SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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TTR TECHNOLOGIES, INC.
Notice of Annual Meeting of Stockholders
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NOTICE IS HEREBY GIVEN that the 2000 annual meeting (the "Annual Meeting")
of stockholders of TTR TECHNOLOGIES, INC. (the "Company") will be held in New
York City, New York, at 10 A.M., on July 11, 2000, at the offices of Swidler
Berlin Shereff Friedman, LLP 405 Lexington Avenue (the Chrysler Building), New
York, New York, 10174, Conference Room 12H, for the following purposes:
(i) to elect four directors of the Company to hold office until the next
annual meeting of the stockholders and until their respective successors shall
have been duly elected and qualified;
(ii) to amend the Certificate of Incorporation of the Company to increase
the number of shares of common stock, par value $.001 per share (the "Common
Stock"), that the Company is authorized to issue from time to time from 25
million to 50 million shares;
(iii) to adopt the Company's 2000 Equity Incentive Plan;
(iv) to ratify the appointment of Brightman Almagor & Co., a member of
Deloitte Touche Tohmatsu, as independent public accountants of the Company for
the year ending December 31, 2000; and
(v) to transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on May 30, 2000, as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Annual Meeting or any adjournment thereof.
If you do not expect to be personally present at the Annual Meeting but
wish your stock to be voted for the business to be transacted thereat, the Board
of Directors requests that you complete, sign and date the enclosed proxy and
promptly return it by mail in the postage paid envelope provided.
By Order of the Board of Directors
Marc D. Tokayer
Chairman of the Board
June 14, 2000
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE
ENVELOPE PROVIDED. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE>
TTR TECHNOLOGIES, INC.
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PROXY STATEMENT
For the Annual Meeting of Stockholders
to be held on July 11, 2000
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Introduction
This Proxy Statement is sent to stockholders of TTR Technologies, Inc., a
Delaware corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company for use at the 2000 annual
meeting (the "Annual Meeting") of Stockholders of the Company to be held at the
offices of Swidler Berlin Shereff Friedman, LLP, 405 Lexington Avenue (the
Chrysler Building), New York, New York, 10174, Conference Room 12H, on Tuesday,
July 11, 2000, at 10:00 a.m., and any adjournment(s) thereof. The purposes of
the Annual Meeting are:
(i) to elect four directors of the Company to hold office until the next
annual meeting of the stockholders and until their respective successors shall
have been duly elected and qualified;
(ii) to amend the Certificate of Incorporation of the Company to increase
the number of shares of common stock, par value $.001 per share (the "Common
Stock"), that the Company is authorized to issue from time to time from 25
million to 50 million shares;
(iii) to adopt the Company's 2000 Equity Incentive Plan;
(iv) to ratify the appointment of Brightman Almagor & Co., a member of
Deloitte Touche Tohmatsu, as independent public accountants of the Company for
the year ending December 31, 2000; and
(v) to transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.
If proxy cards in the accompanying form are properly executed and
returned, the shares of Common Stock represented thereby will be voted as
instructed on the proxy. If no instructions are given, such shares will be voted
(i) for the election as directors of the nominees of the Board of Directors
named below; (ii) for the proposal to amend the Certificate of Incorporation of
the Company; (iii) for the adoption of the Company's 2000 Equity Incentive Plan;
(iv) for the proposal to ratify the appointment of Brightman Almagor & Co., a
member of Deloitte Touche Tohmatsu, as independent public accountants of the
Company for the year ending December 31, 2000; and (v) in the discretion of the
Proxies named in the proxy card on any other proposals to properly come before
the Annual Meeting or any adjournment thereof.
Any stockholder returning the accompanying proxy may revoke such proxy at
any time prior to its exercise by filing with the Secretary of the Company a
duly executed proxy bearing a later date or a written instrument revoking the
proxy or by personally appearing at the Annual Meeting. This Proxy Statement is
first being mailed to stockholders on or about June 14, 2000.
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VOTING RIGHTS
All voting rights are vested exclusively in the holders of the Common
Stock. Only holders of Common Stock of record at the close of business on May
30, 2000, will be entitled to receive notice of and to vote at the Annual
Meeting. As of May 30, 2000 the Company had outstanding a total of 16,321,439
shares of Common Stock. Each holder of Common Stock is entitled to one vote for
each share held.
The holders of a majority of the issued and outstanding Common Stock,
present in person or by proxy, will constitute a quorum for the transaction of
business at the Annual Meeting or any adjournment thereof. Abstentions and
broker non-votes are counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. Assuming a quorum is present,
the affirmative vote of a plurality of the shares present in person or by proxy
is required for approval of Proposal No. 1 (Election of Directors); the
affirmative vote of a majority of the shares present in person or by proxy is
required for approval of Proposal No. 3 (Adoption of 2000 Incentive Stock Option
Plan) and Proposal No. 4 (Ratification of Independent Public Accountants); and
the affirmative vote of a majority of the shares issued and outstanding is
required for approval of Proposal No. 2 (Amendment of Certificate of
Incorporation). Abstentions will have no effect on Proposal No. 1 and will be
counted as votes against each of Proposals No. 2, 3, and 4. Broker non-votes
will have no effect on Proposals No. 1, 3 and 4 and will be counted as votes
against Proposal No. 2.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL HOLDERS
The following table sets forth certain information, as of May 30, 2000,
concerning the ownership of the Common Stock by (a) each person who, to the best
of the Company's knowledge, beneficially owned on that date more than 5% of the
outstanding Common Stock, (b) each of the Company's directors, nominees for
directors, Named Executive Officers (as defined below) and significant employees
and (c) all current directors and executive officers of the Company as a group.
Number of Shares Percent of
Name of Beneficial Owner (1) Beneficially Owned (2) Common Stock (2)
---------------------------- ---------------------- ----------------
Macrovision Corporation (3) ............... 1,880,937 11.5
Wall & Broad Equities, Inc ................. 1,000,000(4) 5.9
Dimensional Partners Ltd. .................. 1,280,000(5) 7.6
Joseph D. Samberg .......................... 1,600,000(6) 9.4
Machtec Limited (7) ........................ 1,202,000 7.4
Marc D. Tokayer ............................ 766,547(8) 4.6
Baruch Sollish ............................. 195,000(9) 1.2
Emanuel Kronitz ............................ 194,507(10) 1.2
Michael Fine ............................... 0 *
Michael Braunold ........................... 0 *
All directors and executive officers
as a group (5 persons) (11) ................ 1,156,054 6.9
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* Indicates less than 1%.
(1) Unless otherwise indicated, the address of each person listed is c/o TTR
Technologies Ltd., 2 Hanagar Street, Kfar Saba, Israel.
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(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC") and generally includes
voting or investment power with respect to securities. In accordance with
SEC rules, shares of Common Stock issuable upon the exercise of options or
warrants which are currently exercisable or which become exercisable
within 60 days of the Record Date are deemed to be beneficially owned by,
and outstanding with respect to, the holder of such option or warrant.
Except as indicated by footnote, and subject to community property laws
where applicable, to the knowledge of the Company, each person listed is
believed to have sole voting and investment power with respect to all
shares of Common Stock owned by such person.
(3) The address of such person is 1341 Orleans Drive, Sunnyvale, California
94089.
(4) Includes 503,202 shares of Common Stock issuable upon exercise of
warrants. Although Wall & Broad Equities, Inc. ("W&B") may be deemed to be
the beneficial owner of 1,000,000 shares of Common Stock, the terms of the
warrants held by W&B provide that W&B cannot exercise those warrants to
the extent that such exercise would result in W&B and its affiliates
beneficially owning more than 4.99% of the outstanding Common Stock. The
actual number of shares of Common Stock issuable to W&B upon the exercise
of its 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 the Company cannot predict at this time. The most significant
of these factors is the future market price of the Common Stock. The
address of the principal business office of W&B is 4424 16th Ave.,
Brooklyn, New York 11204.
(5) Includes 360,000 shares of Common Stock 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. Dimensional Partners, Ltd. ("Dimensional II") is a Cayman
Islands company with a principal business office at Corporate Center, West
Bay Road, P.O. Box 31106 SMB, Grand Cayman, Cayman Islands. JDS Capital
Management, Inc., a Delaware corporation ("JDSCM"), is the investment
manager and subadvisor of Dimensional II. JDSCM and its President, Joseph
D. Samberg ("Mr. Samberg"), have shared voting and dispositive power over
the shares of Common Stock and warrants held by Dimensional II and may
each be deemed a beneficial owner of those shares and warrants. The
address of the principal business office of both JDSCM and Mr. Samberg is
780 Third Avenue, 45th Floor, New York, New York 10017.
(6) Includes (i) 90,000 shares of Common Stock issuable on upon the exercise
of warrants held in the name of Dimensional Partners, L.P., a Delaware
limited partnership ("Dimensional I"), and (ii) the shares of Common Stock
beneficially owned by Dimensional II. Mr. Samberg is the managing member
of JDS Asset Management, LLC, a Delaware limited liability company
("JDSAM") and the general partner of Dimensional I. As such, Mr. Samberg
has shared voting and dispositive power over the shares of Common Stock
and warrants held by Dimensional I and may be deemed a beneficial owner of
those shares and warrants. The address of the principal business office of
Mr. Samberg is 780 Third Avenue, 45th Floor, New York, New York 10017.
(7) The address of such person is 11 The Shrubberies, George Lane , South
Woodford, London.
(8) Includes (i) 173,000 shares of Common Stock issuable upon the exercise of
options issued under the Company's 1996 Employee Stock Option Plan and
(ii) 324,274 shares of Common Stock held by The Tokayer Family Trust (the
"Trust"). Mr. Tokayer's wife is the trustee of the Trust and Mr. Tokayer's
children are its income beneficiaries. Mr. Tokayer disclaims beneficial
ownership of all shares held by the Trust. 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.
(9) Includes 120,000 shares of Common Stock issuable upon the exercise of
options.
(10) Represents shares of Common Stock issuable upon the exercise of options.
(11) Includes 293,000 shares of Common Stock issuable upon the exercise of
options.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all compensation earned by the Company's
Chairman of the Board of Directors, CEO and President; the only other executive
officer of the Company whose total annual salaries and bonuses exceeded $100,000
for the year ended December 31, 1999 (the "Named Executive Officers"); and a
significant employee of the Company:
<TABLE>
<CAPTION>
Annual Compensation Awards
-------------------------------------- -----------------------
Restricted Securities
Name and Other Annual Stock Underlying
Principal Position Year Salary($) Bonus($) Compensation($) Awards($) Options (#)
------------------ ---- --------- -------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Marc D. Tokayer 1999 108,075 -- 27,676(1) -- --
Chairman, CEO and 1998 64,430 12,019 14,423(1) -- --
President 1997 73,850 7,647 26,307(1) -- --
Emanuel Kronitz(2) 1999 -- -- 7,158(1) -- 304,500
Chief Operating 1998 35,915 -- -- -- --
Officer 1997 -- -- -- -- --
Baruch Sollish
Vice-President- 1999 110,522 -- 21,886(1) -- 130,000
Research & 1998 91,678 42,105 13,927(1) -- --
Development 1997 99,931 50,000(3) 24,875(1) -- --
</TABLE>
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(1) Includes contributions to insurance premiums, car allowance and car
expenses.
(2) Mr. Kronitz's employment with the Company commenced on June 1, 1999.
(3) In consideration of Dr. Sollish's waiver of incentive bonus payments due
to him under his employment agreement based on the Company's revenues of
certain products, Dr. Sollish received in 1997 a one-time bonus payment of
$50,000.
Option Grants in 1999
The following table sets forth certain information concerning the
individual option grants during the year ended December 31, 1999, to each of the
Named Executive Officers:
<TABLE>
<CAPTION>
% of Total Options Exercise
Number of Granted to Price
Securities Underlying Employees in Fiscal
Name Options Granted (#) Year ($/sh) Expiration date
---- ------------------- ---- ------ ---------------
<S> <C> <C> <C> <C>
Marc Tokayer 0 -- -- --
Emanuel Kronitz 235,000 25.2% $0.01 6/09
Emanuel Kronitz 69,500 7.5% $0.01 11/09
Baruch Sollish 50,000 5.4% $0.01 2/09
Baruch Sollish 20,000 2.1% $0.01 11/09
Baruch Sollish 60,000 6.4% $2.56 11/09
</TABLE>
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<PAGE>
Aggregated Option Exercise Table
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Value Options at Fiscal Year At Fiscal Year End ($)
Acquired on Realized End (#) Exercisable/
Name Exercised (#) ($) Exercisable/Unexercisable Unexercisable (1)
---- ------------- --- ------------------------- -----------------
<S> <C> <C> <C> <C>
Marc D. Tokayer -- -- -- --
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 an option 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 Incentive and Non-Qualified Stock Option Plan. We adopted our 1996
Incentive and Non-Qualified Stock Option Plan (the "1996 Option Plan") in order
to assist us in attracting, retaining and motivating qualified employees. The
1996 Option Plan provides for the grant to qualified employees (including
officers and directors) of options to purchase shares of Common Stock. A total
of 1,500,000 shares of 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 U.S.
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
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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 May 30, 2000, options to purchase 1,169,500 shares of Common Stock
were outstanding under the 1996 Option Plan and an additional 341,500 shares of
Common Stock were available for issuance. However, upon (and subject to) the
adoption of the proposed 2000 Equity Incentive Plan (as described under Proposal
No. 3 below), the Company intends to discontinue the use of the 1996 Option Plan
and to use the proposed 2000 Equity Incentive Plan for any option awards that
may be made to its employees.
Non-Executive Directors Stock Option Plan. The Company adopted its 1998
Non-Executive Director Stock Option Plan (the "Directors' Plan") in July 1998 to
provide an incentive for attracting and retaining the service as members of the
Board of Directors of qualified individuals who are not otherwise employed by
the Company or any subsidiary.
The Directors' Plan is administered by the Board of Directors. The Company
has reserved 25,000 shares of Common Stock under the Directors' Plan for
issuance upon the exercise of options. Options are exercisable upon the date of
grant and expire five years from the date of grant. Options under the Directors'
Plan expire two months after the termination of a grantee's services as a
director. The exercise price of any option under the Directors' Plan will be the
fair market value of the Common Stock on the date of the grant of the option.
The number of options and prices at which they are exercisable are subject to
adjustment in the case of certain transactions such as mergers,
recapitalizations, stock splits or stock dividends. No options may be granted
under the Directors' Plan after July 2008.
As of May 30, 2000, options to purchase 10,000 shares of Common Stock were
outstanding under the Directors' Plan. There are currently available for
issuance under the Directors' Plan options to acquire an additional 15,000
shares of Common Stock.
Employment Agreements
The Company's Israeli subsidiary entered into an employment agreement in
August 1994, with Marc D. Tokayer, pursuant to which Mr. Tokayer is employed as
the subsidiary's 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 is also the Company's
Chairman of the Board, Chief Executive Officer and President. 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.
The Company entered into an employment agreement with Emanuel Kronitz as
of June 1, 1999, pursuant to which Mr. Kronitz is employed as the Company's
Chief Operating Officer. The agreement is for a term of one year and is
automatically renewable for additional one-year terms,
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unless terminated by either party upon 90 days prior notice. Mr. Kronitz is paid
a monthly salary of $5,000 plus benefits.
The Company's 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 the 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.
Significant Employees
Below is certain information relating to the significant employee of the
Company who is not also a member of the Board of Directors:
Emanuel Kronitz, age 40, has been the Chief Operating Officer of the
Company since June 1, 1999. From January through May 1999 he served as CEO of
Smart Vending Solutions Inc., 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 from Bar Ilan University, Tel Aviv in 1983 and an MBA from York
University in Toronto in 1988.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of November 24, 1999, the Company entered into an agreement with
Macrovision Corporation to jointly design, 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 the Company's
MusicGuard technology as well as related Macrovision technology. The Company
granted to Macrovision an exclusive world-wide royalty-bearing license to market
the copy protection technology that is being jointly developed. 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 Company is 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, the Company's share of the net revenues may be readjusted to
twenty-five percent (25%) of net revenues. The Company agreed to reimburse
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Macrovision for up to $1 million of its costs incurred in the twelve months
ending December 31, 2000 in co-developing and commercially launching the new
product.
As part of the agreement, the Company granted to Macrovision an exclusive
world-wide license to modify and market DiscGuard, the Company's 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 SafeDisc. For five years the Company is
entitled to 5% of Macrovision's net revenues, if any, collected by Macrovision
from the licensing of SafeDisc to customers located in the People's Republic of
China. Other than for these revenues, the Company does not anticipate that we
will receive any significant revenues as a result of the licensing of DiscGuard
to Macrovision.
Under the terms of the agreement, the Company also granted to Macrovision
first refusal rights, exercisable until December 31, 2009, with respect to any
music protection technology the Company develops which is not included in the
license to Macrovision and any Internet digital rights management technologies
the Company develops which are applicable to music, music video, video, software
or data publishing products or markets. These rights include rights of ownership
if the Company decides to sell the technology or worldwide exclusive marketing
or distribution rights if the Company decides to license the technology. The
Company's obligation is to negotiate a sale or license to Macrovision in good
faith should the Company receive a bona fide offer from a third party to
purchase or license the technology and should Macrovision notify the Company of
its interest in acquiring the technology.
On January 12, 2000 pursuant to a stock purchase agreement the Company
sold to Macrovision 1,880,937 shares of Common Stock for $4,000,000 and granted
to Macrovision rights of first refusal to purchase equity securities (including
securities convertible or exchangeable into Common Stock) the Company proposes
to sell to third parties if the amount of the securities to be sold would
constitute a majority of the outstanding Common Stock. Subject to some
exceptions, the Company 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 the Company offers in private transactions above a
certain amount. Macrovision waived its right of first refusal with respect to
the Company's 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. The Company has also granted Macrovision the right to designate an
observer to attend meetings of the Board of Directors.
In February 2000, the Company issued to Dimensional Partners Ltd.
("Dimensional") 720,000 shares of Common Stock and Class A Warrants to purchase
360,000 shares of Common Stock and undertook to issue, at the time of the
exercise of the Class A Warrants, Class B Warrants to purchase an additional
180,000 shares of Common Stock. The issuance to Dimensional was part of a
private placement of 1,800,000 shares of Common Stock and 900,000 Class A
Warrants for an aggregate purchase price of $10 million that was completed in
February 2000. The Class A Warrants are exercisable for a period of five years
at an exercise price of $8.84 per share and upon exercise, the Company will
issue Class B Warrants for an additional 450,000 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 May 1999, the Company issued to Wall & Broad Equities, Inc., a
consultant, warrants to purchase up to 1,300,000 shares of Common Stock at an
exercise price per share of $0.01. To date, 796,798 of these warrants have been
exercised.
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<PAGE>
In July 1999, the Company issued to Machtec Ltd., a consultant, warrants
to purchase up to 1,000,000 shares of Common Stock at an exercise price per
share of $0.01. These warrants became exercisable in November 1999. In March
2000, Machtec exercised these warrants in their entirety.
In January 2000, the Company issued to Mr. Tokayer, options under the 1996
Option Plan to purchase 347,000 shares of 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, the Company issued to Dr. Sollish options to purchase
50,000 shares of Common Stock. All of the options vested at the time they were
issued. In November 1999, the Company issued to Dr. Sollish options to purchase
80,000 shares of Common Stock under the 1996 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 three-year period with an exercise price
per share of $2.56. In January 2000, the Company issued to Dr. Sollish
additional options to purchase 70,000 shares of Common Stock under our 1996
Option Plan, of which 30,000 options were fully vested upon grant at an exercise
price of $4.00 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 the Company and
Macrovision.
In June 1999, the Company granted options to purchase 235,000 shares of
Common Stock under the 1996 Option Plan to Emanuel Kronitz, the Company's Chief
Operating Officer, which options were to vest, subject to Mr. Kronitz's
continued employment with the Company, in 36 equal monthly installments and have
an exercise price of $.01 per share. On January 12, 2000, 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, the Company issued to Mr. Kronitz fully vested options to
purchase an additional 69,500 under the 1996 Option Plan at an exercise price of
$.01 per share.
In May 2000, the Company issued to each of Messrs. Fine and Braunold, its
non-employee directors, from the Directors' Plan, options to purchase up to
5,000 shares of Common Stock, at an exercise price per share equal to $4.00. The
options vest, in each case, over a two-year period.
Marc D. Tokayer, Chairman of the Board, The Tokayer Family Trust, Baruch
Sollish, director, and four other stockholders with an aggregate of 1,137,430
shares of Common Stock, entered into a voting arrangement dated August 10, 1996,
whereby they agreed to vote their respective shares to elect directors and in
support of positions favored by a majority of the shares held among them. This
arrangement was terminated in July 1999.
In November 1999, the Company issued to Gershon Tokayer, its sales manager
and the brother of Marc D. Tokayer, the Chairman of the Board, options to
purchase 249,500 shares of 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
three-year period at an exercise price of $2.56 per share.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires officers and directors of the Company and persons who
own more than ten percent of the Common Stock, to file initial statements of
beneficial ownership (Form 3), and statements of changes in beneficial ownership
(Forms 4 or 5), of Common Stock with the SEC. Officers, directors and greater
than ten-percent stockholders are required by SEC regulation to furnish the
Company with copies of all such forms they file.
With respect to the filing requirements under Section 16(a) of the
Exchange Act, the Company believes that for the year ended December 31, 1999:
(i) Dr. Sollish failed to timely file a Form 4 or 5 with respect to options
awarded to him, (ii) Emanuel Kronitz failed to file a Form 3 in connection with
his appointment as an officer and (iii) each of Mr. Tokayer, Dr. Sollish and Mr.
Kronitz failed to file a Form 4 with respect to the disposition (in the case of
Mr. Tokayer, by the Tokayer Family Trust) of shares of Common Stock.
PROPOSAL NO. 1
Election of Directors
The Board of Directors of the Company currently consists of four (4)
members. The four persons named below have been nominated by the Board of
Directors for election to hold office until the next annual meeting and until
their successors are elected and have been qualified.
It is the intention of the persons named in the accompanying proxy to vote
FOR the election of the four persons named in the table below as directors of
the Company, unless authority to do so is withheld. Proxies cannot be voted for
a greater number of persons than the nominees named. If events not now known or
anticipated make any of the nominees unwilling or unable to serve, the proxies
will be voted (in the discretion of the holders of such proxies) for other
nominees not named herein in lieu of those unwilling or unable to serve. The
Board of Directors is not aware of any circumstances likely to cause any nominee
to become unavailable for election.
The following table sets forth the name, age and position of each Director
nominee:
Name Age Position
---- --- --------
Marc D. Tokayer . . . . . . 43 Chairman of the Board, CEO,
President, Treasurer and Director
Baruch Sollish, Ph.D. . . . 54 Vice President-Research and Development,
Chief Technology Officer and Director
Michael Fine . . . . . . . 49 Director
Michael Braunold . . . . . 40 Director
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Marc D. Tokayer, has been Chairman of the Board of Directors, President,
and Treasurer of the Company since he founded the Company in July 1994 and has
been Chief Executive Officer of the Company since January 1999. He has served as
President and Chairman of the Board of Directors of the Company's Israeli
subsidiary since its inception in December 1994.
Baruch Sollish, Ph.D, has been a director of the Company since December
1994 and has served as Vice President-Research and Development and Secretary of
the Company 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.
Michael Fine has been a director of the Company since May 10, 2000. Since
November 1992, Mr. Fine has been President of Fine Sound Productions, an
independent music production firm. From April 1997 through May 1999, Mr. Fine
worked at Deutsche Grammophon GmbH, where he served as Vice President, Artists
and Repertoire, and was in charge of the music and recording program of one of
the world's oldest record labels, having been founded in 1898. From September
1989 through April 1997, he was Vice-President of KOCH International LP and
General Manager of KOCH International Classics. Koch International LP is a multi
national music and media technology company and one of the world's largest
independent distributors of recorded music. Mr. Fine is a Grammy Award winning
producer.
Michael Braunold has been a director of the Company since May 10, 2000.
Since March 2000, Mr. Braunold has been the Chief Executive Officer and Director
of PLT Solutions, Inc., a company engaged in providing solutions for rapid data
telecommunication utilizing electrical power-lines. Since March 1998, Mr.
Braunold also has been Chief Executive Officer and Chairman of the Board of SPO
Medical Equipment Ltd., an Israeli company that specializes in medical
technology related to pulse oximetry techniques. Prior to this assignment, Mr.
Braunold was Senior Director of Business Development at Scitex Corporation Ltd.,
a multinational corporation specializing in visual information communication. In
such capacity, Mr. Braunold played a strategic role in managing a team of
professionals assigned to M&A activities. During his 12-year tenure at Scitex,
he held various positions within the worldwide organization including a period
in the US as Vice President of a Scitex US subsidiary company specializing in
medical imaging. Mr. Braunold originates from the UK where he obtained a B.Sc.
in Management Sciences and a Master of Business Administration from Imperial
College Business School, London.
Certain Information Regarding the Board of Directors
No family relationships exist among the officers or directors of the
Company. All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Officers are elected by
the Board of Directors and serve at the discretion of the Board. The Board has
not authorized any audit, compensation or other committee. The Company
anticipates that Board will authorize and staff such committees following the
Annual Meeting.
Board members do not receive any cash compensation for serving on the
Board. Non-employee directors are entitled to receive stock options under the
Directors' Plan. As of June 1,
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2000, each of Messrs. Fine and Braunold has been issued options to purchase up
to 5,000 shares of Common Stock at an exercise price per share of $4.00. See
"Stock Option Plans."
During the course of 1999, the Board held four meetings. Each incumbent
director attended at least 75% of the meetings.
Board Recommendatation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF
ALL OF THE NOMINEES TO THE BOARD OF DIRECTORS.
PROPOSAL NO. 2
Amendment of the Certificate of Incorporation to Increase the Number of Shares
of Common Stock that the Company is Authorized to Issue
The Company's Certificate of Incorporation presently authorizes the
issuance by the Company of up to thirty million (30,000,000) shares of stock,
consisting of twenty-five million (25,000,000) shares of Common Stock and five
million (5,000,000) shares of preferred stock, par value $.001 per share
("Preferred Stock"). As of the Record Date there were 16,321,439 shares of
Common Stock issued and outstanding, and an additional 4,236,202 shares of
Common Stock reserved for issuance under the Company's stock option plans or
upon the exercise of warrants, leaving a balance of 4,492,359 authorized,
unissued and unreserved shares of Common Stock. No shares of Preferred Stock are
outstanding.
Because of the limited number of shares of Common Stock available to be
issued, the Board of Directors has unanimously approved, and voted to recommend
that the stockholders approve, the Certificate Amendment (in the form attached
hereto as Exhibit A) whereby the number of shares of Common Stock which the
Company would be authorized to issue would be increased to fifty million
(50,000,000) shares. If the Certificate Amendment is approved by the
stockholders at the Annual Meeting, the Company intends to file it with the
Secretary of State of the State of Delaware as soon as reasonably practicable
after such approval and it will become effective upon filing.
The additional shares of Common Stock, when issued, would have the same
rights and privileges as the shares of Common Stock now issued. There are no
pre-emptive rights relating to the Common Stock.
Although the Company does not presently have any plans, intentions,
agreements, understandings or arrangements regarding the issuance of the
proposed additional shares of Common Stock except the 2000 Equity Incentive Plan
discussed below, the Board of Directors believes that the complexity of modern
business financing and acquisition transactions requires greater flexibility in
the Company's capital structure than now exists. The Board of Directors believes
that an increase in the authorized Common Stock would provide the Company with
increased flexibility in the future to issue capital stock in connection with
public or private offerings, stock dividends, financing and acquisition
transactions, employee benefit plans and other proper corporate purposes.
Moreover, having such additional authorized shares of Common Stock available
will give the Company the ability to issue stock without the expense and delay
of a special meeting of stockholders, which delay might deprive the Company of
the flexibility the Board views as important in facilitating the effective use
of the Company's stock. Except as otherwise required by applicable law or stock
exchange rules, authorized but unissued shares of Common Stock may be issued at
such time, for such purpose and for such consideration as the
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Board of Directors may determine to be appropriate, without further
authorization by stockholders.
Any issuance of additional shares of Common Stock would increase the
number of outstanding shares of Common Stock and (unless such issuance was
pro-rata among existing stockholders) the percentage ownership of existing
stockholders would be diluted accordingly. The dilutive effect of such an
issuance could discourage a change in control of the Company by making it more
difficult or costly. The Company is not aware of anyone seeking to accumulate
Common Stock or obtain control of the Company, and has no present intention to
use the additional authorized shares to deter a change in control.
Board Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
PROPOSAL NO. 3
Approval of the 2000 Equity Incentive Plan
At the Annual Meeting, the stockholders will be asked to approve the
Company's proposed 2000 Equity Incentive Plan (the "2000 Incentive Plan") in the
form attached hereto as Exhibit B. The 2000 Incentive Plan was approved by the
Board of Directors on May 30, 2000. A total of 1,500,000 shares of Common Stock
have been reserved for issuance under the 2000 Incentive Plan.
The Board of Directors believes that equity based awards are an important
incentive for attracting, retaining and motivating employees and officers
through the opportunity of equity participation in the Company. The Board of
Directors further believes that such awards have been a key element in the
Company's growth. The adoption of the 2000 Incentive Plan is intended to enable
the Company to continue to have an adequate number of shares of Common Stock
available for the grant of stock options to attract new employees, as well as
retain current employees.
Currently, the Company has in effect the 1996 Option Plan, with a total of
1,500,000 shares of Common Stock reserved for issuance thereunder. As of May 30,
2000, options for 1,169,500 shares of Common Stock have been issued under the
1996 Option Plan. Upon and (subject to) the adoption of the proposed 2000
Incentive Plan, the Company intends to discontinue use of the 1996 Option Plan.
Although the Company cannot currently determine the number of options that
may be granted in the future to the executive officers of the Company, each of
the executive officers of the Company has an interest in the approval of the
2000 Incentive Plan in so far as they are eligible to participate in that plan.
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Summary of the Terms of the 2000 Incentive Plan
The 2000 Incentive Plan Administration
The 2000 Incentive Plan shall be administered by the Board of Directors of
the Company or, at the discretion of the Board, by a committee composed of at
least two members of the Board. Any such committee designated by the Board, and
the Board itself acting in its capacity as administrator of the 2000 Incentive
Plan, is referred to herein as the "Committee." The Committee is authorized,
among other things, to construe, interpret and implement the provisions of the
2000 Incentive Plan, to select the key employees to whom awards will be granted,
to determine the terms and conditions of such awards and to make all other
determinations deemed necessary or advisable for the administration of the 2000
Incentive Plan.
Shares Available
The aggregate number of shares of Common Stock available for issuance,
subject to adjustment as described below, under the 2000 Incentive Plan is
1,500,000. Such shares may be authorized and unissued shares or treasury shares.
The authorized and unissued shares under the 2000 Incentive Plan will represent
approximately 9.0% of the Company's outstanding Common Stock as of May 30, 2000.
If any shares of Common Stock subject to an award are forfeited or an award is
settled in cash or otherwise terminates for any reason whatsoever without an
actual distribution of shares, the shares subject to such award will again be
available for awards. If any Performance Units awarded under the 2000 Incentive
Plan are forfeited or canceled, the Performance Units will again be available
for awards. If the Committee determines that any stock dividend,
recapitalization, split, reorganization, merger, consolidation, combination,
repurchase, or other similar corporate transaction or event, affects the Common
Stock or the book value of the Company such that an adjustment is appropriate in
order to prevent dilution or enlargement of the rights of participants, then the
Committee shall adjust any or all of (i) the number and kind of shares of Common
Stock which may thereafter be issued in connection with awards, (ii) the number
and kind of shares of Common Stock issuable in respect of outstanding awards,
(iii) the aggregate number and kind of shares of Common Stock available, (iv)
the number of Performance Units which may thereafter be granted and the book
value of the Company with respect to outstanding Performance Units, and (v) the
exercise price, grant price, or purchase price relating to any award. If deemed
appropriate, the Committee may also provide for cash payments relating to
outstanding awards, provided, however, in each case that no adjustment shall be
made which would cause the plan to violate Section 422(b)(1) of the Internal
Revenue Code of 1986, as amended (the "Code") with respect to ISOs (defined
below) or would adversely affect the status of a Performance-Based Award
(defined below) as "performance based compensation" under Section 162(m) of the
Code. The Committee may also adjust performance conditions and other terms of
awards in response to unusual or nonrecurring events or to changes in applicable
laws, regulations, or accounting principles, except to the extent that such
adjustment would adversely affect the status of any outstanding
Performance-Based Awards as "performance-based compensation" under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
Eligibility
Persons eligible to participate in the 2000 Incentive Plan include all key
employees and consultants of the Company and its subsidiaries, as determined by
the Committee. While the specific individuals to whom awards will be made in the
future cannot be determined at this time,
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it is anticipated that currently approximately four key employees presently are
eligible for participation in the 2000 Incentive Plan.
Awards
The 2000 Incentive Plan is designed to give the Committee the maximum
flexibility in providing incentive compensation to key employees and
consultants. The 2000 Incentive Plan provides for the grant of incentive stock
options, nonqualified stock options, stock appreciation rights, restricted
stock, bonus stock, awards in lieu of cash obligations, other stock-based awards
and Performance Units. The 2000 Incentive Plan also permits cash payments either
as a separate award or as a supplement to a stock-based award, and for the
income and employment taxes imposed on a participant in respect of any award.
Stock Options and Stock Appreciation Rights
The Committee is authorized to grant stock options, including both
incentive stock options ("ISOs"), which can result in potentially favorable tax
treatment to the participant, and nonqualified stock options. The Committee can
also grant stock appreciation rights ("SARs") entitling the participant to
receive the excess of the fair market value of a share of Common Stock on the
date of exercise over the grant price of the SAR. The exercise price per share
of Common Stock subject to an option and the grant price of an SAR are
determined by the Committee, provided that the exercise price of an ISO or SAR
may not be less than the fair market value (110% of the fair market value in the
case of an ISO granted to a 10% shareholder) of the Common Stock on the date of
grant. However, the 2000 Incentive Plan also allows the Committee to grant an
option, an SAR or other award allowing the purchase of Common Stock at an
exercise price or grant price less than fair market value when it is granted in
substitution for some other award or retroactively in tandem with an outstanding
award. In those cases, the exercise or grant price may be the fair market value
at that date, at the date of the earlier award or at that date reduced by the
fair market value of the award required to be surrendered as a condition to the
receipt of the substitute award. The terms of each option or SAR, the times at
which each option or SAR will be exercisable, and provisions requiring
forfeiture of unexercised options or SARs or following termination of employment
will be fixed by the Committee. However, no ISO or SAR granted in tandem will
have a term exceeding ten years (or shorter period applicable under Section 422
of the Code). Options may be exercised by payment of the exercise price in cash
or in Common Stock, outstanding awards or other property (including notes or
obligations to make payment on a deferred basis, or through "cashless
exercises") having a fair market value equal to the exercise price, as the
Committee may determine from time to time. The Committee also determines the
methods of exercise and settlement and certain other terms of the SARs.
Restricted Stock
The 2000 Incentive Plan also authorizes the Committee to grant restricted
stock. Restricted stock is an award of shares of Common Stock which may not be
disposed of by participants and which may be forfeited in the event of certain
terminations of employment or certain other events prior to the end of a
restriction period established by the Committee. Such an award entitles the
participant to all of the rights of a stockholder of the Company, including the
right to vote the shares and the right to receive any dividends thereon, unless
otherwise determined by the Committee.
Other Stock-based Awards, Bonus Stock and Awards in Lieu of Cash Obligations
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In order to enable the Company to respond to business and economic
developments and trends in executive compensation practices, the 2000 Incentive
Plan authorizes the Committee to grant awards that are denominated or payable
in, or valued in whole or in part by reference to the value of, Common Stock.
The Committee will determine the terms and conditions of such awards, including
consideration to be paid to exercise awards in the nature of purchase rights,
the period during which awards will be outstanding and forfeiture conditions and
restrictions on awards. In addition, the Committee is authorized to grant shares
as a bonus, free of restrictions, or to grant shares or other awards in lieu of
Company obligations to pay cash or deliver other property under other plans or
compensatory arrangements, subject to such terms as the Committee may specify.
Cash Payments
The Committee may grant the right to receive cash payments whether as a
separate award or as a supplement to any stock-based awards. Also, to encourage
participants to retain awards payable in stock by providing a source of cash
sufficient to pay the income and employment taxes imposed as a result of a
payment pursuant to, or the exercise or vesting of, any award, the 2000
Incentive Plan authorizes the Committee to grant a Tax Bonus in respect of any
award.
Performance Units
The Committee is also authorized to grant Performance Units. A Performance
Unit is a right to receive a payment in cash equal to the increase in the book
value of the Company if specified performance goals during a specified time
period are met. The Committee has the discretion to establish the performance
goals and the performance periods relating to each Performance Unit. A
performance goal is a goal expressed in terms of growth in book value, earnings
per share, return on equity or any other financial or other measurement selected
by the Committee, in its discretion, and may relate to the operations of the
Company as a whole or any subsidiary, division or department, and the
performance periods may be of such length as the Committee may select. Neither
the performance goals nor the performance periods need be identical for all
Performance Units awarded at any time or from time to time.
Performance-based Awards
The Committee may (but is not required to) grant awards pursuant to the
2000 Incentive Plan to a participant who, in the year of grant, may be among the
Company's Chief Executive Officer and the four other most highly compensated
executive officers ("Covered Employees"), which are intended to qualify as a
Performance-Based Award. If the Committee grants an award as a Performance-Based
Award, the right to receive payment of such award, other than stock options and
SARs granted at not less than fair market value on the date of grant, will be
conditional upon the achievement of performance goals established by the
Committee in writing at the time such Performance-Based Award is granted. Such
performance goals may vary from participant to participant and Performance-Based
Award to Performance-Based Award. The goals will be based upon (i) the
attainment of specific amounts of, or increases in, one or more of the
following, any of which may be measured either in absolute terms or as compared
to another company or companies: revenues, earnings, cash flow, net worth, book
value, stockholder's equity, financial return ratios, market performance or
total stockholder return, and/or (ii) the completion of certain business or
capital transactions. Before any Performance-Based Award is paid, the Committee
will certify in writing that the performance goals applicable to the
Performance-Based Award were in fact satisfied. The maximum amount which may be
granted as
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Performance-Based Awards to any participant in any calendar year shall not
exceed (i) stock-based awards for 500,000 shares of Common Stock (whether
payable in cash or stock), subject to adjustment as provided in the 2000
Incentive Plan, (ii) 500,000 Performance Units, (iii) a Tax Bonus payable with
respect to the stock-based awards and Performance Units and (iv) cash payments
(other than Tax Bonuses) of $1,000,000. The Committee has the discretion to
grant an award to a participant who may be a Covered Employee which is not a
Performance-Based Award.
Other Terms of Awards
In the discretion of the Committee, awards may be settled in cash, Common
Stock, other awards or other property. The Committee may require or permit
participants to defer the distribution of all or part of an award in accordance
with such terms and conditions as the Committee may establish, including payment
of reasonable interest on any amounts deferred under the 2000 Incentive Plan.
Awards granted under the 2000 Incentive Plan may not be pledged or otherwise
encumbered. Generally, unless the Committee determines otherwise, awards are not
transferable except by will or by the laws of descent and distribution, or
(except in the case of an ISO) otherwise if permitted under Rule 16b-3 of the
Exchange Act and by the Committee. The 2000 Incentive Plan grants the Committee
broad discretion in the operation and administration of the 2000 Incentive Plan.
This discretion includes the authority to make adjustments in the terms and
conditions of, and the criteria included in performance conditions related to,
any awards in recognition of unusual or nonrecurring events affecting the
Company or in response to changes in applicable laws, regulations or accounting
principles. However, no such adjustment may adversely affect the status of any
outstanding award as a Performance-Based Award. The Committee can waive any
condition applicable to any award, and may adjust any performance condition
specified in connection with any award, if such adjustment is necessary, to take
account of a change in the Company's strategy, performance of comparable
companies or other circumstances. However no adjustment may adversely affect the
status of any outstanding award as a Performance-Based Award. Awards under the
2000 Incentive Plan generally will be granted for no consideration other than
services. The Committee may, however, grant awards alone, in addition to, in
tandem with, or in substitution for, any other award under the 2000 Incentive
Plan, other awards under other Company plans, or other rights to payment from
the Company. Awards granted in addition to or in tandem with other awards may be
granted either at the same time or at different times. If an award is granted in
substitution for another award, the participant must surrender such other award
in consideration for the grant of the new award.
Change of Control
In the event of a change of control of the Company, all awards granted
under the 2000 Incentive Plan (including Performance-Based Awards) that are
outstanding and not yet vested or exercisable or which are subject to
restrictions, will become immediately 100% vested in each participant or will be
free of any restrictions, and will be exercisable for the remaining duration of
the award. All awards that are exercisable as of the effective date of the
change of control will remain exercisable for the remaining duration of the
award. Under the 2000 Incentive Plan, a change of control occurs upon any of the
following events: (i) the acquisition, in one or more transactions, of
beneficial ownership by any person or group, (other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
subsidiary), of any securities of the Company such that, as a result of such
acquisition, such person or group, either (A) beneficially owns, directly or
indirectly, more than 50% of the Company's outstanding voting securities
entitled to vote on a regular basis for a majority of the members of the Board
or (B) otherwise has the ability to elect, directly or indirectly, a majority of
the members of the
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Board; (ii) a change in the composition of the Board such that a majority of the
members of the Board are not Continuing Directors (as defined in the 2000
Incentive Plan); or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company, in one or more transactions, of all
or substantially all the Company's assets. The foregoing events will not be
deemed to be a change of control if the transactions causing such change are
approved in advance by the affirmative vote of at least a majority of the
Continuing directors.
Amendment and Termination
The 2000 Incentive Plan is of indefinite duration; continuing until all
shares and performance units reserved therefore have been issued or until
terminated by the Board. The Board may amend, alter, suspend, discontinue, or
terminate the 2000 Incentive Plan or the Committee's authority to grant awards
thereunder without further stockholder approval or the consent of the
participants, except stockholder approval must be obtained within one year after
the effectiveness of such action if required by law or regulation or under the
rules of the securities exchange on which the Common Stock is then quoted or
listed or as otherwise required by Rule 16b-3 under the Exchange Act.
Notwithstanding the foregoing, unless approved by the stockholders, no amendment
will: (i) change the class of persons eligible to receive awards; (ii)
materially increase the benefits accruing to participants under the 2000
Incentive Plan; or (iii) increase the number of shares of Common Stock subject
to the 2000 Incentive Plan.
Certain Federal Income Tax Consequences to the Company and the Participant
The following discussion is a brief summary of the principal United States
Federal income tax consequences under current Federal income tax laws relating
to awards under the 2000 Incentive Plan. This summary is not intended to be
exhaustive and, among other things, does not describe state, local or foreign
income and other tax consequences. A participant will not realize any income
upon the award of an option (including any other stock-based award in the nature
of a purchase right), an SAR or a Performance Unit, nor will the Company be
entitled to any tax deduction. When a participant who has been granted an option
which is not designated as an ISO exercises that option and receives Common
Stock which is either "transferable" or not subject to a "substantial risk of
forfeiture" under Section 83(c) of the Code, the participant will realize
compensation income subject, in the case of an employer, to withholding taxes.
The amount of that compensation income will equal the excess of the fair market
value of the Common Stock (without regard to any restrictions) on the date of
exercise of the option over its exercise price, and the Company will generally
be entitled to a tax deduction in the same amount and at the same time as the
compensation income is realized by the participant. The participant's tax basis
for the Common Stock so acquired will equal the sum of the compensation income
realized and the exercise price. Upon any subsequent sale or exchange of the
Common Stock, the gain or loss will generally be taxed as a capital gain or loss
and will be a long-term capital gain or loss if the Common Stock has been held
for more than one year after the date of exercise.
If a participant exercises an option which is designated as an ISO and the
participant has been an employee of the Company or its subsidiaries throughout
the period from the date of grant
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of the ISO until three months prior to its exercise, the participant will not
realize any income upon the exercise of the ISO (although alternative minimum
tax liability may result), and the Company will not be entitled to any tax
deduction. If the participant sells or exchanges any of the shares acquired upon
the exercise of the ISO more than one year after the transfer of the shares to
the participant and more than two years after the date of grant of the ISO, any
gain or loss (based upon the difference between the amount realized and the
exercise price of the ISO) will be treated as long-term capital gain or loss to
the participant. If such sale, exchange or other disposition takes place within
two years of the grant of the ISO or within one year of the transfer of shares
to the participant, the sale, exchange or other disposition will generally
constitute a "disqualifying disposition" of such shares. In such event, to the
extent that the gain realized on the disqualifying disposition does not exceed
the difference between the fair market value of the shares at the time of
exercise of the ISO over the exercise price, such amount will be treated as
compensation income in the year of the disqualifying disposition, and the
Company will be entitled to a deduction in the same amount and at the same time
as the compensation income is realized by the participant. The balance of the
gain, if any, will be treated as capital gain and will not result in any
deduction by the Company.
With respect to other awards (including an SAR or a Performance Unit)
granted under the 2000 Incentive Plan that may be settled either in cash or in
Common Stock or other property that is either transferable or not subject to a
substantial risk of forfeiture under Section 83(c) of the Code, the participant
will realize compensation income (subject, in the case of our employer) to
withholding taxes) equal to the amount of cash or the fair market value of the
Common Stock or other property received. The Company will be entitled to a
deduction in the same amount and at the same time as the compensation income is
realized by the participant.
With respect to awards involving Common Stock or other property that is
both nontransferable and subject to a substantial risk of forfeiture, unless an
election is made under Section 83(b) of the Code, as described below, the
participant will realize compensation income equal to the fair market value of
the Common Stock or other property received at the first time the Common Stock
or other property is either transferable or not subject to a substantial risk of
forfeiture. The Company will be entitled to a deduction in the same amount and
at the same time as the compensation income is realized by the participant. Even
though Common Stock or other property may be nontransferable and subject to a
substantial risk of forfeiture, a participant may elect (within 30 days of
receipt of the Common Stock or other property) to include in gross income the
fair market value (determined without regard to such restrictions) of such
Common Stock or other property at the time received. In that event, the
participant will not realize any income at the time the Common Stock or other
property either becomes transferable or is not subject to a substantial risk of
forfeiture, but if the participant subsequently forfeits such Common Stock or
other property, the participant's loss would be limited only to the amount
actually paid for the Common Stock or other property. While such Common Stock or
other property remains nontransferable and subject to a substantial risk of
forfeiture, any dividends or other income will be taxable as additional
compensation income. Finally, special rules may apply with respect to
participants subject to Section 16(b) of the Exchange Act.
The Committee may condition the payment, exercise or vesting of any award
on the payment of the withholding taxes and may provide that a portion of the
Common Stock or other property to be distributed will be withheld (or previously
acquired stock or other property surrendered by the participant) to satisfy such
withholding and other tax obligations. Finally, amounts paid pursuant to an
award which vests or becomes exercisable, or with respect to which restrictions
lapse, upon a Change in Control may constitute a "parachute payment" under
Section 280G of the Code. To the extent any such payment constitutes an "excess
parachute payment,"
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the Company would not be entitled to deduct such payment and the participant
would be subject to a 20 percent excise tax (in addition to regular income tax).
Section 162(m) Provisions
The 2000 Incentive Plan was designed to permit the deduction by the
Company of the compensation realized by certain officers in respect of long-term
incentive compensation granted under the 2000 Incentive Plan which is intended
by the Committee to qualify as "performance-based compensation" under Section
162(m) of the Code. Section 162(m) of the Code generally disallows a deduction
to the Company for compensation paid in any year in excess of $1 million to any
Covered Employee. Certain compensation, including compensation that meets the
specified requirements for "performance-based compensation," is not subject to
this deduction limit. Among the requirements for compensation to qualify as
"performance-based compensation" is that the material terms pursuant to which
the compensation is to be paid be disclosed to, and approved by, the
stockholders of the Company in a separate vote prior to the payment.
Accordingly, if the 2000 Incentive Plan is approved by the stockholders, then
the compensation payable pursuant to awards granted to officers who in the year
of grant may be Covered Employees and which are intended by the Committee to
qualify as "performance-based compensation" should, once the Plan is
administered by a Committee consisting solely of two or more "outside
directors," and provided the other requirements of Section 162(m) of the Code
are satisfied, not be subject to the deduction limit of Section 162(m) of the
Code. Nonqualified stock options granted with an option price less than the fair
market value at the time of grant will not qualify as performance-based
compensation.
Board Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE 2000 INCENTIVE STOCK OPTION PLAN.
PROPOSAL NO. 4
Ratification of Independent Public Accountants
The Board of Directors has appointed the firm of Brightman Almagor & Co.
("Brightman Almagor"), a member of Deloitte Touche Tohmatsu, as independent
auditors to audit the Company's consolidated financial statements for the fiscal
year ending December 31, 2000, subject to ratification by the Company's
stockholders.
Auditor Change
On June 30, 1998, we appointed Brightman Almagor (then known as BDO
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 the Company 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
20
<PAGE>
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.
Board Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE INDEPENDENT AUDITORS PROPOSAL.
OTHER MATTERS
Management does not intend to present to the meeting any matters other
than matters referred to herein, and as of this date Management does not know of
any matter that will be presented by other persons named in the attached proxy
to vote thereon in accordance with their best judgment on such matters.
STOCKHOLDER PROPOSALS
Under the rules of the SEC, proposals of stockholders intended to be
presented at the 2001 Annual Meeting of Stockholders must be made in accordance
with the By-laws of the Company and received by the Company, at its principal
executive offices, for inclusion in the Company's proxy statement for that
meeting, no later than February 14, 2001. The Company's Board of Directors will
review any stockholder proposals that are filed as required and will determine
whether such proposals meet applicable criteria for inclusion in its 2001 proxy
statement.
ANNUAL AND QUARTERLY REPORTS
Enclosed is the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, including audited financial statements, and the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
Such Annual Report on Form 10-K and Quarterly Report on Form 10-Q do not form
any part of the material for the solicitation of proxies.
SOLICITATION OF PROXIES
The Company will pay the cost of the solicitation of proxies. Solicitation
of proxies may be made in person or by mail, telephone, or telecopy by
directors, officers, and employees of the Company. The Company may also engage
the services of others to solicit proxies in person or by telephone or telecopy.
In addition, the Company may also request banking institutions, brokerage firms,
custodians, nominees, and fiduciaries to forward solicitation material to the
beneficial owners of Common Stock held of record by such persons, and the
Company will reimburse such persons for the costs related to such services.
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21
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It is important that your shares be represented at the Annual Meeting. If
you are unable to be present in person, you are respectfully requested to sign
the enclosed proxy and return it in the enclosed stamped and addressed envelope
as promptly as possible.
By Order of the Board of Directors
Marc D. Tokayer
Chairman of the Board
June 14, 2000
22
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TTR TECHNOLOGIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR THE
ANNUAL MEETING OF STOCKHOLDERS JULY 11, 2000
The undersigned hereby constitutes and appoints EMANUEL KRONITZ and MARC
D. TOKAYER, and each of them, with full power of substitution, attorneys and
proxies to represent and to vote all the shares of common stock, par value $.001
per share, of TTR TECHNOLOGIES, INC. that the undersigned would be entitled to
vote, with all powers the undersigned would possess if personally present, at
the Annual Meeting of Stockholders of TTR TECHNOLOGIES, INC., to be held on July
11, 2000, and at any adjournment thereof, on the matters set forth on the
reverse side and such other matters as may properly come before the meeting.
1. ELECTION OF DIRECTORS. Nominees: MARC D. TOKAYER, DR. BARUCH
SOLLISH, MICHAEL FINE, and MICHAEL BRAUNOLD (Mark only one of the
following boxes.)
|_| VOTE FOR all nominees listed above, except vote withheld as to
the following nominees (if any): __________________
|_| VOTE WITHHELD from all nominees.
2. PROPOSAL TO APPROVE THE AMENDMENT TO THE CETIFICATE OF INCORPORATION
OF THE COMPANY INCREASING THE NUMBER OF SHARES OF COMMON STOCK THE
COMPANY IS AUTHORIZED TO ISSUE FROM 25 MILLION TO 50 MILLION SHARES.
|_| FOR |_| AGAINST |_| ABSTAIN
3. PROPOSAL TO APPROVE THE ADOPTION OF THE COMPANY'S 2000 EQUITY
INCENTIVE PLAN.
|_| FOR |_| AGAINST |_| ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF BRIGHTMAN ALMAGOR & CO. AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDED DECEMBER
31, 2000.
|_| FOR |_| AGAINST |_| ABSTAIN
5. In their discretion, upon any other business that may properly come
before the meeting or any adjournment thereof.
(Continue and sign on other side)
<PAGE>
(Continued from other side)
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted FOR the election as directors of the nominees of the Board of
Directors, FOR the proposal to approve the amendment to Company's certificate of
incorporation, FOR the proposal to adopt the Company's 2000 Equity Incentive
Plan and FOR the ratification of the appointment of Brightman Almagor & Co. as
the Company's independent auditors for the fiscal year ending December 31, 2000.
The undersigned acknowledges receipt of the accompanying Proxy Statement
dated June 14, 2000.
Dated: ___________________________, 2000
________________________________________
________________________________________
Signature of Shareholder(s)
(When signing as attorney, trustee,
executor, administrator, guardian,
corporate officer, etc., please give
full title. If more than one trustee,
all should sign. Joint owners must each
sign.) Please date and sign exactly as
name appears above.
I plan |_| I do not plan |_|
to attend the Annual Meeting.
