
<PAGE>
of the Registration Statement at the Commission's public reference room at 450
N.W. Fifth Street, N.W., Washington, D.C., 20549 and at the Commission's
regional offices at CitiCorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661 and at 7 World Trade Center, Suite 1300, New York, New
York 10048. Please call the Commission at 1-800-SEC-0330 for further information
on the operation of the public reference rooms. Our Commission filings and the
Registration Statement can also be reviewed by accessing the Commission's
Internet web site at http://www.sec.gov.
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TTR TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
CONTENTS
61
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T.T.R. Technologies Inc.
(A Development Stage Company)
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Comprehensive Loss F-5
Consolidated Statements of Stockholders' Equity (Deficit) F-6
Consolidated Statements of Cash Flows F-7-8
Notes to the Consolidated Financial Statements F-9 - 23
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TTR Technologies, Inc.
We have audited the accompanying consolidated balance sheets of TTR Technologies
Inc. (formerly TTR Inc.) (the "Company") (a development stage company) as of
December 31, 1998, and the related consolidated statements of operations,
comprehensive loss, stockholders' equity (deficit), and cash flows for each of
the two years in the period ended December 31, 1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of TTR
Technologies Inc. (a development stage company) as of December 31, 1998, and the
consolidated results of its operations and its cash flows for each of the two
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
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 stockholders' deficit 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.
Brightman Almagor & Co.
Certified Public Accountants (Israel)
A member of Deloitte Touche Tohmatsu
Ramat Gan, Israel
June 30, 1999
F-2
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
---- ----
<S> <C> <C>
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $ 74,445 $ 2,596
Accounts receivabe 7,793 28,086
Other current assets 21,250 14,785
------------ ------------
Total current assets 103,488 45,467
Property and equipment - net 311,493 292,166
Deferred financing costs, net 70,712 37,028
Other assets 4,852 4,468
------------ ------------
Total assets $ 490,545 $ 379,129
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Current liabilities
Current portion of long-term debt $ 873,153 $ 926,416
Short-term borrowings, net of discount 264,335 250,824
Accounts payable 744,103 877,977
Accrued expenses 1,056,345 1,150,471
------------ ------------
Total current liabilities 2,937,936 3,205,688
Long-term debt, less current portion 594,011 636,330
Accrued severance pay 56,765 58,538
------------ ------------
Total liabilities 3,588,712 3,900,556
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred Stock, $.001 par value;
5,000,000 shares authorized; none issued and outstanding -- --
Common stock, $.001 par value;
15,000,000 shares authorized; 4,176,326 and 5,405,098
issued and outstanding, respectively 4,177 5,406
Additional paid-in capital 9,170,585 9,935,261
Other accumulated comprehensive income 79,415 57,081
Deficit accumulated during the development stage (11,758,111) (12,916,457)
Less: deferred compensation (594,233) (602,718)
------------ ------------
Total stockholders' deficit (3,098,167) (3,521,427)
------------ ------------
Total liabilities and stockholders' deficit $ 490,545 $ 379,129
============ ============
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From From
Inception Inception
Year (July 14, Three Months (July 14,
Ended 1994) to Ended 1994) to
December 31, December 31, March 31, March 31,
1997 1998 1998 1998 1999 1999
---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue -- $ 54,922 $ 54,922 $ -- $ 26,984 $ 81,906
Expenses
Research and development 967,155 1,032,253 2,619,961 188,692 315,842 2,935,803
Sales and marketing 1,421,496 1,837,931 3,693,225 251,700 178,367 3,871,592
General and administrative 1,477,085 2,380,976 4,502,797 404,392 497,458 5,000,255
------------ ------------ ------------ ------------ ------------ ------------
Total expenses 3,865,736 5,251,160 10,815,983 844,784 991,667 11,807,650
------------ ------------ ------------ ------------ ------------ ------------
Operating loss (3,865,736) (5,196,238) (10,761,061) (844,784) (964,683) (11,725,744)
Other (income) expense
Legal settlement 232,500 -- 232,500 -- -- 232,500
Loss on investment -- -- 17,000 -- -- 17,000
Other income (50,000) (25,000) (75,000) -- -- (75,000)
Interest income (42,069) (3,413) (58,306) (144) -- (58,306)
Interest expense 113,445 410,715 880,856 6,324 193,663 1,074,519
------------ ------------ ------------ ------------ ------------ ------------
Total other (income) expenses 253,876 382,302 997,050 6,180 193,663 1,190,713
------------ ------------ ------------ ------------ ------------ ------------
Net loss (4,119,612) $ (5,578,540) $(11,758,111) $ (850,964) $ (1,158,346) $(12,916,457)
============ ============ ============ ============ ============ ============
Per share data:
Basic and diluted (1.35) $ (1.54) $ (0.26) $ (0.23)
============ ============ ============ ============
Weighted average number
of common shares used in
basic and diluted loss per share 3,054,519 3,615,908 3,293,481 4,989,391
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
From From
Inception Inception
Year (July 14, Three Months (July 14,
Ended 1994) to Ended 1994) to
December 31, December 31, March 31, March 31,
1997 1998 1998 1998 1999 1999
---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net loss $(4,119,612) $(5,578,540) $(11,758,111) $(850,964) $(1,158,346) $(12,916,457)
Other comprehensive income (loss)
Foreign currency translation adjustments (19,667) 41,386 79,415 (3,052) (22,334) 57,081
----------- ----------- ------------ --------- ----------- ------------
Comprehensive loss (4,139,279) $(5,537,154) $(11,678,696) $(854,016) $(1,180,680) $(12,859,376)
=========== =========== ============ ========= =========== ============
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
Common Stock Subscribed Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balances at July 14, 1994
(date of inception) -- $ -- -- $ -- $ --
Issuances of common stock, par value $.001
Services rendered 1,200,000 1,200
Cash 1,200,000 1,200 23,800
Net loss
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1994 2,400,000 2,400 -- -- 23,800
Common stock contributed (561,453) (561) 561
Issuances of common stock, par value $.001
Services rendered 361,453 361 17,712
Stock options and warrants granted 600
Foreign currency translation adjustment
Net loss
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1995 2,200,000 2,200 -- -- 42,673
Issuances of common stock, par value $.001
Cash, net of offering costs of $11,467 850,000 850 362,683
Foreign currency translation adjustment
Net loss
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1996 3,050,000 $ 3,050 -- $ -- $ 405,356
Common stock contributed (135,000) (135) 135
Issuances of common stock, par value $.001
Cash, net of offering costs of $832,551 908,000 908 5,000,440
Services rendered 74,000 74 832,551
Exercise of options 374,548 375 3,370
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
Net loss
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1997 4,271,548 4,272 16,000 100,000 8,117,275
Common stock subscriptions 16,000 16 (16,000) (100,000) 99,984
Common Stock forfeited (1,000,000) (1,000) 1000
Transfer of temporary equity to permanent capital 15,000 15 77,141
Issuances of common stock, par value $.001
Cash 41,667 42 24,958
Services rendered 244,000 244 620,344
Stock options and warrants granted (cancelled) (255,992)
Discount relating to shares and warrants issued 156,111 156 486,307
Amortization of deferred compensation
Warrant exchange 432,000 432 (432)
Foreign currency translation adjustment
Net loss
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1998 4,176,326 $ 4,177 -- $ $ 9,170,585
Issuances of common stock, par value $.001 (Unaudited)
Cash 222,900 223 165,383
Services rendered 877,000 877 613,598
Exercise of options 128,872 129 1,160
Stock options granted (cancelled) (Unaudited) (15,465)
Amortization of deferred compensation (Unaudited)
Foreign currency translation adjustment (Unaudited)
Net loss (Unaudited)
------------ ------------ ------------ ------------ ------------
Balances at March 31, 1999 5,405,098 $ 5,406 -- $ $ 9,935,261
============ ============ ============ ============ ============
<CAPTION>
Deficit
Foreign Accumulated
Currency During
Translation Development Deferred
Adjustment Stage Compensation Total
---------- ----- ------------ -----
<S> <C> <C> <C> <C>
Balances at July 14, 1994
(date of inception) $ -- $ -- $ -- $ --
Issuances of common stock, par value $.001
Services rendered 1,200
Cash 25,000
Net loss (42,085) (42,085)
------------ ------------ ------------ ------------
Balances at December 31, 1994 -- (42,085) -- (15,885)
Common stock contributed --
Issuances of common stock, par value $.001
Services rendered 18,073
Stock options and warrants granted 600
Foreign currency translation adjustment 22,652 22,652
Net loss (896,663) (896,663)
------------ ------------ ------------ ------------
Balances at December 31, 1995 22,652 (938,748) -- (871,223)
Issuances of common stock, par value $.001
Cash, net of offering costs of $11,467 363,533
Foreign currency translation adjustment 35,044 35,044
Net loss (1,121,211) (1,121,211)
------------ ------------ ------------ ------------
Balances at December 31, 1996 $ 57,696 $ (2,059,959) $ -- (1,593,857)
Common stock contributed --
Issuances of common stock, par value $.001 --
Cash, net of offering costs of $832,551 5,001,348
Services rendered (500,000) 332,625
Exercise of options 3,745
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) (19,667)
Net loss (4,119,612) (4,119,612)
------------ ------------ ------------ ------------
Balances at December 31, 1997 38,029 (6,179,571) (1,402,776) 677,229
Common stock subscriptions --
Common Stock forfeited --
Transfer of temporary equity to permanent capital 77,156
Issuances of common stock, par value $.001
Cash 25,000
Services rendered (620,588) --
Stock options and warrants granted (cancelled) 255,992 --
Discount relating to shares and warrants issued 486,463
Amortization of deferred compensation 1,173,139 1,173,139
Warrant exchange --
Foreign currency translation adjustment 41,386 41,386
Net loss (5,578,540) (5,578,540)
------------ ------------ ------------ ------------
Balances at December 31, 1998 $ 79,415 $(11,758,111) $ (594,233) $ (3,098,167)
Issuances of common stock, par value $.001 (Unaudited)
Cash 165,606
Services rendered (445,725) 168,750
Exercise of options 1,289
Stock options granted (cancelled) (Unaudited) 179,125 163,660
Amortization of deferred compensation (Unaudited) 258,115 258,115
Foreign currency translation adjustment (Unaudited) (22,334) (22,334)
Net loss (Unaudited) (1,158,346) (1,158,346)
------------ ------------ ------------ ------------
Balances at March 31, 1999 $ 57,081 $(12,916,457) $ (602,718) $ (3,521,427)
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From
Inception
Year (July 14,
Ended 1994) to
December 31, December 31,
1997 1998 1998
---- ---- ----
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,119,612) $ (5,578,540) $(11,758,111)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 184,290 187,298 627,629
Amortization of note discount -- 272,009 272,009
Translation adjustment -- -- (1,528)
Amortization of deferred compensation 972,567 1,173,139 2,145,706
Stock and warrants issued for services and legal settlement 565,125 -- 583,798
Payment of common stock issued with guaranteed selling price -- (155,344) (155,344)
Increase (decrease) in cash attributable
to changes in assets and liabilities
Accounts receivable 478 (8,480) (8,317)
Other current assets (7,204) 99,113 (26,805)
Other assets (72,700) 69,000 (3,700)
Accounts payable (72,401) 624,547 730,315
Accrued expenses 22,297 958,098 1,081,884
Accrued severance 26,299 33,009 77,570
Interest payable (234,508) 90,920 90,920
------------ ------------ ------------
Net cash used by operating activities (2,735,369) (2,235,231) (6,343,974)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (175,507) (64,363) (675,763)
Increase in organization costs -- -- (7,680)
------------ ------------ ------------
Net cash used by investing activities (175,507) (64,363) (683,443)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 5,520,837 125,000 6,035,570
Loans to officer 10,000 16,000 --
Deferred stock offering costs (309,565) -- (475,664)
Deferred financing costs (19,000) (143,000) (405,411)
Proceeds from short-term borrowings 200,000 306,553 1,356,155
Proceeds from long-term debt -- 1,637,688 2,751,825
Repayment of short-term borrowings (1,049,602) -- (1,049,602)
Repayments of long-term debt (1,053,455) (15,839) (1,105,310)
------------ ------------ ------------
Net cash provided by financing activities 3,299,215 1,926,402 7,107,563
------------ ------------ ------------
Effect of exchange rate changes on cash (1,955) (2,403) (5,701)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 386,384 (375,595) 74,445
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 63,656 450,040 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 450,040 $ 74,445 $ 74,445
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 345,258 $ 42,609 $ 422,111
============ ============ ============
Transfer of common stock issued with guaranteed selling price
to permanent capital $ 77,156
============
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From
Inception
Three Months (July 14,
Ended 1994) to
March 31, March 31,
1998 1999 1999
---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (850,964) $ (1,158,346) $(12,916,457)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 37,795 62,279 689,908
Amortization of note discount -- 140,929 412,938
Translation adjustment -- -- (1,528)
Amortization of deferred compensation 221,376 258,115 2,403,821
Stock and warrants issued for services and legal settlement -- 163,660 747,458
Payment of common stock issued with guaranteed selling price (55,344) -- (155,344)
Increase (decrease) in cash attributable
to changes in assets and liabilities
Accounts receivable -- (20,065) (28,382)
Other current assets (12,762) 7,082 (19,723)
Other assets 15,000 -- (3,700)
Accounts payable 162,684 61,488 960,553
Accrued expenses 37,643 268,273 1,181,407
Accrued severance -- -- 77,570
Interest payable -- 41,486 132,406
------------ ------------ ------------
Net cash used by operating activities (444,572) (175,099) (6,519,073)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (6,767) -- (675,763)
Increase in organization costs -- -- (7,680)
------------ ------------ ------------
Net cash used by investing activities (6,767) -- (683,443)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 100,000 166,895 6,202,465
Stock offering costs -- -- (475,664)
Deferred financing costs -- -- (405,411)
Proceeds from other loans -- -- --
Proceeds from short-term borrowings -- 9,657 1,365,812
Proceeds from long-term debt -- -- 2,751,825
Repayment of short-term borrowings -- (69,703) (1,119,305)
Repayments of long-term debt (3,506) (3,599) (1,108,909)
------------ ------------ ------------
Net cash provided by financing activities 96,494 103,250 7,210,813
------------ ------------ ------------
Effect of exchange rate changes on cash (375) -- (5,701)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (355,220) (71,849) 2,596
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 450,040 74,445 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 94,820 $ 2,596 $ 2,596
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 4,519 $ -- $ 422,111
============ ============ ============
Transfer of common stock issued with guaranteed selling price
to permanent capital $ 77,156
============
</TABLE>
See Notes to Financial Statements.
F-8
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
NOTE 1 - DESCRIPTION OF BUSINESS
TTR Inc. (the "Company") was incorporated on July 14, 1994 under the laws
of the State of Delaware. In December 1998 the Company amended its
certificate of incorporation to change its name to TTR Technologies, Inc.
TTR Technologies Ltd., ("TTR Ltd") was formed under the laws of the State
of Israel on December 5, 1994 as a wholly owned research and development
subsidiary of the Company.
The Company is engaged in the design, development and commercialization of
proprietary software security products.
The Company is considered to be in the development stage and has earned
limited revenues to date. Business activities to date have focused on
product and marketing research, product development, and raising capital.
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).
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 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.
Cash Equivalents
Cash equivalents consist of short-term, highly liquid debt investments
that are readily convertible into cash with original maturities when
purchased of three months or less.
Fair Value of Financial Instruments
Substantially all of the Company's financial instruments, consisting
primarily of cash equivalents, current receivables, accounts payable and
notes payable, are carried at, or
F-9
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
approximate, fair value because of their short-term nature or because they
carry market rates of interest.
Revenue recognition
In October 1997, the American Institute of Certified Public Accountants
recently issued Statement of Position (SOP) 97-2, "Software Revenue
Recognition", which supersedes SOP 91-1. SOP 97-2 provides guidance in
recognizing revenue on software transactions and is required for
transactions entered into after December 15, 1997.
The Company recognizes revenues from software transactions upon delivery
to the customer. 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, $1,173,000,
$221,300 and $422,000 for the years ended December 31, 1997 and 1998 and
for the three months ended March 31, 1998 and 1999, respectively.
Foreign Currency Translations
The financial statements of TTR Ltd. 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).
Net loss per share
The Company has adopted the provisions of Statement of Financial
Accounting Standards No.128 (SFAS 128) "Earnings per Share". 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 (loss) 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 1998 and 1997 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 9).
F-10
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
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, vehicles and leasehold improvements are stated at cost.
Equipment and vehicles are depreciated over the estimated useful lives of
the related assets, which range from three 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 uses the liability method to determine its income tax expense
as required under the Statement of Financial Accounting Standards No. 109,
(SFAS 109). SFAS 109 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, if it is more likely than not that all or a portion
of it will not be realized.
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.
Stock Options
Under SFAS No. 123, "Accounting for Stock-based Compensation", the Company
must
F-11
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
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.
Comprehensive Income (loss)
In January 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income," which establishes standards for reporting the components of
comprehensive income. The foreign currency translation adjustment is the
Company's only component of comprehensive income.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern 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, 1998 of $11,758,111. The Company faces a number of risks and
uncertainties regarding its business, including among other factors, the
demand and market acceptance of its products, dependence on a single
product line, the effects of technological change, and the development of
new products. 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 which raises substantial
doubt about its ability to continue as a going concern.
The Company is continuing to pursue various alternatives for additional
financing. From April 1998 to April 1999, the Company realized net
proceeds of approximately $1,820,000 from various private placements. In
May 1999, the Company entered into an agreement for the sale of up to
$2,000,000 of 10% convertible debentures (see Note 14).
During 1998, due to its financial difficulties, the Company was forced to
terminate most of its employees. The abovementioned financing will allow
the Company to bring several suppliers and vendors current and to maintain
operations through November 1999. Thereafter, the Company will need
additional financing.
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 or that adequate financing will be
available to the Company. Insufficient funds from operations or the
inability to obtain adequate financing would have a material adverse
effect on the Company.
F-12
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31,
1998
----
Leasehold improvements $109,350
Office equipment 150,608
Computer equipment 205,477
Vehicles 84,601
--------
550,036
Less: Accumulated depreciation 238,543
--------
$311,493
========
Depreciation expense was $113,858, $88,311, $28,211 and $37,411 for the
years ended December 31, 1998 and 1997, and for the three months ended
March 31, 1998 and 1999, respectively.
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
1998
----
Accrued payroll and related amounts $ 749,371
Taxes 24,257
Accrued interest 90,920
Other 1,797
----------
$1,056,345
==========
NOTE 6 - ACCRUED SEVERANCE PAY
Under Israeli law, TTR Ltd. is required to make severance payments to
dismissed employees (including officers) and to employees leaving
employment under certain other circumstances. This liability is calculated
based on the years of employment for each employee, in accordance with the
"severance pay laws." The Company's liabilities for required severance
payments are covered by funding into severance pay funds and the purchase
of insurance policies.
NOTE 7 - DEBT FINANCINGS
Short-term Borrowings
F-13
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
December 31,
1998
----
(a) Promissory Note (net of
discount of $42,555) $ 57,445
(b) Other loans 81,455
Bank Loan 125,435
--------
$264,355
========
(a) In September 1998, the Company issued a short-term non-interest
bearing $100,000 promissory note to a private investor. In connection with
the loan, the company also sold to the investor 111,111 shares of Common
Stock at par. For financial reporting purposes, the Company recorded a
note discount totaling $87,500, to reflect the value of the stock. The
discount is being amortized on a straight-line basis over the term of the
note. The note became due on March 31, 1999 and has not been formerly
extended.
(b) This amount represents non-interest bearing advances which were used
to purchase 100,517 additional shares of Common Stock in February
1999.
Long-Term Debt
December 31,
1998
----
(a) Bank loan $ 26,563
(b) 10% Promissory Notes (net of
discount of $130,475) 1,332,025
(c) 8% Promissory Notes (net of
discount of $41,424) 108,576
----------
1,467,164
Less: current portion 873,153
----------
$ 594,011
==========
(a) These loans are denominated in "New Israeli Shekel" (NIS), bear
interest at the Israeli prime rate (15% at December 31, 1998) plus
2.4%-3% per annum, and are secured by substantially all the assets
of TTR Ltd.. Principal payments are due in various installments
through 2001.
o From April through August 1998, the Company realized gross proceeds
of $1,462,500 from a private offering of 29.25 Units, each Unit
consisting of a $50,000 10% Promissory Note and Warrants to purchase
11,500 shares of Common Stock. For financial reporting purposes, the
Company recorded a total discount of $357,450, to reflect the value
of the Warrants. The discount is being amortized on a straight-line
basis over the terms of the respective notes. The notes and accrued
interest are due at the earlier of one year or 30 days following any
public or private
F-14
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
equity or debt financing exceeding $1,000,000.
As of June 1, 1999, a total of $1,002,284 of note principal plus
accrued interest became due. The Company has obtained extensions for
one additional year with respect to note principal totaling $512,000
and is awaiting approval to extend from the other note-holders. In
consideration of the extension, the Company has reduced the warrant
exercise prices to $1.50 per share.
(c) In December 1998, the Company realized gross proceeds of $150,000
from a private offering of 5 Units, each Unit consisting of a
$30,000 8% Promissory Note, 9,000 shares of Common Stock and
Warrants to purchase an additional 3,000 shares. For financial
reporting purposes, the Company recorded a total note discount of
$41,513, to reflect the value of the Stock and Warrants. The
discount is being amortized on a straight-line basis over the term
of the notes. The notes and accrued interest are due at the earlier
of two years or 5 days following any public or private equity or
debt financing exceeding $800,000.
The aggregate maturities of long-term debt for the next three years ending
December 31, are as follows: 1999 - $873,153; 2000 - $586,541; and
2001-$7,470.
NOTE 8 - INCOME TAXES
At December 31, 1998, the Company had available $3,750,000 of net
operating loss carryforwards for U.S. federal income tax purposes which
expire in the years 2014 through 2019, and $5,471,000 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:
December 31,
1998
----
Net operating loss carryforwards $ 3,094,809
Research and development 227,000
Stock based compensation 40,313
Accrued vacation and severance 32,000
-----------
Total deferred tax assets 3,394,122
Valuation allowance (3,394,122)
-----------
Net deferred tax assets $ --
===========
F-15
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
Pre-tax losses from foreign (Israeli) operations were $2,927,080 and
$5,471,000 for the years ended December 31, 1997 and 1998, respectively.
NOTE 9 - STOCKHOLDERS EQUITY
Stock Options
1996 Incentive and Non-qualified 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. In December 1998,
the Plan was amended to increase the number of shares available for grant
to 750,000. 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. The Plan will terminate in 2006.
Non-Executive Directors Stock Option Plan
In July 1998, the Board of Directors adopted the Non-Executive Directors
Stock Option Plan ("the Directors' Plan") and has reserved up to 25,000
shares of common stock for issuance thereunder. The plan provides for the
grant of options to directors who are not otherwise employed by the
Company. Options are exercisable upon the date of grant and expire five
years from the date of the grant. Upon the termination of director, the
options expire within two months of such termination. The exercise price
of the option will be the fair market value of the share on the date of
the grant of the option. The plan will terminate in 2008. As of December
31, 1998, no options had been granted under the Directors' Plan.
A summary of the status of the Plan as of December 31, 1998 and 1997 and
changes during the years ending on that date are presented below:
Range of
Exercise
Shares Prices
------ ------
Options outstanding, January 1, 1997 5,000 6.00
F-16
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
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
Granted 291,600 3.03-7.00
Canceled (294,950) 3.03-13.88
Exercised -- --
-------- ------------
Options outstanding, December 31, 1998 157,750 $ 4.00-13.88
======== ============
Shares of common available for future grant 592,250
========
The following table summarizes information about stock options under the
plan outstanding at December 31, 1998:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Average Weighted Average
---------------- ----------------
Remaining
Number Contractual Exercise Number Exercise
Range of price Outstanding Life Price Exercisable Price
- --------------------------------------------------------------------------------
$ 4.00 - $6.00 106,500 8.54 $ 5.13 19,975 $ 5.23
7.00 8,000 8.07 7.00 1,875 7.00
10.00 - 13.88 43,750 8.20 10.33 10,938 10.33
- -------------- ------- ---- ------ ------ ------
$ 4.00-$13.88 157,750 8.42 $ 6.66 32,788 $ 7.03
============== ======= ==== ====== ====== ======
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.
In March 1997, in connection with an employment agreement, the Company
granted 60,000 options with an exercise price below the fair value of the
underlying common stock. The issuance of the options resulted in a charge
to deferred compensation in the amount of $300,000 which is being
amortized over the four year vesting period.
A total of 24,000 stock options granted under the 1996 Plan to
non-employees in 1997 resulted in a charge to deferred compensation of
$53,032, which is being amortized over the four-year vesting period.
Weighted-average grant date fair value of options granted in 1998 and
1997, under the Black-Scholes option pricing model, was $1.14 and $5.82
per option, respectively.
Other Option Grants
F-17
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
In 1997, the Company issued options to purchase 217,473 shares to the
Chief executive Officer of TTR Ltd. The options have an exercise price of
$.01 per share and vest over a four- year period. The issuance of the
options resulted in a charge to deferred compensation expense of
$1,522,300 which was being amortized over the service period. In November
1998 the officer resigned and a settlement agreement was executed.
Pursuant to the agreement, 48,328 options were cancelled and the remaining
169,145 become exercisable at various dates in 1999.
In 1998, the Company issued options to purchase 250,000 shares to the
Company's Chief Executive Officer. The options have an exercise price of
$.93 per share, which was equal to the fair value of the share on the date
of the grant, and vest immediately.
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:
Net loss 1997 1998
As reported $(4,119,612) $(5,578,540)
Proforma $(4,342,194) $(5,635,574)
Loss per share
As reported $(1.35) $(1.54)
Proforma $(1.42) $(1.56)
The fair value of each option granted in 1997 and 1998 is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
1997 1998
Risk free interest rates 6.23% 5.51%
Expected option lives 2.5 years 2.5 years
Expected volatilities 46.5% 46.5%
Expected dividend yields None None
Warrants
o In 1994 and 1995, the Company granted warrants to consultants
to purchase 200,000 shares of Common Stock at $.01 per share.
These warrants were exercised in February 1997.
F-18
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
o In April 1996, in connection with a private placement, the
Company issued warrants to purchase an additional 1,000,000
shares of Common Stock. The warrants were exercisable for a
period of three years commencing February 1997 at an exercise
price of $7.00 per share. In July 1998, the warrants were
exchanged for 400,000 shares of Common Stock.
o In February 1997, in connection with the Company's initial
public offering the Company sold to the underwriter, for $80,
five-year warrants to purchase up to an additional 80,000
shares of the Company's Common Stock at an exercise price
equal to $11.20 per share. In July 1998, the warrants were
exchanged for 32,000 shares of Common Stock.
o In December 1997, in connection with a private placement, the
Company issued warrants to purchase an additional 33,000
shares of Common Stock. The warrants are exercisable for a
period of four years at an exercise price of $7.80 per share.
However, in lieu of cash payments for exercising the shares,
the investor is entitled to accept a smaller number of shares
of Common Stock based on the spread between the exercise price
and the then public market price of the Company's Common
Stock.
o In April 1998, in connection with a proposed public offering
of additional shares of Common Stock, the Company issued to an
underwriter four-year Warrants to purchase up to 25,000 shares
of the Company Stock at an exercise price of $5.63.
o From April through August 1998, in connection with a private
placement, the Company issued warrants to purchase an
additional 336,375 shares of Common Stock. The warrants are
exercisable for a period of four years at exercise prices
ranging from $3.41 to $6.47 per share. In consideration of
extending the term of the related notes, the Company has
reduced the exercise price to $1.50 per share on a total of
117,875 warrants.
o In June 1998 the Company issued warrants to purchase 25,000
shares of Common Stock to a consultant pursuant to a one-year
consulting agreements. The warrants were exercisable for a
period of four years at an exercise price of $5.75. In April
1999, the exercise price was reduced to $1.50 per share
o In December 1998, in connection with a private placement, the
Company issued warrants to purchase an additional 15,000
shares of Common Stock. The warrants are exercisable for a
period of five years at an exercise price of $6.00.
At December 31, 1998, the Company had outstanding warrants to purchase a
total of
F-19
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
434,375 shares of Common Stock with exercise prices ranging from $1.50 to
$7.80 per share.
Stock Issuances
During the year ended December 31, 1997, the Company completed the
following common stock transactions:
o 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. The Company also made an advance payment of $120,000 to
the underwriter for a two-year management and financial
consulting agreement.
o In March 1997, the Company issued 5,000 shares of Common Stock
to a consultant and recorded a $50,000 compensation charge.
o In March 1997, the Company issued 50,000 shares of Common
Stock to an employee, pursuant to a one-year employment
agreement. The Company recorded deferred compensation in the
amount of $500,000 relating to the issuance of the shares, and
amortized this over the term of the agreement.
o In April 1997, the Company issued 19,000 shares of Common
Stock to two consultants and recorded a $282,625 compensation
charge.
o On December 24, 1997, the Company entered into a stock
subscription agreement for the sale of 64,000 shares of 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. The Company also issued warrants to the
investor to purchase an additional 33,000 shares of Common
Stock.
During the year ended December 31, 1998, the Company completed the
following common stock transactions:
o An aggregate of 250,000 shares of the Company's Common Stock,
owned beneficially by its President, and designated as escrow
shares were forfeited and returned to the Company. In June
1998, the Company's President waived his rights to the
remaining 750,000 escrowed shares.
o During 1998, the Company issued a total of 244,000 shares of
Common Stock and 25,000 warrants to various consultants for
services rendered. The value of the services totaling $642,700
is being amortized over the one-year contract terms.
F-20
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
o In December 1998, the Company entered into an agreement with a
private investor for the sale of an additional 150,758 shares
of Common Stock. The total purchase price was $90,455, of
which $25,000 was received in 1998.
NOTE 10 - COMMON STOCK ISSUED WITH GUARANTEED SELLING PRICE
In 1997, the Company and TTR Ltd. 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.
In May 1997, pursuant to a settlement agreement, the Company issued to the
individual 15,000 shares of Common Stock subject to a guaranteed selling
price of $15.50 per share. In 1998, the individual sold his shares in the
open market for $77,156, and the Company paid the shortfall of $155,344,
as required by the guarantee. In 1997, the Company recorded an expense of
$232,500 in connection with the settlement agreement.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Royalties
TTR Ltd. is committed to pay royalties to the Office of the Chief
Scientist of the Government of Israel (OCS) on proceeds from sales of
products of which the OCS has participated by way of grants. The royalties
are payable at the rate of 3% for the first three years of product sales,
4% for the following three years, and 5% thereafter up to a maximum of
100% of the grant. The total amount of grants received at December 31,
1998 was $210,000.
The research and development grants are presented in the statement of
operations as a reduction of research and development expenses.
The refund of the grant is contingent on future sales and the Company has
no obligation to refund these grants if sufficient sales are not
generated.
Operating Leases
The Company and TTR Ltd. have each entered into lease agreements for
office space expiring through 2002. Future minimum rentals on these leases
as of December 31, 1998 are as follows:
December 31,
------------
1999 $ 68,549
2000 68,549
2001 40,785
F-21
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
2002 10,263
--------
$181,145
========
NOTE 12 - GEOGRAPHIC DATA
U. S. % of Total Israel % of Total
----------------------------------------------------
For the year ended December 31, 1998:
Revenue $ -- -- $54,922 100%
Operating loss (2,162,337) 39.65% (3,033,901) 60.35%
Identifiable assets 100,966 24.05% 318,867 75.95%
For the year ended December 31, 1997:
Revenue -- -- -- --
Operating loss (1,495,108) 38.68% (2,370,628) 61.32%
Identifiable assets 633,285 53.28% 555,342 46.72%
NOTE 13 - RELATED PARTY TRANSACTION
In October 1997, TTR Ltd. entered into a two-year management agreement
with Ultimus LTD, (Ultimus) an Israeli company. Under the agreement, the
Company provided management and administrative services relating to
Ultimus' day-to-day operations and earned fees totaling $75,000. The
agreement was terminated in April 1998. An ex-officer of the Company holds
approximately 7.5% of the outstanding shares of Ultimus and, together with
the Company's Chairman, served on their Board of Directors.
NOTE 14 - SUBSEQUENT EVENTS
Stock Grants
In January and February 1999 the Company issued 627,000 shares of Common
Stock and 10,000 warrants exercisable at $1.75 to various consultants
pursuant to one year consulting agreements. The Company will record a
charge to deferred compensation expense of $445,725 as a result of these
issuances. Also in January 1999, the Company issued 250,000 shares of
Common Stock as payment of an outstanding liability in the amount of
$168,750.
Private Placement
In February and April 1999, the Company received $160,000 from the
issuance of an additional 205,682 shares of its Common Stock.
F-22
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[Information as of and for the Periods Ended March 31,
1998 and 1999 is Unaudited]
Litigation
In June 1999, the Company received notice from a shareholder, threatening
to commence litigation, alledging that the Company failed to register his
stock. The shareholder is seeking the return of his investment in the
amount of $400,000 plus interest to date. The Company is seeking to settle
and is presently negotiating this matter. As present, management cannot
predict the outcome.
10% Convertible Debentures
In May 1999, the Company issued $1,000,000 of its 10% Convertible
Debentures to private investors. The Debentures were issued pursuant to
the terms of an agreement which further provides that, subject to certain
conditions, the Investors will purchase an additional $1,000,000 of
Debentures no later than five days after the effective date of a
registration statement covering the Common Stock into which the Debentures
may be converted. The Debentures mature on April 30, 2001.
The Debentures are convertible into shares of the Company's Common Stock
at a conversion rate based on the closing trading prices of the Common
Stock during certain specified periods, subject to certain minimum
conversion rates. In addition, upon conversion warrants will be issued to
purchase additional shares of Common Stock equal to one-half of the shares
of Common Stock issued. The warrants are exercisable at a price per share
equal to 120% of the conversion rate, subject to certain maximums and
expire in April 2002.
In connection with the sale of Debentures, the Company also issued
warrants to purchase up to 1.3 million shares of Common Stock to an
independent consultant. These warrants expire in April 2002 and are
exercisable at a nominal price per share.
F-23
<PAGE>
Prospective investors may rely only on the information contained in this
prospectus. Neither we nor the selling stockholders has authorized anyone to
provide prospective investors with information different from that contained in
this prospectus. The information in this prospectus is correct only as of the
date of this prospectus, regardless of the time of delivery of this prospectus
or any sale of these securities.
TTR TECHNOLOGIES, INC.
8,024,578 Shares Of Common Stock
---------------------
PROSPECTUS
---------------------
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, among other things,
and subject to certain conditions, authorizes TTR to indemnify its officers and
directors against certain liabilities and expenses incurred by such persons in
connection with the claims made against them as a result of their being an
officer or director. TTR's By-Laws provide that TTR will indemnify its
directors, executive officers, other officers, employees and agents to the
fullest extent permitted by Delaware law. TTR shall indemnify any person who is
or was a director or officer of TTR and is a party or is threatened to be made a
party to any action or proceeding to the fullest extent permitted by Delaware
law.
TTR's Certificate of Incorporation, as amended, provides for the
elimination of liability for monetary damages for breach of the director's
fiduciary duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to TTR, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provisions
does not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws
Item 25. Other Expenses of Issuance and Distribution.
The following expenses will be paid by TTR, and not the selling
stockholders, in connection with the distribution of the securities registered
hereby. All of such expenses, except for the SEC registration fee, are
estimated.
SEC Registration Fee........................$ 9,919
Legal Fees.................................. 50,000
Accountants' Fees and Expenses.............. 10,000
Printing Expenses........................... 7,000
Blue Sky Fees and Expenses.................. 1,000
Transfer Agent Fees and Expenses............ 1,000
Miscellaneous............................... 1,000
Total...............................$79,919
=======
Item 26. Recent Sales of Unregistered Securities.
The following paragraphs set forth certain information with respect to all
securities sold by TTR within the past three years without registration under
the Securities Act. The information includes the names of the purchasers, the
dates of issuance, the title and number of securities sold and the consideration
received by TTR for the issuance of these shares.
II-1
<PAGE>
1. (a) In September 1996, TTR agreed to issue 217,473 options to an
officer and director of TTR. The options are exercisable at $.01 per share until
September 2006 and are subject to a four-year vesting schedule. In connection
with such person's resignation in December 1998, we agreed that he will be
entitled to exercise options for a total of 169,145 shares.
(b) There were no underwriters with respect to the above
transaction.
(c) The options were issued in consideration of services rendered.
(d) TTR believes that the options were issued in a transaction not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act.
2. (a) From December 1996 through January 1997, TTR issued short-term 15%
promissory notes in an aggregate principal amount of $450,000 to certain
accredited investors.
(b) TTR paid fees in the aggregate amount of $45,000 to placement
agents.
(c) TTR believes that the notes were issued in a transaction not
involving a public offering in reliance upon an exemption from registration
provided by Sections 4(2) and 4(6) of the Securities Act, and Regulation D
promulgated thereunder.
3. (a) In connection with TTR's initial public offering, TTR issued to
First Metropolitan Securities, Inc. warrants to purchase up to 80,000 shares of
common stock at an exercise price per share of $11.20. In July 1998, the
Warrants were exchanged for 32,000 shares of common stock.
(b) There were no underwriters with respect to the above
transaction.
(c) The warrants were issued in consideration of services rendered.
(d) TTR believes that the warrants and the shares for which they
were exchanged were issued in transactions not involving a public offering in
reliance upon an exemption from registration provided by Section 4(2) of the
Securities Act.
4. (a) In March 1997, TTR issued 5,000 shares of common stock to a former
consultant to TTR.
(b) There were no underwriters with respect to the above
transaction.
(c) The shares were issued in consideration of services rendered.
(d) TTR believes that the shares 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.
II-2
<PAGE>
5. (a) In March 1997, TTR issued 50,000 shares of common stock to an
employee, of which 25,000 shares vested on July 31, 1997 and the remaining
25,000 shares vested on January 31, 1998.
(b) There were no underwriters with respect to the above
transaction.
(c) The shares were issued in consideration of services rendered.
(d) TTR believes that the shares 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.
6. (a) In April 1997, TTR issued 15,000 and 4,000 shares of common stock
to two private investors.
(b) There were no underwriters with respect to the above
transaction.
(c) The shares were issued in consideration of services rendered.
(d) TTR believes that the shares were issued in transactions not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act.
7. (a) In May 1997, TTR issued 15,000 shares of common stock to a former
consultant to TTR.
(b) There were no underwriters with respect to the above
transaction.
(c) The shares were issued in consideration of the settlement of a
lawsuit.
(d) TTR believes that the shares 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.
8. (a) In December 1997, TTR issued to a private investor 64,000 shares of
common stock and four year warrants to purchase 33,000 shares of common stock at
an exercise price per share of $7.80.
(b) There were no underwriters with respect to the above
transaction.
(c) The shares and warrants were issued in consideration of the
payment of $400,000.
(d) TTR believes that the shares and 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.
9. (a) In April 1998, TTR issued to a consultant four year warrants to
purchase 25,000 shares of common stock at an exercise price per share of $5 5/8.
II-3
<PAGE>
(b) There were no underwriters with respect to the above
transaction.
(c) The warrants were issued in consideration of services rendered.
(d) TTR believes that the warrants were issued in a transaction not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act.
10. (a) In July 1998, TTR completed a private placement of 10% promissory
notes for an aggregate amount of $1,462,500. In connection therewith TTR issued
warrants to purchase an aggregate of 336,375 shares of common stock at an
exercise price equal to 115% of the price per share of common stock in TTR's
then proposed public offering or as the date of grant if no offering took place
by December 31, 1998. The exercise price was subsequently amended to $1.50 per
share.
(b) TTR paid commissions to the placement agents of approximately
$96,000.
(c) TTR believes that the promissory notes and 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.
11. (a) In June 1998, TTR issued to three consultants a total of 125,000
shares of Common Stock and warrants for an additional 25,000 shares of common
stock. The warrants are exercisable at a price per share equal to $1.50.
(b) There were no underwriters with respect to the above
transaction.
(c) The shares and warrants were issued in consideration of services
rendered.
(d) TTR believes that the shares and 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.
12. (a) In July 1998 TTR issued to certain holders of warrants issued in
April 1996 an aggregate of 400,000 shares in exchange for warrants to purchase
up to 1,000,000 shares at an exercise price of $7.00.
(b) There were no underwriters with respect to the above
transaction.
(c) TTR believes that the shares 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.
13. (a) In September 1998, TTR issued to an investor 111,111 shares of
common stock for $100,000.
(b) There were no underwriters with respect to the above
transaction.
II-4
<PAGE>
(c) TTR believes that the shares 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.
14. (a) In October and November 1998, TTR issued to two consultants an
aggregate of 119,000 shares of common stock.
(b) There were no underwriters with respect to the above
transaction.
(c) TTR believes that the shares 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.
15. (a) In December 1998, TTR completed a private placement of an
aggregate of 45,000 shares of common stock and warrants to purchase an aggregate
of 15,000 shares of common stock at an exercise price of $6.00 per share.
(b) TTR paid commissions to placement agents of approximately
$19,500.
(c) TTR believes that the shares and 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.
16. (a) In December 1998, TTR issued to an investor 150,758 shares at a
price per share of $0.60.
(b) There were no underwriters with respect to the above
transaction.
(c) TTR believes that the warrants were issued in a transaction not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act.
17. (a) In January 1999, TTR issued to a consultant 297,000 shares of
common stock.
(b) There were no underwriters with respect to the above
transaction.
(c) TTR believes that the shares 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.
18. (a) In January 1999, TTR issued warrants to purchase up to 10,000
shares at an exercise price per share of $1.75 to a consultant and an aggregate
of 380,000 shares of common stock to three other consultants.
(b) There were no underwriters with respect to the above
transaction.
(c) TTR believes that the shares and 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.
II-5
<PAGE>
19. (a) In February 1999, TTR issued to certain employees warrants to
purchase an aggregate of 196,000 shares, at an exercise price per share of
$0.01.
(b) There were no underwriters with respect to the above
transaction.
(c) TTR believes that the warrants were issued in a transaction not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act.
20. (a) In February and March 1999, TTR issued to certain investors an
aggregate of 130,682 shares at a price per share of $0.86 and issued to a
consultant 200,000 shares of common stock.
(b) There were no underwriters with respect to the above
transactions.
(c) TTR believes that the shares 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.
21. (a) In April 1999 TTR issued to a consultant 75,000 shares at a price
of $0.60 per share.
(b) There were no underwriters with respect to the above
transaction.
(c) TTR believes that the options were issued in a transaction not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act.
22. (a) In May and July 1999, TTR issued $1,000,000 and $400,000,
respectively, in principal amount of its 10% Convertible Debentures due April
30, 2001 to certain private investors. Upon the conversion of the Debentures,
TTR is obligated to issue warrants to purchase up to the number of shares equal
to 50% of the shares issued upon such conversion, at an exercise price per share
equal to 120% of the conversion price.
(b) TTR paid commissions to a finder of approximately $128,000.
(c) TTR believes that the Debentures and 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.
23. (a) In May 1999 TTR issued to a consultant options to purchase up to
an aggregate of 1,300,000 shares at a nominal exercise price per share.
(b) There were no underwriters with respect to the above
transaction.
(c) TTR believes that the options were issued in a transaction not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act.
24. (a) In July 1999 TTR issued to a consultant warrants to purchase up to
an aggregate of 400,000 shares at an exercise price of $2.75 per share.
II-6
<PAGE>
(b) There were no underwriters with respect to the above
transaction.
(c) TTR believes that the warrants were issued in a transaction not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act.
25. (a) TTR issued, pursuant to its 1996 Option Plan, the following stock
options:
(i) In July 1996, TTR issued 5,000 options to a former
director of TTR. The options are exercisable at $6.00 per share until January
15, 2001.
(ii) In January through February 1997 TTR issued to eight
employees and two consultants options to purchase in the aggregate 34,000 shares
of common stock. The options are exercisable at $7.00 per share until 2006.
(iii) In March 1997, TTR issued to an employee (A)
non-qualified options to purchase up to 40,000 shares of common stock at an
exercise price per share of $10.00 and (B) incentive stock options to purchase
up to 60,000 shares of common stock at an exercise price per share of $5. The
options are exercisable until 2006.
(iv) In May 1997, TTR issued to a total of three consultants
and employees options to purchase 15,000, 5,000 and 3,000 shares of common
stock, respectively, at an exercise price per share equal to $13 7/8, $13 15/16
and $14 1/2, respectively. All of these issuances were subsequently canceled and
such consultants and employees were issued on December 31, 1997 options for an
identical number of shares of common stock at an exercise price per share of $5
13/16. The options are exercisable until 2006.
(v) In July and October 1997, TTR issued to a consultant and
an employee options to purchase 2,000 and 2,500 shares of common stock,
respectively, at an exercise price per share equal to $11 and $11 1/4,
respectively. Such issuances were subsequently canceled and the employees were
issued on December 31, 1997 options for an identical number of shares of common
stock at an exercise price per share of $5 13/16. The options are exercisable
until 2006.
(vi) In November 1997 TTR issued to an employee options to
purchase 1,600 shares of common stock, at an exercise price per share of $10
1/4. Such issuance was subsequently canceled and the employee was issued on
December 31, 1997 options for an identical number of shares of common stock at
an exercise price per share of $5 13/16. The options are exercisable until 2006.
(vii) In January 1998, TTR issued to a consultant options to
purchase 4,000 shares of common stock, at an exercise price per share of $5 7/8.
The options are exercisable until 2006.
(viii) In April 1998, TTR issued to employees options to
purchase an aggregate of 7,000 shares of common stock at an exercise price per
share of $5 3/8.
II-7
<PAGE>
(ix) In June 1998, TTR issued to an employee options to
purchase 4,000 shares of common stock at an exercise price per share of $4 5/8.
(x) In July 1998, TTR issued to an employee options to
purchase 250,000 shares of common stock at an exercise price per share of $2
15/16. In October 1998, these options were exchanged for options to purchase
250,000 shares at an exercise price of $15/16. In July 1999, TTR issued 150,000
shares in exchange for such options in connection with the termination of, and
settlement of certain claims by, such employee.
(xi) In June 1999, TTR issued to an employee options to
purchase 235,000 shares of common stock, vesting in 36 equal monthly
installments, for a nominal exercise price.
(b) There were no underwriters with respect to the above
transactions.
(c) The options were issued in consideration of services rendered.
(d) TTR believes that the securities were issued in transactions not
involving a public offering in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act.
II-8
<PAGE>
ITEM 27. EXHIBITS
3.1 Certificate of Incorporation of TTR, as amended.(3)
3.2 By-Laws of TTR, as amended.(3)
4.1 Specimen Common Stock Certificate. (1)
4.2.1 Form of 10% Convertible Debenture due April 30, 2001*
4.2.2 Form of 10% Promissory Note dated variously as of April through August
1998 between Registrant and each of certain investors, in an aggregate
principal amount of $1,462,500. (3)
4.2.3 Form of Promissory Note dated as of December, 1998 between Registrant
and each of certain investors, in an aggregate principal amount of
$150,000. (3)
Certain instruments which define the rights of holders of long-term debt of the
Registrant and its consolidated subsidiary have not been filed as Exhibits to
this Registration Statement since the total amount of securities authorized
under any such instrument does not exceed 10% of the total assets of the Company
and its subsidiary on a consolidated basis, as of June 30, 1999.
4.3 Form of Common Stock Purchase Warrant.*
4.4.1 Warrant Agreement dated as of May 25, 1999 between Registrant and Wall
& Broad Equities, Inc.*
4.4.2 Warrant Agreement dated as of December 23,1997 between Registrant and
Biscount Overseas Ltd.(2)
4.4.3 Warrant Agreement dated as of February 26, 1998 between Registrant and
Biscount Overseas Ltd. (2)
4.4.4 Warrant dated January 15, 1998 between Registrant and Mu & Kang
Consultants.(3)
4.4.5 Warrant Agreement dated as of June 11, 1998 between Registrant and
Plans, Inc.*
4.4.6 Warrant Agreement dated as of July 31, 1999 between Registrant and K &
D Equities Inc.*
4.4.7 Form of Warrant dated as of December 1998 between Registrant and
certain private investors.(3)
4.4.8 Form of Warrant variously dated April through August 1998 between
Registrant and certain private investors. (3)
4.4.9 Warrant dated June 11, 1998 between Registrant and Plans, Inc.(3)
5.1 Opinion of Golenbock, Eiseman, Assor & Bell.**
9.1 Voting Trust Agreement.(1)
9.2 Instrument terminating Voting Trust Agreement.*
10.1 Financial Consulting Agreement with Josephthal & Co., Inc. (3)
10.2 1996 Incentive and Non-Qualified Stock Option Plan, as amended.(3)
10.3 Non-Executive Directors Stock Option Plan. (3)
10.4 Employment Agreement between TTR Technologies Ltd. and Marc D.
Tokayer.(1)
10.5 Employment Agreement between TTR Technologies Ltd. and Baruch
Sollish.(1)
10.6 Employment Agreement between TTR Technologies Ltd. and Arik Shavit, as
amended.(1)
10.7 Employment Agreement between TTR Technologies Inc. and Steven L. Barsh.
(3)
10.8 Unprotected Tenancy Agreement between TTR Technologies Ltd. and
Pharmastate Ltd. dated June 10, 1996.(1)
10.9 Consulting Agreement dated November 1, 1994 between TTR and Shane
Alexander Unterburgher Securities Inc.(1)
10.10 Consulting Agreement dated October 1, 1995 between TTR and Holborn
Systems Ltd.(1)
II-9
<PAGE>
10.11 Loan and Security Agreement dated September 30, 1996 between TTR and
732498 Ontario Ltd.(1)
10.12 Form of Note Extension Agreement.(1)
10.13 Form of Promissory Note. (1)
10.14 Settlement Agreement dated May 6, 1997 between TTR and Henry Israel.(2)
10.15 Agreement dated January 19, 1998 between TTR and Henry Israel.(2)
10.16 Development and OEM Licensing Agreement dated October 31, 1997 between
TTR and Doug Carson & Associates Inc.(2)
10.17 Development and OEM Licensing Agreement dated October 31, 1997 between
TTR, Doug Carson & Associates Inc. and Nimbus CD International, Inc.(2)
10.18 Management Agreement dated October 1, 1997 between TTR and Ultimus
Ltd.(2)
10.19 Stock Purchase Agreement dated December 20, 1997 between TTR and
Biscount Overseas Ltd.(2)
10.20 Consulting Agreement between TTR and Pioneer Management Corporation.(1)
10.21 Purchase Agreement and Assignment dated January 5, 1995 between TTR
Israel and Rina Marketing R&D Ltd.(1)
10.22 Form of Securities Purchase Agreement between TTR and certain
securityholders dated as of May 13, 1999.*
10.23 Form of Registration Rights Agreement dated as of May 13, 1999 between
TTR and certain investors.*
10.24 Form of Subscription Agreement dated as of December 1998 between TTR
and certain investors. (3)
10.25 Form of Subscription Agreement dated variously as of April through
August 1998 between TTR and certain investors.(3)
10.26 Agreement dated as of July 27, 1999 between Registrant and Arik
Shavit.*
10.27 Agreement dated as of July 27, 1999 between Registrant and Steven C.
Barsh.*
10.28 Consulting Agreement between Registrant and Jarvis Developments Ltd.
dated November 20, 1998 and amendment thereto dated January 28, 1999.*
10.29 Consulting Agreement between Registrant and Biscount Overseas Ltd.
dated October 1, 1998.(3)
10.30 Consulting Agreement between Registrant and Mordecai Lerer dated
January 28, 1999.(3)
10.31 Settlement Agreement between Registrant and Ephod Israel Group dated
January 28, 1999.(3)
10.32 Consulting Agreement between Registrant and CYGNI S.A. dated January
28, 1999.(3)
10.33 Marketing Agreement between Registrant and Machtec Ltd.(3)
10.34 Stock Purchase Agreement between Registrant and Dalimore Consulting
Ltd. dated December 10, 1998.(3)
10.35 Stock Purchase Agreement between Registrant and Abraham Stephansky
dated February 1, 1999.(3)
10.36 Stock Purchase Agreement between Registrant and Parnell Ltd. dated
April 1, 1999.(3)
10.37 Consulting Agreement between Registrant and Limelkin Ltd. dated June 1,
1998.(3)
10.38 Consulting Agreement between Registrant and Trax Investments Ltd. dated
June 11, 1998.(3)
10.39 Consulting Agreement between Registrant and Plans Inc. dated June 11,
1998.(3)
II-10
<PAGE>
10.40 Lease between Registrant and Peppertree Properties, Inc. dated January
23, 1999.*
16.1 Letter on change in certifying accountant.*
21.1 Subsidiaries of TTR.*
23.1 Consent of Golenbock, Eiseman, Assor & Bell (included in Exhibit
5.1).**
23.2 Consent of Brightman Almagor & Co., a member of Deloitte Touche
Tohmatsu, certified public accountants.*
24.1 Powers of Attorney (included on page II-13).*
27.1 Financial Data Schedule.*
- ----------
* Filed herewith.
** To be filed.
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form
SB-2, dated February 10, 1997, No. 333-11829, and incorporated herein by
reference.
(2) Filed as an Exhibit to the Registrant's Annual Report on Form 10-KSB filed
for the Year ended December 31, 1997 and incorporated herein by reference.
(3) Filed as an Exhibit to the Registrant's Annual Report on Form 10-KSB filed
for the Year ended December 31, 1998, No. 0-22055, and incorporated herein
by reference.
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
II-11
<PAGE>
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant further undertakes that it will:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) include any additional or changed material information on the
plan of distribution;
(2) for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at the time
to be the initial bona fide offering; and
(3) file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-12
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned in the City of New York,
State of New York, on August 11, 1999.
TTR TECHNOLOGIES, INC.
By: /s/ MARC D. TOKAYER
----------------------------------
MARC D. TOKAYER,
CHAIRMAN OF THE BOARD AND
PRESIDENT (PRINCIPAL EXECUTIVE AND
FINANCIAL OFFICER AND OFFICER DULY
AUTHORIZED TO SIGN ON BEHALF
OF REGISTRANT)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below constitutes and appoints Marc D. Tokayer, or David
Aboudi, or either of them, as his true and lawful attorneys-in-fact and agents,
with full powers of substitution and resubstitution, for him and in his name,
place and stead, to sign in any and all capacities any and all amendments
(including post-effective amendments) to this Registration Statement on Form
SB-2 and to file the same, with all exhibits thereto and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ MARK D. TOKAYER Chairman of the Board and
- ---------------------- President (Principal Executive
MARC D. TOKAYER and Financial Officer) August 11, 1999
/s/ BARUCH SOLLISH Vice President -- Research and
- ---------------------- Development, Chief Technology
BARUCH SOLLISH Officer and Director August 11, 1999
II-13
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED
AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE
HARBOR THEREFROM.
NNo. 99- US $
----------
TTR TECHNOLOGIES, INC.
10% CONVERTIBLE DEBENTURE DUE APRIL 30, 2001
THIS DEBENTURE is one of a duly authorized issue of up to $2,000,000 in
Debentures of TTR TECHNOLOGIES, INC. (formerly known as TTR INC.), a corporation
organized and existing under the laws of the State of Delaware (the "Company")
designated as its 10% Convertible Debentures. Such Debentures may be issued in
series, each of which may have a different maturity date, but which otherwise
have substantially similar terms.
FOR VALUE RECEIVED, the Company promises to pay to , the registered
holder hereof (the "Holder"), the principal sum of and 00/100 Dollars (US $ ) on
April 30, 2001 (the "Maturity Date") and to pay interest on the principal sum
outstanding from time to time in arrears (i) prior to the Maturity Date,
quarterly, on the last day of March, June, September and December of each year,
(ii) upon conversion as provided herein or (iii) on the Maturity Date, at the
rate of 10% per annum accruing from the , 1999,1 the date of initial issuance of
this Debenture. Accrual of interest shall commence on the first such business
day to occur after the date hereof and shall continue to accrue on a daily basis
until payment in full of the principal sum has been made or duly provided for.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Twenty-five Thousand
Dollars (US$25,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder surrendering the same. No
service charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions
- --------------
1 Insert relevant Closing Date.
<PAGE>
of the United States income tax laws or other applicable laws at the time of
such payments, and Holder shall execute and deliver all required documentation
in connection therewith.
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of any proposed
transfer of this Debenture, the Company may require, prior to issuance of a new
Debenture in the name of such other person, that it receive reasonable transfer
documentation including legal opinions that the issuance of the Debenture in
such other name does not and will not cause a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
4. A. The Holder of this Debenture is entitled, at its option, subject
to the following provisions of this Section 4, to convert all or a portion of
this Debenture into shares of Common Stock of the Company, $.001 par value per
share ("Common Stock") of the Company at any time until the Maturity Date
(except as contemplated by Section 5 hereof), at a conversion price for each
share of Common Stock (the "Conversion Rate") equal to the greater of
(i) the Initial Market Price (which amount is subject to adjustment as
hereinafter provided; the "Base Price") or the Current Market Price (as
those terms are defined below), whichever is lower; or
(ii) the Floor Price (as defined below);
provided that the principal amount being converted is the lower of (x) at least
Twenty-five Thousand Dollars [US $25,000] (unless if at the time of such
election to convert the aggregate principal amount of all Debentures registered
to the Holder is less than Twenty-five Thousand Dollars [US $25,000], then the
whole amount thereof) or (y) the maximum amount which the Holder can then
convert pursuant to the terms of Section 4(E) hereof .
B. For purposes of this Debenture, the following terms have the
meanings indicated below:
(i) "Market Price of the Common Stock" means (x) the closing price of
the Common Stock, which, unless the relevant provision indicates that it is
applicable to one or more specific days without regard to any averages (such as,
but not limited to the definition of "Floor Price" below), shall be calculated
as the average of such closing price for any three (3) trading days selected by
the Holder from the thirty (30) trading days ending on the trading day
immediately before the relevant date indicated in the relevant provision hereof,
as reported by Bloomberg, LP or, if not so reported, as reported on the
over-the-counter market or (y) if the
2
<PAGE>
Common Stock is listed on a stock exchange, the closing price on such exchange,
which, unless the relevant provision indicates that it is applicable to a period
of one or more specific days (such as, but not limited to the definition of
"Floor Price" below), shall be based on any date selected by the Holder from the
thirty (30) trading days ending on the trading day immediately before the
relevant date indicated in the relevant provision hereof, as reported in The
Wall Street Journal.
(ii) "Initial Market Price" means the Market Price of the Common Stock
as of the Initial Closing Date (as that term is defined in the Securities
Purchase Agreement defined below).
(iii) "Current Market Price" means the Market Price of the Common Stock
as of the relevant Conversion Date (as defined below).
(iv) "Floor Price" shall mean seventy-five cents ($0.75), unless (a)
the Market Price of the Common Stock for each of thirty consecutive trading days
is seventy-five cents ($0.75) or lower, in which event the "Floor Price" shall
be fifty cents ($0.50) or (b) the Market Price of the Common Stock for each of
thirty consecutive trading days (without regard to any averages) is fifty cents
($0.50) or lower, in which event the "Floor Price" shall be twenty-five cents
($0.25); provided, however, that the Floor Price shall be subject to adjustment
as provided herein.
C. Conversion shall be effectuated by surrendering the Debentures to be
converted to the Company or to the Company's transfer agent, North American
Transfer Company, accompanied by or preceded by facsimile or other delivery to
the Company of the form of conversion notice attached hereto as Exhibit A,
executed by the Holder of the Debenture evidencing such Holder's intention to
convert this Debenture or a specified portion hereof, and accompanied, if
required by the Company, by proper assignment hereof in blank. Subject to the
provisions of Section 4(E) hereof, interest accrued or accruing from the date of
issuance to the date of conversion shall, at the option of the Company, be paid
in cash or Common Stock upon conversion at the Conversion Rate applicable to
such conversion. No fractional shares of Common Stock or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. The date on which notice
of conversion is given (the "Conversion Date") shall be deemed to be the date on
which the Holder faxes or otherwise delivers the conversion notice ("Notice of
Conversion"), substantially in the form annexed hereto as Exhibit A, duly
executed, to the Company, provided that the Holder shall deliver to the
Company's transfer agent or the Company the original Debentures being converted
within five (5) business days thereafter (and if not so delivered with such
time, the Conversion Date shall be the date on which the later of the Notice of
Conversion and the original Debentures being converted is received by the
Company). Facsimile delivery of the Notice of Conversion shall be accepted by
the Company at facsimile number (212) 333-7891 ; ATTN: Robert Friedman.
Certificates representing Common Stock upon conversion will be delivered within
three (3) business days if the address for delivery is in the United States (and
within eight (8) business days if the
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<PAGE>
address for delivery is outside the United States) from the date later of the
Notice of Conversion is delivered to the Company as contemplated in the first
sentence of this paragraph C or the original Debenture is delivered to the
Company's transfer agent or to the Company.
D. Anything herein to the contrary notwithstanding, in the event the
Company breaches the provisions of Section 4(g) of the Securities Purchase
Agreement, the Conversion Rate shall be amended to be equal to (i) 90% of (ii)
the Conversion Rate determined in accordance with the other provisions of this
Debenture without regard to this Section 4(D), and the Holder may require the
Company to immediately redeem the outstanding portion of this Debenture in
accordance with clause (y) of Section 6 hereof.
E. Notwithstanding any other provision hereof, of the Warrants or of
any of the other Transaction Agreements (as those terms are defined in the
Securities Purchase Agreement), in no event (except (i) with respect to an
automatic conversion, if any, of a Debenture as provided in the Debentures or a
conversion pursuant to a Redemption Notice Conversion [as defined below], (ii)
as specifically provided in this Debenture as an exception to this provision, or
(iii) while there is outstanding a tender offer for any or all of the shares of
the Company's Common Stock), shall the Holder be entitled to convert any
Debenture, or shall the Company have the obligation to convert all or any
portion of this Debenture (and the Company shall not have the right to pay
interest on this Debenture), to the extent that, after such conversion, the sum
of (1) the number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debentures or unexercised portion of the Warrants), and (2) the number of shares
of Common Stock issuable upon the conversion of the Debentures with respect to
which the determination of this proviso is being made, would result in
beneficial ownership by the Holder and its affiliates of more than 9.99% of the
outstanding shares of Common Stock (after taking into account the shares to be
issued to the Holder upon such conversion). For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such sentence.
The Holder, by its acceptance of this Debenture, further agrees that if the
Holder transfers or assigns any of the Debentures to a party who or which would
not be considered such an affiliate, such assignment shall be made subject to
the transferee's or assignee's specific agreement to be bound by the provisions
of this Section 4(E) as if such transferee or assignee were the original Holder
hereof.
5. A. (i) Notwithstanding any other provision hereof to the contrary,
at any time prior to the Conversion Date, the Company shall have the right to
redeem all or any portion of the then outstanding principal amount of the
Debentures then held by the Holder in cash for an amount (the "Redemption
Amount") equal to the sum of (a) such outstanding principal of the Debentures
plus all accrued but unpaid interest thereon through the date the Redemption
Amount is paid to the Holder (the "Redemption Payment Date"), plus (b) the
Redemption Premium (as defined below).
(ii) The "Redemption Premium" shall be an amount equal to the excess,
if any, of (a) an amount equal to (I) the number of shares of Common Stock into
which the Holder
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<PAGE>
could have converted the Debentures being redeemed had the Holder effected such
conversion on the Redemption Payment Date, multiplied by (II) the closing
transaction sale price of the Common Stock on the trading day immediately
preceding the Redemption Payment, over (b) the principal of the Debentures so
redeemed.
(iii) The Company shall give at least ten (10) business days' written
notice of such redemption to the Holder (the "Notice of Redemption"). The date
so specified in such Notice of Redemption shall be the Redemption Payment Date.
Anything in the preceding provisions of this Section 5 to the contrary
notwithstanding, the Redemption Amount shall, unless otherwise agreed to in
writing by the Holder after receiving the Notice of Redemption, be paid to the
Holder in good funds at least five (5) but not more than ten (10) business days
from the date of the Notice of Redemption, except that, with respect to any
Debentures for which a Notice of Redemption is given, the Holder shall have the
right, exercisable by giving a Notice of Conversion is submitted to the Company
within five (5) business days of the Holder's receipt of the Company's Notice of
Redemption, to convert any or all of the Debentures sought to be redeemed (a
"Redemption Notice Conversion") and the Redemption Notice Conversion shall take
precedence over the redemption contemplated by the Notice of Redemption. Such
Debentures shall be converted in accordance with the terms hereof. Furthermore,
in the event such Redemption Amount is not timely made, any rights of the
Company to redeem outstanding Debentures shall terminate, and the Notice of
Redemption shall be null and void. Any redemption contemplated by this Debenture
shall be made only in cash by the payment of immediately available good funds to
the Holder.
B. Any Debentures not previously converted as of the Maturity Date,
shall be deemed to be automatically converted, without further action of any
kind by the Company or any of its agents, employees or representatives, as of
the Maturity Date at the Conversion Rate applicable on the Maturity Date
("Mandatory Conversion").
6. The Holder recognizes that the Company may be limited in the number
of shares of Common Stock it may issue by (i) reason of its authorized shares,
or (ii) the applicable rules and regulations of the principal securities market
on which the Common Stock is listed or traded (collectively, the"Cap
Regulations"). Without limiting the other provisions hereof, (i) the Company
will take all steps reasonably necessary to be in a position to issue shares of
Common Stock on conversion of the Debentures without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still can not
issue such shares of Common Stock without violating the Cap Regulations, the
Holder of this Debenture (to the extent the same can not be converted in
compliance with the Cap Regulations (an "Unconverted Debenture"), shall have the
option, exercisable in the Holder's sole and absolute discretion, to elect any
one of the following remedies:
(x) require the Company to issue shares of Common Stock in
accordance with such Holder's Notice of Conversion relating to the
Unconverted Debenture at a conversion purchase price equal to the
average of the closing price per share of Common Stock for any five
(5) consecutive trading days (subject to the equitable
5
<PAGE>
adjustments for certain events occurring during such period as
provided in this Debenture) during the sixty (60) trading days
immediately preceding the date of the Notice of Conversion; or
(y) require the Company to redeem each Unconverted Debenture for
an amount (the "Cap Redemption Amount"), payable in cash, equal to:
V x M
-----
CP
where:
"V" means the outstanding principal plus accrued interest through
the Cap Redemption Date (as defined below) of an Unconverted
Debenture;
"CP" means the Conversion Rate in effect on the date of
redemption (the "Cap Redemption Date") specified in the notice from
the Holder electing this remedy; and
"M" means the highest closing price during the period beginning
on the Cap Redemption Date and ending on the date of payment of the
Cap Redemption Amount.
The holder of an Unconverted Debenture may elect one of the above remedies with
respect to a portion of such Unconverted Debenture and the other remedy with
respect to other portions of the Unconverted Debenture.
7. Subject to the terms of the Securities Purchase Agreement, dated
May, 1999 (the "Securities Purchase Agreement"), between the Company and the
Holder (or the Holder's predecessor in interest), no provision of this Debenture
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on, this Debenture at the
time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture and all other Debentures now or hereafter issued of similar terms are
direct obligations of the Company.
8. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
9. If the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person and
the holders of the Common
6
<PAGE>
Stock are entitled to receive stock, securities or property in respect of or in
exchange for Common Stock, then as a condition of such merger, consolidation,
sale or transfer, the Company and any such successor, purchaser or transferee
agree that the Debenture may thereafter be converted on the terms and subject to
the conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which this Debenture might
have been converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly equivalent as may be
practicable. In the event of any proposed merger, consolidation or sale or
transfer of all or substantially all of the assets of the Company (a "Sale"),
the Holder hereof shall have the right to convert by delivering a Notice of
Conversion to the Company within fifteen (15) days of receipt of notice of such
Sale from the Company. In the event the Holder hereof shall elect not to
convert, the Company may (but shall not be required to) prepay all outstanding
principal and accrued interest on this Debenture by paying the Redemption Amount
contemplated by Section 5(A) hereof, less all amounts required by law to be
deducted, upon which tender of payment following such notice, the right of
conversion shall terminate.
10. If, for any reason, prior to the Conversion Date or the Redemption
Payment Date, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes all or of a part of its assets in a
transaction (the "Spin Off") in which the Company does not receive compensation
(other than nominal non-material compensation) for such business, operations or
assets, but causes securities of another entity (the "Spin Off Securities") to
be issued to security holders of the Company, then the Company shall cause (i)
to be reserved Spin Off Securities equal to the number thereof which would have
been issued to the Holder had all of the Holder's Debentures outstanding on the
record date (the "Record Date") for determining the amount and number of Spin
Off Securities to be issued to security holders of the Company (the "Outstanding
Debentures") been converted as of the close of business on the trading day
immediately before the Record Date (the "Reserved Spin Off Shares"), and (ii) to
be issued to the Holder on the conversion of all or any of the Outstanding
Debentures, such amount of the Reserved Spin Off Shares equal to (x) the
Reserved Spin Off Shares multiplied by (y) a fraction, of which (I) the
numerator is the principal amount of the Outstanding Debentures then being
converted, and (II) the denominator is the principal amount of the Outstanding
Debentures.
11. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common Stock or issues a dividend on its Common Stock consisting of shares of
Common Stock, the Base Price and the Floor Price shall be equitably adjusted to
reflect such action. By way of illustration, and not in limitation, of the
foregoing (i) if the Company effectuates a 2:1 split of its Common Stock,
thereafter, with respect to any conversion for which the Company issues the
shares after the record date of such split, the Base Price shall be
7
<PAGE>
deemed to be one-half of what it had been calculated to be immediately prior to
such split and the Floor Price shall be deemed to be one-half of what it had
been immediately prior to such split; (ii) if the Company effectuates a 1:10
reverse split of its Common Stock, thereafter, with respect to any conversion
for which the Company issues the shares after the record date of such reverse
split, the Base Price shall be deemed to be ten times what it had been
calculated to be immediately prior to such split and the Floor Price shall be
deemed to be ten times what it had been immediately prior to such split; and
(iii) if the Company declares a stock dividend of one share of Common Stock for
every 10 shares outstanding, thereafter, with respect to any conversion for
which the Company issues the shares after the record date of such dividend, the
Base Price shall be deemed to be the amount of such Base Price calculated
immediately prior to such record date multiplied by a fraction, of which the
numerator is the number of shares (10) for which a dividend share will be issued
and the denominator is such number of shares plus the dividend share(s) issuable
or issued thereon (11) and the Floor Price shall be deemed to be the Floor Price
immediately prior to such record date multiplied by the same fraction.
12. All payments contemplated hereby to be made "in cash" shall be made
in immediately available good funds in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts. All payments of cash and each delivery of shares of
Common Stock issuable to the Holder as contemplated hereby shall be made to the
Holder at the address last appearing on the Debenture Register of the Company as
designated in writing by the Holder from time to time; except that the Holder
can designate, by notice to the Company, a different delivery address for any
one or more specific payments or deliveries.
13. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
14. This Debenture shall be governed by and construed in accordance
with the laws of the State of Delaware. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of Wilmington or the state courts of the State of Delaware sitting in the
City of Wilmington in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non coveniens, to the bringing of any
such proceeding in such jurisdictions. To the extent determined by such court,
the Company shall reimburse the Holder for any reasonable legal fees and
disbursements incurred by the Holder in enforcement of or protection of any of
its rights under any of this Debenture.
15. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or
interest on this Debenture and same shall continue for a
period of five (5) days; or
b. Any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, the
Registration Rights Agreement or in any certificate or
financial or other written statements heretofore or
8
<PAGE>
hereafter furnished by the Company in connection with the
execution and delivery of this Debenture or the Securities
Purchase Agreement shall be false or misleading in any
material respect at the time made; or
c. The Company fails to issue shares of Common Stock to the
Holder or to cause its Transfer Agent to issue shares of
Common Stock upon exercise by the Holder of the conversion
rights of the Holder in accordance with the terms of this
Debenture, fails to transfer or to cause its Transfer Agent
to transfer any certificate for shares of Common Stock
issued to the Holder upon conversion of this Debenture and
when required by this Debenture or the Registration Rights
Agreement, and such transfer is otherwise lawful, or fails
to remove any restrictive legend or to cause its Transfer
Agent to transfer on any certificate or any shares of Common
Stock issued to the Holder upon conversion of this Debenture
as and when required by this Debenture, the Agreement or the
Registration Rights Agreement and such legend removal is
otherwise lawful, and any such failure shall continue
uncured for five (5) business days.
d. The Company shall fail to perform or observe, in any
material respect, any other covenant, term, provision,
condition, agreement or obligation of any Debenture in this
series and such failure shall continue uncured for a period
of thirty (30) days after written notice from the Holder of
such failure; or
e. The Company shall fail to perform or observe, in any
material respect, any covenant, term, provision, condition,
agreement or obligation of the Company under the Securities
Purchase Agreement or the Registration Rights Agreement and
such failure shall continue uncured for a period of thirty
(30) days after written notice from the Holder of such
failure (other than a failure to cause the Registration
Statement to become effective no later than the Required
Effective Date, as defined and provided in the Registration
Rights Agreement, as to which no such cure period shall
apply); or
f. The Company shall (1) admit in writing its inability to pay
its debts generally as they mature; (2) make an assignment
for the benefit of creditors or commence proceedings for its
dissolution; or (3) apply for or consent to the appointment
of a trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
g. A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or
business without its consent and shall not be discharged
within sixty (60) days after such appointment; or
9
<PAGE>
h. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any
substantial portion of the properties or assets of the
Company and shall not be dismissed within sixty (60) days
thereafter; or
i. Any money judgment, writ or warrant of attachment, or
similar process in excess of Two Hundred Thousand ($200,000)
Dollars in the aggregate shall be entered or filed against
the Company or any of its properties or other assets and
shall remain unpaid, unvacated, unbonded or unstayed for a
period of sixty (60) days or in any event later than five
(5) days prior to the date of any proposed sale thereunder;
or
j. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty
(60) days after such institution or the Company shall by any
action or answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations of, or
default in answering a petition filed in any such
proceeding; or
k. The Company shall have its Common Stock suspended or
delisted from an exchange or over-the-counter market from
trading for in excess of twenty (20) trading days.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
16. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
17. In the event for any reason, any payment by or act of the Company
or the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, the ipso facto the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
10
<PAGE>
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or by the Company or the Holder, be deemed
applied to the payment of principal, if any, hereunder immediately upon receipt
of such excess funds by the Holder, with the same force and effect as though the
Company had specifically designated such sums to be so applied to principal and
the Holder had agreed to accept such sums as an interest-free prepayment of this
Debenture. If any part of such excess remains after the principal has been paid
in full, whether by the provisions of the preceding sentences of this Section 17
or otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section 17 shall control every other
provision of this Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: __________________, 1999
TTR TECHNOLOGIES, INC.
By: ____________________________
----------------------------
(Print Name)
----------------------------
(Title)
11
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________
of the principal amount of the above Debenture No. ___ into Shares of Common
Stock of TTR TECHNOLOGIES, INC. (the "Company") according to the conditions
hereof, as of the date written below.
Conversion Date*
- -------------------------------------------------------------------
Applicable Conversion Price
- -----------------------------------------------------------
Signature
- --------------------------------------------------------------------
[Name]
Address:
- --------------------------------------------------------------------
- --------------------------------------------------------------------
* This original Debenture must be received by the Company or its transfer agent
by the fifth business date following the Conversion Date.
12
ANNEX VI
TO
SECURITIES PURCHASE AGREEMENT
PROTOTYPE FOR EACH ISSUANCE
FORM OF WARRANT
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A TRANSFER
MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH
TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
TTR TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions. In consideration of good and valuable
consideration, the receipt of which is hereby acknowledged by TTR TECHNOLOGIES,
INC. (formerly known as TTR INC.), a Delaware corporation (the "Company"), or
registered assigns (the "Holder") is hereby granted the right to purchase at any
time until 5:00 P.M., New York City time, on April 30, 2002 (the "Expiration
Date"), _____________ Thousand ( )1 fully paid and nonassessable shares of the
Company's Common Stock, par value $.001 per share (the "Common Stock") at an
initial exercise price per share (the "Exercise Price") $____,2 subject to
further adjustment as set forth herein. This Warrant is being issued pursuant to
the terms of that certain Securities Purchase Agreement, dated as of May __,
1999 (the "Securities Purchase Agreement"), to which the Company and Holder (or
Holder's predecessor in interest) are parties.
2. Exercise of Warrants.
2.1 General. This Warrant is exercisable in whole or in part at any
time and from time to time at the Exercise Price per share of Common Stock
payable hereunder, payable in cash or by certified or official bank check,
by means of tendering this Warrant Certificate to the Company. Upon
surrender of this Warrant Certificate with the annexed Notice of Exercise
Form duly executed (which Notice of Exercise Form may be submitted either
by delivery to the Company or by facsimile transmission as provided in
Section 8 hereof), together with payment of the Exercise Price for the
shares of Common Stock purchased, the Holder shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased.
- --------------
1 One share for every 2 shares acquired on conversion of Debentures.
2 Price to be filled in equal to 120% of Conversion Rate, but not more than
125% of Base Price (as defined in Debentures).
<PAGE>
2.2 Limitation on Exercise. Notwithstanding the provisions of this
Warrant, the Securities Purchase Agreement or of the other Transaction
Agreements (as defined in the Securities Purchase Agreement), in no event
(except (i) with respect to an automatic conversion, if any, of a Debenture
as provided in the Debentures or a conversion pursuant to a Redemption
Notice Conversion [as defined in the Debentures], (ii) as specifically
provided in this Warrant as an exception to this provision, or (iii) while
there is outstanding a tender offer for any or all of the shares of the
Company's Common Stock) shall the Holder be entitled to exercise this
Warrant, or shall the Company have the obligation to issue shares upon such
exercise of all or any portion of this Warrant, to the extent that, after
such exercise the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership
of the unconverted portion of the Debentures or unexercised portion of the
Warrants), and (2) the number of shares of Common Stock issuable upon the
exercise of the Warrants with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Holder
and its affiliates of more than 9.99% of the outstanding shares of Common
Stock (after taking into account the shares to be issued to the Holder upon
such exercise). For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), except as otherwise provided in clause (1) of such sentence. The
Holder, by its acceptance of this Warrant, further agrees that if the
Holder transfers or assigns any of the Warrants to a party who or which
would not be considered such an affiliate, such assignment shall be made
subject to the transferee's or assignee's specific agreement to be bound by
the provisions of this Section 2.2 as if such transferee or assignee were
the original Holder hereof.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Protection Against Dilution.
2
<PAGE>
6.1 Adjustment Mechanism. If an adjustment of the Exercise Price is
required pursuant to this Section 6, the Holder shall be entitled to
purchase such number of additional shares of Common Stock as will cause (i)
the total number of shares of Common Stock Holder is entitled to purchase
pursuant to this Warrant, multiplied by (ii) the adjusted purchase price
per share, to equal (iii) the dollar amount of the total number of shares
of Common Stock Holder is entitled to purchase before adjustment multiplied
by the total purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment
affecting the Common Stock of the Company, the provisions of this Section 6
shall be applied as if such capital adjustment event had occurred
immediately prior to the date of this Warrant and the original purchase
price had been fairly allocated to the stock resulting from such capital
adjustment; and in other respects the provisions of this Section shall be
applied in a fair, equitable and reasonable manner so as to give effect, as
nearly as may be, to the purposes hereof. A rights offering to stockholders
shall be deemed a stock dividend to the extent of the bargain purchase
element of the rights.
6.3 Adjustment for Spin Off. If, for any reason, prior to the exercise
of this Warrant in full, the Company spins off or otherwise divests itself
of a part of its business or operations or disposes all or of a part of its
assets in a transaction (the "Spin Off") in which the Company does not
receive compensation (other than nominal non-material compensation) for
such business, operations or assets, but causes securities of another
entity (the "Spin Off Securities") to be issued to security holders of the
Company, then the Company shall cause (a) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to the
Holder had all of the Holder's unexercised Warrants outstanding on the
record date (the "Record Date") for determining the amount and number of
Spin Off Securities to be issued to security holders of the Company (the
"Outstanding Warrants") been exercised as of the close of business on the
trading day immediately before the Record Date (the "Reserved Spin Off
Shares"), and (b) to be issued to the Holder on the exercise of all or any
of the Outstanding Warrants, such amount of the Reserved Spin Off Shares
equal to (i) the Reserved Spin Off Shares multiplied by (ii) a fraction, of
which (x) the numerator is the amount of the Outstanding Warrants then
being exercised, and (y) the denominator is the amount of the Outstanding
Warrants.
7. Transfer to Comply with the Securities Act; Registration Rights.
3
<PAGE>
7.1 Transfer. This Warrant has not been registered under the
Securities Act of 1933, as amended, (the "Act") and has been issued to the
Holder for investment and not with a view to the distribution of either the
Warrant or the Warrant Shares. Neither this Warrant nor any of the Warrant
Shares or any other security issued or issuable upon exercise of this
Warrant may be sold, transferred, pledged or hypothecated in the absence of
an effective registration statement under the Act relating to such security
or an opinion of counsel satisfactory to the Company that registration is
not required under the Act. Each certificate for the Warrant, the Warrant
Shares and any other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form and substance
satisfactory to counsel for the Company, setting forth the restrictions on
transfer contained in this Section.
7.2 Registration Rights. (a) Reference is made to the Registration
Rights Agreement (as that term is defined in the Securities Purchase
Agreement). The Company's obligations under the Registration Rights
Agreement and the other terms and conditions thereof with respect to the
Warrant Shares, including, but not necessarily limited to, the Company's
commitment to file a registration statement including the Warrant Shares,
to have the registration of the Warrant Shares completed and effective, and
to maintain such registration, are incorporated herein by reference.
(b) In addition to the registration rights referred to in the
preceding provisions of Section 7.2(a), effective after the expiration of
the effectiveness of the Registration Statement as contemplated by the
Registration Rights Agreement, the Holder shall have demand piggy-back
registration rights with respect to the Warrant Shares then held by the
Holder or then subject to issuance upon exercise of this Warrant
(collectively, the "Remaining Warrant Shares"), subject to the conditions
set forth below. If, at any time after the Registration Statement has
ceased to be effective, the Company participates (whether voluntarily or by
reason of an obligation to a third party) in the registration of any shares
of the Company's stock, the Company shall give written notice thereof to
the Holder and the Holder shall have the right, exercisable within ten (10)
business days after receipt of such notice, to demand inclusion of all or a
portion of the Holder's Remaining Warrant Shares in such registration
statement. If the Holder exercises such election, the Remaining Warrant
Shares so designated shall be included in the registration statement at no
cost or expense to the Holder (other than any costs or commissions which
would be borne by the Holder under the terms of the Registration Rights
Agreement). The Holder's rights under this Section 7.2 are subject to the
following conditions:
(x) under no circumstances will the Aggregate Remaining Warrant Shares
(as defined below) included in such registration statement exceed
twenty percent (20%) of the all the shares (including the Aggregate
Remaining Warrant Shares) included in such registration statement; and
(y) if there is a managing underwriter of the offering of shares
referred to in the registration statement and such managing underwriter
advises the Company in writing that the number of shares proposed to be
included in the offering will have an adverse effect on its ability to
successfully conclude the offering and, as a result, the number of
shares to be included in the offering is to be reduced, the number of
Remaining Warrant Shares of the Holder which were to be included in
4
<PAGE>
the registration (before such reduction) will be reduced pro rata with
the number of shares included for all other parties whose shares are
being registered.
The term "Aggregate Remaining Warrant Shares" means the aggregate of all
Remaining Warrant Shares of the Holder and of the holders of all other Warrants
originally issued pursuant to and as contemplated by the Securities Purchase
Agreement, to the extent such Remaining Warrant Shares are to be included in a
registration statement pursuant to this Section 7.2(b).
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
TTR TECHNOLOGIES, INC.
1841 Broadway
New York, NY 10023
Attn: Robert Friedman
Telephone No.: (212) 333-3355
Telecopier No.: (212) 333-7891
with a copy to:
TTR Technologies Ltd.
2 Hanagar Street
Kfar Sava 44425 Israel
Attn: M. D. Tokayer
Telephone No.: (011 972 2 9) 766-2393
Telecopier No.: (011 972 2 9) 766-2394
and with a copy to:
Aboudi & Brounstein
136 Rothschild Blvd.
Tel Aviv 65272 Israel
Attn: David Aboudi, Esq.
Telephone No.: (011 972 2 3) 685-1126
Telecopier No.: (011 972 2 3) 685-1138
5
<PAGE>
(ii) if to the Holder, to:
ATTN:
Telephone No.: ( ) -
Telecopier No.: ( ) -
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
Telephone No.: (212) 689-3322
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant may be
amended or supplemented only by an instrument in writing signed by the parties
hereto. This Warrant of even date herewith contain the full understanding of the
parties hereto with respect to the subject matter hereof and thereof and there
are no representations, warranties, agreements or understandings other than
expressly contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of Delaware for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of Wilmington or
the state courts of the State of Delaware sitting in the City of Wilmington in
connection with any dispute arising under this Warrant and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Holder for any reasonable legal fees and disbursements incurred by
the Buyer in enforcement of or protection of any of its rights under any of the
Transaction Agreements.
11. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
6
<PAGE>
12. Descriptive Headings. Descriptive headings of the several Sections
of this Warrant are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the __ th day of _____________ 199 .
TTR TECHNOLOGIES, INC.
By:_________________________________
Name:
Its:
Attest:
- ------------------------
Name:
Title:
7
<PAGE>
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of ___________, 199__, to
purchase _______ shares of the Common Stock, par value $.001 per share, of TTR
TECHNOLOGIES, INC. and tenders herewith payment in accordance with Section 1 of
said Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
[Name of Holder]
By:
[ ] CASH: $_______________________
8
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A TRANSFER
MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH
TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
TTR TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions. In consideration of good and valuable
consideration, the receipt of which is hereby acknowledged by TTR TECHNOLOGIES,
INC. (formerly known as TTR INC.), a Delaware corporation (the "Company"), WALL
& BROAD EQUITIES or its registered assigns (the "Holder") is hereby granted the
right to purchase at any time until 5:00 P.M., New York City time, on April 30,
2002 (the "Expiration Date"), One Million Three Hundred Thousand (1,300,000)
fully paid and nonassessable shares of the Company's Common Stock, par value
$.001 per share (the "Common Stock") at an initial exercise price per share (the
"Exercise Price") of One Cent ($0.01), subject to further adjustment as set
forth herein.
2. Exercise of Warrants.
2.1 General. This Warrant is exercisable in whole or in part at any
time and from time to time at the Exercise Price per share of Common Stock
payable hereunder, payable in cash or by certified or official bank check,
by means of tendering this Warrant Certificate to the Company. Upon
surrender of this Warrant Certificate with the annexed Notice of Exercise
Form duly executed (which Notice of Exercise Form may be submitted either
by delivery to the Company or by facsimile transmission as provided in
Section 8 hereof), together with payment of the Exercise Price for the
shares of Common Stock purchased, the Holder shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased.
<PAGE>
2.2 Limitation on Exercise. Notwithstanding the provisions of this
Warrant, in no event (except while there is outstanding a tender offer for
any or all of the shares of the Company's Common Stock) shall the Holder be
entitled to exercise this Warrant, or shall the Company have the
obligation, to issue shares upon such exercise of all or any portion of
this Warrant, to the extent that, after such exercise, the sum of (1) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unexercised portion of the
Warrants), and (2) the number of shares of Common Stock issuable upon the
exercise of the Warrants with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Holder
and its affiliates of more than 4.99% of the outstanding shares of Common
Stock (after taking into account the shares to be issued to the Holder upon
such exercise). For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), except as otherwise provided in clause (1) of such sentence. The
Holder, by its acceptance of this Warrant, further agrees that if the
Holder transfers or assigns any of the Warrants to a party who or which
would not be considered such an affiliate, such assignment shall be made
subject to the transferee's or assignee's specific agreement to be bound by
the provisions of this Section 2.2 as if such transferee or assignee were
the original Holder hereof.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise Price is
required pursuant to this Section 6, the Holder shall be entitled to
purchase such number of additional shares of Common Stock as will cause (i)
the total number of shares of Common Stock Holder is entitled to purchase
pursuant to this Warrant, multiplied by (ii) the adjusted purchase price
per share, to equal (iii) the dollar amount of the total number of shares
of Common Stock Holder is entitled to purchase before adjustment multiplied
by the total purchase price before adjustment.
2
<PAGE>
6.2 Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment
affecting the Common Stock of the Company, the provisions of this Section 6
shall be applied as if such capital adjustment event had occurred
immediately prior to the date of this Warrant and the original Exercise
Price had been fairly allocated to the stock resulting from such capital
adjustment; and in other respects the provisions of this Section shall be
applied in a fair, equitable and reasonable manner so as to give effect, as
nearly as may be, to the purposes hereof. A rights offering to stockholders
shall be deemed a stock dividend to the extent of the bargain purchase
element of the rights.
6.3 Adjustment for Spin Off. If, for any reason, prior to the exercise
of this Warrant in full, the Company spins off or otherwise divests itself
of a part of its business or operations or disposes all or of a part of its
assets in a transaction (the "Spin Off") in which the Company does not
receive compensation (other than nominal non-material compensation) for
such business, operations or assets, but causes securities of another
entity (the "Spin Off Securities") to be issued to security holders of the
Company, then the Company shall cause (a) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to the
Holder had all of the Holder's unexercised Warrants outstanding on the
record date (the "Record Date") for determining the amount and number of
Spin Off Securities to be issued to security holders of the Company (the
"Outstanding Warrants") been exercised as of the close of business on the
trading day immediately before the Record Date (the "Reserved Spin Off
Shares"), and (b) to be issued to the Holder on the exercise of all or any
of the Outstanding Warrants, such amount of the Reserved Spin Off Shares
equal to (i) the Reserved Spin Off Shares multiplied by (ii) a fraction, of
which (x) the numerator is the amount of the Outstanding Warrants then
being exercised, and (y) the denominator is the amount of the Outstanding
Warrants.
7. Transfer to Comply with the Securities Act; Registration Rights.
7.1 Transfer. This Warrant has not been registered under the
Securities Act of 1933, as amended, (the "Act") and has been issued to the
Holder for investment and not with a view to the distribution of either the
Warrant or the Warrant Shares. Neither this Warrant nor any of the Warrant
Shares or any other security issued or issuable upon exercise of this
Warrant may be sold, transferred, pledged or hypothecated in the absence of
an effective registration statement under the Act relating to such security
or an opinion of counsel satisfactory to the Company that registration is
not required under the Act. Each certificate for the Warrant, the Warrant
Shares and any other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form and substance
satisfactory to counsel for the Company, setting forth the restrictions on
transfer contained in this Section.
7.2 Registration Rights. (a) The Company hereby grants to the Holder
piggyback registration rights with respect to the Warrant Shares. In the
event the Company is filing a Registration Statement for itself or on
behalf of any of its shareholders, the Company shall notify the Holder in
writing reasonably in advance of such filing (but at least five
3
<PAGE>
business days) and give the Holder the opportunity to include all or any
part of the Warrant Shares (whether or not previously issued), to the
extent permissible under the Act or any regulation promulgated thereunder.
Upon the Holder's notification that the Holder desires to have all or any
portion of the Warrant Shares included in such registration, the Company
shall, at no cost or expense to the Holder, include or cause to be included
in such registration statement the Warrant Shares so identified by the
Holder. The Company's obligations under the foregoing provisions of this
Section 7.2 will be satisfied by the inclusion of the Warrant Shares in the
Registration Statement contemplated by that certain Registration Rights
Agreement, dated as of May 11, 1999 (the "Registration Rights Agreement"),
to which the Company and certain purchasers of the Company's 10%
Convertible Debentures are parties, provided such Registration Statement is
declared effective and remains effective for the term contemplated in the
Registration Rights Agreement.
(b) In addition to the registration rights referred to in the
preceding provisions of Section 7.2(a), effective after the expiration of
the effectiveness of the Registration Statement as contemplated by the
Registration Rights Agreement, the Holder shall have demand piggy-back
registration rights with respect to the Warrant Shares then held by the
Holder or then subject to issuance upon exercise of this Warrant
(collectively, the "Remaining Warrant Shares"), subject to the conditions
set forth below. If, at any time after the Registration Statement has
ceased to be effective, the Company participates (whether voluntarily or by
reason of an obligation to a third party) in the registration of any shares
of the Company's stock, the Company shall give written notice thereof to
the Holder and the Holder shall have the right, exercisable within ten (10)
business days after receipt of such notice, to demand inclusion of all or a
portion of the Holder's Remaining Warrant Shares in such registration
statement. If the Holder exercises such election, the Remaining Warrant
Shares so designated shall be included in the registration statement at no
cost or expense to the Holder (other than any costs or commissions which
would be borne by the Holder under the terms of the Registration Rights
Agreement). The Holder's rights under this Section 7.2(b) are subject to
the following conditions:
(x) under no circumstances will the Aggregate Remaining Warrant Shares
(as defined below) included in such registration statement exceed
twenty percent (20%) of the all the shares (including the Aggregate
Remaining Warrant Shares) included in such registration statement; and
(y) if there is a managing underwriter of the offering of shares
referred to in the registration statement and such managing underwriter
advises the Company in writing that the number of shares proposed to be
included in the offering will have an adverse effect on its ability to
successfully conclude the offering and, as a result, the number of
shares to be included in the offering is to be reduced, the number of
Remaining Warrant Shares of the Holder which were to be included in the
registration (before such reduction) will be reduced pro rata with the
number of shares included for all other parties whose shares are being
registered.
4
<PAGE>
In any event, the Company shall not be required to include such shares unless
the Holder accepts the terms of the underwriting as agreed between the Company
and the underwriter (except that the Holder shall not be obligated to pay or
reimburse the underwriter for any amount whatsoever other than usual and
customary brokerage fees for shares of the Holder actually sold through or by
the underwriter to the extent so provided in such agreement between the Company
and the underwriter). The term "Aggregate Remaining Warrant Shares" means the
aggregate of all Remaining Warrant Shares of the Holder, to the extent such
Remaining Warrant Shares are to be included in a registration statement pursuant
to this Section 7.2(b).
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
TTR TECHNOLOGIES, INC.
1841 Broadway
New York, NY 10023
Attn: Robert Friedman
Telephone No.: (212) 333-3355
Telecopier No.: (212) 333-7891
with a copy to:
TTR Technologies Ltd.
2 Hanagar Street
Kfar Sava 44425 Israel
Attn: M. D. Tokayer
Telephone No.: (011 972 2 9) 766-2393
Telecopier No.: (011 972 2 9) 766-2394
and with a copy to:
Aboudi & Brounstein
136 Rothschild Blvd.
Tel Aviv 65272 Israel
Attn: David Aboudi, Esq.
Telephone No.: (011 972 2 3) 685-1126
Telecopier No.: (011 972 2 3) 685-1138
5
<PAGE>
(ii) if to the Holder, to:
WALL & BROAD EQUITIES
4424 16th Avenue
Brooklyn, NY 11204
Attn: Isaac Weinhouse
Telephone No.: (718) 972-6800
Telecopier No.: (718) 972-6803
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Attn: Sam Krieger, Esq.
Telecopier No. (212) 213-2077
Telephone No.: (212) 689-3322
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant may be
amended or supplemented only by an instrument in writing signed by the parties
hereto. This Warrant of even date herewith contain the full understanding of the
parties hereto with respect to the subject matter hereof and thereof and there
are no representations, warranties, agreements or understandings other than
expressly contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of Delaware for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of Wilmington or
the state courts of the State of Delaware sitting in the City of Wilmington in
connection with any dispute arising under this Warrant and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Holder for any reasonable legal fees and disbursements incurred by
the Buyer in enforcement of or protection of any of its rights hereunder.
11. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
6
<PAGE>
12. Descriptive Headings. Descriptive headings of the several Sections
of this Warrant are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 25th the day of May 1999.
TTR TECHNOLOGIES, INC.
By: /s/ MARC TOKAYER
------------------------------
Name: Marc Tokayer
Its:
Attest:
- ------------------------
Name:
Title:
7
<PAGE>
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of _____________, 199__, to
purchase _______ shares of the Common Stock, par value $.001 per share, of TTR
TECHNOLOGIES, INC. and tenders herewith payment in accordance with Section 1 of
said Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
[Name of Holder]
By:
[ ] CASH: $_______________________
8
WARRANT
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH
THE REPRESENTATIONS AND AGREEMENTS MADE BY THE RECORD HOLDER HEREOF SET FORTH IN
THIS WARRANT.
TTR INC.
COMMON STOCK PURCHASE WARRANT
in favor of
Plans Inc
June 11, 1998
No. 25,000 Common Shares
FOR VALUE RECEIVED, TTR INC., a Delaware company (the "Company"),hereby grants
to Plans Inc or its registered assignees (the "Holder"), the right to purchase,
subject to the terms and conditions hereof, 25,000 fully paid and non-assessable
shares of Common Stock of the Company, par value $0.001 ("Shares"). The purchase
price for each Share purchased pursuant to this Warrant shall be equal $1.50 per
share. Hereinafter, (i) such Shares, together with any other equity security
which may be issued by the Company in substitution therefor, are referred to as
the "Shares"; (ii) the shares purchasable hereunder are referred to as the
"Warrant Shares"; (iii) and the price payable hereunder for each of the Warrant
Shares, as adjusted in the manner set forth hereinafter, is referred to as the
"Per Share Warrant Price"; and (iv) this warrant and all warrants hereafter
issued in exchange or substitution for this Warrant are referred to as the
"Warrants". The Per Share Warrant Price and the number of Warrant Shares are
subject to adjustment as hereinafter provided.
1. Warrant Period; Exercise of Warrant
1.1 This Warrant may be exercised in whole or in part at any time
commencing 9:00 a.m., New York City time, on any business day on or after the
date on which the Company's registration statement that is filed under the
Securities Act of 1933, as amended, in connection with the Public Offering has
been declared effective and continuing up to the fourth anniversary thereof (the
"Warrant Period"), by the surrender of this Warrant (with a duly executed
exercise form in the form attached at the end hereof as Exhibit A) at the
principal office of the Company, together with the proper payment of the Per
Share Warrant Price times the number of Warrant Shares.
<PAGE>
1.2 Upon such surrender of this Warrant, the Company will: a) issue a
certificate or certificates in the name of Holder for the Warrant Shares to
which the Holder shall be entitled and (b) deliver the other securities and
properties receivable upon the exercise of this Warrant, pursuant to the
provisions of this Warrant.
1.3 Any stamp tax attributable to the issuance of the Shares shall be
borne solely by Holder.
2. Representations and Warranties
The Holder (i) represents, warrants, covenants and agrees that the
Warrant and the underlying Warrant Shares are being acquired by the Holder for
the Holder's own account, for investment purposes only, and not with a view to
or for the sale in connection with any distribution thereof or with any present
intention of selling or distributing all or any part of the Warrant or the
Warrant Shares; (ii) understands (x) that if it should thereafter decide to
dispose of such Warrant or Warrant Shares (which it does not contemplate at such
time) it may do so only in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), (y) this Warrant and the Warrant Shares are not
registered under the Securities Act; and (iii) acknowledges that, as of the date
hereof, it has been given a full opportunity to ask questions of and to receive
answers from the Company concerning this Warrant and the Warrant Shares and the
business of the Company and to obtain such information as it desired in order to
evaluate the acquisition of this Warrant and the Warrant Shares, and all
questions have been answered to its full satisfaction.
3. Reservation of Shares
The Company covenants that at all times during the Warrant Period it
shall have authorized and in reserve, and will keep available solely for
issuance or delivery upon exercise of the Warrant, the Warrant Shares and other
securities and properties as from time to time shall be receivable upon the
exercise of this Warrant, free and clear of preemptive rights and restrictions
on sale or transfer except as otherwise set forth herein or in the By-Laws.
4. Adjustment
4.1 In case of any consolidation or merger of the Company with or into
another corporation (other than a merger or consolidation in which the Company
is the surviving or the continuing corporation) or in the case of any sale or
conveyance to another corporation or other entity of the property, assets or
business of the Company as an entirety or substantially as an entirety, in any
such case, the Company or such successor or purchasing corporation or entity, as
the case may be, shall (i) execute with the Holder an agreement that the Holder
shall have the right thereafter to receive upon the exercise of the Warrant the
kind and amount of shares and/or other securities or other property which he
would have owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had the Warrant been exercised
immediately prior to such action, (ii) make effective provision in its
certificate of its incorporation or otherwise, if necessary, in order to effect
such agreement, and
2
<PAGE>
(iii) set aside or reserve for the benefit of the Holder, the stock, securities,
property and cash to which the Holder would be entitled to upon exercise of this
Warrant.
4.2 In case of any reclassification or change of the Warrant Shares
issuable upon exercise of this Warrant (other than a change in par value or from
no par value to a specific par value, or as a result of a subdivision or
combination, including any change in the shares into two or more classes or
series of shares), or in the case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change in the
right to receive cash or other property) of the Shares (other than a change in
the par value, or from no par value to a specific par value or, as a result of a
subdivision or combination, including any change in the shares into two or more
classes or series of shares), Holder shall have the right thereafter to receive
upon exercise of this Warrant solely the kind and amount of shares of stock and
other securities, property, cash or combination thereof receivable upon such
reclassification, change, consolidation or merger by a holder of the number of
Shares for which this Warrant might have been exercised immediately prior to
such reclassification, change, consolidation or merger.
4.3 The above provisions of this paragraph 5 shall similarly apply to
successive reclassifications and changes of Shares and to successive
consolidations, sales, leases or conveyances.
5. Limited Transfer
(a) This Warrant may not be sold, transferred, assigned or hypothecated
by the Holder and is so transferable only on the books of the Company which the
Company shall cause to be maintained for such purpose. The Company may treat the
registered holder of record as the Holder for all purposes. The Company shall
permit any holder of a Warrant or his duly authorized attorney, upon written
request during ordinary business hours, to inspect and copy or make extracts
from its books showing the registered holders of Warrants.
(b) In no event shall the Company be obligated to effect any transfer
of Warrants or Warrant Shares unless a registration statement is in effect with
respect thereto under applicable state and Federal securities laws or unless the
Company has received an opinion in substance reasonably satisfactory to it from
counsel that such registration is not required. Unless registered, the Warrant
Shares issued upon exercise of the Warrants shall be subject to a stop transfer
order and the certificate or certificates evidencing such Warrant Shares shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A REGISTRATION STATEMENT.
ACCORDINGLY, SUCH SHARES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO A
REGISTRATION STATEMENT UNDER SUCH ACT, OR AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT."
3
<PAGE>
6. Loss, etc. of Warrant
Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant, and of indemnity reasonably
satisfactory to the Company, if lost, stolen or destroyed, and upon surrender
and cancellation of this Warrant, if mutilated, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder a new Warrant of like date, tenor and denomination.
7. Warrant Holder Not Shareholder
Except as otherwise provided herein, this Warrant does not confer upon
the Holder any right to vote or to consent or to receive notice as a shareholder
of the Company, as such, in respect of any matters whatsoever, or any other
rights or liabilities as a shareholder, prior to the exercise hereof.
8. Headings
The headings of this Warrant have been inserted as a matter of
convenience and shall not affect the construction hereof.
9. Notices.
Unless otherwise provided, any notice required or permitted under this
Warrant shall be given in writing and shall be deemed effectively given upon
personal delivery to the party to be notified or seven (7) days after deposit
with a National Post Office, for dispatch by registered or certified mail,
postage prepaid and addressed to the Holder at the address set forth in the
Company's books and to the Company at the address of its principal offices set
forth above. With respect to Holders located outside Israel, such notice shall
be deemed effectively given upon personal delivery to the party to be notified,
15 business days after deposit with a National Post Office for dispatch by
registered or certified airmail, or when given by telecopier or other form of
rapid written communication, provided that confirming copies are sent by such
airmail.
10. Governing Law
This Warrant shall be governed by and construed and enforced in
accordance with the laws of the State of New York applicable to contracts made
and performed within such State.
IN WITNESS WHEREOF, the Company has caused this Common Stock Purchase Warrant to
be executed as of the date first written above.
TTR INC.
By: /s/ MARC TOKAYER
---------------------
MARC TOKAYER
/title President
4
<PAGE>
EXHIBIT A
WARRANT EXERCISE FORM
_________________, 199_
TO:TTR Inc.
RE: Exercise of Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
the extent of ___________________ Common Shares of TTR Inc. at the purchase
price set forth in the attached Warrant. Payment to the Company of the total
purchase price for such shares has been made simultaneously with the delivery of
this exercise of warrant.
By: ___________________
5
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR UNDER THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE
REPRESENTATIONS AND AGREEMENTS MADE TO THE RECORD HOLDER HEREOF SET FORTH IN
THIS WARRANT.
COMMON STOCK PURCHASE WARRANT
in favor of
K & D EQUITIES, INC.
DATE: JULY 31 , 1999
WARRANT NO. KD1 400,000 Shares of Common
Stock of TTR Technologies, Inc.
FOR VALUE RECEIVED, TTR TECHNOLOGIES INC., a Delaware company (the
"Company"), hereby grants to K & D EQUITIES, INC. (the "Holder"), the right to
purchase, subject to the terms and conditions hereof, 400,000 fully paid and
non-assessable shares of Common Stock of the Company, par value $0.001, (the
"Shares"). The purchase price for each Share purchased pursuant to this Warrant
shall be equal to $2.75, subject to the terms hereof. Hereinafter, (i) such
Shares, together with any other equity security which may be issued by the
Company in substitution therefor, are referred to as the "Shares"; (ii) the
shares purchasable hereunder are referred to as the "Warrant Shares"; (iii) and
the price payable hereunder for each of the Warrant Shares, as adjusted in the
manner set froth hereinafter, is referred to as the "Per Share Warrant Price";
and (iv) this warrant and all warrants hereafter issued in exchange or
substitution for this Warrant are referred to as the "Warrants". The Per Share
Warrant Price and the number of Warrant Shares are subject to adjustment as
hereinafter provided.
1. Warrant Period; Exercise of Warrant
1.1 This Warrant may be exercised in whole or in part at any time
commencing 9:00 a.m., New York City time, on the date set forth above
through January 31, 2001 (the "Warrant Period") by the surrender of this
Warrant (with a duly executed exercise form in the form attached at the end
hereof as Exhibit A) at the principal office of the Company, together with
the proper payment of the Per Share Warrant Price times the number of
Warrant Shares.
1.2 Upon surrender of this warrant and payment of the Warrant Price as
aforesaid, the Company shall issue and cause to be delivered to Warrant
holder, a certificate or certificates for the number of Warrant Shares
being purchased, and such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a holder of the such Shares as of the close of
business on the date of the surrender of the Warrant and payment of the Per
Share Warrant Price. If this warrant should be exercised in part only, the
Company shall, upon surrender of the Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder hereof to
purchase the balance of the Shares purchasable hereunder.
1.3 Any stamp tax attributable to the issuance of the Shares shall be
borne solely by Holder.
<PAGE>
1.4 Unless there is an effective registration statement under the
Securities Act of 1933, as amended, (the "Securities Act") covering the
resale of the Warrant Shares, at the option of the Holder, in lieu of
exercising this Warrant in the manner provided in Subsection 1.1 above, the
Holder may elect, pursuant to the terms of this Subsection 1.1, to receive
Shares equal to the value of this Warrant (taking into account only that
portion of this Warrant that is then exercisable) by surrender of this
Warrant at the principal office of the Company together with notice of such
election in which event the Company shall issue to the Holder a number of
Shares using the following formula:
X = Y(A-B)
------
A
where X = The number of Shares to be issued to the Holder.
Y = The number of Shares purchasable under this Warrant (at
the date of such calculation).
A = The fair market value of one Share (at the date of such
calculation).
B = The Per Share Warrant Purchase Price.
2. Representations and Warranties
2.1 The Holder (i) represents, warrants, covenants and agrees that the
Warrant and the underlying Warrant Shares are being acquired by the Holder
for the Holder's own account, for investment purposes only, and not with a
view to or for sale in connection with any distribution thereof or with any
present intention of selling or distributing all or any part of the Warrant
or the underlying Warrant Shares thereof; (ii) understands (x) that if it
should thereafter decide to dispose of such Warrant or Warrant Shares
(which it does not contemplate at such time) it may do so only in
compliance with the Securities Act, (y) this Warrant and the Warrant Shares
are not registered under the Securities Act nor does the Company have any
obligation to register this Warrant and the Warrant Shares (except as
provided in paragraph 3 below) and (z) that it is unlikely that Rule 144
adopted by the Securities and Exchange Commission will be applicable to
permit sales of this Warrant and the Warrant Shares in reliance thereon;
and (iii) acknowledges that, as of the date hereof, it has been given a
full opportunity to ask questions of and to receive answers from the
Company concerning this Warrant and the Warrant Shares and the business of
the Company and to obtain such information as it desired in order to
evaluate the acquisition of this Warrant and the Warrant Shares, and all
questions have been answered to its full satisfaction.
3. Reservation of Shares.
The Company has reserved, and shall at all times so long as any Warrant
remains outstanding, keep reserved, out of its authorized and unissued capital
stock, such number of shares of Common Stock, par value $0.001, as shall be
subject to purchase under the Warrant.
4. Mutilation or Loss of Warrant.
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and (in the case of loss,
theft or destruction) receipt of reasonably satisfactory indemnification, and
(in the case of mutilation) upon surrender and cancellation of this Warrant, the
Company will execute and deliver a new Warrant of like tenor and date and any
such lost, stolen, destroyed or mutilated Warrant shall thereupon become void.
2
<PAGE>
5. Rights of the Holder.
The Holder shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or equity, and the rights of the
Holder are limited to those expressed in this Warrant and are not enforceable
against the Company except to the extent set forth herein.
6. Stock Dividends, Reclassifications, Reorganization, Anti-Dilution Provisions,
Etc.
6.1 In case prior to the expiration of this Warrant by exercise or by
its terms the Company shall issue any shares of its Common Stock as a stock
dividend or subdivide the number of outstanding shares of Common Stock into
a greater number of shares, then, in either of such cases, the Exercise
Price per share of the Warrant Shares purchasable pursuant to this Warrant
in effect at the time of such action shall be proportionately reduced and
the number of Warrant Shares purchasable at that time shall be
proportionately increased; and, conversely, in the event the Company shall
contract the number of outstanding shares of Common Stock by combining such
shares into a smaller number of shares, then, in such case, the Exercise
Price per share of the Warrant Shares purchasable pursuant to this Warrant
shall be proportionately decreased. Any dividend paid or distributed upon
the Common Stock in stock of any other class of securities convertible into
shares of Common Stock shall be treated as a dividend paid in Common Stock
to the extent that shares of Common Stock are issuable upon conversion
thereof.
6.2 In case of any consolidation or merger of the Company with or into
another corporation (other than a merger or consolidation in which the
Company is the surviving or the continuing corporation) or in the case of
any sale or conveyance to another corporation or other entity of the
property, assets or business of the Company as an entirety or substantially
as an entirety, in any such case, the Company or such successor or
purchasing corporation or entity, as the case may be, shall (i) execute
with the Holder an agreement that the Holder shall have the right
thereafter to receive upon the exercise of the Warrant the kind and amount
of shares and/or other securities or other property which he would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had the Warrant been exercised
immediately prior to such action, (ii) make effective provision in its
certificate of its incorporation or otherwise, if necessary, in order to
effect such agreement, and (iii) set aside or reserve for the benefit of
the Holder, the stock, securities, property and cash to which the Holder
would be entitled to upon exercise of this Warrant.
6.3 In case of any reclassification or change of the Warrant Shares
issuable upon exercise of this Warrant (other than a change in par value or
from no par value to a specific par value, or as a result of a subdivision
or combination, including any change in the shares into two or more classes
or series of shares), or in the case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change in the right to receive cash or other property) of the Shares (other
than a change in the par value, or from no par value to a specific par
value or, as a result of a subdivision or combination, including any change
in the shares into two or more classes or series of shares), Holder shall
have the right thereafter to receive upon exercise of this Warrant solely
the kind and amount of shares of stock and other securities, property, cash
or combination thereof receivable upon such reclassification, change,
consolidation or merger by a holder of the number of Shares for which this
Warrant might have been exercised immediately prior to such
reclassification, change, consolidation or merger.
6.4 Upon the occurrence of each event requiring an adjustment of the
Exercise Price and the number of Warrant Shares purchasable at such
adjusted Exercise Price by reason of such event in accordance with the
provision of this Section 6, the Company shall compute the adjusted
Exercise Price and the adjusted number of Warrant Shares purchasable at
such
3
<PAGE>
adjusted Exercise Price by reason of such event in accordance with the
provisions of this Section 6 and shall prepare a certificate setting forth
such adjusted Exercise Price and the adjusted number of Warrant Shares and
showing in reasonable detail the facts upon which such determination is
made. The Company shall mail to the holder of this Warrant a copy of such
Certificate, and thereafter said certificate shall be conclusive and shall
be binding upon such holder unless contested by such holder in a written
notice furnished to the Company within 15 days of the receipt thereof
setting forth in reasonable detail the basis of such contention.
6.5 In case:
(a) the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or any other
distribution in respect of the Common Stock (including cash), pursuant to
without limitation, any spin-off, split-off or distribution of the
Company's assets; or
(b) the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to subscribe for or purchase any shares of
stock of any class or to receive any other rights; or
(c) of any classification, reclassification or other reorganization of the
capital stock of the Company, consolidation or merger of the Company with
or into another corporation, or conveyance of all or substantially all of
the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or winding up
of the Company;
then, and in any such case, the Company shall mail to the Holder, at least
twenty (20) days prior thereto, a notice stating the date or expected date on
which a record is to be taken for the purpose of such dividend or distribution
of rights, or the date on which such classification, reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation, or
winding up is to take place, as the case may be. Such notice shall also specify
the date or expected date, if any is to be fixed, as of which holders of Common
Stock of record shall be entitled to participate in said dividend on
distribution of rights, or shall be entitled to exchange their shares of Common
stock for securities or other property deliverable upon such classification,
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation, or winding up, as the case may be. The failure to give
such notice shall not affect the validity of any such proceeding or transaction
and shall not affect the right of the holder of this Warrant to participate in
said dividend, distribution of rights, or any such exchange and acquire the kind
and amount of cash, securities or other property as the Holder would have been
entitled to acquire if it was the record holder of the Warrant Shares which
could be obtained upon the exercise of the Warrants immediately before such
proceeding or transaction; provided that the Holder exercises the Warrants
within 30 days after discovery that such action or proceeding has taken place.
6.6 In case the Company at any time while this Warrant shall remain
unexpired and unexercised, shall dissolve, liquidate, or wind up its
affairs, the holder of this Warrant may thereafter receive upon exercise
hereof in lieu of each share of Common Stock of the Company which it would
have been entitled to receive, the same kind and amount of any securities
or assets as may be issuable, distributable or payable upon any such
dissolution, liquidation or winding up with respect to each share of Common
Stock of the Company.
7. Limited Transfer
7.1 The Company may treat the registered holder of record as the
holder for all purposes.
4
<PAGE>
7.2 In no event shall the Company be obligated to effect any transfer
of Warrants or Warrant Shares unless a registration statement is in effect
with respect thereto under applicable state and Federal securities laws or
unless the Company shall have received an opinion in substance reasonably
satisfactory to it from counsel that such registration is not required.
Unless registered, the Warrant Shares issued upon exercise of the Warrant
shall be subject to a stop transfer order and the certificate or
certificates evidencing such Warrant Shares shall bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT
TO A REGISTRATION STATEMENT. ACCORDINGLY, SUCH SHARES MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO A REGISTRATION STATEMENT UNDER
SUCH ACT, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
8. Registration Rights
The Holder understands that the Company is in the process of filing
with the Securities and Exchange Commission a registration statement under the
Securities Act relating to certain Company securities held by certain Company
shareholders or the holders of certain rights in Company securities, (the
"Registration Statement"). That Registration Statement is being filed pursuant
to the terms of a Registration Rights Agreement, dated as May 13, 1999, between
the Company and the Initial Investors named therein (the "Initial Investors").
Subject to the Holder executing a lock-up agreement in form and substance
acceptable to the Company and the Initial Investors, the Company shall include
the Warrant Shares in the Registration Statement.
9. Representations and Warranties of the Company.
The Company represents and warrants to the holder as follows:
9.1 The Company is duly organized and, as of the date of the original
issuance hereof, validly existing and in good standing under the laws of
the State of Delaware.
9.2 The Company shall at all times reserve and keep available out of
its authorized shares of Common Stock, solely for the purpose of issuing
Warrant Shares upon the exercise of this Warrant, such shares as may be
issuable upon the exercise hereof.
9.3 The Warrant Shares, when issued and paid for in accordance with
the terms of this Warrant, will be fully paid and not assessable.
9.4 This Warrant has been duly authorized and approved by all required
corporate action by the Company and does not violate the certificate of
incorporation or the bylaws of the Company.
10. Notices
Any notice or other communication required or permitted hereunder shall
be in writing and shall be delivered personally or sent by certified, registered
or express mail, postage prepaid. Any such notice shall be deemed given when
delivered personally or, if mailed, three days after the date of deposit, to
each party at its address designated in writing by it to the other party.
5
<PAGE>
11. Governing Law
This Agreement shall be construed in accordance with and governed by
the laws of the State of New York, without giving effect to the conflict of laws
provisions.
IN WITNESS WHEREOF, the Company has caused this Common Stock Purchase
Warrant to be executed as of the date first written above.
TTR TECHNOLOGIES INC.
By: /s/ MARC TOKAYER
-------------------------
Marc. D. Tokayer
Title: President
6
<PAGE>
ELECTION TO PURCHASE
TTR Technologies, Inc.
[address]
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for and to purchase thereunder the
full amount of shares represented thereby, and requests that certificates
representing such shares be issued in the name of :
- --------------------------------------------------------------------------------
- -----------------------------------------------------------
please print name, address and other pertinent information)
Sincerely,
7
Reference is made to that certain Agreement made as of August 10, 1996
(Hereinafter, the "Agreement"), by and among, MARC TOKAYER ("Tokayer"), MARILYN
TOKAYER, as Trustee for The Tokayer Family Trust, of Emanuel, Israel ("Trust")
DR. BARUCH SOLLISH ("Sollish").
Each of the Parties continues to be and has been a shareholder of TTR
Technologies, Inc. (the "Company") as of the date on which the Agreement became
effective. The Parties have entered into this Agreement for the purpose of
setting forth certain voting obligations in relation to the development and
operation of the Company.
Each of the parties hereby agree that, effective immediately, the
Agreement is hereby terminated in full in all respects and shall be of no
further force and effect (notwithstanding any terms or provisions thereof which
expressly provide that they are to survive the termination thereof).
Dated as of July 19, 1999
/s/ MARC TOKAYER
--------------------------
Marc D. Tokayer
The Tokayer Family Trust, BY Marilyn
Tokayer, as Trustee
/s/ MARILYN TOKAYER
---------------------------
/s/ BARUCH SOLLISH
----------------------------
Baruch Sollish
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance
set forth below, is entered into by and between TTR TECHNOLOGIES, INC. (formerly
known as TTR INC.), a Delaware corporation, with headquarters located at 1841
Broadway, New York, NY 10023 (the "Company"), and each entity named on a
signature page hereto (each, a "Buyer") (each agreement with a Buyer being
deemed a separate and independent agreement between the Company and such Buyer,
except that each Buyer acknowledges and consents to the rights granted to each
other Buyer under such agreement and the Transaction Agreements, as defined
below, referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, 10% Convertible Debentures of the Company (the
"Convertible Debentures") which which will be convertible into shares of Common
Stock, $.001 par value per share, of the Company (the "Common Stock"), upon the
terms and subject to the conditions of such Convertible Debentures, together
with the Warrants (as defined below) exercisable for the purchase of shares of
Common Stock, and subject to acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase.
(i) The undersigned hereby agrees to purchase from the Company
Convertible Debentures in the principal amount set forth on the signature page
of this Agreement (the "Debentures," which term includes the Initial Debentures
and the Additional Debentures defined below), out of a total offering of
$2,000,000 of such Convertible Debentures, and having the terms and conditions
and being in the form attached hereto as Annex I.
(ii) Subject to the terms and conditions of this Agreement and the
other Transaction Agreements, the Buyer will purchase (x) fifty percent (50%) of
the Debentures (the
<PAGE>
"Initial Debentures") on the Initial Closing Date (as defined below) and (y) the
balance of the Debentures (the "Additional Debentures") on the Additional
Closing Date (as defined below).
(iii) The purchase price to be paid by the Purchaser shall be equal to
the face amount of the Initial Debentures or the Additional Debentures, as the
case may be, and shall be payable in United States Dollars.
b. Certain Definitions. As used herein, each of the following terms has
the meaning set forth below, unless the context otherwise requires:
(i) "Securities" means the Debentures, the Warrants and the Common
Stock issuable upon conversion of the Debentures or the exercise of the
Warrants.
(ii) "Purchase Price" means the purchase price for the Initial
Debentures or the Additional Debentures, as the case may be.
(iii) "Initial Closing Date" means the date of the closing of the
purchase and sale of the Initial Debentures, as provided herein.
(iv) "Additional Closing Date" means the date of the closing of the
purchase and sale of the relevant Additional Debentures, as provided herein.
(v) "Closing Date" means the Initial Closing Date or the Additional
Closing Date, as the case may be.
(vi) "Buyer's Allocable Share" means the fraction of which the
numerator is the Buyer's Debentures and the denominator is $2,000,000.
(vii) "Effective Date" means the effective date of the Registration
Statement covering the Registrable Securities (as those terms are defined in the
Registration Rights Agreement defined below).
(viii) "Market Price of the Common Stock" means (x) the average closing
price of the Common Stock for any three (3) trading days selected by the Buyer
from the thirty (30) trading days ending on the trading day immediately before
the relevant date indicated in the relevant provision hereof (unless a different
relevant period is specified in the relevant provision), as reported by
Bloomberg, LP or, if not so reported, as reported on the over-the-counter market
or (y) if the Common Stock is listed on a stock exchange, the closing price on
such exchange on any date selected by the Buyer from the thirty (30) trading
days ending on the trading day immediately before the relevant date indicated in
the relevant provision hereof (unless a different relevant period is specified
in the relevant provision), as reported in The Wall Street Journal.
(ix) "Initial Market Price" means the Market Price of the Common Stock
as of the Initial Closing Date.
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(x) "Current Market Price" means the Market Price of the Common Stock
as of the relevant Conversion Date (as defined below).
(xi) "Converted Shares" means the shares of Common Stock issuable upon
conversion of the Debentures.
(xii) "Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
(xiii) "Shares" means the shares of Common Stock representing any or
all of the Converted Shares and the Warrant Shares.
(xiv) "Strategic Partner" means a third party unaffiliated with the
Company as of the date hereof which party (i) is engaged in a business which is
the business in which the Company is engaged or a similar or related business,
and (ii) subsequently purchases equity securities of the Company (or securities
convertible into equity securities of the Company), where such purchase is
accompanied or followed by any one or more of the following: the licensing by
the Company of all or any portion of its technology to such third party, the
licensing by such third party of all or any portion of its technology to the
Company, or any other coordination of all or a portion of their respective
business activities or operations by the Company and such third party. By way of
illustration and not in limitation of the foregoing, if a third party entity
engaged in software protection (exclusively or as one of multiple fields of
endeavor) purchases an equity interest in the Company where the Company and such
third party intend that such investment is to be accompanied by any one or more
of a licensing agreement by one or the other of the other party's technology or
by a cross-licensing agreement, by an OEM agreement, by a joint development
agreement or by other coordination of design, production or marketing
activities, such third party would be a Strategic Partner.
c. Form of Payment; Delivery of Certificates.
(i) The Buyer shall pay the Purchase Price for the relevant Debentures
by delivering immediately available good funds in United States Dollars to the
escrow agent (the "Escrow Agent") identified in the Joint Escrow Instructions
attached hereto as Annex II (the "Joint Escrow Instructions") on the date prior
to the relevant Closing Date.
(ii) No later than the relevant Closing Date, but in any event promptly
following payment by the Buyer to the Escrow Agent of the relevant Purchase
Price, the Company shall deliver the relevant Debentures duly executed on behalf
of the Company and issued in the name of the Buyer (the "Certificates") to the
Escrow Agent.
(iii) By signing this Agreement, each of the Buyer and the Company,
subject to acceptance by the Escrow Agent, agrees to all of the terms and
conditions of, and becomes a
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party to, the Joint Escrow Instructions, all of the provisions of which are
incorporated herein by this reference as if set forth in full.
d. Method of Payment. Payment into escrow of the Purchase Price shall
be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No.: [To be provided by Krieger & Prager]
Re: TTR Technologies Transaction
Not later than 5:00 p.m., New York time, on the date which is seven (7) New York
Stock Exchange trading days after the Company shall have accepted this Agreement
and returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Buyer shall deposit with the Escrow Agent the Purchase Price for
the Initial Debentures in currently available funds. Time is of the essence with
respect to such payment, and failure by the Buyer to make such payment, shall
allow the Company to cancel this Agreement.
e. Escrow Property. The Purchase Price and the Certificates delivered
to the Escrow Agent as contemplated by Sections 1(c) and (d) hereof are referred
to as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock pursuant to
the Registration Statement, the Buyer is purchasing the Debentures and the
Warrants and will be acquiring the Shares for its own account for investment
only and not with a view towards the public sale or distribution thereof and not
with a view to or for sale in connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with
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<PAGE>
the transactions described in this Agreement, and the related documents, and
(iv) able to afford the entire loss of its investment in the Securities.
c. All subsequent offers and sales of the Debentures and the Shares by
the Buyer shall be made pursuant to registration of the Shares under the 1933
Act or pursuant to an exemption from registration.
d. The Buyer understands that the Debentures are being offered and sold
to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Debentures.
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Debentures and the offer of the
Shares which have been requested by the Buyer, including Annex V hereto. The
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries. Without limiting the generality of the foregoing, the Buyer
has also had the opportunity to obtain and to review the Company's (1) Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, and (2)
Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, June 30
and September 30, 1998, respectively (the "Company's SEC Documents").
f. The Buyer understands that its investment in the Securities involves
a high degree of risk.
g. The Buyer understands that no United States federal or state agency
or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
i. The Buyer represents that, for the five (5) trading days prior to
the date hereof, the Buyer has not engaged in any puts, calls, futures
contracts, short sales and hedging and arbitrage transactions with respect to
the Common Stock.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants to
the Buyer as of the date hereof and as of each Closing Date that, except as
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<PAGE>
otherwise provided in the relevant Section or paragraph reference in Annex V
hereto (corresponding to the Section or paragraph references below):
a. Concerning the Debentures and the Shares. There are no preemptive
rights of any stockholder of the Company, as such, to acquire the Debentures,
the Warrants or the Shares.
b. Reporting Company Status. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or financial condition or results of operation of the Company and its
subsidiaries taken as a whole.. The Company has registered its Common Stock
pursuant to Section 12 of the 1934 Act, and the Common Stock is listed and
traded on The NASDAQ/Bulletin Board Market. The Company has received no notice,
either oral or written, with respect to the continued eligibility of the Common
Stock for such listing, and the Company has maintained all requirements for the
continuation of such listing.
c. Authorized Shares. The authorized capital stock of the Company
consists of (i) 20,000,000 shares of Common Stock, $.001 par value per share, of
which approximately 5,094,971 shares had been issued as of the date hereof and
(ii) 5,000,000 shares of Preferred Stock, par value $.001 per share, none of
which have been issued as of the date hereof. All issued and outstanding shares
of Common Stock have been duly authorized and validly issued and are fully paid
and nonassessable. The Company has sufficient authorized and unissued shares of
Common Stock as may be necessary to effect the issuance of the Shares. The
Shares have been duly authorized and, when issued upon conversion of, or as
interest on, the Debentures or upon exercise of the Warrants, each in accordance
with its respective terms, will be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal liability by
reason of being such holder.
d. Securities Purchase Agreement; Registration Rights Agreement and
Stock. This Agreement and the Registration Rights Agreement, the form of which
is attached hereto as Annex IV (the "Registration Rights Agreement"), and the
transactions contemplated thereby, have been duly and validly authorized by the
Company, this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the Debentures, the Warrants and the Registration Rights
Agreement, when executed and delivered by the Company, will be, valid and
binding agreements of the Company enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally.
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<PAGE>
e. Non-contravention. The execution and delivery of this Agreement and
the Registration Rights Agreement by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Debentures do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under (i)
the articles of incorporation or by-laws of the Company, each as currently in
effect, (ii) any indenture, mortgage, deed of trust, or other material agreement
or instrument to which the Company is a party or by which it or any of its
properties or assets are bound, including any listing agreement for the Common
Stock except as herein set forth, (iii) to its knowledge, any existing
applicable law, rule, or regulation or any applicable decree, judgment, or order
of any court, United States federal or state regulatory body, administrative
agency, or other governmental body having jurisdiction over the Company or any
of its properties or assets, or (iv) the Company's listing agreement for its
Common Stock, except such conflict, breach or default which would not have a
material adverse effect on the business, operations or financial condition or
results of operations of the Company and its subsidiaries, taken as a whole, or
on the transactions contemplated herein.
f. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC Filings. None of the Company's SEC Documents contained, at the
time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were
made, not misleading. The Company has since March 1, 1998 timely filed all
requisite forms, reports and exhibits thereto with the SEC.
h. Absence of Certain Changes. Since December 31, 1997, there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition, or results of operations of the
Company, except as disclosed in the Company's SEC Documents. Since December 31,
1997, except as provided in the Company's SEC Documents, the Company has not (i)
incurred or become subject to any material liabilities (absolute or contingent)
except liabilities incurred in the ordinary course of business consistent with
past practices; (ii) discharged or satisfied any material lien or encumbrance or
paid any material obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business consistent with past
practices; (iii) declared or made any payment or distribution of cash or other
property to stockholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business
consistent with past practices; (v) suffered any substantial losses or waived
any rights of material value, whether or not in the ordinary course of business,
or suffered the loss of any material amount of existing business; (vi) made any
changes in employee compensation, except in the ordinary course of
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<PAGE>
business consistent with past practices; or (vii) experienced any material
problems with labor or management in connection with the terms and conditions of
their employment.
i. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in the
Company's SEC Documents) that has not been disclosed in writing to the Buyer
that (i) would reasonably be expected to have a material adverse effect on the
business, operations or financial condition of the Company or results of
operations of the Company and its subsidiaries, taken as a whole , (ii) would
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement or any of the
agreements contemplated hereby (collectively, including this Agreement, the
"Transaction Agreements"), or (iii) would reasonably be expected to materially
and adversely affect the value of the rights granted to the Buyer in the
Transaction Agreements.
j. Absence of Litigation. Except as set forth in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, operations or financial condition, or results of operation
of the Company and its subsidiaries taken as a whole or the transactions
contemplated by any of the Transaction Agreements or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, any of the Transaction Agreements.
k. Absence of Events of Default. Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a material adverse effect on the business,
operations or the financial condition or results of operations of the Company
and its subsidiaries, taken as a whole.
l. Prior Issues. During the twelve (12) months preceding the date
hereof, the Company has not issued any convertible securities. The presently
outstanding unconverted principal amount of each such issuance as at April 27,
1999 are set forth in Annex V.
m. No Undisclosed Liabilities or Events. The Company has no liabilities
or obligations other than those disclosed in the Company's SEC Documents or
those incurred in the ordinary course of the Company's business since December
31, 1997, and which individually or in the aggregate, do not or would not have a
material adverse effect on the properties, business, operations, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole. No event or circumstances has occurred or exists with respect to the
Company or its properties, business, operations, financial condition, or results
of operations, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date
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<PAGE>
hereof by the Company but which has not been so publicly announced or disclosed.
There are no proposals currently under consideration or currently anticipated to
be under consideration by the Board of Directors or the executive officers of
the Company which proposal would (x) change the certificate of incorporation or
other charter document or by-laws of the Company, each as currently in effect,
with or without shareholder approval, which change would reduce or otherwise
adversely affect the rights and powers of the shareholders of the Common Stock
or (y) materially or substantially change the business, assets or capital of the
Company, including its interests in subsidiaries.
n. No Default. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property is
bound.
o. No Integrated Offering. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since March 1, 1998, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under Rule
506 of Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
p. Dilution. The number of Shares issuable upon conversion of the
Debentures and the exercise of the Warrants may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to the
conversion of the Debentures. The Company's executive officers and directors
have studied and fully understand the nature of the Securities being sold hereby
and recognize that they have a potential dilutive effect. The board of directors
of the Company has concluded, in its good faith business judgment, that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that its obligation to issue the Shares upon conversion of the
Debentures and upon exercise of the Warrants is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the
Debentures have not been and are not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said
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<PAGE>
Rule is not applicable, any resale of such Securities under circumstances in
which the seller, or the person through whom the sale is made, may be deemed to
be an underwriter, as that term is used in the 1933 Act, may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the
Debentures and the Warrants, and, until such time as the Common Stock has been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective Registration Statement,
certificates and other instruments representing any of the Securities shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO
THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
c. Registration Rights Agreement. The parties hereto agree to enter
into the Registration Rights Agreement on or before the Closing Date.
d. Filings. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Securities to the Buyer under any
United States laws and regulations applicable to the Company, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Buyer promptly after such filing.
e. Reporting Status. So long as the Buyer beneficially owns any of the
Securities, the Company shall file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination. The Company will take all reasonable action under its control to
obtain and to continue the listing and trading of its Common Stock (including,
without limitation, all Registrable Securities) on The NASDAQ/Bulletin Board
Market and will comply in all material respects with the Company's reporting,
filing and other obligations under the by-laws or rules of the National
Association of Securities Dealers, Inc. ("NASD") or The NASDAQ/Bulletin Board
Market.
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f. Use of Proceeds. The Company will use the proceeds from the sale of
the Debentures (excluding amounts paid by the Company for legal fees, finder's
fees and escrow fees in connection with the sale of the Debentures) for internal
working capital purposes, and, unless specifically consented to in advance in
each instance by the Buyer, the Company shall not, directly or indirectly, use
such proceeds for any loan to or investment in any other corporation,
partnership enterprise or other person or for the repayment of any outstanding
loan by the Company to any other party.
g. Certain Agreements. (i) Except to the extent specifically provided
below, but in each such event subject to compliance with all of the other
provisions of this Agreement, the Company covenants and agrees that it will not,
without the prior written consent of the Buyer, enter into any subsequent or
further offer or sale of Common Stock or securities convertible into Common
Stock (collectively, "New Common Stock") with any third party pursuant to a
transaction which in any manner permits the sale of the New Common Stock on any
date which is earlier than one hundred eighty (180) days after the Effective
Date.
(ii) The provisions of subparagraph (g)(i) will not apply to (x) the
issuance of securities (other than for cash) in connection with an acquisition,
merger, consolidation, or a sale or disposition of assets, or (y) the exchange
of the capital stock for assets, stock or other joint venture interests;
provided, however, that any action contemplated under this subparagraph (g)(ii)
is subject to the condition that registration rights, if any, in connection with
such action shall not require the filing of a Registration Statement in respect
of such stock prior to one hundred eighty (180) days after the Effective Date.
(iii) The provisions of subparagraph (g)(i) will also not apply to (x)
the issuance of securities to a Strategic Partner (except that the provisions of
subparagraph g(iv) shall apply with respect to the issuance of such securities
to the Strategic Partner) and (y) the issuance of securities to employees of the
Company under the Company's ESOP in existence on the date hereof.
(iv) Within ten (10) business days after the Initial Closing Date, the
Company shall obtain the agreement (each, a "Principal's Agreement") of each of
its Principals (as defined below) that, without the prior written consent of the
Buyer in each instance, such Principal will not sell or otherwise transfer or
offer to sell or otherwise transfer (except in a private transaction in which
the transferee agrees in writing for the benefit of Buyer and enforceable by
Buyer, a copy of which written agreement is provided to Buyer, to be bound by
the provisions of the Principal's Agreement as if such transferee were a
Principal) any shares of Common Stock directly or indirectly held by such
Principal prior to one hundred eighty (180) days after the Effective Date. Each
such Principal's Agreement shall (w) specify that it is entered into as an
inducement to the Buyer's execution, delivery and performance of this Agreement,
(x) name the Buyer as a third party beneficiary thereof, (y) acknowledge that
the Company's transfer agent will be provided with instructions that transfers
by a Principal require the consent of the Company and the Buyer, and (z)
contemplate that, in addition to any other damages or remedies that may be
appropriate, the Principal's Agreement shall be enforceable by injunction sought
by the Company and the Buyer or any one or more of them. A "Principal" is a
person who meets any one or more of the following criteria: (A) a person who is
a director or principal officer of
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the Company (each, a "Company Principal") and who, directly or indirectly, holds
any shares of Common Stock of the Company; (B) a spouse of a Company Principal
(a "Principal's Spouse") who, directly or indirectly, holds any shares of Common
Stock of the Company, (C) a parent, sibling or child of a Company Principal who
resides in the household of a Company Principal or of a Principal's Spouse
(each, a "Principal's Relative") and who, directly or indirectly, holds any
shares of Common Stock, (D) any other person or entity, including, without
limitation, for profit or non-profit corporations, partnerships and trusts,
whose voting rights regarding Common Stock of the Company is subject to the
direction, control or other influence of any Company Principal, Principal's
Spouse, or Principal's Relative, or (E) a Strategic Partner and any person or
entity controlled by or in control of such Strategic Partner. If the Company
enters into an agreement with a Strategic Partner after the date hereof, the
Company shall obtain the Principal's Agreement from the parties contemplated by
clause (E) of the immediately preceding sentence simultaneously with the closing
of such agreement. Anything in the preceding provisions of this subparagraph
(iv) to the contrary notwithstanding, Buyer agrees that each of M. D. Tokayer,
Robert Friedman and Baruch Sollish may exclude 25,000 shares of the Company's
Common Stock currently held by him from his Principal's Agreement.
(v) In the event the Company breaches the provisions of this Section
4(g), the Conversion Rate (as defined in the Debentures) shall be amended to be
equal to (x) 90% of (y) the amount determined in accordance with the provisions
of the Debenture without regard to this provision, and the Purchaser may require
the Company to immediately redeem all outstanding Debentures in accordance with
Section 4(j)(y) hereof.
h. Available Shares. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield two hundred percent (200%) of the number of shares of Common
Stock issuable (i) at conversion as may be required to satisfy the conversion
rights of the Buyer pursuant to the terms and conditions of the Debentures and
(ii) upon exercise as may be required to satisfy the exercise rights of the
Buyer pursuant to the terms and conditions of the Warrants.
i. Warrants. The Company agrees to issue to the Buyer on or within one
business day of each Delivery Date transferable, divisible warrants (the
"Warrants") for the purchase of one share of Common Stock for each two shares of
Common Stock issuable in connection with the corresponding conversion of the
Debentures. The Warrants attributable to each such conversion shall bear an
exercise price equal to the lesser of (x) one hundred twenty percent (120%) of
the relevant Conversion Rate or (y) one hundred twenty-five percent (125%) of
the Base Price (as defined in the Debentures). The Warrants will expire on the
last day of the calendar month in which the third anniversary of the Closing
Date occurs. The Warrants shall be in the form annexed hereto as Annex VI,
together with (x) registration rights as provided in the Registration Rights
Agreement and (y) piggy-back registration rights after the effectiveness of the
Registration Statement expires, as contemplated by the Registration Rights
Agreement.
j. Limitation on Issuance of Shares. The Company may be limited in the
number of shares of Common Stock it may issue by virtue of (i) the number of
authorized shares
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or (ii) the applicable rules and regulations of the principal securities market
on which the Common Stock is listed or traded, including, but not necessarily
limited to, NASDAQ Rule 4310(c)(25)(H)(i)(d)(2) (collectively, the "Cap
Regulations"). Without limiting the other provisions thereof, the Debentures
shall provide that (i) the Company will take all steps reasonably necessary to
be in a position to issue shares of Common Stock on conversion of the Debentures
without violating the Cap Regulations and (ii) if, despite taking such steps,
the Company still can not issue such shares of Common Stock without violating
the Cap Regulations, the holder of a Debenture which can not be converted as
result of the Cap Regulations (each such Debenture, an "Unconverted Debenture")
shall have the option, exercisable in such holder's sole and absolute
discretion, to elect either of the following remedies:
(x) if permitted by the Cap Regulations, require the Company to issue
shares of Common Stock in accordance with such holder's notice of
conversion at a conversion purchase price equal to the average of the
closing price per share of Common Stock for any five (5) consecutive
trading days (subject to certain equitable adjustments for certain events
occurring during such period) during the sixty (60) trading days
immediately preceding the date of notice of conversion; or
(y) require the Company to redeem each Unconverted Debenture for an
amount (the "Redemption Amount"), payable in cash, equal to:
V x M
------
CP
where:
"V" means the principal of an Unconverted Debenture plus any accrued
but unpaid interest thereon;
"CP" means the conversion price in effect on the date of redemption
(the "Redemption Date") specified in the notice from the holder of the
Unconverted Debentures electing this remedy; and
"M" means the highest closing price per share of the Common Stock
during the period beginning on the Redemption Date and ending on the date
of payment of the Redemption Amount.
A holder of an Unconverted Debenture may elect one of the above remedies with
respect to a portion of such Unconverted Debenture and the other remedy with
respect to other portions of the Unconverted Debenture. The Debentures shall
contain provisions substantially consistent with the above terms, with such
additional provisions as may be consented to by the Buyer. The provisions of
this paragraph are not intended to limit the scope of the provisions otherwise
included in the Debentures.
13
<PAGE>
k. Hedging Transactions. (i) The Company understands that the Buyer may
be a so-called "hedge" fund, and the Company hereby expressly agrees that,
except as provided in subparagraph (ii) of this paragraph (k), the Buyer shall
not in any way be prohibited or restricted from any purchases or sales of any
securities or other instruments of, or related to, the Company or any of its
securities, including, but not necessarily limited to, puts, calls, futures
contracts, short sales and hedging and arbitrage transactions. The Buyer
acknowledges that such purchases, sales and other transactions may be subject to
various federal and state securities laws and agrees to comply with all such
applicable securities laws.
(ii) The Buyer agrees that, prior to the Effective Date, the Buyer will
not engage in any puts, calls, futures contracts, short sales and hedging and
arbitrage transactions with respect to the Common Stock.
l. Right of First Refusal. (i) The Company covenants and agrees that if
during the period from the date hereof through and including the date which is
two hundred seventy (270) days after the Effective Date, the Company offers to
enter into any transaction other than with a Strategic Partner (a "New
Transaction") for the sale of New Common Stock, the Company shall notify the
Buyer in writing of all of the terms of such offer (a "New Transaction Offer").
The Buyer shall have the right (the "Right of First Refusal"), exercisable by
written notice given to the Company by the close of business on the fifth
business day after the Buyer's receipt of the New Transaction Offer (the "Right
of First Refusal Expiration Date"), to participate in all or any part of the New
Transaction Offer on the terms so specified.
(ii) If, and only if, the Buyer does not exercise the Right of First
Refusal in full, the Company may consummate the remaining portion of the New
Transaction with any New Investor on the terms specified in the New Transaction
Offer within thirty (30) days of the Right of First Refusal Expiration Date.
(iii) If the terms of the New Transaction to be consummated with such
other party differ from the terms specified in the New Transaction Offer so that
the terms are more beneficial in any respect to the New Investor, the Company
shall give the Buyer a New Transaction Offer relating to the terms of the New
Transaction, as so changed, and the Buyer's Right of First Refusal and the
preceding terms of this paragraph (l) shall apply with respect to such changed
terms.
(iv) If there is more than one Buyer signatory to this Agreement, the
preceding provisions of this paragraph (l) shall apply pro rata among them
(based on their relative Buyer's Allocable Shares), except that, to the extent
any such Buyer does not exercise its Right of First Refusal in full (a
"Declining Buyer"), the remaining Buyer or Buyers who or which have exercised
their own Right of First Refusal in full, shall have the right (pro rata among
them based on their relative Buyer's Allocable Shares, if more than one) to
exercise all or a portion of such Declining Buyer's unexercised Right of
Refusal. Nothing in this paragraph (l) shall be deemed to permit a transaction
not otherwise permitted by subparagraph (g)(i), as modified by the provisions of
subparagraph (g)(ii).
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<PAGE>
(v) In the event the New Transaction is consummated with such other
third party at any time prior to the expiration of ninety (90) days after the
Effective Date on terms providing for (x) either a sale price equal to or
computed based on, or a determination of a conversion price based on, a lower
percentage of the then current market price (howsoever defined or computed) than
provided in the Debentures for determining the Conversion Rate or a lower Base
Price (howsoever defined or computed) and/or (y) the issuance of warrants at an
exercise price lower than that provided in the Warrants, the terms of any
unissued or unconverted Debentures or any unissued or unexercised Warrants shall
be modified to reduce the relevant Conversion Rate, Base Price or Warrant
exercise price to be equal to that provided in the New Transaction as so
consummated.
m. Certain Transfers Require Consent of Company. Anything in the other
provisions of this Agreement or any of the other Transaction Agreements to the
contrary notwithstanding, in no event shall any one or more of the Buyers
individually or collectively transfer any of the Debentures, Shares, Warrants or
Warrant Shares to any party except (i) in an ordinary bona fide arm's-length
over-the-counter or other established market transaction, (ii) provided the
transferee in such transaction agrees in writing in favor of the Company and
enforceable by the Company, a copy of which writing shall be provided to the
Company, to be bound by the provisions of this paragraph, to a relative or
affiliate of the Buyer or (iii) with the prior written consent of the Company,
which consent the Company agrees not to unreasonably withhold or delay. The
provisions of this paragraph shall not be read in any way to limit any other
rights the Buyer may have under the Transaction Agreements , including but not
limited to the right to convert the Debentures as contemplated therein and in
this Agreement.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the Purchase Price
for the Initial Debentures in accordance with Section 1(c) hereof, the Company
will irrevocably instruct its transfer agent to issue Common Stock from time to
time upon conversion of the Debentures in such amounts as specified from time to
time by the Company to the transfer agent, bearing the restrictive legend
specified in Section 4(b) of this Agreement prior to registration of the Shares
under the 1933 Act, registered in the name of the Buyer or its nominee and in
such denominations to be specified by the Buyer in connection with each
conversion of the Debentures. The Company warrants that no instruction
inconsistent with the instructions referred to in this Section 5 and the stop
transfer instructions to give effect to Section 4(a) hereof prior to
registration and sale of the Shares under the 1933 Act will be given by the
Company to the transfer agent with respect to the Shares and that the Shares
shall otherwise be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement, the Registration Rights
Agreement, and applicable law. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of the Securities. If the Buyer provides the Company with an
opinion of counsel reasonably satisfactory to the Company that registration of a
resale by the Buyer of any of the Securities in accordance with clause (1)(B) of
Section 4(a) of this Agreement is not
15
<PAGE>
required under the 1933 Act, the Company shall (except as provided in clause (2)
of Section 4(a) of this Agreement) permit the transfer of the Securities and, in
the case of the Converted Shares or the Warrant Shares, as the case may be,
promptly instruct the Company's transfer agent to issue one or more certificates
for Common Stock without legend in such name and in such denominations as
specified by the Buyer.
b. (i) The Company will permit the Buyer to exercise its right to
convert the Debentures by telecopying or delivering an executed and completed
Notice of Conversion to the Company and delivering, within five (5) business
days thereafter, the original Debentures being converted to the Company by
express courier, with a copy to the transfer agent.
(ii) The term "Conversion Date" means, with respect to any conversion
elected by the holder of the Debentures, the date specified in the Notice of
Conversion, provided the copy of the Notice of Conversion is telecopied to or
otherwise delivered to the Company in accordance with the provisions hereof so
that it is received by the Company on or before such specified date.
(iii) The Company will transmit the certificates representing the
Converted Shares issuable upon conversion of any Debentures (together, unless
otherwise instructed by the Buyer, with Debentures not being so converted) to
the Buyer at the address specified in the Notice of Conversion (which may be the
Buyer's address for notices as contemplated by Section 11 hereof or a different
address) via recognized express or overnight courier, by electronic transfer or
otherwise, within three (3) business days if the address for delivery is in the
United States and within eight (8) business days if the address for delivery is
outside the United States (such third business day or eighth business day, as
the case may be, the "Delivery Date") after (A) the business day on which the
Company has received both of the Notice of Conversion (by facsimile or other
delivery) and the original Debentures being converted (and if the same are not
delivered to the Company on the same date, the date of delivery of the second of
such items) or (B) the date an interest payment on the Debenture, which the
Company has elected to pay by the issuance of Common Stock, as contemplated by
the Debentures, was due.
c. The Company understands that a delay in the issuance of the Shares
of Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer for late issuance of Shares upon Conversion in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond two (2) business days from the
Delivery Date):
16
<PAGE>
Late Payment For Each $10,000
of Debenture Principal or Interest
No. Business Days Late Amount Being Converted
---------------------- ----------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each
Business Day Late
beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Buyer's right to
pursue actual damages for the Company's failure to issue and deliver the Common
Stock to the Buyer. Furthermore, in addition to any other remedies which may be
available to the Buyer, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within two (2) business days
after the Delivery Date, the Buyer will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Buyer shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion.
d. If, by the relevant Delivery Date, the Company fails for any reason
to deliver the Shares to be issued upon conversion of a Debenture and after such
Delivery Date, the holder of the Debentures being converted (a "Converting
Holder") purchases, in an arm's-length open market transaction or otherwise,
shares of Common Stock (the "Covering Shares") in order to make delivery in
satisfaction of a sale of Common Stock by the Converting Holder (the "Sold
Shares"), which delivery such Converting Holder anticipated to make using the
Shares to be issued upon such conversion (a "Buy-In"), the Company shall pay to
the Converting Holder, in addition to all other amounts contemplated in other
provisions of the Transaction Agreements, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Company in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing, if the Converting Holder purchases shares of
Common Stock having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.
17
<PAGE>
e. In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Buyer and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
f. The Company will authorize its transfer agent to give information
relating to the Company directly to the Buyer or the Buyer's representatives
designated by the Buyer in writing to the Company upon the request of the Buyer
or any such representative. The Company will provide the Buyer with a copy of
the authorization so given to the transfer agent.
6. CLOSING DATES.
a. The Initial Closing Date shall occur on the date which is the first
NYSE trading day after each of the conditions contemplated by Sections 7 and 8
hereof shall have either been satisfied or been waived by the party in whose
favor such conditions run.
b. (i) The Additional Closing Date shall be earlier of the date
specified in the Filing Additional Closing Date Notice or the date contemplated
by the Effectiveness Additional Closing Date Notice (as those terms are defined
below; each an "Additional Closing Date Notice"). Each Additional Closing Date
Notice shall be a written notice given by the Company to the Buyer and to the
Escrow Agent by fax transmission or hand delivery. Additional provisions
regarding the giving of any Additional Closing Date Notice are provided in the
following provisions of this Section 6(b).
(ii) The term "Filing Additional Closing Date Notice" means a notice
given within thirty (30) days after the date (the "Statement Filing Date") on
which the Registration Statement has been filed by the Company with the SEC (on
the SEC's EDGAR system) in which the Company specifies as the Additional Closing
Date a business day which is at least forty-five (45) days after the Statement
Filing Date.
(iii) Subject to the other provisions of this Section 6(b), the term
"Effectiveness Additional Closing Date Notice" means a notice given no later
than one (1) business day after the Company submits the Effectiveness Request
(as defined below; a copy of the Effectiveness Request shall be attached to the
Effectiveness Additional Closing Date Notice) in which the Company specifies the
the number of business days after the actual Effective Date, which number shall
be at least two (2) and not more than five (5), on which the Additional Closing
Date is to occur. If an Effectiveness Closing Date Notice is given, the Company
shall also notify the Buyer and the Escrow Agent both (x) by fax transmission or
hand delivery and (y) by telephone communication of the actual Effective Date
declared by the SEC no later than noon on the business day after such Effective
Date.
18
<PAGE>
(iv) The term "Effectiveness Request" means the Company's written
request to the SEC that the SEC declare the Registration Statement effective on
a specified date which is more than (5) business days prior to the Additional
Closing Date specified in the Filing Additional Closing Date Notice; provided,
however, that the Effectiveness Request shall be given only after the SEC has
advised the Company informally, in writing or otherwise that it will respond
favorably to such request.
(v) The closing for the Additional Debentures shall be conducted upon
the same terms and conditions as those applicable to the Initial Debentures.
(vi) The Buyer agrees that, anything in Section 10 hereof to the
contrary notwithstanding, an Additional Closing Date Notice and any other
communication contemplated to be given to the Buyer under this Section 6(b)
shall be deemed properly given to the Buyer if such notice is given in the
manner contemplated by this Section 6(b) to Wall and Broad Equities, 4424 16th
Avenue, Brooklyn, NY 11204, Attn: Isaac Weinhouse, telephone no. (718) 972-6800,
fax no. (718) 972-6803 on behalf of Buyer.
c. Each closing of the purchase and issuance of Debentures shall occur
on the relevant Closing Date at the offices of the Escrow Agent and shall take
place no later than 3:00 P.M., New York time, on such day or such other time as
is mutually agreed upon by the Company and the Buyer.
d. Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Funds to the Company and
to others and to release the other Escrow Property on the relevant Closing Date
upon satisfaction of the conditions set forth in Sections 7 and 8 hereof and as
provided in the Joint Escrow Instructions.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
relevant Debentures to the Buyer pursuant to this Agreement on the relevant
Closing Date is conditioned upon:
a. The execution and delivery of this Agreement by the Buyer;
b. Delivery by the Buyer to the Escrow Agent of good funds as payment
in full of an amount equal to the Purchase Price for the relevant Debentures in
accordance with this Agreement;
c. The accuracy on such Closing Date of the representations and
warranties of the Buyer contained in this Agreement, each as if made on such
date, and the performance by the Buyer on or before such date of all covenants
and agreements of the Buyer required to be performed on or before such date; and
d. There shall not be in effect any law, rule or regulation prohibiting
or
19
<PAGE>
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Debentures on the relevant Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the Registration
Rights Agreement by the Company;
b. Delivery by the Company to the Escrow Agent of the relevant
Certificates in accordance with this Agreement;
c. The accuracy in all material respects on such Closing Date of the
representations and warranties of the Company contained in this Agreement. each
as if made on such date, and the performance by the Company on or before such
date of all covenants and agreements of the Company required to be performed on
or before such date;
d. On such Closing Date, the Registration Rights Agreement shall be in
full force and effect and the Company shall not be in default thereunder;
e. On such Closing Date, the Buyer shall have received an opinion of
counsel for the Company, dated such Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, substantially to the effect set forth in
Annex III attached hereto;
f. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained;
g. From and after the date hereof to and including such Closing Date,
the trading of the Common Stock shall not have been suspended by the SEC or the
NASD and trading in securities generally on the New York Stock Exchange or The
NASDAQ/Bulletin Board Market shall not have been suspended or limited, nor shall
minimum prices been established for securities traded on The NASDAQ/Bulletin
Board Market, nor shall there be any outbreak or escalation of hostilities
involving the United States or any material adverse change in any financial
market that in either case in the reasonable judgment of the Buyer makes it
impracticable or inadvisable to purchase the Debentures; and
h. With respect to the Additional Closing Date,
(i) an appropriate Additional Closing Date Notice shall have been duly
given;
(ii) if the Additional Closing Date is the date contemplated by the
Effectiveness Additional Closing Date Notice, the Registration Statement shall
have been declared effective by the SEC to cover all Registrable Securities for
all the Debentures (and all the related Warrants),
20
<PAGE>
as contemplated by the Registration Rights Agreement, prior to such Additional
Closing Date;
(iii) the representations and warranties of the Company contained in
Section 3 hereof shall be true and correct in all material respects (and the
Company's issuance of the relevant Additional Debentures shall constitute the
Company's making each such representation and warranty as of such date) and
there shall have been no material adverse changes (financial or otherwise) in
the business or conditions of the Company from the Initial Closing Date through
and including the Additional Closing Date (and the Company's issuance of the
relevant Additional Debentures shall constitute the Company's making such
representation and warranty as of such date), (iv) the Company shall have timely
issued all shares issuable upon conversion of the Debentures prior to the date
of such Additional Closing Date;
(iv) the Company shall have available and shall reserve for issuance to
Buyer at least one hundred and fifty percent (150%) of the number of Shares
which would be issued on conversion of all unconverted Initial Debentures and
all Additional Debentures and exercise of all unexercised Warrants and all
Warrants which would be issued in connection with the conversion of any
unconverted Debentures (including all Additional Debentures), assuming for such
purposes that the Current Market Price for each subsequent conversion were fifty
percent (50%) of the Market Price of the Common Stock on the day before the
Additional Closing Date and the Conversion Rate and exercise price of any
unissued Warrants were calculated accordingly; and
(v) either the aggregate of the Common Stock issuable
(x) upon conversion of the Additional Debentures as a group or
together with the Common Stock issuable upon conversion of the then
previously issued Debentures, and
(y) upon exercise of the Warrants which might be issued as a result of
the conversion of the Additional Debentures, as a group or together with
the Warrants which have been or which might be issued as a result of the
conversion of the Initial Debentures
(in each case assuming for such computation a Conversion Rate computed based on
a Market Price of the Common Stock equal to 50% of the Market Price of the
Common Stock on the Additional Closing Date and a Warrant exercise price
calculated accordingly) will not result in the issuance of shares in excess of
the Cap Regulations or the Company shall have obtained the consent of its
shareholders, as contemplated by the Cap Regulations, to such issuance.
9. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Delaware for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of
21
<PAGE>
Wilmington or the state courts of the State of Delaware sitting in the City of
Wilmington in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. To the extent determined by such court, the
Company shall reimburse the Buyer for any reasonable legal fees and
disbursements incurred by the Buyer in enforcement of or protection of any of
its rights under any of the Transaction Agreements.
b. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
c. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
e. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
f. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.
g. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
h. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
i. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
j. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
10. NOTICES. Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of
(a) the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile transmission,
22
<PAGE>
(b) the seventh business day after deposit, postage prepaid, in the
United States Postal Service by registered or certified mail, or
(c) the third business day after mailing by international express
courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: TTR TECHNOLOGIES, INC.
1841 Broadway
New York, NY 10023
Attn: Robert Friedman
Telephone No.: (212) 333-3355
Telecopier No.: (212) 333-7891
with a copy to:
TTR Technologies Ltd.
2 Hanagar Street
Kfar Sava 44425 Israel
Attn: M. D. Tokayer
Telephone No.: (011 972 9) 766-2393
Telecopier No.: (011 972 9) 766-2394
and with a copy to:
Aboudi & Brounstein
136 Rothschild Blvd.
Tel Aviv 65272 Israel
Attn: David Aboudi, Esq.
Telephone No.: (011 972 3) 685-1126
Telecopier No.: (011 972 3) 685-1138
BUYER: At the address set forth on the signature page of
this Agreement.
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
Attn: Samuel Krieger, Esq.
New York, New York 10016
Telephone No.: (212) 689-3322
Telecopier No. (212) 213-2077
23
<PAGE>
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
Attn: Samuel Krieger, Esq.
New York, New York 10016
Telephone No.: (212) 689-3322
Telecopier No. (212) 213-2077
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Buyer's representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Certificates and the Warrants
and the payment of the Purchase Price, and shall inure to the benefit of the
Buyer and the Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
24
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
by one of its officers thereunto duly authorized as of the date set forth below.
AMOUNT AND PURCHASE PRICE OF DEBENTURES: $
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this ________ day of
___________________, 1999.
- --------------------------------
Address Printed Name of Subscriber
- --------------------------------
By:
Telecopier No. _________________ (Signature of Authorized Person)
------------------------------------
________________________________ Printed Name and Title
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
TTR TECHNOLOGIES, INC.
By:
Title:
Date: ___________________, 1999
25
<PAGE>
ANNEX I FORM OF DEBENTURE
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI FORM OF WARRANT
26
<PAGE>
EXHIBIT 1
Shares Permitted to Be Included in Registratation Statement
_____________ Shares of ___________ Owned/Description of
Shareholder Name Common Stock Right to Acquire
- ---------------- ------------ ----------------
Wall & Broad Equities ("Finder") 1,200,000 Warrants Issued May __, 1999,
exercisable at $0.01/share,
with piggy back registration
rights
Exhibit 1 continued on next page
--------------------------------
27
ANNEX IV
TO
SECURITIES PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of May 13, 1999 (this
"Agreement"), is made by and between TTR TECHNOLOGIES, INC. (formerly known as
TTR INC.), a Delaware corporation, with headquarters located at 1841 Broadway,
New York, NY 10023 (the "Company"), and each entity named on a signature page
hereto (each, an "Initial Investor") (each agreement with an Initial Investor
being deemed a separate and independent agreement between the Company and such
Initial Investor, except that each Initial Investor acknowledges and consents to
the rights granted to each other Initial Investor under such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement, dated as of May , 1999, between the Initial Investor and the
Company (the "Securities Purchase Agreement"; terms not otherwise defined herein
shall have the meanings ascribed to them in the Securities Purchase Agreement),
the Company has agreed to issue and sell to the Initial Investor one or more 10%
Convertible Debentures of the Company, in an aggregate principal amount not
exceeding $2,000,000 (the "Debentures"); and
WHEREAS, the Company has agreed to issue the Warrants to the Initial
Investor in connection with the issuance of the Debentures; and
WHEREAS, the Debentures are convertible into shares of Common Stock
(the "Conversion Shares"; which term, for purposes of this Agreement, shall
include shares of Common Stock of the Company issuable in lieu of accrued
interest on conversion as contemplated by the Debentures) upon the terms and
subject to the conditions contained in the Debentures and the Warrants may be
exercised for the purchase of shares of Common Stock (the "Warrant Shares") upon
the terms and conditions of the Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and the Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
<PAGE>
1. Definitions. As used in this Agreement, the following terms shall have the
following meanings:
(a) "Investor" means the Initial Investor and any permitted transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof and who holds Debentures, Warrants or
Registrable Securities.
(b) "Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good faith
by the Board of Directors of the Company that disclosure of such information in
the registration statement would be detrimental to the business and affairs of
the Company; or (ii) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
(c) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(d) "Registrable Securities" means the Conversion Shares and the
Warrant Shares.
(e) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(f) "Required Effective Date" means the relevant Initial Required
Effective Date or Increased Required Effective Date (as those terms are defined
below).
2. Registration.
(a) Mandatory Registration.
(i) The Company shall prepare and file with the SEC, as soon as
possible after the Initial Closing Date but no later than June 15, 1999 (the
"Required Filing Date"), either a Registration Statement on Form SB-2 or an
amendment to an existing Registration Statement, in either event registering for
resale by the Investor a sufficient number of shares of Common Stock for the
Initial Investors to sell the Registrable Securities (or such lesser number as
may be required by the SEC, but in no event less than two hundred percent (200%)
of the aggregate
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number of shares (A) into which the Initial Debentures and the Additional
Debentures and all interest thereon through their respective Maturity Dates
would be convertible at the time of filing of such Registration Statement
(assuming for such purposes that the Additional Debentures had been issued at
such date and that all Debentures had been eligible to be converted, and had
been converted, into Conversion Shares in accordance with their terms, whether
or not such issuance, accrual of interest, eligibility or conversion had in fact
occurred as of such date) and (B) which would be issued upon exercise of all of
the Warrants at the time of filing of the Registration Statement (assuming for
such purposes that the Warrants issued in connection with the purchase and sale
of all Debentures had been issued and that all Warrants had been eligible to be
exercised for the maximum number of shares contemplated thereby and had been
exercised in accordance with their terms, whether or not such issuance,
eligibility or exercise had in fact occurred as of such date). The Registration
Statement (W) shall include only the Registrable Securities and, subject to the
provisions set forth below in subparagraph (iii), the shares specifically listed
on Exhibit 1 annexed hereto; and (X) shall also state that, in accordance with
Rule 416 and 457 under the Securities Act, it also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of the Debentures and the exercise of the Warrants to prevent
dilution resulting from stock splits, or stock dividends. The Company will use
its reasonable best efforts to cause such Registration Statement to be declared
effective on a date (the "Initial Required Effective Date") which no later than
is the earlier of (Y) five (5) days after notice by the SEC that it may be
declared effective or (Z) ninety (90) days after the Initial Closing Date.
(b) (ii) If at any time (an "Increased Registered Shares Date"), the
number of shares of Common Stock represented by the Registrable Shares, issued
or to be issued as contemplated by the Transaction Agreements, exceeds the
aggregate number of shares of Common Stock then registered, the Company shall,
within ten (10) business days after receipt of a written notice from any
Investor, either (X) amend the Registration Statement filed by the Company
pursuant to the preceding provisions of this Section 2, if such Registration
Statement has not been declared effective by the SEC at that time, to register
two hundred percent (200%) of such Registrable Shares, computed as contemplated
by the immediately preceding subparagraph (i), or (Y) if such Registration
Statement has been declared effective by the SEC at that time, file with the SEC
an additional Registration Statement on Form SB-2 or other appropriate
registration statement form (an "Additional Registration Statement") to register
two hundred percent (200%) of the shares of Common Stock represented by the
Registrable Shares, computed as contemplated by the immediately preceding
subparagraph (i), that exceed the aggregate number of shares of Common Stock
already registered. The Company will use its reasonable best efforts to cause
such Registration Statement to be declared effective on a date (each, an
"Increased Required Effective Date") which is no later than (Q) with respect to
a Registration Statement under clause (X) of this subparagraph (ii), the Initial
Required Effective Date and (R) with respect to an Additional Registration
Statement, the earlier of (I) five (5) days after notice by the SEC that it may
be declared effective or (II) thirty (30) days after the Increased Registered
Shares Date.
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(c) (iii) Except with respect to the party identified as the "Finder"
on Exhibit 1 annexed hereto, it shall be a condition to the inclusion in the
Registration Statement of the shares specifically listed on Exhibit 1 annexed
hereto that the holder of such shares (each such holder, other than the Finder,
an "Included Holder") agree in writing (an "Included Holder's Agreement"), which
writing shall be in favor of Buyer and enforceable against such holder by Buyer
(a copy of which Included Holder's Agreement shall be provided to Buyer no later
than the date the Registration Statement is first filed with the SEC), that such
Included Holder and any of such Included Holder's transferees other than a
Permitted Transferee (as defined below) will not sell or otherwise transfer,
individually or on a combined basis, more than twenty-five percent (25%) of such
Included Holder's shares listed in the Registration Statement during any
consecutive thirty (30) day period (the shares permitted to be transferred in
each such period are referred to as "Permitted Shares"). In addition to, and not
in lieu of the foregoing provisions of this subparagraph (iii), the Included
Holder's Agreement of any Included Holder who, as of the date of this Agreement,
holds a warrant to purchase Common Stock of the Company shall also provide that
such Included Holder agrees not to sell or otherwise transfer any of such
Included Holder's shares issued on exercise of such warrants prior to the date
which is thirty (30) days after the Effective Date, and that any sales and
transfers made thereafter will be made in compliance with the other terms and
conditions set forth in the Included Holder's Agreement. A "Permitted
Transferee" is a party acquiring all or a portion of the Permitted Shares in a
transaction made pursuant to the prospectus included in the Registration
Statement. The Buyer may require the Company to institute reasonable procedures
(such as, but not necessarily limited to, the establishment of an escrow
arrangement for the shares of each Included Holder) to assure compliance with
this provision.
(d) Payments by the Company.
(i) If the Registration Statement covering the Registrable Securities
is not filed in proper form with the SEC by the Required Filing Date, the
Company will make payment to the Initial Investor in such amounts and at such
times as shall be determined pursuant to this Section 2(b).
(ii) If the Registration Statement covering the Registrable Securities
is not effective by the relevant Required Effective Date or if the Investor is
restricted from making sales of Registrable Securities covered by a previously
effective Registration Statement at any time (the date such restriction
commences, a "Restricted Sale Date") after the Effective Date other than during
a Permitted Suspension Period (as defined below), then the Company will make
payments to the Initial Investor in such amounts and at such times as shall be
determined pursuant to this Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid by the Company to
the Initial Investor shall be determined as of each Computation Date (as defined
below) and such amount shall be equal to the Periodic Amount Percentage (as
defined below) of the Purchase Price for all Debentures for the period from the
date following the relevant Required Filing Date, Required Effective Date or
Restricted Sale Date, as the case may be, to the first relevant
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Computation Date, and thereafter to each subsequent Computation Date. The
"Periodic Amount Percentage" means (A) two percent (2%) of the Purchase Price
for all the Debentures for the period from the date following the relevant
Required Filing Date, Required Effective Date or Restricted Sale Date, as the
case may be, to the first relevant Computation Date, and (B) three percent (3%)
of the Purchase Price of all Debentures to each Computation Date thereafter.
Anything in the preceding provisions of this paragraph (iii) to the contrary
notwithstanding, after the Effective Date the Purchase Price shall be deemed to
refer to the sum of (X) the principal amount of all Debentures not yet converted
and (Y) the Held Shares Value (as defined below). The "Held Shares Value" means,
for shares acquired by the Investor upon a conversion within the thirty (30)
days preceding the Restricted Sale Date, but not yet sold by the Investor, the
principal amount of the Debentures converted into such Conversion Shares;
provided, however, that if the Investor effected more than one conversion during
such thirty (30) day period and sold less than all of such shares, the sold
shares shall be deemed to be derived first from the conversions in the sequence
of such conversions (that is, for example, until the number of shares from the
first of such conversions have been sold, all shares shall be deemed to be from
the first conversion; thereafter, from the second conversion until all such
shares are sold). By way of illustration and not in limitation of the foregoing,
if the Registration Statement is timely filed but is not declared effective
until one hundred sixty-five (165) days after the Initial Closing Date, the
Periodic Amount will aggregate eight percent (8%) of the Purchase Price of the
Debentures (2% for days 91-120, plus 3% for days 121-150, plus 3% for days
151-165).
(iv) Each Periodic Amount will be payable by the Company in cash or
other immediately available funds to the Investor monthly, without requiring
demand therefor by the Investor.
(v) The parties acknowledge that the damages which may be incurred by
the Investor if the Registration Statement is not filed by the Required Filing
Date or if the Registration Statement has not been declared effective by a
Required Effective Date, including if the right to sell Registrable Securities
under a previously effective Registration Statement is suspended, may be
difficult to ascertain. The parties agree that the Periodic Amounts represent a
reasonable estimate on the part of the parties, as of the date of this
Agreement, of the amount of such damages.
(vi) Notwithstanding the foregoing, the amounts payable by the Company
pursuant to this provision shall not be payable to the extent any delay in the
effectiveness of the Registration Statement occurs because of an act of, or a
failure to act or to act timely by the Initial Investor or its counsel, or in
the event all of the Registrable Securities may be sold pursuant to Rule 144 or
another available exemption under the Act.
(vii) "Computation Date" means (A) the date which is the earlier of (1)
thirty (30) days after the Required Filing Date, any relevant Required Effective
Date or a Restricted Sale Date, as the case may be, or (2) the date after the
Required Filing Date, such Required Effective Date or Restricted Sale Date on
which the Registration Statement is filed (with respect to payments due as
contemplated by Section 2(b)(i) hereof) or is declared effective or has its
restrictions removed
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(with respect to payments due as contemplated by Section 2(b)(ii) hereof), as
the case may be, and (B) each date which is the earlier of (1) thirty (30) days
after the previous Computation Date or (2) the date after the previous
Computation Date on which the Registration Statement is filed (with respect to
payments due as contemplated by Section 2(b)(i) hereof) or is declared effective
or has its restrictions removed (with respect to payments due as contemplated by
Section 2(b)(ii) hereof), as the case may be.
(viii) Anything in the preceding provisions of this Section 2(b) to the
contrary notwithstanding, if, but only if, the Registration Statement is
declared effective within one hundred twenty (120) days following the Initial
Closing Date, the provisions of Section 2(b)(ii) shall not apply to the fact
that the Registration Statement was initially declared effective after the
Initial Required Effective Date, and the Company will not have any obligation to
pay any Periodic Amount to the Initial Investor with respect thereto; provided,
however, that the provisions of Section.2(b)(ii) shall continue to apply to all
other events described therein.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following.
(a) Prepare promptly, and file with the SEC by the Required Filing Date
a Registration Statement with respect to not less than the number of Registrable
Securities provided in Section 2(a) above, and thereafter use its reasonable
best efforts to cause such Registration Statement relating to Registrable
Securities to become effective by the Required Effective Date and keep the
Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earliest of (i) the date that is two
(2) years after the last day of the calendar month following the month in which
the Effective Date occurs, (ii) the date when the Investors may sell all
Registrable Securities under Rule 144 or (iii) the date the Investors no longer
own any of the Registrable Securities, which Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel designated by the
Initial Investors to review the Registration Statement and all amendments and
supplements thereto a
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reasonable period of time (but not less than three (3) business days) prior to
their filing with the SEC, and not file any document in a form to which such
counsel reasonably objects.
(d) Notify each Investor, such Investor's legal counsel identified to
the Company (which, until further notice, shall be deemed to be Krieger &
Prager, ATTN: Samuel Krieger, Esq.; each, an "Investor's Counsel"), and any
managing underwriters immediately (and, in the case of (i)(A) below, not less
than five (5) days prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one (1) business day following the
day (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is proposed to be filed; (B) whenever
the SEC notifies the Company whether there will be a "review" of such
Registration Statement; (C) whenever the Company receives (or a representative
of the Company receives on its behalf) any oral or written comments from the SEC
in respect of a Registration Statement (copies or, in the case of oral comments,
summaries of such comments shall be promptly furnished by the Company to the
Investors); and (D) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the SEC or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement covering any or all
of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations or warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that to the
best knowledge of the Company makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Investors with
copies of all intended written responses to the comments contemplated in clause
(C) of this Section 3(d) not later than one (1) business day in advance of the
filing of such responses with the SEC so that the Investors shall have the
opportunity to comment thereon.
(e) Furnish to each Investor and such Investor's Counsel (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company, one (1) copy of the Registration Statement, each
preliminary prospectus and prospectus, and each amendment or supplement thereto,
and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
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(f) As promptly as practicable after becoming aware thereof, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(g) As promptly as practicable after becoming aware thereof, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing of the existence of a Potential Material
Event, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Investor receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; provided, however, that the
Company may not so suspend the right to such holders of Registrable Securities
during the periods the Registration Statement is required to be in effect other
than during a Permitted Suspension Period. The term "Permitted Suspension
Period" means one or more suspension periods during any consecutive 12-month
period which suspension periods, in the aggregate, do not exceed fifty (50)
days, provided, however, that no one such suspension period shall either (i) be
for more than twenty (20) days or (ii) begin less than ten (10) business days
after the last day of the preceding suspension (whether or not such last day was
during or after a Permitted Suspension Period).
(i) Use its reasonable efforts to secure and maintain the designation
of all the Registrable Securities covered by the Registration Statement on the
"OTC Bulletin Board Market" of the National Association of Securities Dealers
Automated Quotations System ("NASDAQ") within the meaning of Rule 11Aa2-1 of the
SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the quotation of the Registrable Securities on The NASDAQ Bulletin Board
Market; and, without limiting the generality of the foregoing, to arrange for at
least two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Securities;
(j) Provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
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(k) Cooperate with the Investors to facilitate the timely preparation
and delivery of certificates for the Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates for the
Registrable Securities to be in such denominations or amounts as the case may
be, as the Investors may reasonably request, and, within three (3) business days
after a Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) an appropriate instruction and opinion
of such counsel; and
(l) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement.
4. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least ten (10) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor (the "Requested Information") if such Investor elects to have any
of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or
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destroy (and deliver to the Company a certificate of destruction) all copies in
such Investor's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
5. Expenses of Registration.
(a) All reasonable expenses (other than underwriting discounts and
commissions of the Investor) incurred in connection with registrations, filings
or qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printers and accounting fees,
the fees and disbursements of counsel for the Company and a fee for a single
counsel for the Investors not exceeding, in the aggregate for all Investors,
$3,500, shall be borne by the Company.
(b) Except as and to the extent specifically set forth in Exhibit 1
attached hereto, neither the Company nor any of its subsidiaries has, as of the
date hereof, nor shall the Company nor any of its subsidiaries, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Investors in this Agreement
or otherwise conflicts with the provisions hereof. Except as and to the extent
specifically set forth in Exhibit 1 attached hereto, neither the Company nor any
of its subsidiaries has previously entered into any agreement granting any
registration rights with respect to any of its securities to any Person. Without
limiting the generality of the foregoing, without the written consent of the
Investors holding a majority of the Registrable Securities, the Company shall
not grant to any person the right to request the Company to register any
securities of the Company under the Securities Act unless the rights so granted
are subject in all respects to the prior rights in full of the Investors set
forth herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement and the other Transaction Agreements.
6. Indemnification. In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person" or "Indemnified Party"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to
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make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation under the Securities Act, the Exchange
Act or any state securities law (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to clause (b) of this
Section 6, the Company shall reimburse the Investors, promptly as such expenses
are incurred and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (I) apply to
a Claim arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of any Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (II) be available to the extent such Claim is
based on a failure of the Investor to deliver or cause to be delivered the
prospectus made available by the Company; or (III) apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Each
Investor will indemnify the Company and its officers, directors and agents
(each, an "Indemnified Person" or "Indemnified Party") against any claims
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company, by or on behalf
of such Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be. In case any such action is brought against any Indemnified Person
or Indemnified Party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such Indemnified Person or
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Person or Indemnified
Party under this Section 6 for any legal or other reasonable out-of-pocket
expenses subsequently incurred by such Indemnified Person or Indemnified Party
in connection with the defense thereof other than reasonable costs of
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investigation, unless the indemnifying party shall not pursue the action of its
final conclusion. The Indemnified Person or Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and reasonable out-of-pocket expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the Indemnified Person or Indemnified Party. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. Contribution.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(a) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation; and (c) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. Reports under Exchange Act.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the Securities Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
12
<PAGE>
9. Assignment of the Registration Rights.
The rights to have the Company register Registrable Securities pursuant
to this Agreement shall be automatically assigned by the Investors to any
transferee of the Registrable Securities (or all or any portion of any
unconverted Debenture or unexercised Warrant) only if: (a) the Investor agrees
in writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, and (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein. In the event of any delay in filing or effectiveness of the
Registration Statement as a result of such assignment, the Company shall not be
liable for any damages arising from such delay, or the payments set forth in
Section 2(c) hereof arising from such delay.
10. Amendment of Registration Rights.
Any provision of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold an sixty-seven (67%) percent interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be given
in the manner contemplated by the Agreement, (i) if to the Company or to the
Initial Investor, to their respective address contemplated by the Agreement, and
(iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b).
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Delaware for contracts to be wholly performed in
such state and without
13
<PAGE>
iving effect to the principles thereof regarding the conflict of laws. Each of
the parties consents to the jurisdiction of the federal courts whose districts
encompass any part of the City of Wilmington or the state courts of the State of
Delaware sitting in the City of Wilmington in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non coveniens, to
the bringing of any such proceeding in such jurisdictions. To the extent
determined by such court, the Company shall reimburse the Buyer for any
reasonable legal fees and disbursements incurred by the Buyer in enforcement of
or protection of any of its rights under this Agreement.
(e) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(j) The Company acknowledges that any failure by the Company to perform
its obligations under Section 3(a) hereof, or any delay in such performance
could result in loss to the Investors, and the Company agrees that, in addition
to any other liability the Company may have by reason of such failure or delay,
the Company shall be liable for all direct damages caused by any such failure or
delay, unless the same is the result of force majeure. Neither party shall be
liable for consequential damages.
(k) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
COMPANY:
TTR TECHNOLOGIES, INC.
By:
Name:
Title:
INITIAL INVESTOR:
By:
Name:
Title:
15
Reference is made to that certain Agreement made as of November 25,
1998 (hereinafter, the "Agreement"), between Arik Shavit, I.D. No.: 030352462,
residing at Ra'annana, Israel ("Shavit") on the one hand, and TTR Technologies,
Inc., a Delaware company with offices at 1841 Broadway, New York, New York ("TTR
Inc.") and TTR Technologies Ltd., an Israeli company with offices at 2 HaNagar
Street, Kfar Saba, Israel ("TTR Ltd." together with "TTR Inc." the "Companies")
on the other hand.
The Parties entered into the Agreement for the purpose of setting forth
their agreements relating to the resignation by Mr. Shavit from the position
held with the Companies. Under the terms of the Agreement, among other things,
TTR Inc. is required to make certain payments to Mr. Shavit and to extend
certain benefits thereto on the terms set forth therein. Additionally, pursuant
to the terms of the Agreement, Shavit's stock options which would have otherwise
vested under his original employment agreement through September 1999 continue
to vest as provided in the Agreement (the "Options"). As of the date hereof, the
unexercised portion of such Options number 40,273 stock Options (the
"Unexercised Options")
Shavit understands that the Company is in the process of filing with
the Securities and Exchange Commission a registration statement relating to
certain Company securities held by certain Company shareholders or the holders
of certain rights in Company securities, (the "Registration Statement"). That
Registration Statement is being filed pursuant to the terms of a Registration
Rights Agreement, dated as May 13, 1999, between the Company and the Initial
Investors named therein.
In consideration of the (i) vesting of any Unexercised Option on the
date on which the Registration Statement is declared effective (the "Effective
Date") (but in any event not later than September 29, 1999) and (ii) inclusion
of the common shares issuable upon the exercise of Shavit's Unexercised Options
in the Registration Statement, by his signature below, Upon the Effective Date,
Shavit hereby irrevocably waives in all respects, at any time prior to or from
and after the date hereof, the Companies' compliance with the provisions of
Section 3(a) and (e) of the Agreement relating to the payment by the Companies
of certain amounts to, and the extension of certain benefits for, Shavit, all as
specified therein, and, irrevocably waives any and all rights and remedies with
respect to the Companies' obligations under the above-specified provisions.
EXCEPT as hereby waived or amended, each and every other provision in
the Agreement shall continue in full force and effect.
Dated as of July 25, 1999
TTR Technologies, Inc.
/s/ ARIK SHAVIT By: /s/ MARC TOKAYER
- ---------------- -----------------------------
Arik Shavit Title: President
TTR Technologies Ltd.
By: /s/ MARC TOKAYER
-----------------------------
Title: President
Exhibit 10.27
AGREEMENT
AGREEMENT made as of this 27th day of July, 1999, between Steven L. Barsh,
residing at 316 Winding Way, Merion Station, PA 19066-1522 ("Barsh"), on the one
hand, and TTR Technologies, Inc., a Delaware company with offices at 1841
Broadway, New York, New York ("TTR Inc." or the "Company") and TTR Technologies
Ltd., an Israeli company with offices at 2 HaNagar Street, Kfar Saba, Israel
("TTR Ltd." together with "TTR Inc.", the "Companies"), on the other hand.
W I T N E S S E T H
WHEREAS, Barsh was employed by TTR Inc. as its Chief Executive Officer
from July 6, 1998 through February 12, 1999, when he resigned from the Companies
pursuant to an employment agreement entered into by Barsh and TTR Inc. as of
July 6, 1998 (hereinafter the "Employment Agreement");
WHEREAS, in connection with his employment, Barsh was granted stock
options under TTR Inc. Employee Stock Option Plan (1996) ("ESOP") to purchase up
to 250,000 common shares of TTR Inc. at an exercise price per share of $2 15/16,
the per share market price of TTR Inc.'s stock at the time of the grant, which
stock options were to vest over a 5 year period;
WHEREAS, on or about October 28, 1998, in connection with the readjustment
in the salary payable to Barsh under the Employment Agreement, Barsh returned to
ESOP the stock grant and was awarded, in lieu of such grant, stock options to
purchase up to 250,000 shares at an exercise price of $15/16, the then per share
market price of TTR Inc.'s stock;
WHEREAS, Barsh resigned from the employ of TTR Inc. effective as of
February 12, 1999; and
WHEREAS, Barsh and the companies desire to settle certain differences
outstanding amongst them relating to the amount of stock options exercisable by
Barsh following his resignation and the satisfaction of certain obligations
owing from TTR Inc. to Barsh, all on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the terms and conditions hereafter set forth
and the consideration received that adequacy of which is hereby acknowledged,
the parties agree hereafter as follows:
1. Exercise of Stock Options. In consideration of Barsh's waiver of any monies
due to him under the Employment Agreement and in satisfaction of all stock
options issued to him and, in consideration of the releases contained herein,
without any acknowledgement or admittance of liability, TTR Inc. agrees that
Barsh shall be deemed to have rightfully exercised his stock options for an
aggregate of 150,000 common shares of TTR Inc. (hereinafter the, "Barsh
Shares"). Within 15 days following the execution of this agreement by all of the
parties hereto, TTR Inc. shall issue to Barsh share certificate(s) reflecting
the Barsh Shares, which certificate(s) may
<PAGE>
2
be issued as instructed by Barsh. Barsh may designate a portion of such shares
as being issued in lieu of the expense reimbursement due to him from the
Companies.
2. Inclusion in the Registration Statement, Lock-Up.
(a) Barsh and the Companies acknowledge that TTR Inc. is preparing a
registration statement under the Securities Act of 1933, as amended (the "Act"),
relating to certain Company securities held by certain Company shareholders or
the holders of certain rights in Company securities, (the "Registration
Statement"), which Registration Statement is being filed pursuant to the terms
of a Registration Rights Agreement, dated as May 13, 1999, between the Company
and the Initial Investors named therein. It is anticipated that the Registration
Statement will be filed within thirty (30) days of the date hereof, though no
assurance may be given that such Registration Statement will in fact be filed.
In consideration of the releases contained herein, TTR Inc. undertakes to
include the Barsh Shares in the Registration Statement.
(b) Lock Up. In consideration of the inclusion of the Barsh Shares in the
Registration Statement (the "Registered Shares"), Barsh hereby agrees as
follows:
(i) Barsh and any of the transferees of the Registered Shares
(except for a Permitted Transferee, as defined below) will not,
directly or indirectly, sell or otherwise transfer, individually or
on a combined basis with such transferees, more than ten percent
(10%) of the Registered Shares as of the date hereof during any
consecutive thirty (30) day period (the shares permitted to be
transferred in each such period are referred to as "Permitted
Shares"); and
(ii) the Company may provide "stop transfer" instructions to
the Company's stock transfer agent to assure compliance with this
agreement, but if the stock transfer agent is not willing to accept
such instructions, the Company may institute other reasonable
procedures to assure compliance with this agreement.
(c) Additional Issuance of Barsh Shares if Registration Statement is not
Filed or Does Not Go Effective. If a Registration Statement including the Barsh
Shares does not go effective on or before January 31, 2000, then Barsh shall be
deemed to have rightfully exercised the balance of his stock options for an
aggregate of 250,000 common shares of TTR Inc. In such case, on or before
February 15, 2000, TTR Inc. shall issue to Barsh a certificate reflecting the
issuance of an additional 100,000 common shares of TTR Inc. The exercise price
for these 100,000 additional common shares shall be $100.00.
<PAGE>
3
The term "Permitted Transferee" means a party acquiring all or a portion
of the Permitted Shares in a transaction made pursuant to, or as contemplated
by, the Registration Statement.
Barsh understands and agrees that this agreement is being provided to the
Company for the benefit of, and may be enforceable against the undersigned by,
each of the Company and the Initial Investors. A photocopy of this agreement
shall suffice as evidence of its terms and its enforceability against Barsh.
Notwithstanding the foregoing restrictions, Barsh may, without obtaining
the consent of any of the Companies, effect a private transfer of all or part of
the Registered Shares, provided the transferee agrees in a writing furnished to
the Company to be bound by all of the terms hereof as if such transferee were an
original signatory hereto (and the provisions of this paragraph 2(b) shall apply
to the undersigned, such transferee and any other of the undersigned's
transferees jointly).
3. Release. In consideration of TTR Inc.'s covenants under Sections 1 and 2
hereunder, Barsh (and each of his attorneys, agents, heirs, successors,
executors, personal representatives and assigns) does hereby absolutely and
unconditionally waive, release and forever discharge each of the Companies,
their respective affiliates, officers, directors, shareholders, employees,
agents, attorneys, insurers, successors and assigns, from any claims, demands,
obligations, liabilities, rights, 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, claims relating to or arising as a
result of his employment with the Company and the termination of such
employment.
4. 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. No supplement, modification or waiver or termination of this Agreement or
any provision hereof shall be binding unless executed in writing by the parties
to be bound thereby.
5. Headings. Section and subsection headings are not to be considered part of
this Agreement and are included solely for convenience and are not intended to
be full or accurate descriptions of the content thereof.
6. Successors and Assigns. Except as otherwise provided in this Agreement, all
the terms and provisions of this Agreement shall be upon, and shall inure to the
benefit of, the parties hereto and their respective heirs, personal
representatives, successors and assigns.
7. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
8. Arbitration. In the event of any controversy, dispute or claim arising out of
or related to this Agreement or the Executive's employment by the Company, the
parties shall negotiate in good faith in an attempt to reach a mutually
acceptable settlement of such dispute. If negotiations in good faith do not
result in a settlement of any such controversy, dispute or claim, it shall be
finally settled by expedited arbitration in
<PAGE>
4
accordance with the National Rules of the American Arbitration Association
governing employment disputes, except to the extent deemed modified by the
following:
(i) The Arbitrator shall be determined from a list of names of
five impartial arbitrators each of whom shall be an attorney
experienced in arbitration matters concerning executive
employment disputes, supplied by the American Arbitration
Association (the "Association") chosen by Executive and the
Company each in turn striking a name from the list until one
name remains.
(ii) The expenses of the arbitration shall be borne equally by each
party; and each party shall bear its own legal fees and
expenses, except that the Arbitrator shall have authority to
award to the prevailing party his or its reasonable attorney's
fees and expenses if an award is rendered by the Arbitrator in
such party's favor.
(iii) The Arbitrator shall determine whether and to what extent any
party shall be entitled to damages under this Agreement. No
party shall be entitled to punitive damages, and each party
waives all such rights if any.
(iv) Each party shall prepare a submission and proposed finding
with such affidavits, memoranda of law, exhibits and other
documents as are appropriate to support the position taken by
such party. The Arbitrator shall take such evidence in the
hearing or request further submissions that the Arbitrator
believes would be necessary to evaluate the submission or the
credibility of the evidence, provided that the Arbitrator will
use every effort to avoid a general hearing. The Arbitrator
shall render a decision in writing, providing the reasons and
support therefor. Such determination by the Arbitrator is
intended to constitute an award and will be an award entitled
to full recognition under Article 75 of the New York Civil
Practice Law and Rules.
(v) Subject to subparagraph (d) above, the Arbitrator shall have
the authority to award any remedy or relief provided for in
this Agreement, in addition to any other remedy or relief
(including provisional remedies and relief) that a court of
competent jurisdiction could order or grant. In addition, the
Arbitrator shall have the authority to decide issues relating
to the interpretation, meaning or performance of this
Agreement even if such decision would constitute an advisory
opinion in a court proceeding or if the issues would otherwise
not be ripe for resolution in a court proceeding, and any such
decision shall bind the parties in their continuing
performance of this Agreement. The Arbitrator's written
decision shall be rendered within sixty days of the submission
by both parties, or if the Arbitrator determines to hold a
hearing, then within sixty days of the hearing. The decision
reached by the Arbitrator shall be final and binding upon the
parties as to the matter in dispute. To the extent that
<PAGE>
5
the relief or remedy granted by the Arbitrator is relief or
remedy on which a court could enter judgment, a judgment upon
the award rendered by the Arbitrator shall be entered in any
court having jurisdiction thereof (unless in the case of an
award of damages, the full amount of the award is paid within
15 days of its determination by the Arbitrator). Otherwise,
the award shall be binding on the parties in connection with
their continuing performance of this Agreement and in any
subsequent arbitration or judicial proceedings between the
parties.
(vi) The arbitration shall take place in New York City or in the
locale of the Company's office in the United States where
Executive is based, as elected by the party commencing
arbitration.
(vii) The arbitration proceeding and all filing, testimony,
documents and information relating to or presented during the
arbitration proceeding shall be disclosed exclusively for the
purpose of facilitating the arbitration process and for no
other purpose and shall be deemed to be information subject to
the confidentiality provisions of this Agreement.
(viii) The parties shall continue performing their respective
obligations under this Agreement notwithstanding the existence
of a dispute while the dispute is being resolved unless and
until such obligations are terminated or expire in accordance
with the provisions hereof.
(ix) The parties may obtain an exchange of information including
depositions, interrogatories, production of documents,
exchange of summaries of testimony or exchange of statements
of position, and the Arbitrator shall limit such disclosure to
avoid unnecessary burden to the parties and shall schedule
promptly all discovery and other procedural steps and
otherwise assume case management initiative and control to
effect an efficient and expeditious resolution of the Dispute.
At any oral hearing of evidence in connection with an
arbitration proceeding, each party and its counsel shall have
the right to examine its witness and to cross-examine the
witnesses of the other party who testify at the hearing.
(x) Notwithstanding the dispute resolution procedures contained in
this Section 8, either party may apply to any court having
jurisdiction (i) to enforce this Agreement to arbitrate, (ii)
to seek provisional injunctive relief so as to maintain the
status quo until the arbitration award is rendered or the
Dispute is otherwise resolved, or (iii) to challenge or vacate
any final judgment, award or decision of the Arbitrator that
does not comport with the express provisions of this Section.
9. Representation. Each Party acknowledges that they have had the opportunity to
consult with legal counsel respecting this Agreement.
<PAGE>
6
10. Non-Disparagement. Neither Barsh (and his respective heirs, personal
representatives, successors) nor any of the Companies (and their respective
officers, directors, employees, agents, attorneys, insurers, successors and
assigns) shall disparage the other parties hereto or their business.
11. Governing Law. This Agreement and the performance hereof shall be construed
and governed in accordance with the internal laws of the State of New York
without reference to principles of conflict of laws.
<PAGE>
7
IN WITNESS WHEREOF, each of the parties has set forth its/ his signature
as of the date first written above.
TTR Technologies, Inc.
By: /s/ MARC D. TOKAYER
----------------------------
Marc D. Tokaer
Title: President
/s/ STEPHEN L. BARSH
- ------------------------
Steven L. Barsh
TTR Technologies Ltd.
By: /s/ MARC D. TOKAYER
----------------------------
Marc Tokayer
Title:
STANDARD OFFICE LEASE -- GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only, January 23,
1999, is made by and between Peppertree Properties Inc. (herein called "Lessor")
and TTR Inc. doing business under the name of TTR Inc., (herein called
"Lessee").
1.2 Premises: Suite Number(s) 215, First floors, consisting of
approximately 663 rentable feet, more or less, as defined in paragraph 2 and as
shown on Exhibit "A" hereto (the "Premises").
1.3 Building: Commonly described as being located at 3425 S. Bascom Ave.
in the City of Campbell, County of Santa Clara, State of California, as more
particularly described in Exhibit A hereto, and as defined in paragraph 2.
1.4: Use: Software Sales, subject to paragraph 6.
1.5 Term: One (1) year commencing February 1, 1999 ("Commencement Date")
and ending January 31, 2000, as defined in paragraph 3.
1.6 Base Rent: One thousand five hundred ninety one & 20/100 per month,
payable on the 1st day of each month, per paragraph 4.1 ($1,591.20)
1.7 Base Rent Increase: On _______________________________________________
the monthly Base Rent payable under paragraph 1.6 above shall be adjusted as
provided in paragraph 4.3 below.
1.8 Rent Paid Upon Execution: $1,591.20 for February 1999.
1.9 Security Deposit: $1,591.20.
1.10 Lessee's Share of Operating Expense Increase: N/A% as defined in
paragraph 4.2.
2. Premises, Parking and Common Areas.
2.1 Premises: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project". Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises," including rights to the Common Areas as hereinafter specified.
2.2 Vehicle Parking: So long as Lessee is not in default, and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to rent and use N/A parking spaces in the
Office Building Project at the monthly rate applicable from time to time for
monthly parking as set by Lessor and/or its licensee.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice; in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.2.2 The monthly parking rate per parking space will be $ 0 per
month at the commencement of the term of this Lease, and is subject to change
upon five (5) days prior written notice to Lessee. Monthly parking fees shall be
payable one month in advance prior to the first day of each calendar month.
2.3 Common Areas--Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 Common Areas--Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the noncompliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project,
2.5 Common Areas--Changes Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries
of the Office Building Project to be a part of the Common Areas, provided that
such other land and improvements have a reasonable and functional relationship
to the Office Building Project:
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Office Building Project as Lessor
may, in the exercise of sound business judgment deem to be appropriate.
3. Term.
3.1 Term. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's
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option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided, however, that, as to Lessee's obligations, Lessee first
reimburses Lessor for all costs incurred for Non-Standard Improvements and, as
to Lessor's obligations, Lessor shall return any money previously deposited by
Lessee (less any offsets due Lessor for Non-Standard Improvements); and provided
further, that if such written notice by Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.
3.2.1 Possession Tendered--Defined. Possession of the Premises shall
be deemed tendered to Lessee ("Tender of Possession") when (1) the improvements
to be provided by Lessor under this Lease are substantially completed, (2) the
Building utilities are ready for use in the Premises, (3) Lessee has reasonable
access to the Premises, and (4) ten (10) days shall have expired following
advance written notice to Lessee of the occurrence of the matters described in
(1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 Delays Caused by Lessee. There shall be no abatement of rent,
and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease term is
defined as the completion of the improvements, Lessee and Lessor shall execute
an amendment to this Lease establishing the date of Tender of Possession (as
defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
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agency or shall be discontinued, then the index most nearly the same as the
C.P.I. shall be used to make such calculations. In the event that Lessor and
Lessee cannot agree on such alternative index, then the matter shall be
submitted for decision to the American Arbitration Association in the County in
which the Premises are located, in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties, notwithstanding one party failing to appear after due notice of the
proceeding. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
4.3.4 Lessee shall continue to pay the rent at the rate previously
in effect until the increase, if any, is determined. Within five (5) days
following the date on which the increase is determined, Lessee shall make such
payment to Lessor as will bring the increased rental current, commencing with
the effective date of such increase through the date of any rental instalments
then due. Thereafter the rental shall be paid at the increased rate.
4.3.5 At such time as the amount of any change in rental required by
this Lease is known or determined, Lessor and Lessee shall execute an amendment
to this Lease setting forth such change.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. If the monthly Base Rent shall, from time
to time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all times
bear the same proportion to the then current Base Rent as the initial security
deposit bears to the initial Base Rent set forth in paragraph 1.6 of the Basic
Lease Provisions. Lessor shall not be required to keep said security deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of record,
or any applicable building code, regulation or ordinance in effect on such Lease
term Commencement Date. In the event it is determined that this warranty has
been violated, then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any
such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Areas in any manner that will tend to
create waste or a nuisance or shall tend to disturb other occupants of the
Office Building Project.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean condition
on the Lease Commencement Date (unless Lessee is already in possession) and
Lessor warrants to Lessee that the plumbing, lighting, air conditioning, and
heating system in the Premises shall be in good operating condition. In the
event that it is determined that this warranty has been violated, then it shall
be the obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, to promptly, at Lessor's
sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition existing
as of the Lease Commencement Date or the date that Lessee takes possession of
the Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear, Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices by
Lessee. Lessee shall repair any damage to the Premises occasioned by the
installation or removal of Lessee's trade fixtures, alterations, furnishings and
equipment. Except as otherwise stated in this Lease, Lessee shall leave the air
lines, power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall panelling,
ceilings and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, Utility Installations or repairs in,
on or about the Premises, or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing, and telephone and telecommunication wiring
and equipment. At the expiration of the term, Lessor may require the removal of
any or all of said alterations, improvements, additions or utility
Installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alterations, improvements, additions or Utility
Installations, Lessee shall use only such contractor as has been expressly
approved by Lessor, and Lessor may require Lessee to provide Lessor, at Lessee's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, or use a contractor not
expressly approved by Lessor, Lessor may, at any time during the term of this
Lease, require that Lessee remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent to Lessee's making
such alteration, improvement, addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
applicable governmental agencies, furnishing a copy thereof to Lessor prior to
the commencement of the work, and compliance by Lessee with all conditions of
said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
or the Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy
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any such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition. Lessor may require Lessee to
pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including but
not limited to, floor coverings, panelings, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Provided Lessee is not in default, notwithstanding the provisions of this
paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility Installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. Insurance; Indemnity,
8.1 Liability Insurance--Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance--Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 Property Insurance--Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance--Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancellable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 No Representation of Adequate Coverage. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the building.
(c) "Premises Building Total Destruction" shall mean If the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean
if the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to
be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
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9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Damage
or Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from making any substantial use of the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage, in
which event this Lease shall terminate as of the date of the occurrence of such
damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has
an option to extend or renew this Lease, and the time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if it
is to be exercised at all, no later than twenty (20) days after the occurrence
of an Insured Loss falling within the classification of Premises Damage during
the last twelve (12) months of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. if Lessee fails to exercise such option during said
twenty (20) day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of said twenty (20) day period, notwithstanding any term or provision
in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense
Increase) for the period during which such damage, repair or restoration
continues shall be abated, provided (1) the damage was not the result of the
negligence of Lessee, and (2) such abatement shall only be to the extent the
operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
or the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any
such restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 Termination--Advance Payments. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes,
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax" As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1,1978, or, if previously charged, has been
increased since June 1, 1978, or, (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Utilities.
11.1 Services Provided by Lessor. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 Hours of Service. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours as
may hereafter be set forth. Utilities and services required at other times shall
be subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
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11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power,or suffer or permit any act that causes extra burden upon the utilities
or services, including but not limited to security services, over standard
office usage for the Office Building Project. Lessor shall require Lessee to
reimburse Lessor for any excess expenses or costs that may arise out of a breach
of this subparagraph by Lessee. Lessor may, in its sole discretion, install all
Lessee's expense supplemental equipment and/or separate metering applicable to
Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (a) if Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such corporation, or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or subletting
shall release Lessee of Lessee's obligations hereunder or alter the primary
liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense Increase, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a waiver
or estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease; however, such persons shall not be responsible to the extent any such
amendment or modification enlarges or increases the obligations of the Lessee or
sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
12.4 Additional Terms and Conditions Applicable to Subletting. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublessee as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into a
sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed
and agreed to conform and comply with each and every obligation herein to be
performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sub-lessee, and the sublessee shall have a right of reimbursement and offset
from and against Lessee for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation
of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
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(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee other than those referenced in subparagraphs (b) and (c), above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law, such
thirty (30) day notice shall constitute the sole and exclusive notice required
to be given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors: (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. ss.101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days: (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any installment
of Base Rent, Operating Expense Increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Lessee's business conducted from the Premises Lessee shall have
the option, to be exercised only in writing within thirty (30) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within thirty (30) days after the condemning authority shall have taken
possession), to terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent and Lessee's Share of
Operating Expense Increase shall be reduced in the proportion that the floor
area of the Premises taken bears to the total floor area of the Premises. Common
Areas taken shall be excluded from the Common Areas usable by Lessee and no
reduction of rent shall occur with respect thereto or by reason thereof. Lessor
shall have the option in its sole discretion to terminate this Lease as of the
taking of possession by the condemning authority, by giving written notice to
Lessee of such election within thirty (30) days after receipt of notice of a
taking by condemnation of any part of the Premises or the Office Building
Project. Any award for the taking of all or any part of the Premises or the
Office Building Project under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
15. Broker's Fee.
(a) The brokers involved in this transaction are ___________________
as "listing broker" and _______________________ as "cooperating broker,"
licensed real estate broker(s). A "cooperating broker" is defined as any broker
other than the listing broker entitled to a share of any commission arising
under this Lease. Upon execution of this Lease by both parties, Lessor shall pay
to said brokers jointly, or in such separate shares as they may mutually
designate in writing, a fee as set forth in a separate agreement between Lessor
and said broker(s), or in the event there is no separate agreement between
Lessor and said broker(s), the sum of $_______________________, for brokerage
services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option,
as defined in paragraph 39.1 of this Lease, which is granted to Lessee under
this Lease, or any subsequently granted option which is substantially similar to
an Option granted to Lessee under this Lease, or (ii) if Lessee acquires any
rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, or (v) if the Base
Rent is increased, whether by agreement or operation of an escalation clause
contained herein, then as to any of said transactions or rent increases, Lessor
shall pay said broker(s) a fee in accordance with the schedule of said broker(s)
in effect at the time of execution of this Lease. Said fee shall be paid at the
time such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but
also on behalf of any person, corporation, association, or other entity having
an ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this paragraph 15. Each listing and
cooperating broker shall be a third party beneficiary of the provisions of this
paragraph 15 to the extent of their interest in any commission arising under
this Lease and may enforce that right directly against Lessor; provided,
however, that all brokers having a right to any part of such total commission
shall be a necessary party to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other than
the person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not
less than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date
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to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Office
Building Project, or any part thereof, Lessee hereby agrees to deliver to any
lender or purchaser designated by Lessor such financial statements of Lessee as
may be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be two hundred percent (200%) of the rent payable immediately preceding
the termination date of this Lease, and all Options, if any, granted under the
terms of this Lease shall be deemed terminated and be of no further effect
during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation or security now or hereafter placed
upon the Office Building Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the Premises shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease and any Options granted hereby prior to the lien
of its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease or such Options are
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. Attorneys' Fees.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
32. Lessor's Access.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
Initials:
--------
LS
--------
(C) 1984 American Industrial Real Estate Association FULL SERVICE--GROSS
8
<PAGE>
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forceable or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease. Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder. Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) and continuing
until the obligation is paid, or (iii) in the event that Lessor has given to
Lessee three or more notices of default under paragraph 13.1(c), or paragraph
13.1(d), whether or not the defaults are cured, during the 12 month period of
time immediately prior to the time that Lessee attempts to exercise the subject
Option. (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease. (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessor gives to Lessee three or more notices of default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if
Lessee has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease,
40. Security Measures--Lessor's Reservations.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90 days
prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building
or the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the
roof of the Building.
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air. or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. Performance Under Protest If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment. and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
Initials:
--------
LS
--------
(C) 1984 American Industrial Real Estate Association FULL SERVICE--GROSS
9
<PAGE>
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. Work Letter. This Lease is supplemented by that certain Work Letter of even
date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. Attachments. Attached hereto are the following documents which constitute a
part of this Lease:
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR
OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
PEPPERTREE PROPERTIES INC.
- -------------------------------------- --------------------------------------
By /s/ Linda Smith By
------------------------------------ ------------------------------------
Its PROPERTY MANAGER Its
------------------------------- -------------------------------
By By
------------------------------------ ------------------------------------
Its Its
------------------------------- -------------------------------
Executed at Campbell, CA Executed at
--------------------------- ---------------------------
on January 23, 1999 on
------------------------------------ ------------------------------------
Address 3425 S. BASCOM AVE. #220 Address
------------------------------ ------------------------------
Campbell, CA 95008
(C) 1984 American Industrial Real Estate Association FULL SERVICE--GROSS
PAGE 10 OF 10 PAGES
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa Street, Suite 275, Los Angeles, CA 90071, (213) 687-8777.
(C) 1984--By American Industrial Real Estate Association. All rights reserved.
No part of these words may be reproduced in any form without permission in
writing.
10
<PAGE>
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. Work Letter. This Lease is supplemented by that certain Work Letter of even
date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. Attachments. Attached hereto are the following documents which constitute a
part of this Lease:
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR
OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
PEPPERTREE PROPERTIES INC. TTR Technologies, Inc.
- -------------------------------------- --------------------------------------
By /s/ Linda Smith By /s/ Robert Friedman - [ILLEGIBLE]
------------------------------------ ------------------------------------
Its PROPERTY MANAGER Its VP, Finance
------------------------------- -------------------------------
By By
------------------------------------ ------------------------------------
Its Its
------------------------------- -------------------------------
Executed at Campbell, CA Executed at New York, NY
--------------------------- ---------------------------
on January 23, 1999 on January, 1999
------------------------------------ ------------------------------------
Address 3425 S. BASCOM AVE. #220 Address 1841 Broadway Suite 1106
------------------------------- -------------------------------
Campbell, CA 95008 NY, NY 10023
(C) 1984 American Industrial Real Estate Association FULL SERVICE--GROSS
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa Street, Suite 275, Los Angeles, CA 90071, (213) 687-8777.
(C) 1984--By American Industrial Real Estate Association. All rights reserved.
No part of these words may be reproduced in any form without permission in
writing.
11
<PAGE>
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. Work Letter. This Lease is supplemented by that certain Work Letter of even
date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. Attachments. Attached hereto are the following documents which constitute a
part of this Lease:
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR
OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
PEPPERTREE PROPERTIES INC.
- -------------------------------------- --------------------------------------
By /s/ Linda Smith By
------------------------------------ ------------------------------------
Its PROPERTY MANAGER Its
------------------------------- -------------------------------
By By
------------------------------------ ------------------------------------
Its Its
------------------------------- -------------------------------
Executed at Campbell, CA Executed at
--------------------------- ---------------------------
on January 23, 1999 on
------------------------------------ ------------------------------------
Address 3425 S. BASCOM AVE. #220 Address
------------------------------ ------------------------------
Campbell, CA 95008
(C) 1984 American Industrial Real Estate Association FULL SERVICE--GROSS
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa Street, Suite 275, Los Angeles, CA 90071, (213) 687-8777.
(C) 1984--By American Industrial Real Estate Association. All rights reserved.
No part of these words may be reproduced in any form without permission in
writing.
12
<PAGE>
STANDARD OFFICE LEASE
FLOOR PLAN
[LOGO]
[GRAPHIC OMITTED]
SPACE IS BEING PAINTED AND WALL IS BEING INSTALLED. THESE ITEMS WILL MOST LIKELY
BE DONE BEFORE THE 1st OF FEBRUARY.
EXHIBIT A
Initials:
--------
LS
--------
(C) 1984 American Industrial Real Estate Association FULL SERVICE--GROSS
13
Exhibit 16
SCHNEIDER EHRLICH & ASSOCIATES LLP
100 Jericho Quadrangle
Jericho, New York 11753
August 12, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, DC 20549
Re: TTR Technologies, Inc. (the "Company")
Registration Statement on Form SB-2
Dear Sirs:
Please be advised that we agree with the statements made in response
to Item 304(a)(3) of Regulation S-B under the Securities Act of 1933, as
amended, in the Company's Registration Statement on Form SB-2 with regard to
which this letter is filed as Exhibit 16.
Very truly yours,
/s/
SCHNEIDER EHRLICH & ASSOCIATES LLP
successor firm to Schneider Ehrlich
& Wengrover LLP
Exhibit 21
Subsidiaries of the Registrant
1. TTR Technologies, Ltd., an Israeli corporation
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
As independent auditors of TTR Technologies, Inc., (the "Company") (a
development stage company), we hereby consent to the inclusion of our report,
dated June 30, 1999, on the Company's consolidated balance sheets as of December
31, 1998 and 1997 and the related consolidated statements of operations,
comprehensive loss, stockholders' equity (deficit), and cash flows for each of
the two years in the period ended December 31, 1998, and to the references to
our firm under the heading "Experts" in the Company's Registration Statement on
Form SB-2 and related prospectus to be filed in August 1999.
/s/
Brightman Almagor & Co.
Certified Public Accountants (Israel)
A member of Deloitte Touche Tohmatsu
Ramat-Gan, Israel
August 12, 1999
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements accompanying the filing of Form SB-2 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000933955
<NAME> TTR, Inc. and Its Subsidiary
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<PERIOD-TYPE> 12-mos 3-mos
<FISCAL-YEAR-END> Dec-31-1998 Dec-31-1999
<PERIOD-START> Jan-1-1998 Jan-1-1999
<PERIOD-END> Dec-31-1998 Mar-31-1999
<CASH> 74,445 2,596
<SECURITIES> 0 0
<RECEIVABLES> 7,793 28,086
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<INVENTORY> 0 0
<CURRENT-ASSETS> 103,488 45,467
<PP&E> 311,493 292,166
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<TOTAL-ASSETS> 490,545 379,129
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0 0
0 0
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<TOTAL-LIABILITY-AND-EQUITY> 490,545 379,129
<SALES> 54,922 26,984
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<CGS> 0 0
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<OTHER-EXPENSES> 5,251,160 991,667
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 410,715 193,663
<INCOME-PRETAX> (5,578,540) 1,158,346
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<INCOME-CONTINUING> (5,578,540) 1,158,346
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<NET-INCOME> (5,578,540) 1,158,346
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