<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1998.
REGISTRATION NO. 333-52863
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT ON
FORM S-3
UNDER
THE SECURITIES ACT OF 1933
SPATIALIZER AUDIO LABORATORIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3698 95-4484725
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(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 OFFICES)
STEVEN D. GERSHICK, CHIEF EXECUTIVE OFFICER AND PRESIDENT
SPATIALIZER AUDIO LABORATORIES, INC.
20700 VENTURA BOULEVARD, SUITE 134
WOODLAND HILLS, CALIFORNIA 91364
(818) 227-3370
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
MARGARET G. GRAF, ESQ.
BRAND FARRAR & BUXBAUM LLP
515 SOUTH FLOWER STREET, SUITE 3500
LOS ANGELES, CALIFORNIA 90071-2201
(213) 228-0288
DIRECT DIAL: (213) 426-6260
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
TO BE REGISTERED REGISTERED(1) SHARE PRICE
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value per share.................. 8,339,800 (2) (2)
=======================================================================================================================
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TITLE OF EACH AMOUNT OF
CLASS OF SECURITIES REGISTRATION
TO BE REGISTERED FEE(2)
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Common Stock, $.01 par value per share.................. $2,614
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</TABLE>
(1) This Registration Statement relates to the resale of 1,967,250 shares of
Common Stock issued prior to the filing date hereof, 4,284,000 shares of
Common Stock which are required to be registered in the event they are
issuable on conversion of the Series A, 7% convertible Preferred Stock
("Series A Preferred Stock") issued in the 1998 Placement (as hereinafter
defined), and the resale of up to 2,088,550 shares of Common Stock issuable
on the exercise of currently outstanding Options and Warrants. The number of
shares underlying the Series A Preferred Stock is calculated based on a
$1.00 per share effective Conversion Price (as hereinafter defined) but
subject to registration of the maximum number of shares that is allowable
pursuant to Rule 4310(c)(25)(H) of The NASDAQ Stock Market Rules.
(2) Pursuant to Rule 457(c), the fee calculation is based on the average of the
high and low prices of the Registrant's Shares on the Small Capital Company
listings of the National Association of Securities Dealers Automated
Quotation system on April 15, 1998. The Registration Fee is calculated based
on 8,339,800 shares at a proposed offering price per share of $1.06.
THE REGISTRANT HEREBY FILES 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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<PAGE> 2
SPATIALIZER AUDIO LABORATORIES, INC.
CROSS-REFERENCE SHEET
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ITEM NO. FORM S-3 CAPTION
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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
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.
8,339,800 SHARES
SPATIALIZER AUDIO LABORATORIES, INC.
(A DELAWARE CORPORATION)
The 8,339,800 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 1,967,250 shares of Common Stock which are
currently outstanding and 2,088,550 shares of Common Stock reserved for issuance
on the exercise of outstanding Options and Warrants and up to 4,284,000 shares
of Common Stock reserved for issuance on conversion of the Series A 7%
Convertible Preferred Stock ("Series A Preferred Stock") issued in the private
placement completed in April 1998 ("April 1998 Placement"). Of these, 336,800
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 SmallCap Market ("NASDAQ") under
the symbol "SPAZ." On April 30, 1998 the closing price of the Common Stock on
the NASDAQ was $1.00 U.S.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SIMILARLY,
NO CANADIAN FEDERAL OR PROVINCIAL COMMISSION HAS APPROVED OR
DISAPPROVED THESE SECURITIES NOR HAS ANY CANADIAN FEDERAL OR
PROVINCIAL COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS.
------------------------
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED FOR RESALE HEREBY. SEE
PAGE 3.
------------------------
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 JUNE , 1998
<PAGE> 4
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
NASDAQ or other applicable authorities. The Registration Statement and the
reports, proxy statements and other information may be inspected and copied at
the public reference facilities of the Commission located at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at Seven World Trade Center, Suite 1300, New York, New York 10048, and at 5760
Wilshire Boulevard, 11th Floor, Los Angeles, California 90036. Copies of these
materials can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such documents may also be obtained at the Web site maintained by the Commission
(http://www.sec.gov). The Company's Common Stock is quoted on the NASDAQ
SmallCap Market and such reports, proxy statements and other information may be
inspected at the National Association of Securities Dealers, Inc., 1735 K Street
N.W., Washington, D.C. 20006.
Until February, 1997 when the Company terminated its listing on the
Vancouver Stock Exchange, the Company and its predecessor, Spatializer Audio
Laboratories, Inc., a Yukon corporation ("Spatializer-Yukon"), also were
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, 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 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 Reports on Form 10-K for
the fiscal year ended December 31, 1997; (ii) Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1998; and (iii) Proxy Statement dated May 22,
1998.
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.
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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 without charge upon request from the Company, at the
address listed in Additional Information, above.
ii
<PAGE> 6
THE COMPANY
Spatializer Audio Laboratories, Inc. (the "Company") is a leading
developer, licensor and marketer of next generation technologies for the
consumer electronics, personal computing, enterprise computing and entertainment
industries. The Company has two business units (100% wholly owned subsidiaries),
Desper Products, Inc. ("DPI") and MultiDisc Technologies, Inc. ("MDT"), both of
which are in the business of technology development and licensing. DPI has
developed a full complement of patented and proprietary 3-D or virtual audio
signal processing technologies directed to the consumer electronics and
multimedia PC markets. The Company continues to expand its product offerings to
take advantage of the emerging digital audio marketplace specifically for
consumer products like Digital Versatile Disc ("DVD") for personal computers,
and home entertainment; and interactive positional audio for PC gaming on the
Windows 95/98(TM) platforms. As of March 31, 1998 more than 12 million licensed
units had been shipped. DPI's 3-D audio signal processing technologies have been
incorporated in over 380 products offered by global brand leaders including in
consumer electronics, Toshiba, Panasonic, JVC, Hitachi, Sanyo and Sharp, and in
the PC multimedia marketplace, Compaq, Dell, Gateway, Micron, Fujitsu, NEC and
AST, among others. In addition to continuing the Company's objective of
broadening recognition for the Spatializer brand name through association with
these and other globally recognized consumer electronics and multimedia computer
brand leaders, the Company has also placed a high priority on broadening its
technology base to position itself for continued growth. The Company believes
that with the accelerating growth in the digital audio/video marketplace, the
market for virtual audio technologies, and therefore for the Company's products,
is entering a new phase of opportunity.
MultiDisc Technologies, Inc. was formed in June 1996 when the Company
acquired development stage optical disc storage and robotics assets and
technologies from Home Theater Products, International, Inc. ("HTP"), a debtor
in possession (the "MultiDisc transaction"). MDT is currently a development
stage enterprise creating a new product category, the MultiDisc Modular
Stackable Storage Library ("MSSL"), of 12 cm CD/DVD based scaleable optical disc
storage devices, a technology uniquely designed to combine the speed and
performance of CD/DVD server arrays, the low cost, flexibility and capacity of
CD Jukebox designs and next generation high speed, high volume robotics. The
target markets for the MDT technology currently include Internet and Intranet,
enterprise networking, backup/archiving, image and document storage, and
specialized vertical market applications including medical information
technology, data warehousing and video-on-demand.
The Company's executive offices are located at 20700 Ventura Boulevard,
Suite 134, Woodland Hills, California 91364, Telephone (818) 227-3370. World
Wide Web sites (http://www.spatializer.com), (http://www.multidisc.com). The
Company was incorporated in the State of Delaware in February, 1994.
THE OFFERING
The Offering relates to the resale of up to 1,967,250 shares of Common
Stock which are currently outstanding and 2,088,550 shares of Common Stock
reserved for issuance upon exercise of presently outstanding Warrants and
Options (both as hereinafter defined), and up to 4,284,000 shares of Common
Stock reserved for issuance on conversion of the Series A Preferred Stock issued
in the April 1998 Placement. Common Stock offered for resale hereunder is 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
registered herein are exercised, the Company will receive proceeds of
approximately $476,400. If all the Warrants registered herein are fully
exercised, the Company will receive a total of up to approximately $2,652,700.
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.
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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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Shares of Common Stock Outstanding at April 15, 1998........ 21,423,345
Reserved for Issuance -- Options.......................... 2,010,070
Reserved for Issuance -- Warrants......................... 1,759,750
Reserved for Issuance -- Conversion of Series A Preferred
Stock.................................................. 4,284,000
Total Shares of Common Stock Outstanding Assuming Exercise
of Warrants and Options and Conversion of Series A
Preferred Stock........................................... 29,477,165
Shares offered by Selling Stockholders (including 2,088,550
shares reserved for issuance on exercise of Warrants and
Options).................................................. 8,339,800
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This Prospectus includes references to MultiDisc(TM), Spatializer(R) 3D
Stereo, DDP(TM), N-2-2(TM), enCOMPASS(TM), vbx(TM), XNS(TM), eXpandable Network
Server(TM), and other trademarks, tradenames, and product names of the Company
and of other entities, some of which may not be designated as such.
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<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.
NEED FOR CAPITAL TO COMMERCIALIZE MDT TECHNOLOGY
MDT is still developing its technologies which have been in development for
more than nine years at an aggregate cost of approximately $8 million, $4.6
million of which was expended by the Company on behalf of MDT subsequent to its
acquisition in June 1996. It is anticipated that the Company will need to commit
substantial capital beyond its current working capital reserves to complete
development, begin manufacturing and launch MDT's initial products. There can be
no assurance that the Company will be able to raise the needed capital or obtain
such capital on terms favorable to the Company.
MDT TECHNOLOGY IN DEVELOPMENT STAGE
The Company has not yet fully completed development and testing of its
Windows NT(R) Changer File System, Drivers, Graphical User Interface (GUI),
Database Manager, Control Panel Applet and supporting utilities, nor its initial
data interface and robotics interface components. There can be no assurance that
MDT's software components can be successfully completed and integrated, or that
they can be cost effectively migrated to other operating systems, or next
generation data or robotics interfaces as might be demanded by a rapidly
changing market.
Although the Company has satisfactorily completed a number of MDT
proof-of-concept designs, and an initial technology demonstrator [TD Series]
prototype which MDT debuted at COMDEX in November, 1997, MDT has yet to have
completed a fully integrated device proving the efficacy of its designs,
concepts, software and other technologies. There can be no assurance that the
Company will be able to successfully complete the required integration for MDT,
or that the MDT products designed based upon its technologies will be able to be
manufactured at costs which will permit competitive pricing when those products
would come to market.
In addition, there can be no assurance that the Company will be able to
make satisfactory arrangements for the manufacture of its products, or the
distribution or the purchase of such products on an OEM basis.
The MDT technologies under development consist of a wide spectrum of
robotics, motion control, hardware, electronics, and firmware disciplines. There
can be no assurance that the Company will be able to attract and retain
employees, consultants or form appropriate strategic alliances to obtain the
technical expertise necessary to ensure satisfactory completion of all of the
hardware and software components needed to implement the MDT technology.
Significant engineering challenges unique to the Company's MSSL design exist and
there can be no assurance that these challenges will be successfully overcome,
or overcome at a cost which will permit the MDT products to be manufactured at a
competitive price.
DEPENDENCE ON NEW TECHNOLOGIES FOR MDT
The success of MDT's business plan is largely dependent upon the widespread
availability, speed and performance capabilities, low price point, and industry
support for re-writeable DVD technologies. There can be no assurance that such
technologies will become available on a basis which permits the DVD Library
systems to become price and performance competitive with other competing
technologies.
DEPENDENCE ON LICENSING REVENUES AND AGREEMENTS AND RELATIONSHIPS WITH CHIP
FOUNDRIES
The MDT business model is a hybrid model combining technology licensing and
manufacturing on an OEM basis. Although the Company has expertise in audio
technology licensing, it has no expertise in hardware licensing, manufacturing,
or OEM sales. There can be no assurance that the Company will be able
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<PAGE> 9
to successfully recruit and retain the necessary internal manufacturing, sales
and marketing expertise, or to build the necessary strategic relationships with
manufacturers, channel partners, distributors, Value Added Resellers (VAR's) or
Independent Software Vendors (ISV's) necessary to insure its success in the OEM
business for its MDT plan.
The proposed MDT licensing agreements provide for a combination of up-front
Non-Recurring Engineering (NRE) fees and running royalties based on product
shipments by licensees. License negotiations are very lengthy and hardware
product development times are long, requiring the Company to be dependent on
anticipated NRE fees. The Company has not yet finalized any licensing
arrangements with respect to its MDT CD/DVD server technologies, and there can
be no assurance that any licenses can be finalized on a basis which provides for
satisfactory NRE fees or running unit royalties.
For all Company activities in both audio and MDT enterprises, licensing
revenues are dependent on the accuracy of the reporting by the licensee. License
agreements do not, in general, call for minimum orders, and the licenses may be
cancelled at any time upon required notice. In addition, the Company's audio
technologies may be easily designed out of a product or line without notice to
the Company. In large measure, the Company's audio business is dependent on the
production, sales and marketing capabilities of its various chip foundries.
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. 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.
In granting the Company's summary judgment motion, the Court found that the
Company's IC (Integrated Circuit) 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. 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 were 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.
After submission of papers by the parties, the Court of Appeals for the
Federal Circuit heard oral argument on November 5, 1997, with respect to
QSound's appeal. The parties are now waiting for the decision of the appellate
court. To date, the Company has incurred costs aggregating approximately
$500,000 in
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<PAGE> 10
connection with the litigation. The Company expects that it will ultimately
prevail in the litigation, and therefore, the disposition of this matter is not
expected to have a material effect on the financial position or results of
operations of the Company. However, the outcome of this litigation cannot be
predicted at this time and, if the outcome of the litigation decision is
ultimately adverse to the Company, such a result could materially impact the
Company's ability to license its 3-D Stereo technology in the future, but it
should not impact the Company's ability to license its more advanced audio
technologies, such as its Positionial Audio technology (enCOMPASS(TM)) and its
2-Speaker Virtualization technology (N-2-2(TM)).
INTELLECTUAL PROPERTY
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. Desper Products, Inc. holds certain patents
in the field of audio signal processing and has a number of additional patent
applications on file with the U.S. PTO. MultiDisc Technologies has more than 50
U.S. patent applications on file. There can be no assurance that any U.S. patent
will grant on pending applications, or that such patents will provide the
breadth of coverage intended. In addition, there is no assurance that any of the
rights obtained from the Company's patents 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.
While the Company has attempted to protect its technology and general
intellectual property rights, there is no assurance that the Company's efforts
will effectively protect against piracy or theft. Monitoring and identifying
unauthorized use of such technology may prove difficult, and the cost of
litigation may impact the Company's ability to adequately guard against such
piracy and infringement. While the Company believes the steps it has taken to
guard against 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. Since its inception, the Company has experienced delays in
bringing its products to market and commercial application as a result of delays
inherent in technology development, financial resource limits and industry
responses and maturity. These delays have resulted in delays in revenues. In the
future, new delays in product development or technology introduction on behalf
of the Company, its OEMs or IC foundries could result in further 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.
HISTORY OF LOSSES
While the Company's audio licensing subsidiary DPI, was profitable for the
first time during the third and fourth quarters of 1997, the overall results for
1997 reflect continuing losses from operations because of the funding
requirements of the development of the MDT server technology. During 1998, the
Company anticipates that its audio business will continue to reflect positive
operating results, but that these results will be offset by the losses incurred
from funding the MDT technology. Given the level of planned operating and
capital expenditures, particularly for MDT, the Company anticipates that, on a
consolidated basis, it will continue to incur losses, at least through 2000.
There can be no assurance that the Company will ever achieve or sustain an
overall positive profit position.
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
5
<PAGE> 11
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. Currently, the
Company has employment agreements with Steven D. Gershick, Henry R. Mandell,
Michael Bolcerek, Theodore Tanner, Eric Rene Bos, and Robert Montelius for
various terms expiring between June 1998 and March 1999. The Company has key man
life insurance in face amounts of $1,000,000, $0, $500,000, $500,000, $250,000
and $250,000 on each of these key employees, respectively.
CONTINUED NEED FOR ADDITIONAL CAPITAL
The Company has funded its operations from revenues and from a number of
equity financings. The Company continues to acquire new financing. While the
Company's audio subsidiary, DPI, was profitable for the first time during the
last two quarters of 1997, these revenues have been consumed in financing
operations and funding the MDT technology development.
Funds generated by these financing activities as well as cash generated
from the Company's existing operations is expected to be sufficient for the
Company to meet its operating obligations and the anticipated additional
research, development, and commercial prototype cost for the MultiDisc business
during the next twelve months. However, if the MultiDisc funding which the
Company is now pursuing is not completed, the Company will require additional
capital, and need to identify other debt, equity or strategic investment sources
to complete the research development and commercial introduction of the
MultiDisc CD/DVD server technology and for marketing costs related to such
activities. If the Company is unsuccessful in completing the MultiDisc funding,
management will be required to modify or delay the timing of the additional
MultiDisc development and marketing activities.
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 have access to greater financial resources than the Company. 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.
DPI -- 3-D AUDIO SIGNAL PROCESSING MARKETPLACE
The market for 3D Virtual Audio technologies is characterized by intense
competition and commodity pricing pressures. The Company competes with a number
of entities that produce various stereo audio enhancement processes,
technologies and products in both traditional two-speaker environments such as
consumer electronics and multimedia computing, and in multi-channel,
multi-speaker applications such as Home Theater.
In the field of 3-D or Virtual Audio, the Company's principal competitors
are SRS Labs, Inc., QSound Labs, Inc., Aureal Semiconductor, Inc., and Harman
International, some of which have considerably greater capitalization and
resources than the Company. In the future, the Company's products and
technologies may also compete with audio technologies and products developed by
other companies, including entities that have business relationships with the
Company.
There can be no assurance that the Company will be able to favorably
compete in this market in the future.
6
<PAGE> 12
MDT -- OPTICAL DISC SERVER/JUKEBOX MARKETPLACE
The overall data storage market, the market in which MDT competes, includes
not only compact disc, but also magnetic disk and tape technologies,
magneto-optical disks, disk and tape arrays, micrographic technologies, and
hardcopy.
The compact disc library or "jukebox" industry is limited at present and is
currently characterized by the market leader NSM, a German based entity which
has adapted its audio jukebox expertise to CD-ROM. NSM sells products under its
own label and as an OEM for other manufacturers. As is traditional in this
marketplace, NSM offers hardware only 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. Also in
this marketplace is Pioneer, Panasonic, JVC, Sony and others.
Other directly competitive technologies include M-O Optical Library
management systems. Hewlett Packard and Plasmon are the leaders in this business
segment.
In addition to magnetic and optical disc technologies, the Company will be
subject to new competitive mass storage technologies which may be introduced in
the future. Typical of such new technology is "Near Field Recording" under
development by Terastor in San Jose.
NO ASSURED MARKET FOR STOCK
The Common Stock of the Company trades on the NASDAQ SmallCap market under
the symbol "SPAZ." 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.
IMPACT OF ISSUANCE OF ADDITIONAL 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, the conversion
feature and dilution impact and redemption rights and sinking fund provisions.
Since the Board of Directors has the authority to determine, from time to time,
the terms of the Preferred Stock to be issued in the future, there is no limit
on the amount of Common Stock (or the related dilution impact) that could be
issuable under the terms of future series of Preferred Stock authorized by the
Board of Directors. Of the 1,000,000 shares of Preferred Stock, 60,000 shares of
Series A, 7% Convertible Preferred Stock ("Series A Preferred Stock") are issued
and outstanding and the issuance of additional shares of Series A Preferred
Stock or any other 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 Capital Stock."
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 8,688,891
shares of Common Stock or approximately 35% 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 held by affiliates of the Company, will be tradeable
currently or in the near future, either under this Prospectus,
7
<PAGE> 13
pursuant to Rule 144. Of the issued and outstanding shares of Common Stock,
5,445,115 are held by officers, directors and other founders or employees as
Escrowed Performance Shares. Under the currently effective Performance Share
Modification Agreements dated December 30, 1996, 5% of the original 5,776,700
Performance Shares were released on June 22, 1997 and the remainder of the
Performance Shares are scheduled to be released automatically as follows: 5% on
June 22, 1998; 10% on June 22, 1999; 20% on June 22, 2000; 30% on June 22, 2001;
and 30% on June 22, 2002. In addition to the automatic releases, performance
shares can be released based on the cash flow release criteria contained in the
original June 22, 1992 escrow agreement although, to maintain a stable market in
the Company's stock, in any year not more than 30% of the shares will be
released, based on the cash flow criteria.
In addition, under the revised arrangement the performance shares will vest
if the individual holder has not voluntarily terminated his or her service to
the Company prior to the applicable vesting dates. Any individual who is
involuntarily terminated by the Company will be entitled to an automatic
acceleration of the unvested performance shares. The Board, in its discretion,
may allow an individual who has voluntarily terminated his or her services to
the Company to retain a portion or all of any unvested performance shares.
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.
NASDAQ LISTING
The Company's Common Stock is listed on the NASDAQ SmallCap Market. The
Company is required to maintain net tangible assets of at least $2 million and a
$1.00 stock price and to comply with certain other governance and regulatory
requirements to assure the continued listing of its Common Stock. On April 23,
1998 the Company received an informal inquiry from NASDAQ with respect to its
maintenance and compliance with certain of these requirements. It has responded
to such inquiry. On June 24, 1998, NASDAQ extended time for the Company to
comply with the listing requirements until August 14, 1998. If the Company is
not in compliance by that date, it's Common Stock would be de-listed unless the
Company seeks the further hearing and other procedural remedies or otherwise
takes action acceptable to NASDAQ to be in compliance. However, there is no
assurance that it will continue to comply and in such event there would be no
public market for its securities.
8
<PAGE> 14
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 registered herein are exercised, the Company will receive proceeds of
approximately $476,400. If all the Warrants registered herein are fully
exercised, the Company will receive proceeds of up to approximately $2,652,700.
9
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 (assuming none of the currently outstanding Options or Warrants
are exercised) and on a pro forma basis to reflect the April 1998 Placement.
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, 1998 (UNAUDITED)(1)
-------------- --------------
<S> <C> <C>
DEBT
Bank Line of Credit Payable................................. 0 0
Notes Payable............................................... 58,544 58,544
Advanced from Related Parties............................... 762,500 762,500
------------ ------------
Total Debt........................................ $ 821,044 $ 821,044
============ ============
STOCKHOLDERS' EQUITY
Preferred shares, $.01 par value, 1,000,000 shares
authorized, no shares issued or outstanding at March 31,
1998; 60,000 shares Series A, 7% Convertible Preferred
Stock issued on April 14, 1998............................ $ -- $ 600
Common Stock, $.01 par value, 50,000,000 shares authorized
21,423,345 shares issued and outstanding at March 31,
1998...................................................... 214,233 214,233
Additional Paid-In Capital.................................. 41,528,772 44,158,172
Accumulated Deficit......................................... (41,091,089) (41,091,089)
------------ ------------
Total Stockholders' Equity.................................. $ 651,916 $ 3,281,916
------------ ------------
Total Capitalization........................................ $ 1,472,960 $ 4,102,960
============ ============
</TABLE>
- ---------------
(1) Giving effect to the issuance of 60,000 shares of Series A Preferred Stock
in the April 1998 Placement, net of $370,000 in issuance costs.
10
<PAGE> 16
BUSINESS
This Prospectus incorporates by reference the documents listed herein,
including the business descriptions contained therein and, in particular, the
description of "Business" contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
11
<PAGE> 17
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 April 15, 1998 before and after giving effect to the sale of common stock
registered hereunder.
<TABLE>
<CAPTION>
PERCENTAGE
SECURITIES OWNERSHIP
TO BE AFTER
PERCENTAGE RETAINED, OFFERING, IF
OWNERSHIP IF ALL ALL REGISTERED
CATEGORY OF SHARES BEFORE REGISTERED SECURITIES
BENEFICIALLY OWNED SHARES OFFERING SECURITIES ARE SOLD
NAME AND RELATIONSHIP (1) OFFERED (2) ARE SOLD (2)
- --------------------- --------------------- --------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Carlo Civelli........................ Shares -- 2,499,622 0 14.1 2,499,622 13.6
Director(3) Escrow -- 1,321,336 0 1,321,336
Warrants -- 50,000 50,000 0
Options -- 200,000 100,000 100,000
Total -- 4,070,958 150,000 3,920,958
Stephen W. Desper.................... Shares -- 5,369 0 6.9 5,369 6.8
Director Escrow -- 1,851,676 0 1,851,676
Options -- 123,800 23,800 100,000
Total -- 1,980,845 23,800 1,957,045
Steven D. Gershick................... Shares -- 42,157 0 3.9 42,157 3.6
Director, Chief Executive Officer Escrow -- 800,987 0 800,987
Options -- 283,000 83,000 200,000
Total -- 1,126,144 83,000 1,043,144
James D. Pace........................ Shares -- 76,350 30,000 1.1 46,350 *
Director Escrow -- 120,647 0 120,647
Options -- 130,000 50,000 80,000
Total -- 326,997 80,000 246,997
Wendy Marie Guerrero................. Shares -- 20,000 20,000 * 0 *
Escrow -- 47,500 0 47,500
Options -- 21,667 0 21,667
Total -- 89,167 20,000 69,167
William E. Whitlock.................. Shares -- 7,875 0 * 7,875 *
Escrow -- 149,620 0 149,620
Options -- 22,000 22,000 0
Total -- 179,495 22,000 157,495
Jeffrey C. Evans..................... Shares -- 54,225 30,000 * 24,225 *
Escrow -- 80,272 0 80,272
Options -- 0 0 0
Total -- 134,497 30,000 104,497
Gerald E. Mullen..................... Shares -- 9,656 0 * 9,656 *
Escrow -- 183,456 0 183,456
Options -- 50,000 50,000 0
Total -- 243,112 50,000 193,112
Union Bank of Switzerland............ Shares -- 50,000 0 * 50,000 *
8021 Zurich, Switzerland Warrant -- 25,000 25,000 0
Total -- 75,000 25,000 50,000
Romofin AG........................... Shares -- 92,500 12,500 * 80,000 *
Burglestrasse 6 Warrant -- 27,500 27,500 0
8027 Zurich, Switzerland Total -- 120,000 40,000 80,000
Bank Sarasin & CIE................... Shares -- 88,000 50,000 * 38,000 *
Loewenstrasse 11 Warrant -- 44,000 44,000 0
8001 Zurich, Switzerland Total -- 132,000 94,000 38,000
Yorkton Securities, Inc.............. Shares -- 370,000 370,000 1.3 None None
1000-1055 Dunsmuir St. .............. Warrant -- 5,000 5,000
Vancouver, BC Total -- 375,000 375,000
Canada V7X 1L4
</TABLE>
12
<PAGE> 18
<TABLE>
<CAPTION>
PERCENTAGE
SECURITIES OWNERSHIP
TO BE AFTER
PERCENTAGE RETAINED, OFFERING, IF
OWNERSHIP IF ALL ALL REGISTERED
CATEGORY OF SHARES BEFORE REGISTERED SECURITIES
BENEFICIALLY OWNED SHARES OFFERING SECURITIES ARE SOLD
NAME AND RELATIONSHIP (1) OFFERED (2) ARE SOLD (2)
- --------------------- --------------------- --------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Roycan & Co. ........................ Shares -- 150,000 150,000 * None None
Warrant -- 0 0
Total -- 150,000 150,000
Coop Bank Basel...................... Shares -- 148,750 98,750 * 50,000 *
Aerschenplatz 3 Warrant -- 1,250 1,250 0
8002 Basel, Switzerland.............. Total -- 150,000 100,000 50,000
Maerki Baumann & Co., AG............. Shares -- 125,250 91,750 * 33,500 *
Drekonigstrasse 8 Warrant -- 0 0 0
8022 Zurich, Switzerland Total -- 125,250 91,750 33,500
Affida Bank.......................... Shares -- 42,750 14,250 * 28,500 *
Post Fach 5274....................... Warrant -- -0 0 0
8022 Zurich, Switzerland Total -- 42,750 14,250 28,500
Eagle Capital Ltd. .................. Shares -- 150,000 0 * 150,000 *
Leonhardshalde 21 Warrant -- 75,000 75,000 0
8025 Zurich, Switzerland Total -- 225,000 75,000 150,000
Finsbury Technology Trust PLC........ Shares -- 50,000 0 * 50,000 *
Alderman's House Warrant -- 25,000 25,000 0
Alderman's Walk Total -- 75,000 25,000 50,000
London, England
ECZM SXR
Henry Platt.......................... Shares -- 45,000 10,000 * 35,000 *
825 Fifth Avenue Warrant -- 22,500 22,500 0
New York, NY 10021 Total -- 67,500 32,500 35,000
William Pitt Living Trust............ Shares -- 35,000 0 * 35,000 *
920 Tangier Avenue Warrant -- 17,500 17,500 0
Palm Beach, FL Total -- 52,500 17,500 35,000
A. Alfred Taubman Restated........... Shares -- 70,000 0 * 70,000 *
Revocable Trust Warrant -- 35,000 35,000 0
200 E. Longlake Road Total -- 105,000 35,000 70,000
P.O. Box 200
Bloomfield Hills, MI 48303-0200
Jonathon Armstrong................... Shares -- 240,000 240,000 1.2 None None
220 Bush, #660 Warrant -- 120,000 120,000
San Francisco, CA 94104 Total -- 360,000 360,000
Centrum Bank AG...................... Shares -- 370,000 370,000 1.9 None None
Heiligkreuz 8, FL-9490 Warrant -- 185,000 185,000
Vaduz, Switzerland Total -- 555,000 555,000
Rush & Co. .......................... Shares -- 60,000 60,000 * None None
New York, NY Warrant -- 30,000 30,000
Total -- 90,000 90,000
Egger & Co. ......................... Shares -- 40,000 40,000 * None None
Warrant -- 20,000 20,000
Total -- 60,000 60,000
Hare & Co............................ Shares -- 150,000 150,000 * None None
P.O. Box 11203 Warrant -- 75,000 75,00
New York, NY 10249 Total -- 225,000 225,000
Roland Inderbizin.................... Shares -- 15,000 15,000 * None None
Chliwisstrasse 30 Warrant -- 7,500 7,500
8142 Uitikon, Switzerland Total -- 22,500 22,500
Rolf Albrecht........................ Shares -- 15,000 15,000 * None None
Hoehenstrasse 9 Warrant -- 7,500 7,500
8954 Geroldswil, Switzerland Total -- 22,500 22,500
Cudd & Co. .......................... Shares -- 185,000 185,000 1.0 None None
1 Chase Manhattan Plz Warrant -- 92,500 92,500
New York, NY Total -- 277,500 277,500
</TABLE>
13
<PAGE> 19
<TABLE>
<CAPTION>
PERCENTAGE
SECURITIES OWNERSHIP
TO BE AFTER
PERCENTAGE RETAINED, OFFERING, IF
OWNERSHIP IF ALL ALL REGISTERED
CATEGORY OF SHARES BEFORE REGISTERED SECURITIES
BENEFICIALLY OWNED SHARES OFFERING SECURITIES ARE SOLD
NAME AND RELATIONSHIP (1) OFFERED (2) ARE SOLD (2)
--------------------- --------------------- --------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Brown Brothers Harriman & Co. ....... Shares -- 15,000 15,000 * None None
Securities Dept. Warrant -- 0 0
59 Wall Street Total -- 15,000 15,000
New York, NY 10005
Royal Bank of Scotland............... Shares -- 0 0 * None None
Trust Co. (Jersey) Limited Warrant -- 7,500 7,500
Total -- 7,500 7,500
Preferred Technology, Inc. .......... Shares -- 0 0 * None None
220 Montgomery St., Suite 777 Warrant -- 9,600 9,600
San Francisco, CA 94104 Total -- 9,600 9,600
Brian Alger.......................... Shares -- 0 0 * None None
Warrant -- 2,400 2,400
Total -- 2,400 2,400
I.N. Inc. ........................... Shares -- 0 0 * None None
Warrant -- 125,000 125,000
Total -- 125,000 125,000
CPR (USA) Inc. ...................... Shares -- 2,856,000 2,856,000 10.9 None None
101 Hudson St., 37th Floor Warrant -- 300,000 300,000
Jersey City, NJ 07302 Total -- 3,156,000 3,156,000
LibertyView Plus Fund................ Shares -- 1,142,400 1,142,400 4.4 None None
Hemisphere House Warrant -- 120,000 120,000
9 Church Street Total -- 1,262,400 1,262,400
Hamilton, Bermuda HMDX
LibertyView Fund, LLC................ Shares -- 285,600 285,600 1.1 None None
101 Hudson St., 37th Floor Warrant -- 30,000 30,000
Jersey City, NJ 07302 Total -- 315,600 315,600
Aton Select Fund, Ltd. .............. Shares -- 0 0 * None None
c/o Clarion Finanz AG Warrant -- 150,000 150,000
Seefeldstrasse 214 Total -- 150,000 150,000
8034 Zurich, Switzerland
Attn: Jan Barcikowski
Cardinal Capital Mgmt. Inc. ......... Shares -- 0 0 * None None
3340 Peachtree Road N.E Warrant -- 150,000 150,000
Suite 620 Total -- 150,000 150,000
Atlanta, GA 30326
Totals -- 16,652,215 8,339,800 57.8% 8,312,415 28.8%
</TABLE>
- ---------------
(1) Includes Escrowed Performance Shares of Common Stock.
(2) Denominator includes all shares reserved for issuance on exercise of Options
and Warrants, and shares issuable upon conversion of Series A Preferred
Stock.
(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.
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 the NASDAQ SmallCap Market or such other exchange or
reporting system where the Common 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 commis-
14
<PAGE> 20
sions 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 certain registration rights with respect to Common
Stock to the Selling Stockholders who are not affiliates of the Company and who
acquired 1,887,250 shares of Common Stock (in various private placements since
July 27, 1994), or who have or who could acquire 4,284,000 shares of Common
Stock on conversion of the Series A Preferred Stock in the April 1998 Placement,
or who could acquire 1,709,750 shares issuable on exercise of Warrants issued in
such private placements (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 has
agreed to bear all registration expenses in connection with the registration of
the Registrable Securities other than underwriting commissions.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital of the Company consists of 50,000,000 shares of
Common Stock (par value U.S. $.01) of which 21,423,345 were outstanding at April
15, 1998 and 1,000,000 shares of Preferred Stock (par value U.S. $.01) of which
60,000 shares of Series A Preferred Stock were issued and outstanding at April
15, 1998.
COMMON STOCK
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, 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 21,423,345 shares of Common Stock currently issued and outstanding,
5,445,115 are classified as Escrowed Performance Shares, are held in escrow by
the Company's transfer agent, Harris Trust Company of California, and will vest
under the modification arrangements.
The Company has Options outstanding which could result in the issuance of
up to 2,010,070 additional common shares of the Company and has Warrants
outstanding which could result in the issuance of up to 1,759,750 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 and as payment for services rendered. Warrants are non-transferable
and adjusted in the event of a share consolidation or subdivision or other
similar change to the Company's capital. See "Executive Compensation" in the
Company's Annual Report on Form 10-K or in its Proxy materials for further
information with respect to the Options.
15
<PAGE> 21
PREFERRED STOCK GENERALLY
The Board of Directors 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.
SERIES A PREFERRED STOCK
In connection with the April 1998 Placement, the Board of Directors
authorized the issuance of up to 100,000 shares of Series A, 7% Convertible
Preferred Stock ("Series A Preferred Stock") with a par value of $.01 per share
and a stated value of $50.00 per share, with a 7% per annum dividend. In the
April 1998 Placement, 60,000 shares were issued. Under the terms of the April
1998 Placement, the holders or their designees may acquire up to 40,000
additional shares of Series A Preferred Stock based on the requirement that
Clarion Finanz AG or its designee invest an additional $1 million and, at the
option of if the Company, the other holders also may be required to invest an
additional $1 million.
The Series A Preferred Stock ranks: (i) prior to all of the Company's
Common Stock, and (ii) prior to any class or series of capital stock of the
Company hereafter created (unless such future class specifically, by its terms,
ranks on parity with the Series A Preferred Stock), in each case as to
distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions"). The Series A Preferred Stock will bear a 7%
per annum cumulative dividend, payable out of assets legally available therefor,
at the Conversion Date (as defined below) in cash or Common Stock at the
Conversion Price (as defined below), at the Company's option. No dividends shall
be paid on the Common Stock or any other subsequently issued stock.
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of Series A Preferred Stock shall
be entitled to receive a liquidation preference of $50.00 per share plus any
accrued and unpaid dividends, subject to adjustments for certain change of
control and normal corporate reclassifications and to pro rata distributions in
the event that assets are insufficient to fully fund the liquidation preference.
Holders of the Series A Preferred Stock have a right to convert their shares, at
their option on the earlier of (x) ninety (90) days after issuance or (y) on the
effective date of this Registration (the "Conversion Date") with such conversion
to be based on a per share conversion price ("Conversion Price") equal to the
lesser of a price that reflects a discount (the "Conversion Discount") to the
average of any three (3) consecutive closing bid prices for the Company's Common
Stock within twenty (20) trading days immediately prior to the conversion date
(the "Floating Conversion Price") or a price which is equal to one hundred
thirty percent (130%) of the closing bid prices of the Company's Common Stock
for the ten (10) trading days immediately preceding the date of issuance (the
"Fixed Conversion Price") provided that in determining the Conversion Price, the
holder shall not count any day on which its sales account for greater than
twenty percent (20%) of the volume of the Company's Common Stock and on which
the holder has sales in the last hour of trading. The Conversion Discount shall
be equal to fifteen percent (15%) if the Conversion Rights are exercised within
one hundred twenty (120) days of first issuance of the Series A Preferred Stock,
shall be equal to seventeen and one-half percent (17.5%) if the Conversion
Rights are exercised after one hundred twenty (120) days and prior to one
hundred forty-nine days of first issuance of the Series A Preferred Stock; and
shall be equal to twenty percent (20%) if the Conversion Rights are exercised
after one hundred fifty (150) days from first issuance of the Series A Preferred
Stock. The time periods are adjusted in the event that a Registration Statement
becomes effective prior to the 90th day and the applicable Conversion Discount
shall increase by five percent (5%) if the Company is de-listed on NASDAQ. In
addition, the percentage of shares that can be converted at any one time is
limited during such time periods and the holders cannot own more than 4.99% of
the equity of the Company after the Conversion.
NASDAQ has adopted certain new governance requirements, which became
effective in February 1998, under which the Company is required to seek
Stockholder approval before it issues common stock (or securities convertible
into or exercisable for common stock) equal to 20% or more of the voting power,
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<PAGE> 22
outstanding before the issuance, for less than the greater of book or market
value of the common stock. The Conversion Price of the Series A Preferred may be
below the greater of the book or market value of the common stock and will
constitute 20% or more of the voting power, if fully converted at the
anticipated pricing.
Thus, the Company is obligated to file this Registration Statement to cover
the maximum number of shares that is allowable pursuant to Rule 4310(c)(25)(H)
of The NASDAQ Stock Market Rules, based on the Company's calculations of the
number of shares of Common Stock which are required to accommodate the
conversion rights of the Series A Preferred Stock and the shares that underlie
Warrants issued in connection with the April 1998 Placement. Unless sooner
converted, and subject to certain conditions, the Series A Preferred Stock is
subject to mandatory conversion after three (3) years from the Closing Date, at
which time all shares of Series A Preferred Stock will automatically be
converted at the Conversion Price. To accommodate the new NASDAQ requirements,
the holders of the Series A Preferred Stock have agreed that they will not
convert Series A Preferred Stock until required stockholder approval has been
received to meet the applicable NASDAQ requirement.
After giving effect to the Series A Preferred Stock, the Company has
900,000 shares of Preferred Stock remaining reserved for issuance all of which
shares which could 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. If the future preferred stock were to be issued with conversion
features that set the conversion price of the preferred stock at less than
current market, it could discourage interest in the Company's Common Stock and
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 subsidiaries 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 not to meet these factors, it is not subject to
Section 2115.
DELAWARE CORPORATE GOVERNANCE ISSUES
As a Delaware corporation, the Company is subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover provision which generally
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination has been approved by the directors
and shareholders as provided in the Company's Certificate of Incorporation and
Bylaws. The Company's Certificate of Incorporation and Bylaws incorporate the
provisions of Section 203. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is a
person who, together with affiliates and associates, owns (or within three years
prior, did own) 15% or more of the corporation's
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<PAGE> 23
voting stock and approval of the holders of at least two-thirds of the voting
stock is required to alter, amend or repeal the foregoing provisions.
The Company has adopted certain provisions to limit the ability of
stockholders to change corporate management. The Company's Certificate of
Incorporation contains provisions which classifies the Board of Directors and
provides that Board members may only be removed for cause and with the approval
of the holders of two-thirds of the voting stock. The Certificate of
Incorporation adopts the interested stockholder provisions described above.
While these or similar provisions are commonly adopted by public corporations
formed under Delaware law, such provisions may allow management to retain their
positions in the Company and may discourage third parties from attempting to
acquire control of the Company. As a result, stockholders of the Company may
have reduced opportunities to sell their stock in transactions where third
parties are seeking an interest in the Company and such third parties may be
discouraged from undertaking transactions to acquire a significant interest in
the Company.
SHARES ELIGIBLE FOR FUTURE SALE
As of April 15, 1998, there were 21,423,345 shares of Common Stock
outstanding and 4,284,000 shares reserved for issuance on conversion of the
Series A Preferred Stock based on the Estimated Conversion Ratios and 1,759,750
shares reserved for issuance on exercise of outstanding Warrants and 2,010,070
shares reserved for issuance on exercise of outstanding Options, representing in
the aggregate a fully diluted total of 29,477,165 shares (assuming the Series A
Preferred is converted based on the Estimated Conversion Ratios). Of that total,
8,460,094 or 39.5%, 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 8,460,094 shares held by
Affiliates, 5,445,115 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),
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<PAGE> 24
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 & Buxbaum LLP.
EXPERTS
The consolidated financial statements of Spatializer Audio Laboratories,
Inc. and subsidiaries as of December 31, 1997 and 1996, and for each of the
years in the three-year period ended December 31, 1997 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.
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<PAGE> 25
======================================================
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 HAD 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................. i
Incorporation of Certain Documents by
Reference........................... i
The Company........................... 1
Risk Factors.......................... 3
Use of Proceeds....................... 9
Capitalization........................ 10
Business.............................. 11
Selling Stockholders.................. 12
Plan of Distribution.................. 14
Description of Capital Stock.......... 15
Shares Eligible for Future Sale....... 18
Indemnification and Personal Liability
of Officers and Directors........... 18
Legal Matters......................... 19
Experts............................... 19
============================================
</TABLE>
======================================================
8,339,800 SHARES
SPATIALIZER AUDIO
LABORATORIES, INC.
------------------------
PROSPECTUS
------------------------
THE DATE OF THIS PROSPECTUS IS , 1998
======================================================
<PAGE> 26
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........................................ $ 2,614.00
Transfer Agent Fees...................................... $ 500.00*
Printing and Engraving Costs............................. $ 3,000.00*
Legal Fees............................................... $10,000.00*
Accounting Fees.......................................... $10,000.00*
Miscellaneous............................................ $ 5,000.00*
TOTAL.......................................... $31,114.00*
</TABLE>
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* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is incorporated in Delaware. Under Section 145 of the General
Corporation Law of the State of Delaware (the "DGCL"), a Delaware corporation
generally has the power to indemnify its present and former directors and
officers against expenses and liabilities incurred by them in connection with
any suit to which they are, or are threatened to be made, a party by reason of
their serving in those positions so long as they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best interests
of the Company, and with respect to any criminal action, they had no reasonable
cause to believe their conduct was unlawful. The statute expressly provides that
the power to indemnify authorized thereby is not exclusive of any rights granted
under any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Company's Certificate of Incorporation contains the following
provision:
"ARTICLE IX
INDEMNIFICATION
SECTION 1. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or an officer of the corporation, against expenses (including, but
not limited to, attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the fullest extent and in the manner set
forth in and permitted by Delaware law and any other applicable law as from
time to time in effect. Such right of indemnification shall not be deemed
to be exclusive of any other rights to which such director or officer may
be entitled apart from the foregoing provisions. The foregoing provisions
of this Section 1 shall be deemed to be a contract between the Corporation
and each director and officer who serves in such capacity at any time while
this Section 1 and the relevant provisions of Delaware law and other
applicable law, if any, are in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with
respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought or threatened based in
whole or in part upon any such state of facts.
SECTION 2. The Corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was an
employee or agent of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including, but not limited to, attorneys' fees), judgments, fines
and amounts paid in settlement actually and
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<PAGE> 27
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
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.
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<PAGE> 28
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 14. EXHIBITS
<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.)
3.3* Amended Certificate of Designation of Series A Preferred
Stock
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>
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<PAGE> 29
<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.
4.8* Form of Subscription Agreement and Warrant Agreement for
March 7, 1997 Private Placement.
4.9* Modification Agreement for Escrowed Performance Shares.
4.10* Form of 7% Convertible Series A Preferred Stock Subscription
Agreement, Warrant Agreement and Registration Right
Agreement (with Form of Amendment) for April 14, 1998
Private Placement.
5.1* Opinion of Brand Farrar & Buxbaum, 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 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.)
11.1* Computation of Loss Per Common Share.
21.1* Schedule of Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP, independent certified
public accountants.
23.2* Consent of Brand Farrar & Buxbaum LLP (included in Exhibit
5.1)
</TABLE>
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* 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-3 to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Los Angeles,
State of California on June 30, 1998.
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
--------- ----- ----
<S> <C> <C>
/s/ STEVEN D. GERSHICK Director, Chairman of the Board, June 30, 1998
--------------------------------------------------- President and Chief Executive
Steven D. Gershick Officer
* Chief Financial Officer/Senior June 30, 1998
- --------------------------------------------------- Vice President of
Henry R. Mandell Finance/Secretary
* Director June 30, 1998
- ---------------------------------------------------
Carlo Civelli
* Director June 30, 1998
- ---------------------------------------------------
Scot E. Land
* Director June 30, 1998
- ---------------------------------------------------
James D. Pace
* Director June 30, 1998
- ---------------------------------------------------
Jerold H. Rubinstein
* Director June 30, 1998
- ---------------------------------------------------
Gilbert N. Segel
* Director, Vice Chairman of the June 30, 1998
- --------------------------------------------------- Board
Stephen W. Desper
</TABLE>
*By: /s/ STEVEN D. GERSHICK
---------------------------------
Steven D. Gershick,
Attorney-in-Fact
II-5
<PAGE> 1
EXHIBIT 23.1: CONSENT OF KPMG PEAT MARWICK LLP, INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS.
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Spatializer Audio Laboratories, Inc.:
We consent to the use of our reports incorporated herein by reference and
to the reference to our firm under the heading "Experts" in the registration
statement.
/s/ KPMG PEAT MARWICK LLP
Los Angeles, California
June 24, 1998
