<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1996.
REGISTRATION NO. 333-12035
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO THE
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SPATIALIZER AUDIO LABORATORIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3698 95-4484725
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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 OFFICE)
STEVEN D. GERSHICK, CHIEF EXECUTIVE OFFICER AND PRESIDENT
SPATIALIZER AUDIO LABORATORIES, INC.
20700 VENTURA BOULEVARD, SUITE 134
(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. [ ]
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.
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SPATIALIZER AUDIO LABORATORIES, INC.
CROSS-REFERENCE SHEET
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<CAPTION>
ITEM NO. FORM S-3 CAPTION
----------------------------------------------------------- ----------------------------
<C> <S> <C>
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
</TABLE>
<PAGE> 3
4,269,907 SHARES
SPATIALIZER AUDIO LABORATORIES, INC.
(A DELAWARE CORPORATION)
The 4,269,907 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 3,283,607 shares of Common Stock which are
currently outstanding and 986,300 shares of Common Stock reserved for issuance
on the exercise of outstanding Options and Warrants. Of these, 702,800 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
November 7, 1996, the closing price of the Common Stock on the NASDAQ was
$3.1287 U.S. and on the VSE was $3.10 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 NOVEMBER 18, 1996
<PAGE> 4
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. $.7514, 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 November 5,
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
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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 September 30, 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.
3
<PAGE> 6
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(R) 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(R) technology can be
used in either production or playback applications, or both. Spatializer(R)
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(R) technology base through licensing
activities and through the sale of its own proprietary hardware and software
products, obtaining recognition for the Spatializer(R) 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(R) 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(R)
IC into products under OEM agreements with the Company. To date, the Company has
OEM arrangements with more than 38 major global manufacturers, including Texas
Instruments, Digital Equipment Corporation ("DEC"), Panasonic, JVC, Sharp,
Hitachi, Compaq and Labtec Enterprises.
The Company has recently introduced a pioneering new audio technology
directed toward the burgeoning markets for DVD (Digital Versatile Disc) and
DVD-ROM. Called N-2-2(TM)/Digital Virtual Surround(TM), the technology creates
spatially accurate reproduction of Dolby Digital (Surround AC-3), Dolby Pro
Logic or MPEG-2 multi-channel surround sound out of two ordinary speakers,
eliminating the need for costly and complicated additional amplification and
loudspeakers. The Company believes its Digital Virtual Surround technology will
accelerate penetration of the DVD technologies into both the consumer
electronics and personal computer marketplace since the technology mitigates
cost as the largest barrier to entry by allowing consumers to leverage rather
than replace existing audio systems.
In developing and bringing the Spatializer(R) 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 technologyportfolio,
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(R) endeavor by developing and gaining access to
complementary technologies independently and through strategic alliances with
other participants. The MultiDisc(TM) technologies are expected to be generating
revenues in 1997.
4
<PAGE> 7
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 3,283,607 shares of Common
Stock which are currently outstanding and 986,300 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 $879,700. 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."
OUTSTANDING SECURITIES
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<S> <C>
Shares of Common Stock Outstanding at October 31, 1996: 19,014,929
Reserved for Issuance -- Options............................... 1,779,732
Reserved for Issuance -- Warrants.............................. 316,500
Total Shares of Common Stock Outstanding Assuming Exercise of
Warrants and Options:.......................................... 21,111,161
Shares offered by Selling Stockholders (including 986,300 shares
reserved for issuance on exercise of Warrants and Options)..... 4,269,907
</TABLE>
This Prospectus includes references to MultiDisc(TM) and other trademarks,
tradenames, and product names of the Company and of other entities, some of
which may not be designated as such.
5
<PAGE> 8
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(R) 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 $18.6 million
in investment capital to finance technology development and operations. At
September 30, 1996, the Company had an accumulated deficit of approximately
$13.7 million and current liabilities of approximately $669,000 (including
approximately $113,000 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(R) 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(R) 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 but to date no
appeal has been filed. 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
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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, management believes that existing cash
balances along with operating revenues will be sufficient to satisfy the
Company's operating requirements for the twelve months following the effective
date hereof, other than the additional capital requirements needed to fully fund
the development of the MDT technologies and to fully assimilate MDT. Additional
capital also will 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. In the event that
the Company is unable to generate all of the additional capital that it requires
for such further developments or acquisitions, it will reevaluate its plans and
modify its operations to conform to available resources. However, 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."
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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 continues to trade below U.S. $5.00
per share, additional requirements imposed on broker-dealers by the Penny Stock
Reform Act of 1990 are applicable. Compliance with those requirements could
impact the Company's trading market. There is no assurance that the Company's
current trading will be sustained or expanded 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 8,388,944
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
8
<PAGE> 11
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 arrangements approved by the stockholders, with respect to
each holder, 15% of the Escrowed Performance Shares were to have vested 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. However, since regulatory
approvals (which could result in other changes to the modifications) are still
pending in Canada, no vesting has occurred. 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
$880,000. If all the warrants are fully exercised, the Company will receive
proceeds of up to approximately $1,133,800.
9
<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, assuming none of the currently outstanding Options or
Warrants are exercised.
<TABLE>
<S> <C>
DEBT
Notes Payable................................................ $ 23,847
Advances from Related Parties................................ 112,500
----------
Total Debt................................................... $ 136,347
----------
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
18,914,929 shares issued and outstanding at September 30,
1996...................................................... 189,149
Additional Paid-In Capital................................... 18,075,337
Accumulated Deficit.......................................... (13,685,699)
Foreign Currency Translation Adjustment...................... (767)
----------
Total Stockholders' Equity................................... $ 4,578,020
----------
Total Capitalization......................................... $ 4,714,367
==========
</TABLE>
10
<PAGE> 13
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 September 30,
1996 and for the nine month periods ended September 30, 1995 and September 30,
1996 are derived from unaudited consolidated financial statements of Spatializer
Audio Laboratories, Inc. and subsidiaries incorporated by reference elsewhere in
this Prospectus.
11
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOUR-MONTH FISCAL NINE MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, PERIOD ENDED YEAR ENDED SEPTEMBER 30,
-------------------------------------------------- DECEMBER 31, DECEMBER 31, -------------------------
1991(1) 1992(2) 1993(2) 1994(3) 1994(3)(4) 1995(3) 1995(3) 1996(5)(6)
----------- ---------- ---------- ---------- ------------ ------------ ----------- -----------
(UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA
Revenues........... $ -- $ -- $ 97 $ 140 $ 187 $ 1,230 $ 836 $ 1,409
Cost of Revenues... $ -- -- (55) (61) (25) (79 ) (51) (154)
------ ---------- ---------- ---------- ---------- ----------- ----------- -----------
Gross Profit....... -- -- 42 79 162 1,151 785 1,255
Operating
Expenses......... (218) (1,039) (2,120) (1,808) (1,339) (4,466 ) (2,955) (4,684)
Interest Income
(Expense), Net... (21) (29) (25) (79) (16) 74 35 92
------ ---------- ---------- ---------- ---------- ----------- ----------- -----------
Loss Before Income
Taxes............ $ (239) $ (1,068) $ (2,103) $ (1,808) $ (1,193) $ (3,241 ) $ (2,135) $ (3,337)
Income Taxes....... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 293
------ ---------- ---------- ---------- ---------- ----------- ----------- -----------
Net Loss........... $ (239) $ (1,068) $ (2,103) $ (1,808) $ (1,193) $ (3,241 ) $ (2,135) $ (3,630)
====== ========== ========== ========== ========== =========== =========== ===========
Net Loss Per Common
Share............ N/A(4) $ (0.42) $ (0.37) $ (0.26) $ (0.14) $ (0.32 ) $ (0.20) $ (0.29)
====== ========== ========== ========== ========== =========== =========== ===========
Weighted Average
Common Shares
Outstanding(7)... N/A(4) 2,518,373 5,740,298 6,891,546 8,552,535 10,156,816 10,537,042 12,710,884
====== ========== ========== ========== ========== =========== =========== ===========
CONSOLIDATED
BALANCE SHEET DATA
Cash and Cash
Equivalents...... $ -- $ 669 $ 500 $ 1,779 $ 1,540 $ 3,113 $ 3,993 $ 2,865
Working Capital.... (438) 278 (66) 6 982 3,159 3,681 3,556
Total Assets....... 6 764 932 2,676 2,318 4,420 5,155 5,247
Advances from
Related
Parties.......... 549 332 433 539 517 325 372 113
Shareholders' Note
Payable.......... -- -- 292 -- -- -- -- --
Total Shareholders'
Equity........... $ (573) $ 361 $ 69 $ 288 $ 1,367 $ 3,697 $ 4,156 $ 4,578
</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 of 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.
12
<PAGE> 15
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(R), 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(R) 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(R) technology base through licensing activities and through
the sale of its own proprietary hardware and software products, obtaining
recognition for the Spatializer(R) brand name through association with globally
recognized consumer electronic brand names, and broadening its base of
technologies to provide for continued growth.
Spatializer(R) 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(R) 3-D audio enhancement. Spatializer(R)
3-D stereo technology is implemented in both analog and digital forms, and in IC
hardware and software applications. Spatializer(R) technology also includes the
unique Double Detect & Protect ("DDP(TM)") 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.
The Company has recently introduced a pioneering new audio technology
directed toward the burgeoning markets for DVD (Digital Versatile Disc) and
DVD-ROM. Called N-2-2( 1/8)/Digital Virtual Surround( 1/8), the technology
creates spatially accurate reproduction of Dolby Digital (Surround AC-3), Dolby
Pro Logic or MPEG-2 multi-channel surround sound out of two ordinary speakers,
eliminating the need for costly and complicated additional amplification and
loudspeakers. The Company believes its Digital Virtual Surround technology
accelerate penetration of the DVD technologies into both the consumer
electronics and personal computer marketplace since the technology mitigates
cost as the largest barrier to entry by allowing consumers to leverage rather
than replace existing audio systems.
PRODUCTS AND LICENSING ARRANGEMENTS
Professional Recording, Film and Broadcast Products
The Company's PRO Spatializer(R), 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.
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<PAGE> 16
The PRO Spatializer(R) 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(TM), a non-expandable version of the PRO
Spatializer(R) which limits operator control to eight simultaneous recording
channels; and DIGITAL Spatializer(R), a product designed for professional record
mastering providing full control over all spatial audio parameters entirely
within the digital domain. The Spatializer-8(TM) and DIGITAL Spatializer(R) 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(R) has been used in connection with the broadcasts of the Grammy(R)
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(R) brand
product for consumers, the HTMS-2510(TM) 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(R) 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:
- N-2-2(TM)/Digital Virtual Surround(TM), a pioneering technology aimed at
the DVD/DVD-ROM markets enables Dolby Digital (Surround AC-3) audio
playback from two conventional speakers or headphones, instead of the
five or more speakers normally required. Developed on the Dolby-certified
Motorola 56009 decoder, the new technology allows manufacturers to
provide realistic multi-channel audio in two-speaker computer and
consumer electronics devices.
- PT3D(TM), a software plug-in which provides Spatializer(R) 3-D sound
imaging and enhancement for digital audio workstations, used in the
production of audio for music, films and computer games.
- Spatializer(R) 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(R) 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(TM), a rack mount 3-D audio processor for the semi-professional
recording market is being readied for market introduction this fall.
14
<PAGE> 17
- Currently under development are other advanced audio technologies
including a realtime positional audio for headphones and speakers
directed primarily to the multimedia PC market.
Licensing Activities
The Company licenses its Spatializer(R) proprietary technology through
semiconductor manufacturing licenses with foundries that are directly involved
in the manufacture and distribution of the Spatializer(R) 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(R) 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(R) technology. ESS
offers a multi-function IC principally for multimedia laptop computing
applications and OnChip offers a pair of stand-alone 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(R) 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.
15
<PAGE> 18
The following table is a representative list of the OEMs with whom the
Company has entered into OEM agreements:
<TABLE>
<CAPTION>
OEM PRODUCT DESCRIPTIONS/ BRAND NAMES
------------------------------------------- -------------------------------------------
<S> <C>
Anam Electronics Co., Ltd. Equalizers and Microcomponents 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
JVC VCRs
Konami Co, Ltd. Video arcade games
Labtec Enterprises, Inc. Amplified computer speakers; Imager(TM) 3D
audio processor
Matsushita Electric Industrial (MEI) Panasonic portable audio stereos, Karaoke
Systems, and VCRs
Sharp Corporation Color televisions and VCRs
Texas Instruments Laptop computers
</TABLE>
Licensing for the Company's software technologies will principally follow a
similar model to its OEM licensing program and is intended to generate per unit
royalties to the Company.
MULTIDISC(TM) NETWORK BASED MODULAR, SCALABLE COMPACT DISC SERVER DVD-ROM
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(TM) 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(TM) 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 on-line, near real-time data access, storage,
archiving and retrieval are required.
Two key elements of the MultiDisc(TM) 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(TM) 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(TM) 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.
16
<PAGE> 19
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(TM) and other
future technologies.
17
<PAGE> 20
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(R) 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(TM) 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, as well as other technologies designed to create an enhanced stereo
image from two or more speakers.
The Company has three principal competitors QSound headquartered in
Calgary, Alberta; SRS Labs, Inc., headquartered in Irvine, California; and
Aureal Semi-conductor, Inc. in Fremont, California, all of which are in the
public market offering various types of three-dimensional audio enhancement
technologies that compete in some but not all of the markets. 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(R) 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(TM) 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.
18
<PAGE> 21
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,
500,000 Performance Shares became available for reallocation when Stephen Desper
and four other holders waived their rights to 425,000 and an aggregate of 75,000
current Performance Shares, respectively. The shares are being allocated to
officers and employees, ncluding 150,000 shares to Steven Gershick, 10,000
shares to Gilbert Segel, 50,000 shares to James Pace, 175,000 shares to William
N. Craft and an aggregate of 115,000 shares to eight (8) persons as a group.
These allocations are reflected in the share ownership shown 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 were to have vested 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 and any
mandated changes are addressed, the modification by its terms will not be
effective and no vesting has occurred.
19
<PAGE> 22
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 but to date no appeal has
been filed. 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.
20
<PAGE> 23
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 October 31, 1996 before and after giving effect to the sale of common stock
registered hereunder.
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP
SECURITIES TO BE AFTER
PERCENTAGE RETAINED, IF ALL OFFERING, IF ALL
OWNERSHIP REGISTERED REGISTERED
CATEGORY OF SHARES SHARES BEFORE SECURITIES ARE SECURITIES ARE
NAME AND RELATIONSHIP BENEFICIALLY OWNED(1) OFFERED OFFERING(2) SOLD SOLD(2)
- ---------------------------- --------------------- --------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Carlo Civelli Shares-- 2,430,078 187,500 2,242,578
Director(3) Escrow-- 1,390,880 1,390,880
Warrants-- 0 0 0
Option-- 150,000 100,000 50,000
Total-- 3,970,958 287,500 19.3 3,683,458 17.9
Stephen W. Desper Shares-- 5,369 5,369
Director Escrow-- 1,929,676 1,929,676
Option-- 102,300 52,300 50,000
Total-- 2,037,345 9.9 1,985,045 9.7
David Foster Shares-- 52,500 52,500
Director Escrow-- 100,000 100,000
Option-- 150,000 100,000 50,000
Total-- 302,500 1.5 202,500 1.0
Steven D. Gershick Shares-- 0 0
Director, Escrow-- 843,144 843,144
Chief Executive Officer Option-- 208,000 108,000 100,000
Total-- 1,051,144 5.1 943,144 4.6
Gerald E. Mullen Shares-- 0 0
Director of DPI Escrow-- 193,112 193,112
Option-- 100,000 100,000 0
Total-- 293,112 1.4 193,112 *
James D. Pace Shares-- 10,000 10,000
Director Escrow-- 126,997 126,997
Option-- 140,000 90,000 50,000
Total-- 276,997 1.3 186,997 *
William E. Whitlock Shares-- 0 0
Director of DPI Escrow-- 157,495 157,495
Option-- 35,000 35,000 0
Total-- 192,495 * 157,495 *
Jeffrey C. Evans Shares-- 10,000 10,000
Director of DPI Escrow-- 84,497 84,497
Option-- 40,000 40,000 0
Total-- 134,497 * 94,497 *
Wendy M. Guerrero Shares-- 10,000 10,000
Chief Financial Officer Escrow-- 50,000 50,000
Option-- 42,500 30,000 12,500
Total-- 102,500 * 72,500 *
William N. Craft Shares-- 0 0
Chief Technology Officer and Escrow-- 175,000 175,000
President of DPI Option-- 35,000 35,000 0
Total-- 210,000 1.0 175,000 *
ABN-AMRO Bank Shares-- 215,000
Talstrasse 41 Warrant-- 12,500
8023 Zurich, Switzerland Total-- 227,500 227,500 1.1 None None
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP
SECURITIES TO BE AFTER
PERCENTAGE RETAINED, IF ALL OFFERING, IF ALL
OWNERSHIP REGISTERED REGISTERED
CATEGORY OF SHARES SHARES BEFORE SECURITIES ARE SECURITIES ARE
NAME AND RELATIONSHIP BENEFICIALLY OWNED(1) OFFERED OFFERING(2) SOLD SOLD(2)
- ---------------------------- --------------------- --------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
VBP Finanz AG Shares-- 342,500
Talstrasse 83 Warrant-- 0
8023 Zurich, Switzerland Total-- 342,500 342,500 1.7 None None
Verwaltungs-Und Shares-- 60,000
Privatbank AG Warrant-- 75,000
Vaduz, Liechtenstein Total-- 135,000 135,000 * None None
Union Bank of Switzerland Shares-- 60,000
8021 Zurich, Switzerland Warrant-- 30,000
Total-- 90,000 90,000 * None None
Romofin AG Shares-- 195,000
Burglestrasse 6 Warrant-- 32,500
8027 Zurich, Switzerland Total-- 227,500 227,500 1.1 None None
Royal Bank of Scotland Shares-- 42,400
Talstrasse 82 Warrant-- 7,500
8001 Zurich, Switzerland Total-- 49,900 49,900 * None None
Bank Sarasin & CIE Shares-- 413,000
Loevenstraasse 11 Warrant-- 9,500
80220 Zurich, Switzerland Total-- 422,500 422,500 2.1 None None
Vananda Investment Shares-- 475,000
Trust Reg Warrant-- 0
Aeulestrasse 5 Total-- 475,000 475,000 2.4 None None
9490 Vaduz, Liechtenstein
Victoria Finance Ltd. Shares-- 62,500
Sir Walter Raleigh House Warrant-- 0
The Esplanada Total-- 62,500 62,500 * None None
St. Helier, Channel Islands
Govett American Small Shares-- 187,500
Companies Trust Warrant-- 0
c/o Royal Banking Canada Total-- 187,500 187,500 * None None
Royal Bank Plaza
Toronto, Ontario
CANADA M5J255
John Tognetti Shares-- 62,500
1100 - 400 Burrard St. Warrant-- 0
Vancouver, British Columbia Total-- 62,500 62,500 * None None
CANADA VGC 3A6
David Trudeau Shares-- 27,500
801 South Main Street Warrant-- 0
Burbank, CA Total-- 27,500 27,500 * None None
ROYTOR Shares-- 66,750
Royal Bank Plaza Warrant-- 12,000
Toronto, Ontario Total-- 78,750 78,750 * None None
CANADA M5J215
Brandt Investments Shares-- 106,250
Royal Trust Tower Warrant-- 0
P.O. Box 7500 Stn. A Total-- 106,250 106,250 * None None
Toronto, Ontario
CANADA M5W142
TORBAY Shares-- 104,750
5 King Street W.A. Warrant-- 1,500
6th Floor Total-- 106,250 106,250 * None None
Toronto, Ontario
CANADA M5K1A2
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP
SECURITIES TO BE AFTER
PERCENTAGE RETAINED, IF ALL OFFERING, IF ALL
OWNERSHIP REGISTERED REGISTERED
CATEGORY OF SHARES SHARES BEFORE SECURITIES ARE SECURITIES ARE
NAME AND RELATIONSHIP BENEFICIALLY OWNED(1) OFFERED OFFERING(2) SOLD SOLD(2)
- ---------------------------- --------------------- --------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
RBC Dominion Securities Shares-- 90,000
Commerce Court South Warrant-- 0
Toronto, Ontario Total-- 90,000 90,000 * None None
CANADA M5L1A7
Yorkton Securities, Inc. Shares-- 10,000
1000-1055 Dunsmuir St. Warrant-- 2,500
Vancouver, British Columbia Total-- 12,500 12,500 * None None
CANADA V7X1L4
Rene Simon Shares-- 40,067
Kuttelgasse 4 Warrant-- 0
8001 Zurich, Switzerland Total-- 40,067 40,067 * None None
ML Small Cap Fund Shares-- 75,000
1 Place Ville Marie Warrant-- 0
Suite 3601 Total-- 75,000 75,000 * None None
Montreal, Quebec
CANADA H3B3D2
COOP BANK BASEL Shares-- 50,000
Aerschenplatz 3 Warrant-- 12,500
8002 Basel, Switzerland Total-- 62,500 62,500 * None None
MARKI BAUMANN & Shares-- 33,500
CO., AG Warrant-- 8,375
Drekonigstrasse 8 Total-- 41,875 41,875 * None None
8022 Zurich, Switzerland
AFFIDA BANK Shares-- 28,500
Post Fach 5274 Warrant-- 7,125
8022 Zurich, Switzerland Total-- 35,625 35,625 * None None
EAGLE CAPITAL LTD. Shares-- 150,000
Leonhardshalde 21 Warrant-- 37,500
8025 Zurich, Switzerland Total-- 187,500 187,500 * None None
FINSBURY TECHNOLOGY TRUST Shares-- 50,000
PLC Warrant-- 12,500
Alderman's House Total-- 62,500 62,500 * None None
Alderman's Walk
London ECZM SXR
HENRY PLATT Shares-- 35,000
825 Fifth Avenue Warrant-- 8,750
New York, New York 10021 USA Total-- 43,750 43,750 * None None
WILLIAM PITT Shares-- 35,000
Living Trust Warrant-- 8,750
920 Tangier Avenue Total-- 43,750 43,750 * None None
Palm Beach, Florida
33480-3518 USA
A. ALFRED TAUBMAN Shares-- 70,000
RESTATED REVOCABLE TRUST Warrant-- 17,500
200 East Longlake Road Total-- 87,500 87,500 * None None
P.O. Box 200
Bloomfield Hills, MI
48303-0200 USA
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP
SECURITIES TO BE AFTER
PERCENTAGE RETAINED, IF ALL OFFERING, IF ALL
OWNERSHIP REGISTERED REGISTERED
CATEGORY OF SHARES SHARES BEFORE SECURITIES ARE SECURITIES ARE
NAME AND RELATIONSHIP BENEFICIALLY OWNED(1) OFFERED OFFERING(2) SOLD SOLD(2)
- ---------------------------- --------------------- --------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
MARK BRENNAN Shares-- 2,443
c/o Tokenhouse Capital & Re- Warrant-- 0
search Inc. Total-- 2,443 2,443 * None None
137 St. Pierre Street
Suite P-105
Montreal, Quebec
CANADA H2Y 3TS
SCOT LAND Shares-- 5,947
7214 - 237th Ave., N.E. Warrant-- 0
Redmond, Washington 98053
Total-- 5,947 5,947 * None None
----------- --------- ----- ---------------- ------
Total-- 11,963,655 4,269,907 58.3% 7,693,748 37.5%
======== ==========
----------- ======== ============
-----------
</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.
* Denotes less than 1% ownership.
24
<PAGE> 27
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 3,096,107 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 19,014,929 are outstanding at
October 31, 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 19,014,929 shares of Common Stock currently issued and outstanding,
5,776,700 (30.4%) 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 1,779,732 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
25
<PAGE> 28
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
26
<PAGE> 29
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 twothirds 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 October 31, 1996, there were 19,014,929 Common Shares outstanding and
316,500 shares reserved for issuance on exercise of outstanding Warrants and
1,779,732 shares reserved for issuance on exercise of outstanding Options,
representing in the aggregate a fully diluted total of 21,111,161 shares. Of
that total, 8,388,944 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 8,388,944 shares held by
Affiliates, 4,905,697 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),
27
<PAGE> 30
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 year ended
December 31, 1995, for the four-month 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.
28
<PAGE> 31
- ------------------------------------------------------
- ------------------------------------------------------
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
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 3
The Company............................ 4
Risk Factors........................... 6
Use of Proceeds........................ 9
Capitalization......................... 10
Selected Consolidated Financial Data... 11
Selling Stockholders................... 21
Plan of Distribution................... 25
Description of Capital Stock........... 25
Shares Eligible for Future Sale........ 27
Indemnification and Personal Liability
of Officers and Directors............ 27
Legal Matters.......................... 28
Experts................................ 28
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,269,907 SHARES
SPATIALIZER AUDIO
LABORATORIES, INC.
(A DELAWARE CORPORATION)
--------------------
PROSPECTUS
--------------------
THE DATE OF THIS PROSPECTUS IS
NOVEMBER 18, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 32
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*
</TABLE>
- ---------------
* 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,
II-1
<PAGE> 33
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 breach
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
II-2
<PAGE> 34
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
<TABLE>
<S> <C>
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.)
</TABLE>
II-3
<PAGE> 35
<TABLE>
<S> <C>
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-Q.)
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. (Included in Exhibit 5.1).
</TABLE>
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
II-4
<PAGE> 36
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.
II-5
<PAGE> 37
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to its 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 November 18, 1996.
SPATIALIZER AUDIO LABORATORIES, INC.
By: /s/ STEVEN D. GERSHICK
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------- ------------------
<C> <S> <C>
* Director, Chairman of the November 18, 1996
Stephen W. Desper Board
/s/ STEVEN D. Director, President and November 18, 1996
GERSHICK Chief Executive Officer
Steven D. Gershick
/s/ WENDY M. GUERRERO Chief Financial Officer November 18, 1996
Wendy M. Guerrero
* Director November 18, 1996
Carlo Civelli
* Director November 18, 1996
David Foster
* Director November 18, 1996
James D. Pace
* Director November 18, 1996
Jerold H. Rubienstein
* Director November 18, 1996
Gilbert N. Segel
</TABLE>
*By: /s/ STEVEN D. GERSHICK
Steven D. Gershick
Attorney-in-Fact
II-6
<PAGE> 38
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBER
NO. DESCRIPTION PAGE NO,
- ------- ------------------------------------------------------------------------- ------------
<S> <C> <C>
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.).........
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBER
NO. DESCRIPTION PAGE NO,
- ------- ------------------------------------------------------------------------- ------------
<S> <C> <C>
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-Q.).......................................
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. (Included in
Exhibit 5.1).............................................................
</TABLE>
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.
<PAGE> 1
[LETTERHEAD] EXHIBIT 5.1
November 18, 1996
Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 134
Woodland Hills, California 91634
Re: Spatializer Audio Laboratories, Inc.
Amendment Number One to the
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Spatializer Audio Laboratories, Inc. (the
"Company"), in connection with the filing of the Company's Registration
Statement on Form S-3 (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of 4,369,907 shares
of Common Stock, par value $.01 per share (the "Shares"), being offered for
resale by certain stockholders of the Company.
As such counsel, we have examined such documents and records of the Company
as we deemed necessary as a basis for the opinion set forth herein, and we are
familiar with actions anticipated to be taken by the Company in connection with
the authorization and issuance of the Shares.
Based on such examination and subject to compliance with applicable state
securities laws, we are of the opinion that the Shares are or, when issued by
the Company in the manner described in the Registration Statement, will be
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an Exhibit to the Registration
Statement.
Very truly yours,
BRAND FARRAR DZIUBLA
FREILICH & KOLSTAD, LLP
<PAGE> 1
ACCOUNTANTS' CONSENT
The Board of Directors
Spatializer Audio Laboratories, Inc.:
We consent to the use of our report incorporated herein by reference 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
November 18, 1996
