SUBJECT TO COMPLETION
As filed with the Securities and Exchange Commission on September 13, 1996.
Registration No._________
____________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT ON FORM S-3 Under
THE SECURITIES ACT OF 1933
SPATIALIZER AUDIO LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 3698 95-4484725
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification) Identification
organization) Number)
20700 Ventura Boulevard, Suite 134
Woodland Hills, California 91364
(818) 227-3370
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Steven D. Gershick, Chief Executive Officer and President
Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 134
Woodland Hills, California 91364
(818) 227-3370
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
Margaret G. Graf, Esq.
Brand Farrar Dziubla Freilich & Kolstad, LLP
515 South Flower Street, Suite 3500
Los Angeles, California 90071-2201
(213) 228-0288
Direct Dial: (213) 426-6260
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.
/ /
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, other than securities offered only in connection with dividend or
interest reinvestment plans, 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, please check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION)
Proposed
Title of Each Proposed Maximum
Class of Maximum Aggregate Amount of
Securities to Amount to be Offering Price Offering Registration
be Registered Registered (1) Per Share (2) Price (2) Fee (2)
<S> <C> <C> <C> <C>
Common
Stock, $.01
par value per
share 4,416,907 $4.00 $17,667,628 $6,093
</TABLE>
(1) This Registration Statement relates to the resale of 3,308,607 shares of
Common Stock issued prior to the filing date hereof and the resale of up to
1,108,300 shares of Common Stock issuable on the exercise of currently
outstanding Options and Warrants.
(2) Pursuant to Rule 457(c), the fee calculation for securities is based on the
average of the high and low prices of Registrant's Shares on Small Capital
Company listings of the National Association of Securities Dealers Automated
Quotation ("NASDAQ") system on August 16, 1996.
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 this Registration Statement
shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to such Section 8(a), may determine.
SPATIALIZER AUDIO LABORATORIES, INC.
Cross-Reference Sheet
Item No.
Form S-3 Caption
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus
Outside Front and Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus
Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges
The Company; Business; Risk
Factors; Capitalization
4. Use of Proceeds
Use of Proceeds
5. Determination of Offering Price
Not Applicable
6. Dilution
Not Applicable
7. Selling Security Holders
Selling Stockholders
8. Plan of Distribution
Outside Front Cover; The
Company; Plan of Distribution
9. Description of Securities to be Registered
Description of Capital Stock
10. Interests of Named Experts and Counsel
Legal Matters; Experts
11. Material Changes
Not Applicable
12. Incorporation of Certain Information by Reference
Incorporation of Certain
Information by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities
Indemnification and Personal
Liability of Officers and
Directors
[Front Cover of Prospectus]
4,416,907 Shares
SPATIALIZER AUDIO LABORATORIES, INC.
(A Delaware Corporation)
The 4,416,907 shares of Common Stock, $.01 U.S. par value ("Common Stock") of
Spatializer Audio Laboratories, Inc., a Delaware corporation (the "Company")
being offered hereby for resale by certain stockholders of the Company
(the "Selling Stockholders"), include 3,308,607 shares of Common Stock which
are currently outstanding and 1,108,300 shares of Common Stock reserved for
issuance on the exercise of outstanding Options and Warrants. Of these,
819,300 shares of the Common Stock are, or upon exercise of Options and Warrants
will be, held by Selling Stockholders who are officers or directors of the
Company.
The Company's Common Stock is listed on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") under the symbol "SPAZ" and on
the Vancouver Stock Exchange ("VSE") under the symbol "SLB.U." On August 16,
1996, the closing price of the Common Stock on the NASDAQ was $3.875 U.S. and on
the VSE was $4.00 U.S.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE. SIMILARLY, NO CANADIAN FEDERAL OR PROVINCIAL COMMISSION
HAS APPROVED OR DISAPPROVED THESE SECURITIES NOR HAS ANY CANADIAN FEDERAL OR
PROVINCIAL COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
_________________________________________________
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers of the Common Stock offered for resale
hereby.
_________________________________________________
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+CERTAIN MATTERS AND RISKS RELATED TO THE BUSINESS OF THE COMPANY, INCLUDING+
+THE FACT THAT THE COMPANY HAS INCURRED LOSSES FROM ITS INCEPTION THROUGH +
+ITS MOST RECENT FISCAL YEAR AND FISCAL QUARTER, ARE DISCUSSED IN +
+"INVESTMENT CONSIDERATIONS AND RISK FACTORS." +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
___________________________________________
The Date of this Prospectus is September ___, 1996
____________________________________
No person is authorized in connection with this Prospectus to give any
information or to make any representations about the Company, the Selling
Stockholder, the securities referenced herein, or any matter referenced
herein, other than the information and representations contained in this
Prospectus. If any other information or representation is given or made,
such information or representation may not be relied upon as having been
authorized by the Company or any Selling Stockholder. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, any
of such securities in any jurisdiction or to any person to whom it is unlawful
to make such offer in such jurisdiction. Neither the delivery of this
Prospectus nor any distribution of securities in accordance herewith shall,
under any circumstances, create any implication that there has been no change
in the affairs of the Company since the date hereof.
______________________________________
CURRENCY
Unless otherwise indicated, all financial data contained herein is
denominated in United States dollars. The exchange rate used for translating
Canadian dollars into U.S. dollars is Cdn. $1.00 equals U.S. $0.7317, the
noon buying rate in New York City for cable transfers in U.S. dollars as
certified for customs purposes by the Federal Reserve Bank of New York on
August 29, 1996. Translations of certain Canadian dollar amounts into U.S.
dollars should not be construed as representations that the Canadian dollar
amounts actually represent U.S. dollars at the rate indicated or at any
other rate.
_________________________________________
ENFORCEMENT OF LEGAL REMEDIES
Spatializer-Yukon, the predecessor publicly-held entity to the Company, was
a Canadian corporation. Certain of the persons involved with the Company
as professional advisors are resident in Canada. As a result, it may be
difficult to effect service within the United States upon such persons or
to realize on any judgment by any court of the United States which is
predicated on civil liabilities under the 1933 Act. Messrs. DuMoulin Black,
Canadian counsel, have advised that there is doubt as to the enforceability
in Canada, either in original actions or through enforcement of United States
judgments, of liabilities predicated solely upon violations of the 1933 Act
or the rules and regulations promulgated thereunder.
_________________________________________
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with all
information incorporated by reference, amendments and exhibits and schedules
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "1933 Act"), with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement, part of which has been omitted in accordance with
the rules and regulations of the Commission. In addition, the Registration
Statement and this Prospectus incorporate by reference certain materials
previously filed with the Commission. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement the exhibits thereto and the materials
incorporated by reference. Statements contained in this Prospectus as to
the contents of any contract or other document referred to herein are not
necessarily complete, and in each instance reference is made to such contract
or other document for a more complete description and each such statement is
qualified in its entirety by such reference. The Company became subject to
the reporting requirements imposed under the Securities Exchange Act of 1934
(the "1934 Act") on August 21, 1995, and has filed all reports required to be
filed since such date.
The Company furnishes its stockholders with annual reports containing
audited financial statements and quarterly or other interim reports
containing financial and other information to the extent required under the
1934 Act or by the VSE, NASDAQ or other applicable authorities. The
Registration Statement and the reports, proxy statements and other
information may be inspected and copied at the public reference facilities
of the Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices located at Seven World Trade Center,
Suite 1300, New York, New York 10048, and at 5760 Wilshire Boulevard, 11th
Floor, Los Angeles, California 90036. Copies of these materials can also be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company and its predecessor, Spatializer Audio Laboratories, Inc., a Yukon
corporation ("Spatializer-Yukon") , have been subject, as applicable, to the
information and reporting requirements under the Yukon Territory Business
Corporations Act and the British Columbia Securities Act. Spatializer-Yukon
and the Company, as applicable, have filed periodic reports, proxy materials
and other reports with the Superintendent of Brokers for British Columbia and
the VSE. Such reports can be inspected and copied, at the expense of the
person requesting the report, at the VSE offices at 609 Granville Street, 4th
Floor, Vancouver, B.C. V7Y 1H1 and at the offices of the Superintendent of
Brokers for British Columbia at 865 Hornby Street, Suite 1200, Vancouver, B.C.
V6Z 2H4, at prescribed rates.
Upon request, the Company will provide copies of materials on file at the
Commission, the VSE, or the Superintendent of Brokers to stockholders,
including material incorporated herein by reference. Requests should be made
in writing to Spatializer Audio Laboratories, Inc. at 20700 Ventura Boulevard,
Suite 134, Woodland Hills, California 91364, Attention: Secretary, telephone
(818) 227-3370.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
and are incorporated by reference herein: (i) Annual Report on Form 10-K
for the fiscal year ended December 31, 1995; (ii) Proxy Statement dated June
25, 1996; and (iii) Report on Form 10-Q for the quarter ended June 30, 1996, as
amended by an amendment dated September 10, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c),
14 and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering made hereby shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus or any Prospectus
Supplement to the extent that a statement contained herein, or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus or any Prospectus
Supplement. This Prospectus incorporates documents by reference which are
not presented herein or delivered herewith. Those documents are available
upon request from the Company, at the address listed in Additional
Information, above.
THE COMPANY
Since the founding of its predecessor in the mid-1980s, the Company has
focused its principal efforts on developing and patenting a proprietary stereo
enhancement technology called Spatializer 3-D Stereo, an audio signal
processing technology which creates a vivid and expansive three-dimensional
surround sound listening experience from any stereo source input using only
two ordinary speakers. As an open-ended system, Spatializer technology can
be used in either production or playback applications, or both. Spatializer
therefore is competitive with products or processes employing either
approach, but is unique because it can do both. The Company's strategy has
involved exploiting the patented Spatializer technology base through
licensing activities and through the sale of its own proprietary hardware and
software products, obtaining recognition for the Spatializer brand name
through association with globally recognized consumer electronic brand names,
and broadening its base of technologies to provide for continued growth.
Through contractual arrangements, the Company has manufactured and
distributed professional products since 1993 and introduced its first consumer
product in 1996. The Company has established a sales, marketing and licensing
organization to exploit the technology in music, film, broadcast multimedia and
home theater markets. For the manufacture and sale of the integrated
circuit ("IC") incorporating the Spatializer technology, the Company
has entered into Foundry Licenses (as hereinafter defined) and to date, there
are Foundry Licenses with Matsushita Electronics Corporation ("MEC"), ESS
Technology, Inc. ("ESS") and OnChip Systems, Inc. ("OnChip"). The ICs are
sold only to manufacturers that are licensed by the Company to incorporate
the Spatializer IC into products under OEM agreements with the Company.
To date, the Company has OEM arrangements with more than 35 major global
manufacturers, including Texas Instruments, Digital Equipment Corporation
( DEC ), Panasonic, Sharp, Hitachi, Compaq and Labtec Enterprises.
In developing and bringing the Spatializer 3-D technology to market, the
Company recognized that the business skills and expertise associated with
introducing, developing and licensing a technology can be successfully
translated to other technologies and product applications. As a result, the
Company's longer-term strategy is to identify significant new audio and video
technologies, in the consumer electronics, computer multimedia and
telecommunications industries, which have been developed to the early or
pre-prototype stage and to provide the technological expertise, marketing,
distribution, corporate, and other support needed to translate the technology
from concept to a fully-marketed commercial and consumer product application.
Management believes that its technological and marketing expertise, and its
understanding of synergistic technologies, along with its corporate structure
and manufacturing and distribution relationships, will facilitate this
objective.
In June 1996, the Company began to implement its longer term technology
strategy when it acquired certain development stage, network based, compact
disc server technologies and related assets (sometimes referred to as the
MultiDisc transaction) from Home Theater Products International, Inc.
("HTP"). The acquisition substantially broadens the Company's technology
portfolio, capitalizes on the Company's strong manufacturing and OEM licensing
relationships, and positions the Company for long-term growth in significant
new markets. The MultiDisc transaction brings to the Company a combination
of proprietary electromechanical designs, robotics, operating software,
firmware and other intellectual property which should position the Company
in new media digital markets forming through the convergence of the personal
computer, consumer electronics and telecommunications industries. It represents
the Company's first step toward implementing management's long-term objective of
supplementing the Spatializer endeavor by developing and gaining access to
complementary technologies independently and through strategic alliances
with other participants. The MultiDisc technologies are expected to be
generating revenues in 1997.
Prior to the MultiDisc transaction, the Company had conducted
substantially all of its operations through Desper Products, Inc. ("DPI").
In connection with the MultiDisc transaction, the Company formed MultiDisc
Technologies, Inc. ("MDT") to pursue the technology development activities
and has limited the activities of DPI to its audio signal processing business
operations. It also has consolidated general corporate activities in the
Company. The Company was formed in February 1994 to participate in a Plan
of Arrangement pursuant to which the outstanding shares of Spatializer Audio
Laboratories, Inc., a publicly held Yukon corporation ( Spatializer-
Yukon ) were exchanged for an equal number of shares of the Common Stock of
the Company and the outstanding Options and Warrants in Spatializer-Yukon
were exchanged for an equal number of Options and Warrants in the Company
("Domestication Transaction"), and, as a result, the Company is the
successor to Spatializer-Yukon. Spatializer-Yukon was liquidated in early 1996.
Unless the context otherwise requires, references to the "Company" include
Spatializer Audio Laboratories, Inc., a Delaware corporation (the "Company"),
and its wholly-owned subsidiaries DPI (a California corporation), MDT
(a Delaware corporation) and Spatializer-Yukon.
The principal address of the Company is 20700 Ventura Boulevard, Suite 134,
Woodland Hills, California 91364, telephone (818) 227-3370, telecopy (818)
227-9750; WWW Site:http;//www.spatializer.com/.
The Offering
The Offering relates to the resale of up to 3,308,607 shares of Common
Stock which are currently outstanding and 1,108,300 shares of Common Stock
reserved for issuance upon exercise of presently outstanding Warrants and
Options (both as hereinafter defined). Securities offered for resale
hereunder are to be offered for resale for the account of the Selling
Stockholders who already hold stock, Warrants or Options, including certain
officers, directors and affiliates. The Company is not entitled to any of the
proceeds of sale of any such securities by the Selling Stockholders, but
the Company will pay the expenses of the filing of the Registration Statement.
The Company will receive the proceeds, in the ordinary course, from any
exercise of outstanding Options and Warrants. If all outstanding Options are
exercised, the Company will receive proceeds of approximately $995,000. If
all the Warrants are fully exercised, the Company will receive a total of
up to approximately $1,133,800. The proceeds from the exercise of Options
and Warrants, from time to time, will be used to fund general corporate
purposes and for strategic acquisitions or alliances.
Sales by Selling Stockholders
The shares of Common Stock being offered for resale by the Selling
Stockholders pursuant to this Prospectus may be offered by them in varying
amounts and transactions so long as this Prospectus is then current under the
rules of the Commission and the Registration Statement has not been withdrawn by
the Company. The Offering may be through the facilities of NASDAQ, the VSE or
such other exchange or reporting system where the Common Stock may be traded.
Brokerage commissions may be paid or discounts allowed in connection with
such sales; however, it is anticipated that the discounts allowed or
commissions paid will be no more than the ordinary brokerage commissions
paid on sales effected through brokers or dealers. To the knowledge of the
Company, as of the date hereof, no one has made any arrangements with a broker
or dealer concerning the offer or sale of the Common Stock. See "Plan of
Distribution."
<TABLE>
<CAPTION>
Outstanding Securities
<S> <C>
Shares of Common Stock Outstanding at August 16, 1996: 18,871,429
Reserved for Issuance - Options 1,333,232
Reserved for Issuance - Warrants 316,500
Total Shares of Common Stock Outstanding
Assuming Exercise of Warrants and Options: 20,521,161
Shares offered by Selling Stockholders
(including 1,108,300 shares reserved for
issuance on exercise of Warrants and
Options) 4,416,907
</TABLE>
This Prospectus includes references to MultiDisc and other trademarks,
tradenames, and product names of the Company and of other entities, some of
which may not be designated as such.
<PAGE>
RISK FACTORS
Investment in the Company's securities is speculative. In evaluating
the Company's business, prospective investors should consider carefully the
following factors, in addition to the other information contained in or
incorporated by reference into this Prospectus, before making a decision to
purchase securities of the Company. A prospective purchaser should not
consider an investment in the Company unless such person is capable of
sustaining an economic loss of the investment.
Limited Products
Since 1991, the Company has focused principally on the development and
manufacture of a professional audio processing system, on the manufacture and
distribution of analog ICs through Foundry Licenses and on the manufacture
and distribution of an add-on system for the consumer marketplace. The
professional system was introduced into the market in limited quantities in
May 1993, and generally has not generated significant revenues. To date, over
3 million ICs have been manufactured and shipped. The first Spatializer brand
consumer audio product employing Spatializer 3-D technology was introduced
in the United States in the first quarter of 1996, but no assurance can be
given that the Company will be successful with these or future products.
The Company finalized the MDT transaction in June 1996 at a contract cost of
$950,000 cash plus acquisition costs of approximately $100,000. The Company
estimates that $1.5 million in additional capital will be needed to complete
the development of the MultiDisc network based compact disc server
technologies through the proof of concept stage, but there is no assurance
that it will be successful in its efforts to prove the concepts of those
technologies or to develop applications therefrom. Since August 1991, the
Company has raised approximately $18.4 million in investment capital to
finance technology development and operations. At June 30, 1996, the Company
had an accumulated deficit of approximately $12.6 million and current
liabilities of approximately $670,000 (including approximately $128,000 due to
related parties). See "Business."
Technology - Pending Patent Infringement Suit
The Company's success will depend significantly on its ability to
obtain and enforce intellectual property protection for its technologies in
the United States and in other jurisdictions. The Company holds a U.S.
patent comprising forty claims covering major aspects of the Spatializer
3-D audio technologies and holds additional patent applications or rights to
other audio enhancement technologies and to the MultiDisc server
technologies. However, there is no assurance that these rights will not be
challenged, invalidated or circumvented, or that the Company's competitors
will not independently develop or patent technologies that are equivalent or
superior to the Company's technology.
In response to a competitor's claim that the Company's Spatializer
3-D audio technology has infringed patents held by QSound Labs, Inc. ( QSound ),
a competitor, the Company initiated a declaratory relief action against
the competitor seeking, inter alia, a determination that the Company does
not infringe the competitor s patents and for damages. On August 29, 1996,
the Court granted the Company s summary judgment motion in its entirety and
denying QSound's cross-motion. The ruling confirms the Company s position that
its patents and all of the implementations of Spatializer s ICs do not infringe
any patents of QSound. QSound has announced its intent to appeal. While the
developments in the litigation have, to date, supported the Company, the
existence of the litigation is costly for the Company, has tempered
acceptance of the Company's products and is indicative of the business and
litigation risks faced by any technology enterprise.
Also, in connection with the MultiDisc transaction, the Company has
acquired four patent applications and further technology rights and the
Company plans to continue to acquire, as needed, other technology rights
needed to protect its technological requirements. As the Company pursues
its longer term strategy of exploring various technologies, the importance of
properly obtaining and enforcing its intellectual property rights will continue
to be a critical issue.
While the Company has attempted to protect its technology and general
intellectual property rights, there is no assurance that the Company's
efforts will effectively protect against piracy or theft. Monitoring and
identifying unauthorized use of such technology may prove difficult, and the
cost of litigation may impact the Company's ability to adequately guard against
such piracy and infringement. While the Company believes the steps it has
taken to guard against any such abuses are reasonable, there is no assurance
it will be successful in this effort.
Impact of Possible Delays
It is impossible to predict the timing or the amount, if any, of revenues
which the Company will receive from current or future product sales and
licensing activities. Any substantial delay in product development or
technology introduction could result in significant delays in revenues and
could allow competitors to reach the market with products before the Company.
In view of the emerging nature of the technology involved, the Company's
expansion into other technology areas and the uncertainties concerning the
ability of the Company's products to achieve meaningful commercial acceptance,
there can be no assurance of when or if the Company will achieve or sustain
profitability.
Dependence on Management
The future success of the Company primarily depends on the abilities
and efforts of a small number of individuals, with particular management
obligations. Loss of the services of any of these persons could adversely
affect the Company's business prospects. While the Company believes that
it will be able to recruit and retain personnel with the skills required for
future growth, there can be no assurance that it will be successful in such
efforts. Failure to do so could have an adverse impact upon the Company's
business, the results of its operations and its prospects.
The Financial Position of the Company - Additional Financing
Based on current operating plans and the addition of MDT which is
focused primarily on research and development of new technologies, management
believes that existing cash balances along with operating revenues will be
sufficient to satisfy the Company's requirements for the twelve months
following the effective date hereof. However, additional cash may be required
for the further development of the MultiDisc technology, for the introduction
of other new technologies or products and for the acquisition of technologies
or enterprises complementary to the Company's business. The Company will
seek to generate additional capital as needed, through private or public
financings, including equity financings, collaborative arrangements with
others and, if available, bank financing. The inability of the Company to
raise additional capital on acceptable terms in the future may have a material
adverse effect on its business, results of operations, liquidity and prospects.
See "Use of Proceeds."
Competition
The Company is seeking commercial acceptance of its products in highly
competitive markets. The Company's future success is dependent on establishing
and maintaining the technological superiority of its products over those of
competitors and its ability to successfully identify and bring other
compatible technologies and products to market. Certain of the Company's
current competitors operating in the enhanced sound market and in the other
technology areas the Company will enter with the MultiDisc and future
technology licensing efforts, may have access to greater financial resources
than the Company. Both the enhanced sound and disc changer industries are
currently characterized principally by smaller entities, which like the
Company, frequently seek capital through equity financings or strategic
alliances. There is no assurance that the Company's present or contemplated
future products will achieve or maintain sufficient commercial acceptance, or
if they do, that functionally equivalent products will not be developed by
current or future competitors with access to significantly greater resources.
See "Business."
Domestication Transaction
The structure of the Domestication Transaction was selected, in part,
to accommodate U.S. and Canadian tax considerations and, in particular,
certain Canadian corporate income tax provisions which do not provide the
tax-free corporate reorganization provisions available in similar
transactions under U.S. tax laws. The transaction was structured to minimize
any potential adverse tax consequences for the Company or its stockholders and
to defer Canadian tax which, at that time, would otherwise apply to the
corporation as a result of the Domestication Transaction. In connection with
the liquidation of Spatializer-Yukon in 1996, the Company paid Canadian
income tax, based on the Company s valuation of the Series A Preferred Shares
of DPI (issued to the Company in the Domestication Transaction in exchange for
the DPI common shares owned by the Company prior to the commencement of the
Domestication Transaction). However, there is no assurance that Canadian
or U.S. tax authorities will not challenge the Company's valuation of the
Series A Preferred Shares of DPI or the treatment of the transaction for tax
purposes. The Restated Articles of Incorporation of DPI state that in the
event that the Canadian tax authorities challenge the valuation of the
Series A Preferred Shares of DPI, such valuation shall be calculated using
a fair market value determined by agreement between the taxing authority and
the Company or by a competent tribunal. In the event the Company is
ultimately unable to establish a valuation which is acceptable to Canadian
tax authorities or the Canadian tax authorities challenge the treatment of
the transaction, there could be a substantial increase in the Company's tax
liability arising from the Domestication Transaction. Any such liability
would be payable from the Company's general assets and there is no certainty
that the Company would be able to pay any such increase in tax liability
from its available financial resources.
No Assured Market for Stock
The Common Stock of the Company trades on NASDAQ under the symbol
"SPAZ" and is listed and traded on the VSE under the symbol "SLB.U." To the
extent the market price of the Company's Common Stock falls below U.S. $5.00
per share, additional requirements imposed on broker-dealers by the Penny
Stock Reform Act of 1990 may apply and inhibit the development of a trading
market. There is no assurance that the Company's current trading will be
retained or expanded so as to correspond with an investor's desire for a
ready market for shares owned in the Company.
Possible Issuance of Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of
preferred stock ("Preferred Stock") in one or more series, the terms of which
are to be determined by the Board of Directors, without further action by
shareholders, and may include voting rights (including the right to vote as
a class on particular matters), preferences as to dividends and liquidation,
conversion and redemption rights and sinking fund provisions. No Preferred
Stock is currently outstanding, and the Company has no present plan for the
issuance thereof. The issuance of any Preferred Stock could affect the
rights of the holders of Common Stock and the value of the Common Stock, and
could also make it more difficult for the holders of the Common Stock to
control voting with respect to significant corporate transactions. See
"Description of Securities."
Control By Officers and Directors
Current directors and officers of the Company and the executive
officers of its subsidiaries beneficially own or control or have rights to
acquire 8,145,444 shares of Common Stock or approximately 40% of the fully
diluted Common Stock of the Company. As a result, in addition to their
influence as officers and directors, if such persons act together as
stockholders, they can substantially control actions by the stockholders
with respect to the business and affairs of the Company.
Shares Eligible for Future Sale - Market Overhang - Escrowed Performance Shares
Virtually all of the Company's currently outstanding Common Stock,
including the Common Stock (other than a portion of the Escrowed Performance
Shares) held by affiliates of the Company, will be tradeable currently or
in the near future, either under this Prospectus, pursuant to Rule 144 or
through exempt transactions on the VSE or otherwise "outside the United
States." Of the issued and outstanding shares of Common Stock, 5,776,700 are
held by officers, directors and other founders or employees as Escrowed
Performance Shares. Currently, under applicable VSE policies, the Escrowed
Performance Shares are to be released pro rata in accordance with the terms
of the escrow agreement when the Company has generated cumulative cash flow
of Cdn. $0.6285 per share, on the basis of one share for each Cdn. $.6285 of
cumulative cash flow generated by DPI, or the shares may be released if the VSE
permits such a release on an alternative basis. Any shares not released
from escrow by July 9, 2002 are to be canceled. In 1996, the Company applied
to the VSE to revise the arrangements. The revised arrangements were
approved by the Company's stockholders, all in accordance with the VSE
requirements and the VSE has confirmed its support of the modification but
other Canadian regulatory reviews are pending. If granted, the shares
would be released on specified dates rather than based on certain earnings.
Under the modified arrangements, with respect to each holder, 15% of the
Escrowed Performance Shares would vest on September 30, 1996; 25% of the
Escrowed Performance Shares would vest on September 30, 1997; 30% of the
Escrowed Performance Shares would vest on September 30, 1998; and the
remaining 30% of the Escrowed Performance Shares would vest on September 30,
1999, so long as the individual had not voluntarily terminated his or her
relationship with the Company. For financial reporting purposes, under the
modification, the Company will be required to reflect the value of the
Escrowed Performance Shares as a compensation expense, resulting in a
non-cash financial accounting charge to the Company's earnings and profits,
calculated at the market price of the Company's Common Stock on the date the
shares are released from the original escrow and become subject to the
modification. See "Shares Eligible for Future Sale."
Dividend Policy
The Company has not paid any cash dividends on its Common Stock and
has no present intention of paying any dividends. The current policy of the
Company is to retain earnings, if any, for use in operations and in the
development of its business. The future dividend policy of the Company will
be determined from time to time by the Board of Directors.
USE OF PROCEEDS
Securities offered for resale hereunder are to be offered for the
account of the Selling Stockholders. The Company is not entitled to any of
the proceeds of sale of any such securities, but the Company will pay the
expenses of the filing of the Registration Statement. The Company will
receive the proceeds, in the ordinary course, from any exercise of outstanding
Options and Warrants and will apply those proceeds to general corporate
purposes. If all outstanding Options are exercised, the Company will receive
proceeds of approximately $995,000. If all the warrants are fully exercised,
the Company will receive proceeds of up to approximately $1,133,800.
<TABLE>
<CAPTION>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1996, assuming none of the currently outstanding Options or Warrants
are exercised.
<S> <C>
DEBT
Notes Payable $ 25,300
Advances from Related Parties 127,896
--------
Total Debt $153,196
STOCKHOLDERS' EQUITY
Preferred shares, $.01 par value, 1,000,000
shares authorized, no shares issued or
outstanding $ --
Common Stock, $.01 par value, 50,000,000 shares
authorized 18,212,731 shares issued and
outstanding at June 30, 1996 182,127
Common Shares Subscribed, 648,865 shares 6,489
Additional Paid-In Capital 17,987,062
Accumulated Deficit (12,584,019)
Foreign Currency Translation Adjustment (767)
-------------
Total Stockholders' Equity $ 5,590,892
Total Capitalization $ 5,744,088
============
</TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" incorporated by reference elsewhere herein. The selected
data presented below under the headings "Consolidated Statement of Operations
Data" and "Consolidated Balance Sheet Data" as of and for the year ended
December 31, 1995, as of and for the four month period ended December 31, 1994,
as of and for each of the years in the three-year period ended August 31, 1994,
are derived from the consolidated financial statements of Spatializer Audio
Laboratories, Inc. and subsidiaries, which consolidated financial statements
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The consolidated financial statements as of December 31, 1995
and 1994, and for the years ended December 31, 1995, August 31, 1994 and 1993
and for the four-month period ended December 31, 1994, are incorporated by
reference elsewhere in this Prospectus. The selected data presented below as
of and for the year ended August 31, 1991, are derived from unaudited
financial statements of Desper Products, Inc. The selected data presented
below as of June 30, 1996 and for the six month periods ended June 30, 1995
and June 30, 1996 are derived from unaudited consolidated financial
statements of Spatializer Audio Laboratories, Inc. and subsidiaries
incorporated by reference elsewhere in this Prospectus.
TABLE: SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended August 31,
-------------------------------------------
1991(1) 1992(2) 1993(2) 1994(3)
(unaudited)
<S> <C> <C> <C> <C>
Consolidated Statement
of Operations Data
Revenues - - 97 140
Cost of
Revenues - - (55) (61)
Gross Profit - - 42 79
Operating
Expenses (218) (1,039> (2,120) (1,808)
Interest Income
(Expense), Net (21) (29) (25) (79)
Loss for
the Period (239) (1,068) (2,103) (1,808)
Loss Per
Common Share N/A(4) (0.42) (0.37) (0.26)
Weighted
Average
Common Shares
Outstanding(7) N/A(4) 2,518,373 5,740,298 6,891,546
</TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
Four-Month Fiscal
Period Ended Year Ended Six Months Ended June 30,
December 31, December 31, ------------------------------------
1994(3)(4) 1995(3) 1995(3) 1996(5)(6)
(Unaudited) (Unaudited)
Consolidated Statement
of Operations Data
(continued)
<S> <C> <C> <C> <C>
Revenues 187 1,230 568 937
Cost of
Revenues (25) (79) (45) (84)
Gross Profit 162 1,151 523 853
Operating
Expenses (1,339) (4,466) (1,817) (3,438)
Interest Income
(Expense), Net (16) 74 9 56
Loss for
the Period (1,193) (3,241) (1,285) (2,529)
Loss Per
Common Share (0.14) (0.32) (0.14) (0.21)
Weighted
Average
Common Shares
Outstanding(7) 8,552,535 10,156,816 9,217,958 12,039,532
</TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA (cont'd.)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION> Fiscal Year Ended
-------------------------------------------------
1991(1) 1992(2) 1993(2) 1994(3)
(unaudited)
<S> <C> <C> <C> <C>
Consolidated
Balance Sheet
Data
Cash and
Cash Equivalents $ -- $ 669 $ 500 $ 1,779
Working
Capital (438) 278 (66) 6
Total
Assets 6 764 932 2,676
Advances from
Related Parties 549 332 433 539
Shareholder's
Note Payable -- -- 292 --
Total Share-
holder's Equity $ (573) $ 361 $ 69 $ 288
</TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA (cont'd.)
<TABLE>
<CAPTION> Four-Month Fiscal
Period Ended Year Ended
December 31, December 31, Six Months Ended June 30,
1994(3)(4) 1995(3) 1995(3) 1996(5)(6)
(audited)(unaudited)
Consolidated Balance
Sheet Data
<S> <C> <C> <C> <C>
Cash and Cash
Equivalents $1,540 $3,113 $ 810 $2,834
Working Capital 982 3,159 4,518 4,591
Total Assets 2,318 4,420 5,836 6,257
Advances from
Related Parties 517 325 448 128
Shareholders'
Note Payable -- -- -- --
Total Share-
holders' Equity $1,367 $3,697 $4,963 $5,591
</TABLE>
_____________________
(1) Unaudited financial statements for "DPI".
(2) A reverse take-over was completed on July 14, 1992. As a
result, the financial statements for this fiscal year reflect the
consolidation of Spatializer-Yukon with DPI.
(3) A Plan of Arrangement was completed on July 27, 1994 whereby the situs
of the company was moved to Delaware. Spatializer Audio Laboratories, Inc.,
a Delaware corporation ("Spatializer-Delaware"), became the parent company
for Spatializer-Yukon and DPI. The financial statements for this fiscal
year reflect the consolidation of all three entities.
(4) Not comparative.
(5) Effective February 1996, Spatializer-Yukon was dissolved and liquidated
under the laws of the Yukon Territory. As such, the financial statements
for this period reflect the liquidation and distribution of the assets of
Spatializer-Yukon to Spatializer-Delaware.
(6) In June, 1996, the Company formed MDT, a wholly-owned subsidiary, and
completed the acquisition of assets from HTP. Prior to this acquisition,
MDT had no activity. As such, the financial statements for this period
reflect the consolidation of Spatializer-Delaware, Spatializer-Yukon, DPI
and MDT from June 24, 1996, the date of the asset acquisition.
(7) Loss per common share has been calculated based on the weighted average
number of common shares outstanding other than the escrowed performance
shares. Escrowed performance shares, outstanding options and warrants to
purchase common stock have not been included in the calculation of loss per
share as their effect would be antidilutive.
BUSINESS
This Prospectus incorporates by reference the documents listed herein,
including the business descriptions contained therein. (See "Documents
Incorporated by Reference.") For the convenience of the reader, the Company has
included in this Prospectus a business section which integrates and updates
those descriptions and describes recent business developments.
Overview
The Company is in the business of developing, through its operating
subsidiaries, proprietary technologies and products. Until recently,
essentially all of these efforts were directed to Spatializer, an advanced
audio signal processing technology. Currently the Company is also developing
the MultiDisc network based compact disc server hardware and software
technologies, which it acquired in June 1996.
Audio Signal Processing Technologies
Spatializer 3-D audio signal processing is the Company's base line
technology. It creates a vivid and expansive three-dimensional surround
sound listening experience from two ordinary speakers. As an integrated
circuit ("IC"), it can be easily implemented in any product utilizing stereo
audio to spatially enhance conventionally-recorded material during playback,
or may be utilized to dynamically control the localization and placement of
individual sounds around the listener. The Company's strategy involves
exploiting the patented Spatializer technology base through licensing
activities and through the sale of its own proprietary hardware and
software products, obtaining recognition for the Spatializer brand name
through association with globally recognized consumer electronic brand names,
and broadening its base of technologies to provide for continued growth.
Spatializer audio processing technology allows "3-D" sound enhancement to
be encoded during production or added in real-time during playback. Once
introduced, Spatialization is automatically reproduced at all steps and
survive both "lossless" and "lossey" compression and decompression schemes
without additional decoding equipment. The recorded product is compatible with
multiple speaker surround sound implementations. The technology can be
employed in a manner that is fully and automatically compatible with
monophonic radio and television broadcast sources. Any consumer product
incorporating stereo audio is a potential candidate for Spatializer 3-D
audio enhancement. Spatializer 3-D stereo technology is implemented in
both analog and digital forms, and in IC hardware and software applications.
Spatializer technology also includes the unique Double Detect & Protect
("DDP ") circuitry which continuously monitors spectral and spatial content
of the audio signal to automatically optimize the level of spatial
processing, providing consistent and coherent stereo imaging and "set and
forget" ease of use to consumers.
Products and Licensing Arrangements
Professional Recording, Film and Broadcast Products
The Company's PRO Spatializer , manufactured by a third party for the
Company, is a microprocessor based audio production system designed for
professional recording, film and broadcast applications. It offers a
multi-track real-time processor that permits spatial expansion, 360 degree
dynamic sound movement, and localization of monophonic and stereo sources
utilizing conventional two-speaker stereo playback. It may be used in any
phase of the recording process and is fully compatible with all standard
stereo playback systems. The PRO Spatializer is an expandable system which
offers from eight to twenty-four channels and is marketed as a basic 16-channel
system at a suggested retail price of approximately $9,000, with a separate
8-channel expansion module at a suggested retail price of $2,000. For the
professional user, the Company also markets Spatializer-8, a non-expandable
version of the PRO Spatializer which limits operator control to eight
simultaneous recording channels; and DIGITAL Spatializer, a product designed
for professional record mastering providing full control over all spatial
audio parameters entirely within the digital domain. The Spatializer-8 and
DIGITAL Spatializer are marketed at a suggested list prices of approximately
$6,000 and $4,000, respectively. Sales of the Company's professional
products to date have not generated significant revenues.
However, the Company s professional products, which were used in the
worldwide broadcast of the 1996 Summer Centennial Olympics in Atlanta, have
provided the Company with considerable exposure in motion pictures, recording
and television projects including Twentieth Century Fox's film Broken
Arrow; Paramount s "Crimson Tide"; Disney's "The Lion King"; Bonnie Raitt's
Grammy Award winning "Longing in Their Hearts"; Barbra Streisand's
live concert album entitled "Barbra -- The Concert"; Michael Jackson's
"HIStory" CD; and hundreds of episodes of Warner Bros. animated TV series,
including "Animaniacs"; "Batman: The Animated Series"; "Tazmania"; and
"Tiny Toon Adventures". In addition, PRO Spatializer has been used in
connection with the broadcasts of the Grammy Awards for the past three years.
Capitalizing upon that name recognition, the Company has recently expanded the
market for its technology and products into computer games and multimedia
title production, environments particularly well suited to "3-D" sound
effects.
Consumer Audio Products
In January 1996, the Company introduced its first Spatializer brand product
for consumers, the HTMS 2510 Stereo Surround Sound System. The device is
an easy to install add-on, about the size of a VCR, that converts any two
speaker or multiple speaker home stereo into a state-of-the-art home
theater system. The suggested retail price for the HTMS 2510 is $249. At
the Winter Consumer Electronics Show in January, 1996, the HTMS 2510 won a
prestigious "Innovations Awards" for excellence in product design and
innovation, as did eight other products which feature Spatializer audio
technology from Panasonic, Proton and Labtec.
New Products and Products in Development
The following are highlights of Company audio products currently reaching
the market or in development:
PT3D, a software plug-in which provides Spatializer 3-D sound
imaging and enhancement for digital audio workstations, used in the
production of audio for music, films and computer games.
Spatializer 3-D MAP positional audio enhancement software for
Windows '95. Directed to PC manufacturers and PC game developers,
this software brings a new level of interactive audio to the PC
market. When used in combination with an on-board Spatializer IC,
it provides a robust suite of 3-D stereo enhancement and positional
audio capabilities for all sources of audio on a multimedia computer.
The new Sports Illustrated MicroLeague Baseball game being
introduced this year incorporates this software.
RETRO, a rack mount 3-D audio processor for the semi-professional
recording market is currently being developed for market introduction
in fall of 1996 and the Company is pursuing development efforts for
other advanced audio solutions.
Currently under development are two other technologies -- a realtime
positional audio for headphones and speakers directed primarily to
the multimedia PC market, and -- a new technology designed to
create spatially accurate reproduction of multichannel audio signals
(including Dolby AC-3, DTS and Dolby ProLogic) over two ordinary
speakers.
Licensing Activities
The Company licenses its Spatializer proprietary technology through
semiconductor manufacturing licenses with foundries that are directly
involved in the manufacture and distribution of the Spatializer Audio
Processor ICs ("Foundry Licenses") and through OEM licenses or, more recently,
logo usage agreements with manufacturers of consumer products which
incorporate the IC ("OEM agreements"). Licensees fund all costs of incorporating
the technology in their products.
The Company's first CD-quality analog IC for consumer audio and
multimedia computing applications was developed in conjunction with
Matsushita Electronics Corporation ("MEC"), one of the largest semiconductor
foundries in the world and a subsidiary of Matsushita Electric Industrial Co.,
Ltd. ("MEI"), a global manufacturer of consumer electronics and other goods
under the Panasonic, Technics, Quasar and National registered names. The
Spatializer Audio Processor IC, which began to reach widespread commercial
distribution in 1995, combines the core sound localization and spatial
expansion capabilities of the Company's professional model into a single 20-pin
chip format which is adaptable for use in any audio and video consumer
product. MEC manufactures the IC under a Foundry License and, until second
quarter of 1996, MEC accounted for all of the Company's IC sales. During the
second quarter of 1996, two other semiconductor foundries ESS Technology ("ESS")
and OnChip Systems ("OnChip") began commercial distribution of their ICs
incorporating the Spatializer technology. ESS offers a multifunction IC
principally for multimedia laptop computing applications and OnChip offers a
pair of standalone ICs.
The terms of the Foundry Licenses have been negotiated on an individual
basis. Under the initial Foundry Licenses, the manufacturer was required to
make an up-front payment, either as a license issuance fee or as a prepayment
of future running royalties. In addition, a royalty calculated on a per unit
basis ("running royalty"), was paid as the IC was shipped from the foundry to
the various OEMs. The initial Foundry Licenses specified that the
manufacturers could ship only to OEM purchasers who had separately entered
into OEM agreements with the Company to incorporate the Spatializer IC in their
products. The OEM agreements to date generally required an up-front issuance
fee and a running royalty based on product volume or similar terms. This
structure provided early cash flow to the Company as the licenses were signed
but became cumbersome and deterred sales to OEMs who viewed the separate
license as burdensome.
In late 1995, the Company began to focus on modifying the economic
structure of its licensing program with MEI (which acts as the primary
sales force for the MEC ICs) in order to simplify the sales process and to
accelerate shipment. The Foundry Licenses now provide for "bundled" royalties
which entitle the foundry to sell the ICs directly to the OEM purchasers
thereby requiring only that the OEM purchaser enter into a simplified logo
usage agreement with the Company which does not require any direct payment
of running royalties to the Company. Under the new OEM logo usage agreements,
the OEM purchasers are freed from the payment, accounting and negotiation
burdens of royalty bearing licenses. From a revenue perspective, the
Company now receives bundled license revenues as the ICs are shipped
by the foundry rather than when the products incorporating the ICs are
manufactured and sold by the OEM. While the shift to the new structure
delayed the Company's rate of new licenses in the second quarter of 1996,
this new structure is expected to ease the burden for the OEM purchasers and
result in an increased adoption rate for the ICs in the future. In 1995,
the Company reported approximately $234,000 in royalties from MEC. In the
first two quarters of 1996 total royalties have been $743,300 of which 28%,
21% and 14% came from MEC, Compaq and OnChip, respectively.
The following table is a representative list of the OEMs with whom the
Company has entered into OEM agreements:
OEM Product Descriptions/ Brand Names
Anam Electronics Co., Ltd. Equalizers and micro component systems,
including Akai brand
Compaq Computer Corporation Presario computers
Digital Equipment Corporation Computer equipment and peripherals
Hitachi, Ltd. Wide-screen direct view color televisions
International Jensen, Inc. Computer speakers
Konami Co, Ltd. Video arcade game
Labtec Enterprises, Inc. Amplified computer speakers; Imager 3D
audio processor
Matsushita Electric Industrial Panasonic portable audio stereos, Karaoke
(MEI) Systems, and VCRs
Sharp Corporation Color televisions and VCRs
Texas Instruments Laptop computers
MultiDisc Network Based Compact Disc Server Technologies
As its first effort to broaden the Company's technology portfolio and
capitalize on the Company's strong manufacturing and OEM relationships, in
June 1996, the Company acquired certain MultiDisc technologies and assets
from HTP, a debtor-in-possession, for $950,000 in cash. The transaction,
which was implemented through a court-approved sale in the HTP bankruptcy
proceeding, includes an array of development-stage compact disc server
technologies and positions the Company for longer term growth in a
significant new market.
The MultiDisc transaction brings to Spatializer a unique combination of
proprietary electromechanical designs, robotics, operating software, firmware
and intellectual property technology. The core technology, conceived by
Robert Montelius and Rene Bos, the two MultiDisc founders, is reflected in
four patent applications acquired by the Company in the MultiDisc transaction.
The technology, when proved and developed, is expected to feature a flexible
modular design, which allows extremely high-density and expandable disc
storage, and allows the user to quickly support all current and future 12cm.
CD and Digital Versatile Disc ("DVD") formats. Since the MultiDisc technology
is expected to be fully configurable, scalable, and drive independent, any
new improvements in CD drive speed, format, optics or media capacity can be
easily accommodated. The net result is expected to be a new class of devices
significantly faster, smaller and more capable than existing solutions at a
fraction of their current cost. Devices built on the technology are expected
to have applications in numerous global markets where online, near real-time
data access, storage, archiving and retrieval are required.
Two key elements of the MultiDisc technology are its extremely high
storage density and the passive expansion which is expected to be included
in the design implementations. As a result, a MultiDisc technology storage
unit could be designed to hold up to 300 CDs in a chassis the size of a
standard desktop computer with each disc immediately accessible through the
proprietary search and retrieval technology. In addition, since the
MultiDisc technology is being designed with a view toward passive
expandability, additional storage modules can be "added" with only marginal
hardware costs thereby allowing for configuring hundreds or even thousands
of CD's into a single device. With the forecasted growth in business
networking, Internet and Intranet servers, and on-line access to ever growing
data storage market, the market demand for network-capable scalable compact
disc-based storage and archiving technologies is expected to rise sharply
in the next few years.
MDT devices should have applications in home entertainment and information
and in commercial structures where mass storage of near on-line data that
can be accessed by computer systems on a network or internet is required.
The devices should be well suited for audio and video applications for the
full range of medical records, Internet data files, commercial, corporate, and
government files where reduced storage space and rapid access would offer
major marketing opportunities. The Company expects that MDT can generate
revenues for a variety of rapidly expanding markets including computer data
storage and entertainment in 1997.
Within the wide range of possible markets, the Company plans to focus its
initial efforts on the development of commercial and home entertainment
servers and special application data servers, particularly for archiving and
medical record access. The commercial market includes automated music
servers for use in radio stations and cable delivered music systems for
video-on-demand for smaller applications in hotels, resorts and on airplanes.
Home market products are more likely to be designed to serve as multi format
disc servers for music and video, integrated into a home entertainment system so
that both CD and DVD formats can be stored in a single enclosure for
retrieval and playback through a home stereo or home theater system.
In data services, the Company will target existing CD-ROM users,
particularly the networked users who need a near on-line storage device to
meet their networked computer needs, since the need for CD drives in each
computer could be eliminated and network users could gain direct access to
information through the CD server rather than through a desk top.
For medical data, MDT servers could support both medical records and medical
image storage and retrieval. In medical storage, the trend to automated
compressed systems is expected to continue as pressures on medical cost
reduction and quality assurance increase. In medical imaging the MDT data
server can provide storage for thousands of digital diagnostic images for
access and distribution within a hospital or medical center or for access
by consulting professionals at remote sites. The Company believes that
there are additional market opportunities for MDT, including check image storage
in banks, on-line resources and retrieval in libraries and similar archives,
on-line instruction in schools and industry, documentation and listing
insurance, real estate and banking, and in government and industry where
on-line sourcing maintenance for reference manuals, property confirmation
records and income tax data are expected to replace paper files in the near
future.
In the MultiDisc transaction, Irwin Zucker was appointed as President and a
Director of MDT and Messrs. Bos and Montelius each became a Vice-President
and director of MDT and Messrs. Bos, Montelius and Zucker each entered into
employment agreements with MDT with an initial term through December 1997,
at base salaries of $140,000 for Mr. Zucker and $120,000 for the others.
Under the agreements, the individuals serve full time and either the
individual or MDT may terminate the employment by June 30 of the first term
or any extension period and MDT may terminate for cause at any time or, at
its option, at the end of the original or any extended term on 30-days prior
written notice. In the event of certain terminations, the employee
is entitled to payment of one year's salary, depending on the conditions.
The employment agreements provide employee benefits generally available to
other executives of the Company. In addition, Mr. Zucker is to be granted
50,000 options and Messrs. Bos and Montelius are each to receive 25,000
options, all to acquire Company Common Stock. They are also entitled to
participate in a bonus and equity plan based principally on certain MDT
operating results under certain conditions that equity can be exchanged for
Company stock.
Revenues and Expenses
The Company generates revenues from the sale and distribution of
proprietary consumer, multimedia computer and professional audio products
manufactured for the Company through third-party agreements and from the
licensing revenues generated from Foundry Licenses and OEM Agreements and
future arrangements. The Company believes that its short and mid-term revenues
will be generated principally from the licensing arrangements and that its
longer term revenues may be generated both from the licensing and from
manufacture and sale of proprietary consumer products in the 3-D Stereo,
MultiDisc and other future technologies.
The success of the 3-D Stereo products will depend on widespread acceptance
in consumer electronics and personal computer markets, continued promotion of
the Spatializer name by well recognized OEMs, and further name recognition
attained through the association of the Company's professional products in
connection with successful computer and video games, multimedia titles,
recordings, feature films and commercial television projects. The Company
plans to take a similar approach with the MultiDisc technologies, again
focusing principally on licensing revenues and a newly identified and growing
market for CD and DVD based archiving, storage and retrieval of information.
There can be no assurance the Company will be successful in these activities or
in negotiating manufacturing or distribution agreements on terms favorable
to the Company, or that any product will be produced at a price which will
be profitable, or in sufficient time to be commercially viable.
Primarily following a licensing model, the Company intends to limit its
inventory, capital cost, personnel and overhead cost exposure in connection
with its proprietary products by entering into third-party manufacturing and
distribution arrangements. Licensing operations are managed internally by
Company personnel and supported as needed by industry consultants. Sales of
professional audio products are currently accomplished through a worldwide
network of professional audio dealers and managed by Company personnel.
Sales of consumer products will be implemented principally through direct sales
efforts and through a network of manufacturer representatives managed
internally by Company sales and marketing personnel. Sales of MultiDisc
products are expected to be addressed in a similar manner. There can be no
assurance that any such manufacturing, sales or distribution agreements will be
successfully negotiated at terms favorable to the Company.
Competition
Audio Marketplace
The Company competes with a number of entities that produce various audio
enhancement processes, technologies and products, some utilizing traditional
two-speaker playback, others utilizing multiple speakers, and others
restricted to headphone listening. These include the consumer versions of
multiple speaker, matrix and discrete digital technologies developed for
theatrical motion picture exhibition such as Dolby ProLogic, Dolby AC-3,
Dolby Digital Multimedia and DTS, as well as other technologies designed to
create an enhanced stereo image from two or more speakers.
The Company has two direct competitors QSound headquartered in Calgary,
Alberta and SRS Labs, Inc., headquartered in Irvine, California, both of
which are in the public market offering various types of three-dimensional
audio enhancement technologies. In addition, headphone based 3D audio
technologies have recently been announced by Aureal Semiconductor (Crystal River
Engineering) of San Jose, California and privately held Virtual Listening
Systems, located in Gainesville, Florida. In the future, the Company s products
and technologies also may compete with audio technologies and product
applications developed by other companies including entities that have business
relationships with the Company.
Spatializer technology was developed and proven in professional recording
and broadcast applications and has been designed to provide a full range of CD
quality, high performance stereo enhancement and sound localization
capabilities. Unlike other technologies in the consumer market, the Company
offers unique DDP dynamic optimization circuitry which permit a set and forget
ease of use and assures that the resulting enhanced stereo image is natural,
stable, coherent, and never overprocessed, regardless of source material.
Spatializer technology may be easily implemented as software or as an
inexpensive IC and works with any existing recorded material whether monophonic,
stereo or surround encoded. As a result, Spatializer technologies are both an
alternative and complement to other more expensive multichannel, multispeaker
audio technologies.
The Company believes that it will compete based primarily on the robustness,
and performance of its proprietary technologies, the breadth of its
technology and product offerings, its superior engineering and OEM support,
the strength of its IC manufacturing and OEM relationships and the
Spatializer brand name recognition in the industry.
Compact Disc Server Marketplace
The multiple disc server and CD-ROM changer industry is emerging and is
currently characterized by a single market leader NSM, a German based entity
which is adapting its audio jukebox expertise to CD-ROM applications and by
a number of small companies and specialty groups in large and established
enterprises which are seeking to enter the market. NSM sells products under
its own label and as an OEM for other manufacturers such as Kodak. NSM
offers only hardware and is dependent on third parties for control and
interface software and on system integrators and value-added resellers (VARs)
to implement the hardware for individual solutions. The other entities
generally offer either large capacity free-standing disc changers (like the
NSM products) for network environments or small capacity changers (for ten
or fewer discs) for personal computer markets. The NSM products require an
end-user investment of approximately $20,000 for a fully configured solution.
Large capacity systems are currently offered by DISC, Kubik, Dynatek, Boffin,
Hyundai, Denon and Kodak; small capacity systems are available from Mountain
Data Systems (Nakamichi), NFC, TeleVideo and JVC. Only Pioneer and
Smart & Friendly offer both large and small capacity changers.
The Company believes that if the MultiDisc technology is proved and reaches
market, it will compete in both large and small capacity markets principally
because of its flexible and configurable technology and its ability to
integrate the technology in turnkey solutions for the end-user. Currently,
the Company intends to enter the market through licensing, OEM relationships
and other strategic arrangements rather than as a direct manufacturer.
Other Developments
Approval of 1996 Incentive Plan
At the Company's 1996 Annual Meeting, stockholders approved the 1996
Incentive Plan ( 1996 Plan ) which provides for performance based incentives and
other equity interests, thereby complementing the Company's 1995 Plan which was
limited to option grants. The 1996 Plan makes available for awards 500,000
newly issued shares of the Company's Common Stock. In addition, under the
1996 Plan, 575,000 Performance Shares became available for when Steven Desper,
Carlo Civelli and three other holders waived their rights to 450,000,
50,000 and an aggregate of 75,000 current Performance Shares, respectively.
The shares are being allocated to officers and employees, including 100,000
shares to Steven Gershick, 10,000 to Gilbert Segel, 50,000 to James Pace,
175,000 to William N. Craft and an aggregate of 240,000 shares to nine (9)
persons as a group. These allocations are reflected in the share ownership
showin in "Selling Stockholders."
Performance Share Modification
In addition, at the Annual Meeting, the stockholders approved the
modification in the arrangement under which the Escrowed Performance Shares are
held. Under VSE rules, the 5,766,700 Escrowed Performance Shares have been
treated as issued and outstanding for voting purposes but are contingent and
defeasible and do not participate as to dividends, or assets in liquidation.
Currently, under applicable VSE policies, the shares are to be released pro rata
when the Company has generated cumulative cash flow of Cdn. $0.6285 per share,
on the basis of one share for each Cdn. $.6285 of cumulative cash flow
generated by DPI, or the shares may be released if the VSE permits such a
release on an alternative basis. In 1996, the Company applied to the VSE to
revise the arrangements. The revised arrangements contemplate that, with
respect to each holder, 15% of the Escrowed Performance Shares would vest on
September 30, 1996; 25% of the Escrowed Performance Shares would vest on
September 30, 1997; 30% of the Escrowed Performance Shares would vest on
September 30, 1998; and the remaining 30% of the Escrowed Performance Shares
would vest on September 30, 1999. The revised arrangements which have been
supported by the VSE were approved by the Company's stockholders, in accordance
with a VSE requirement, but certain Canadian regulatory reviews are pending.
Until such reviews are complete, the modification by its terms will not be
effective.
Legal Proceedings
On August 29, 1996, the Court granted the Company's summary judgment motion
in its entirety and denied the motion by QSound in the pending patent
infringement litigation between the Company and QSound. In granting the
Company s summary judgment motion, the Court found that the Company's IC
does not infringe the QSound patent and denied QSound's motion with respect to
infringement. The Company's claim that the QSound patent is invalid was not
decided and, since the issues which the Court would need to consider on the
patent invalidity claim are similar to certain issues considered in the
infringement claim, QSound was granted the right to immediately appeal the
denial of its motion and trial on the invalidity issue was deferred until after
that appeal. QSound has announced that it will appeal. In substance, the
Court's finding confirms the Company's position that there is no infringement
by the Company's IC of any patent held by QSound and that the claims by
QSound are without merit. If the appeal is denied and the Court's decision
is confirmed on appeal, the Company intends to pursue the remaining claims
for damages and for a decision that the QSound patent is invalid. If the
appeal is granted and the Court's decision on the motion is overruled, a
trial on the merits would follow at which time the Company will again assert
its current position, which already was adopted in the grant of the Company's
summary judgment motion, and will assert its remaining claims against QSound.
SELLING STOCKHOLDERS
SELLING STOCKHOLDERS
The shares of Common Stock offered hereunder are to be offered for sale, from
time to time, by persons acquiring them in private placements since the
Domestication Transaction or who have or may acquire the shares on exercise,
from time to time, of Warrants or Options held by them.
The following tables set forth the names and addresses of each of the Listed
Selling Stockholders (other than officers and directors), indicates their
relationship to the Company or its predecessors and specifies security
ownership at July 31, 1996 before and after giving effect to the sale of common
stock registered hereunder.
<TABLE>
Percentage
Securities To Ownership After
Percentage Be Retained Offering, if all
Ownership if all Registered Registered
Name and Category of Shares Shares Before Securities Securities are
Relationship Beneficially Owned (1) Offered Offering (2) Are Sold Sold (2)
<S> <C> <C> <C> <C> <C>
Carlo Civelli
Director (3)
Shares - 2,430,078 187,500 2,242,578
Escrow - 1,340,880 0 1,340,880
Warrants - 0 0 0
Option - 100,000 100,000 0
Total - 3,870,958 287,500 19.2 3,583,458 17.7
Stephen W. Desper
Director
Shares - 5,369 5,369
Escrow - 1,904,676 1,904,676
Option - 68,800 68,800 0
Total - 1,978,845 9.8 1,910,045 9.5
Jerold R. Rubinstein
Director
Shares - 0 0
Escrow - 150,000 150,000
Option - 100,000 100,000 0
Total - 250,000 1.2 150,000 *
David Foster
Director
Shares - 52,500 52,500
Escrow - 100,000 100,000
Option - 100,000 100,000 0
Total - 252,500 1.3 152,500 *
Steven D. Gershick
Director,
Chief Executive
Officer
Shares - 0 0
Escrow - 793,144 793,144
Option - 108,000 108,000 0
Total - 901,144 4.5 793,144 3.9
Gerald E. Mullen
Director of DPI
Shares - 0 0
Escrow - 193,112 193,112
Option - 100,000 100,000 0
Total - 293,112 1.5 193,112 1.0
James D. Pace
Director
Shares - 10,000 10,000
Escrow - 126,997 126,997
Option - 90,000 90,000 0
Total - 226,997 1.1 136,997 *
William E. Whitlock
Director of DPI
Shares - 0 0
Escrow - 157,495 157,495
Option - 35,000 35,000 0
Total - 192,495 1.0 157,495 *
Jeffrey C. Evans
Director of DPI
Shares - 10,000 10,000
Escrow - 84,497 84,497
Option - 40,000 40,000 0
Total - 134,497 * 97,447 *
Wendy M. Guerrero
Chief Financial Officer
Shares - 10,000 10,000
Escrow - 50,000 50,000
Option - 42,500 30,000 12,500
Total - 102,500 * 72,500 *
William N. Craft
Chief Technology
Officer and President
of DPI
Shares - 0 0
Escrow - 175,000 175,000
Option - 35,000 35,000 0
Total - 210,000 1.0 175,000 *
Timothy R. Bratton
Shares - 0
Option - 5,500
Total - 5,500 5,500 * None None
ABN-AMRO Bank
Talstrasse 41
8022 Zurich
Switzerland
Shares - 215,000
Warrant- 12,500
Total - 227,500 227,500 1.1 None None
VBP Finanz AG
Talstrasse 83
8023 Zurich,
Switzerland
Shares - 342,500
Warrant- 0
Total - 342,500 342,500 1.7 None None
Verwaltungs-Und
Privatbank AG
Vaduz, Liechtenstein
Shares - 60,000
Warrant- 75,000
Total - 135,000 135,000 * None None
Union Bank of Switzerland
8021 Zurich
Switzerland
Shares - 60,000
Warrant- 30,000
Total - 90,000 90,000 * None None
Romofin AG
Burglestrasse 6
8027 Zurich
Switzerland
Shares - 195,000
Warrant- 32,500
Total - 227,500 227,500 1.1 None None
Royal Bank of Scotland
Talstrasse 82
8001 Zurich
Switzerland
Shares - 42,400
Warrant- 7,500
Total - 49,900 49,900 * None None
Bank Sarasin & CIE
Loevenstraasse 11
8022 Zurich
Switzerland
Shares - 413,000
Warrants - 9,500
Total - 422,500 422,500 2.1 None None
Vananda Investment Trust
Reg
Aeulestrasse 5
9490 Vaduz
Liechtenstein
Shares - 475,000
Warrants - 0
Total - 475,000 475,000 2.4 None None
Victoria Finance Ltd.
Sir Walter Raleigh House
The Esplanada
St. Helier,
Channel Islands
Shares - 62,500
Warrants - 0
Total - 62,500 62,500 * None None
Govett American Small
Companies Trust
c/o Royal Banking
Canada
Royal Bank Plaza
Toronto, Ontario
CANADA M5J255
Shares - 187,500
Warrants - 0
Total - 187,500 187,500 * None None
John Tognetti
1100 - 400 Burrard St.
Vancouver,
British Columbia
CANADA VGC 3A6
Shares - 62,500
Warrants - 0
Total - 62,500 62,500 * None None
David Trudeau
801 South Main Street
Burbank, CA
Shares - 27,500
Warrants - 0
Total - 27,500 27,500 * None None
ROYTOR
Royal Bank Plaza
Toronto, Ontario
CANADA M5J215
Shares - 66,750
Warrants - 12,000
Total - 78,750 78,750 * None None
Brandt Investments
Royal Trust Tower
P.O. Box 7500 Stn. A
Toronto, Ontario
CANADA M5W142
Shares - 106,250
Warrants - 0
Total - 106,250 106,250 * None None
TORBAY
5 King Street W.A.
6th Floor
Toronto, Ontario
CANADA M5K1A2
Shares - 104,750
Warrants - 1,500
Total - 106,250 106,250 * None None
RBC Dominion
Securities
Commerce Court
South
Toronto, Ontario
CANADA M5L1A7
Shares - 90,000
Warrants - 0
Total - 90,000 90,000 * None None
Yorkton Securities,
Inc.
1000-1055
Dunsmuir St.
Vancouver,
British Columbia
CANADA V7X1L4
Shares - 10,000
Warrants - 2,500
Total - 12,500 12,500 * None None
Rene Simon
Kuttelgasse 4
8001 Zurich
Switzerland
Shares - 40,067
Warrants - 0
Total - 40,067 40,067 * None None
ML Small Cap Fund
1 Place Ville Marie
Suite. 3601
Montreal, Quebec
CANADA H3B3D2
Shares - 75,000
Warrants - 0
Total - 75,000 75,000 * None None
COOP BANK BASEL
Aeschenplatz 3
8002 Basel
Switzerland
Shares - 50,000
Warrants - 12,500
Total - 62,500 62,500 * None None
MARKI BAUMANN
& CO., AG
Dreikonigstrasse 8
8022 Zurich
Switzerland
Shares - 33,500
Warrants - 8,375
Total - 41,875 41,875 * None None
AFFIDA BANK
Post Fach 5274
8022 Zurich
Switzerland
Shares - 28,500
Warrants - 7,125
Total - 35,625 35,625 * None None
EAGLE CAPITAL LTD.
Leonhardshalde 21
8025 Zurich,
Switzerland
Shares - 150,000
Warrants - 37,500
Total - 187,500 187,500 * None None
FINSBURY
TECHNOLOGY TRUST
PLC
Alderman's House
Alderman's Walk
London ECZM SXR
Shares - 50,000
Warrants - 12,500
Total - 62,500 62,500 * None None
HENRY PLATT
825 Fifth Avenue
New York, New York
10021 USA
Shares - 35,000
Warrants - 8,750
Total - 43,750 43,750 * None None
WILLIAM PITT
Living Trust
920 Tangier Avenue
Palm Beach, Florida
33480-3518 USA
Shares - 35,000
Warrants - 8,750
Total - 43,750 43,750 * None None
A. ALFRED TAUBMAN
RESTATED REVOCABLE
TRUST
200 East Longlake Road
P.O. Box 200
Bloomfield Hills, MI
48303-0200 USA
Shares - 70,000
Warrants - 17,500
Total - 87,500 87,500 * None None
MARK BRENNAN
c/o Tokenhouse Capital
& Research Inc.
137 St. Pierre Street
Suite P-105
Montreal, Quebec
CANADA H2Y 3TS
Shares - 2,443
Warrants - 0
Total - 2,443 2,443 * None None
SCOT LAND
7214 - 237th
Ave., N.E.
Redmond, Washington
98053
Shares - 5,947 5,947 0
Escrow - 125,000(4) 125,000
Warrants - 0 0
Total - 130,947 5,947 * 125,000 *
DIMENSIONAL SOUND
3510 West Beltline Hwy.
Middleton, WI 53562
Shares - 25,000
Warrants - 0
Total - 25,000 25,000 * None None
---------- --------- ----- --------- -----
Total - 11,960,655 4,416,907 59.2% 7,543,748 47.4%
========== ========= ===== ========= =====
</TABLE>
(1)Includes Escrowed Performance Shares of Common Stock.
(2)Denominator includes all shares reserved for issuance on exercise of
Options and Warrants.
(3)Clarion Finanz AG is a non-reporting investment company controlled by
Carlo Civelli. Holdings of Mr. Civelli and Clarion Finanz AG are combined,
and include all shares of the Company held of record or beneficially by
either, and all additional shares over which either currently exercises
full or partial control, without duplication through attribution.
(4)Allocation subject to acceptance of employment.
*Denotes less than 1% ownership.
PLAN OF DISTRIBUTION
The shares of Common Stock held by the Selling Stockholders may be
offered by them in varying amounts and transactions, from time to time,
including through the facilities of NASDAQ, the VSE or such other exchange
or reporting system where the Company Stock may be traded, at prices then
obtainable and satisfactory to them so long as this Prospectus is then
current under the rules of the Commission and the Registration Statement
has not been withdrawn by the Company. Brokerage commissions may be paid
or discounts allowed in connection with such sales; however, it is anticipated
that the discounts allowed or commissions paid will be no more than the
ordinary brokerage commissions paid on sales effected through brokers or
dealers. To the knowledge of the Company, none of the Selling Stockholders
has made any arrangements with a broker or dealer concerning the offer or sale
of the Common Stock as of the date of this Prospectus. The Company will receive
the proceeds from the exercise of Options and Warrants but the Selling
Stockholders, not the Company, will receive the net proceeds of any sales of
their Common Stock hereunder after payment of any discounts and commissions.
The Company has paid the professional fees and related costs of this
Registration Statement from its general funds.
Registration Rights of Certain Selling Stockholders
The Company has granted to the Selling Stockholders who are not affiliates
of the Company and who acquired 3,121,107 shares of Common Stock (in private
placements since July 27, 1994), and 296,000 shares issuable on exercise of
Warrants issued in such private placements, certain registration rights with
respect to those shares of Common Stock (herein the "Registrable Shares"). The
Company also has agreed that if the Company proposes to register any of its
securities under the 1933 Act in connection with the public offering of
such securities for cash (other than a registration relating solely to the sale
of securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan, or pursuant to a Rule 145 transaction) it will
allow those holders to have their Registrable Securities included in such
Registration Statement. The Company will agree to bear all registration
expenses in connection with the registration of the Registrable Securities
other than underwriting commissions.
DESCRIPTION OF CAPITAL STOCK
The authorized capital of the Company consists of 50,000,000 shares of
Common Stock (par value U.S. $.01) of which 18,871,429 are outstanding at August
16, 1996 and 1,000,000 shares of Preferred Stock (par value U.S. $.01). No
preferred shares have been issued.
All of the issued shares of Common Stock of the Company are fully paid and
non-assessable. Subject to the release and performance conditions relating
to Escrowed Performance Shares, all of the shares of Common Stock rank
equally as to voting rights, participation in the distribution of the assets
of the Company on a liquidation, dissolution or winding-up and the entitlement
to dividends. Each share of Common Stock entitles the holder to one vote.
In the event of the liquidation, dissolution or winding-up of the Company
or other distribution of assets of the Company, the holders of the Common Stock
will be entitled to receive, on a pro-rata basis, all of the assets remaining
after the Company has paid its liabilities. Subject to the rights granted
to holders of Preferred Stock, which may be issued in the future, and
the limitations on Escrowed Performance Shares, holders of the Common Stock
are entitled to dividends only when and to the extent declared by the Board
of Directors.
Of the 18,871,429 shares of Common Stock currently issued and
outstanding, 5,776,700 (30.6%) are classified as Escrowed Performance Shares,
are held in escrow by the Company's transfer agent, Montreal Trust and will
vest under the current escrow or under the modification arrangements, if
approved.
The Company has Options outstanding which could result in the issuance of
up to 1,333,232 additional common shares of the Company and has Warrants
outstanding which could result in the issuance of up to 316,500 additional
shares of Common Stock of the Company. The Options have been granted to
officers, directors and employees and the Warrants have been issued in
private placements. Warrants are non-transferable and adjusted in the event
of a share consolidation or subdivision or other similar change to the
Company's capital. See "Executive Compensation" in the Company's Annual Report
on Form 10-K or in its Proxy materials for further information with respect to
the Options.
The Board of Directors also is authorized to issue, without stockholder
action, up to 1,000,000 shares of Preferred Stock. Preferred Stock may be
issued in one or more series, the terms of which may be determined at the
time of issuance by the Board of Directors, and may include voting rights
(including the right to vote as a series on particular matters), preferences as
to dividends and liquidation, conversion and redemption rights and sinking
fund provisions. No Preferred Stock is currently outstanding, and the
Company has no present plan for the issuance thereof. Preferred Stock could
thus be issued quickly with terms calculated to delay or prevent a change
in control of the Company or to make removal of management more difficult.
The issuance of preferred stock may have the effect of delaying, deterring
or preventing a change in control of the Company without any further action
by the stockholders or discouraging bids for the Company's Common Stock at
a premium. In certain circumstances, such issuance could have the effect
of decreasing the market price of the Common Stock.
Application of California Corporations Code
Although incorporated in Delaware, the business of the Company has been
conducted through its operating subsidiary in the State of California.
Section 2115 of the California Corporations Code ("Section 2115") provides
that certain provisions of the California Corporations Code shall be
applicable to a corporation organized under the laws of another state to the
exclusion of the law of the state in which it is incorporated, if the
corporation meets certain tests regarding the business done in California
and the number of its California shareholders.
An entity such as the Company can be subject to Section 2115 even though it
does not itself transact business in California if, on a consolidated basis,
the average of the property factor, payroll factor and sales factor is more
than fifty percent (50%) deemed to be in California during its latest full
income year and more than one-half of its outstanding voting securities are
held of record by persons having addresses in California. Section 2115 does
not apply to corporations with outstanding securities listed on the New York
or American Stock Exchange, or with outstanding securities designated as
qualified for trading as a national market security on NASDAQ, if such
corporation has at least 800 beneficial holders of its equity securities.
Since the Company currently would be deemed to meet these factors and does not
currently qualify as a national market security on NASDAQ, it is subject to
Section 2115.
During the period that the Company is subject to Section 2115, the
provisions of the California Corporations Code regarding the following
matters are made applicable to the exclusion of the law of the State of
Delaware: (i) general provisions and definitions; (ii) annual election of
directors; (iii) removal of directors without cause; (iv) removal of
directors by court proceedings; (v) filling of director vacancies
where less than a majority in office were elected by the shareholders;
(vi) directors' standard of care; (vii) liability of directors for unlawful
distributions; (viii) indemnification of directors, officers and others;
(ix) limitations on corporate distributions of cash or property;
(x) liability of a shareholder who receives an unlawful distribution;
(xi) requirements for annual shareholders meetings; (xii) shareholders' right to
cumulate votes at any election of directors; (xiii) supermajority vote
requirements; (xiv) limitations on sales of assets; (xv) limitations on
mergers; (xvi) reorganizations; (xvii) dissenters' rights in connection with
reorganizations; (xviii) required records and papers; (xix) actions by the
California Attorney General; and (xx) rights of inspection.
Delaware Corporate Governance Issues
As a Delaware corporation, the Company is subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover provision which generally
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless the business combination has been approved by the directors
and shareholders as provided in the Company's Certificate of Incorporation
and Bylaws. The Company's Certificate of Incorporation and Bylaws
incorporate the provisions of Section 203. For purposes of Section 203, a
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock and approval of the holders of at least two-thirds
of the voting stock is required to alter, amend or repeal the foregoing
provisions.
The Company has adopted certain provisions to limit the ability of
stockholders to change corporate management. The Company's Certificate of
Incorporation contains provisions which classifies the Board of Directors and
provides that Board members may only be removed for cause and with the approval
of the holders of two-thirds of the voting stock. The Certificate of
Incorporation adopts the interested stockholder provisions described above.
While these or similar provisions are commonly adopted by public
corporations formed under Delaware law, such provisions may allow management
to retain their positions in the Company and may discourage third parties
from attempting to acquire control of the Company. As a result, stockholders
of the Company may have reduced opportunities to sell their stock in
transactions where third parties are seeking an interest in the Company and
such third parties may be discouraged from undertaking transactions to
acquire a significant interest in the Company.
SHARES ELIGIBLE FOR FUTURE SALE
As of August 16, 1996, there were 18,871,429 Common Shares outstanding and
316,500 shares reserved for issuance on exercise of outstanding Warrants and
1,333,232 shares reserved for issuance on exercise of outstanding Options,
representing in the aggregate a fully diluted total of 20,521,161 shares. Of
that total, 8,145,444 or 40%, were held by persons who are officers, directors
or holders of more than 5% of the Company's securities, or other persons
deemed to be "affiliates" (together, "Affiliates"). Of the 8,145,444 shares
held by Affiliates, 4,780,697 are Escrowed Performance Shares. All of the
shares of Common Stock received by the Company's stockholders in exchange for
their Spatializer-Yukon shares in the Domestication Transaction are currently
eligible for sale in the U.S. except shares which were then held
by Affiliates of the Company. Those shares, other than the Escrowed Performance
Shares which are subject to the escrow limitations, are eligible for resale
in the U.S., subject to the volume limitation, manner of sale and available
public information requirement of Rule 144.
INDEMNIFICATION AND PERSONAL LIABILITY
OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation contains a provision authorized
by Delaware law which eliminates the personal liability of a director to the
Company, or to any of its stockholders, for monetary damages for a breach of
his fiduciary duty as a director, except in the case where the director
breached his duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of
a dividend or approved a stock repurchase in violation of Delaware corporate
law, or obtained an improper personal benefit. This provision has no effect on
the availability of equitable remedies, such as an injunction or rescission for
breach of fiduciary duty, including the duty of care. This provision also
does not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
The Company's bylaws obligate it to indemnify its directors, officers,
employees and other agents to the fullest extent permitted by Delaware law, in
respect of expenses, judgments, penalties, fines, and settlement of claims
paid or incurred, including those resulting from liability under the 1933 Act,
if the indemnitee acted in good faith and in what he or she reasonably believed
to be in, or not opposed to, the best interest of the Company, and, in the
case of criminal action, if the indemnitee had no reasonable cause to believe
his or her conduct was unlawful. The right to indemnity conferred by the Bylaws
is a contractual right.
Such indemnification may be made against (a) expenses (including attorneys'
fees), judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred in connection with any threatened, pending or
completed action, suit or proceeding (other than an action by, or in the right
of, the Company) arising out of a position with the Company (or with some other
entity at the Company's request), and (b) expenses (including attorneys'
fees) and amounts paid in settlement actually and reasonably incurred in
connection with a threatened, pending or completed action or suit by, or in the
right of, the Company, unless the director or officer is found liable to the
Company and an appropriate court does not determine that he or she is
nevertheless fairly and reasonably entitled to indemnification.
In certain circumstances, Delaware law permits advances to cover such
expenses before a final determination that indemnification is permissible.
Delaware law requires indemnification for expenses in certain circumstances
and, in others, requires that the indemnification be approved by a majority
vote of directors not involved in the event. In certain actions brought by or
on behalf of the Company against a person, indemnification of that person is
available only after a judicial determination by the Court in which the
matter was heard. To the extent that an indemnitee is successful in the
defense of any proceeding, he or she is entitled to be indemnified against
actual and reasonable expenses incurred in connection with such defense. The
Company's bylaws establish procedures pursuant to which such a determination
may be made.
Delaware law permits the Company to enter into written agreements confirming
(and in certain cases, extending its obligations to) the purchase of insurance
on behalf of any director, officer, employee or agent of the Company or other
corporation, partnership, joint venture, trust or other enterprise whether
or not the Company would have the power to indemnify such insured under
Delaware law, against liabilities arising out of their positions with the
Company. To date, the Company has not obtained any such insurance.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the 1933 Act and is therefore unenforceable.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brand Farrar Dziubla Freilich & Kolstad, LLP.
EXPERTS
The consolidated financial statements of Spatializer Audio Laboratories,
Inc. and subsidiaries as of December 31, 1995 and 1994 and for the years ended
December 31, 1995, for the fourmonth period ended December 31, 1994, and the
years ended August 31, 1994 and 1993 have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
[Outside Back Cover Pages of Prospectus]
No person is authorized in connection with this Prospectus
to give any information or to make any representations about the
Company, the Selling Stockholders, the securities referenced
herein or any matter referenced herein, other than the
information and representations contained in this Prospectus. If
any other information or representation is given or made, such
information or representation may not be relied upon as having
been authorized by the Company or any Selling Stockholder. This
Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
any of such securities in any jurisdiction or to any person
to whom it is unlawful to make such offer in such jurisdiction.
Neither the delivery of this Prospectus nor any distribution of
securities in accordance herewith shall, under any circumstances,
create any implication that there has been no change in the affairs of
the Company since the date hereof or that the information contained
herein or therein is correct as of any time subsequent to the date of
such information.
TABLE OF CONTENTS Page
Available Information . . . . . . . . . . . . . . . . . . . . . . . . i
Incorporation of Certain Documents by Reference . . . . . . . . . . .ii
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . .11
Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . . .24
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . .33
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . .33
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . .35
Indemnification and Personal Liability of
Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . .36
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
SPATIALIZER AUDIO LABORATORIES, INC.
The Date of this Prospectus is ______________, 1996.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following list itemizes all estimated expenses incurred by the
Registrant in connection with this Registration Statement. The fees and
expenses of the Selling Stockholders are being paid by the Company.
<TABLE> <S> <C>
Registration Fees $ 6,093.00
Transfer Agent Fees $ 500.00*
Printing and Engraving Costs $ 7,000.00*
Legal Fees $ 20,000.00*
Accounting Fees $ 10,000.00*
Miscellaneous $ 5,000.00*
TOTAL $ 48,593.00*
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is incorporated in Delaware. Under Section 145 of the General
Corporation Law of the State of Delaware (the "DGCL"), a Delaware corporation
generally has the power to indemnify its present and former directors and
officers against expenses and liabilities incurred by them in connection with
any suit to which they are, or are threatened to be made, a party by reason
of their serving in those positions so long as they acted in good faith and
in a manner they reasonably believed to be in, or not opposed to, the best
interests of the Company, and with respect to any criminal action, they had no
reasonable cause to believe their conduct was unlawful. The statute
expressly provides that the power to indemnify authorized thereby is not
exclusive of any rights granted under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise. The Company's
Certificate of Incorporation contains the following provision:
"ARTICLE IX
INDEMNIFICATION
SECTION 1. The Corporation shall 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, by reason of the fact that he is or was a
director or an officer of the corporation, against expenses (including, but
not limited to, attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the fullest extent and in the manner set forth
in and permitted by Delaware law and any other applicable law as from time to
time in effect. Such right of indemnification shall not be deemed to be
exclusive of any other rights to which such director or officer may be entitled
apart from the foregoing provisions. The foregoing provisions of this
Section 1 shall be deemed to be a contract between the Corporation and each
director and officer who serves in such capacity at any time while this
Section 1 and the relevant provisions of Delaware law and other applicable law,
if any, are in effect, and any repeal or modification thereof shall not
affect any rights or obligations then existing with respect to any state of
facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought or threatened based in whole or in part
upon any such state of facts.
SECTION 2. The Corporation may 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, by reason of the fact that he is or was an
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, but not limited to, attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding to the extent and in the
manner set forth in and permitted by Delaware law and any other applicable law
as from time to time in effect. Such right of indemnification shall not be
deemed to be exclusive of any other rights to which any such person may be
entitled apart from the foregoing provisions."
Section 102(b)(7) of the DGCL provides that a certificate of incorporation may
contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for B
reach of fiduciary duty as a director provided that such provision shall not
eliminate or limit the liability of a director (i) for such breach of the
director's duty of loyalty to the corporation or its stockholder, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 (relating to liability for
unauthorized acquisitions or redemptions of, or dividends on, capital stock)
of the DGCL, or (iv) for any transactions from which the director derived an
improper personal benefit.
The Company's Certificate of Incorporation contains the following relevant
provision:
"ARTICLE X
LIABILITY FOR BREACH OF FIDUCIARY DUTY
To the fullest extent permitted by Delaware law, a director of the
Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. In furtherance
thereof, a director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law hereafter is amended to
authorize the further elimination or limitation of the liability of
directors, then the liability of directors shall be eliminated or limited to
the full extent authorized by the General Corporation Law of the State of
Delaware, as so amended."
The Company's Bylaws obligate it to indemnify the Corporation to indemnify its
directors, officers, employees and other agents to the fullest extent permitted
by Delaware law, in respect of expenses, judgments, penalties, fines, and
settlement of claims paid or incurred, including those resulting from
liability under the Act, if the indemnitee acted in good faith and in what
he or she reasonably believed to be in, or not opposed to, the best interest
of the corporation, and, in the case of criminal action, if the indemnitee
had no reasonable cause to believe his or her conduct was unlawful. The
Bylaws provide:
"ARTICLE VI
Indemnification
SECTION 1. Directors and Officers. The Corporation shall 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, by reason of the fact that he is
or was a director or an officer of the Corporation, against expenses
(including, but not limited to, attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding to the fullest extent and in
the manner set forth in and permitted by the General Corporation Law of the
State of Delaware and any other applicable law as from time to time may be
in effect. Such right of indemnification shall not be deemed to be
exclusive of any right to which such director or officer may be entitled
apart from the foregoing provisions. The foregoing provisions of this
Section 1 shall be deemed to be a contract between the Corporation and each
director and officer who serves in such capacity at any time while this
Section 1 and the relevant provisions of the General Corporation Law of the
State of Delaware and other applicable law, if any, are in effect, and any
repeal or modification thereof shall not affect any right or obligation then
existing, with respect to any state of facts then or theretofore existing,
or any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts.
SECTION 2. Agents and Employees. The Corporation may 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 by reason of the fact that he is or was an
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, but not limited to, attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding to the extent and in the
manner set forth in and permitted by the General Corporation Law of the State
of Delaware and any other applicable law as from time to time may be in effect.
Such right of indemnification shall not be deemed to be exclusive of any other
right to which any such person may be entitled apart from the foregoing
provisions."
* * *
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the 1933 Act and is therefore unenforceable.
The preceding discussion of the Company's Certificate of Incorporation,
Bylaws and Section 145 of the DGCL is qualified in its entirety by reference
to the complete text of the Company's Certificate of Incorporation and Bylaws
which are incorporated by reference as Exhibits to this Registration Statement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
2.1* Desper-Spatializer Reorganization Agreement dated January 29, 1992.
(Incorporated by reference to the Registrant's Registration Statement on
Form S-1, Registration No. 33-90532, effective August 21, 1995.)
2.2* Arrangement Agreement dated as of March 4, 1994 among Spatializer-Yukon,
DPI and Spatializer Delaware. (Incorporated by reference to the
Registrant's Registration Statement on Form S-1, Registration No.
33-90532, effective August 21, 1995.)
3.1* Certificate of Incorporation of Spatializer-Delaware as filed February
28, 1994. (Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Registration No. 33-90532, effective August 21,
1995.)
3.2* Amended and Restated Bylaws of Spatializer-Delaware. (Incorporated by
reference to the Registrant's Registration Statement on Form S-1,
Registration No. 33-90532, effective August 21, 1995.)
4.1* Form of Subscription Agreement for August 1994 Private Placement.
(Incorporated by reference to the Registrant's Registration Statement
on Form S-1, Registration No. 33-90532, effective August 21, 1995.)
4.2* Form of Subscription Agreement for November 1994 Private Placement.
(Incorporated by reference to the Registrant's Registration Statement
on Form S-1, Registration No. 33-90532, effective August 21, 1995.)
4.3* Form of Spatializer-Yukon Incentive Stock Option Agreement. (Incorporated
by reference to the Registrant's Registration Statement on Form S-1,
Registration No. 33-90532, effective August 21, 1995.)
4.4* Spatializer-Delaware Incentive Stock Option Plan (1995 Plan).
(Incorporated by reference to the Registrant's Registration Statement
on Form S-1, Registration No. 33-90532, effective August 21, 1995.)
4.5* Performance Share Escrow Agreements dated June 22, 1992 among Montreal
Trust Company of Canada, Spatializer-Yukon and certain shareholders with
respect to escrow of 2,181,048 common shares of Spatializer-Yukon.
(Incorporated by reference to the Registrant's Registration Statement
on Form S-1, Registration No. 33-90532, effective August 21, 1995.)
4.6* Spatializer-Delaware 1996 Incentive Plan (Incorporated by reference to the
Registrant's Proxy Statement dated June 25, 1996 and previously filed
with the Commission.)
4.7 Form of Subscription Agreement for 1995 Private Placements.
5.1** Opinion of Brand Farrar Dziubla Freilich & Kolstad, LLP concerning
legality of unissued securities subject to registration.
10.1*** License Agreement dated June 29, 1994 between DPI and MEC.
(Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Registration No. 33-90532, effective August
21, 1995.)
10.2*** License Agreement dated November 11, 1994 between DPI and ESS.
(Incorporated by reference to the Registrant's Registration Statement
on Form S-1, Registration No. 33-90532, effective August 21, 1995.)
10.3* License Agreement dated June 10, 1994 between Joel Cohen and DPI.
(Incorporated by reference to the Registrant's Registration Statement on
Form S-1, Registration No. 33-90532, effective August 21, 1995.)
10.4* Real Property Lease for executive offices in Woodland Hills, California
(effective April 7, 1995). (Incorporated by reference to the
Registrant's Registration Statement on Form S-1, Registration
No. 33-90532, effective August 21, 1995.)
10.5* Employment Agreement between DPI and Stephen Desper dated December 16,
1991. (Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Registration No. 33-90532, effective August 21,
1995.)
10.6* Employment Agreement between DPI and Steven Gershick dated December 16,
1991. (Incorporated by reference to the Registrant s Registration
Statement on Form S-1, Registration No. 33-90532, effective August 21,
1995.)
10.7* Employment Agreement between MDT and Irwin Zucker dated June 24, 1996.
(Incorporated by reference to the Registrant's Report on Form 8-K for the
event occurring on June 24, 1996.)
11.1* Computation of Loss Per Common Share. (Incorporated by reference to
Registrant's Report on Form 10-QA, dated September 10, 1996.)
21.1* Schedule of Subsidiaries of the Company. (Incorporated by reference to
Registrant's Report on Form 10-QA, dated September 10, 1996.)
23.1 Consent of KPMG Peat Marwick LLP, independent certified public
accountants.
23.2** Consent of Brand Farrar Dziubla Freilich & Kolstad, LLP.
Schedules - None required.
__________________
* Previously filed.
** To be filed by amendment.
*** Portions subject to request for confidential treatment. The confidential
portions omitted have been filed separately with the Commission.
ITEM 17. UNDERTAKINGS
A. 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
and to the extent that the change arises from any increase or decrease in the
volume of securities offered or a change in the estimated offering range of
the securities so offered, as applicable, to reflect the same in a
post-effective amendment or, in the event that such change in the maximum
offering price is less than twenty percent, to reflect the same in a prospectus
filed pursuant to Rule 424(b); and (iii) To include any material information
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 the 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.
B. The undersigned registrant hereby further undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan s annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
C. The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated
by reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act
of 1934; and, where interim financial information required to be presented
by Article 3 of Regulation S-X is not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom the prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-3 to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Los
Angeles, State of California on September 9, 1996.
SPATIALIZER AUDIO LABORATORIES, INC.
By:
Name: Steven D. Gershick
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this registration statement has
been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/Stephen W. Desper Director, Vice Chairman of the
- -------------------- Board September 9, 1996
Stephen W. Desper
/s/Steven D. Gershick Director, Cahirman of the Board,
- --------------------- President and Chief Executive
Steven D. Gershick Officer September 9, 1996
/s/Wendy M. Guerrero
- -------------------- Chief Financial Officer September 9, 1996
Wendy M. Guerrero
/s/Carlo Civelli
- ---------------- Director September 9, 1996
Carlo Civelli
/s/David Foster
- --------------- Director September 9, 1996
David Foster
/s/James D. Pace
- ---------------- Director September 9, 1996
James D. Pace
/s/Jerold H. Rubinstein
- ----------------------- Director September 9, 1996
Jerold H. Rubenstein
/s/Gilbert N. Segel
- ------------------- Director September 9, 1996
Gilbert N. Segel
<PAGE>
EXHIBITS
EXHIBIT 4.7
SUBSCRIPTION AGREEMENT
Exchange Issuer - (Non-Exempt Purchaser)
Securities Act (British Columbia)
[Regulation Section 55 (2)(4) Exemption - Over Cdn. $97,000]
TO:Spatializer Audio Laboratories, Inc.
20700 Ventura Blvd., Suite 134
Woodland Hills, CA 91364-2357
Phone: (818) 227-3370
AND TO:Vancouver Stock Exchange
The undersigned has been advised that the securities described herein have
been offered only to persons who are "sophisticated" and who are "accredited
investors", as defined later herein, and that the minimum subscription is Cdn.
$97,000, and the undersigned acknowledges and represents that he meets such
qualifications.
The undersigned, as Principal, hereby unconditionally subscribes for and offers
to purchase the securities of Spatializer Audio Laboratories, Inc. (the
"Issuer" or the "Company") more particularly described in paragraph 1 below
(the "Securities") at the price set out in such paragraph 1, upon and subject to
the following terms and conditions:
1.The Securities shall consist of the number of units specified below (the
"Units"), each unit consisting of one fully paid and non-assessable share (the
"Shares") in the capital of the Issuer and one-quarter of one one-year non-
transferable share purchase warrant (the "Warrants"). The purchase price for
the Securities shall be as set forth below in this paragraph 1. One Warrant
shall entitle the holder thereof to purchase one additional share in the
capital of the Issuer at any time up to and including the close of business
for a period of twelve months from the Payment Date for the Securities
hereunder, at an exercise price per share as set forth below in this
paragraph 1. The Payment Date is defined as the earlier of the date of issue of
the Securities or the date this Agreement has been executed by all parties
thereto.
The undersigned subscribes for the Securities (all amounts in this Agreement are
denominated in Canadian currency except as otherwise noted):
NUMBER OF UNITS PRICE PER UNIT TOTAL PURCHASE PRICE EXERCISE PRICE OF
WARRANTS
-------- ----- ----- --------------- -------------
The total purchase price of the Securities shall be delivered to the Issuer
concurrently with the execution hereof. The Securities will be issued and
registered in the name of the undersigned at the address indicated on the
signature page.
2.The subscription and offer made herein shall be subject to acceptance by
the Issuer, which need not be given until (i) the Issuer has received
confirmation from the solicitors for the Issuer based on the information set
forth herein that the issuance of the Securities as provided for herein is
exempt from the registration and prospectus requirements of the Securities
Act (British Columbia) (the "BC Act") or any other applicable legislation,
and (ii) the Issuer has received subscriptions for issuances exempt from
such registration and prospectus requirements covering the following minimum
number of Units in the aggregate.
Minimum number of Units in the aggregate in this Offering: ________ Units
Following acceptance by Issuer, Issuer will direct a copy of this
Subscription Agreement to Subscriber, with the Issuer's acceptance endorsed
thereon. Any agreement so reached shall be further subject to approval by the
Vancouver Stock Exchange and any other stock exchange or regulatory authority
having jurisdiction with respect to the Issuer (collectively the "Regulatory
Authorities"). Provided such regulatory approval is received, the
Securities will be allotted and issued to the undersigned within five
business days following the date on which the Issuer has received the
required approvals from the Regulatory Authorities (the "Closing Date").
3.If the Closing Date does not occur by 5:00 p.m. (Vancouver time) on the
date which is sixty (60) days from the date of acceptance of the subscription
herein by the Issuer, the undersigned shall be entitled to give written notice
to the Issuer of its intention to terminate this agreement. If the Closing
Date does not occur within thirty (30) days from date of receipt by the
Issuer of such notice of the subscriber's intention to terminate, then this
agreement shall terminate and all subscription funds advanced to the Issuer
hereunder shall be repaid forthwith to the undersigned and in no event later
than 15 days following the termination of such thirty day period.
4.The undersigned is aware that the Securities will be distributed under an
exemption from registration and prospectus requirements under the BC Act and
an exemption from the registration requirements of the United States
Securities Act of 1933 (the "US 1933 Act"), and warrants and represents that
the undersigned is not making this offer or acquiring the Securities as a
result of any information about the material affairs of the Issuer
that is not generally known to the public.
5.The undersigned declares that the Securities are being purchased by the
undersigned as principal for investment purposes only; and not with a view
to resale or distribution; that the undersigned will be the sole beneficial
owner of the Securities; and that the aggregate acquisition cost of the
Securities to the undersigned is not less than $97,000.
If the undersigned is a syndicate, partnership or other form of
unincorporated organization, the undersigned warrants and represents that it
was not created solely to permit purchases without a prospectus by groups of
individuals whose individual share of the aggregate acquisition cost is less
than $97,000.
The undersigned represents that the undersigned is a sophisticated purchaser.
The undersigned acknowledges that he has not been furnished with an offering
memorandum.
6.The undersigned has been advised that accredited investor is defined in
Regulation D, Rule 501 under the US 1933 Act as follows (in this Paragraph
6 all amounts are denominated in U.S. dollars):
Accredited investor shall mean any person who comes within any of the
following categories, or who the issuer reasonably believes comes within any
of the following categories, at the time of the sale of the securities to that
person:
(1)Any bank as defined in section 3(a)(2) of the {US 1933} Act, or any savings
and loan association or other institution as defined in section 3(a)(5)(A)
of the {US 1933} Act whether acting in its individual or fiduciary
capacity, any broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934; any insurance company as defined in
section 2(13) of the {US 1933} Act; any investment company registered under
the Investment Company Act of 1940 or a business development company as
defined in section 2(a)(48) of that Act; any Small Business Investment
Company licensed by the U.S. Small Business Administration under section
301(c) or (d) of the Small Business Investment Act of 1958; any plan
established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of
$5,000,000; any employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974 if the investment decision is made by a
plan fiduciary, as defined in section 3(21) of such act, which is either a
bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are accredited investors;
(2)Any private business development company as defined in section 202(a)(22) of
the Investment Advisers Act of 1940;
(3)Any organization described in section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with
total assets in excess of $5,000,000;
(4)Any director, executive officer, or general partner of the issuer of the
securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;
(5)Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000,
(6)Any natural person who had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation
of reaching the same income level in the current year;
(7)Any trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in 230.506(b)(2)(ii);
[being so described as a person who either alone or with his purchaser
representative has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the
prospective investment]; and
(8)Any entity in which all of the equity owners are accredited investors.
7.The undersigned represents and acknowledges that the undersigned:
i)Is a sophisticated purchaser as described in Paragraph 5 above.
ii)Is an accredited investor as described in Paragraph 6 above under the
following subsection of such Paragraph _______. (Here please indicate the
applicable subparagraph in Paragraph 6.)
iii)Is purchasing the Securities as principal for investment purposes only and
not with a view to resale or distribution except as may lawfully be
permitted and that the undersigned will be the sole beneficial owner of the
Securities.
iv)Has paid an aggregate acquisition cost no less than the amount set forth on
the first page hereof, and created solely to permit purchases without a
prospectus by groups of individuals whose individual share of the aggregate
cost is less than such amount.
8.The undersigned undertakes to hold any Securities acquired hereunder for the
period of twelve months from the Payment Date, unless disposed of pursuant
to an exemption available under the BC Act or the Regulation thereto
or pursuant to a ruling of the Superintendent of Brokers for British Columbia
and, prior to disposition, approval of the disposition is received from the
Vancouver Stock Exchange.
9.The undersigned acknowledges being advised as follows as to restrictions on
resale of the securities purchased hereunder:
Canadian Restrictions. The shares, warrants and shares to be purchased under
the warrants are subject to a one year hold period and legend condition and
related obligations imposed under Vancouver Stock Exchange Rules and Sections
120 and 134 of the British Columbia Securities Act, commencing at the payment
date, which provide in general that the first trade in any Securities
acquired under the prospectus exemption may be made in accordance with the
following rules:
(i)12 months have elapsed from the Payment Date;
(ii)if the undersigned is an insider of the Company, the Company is not in
default of any requirement of the Act or the Regulation thereto;
(iii)the trade is not a distribution from the holdings of a control person;
(iv)no unusual effort is made to prepare the market or to create a demand for
the Securities;
(v)no extraordinary commission or consideration is paid in respect of the trade;
and
(vi)the trade is made in compliance with the laws and regulations of any
jurisdiction other than British Columbia to which the trade may be subject.
In that regard it should be noted that Preliminary Note 6 to Regulation S
under the United States Securities Act of 1933 states:
"Regulation S is available only for offers and sales of securities outside
the United States. Securities acquired overseas, whether or not acquired
pursuant to Regulation S, may be resold in the United States
only if they are registered under the Act or an exemption from registration
is available."
United States Restrictions. The securities and any other securities
issuable upon exercise of any rights or warrants which are a part of the
securities are and will be "restricted securities" under the United States
federal securities laws in that such securities will be acquired from the
Company in a transaction not involving a public offering. Under applicable
laws and regulations such securities may be sold only pursuant to a
registration statement or in circumstances in which an exemption from
registration is available.
Rule 144. Resale in the United States of restricted securities is governed by
the provisions of SEC Rule 144, which generally provides that restricted
securities or securities in the hands of affiliates (generally, insiders) are
subject to manner of sale, available public information and volume limitations
and, if the securities are restricted, must be held for a substantial period
prior to resale (a holding period of two years in the ordinary situation and
three years in the absence of publicly available information about the
Company, with all applicable obligations generally continuing in the case of
affiliates). The two or three years periods with respect to warrants and
securities which are exercisable or convertible into other securities may be
measured from the time of exercise or conversion and thus may continue
beyond the two or three year period applicable to securities being currently
acquired.
Regulation S. The SEC in its Regulation S has announced that offers and sales
of securities deemed made "outside the United States" are not required to be
registered under the Act. The conditions under which resales of securities
may be deemed so made are set forth in SEC Rules 903 and 904 under such
Regulation S. Rule 904 provides in general that an offer or sale of
securities by any person other than the issuer, a distributor, any of their
respective affiliates (or agents of the foregoing) shall be deemed to occur
outside the U.S. if (i) the offer or sale is made in an "offshore
transaction" and (ii) no directed selling efforts are made in the U.S. by the
seller, an affiliate or their agents. An offer or sale is made in an "offshore
transaction", in general, if the offer is not made to a person in the United
States and either (a) the buy order is made or reasonably believed to be made
outside the United States or (b) the transaction is executed in, on or
through the facilities of a "designated offshore securities market" and the
sale is not pre-arranged with a buyer in the United States. The Vancouver
Stock Exchange is explicitly recognized as a designated offshore securities
market. Resales by persons who are affiliates of an issuer only by virtue
of holding the position of officer or director are also governed by Rule 904 of
Regulation S. Resales by persons otherwise deemed affiliates (such as by virtue
of levels of share ownership deemed to amount to "control") are regarded as
equivalent to sales by the issuer, and are thus governed by Rule 903 of
Regulation S which imposes additional conditions, and to which specific
reference should be made in the case of any such intended resales.
10.Purchaser has received and reviewed all information Purchaser considers
necessary or appropriate for deciding whether to purchase the Securities.
Purchaser further represents that Purchaser has had an opportunity to ask
questions and receive answers from the Company and its officers and employees
regarding the terms and conditions of purchase of the Securities and
regarding the business, financial affairs and other aspects of the Company
and has further had the opportunity to obtain any information (to the extent
the Company possesses or can acquire such information without unreasonable
effort or expense) which Purchaser deems necessary to evaluate the investment
and to verify the accuracy of information otherwise provided to Purchaser.
11.Without in any way limiting the representations set forth above, Purchaser
further agrees not to make any disposition of all or any portion of the
Securities purchased hereunder or issuable upon exercise of conversion or
other rights which are a part of the Securities unless and until:
(a)There is then in effect a registration statement under the US 1933 Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement and any applicable requirements of state
securities laws; or
(b)(i) Purchaser shall have notified the Company of the proposed disposition and
shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company Purchaser shall have furnished Company with a written
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of any securities under the Act or
the consent of or a permit from appropriate authorities under any applicable
state securities law. Purchaser understands that the Company will not require
opinions of counsel for transactions made pursuant to SEC Rule 144, provided
it is furnished all certificates and other information it may reasonably
request to permit it to determine that the subject disposition is, in fact,
exempt from the registration requirements of the Act pursuant to SEC Rule 144.
(c)In the case of any disposition of any of the Securities and any other
securities issuable upon exercise of any conversion or other rights which are
a part of the Securities pursuant to SEC Rule 144, in addition to the matters
set forth in paragraph 11(b) above, Purchaser shall promptly forward to the
Company a broker satisfactory to the Company evidencing compliance with SEC
Rule 144. If SEC Rule 144 is amended or if the SEC's interpretations thereof
in effect at the time of any such disposition by Purchaser have changed from
its present interpretations thereof, Purchaser shall provide the Company with
such additional documents as it may reasonably require.
12.If (but without any obligation to do so) the Company proposes to register
(including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its stock or other securities
under the U. S. Securities Act of 1933 (the "Act") (other than a registration
relating solely to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan, relating to a Rule
145 transaction or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registerable Securities) or to
qualify the distribution of any of its stock or other securities under the
prospectus requirements of British Columbia law by filing a Prospectus in
British Columbia (both "registration" and "qualification" being herein referred
to as "registration"), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
such Holder given within twenty (20) days after mailing of such notice by the
Company, the Company shall, subject to the provisions further contained herein,
cause to be registered all of the Registrable Securities that each such
Holder has requested to be so registered.
(1)As a condition precedent to the obligations of the Company hereunder, the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method
of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
(2)The Company shall bear and pay all costs of and incidental to any
registration, filing or qualification of Registrable Securities with respect
to the registrations pursuant to Paragraph 12 for each Investor (which
right may be assigned), including (without limitation) all registration, filing,
and qualification fees, printers' and accounting fees relating or
apportionable thereto and the reasonable fees and disbursements of one (1)
counsel for the selling Holders and the Holders will bear and pay their
prorata portion of any underwriting discounts and commissions.
(3) In connection with any offering involving an underwriting of shares, the
Company shall not be required under Paragraph 12 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected
by it, and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by the Company.
13.Purchaser understands that the certificates evidencing the Securities and any
other securities issuable upon exercise of any conversion or other rights
which are a part of the Securities may bear one or all of the following
legends:
(a)'THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.'
(b)Any legend required by applicable state securities laws.
(c)The legend required by applicable Canadian federal or provincial securities
laws, and by the Vancouver Stock Exchange which must state that the security
represented by the certificate is subject to a hold period and may not be
traded in British Columbia until the expiry of the hold period except as
permitted by the Securities Act (British Columbia) and regulations made under
the Act, and must state the date the hold period expires.
14.The Issuer's acceptance of the subscription herein shall be indicated by
executing and delivering to the undersigned a copy of this agreement, and
shall be effective as of the date therein specified. Upon acceptance,
the Issuer will use its best endeavors to obtain the approval of the Regulatory
Authorities and to do or cause to be done all such other things as may be
required in order to proceed with the issuance of the Securities, as soon as
reasonably possible.
15.This agreement shall be governed by and construed in accordance with the
laws of the Province of British Columbia.
16.The undersigned and the Issuer agree that they will each execute or cause to
be executed and delivered all such further and other documents and
assurances, and do and cause to be done all such further acts and things as may
be necessary or desirable to carry out this agreement according to its true
intent, and to secure the approval of the Regulatory Authorities hereto.
17.The agreement constituted by the acceptance of the subscription herein by
the Issuer constitutes the entire agreement between the parties in respect
of the subject matter hereto and supersedes any and all prior agreement,
representations, warranties or covenants, express or implied, written or
verbal, except as may be expressed herein.
18.This agreement shall enure to the benefit of and be binding upon the parties
and their respective heirs, executors, administrators, successors and assigns.
19.Any notice required or permitted to be given hereunder shall be in writing,
addressed to the party at its address as set out herein (or at such other
address as a party may provide in writing to the other) and shall be deemed to
have been given, if delivered, when delivered; or if telegraphed or telexed, on
the date after the date of telegraphing or telexing; or if mailed by
registered mail in Canada, on the third business day after the date of
mailing ( except during the period of any interruption in the normal postal
service within Canada).
20.DATED at __________________________, this ______ day of ____________, 1996.
Name of Subscriber (Please Print):_______________________________________
Per:_______________________________________
Authorized Signatory
Official Capacity:_______________________________________
Name of individual whose signature appears above, if different from name of
Subscriber:
Address of Subscriber:_______________________________________
_______________________________________
_______________________________________
_______________________________________
The foregoing Subscription is accepted by the Issuer this ________day
of__________, 1996.
SPATIALIZER AUDIO LABORATORIES, INC.
Per:________________________________________
Authorized Signatory
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Spatializer Audio Laboratories, Inc.
We consent to the use of our report incorporated by reference herein and
to the references to our firm under the headings "Selected Consolidated
Financial Data" and "Experts" in the prospectus.
KPMG Peat Marwick LLP
Los Angeles, California
September 9, 1996
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