As filed with the Securities and Exchange Commission on May 1, 2000.
Registration No. 333-32662
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TTR TECHNOLOGIES, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation or Organization)
3577
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(Primary Standard Industrial Classification Code Number)
11-3223672
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(I.R.S. Employer Identification No.)
2 HaNagar Street, Kfar Saba, Israel 011-972-9-766-2393
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(Address and Telephone Number of Registrant's Principal Executive Offices)
The Corporation Trust Company
1209 Orange Street, Wilmington, Delaware, 19801 302-658-7581
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(Name, address and telephone number of agent for service)
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Copies to:
JAY WEIL, ESQ.
Wolf, Block, Schorr and Solis-Cohen LLP
250 Park Avenue
New York, New York 10177
(212) 986-1116
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Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effectiveness of this registration
statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
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. |_| ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) 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, check
the following box. |_|
<PAGE>
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
included in this Registration Statement is a combined Prospectus and relates to
this Registration Statement and those shares of Common Stock previously
registered under the Registration Statement on Form SB-2 (Registration No.
333-85085) which remain unsold (including such indeterminate number of
additional shares of Common Stock as may be issuable upon exercise of certain
warrants held by certain of the selling stockholders referred to in the
Registration Statement on Form SB-2 to prevent dilution resulting from stock
splits, stock dividends or similar transactions).
This Registration Statement also constitutes Post-Effective Amendment No.
1 to Registration Statement No. 333-85085. Such Post-Effective Amendment No. 1
shall hereafter become effective concurrently with the effectiveness of this
Registration Statement in accordance with Section 8(c) of the Securities Act of
1933.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 1, 2000
TTR TECHNOLOGIES, INC.
10,468,505 shares of Common Stock
We design and develop anti-piracy technologies that provide copy
protection for electronic content distributed on optical media and over the
Internet.
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 market 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 March 10,
2000 on the OTC Electronic Bulletin Board was $8.6875 per share.
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This investment involves a high degree of risk. You should purchase shares
only if you can afford a complete loss of your investment. See "Risk Factors"
beginning on Page 2 of this Prospectus.
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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.
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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.
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The date of this prospectus is _______________, 2000
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary............................................. 1
Risk Factors................................................... 2
Disclosure Regarding Forward-Looking Statements ............... 10
Dividend Policy................................................ 10
Use of Proceeds ............................................... 10
Price Range of Common Stock.................................... 10
Selected Consolidated Financial Data........................... 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 12
Business....................................................... 15
Conditions in Israel........................................... 23
Management..................................................... 25
Certain Relationships and Related Transactions................. 30
Principal and Selling Stockholders............................. 31
Description of Securities...................................... 35
Plan of Distribution........................................... 37
Legal Matters.................................................. 38
Experts........................................................ 38
Where to Find More Information................................. 39
Index to Financial Statements.................................. F-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 company.
We design and develop anti-piracy software technologies that provide copy
protection for electronic content distributed on optical media and over the
Internet. Our proprietary anti-piracy technology, MusicGuard(TM), is a unique
hardware-based technology designed to prevent the unauthorized copying of audio
content distributed on CDs. Our copy protection technologies are designed to be
transparent to the legitimate end-user.
As of November 24, 1999, we entered into an agreement with Macrovision
Corporation to jointly design and develop and market a copy protection product
designed to thwart the illegal copying of audio content on CDs, DVDs and other
optical media. The new product will be based primarily upon our MusicGuard
technology as well as related Macrovision technology and will be jointly owned
by us and Macrovision. We expect that the immediate application of the
technology we are developing with Macrovision will be of interest for the music
distribution business and recording studios whose products are customarily
distributed on CDs. We granted to Macrovision an exclusive world-wide royalty
bearing license to design, develop and market the copy protection technology
which we are jointly developing.
Our immediate goal is to establish the proposed audio content protection
technology which we and Macrovision are developing as the leading product in the
target market of audio content copy protection for the high-volume recording
industry. Additionally, we are actively developing other technologies and
looking to acquire technologies which are synergistic with our current business
and will enable us to leverage our knowledge base and skill.
We were organized in July 1994. We have an Israeli subsidiary, organized
in December 1994, through which we conduct research and development. Our
principal executive offices are located at 2 HaNager Street, Kfar Saba, Israel,
telephone 011-972-9-766-2393. We also have a mailing address at 67 Wall Street,
Suite 2411, New York, New York 10005 and can be reached by telephone in New York
at 212-323-8284. 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
<TABLE>
<S> <C>
Securities offered..................10,468,505 shares of common stock. (1)
Shares outstanding..................15,967,890 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 may,
however, receive proceeds from the sale of certain of
the warrants held by certain of the selling
stockholders.
</TABLE>
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(1) Includes (i) 7,552,493 shares of common stock held by certain selling
stockholders, and (ii) 2,916,012 shares of common stock issuable upon exercise
of certain warrants and options held by certain selling stockholders.
(2) Does not include (a) up to an aggregate of 1,166,400 shares of our common
stock issuable upon exercise of options granted under our 1996 Stock Option
Plan, (b) any of the shares described in clause (ii) in footnote (1) above, or
(c) 95,000 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 various
obligations to the selling stockholders to register their resale of our common
stock. 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.
Our relationship with Macrovision is very important to us, since it will
be the exclusive licensee of our anti-piracy products and it is responsible for
marketing them.
As of November 24, 1999, we entered into a ten year agreement with
Macrovision to jointly develop a commercially viable anti-piracy protection
technology and product for audio content distribution on optical media. We
granted to Macrovision exclusive worldwide royalty bearing rights to our
proprietary anti-piracy technology, MusicGuard, which serves as the primary
basis for the proposed audio content protection technology. Under the terms of
our agreement, Macrovision is responsible for promoting and marketing the
proposed music protection technology or product. Macrovision has the discretion
to determine the staffing and resources it allocates to commercialize the
technology consistent with Macrovision's good faith determination as to the
technology's commercial potential. We also granted to Macrovision exclusive
rights to our proprietary CD software anti-piracy protection technology,
DiscGuard, which is the only commercially available product we currently have.
Only a limited portion of the license for DiscGuard is royalty bearing and
Macrovision is not required to pay any minimum royalties in order to retain its
exclusivity. We
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expect that sales through Macrovision will account for most of our revenues for
at least the next two years. We believe that the rapid penetration of the
proposed music protection technologies in the recording industry in the United
States and Europe to be crucial to our success. If we are unable to effectively
manage and maintain our relationship with Macrovision or for any reason
Macrovision cannot successfully market MusicGuard, our business will be
materially adversely affected. In addition, our condition could be adversely
affected by changes in the financial condition of Macrovision or by any other
changes to Macrovision's business.
We do not currently have any commercially viable products or technologies
and we cannot assure you that we will develop any.
MusicGuard, our proprietary anti-piracy protection technology for audio
content distributed on CDs, is not currently commercially viable but will serve
as the primary basis for the proposed music protection technology that we and
Macrovision are jointly designing and developing. Under the terms of our
agreement with Macrovision, we will work jointly with Macrovision to complete a
product suitable for commercial launch. We estimate that this project will take
nine months, six months until the commercial launch and three months following
the commercial launch. We have also given to Macrovision an exclusive worldwide
partially royalty bearing license to DiscGuard, which we launched commercially
in February, 1998. We expect that Macrovision will use components of DiscGuard
to support its CD-ROM product, SafeDisc(TM). Although we are working to develop
technologies with applications in other areas, these technologies are at an
early stage. Currently, we have no other commercially viable product or
technology.
Even if we develop other commercially viable technologies, the right of
first refusal we have granted to Macrovision with respect to certain products
may impair our ability to exploit them.
Under the terms of our agreement with Macrovision, we have granted to
Macrovision first refusal rights until December 31, 2009 with respect to any
music protection technology we develop which is not included in the license to
Macrovision and any Internet digital rights management technologies we develop
which are applicable to music, music video, video, software or data publishing
products or markets. These rights include rights of ownership if we decide to
sell the technology or worldwide exclusive marketing or distribution rights if
we decide to license the technology. Our obligation is to negotiate a sale or
license to Macrovision in good faith should we receive a bona fide offer from a
third party to purchase or license the technology and should Macrovision notify
us of its interest in acquiring the technology. As is ordinarily the case where
a right of first refusal is granted, the existence of this right may impair our
ability to fully exploit the commercial potential inherent in other technology
we may develop which is subject to this right by creating the possibility that
an interested third party may abstain from making an offer for our technology
due to a possible concern on the part of such third party that its offer will be
utilized by us solely for negotiating an offer from Macrovision on more
favorable terms.
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 December 31, 1999, we had an accumulated deficit of
approximately $24.8 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
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sustain or increase profitability on a quarterly or annual basis in the future.
Our ability to generate revenue depends primarily upon our ability to jointly
develop with Macrovision the audio content copy protection technology to the
point it becomes commercially viable and Macrovision's success in promoting and
marketing the technology.
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.
Prior to the commencement of our joint efforts with Macrovision to develop a
commercially viable audio content protection product and before our software
product, 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 audio content copy protection and
anti-piracy market. Some of these risks and uncertainties relate to our ability
to:
o complete, together with Macrovision, the design and development of audio
content protection technology of a commercially viable product or
technology;
o stay ahead of the efforts of hackers and counterfeiters to circumvent our
copy protection technologies;
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 extend MusicGuard protection to DVDs; and
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 audio content copy protection technology is unproven.
The market for copy protection technology for audio content distribution
on CDs, especially in the consumer multi-media market, is unproven. For us to be
successful in entering this market, recording studios and artists must accept
copy protection generally and also adopt the solution that we are developing
with Macovision. There can be no assurance that copy protection of multi-media
audio content distributed on CDs will be widely commercially accepted. For
example, consumers may react negatively to the introduction of copy protected
CDs if they are prevented from copying the content of their favorite audio
content. Moreover, copy protection may not be effective or compatible with all
hardware platforms or configurations or may prove to be easily circumvented.
Further, the technology we are developing with Macrovision may not achieve or
sustain market acceptance under emerging industry standards. If the market for
copy protection of audio content distributed on CDs fails to develop or develops
more slowly than expected, or if MusicGuard does
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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 success of Macrovision in promoting and marketing any music protection
technology developed through our joint efforts.
o the demand for audio content anti-piracy protection in general and for CDs
in particular, and, potentially, for DVDs;
o the degree of acceptance of our copy protection technologies by recording
studios and artists;
o changes in our operating expenses;
o changes in fees paid for copy protection of audio content distributed on
CDs resulting from competition or other factors;
o economic conditions specific to the recording industry;
o anticipated seasonality of revenues relating to sales of music CDs to
consumers in our target market.
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.
For at least the next two years, we expect to derive most of our net
revenues and operating income from royalties collected from Macrovision in
respect of sales of copy protection technology or products. We cannot assure you
that we will receive any revenues from these royalties or if revenues are
received, that they will grow significantly or at all. Any growth in revenues
from these fees will depend on the use of our copy protection technology by a
larger number of recording studios and artists. In order to increase our market
penetration, we must persuade recording studios and artists that the cost of
licensing our technology is outweighed by the increase in revenues from
additional sales of the copy protected material that the recording studios and
artists would achieve as a result of using copy protection.
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There are many competitors in the copy protection industry and we may not
be able to compete effectively against them.
There is currently no commercially available technology which prevents the
faithful copying of compact discs. There can be no assurance that companies with
substantially greater financial, technological, marketing, personnel and
research development resources than ours will not develop and begin marketing a
similar technology. While no technology is currently available, the Secure
Digital Music Initiative is a forum of companies who have agreed to develop a
standard for copy protection of digital music. The standard developed and being
improved upon by the Initiative will apply to next generation portable playback
devices. There can be no assurance that if and when the standard is implemented,
the MusicGuard technology will be able to effectively compete against copy
protection technologies based on the Initiative's standard.
Third parties may be able to circumvent our anti-piracy technology.
We must continually enhance and upgrade audio content protection
technology 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,
music rights owners could choose not to use our anti-piracy technology if they
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, the 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.
The proposed audio protection technology is based upon a single set of
core technologies. The market for this technology and products is characterized
by rapid change, often resulting in product obsolescence or short product life
cycles. Although we are not aware of any developments in the audio content
protection industry which would render our planned products less competitive or
obsolete, there can be no assurance that future technological changes or the
development of new or competitive products by others will not do so.
We have very few employees and are particularly dependent on our Chief
Technology Officer.
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
Chief Technology Officer, 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.
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We are subject to risks associated with international operations.
We conduct business from our facilities in Israel and the United States,
and through our exclusive licensee, Macrovision. 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 currently 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 success in developing and commercializing other technologies will
depend in part upon our ability to establish and maintain licensing
relationships with companies in related business fields, including international
distributors. We believe that these 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 may not
be within our control. We may not be able to maintain relationships or enter
into 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. 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 depends on 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
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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
this 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.
The rights of first refusal we have granted to Macrovision relating to the
sale of our equity securities may impair our ability to obtain other financing.
In the January 12, 2000 stock purchase agreement under which we sold to
Macrovision $4 million of our common stock, we granted to Macrovision rights of
first refusal to purchase equity securities (including securities convertible or
exchangeable into common stock) we propose to sell to third parties if the
amount of the securities to be sold would constitute a majority of our
outstanding common stock. Subject to some exceptions, we further granted to
Macrovision a right to purchase its pro rata share (based on Macrovision's then
current ownership of common stock) of any equity securities we offer in private
transactions above a certain amount. The existence of these rights may impair
our ability to obtain equity financing from third parties on terms satisfactory
to us or at all because investors may be reluctant to devote the time and
expense necessary to negotiate the terms of a transaction which we may not be
able to consummate with them if Macrovision elects to exercise its rights.
However, Macrovision waived its right of first refusal with respect to our
private placement in February 2000 of 1,800,000 shares of Common Stock and
900,000 Class A Warrants for an aggregate purchase price of $10 million.
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
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. Some of these concerns have continued to persist after
January 1, 2000. Our business depends on the operation of numerous systems that
could potentially be affected by Year 2000 related problems. Those systems
include hardware and software systems used internally by us in the management of
our business; hardware and software products developed by us; 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. Success of our Year 2000 readiness efforts may
depend on the success of our customers in dealing with their Year 2000 issues.
Although we believe that our Year 2000 readiness efforts are designed to
appropriately identify and address those Year 2000 issues that
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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.
Future sales of our common stock by our holders of outstanding stock, options
and warrants 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 to purchase 3,682,412 shares of our
common stock (comprised of 1,166,400 options granted under our 1996 Stock Option
Plan, 2,421,012 options and warrants held by selling stockholders with exercise
prices ranging from $1.50 to $8.84 per share and 95,000 options and warrants not
held by selling stockholders) and warrants to purchase an additional 495,000
shares of our common stock which are issuable upon exercise of certain
outstanding warrants with an exercise price of $21.22 per share. 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 "high
tech" 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.
It may be difficult for a third party to acquire us.
Provisions of 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 may be 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
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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 Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this prospectus, including 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 their negatives or variations of these terms 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.
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 may receive up to $11,557,865 in proceeds from the
exercise by certain of the selling stockholders of warrants to purchase up to an
aggregate of 2,421,012 shares of our common stock and an additional $10,503,900
upon exercise of 495,000 warrants issuable upon exercise of certain outstanding
warrants. The warrants have exercise prices ranging from $1.50 to $21.22 per
share and are exercisable until various dates through February 28, 2005 (and
with respect to the warrants issuable upon exercise of certain outstanding
warrants, three years after the issuance date). The resale of the common stock
underlying these warrants has been registered in the registration statement of
which this prospectus is a part.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the OTC Electronic Bulletin Board of the
National Association of Securities Dealers, Inc., 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.
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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 March 10, 2000 was $8.6875
per share.
Common Stock
Quarter Ended High Low
1999 ---- ---
----
December 31 $6.00 $2.45
September 30 $4.80 $2.45
June 30 $3.125 $ .75
March 31 $1.4375 $ .75
1998
----
March 31 $6.00 $4.00
June 30 $5.50 $2.625
September 30 $3.25 $ .875
December 31 $3.0625 $ .6875
The foregoing represent inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
As of March 9, 2000 there were approximately 173 holders of record of our
common stock. We believe that there are a significant number of shares of our
common stock held either in nominee name or street name brokerage accounts and
consequently, we are unable to determine the number of beneficial owners of our
common stock.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our consolidated financial data for
the five years ended December 31, 1999. The selected consolidated financial data
for the years ended December 31, 1997, 1998 and 1999 are derived from our
consolidated financial statements for such years, which have been audited by
Brightman Almagor & Co., a member of Deloitte Touch Tohmatsu, independent
auditors. The selected consolidated financial data for the years ended December
31, 1995 and 1996 are derived from our consolidated financial statements for
such period and years, which have been audited by Schneider Ehrlich & Associates
LLP (formerly known as Schneider Ehrlich & Wengrover LLP), independent auditors.
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.
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<TABLE>
<CAPTION>
Year
Ended December 31, From Inception
---------------------------------------------------------------------- (July 14, 1994) to
Income Statement Data: 1995 1996 1997 1998 1999 December 31, 1999
---------- ----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues -- -- -- 54,922 68,803 123,725
Total expenses 692,801 790,108 3,784,635 5,178,872 7,944,252 18,424,000
Operating loss (692,801) (790,108) (3,784,635) (5,123,950) (7,875,449) (18,300,275)
Net loss (896,663) (1,121,211) (4,119,612) (5,578,540) (13,072,237) (24,830,348)
Net loss per share (0.37) (0.62) (1.35) (1.54) (2.07)
Weighted average shares outstanding 2,399,793 1,801,366 3,054,519 3,615,908 6,321,719
<CAPTION>
December 31,
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency) (616,839) (2,563,908) 448,679 (2,834,448) (494,744)
Total assets 403,204 1,191,688 1,188,627 490,545 467,867
Total liabilities 1,274,427 2,785,545 278,898 3,588,712 798,863
Total Stockholders' equity (deficit) (871,223) (1,593,857) 677,229 (3,098,167) (330,996)
</TABLE>
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
We design and develop anti-piracy software technologies that provide copy
protection for electronic content distributed on optical media and over the
Internet. Our proprietary anti-piracy technology, MusicGuard, is a unique
hardware-based technology designed to prevent the unauthorized copying of audio
content distributed on CDs.
As of November 24, 1999, we entered into an agreement with Macrovision
Corporation to jointly design and develop and market a copy protection product
designed to thwart the illegal copying of audio content on CDs, DVDs and other
optical media. Optical media store data which may be retrieved by utilizing a
laser and include compact discs which are commonly referred to as CDs and
digital versatile discs which are commonly referred to as DVDs. The new product
will be based primarily upon our MusicGuard technology, as well as related
Macrovision technology, and will be jointly owned by us and Macrovision. We
expect that the immediate application of the technology we are developing with
Macrovision will be of interest for the music distribution business and
recording studios whose products are customarily distributed on CDs. We granted
to Macrovision an exclusive world-wide royalty bearing license to design,
develop and market the copy protection technology which we are jointly
developing. The license to Macrovision relates to all technologies and products
designed to prevent the illicit duplication of audio programs (including the
audio portion of music videos, movies and other video or audio content)
distributed on optical media (not limited to CDs and DVDs) and technologies for
Internet digital rights management for audio applications. The proposed copy
protection technology we are developing with Macrovision will be transparent to
the legitimate end-user.
Our immediate goal is to establish the proposed audio content protection
technology which we and Macrovision are developing as the leading product in the
target market of audio content copy protection for the high-volume recording
industry. Additionally, we are actively developing other technologies and
looking to acquire technologies which are synergistic with our current business
and will enable us to leverage our knowledge base and skill.
We have not had any significant revenues to date. As of December 31, 1999,
we had an accumulated deficit of approximately $24.8 million. Our expenses have
related primarily to expenses related to and expenditures on research and
development, marketing, recruiting and retention of personnel, costs of raising
capital and operating expenses.
Revenue Sources
We expect, for the near-term, that our primary source of revenue will be
royalties under our license agreements with Macrovision. We are currently
seeking to develop or
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acquire other technologies that will provide other sources of revenue. However,
there can be no assurance that we will develop or acquire other technologies or
if we do, that such technologies will generate any revenue or profits.
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 1997, 1998 and 1999.
Results of Operations
Year Ended December 31, 1999 Compared to Year December 31, 1998.
Revenues for the year ended December 31, 1999 and 1998 were $68,803 and
$54,922, respectively and were derived from licensing fees of our DiscGuard
product.
Research and development costs for the year ended December 31, 1999 were
$345,989 as compared to $1,017,073 for 1998. These decreases are attributable
primarily to reduced staffing effected in the latter part of 1998.
Sales and marketing expenses for the year ended December 31, 1999 were
$815,586 as compared to $1,155,998 for 1998. This decrease was primarily due to
reduced staffing in 1999.
General and administrative expenses for the year ended December 31, 1999
were $630,090 as compared to $1,663,912 for 1998. This decrease was primarily
due to reduced staffing in 1999.
Stock-based compensation for the year ended December 31, 1999 was
$6,152,587 as compared to $1,341,889 for 1998. Due to the shortage of available
funds in 1999, we compensated employees and other consultants by issuing common
stock, warrants and options.
Amortization of deferred financing costs for the year ended December 31,
1999 period was $4,180,540 as compared to $72,288 for the same period in 1998.
As a result of the issuance of 1.3 million warrants in connection with the sale
of our 10% Convertible Debentures, we recognized significant non-cash financing
costs. Using the Black-Scholes model for estimating the fair value of the
warrants, we recorded $3,845,400 as deferred financing costs and charged the
entire balance to operations when the debentures were converted.
Interest expense for the year ended December 31, 1999 increased to
$1,019,937 as compared to $410,715 during 1998. Included in interest expense is
non-cash amortization of note discount in the amount of $272,009 and $214,454
for the years ended December 31, 1999 and 1998, respectively. Note discounts
were imputed to reflect the equity component of the related financings. Also
included in interest expense for 1999 was
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$572,505, which represents the value of the beneficial conversion feature
relating to the conversion of outstanding debt into shares of our Common Stock.
We reported a net loss for the year ended December 31, 1999 of $13,072,237
or $(2.07) per share on a basis and diluted basis, as compared to a net loss of
$5,578,540 or $(1.54) per share for the year ended December 31, 1998.
Year Ended December 31, 1998 Compared to Year 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
$1,017,073 as compared to $957,232 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
$1,155,998 as compared to $914,060 for 1997. This increase reflects our
intensified marketing activities when DiscGuard became commercially available in
the first quarter of 1998.
General and administrative expenses for the year ended December 31, 1998
were $1,663,912 as compared to $604,151 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.
Stock-based compensation for the year ended December 31, 1998 was
$1,341,889 and $1,309,192 for 1997.
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.
We reported a net loss for the year ended December 31, 1998 of $5,578,540,
or $(1.54) per share on a basic and diluted basis, as compared to a net loss of
$4,119,612, or $(1.35) per share for the year ended December 31, 1997.
Liquidity and Capital Resources
At December 31, 1999, we had cash of approximately $210,000, representing
an increase of approximately $135,000 over December 31, 1998. In February 2000,
we completed a private placement of 1,800,000 shares of our common stock and
900,000 Class A Warrants for an aggregate purchase price of $10,000,000. The
Class A Warrants are exercisable for a period of five years at an exercise price
of $8.84 per share and upon exercise, we will issue Class B Warrants for an
additional
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495,000 shares. The Class B Warrants are exercisable for a period of three years
from the date of issuance at an exercise price of $21.22. Under certain
circumstances the Class A and Class B Warrants may be redeemed.
In November 1999, we signed an agreement with Macrovision Corporation
("Macrovision") to jointly develop and market music copy protection technology
for optical based media. In connection with the agreement, We granted to
Macrovision an exclusive world-wide, royalty-bearing license to use our
proprietary technology through December 31, 2009. We will be entitled to a 30%
royalty which may be adjusted to twenty five 25%, under certain conditions. Also
under certain conditions, the exclusive license may revert to a non-exclusive
license as of the second anniversary of the commercial launch of the product
that we are jointly developing. If certain conditions relating to the timing of
such commercial launch transpire, We will be entitled to minimum annual
guaranteed royalty advances, commencing on the first anniversary of the
Commercial Launch and continuing through the ninth year, aggregating $25
million.
Also under the Agreement, in January 1999, Macrovision made a $4 million
equity investment in the Company for an 11.4% interest and received an exclusive
license to our proprietary DiscGuard(TM) technology.
In the fourth quarter of 1999, we significantly reduced our accrued
interest and long-term debt through a series of conversions to Common Stock. We
also realized proceeds of approximately $1.4 from the exercise of outstanding
warrants and options.
BUSINESS
Introduction
We design and develop anti-piracy technologies that provide copy
protection for electronic content distributed on optical media and over the
Internet. Optical media store data which may be retrieved by utilizing a laser
and include compact discs which are commonly referred to as CDs and digital
versatile discs which are commonly referred to as DVDs. Our technologies utilize
both encryption and non-standard codewords on the optical media. As a result of
our research and development efforts we believe we have become the technological
leader in optical media authentication and verification. Our proprietary
anti-piracy technology, MusicGuard(TM), is a unique hardware-based technology
designed to prevent the unauthorized copying of audio content distributed on
CDs. MusicGuard leverages know-how we gained during the development of our
DiscGuard(TM) software protection product. Our copy protection technologies are
designed to be transparent to the legitimate end-user. Copy protected CDs are
compatible with and are designed to play on currently existing compact disc
players.
As of November 24, 1999, we entered into an agreement with Macrovision
Corporation to jointly design and develop and market a copy protection product
designed to thwart the illegal copying of audio content on CDs, DVDs and other
optical media. The new product will be based primarily upon our MusicGuard
technology as well as related Macrovision technology. We granted to Macrovision
an exclusive world-wide royalty bearing license to market the copy protection
technology which we are jointly developing. The license to Macrovision relates
to all technologies and products designed to prevent the illicit duplication of
audio programs (including the audio portion of music videos, movies and other
video or audio content) distributed on optical media (not limited to CDs and
DVDs) and technologies for Internet digital rights management for audio
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applications.
We are entitled to thirty percent (30%) of the net revenues collected by
Macrovision or its affiliates from any products or components incorporating the
proposed music protection technology. Under certain conditions, our share of the
net revenues may be readjusted to twenty-five percent (25%) of net revenues. We
agreed to reimburse Macrovision for up to $1 million of its costs incurred in
the twelve months ending December 31, 2000 in co-developing and commercially
launching MusicGuard.
As part of the agreement, we granted to Macrovision an exclusive
world-wide license to modify and market DiscGuard, our software anti-piracy
product. Part of the DiscGuard technology license is royalty free. The
encryption portion is royalty bearing. Macrovision has its own proprietary
software anti-piracy product known as Safe Disc. For five years we are entitled
to 5% of Macrovision's net revenues, if any, collected by Macrovision from the
licensing of Safe Disc to customers located in the Peoples Republic of China.
Other than for these revenues we do not anticipate that we will receive any
significant revenues as a result of our license of DiscGuard to Macrovision.
Macrovision develops and markets content copy protection and rights
management technologies and products to prevent the illicit duplication,
reception or use of video and audio programs and computer software. Macrovision
provides its products and services primarily to the consumer multimedia and
business software publishers, home video, pay-per-view, cable, satellite and
video security markets. Macrovision has its headquarters in Sunnyvale,
California with subsidiaries in London and Tokyo.
Our immediate goal is to establish the proposed audio content copy
protection technology which we and Macrovision are developing as the leading
product in the target market of audio content copy protection for the
high-volume recording industry. Additionally, we are actively developing other
technologies and looking to acquire technologies which are synergistic with our
current business and will enable us to leverage our knowledge base and skill.
Industry Background
Losses related to the unauthorized reproduction and use of music CDs
present a continuing concern for the recording industry as well as performing
artists. According to the Recording Industry Association of America, a national
trade organization, the recording industry loses about $5 billion annually to
global piracy of recorded music. Losses of up to $1 million a day have been
estimated in the U.S. alone. Two recent developments have exacerbated the
problem of piracy, causing it to become one the highest priorities of the
industry.
First, the cost of producing good quality copies of CDs has been
drastically reduced. Until recently, to produce good quality CDs required a
significant investment. Recent developments in consumer electronics technology
have enabled consumers to purchase, for as little as $180, a CD burner
(recorder) from a local retail outlet. CD burners now often are bundled with new
computers. Blank recordable discs are widely available for less than $1. With
this technology, even the casual user can easily copy unprotected CDs.
Second, it is now possible to easily download pirated music via the
Internet because of the acceptance and widespread use of MP3 compression
technology. This technology has made the
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Internet a feasible vehicle for the electronic transmission of music. Today
there are thousands of websites offering music in MP3 format. Most of the music
being downloaded is pirated; i.e., no royalties are being paid to the artists or
to the record companies which produced this music. This form of piracy is
rapidly growing.
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 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 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 music piracy have not served as an effective
deterrent and the effect of the new legislation cannot yet be ascertained,
recording studios and artists are seeking more effective methods to prevent the
replication of unauthorized copies of their proprietary products. To combat
music piracy, leaders of the music recording industry have cooperated with
leaders of more than 120 companies and organizations representing a broad
spectrum of information technology and consumer electronics businesses, Internet
service providers and security technology companies to form the Secure Digital
Music Initiative. The Initiative is a forum for these industries to develop the
voluntary, open framework for playing, storing and distributing digital music
necessary to enable a new market to emerge. The Initiative has already produced
a standard, or specification, for portable devices. The longer-term effort is
focused upon completion of an overall architecture for delivery of digital music
in all forms which system will include anti-piracy protection.
The standard developed by the Initiative is intended to be applied to the
next generation of portable playback devices. It will not prevent currently
existing playback devices from playing pirated music. Since these devices will
likely be in use for quite some time we believe that there will be a need for
copy protection on the products played on the devices. To our knowledge there
are no commercially available technologies or products providing copy protection
for audio content distributed on CDs.
Our Solution
We believe that the audio content copy protection which we and Macrovision
are jointly developing will offer recording studios and artists the most
effective solution to protect works distributed on CDs, while offering
convenience and cost effectiveness to the music rights owner and end-user. We
believe that the proposed technology embodies unique know-how designed to
prevent the unauthorized copying of CDs. The proposed music protection
technology will be based primarily on our proprietary technology, MusicGuard, as
well as related Macrovision technologies.
Most music is currently offered for sale on a CD. To our knowledge, there
is no existing commercially available technology except MusicGuard, which
protects content on the original CD. Software-based technologies available today
claim to protect music during electronic transmission, but we believe that these
technologies are easily overcome. For example, according to an article appearing
in the August 18, 1999 edition of "Wired News", one month after Microsoft
released its software-based protection technology, Windows Media Audio, a
program was available on the Internet that removed the copying protection
afforded by the software. MusicGuard protection is embedded on the CD itself and
is introduced as part of the production process. The production process includes
the creation of a glass master from which metal molds, or stampers, used to mass
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produce, or replicate, CDs are made.
During the glass mastering process, a specially modified CD-encoder
introduces selective alternative alterations to the data placed on the glass
master. These alterations do not affect the audio quality of the original CDs in
any manner. CDs that will be protected by music copy protection technology we
are developing with Macrovision will be designed to play normally in the
currently existing CD and DVD players around the world. Music quality will not
be degraded as compared to the original. The technology will be designed so that
when one tries to make a copy of a protected CD with any of the many CD-to-CD
copying programs or "track rippers", the copy will be unusable. Either the
copying process itself will abort or the quality of the unauthorized copy will
be unacceptably inferior to the original music. Similarly, attempts to produce
MP3 files from a protected CD will either fail or result in inferior and
unusable audio. We will design the technology so that it will be easy to apply
and use. Record companies or recording studios need only inform an authorized
glass mastering facility that it wishes to protect against copying with the
technology. We don't envision any special preparation or changes that will be
needed to be made to the data which the recording mastering studio supplies to
the glass mastering facility. The technology will leverage existing encoder
technology used in our DiscGuard(TM) software protection product. Glass
mastering facilities worldwide will be able to simply, cheaply and immediately
upgrade their existing encoders to enable the use of the copy protection
technology. Since the protection will be applied only during the glass mastering
process, once a glass master and stampers have been produced, protected discs
can be mass-produced by any replicator. We are working together with Macrovision
and the encoder manufacturers to develop the most efficient and effective
manufacturing solution.
Mastering Equipment Manufacturers
In order to produce protected CDs, modifications to the encoder portion of
the laser optics system in CD mastering equipment are required. Under our
contract with Macrovision, Macrovision is responsible for coordinating with the
companies which produce and sell these encoders. We believe that three
companies, Doug Carson & Associates, Media Morphics and Eclipse, effectively
control the market for encoders. We will work with Macrovision and these encoder
producers to develop the necessary modifications to produce protected CDs.
We envision that Macrovision will authorize licensed CD replicators to
replicate protected CDs. Macrovision has licensing arrangements in place with
more than 75 replication facilities worldwide including the largest
multinational replicators such as, Sonopress, MPO, Americ Disc, Nimbus, Cinram,
and JVC. Therefore, we believe that Macrovision is in a good position to
leverage its current business relationships to the benefit of the audio content
copy protection technology we will develop with Macrovision.
Marketing and Sales
Under our agreement with Macrovision, Macrovision will be responsible, at
its expense, for the marketing of the proposed audio content copy protection
technology and will determine the staffing and other resources to be allocated
to the commercialization of the technology consistent with Macrovision's good
faith determination of its commercial potential.
Macrovision markets its products, including video cassettes, digital PPV
and DVD copy protection and video scrambling technologies, through a combination
of direct sales and licensing
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as well as through independent distributors. Macrovision has a network of
authorized duplication, authoring and replication facilities throughout the
world.
We are entitled to thirty percent (30%) of the net revenues received by
Macrovision from customers, distributors, OEM partners or other sublicensees of
the jointly developed technology. Under certain conditions, our share of net
revenues may be adjusted to twenty-five percent (25%) of the net revenues. Under
certain circumstances, the exclusive license relating to MusicGuard and the
jointly developed technology which we granted to Macrovision reverts to a
non-exclusive license as of the second anniversary of the commercial launch.
Under our agreement with Macrovision, commercial launch is deemed to occur when
a certain pre-designated number of protected music CDs are manufactured, with a
certain specified number being manufactured by at least one of certain
designated major commercial music labels. If certain conditions relating to the
timing of the commercial launch transpire, we will be entitled to minimum annual
guaranteed royalty advances, recoupable against royalties actually earned by us,
commencing on the first anniversary of the commercial launch and continuing
through the term of the development agreement which ends on December 31, 2009.
Macrovision markets its video and consumer protection technologies
internationally from its Sunnyvale, California headquarters and through its
subsidiaries in Japan and the United Kingdom. It supplements its direct sales
efforts with a variety of marketing initiatives, including trade show
participation, trade advertisements, industry education and news letters.
Macrovision provides technical support to its licensed duplicators, including
hardware installation assistance and quality control. As of December 1, 1999,
Macrovision employed 33 sales and marketing personnel and 38 additional
employees who assisted in customer support and operations.
We have only a limited internal sales and marketing capability. 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
expanding our marketing capability until we are in a position to commercialize
products other than MusicGuard.
Research And Development
We intend to maintain our position as the technological leader in
anti-piracy products by leveraging our existing knowledge base and skillset and
exploiting to the fullest our existing technologies. We are interested in
acquiring or establishing business arrangements with other parties which have
promising technologies that offer synergy to our technological and commercial
expertise. We are particularly focusing upon companies in Israel due to their
geographic proximity and because Israel has a large pool of startup companies
with raw technologies from which to choose.
The software and entertainment industries in general are 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 anti-piracy products will depend
in large part on our ability to develop and apply our proprietary technology and
know-how. We believe that the key to ensuring that the audio content copy
protection technology we are developing with Macrovision becomes the industry
standard for CD copy protection lies in our and Macrovision's ability to
continually enhance and upgrade our unique anti-piracy technologies.
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New Products and Technologies
We intend to extend our range of activities in two specific directions:
o Exploiting existing technologies and expertise - the development and
commercialization of products which are similar to and share common
distribution channels with MusicGuard.
o Other technologies - the result of cooperation with outside parties,
including applications which offer synergy with MusicGuard.
We have developed other technologies with applications in the following areas:
o DiscAudit - a system for identifying genuine disc replicas. During
the mastering process, a special non-reproducible authenticating
mark is embedded outside the data portion of the disc. The
authenticating mark is not present in unauthorized replicas. By
means of a laptop with CD or DVD drive and software supplied by us,
law enforcement authorities, including customs inspectors, can
quickly determine the authenticity of a disc. DiscAudit is
applicable to CD and DVD, including both software and audio discs.
The product has been tested with fully satisfactory results. Unlike
the following three technologies, this technology is not subject to
the right of first refusal we have granted to Macrovision to acquire
rights in the technology if we decide to license or sell our rights
in it.
o Encryption Engine - a strong encryption engine for a variety of
applications including electronic software distribution, secure
electronic music distribution, dedicated music and video playback
devices and dedicated games machines. We can supply the encryption
technology and software library for the content to be protected.
o Smart Card Application Binding - Our DiscGuard technology "binds" a
protected application to a signature on an authentic optical disc so
that the protected application runs correctly only in the presence
of the disc. In many applications, it would be desirable to run the
protected application on any PC. This can be accomplished by
transferring binding information to the user's smart card. Use of
smart cards is expected to grow substantially. Reading devices are
inexpensive and readers are included in Microsoft's PC hardware
specifications. The binding could be by direct download via the
Internet. For example, an end user can download a demo version of
sample music. If he chooses, he can unlock the application by an
on-line registration process that transmits the unlock key directly
to the end users's smart card. As a result, the end user has
complete mobility - he can run the application from any Internet
connected PC, while the music publisher has no concerns about
unauthorized replication.
o Dedicated Playback Devices with Smart Card - GSM (Global System for
Mobile Communications) modules throughout the world work with small
smart card modules containing the user's authorization and personal
preferences. We intend to extend this concept to a wide range of
consumer devices, including computers, video and audio playback
devices and game stations. In all cases, protected content such as
software, video, audio or games, must be bound to the user's smart
card before it can be played correctly. The binding can be achieved
by leveraging our existing encryption and binding
20
<PAGE>
mechanisms.
Under our agreement with Macrovision, we granted to Macrovision an
exclusive right of first refusal through December 31, 2009, to any music copy
protection technology that we develop which is not included in the license to
Macrovision, and any Internet digital rights management technologies developed
by us which are applicable to music, music video, video, software or data
publishing products or markets. We are required to notify Macrovision of the
details of any bona- fide third party offers to purchase or license such
technologies. If Macrovision notifies us of its interest in such purchase or
license within 10 business days of Macrovision's receipt of our notification, we
are required to negotiate in good faith with them such purchase or license. The
encryption engine, smart card application binding and the GSM systems are
subject to Macrovision's first refusal rights.
A major part of future business strategy will be the identification and
setting up of cooperation arrangements with the developers of technologies,
including those that share our anti- piracy theme.
We are already active in the process of screening potential partners. The
model will be to invest in such companies and to allow them to benefit from our
strengths - technical knowledge (especially in optical media), professional
management, market awareness and established relationship with Macrovision and
other marketing partners. We believe that we can identify several early stage
technology companies and can provide the added value necessary to achieve
success and cut time to market.
In connection with the design and development of DiscGuard, our
proprietary software anti- piracy product, our Israeli subsidiary has received a
grant of $210,000 from the Chief Scientist of the State of Israel. We are
required to 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. For example, royalties will be payable to the Chief Scientist based on
royalties we receive from Macrovision relating to DiscGuard. We do not believe
that any royalties are payable to the Chief Scientist in respect of the proposed
audio content protection technology. 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 December 31, 1999, we have expended
approximately $3 million on research and development activities, including
approximately $2.6 million through the year ended December 31, 1998, and
approximately $.4 million for the year ended Dectember 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.
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<PAGE>
Competition
We are not aware of the existence of any commercially available
anti-piracy technologies in the area of copy protection for electronic content
distributed on optical media. There can be no assurance that other companies
will not enter the market in the future, particularly if the audio content
protection technology we are developing with Macrovision is successfully
commercialized. 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. We have filed patent applications in the United States
and Israel and under the Patent Cooperation Treaty with respect to the
technology underlying DiscGuard and in Israel for MusicGuard. We have also
applied for a United States trademark registration of MusicGuard. There can be
no assurance that any patent or trademark 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 and audio content protection products and
technologies are 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.
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
meaningful protection or adequate remedies for our trade secrets in the event of
unauthorized use or disclosure of such information.
Employees
We have 5 full-time employees, all of whom work in Israel. 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 consider
our relations with our employees to be good.
Our future performance depends highly upon the continued service of
members of our senior management and of Dr. Baruch Sollish, our
Vice-President-Research and Development, in particular.
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<PAGE>
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 2400 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 $2292 and an expiration date of May 31, 2000
subject to one optional annual renewal through May 2001. We have improved this
facility to meet the requirements of our research and development activities. We
believe that this facility is sufficient to meet our current and anticipated
future requirements. We believe that we will be able either to renew our present
lease or obtain suitable replacement facilities. In the opinion of management,
our leased facility is adequately covered by insurance.
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 --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 of this prospectus, although Israel and Syria
have resumed negotiations, 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
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<PAGE>
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
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
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<PAGE>
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.
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.
MANAGEMENT
Directors and Officers
Our directors, officers and key employees are as follows:
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Name Age Position
- ---- --- --------
Marc D. Tokayer 43 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 an 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.
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, Marc
Tokayer and Baruch Sollish. All directors hold office until the next annual
meeting of stockholders and the election and
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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.
Summary Compensation Table
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to, or earned by, our Chief Executive
Officer and to all other executive officers serving as such at the end of 1999
whose salary and bonus exceeded $100,000 for the year ended December 31, 1999 or
who, as of December 31, 1999, was being paid a salary at a rate in excess of
$100,000 per year.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards
------ Payouts
Name and Restricted Securities LTIP
Principal Position Salary Bonus Other Stock Payouts All Other
- ------------------ Year ($) ($) ($) Underlying ($) Compensation
---- -------- --- ------- Awards(#) Options(#) --- ------------
--------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Marc D. Tokayer 1999 $108,075 -- $27,676(1) -- -- -- --
Chairman and 1998 $ 64,430 $12,019 $14,423(1) -- -- -- --
President 1997 $ 73,850 $ 7,647 $26,307(1) -- -- -- --
Emanuel Kronitz(2) 1999 $ 35,915 -- $ 7,158 304,500 --
Chief Operating 1998 -- -- -- -- -- -- --
Officer 1997 -- -- -- -- -- -- --
Baruch Sollish 1999 $110,522 -- $21,886(1) -- 80,000 -- --
Vice-President- 1998 $ 91,678 $42,105 $13,927(1) -- -- -- --
Research & 1997 $ 99,931 $50,000(3) $24,875(1) -- -- -- --
Development
</TABLE>
- ----------
(1) Includes contributions to insurance premiums, car allowance and car
expenses.
(2) Mr. Kronitz' employment by TTR commenced on June 1, 1999.
(3) Comprises a one-time payment made in consideration of Dr. Sollish's waiver
of incentive bonus payments due to him under his employment agreement.
Options Granted in Last Fiscal Year
The following table sets forth certain information concerning options
granted during 1999 to the executive officers named in the Summary Compensation
Table. Since January 1, 2000 we have also granted options to Mr. Tokayer and Dr.
Sollish, which grants are discussed in "Certain Relationships and Related
Transactions" below.
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<PAGE>
<TABLE>
<CAPTION>
Market Potential Realizable Value
Percentage Price of At Assumed Annual Rates
Number of of Total Common of Stock Price
Securities Options Stock on Appreciation for
Underlying Granted to Exercise Date of Option Term
Name Options Employees Price Grant Expiration -------------
Granted (#) in 1999 ($/Share) ($/Share) Date 5% ($) 10%($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Marc Tokayer 0 -- -- -- -- -- --
Emanuel Kronitz 235,000 31.7% $. 01 $2.906 2009 $1,110,038 $1,768,943
Emanuel Kronitz 69,500 9.4% $. 01 $ 2.56 2009 $ 289,118 $ 460,784
Baruch Sollish 20,000 2.7% $. 01 $ 2.56 2009 $83,999 $ 132,600
Baruch Sollish 60,000 8.1% $2.56 N/A 2009 $96,598 $ 244,799
</TABLE>
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, 1999 and the number and value of
options outstanding at December 31, 1999 held by the executive officers named in
the Summary Compensation Table:
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Number of Un-exercised In-the-money Options at
Acquired on Value Options at December 31, 1999 December 31, 1999(1)
Name Exercise Realized (#) ($)
(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------- ----------- -------- ------------------------- ----------------------
<S> <C> <C> <C> <C>
Emanuel Kronitz -- -- 108,666/195,834(2) $650,909/$1,173,045
Baruch Sollish -- -- 20,000/60,000 $119,800/$206,400
</TABLE>
(1) Based upon the difference between the exercise price of such options and the
closing price of the common stock ($6.00) on December 31, 1999, as reported on
the OTC Electronic Bulletin Board.
(2) On January 12, 2000, the terms of options to purchase an aggregate of
235,000 shares were amended to provide that options to purchase 150,000 shares
became immediately vested and exercisable.
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 and level of performance shown during the year. Stock
options are intended to improve loyalty to the company and help make each
employee aware of the importance of our business success.
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<PAGE>
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 our common stock. A
total of 1,500,000 shares of our common stock have been reserved for issuance
upon exercise of stock options granted under the 1996 Option Plan.
The 1996 Option Plan is administered by the Board of Directors. The board
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 incentive stock
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 board may, in its discretion
(i) accelerate the date or dates on which all or any particular option or
options granted under the 1996 Option Plan may be exercised, or (ii) extend the
dates during which all, or any particular, option or options granted under the
1996 Option Plan may be exercised, provided, that no such extension will 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 Exchange Act of 1934, as
amended. Except as otherwise determined by the board 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 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
will 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 January 31, 2000, options to purchase 1,166,400 shares of our 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 our 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 a
person's services as a director, the options expire within two months of such
termination. The exercise price of the option will be the fair market value of
our 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
stock dividends. No options may be granted under the Directors Plan after July
2008. As
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<PAGE>
of March 1, 2000, 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 currently receives an annual salary of $120,000,
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.
Our Israeli subsidiary entered into an employment agreement with Dr.
Baruch Sollish in December 1994 which was amended in July 1998. Pursuant to the
agreement Dr. Sollish is employed as Director of Product Research and
Development of our Israeli subsidiary. The agreement is renewable for terms of
three years, subject to termination by either party on not less than 60 days
notice prior to the end of any term. The current term expires on December 1,
2001. Dr. Sollish currently receives an annual base salary of $120,000 subject
to increase and the grant of a performance bonus in the board's discretion.
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of November 24, 1999, we entered into an agreement with Macrovision
Corporation to jointly design and develop and market a copy protection product
designed to thwart the illegal copying of audio content on CDs, DVDs and other
optical media. The new product will be based primarily upon our MusicGuard
technology as well as related Macrovision technology. We granted to Macrovision
an exclusive world-wide royalty bearing license to market the copy protection
technology which we are jointly developing. The license to Macrovision relates
to all technologies and products designed to prevent the illicit duplication of
audio programs (including the audio portion of music videos, movies and other
video or audio content) distributed on optical media (not limited to CDs and
DVDs) and technologies for Internet digital rights management for audio
applications.
We are entitled to thirty percent (30%) of the net revenues collected by
Macrovision or its affiliates from any products or components incorporating the
proposed music protection technology. Under certain conditions, our share of the
net revenues may be readjusted to twenty- five percent (25%) of net revenues. We
agreed to reimburse Macrovision for up to $1 million of its costs incurred in
the twelve months ending December 31, 2000 in co-developing and commercially
launching MusicGuard.
As part of the agreement, we granted to Macrovision an exclusive
world-wide license to modify and market DiscGuard, our software anti-piracy
product. Part of the DiscGuard technology license is royalty free. The
encryption portion is royalty bearing. Macrovision has its own proprietary
software anti-piracy product known as Safe Disc. For five years we are entitled
to 5% of Macrovision's net revenues, if any, collected by Macrovision from the
licensing of Safe Disc to customers located in the Peoples Republic of China.
Other than for these revenues we do not anticipate that we will receive any
significant revenues as a result of our license of DiscGuard to Macrovision.
Under the terms of the agreement, we also granted to Macrovision first
refusal rights until December 31, 2009 with respect to any music protection
technology we develop which is not included in the license to Macrovision and
any Internet digital rights management technologies we develop which are
applicable to music, music video, video, software or data publishing products or
markets. These rights include rights of ownership if we decide to sell the
technology or worldwide exclusive marketing or distribution rights if we decide
to license the technology. Our obligation is to negotiate a sale or license to
Macrovision in good faith should we receive a bona fide offer from a third party
to purchase or license the technology and should Macrovision notify us of its
interest in acquiring the technology.
On January 12, 2000 pursuant to stock purchase agreement we sold to
Macrovision $4 million of our common stock, and granted to Macrovision rights of
first refusal to purchase equity securities (including securities convertible or
exchangeable into common stock) we propose to sell to third parties if the
amount of the securities to be sold would constitute a majority of our
outstanding common stock. Subject to some exceptions, we further granted to
Macrovision a right to purchase its pro rata share (based on Macrovision's then
current ownership of common stock) of any equity securities we offer in private
transactions above a certain amount. Macrovision waived its right of first
refusal with respect to our private placement in February 2000 of 1,800,000
shares of Common Stock and 900,000 Class A Warrants for an aggregate purchase
price of $10 million.
In January 2000, we issued to Mr. Tokayer, options under the 1996 Stock
Option Plan to purchase 347,000 shares of our common stock at an exercise price
per share of $4.00, of which options to purchase 173,000 shares were vested upon
issuance and options to purchase 174,000 shares will vest over 12 months.
In February 1999, we issued to Dr. Sollish options to purchase 50,000
shares of our common stock. All of the options vested at the time they were
issued. In November 1999, we issued to Dr. Sollish options to purchase 80,000
shares of our common stock under the 1996 Stock Option Plan, with 20,000 of
these options being vested upon issuance with an exercise price of $.01 per
share and 60,000 of these options vesting over a 3 year period with an exercise
price per share of $2.56. In January 2000, we issued to Dr. Sollish additional
options to purchase 70,000 shares of our common stock under our 1996 Stock
Option Plan, of which 30,000 options were fully vested upon grant at an exercise
price of $4 per share, 20,000 options were fully vested upon grant at an
exercise price of $.01 per share and the remaining 20,000 options with an
exercise price of $.01 per share will vest upon the commercial launch of the
audio content protection product being jointly developed by us and Macrovision.
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<PAGE>
In June 1999, we granted options to purchase 235,000 shares of our common
stock under the 1996 Stock Option Plan to Emanuel Kronitz, our Chief Operating
Officer, which options were to vest, subject to Mr. Kronitz's continued
employment with us, in 36 equal monthly installments and have an exercise price
of $.01 per share. On January 12, 2000, at the direction of the board, the
options were amended to provide that 150,000 of Mr. Kronitz's options became
vested and the balance of 85,000 options will vest in one lump sum on November
12, 2000. In November, 1999, we issued to Mr. Kronitz fully vested options to
purchase an additional 69,500 under the 1996 Stock Option Plan at an exercise
price of $.01 per share.
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 our 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.
In November 1999, we issued to Gershon Tokayer, our sales manager and the
brother of Marc D. Tokayer, the Chairman of the Board, options to purchase
249,500 shares of our common stock under the 1996 Stock Option Plan, of which
options to purchase 209,500 shares were immediately vested upon issuance at an
exercise price of $.01 per share and 40,000 options were to vest over a 3 year
period at an exercise price of $2.56 per share.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table provides information as of March 1, 2000 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 to us to
be the beneficial owner of more than 5% of the 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
Name of Shares of Shares Hereunder are sold
Beneficial Owner(1) Common Stock Percent of Offered -----------------------
- ------------------- Beneficially Class(2) Hereby Shares(3) Percent(2)(3)
Owned(1) -------- ------ ------ -------------
--------
<S> <C> <C> <C> <C> <C>
Macrovision Corporation 1,880,937 11.78 1,880,937 0 0
Wall & Broad Equities, Inc. 1,300,000(4) 7.89 1,300,000 0 0
Machtec Limited 1,202,000 7.53 1,202,000 0 0
Marc D. Tokayer(5) 766,547(6) 4.75 0 766,547(6) 4.75
Dimensional Partners, Ltd. 1,260,000(7) 7.63 1,260,000 0 0
Econor Investment Corporation 442,810 2.77 256,060 186,750 1.28
Dimensional Partners, L.P. 315,000(8) 1.96 315,000 0 0
Bentley Equity Partners, L.P. 299,250(9) 1.86 299,250 0 0
L&H Foundation 281,736 1.76 281,736 0 0
Madison Trading 269,613 1.69 269,613 0 0
Robert Sussman 204,750(10) 1.28 204,750 0 0
Mantle International
Investment Ltd. 200,000(11) 1.24 200,000 0 0
Inglewood Holdings Inc. 200,000(11) 1.24 200,000 0 0
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Baruch Sollish(5) 195,000(12) 1.21 0 195,000(12) 1.21
Emanuel Kronitz(5) 194,500(13) 1.20 0 194,000(13) 1.20
Burstein & Lindsay Securities
Corp. 174,310 1.09 174,310 0 0
Gotham Holdings, L.P. 157,500(14) * 157,500 0 0
The dotCOM Fund L.L.C 157,500(14) * 157,500 0 0
American High Growth 157,500(14) * 157,500 0 0
Oak Creek Capital L.P. 126,000(15) * 126,000 0 0
Dalimore Consulting Limited 125,000 * 125,000 0 0
Steven L. Barsh 120,000 * 120,000 0 0
Manhattan Group Funding-
Partnership 110,250(16) * 110,250 0 0
Silver Cloud L.P. 110,250(16) * 110,250 0 0
H.C. Wainwright & Co., Inc. 126,000(17) * 126,000 0 0
Jarvis Developments Limited 105,000 * 105,000 0 0
Robert Friedman 100,000(18) * 100,000 0 0
Biscount Overseas Ltd. 83,000(18) * 83,000 0 0
Gerald Levine 78,750(19) * 78,750 0 0
Bentley International Equity
Ltd. 78,750(19) * 78,750 0 0
Mathew Balk 82,250(20) * 82,250 0 0
Jason T. Adelman 87,500(21) * 87,500 0 0
SDM Partners 63,000(22) * 63,000 0 0
Abraham Stephansky 51,637 * 51,637 0 0
Neve Yerushalayim 43,750 * 43,750 0 0
Scott Weisman 50,750(23) * 50,750 0 0
Yeshiva Darchei Torah
(Rabbis Fund) 42,250(24) * 42,250 0 0
Yeshiva Darchei Torah
(Building Fund) 40,393 * 40,393 0 0
Mordecai Lerer 35,000 * 35,000 0 0
Mylock Holdings Inc. 31,500(25) * 31,500 0 0
Yaakov Bender 27,096 * 27,096 0 0
Plans Inc. 25,000 * 25,000 0 0
Schneider Ehrlich &
Associates 25,000 * 25,000 0 0
Wayne M. Wilde Revocable
Trust 23,000(26) * 23,000 0 0
Mitchell Hirth 15,947 * 15,947 0 0
CYGNI S.A 12,500 * 12,500 0 0
Bnos Bais Yaaakov 12,497(27) * 12,497 0 0
Cherson Ltd. 17,250(28) * 17,250 0 0
Catamaran Corp. 11,500(29) * 11,500 0 0
Solomon Mayer 74,625(30) * 74,625 0 0
Abraham & Barabara
Stefansky 15,613 * 15,613 0 0
Philip Kenneth Wood 14,000(31) * 14,000 0 0
Jerome Todder 15,000 * 15,000 0 0
Yitzchak Stefansky 11,772 * 11,772 0 0
Earl Freeman 11,500(32) * 11,500 0 0
Donald K. Currie 11,500(32) * 11,500 0 0
Ralph Falk 11,500 * 11,500 0 0
Murray Kimmel 11,500 * 11,500 0 0
Robert D. Zucker 11,500(32) * 11,500 0 0
Ralph Cotton 8,625(27) * 8,625 0 0
Lawrence & Karen
Dalessandri 7,000(33) * 7,000 0 0
PJ Realty Trust 7,000(33) * 7,000 0 0
Tom McCann IRA
CIBA Oppenheimer
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Corp., as Cust 7,000(33) * 7,000 0 0
Leon Goldstein 5,750(34) * 5,750 0 0
K. David Isaacs 5,750(34) * 5,750 0 0
Judith Wohlberg 5,750(34) * 5,750 0 0
Jack's Coffee House
Inc. 5,750 * 5,750 0 0
Rothschild & Banks,
Inc. 5,750(35) * 5,750 0 0
William T. Grifffin 5,750(35) * 5,750 0 0
Tim Martin 5,750(35) * 5,750 0 0
Sarki Galbut 5,250 * 5,250 0 0
Estee Margules 5,250 * 5,250 0 0
Shana Margules 5,250 * 5,250 0 0
Rena Margules 5,250 * 5,250 0 0
Raphael Margules 5,250 * 5,250 0 0
Abe Katzman 2,875(36) * 2,875 0 0
Eliot Brody 2,000(36) * 2,000 0 0
Kanan Corbin Schupak &
Aronow, Inc. 1,269 * 1,269 0 0
Parnell Limited 750 * 750 0 0
All directors and officers
as a Group(37) 1,156,047 10.25 0 1,156,047 10.25
</TABLE>
* Indicates less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the 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 are deemed to be
outstanding, but not for the purpose of calculating the percentage ownership of
any other person.
(3) Assumes the sale of all of the shares offered hereby.
(4) Includes 503,202 shares issuable upon exercise of warrants. As required by
SEC rules, 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 warrants held by this selling stockholder specify that
the stockholder can not exercise its warrants to the extent that such exercise
would result in the selling stockholder and its affiliates beneficially owning
more than 4.99% 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
stockholder during that 60 day period, they are nevertheless included in this
table. The actual number of shares of common stock issuable upon the 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.
(5) The address of such person is c/o TTR Technologies Ltd., 2 Hanagar Street,
Kfar Saba, Israel.
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<PAGE>
(6) 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. Also
includes 173,000 shares issuable upon the exercise of fully vested employee
stock options issued from the Company 1996 Employee Stock Option Plan. Does not
include 249,500 shares issuable upon exercise of options held by Gershon
Tokayer, Mr. Tokayer's brother, as to which shares Mr. Tokayer disclaims
beneficial ownership.
(7) Includes 360,000 shares issuable upon exercise of Class A Warrants and
180,000 shares issuable upon the exercise of Class B Warrants, which warrants
are to be issued upon the exercise of the Class A Warrants.
(8) Includes 90,000 shares issuable upon exercise of Class A Warrants and 45,000
shares issuable upon the exercise of Class B Warrants, which warrants are to be
issued upon the exercise of the Class A Warrants.
(9) Includes 85,500 shares issuable upon exercise of Class A Warrants and 42,750
shares issuable upon the exercise of Class B Warrants, which warrants are to be
issued upon the exercise of the Class A Warrants.
(10) Includes 58,500 shares issuable upon exercise of Class A Warrants and
29,250 shares issuable upon the exercise of Class B Warrants, which warrants are
to be issued upon the exercise of the Class A Warrants.
(11) Represents shares issuable upon exercise of warrants.
(12) Includes 120,000 shares issuable upon exercise of fully vested options.
(13) Represents shares issuable upon exercise of fully vested options.
(14) Includes 45,000 shares issuable upon exercise of Class A Warrants and
22,500 shares issuable upon the exercise of Class B Warrants, which warrants are
to be issued upon the exercise of the Class A Warrants.
(15) Includes 36,000 shares issuable upon exercise of Class A Warrants and
18,000 shares issuable upon the exercise of Class B Warrants, which warrants are
to be issued upon the exercise of the Class A Warrants.
(16) Includes 31,500 shares issuable upon exercise of Class A Warrants and
15,750 shares issuable upon the exercise of Class B Warrants, which warrants are
to be issued upon the exercise of the Class A Warrants.
(17) Represents shares issuable upon exercise of warrants.
(18) Represents shares issuable upon fully vested options.
(19) Includes 22,500 shares issuable upon exercise of Class A Warrants and
11,250 shares issuable upon the exercise of Class B Warrants, which warrants are
to be issued upon the exercise of the Class A Warrants.
(20) Includes 9,000 shares issuable upon exercise of Class A Warrants and 4,500
shares issuable upon exercise of Class B Warrants, which warrants are to be
issued upon exercise of Class A Warrants. Includes 50,750 shares issuable upon
exercise of other warrants.
(21) Represents shares issuable upon exercise of warrants.
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<PAGE>
(22) Includes 18,000 shares issuable upon exercise of Class A Warrants and 9,000
shares issuable upon the exercise of Class B Warrants, which warrants are to be
issued upon the exercise of the Class A Warrants.
(23) Represents shares issuable upon exercise of warrants.
(24) Includes 17,250 shares issuable upon exercise of warrants.
(25) Includes 12,875 shares issuable upon exercise of warrants.
(26) Includes 17,250 shares issuable upon exercise of warrants.
(27) Includes 5,750 shares issuable upon exercise of warrants.
(28) Includes 11,500 shares issuable upon exercise of warrants.
(29) Includes 5,750 shares issuable upon exercise of warrants.
(30) Includes 25,875 shares issuable upon exercise of warrants.
(31) Includes 4,000 shares issuable upon exercise of warrants.
(32) Includes 8,625 shares issuable upon exercise of warrants.
(33) Includes 2,000 shares issuable upon exercise of warrants.
(34) Includes 2,875 shares issuable upon exercise of warrants.
(35) Includes 4,312 shares issuable upon exercise of warrants.
(36) Includes 1,437 shares issuable upon exercise of warrants.
(37) See Footnotes 6, 12 and 13.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 25,000,000 shares of common stock, $.001 par
value per share, of which 15,967,890 shares were outstanding and held of record
as of March 8, 2000 by approximately 173 stockholders of record. A significant
portion or our common 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.
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<PAGE>
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 Delaware General Corporation Law (the
anti-takeover law), which regulates corporate acquisitions. The anti-takeover
law prevents certain Delaware corporations 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 certificate 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 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 interests, 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 SEC, such
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<PAGE>
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
PLAN OF DISTRIBUTION
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.
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 those
selling stockholders who were issued common stock upon conversion of 10%
Convertible Debentures due April 30, 2001 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
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<PAGE>
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
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.
Certain of our stockholders holding a total of approximately 991,800
shares have agreed 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 not to sell any of
the common stock underlying such warrants for 30 days after the effective date
of this prospectus. Each of our directors and principal officers has undertaken
that, without the prior consent of these stockholders, 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 such restriction) any
shares of common stock directly or indirectly held by him prior to April 6,
2000.
All of the purchasers of an aggregate of 1,800,000 shares of our Common
Stock and 900,000 Class A Warrants sold in a private placement closed on
February 25, 2000 have agreed not to sell such shares or shares of Common Stock
issuable upon exercise of such warrants until after May 25, 2000.
LEGAL MATTERS
The legality of the securities offered by this prospectus will be passed
upon for us by Wolf, Block, Schorr and Solis-Cohen LLP, New York, New York.
EXPERTS
The consolidated financial statements of TTR Technologies, Inc. for the
three years ended December 31, 1999, included in this prospectus, have been
included in reliance upon the report of Brightman 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.
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<PAGE>
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.
WHERE TO FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information on file at the SEC'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 SEC.
We have filed a registration statement on Form S-1 with the SEC. 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 of the registration statement
at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.,
20549 and at the SEC'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. You can call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings and
the registration statement can also be reviewed by accessing the SEC's Internet
web site at http://www.sec.gov.
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<PAGE>
TTR TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors F-2
Consolidated Financial Statements
Balance Sheets as of December 31, 1998 and 1999 F-3
Statements of Operations for the years ended December 31, 1997, 1998
and 1999 and the period from July 14, 1994 (inception) to
December 31, 1999 F-4
Statements of Comprehensive Loss for the years ended December 31, 1997,
1998 and 1999 and the period from July 14, 1994 (inception) to
December 31, 1999 F-5
Statements of Stockholder's Equity (Deficiency) for the years ended
December 31, 1997, 1998 and 1999 and the period from July 14, 1994
(inception) to December 31, 1999 F-6
Statements of Cash Flows for the years ended December 31, 1997, 1998
and 1999 and the period from July 14, 1994 (inception) to
December 31, 1999 F-8
Notes to the Consolidated Financial Statements F-9
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of 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 1999, and the related consolidated
statements of operations, comprehensive loss, stockholders' deficit and cash
flows for the three years ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Company's management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 1998 and 1999, and the consolidated results of
operations, and its cash flows for the three years ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Brightman Almagor & Co.
Brightman Almagor & Co.
Certified Public Accountants (Israel)
A member of Deloitte Touche Tohmatsu
Tel-Aviv, Israel
March 1, 2000
F-2
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 74,445 $ 209,580
Accounts receivable 7,793 10,103
Other current assets 21,250 38,630
------------ ------------
Total current assets 103,488 258,313
Property and equipment - net 311,493 205,854
Deferred financing costs, net 70,712 --
Other assets 4,852 3,700
------------ ------------
Total assets $ 490,545 $ 467,867
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Current liabilities
Current portion of long-term debt $ 873,153 $ 7,764
Short-term borrowings, net of discount 264,335 --
Accounts payable 744,103 409,521
Accrued expenses 1,056,345 335,772
------------ ------------
Total current liabilities 2,937,936 753,057
Long-term debt, less current portion 594,011 8,219
Accrued severance pay 56,765 37,587
------------ ------------
Total liabilities 3,588,712 798,863
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred Stock, $ 0.001 par value;
5,000,000 shares authorized; none issued and outstanding -- --
Common stock, $ 0.001 par value;
15,000,000 shares authorized; 4,176,326 and 10,653,560
issued and outstanding, respectively 4,177 10,654
Additional paid-in capital 9,170,585 24,710,602
Other accumulated comprehensive income 79,415 56,971
Deficit accumulated during the development stage (11,758,111) (24,830,348)
Less: deferred compensation (594,233) (278,875)
------------ ------------
Total stockholders' deficit (3,098,167) (330,996)
------------ ------------
Total liabilities and stockholders' deficit $ 490,545 $ 467,867
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From
Inception
Year Ended (July 14,
December 31, 1994) to
---------------------------------------------- December 31,
1997 1998 1999 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ -- $ 54,922 $ 68,803 $ 123,725
Expenses
Research and development 957,232 1,017,073 345,989 2,940,847
Sales and marketing 914,060 1,155,998 815,586 3,319,442
General and administrative 604,151 1,663,912 630,090 3,340,770
Stock based compensation 1,309,192 1,341,889 6,152,587 8,822,941
------------ ------------ ------------ ------------
Total expenses 3,784,635 5,178,872 7,944,252 18,424,000
------------ ------------ ------------ ------------
Operating loss (3,784,635) (5,123,950) (7,875,449) (18,300,275)
Other (income) expense
Legal settlement 232,500 -- -- 232,500
Loss on investment -- -- -- 17,000
Other income (50,000) (25,000) -- (75,000)
Amortization of deferred financing costs 81,101 72,288 4,180,540 4,516,775
Interest income (42,069) (3,413) (3,689) (61,995)
Interest expense 113,445 410,715 1,019,937 1,900,793
------------ ------------ ------------ ------------
Total other (income) expenses 334,977 454,590 5,196,788 6,530,073
------------ ------------ ------------ ------------
Net loss $ (4,119,612) $ (5,578,540) $(13,072,237) $(24,830,348)
============ ============ ============ ============
Per share data:
Basic and diluted $ (1.35) $ (1.54) $ (2.07)
============ ============ ============
Weighted average number
of common shares used in
basic and diluted loss per share 3,054,519 3,615,908 6,321,719
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
From
Inception
Year Ended (July 14,
December 31, 1994) to
---------------------------------------------- December 31,
1997 1998 1999 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (4,119,612) $ (5,578,540) $(13,072,237) $(24,830,348)
Other comprehensive income (loss)
Foreign currency translation adjustments (19,667) 41,386 (22,444) 56,971
------------ ------------ ------------ ------------
Comprehensive loss $ (4,139,179) $ (5,537,154) $(13,094,681) $(24,773,377)
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Currency
Common Stock Subscribed Paid-in Translation
Shares Amount Shares Amount Capital Adjustment
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at July 14, 1994
(date of inception) -- $ -- -- $ -- $ -- $ --
Issuances of common stock, par value $ 0.001
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 $ 0.001
Services rendered 361,453 361 17,712
Stock options and warrants granted 600
Foreign currency translation adjustment 22,652
Net loss
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1995 2,200,000 2,200 -- -- 42,673 22,652
Issuances of common stock, par value $ 0.001
Cash, net of offering costs of $ 11,467 850,000 850 362,683
Foreign currency translation adjustment 35,044
Net loss
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1996 3,050,000 3,050 -- -- 405,356 57,696
Common stock contributed (135,000) (135) 135
Issuances of common stock, par value $ 0.001
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 (19,667)
Net loss
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 4,271,548 4,272 16,000 100,000 8,117,275 38,029
<CAPTION>
Deficit
Accumulated
During
Development Deferred
Stage Compensation Total
----------- ----------- -----------
<S> <C> <C> <C>
Balances at July 14, 1994
(date of inception) $ -- $ -- $ --
Issuances of common stock, par value $ 0.001
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 $ 0.001
Services rendered 18,073
Stock options and warrants granted 600
Foreign currency translation adjustment 22,652
Net loss (896,663) (896,663)
----------- ----------- -----------
Balances at December 31, 1995 (938,748) -- (871,223)
Issuances of common stock, par value $ 0.001
Cash, net of offering costs of $ 11,467 363,533
Foreign currency translation adjustment 35,044
Net loss (1,121,211) (1,121,211)
----------- ----------- -----------
Balances at December 31, 1996 (2,059,959) -- (1,593,857)
Common stock contributed
Issuances of common stock, par value $ 0.001
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)
Net loss (4,119,612) (4,119,612)
----------- ----------- -----------
Balances at December 31, 1997 (6,179,571) (1,402,776) 677,229
</TABLE>
F-6
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Currency
Common Stock Subscribed Paid-in Translation
Shares Amount Shares Amount Capital Adjustment
---------- ------------ -------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Common Stock Subscriptions 16,000 16 (16,000) (100,000) 99,984
Common Stock Forfeited (1,000,000) (1,000) 1,000
Transfer of Temporary Equity to Permanent Capital 15,000 15 77,141
Issuances of common stock, par value $ 0.001
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 41,386
Net loss
---------- ------------ -------- ------ ------------ ---------
Balances at December 31, 1998 4,176,326 4,177 -- -- 9,170,585 79,415
Issuances of common stock, par value $ 0.001
Cash 314,774 315 225,140
Services rendered 1,227,000 1,227 1,669,548
Exercise of options 1,714,952 1,715 1,401,660
Stock options granted (cancelled) 4,449,015
Conversion of debt into common stock 3,220,508 3,220 3,376,749
Fair value of warrants associated
with financing agreement 3,845,400
Amortization of deferred compensation
Value assigned to beneficial conversion feature
of convertible notes 572,505
Foreign currency translation adjustment (22,444)
Net loss
---------- ------------ -------- ------ ------------ ---------
Balances at December 31, 1999 10,653,560 $ 10,654 $ -- $ -- $ 24,710,602 $ 56,971
========== ============ ======== ====== ============ =========
<CAPTION>
Deficit
Accumulated
During
Development Deferred
Stage Compensation Total
------------- ----------- ------------
<S> <C> <C> <C>
Common Stock Subscriptions
Common Stock Forfeited
Transfer of Temporary Equity to Permanent Capital 77,156
Issuances of common stock, par value $ 0.001
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
Net loss (5,578,540) (5,578,540)
------------- ----------- ------------
Balances at December 31, 1998 (11,758,111) (594,233) (3,098,167)
Issuances of common stock, par value $ 0.001
Cash 225,455
Services rendered (445,725) 1,225,050
Exercise of options 1,403,375
Stock options granted (cancelled) (613,435) 3,835,580
Conversion of debt into common stock 3,379,969
Fair value of warrants associated
with financing agreement 3,845,400
Amortization of deferred compensation 1,374,518 1,374,518
Value assigned to beneficial conversion feature
of convertible notes 572,505
Foreign currency translation adjustment (22,444)
Net loss (13,072,237) (13,072,237)
------------- ----------- ------------
Balances at December 31, 1999 $ (24,830,348) $ (278,875) $ (330,996)
============= =========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From
Inception
Year Ended (July 14,
December 31, 1994) to
-------------------------------------------- December 31,
1997 1998 1999 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (4,119,612) $ (5,578,540) $(13,072,237) $(24,830,348)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 184,290 187,298 4,273,778 4,901,407
Amortization of note discount -- 272,009 214,454 486,463
Translation adjustment -- -- -- (1,528)
Amortization of deferred compensation 972,567 1,173,139 1,374,518 3,520,224
Beneficial conversion feature of convertible debt -- -- 572,505 572,505
Stock and warrants issued for services
and legal settlement 565,125 -- 4,891,880 5,475,678
Payment of common stock issued with
with guaranteed selling price -- (155,344) -- (155,344)
Increase (decrease) in cash attributable
to changes in assets and liabilities
Accounts receivable 478 (8,480) (2,305) (10,622)
Other current assets (7,204) 99,113 (4,081) (30,886)
Other assets (72,700) 69,000 (3,700)
Accounts payable (72,401) 624,547 (694,469) 204,596
Accrued expenses 22,297 958,098 (109,220) 803,914
Accrued severance 26,299 33,009 (19,332) 58,238
Interest payable (234,508) 90,920 160,099 251,019
------------ ------------ ------------ ------------
Net cash used by operating activities (2,735,369) (2,235,231) (2,414,410) (8,758,384)
------------ ------------ ------------ ------------
Cash flows from investing activities
Proceeds from sales of fixed assets -- -- 6,098 6,098
Purchases of property and equipment (175,507) (64,363) (6,822) (682,585)
Increase in organization costs -- -- -- (7,680)
------------ ------------ ------------ ------------
Net cash used by investing activities (175,507) (64,363) (724) (684,167)
------------ ------------ ------------ ------------
Cash flows from financing activities
Proceeds from issuance of common stock 5,520,837 125,000 1,628,830 7,664,400
Proceeds from officer loan 10,000 16,000 -- --
Stock offering costs (309,565) -- -- (475,664)
Deferred financing costs (19,000) (143,000) (276,901) (682,312)
Proceeds from short-term borrowings 200,000 206,553 -- 1,356,155
Proceeds from long-term debt -- 1,737,688 -- 2,751,825
Proceeds from convertible debentures -- -- 2,000,000 2,000,000
Repayment of short-term borrowings (1,049,602) -- (307,480) (1,357,082)
Repayments of long-term debt (1,053,455) (15,839) (494,207) (1,599,517)
------------ ------------ ------------ ------------
Net cash provided by financing activities 3,299,215 1,926,402 2,550,242 9,657,805
------------ ------------ ------------ ------------
Effect of exchange rate changes on cash (1,955) (2,403) 27 (5,674)
------------ ------------ ------------ ------------
Increase in cash and cash equivalents 386,384 (375,595) 135,135 209,580
Cash and cash equivalents at beginning of period 63,656 450,040 74,445 --
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 450,040 $ 74,445 $ 209,580 $ 209,580
============ ============ ============ ============
Supplemental disclosures of
cash flow information
Cash paid during the period for:
Interest $ 345,258 $ 42,609 $ 50,046 $ 472,157
============ ============ ============ ============
Transfer of common stock issued with
guaranteed selling price to permanent capital $ 77,156
============
Non cash financing activity:
Conversion of debt and accrued interest to common stock $ 3,379,969
============
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
TTR Inc. (the "Company") was incorporated on July 14, 1994 under the laws
of the State of Delaware. 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.
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. Certain
consolidated amounts have been reclassified for consistent presentation.
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
accrued expenses, are carried at, or approximate, fair value because of
their short-term nature or because they carry market rates of interest.
F-9
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (contd.)
Revenue Recognition
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition".
SOP 97-2 provides guidance in recognizing revenue on software transactions
and is required for transactions entered into after December 15, 1997.
Subsequently, in March 1998 and December 1998, the AICPA issued SOP 98-4
and SOP 98-9, respectively, which defer until the Company's fiscal year
beginning January 1, 2000, the application of several paragraphs and
examples in SOP 97-2. Management does not believe that the adoption of the
remaining portions of SOP 97-2, which were deferred by SOP 98-4 and SOP
98-9, will have a material impact on the Company's financial statements.
Revenues are generated from licensing software and are recognized upon
delivery to the customer, provided no significant obligations of the
Company remain and collection for the resulting receivable is probable.
Stock Based Compensation
The Company accounts for stock based compensation under the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). As permitted by SFAS 123, the
Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for stock based compensation to
employees. Accordingly, compensation cost for stock options granted to
employees is measured as the excess, if any, of the quoted market price of
the Company's Common Stock at the measurement date (generally, the date of
grant) over the amount an employee must pay to acquire the stock. This
amount is recognized over the vesting periods of the related grants.
Stock options granted to non-employees are valued using a Black-Scholes
option pricing model with appropriate assumptions for risk free investment
rates, expected lives, dividend yields and volatility factors. The value
of options granted to non-employees is charged to appropriate asset or
expense accounts when the options are granted.
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 statements of operations have
been translated at average rates prevailing during the year. The
translation adjustments have been recorded as a separate component of
stockholders' deficit (cumulative translation adjustment).
F-10
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (contd.)
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 have been included in the net loss per share
computation for the period, because their inclusion would be
anti-dilutive.
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 fourteen 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.
F-11
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (contd.)
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
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.
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.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for all derivative
instruments. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The Company believes that the adoption of SFAS No. 133 on
January 1, 2000 will not have a significant effect on its financial
statements.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31,
----------------------
1998 1999
-------- --------
Computer equipment $205,477 $186,690
Leasehold improvements 109,350 114,928
Office equipment 150,608 140,242
Vehicles 84,601 93,585
-------- --------
550,036 535,445
Less: Accumulated depreciation 238,543 329,591
-------- --------
$311,493 $205,854
======== ========
Depreciation expense was $ 88,311, $ 113,858 and $ 107,010 for the years
ended December 31, 1997, 1998 and 1999.
F-12
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
------------------------
1998 1999
---------- ----------
Accrued payroll and related amounts $ 749,371 $ 66,868
Taxes 24,257 4,738
Accrued interest 90,920 --
Settlement (a) -- 125,000
Other 191,797 139,166
---------- ----------
$1,056,345 $ 335,772
========== ==========
(a) In June 1999, the Company received notice from a shareholder,
threatening to commence litigation, alleging that the Company failed
to register its stock. The shareholder was seeking the return of its
investment in the amount of $ 400,000 plus interest to date. In
November 1999 the Company settled the matter, and agreed to pay a
total of $ 200,000 over specified periods, and to issue a total of
50,000 warrants with exercise prices ranging from $ 2.50 to $ 3.50.
NOTE 5 - 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 6 - DEBT FINANCINGS
Short-Term Borrowings
December 31,
---------------------
1998 1999
-------- -------
Promissory Note (a)
(net of discount of $ 42,555) $ 57,445 $ --
Other loans (b) 81,455 --
Bank Loan 125,435 --
-------- -------
$264,335 $ --
======== =======
(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 was amortized on a
straight-line basis over the term of the note.
F-13
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - DEBT FINANCINGS (contd.)
Short-Term Borrowings (contd.)
(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 1999
---------- ----------
Bank loan (a) $ 26,563 $ 15,983
10% Promissory Notes (b)
(net of discount of $130,475) 1,332,025 --
8% Promissory Notes (c)
(net of discount of $41,424) 108,576 --
---------- ----------
1,467,164 15,983
Less: current portion 873,153 7,764
---------- ----------
$ 594,011 $ 8,219
========== ==========
(a) The loan is denominated in New Israeli Shekels (NIS), bears interest
at the Israeli prime rate (at December 31, 1999 - 12.2%) plus 3% per
annum, and are secured by substantially all the assets of TTR Ltd..
Principal payments are due in various installments through 2001.
(b) 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. The exercise price of the
warrant is $ 1.50 per share. For financial reporting purposes, the
Company recorded a discount of $ 357,450, to reflect the value of
the Warrants. The discount was being amortized on a straight-line
basis over the terms of the respective notes. The notes and accrued
interest were due at the earlier of one year or 30 days following
any public or private equity or debt financing exceeding $
1,000,000.
In December 1999, the Company offered any remaining note holders an
option to convert their outstanding principal and accrued interest
to shares of common stock. The conversion rate was based on 85% of
the average closing bid price of the common shares for the 30
trading days preceding the date of conversion. In accordance with
applicable accounting rules, the Company recorded a charge to
interest expense in the amount of $ 572,505 to reflect this
beneficial conversion feature. A total of $ 1,329,202 of note
principal and accrued interest was converted to common stock.
F-14
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - DEBT FINANCINGS (contd.)
Long-Term Debt (contd.)
(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 note discount of $ 41,513, to
reflect the value of the Stock and Warrants. The discount was being
amortized on a straight-line basis over the term of the notes. In
November 1999, the entire principal balance plus accrued interest on
these notes was repaid.
The aggregate maturities of long-term debt for the next two years ending
December 31, are as follows: 2000 - $ 7,764; and 2001 - $ 8,219.
10% Convertible Debentures
In May 1999 the Company agreed to issue $ 2,000,000 of its 10% Convertible
Debentures to private investors. The Debentures were convertible into
shares of the Company's Common Stock at the rate of $ 0.77 per share based
on the closing trading prices of the Common Stock during certain specified
periods. In addition, upon conversion, warrants were issued to purchase
additional shares of Common Stock equal to one-half of the shares of
Common Stock issued. The warrants were exercisable at a price per share
equal to 120% of the conversion rate and expire in April 2002.
In October and November 1999, the investors converted all of the
outstanding debentures and were issued 2,681,934 shares of common stock
and 1,340,967 warrants exercisable at $ 0.92 per share. In November 1999,
the investors exercised of all the outstanding conversion warrants.
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. Using the Black-Scholes model
for estimating the fair value of the warrants, the Company recorded $
3,845,400 as deferred financing costs. This amount was charged to
operations in the period the debentures were converted.
F-15
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES
At December 31, 1999, the Company had available $ 6,475,000 of net
operating loss carryforwards for U.S. federal income tax purposes which
expire in the years 2014 through 2019, and $ 6,822,000 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:
Year ended
December 31,
---------------------------
1998 1999
----------- -----------
Net operating loss carryforwards $ 3,094,809 $ 4,398,088
Research and development 227,000 130,853
Stock based compensation 40,813 2,313,232
Accrued vacation and severance 32,000 22,905
----------- -----------
Total deferred tax assets 3,394,622 6,865,078
Valuation allowance (3,394,622) (6,865,078)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
NOTE 8 - 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 1999,
the Plan was amended to increase the total number of shares available for
grant to 1,500,000. 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.
F-16
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDERS' EQUITY (contd.)
Stock Options (contd.)
1996 Incentive and Non-Qualified Stock Option Plan (contd.)
In 1997, 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 was being amortized over the vesting period. In 1999, the Company
granted 534,000 $ 0.01 options under the Plan, which were immediately
exercisable to employees. The issuance of the options resulted in a charge
to stock based compensation in the amount of $ 1,502,610. Included in this
amount, were 209,500 options granted to an employee who is also the
brother of the Company's president and chief executive officer.
A total of 24,000 stock options granted 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.
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, 1999, no options had been granted under the Directors' Plan.
F-17
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDERS' EQUITY (contd.)
Stock Options (contd.)
Non-Executive Directors Stock Option Plan (contd.)
A summary of the status of the Plan as of December 31, 1999 and changes
during the year ending on that date are presented below:
Range of
Exercise
Shares Prices
------- ----------
Options outstanding, January 1, 1997 5,000 $ 6.00
Granted 175,600 5.00-13.94
Canceled (19,500) 7.00-13.94
Exercised -- --
------- ----------
Options outstanding, December 31, 1997 161,100 5.00-13.88
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
Granted 736,500 0.01- 5.06
Canceled (144,850) 4.00-13.88
Exercised -- --
------- ----------
Options outstanding, December 31, 1999 749,400 $0.01- 7.00
======== ==========
Shares of common available for future grant 750,600
========
The following table summarizes information about stock options under the
plan outstanding at December 31, 1999:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Average Weighted Average
---------------- ----------------
Remaining
Number Contractual Exercise Number Exercise
Range of price Outstanding Life Price Exercisable Price
-------------- ----------- ---- ----- ----------- -----
$ 0.01 534,000 9.70 $ 0.01 449,000 $ 0.01
$ 0.90 100,000 9.14 0.90 100,000 0.90
$ 2.56 100,000 9.89 2.56 -- --
$ 4.00-$5.81 8,900 8.16 4.96 3,650 4.81
$ 7.00 6,500 7.00 7.00 3,500 7.00
------- ---- ------ ------- --------
$ 0.01-$7.00 749,400 9.61 $ 0.59 556,150 $ 0.25
======= ==== ====== ======= ========
Weighted-average grant date fair value of options granted in 1997, 1998
and 1999, under the Black-Scholes option pricing model, was $ 5.82, $ 1.14
and $ 2.20 per option, respectively.
F-18
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDERS' EQUITY (contd.)
Other Option Grants
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
$ 0.01 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 vesting 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 1999, the Company issued non-plan options to purchase 196,000 shares to
various employees . The options have an exercise price of $ 0.01 per share
and vested immediately. The issuance of these options resulted in a charge
to stock based compensation in the amount of $ 163,660.
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:
Year ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
Net loss
As reported $ (4,119,612) $ (5,578,540) $ (13,072,237)
Proforma $ (4,599,940) $ (5,635,574) $ (13,123,185)
Loss per share
As reported $ (1.35) $ (1.54) $ (2.07)
Proforma $ (1.51) $ (1.56) $ (2.08)
The fair value of each option granted in 1997, 1998 and 1999 is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
1997 1998 1999
---- ---- ----
Risk free interest rates 6.23% 5.51% 5.52%
Expected option lives 2.5 years 2.5 years 2.5 years
Expected volatilities 46.5% 46.5% 46.5%
Expected dividend yields None None None
F-19
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDERS' EQUITY (contd.)
Warrants
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.
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 are 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.
F-20
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDERS' EQUITY (contd.)
Warrants (contd.)
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.
o In May 1999, in connection with the sale of convertible debentures
(see Note 6) the Company issued 1.3 million warrants. These warrants
expire in April 2002 and are exercisable at a nominal price per
share.
o In July 1999, the Company issued 200,000 warrants exercisable at $
2.75 to a consultant pursuant to a three-month consulting agreement.
o In August 1999 a consultant was issued warrants to purchase up to 1
million shares of common stock at a nominal price per share. The
warrants are exercisable only upon the Company entering into an
agreement with a strategic investor through the efforts of the
consultant. The warrants expire in October 2002. In November 1999,
upon the signing of an agreement with a strategic investor, the
warrants became exercisable (see Note 10). Using the Black-Scholes
model for estimating the fair value of the warrants, the Company
recorded a charge to operations of $ 2,741,000 in connection with
the warrants.
o In November 1999, in connection with a legal settlement, the Company
issued a total of 50,000 warrants with exercise prices ranging from
$ 2.50 to $ 3.50. (see Note 4)
o In November 1999, the Company issued 25,000 warrants exercisable at
a nominal price per share to a consultant.
o At December 31, 1999, the Company had outstanding warrants to
purchase a total of 2,814,536 shares of Common Stock with exercise
prices ranging from $ 0.01 to $ 7.80 per share.
F-21
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDERS' EQUITY (contd.)
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.
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 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.
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.
F-22
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCKHOLDERS' EQUITY (contd.)
Stock Issuances (contd.)
During the year ended December 31, 1999, the Company completed the
following common stock transactions:
o 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 value of
the services totaling $ 445,725 is being amortized over the one-year
contract terms.
o In January 1999, the Company issued 250,000 shares of Common Stock
as payment of an outstanding liability in the amount of $ 168,750.
o In February and April 1999, the Company received $ 160,000 from the
issuance of an additional 205,682 shares of its Common Stock.
o In July 1999, the Company issued 150,000 shares of Common Stock in
exchange for previously issued options in connection with the
termination of, and settlement of certain claims by an ex-employee.
o In October 1999, the Company issued 200,000 shares of Common Stock
to a consultant pursuant to a consulting agreement.
o In October 1999, the Company issued 2,681,934 shares of Common Stock
as a result of the conversion of all the outstanding 10% convertible
debentures plus accrued interest thereon.
o In December 1999, the Company issued 538,574 shares as a result of
the conversion of long-term debt.
o In 1999, the Company issued 1,714,952 shares of Common Stock from
the exercise of various outstanding warrants.
F-23
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - 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 10 - 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,
1999 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 the sales are not sufficient.
Operating Leases
TTR Ltd. has entered into a lease agreement for office space expiring
through 2001. Future minimum rentals on these leases as of December 31,
1999 are as follows:
Year ended December 31,
-----------------------
2000 $ 32,180
2001 13,408
F-24
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES (contd.)
Employment Agreement
Effective, June 1, 1999, the Company entered into an employment agreement
with its new Chief Operating Officer. The agreement is for a term of one
year and is automatically renewable for additional one-year terms, unless
terminated in accordance with the agreement upon 90 days prior notice. The
agreement provides for a monthly salary of $ 5,000 plus benefits and the
issuance of options under the 1996 Option Plan to purchase 235,000 shares
of the Company's common stock, at an exercise price of $ 0.01 per share.
Upon the consummation of the equity investment by Macrovision Corporation
("Macrovision"), 150,000 of the options became exercisable, with the
remaining options vesting at the end of the tenth month thereafter.
Consulting Agreement
In June 1999, the Company entered into a consulting agreement which will
terminate in January 2003. The agreement provides for quarterly fees of
$15,000.
Amended Marketing and Sales Representation Agreement
In August 1999, the Company amended an existing agreement to provide for
the issuance of 200,000 shares of common stock upon the commencement of an
approved marketing campaign of the Company's proposed product to prevent
the unauthorized copying of audio CR-ROM discs. In addition, the
representative was granted warrants to purchase up to 1,000,000 shares of
common stock at a nominal price per share. The warrants are exercisable
only upon the Company entering into an agreement with a Strategic Partner
as a direct result of the representatives activity. Such agreement must
provide for an equity investment of at least $ 3,000,000 and the licensing
of the Company's technology. The warrants expire in October 2002.
In October 1999, pursuant to the agreement, the Company issued 200,000
shares of common stock. In November 1999, upon the signing of an agreement
with a Strategic Partner, the warrants became exercisable. Using the
Black-Scholes model for estimating the fair value of the warrants, the
Company recorded a charge to operations of $ 2,741,000 in connection with
the warrants.
F-25
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES (contd.)
Licensing and Investment Agreement
In November 1999, the Company signed an agreement with Macrovision
Corporation to jointly develop and market music copy protection technology
for optical based media. In connection with the agreement the Company
granted to Macrovision an exclusive world-wide, royalty-bearing license to
use the Company's proprietary technology through December 31, 2009. The
Company will be entitled to a 30% royalty which may be adjusted to 25%,
under certain conditions. Also under certain conditions, the exclusive
license may revert to a non-exclusive license as of the second anniversary
of the Commercial Launch, as defined. If certain conditions relating to
the timing of the Commercial Launch transpire, the Company will be
entitled to minimum annual guaranteed royalty advances, commencing on the
first anniversary of the Commercial Launch and continuing through the
ninth year, aggregating $ 25 million.
Under the Agreement, in January 2000, Macrovision made a $ 4 million
equity investment in the Company for an 11.4% interest and received an
exclusive license to the Company's proprietary DiscGuard(TM) technology.
Also under the agreement, the Company has agreed to reimburse Macrovision
for up to $ 1 million of research and development expenses incurred within
the first year of the joint development.
NOTE 11 - GEOGRAPHIC DATA
U. S. % of Total Israel % of Total
----- ---------- ------ ----------
For the year ended
December 31, 1999:
Revenue $ 5,550 8.07% $ 63,253 91.93%
Operating loss (6,371,600) 80.90% (1,503,849) 19.10%
Identifiable assets 239,995 51.30% 227,872 48.70%
For the year ended
December 31, 1998:
Revenue $ -- -- $ 54,922 100.00%
Operating loss (2,090,049) 40.79% (3,033,901) 59.21%
Identifiable assets 171,678 35.00% 318,867 65.00%
For the year ended
December 31, 1997:
Revenue $ -- -- $ -- --
Operating loss (1,414,007) 37.36% (2,370,628) 62.64%
Identifiable assets 633,285 53.28% 555,342 46.72%
F-26
<PAGE>
TTR TECHNOLOGIES INC. AND ITS SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - 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 13 - SUBSEQUENT EVENTS
Private Placement
In February 2000, the Company completed a private placement of 1,800,000
shares of its Common Stock and 900,000 Class A Warrants for an aggregate
purchase price of $10,000,000. The Class A Warrants are exercisable for a
period of 60 months at an exercise price per share of $8.84. The Company
may redeem the Class A Warrants for $ 0.10 per warrant 6 months following
issuance if the underlying common stock is registered and the Company's
common shares have traded at or above 200% of the exercise price for a
period of twenty consecutive trading days. Upon exercise of the Class A
Warrants, the Company will issue Class B Warrants for an additional
450,000 shares. The Class B Warrants are exercisable for a period of 36
months from the date of issuance at an exercise price per share of $21.22.
The Class B Warrants may be redeemed by the Company if the underlying
common stock is registered and the common shares have trade at $26 or
above for a period of twenty consecutive trading days. The Company paid a
placement agent a fee of $500,000 and issued 180,000 warrants exercisable
at $5.56 per share, 90,000 Class A Warrants exercisable at $8.84 and upon
exercise an additional 45,000 Class B Warrants exercisable at $21.22. Also
in connection with the private placement, the Company paid $200,000 and
issued 275,000 warrants, exercisable at $2.75, as a finder fee.
Authorized Shares
In January 2000, the Company's stockholders voted to increase the number
of authorized shares of Common Stock to 25,000,000.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. 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 ............................................. $16,787
Legal Fees ....................................................... $50,000
Accountants' Fees and Expenses ................................... $15,000
Printing Expenses ................................................ $10,000
Blue Sky Fees and Expenses ....................................... $ 2,000
Transfer Agent Fees and Expenses ................................. $ 1,000
Miscellaneous .................................................... $ 1,000
Total ........................................................ $95,787
=======
Item 14. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Corporation Law") empowers a Delaware corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was lawful.
In the case of an action by or in the right of the corporation, Section
145 empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or complete action in
any of the capacities set forth above against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in and not opposed to the best interests of the
corporation, except that indemnification is not permitted in respect of any
claim, issue or matter as to which such person is adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought determines upon application that,
despite the adjudication of liability, but in view of all of the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such court deems proper. Section 145
further provides: that a Delaware corporation is required to indemnify a
director, officer, employee or agent against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with any action,
suit or proceeding or in defense of any claim,
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issue or matter therein as to which such person has been successful on the
merits or otherwise; that indemnification provided for by Section 145 not be
deemed exclusive of any other rights to which the indemnified party may be
entitled; that indemnification provided for by Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators; and empowers the
corporation to purchase and maintain insurance on behalf of a director or
officer against any such liability asserted against him in any such capacity or
arising out of his status as such whether or not the corporation would have the
power to indemnify him against liability under Section 145. A Delaware
corporation may provide indemnification only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct. Such determination is to be made (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even through
less than a quorum or (ii) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion or (iii) by the
stockholders.
Section 6 of the Certificate of Incorporation of TTR Technologies, Inc.
("TTR") provides that:
"To the fullest extent that the General Corporation Law of the State
of Delaware, as the same exists or may hereafter be amended, permits
elimination or limitation of the liability of directors, a director
of the corporation shall not be personally liable to the corporation
or any of its shareholders for any breach of duty in his capacity as
a director. Any repeal or modification of the foregoing sentence by
the shareholders of the corporation shall not adversely affect any
right or protection of a director of the corporation existing at the
time of such repeal or modification."
Section 102(b)(7) of the Delaware Corporation Law provides that the
Certificate of Incorporation of a Delaware corporation may contain a provision
eliminating the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of a
director for (i) any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) the payment of
unlawful dividends or the making of unlawful stock purchases or redemptions or
(iv) any transaction from which the director derived a personal benefit.
Section 7 of the Certificate of Incorporation of TTR contains the
following provisions with respect to the elimination or limitation of liability
of our directors:
"The directors and officers of the corporation shall be entitled to
such rights of indemnification and advancement of expenses,
including attorneys' fees, in the defense of any action or
threatened action in which a director or officer is or may be a
party as the Board of Directors may by resolution prescribe."
Our By-Laws provide that we will indemnify our directors, executive
officers, other officers, employees and agents to the fullest extent permitted
by law.
Item 15. 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 the discounts or
commissions, if any, paid to underwriters or placement agents in connection with
such sales, the consideration received by TTR for the issuance of these
securities and the class of persons to whom the
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<PAGE>
securities were sold.
1.(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.
2. (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.
3. (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.
4. (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.
5. (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.
6. (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.
7. (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.
(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.
8. (a) In July 1998, TTR completed a private placement of 10% promissory
notes for an
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<PAGE>
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. In
December 1999, all of the outstanding principal and accrued interest on these
notes were converted into an aggregate of 538,574 shares of TTR's common stock.
(b) TTR paid commissions to the placement agents of approximately $96,000.
(c) TTR believes that the promissory notes, warrants and conversion 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.
9.(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.
10.(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.
11.(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.
(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.
12.(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.
13.(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.
14. (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.
15.(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.
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<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.
16.(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.
17.(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. As of March 10, 2000 an aggregate of 146,000 shares had been issued upon
exercise of these warrants.
(b) There were no underwriters with respect to the above transaction.
(c) TTR believes that the warrants and shares issued upon exercise of
certain of these 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.
18.(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.
19.(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.
20.(a) In May, July, September and October 1999, TTR issued $1,000,000,
$400,000, $100,000 and $500,000, respectively, in principal amount of its 10%
Convertible Debentures due April 30, 2001 to certain private investors. In
October 1999, the outstanding principal amount and accrued interest on the
Convertible Debentures were converted into an aggregate of 2,681,934 shares of
TTR common stock. Upon the issuance of the conversion shares, the Company issued
to these investors warrants to purchase an aggregate of 1,340,970 shares of TTR
common stock at an exercise price of $0.92 per share. In November 1999, all of
these warrants were exercised by the investors.
(b) TTR paid commissions to Wall & Broad Equities, Inc. of approximately
$240,000.
(c) TTR believes that the Debentures, warrants, conversion shares and
warrant 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.
21.(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. As of March
10, 2000, TTR had issued 796,798 shares upon the partial exercise of these
options.
(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 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. In
settlement of certain disputes between the consultant and TTR, TTR re-issued
warrants for an aggregate of 200,000 at an exercise price of $2.75 per share and
the consultant waived any rights to the warrants for the remaining 200,000
shares.
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<PAGE>
(b) There were no underwriters with respect to the above transaction.
(c) TTR believes that the warrants and option 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.
23.(a) In October 1999, TTR issued to a consultant 200,000 shares and an
option to purchase an aggregate of 1,000,000 shares at an exercise price per
share of $0.01. The option was exercised in full in January 2000.
(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.
24. (a) In November 1999, TTR issued to a shareholder warrants to purchase
an aggregate of 15,000 shares at an exercise price per share of $2.50 and
warrants to purchase an aggregate of 35,000 shares at an exercise price per
share of $3.50 in settlement of certain disputes between us.
(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) In November 1999, TTR issued to a consultant warrants to purchase
an aggregate of 25,000 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.
26. (a) In January 2000, TTR issued to an investor 1,880,937 shares for
aggregate consideration of $4,000,000.
(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.
27. (a) In January 2000, TTR issued 15,000 shares for services provided to
TTR.
(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.
28. (a) In January 2000, TTR issued to a service provider 1,269 shares in
payment of $10,000 owed to service provider for services performed.
(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.
29. (a) In February 2000, TTR issued, by way of a private placement,
1,800,000 shares and warrants to purchase an additional 900,000 shares (at an
exercise price per share of $8.84) for aggregate consideration of $10,000,000.
Upon exercise of the warrants, the Company is to issue 450,000 shares at an
exercise price per share of $21.22.
(b) TTR paid a commission to a placement agent of $500,000.
(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.
30. (a) In February 2000 in connection with the private placement referred
to in paragraph 29, TTR issued as a finders fee warrants to purchase up to an
aggregate of 200,000 shares at an exercise price
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<PAGE>
of $2.75 per share.
(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.
31.(a) In March 2000, in connection with the private placement referred to
in paragraph 29, TTR issued to the placement agent and certain of its affiliates
a warrant to purchase an aggregate of 180,000 shares at an exercise price of
$5.56 per share and an aggregate of 90,000 warrants at an exercise price of
$8.84 per share and upon exercise of the 90,000 warrants, will issue warrants
for 45,000 shares at an exercise price of $21.22 per share.
(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.
32. (a) Since January 1, 1997, TTR has issued, pursuant to its 1996 Option
Plan, the following stock options:
(i) 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.
(ii) 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.
(iii) 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.
(iv) 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.
(v) 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.
(vi) 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.
(vii) 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.
(viii) 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.
(ix) 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.
(x) 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.
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<PAGE>
(xi) In November, 1999, TTR issued to employees (a) fully vested
options to purchase an aggregate of 298,500 shares with an exercise price
of $0.01 per share, (b) options vesting over 2 years to purchase an
aggregate of 100,000 shares at an exercise price per share of $2.56.
(xii) In January 2000, TTR issued to an employee options to purchase
an aggregate of 347,000 shares with an exercise price per share of $4.00,
with 173,000 of these options fully vested upon issuance and 174,000
vesting over a 12 month period. Additionally, in January 2000, options to
purchase an aggregate of 70,000 shares were issued to an employee, of
which 40,000 were fully vested upon issuance at an exercise price per
share of $4.00, 20,000 were fully vested at an exercise price per share of
$0.01 and 20,000 of which are to vest upon the commercial launch of the
music protection technology being jointly developed by us and Macrovision.
(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.
Item 16. Exhibits and Financial Statement Schedules
3.1 Certificate of Incorporation of TTR dated July 14, 1994 and Certificate of
Amendment to the Certificate of Incorporation of TTR dated August 17,
1994(4)
3.2 Certificate of Amendment to the Certificate of Incorporation of TTR, dated
January 30, 1999*
3.3 Certificate of Amendment to the Certificate of Incorporation of TTR, dated
December 21, 1999*
3.4 By-Laws of TTR, as amended(4)
4.1 Specimen Common Stock Certificate(1)
4.2.1 Form of 10% Convertible Debenture due April 30, 2001(2)
4.2.2 Form of 10% Promissory Note dated variously as of April through August
1998 between TTR and each of certain investors, in an aggregate principal
amount of $1,462,500(4)
4.2.3 Form of Promissory Note dated as of December, 1998 between TTR and each of
certain investors, in an aggregate principal amount of $150,000(4) Certain
instruments which define the rights of holders of long-term debt of the
TTR 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 TTR and its subsidiary on a consolidated basis, as of December
31, 1999.
4.3 Form of Common Stock Purchase Warrant(2)
4.4.1 Warrant Agreement dated as of May 25, 1999 between TTR and Wall & Broad
Equities, Inc.(2)
4.4.2 Warrant Agreement dated as of December 23, 1997 between TTR and Biscount
Overseas Ltd.(3)
4.4.3 Warrant Agreement dated as of February 26, 1998 between TTR and Biscount
Overseas Ltd.(3)
4.4.4 Warrant dated January 15, 1998 between TTR and Mu & Kang Consultants(4)
4.4.5 Warrant Agreement dated as of June 11, 1998 between TTR and Plans, Inc.(2)
4.4.6 Warrant Agreement dated as of July 31, 1999 between TTR and K & D Equities
Inc.(2)
4.4.7 Form of Warrant dated as of December 1998 between TTR and certain private
investors.(4)
4.4.8 Form of Warrant variously dated April through August 1998 between TTR and
certain private investors.(4)
4.4.9 Warrant dated June 11, 1998 between TTR and Plans, Inc.(4)
4.4.10 Warrant dated November 29, 1999 between TTR and Biscount Overseas Ltd.*
4.4.11 Warrant dated November 29, 1999 between TTR and Biscount Overseas Ltd.*
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<PAGE>
4.4.12 Form of Class A Warrant between TTR and certain private investors*
4.4.13 Warrant dated February 15, 2000 between TTR and Mantle International
Investment, Ltd.*
4.4.14 Form of Agent Warrant between TTR and certain entities.*
5.1 Opinion of Wolf, Block, Schorr and Solis-Cohen LLP*
9.1 Voting Trust Agreement(1)
9.2 Instrument terminating Voting Trust Agreement(1)
10.1 Financial Consulting Agreement with Josephthal & Co., Inc.(4)
10.2 1996 Incentive and Non-Qualified Stock Option Plan, as amended(4)
10.3 Non-Executive Directors Stock Option Plan(4)
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(4)
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)
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(3)
10.15 Agreement dated January 19, 1998 between TTR and Henry Israel(3)
10.16 Development and OEM Licensing Agreement dated October 31, 1997 between TTR
and Doug Carson & Associates Inc.(3)
10.17 Development and OEM Licensing Agreement dated October 31, 1997 between
TTR, Doug Carson & Associates Inc. and Nimbus CD International, Inc.(3)
10.18 Management Agreement dated October 1, 1997 between TTR and Ultimus Ltd.(3)
10.19 Stock Purchase Agreement dated December 20, 1997 between TTR and Biscount
Overseas Ltd.(3)
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(2)
10.23 Form of Registration Rights Agreement dated as of May 13, 1999 between TTR
and certain investors(2)
10.24 Form of Subscription Agreement dated as of December 1998 between TTR and
certain investors(4)
10.25 Form of Subscription Agreement dated variously as of April through August
1998 between TTR and certain investors(4)
10.26 Agreement dated as of July 27, 1999 between TTR and Arik Shavit(2)
10.27 Agreement dated as of July 27, 1999 between TTR and Steven C. Barsh(2)
10.28 Consulting Agreement between TTR and Jarvis Developments Ltd. dated
November 20, 1998 and amendment thereto dated January 28, 1999(2)
10.29 Consulting Agreement between TTR and Biscount Overseas Ltd. dated October
1, 1998(4)
II-9
<PAGE>
10.30 Consulting Agreement between TTR and Mordecai Lerer dated January 28,
1999(4)
10.31 Settlement Agreement between TTR and Ephod Israel Group dated January 28,
1999(4)
10.32 Consulting Agreement between TTR and CYGNI S.A. dated January 28, 1999(4)
10.33 Marketing Agreement between TTR and Machtec Ltd.(4)
10.34 Stock Purchase Agreement between TTR and Dalimore Consulting Ltd. dated
December 10, 1998(4)
10.35 Stock Purchase Agreement between TTR and Abraham Stephansky dated February
1, 1999(4)
10.36 Stock Purchase Agreement between TTR and Parnell Ltd. dated April 1,
1999(4)
10.37 Consulting Agreement between TTR and Limelkin Ltd. dated June 1, 1998(4)
10.38 Consulting Agreement between TTR and Trax Investments Ltd. dated June 11,
1998(4)
10.39 Consulting Agreement between TTR and Plans Inc. dated June 11, 1998(4)
10.40 Lease between TTR and Peppertree Properties, Inc. dated January 23,
1999(2)
10.41 Employment Agreement dated June 1, 1999 between TTR and Emmanuel
Kronitz(2)
10.42 Agreement dated November 29, 1999 between TTR, Biscount Overseas Ltd.,
Shimshon Halperin and Tuva Financial Ltd.*
10.43 Alliance Agreement between TTR and Macrovision Corporation effective as of
November 24, 1999**
10.44 Amendment No. 1, dated as of August 3, 1999, to Marketing Agreement
between TTR and Machtec Ltd.*
10.45 Stock Purchase Agreement, effective as of January 10, 2000 between TTR and
Macrovision Corporation**
10.46 Agreement between TTR and H.C. Wainwright & Co. Inc. dated February 8,
2000*
10.47 Form of Subscription Agreement dated February 18, 2000 between TTR and
certain private investors and supplement thereto.*
10.48 Form of Registration Rights Agreement between TTR and certain private
investors and supplement thereto*
10.49 Agreement dated February 17, 2000 between TTR, TTR Technologies, Ltd., K&D
Equities, Inc., Isaac Winehouse and Wall and Broad Equities, Inc. *
10.50 Agreement dated February 15, 2000 between TTR and Mantle International
Investment, Ltd.*
10.51 Amendment to Employment Agreement between TTR and Baruch Sollish, dated
July 22, 1998
16.1 Letter on change in certifying accountant(2)
21.1 Subsidiaries of TTR: TTR Technologies, Ltd., an Israeli corporation,
wholly-owned by TTR.
23.1 Consent of Wolf, Block, Schorr and Solis-Cohen LLP (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*
27.1 Financial Data Schedule.(2)(5)
- ----------
* Previously filed.
** Filed herewith.
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form
SB-2, No. 333-11829, and incorporated herein by reference.
(2) Filed as an Exhibit to TTR's Registration Statement on Form SB-2, No.
333-85085 and incorporated herein by reference.
II-10
<PAGE>
(3) 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.
(4) Filed as an Exhibit to the Registrant's Annual Report on Form 10-KSB filed
for the year ended December 31, 1998 and incorporated herein by reference.
(5) Filed as an Exhibit to TTR's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated herein by reference.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth 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 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provision described under Item 14 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 and is, therefore, unenforceable. If 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
II-11
<PAGE>
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 and will be governed by the final adjudication of such issue.
II-12
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned in the City of New York, State of New York, on May
1, 2000.
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)
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 Titles Date
--------- ------ ----
/s/ Marc D. Tokayer Chairman of the Board and May 1, 2000
- ----------------------- President (Principal Executive
Marc D. Tokayer and Financial Officer)
/s/ Baruch Sollish Vice President--Research and May 1, 2000
- ----------------------- Development, Chief
Baruch Sollish Technology Officer and
Director
II-13
<PAGE>
E X H I B I T I N D E X
Number Description
- ------ -----------
3.1 Certificate of Incorporation of TTR dated July 14, 1994 and
Certificate of Amendment to the Certificate of Incorporation of TTR
dated August 17, 1994(4)
3.2 Certificate of Amendment to the Certificate of Incorporation of TTR,
dated January 30, 1999*
3.3 Certificate of Amendment to the Certificate of Incorporation of TTR,
dated December 21, 1999*
3.4 By-Laws of TTR, as amended(4)
4.1 Specimen Common Stock Certificate(1)
4.2.1 Form of 10% Convertible Debenture due April 30, 2001(2)
4.2.2 Form of 10% Promissory Note dated variously as of April through
August 1998 between TTR and each of certain investors, in an
aggregate principal amount of $1,462,500(4)
4.2.3 Form of Promissory Note dated as of December, 1998 between TTR and
each of certain investors, in an aggregate principal amount of
$150,000(4) Certain instruments which define the rights of holders
of long-term debt of the TTR 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 TTR and its subsidiary on a
consolidated basis, as of December 31, 1999.
4.3 Form of Common Stock Purchase Warrant(2)
4.4.1 Warrant Agreement dated as of May 25, 1999 between TTR and Wall &
Broad Equities, Inc.(2)
4.4.2 Warrant Agreement dated as of December 23,1997 between TTR and
Biscount Overseas Ltd.(3)
4.4.3 Warrant Agreement dated as of February 26, 1998 between TTR and
Biscount Overseas Ltd.(3)
4.4.4 Warrant dated January 15, 1998 between TTR and Mu & Kang
Consultants(4)
4.4.5 Warrant Agreement dated as of June 11, 1998 between TTR and Plans,
Inc.(2)
4.4.6 Warrant Agreement dated as of July 31, 1999 between TTR and K & D
Equities Inc.(2)
4.4.7 Form of Warrant dated as of December 1998 between TTR and certain
private investors.(4)
4.4.8 Form of Warrant variously dated April through August 1998 between
TTR and certain private investors.(4)
4.4.9 Warrant dated June 11, 1998 between TTR and Plans, Inc.(4)
4.4.10 Warrant dated November 29, 1999 between TTR and Biscount Overseas
Ltd.*
4.4.11 Warrant dated November 29, 1999 between TTR and Biscount Overseas
Ltd.*
<PAGE>
4.4.12 Form of Class A Warrant between TTR and certain private investors*
4.4.13 Warrant dated February 15, 2000 between TTR and Mantle International
Investment, Ltd.*
4.4.14 Form of Agent Warrant between TTR and certain entities*
5.1 Opinion of Wolf, Block, Schorr and Solis-Cohen LLP*
9.1 Voting Trust Agreement(1)
9.2 Instrument terminating Voting Trust Agreement(1)
10.1 Financial Consulting Agreement with Josephthal & Co., Inc.(4)
10.2 1996 Incentive and Non-Qualified Stock Option Plan, as amended(4)
10.3 Non-Executive Directors Stock Option Plan(4)
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(4)
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)
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(3)
10.15 Agreement dated January 19, 1998 between TTR and Henry Israel(3)
10.16 Development and OEM Licensing Agreement dated October 31, 1997
between TTR and Doug Carson & Associates Inc.(3)
10.17 Development and OEM Licensing Agreement dated October 31, 1997
between TTR, Doug Carson & Associates Inc. and Nimbus CD
International, Inc.(3)
10.18 Management Agreement dated October 1, 1997 between TTR and Ultimus
Ltd.(3)
10.19 Stock Purchase Agreement dated December 20, 1997 between TTR and
Biscount Overseas Ltd.(3)
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(2)
10.23 Form of Registration Rights Agreement dated as of May 13, 1999
between TTR and certain investors(2)
10.24 Form of Subscription Agreement dated as of December 1998 between TTR
and certain investors(4)
<PAGE>
10.25 Form of Subscription Agreement dated variously as of April through
August 1998 between TTR and certain investors(4)
10.26 Agreement dated as of July 27, 1999 between TTR and Arik Shavit(2)
10.27 Agreement dated as of July 27, 1999 between TTR and Steven C.
Barsh(2)
10.28 Consulting Agreement between TTR and Jarvis Developments Ltd. dated
November 20, 1998 and amendment thereto dated January 28, 1999(2)
10.29 Consulting Agreement between TTR and Biscount Overseas Ltd. dated
October 1, 1998(4)
10.30 Consulting Agreement between TTR and Mordecai Lerer dated January
28, 1999(4)
10.31 Settlement Agreement between TTR and Ephod Israel Group dated
January 28, 1999(4)
10.32 Consulting Agreement between TTR and CYGNI S.A. dated January 28,
1999(4)
10.33 Marketing Agreement between TTR and Machtec Ltd.(4)
10.34 Stock Purchase Agreement between TTR and Dalimore Consulting Ltd.
dated December 10, 1998(4)
10.35 Stock Purchase Agreement between TTR and Abraham Stephansky dated
February 1, 1999(4)
10.36 Stock Purchase Agreement between TTR and Parnell Ltd. dated April 1,
1999(4)
10.37 Consulting Agreement between TTR and Limelkin Ltd. dated June 1,
1998(4)
10.38 Consulting Agreement between TTR and Trax Investments Ltd. dated
June 11, 1998(4)
10.39 Consulting Agreement between TTR and Plans Inc. dated June 11,
1998(4)
10.40 Lease between TTR and Peppertree Properties, Inc. dated January 23,
1999(2)
10.41 Employment Agreement dated June 1, 1999 between TTR and Emmanuel
Kronitz(2)
10.42 Agreement dated November 29, 1999 between TTR, Biscount Overseas
Ltd., Shimshon Halperin and Tuva Financial Ltd.*
10.43 Alliance Agreement between TTR and Macrovision Corporation effective
as of November 24, 1999**
10.44 Amendment No. 1, dated as of August 3, 1999, to Marketing Agreement
between TTR and Machtec Ltd.*
10.45 Stock Purchase Agreement, effective as of January 10, 2000 between
TTR and Macrovision Corporation**
10.46 Agreement between TTR and H.C. Wainwright & Co. Inc. dated February
8, 2000*
10.47 Form of Subscription Agreement dated February 18, 2000 between TTR
and certain private investors and supplement thereto.*
10.48 Form of Registration Rights Agreement between TTR and certain
private investors and supplement thereto*
10.49 Agreement dated February 17, 2000 between TTR, TTR Technologies,
Ltd., K&D Equities, Inc., Isaac Winehouse and Wall and Broad
Equities, Inc. *
10.50 Agreement dated February 15, 2000 between TTR and Mantle
International Investment, Ltd.*
10.51 Amendment to Employment Agreement between TTR and Baruch Sollish,
dated July 22, 1998.*
16.1 Letter on change in certifying accountant(2)
21.1 Subsidiaries of TTR:
TTR Technologies, Ltd., an Israeli corporation, wholly-owned by TTR.
23.1 Consent of Wolf, Block, Schorr and Solis-Cohen LLP (included in
Exhibit 5.1).*
23.2 Consent of Brightman Almagor & Co., a member of Deloitte Touche
Tohmatsu, certified public accountants.**
<PAGE>
24.1 Powers of Attorney.*
27.1 Financial Data Schedule.(2)(5)
- ----------
* Previously filed.
** Filed herewith.
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form
SB-2, No. 333-11829, and incorporated herein by reference.
(2) Filed as an Exhibit to TTR's Registration Statement on Form SB-2, No.
333-85085 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, 1997 and incorporated herein by reference.
(4) Filed as an Exhibit to the Registrant's Annual Report on Form 10-KSB filed
for the year ended December 31, 1998 and incorporated herein by reference.
(5) Filed as an Exhibit to TTR's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1999 and incorporated herein by reference.
Exhibit 10.43
ALLIANCE AGREEMENT
This Alliance Agreement (the "Agreement"), effective as of November 24,
1999 (the "Effective Date"), is entered into by and between MACROVISION
CORPORATION, a Delaware Corporation with its principal place of business
at 1341 Orleans Drive, Sunnyvale, California 94089, USA, together with its
subsidiary C-Dilla, Ltd., with offices at Woodley House, Crockhamwell
Road, Woodley, Reading, Berkshire, RGP 3JP, United Kingdom (collectively
"Macrovision"); and TTR TECHNOLOGIES, INC., a Delaware corporation with
its administrative offices at 1841 Broadway, New York, NY 10023, USA,
together with its subsidiary TTR Technologies, Ltd., with offices at 2
Hanagar Street, Kfar-Saba, 4425, Israel (collectively "TTR").
RECITALS
A. Macrovision develops and markets content copy protection and rights
management technologies and products which are designed to prevent the illicit
duplication, reception or use of video and audio programs and computer software.
B. TTR has represented to Macrovision that TTR owns certain intellectual
property and technology, and has the expertise and experience required to
develop music copy protection technology.
C. TTR and Macrovision have entered into that certain Letter Agreement as of
November 24, 1999, pursuant to which they have agreed to enter into a long-form
agreement incorporating, inter-alia, the terms therein.
D. Consistent with the foregoing, Macrovision and TTR desire to enter into an
agreement under which the Parties will jointly develop such music copy
protection technology, and Macrovision will have, subject to the continuing
satisfaction of certain conditions hereinafter set forth, the exclusive right to
commercialize and market such technology for a period of time.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises set
forth below, the Parties agree as follows:
1. Definitions
<PAGE>
1.1 "Affiliate" means any entity controlling, controlled by, or under
common control with, a Party hereto.
1.2 "Field of Use" means technologies and products designed to prevent the
illicit duplication of audio programs (including the audio portion of
music videos, movies and other video or audio content) distributed on
optical media (including but not limited to CDs and DVDs), and
technologies for Internet digital rights management for audio
applications.
1.3 "Intellectual Property Rights" means intellectual property or
proprietary rights, including but not limited to copyright rights, patent
rights (including patent applications and disclosures), rights of
priority, and trade secret rights, recognized in any jurisdiction in the
world.
1.4 "Investment Date" means that date on which TTR receives the gross
proceeds of an equity investment in TTR made by Macrovision pursuant to
the Letter Agreement.
1.5 "Joint Development Project" means the development efforts by the
Parties to develop the Music Protection Technology pursuant to this
Agreement.
1.6 "Joint Technology" means any and all software, hardware, technology,
know-how, algorithms, procedures, techniques, solutions, and work-arounds
developed or created jointly or individually in the course of and pursuant
to the Joint Development Project and prior to the Commercial Launch (as
defined in Section 5.1 (b) herein), whether or not based on Macrovision
Technology or TTR Technology. Joint Technology does not include the
Macrovision Technology or TTR Technology.
1.7 "Letter Agreement" means that certain Letter Agreement entered into by
TTR and Macrovision as of November 24, 1999.
1.8 "Macrovision Technology" means any and all software, hardware,
technology, know-how, algorithms, procedures, techniques, solutions, and
work- arounds, (i) owned by or licensed to Macrovision as of the Effective
Date and contributed by Macrovision to the development effort hereunder
including, without limitation, the technology specified on Exhibit B
hereto, or (ii) which can be shown by Macrovision by reasonable tangible
evidence to have been developed independently by Macrovision subsequent to
the Commercial Launch without the use or exploitation of the TTR
Technology.
1.9 "Music Protection Technology" means the technology and/or any
derivative product or component thereof developed pursuant to the Joint
2
<PAGE>
Development Project within the Field of Use, which may be comprised of
Joint Technology, Macrovision Technology and TTR Technology.
1.10 "Net Revenues" means the gross revenues received by or on behalf of
Macrovision or any of its Affiliates from customers, distributors, or any
sublicensees of the Joint Technology and/or the Music Protection
Technology, reduced by discounts, returns and rebates, but not by cost of
goods sold.
1.11 "Specification" means the agreed-upon functional specifications and
performance requirements for the Joint Development Project as set forth in
Exhibit A.
1.12 "TTR Technology" means any and all software, hardware, technology,
know-how, algorithms, procedures, techniques, solutions, and work-arounds
(i) owned by or licensed to TTR as of the Effective Date and contributed
by TTR to the development effort hereunder, including, without limitation,
the technology specified on Exhibit C hereto, or (ii) which can be shown
by TTR by reasonable tangible evidence to have been developed
independently by TTR subsequent to the Commercial Launch without the use
or exploitation of the Macrovision Technology.
2. Development Effort
2.1 Joint Development Project. Each Party will exert commercially
reasonable efforts to jointly develop the Music Protection Technology in
accordance with the Specification. The Parties will work together to
develop a complete product specification as well as a completed product
suitable for Commercial Launch, including completely functional LBR
encoder modules for the Doug Carson Associates, Eclipse Corporation and
MediaMorphics mastering systems. The Parties intend that three LBR encoder
modules shall be developed no later than April 30, 2000, one being for the
Doug Carson Associates mastering system, one being for the Eclipse
Corporation mastering system, and one being for the MediaMorphics
mastering system. TTR shall also perform all ongoing technology
development, enhancement, and 2nd level technical support activities.
2.2 Expenses. Unless otherwise specified, each Party agrees to fully fund
and pay for the costs and expenses of the performance of its
responsibilities specified herein, including without limitation: (i) any
and all salaries, employee benefits and other overhead costs for its own
employees and facilities involved in the performance of this Agreement;
(ii) any and all lodging, meal or travel expenses of its own employees;
(iii) any and all costs and expenses for consultants whose use is not
mutually agreed to in writing by both Parties; and (iv) any and all taxes,
charges or fees arising out of its sole obligations or acts hereunder.
3
<PAGE>
2.3 Development Personnel. Each Party will dedicate sufficient personnel
with appropriate technical skills to the development effort to ensure that
the Music Protection Technology is developed in accordance with the
Specification. Without limiting the foregoing, TTR will assign the
personnel resources set forth in Exhibit D. All engineers and other staff
which may be assigned by TTR or Macrovision to develop the Music
Protection Technology shall at all times be employees or consultants of
TTR or Macrovision, respectively. Each Party may, at its option, employ
the services of contractors or consultants to assist in the development of
the Music Protection Technology. Such Party will be held fully responsible
for and guarantee the work and activities of each of its subcontractors,
including but not limited to each subcontractor's compliance with this
Agreement. 2.4 Modification to Development Efforts. In the course of their
development efforts, the Parties may agree that the Specification may need
to be revised or modified. Any material modification to the Specification
must be pre-approved in writing by the Parties.
2.5 Technical Contacts. Each Party shall designate one primary and one
alternate technical contact (collectively, the "Technical Contacts") as
the primary individuals responsible for facilitating communication between
the Parties and for coordinating the development of the Music Protection
Technology. Each of TTR and Macrovision's initial Technical Contacts are
set forth in Exhibit D. The Technical Contacts will confer on a regular
basis to assess the status of the Joint Development Project with respect
to the Milestones. The Parties may change their own Technical Contacts at
any time upon written notice to the other Party.
3. Ownership
3.1 Macrovision Technology. The Macrovision Technology and all
Intellectual Property Rights therein are, and/or will remain, the sole and
exclusive property of Macrovision and its suppliers, if any.
3.2 TTR Technology. The TTR Technology, and all Intellectual Property
Rights therein are, and will remain, the sole and exclusive property of
TTR and its suppliers, if any.
3.3 Joint Technology. Macrovision and TTR shall be co-owners of the Joint
Technology and all Intellectual Property Rights therein, and each Party
will have an undivided, one-half interest in and to the Joint Technology
and all Intellectual Property Rights therein. Notwithstanding anything to
the contrary contained in the foregoing, neither TTR nor Macrovision shall
use or otherwise exploit the Joint Technology except as expressly provided
hereunder. Except as set forth explicitly herein (including without
limitation Section 5.1 and 5.2 hereof), neither Party will be entitled to
any accounting of profits, royalties, or other form of
4
<PAGE>
compensation with respect to any sale, distribution, license or other
exploitation by the other Party of the Joint Technology. Notwithstanding
the foregoing, during the term of this Agreement, TTR will not transfer,
license, distribute or disclose to any third party the Joint Technology in
the Field of Use, in whole or in part, or any products incorporating such
Joint Technology, in any manner. TTR and Macrovision shall each retain the
right to use or otherwise exploit the Joint Technology outside of the
Field of Use, however, TTR's right to use or otherwise exploit the Joint
Technology outside the Field of Use shall be subject to the terms of this
Agreement (including without limitation Section 4.5).
3.4 Patent Rights. Macrovision and TTR will file and prosecute, and shall
bear the expense of filing and prosecuting, at the minimum, in the United
States of America, Canada, Mexico, United Kingdom, France, Benelux,
Scandinavia, Germany, Spain, Italy, Korea and Japan, Australia, Argentina,
and Brazil any patents on the Macrovision Technology or the TTR
Technology, respectively, which the Parties agree, are commercially
important to protecting the intellectual property rights of the Music
Protection Technology. Except as prohibited by law, the Parties shall
jointly file, with respect to Joint Technology, such patent and copyright
applications and amendments thereof as the Parties agree are useful to
protect their joint interests in the Music Protection Technology, and
shall thereafter use commercially reasonable and diligent efforts to
prosecute and maintain in force such applications and any resultant
patents and copyrights. The costs and expenses (including attorneys' fees)
incurred in the filing, prosecution and maintenance of such patents and
copyrights shall be shared equally by the Parties. Macrovision will
undertake the administrative efforts required to give effect to this
Section. As an additional right, either Party, at its own expense, may
file patent and copyright applications covering the Music Protection
Technology in those countries where the Parties do not mutually agree to
file such applications. All patent and copyright applications for Joint
Technology developed under this Agreement shall be filed in the name of
both Parties.
4. License Grants
4.1 Macrovision Technology. Macrovision hereby grants to TTR a non-
exclusive, non-transferable, royalty-free, worldwide license to use, copy,
modify, improve and create derivative works based on the Macrovision
Technology solely for the purposes of performing its obligations in
connection with the development of the Music Protection Technology. The
license granted under this Section shall not be construed so as to grant
TTR any commercial rights to the Macrovision Technology other than as
expressly set out in this Agreement.
5
<PAGE>
4.2 TTR Technology. Subject to the terms and conditions set forth herein,
TTR hereby grants to Macrovision an exclusive, royalty bearing, worldwide
license, within the Field of Use (a) to use, copy, modify and improve the
Joint Technology and the TTR Technology and create derivative works based
thereon solely in connection with the development of the Music Protection
Technology, and (b) to make, have made, sublicense and distribute the TTR
Technology and any derivative works thereof embodied in the Music
Protection Technology. No right is being granted to sublicense or
distribute the TTR Technology (or components thereof) as stand-alone
products outside the Field of Use, except as otherwise expressly provided
in Section 4.4 of this Agreement. The Parties acknowledge that a copy of
the TTR Technology, as set out in Exhibit C hereof, has been delivered to
Macrovision. TTR will apprise Macrovision of any material improvements or
developments relating to the Music Protection Technology of which TTR
becomes aware within thirty (30) days of such improvement or development.
TTR will not deliver to Macrovision without Macrovision's prior written
consent any technology pertaining to MusicGuard which requires the payment
of royalties to a third party; alternatively, if TTR does deliver to
Macrovision any such royalty-bearing technology, payment of such royalties
will be the responsibility of TTR. Further, TTR will not deliver to
Macrovision without Macrovision's prior written consent any technology
pertaining to DiscGuard which requires the payment of royalties to a third
party. The Parties expressly acknowledge that DiscGuard includes a
component known as Gearworks which is licensed by a third party.
4.3 Trademark Licenses. TTR hereby grants Macrovision the exclusive right
to use the TTR trademark "MUSIC GUARD" ("TTR Mark") in marketing and
distributing the Music Protection Technology. Macrovision shall have the
the right, in its sole discretion, to market the Music Protection
Technology or the CD Technology (as defined in Section 4.4) under its
trade names and trademarks or under the TTR Mark.
4.4 TTR's Other Technology. Effective upon the Investment Date, TTR grants
Macrovision an exclusive, worldwide license (with the right to sublicense)
to (a) use, copy, modify, and create derivative works based on TTR's
CD-ROM software copy protection technology as further described in Exhibit
F ("CD Technology"), including but not limited to its CD and DVD
signatures, encoder modules and other technology; (b) incorporate the CD
Technology (or components thereof) into or bundle the CD Technology with
Macrovision products; and (c) market, sublicense and distribute the CD
Technology alone or with or incorporated in Macrovision bundled products.
TTR shall, within 20 business days following the Investment Date, deliver
to Macrovision all materials, notes, plans, diagrams, schematics, source
code, object code and technical specifications related to the CD
Technology, including but not limited to the
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digital signature portions thereof. The license granted in this Section
shall be royalty-free with respect to the CD and DVD signature portions of
the CD Technology and shall be royalty bearing with respect to all other
portions of the CD Technology, such royalty to be negotiated separately
between the Parties. Except for the licenses named in the marketing
agreements listed in Exhibit G, TTR shall, within seven (7) business days
of the closing of the Investment Date, notify all existing CD Technology
customers and prospective customers that, after sixty (60) days of such
notice, TTR will no longer license or support the CD Technology, and that
TTR encourages such customers to license Macrovision's Safe Disc
Technology (defined in Section 5.3) from Macrovision. TTR further agrees
to work cooperatively with Macrovision to encourage Sonopress and Nimbus
to cease offering or marketing the CD Technology within such sixty day
period and in any event agrees to remit to Macrovision 100% of any
revenues related to the CD Technology which TTR receives from Sonopress or
Nimbus subsequent to the Investment Date.
4.5 Other TTR Technologies. TTR grants to Macrovision an exclusive right
of first refusal, during the term of this Agreement, with respect to the
acquisition of all rights in or worldwide exclusive marketing and
distribution rights to: (i) the Music Protection Technology outside of the
Field of Use and/or (ii) any future packaged media copy protection or
internet digital rights management technologies developed by TTR which are
applicable to music, music video, video, software or data publishing
products or markets. In addition, TTR shall notify Macrovision of any
bona-fide third party offers to purchase or license any such technology,
including the terms of such offer. If Macrovision notifies TTR of its
interest in such purchase or license under the terms of such offer within
ten (10) United States business days of Macrovision's receipt of such
notification, the Parties will negotiate in good faith a definitive
agreement for the purchase or license.
5. Royalties
5.1 Amounts.
(a) Royalty Rate. Except as provided below in this Section 5,
Macrovision or its Affiliates agree to pay to TTR thirty percent
(30%) of the Net Revenues received by Macrovision or its Affiliates
from licenses of the Music Protection Technology as a stand alone
product to customers, distributors, OEM partners or other third
parties.
(b) Delayed Commercial Launch. In the event that the Commercial
Launch (as defined below) has not been achieved on or before
September 30, 2000, then, beginning October 1, 2000 and for the
remaining term of
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this Agreement, the royalty rate percentage payable by Macrovision
to TTR as described above shall be reduced to twenty five percent
(25%) of Net Revenues. "Commercial Launch" shall mean the date by
which the first of the following two events have occurred: (i) three
of the five major music labels (Warner, Sony, BMG, EMI, Universal,
or any of their majority owned subsidiaries) have each manufactured
at least five million (5,000,000) music CDs which have been copy
protected using the Music Protection Technology, or (ii) one of the
five major music labels (Warner, Sony, BMG, EMI, Universal, or any
of their majority owned subsidiaries) has manufactured at least five
million (5,000,000) music CDs which have been copy protected using
the Music Protection Technology and an aggregate total of twenty
five million (25,000,000) (including such 5,000,000) such
copy-protected music CDs (including such copy-protected music CDs
manufactured by such major music label) have been manufactured.
(c) Bundling. If Macrovision licenses the Music Protection
Technology as a portion of another product or service it offers to
its customers, distributors, OEM partners, or sublicensees, TTR will
negotiate with Macrovision in good faith the allocation of revenue
to the Music Protection Technology. Macrovision agrees that it shall
not license the Music Protection Technology as a portion of another
product or service until the allocation of revenue to the Music
Protection Technology has been mutually agreed by Macrovision and
TTR.
(d) Payment Terms. Macrovision agrees to pay to TTR the royalties
described in Section 5.1 on the last day of each calendar month
during the term of this Agreement with respect to cash receipts
actually received in the immediately preceding month. Each
remittance to TTR hereunder shall be accompanied by a written
report, signed by an authorized officer of Macrovision, setting
forth in reasonable detail the basis for the determination of such
royalty then due to TTR, including the amount of gross revenues
received by Macrovision in respect of such preceding month.
5.2 Minimum Royalty
(a) Generally. In order to maintain exclusivity with respect to the
rights granted to Macrovision by TTR hereunder, Macrovision shall
pay to TTR, beginning twelve months following the Commercial Launch,
a series of minimum annual guaranteed royalty advances (each a
"Guaranteed Royalty"), recoupable dollar-for-dollar against
royalties actually earned by TTR as its share of Net Revenues
generated from the Music Protection Technology subsequent to
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the payment by Macrovision of each Guaranteed Royalty during the
full term of this Agreement. Macrovision shall pay such Guaranteed
Royalties to TTR according to the following schedule:
Payment Due Date
(Expressed as the number of
calendar months following
Commercial Launch) Payment Amount
12 US$1,000,000
24 US$ 375,000
27 US$ 375,000
30 US$ 375,000
33 US$ 375,000
36 US$ 562,500
39 US$ 562,500
42 US$ 562,500
45 US$ 562,500
48 US$ 843,750
51 US$ 843,750
54 US$ 843,750
57 US$ 843,750
60 US$ 843,750
63 US$ 843,750
66 US$ 843,750
69 US$ 843,750
72 US$ 843,750
75 US$ 843,750
78 US$ 843,750
81 US$ 843,750
84 US$ 843,750
87 US$ 843,750
90 US$ 843,750
93 US$ 843,750
96 US$ 843,750
99 US$ 843,750
102 US$ 843,750
105 US$ 843,750
108 US$ 843,750
111 US$ 843,750
114 US$ 843,750
117 US$ 843,750
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The first such Guaranteed Royalty payment in the amount of US$1,000,000 as
provided above shall not be reduced by royalties paid pursuant to Section 5.1
hereunder during the first twelve months following Commercial Launch. Subsequent
Guaranteed Royalty payments shall not be reduced by royalties paid prior to the
payment of each such Guaranteed Royalty payment.
Notwithstanding the above, all Guaranteed Royalty payments shall be fully
creditable against all royalties payable by Macrovision to TTR as described in
Section 5.1 hereof during the term of this Agreement, which are incurred
subsequent to the payment of each such Guaranteed Royalty payment.
Except in the event of an early termination of this Agreement as described in
Section 8.2 or 8.3 hereof, all Guaranteed Royalty payments which have not
otherwise been paid to TTR as of December 31, 2009 shall be paid to TTR by
Macrovision on or before December 31, 2009.
In the event of an early termination of this Agreement as described in Section
8.2 or 8.3 hereof, all Guaranteed Royalty payments which are due but unpaid as
of the date of such early termination shall be payable by Macrovision to TTR and
all previously paid Guaranteed Royalty payments shall vest entirely in TTR.
(b) Waived Minimum Royalty. Notwithstanding the above, if the
Commercial Launch is achieved prior to April 30, 2000, or if the
Commercial Launch is not achieved by September 30, 2000, then all
Guaranteed Royalty payments described in Section 5.2(a) shall be
waived. In the event that the Guaranteed Royalty described in
Section 5.2(a) is waived as described in this Section and
Macrovision shall not have paid to TTR a minimum of US$2 Million in
aggregate royalties as provided in Section 5.1 by the second
anniversary of the Commercial Launch, then, at Macrovision's option:
(i) Macrovision may pay TTR any shortfall in the minimum royalty set
forth in this paragraph within thirty days, or (ii)] Macrovision's
exclusive license hereunder shall revert to nonexclusive status.
5.3 Royalties for SafeDisc Technology. Macrovision shall pay to TTR, for
the five year period beginning January 1, 2000, and ending December 31,
2004, a royalty equal to five percent (5%) of the SafeDisc Net Revenues
Macrovision receives from licenses of the SafeDisc technology described in
Exhibit E ("Safe Disc Technology") to customers, distributors, or other
third parties located in the People's Republic of China ("PRC"). The
rights of Intercontinental Communications Center 31, Bei San Huan Zhong
Lu, Beijing P.R.C. 100088 (aka "CICC") shall be honored by Macrovision
through October 15, 2001, or, if earlier, the end of the term of such
license. Notwithstanding the above, TTR and
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Macrovision will work cooperatively to transition CICC to a SafeDisc
license as soon as possible. For purposes of this Section "SafeDisc Net
Revenues" shall mean the gross revenues received by or on behalf of
Macrovision or any of its Affiliates from customers, distributors, OEM
partners or other sublicensees utilizing the SafeDisc Technology in the
PRC, reduced by discounts, returns and rebates but not by cost of goods
sold.
Macrovision will pay to TTR the royalties described in this Section 5.3 on
the last day of each calendar month during the term of this Agreement with
respect to cash receipts actually received in the immediately preceding
month. Each remittance to TTR hereunder shall be accompanied by a written
report, signed by an authorized officer of Macrovision, setting forth in
reasonable detail the basis for the determination of such royalty then due
to TTR, including the amount of gross revenues received by Macrovision in
respect of such immediate preceding month and reflecting a schedule of the
customers and amounts from whom such gross revenues were collected.
5.4 Reports. Macrovision agrees to provide reports to TTR on a quarterly
basis (for quarters ending March 31, June 30, September 30, and December
31 each year during the term of this Agreement), setting forth the total
number of music CDs then manufactured to which Macrovision is aware that
the Music Protection Technology has been applied, each such report shall
be delivered to TTR within 45 days following the end of each such quarter
after the Commercial Launch has occurred.
5.5 Audit. Each of TTR and Macrovision will have the right, no more than
once yearly, during the term of this Agreement and for one (1) year
thereafter to have an independent "Big 5" certified public accounting firm
(i.e., Deloitte and Touche, Arthur Andersen, Price Waterhouse Coopers,
KPMG Peat Marwick, or Ernst & Young) review or audit the other Party's
relevant records for the purpose of certifying compliance with this
Agreement. All audits will be at the auditing Party's expense and
conducted during regular business hours, and begun upon at least one (1)
month's prior written notice. If any audit reveals a net underpayment of
more than one percent (1%), the audited Party shall immediately pay such
underpayment; if any audit reveals a net underpayment of more than five
percent (5%), the audited Party shall pay the costs of the audit and
auditing Party may conduct a follow up audit at any time upon thirty (30)
days prior written notice, not more often than quarterly, and the audited
Party shall pay interest on such underpayment at the prime rate then most
recently published by the largest bank in New York (in terms of Assets)
plus one (1) point. Finally, if three (3) audits in any three (3) year
period reveal that an audited Party under reported, for whatever reason,
payments by more than fifteen percent (15%), the auditing Party may
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terminate this Agreement upon ninety (90) days prior written notice to the
audited Party.
6. Sales and Marketing
6.1 Sales and Marketing. Macrovision shall, in its sole discretion,
determine the staffing and other resources to be allocated by Macrovision to
commercialize the Music Protection Technology; provided that Macrovision will
allocate commercially reasonable staffing and other resources to commercialize
the Music Protection Technology consistent with Macrovision's good faith
determination of the commercial potential of the Music Protection Technology.
Macrovision shall, in its sole discretion, determine the naming, branding, and
pricing for the Music Protection Technology, except that Macrovision agrees (i)
to mention in the text of all press releases related to the Music Protection
Technology that the Music Protection Technology has been developed jointly by
Macrovision and TTR, (ii) to mention in the advertising and related marketing
collateral materials that the Music Protection Technology has been developed
jointly by Macrovision and TTR, and (iii) not to license the Music Protection
Technology free of charge to customers, distributors, OEM partners, or other
sublicensees other than for promotional purposes. TTR agrees that Macrovision
shall, in its sole discretion, determine the degree of prominence afforded to
the mention of TTR described in subsection (i) and (ii) of this Section 6.1.
6.2 Cooperative Marketing and Development Payments. Subject to the terms
of this Agreement, TTR recognizes the unique one-time costs which will be
incurred by Macrovision to co-develop and launch the Music Protection Technology
into the commercial market and agrees to reimburse Macrovision for its staffing
and other costs related to development and testing, product management, sales,
product naming/branding, marketing, and promotional expenses incurred by
Macrovision with respect to the Music Protection Technology during the twelve
month period ending on December 31, 2000, up to an aggregate maximum
reimbursement of US$1 Million. Reimbursements shall be paid by TTR to
Macrovision on the last day of each month with respect to reimbursable expenses
(including direct overheads related to such expenses) incurred by Macrovision in
the prior month, based upon invoices submitted by Macrovision to TTR for each
such prior month, until the earlier of the date on which TTR has paid to
Macrovision US$1 Million in aggregate reimbursements, or January 31, 2001. The
first such reimbursement shall be paid by TTR to Macrovision on or before
February 28, 2000 with respect to reimbursable expenses incurred by Macrovision
during the months of January and February 2000. Notwithstanding the above, no
such reimbursement shall be payable by TTR to Macrovision prior to the execution
of the Stock Purchase Agreement of even date herewith.
7. Confidentiality
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7.1 Confidential Information. "Confidential Information" refers to: (i)
the Specification and any related documentation or technical or design
information related to the Music Protection Technology; (ii) the
Macrovision Technology, the TTR Technology, and any other business or
technical information of either of the Parties, including but not limited
to any information relating to such Party's product plans, designs, costs,
product prices and names, finances, marketing plans, business
opportunities, personnel, research, development or know-how designated by
a Party as "confidential" or "proprietary" or which, under the
circumstances taken as a whole, would reasonably be deemed to be
confidential; and (iv) the terms and conditions of this Agreement.
7.2 Exclusions of Confidential Information. Notwithstanding the foregoing,
"Confidential Information" will not include information that: (i) is or
becomes generally known or available by publication, commercial use or
otherwise through no fault or breach of confidentiality undertakings of
the receiving Party; (ii) is known to the receiving Party at the time of
disclosure without violation of any confidentiality restriction, as
demonstrated by prior tangible evidence, and without any restriction on
the receiving Party's further use or disclosure; or (iii) is independently
developed by the receiving Party, as demonstrated by reasonable prior
tangible evidence furnished by the receiving Party.
7.3 Use and Disclosure Restrictions. During the term of this Agreement and
for five (5) years after any termination or expiration of this Agreement,
the Parties shall refrain from using the other Party's Confidential
Information except as contemplated herein, and from disclosing such
Confidential Information to any third party except as is reasonably
required in connection with the exercise of its rights and obligations
under this Agreement (and only subject to binding use and disclosure
restrictions at least as protective as those set forth herein executed in
writing by such parties). However, a Party may disclose Confidential
Information of the other Party: (i) pursuant to the order or requirement
of a court, administrative agency, or other governmental body, provided
that the disclosing Party give reasonable notice to the other Party to
contest such order or requirement; and (ii) on a confidential basis to
legal or financial advisors or (iii) as otherwise required in connection
with its reporting requirements under Securities Exchange Act of 1934, as
amended.
7.4 Employment of Other Party's Employees. Each Party and its Affiliates
agree that during the continuance of this Agreement and for a period of 18
months after its termination, in whole or in part, it will not hire or
otherwise contract the services of, whether directly or indirectly, an
employee of the other Party. Macrovision expressly agrees not to solicit
the employment of nor hire Dr. Baruch Sollish for a period of one year
following the earlier of the termination of this Agreement or his
employment with TTR.
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8. Term and Termination
8.1 Term. This Agreement shall commence on the Effective Date and, unless
earlier terminated in accordance with this Section 8, will continue in
effect until December 31, 2009.
8.2 Termination at the Option of Either Party. Either of TTR or
Macrovision shall be entitled, upon furnishing five days' written notice
to the other, to terminate this Agreement (and the rights granted
hereunder) if the Investment Date does not occur, for any reason
whatsoever, on or before January 31, 2000.
8.3 Termination for Cause. Either Party will have the right to terminate
this Agreement if: (i) the other Party materially breaches this Agreement
and fails to cure such breach within thirty (30) days after written notice
thereof from the other Party setting forth in reasonable detail the facts
or circumstances constituting the alleged breach; (ii) the other Party
becomes the subject of a voluntary petition in bankruptcy or any voluntary
proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors; (iii) the other Party becomes
the subject of an involuntary petition in bankruptcy or any involuntary
proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors, if such petition or proceeding
is not dismissed within sixty (60) days of filing, or (iv) in accordance
with the provisions of Section 5.5.
8.4 Effect of Termination.
(a) Confidential Information. Upon any expiration or termination of
this Agreement, each Party shall promptly return to the other Party,
and will not take or use (except as permitted herein), all items of
any nature that belong to such Party and all records containing or
relating to such Party's Confidential Information.
(b) Survival. The following provisions will survive termination of
this Agreement for any reason: Section 1 (Definitions), Section 3
(Ownership), Section 7 (Confidentiality), Section 8.3 (Effect of
Termination), Section 10 (Warranty Disclaimer), Section 11
(Indemnification), Section 12 (Limitation of Liability), and Section
13 (General Provisions).
9. Representations and Warranties
9.1. By Macrovision. Macrovision represents and warrants that: (i)
Macrovision has not previously granted and/or will not grant any rights in
the Macrovision Technology to any third party which are inconsistent with
the rights
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granted herein; (ii) Macrovision has full power and authority to enter
into this Agreement, to carry out its obligations hereunder, and to grant
the rights herein granted; and (iii) C-Dilla is a wholly-owned subsidiary
of Macrovision.
9.2. By TTR. TTR represents and warrants that: (i) the TTR Technology does
not infringe the intellectual property rights of any third party; (ii) TTR
has not previously granted and will not grant any rights in the TTR
Technology to any third party which are inconsistent with the rights
granted or assigned herein; and (iii) TTR has full power and authority to
enter into this Agreement, to carry out its obligations hereunder, and to
grant the rights herein granted.
10. Warranty Disclaimer
Except as provided in Section 9 above, each Party expressly disclaims all
other warranties, express or implied, including without limitation the
implied warranties of merchantability, fitness for a particular purpose,
and non-infringement.
11. Indemnification
Subject to Section 12.1, TTR will at its expense defend, indemnify, and
hold Macrovision harmless against all costs, expenses, liabilities, and damages
(including but not limited to reasonable attorneys; fees) paid out in settlement
of or resulting from a judgment awarded to a third party against Macrovision
resulting from any claim that the TTR Technology as supplied by TTR infringes or
misappropriates the Intellectual Property Rights of any third party or breaches
the representations and warranties contained in Section 9.2 above, provided that
Macrovision: (i) gives prompt written notice of any such claim; (ii) allows TTR
to direct the defense and settlement of the claim; and (iii) provides TTR with
the authority, information, and assistance reasonably necessary for the defense
and settlement of the claim. Macrovision reserves the right to participate in
any such defense at its expense and in its sole discretion.
12. Limitation of Liability
12.1 Notwithstanding anything to the contrary contained in the foregoing,
TTR's total liability to Macrovision under this Agreement will be limited
as follows:
(a) for breach of the confidentiality provisions herein and/or
improper disclosure of Confidential Information, there will be no
limitation on TTR's liability;
(ii) for intentional breach of the representation set forth in
Section 9.2 hereof, there will be no limitation on TTR's liability;
(iii) for unintentional breach of the representation set forth in
Section 9.2 hereof, TTR's maximum liability to Macrovision will be
capped at four times the amount of fees paid by Macrovision to TTR;
(iv) for fraudulent misrepresentation, there will be no limitation
on TTR's liability; and
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(v) for all other matters, TTR's maximum liability to Macrovision
will be capped at one million dollars (US $1,000,000.00).
12.2 Notwithstanding anything to the contrary contained in the foregoing,
in no event shall Macrovision's total liability to TTR under this
Agreement exceed $1,000,000, regardless of whether any remedy set forth
herein fails of its essential purpose.
12.3 In no event will either Party be liable for any form of special,
incidental, indirect, consequential, or punitive damages of any kind,
whether or not foreseeable (including, without limitation damages for loss
of business profits, business interruption, loss of business information,
and the like), whether based on breach of contract, tort (including
negligence), product liability, or otherwise, even if such Party has been
advised of the possibility of such damages.
13. General Provisions
13.1 Amendment. This Agreement may only be amended by a writing signed by
both Parties.
13.2 Arbitration. Any dispute, controversy or claim arising out of or
relating to the validity, construction, enforceability or performance of
this Agreement, including disputes relating to alleged breach or to
termination of this Agreement, shall be settled by final, binding
arbitration in the manner described in this Section. The arbitration shall
be conducted pursuant to the Commercial Arbitration Rules of the American
Arbitration Association then in effect ("Rules"). Notwithstanding the
Rules, the following provisions shall apply to the arbitration hereunder:
(a) Arbitrators. The arbitration shall be conducted in San
Francisco, California by a panel of three (3) arbitrators (the
"Panel"). Each Party shall have the right to appoint one (1) member
of the Panel, with the third member to be mutually agreed by the
Parties and, failing such agreement by the Parties, by the two (2)
Panel members appointed by the Parties or appointed in accordance
with the Rules. The arbitrators shall be persons in the industry
with experience in the matters in dispute.
(b) Proceedings. The Panel shall, in rendering its decision, apply
the law of the State of California, without regard to its conflict
of laws provisions, except that the interpretation of and
enforcement of this Section shall be governed by the U.S. Federal
Arbitration Act. The fees of the Panel shall be paid by the losing
Party, which Party shall be designated by the Panel. If the Panel is
unable to designate a losing Party, it shall so state and the fees
shall be shared equally between the Parties.
(c) Injunctive Relief. Each Party agrees that any violation or
threat of violation by it or its employees of its obligations under
this Agreement
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will result in irreparable harm to the other for which damages would
not be an adequate remedy and, therefore, in addition to its rights
and remedies otherwise available at law, including without
limitation the recovery of damages for breach of such sections of
this Agreement, the injured Party will be entitled to seek immediate
equitable relief, including both interim and permanent injunctions,
without the necessity of posting a bond or any other undertaking,
and to such other and further equitable relief as the court may deem
proper under the circumstances.
13.3 Assignment. TTR shall not assign its rights or delegate its
obligations hereunder without the express written consent of Macrovision ,
which consent shall not be unreasonably withheld. Any assignment or
delegation by TTR in violation of this Section will be void. Subject to
the foregoing, this Agreement will benefit and bind the successors and
permitted assigns of the Parties. Notwithstanding the foregoing, (i)
either of Macrovision or TTR may assign this Agreement without the other's
consent if such assignment arises out of a corporate reorganization, or
merger, acquisition of sale in which all or substantially all of
Macrovision's or TTR's stock or assets, as the case may be, are
transferred to the assignee, and (ii) Macrovision may assign this
Agreement without TTR's consent to any third party of Macrovision's
choosing so long as Macrovision can demonstrate to TTR using commercially
reasonable criteria that the assignee is at least as capable financially
and operationally of fulfilling Macrovision's obligations hereunder..
13.4 Compliance with Laws. The Parties shall comply with all laws and
regulations applicable to its activities under this Agreement in all
material respects. Without limiting the foregoing, the Parties shall: (i)
comply with all United States Department of Commerce and other United
States export controls with respect to the subject matter hereof; and (ii)
not produce or distribute any software, products, or technical data in any
country where such production or distribution would be unlawful.
13.5 Entire Agreement. This Agreement, together with the Stock Purchase
Agreement of even date herewith, including all exhibits hereto,
constitutes the entire agreement between the Parties with respect to the
subject matter hereof, and supersedes and replaces all prior or
contemporaneous communications, negotiations, and agreements, written or
oral (including the Letter Agreement)], regarding such subject matter.
13.6 Governing Law. This Agreement will be governed by and construed in
accordance with the substantive laws of the United States and the State of
California, without regard to or application of provisions relating to
choice of law.
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13.7 No Agency. The Parties to this Agreement are independent contractors,
and nothing in this Agreement will be construed as creating or implying an
agency, partnership, joint venture, or any other form of legal association
(other than as expressly set forth herein) between the Parties.
13.8 No Third Party Beneficiaries. No provisions of this Agreement,
express or implied, are intended or will be construed to confer any
rights, remedies or other benefits on any third party under or by reason
of this Agreement.
13.9 Notices. All notices required or permitted under this Agreement will
be in writing, will reference this Agreement and will be deemed given: (i)
when personally delivered, (ii) when sent by confirmed facsimile; (iii)
five (5) working days after having been sent by registered or certified
mail, return receipt requested, postage prepaid; or (iv) one (1) working
day after deposit with a commercial overnight carrier, with written
verification of receipt. All communications will be sent to the addresses
set forth on the signature page hereof, or to such other address as may be
designated by a Party by giving written notice to the other Party pursuant
to this Section.
13.10 Publicity. TTR and Macrovision will jointly issue a press release
announcing the existence of this Agreement and of the principal terms
thereunder. The timing and content of such press release will be mutually
agreed on by the Parties. Except as set forth above, neither TTR nor
Macrovision shall make any public announcement or press release regarding
this Agreement or any activities performed under this Agreement without
the prior written consent of the other. Notwithstanding the above,
Macrovision may make public announcements related to the development,
adoption, or deployment of the Music Protection Technology which is deems
necessary or appropriate in its sole discretion.
13.11 SEC Filings. TTR's disclosure of the existence of this Agreement and
the terms thereunder (as redacted by Macrovision) in accordance with its
obligation under the Securities Exchange Act of 1934, as amended, shall
not be deemed to be a violation of Section 13.10, so long as TTR has
provided to Macrovision beforehand a copy of the provisions which it
proposes to release to the Securities and Exchange Commission, has given
good faith consideration to any request by Macrovision to redact specific
provisions from such disclosure and has allowed Macrovision to have review
rights in the SEC approval process. 13.12 Severability. If for any reason
a court of competent jurisdiction finds any provision or portion of this
Agreement to be unenforceable, that provision of the Agreement will be
enforced to the maximum extent permissible so as to effect the intent of
the Parties, and the remainder of this Agreement will continue in full
force and effect.
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13.13 Waiver. To be enforceable, a waiver must be in writing and signed by
the waiving Party.
13.14 Force Majeure. Neither Party will be liable under this Agreement for
non- performance caused by events or conditions beyond the Party's
control, if the Party makes reasonable efforts to perform.
13.15 Counterparts; Facsimile Execution. This Agreement may be executed in
counterparts and by the exchange of facsimile signed copies.
IN WITNESS WHEREOF, the duly authorized representatives of the Parties
have executed this Agreement as of the Effective Date.
Macrovision Corporation TTR Technologies, Inc.
By: /s/ Ian Halifax By: /s/ Marc D. Tokayer
-------------------------- -----------------------------
Printed Name: Ian Halifax Printed Name: Marc D. Tokayer
---------------- -------------------
Title:CFO Title:Chairman and CEO
------------------------ ---------------------------
20
Exhibit 10.45
THIS STOCK PURCHASE AGREEMENT, effective as of January 10, 2000, is by and
between TTR TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and
MACROVISION CORPORATION, a Delaware corporation (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK
1.1 Sale and Issuance of Common Stock. Subject to the terms and
conditions of this Agreement, the Investor agrees to purchase at the
Closing and the Company agrees to sell and issue to the Investor at
the Closing, one million, eight hundred eighty thousand, nine
hundred thirty- seven shares (1,880,937) of the Company's Common
Stock $0.001 par value (the "Shares"). The purchase price for the
Shares (subject to adjustment as provided in section 4.8 hereof)
shall be Two Dollars and Thirteen Cents ($2.1266) per Share, or an
aggregate purchase price of Four Million Dollars ($4,000,000) (the
"Purchase Price"), which purchase price assumes that such Shares
will be registered under the Securities Act within 90 days of the
Closing and will be freely tradable as of that time by Investor,
without regard to exemptions under the Securities Act. The per share
Purchase Price of each Share shall be determined by dividing the
number of shares of Common Stock outstanding immediately prior to
the Closing, on a fully diluted basis, into $31 million. The number
of Shares of Common Stock to be issued to Investor shall be
determined by dividing the per share Purchase Price, determined in
the preceding sentence, into the aggregate $4 million Purchase
Price.
1.2 Closing. The purchase and sale of the Common Stock shall take
place at the offices of Manatt, Phelps & Phillips LLP, 3030 Hansen
Way, Suite 100, Palo Alto, California (or such other location as the
Investor may designate and the Company consents thereto), at 10:00
A.M. on January 12, 2000, or such other time and date as the
Investor determines that all of the conditions to the obligation of
Investor, set forth in Section 5 hereof, have been or will be
satisfied (the "Closing"). At the Closing, the Company shall deliver
to the Investor a certificate representing the Shares against
receipt by the Company from the Investor of a wire transfer in the
amount of the Purchase Price.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Investor, except as set
forth on a Schedule of Exceptions attached as Schedule A hereto (the
"Schedule of Exceptions"), specifically identifying the relevant
subparagraph hereof, which exceptions shall be deemed to be a part of the
representations and warranties as if made hereunder (provided that such
Schedule of Exceptions may, at the discretion of the Company, be amended
from time to time as necessary until Closing, so
<PAGE>
long as such amendments do not reflect any material change in the
disclosure), the following:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite
corporate power and authority to carry on its business as now
conducted and as proposed to be conducted. The Company is duly
qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a
Material Adverse Effect on its business or properties.
2.2 Capitalization and Voting Rights. Immediately prior to the
Closing, the authorized capital of the Company will consist of:
(i)Capital Stock. 25,000,000 shares of common stock ("Common
Stock"), of which 10,602,866 are issued and outstanding and
5,000,000 shares of preferred stock, none of which are issued
and outstanding. The Company has reserved an aggregate
1,500,000 shares of Common Stock under its 1996 employee stock
option plan for purposes of (i) future grants of stock options
to employees, consultants and directors (hereinafter, the
"ESOP"), and (ii) issuance to holders of previously granted
stock options upon exercise of such options. Additionally, the
company has reserved an additional 25,000 shares of common
stock under its non- executive directors option plan for
issuance to its non-employee directors. There is no other
class or series of stock authorized.
(ii) Warrants and Options. The Company has warrants and
options exercisable and outstanding to purchase up to an
aggregate of 3,224,911 shares of Common Stock, except for
749,400 ESOPS currently exercisable and outstanding.
(iii) Other Agreements. Except as set forth in this Agreement
and in the Schedule of Exceptions, there are no outstanding
options, warrants, convertible securities, rights (including
conversion, right of first refusal or any preemptive rights)
or agreements for the purchase or acquisition from the Company
of any shares of its capital stock or any future issuance of
securities by the Company.
(iv) Voting Agreements. Except as set forth in this Agreement,
the Company has no agreement, obligation or commitment with
respect to the election of any individual or individuals to
the Board, and to the best of the Company's knowledge, there
is no voting agreement or other arrangement among its
shareholders with respect to the election of any individual or
individuals to the Board.
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(v) Common Stock Outstanding. The total number of shares of
the Company's Common Stock outstanding on a fully diluted
basis, immediately prior to the Closing, is 14,577,177 shares.
2.3 Subsidiaries. Except for TTR Technologies, Ltd., the Company's
wholly-owned Israeli subsidiary with offices in Kfar-Saba, Israel,
the Company does not own or control, directly or indirectly, any
other corporation, association, or other business entity.
2.4 Authorization. All corporate action on the part of the Company,
its directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance
and delivery of the Common Stock being sold hereunder has been taken
or will be taken prior to the Closing, and this Agreement, upon due
execution and delivery, constitutes a valid and binding obligation
of the Company, enforceable in accordance with its terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, and (ii) as limited by
laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
2.5 Valid Issuances of Common Stock. The Shares which are being
purchased by the Investor hereunder, when issued, sold and delivered
in accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully paid and
nonassessable, and the Investor shall have good and marketable title
to such Shares, free and clear of any liens, pledges, encumbrances,
taxes, charges or restrictions of any kind (other than those created
by or through the Investor).
2.6 Compliance with Law and Charter Documents. The Company is not in
violation of, or default under, any provisions of its Certificate of
Incorporation or Bylaws, both as currently in effect. To its
knowledge, the Company is in compliance in all material respects
with all applicable laws, rules, regulations, judgments, decrees and
governmental orders, except for such non-compliance that would not
have a Material Adverse Effect on the properties, financial
condition, operations, prospects or business of the Company. The
Company has received no notice of any violation of such laws, rules,
regulations, judgments, decrees or orders which has not been
remedied prior to the date hereof or which would have a Material
Adverse Effect on the Company. The execution, delivery and
performance of the Agreement and the consummation of the
transactions contemplated thereby will not result in any such
violation or default, or be in conflict with or constitute, with or
without the passage of time or the giving of notice or both, either
a default under the Company's Certificate of Incorporation or
Bylaws, both as currently in effect, or an event which results in
the creation of any material lien, charge or encumbrance upon
3
<PAGE>
the capital stock or any asset of the Company, or a default under
any Material Agreement or contract by the Company, or a violation of
any laws, rules, regulations, judgments, decrees or orders. All
material licenses, permits, approvals, registrations,
qualifications, certificates and other authorizations necessary for
the conduct of the Company's business as presently conducted (the
"Licenses") have been duly obtained and are in full force and
effect, and there are no proceedings pending or threatened which may
result in the revocation, cancellation, suspension or any material
adverse modification of any of such Licenses, except for Licenses
that, individually or in the aggregate, the Company need not hold or
possess in order to avoid a Material Adverse Effect on the Company's
assets, properties, financial condition, operating results or
business. The Company believes it can obtain, without undue burden
or expense, any similar authority for the conduct of its business in
the future as presently conducted and proposed to be conducted.
2.7 Compliance with Other Instruments, None Burdensome, Etc. The
execution, delivery and performance of and compliance with this
Agreement and the issuance and sale of the Shares will not result in
nor constitute any breach, default or violation of (i) any
agreement, contract, lease, license, instrument or commitment (oral
or written) to which the Company is a party or is bound and which
involves payment by the Company or any of its subsidiaries in excess
of $250,000 or which is otherwise material to the business,
properties, financial condition or results of operation of the
Company or its subsidiaries (a "Material Agreement") or (ii) any
law, rule, regulation, statute or order applicable to the Company,
any of its subsidiaries or their respective properties, nor result
in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company or its
subsidiaries.
2.8 Government Consent, Etc. No consent, approval, order or
authorization of, or designation, registration, declaration or
filing with, any federal, state, local or provincial or other
governmental authority on the part of the Company is required in
connection with the valid execution and delivery of this Agreement
or the consummation of the transactions contemplated herein,
including the offer, sale or issuance of the Shares to the Investor.
2.9 Offering. In reliance on the representations and warranties of
Investor in Section 3, hereof, the offer, sale and issuance of the
Shares will not, to the best knowledge of the Company, result in a
violation of the requirements of Section 5 of the Securities Act or
the qualification or registration requirements of the California or
other applicable blue sky laws or foreign laws as such laws exist on
the date hereof. 2.10 Litigation. There is no action, suit,
proceeding or investigation pending or currently threatened against
the Company which questions the
4
<PAGE>
validity of this Agreement or the consummation of the transactions
contemplated hereby or which might result, either individually or in
the aggregate, in any Material Adverse Effects on the assets,
financial condition, operations or business of the Company,
financially or otherwise, or any change in the current equity
ownership of the Company. The Company is not a party or subject to
the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company currently
pending or which the Company currently intends to initiate.
2.11 Agreements; Action.
(i) Since November 30, 1999, the Company has not (i) declared or
paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii)
incurred any indebtedness for money borrowed or any other
liabilities in excess of $250,000, (iii) made any loans or advances
to any person, other than ordinary advances for travel expenses, or
(iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course
of business.
(ii) Except as set forth in the Schedule of Exceptions, the Company
has not engaged since November 24, 1999 in any discussion (i) with
any representative of any corporation or corporations regarding the
consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the
sale, conveyance or disposition of all or substantially all of the
assets of the Company or a transaction or series of related
transactions in which more than fifty (50%) of the voting ownership
of the Company is disposed of, or (iii) regarding any other form of
acquisition, liquidation, dissolution or winding up of the Company.
2.12 Related Party Transactions.
(i) No employee, officer or director of the Company or member
of his or her immediate family is indebted to the Company, nor
is the Company indebted (or committed to make loans or extend
or guarantee credit) to any of them.
(ii) To the best of the Company's knowledge, no employee or
officer has any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or
with which the Company has a business relationship, or any
firm or corporation that competes with the Company, except
that employees or officers of the Company and members of their
immediate families may own stock in publicly traded companies
that may compete with the Company. Prior to the Closing, no
officer, director or major
5
<PAGE>
shareholder or member of the immediate family of any officer,
director or major shareholder of the Company has a direct or
indirect financial interest in any material contract with the
Company.
2.13 Environmental and Safety Laws. To the best of its knowledge,
the Company is not in violation of any applicable statute, law, or
regulation relating to the environment or occupational health and
safety, and to the best of its knowledge, no material expenditures
are or will be required to comply with any such existing statute,
law, or regulation.
2.14 Status of Proprietary Assets.
(i) Ownership. The Company owns, is licensed to use or
otherwise has the right to use all patents, trademarks,
service marks, trade names, copyrights and trade secrets that
are material or necessary for the operation of its business as
now conducted (the "Proprietary Assets"). The Company has not
received within the past 36 months preceding the date first
set out above any communications alleging that the Company has
violated or, by conducting its business, would violate any of
the patents, trademarks, service marks, trade names,
copyrights, trade secrets or other proprietary rights or
processes of any other person or entity. The Company has not
granted any license or option or entered into any agreement of
any kind with respect to the use of the Proprietary Assets
owned by it, other than licenses to and sales of its products
and services made in the ordinary course of its business.
(ii) Licenses; Other Agreements. The Company is not bound by
or a party to any option, license or agreement with respect to
any technology owned by any third party other than shrink-wrap
licenses entered into in the ordinary course of business
except as set forth on the Schedule of Exceptions. The Company
is not obligated to pay any royalties or other payments to
another person or entity with respect to the marketing, sale,
distribution, manufacture, license or use of any Proprietary
Asset or any other property or rights, except as set forth in
the Schedule of Exceptions.
(iii) No Breach by Employees. To the best of the Company's
knowledge, no employee of the Company is subject to any
judgment, decree or order of any court or administrative
agency, or any other restriction that would materially
interfere with the use of his or her best efforts to carry out
his or her duties for the Company or that would conflict with
the Company's business as currently conducted. The Company has
received no written notice from any former employer that any
employee of the Company has
6
<PAGE>
prior obligations to a former employer that would interfere or
conflict with such employee's ability to perform his or her
intended services for the Company. To the best of the
Company's knowledge and belief, no employee or advisor of the
Company is or is now expected to be in violation of any term
of any employment contract, patent disclosure agreement,
proprietary information and inventions agreement or any other
contract or agreement or any restrictive covenant or any other
common law obligation to a former employer relating to the
right of any such employee to be employed by the Company
because of the nature of the business conducted by the Company
or to the use of trade secrets or proprietary information of
others, and the employment of the Company's employees does not
subject the Company to any liability, except where such
liability would not have a material adverse effect. There is
neither pending nor, to the Company's knowledge and belief,
threatened any actions, suits, proceedings or claims, or to
its knowledge any basis therefor or threat thereof with
respect to any contract, agreement, covenant or obligation
referred to in the preceding sentence.
(iv) No Infringement. Within the 36 months preceding the date
first set out above, no claims with respect to the Proprietary
Assets have been communicated to the Company: (A) to the
effect that the manufacture, sale, license or use of any
Proprietary Asset as now used or offered or proposed for use
or sale by the Company infringes any copyright, patent, trade
secret or other intellectual property right of a third party,
or (B) challenging the ownership or validity of any of the
Company's rights to or interest in such Proprietary Assets.
The Company has received no notice to the effect that any
patents or registered trademarks, service marks or registered
copyright, held by the Company are invalid or not subsisting
except for failures to be valid and subsisting that would not
reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company. To the
best of the Company's knowledge, there has been no material
unauthorized use, infringement or misappropriation of any of
the Proprietary Assets by any third party, including any
employee or former employee of the Company.
2.15 Material Agreements. The Company has not breached in any
material respect any term or condition of (A) any Material Agreement
or (B) any other agreement, contract, lease, license, instrument or
commitment (oral or written) that, individually or in the aggregate,
would have a Material Adverse Effect on the properties, financial
condition, operating results, prospects or business of the Company.
The Company is
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<PAGE>
not a party to any agreement that restricts in any material respect
its ability to market, sell or license any of its products or
services (whether by territorial restriction or otherwise).
2.16 Disclosure. The Company has fully provided the Investor with
all information which the Investor has requested for deciding
whether to purchase the Shares and the Company is not aware of any
material information which it has not provided to the Investor and
which the Company believes is reasonably necessary to enable the
Investor to decide whether to enter into the transaction
contemplated by this Agreement. Neither this Agreement nor any other
certificate made or delivered in connection with this Agreement and
the transactions contemplated hereby contains any untrue statement
of a material fact or omits to state a material fact necessary not
to make the statements herein or therein misleading. 2.17
Registration Rights. The Company has not granted or agreed to grant
to any person or entity any rights (including piggyback registration
rights) to have any securities of the Company registered with the US
Securities and Exchange Commission ("SEC") or any other governmental
authority.
2.18 Tax Status. The Company has made or filed all federal, state
and foreign income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject and
has paid all taxes and other governmental assessments and charges
that are shown to be due on such returns, reports and declarations
or otherwise due, except those being contested in good faith, and
has set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which
such returns, reports or declarations apply. To the knowledge of the
Company, there are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers
of the Company know of no basis for any such claim. The Company has
not executed a waiver with respect to the statute of limitations
relating to the assessment or collection of any foreign, federal,
state or local tax. None of the Company's tax returns is presently
being audited by any taxing authority.
2.19 Employees.
(i) Employee Benefit Plans. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement
Income Security Act of 1974.
(ii) Labor Agreements and Actions. The Company is not bound by
or subject to (and none of its assets or properties is bound
by or subject to) any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and
no labor union has requested or to the knowledge of the
Company, has sought to represent any of the employees,
representatives or agents
8
<PAGE>
of the Company. There is no strike or other labor dispute
involving the Company pending, or to the knowledge of the
Company threatened, which could have a Material Adverse Effect
on the assets, properties, financial condition, operation or
business of the Company, nor is the Company aware of any labor
organization activity involving its employees. The employment
of each officer and employee of the Company is terminable at
the will of the Company upon the giving of notice and the
payment of specified amounts. Company has complied in all
material respects with all applicable state and federal equal
employment opportunity laws and with other laws related to
employment.
(iii) Confidential Information and Invention Assignment
Agreements. Each management and technology employee,
consultant and officer of the Company has executed an
agreement with the Company regarding confidentiality and
proprietary information. The Company is not aware that any of
its employees or consultants is in violation thereof, and the
Company will use its best efforts to prevent any such
violation.
2.20 Insurance. The Company maintains and keeps in force with good
and responsible insurance companies fire, public liability, property
damage and other insurance, of the kinds and in amounts as are usual
and customary in the type of business conducted by the Company.
2.21 Title to Property and Assets. The Company owns and has valid
title to its property and assets free and clear of all mortgages,
liens, loans and encumbrances, except such encumbrances and liens
which arise in the ordinary course of business and do not materially
impair the Company's ownership or use of such property or assets or
which would not, in the aggregate, have a Material Adverse Effect.
With respect to the property and assets it leases, the Company is in
compliance with such leases and, to the best of its knowledge, holds
a valid leasehold interest free of any liens, claims or
encumbrances. The Company does not own any real property.
2.22 Financial Statements. The Company shall deliver to Investor, on
or before January 10, 2000, the Company's annual financial
statements (balance sheet and statement of earnings, statement of
shareholders' equity and statement of cash flows) dated as of
December 31, 1998 and interim financial statements for the eleven
months of operations ended November 30, 1999 (the "Financial
Statements"), in each case, such Financial Statements shall be
prepared in accordance with United States generally accepted
accounting principles ("GAAP"), shall include all footnotes in
accordance with GAAP, and shall be audited by the Israeli office or
affiliate of a "Big 5" public accounting firm (i.e., Deloitte and
Touche, KPMG Peat Marwick, Price Waterhouse Coopers, Arthur Anderson
or Ernst and Young). The Financial Statements when delivered, will
fairly
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present the financial condition and operations of the Company as of
the dates, and for the periods, indicated therein, subject to normal
year-end adjustments. The Financial Statements described in
subsection 2.21 hereof and the audited balance sheet as of November
30, 1999, as adjusted by the auditor's subsequent event disclosure
footnote, shall not show liabilities due within 18 months from the
date thereof in an amount in excess of One Million Dollars
($1,000,000) over the amount of cash and cash equivalents shown on
such balance sheet.
2.23 Except as set forth in the Financial Statements, the Company
has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business and (ii)
obligations under contracts and commitments incurred in the ordinary
course of business and not required under GAAP to be reflected in
the Financial Statements, which, in both cases, individually or in
the aggregate, are not material to the financial condition or
operating results of the Company.
2.24 SEC Documents, Financial Statements. Since November 30, 1999,
the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the
SEC pursuant to the reporting requirements of the Exchange Act (all
of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and
documents (other than exhibits) incorporated by reference therein,
being hereinafter referred to herein as the "SEC Documents"). The
Company has delivered to the Investor, or the Investor has had
access to, true and complete copies of the SEC Documents, except for
such exhibits and incorporated documents. As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act or the Securities Act, as the case
may be, and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. As of their respective dates, the
consolidated financial statements of the Company included in the SEC
Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Except as disclosed in
the SEC Documents, since November 30, 1999, there has been no
material adverse change in the assets, liabilities, business,
properties, operations, financial condition, or operations of the
Company on a consolidated basis.
2.25 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has
directly or
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indirectly made any offers or sales in any security or solicited any
offers to buy any security under circumstances that would require
registration under the Securities Act of the issuance of the Shares
to the Investor. The issuance of the Shares to the Investor will not
be integrated with any other issuance of the Company's securities
(past, current or future) for purposes of the Securities Act.
2.26 Year 2000. The mission critical computer software operated by
the Company and each of its subsidiaries is currently capable of
providing, or is being adapted to provide uninterrupted millennium
functionality to record, store, process and present calendar dates
falling on or after January 1, 2000 in substantially the same manner
and with the same functionality as such mission critical software
records, stores, processes and processes and presents such calendar
dates falling on or before December 31, 1999. The costs of the
adaptations referred to in this clause will not have a Material
Adverse Effect.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor hereby represents and warrants that:
3.1 Authorization. The Investor has full power and authority to
enter into this Agreement. This Agreement constitutes a valid and
binding obligation of the Investor enforceable against the Investor
in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws
of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability
of specific performance, injunctive relief, or other equitable
remedies.
3.2 Purchase Entirely for Own Account. The Investor is acquiring the
Shares for investment for its own account, not as a nominee or
agent, and not with a view to, or for the resale or distribution of
any part thereof. The Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same.
The Investor further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third
person, with respect to any of the Shares. 3.3 Disclosure of
Information. The Investor has received all of the information which
it considers necessary or appropriate for deciding whether to
purchase the Shares. The Investor further represents that it has had
an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Shares.
The foregoing, however, does not limit or modify the representations
and warranties of the Company in Section 2 of this Agreement or the
right of the Investor to rely thereon.
3.4 Investment Experience. The Investor (i) fully understands that
an investment in the Company is highly speculative and that it may
lose its
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entire investment in the Shares purchased from the Company; (ii) is
experienced in evaluating and investing in development stage
companies such as the Company, (iii) is capable of evaluating the
merits and risks of its investment in the Shares; (iv) is able to
bear the economic risk of a loss of the entire amount of its
investment in the Shares; and (v) is prepared to hold the Shares for
an indefinite period of time. 3.5 Accredited Investor. The Investor
is an "accredited investor" within the meaning of Securities and
Exchange Commission Rule 501 of Regulation D, as presently in
effect.
3.6 Restricted Securities. The Investor acknowledges that, because
the Shares have not been registered under the Securities Act, the
Shares must be held indefinitely unless subsequently registered
under the Securities Act or an exemption from such registration is
available. The Investor is aware of the provisions of Rule 144
promulgated under the Securities Act which permits limited resale of
securities purchased in a private placement subject to the
satisfaction of certain conditions.. 3.7 Legends. The Investor
understands that until (a) the Shares may be sold by the Investor
under Rule 144(k) or (b) such time as the resale of the Shares have
been registered under the Securities Act as contemplated in Section
4.8 hereof, the certificates representing the Shares will bear a
restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the
certificates for such Shares):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO
AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENT OF THOSE
LAWS.
The legend set forth above will be removed and the Company will issue a
certificate without the legend to the holder of any certificate upon which
it is stamped, upon registration of the Shares, in accordance with the
terms of Section 4.8 hereof.
4. COVENANTS AND AGREEMENTS
4.1 Ordinary Course of Business and Notice of Adverse Changes. From
and after the date of this Agreement through the Closing, the
Company shall conduct its business in the ordinary course and
consistent
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in all material respects with past practice, except as may be
required or contemplated in this Agreement. The Company shall advise
the Investor promptly of any Material Adverse Effect, any breach of
the Company's representations or warranties, or any breach of a
covenant contained herein of which the Company has knowledge.
4.2 Access to Properties and Records. The Company shall afford to
the Investor and its respective accountants, counsel and
representatives, reasonable access upon notice to the Company and
upon agreed upon times during normal business hours throughout the
period prior to the Closing to all of the Company's properties,
books, contracts, commitments and written records and shall make
reasonably available its respective officers and employees to answer
fully and promptly questions put to them (so long as such questions
are not outside of the scope or purpose of this Section; provided
that such access shall not unreasonably interfere with the normal
business operations of the Company). Any such investigations shall
be specifically related to this Agreement and to the transactions
contemplated hereby.
4.3 Exclusive Negotiations. Except in the furtherance of the
transactions contemplated herein, prior to the Closing, the Company
shall not directly, and shall use its reasonable best efforts to
cause its respective directors, officers, employees, representatives
or agents (including, without limitation, any investment banker,
attorney or accountant retained by it or any of its affiliates) not
to, directly or indirectly, initiate, solicit or encourage any
inquiries or the making or implementation of any proposal or offer,
with respect to any merger, acquisition, consolidation, share
exchange, business combination or other transaction involving, or
which would result in the acquisition of a majority of the
outstanding equity securities or substantially all of the assets of
the Company (any such proposal or offer being hereinafter referred
to as an "Acquisition Proposal"), or engage in any negotiations
concerning, or provide any confidential information or data to, any
person or entity relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition
Proposal. The Company shall immediately cease and cause to be
terminated any existing activities or negotiations with any parties
conducted heretofore with respect to any Acquisition Proposal, and
it shall take the necessary steps to inform any such parties of the
obligations undertaken in this Section. The Company shall notify the
Buyer immediately if any such inquiries or proposals are received
by, any such information is requested from, or any such negotiations
are sought to be initiated or continued with, the Company.
4.4 Right of First Refusal. If, during the period from the Closing
through December 31, 2009 (and so long as the Alliance Agreement is
in effect), the Company (or any subsidiary or affiliate) proposes
either to sell,
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transfer or assign, directly or indirectly, securities in the
Company or any subsidiary or affiliate thereof equal to, or
convertible into, a majority of the outstanding Common Stock of the
Company (a "Substantial Equity Interest"), the Investor shall have a
first right of refusal to purchase such Substantial Equity Interest
proposed to be sold, transferred or assigned, for a price equivalent
to the bona fide sale or transfer price offered for such Substantial
Equity Interest and otherwise in accordance with the terms and
conditions of such offer. The right of first refusal granted to the
Investor is intended to apply to any sale, transfer or assignment,
directly or indirectly, to any nominee or straw-men, corporation or
other entity, including the sale of stock or an interest in a
partnership, limited-liability corporation, trust or other entity
which holds substantially all of the assets of the Company or any of
its subsidiaries or affiliates, if the intent of any such sale,
transfer or assignment to such person or entity is to avoid the
Investor's right of first refusal contained in this Section. 4.5
Preemptive Right of Investor.
(i) The Company hereby grants to the Investor the preemptive
right to purchase its Pro Rata Share (defined below) of any
New Securities (defined below) that the Company intends to
offer for sale and issuance at the time and on the terms set
forth herein (the "Preemptive Right").
(ii) Definitions:
(1) "New Securities" shall mean (A) any Common Stock of
the Company and (B) those rights, options or warrants to
purchase any such Common Stock (collectively referred to
as "Options"), and those securities that are convertible
into or exchangeable for any such Common Stock
(collectively referred to as "Convertible Securities"),
if the gross proceeds received or receivable by the
Company as consideration for the issue of such Common
Stocks, Options or Convertible Securities, plus the
minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without
regard to any provision contained therein designated to
protect against dilution) payable to the Company upon
the exercise of such Options or the conversion or
exchange of such Convertible Securities, equals or
exceeds One Million Five Hundred Thousand Dollars
($1,500,000); provided however, that "New Securities"
does not include (i) any capital stock or other
securities offered or issued to the public pursuant to a
registration statement filed under the Securities Act;
(ii) any capital stock or other securities offered or
issued in connection with any acquisition of
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another corporation or entity by the Company by merger
or purchase of all, or substantially all, of the assets
of such corporation or entity, share exchange,
reorganization or the like; (iii) any stock options
granted, subsequent to the Effective Date, to the
Company's existing or future directors, employees or
consultants not in excess of 1,350,000 shares,
representing approximately eight point two percent
(8.2%) of the Company's 16,458,114 aggregate issued and
outstanding shares of common stock post- Closing (on a
fully-diluted basis) by the Company; (iv) any capital
stock or other securities (or related options or
warrants) offered or issued to directors, officers or
employees of, or consultants to, the Company pursuant to
an agreement or an option or purchase plan program, or
any other stock incentive plan or program approved by
the Board of Directors of the Company; or (v) any
capital stock or other securities issued in connection
with any stock split, stock dividend, recapitalization
or the like by the Company.
(2) "Ownership Ratio" shall mean the ratio of shares of
Common Stock of the Company held by the Investor on the
day immediately preceding the date of the notice
described in subsection (c) below to the total number of
shares of Common Stock of the Company then outstanding.
(3) "Pro Rata Share" for purposes of the Preemptive
Right, shall mean all New Securities which the Company
intends to offer for sale multiplied by the Investor's
Ownership Ratio.
(iii) If at any time from the Closing through December 31,
2009, the Company plans or otherwise intends to undertake an
issuance of New Securities, the Company shall, so long as the
Alliance Agreement is in effect, give the Investor written
notice describing the type of New Securities, the price, and
the general terms upon which the Company plans or otherwise
intends to issue the same. The Investor shall have fifteen
(15) days from the date of delivery of any such notice to
agree to purchase all or a portion of its Pro Rata Share of
such New Securities for the price and upon the general terms
specified in the notice by giving written notice to the
Company at or before the end of such fifteen (15) days. If the
Investor either fails to so notify the Company or indicates
that it will not purchase its Pro Rata Share, the Company
shall thereafter be free to offer, sell and issue the New
Securities, including any such Pro Rata Share not purchased by
the Investor, to any third
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party so long as such sale is at a price and is upon general
terms no more favorable than described in the Company's
notice.
4.6 Certain Employment Matters. Effective as of the date of the
Closing, there are no employment agreements to which the Company is
a party other than those set out in the tabled attached as Schedule
4.6 hereto.
4.7 Board Observer. The Company hereby covenants and agrees with
Investor that, as long as the Alliance Agreement (defined below)
remains in effect, the Investor shall have the right to designate a
person (an "Observer") to be present at all meetings of the Board of
Directors of the Company and all committees thereof. The Company
will give such Observer reasonable prior notice (it being agreed
that the same prior notice given to the Board of Directors shall be
deemed reasonable prior notice) in any manner permitted in the
Company's By-laws for notices to directors of the time and place of
any proposed meeting of the Board of Directors, such notice in all
cases to include true and complete copies of all documents furnished
to any director in connection with such meeting. Such Observer will
be entitled to be present in person as an observer at any such
meeting or, if a meeting is held by telephone conference, to
participate therein for the purpose of listening thereto.
4.8 Registration of Shares. The Company covenants and agrees that it
shall promptly after the Closing prepare and file, at its cost and
expense, a registration statement on Form S-1 (or such other
appropriate form) covering the Shares (the "Registration Statement")
and shall use its best efforts to cause such registration statement
to be declared effective within 90 days following the Closing. The
Company further covenants and agrees to maintain the Registration
Statement Effective for one year following the effective date of the
Registration Statement, provided, that, 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 Shares, or engage
in any other transaction involving or relating to the Shares, 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 such right to
the Investor during the period the Registration Statement is
required to be in effect for more than 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. As used herein,
"Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for
disclosure in a
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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. In the event that the
Registration Statement is not declared effective within 90 days
following Closing, then the Company shall issue to the Investor, in
respect of each full calendar week (beginning on Monday) following
such 90th day and continuing until such time as the Registration
Statement shall have been declared effective, such number of shares
of Common Stock as shall be equal to one and one quarter percent (1
1/4%) of the number of Shares issued hereunder (the "Additional
Shares"), provided, that, notwithstanding anything to the contrary
contained in the foregoing, the Company shall have no obligation to
issue any Additional Shares in excess of such number of Additional
Shares as shall be equal to, in the aggregate, 10% of the number of
Shares issued hereunder. Reporting Status; Eligibility to Use Form
S-1. The Company's Common Stock is registered under Section 12 of
the Exchange Act. The Company will file with the SEC a Current
Report on Form 8-K disclosing this Agreement and the transactions
contemplated hereby within 10 business days after the Closing.
Throughout the one year registration period (referred to in Section
4.8 hereof), the Company shall to file all reports, schedules,
forms, statements and other documents required to be filed by it
timely with the SEC under the reporting requirements of the Exchange
Act, and the Company will not terminate its status as an issuer
required to file reports under the Exchange Act even if the Exchange
Act or the rules and regulations thereunder would permit such
termination. The Company currently meets, and will take all
reasonably necessary action to continue to meet, the "registrant
eligibility" requirements set forth in the general instructions to
Form S-1.
5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING.
The obligations of the Investor under subsection 1.1 of this Agreement are
subject to the fulfillment, or written waiver by the Investor, on or
before the Closing of each of the following conditions:
5.1 Execution of Agreement. The Company will have executed and
delivered this Agreement to the Investor.
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5.2 Shares Certificate. The Company will have delivered to the
Investors duly executed certificates representing the Shares in the
amounts specified in Section 1.1 hereof.
5.3 Representatives, Warranties, Covenants. The representations and
warranties of the Company must be true and correct in all material
respects as of the Closing as though made at that time (except for
representations and warranties that speak as of a specific date,
which representations and warranties must be true and correct as of
such date) and the Company must have performed and complied in all
material respects with the covenants and conditions required by this
Agreement to be performed or complied with by the Company at or
prior to the Closing. The Investor must have received a certificate
or certificates dated as of the Closing and executed by the Chief
Executive Officer or the Chief Financial Officer of the Company
certifying as to the matters contained in this Section 5.3 and as to
such other matters as may be reasonably requested by such Investor,
including, but not limited to, the Company's Certificate of
Incorporation, as amended, By-laws, as amended, Board of Directors'
resolutions relating to the transactions contemplated hereby and the
incumbency and signatures of each of the officers of the Company who
may execute on behalf of the Company any document delivered at the
Closing.
5.4 Litigation. No litigation, statute, rule, regulation, executive
order, decree, ruling or injunction will have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority
of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement.
5.5 Stock Listing. Trading and listing of the Company's Common Stock
on OTC Electronic Bulletin Board must not have been suspended. 5.6
Opinion. The Investor will have received an opinion of the Company's
general counsel, dated as of the Closing, in form, scope and
substance substantially in the form attached hereto as Schedule 5.6.
5.7 Alliance Agreement. Prior to or simultaneous with the Closing,
the Company and Investor shall have entered into the Alliance
Agreement, substantially in the form of Schedule 5.7 hereto.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT
CLOSING.
The obligations of the Company to the Investor under this Agreement are
subject to the fulfillment on or before the Closing of each of the
following conditions:
6.1 Execution of Agreement. The Investor will have executed and
delivered this Agreement to the Company.
6.2 Purchase Price. The Investor will have delivered the Purchase
Price for the Shares to the Company in accordance with this
Agreement.
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6.3 Representations, Warranties, Covenants. The representations and
warranties of the Investor must be true and correct in all material
respects as of the Closing as though made at that time (except for
representations and warranties that speak as of a specific date,
which representations and warranties must be correct as of such
date), and the Investor will have performed and complied in all
material respects with the covenants and conditions required by this
Agreement to be performed or complied with by the Investor at or
prior to the Closing. The Company must have received a certificate
or certificates dated as of the Closing and executed by a duly
authorized officer of the Investor certifying as to the matters
contained in this Section 6.3.
6.4 Legal Impediment. No statute, rule, regulation, executive order,
decree, ruling or injunction will have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority
of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement. 6.5 Alliance Agreement. Prior to or simultaneous with the
Closing, the Company and Investor shall have entered into the
Alliance Agreement, substantially in the form of Schedule 5.7
hereto.
7. DEFINITIONS.
7.1 "Alliance Agreement" has the meaning set forth in Section 5.7.
7.2 "Closing" means the closing of the purchase and sale of the
Shares under this Agreement.
7.3 "Common Stock" means the common stock, $0.001 par value per
share, of the Company.
7.4 "Company" means TTR Technologies, Inc.
7.5 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
7.6 "Investor" means Macrovision Corporation
7.7 "Material Adverse Effect" means a material adverse effect on (a)
the business, operations, assets or financial condition of the
Company on a consolidated basis or (b) the ability of the Company to
perform its obligations pursuant to the transactions contemplated by
this Agreement or under the agreements or instruments to be entered
into or filed in connection herewith.
7.8 "Material Agreement" has the meaning set forth in Section 2.7.
7.9 "Regulation D" means Regulation D as promulgated under by the
SEC under the Securities Act.
7.10 "Rule 144" and "Rule 144(k)" mean Rule 144 and Rule 144(k),
respectively, promulgated under the Securities Act, or any successor
rule.
7.11 "SEC" means the United States Securities and Exchange
Commission.
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7.12 "SEC Documents" has the meaning set forth in Section 2.23.
7.13 "Shares" means the 1,880,937 shares of Common Stock to be sold
to Investor pursuant to this Agreement, as such number may be
adjusted pursuant to the provisions of Section 4.8 hereof.
7.14 "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder, or any similar successor
statute.
8. MISCELLANEOUS.
8.1 Survival of Warranties. The warranties, representations and
covenants of the Company and the Investor contained in or made
pursuant to this Agreement shall survive the execution and delivery
of this Agreement and the Closing and shall in no way be affected by
any investigation of the subject matter thereof made by or on behalf
of the Investor of the Company.
8.2 Successor and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the
parties (including transferees of any Shares). Nothing in this
Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or
by reason of this Agreement, except as expressly provided in this
Agreement.
8.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applicable to contracts
to be performed entirely within that state. 8.4 Counterparts. This
Agreement may be executed in two or more counterparts, each of which
shall be deemed an original by the party executing the same, but all
of which together shall constitute one and the same instrument.
8.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience and are not to be considered in
construing or interpreting this Agreement.
8.6 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been
given or made if in writing and (i) delivered personally, (ii)
mailed by registered or certified mail (postage prepaid, return
receipt requested) or (iii) sent by telecopier, with the written
notice sent by mail as set forth in (ii) above, to the parties as
follows:
(i) if to Company to:
TTR Technologies, Inc., c/o TTR Technologies Ltd.
2 Hanagar Street
PO Box 2295
Kfar-Saba 44425
Israel
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Attention: General Counsel
Telecopier No.: 011-972-9-766-2394
with a copy to:
Aboudi & Brounstein
136 Rothschild Blvd.
Tel Aviv 65272
Israel
Telecopier No. 011-972-3-685-1138
(ii) if to Investor to:
Macrovision Corporation
1341 Orleans Drive
Sunnyvale, CA 94089
Attention: Chief Financial Officer
Telecopier No.: (408) 743-8610
with a copy to:
Manatt, Phelps & Phillips, LLP
3030 Hansen Way
Palo Alto, CA 94304
Attention: David Herbst, Esq.
Telecopier No.: (650) 213-0260
or at such other addresses as shall be furnished by the parties by like notice,
and such notice or communication shall be deemed to have been given or made as
of the date so delivered, mailed or sent.
8.7 Finder's Fee. Each party represents that it neither is nor will
be obligated for any finders' fee or commission in connection with
this transaction. The Investor agrees to indemnify and to hold
harmless the Company from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability)
for which the Investor or any of its officers, partners, employees,
or representatives is responsible. The Company agrees to indemnify
and hold harmless the Investor from any liability for any commission
or compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or
representatives is responsible.
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8.8 Expenses. Irrespective of whether the Closing is effected, the
Company and the Investor shall each pay their own costs and expenses
that each incurs with respect to the negotiation, execution,
delivery and performance of this Agreement. If any action at law or
in equity is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
8.9 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of
the Company and the Investor.
8.10 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall
be excluded from this Agreement and the balance of the Agreement
shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.
8.11 Entire Agreement. This Agreement, together with the Alliance
Agreement, and all schedules and exhibits attached thereto,
constitute the entire agreement among the parties and no party shall
be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set
forth herein or therein. All other prior agreements, understandings
and representations, both oral and written, between the parties with
respect to the subject matter hereof are superseded and of no
effect. This Agreement may be executed in counterparts and by the
exchange of facsimile signed copies.
IN WITNESS WHEREOF, the parties have executed this Stock Purchase
Agreement.
TTR TECHNOLOGIES, INC.
BY: /s/ Marc D. Tokayer
----------------------------------
Name: Marc D. Tokayer
Title: Chairman and CEO
MACROVISION CORPORATION
BY: /s/ Ian Halifax
----------------------------------
Name: Ian Halifax
Title: CFO
22
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 March 1, 2000, on the Company's consolidated balance sheets as of December
31, 1999 and 1998 and the related consolidated statements of operations,
comprehensive loss, shareholders' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1999 and to the references to
our firm under the heading "Experts" in Amendment No. 1 to the Company's
Registration Statement on Form S-1 and related prospectus to be filed in May,
2000.
Brightman Almagor & Co.
Certified Public Accountants (Israel)
A member of Deloitte Touche Tohmatsu
Tel Aviv, Israel
May 1, 2000
