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As filed with the Securities and Exchange Commission on May 15, 1998.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT ON FORM S-3
Under
THE SECURITIES ACT OF 1933
SPATIALIZER AUDIO LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware 3698 95-4484725
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification No.)
organization)
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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)
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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 Amount to be Proposed Maximum Proposed Amount of
Class of Registered (1) Offering Price Per Maximum Registration Fee
Securities to be Share Aggregate Offering (2)
Registered Price
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Common Stock,
$.01 par value per 8,339,800 (2) (2) $2,614
share
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(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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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 Outside Front and Cover Page
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back
Prospectus Cover Pages of Prospectus
3. Summary Information, Risk Factors and Ratio of The Company; Business; Risk
Earnings to Fixed Charges 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 Indemnification and Personal
for Securities Act Liabilities Liability of Officers and
Directors
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[Front Cover of Prospectus]
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.
-------------------------------------------------
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."
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The Date of this Prospectus is May ___, 1998
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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.
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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.
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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, 1995, 1996 and 1997; and (ii) Proxy
Statement dated April 18, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering made hereby shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus or any Prospectus Supplement to the
extent that a statement contained herein, or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus or any Prospectus Supplement. This
Prospectus incorporates documents by reference which are not presented herein or
delivered herewith. Those documents are available without charge upon request
from the Company, at the address listed in Additional Information, above.
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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 December 31, 1997 more than 11 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
<PAGE> 8
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.
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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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.
TECHNOLOGY DEVELOPMENT AND NEED 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. The
Company has not yet signed any licenses for its technology, and there can be no
assurance that it will be able to enter into licenses on terms and conditions
which would be economically viable. 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.
In addition, 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
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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.
DEPENDENCE ON NEW TECHNOLOGIES
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.
Furthermore, MDT's Modular Stackable Storage Library (MSSL) concept is
untested, and significant time and expense will be required to properly
evangelize the category. There can be no assurance that the necessary market
need exists, that the Company can successfully evangelize its technology, and
that the MSSL concept will be accepted.
DEPENDENCE ON LICENSING REVENUES
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 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 NonRecurring 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. In addition, for
all Company activities in both audio and MDT enterprises, licensing revenues are
dependent on the accuracy of the reporting by the licensee.
The audio and disc businesses are subject to the volatility of the PC
and consumer electronics industries. In addition, 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.
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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. The Company expects that it will ultimately prevail in this case, 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.
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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. Any substantial delay in product development or technology
introduction on behalf of the Company, its OEMs or IC foundries could result in
significant delays in revenues and could allow competitors to reach the market
with products before the Company. In view of the emerging nature of the
technology involved, the Company's expansion into other technology areas and the
uncertainties concerning the ability of the Company's products to achieve
meaningful commercial acceptance, there can be no assurance of when or if the
Company will achieve or sustain profitability.
DEPENDENCE ON MANAGEMENT
The future success of the Company primarily depends on the abilities
and efforts of a small number of individuals, with particular management
obligations. Loss of the services of any of these persons could adversely affect
the Company's business prospects. While the Company believes that it will be
able to recruit and retain personnel with the skills required for future growth,
there can be no assurance that it will be successful in such efforts. Failure to
do so could have an adverse impact upon the Company's business, the results of
its operations and its prospects.
OPERATIONS AND CONTINUED NEED FOR ADDITIONAL CAPITAL
During the third and fourth quarters of 1997 the Company's audio
licensing subsidiary, DPI, was profitable for the first time in the Company's
history; however, the results of operations
7
<PAGE> 14
for 1997 do not reflect this profitability because of the Company's commitment
to the development of the MDT server technology.
The Company has announced various plans to obtain approximately $6
million in separate, independent funding for MDT to cover the costs of further
research and development and commercialization of the MDT technology.
At December 31, 1997, the Company had $577,000 in cash and cash
equivalents as compared to $1,587,000 at December 31, 1996. The decrease in cash
and cash equivalents is attributed to cash used for the development of MDT's
principal technology demonstrators and cash used in other operating activities.
The Company had working capital of $283,000 at December 31, 1997 as compared
with $2,092,000 at December 31, 1996. The Company's future cash flow will come
primarily from the audio signal processing licensing business' Foundry and
Original Equipment Manufacturers' ("OEM") royalties and common stock issuances
including warrant and option exercises. At December 31, 1997 the Company had
five Foundry licensees, sixty-two OEM Licensees and fourteen authorized
customers for its audio signal processing business as compared with three
Foundry licensees and forty-eight OEM Licensees at December 31, 1996. The
Company is actively engaged in negotiations for additional audio signal
processing licensing arrangements which will generate additional cash flow
without imposing any substantial costs on the Company.
The Company continues to have no material long-term obligations and
has no present commitments or agreements which would require any long-term debt
or obligations to be incurred. The Company owed $112,500 to related parties as
of December 31, 1997 and at December 31, 1996.
On October 31, 1997, the Company entered into a line of credit
agreement with Silicon Valley Bank to provide up to $750,000 in short term
financing based upon the Company's accounts receivable base. As of December 31,
1997, there were borrowings against this line of credit in the amount of
$400,000, which were repaid in January 1998.
On April 14, 1998, the Company entered into a $5 million private
placement of which $3 million has been funded. In connection with the private
placement, the Company authorized 100,000 shares of a new Series A, 7%
Convertible Preferred Stock at a stated price of $50 per share and issued 60,000
shares for the $3 million investment. Of the balance of the $5 million, $1
million will be funded within 45 days of the closing and $1 million will be
funded between 60 and 120 days after the effective date of a registration
statement covering the common stock into which the Preferred Stock is
convertible. In connection with the private placement, the Company agreed to
issue 1,000,000 common stock purchase warrants, exercisable for three years and
entitling the holders to acquire one share of the Company's common stock for
each warrant. Of the warrants, 750,000 are being issued to investors (of which
450,000 were issued) and 250,000 warrants are being issued to placement agents
(of which 150,000 were issued). The investor warrants are exercisable at 140%
and the placement warrants are exercisable at 120%, respectively, of the average
closing bid price of the Company's common stock for the 10 days preceding the
closing. In addition, cash placement fees of 10% will be paid. A related party
of the Company received 50,000 of the placement agent warrants and $100,000 of
the placement agent cash fee for
8
<PAGE> 15
arranging $1 million of the current investment. In addition to the private
placement, during the first quarter of 1998 the Company received short term
unsecured advances of $650,000 from a related party, all of which are intended
to be repaid with interest at 10% per annum on or before December 31, 1998. In
the private placement, the participants were granted certain rights to
participate in the separate financing described above which is currently being
pursued by the Company to fund the commercial introduction of its MultiDisc
CD/DVD server technology.
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 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.
9
<PAGE> 16
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.
POSSIBLE 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, conversion and
redemption rights and sinking fund provisions. 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."
10
<PAGE> 17
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, 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
11
<PAGE> 18
has responded to such inquiries and, as of the date hereof, the Company believes
it is in compliance with these requirements and intends to take all reasonable
actions to maintain such listing. However, there is no assurance that it will
continue to comply and in such event there would be no public market for its
securities.
12
<PAGE> 19
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.
13
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 (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
DEBT DECEMBER 31, 1997 (UNAUDITED)1
- ---- ----------------- ------------
<S> <C> <C>
Bank Line of Credit Payable $400,000 $400,000
Notes Payable 64,272 64,272
Advanced from Related Parties 112,500 112,500
-------- --------
Total Debt $576,772 $576,772
-------- --------
STOCKHOLDERS' EQUITY
Preferred shares, $.01 par value, 1,000,000 $ -- $ 600
shares authorized, no shares issued or
outstanding at December 31, 1997; 60,000
shares Series A, 7% Convertible Preferred
Stock issued on April 14, 1998
Common Stock, $.01 par value, 50,000,000 214,100 214,100
shares authorized 21,410,012 shares issued
and outstanding at December 31, 1997
Additional Paid-In Capital 41,481,890 44,111,290
Accumulated Deficit (40,170,877) (40,170,877)
------------ ------------
Total Stockholders' Equity $1,525,113 $4,155,113
---------- ----------
Total Capitalization $2,101,885 $4,731,885
========== ==========
</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.
14
<PAGE> 21
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.
15
<PAGE> 22
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
Retained, Offering, if
Percentage if all all
Ownership Registered Registered
Category of Shares Before Securities Securities
Beneficially Owned Shares Offering are are Sold
NAME AND RELATIONSHIP (1) Offered (2) Sold (2)
- ---------------------------------- ------------------------ --------------- --------------- -------------- --------------
<S> <C> <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, Escrow - 800,987 0 800,987
Chief Executive Officer 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
</TABLE>
16
<PAGE> 23
<TABLE>
<CAPTION>
Percentage
Securities Ownership
To Be After
Retained, Offering, if
Percentage if all all
Ownership Registered Registered
Category of Shares Before Securities Securities
Beneficially Owned Shares Offering are are Sold
NAME AND RELATIONSHIP (1) Offered (2) Sold (2)
- ---------------------------------- ------------------------ --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
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
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
</TABLE>
17
<PAGE> 24
<TABLE>
<CAPTION>
Percentage
Securities Ownership
To Be After
Retained, Offering, if
Percentage if all all
Ownership Registered Registered
Category of Shares Before Securities Securities
Beneficially Owned Shares Offering are are Sold
NAME AND RELATIONSHIP (1) Offered (2) Sold (2)
- ---------------------------------- ------------------------ --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
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 Shares - 50,000 0 * 50,000 *
Trust PLC Warrant - 25,000 25,000 0
Alderman's House Total - 75,000 25,000 50,000
Alderman's Walk
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
</TABLE>
18
<PAGE> 25
<TABLE>
<CAPTION>
Percentage
Securities Ownership
To Be After
Retained, Offering, if
Percentage if all all
Ownership Registered Registered
Category of Shares Before Securities Securities
Beneficially Owned Shares Offering are are Sold
NAME AND RELATIONSHIP (1) Offered (2) Sold (2)
- ---------------------------------- ------------------------ --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
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
Brown Brothers Harriman & Shares - 15,000 15,000 * None None
Co. Warrant - 0 0
Securities Dept. Total - 15,000 15,000
59 Wall Street
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 Warrant - 9,600 9,600
777 Total - 9,600 9,600
San Francisco, CA 94104
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
</TABLE>
19
<PAGE> 26
<TABLE>
<CAPTION>
Percentage
Securities Ownership
To Be After
Retained, Offering, if
Percentage if all all
Ownership Registered Registered
Category of Shares Before Securities Securities
Beneficially Owned Shares Offering are are Sold
NAME AND RELATIONSHIP (1) Offered (2) Sold (2)
- ---------------------------------- ------------------------ --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
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.
20
<PAGE> 27
PLAN OF DISTRIBUTION
The shares of Common Stock held by the Selling Stockholders may be offered
by them in varying amounts and transactions, from time to time, including
through the facilities of 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 commissions may be paid or discounts allowed in
connection with such sales; however, it is anticipated that the discounts
allowed or commissions paid will be no more than the ordinary brokerage
commissions paid on sales effected through brokers or dealers. To the knowledge
of the Company, none of the Selling Stockholders has made any arrangements with
a broker or dealer concerning the offer or sale of the Common Stock as of the
date of this Prospectus. The Company will receive the proceeds from the exercise
of Options and Warrants but the Selling Stockholders, not the Company, will
receive the net proceeds of any sales of their Common Stock hereunder after
payment of any discounts and commissions. The Company has paid the professional
fees and related costs of this Registration Statement from its general funds.
REGISTRATION RIGHTS OF CERTAIN SELLING STOCKHOLDERS
The Company has granted 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
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.
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,
21
<PAGE> 28
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.
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.
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, par value $.01 per share ("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
22
<PAGE> 29
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.
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. In addition, to accommodate the NASDAQ requirements, the
holders 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
23
<PAGE> 30
quickly with terms calculated to delay or prevent a change in control of the
Company or to make removal of management more difficult. The issuance of
preferred stock may have the effect of delaying, deterring or preventing a
change in control of the Company without any further action by the stockholders
or discouraging bids for the Company's Common Stock at a premium. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock.
APPLICATION OF CALIFORNIA CORPORATIONS CODE
Although incorporated in Delaware, the business of the Company has been
conducted through its operating 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 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
24
<PAGE> 31
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,
25
<PAGE> 32
penalties, fines, and settlement of claims paid or incurred, including those
resulting from liability under the 1933 Act, if the indemnitee acted in good
faith and in what he or she reasonably believed to be in, or not opposed to, the
best interest of the Company, and, in the case of criminal action, if the
indemnitee had no reasonable cause to believe his or her conduct was unlawful.
The right to indemnity conferred by the Bylaws is a contractual right.
Such indemnification may be made against (a) expenses (including attorneys'
fees), judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit or proceeding (other than an action by, or in the right of, the
Company) arising out of a position with the Company (or with some other entity
at the Company's request), and (b) expenses (including attorneys' fees) and
amounts paid in settlement actually and reasonably incurred in connection with a
threatened, pending or completed action or suit by, or in the right of, the
Company, unless the director or officer is found liable to the Company and an
appropriate court does not determine that he or she is nevertheless fairly and
reasonably entitled to indemnification.
In certain circumstances, Delaware law permits advances to cover such
expenses before a final determination that indemnification is permissible.
Delaware law requires indemnification for expenses in certain circumstances and,
in others, requires that the indemnification be approved by a majority vote of
directors not involved in the event. In certain actions brought by or on behalf
of the Company against a person, indemnification of that person is available
only after a judicial determination by the Court in which the matter was heard.
To the extent that an indemnitee is successful in the defense of any proceeding,
he or she is entitled to be indemnified against actual and reasonable expenses
incurred in connection with such defense. The Company's bylaws establish
procedures pursuant to which such a determination may be made.
Delaware law permits the Company to enter into written agreements
confirming (and in certain cases, extending its obligations to) the purchase of
insurance on behalf of any director, officer, employee or agent of the Company
or other corporation, partnership, joint venture, trust or other enterprise
whether or not the Company would have the power to indemnify such insured under
Delaware law, against liabilities arising out of their positions with the
Company. To date, the Company has not obtained any such insurance.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Commission, such indemnification is against public policy as expressed in
the 1933 Act and is therefore unenforceable.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brand Farrar & Buxbaum LLP.
26
<PAGE> 33
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.
27
<PAGE> 34
No person is authorized in connection with this Prospectus to give any
information or to make any representations about the Company, the Selling
Stockholders, the securities referenced herein or any matter referenced herein,
other than the information and representations contained in this Prospectus. If
any other information or representation is given or made, such information or
representation may not be relied upon as having been authorized by the Company
or any Selling Stockholder. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any of such securities in any jurisdiction
or to any person to whom it is unlawful to make such offer in such jurisdiction.
Neither the delivery of this Prospectus nor any distribution of securities in
accordance herewith shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company since the date hereof or
that the information contained herein or therein is correct as of any time
subsequent to the date of such information.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..........................................................i
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE................................................................ii
THE COMPANY....................................................................1
RISK FACTORS...................................................................4
USE OF PROCEEDS...............................................................13
CAPITALIZATION................................................................14
BUSINESS......................................................................15
SELLING STOCKHOLDERS..........................................................16
PLAN OF DISTRIBUTION..........................................................21
DESCRIPTION OF CAPITAL STOCK..................................................21
SHARES ELIGIBLE FOR FUTURE SALE...............................................25
INDEMNIFICATION AND PERSONAL LIABILITY
OF OFFICERS AND DIRECTORS................................................25
LEGAL MATTERS.................................................................26
EXPERTS.......................................................................27
</TABLE>
SPATIALIZER AUDIO
LABORATORIES, INC.
The Date of this Prospectus is ______________, 1998.
<PAGE> 35
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>
<CAPTION>
<S> <C>
Registration Fees $ 2,614.00
Transfer Agent Fees $ 500.00*
Printing and Engraving $ 3,000.00*
Costs
Legal Fees $ 10,000.00*
Accounting Fees $ 10,000.00*
Miscellaneous $ 5,000.00*
TOTAL $ 31,114.00*
</TABLE>
--------------------
* Estimated.
II-1
<PAGE> 36
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is incorporated in Delaware. Under Section 145 of the General
Corporation Law of the State of Delaware (the "DGCL"), a Delaware corporation
generally has the power to indemnify its present and former directors and
officers against expenses and liabilities incurred by them in connection with
any suit to which they are, or are threatened to be made, a party by reason of
their serving in those positions so long as they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best interests
of the Company, and with respect to any criminal action, they had no reasonable
cause to believe their conduct was unlawful. The statute expressly provides that
the power to indemnify authorized thereby is not exclusive of any rights granted
under any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Company's Certificate of Incorporation contains the following
provision:
"ARTICLE IX
INDEMNIFICATION
SECTION 1. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or an officer of the corporation, against expenses (including, but
not limited to, attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the fullest extent and in the manner set
forth in and permitted by Delaware law and any other applicable law as from
time to time in effect. Such right of indemnification shall not be deemed
to be exclusive of any other rights to which such director or officer may
be entitled apart from the foregoing provisions. The foregoing provisions
of this Section 1 shall be deemed to be a contract between the Corporation
and each director and officer who serves in such capacity at any time while
this Section 1 and the relevant provisions of Delaware law and other
applicable law, if any, are in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with
respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought or threatened based in
whole or in part upon any such state of facts.
SECTION 2. The Corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was an
employee or agent of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including, but not limited to, attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding to the extent and in the
manner set forth in and permitted by Delaware law and any other applicable
law as from time to time in effect. Such right of indemnification shall not
be deemed to be
II-2
<PAGE> 37
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:
II-3
<PAGE> 38
"ARTICLE VI
INDEMNIFICATION
SECTION 1. Directors and Officers. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is
or was a director or an officer of the Corporation, against expenses
(including, but not limited to, attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding to the fullest extent and
in the manner set forth in and permitted by the General Corporation Law of
the State of Delaware and any other applicable law as from time to time may
be in effect. Such right of indemnification shall not be deemed to be
exclusive of any right to which such director or officer may be entitled
apart from the foregoing provisions. The foregoing provisions of this
Section 1 shall be deemed to be a contract between the Corporation and each
director and officer who serves in such capacity at any time while this
Section 1 and the relevant provisions of the General Corporation Law of the
State of Delaware and other applicable law, if any, are in effect, and any
repeal or modification thereof shall not affect any right or obligation
then existing, with respect to any state of facts then or theretofore
existing, or any action, suit or proceeding theretofore or thereafter
brought or threatened based in whole or in part upon any such state of
facts.
SECTION 2. Agents and Employees. The Corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is
or was an employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including, but not limited to, attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding to the
extent and in the manner set forth in and permitted by the General
Corporation Law of the State of Delaware and any other applicable law as
from time to time may be in effect. Such right of indemnification shall not
be deemed to be exclusive of any other right to which any such person may
be entitled apart from the foregoing provisions."
* * *
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1933 Act and is therefore unenforceable.
The preceding discussion of the Company's Certificate of Incorporation,
Bylaws and Section 145 of the DGCL is qualified in its entirety by reference to
the complete text of the Company's Certificate of Incorporation and Bylaws which
are incorporated by reference as Exhibits to this Registration Statement.
II-4
<PAGE> 39
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
(Incorporated by reference to the Registrant's Preliminary Proxy
Statement filed with the Commission on May 14, 1998.)
4.1* Form of Subscription Agreement for August 1994 Private Placement.
(Incorporated by reference to the Registrant's Registration Statement
on Form S-1, Registration No. 33-90532, effective August 21, 1995.)
4.2* Form of Subscription Agreement for November 1994 Private Placement.
(Incorporated by reference to the Registrant's Registration Statement
on Form S-1, Registration No. 33-90532, effective August 21, 1995.)
4.3* Form of Spatializer-Yukon Incentive Stock Option Agreement.
(Incorporated by reference to the Registrant's Registration Statement
on Form S-1, Registration No. 33-90532, effective August 21, 1995.)
4.4* Spatializer-Delaware Incentive Stock Option Plan (1995 Plan).
(Incorporated by reference to the Registrant's Registration Statement
on Form S-1, Registration No. 33-90532, effective August 21, 1995.)
4.5* Performance Share Escrow Agreements dated June 22, 1992 among Montreal
Trust Company of Canada, Spatializer-Yukon and certain shareholders
with respect to escrow of 2,181,048 common shares of Spatializer-Yukon.
(Incorporated by reference to the Registrant's Registration Statement
on Form S-1, Registration No. 33-90532, effective August 21, 1995.)
4.6* Spatializer-Delaware 1996 Incentive Plan (Incorporated by reference to
the Registrant's Proxy Statement dated June 25, 1996 and previously
filed with the Commission.)
4.7* Form of Subscription Agreement for 1995 Private Placements.
4.8* Form of Subscription Agreement and Warrant Agreement for March 7, 1997 Private Placement.
4.9* Modification Agreement for Escrowed Performance Shares.
</TABLE>
II-5
<PAGE> 40
<TABLE>
<S> <C>
4.10 Form of 7% Convertible Series A Preferred Stock Subscription Agreement,
Warrant Agreement and Registration Rights 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>
- ------------------
* 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.
II-6
<PAGE> 41
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 May 13, 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 May 13, 1998
- --------------------------- Board, President and Chief
Steven D. Gershick Executive Officer
/s/ Henry R. Mandell
- --------------------------- Chief Financial Officer/Senior May 13, 1998
Henry R. Mandell Vice President of
Finance/Secretary
/s/ Carlo Civelli
- --------------------------- Director May 14, 1998
Carlo Civelli
/s/ Scot E. Land
- --------------------------- Director May 13, 1998
Scot E. Land
- --------------------------- Director May __, 1998
James D. Pace
- --------------------------- Director May __, 1998
Jerold H. Rubinstein
/s/ Gilbert N. Segel
- --------------------------- Director May 13, 1998
Gilbert N. Segel
/s/ Stephen W. Desper Director, Vice Chairman of the May 13, 1998
- --------------------------- Board
Stephen W. Desper
</TABLE>
*By:
------------------------------------
Steven D. Gershick, Attorney-in-Fact
<PAGE> 42
POWER OF ATTORNEY
We, the undersigned officers and directors of SPATIALIZER AUDIO
LABORATORIES, INC., hereby severally constitute and appoint Steven D. Gershick
and Henry R. Mandell and each of them (with full power to each of them to act
alone), our true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for us and in our stead, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and all documents relating thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing necessary or
advisable to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their substitutes,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, we have executed this instrument on the dates set forth
below.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Steven D. Gershick Director, Chairman of the May 13, 1998
- --------------------------- Board, President and Chief
Steven D. Gershick Executive Officer
/s/ Henry R. Mandell
- --------------------------- Chief Financial Officer/Senior May 13, 1998
Henry R. Mandell Vice President of
Finance/Secretary
/s/ Carlo Civelli
- --------------------------- Director May 14, 1998
Carlo Civelli
/s/ Scot E. Land
- --------------------------- Director May 13, 1998
Scot E. Land
- --------------------------- Director May __, 1998
James D. Pace
- --------------------------- Director May __, 1998
Jerold H. Rubinstein
/s/ Gilbert N. Segel
- --------------------------- Director May 13, 1998
Gilbert N. Segel
/s/ Stephen W. Desper Director, Vice Chairman of the May 13, 1998
- --------------------------- Board
Stephen W. Desper
</TABLE>
<PAGE> 1
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THIS SUBSCRIPTION AGREEMENT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES MAY NOT BE
SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS.
7% CONVERTIBLE SERIES A PREFERRED STOCK
SUBSCRIPTION AGREEMENT
SPATIALIZER AUDIO LABORATORIES, INC.
THIS AGREEMENT is executed in reliance upon the transaction
exemption afforded by Regulation D as promulgated by the Securities and Exchange
Commission ("SEC"), under the Securities Act of 1933, as amended (the "Act").
This Agreement has been executed by the undersigned in
connection with the private placement of the 7% Convertible Series A Preferred
Stock (hereinafter referred to as the "Preferred Stock") of SPATIALIZER AUDIO
LABORATORIES, INC. (Nasdaq Small Cap Stock Market symbol "SPAZ"), located at
20700 Ventura Boulevard, Suite 134, Woodland Hills, California 91364, a
corporation organized under the laws of Delaware, USA (hereinafter referred to
as the "Company"). The terms on which the Preferred Stock may be converted into
common stock of the Company, $0.01 par value per share,(the "Common Stock") and
the other terms of the Preferred Stock are set forth in the Certificate of
Designation of the 7% Convertible Preferred Stock Series A (Exhibit A annexed
hereto). In addition, the Company will sell to the Subscribers listed on
Schedule A annexed hereto (the "Subscribers" or "Purchasers"), a warrant (the
"Warrant") to purchase One Hundred Fifty Thousand (150,000) shares of Common
Stock of the Company for each One Million ($1,000,000) Dollars funded hereunder
(such number of shares of Common Stock underlying the Warrants shall be pro
rated for each subscription amount) and shall be exercisable for a period of
three (3) years from the Closing Date (as defined herein), as per the terms of a
separate Stock Purchase Warrant (Exhibit B annexed hereto). This Subscription
and, if accepted by the Company, the offer and sale of the Preferred Stock,
Warrants and the Common Stock underlying the Warrant and Preferred Stock
(collectively the "Securities"), are being made in reliance upon the provisions
of Regulation D under the Act.
<PAGE> 2
The Closing Date shall be determined in accordance with
Sections 1.1 and 15 herein.
The Subscribers listed on Schedule A annexed hereto each
hereby represent and warrant to, and agree with the Company as follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 Closing. The Company will sell and the Subscribers will
buy, in reliance upon the representations and warranties of the Company and
Subscribers contained in this Agreement, upon the terms and conditions
hereinafter set forth, that number of shares of Preferred Stock set forth next
to their names on Schedule A for an aggregate purchase price of Two Million
($2,000,000) U.S. Dollars based on U.S. $50.00 per share (the "Purchase Price").
Dividends will accrue and be paid at the rate of seven (7%) percent on the
Preferred Stock until the Preferred Stock has been converted, and all accrued
dividends thereon shall be payable in Common Stock of the Company or in cash at
the time of conversion at the option of the Company. Dividends shall be
calculated at the Conversion Price (as hereinafter defined) on the Conversion
Date (as hereinafter defined) when converted.
1.2 Form of Payment. The Subscribers shall pay the Purchase
Price by delivering good funds in United States Dollars by wire transfer to
Goldstein, Goldstein & Reis, LLP, the Escrow Agent, against delivery of the
original Preferred Stock and Warrants as per a separate Escrow Agreement,
annexed hereto as Exhibit C, as payment in full for their portion of the
Securities.
1.3 Wire Instructions. Wire instructions for Goldstein,
Goldstein & Reis, LLP are as follows:
Chase Manhattan Bank, N.A.
ABA No. 021000021
For the Account of:
United States Trust Company of New York
Account No. 920-1-073195
In favor of:
Goldstein, Goldstein & Reis, LLP Attorney Escrow Account
Account No. 59-01383
Section 2. Representations and Warranties of the Subscribers.
Subscribers each acknowledge, represent, warrant and agree as follows:
2.1 Organization and Authorization. The Subscribers are duly
incorporated or organized and validly existing in the state or country of their
incorporation or organization and have all requisite power and authority to
purchase and hold the Securities. The decision to invest and the execution and
delivery of this Agreement by the Subscribers, the performance by
2
<PAGE> 3
the Subscribers of their obligations hereunder and the consummation by the
Subscribers of the transactions contemplated hereby have been duly authorized
and requires no other proceedings on the part of the Subscribers. The
undersigned signatories have all right, power and authority to execute and
deliver this Agreement on behalf of the Subscribers. This Agreement has been
duly executed and delivered by the Subscribers and, assuming the execution and
delivery hereof and acceptance thereof by the Company, will constitute the
legal, valid and binding obligations of the Subscribers, enforceable against the
Subscribers in accordance with its terms.
2.2 Evaluation of Risks. Subscribers each have such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. They each recognize that their investment in the Company
involves a high degree of risk and can afford the complete loss of their
investment.
2.3 Independent Counsel. Subscribers acknowledge that they
each have been advised to consult with their own attorney regarding legal
matters concerning the Company and to consult with their tax advisor regarding
the tax consequences of acquiring the Securities.
2.4 Disclosure Documentation. Subscribers each have each
received and reviewed copies of the Company's reports filed under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the Act, including its
10-Ks, 10-Qs, 8-K's, and registration statements, filed by the Company since
March 1, 1997, and the draft of the Company's Form 10-K for the period ended
December 31, 1998 (which the Company represents will be filed on April 15, 1998)
(collectively, the "Reports"). Except for the Reports, the Subscribers are not
relying on any other information relating to the offer and sale of the
Securities. Subscribers acknowledge that the Company has offered to make
available any additional public information that the Subscribers may reasonably
request, including technical information, and other material information about
the Company and Subscribers have been offered Company's full and unconditional
cooperation in making such information available to Subscribers and acknowledges
that the Company has recommended that the Subscribers request and review such
information prior to making an investment decision. No oral or written
representations have been made, or oral or written information furnished to the
undersigned or its advisors, if any, in connection with the offering of the
Securities which were or are in any way inconsistent with the Reports.
2.5 Opportunity to Ask Questions. Subscribers each have had a
reasonable opportunity to ask questions of and receive answers from the Company
concerning the Company and the offering, and all such questions, if any, have
been answered to the full satisfaction of each of the Subscribers.
2.6 Reports Constitute Sole Representations. Except as set
forth in the Reports, no representations or warranties have been made to
Subscribers by (a) the Company or any agent, employee or affiliate of the
Company or (b) any other person, and in entering into this transaction
Subscribers are not relying upon any information, other than that contained in
the Reports and the results of independent investigation by Subscribers.
3
<PAGE> 4
2.7 Each of the Subscribers is Accredited Investor. The
Subscribers are each "Accredited Investors" as defined below who represents and
warrants it is included within one or more of the following categories of
"Accredited Investors."
(i)Any bank as defined in Section 3(a)(2) of the Act,
or any savings and loan associated or other institution as defined in
Section 3(a)(5)A of the Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to Section
15 of the 1934 Act; any insurance company as defined in Section 2(13)
of the Act; any investment company registered under the Investment
Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act; any Small Business Investment Company
licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Act of 1958; any plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivision, for the
benefits of its employees if such plan has total assets in excess of
$5,000,000; and employee benefit plan within the meaning of Title I of
the Employee Retirement Income Security Act of 1974 if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association,
insurance company, or registered investment advisor, or if the employee
benefit plan has total assets in excess of $5,000,000 or, if a self-
directed plan, with investment decisions made solely by persons that
are accredited investors;
(i)Any private business development company as
defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
(i)Any organization described in Section 501(c)(3) of
the Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess of
$5,000,000;
(iv) Any director, executive officer, or general
partner of the issuer of the securities being offered or sold, or any
director, executive officer, or general partner of a general partner of
that issuer;
(v) Any natural person whose individual net worth, or
joint net worth with that person's spouse, at the time of his purchase
exceeds $1,000,000;
(vi) Any natural person who had an individual income
in excess of $200,000 in each of the two (2) most recent years or joint
income with that person's spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching that same income
level in the current year;
(vii) Any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
4
<PAGE> 5
sophisticated person as described in Section 230.506(b)(2)(ii) of
Regulation D under the Act;
(viii) Any entity in which all of the equity owners
are accredited investors; and
(ix) Any self-directed employee benefit plan with
investment decisions made solely by persons that are accredited
investors within the meaning of Rule 501 of Regulation D promulgated
under the Act.
2.8 No Registration, Review or Approval. Subscribers
acknowledge and understand that the limited private offering and sale of
Securities pursuant to this Agreement has not been reviewed or approved by the
SEC or by any state securities commission, authority or agency, and is not
registered under the Act or under the securities or "blue sky" laws, rules or
regulations of any state. Subscribers acknowledge, understand and agree that the
Securities are being offered and sold hereunder pursuant to (i) a private
placement exemption to the registration provisions of the Act pursuant to
Section 3(b) or Section 4(2) of such Act and Regulation D promulgated under such
Act, and (ii) a similar exemption to the registration provisions of applicable
state securities laws. Subscribers understand that the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Subscribers set forth herein in order
to determine the applicability of such exemptions and the suitability of the
Subscribers to acquire the Securities. Subscribers will advise Company of the
state of its residence prior to executing this or any other agreement to enable
the Company to comply with applicable "blue sky" laws.
2.9 Investment Intent. Without limiting their ability to
resell the Securities pursuant to an effective registration statement,
Subscribers are acquiring the Securities solely for their own account and not
with a view to the distribution, assignment or resale to others. Subscribers
understand and agree that they may bear the economic risk of its investment in
the Securities for an indefinite period of time.
2.10 No Advertisements. The Subscribers are not subscribing
for the Securities as a result of or subsequent to any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media or broadcast over television or radio, or presented at any seminar or
meeting.
2.11 Registration Rights. The parties have entered into a
Registration Rights Agreement (Exhibit E).
Section 3. Representations and Warranties of the Company. For
so long as any Securities held by any of the Subscribers remain outstanding, the
Company acknowledges, represents, warrants and agrees as follows:
3.1 Organization/Qualification. The Company is a corporation
duly organized
5
<PAGE> 6
and validly existing under the laws of the State of Delaware and is in good
standing under such laws. The Company has all requisite corporate power and
authority to own, lease and operate its properties and assets, and to carry on
its business as presently conducted. The Company is qualified to do business as
a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except where
failure to so qualify would not have a material adverse effect on the Company.
3.2 Accuracy of Reports and Information. The Company is in
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the 1934 Act, and shall maintain such
status on a timely basis. The Company has registered its Common Stock pursuant
to Section 12 of the 1934 Act and the Common Stock is listed and trades on the
Nasdaq Small Cap Stock Market.
The Company has filed all material required to be filed
pursuant to all reporting obligations, under either Section 13(a) or 15(d) of
the 1934 Act for a period of at least twelve (12) months immediately preceding
the offer and sale of the Securities (or for such shorter period that the
Company has been required to file such material).
3.3 SEC Filings/Full Disclosure. For a period of at least
twelve (12) months immediately preceding this offer and sale, or such shorter
period that the Company has been required to file such Reports as defined
herein, to the best of the Company's knowledge (i) none of the Company's filings
with the Securities and Exchange Commission contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances under
which they were made, not misleading, and (ii) the Company has timely filed all
requisite forms, reports and exhibits thereto with the Securities and Exchange
Commission.
There is no fact known to the Company (other than general
economic conditions known to the public generally) that has not been publicly
disclosed by the Company or disclosed in writing to the Subscribers which (i)
could reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) or on earnings, business affairs, properties or assets
of the Company, or (ii) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement.
3.4 Authorization. The Company has all requisite corporate
right, power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the Securities and
the performance of the Company's obligations hereunder has been taken. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy as
6
<PAGE> 7
they may apply to the indemnification provisions set forth in this Agreement.
Upon their issuance and delivery pursuant to this Agreement, the Securities will
be validly issued, fully paid and nonassessable and will be free of any liens or
encumbrances; provided, however, that the Securities are subject to restrictions
on transfer under state and/or federal securities laws. The issuance and sale of
the Securities will not give rise to any preemptive right or right of first
refusal or right of participation on behalf of any person.
3.5 No Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default, or give rise to a
right of termination, cancellation or acceleration of any material obligation or
to a loss of a material benefit, under, any provision of the Articles of
Incorporation, and any amendments thereto, Bylaws, Stockholders Agreements and
any amendments thereto of the Company or any material mortgage, indenture, lease
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets and which would have a material adverse
effect on the Company's business and financial condition.
3.6 No Undisclosed Liabilities or Events. The Company has no
liabilities or obligations other than those disclosed in the Reports, this
Agreement or those incurred in the ordinary course of the Company's business
since March 1, 1997, and which individually or in the aggregate, do not or would
not have a material adverse effect on the properties, business, condition
(financial or otherwise), results of operations or prospects of the Company. No
event or circumstances has occurred or exists with respect to the Company or its
properties, business, condition (financial or otherwise), results of operations
or prospects, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed.
3.7 No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its property
is bound, and neither the execution, nor the delivery by the Company, nor the
performance by the Company of its obligations under this Agreement, including
the conversion or exercise provision of the Securities, will conflict with or
result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under, any material indenture,
mortgage, deed of trust or other material agreement applicable to the Company or
instrument to which the Company is a party or by which it is bound or any
statute or the Certificate of Incorporation or by-laws of the Company, or any
decree, judgment, order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or its properties, or the Company's
listing agreement for its Common Stock.
3.8 Absence of Events of Default. Except as set forth in the
Reports and this Agreement, no default, as defined in the respective agreement
to which the Company is a party, and no event which, with the giving of notice
or the passage of time or both, would become a
7
<PAGE> 8
default, has occurred and is continuing, which would have a material adverse
effect on the Company's business, properties, prospects, condition (financial or
otherwise) or results of operations.
8
<PAGE> 9
3.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or issuance of the
Securities, or the consummation of any other transaction contemplated hereby,
except as may be required by applicable securities laws.
3.10 Intellectual Property Rights. Except as disclosed in the
Reports, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as presently conducted in the
Reports. To the Company's knowledge, and except as disclosed in the Reports,
neither the Company nor its products is infringing or will infringe any
trademark, trade name, patent right, copyright, license, trade secret or other
similar right of others currently in existence; and there is no claim being made
against the Company regarding any trademark, trade name, patent, copyright,
license, trade secret or other intellectual property right which could have a
material adverse effect on the business or financial condition of the Company.
3.11 Material Contracts. Except as set forth in the Reports,
the agreements to which the Company is a party described in the Reports are
valid agreements, in full force and effect, and the Company is not in material
breach or material default under any of such agreements.
3.12 Litigation. Except as disclosed in the Reports, there is
no action, proceeding or investigation pending, or to the Company's knowledge
threatened, against the Company which might result, either individually or in
the aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Company. The Company is not a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality.
3.13 Title to Assets. Except as set forth in Reports, the
Company has good and marketable title to all properties and material assets
described in the Reports as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than such as
are not material to the business of the Company.
3.14 Subsidiaries. Except as disclosed in the Reports, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
3.15 Required Governmental Permits. The Company is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all of
which are valid and in full force and effect.
3.16 Listing. The Company will use its best efforts to
maintain the listing of its Common Stock on the Nasdaq Small Cap Stock Market or
other organized United States
9
<PAGE> 10
market or quotation system with exception to the provisions of Section 10 below.
The Company has not received any notice, oral or written, regarding continued
listing and, as long as the Preferred Stock and Warrants are outstanding, the
Company will take no action which would impact their continued listing or
eligibility of the Company for such listing. The Company represents that prior
to the Closing Date it does not meet the net asset value or market
capitalization requirements of the Nasdaq Stock Market, but that upon the
completion of this transaction it will be in compliance with the net asset value
requirements of the Nasdaq Stock Market.
3.17 Other Outstanding Securities/Financing Restrictions.
Except as disclosed in the Reports, the Company has no outstanding restricted
shares, or shares of Common Stock sold under Regulation S, Regulation D or
outstanding under any other exemption from registration, which are available for
sale as unrestricted ("free trading") stock.
3.18 Registration Alternative. The Company covenants and
agrees that for so long as any of the Common Stock issuable upon conversion of
the Preferred Stock or exercise of the Warrants, remain outstanding and continue
to be "restricted securities" within the meaning of Rule 144 under the Act, the
Company shall permit resales of the underlying Common Stock pursuant to Rule 144
under the Act. The Company and the Subscriber shall provide the Transfer Agent
any and all papers necessary to complete the transfer under Rule 144, including,
but not limited to, opinions of counsel to the Transfer Agent, and the Company
shall continue to file all material required to be filed pursuant to Sections
13(a) or 15(d) of the 1934 Act.
3.19 Capitalization. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock, $0.01 par value per
share, of which 21,423,345 were outstanding as of March 20, 1998, 1,000,000
shares of Preferred Stock, $0.01 par value per share, none of which were
outstanding prior to the date of this Agreement. All issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable.
3.20 Dilution. The Company is aware and acknowledges that
conversion of the Preferred Stock, and/or exercise of the Warrant, would cause
dilution to existing stockholders and could significantly increase the
outstanding number of shares of Common Stock.
Section 4. Further Representations and Warranties of the
Company. For so long as any Securities held by any of the Subscribers remain
outstanding, the Company acknowledges, represents, warrants and agrees as
follows:
(i) It will reserve from its authorized but unissued
shares of Common Stock a sufficient number of shares of Common Stock to
permit the conversion in full of all of the outstanding Securities.
(ii) It will maintain the listing of its Common Stock
on either the Nasdaq Small Cap Stock Market or Nadsaq National Market,
or the successors thereto.
10
<PAGE> 11
(iii) It will permit the Subscribers to exercise
their right to convert the Preferred Stock and/or exercise the Warrants
by telecopying an executed and completed Notice of Conversion and/or
Notice of Exercise to the Company and delivering the original Notice of
Conversion and/or original Notice of Exercise and the certificate
representing the Preferred Stock and/or the original Warrant to the
Company by express courier. Each business date on which a Notice of
Conversion and/or Notice of Exercise is telecopied to and received by
the Company in accordance with the provisions hereof shall be deemed a
"Conversion Date" and/or "Exercise Date". The Company will transmit the
certificates representing shares of Common Stock issuable upon
conversion of any Preferred Stock and/or exercise of any Warrants
(together with the certificates representing the Preferred Stock not so
converted and/or Warrants not so exercised) to the Subscriber via
express courier, by electronic transfer or otherwise within three
business days after the Conversion Date and/or Exercise Date if the
Company has received the original Notice of Conversion and Preferred
Stock certificate being so converted and/or the original Notice of
Exercise and Warrant being exercised by such date. In addition to any
other remedies which may be available to the Subscribers, in the event
that the Company fails to effect delivery of such shares of Common
Stock within such three business day period, the Subscribers will be
entitled to revoke the relevant Notice of Conversion and/or Notice of
Exercise by delivering a notice to such effect to the Company whereupon
the Company and the Subscribers shall each be restored to their
respective positions immediately prior to delivery of such Notice of
Conversion and/or Notice of Exercise. The Notice of Conversion and
Preferred Stock and/or the Notice of Exercise and Warrant representing
the portion of the Preferred Stock converted and/or Warrant exercised
shall be delivered as follows:
To the Company:
Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 134
Woodland Hills, CA 91364-2357
Fax: (818) 227-9750
Attn: President
In the event that the Common Stock issuable upon conversion of
the Preferred Stock and/or exercise of the Warrants is not delivered within five
(5) business days of receipt by the Company of a valid Notice of Conversion and
the Preferred Stock to be converted and/or Notice of Exercise and Warrant to be
exercised, the Company shall pay to the Subscriber(s), in immediately available
funds, upon demand, as liquidated damages for such failure and not as a penalty,
for each $100,000 of Preferred Stock sought to be converted, $500 for each of
the first ten (10) days and $1,000 per day thereafter that the Conversion Shares
are not delivered, and for each thousand (1,000) shares of Common Stock sought
to be exercised under the Warrant, $7.50 for each of the first ten (10) days and
$15 per day thereafter that the shares of Common
11
<PAGE> 12
Stock underlying the Warrant are not delivered, which liquidated damages shall
run from the sixth business day after the Conversion Date and/or Exercise Date.
Any and all payments required pursuant to this paragraph shall be payable only
in shares of Common Stock and not in cash. The number of such shares shall be
determined by dividing the total sum payable by the Conversion Price and/or
Exercise Price.
Section 5. Opinion of Counsel. Subscribers shall, upon the
Closing, receive an opinion from counsel to the Company subject to reasonable
and customary limitations and qualifications to the effect that:
(i) The Company is duly incorporated and validly
existing under the laws and jurisdiction of its incorporation. The
Company and/or its subsidiaries are duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions where
the Company and/or its subsidiaries owns or leases properties,
maintains employees or conducts business, except for jurisdictions in
which the failure to so qualify would not have a material adverse
effect on the Company, and has all requisite corporate power and
authority to own its properties and conduct its business.
(ii) Except as set forth in the Reports, there is no
action, proceeding or investigation pending, or threatened against the
Company which might result, either individually or in the aggregate, in
any material adverse change in the business or financial condition of
the Company.
(iii) Except as set forth in the Reports, and without
an independent investigation, the Company is not a party to or subject
to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
(iv) Except as set forth in the Reports, there is no
action, suit, proceeding or investigation by the Company currently
pending, other than licensing agreement audits performed in the
ordinary course of business.
(v) The Preferred Stock, which shall be issued at the
Closing, will be duly authorized and validly issued under the laws of
the Company's State of Incorporation.
(vi) This Subscription Agreement, the issuance of the
Preferred Stock and Warrants, and the issuance of Common Stock, upon
conversion of the Preferred Stock and/or exercise of the Warrants, have
been duly approved by all required corporate action and that all such
securities, upon delivery, shall be validly issued and outstanding,
fully paid and nonassessable.
(vii) The issuance of the Securities will not violate
the applicable listing agreement between the Company and any securities
exchange or market on which the
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<PAGE> 13
Company's securities are listed, except that the parties acknowledge
that the issuance of more than 4,284,669 shares of Common Stock to the
Subscribers pursuant to this Agreement may require stockholder approval
under the governance standards of Nasdaq.
(viii) Assuming the accuracy of the representation
and warranties of the Company and the Subscribers set forth in this
Subscription Agreement, the offer, issuance and sale of the Preferred
Stock, Warrants and shares of Common Stock to be issued upon exercise
and/or conversion to the Subscriber pursuant to this Agreement are
exempt from the registration requirements of the Act.
(ix) As more specifically described in the Reports,
and as certified by the Company's transfer agent, the authorized
capital stock of the Company consists of 50,000,000 shares of Common
Stock, $0.01 par value per share, of which 21,423,345 were outstanding
as of March 20, 1998, 1,000,000 shares of Preferred Stock, $0.01 par
value per share, none of which were outstanding prior to the date of
this Agreement.
(x) The Common Stock is registered pursuant to
Section 12(b) or Section 12(g) of the 1934 Act and to the best of
Counsel's knowledge without an independent investigation the Company
has timely filed all the material required to be filed pursuant to
Sections 13(a) or 15(d) of such Act for a period of at least twelve
months preceding the date hereof.
(xi) The Company has the requisite corporate power
and authority to enter into the Agreements and to sell and deliver the
Securities and the Common Stock to be issued upon the conversion of the
Securities as described in this Agreement; the Agreement has been duly
and validly authorized by all necessary corporate action by the
Company, to the best of our knowledge, no approval of any governmental
or other body is required for the execution and delivery of each of the
Agreements by the Company or the consummation of the transactions
contemplated thereby; the Agreement has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and
binding agreement of the Company, enforceable in accordance with its
terms, except as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other laws affecting creditors rights
generally, and except as to compliance with federal, state and foreign
securities laws, as to which no opinion is expressed.
(xii) After due inquiry, the execution, delivery and
performance of the Agreements by the Company and the performance of its
obligations thereunder do not and will not constitute a breach or
violation of any of the terms and provisions of, or constitute a
default under or conflict with or violate any provision of (i) the
Company's Certificate of Incorporation or By-Laws, (ii) any indenture,
mortgage, deed of trust, agreement or other instrument to which the
Company is a party or by which it or any of its property is bound,
(iii) any applicable statute or regulation, (iv) or any judgment,
decree or other of any court or governmental body having jurisdiction
over the Company
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<PAGE> 14
or any of its property.
Section 6. Opinion of Counsel Upon Conversion. The Company
will obtain for each Subscriber, at the Company's expense, any and all opinions
of counsel which may be reasonably required in order to convert the Preferred
Stock, including, but not limited to, obtaining for each Subscriber an opinion
of counsel, subject only to receipt of a Notice of Conversion in the form of
Exhibit D and receipt by Counsel of such representations, warranties, and
documents as are determined to be necessary to comply with applicable securities
laws, duly executed by the Subscriber which shall be satisfactory to the
Transfer Agent, directing the Transfer Agent to remove the legend from the
certificate.
Section 7. Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Securities to the public without registration, the
Company agrees to:
(i) make and keep public information available, as
those terms are understood and defined in Rule 144 under the Act, at
all times after the effective date on which the Company becomes subject
to the reporting requirements of the Act or the 1934 Act;
(ii) file with the SEC in a timely manner all reports
and other documents required of the Company under the Act and the 1934
Act;
(iii) furnish to each Subscriber forthwith, upon
request, a written statement by the Company as to its compliance with
the reporting requirements of said Rule 144, and of the Act and the
1934 Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the
Company as each Subscriber may reasonably request in availing itself of
any rule or regulation of the SEC allowing any Subscriber to sell any
such Securities without registration.
Section 8. Representations and Warranties of the Company and
Subscribers. Each of the Subscribers and the Company represent to the other the
following with respect to itself:
8.1 Subscription Agreement. The Subscription Agreement has
been duly authorized, validly executed and delivered on behalf of the Company
and each of the Subscribers and is a valid and binding agreement in accordance
with its terms, subject to general principles of equity and to bankruptcy or
other laws affecting the enforcement of creditors' rights generally.
8.2 No-Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right
14
<PAGE> 15
of termination, cancellation or acceleration of any obligation or to a loss of a
material benefit, under, any provision of the Certificate of Incorporation, and
any amendments thereto, Bylaws and any amendments thereto of the Company or any
material mortgage, indenture, lease or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree statute, law, ordinance,
rule or regulation applicable to the Company, its properties or assets.
8.3 Approvals. Neither the Company nor any Subscriber is aware
of any authorization, approval or consent of any governmental body which is
legally required for the issuance and sale of the Securities.
8.4 Indemnification. Each of the Company and each of the
Subscribers agrees to indemnify the other and to hold the other harmless from
and against any and all losses, damages, liabilities, costs and expenses
(including reasonable attorneys' fees) which the other may sustain or incur in
connection with the breach by the indemnifying party of any representation,
warranty or covenant made by it in this Agreement.
8.5 Transfer Restrictions/Conversion Holding Period. Refer to
Certificate of Designation (Exhibit A).
8.6 Right of First Refusal. In the event the Company wishes to
obtain further financing in the form of any discounted or reset convertible
securities convertible into Common Stock within one (1) year following the
Closing Date, the Subscribers shall have the right of first refusal to
participate in such offering and shall have ten (10) business days to reply in
writing after receipt of written notice of such offering from the Company.
Provided, however, that this restriction does not apply with respect to the
Company obtaining up to Two Million ($2,000,000) Dollars in financing (in the
form of convertible securities) from Clarion Finanz, A.G., Aton Select Fund,
Ltd, or its designees within forty five (45) days after the Closing Date. The
Company agrees that any securities issued to Clarion Finanz, A.G., Aton Select
Fund, Ltd, or its designees, will not be convertible into shares of Common Stock
at any time prior to six (6) months after the effective date of the Registration
Statement (as more fully set forth in the Registration Rights Agreement).
8.7 Subsidiary Financing. The Subscribers shall have the right
to invest up to Two Million ($2,000,000) Dollars (pro rata) in the Company's
subsidiary, MultiDisc Technologies, Inc. ("MultiDisc"), as follows:
(i) for a period of ninety (90) days following
the Closing Date assuming a pre-investment valuation of MultiDisc of Twelve
Million ($12,000,000) Dollars; or
(ii) in the event MultiDisc wishes to obtain debt
or equity financing within one (1) year following the Closing Date, the
Subscribers shall have the right to participate in such offering (up to Two
Million ($2,000,000) Dollars) and shall have ten (10) business days to reply in
writing after receipt of written notice of such offering from the
15
<PAGE> 16
Company.
8.8 Put/Call Option. The Company shall have the option to make
one "Put", and the Subscribers shall have the option to make one "Call", to fund
up to an additional One Million ($1,000,000) Dollars in Preferred Stock pursuant
to the terms of this Agreement and the Certificate of Designation. The Put, or
Call may be made by either party at any time following sixty (60) days after the
effective date of the registration statement (as set forth in the Registration
Rights Agreement), or prior to one hundred twenty (120) days after the effective
date of the registration statement. The closing for the Put or Call shall be
fifteen (15) days after receipt of a written notice stating the applicable
party's intention to Put or Call, and the completion of each of the following
conditions:
(i) the Registration Statement must be effective;
(ii) the Company has not received any notice from
Nasdaq which has not been cured pertaining to
noncompliance with the listing requirements of
the Common Stock as listed on the Nasdaq Small
Cap Stock Market;
(iii) the Common Stock must be listed on the Nasdaq
Small Cap Stock Market;
(iv) as a result of the Put or Call, the Company,
assuming the conversion of all Preferred Stock
and Warrants by the Subscribers, must remain in
compliance with Nasdaq listing requirements;
(v) the Subscribers receive a legal opinion from
counsel to the Company that there has been no
material adverse change to the Company since
the Closing Date and that all of the
representations and warranties of the Company
in this Agreement are true and correct as of
the date thereof; and
(vi) the Subscribers receive a certification from an
executive officer of the Company that that
there has been no material adverse change to
the Company since the Closing Date and that all
of the representations and warranties of the
Company in this Agreement are true and correct
as of the date thereof.
Section 9. Restrictions on Conversion of Preferred Stock. Each
Subscriber or any subsequent holder of the Preferred Stock (the "Holder") shall
be prohibited from converting any portion of the Preferred Stock which would
result in any Subscriber or Holder being deemed the beneficial owner, in
accordance with the provisions of Rule 13d-3 of the 1934 Act, as amended, of
4.99% or more of the then issued and outstanding Common Stock of the Company.
Section 10. 20% Limitation. At such time as the number of
shares of Common Stock issuable to the Subscribers in the aggregate pursuant to
the terms of this Agreement through the conversion of the Preferred Stock
reaches 3,200,000 shares of Common Stock, the Company agrees that it will call a
stockholders' meeting within sixty (60) days thereafter for the purpose of
approving below market price issuances of Common Stock to the Subscribers in
16
<PAGE> 17
excess of 4,284,669 shares of Common Stock to enable the Subscribers to convert
all of the Preferred Stock issued hereunder. In the event that the
aforementioned proposal is not ratified by the stockholders, the Company agrees
that it shall seek a waiver from the Nasdaq Stock Market for such issuance. In
the event the Company does not get such a waiver within ten (10) days after the
stockholder meeting, the Company agrees that it will withdraw its listing from
the Nasdaq Small Cap Stock Market for the sole purpose of issuing any and all
shares of Common Stock due to the Subscribers under this Agreement.
Section 11. Mandatory Conversion. In the event the Preferred
Stock has not been converted three (3) years from the Closing Date, the
Preferred Stock shall automatically be converted (and all dividends owed thereon
shall be paid by the Company) as if the Subscribers voluntarily elected such
conversion in accordance with the procedure, terms and conditions set forth in
this Agreement.
Section 12. Registration or Exemption Requirements.
Subscribers acknowledge and understand that the Securities may not be resold or
otherwise transferred except in a transaction registered under the Act and any
applicable state securities laws or unless an exemption from such registration
is available. Subscribers understand that the Securities will be imprinted with
a legend that prohibits the transfer of the Securities unless (i) they are
registered or such registration is not required, and (ii) if the transfer is
pursuant to an exemption from registration other than Rule 144 under the Act
and, if the Company shall so request in writing, an opinion of counsel
reasonably satisfactory to the Company is obtained to the effect that the
transaction is so exempt.
Section 13. Legend. The certificates representing the
Securities shall be subject to a legend restricting transfer under the Act, such
legend to be substantially as follows:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). SUCH SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN
THE UNITED STATES OR TO U.S. PERSONS IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN
THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS
CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The certificates representing these Securities, and each
certificate issued in transfer thereof, will also bear any legend required under
any applicable state securities law.
Section 14. Stock Delivery Instructions. The Preferred Stock
Certificate shall be delivered to Subscribers on a delivery versus payment basis
as set forth in the Escrow Agreement.
Section 15. Closing Date. The date the Escrow Agent receives
the Securities and
17
<PAGE> 18
the Purchase Price, and both the conditions set forth in Sections 16 and 17 and
the terms and conditions of the Escrow Agreement (Exhibit C) herein are
satisfied or waived shall be the Closing (the "Closing Date"), and all acts,
deliveries and confirmations comprising the Closing Date regardless of
chronological sequence, shall be deemed to occur contemporaneously and
simultaneously upon the occurrence of the last act, delivery, or confirmation of
the Closing Date, and such acts, deliveries, or confirmations shall not be
effective unless and until the last of same shall have occurred, and as shall be
mutually agreed upon as to time and place.
Section 16. Conditions to the Company's Obligation to Sell.
Subscribers understand that the Company's obligation to sell the Preferred Stock
and Warrants are conditioned upon:
18
<PAGE> 19
(i) The receipt and acceptance by the Company of this
Subscription Agreement and all duly executed Exhibits thereto by an
authorized officer of the Company;
(ii) Delivery into escrow by Subscribers of good
cleared funds as payment in full for the purchase of the Securities;
(iii) All representations and warranties of the
Subscribers contain herein shall remain true and correct as of the
Closing Date;
(iv) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock and Warrants, or shall have the availability of
exemptions therefrom. At the Closing Date, the sale and issuance of the
Preferred Stock, Warrants, and the proposed issuance of the Common
Stock underlying the Preferred Stock, and Warrants shall be legally
permitted by all laws and regulations to which the Subscribers and the
Company are subject; and
(v) The Certificate of Designation for the Preferred
Stock shall have been filed with the Delaware Secretary of State.
Section 17. Conditions to Subscriber's Obligation to Purchase.
The Company understands that Subscriber's obligation to purchase the Preferred
Stock, and Warrant is conditioned upon:
(i) Acceptance by each of the Subscribers of a
satisfactory Subscription Agreement and all duly executed Exhibits
hereto for the sale of the Securities;
(ii) Delivery of the original Securities as
described herein;
(iii) All representations and warranties of the
Company contained herein shall remain true and correct as of the
Closing Dates;
(iv) Receipt of opinion of counsel and proof of a
filed Certificate of Designation;
(v) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock, and Warrants, or shall have the availability of
exemptions therefrom. At the Closing Date, the sale and issuance of the
Preferred Stock, and Warrants shall be legally permitted by all laws
and regulations to which the Company and Subscribers are subject;
(vi) The Company shall have obtained One Million
($1,000,000) Dollars in financing, and an unconditional binding
commitment for an additional One
19
<PAGE> 20
Million ($1,000,000) Dollars in financing from Clarion Finanz, AG, Aton Select
Fund, Ltd, or its designees, due in no more than forty (45) days after the
Closing Date; and
(vii) The Company shall have received an unqualified
opinion from its auditors for the fiscal year ended December 31, 1997.
Section 18. Miscellaneous.
18.1 Governing Law/Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Act, without reference to
principles of conflicts of law. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the State of New
York or the state courts of the State of New York in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any state or country having jurisdiction over
the party against whom such judgment was obtained, and each party hereby waives
any defenses available to it under local law and agrees to the enforcement of
such a judgment. Each party to this Agreement irrevocably consents to the
service of process in any such proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its address set
forth herein. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
18.2 Confidentiality. The Company and each of the Subscribers
agrees to keep confidential and not to disclose to or use for the benefit of any
third party the terms of this Agreement (including the names of the Subscribers)
or any other information which at any time is communicated by the other party as
being confidential without the prior written approval of the other party;
provided, however, that this provision shall not apply to information which, at
the time of disclosure, is already part of the public domain (except by breach
of this Agreement) and information which is required to be disclosed by law. If
for any reason the transactions contemplated by this Agreement are not
consummated, each of the parties hereto shall keep confidential any information
obtained from any other party, including the names of the Subscribers (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information, without retaining copies thereof, previously furnished by
it as a result of this Agreement or in connection herewith.
18.3 Facsimile/Counterparts/Entire Agreement. Except as
otherwise stated herein, in lieu of the original, a facsimile transmission or
copy of the original shall be as effective and enforceable as the original. This
Agreement may be executed in counterparts which shall be considered an original
document and which together shall be considered a
20
<PAGE> 21
complete document. This Agreement and Exhibits hereto constitute the entire
agreement between the Subscriber and
21
<PAGE> 22
the Company with respect to the subject matter hereof. This Agreement may be
amended only by a writing executed by all parties.
18.4 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
18.5 Entire Agreement. This Agreement and Exhibits hereto
constitute the entire agreement between the Subscribers and the Company with
respect to the subject matter hereof. This Agreement may be amended only by a
writing executed by all parties.
18.6 Reliance by Company. The Subscribers represent to the
Company that the representations and warranties of the Subscriber contained
herein are complete and accurate and may be relied upon by the Company in
determining the availability of an exemption from registration under federal and
state securities laws in connection with a private offering of securities.
18.7 Legal Fees and Expenses. Each of the parties shall pay
its own fees and expenses (including the fees of any accountants, appraisers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby except that the Company agrees to pay legal,
escrow, and administrative fees of Twenty Five Thousand ($25,000) Dollars to
Goldstein, Goldstein, & Reis, LLP.
18.8 Authorization. Each of the parties hereto represents that
the individual executing this Agreement on its behalf has been duly and
appropriately authorized to execute the Agreement.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
22
<PAGE> 23
IN WITNESS WHEREOF, this Agreement was duly executed on the
date first written below.
Agreed to and Accepted on
this 14th day of April 1998
SPATIALIZER AUDIO LABORATORIES, INC.
By /s/
----------------------------------
Title: CEO CPR (USA) INC.
By /s/
-----------------------------------
Name:
Title:
Executed this 14th day of April, 1998
LIBERTYVIEW FUND, LLC
By /s/
-----------------------------------
Name:
Title:
Executed this 14th day of April, 1998
LIBERTYVIEW PLUS FUND
By /s/
-----------------------------------
Name:
Title:
Executed this 14th day of April, 1998
23
<PAGE> 24
SCHEDULE A
LIST OF SUBSCRIBERS
<TABLE>
<CAPTION>
Subscriber Number of Number of State of
Name and Address Purchase Price Preferred Shares Warrant Shares Origination
- ---------------- -------------- ---------------- -------------- -----------
<S> <C> <C> <C> <C>
CPR (USA) Inc. $1,000,000 20,000 150,000 Delaware
Corp.
101 Hudson St., 37th Fl.
Jersey City, NJ 07302
LibertyView Plus Fund 800,000 16,000 120,000
Bermuda Corp.
Hemisphere House
9 Church Street
Hamilton, Bermuda HMDX
The LibertyView 200,000 4,000 30,000
Delaware LLC
Fund, LLC
101 Hudson St., 37th Fl.
Jersey City, NJ 07302
</TABLE>
24
<PAGE> 25
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY
NOT BE OFFERED OR SOLD OR TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH,
EXCEPT IN THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS
CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY.
FORM OF STOCK PURCHASE WARRANT
To Purchase 450,000 Shares of Common Stock of
SPATIALIZER AUDIO LABORATORIES, INC.
THIS CERTIFIES that, for value received, _________ (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time after the date hereof and on or prior to
April 15, 2001 (the "Termination Date") but not thereafter, to subscribe for and
purchase from SPATIALIZER AUDIO LABORATORIES, INC., a Delaware corporation (the
"Company"), _____ (___) shares of Common Stock (the "Warrant Shares"). The
purchase price of one share of Common Stock (the "Exercise Price") under this
Warrant shall be One Hundred Forty (140%) percent of the average closing bid
prices of the Common Stock as quoted by Bloomberg, LP for the ten (10) trading
days immediately preceding the Closing Date (as defined in the 7% Convertible
Preferred Stock Series A Subscription Agreement dated April 15, 1998). The
Exercise Price and the number of shares for which the Warrant is exercisable
shall be subject to adjustment as provided herein. This Warrant is being issued
in connection with the 7% Convertible Preferred Stock Series A Subscription
Agreement dated April 15, 1998, in the amount of Two Million ($2,000,000)
Dollars (the "Agreement") between the Company and the Investors listed on
Schedule A to the Agreement and is subject to its terms. Capitalized terms not
otherwise defined herein shall have that meaning as set forth in the Agreement.
In the event of any conflict between the terms of this Warrant and the
Agreement, the Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and
subject to compliance with applicable laws, this Warrant and all rights
hereunder may be assigned, in whole or in part, at the office or agency of the
Company by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
<PAGE> 26
2. Authorization of Shares. The Company covenants that all
shares of Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, upon exercise of the rights represented by
this Warrant, be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).
3. Exercise of Warrant. Exercise of the purchase rights
represented by this Warrant may be made at any time or times one day after the
date hereof, in whole or in part, before the close of business on the
Termination Date, or such earlier date on which this Warrant may terminate as
provided in paragraph 12 below, by the surrender of this Warrant and the Notice
of Exercise annexed hereto duly executed, at the office of the Company (or such
other office or agency of the Company as it may designate by notice in writing
to the registered holder hereof at the address of such holder appearing on the
books of the Company) and upon payment of the Exercise Price of the shares
thereby purchased; whereupon the holder of this Warrant shall be entitled to
receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within five business days after the date on which this Warrant shall have
been exercised as aforesaid. Payment of the Exercise Price of the shares may be
by certified check or cashier's check or by wire transfer to an account
designated by the Company in an amount equal to the Exercise Price multiplied by
the number of shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the holder of this Warrant or in such name or names as may be
directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and provided further, that upon any transfer
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
1. Restrictions on Transfer.
(a) This Warrant and any Warrant Shares may not be sold,
transferred, pledged, hypothecated or otherwise disposed of except as follows:
(i) to a person who, in the opinion of counsel to the Company, is a person to
whom this Warrant or the Warrant Shares may legally be transferred without
registration and without the delivery of a current prospectus
2
<PAGE> 27
under the Act with respect thereto, and then only against receipt of a duly
executed Assignment for and the written agreement of such person to comply with
the provisions of this Section 6(a) with respect to any resale or other
disposition of such securities; or (ii) to any person upon delivery of a duly
executed Assignment Form and a prospectus then meeting the requirements of the
Act relating to such securities and the offering thereof for such sale or
disposition, and thereafter to all successive assignees.
(b) Unless the Warrant Shares have been registered under the
Act, or exempt from registration, upon exercise of any of the Warrant and the
issuance of any of the Warrant Shares, all certificates representing Warrant
Shares shall bear on the face thereof substantially the following legend:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). SUCH SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN
THE UNITED STATES OR TO U.S. PERSONS IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN
THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS
CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The holder of the Warrant agrees and acknowledges that the
Warrant is being purchased for the holder's own account, for investment purposes
only, and not for the account of any other person, and not with a view to
distribution, assignment, pledge or resale to others or to fractionalization in
whole or in part. The holder further represents, warrants and agrees as follows:
no other person has or will have a direct or indirect beneficial interest in
this Warrant and the holder will not sell, hypothecate or otherwise transfer the
Warrant except in accordance with the Act thereunder and applicable state
securities laws or unless, in the opinion of counsel for the holder acceptable
to the Company, an exemption from the registration requirements of the Act and
such laws is available.
7. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
8. No Rights as Shareholder until Exercise. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise thereof. If, however, at the
time of the surrender of this Warrant and purchase the holder hereof shall be
entitled to exercise this Warrant, the shares so purchased shall be and be
deemed to be issued to such holder as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been exercised.
9. Assignment and Transfer of Warrant. This Warrant may be
assigned by the surrender of this Warrant and the Assignment Form annexed hereto
duly executed at the office of the Company (or such other office or agency of
the Company as it may designate by
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<PAGE> 28
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company); provided, however, that this Warrant may
not be resold or otherwise transferred except (i) in a transaction registered
under the Act, or (ii) in a transaction pursuant to an exemption, if available,
from such registration and whereby, if requested by the Company, an opinion of
counsel reasonably satisfactory to the Company is obtained by the holder of this
Warrant to the effect that the transaction is so exempt.
10. Loss, Theft, Destruction or Mutilation of Warrant. The
Company represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Warrant or stock certificate, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and upon reimbursement to
the Company of all reasonable expenses incidental thereto, and upon surrender
and cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and dated
as of such cancellation, in lieu of this Warrant or stock certificate.
11. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a legal holiday.
12. Effect of Certain Events.
(a) If at any time the Company proposes to sell or otherwise
convey all or substantially all of its assets, a sale in which the consideration
to be received by the Company or its shareholders consists solely of cash, the
Company shall give the holder of this Warrant thirty (30) days' notice of the
proposed effective date of the transaction specifying that the Warrant shall
terminate if the Warrant has not been exercised by the effective date of the
transaction.
(b) In case the Company shall at any time effect a Sale or
Merger Transaction in which the consideration to be received by the Company or
its shareholders consists in part of consideration other than cash, the holder
of this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately prior
to such action, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such transaction had this Warrant been exercised immediately prior thereto.
(c) Registration Rights. The holder of this Warrant shall be
granted registration rights for the Warrant Shares pursuant to a Registration
Rights Agreement dated April 15, 1998.
13. Adjustments of Exercise Price and Number of Warrant
Shares. The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise
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<PAGE> 29
Price shall be subject to adjustment from time to time upon the happening of any
of the following.
In case the Company shall (i) declare or pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock to
holders of its outstanding Common Stock, (ii) subdivide its outstanding shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock, then, in such events, the
number of Warrant Shares purchasable upon exercise of this Warrant immediately
prior thereto shall be adjusted so that the holder of this Warrant shall be
entitled to receive the kind and number of Warrant Shares or other securities of
the Company which he would have owned or have been entitled to receive had such
Warrant been exercised in advance thereof. An adjustment made pursuant to this
Section 12 shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.
14. Voluntary Adjustment by the Company. The Company may at
its discretion, at any time during the term of this Warrant, reduce the then
current Exercise Price to any amount and for any period of time deemed
appropriate by the Board of Directors of the Company.
15. Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares after such adjustment, setting forth a brief statement of
the facts requiring such adjustment and setting forth computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
16. Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares upon the exercise of any rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the
Nasdaq Small Cap Market or any domestic securities exchange upon which the
Common Stock may be listed.
17. Miscellaneous.
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<PAGE> 30
(a) Issue Date; Jurisdiction. The provisions of this Warrant
shall be construed and shall be given effect in all respects as if it had been
issued and delivered by the Company on the date hereof. This Warrant shall be
binding upon any successors or assigns of the Company. This Warrant shall
constitute a contract under the laws and jurisdictions of New York and for all
purposes shall be construed in accordance with and governed by the laws of said
state without regard to its conflict of law, principles or rules.
(b) Restrictions. The holder hereof acknowledges that the
Common Stock acquired upon the exercise of this Warrant, if not registered, may
have restrictions upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof of the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officers thereunto duly authorized.
Dated: April 15, 1998
SPATIALIZER AUDIO LABORATORIES, INC.
By: /s/ Steven D. Gershick
-----------------------------------
Title: President and CEO
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<PAGE> 31
NOTICE OF EXERCISE
To: Spatializer Audio Laboratories, Inc.
(1) The undersigned hereby elects to purchase shares of Common
Stock of Spatializer Audio Laboratories, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in such other name
as is specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
Dated:
------------------------------
Signature
NOTE: Signature must conform in all respects to holder's name as specified on
the face of the attached warrant.
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<PAGE> 32
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
_______________________________________________ whose address is
- ----------------------------------------------------------------------.
- ----------------------------------------------------------------------
Dated: ______________, 1998
Holder's Signature: _____________________________
Holder's Address: _____________________________
-----------------------------
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
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<PAGE> 33
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THIS SUBSCRIPTION AGREEMENT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES MAY NOT BE
SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS.
7% CONVERTIBLE SERIES A PREFERRED STOCK
SUBSCRIPTION AGREEMENT
SPATIALIZER AUDIO LABORATORIES, INC.
THIS AGREEMENT is executed in reliance upon the transaction exemption
afforded by Regulation D as promulgated by the Securities and Exchange
Commission ("SEC"), under the Securities Act of 1933, as amended (the "Act").
This Agreement has been executed by the undersigned in connection with
the private placement of the 7% Convertible Series A Preferred Stock
(hereinafter referred to as the "Preferred Stock") of Spatializer Audio
Laboratories, Inc. (Nasdaq Small Cap Stock Market symbol "SPAZ"), located at
20700 Ventura Boulevard, Suite 134, Woodland Hills, California 91364, a
corporation organized under the laws of Delaware, USA (hereinafter referred to
as the "Company"). The terms on which the Preferred Stock may be converted into
common stock of the Company, $0.01 par value per share,(the "Common Stock") and
the other terms of the Preferred Stock are set forth in the Certificate of
Designation of the 7% Convertible Preferred Stock Series A (Exhibit A annexed
hereto). In addition, the Company will sell to the Subscribers listed on
Schedule A annexed hereto (the "Subscribers" or "Purchasers"), a warrant (the
"Warrant") to purchase One Hundred Fifty Thousand (150,000) shares of Common
Stock of the Company for each One Million ($1,000,000) Dollars funded hereunder
(such number of shares of Common Stock underlying the Warrants shall be pro
rated for each subscription amount) and shall be exercisable for a period of
three (3) years from the Closing Date (as defined herein), as per the terms of a
separate Stock Purchase Warrant (Exhibit B annexed hereto). This Subscription
and, if accepted by the Company, the offer and sale of the Preferred Stock,
Warrants and the Common Stock
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<PAGE> 34
underlying the Warrant and Preferred Stock (collectively the "Securities"), are
being made in reliance upon the provisions of Regulation D under the Act.
The Closing Date shall be determined in accordance with Sections 1.1
and 15 herein.
Aton Select Fund, Ltd., the Subscriber listed on Schedule A annexed
hereto ("Subscriber") hereby represents and warrants to, and agrees with the
Company as follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 Closing. The Company will sell and the Subscriber will
buy, in reliance upon the representations and warranties of the Company and
Subscriber contained in this Agreement, upon the terms and conditions
hereinafter set forth, Twenty Thousand (20,000) shares of Preferred Stock for an
aggregate purchase price of One Million ($1,000,000) U.S. Dollars based on U.S.
$50.00 per share (the "Purchase Price"). Dividends will accrue and be paid at
the rate of seven (7%) percent on the Preferred Stock until the Preferred Stock
has been converted, and all accrued dividends thereon shall be payable in Common
Stock of the Company or in cash at the time of conversion at the option of the
Company. Dividends shall be calculated at the Conversion Price (as hereinafter
defined) on the Conversion Date (as hereinafter defined) when converted.
1.2 Form of Payment. The Subscriber shall pay the Purchase
Price by delivering good funds in United States Dollars by wire transfer to the
Company against delivery of the original Preferred Stock and Warrants as payment
in full for the Securities.
Section 2. Representations and Warranties of the Subscriber.
Subscriber acknowledges, represents, warrants and agrees as follows:
2.1 Organization and Authorization. The Subscriber is duly
incorporated or organized and validly existing in the state or country of its
incorporation or organization and has all requisite power and authority to
purchase and hold the Securities. The decision to invest and the execution and
delivery of this Agreement by the Subscriber, the performance by the Subscriber
of its obligations hereunder and the consummation by the Subscriber of the
transactions contemplated hereby have been duly authorized and requires no other
proceedings on the part of the Subscriber. The undersigned has all right, power
and authority to execute and deliver this Agreement. This Agreement has been
duly executed and delivered by the Subscriber and, assuming the execution and
delivery hereof and acceptance thereof by the Company, will constitute the
legal, valid and binding obligation of the Subscriber, enforceable against the
Subscriber in accordance with its terms.
2.2 Evaluation of Risks. Subscriber has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of, and bearing the economic risks entailed by, an investment
in the Company and of protecting its
2
<PAGE> 35
interests in connection with this transaction. Subscriber recognizes that its
investment in the Company involves a high degree of risk and it can afford the
complete loss of its investment.
2.3 Independent Counsel. Subscriber acknowledges that it has
been advised to consult with its own attorney regarding legal matters concerning
the Company and to consult with its tax advisor regarding the tax consequences
of acquiring the Securities.
2.4 Disclosure Documentation. Subscriber has received and
reviewed copies of the Company's reports filed under the Securities Exchange Act
of 1934, as amended (the "1934 Act"), and the Act, including its 10-Ks, 10-Qs,
8-K's, and registration statements, filed by the Company since March 1, 1997,
and the draft of the Company's Form 10-K for the period ended December 31, 1998
(which the Company represents will be filed on or About April 15, 1998)
(collectively, the "Reports"). Except for the Reports, the Subscriber is not
relying on any other information relating to the offer and sale of the
Securities. Subscriber acknowledges that the Company has offered to make
available any additional public information that the Subscriber may reasonably
request, including technical information, and other material information about
the Company and Subscriber has been offered Company's full and unconditional
cooperation in making such information available to Subscriber and acknowledges
that the Company has recommended that the Subscriber request and review such
information prior to making an investment decision. No oral or written
representations have been made, or oral or written information furnished to the
Subscriber or its advisors, if any, in connection with the offering of the
Securities which were or are in any way inconsistent with the Reports.
2.5 Opportunity to Ask Questions. Subscriber has had a
reasonable opportunity to ask questions of and receive answers from the Company
concerning the Company and the offering, and all such questions, if any, have
been answered to the full satisfaction of the Subscriber.
2.6 Reports Constitute Sole Representations. Except as set
forth in the Reports, no representations or warranties have been made to
Subscriber by (a) the Company or any agent, employee or affiliate of the Company
or (b) any other person, and in entering into this transaction Subscriber is not
relying upon any information, other than that contained in the Reports and the
results of independent investigation by Subscriber.
2.7 Subscriber is an Accredited Investor. The Subscriber is an
"Accredited Investor" as defined below and represents and warrants it is
included within one or more of the following categories of "Accredited
Investors."
(i) Any bank as defined in Section 3(a)(2) of
the Act, or any savings and loan associated
or other institution as defined in Section
3(a)(5)A of the Act whether acting in its
individual or fiduciary capacity; any broker
or dealer registered pursuant to
3
<PAGE> 36
Section 15 of the 1934 Act; any insurance
company as defined in Section 2(13) of the
Act; any investment company registered under
the Investment Company Act of 1940 or a
business development company as defined in
Section 2(a)(48) of that Act; any Small
Business Investment Company licensed by the
U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business
Act of 1958; any plan established and
maintained by a state, its political
subdivisions, or any agency or
instrumentality of a state or its political
subdivision, for the benefits of its
employees if such plan has total assets in
excess of $5,000,000; and employee benefit
plan within the meaning of Title I of the
Employee Retirement Income Security Act of
1974 if the investment decision is made by a
plan fiduciary, as defined in Section 3(21)
of such Act, which is either a bank, savings
and loan association, insurance company, or
registered investment advisor, or if the
employee benefit plan has total assets in
excess of $5,000,000 or, if a self-directed
plan, with investment decisions made solely
by persons that are accredited investors;
(ii) Any private business development company as
defined in Section 202(a)(22) of the
Investment Advisers Act of 1940;
(iii) Any organization described in Section
501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar
business trust, or partnership, not formed
for the specific purpose of acquiring the
securities offered, with total assets in
excess of $5,000,000;
(iv) Any director, executive officer, or general
partner of the issuer of the securities
being offered or sold, or any director,
executive officer, or general partner of a
general partner of that issuer;
(v) Any natural person whose individual net
worth, or joint net worth with that person's
spouse, at the time of his purchase exceeds
$1,000,000;
(vi) Any natural person who had an individual
income in excess of $200,000 in each of the
two (2) most recent years or joint income
with that person's spouse in excess of
$300,000 in each of those years and has a
reasonable expectation of reaching that same
income level in the current year;
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<PAGE> 37
(vii) Any trust, with total assets in excess of
$5,000,000, not formed for the specific
purpose of acquiring the securities offered,
whose purchase is directed by a
sophisticated person as described in Section
230.506(b)(2)(ii) of Regulation D under the
Act;
(viii) Any entity in which all of the equity owners
are accredited investors; and
(ix) Any self-directed employee benefit plan with
investment decisions made solely by persons
that are accredited investors within the
meaning of Rule 501 of Regulation D
promulgated under the Act.
2.8 No Registration, Review or Approval. Subscriber
acknowledges and understands that the limited private offering and sale of
Securities pursuant to this Agreement has not been reviewed or approved by the
SEC or by any state securities commission, authority or agency, and is not
registered under the Act or under the securities or "blue sky" laws, rules or
regulations of any state. Subscriber acknowledges, understands and agrees that
the Securities are being offered and sold hereunder pursuant to (i) a private
placement exemption to the registration provisions of the Act pursuant to
Section 3(b) or Section 4(2) of such Act and Regulation D promulgated under such
Act, and (ii) a similar exemption to the registration provisions of applicable
state securities laws. Subscriber understands that the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Subscriber set forth herein in order
to determine the applicability of such exemptions and the suitability of the
Subscriber to acquire the Securities.
2.9 Investment Intent. Without limiting its ability to resell
the Securities pursuant to an effective registration statement, Subscriber is
acquiring the Securities solely for its own account and not with a view to the
distribution, assignment or resale to others. Subscriber understands and agrees
that it may bear the economic risk of its investment in the Securities for an
indefinite period of time.
2.10 No Advertisements. The Subscriber is not subscribing for
the Securities as a result of or subsequent to any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media or broadcast over television or radio, or presented at any seminar or
meeting.
2.11 Registration Rights. The parties have entered into a
Registration Rights Agreement (Exhibit D).
5
<PAGE> 38
Section 3. Representations and Warranties of the Company. For so
long as any Securities held by the Subscriber remain outstanding, the Company
acknowledges, represents, warrants and agrees as follows:
3.1 Organization/Qualification. The Company is a corporation
duly organized and validly existing under the laws of the State of Delaware and
is in good standing under such laws. The Company has all requisite corporate
power and authority to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. The Company is qualified to do
business as a foreign corporation in each jurisdiction in which the ownership of
its property or the nature of its business requires such qualification, except
where failure to so qualify would not have a material adverse effect on the
Company.
3.2 Accuracy of Reports and Information. The Company is in
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the 1934 Act, and shall maintain such
status on a timely basis. The Company has registered its Common Stock pursuant
to Section 12 of the 1934 Act and the Common Stock is listed and trades on the
NASDAQ Small Cap Stock Market.
The Company has filed all material required to be filed
pursuant to all reporting obligations, under either Section 13(a) or 15(d) of
the 1934 Act for a period of at least twelve (12) months immediately preceding
the offer and sale of the Securities (or for such shorter period that the
Company has been required to file such material).
3.3 SEC Filings/Full Disclosure. For a period of at least
twelve (12) months immediately preceding this offer and sale, or such shorter
period that the Company has been required to file such Reports as defined
herein, to the best of the Company's knowledge (i) none of the Company's filings
with the Securities and Exchange Commission contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances under
which they were made, not misleading, and (ii) the Company has timely filed all
requisite forms, reports and exhibits thereto with the Securities and Exchange
Commission.
There is no fact known to the Company (other than general
economic conditions known to the public generally) that has not been publicly
disclosed by the Company or disclosed in writing to the Subscriber which (i)
could reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) or on earnings, business affairs, properties or assets
of the Company, or (ii) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement.
3.4 Authorization. The Company has all requisite corporate
right, power and authority to execute and deliver this Agreement and to
consummate the transactions
6
<PAGE> 39
contemplated hereby. All corporate action on the part of the Company, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement by the Company, the authorization, sale,
issuance and delivery of the Securities and the performance of the Company's
obligations hereunder has been taken. This Agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company enforceable in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy as they may apply to the
indemnification provisions set forth in this Agreement. Upon their issuance and
delivery pursuant to this Agreement, the Securities will be validly issued,
fully paid and nonassessable and will be free of any liens or encumbrances;
provided, however, that the Securities are subject to restrictions on transfer
under state and/or federal securities laws. The issuance and sale of the
Securities will not give rise to any preemptive right or right of first refusal
or right of participation on behalf of any person.
3.5 No Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default, or give rise to a
right of termination, cancellation or acceleration of any material obligation or
to a loss of a material benefit, under, any provision of the Articles of
Incorporation, and any amendments thereto, Bylaws, Stockholders Agreements and
any amendments thereto of the Company or any material mortgage, indenture, lease
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets and which would have a material adverse
effect on the Company's business and financial condition.
3.6 No Undisclosed Liabilities or Events. The Company has no
liabilities or obligations other than those disclosed in the Reports, this
Agreement or those incurred in the ordinary course of the Company's business
since March 1, 1997, and which individually or in the aggregate, do not or would
not have a material adverse effect on the properties, business, condition
(financial or otherwise), results of operations or prospects of the Company. No
event or circumstances has occurred or exists with respect to the Company or its
properties, business, condition (financial or otherwise), results of operations
or prospects, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed.
3.7 No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its property
is bound, and neither the execution, nor the delivery by the Company, nor the
performance by the Company of its obligations under this
7
<PAGE> 40
Agreement, including the conversion or exercise provision of the Securities,
will conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under, any
material indenture, mortgage, deed of trust or other material agreement
applicable to the Company or instrument to which the Company is a party or by
which it is bound or any statute or the Certificate of Incorporation or by-laws
of the Company, or any decree, judgment, order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or its
properties, or the Company's listing agreement for its Common Stock.
3.8 Absence of Events of Default. Except as set forth in the
Reports and this Agreement, no default, as defined in the respective agreement
to which the Company is a party, and no event which, with the giving of notice
or the passage of time or both, would become a default, has occurred and is
continuing, which would have a material adverse effect on the Company's
business, properties, prospects, condition (financial or otherwise) or results
of operations.
3.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or issuance of the
Securities, or the consummation of any other transaction contemplated hereby,
except as may be required by applicable securities laws.
3.10 Intellectual Property Rights. Except as disclosed in the
Reports, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as presently conducted in the
Reports. To the Company's knowledge, and except as disclosed in the Reports,
neither the Company nor its products is infringing or will infringe any
trademark, trade name, patent right, copyright, license, trade secret or other
similar right of others currently in existence; and there is no claim being made
against the Company regarding any trademark, trade name, patent, copyright,
license, trade secret or other intellectual property right which could have a
material adverse effect on the business or financial condition of the Company.
3.11 Material Contracts. Except as set forth in the Reports,
the agreements to which the Company is a party described in the Reports are
valid agreements, in full force and effect, and the Company is not in material
breach or material default under any of such agreements.
3.12 Litigation. Except as disclosed in the Reports,
there is no action, proceeding or investigation pending, or to the Company's
knowledge threatened, against the Company which might result, either
individually or in the aggregate, in any material adverse change in the
business, prospects, conditions, affairs or operations of the Company. The
8
<PAGE> 41
Company is not a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
3.13 Title to Assets. Except as set forth in Reports, the
Company has good and marketable title to all properties and material assets
described in the Reports as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than such as
are not material to the business of the Company.
3.14 Subsidiaries. Except as disclosed in the Reports, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
3.15 Required Governmental Permits. The Company is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all of
which are valid and in full force and effect.
3.16 Listing. The Company will use its best efforts to
maintain the listing of its Common Stock on the Nasdaq Small Cap Stock Market or
other organized United States market or quotation system with exception to the
provisions of Section 10 below. The Company has not received any notice, oral or
written, regarding continued listing and, as long as the Preferred Stock and
Warrants are outstanding, the Company will take no action which would impact
their continued listing or eligibility of the Company for such listing. However,
the Company represents that as of the date hereof it does not meet the net asset
value or market capitalization requirements of the Nasdaq Stock Market.
3.17 Other Outstanding Securities/Financing Restrictions.
Except as disclosed in the Reports, the Company has no outstanding restricted
shares, or shares of Common Stock sold under Regulation S, Regulation D or
outstanding under any other exemption from registration, which are available for
sale as unrestricted ("free trading") stock.
3.18 Registration Alternative. The Company covenants and
agrees that for so long as any of the Common Stock issuable upon conversion of
the Preferred Stock or exercise of the Warrants, remain outstanding and continue
to be "restricted securities" within the meaning of Rule 144 under the Act, the
Company shall permit resales of the underlying Common Stock pursuant to Rule 144
under the Act. The Company and the Subscriber shall provide the Transfer Agent
any and all papers necessary to complete the transfer under Rule 144, including,
but not limited to, opinions of counsel to the Transfer Agent, and the Company
shall continue to file all material required to be filed pursuant to Sections
13(a) or 15(d) of the 1934 Act.
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<PAGE> 42
3.19 Capitalization. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock, $0.01 par value per
share, of which 21,423,345 were outstanding as of March 20, 1998, 1,000,000
shares of Preferred Stock, $0.01 par value per share, none of which were
outstanding prior to the date of this Agreement. All issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable.
3.20 Dilution. The Company is aware and acknowledges that
conversion of the Preferred Stock, and/or exercise of the Warrant, would cause
dilution to existing stockholders and could significantly increase the
outstanding number of shares of Common Stock.
Section 4. Further Representations and Warranties of the
Company. For so long as any Securities held by the Subscriber remain
outstanding, the Company acknowledges, represents, warrants and agrees as
follows:
(i) It will reserve from its authorized but
unissued shares of Common Stock a sufficient
number of shares of Common Stock to permit
the conversion in full of all of the
outstanding Securities.
(ii) It will maintain the listing of its Common
Stock on either the Nasdaq Small Cap Stock
Market or Nasdaq National Market, or
the successors thereto.
(iii) It will permit the Subscriber to exercise
its right to convert the Preferred Stock
and/or exercise the Warrants by telecopying
an executed and completed Notice of
Conversion and/or Notice of Exercise to the
Company and delivering the original Notice
of Conversion and/or original Notice of
Exercise and the certificate representing
the Preferred Stock and/or the original
Warrant to the Company by express courier.
Each business date on which a Notice of
Conversion and/or Notice of Exercise is
telecopied to and received by the Company in
accordance with the provisions hereof shall
be deemed a "Conversion Date" and/or
"Exercise Date". The Company will transmit
the certificates representing shares of
Common Stock issuable upon conversion of any
Preferred Stock and/or exercise of any
Warrants (together with the certificates
representing the Preferred Stock not so
converted and/or Warrants not so exercised)
to the Subscriber via express courier, by
electronic transfer or otherwise within
three business days after the Conversion
Date and/or Exercise Date if the Company has
received the original
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<PAGE> 43
Notice of Conversion and Preferred Stock
certificate being so converted and/or the
original Notice of Exercise and Warrant
being exercised by such date. In addition to
any other remedies which may be available to
the Subscriber, in the event that the
Company fails to effect delivery of such
shares of Common Stock within such three
business day period, the Subscriber will be
entitled to revoke the relevant Notice of
Conversion and/or Notice of Exercise by
delivering a notice to such effect to the
Company whereupon the Company and the
Subscriber shall each be restored to their
respective positions immediately prior to
delivery of such Notice of Conversion and/or
Notice of Exercise. The Notice of Conversion
and Preferred Stock and/or the Notice of
Exercise and Warrant representing the
portion of the Preferred Stock converted
and/or Warrant exercised shall be delivered
as follows:
To the Company:
Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 134
Woodland Hills, CA 91364-2357
Fax: (818) 227-9750
Attn: President
Section 5. Opinion of Counsel. Subscriber shall, upon
the Closing, receive an opinion from counsel to the Company subject to
reasonable and customary limitations and qualifications to the effect that:
(i) The Company is duly incorporated and validly
existing under the laws and jurisdiction of
its incorporation. The Company and/or its
subsidiaries are duly qualified to do
business as a foreign corporation and is in
good standing in all jurisdictions where the
Company and/or its subsidiaries owns or
leases properties, maintains employees or
conducts business, except for jurisdictions
in which the failure to so qualify would not
have a material adverse effect on the
Company, and has all requisite corporate
power and authority to own its properties
and conduct its business.
(ii) Except as set forth in the Reports, there is
no action, proceeding or investigation
pending, or threatened against the Company
which might result, either individually or
in the
11
<PAGE> 44
aggregate, in any material adverse change in
the business or financial condition of the
Company.
(iii) Except as set forth in the Reports, and
without an independent investigation, the
Company is not a party to or subject to the
provisions of any order, writ, injunction,
judgment or decree of any court or
government agency or instrumentality.
(iv) Except as set forth in the Reports, there is
no action, suit, proceeding or investigation
by the Company currently pending, other than
licensing agreement audits performed in the
ordinary course of business.
(v) The Preferred Stock, which shall be issued
at the Closing, will be duly authorized and
validly issued under the laws of the
Company's State of Incorporation.
(vi) This Subscription Agreement, the issuance of
the Preferred Stock and Warrants, and the
issuance of Common Stock, upon conversion of
the Preferred Stock and/or exercise of the
Warrants, have been duly approved by all
required corporate action and that all such
securities, upon delivery, shall be validly
issued and outstanding, fully paid and
nonassessable.
(vii) The issuance of the Securities will not
violate the applicable listing agreement
between the Company and any securities
exchange or market on which the Company's
securities are listed, except that the
parties acknowledge that the issuance of
more than 4,284,669 shares of Common Stock
to the Subscriber and other parties to the
offering may require stockholder approval
under the governance standards of Nasdaq.
(viii) Assuming the accuracy of the representation
and warranties of the Company and the
Subscriber set forth in this Subscription
Agreement, the offer, issuance and sale of
the Preferred Stock, Warrants and shares of
Common Stock to be issued upon exercise
and/or conversion to the Subscriber pursuant
to this Agreement are exempt from the
registration requirements of the Act.
(ix) As more specifically described in the
Reports, and as certified by the Company's
transfer agent, the authorized capital stock
of the Company consists of 50,000,000 shares
of Common Stock,
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<PAGE> 45
$0.01 par value per share, of which
21,423,345 were outstanding as of March 20,
1998 and 1,000,000 shares of Preferred
Stock, $0.01 par value per share, none of
which were outstanding prior to the date of
this Agreement.
(x) The Common Stock is registered pursuant to
Section 12(b) or Section 12(g) of the 1934
Act and to the best of Counsel's knowledge
without an independent investigation the
Company has timely filed all the material
required to be filed pursuant to Sections
13(a) or 15(d) of such Act for a period of
at least twelve months preceding the date
hereof.
(xi) The Company has the requisite corporate
power and authority to enter into the
Agreements and to sell and deliver the
Securities and the Common Stock to be issued
upon the conversion of the Securities as
described in this Agreement; the Agreement
has been duly and validly authorized by all
necessary corporate action by the Company,
to the best of our knowledge, no approval of
any governmental or other body is required
for the execution and delivery of each of
the Agreements by the Company or the
consummation of the transactions
contemplated thereby; the Agreement has been
duly and validly executed and delivered by
and on behalf of the Company, and is a valid
and binding agreement of the Company,
enforceable in accordance with its terms,
except as enforceability may be limited by
general equitable principles, bankruptcy,
insolvency, fraudulent conveyance,
reorganization, moratorium or other laws
affecting creditors rights generally, and
except as to compliance with federal, state
and foreign securities laws, as to which no
opinion is expressed.
(xii) After due inquiry, the execution, delivery
and performance of the Agreements by the
Company and the performance of its
obligations thereunder do not and will not
constitute a breach or violation of any of
the terms and provisions of, or constitute a
default under or conflict with or violate
any provision of (i) the Company's
Certificate of Incorporation or By-Laws,
(ii) any indenture, mortgage, deed of trust,
agreement or other instrument to which the
Company is a party or by which it or any of
its property is bound, (iii) any applicable
statute or regulation, (iv) or any judgment,
decree or other of any court or governmental
body having jurisdiction over the Company or
any of its property.
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<PAGE> 46
Section 6. Opinion of Counsel Upon Conversion. The Company will
obtain for the Subscriber, at the Company's expense, any and all opinions of
counsel which may be reasonably required in order to convert the Preferred
Stock, including, but not limited to, obtaining for the Subscriber an opinion of
counsel, subject only to receipt of a Notice of Conversion in the form of
Exhibit C and receipt by Counsel of such representations, warranties, and
documents as are determined to be necessary to comply with applicable securities
laws, duly executed by the Subscriber which shall be satisfactory to the
Transfer Agent, directing the Transfer Agent to remove the legend from the
certificate.
Section 7. Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Securities to the public without registration, the
Company agrees to:
(i) make and keep public information available,
as those terms are understood and defined in
Rule 144 under the Act, at all times after
the effective date on which the Company
becomes subject to the reporting
requirements of the Act or the 1934 Act;
(ii) file with the SEC in a timely manner all
reports and other documents required of the
Company under the Act and the 1934 Act;
(iii) furnish to the Subscriber forthwith, upon
request, a written statement by the Company
as to its compliance with the reporting
requirements of said Rule 144, and of the
Act and the 1934 Act, a copy of the most
recent annual or quarterly report of the
Company, and such other reports and
documents of the Company and other
information in the possession of or
reasonably obtainable by the Company as the
Subscriber may reasonably request in
availing itself of any rule or regulation of
the SEC allowing the Subscriber to sell any
such Securities without registration.
Section 8. Representations and Warranties of the Company and
Subscriber. The Subscriber and the Company represent to the other the following
with respect to itself:
8.1 Subscription Agreement. The Subscription Agreement has
been duly authorized, validly executed and delivered on behalf of the Company
and the Subscriber and is a valid and binding agreement in accordance with its
terms, subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally.
14
<PAGE> 47
8.2 No-Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Certificate of Incorporation, and any amendments thereto,
Bylaws and any amendments thereto of the Company or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree statute, law, ordinance, rule or
regulation applicable to the Company, its properties or assets.
8.3 Approvals. Neither the Company nor the Subscriber is aware
of any authorization, approval or consent of any governmental body which is
legally required for the issuance and sale of the Securities.
8.4 Indemnification. The Company and the Subscriber agree to
indemnify the other and to hold the other harmless from and against any and all
losses, damages, liabilities, costs and expenses (including reasonable
attorneys' fees) which the other may sustain or incur in connection with the
breach by the indemnifying party of any representation, warranty or covenant
made by it in this Agreement.
8.5 Transfer Restrictions/Conversion Holding Period. Refer to
Certificate of Designation (Exhibit A).
8.6 Right of First Refusal. In the event the Company wishes to
obtain further financing in the form of any discounted or reset convertible
securities convertible into Common Stock within one (1) year following the
Closing Date, the Subscriber or Clarion Finanz A.G. or its designee shall have
the right of to provide up to Two Million ($2,000,000) Dollars in financing (in
the form of convertible securities) within sixty (60) days after the Closing
Date.
8.7 Subsidiary Financing. The Subscriber or Clarion Finanz
A.G. or its designee shall have the right to invest up to Two Million
($2,000,000) Dollars (pro rata) in the Company's subsidiary, MultiDisc
Technologies, Inc. ("MultiDisc"), as follows:
(i) for a period of ninety (90) days following
the Closing Date assuming a pre-investment
valuation of MultiDisc of Twelve Million
($12,000,000) Dollars; or
(ii) in the event MultiDisc wishes to obtain debt
or equity financing within one (1) year
following the Closing Date, the Subscriber
shall have the right to participate in such
offering (up to Two Million ($2,000,000)
Dollars) and shall have ten (10) business
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<PAGE> 48
days to reply in writing after receipt of
written notice of such offering from the
Company.
Section 9. Restrictions on Conversion of Preferred Stock. The
Subscriber acknowledges any Securities issued hereunder to it or to Clarion
Finanz A.G. or it designee will not be convertible into shares of Common Stock
at any time prior to six (6) months after the effective date of the Registration
Statement (as more fully set forth in the Registration Rights Agreement).
Section 10. Mandatory Conversion. In the event the Preferred
Stock has not been converted three (3) years from the Closing Date, the
Preferred Stock shall automatically be converted (and all dividends owed thereon
shall be paid by the Company) as if the Subscriber voluntarily elected such
conversion in accordance with the procedure, terms and conditions set forth in
this Agreement.
Section 11. Registration or Exemption Requirements. Subscriber
acknowledges and understands that the Securities may not be resold or otherwise
transferred except in a transaction registered under the Act and any applicable
state securities laws or unless an exemption from such registration is
available. Subscriber understands that the Securities will be imprinted with a
legend that prohibits the transfer of the Securities unless (i) they are
registered or such registration is not required, and (ii) if the transfer is
pursuant to an exemption from registration other than Rule 144 under the Act
and, if the Company shall so request in writing, an opinion of counsel
reasonably satisfactory to the Company is obtained to the effect that the
transaction is so exempt.
Section 12. Legend.
(a) The certificates representing the Securities
shall be subject to a legend restricting transfer under the Act such
legend to be substantially as follows:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). SUCH SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN
THE UNITED STATES OR TO U.S. PERSONS IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN
THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS
CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The certificates representing these Securities, and each
certificate issued in transfer thereof, will also bear any legend required under
any applicable state securities law.
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<PAGE> 49
Section 13. Stock Delivery Instructions. The Preferred Stock
Certificate shall be delivered to Subscriber on a delivery versus payment basis
as set forth in the Escrow Agreement.
Section 14. Closing Date. Closing Date hereunder shall be April
15, 1998, or such other date on which the terms and conditions hereof are
satisfied (the "Closing Date"), and all acts, deliveries and confirmations
comprising the Closing Date regardless of chronological sequence, shall be
deemed to occur contemporaneously and simultaneously, and such acts, deliveries,
or confirmations shall not be effective unless and until the last of same shall
have occurred, and as shall be mutually agreed upon as to time and place.
Section 15. Conditions to the Company's Obligation to Sell.
Subscriber understands that the Company's obligation to sell the Preferred Stock
and Warrants are conditioned upon:
(i) The receipt and acceptance by the Company of
this Subscription Agreement and all duly
executed Exhibits thereto by an authorized
officer of the Company;
(ii) Delivery by Subscriber of good cleared funds
as payment in full for the purchase of the
Securities;
(iii) All representations and warranties of the
Subscriber contain herein shall remain true
and correct as of the Closing Date;
(iv) The sale and issuance of the Preferred
Stock, Warrants, and the proposed issuance
of the Common Stock underlying the Preferred
Stock, and Warrants shall be legally
permitted by all laws and regulations to
which the Subscriber and the Company are
subject; and
(v) The Certificate of Designation for the
Preferred Stock shall have been filed with
the Delaware Secretary of State.
Section 16. Conditions to Subscriber's Obligation to Purchase.
The Company understands that Subscriber's obligation to purchase the Preferred
Stock, and Warrant is conditioned upon:
(i) Acceptance by the Subscriber of a
satisfactory Subscription Agreement and all
duly executed Exhibits hereto for the sale
of the Securities;
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<PAGE> 50
(ii) Delivery of the original Securities as
described herein;
(iii) All representations and warranties of the
Company contained herein shall remain true
and correct as of the Closing Dates;
(iv) Receipt of opinion of counsel and proof of a
filed Certificate of Designation;
(v) At the Closing Date, the sale and issuance
of the Preferred Stock, and Warrants shall
be legally permitted by all laws and
regulations to which the Company and
Subscriber are subject; and
(vi) The Company shall have received an
unqualified opinion from its auditors for
the fiscal year ended December 31, 1997.
Section 17. Miscellaneous.
17.1 Governing Law/Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of California except for matters arising under the Act, without reference to
principles of conflicts of law. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the State of
California or the state courts of the State of California in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. Each
party hereby agrees that if another party to this Agreement obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any state or country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
17.2 Confidentiality. The Company and the Subscriber agree to
keep confidential and not to disclose to or use for the benefit of any third
party the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law. If for any reason the transactions contemplated
by this Agreement are not consummated, each of the parties hereto shall keep
confidential any
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<PAGE> 51
information obtained from any other party, except information publicly available
or in such party's domain prior to the date hereof, and except as required by
court order and shall promptly return to the other parties all schedules,
documents, instruments, work papers or other written information, without
retaining copies thereof, previously furnished by it as a result of this
Agreement or in connection herewith.
17.3 Facsimile/Counterparts/Entire Agreement. Except as
otherwise stated herein, in lieu of the original, a facsimile transmission or
copy of the original shall be as effective and enforceable as the original. This
Agreement may be executed in counterparts which shall be considered an original
document and which together shall be considered a complete document. This
Agreement and Exhibits hereto constitute the entire agreement between the
Subscriber and the Company with respect to the subject matter hereof. This
Agreement may be amended only by a writing executed by all parties.
17.4 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
17.5 Entire Agreement. This Agreement and Exhibits hereto
constitute the entire agreement between the Subscriber and the Company with
respect to the subject matter hereof. This Agreement may be amended only by a
writing executed by all parties.
17.6 Reliance by Company. The Subscriber represents to the
Company that the representations and warranties of the Subscriber contained
herein are complete and accurate and may be relied upon by the Company in
determining the availability of an exemption from registration under federal and
state securities laws in connection with a private offering of securities.
17.7 Legal Fees and Expenses. Each of the parties shall pay
its own fees and expenses (including the fees of any accountants, appraisers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby.
17.8 Authorization. Each of the parties hereto represents that
the individual executing this Agreement on its behalf has been duly and
appropriately authorized to execute the Agreement.
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<PAGE> 52
IN WITNESS WHEREOF, this Agreement was duly executed on the
date first written below.
Agreed to and Accepted on
this 14th day of April 1998
Spatializer Audio Laboratories, Inc.
By /s/ Steven D. Gershick
------------------------------------
Title: President and CEO
Aton Select Fund, Ltd.
By /s/ Dr. Werner Keicher
---------------------------------
Title: Director
Executed this 15th day of April, 1998
20
<PAGE> 53
SCHEDULE A
<TABLE>
<CAPTION>
Subscriber Number of Number of
Name and Address Purchase Price Preferred Shares Warrants
- ---------------- -------------- ---------------- ---------
<S> <C> <C> <C>
Aton Select Fund, Ltd. US $50.00 20,000 150,000
c/o or Clarion Finanz A.G.
Seefeldstrasse 214
8034, Zurich, Switzerland
Attn: Jan Barcikowski
</TABLE>
21
<PAGE> 54
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY
NOT BE OFFERED OR SOLD OR TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH,
EXCEPT IN THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS
CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY.
STOCK PURCHASE WARRANT
To Purchase 150,000 Shares of Common Stock of
SPATIALIZER AUDIO LABORATORIES, INC.
THIS CERTIFIES that, for value received, Aton Select Fund,
Ltd. (the "Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time after the date hereof and on or prior to
April 15, 2001 (the "Termination Date") but not thereafter, to subscribe for and
purchase from Spatializer Audio Laboratories, Inc., a Delaware corporation (the
"Company"), One Hundred Fifty Thousand (150,000) shares of Common Stock (the
"Warrant Shares"). The purchase price of one share of Common Stock (the
"Exercise Price") under this Warrant shall be One Hundred Forty (140%) percent
of the average closing bid prices of the Common Stock as quoted by Bloomberg, LP
for the ten (10) trading days immediately preceding the Closing Date (as defined
in the 7% Convertible Preferred Stock Series A Subscription Agreement dated on
or about April 14, 1998). The Exercise Price and the number of shares for which
the Warrant is exercisable shall be subject to adjustment as provided herein.
This Warrant is being issued in connection with the 7% Convertible Preferred
Stock Series A Subscription Agreement dated on or about April 14, 1998, in the
amount of One Million ($1,000,000) Dollars (the "Agreement") between the Company
and the Investor and is subject to its terms. Capitalized terms not otherwise
defined herein shall have that meaning as set forth in the Agreement. In the
event of any conflict between the terms of this Warrant and the Agreement, the
Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and
subject to compliance with applicable laws, this Warrant and all rights
hereunder may be assigned, in whole or in part, at the office or agency of the
Company by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
2. Authorization of Shares. The Company covenants that all
shares of Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, upon exercise of the rights represented by
this Warrant, be duly authorized, validly issued,
1
<PAGE> 55
fully paid and nonassessable and free from all taxes, liens and charges in
respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue).
3. Exercise of Warrant. Exercise of the purchase rights
represented by this Warrant may be made at any time or times one day after the
date hereof, in whole or in part, before the close of business on the
Termination Date, or such earlier date on which this Warrant may terminate as
provided in paragraph 12 below, by the surrender of this Warrant and the Notice
of Exercise annexed hereto duly executed, at the office of the Company (or such
other office or agency of the Company as it may designate by notice in writing
to the registered holder hereof at the address of such holder appearing on the
books of the Company) and upon payment of the Exercise Price of the shares
thereby purchased; whereupon the holder of this Warrant shall be entitled to
receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within five business days after the date on which this Warrant shall have
been exercised as aforesaid. Payment of the Exercise Price of the shares may be
by certified check or cashier's check or by wire transfer to an account
designated by the Company in an amount equal to the Exercise Price multiplied by
the number of shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the holder of this Warrant or in such name or names as may be
directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and provided further, that upon any transfer
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
6. Restrictions on Transfer.
(a) This Warrant and any Warrant Shares may not be sold,
transferred, pledged, hypothecated or otherwise disposed of except as follows:
(i) to a person who, in the opinion of counsel to the Company, is a person to
whom this Warrant or the Warrant Shares may legally be transferred without
registration and without the delivery of a current prospectus under the Act with
respect thereto, and then only against receipt of a duly executed Assignment for
and the written agreement of such person to comply with the provisions of this
Section 6(a) with respect to any resale or other disposition of such securities;
or (ii) to any person upon delivery of a duly executed Assignment Form and a
prospectus then meeting the requirements of the Act relating to such securities
and the offering thereof for such sale or disposition, and
2
<PAGE> 56
thereafter to all successive assignees.
(b) Unless the Warrant Shares have been registered under the
Act, or exempt from registration, upon exercise of any of the Warrant and the
issuance of any of the Warrant Shares, all certificates representing Warrant
Shares shall bear on the face thereof substantially the following legend:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). SUCH SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN
THE UNITED STATES OR TO U.S. PERSONS IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN
THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS
CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The holder of the Warrant agrees and acknowledges that the
Warrant is being purchased for the holder's own account, for investment purposes
only, and not for the account of any other person, and not with a view to
distribution, assignment, pledge or resale to others or to fractionalization in
whole or in part. The holder further represents, warrants and agrees as follows:
no other person has or will have a direct or indirect beneficial interest in
this Warrant and the holder will not sell, hypothecate or otherwise transfer the
Warrant except in accordance with the Act thereunder and applicable state
securities laws or unless, in the opinion of counsel for the holder acceptable
to the Company, an exemption from the registration requirements of the Act and
such laws is available.
7. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
8. No Rights as Shareholder until Exercise. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise thereof. If, however, at the
time of the surrender of this Warrant and purchase the holder hereof shall be
entitled to exercise this Warrant, the shares so purchased shall be and be
deemed to be issued to such holder as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been exercised.
9. Assignment and Transfer of Warrant. This Warrant may be
assigned by the surrender of this Warrant and the Assignment Form annexed hereto
duly executed at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company);
provided, however, that this Warrant may not be resold or otherwise transferred
except (i) in a transaction registered under the Act, or (ii) in a transaction
pursuant to an exemption, if available, from such registration and whereby, if
requested by the Company, an opinion of counsel reasonably satisfactory to the
Company is obtained by the holder of this Warrant to the effect that the
transaction is so exempt.
3
<PAGE> 57
10. Loss, Theft, Destruction or Mutilation of Warrant. The
Company represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Warrant or stock certificate, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and upon reimbursement to
the Company of all reasonable expenses incidental thereto, and upon surrender
and cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and dated
as of such cancellation, in lieu of this Warrant or stock certificate.
11. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a legal holiday.
12. Effect of Certain Events.
(a) If at any time the Company proposes to sell or otherwise
convey all or substantially all of its assets, a sale in which the consideration
to be received by the Company or its shareholders consists solely of cash, the
Company shall give the holder of this Warrant thirty (30) days' notice of the
proposed effective date of the transaction specifying that the Warrant shall
terminate if the Warrant has not been exercised by the effective date of the
transaction.
(b) In case the Company shall at any time effect a Sale or
Merger Transaction in which the consideration to be received by the Company or
its shareholders consists in part of consideration other than cash, the holder
of this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately prior
to such action, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such transaction had this Warrant been exercised immediately prior thereto.
(c) Registration Rights. The holder of this Warrant shall be
granted registration rights for the Warrant Shares pursuant to a Registration
Rights Agreement dated April 14, 1998.
13. Adjustments of Exercise Price and Number of Warrant
Shares. The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock to
holders of its outstanding Common Stock, (ii) subdivide its outstanding shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock, then, in such events, the
number of Warrant Shares purchasable upon exercise of this Warrant immediately
prior thereto
4
<PAGE> 58
shall be adjusted so that the holder of this Warrant shall be entitled to
receive the kind and number of Warrant Shares or other securities of the Company
which he would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. An adjustment made pursuant to this Section 12
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
14. Voluntary Adjustment by the Company. The Company may at
its discretion, at any time during the term of this Warrant, reduce the then
current Exercise Price to any amount and for any period of time deemed
appropriate by the Board of Directors of the Company.
15. Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares after such adjustment, setting forth a brief statement of
the facts requiring such adjustment and setting forth computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
16. Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares upon the exercise of any rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the
Nasdaq Small Cap Market or any domestic securities exchange upon which the
Common Stock may be listed.
17. Miscellaneous.
(a) Issue Date; Jurisdiction. The provisions of this Warrant
shall be construed and shall be given effect in all respects as if it had been
issued and delivered by the Company on the date hereof. This Warrant shall be
binding upon any successors or assigns of the Company. This Warrant shall
constitute a contract under the laws and jurisdiction of California and for all
purposes shall be construed in accordance with and governed by the laws of said
state without regard to its conflict of law, principles or rules.
(b) Restrictions. The holder hereof acknowledges that the
Common Stock acquired upon the exercise of this Warrant, if not registered, may
have restrictions upon its resale imposed by state and federal securities laws.
5
<PAGE> 59
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof of the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
[Remainder of Page Intentionally Left Blank]
6
<PAGE> 60
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officers thereunto duly authorized.
Dated: April 14, 1998
Spatializer Audio Laboratories, Inc.
By: /s/ Steven D. Gershick
-----------------------------------
Title: President and CEO
7
<PAGE> 61
NOTICE OF EXERCISE
To: Spatializer Audio Laboratories, Inc.
(1) The undersigned hereby elects to purchase shares of Common
Stock of Spatializer Audio Laboratories, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in such other name
as is specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
Dated:
------------------------------
Signature
NOTE: Signature must conform in all respects to holder's name as specified on
the face of the attached warrant.
8
<PAGE> 62
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
_______________________________________________ whose address is
- ---------------------------------------------------------------.
- ---------------------------------------------------------------
Dated: ______________, 1998
Holder's Signature: _____________________________
Holder's Address: _____________________________
-----------------------------
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
9
<PAGE> 63
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY
NOT BE OFFERED OR SOLD OR TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH,
EXCEPT IN THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS
CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY.
STOCK PURCHASE WARRANT
To Purchase 100,000 Shares of Common Stock of
SPATIALIZER AUDIO LABORATORIES, INC.
THIS CERTIFIES that, for value received, CARDINAL CAPITAL
MANAGEMENT, INC. ("Cardinal"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time after the date hereof and on or
prior to April 15, 2001 (the "Termination Date") but not thereafter, to
subscribe for and purchase from SPATIALIZER AUDIO LABORATORIES, INC., a Delaware
corporation (the "Company"), One Hundred Thousand (100,000) shares of Common
Stock (the "Warrant Shares"). The purchase price of one share of Common Stock
(the "Exercise Price") under this Warrant shall be One Hundred Twenty (120%)
percent of the average closing bid prices of the Common Stock as quoted by
Bloomberg, LP for the ten (10) trading days immediately preceding April 15,
1998. The Exercise Price and the number of shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. This Warrant is
being issued to Cardinal as compensation for its services in arranging the 7%
Convertible Preferred Stock Series A Subscription Agreement dated April 15,
1998, in the amount of Two Million ($2,000,000) Dollars (the "Agreement")
between the Company and certain institutional investors. Capitalized terms not
otherwise defined herein shall have that meaning as set forth in the Agreement.
In the event of any conflict between the terms of this Warrant and the
Agreement, the Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and
subject to compliance with applicable laws, this Warrant and all rights
hereunder may be assigned, in whole or in part, at the office or agency of the
Company by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
2. Authorization of Shares. The Company covenants that all
shares of Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, upon exercise of the rights represented by
this Warrant, be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).
NOTE: A placement agent Warrant exercisable for 50,000 shares of Common Stock on
the same term was issued to Clarion Finanz AG
1
<PAGE> 64
3. Exercise of Warrant. Exercise of the purchase rights
represented by this Warrant may be made at any time or times one day after the
date hereof, in whole or in part, before the close of business on the
Termination Date, or such earlier date on which this Warrant may terminate as
provided in paragraph 12 below, by the surrender of this Warrant and the Notice
of Exercise annexed hereto duly executed, at the office of the Company (or such
other office or agency of the Company as it may designate by notice in writing
to the registered holder hereof at the address of such holder appearing on the
books of the Company) and upon payment of the Exercise Price of the shares
thereby purchased; whereupon the holder of this Warrant shall be entitled to
receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within five business days after the date on which this Warrant shall have
been exercised as aforesaid. Payment of the Exercise Price of the shares may be
by certified check or cashier's check or by wire transfer to an account
designated by the Company in an amount equal to the Exercise Price multiplied by
the number of shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the holder of this Warrant or in such name or names as may be
directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and provided further, that upon any transfer
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
1. Restrictions on Transfer.
(a) This Warrant and any Warrant Shares may not be sold,
transferred, pledged, hypothecated or otherwise disposed of except as follows:
(i) to a person who, in the opinion of counsel to the Company, is a person to
whom this Warrant or the Warrant Shares may legally be transferred without
registration and without the delivery of a current prospectus under the Act with
respect thereto, and then only against receipt of a duly executed Assignment for
and the written agreement of such person to comply with the provisions of this
Section 6(a) with respect to any resale or other disposition of such securities;
or (ii) to any person upon delivery of a duly executed Assignment Form and a
prospectus then meeting the requirements of the Act relating to such securities
and the offering thereof for such sale or disposition, and thereafter to all
successive assignees.
(b) Unless the Warrant Shares have been registered under the
Act, or exempt from registration, upon exercise of any of the Warrant and the
issuance of any of the Warrant
2
<PAGE> 65
Shares, all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). SUCH SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN
THE UNITED STATES OR TO U.S. PERSONS IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN
THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS
CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The holder of the Warrant agrees and acknowledges that the
Warrant is being purchased for the holder's own account, for investment purposes
only, and not for the account of any other person, and not with a view to
distribution, assignment, pledge or resale to others or to fractionalization in
whole or in part. The holder further represents, warrants and agrees as follows:
no other person has or will have a direct or indirect beneficial interest in
this Warrant and the holder will not sell, hypothecate or otherwise transfer the
Warrant except in accordance with the Act thereunder and applicable state
securities laws or unless, in the opinion of counsel for the holder acceptable
to the Company, an exemption from the registration requirements of the Act and
such laws is available.
7. Closing of Books. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
8. No Rights as Shareholder until Exercise. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise thereof. If, however, at the
time of the surrender of this Warrant and purchase the holder hereof shall be
entitled to exercise this Warrant, the shares so purchased shall be and be
deemed to be issued to such holder as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been exercised.
9. Assignment and Transfer of Warrant. This Warrant may be
assigned by the surrender of this Warrant and the Assignment Form annexed hereto
duly executed at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company);
provided, however, that this Warrant may not be resold or otherwise transferred
except (i) in a transaction registered under the Act, or (ii) in a transaction
pursuant to an exemption, if available, from such registration and whereby, if
requested by the Company, an opinion of counsel reasonably satisfactory to the
Company is obtained by the holder of this Warrant to the effect that the
transaction is so exempt.
10. Loss, Theft, Destruction or Mutilation of Warrant. The
Company represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Warrant or stock certificate, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and upon
3
<PAGE> 66
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate
of like tenor and dated as of such cancellation, in lieu of this Warrant or
stock certificate.
11. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a legal holiday.
12. Effect of Certain Events.
(a) If at any time the Company proposes to sell or otherwise
convey all or substantially all of its assets, a sale in which the consideration
to be received by the Company or its shareholders consists solely of cash, the
Company shall give the holder of this Warrant thirty (30) days' notice of the
proposed effective date of the transaction specifying that the Warrant shall
terminate if the Warrant has not been exercised by the effective date of the
transaction.
(b) In case the Company shall at any time effect a Sale or
Merger Transaction in which the consideration to be received by the Company or
its shareholders consists in part of consideration other than cash, the holder
of this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately prior
to such action, the kind and amount of shares and other securities and property
which it would have owned or have been entitled to receive after the happening
of such transaction had this Warrant been exercised immediately prior thereto.
(c) Registration Rights. The holder of this Warrant shall be
granted registration rights for the Warrant Shares pursuant to a Registration
Rights Agreement dated April 15, 1998.
13. Adjustments of Exercise Price and Number of Warrant
Shares. The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock to
holders of its outstanding Common Stock, (ii) subdivide its outstanding shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock, then, in such events, the
number of Warrant Shares purchasable upon exercise of this Warrant immediately
prior thereto shall be adjusted so that the holder of this Warrant shall be
entitled to receive the kind and number of Warrant Shares or other securities of
the Company which he would have owned or have been entitled to receive had such
Warrant been exercised in advance thereof. An
4
<PAGE> 67
adjustment made pursuant to this Section 12 shall become effective immediately
after the effective date of such event retroactive to the record date, if any,
for such event.
14. Voluntary Adjustment by the Company. The Company may at
its discretion, at any time during the term of this Warrant, reduce the then
current Exercise Price to any amount and for any period of time deemed
appropriate by the Board of Directors of the Company.
15. Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares after such adjustment, setting forth a brief statement of
the facts requiring such adjustment and setting forth computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
16. Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares upon the exercise of any rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the
Nasdaq Small Cap Market or any domestic securities exchange upon which the
Common Stock may be listed.
17. Miscellaneous.
(a) Issue Date; Jurisdiction. The provisions of this Warrant
shall be construed and shall be given effect in all respects as if it had been
issued and delivered by the Company on the date hereof. This Warrant shall be
binding upon any successors or assigns of the Company. This Warrant shall
constitute a contract under the laws and jurisdictions of New York and for all
purposes shall be construed in accordance with and governed by the laws of said
state without regard to its conflict of law, principles or rules.
(b) Restrictions. The holder hereof acknowledges that the
Common Stock acquired upon the exercise of this Warrant, if not registered, may
have restrictions upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
5
<PAGE> 68
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof of the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officers thereunto duly authorized.
Dated: April 15, 1998
SPATIALIZER AUDIO LABORATORIES, INC.
By:
Title:_______________________________
6
<PAGE> 69
NOTICE OF EXERCISE
To: Spatializer Audio Laboratories, Inc.
(1) The undersigned hereby elects to purchase shares of Common
Stock of Spatializer Audio Laboratories, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in such other name
as is specified below:
-------------------------------
(Name)
-------------------------------
(Address)
-------------------------------
Dated:
------------------------------
Signature
NOTE: Signature must conform in all respects to holder's name as specified on
the face of the attached warrant.
<PAGE> 70
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
_______________________________________________ whose address is
- ---------------------------------------------------------------.
- ---------------------------------------------------------------
Dated: ______________, 1998
Holder's Signature: _____________________________
Holder's Address: _____________________________
-----------------------------
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE> 71
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 15th day of
April, 1998, between the entities listed on Schedules A (the "Subscribers" or
the "Holders"), issued pursuant to the 7% Convertible Preferred Stock Series A
Subscription Agreement of even date herewith (the "Subscription Agreement"), and
SPATIALIZER AUDIO LABORATORIES, INC., a Delaware corporation having its
principal place of business at 20700 Ventura Boulevard, Suite 134, Woodland
Hills, CA 91364 (the "Company").
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Holders are purchasing from the Company, pursuant to the
Subscription Agreement an aggregate of Forty Thousand (40,000) shares of
Preferred Stock, and a Warrant to purchase an aggregate of Three Hundred
Thousand (300,000) shares of Common Stock. The shares of Common Stock of the
Company underlying the Preferred Stock are referred to as the "Conversion
Shares", and the shares of Common Stock of the Company underlying the Warrants
are referred to as the "Warrant Shares" (capitalized terms defined in the
Subscription Agreement and not otherwise defined herein have the meanings
specified in the Subscription Agreement); and
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
Registrable Securities means the Conversion Shares, and the Warrant Shares;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date of
determination, (i) it has been effectively registered under the Securities Act
of 1933, as amended (the Securities Act) and disposed of pursuant thereto, (ii)
registration under the Securities Act is no longer required for the immediate
public distribution of such security as a result of the provisions of Rule 144,
or (iii) it has ceased to be outstanding. In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of Registrable Security as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Section 1.
Section 2. Restrictions on Transfer. The Holders acknowledge
and understand that prior to the registration of the Securities as provided
herein, the Securities are "restricted securities" as defined in Rule 144
promulgated under the Securities Act. The Holders understand that no disposition
or transfer of the Securities may be made by Holder in the absence of (i) an
opinion of counsel reasonably satisfactory to the Company that such transfer may
be made or (ii) a registration statement under the Securities Act is then in
effect with respect thereto.
<PAGE> 72
Section 3. Registration Rights.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("SEC"), within thirty (30) days after the
Closing Date, a registration statement on Form S-3 (the "Registration
Statement"), or in the event more than on Registration Statement is required to
be filed to include such items as newly authorized shares of Common Stock, such
further Registration Statement shall be filed within thirty (30) days after the
issuance of such newly authorized shares of Common Stock or other event, as the
case may be. In the event that such Registration Statement is not effective
within ninety (90) days after its filing, the the liquidated damages in Section
3(e) shall apply. All Registration Statements required to be filed hereunder
shall be prepared and filed at the sole expense of the Company (except as
provided in Section 3(c) hereof), in respect of all holders of Registrable
Securities, so as to permit resale of the Registrable Securities under the
Securities Act, provided, the Company shall not be obligated to take any action
to effect any such registration, qualification or compliance pursuant to this
Section 3(a) in any jurisdiction in which the Company would be required to
qualify as a dealer in securities, under the securities or blue sky laws of such
jurisdiction.
The Company agrees that it will cause the Registration
Statement to become effective within ninety (90) days after the Closing Date.
The number of Registrable Securities to be registered shall be two hundred
(200%) percent of the number of shares that would be required if all of the
Registrable Securities were converted in accordance with the Certificate of
Designation, on a date which is five (5) business days prior to the filing of
the Registration Statement.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 hereof current under the
Securities Act until the earlier of (i) the date that all of the Registrable
Securities have been sold pursuant to the Registration Statement, (ii) the date
that the Registrable Securities may be sold under the provisions of Rule 144 or
(iii) three (3) years after the effective date of the Registration Statement.
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
the Registration Statement under Section 3(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys'
fees) shall be borne by the Company. The Holders shall bear the cost of
underwriting discounts and commissions, if any, applicable to the Registrable
Securities being registered and all of other the fees and expenses of such
registration, including of its counsel and such other expenses as are necessary
to qualify the sale of Securities in compliance with any state Blue Sky laws.
The Company shall use its best efforts to qualify any of the securities for sale
in such states as such Holders reasonably designates and shall furnish
indemnification in the manner provided in Section 9 hereof. However, the Company
shall not be required to qualify in any state which will require an escrow or
other restriction relating to the Company and/or the sellers. The Company at its
expense will supply the Holders with copies of such Registration Statement and
the prospectus or offering circular included therein and other related documents
in such quantities as may be reasonably requested by the Holders.
<PAGE> 73
(d) The Company shall not be required by this Section 3 to
include Holder's Registrable Securities in the Amended Registration Statement
which is to be filed if, in the opinion of counsel for both the Holders and the
Company (or, should they not agree, in the opinion of another counsel
experienced in securities law matters acceptable to counsel for the Holder and
the Company) the proposed offering or other transfer as to which such
registration is requested is exempt from applicable federal and state securities
laws and would result in all purchasers or transferees obtaining securities
which are not restricted securities, as defined in Rule 144 under the Securities
Act.
(e) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above is not filed by the Company by the
thirtieth (30th) day after the Closing Date, or if the Registration Statement is
not declared effective by the SEC by the ninetieth (90th) day after the Closing
Date (the Effective Date), then the Company will pay, in cash, to the Holders on
a pro-rata basis by wire transfer, as liquidated damages for such failure and
not as a penalty, two (2%) percent of the principal amount of the Securities
each month thereafter until the Registration Statement has been filed and/or
declared effective. The liquidated damages shall be payable within five (5)
calendar days of written demand by the Holder.
If the Company does not remit the damages to the Holder as set
forth above, the Company will pay the to the Holders the reasonable costs of
collection, including attorneys fees, in addition to the liquidated damages.
Such payment shall be made to the Holders in cash immediately if the
registration of the Securities are not effected; provided, however, that the
payment of such liquidated damages shall not relieve the Company from its
obligations to register the Securities pursuant to this Section. The
registration of the Securities pursuant to this provision shall not affect or
limit Holder's other rights or remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the Company
from selling securities pursuant to any registration statement in which it is
required to include Registrable Securities pursuant to this Section 3.
Section 4. Cooperation with Company. Holders will cooperate
with the Company in all respects in connection with this Agreement, including,
timely supplying all information reasonably requested by the Company and
executing and returning all documents reasonably requested in connection with
the registration and sale of the Registrable Securities.
Section 5. Registration Procedures. Whenever the Company is
required by the provisions of this Agreement to effect the registration of any
of the Registrable Securities under the Securities Act, the Company shall
(except as otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the Commission such amendments and
supplements to such registration statement and the Prospectus used in connection
therewith as may be necessary to keep such registration statement effective as
per Section 3(b) herein and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all
<PAGE> 74
securities covered by such registration statement when the Holder or Holders of
such securities shall desire to sell or otherwise dispose of the same (including
prospectus supplements with respect to the sales of securities from time to time
in connection with a registration statement pursuant to Rule 415 under the
Securities Act);
(b) furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any
prospectus, in conformity with the requirements of the Securities Act, and such
other documents, as such Holder may reasonably request in order to facilitate
the public sale or other disposition of the securities owned by such Holder;
(c) use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as the Holder, shall reasonably request, and
do any and all other acts and things which may be necessary or advisable to
enable each Holder to consummate the public sale or other disposition in such
jurisdiction of the securities owned by such Holder, except that the Company
shall not for any such purpose be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified or to
file therein any general consent to service of process;
(d) list such securities on the Nasdaq Small Cap Market or any
securities exchange on which any securities of the Company is then listed, if
the listing of such securities is then permitted under the rules of such
exchange;
(e) enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
(f) notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
Securities Act, of the happening of any event of which it has knowledge as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
Section 6. Assignment. The rights granted the Holders under
this Agreement shall not be assigned without the written consent of the Company,
which consent shall not be unnecessarily withheld. In the event of a transfer of
the rights granted under this Agreement, the Holders agree that the Company may
require that the transferee comply with reasonable conditions as determined in
the discretion of the Company. This Agreement is binding upon and inures to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
<PAGE> 75
Section 7. Termination of Registration Rights. The rights
granted pursuant to this Agreement shall terminate as to each Holder (and
permitted transferees or assignees ) upon the occurrence of any of the
following:
(a) all of that particular Holder's securities subject to this
Agreement have been registered;
(b) such Holder's securities subject to this Agreement may be
sold without such registration pursuant to Rule 144 promulgated by the SEC
pursuant to the Securities Act;
(c) such Holder's securities subject to this Agreement can be
sold pursuant to Rule 144(k).
Section 8. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Holders and each person, if any, who controls each Holder within the meaning of
the Securities Act (Distributing Holders) against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), to which the Distributing Holders may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, or any related preliminary prospectus, final
prospectus, offering circular, notification or amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
preliminary prospectus, final prospectus, offering circular, notification or
amendment, or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by the Distributing Holders,
specifically for use in the preparation thereof. This Section shall not inure to
the benefit of any Distributing Holder with respect to any person asserting such
loss, claim, damage or liability who purchased the Registrable Securities which
are the subject thereof if the Distributing Holder failed to send or give (in
violation of the Securities Act or the rules and regulations promulgated
thereunder) a copy of the prospectus contained in the Amended Registration
Statement to such person at or prior to the written confirmation to such person
of the sale of such Registrable Securities, where the Distributing Holder was
obligated to do so under the Securities Act or the rules and regulations
promulgated hereunder. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which the Company or any such
<PAGE> 76
officer, director or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses claims, damages or liabilities (or
actions in respect thereof); arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Amended
Registration Statement prepared by the Company, or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration Statement,
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by such Distributing Holder,
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the distributing Holders may otherwise
have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the provisions herein
stated and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Holder and the indemnifying party and the Distributing Holder shall
have been advised by such counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Distributing Holder, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be
<PAGE> 77
designated in writing by the Distributing Holder). No settlement of any action
against an indemnified party shall be made without the prior written consent of
the indemnified party, which consent shall not be unreasonably withheld.
Section 9. Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
Distributing Holder, or the Company, makes a claim for indemnification, but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of this Agreement provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any Distributing Holder, or the Company, then the
Company and the applicable Distributing Holder shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), in either such case
(after contribution from others) on the basis of relative fault as well as any
other relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
the applicable Distributing Holder, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Distributing Holder agree that
it would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Section 10. Notices. Any notice pursuant to this Agreement by
the Company or by the Holder shall be in writing and shall be deemed to have
been duly given if delivered by (i) hand, (ii) by facsimile and followed by mail
delivery or (iii) if mailed by certified mail, return receipt requested, postage
prepaid, addressed as follows:
(a) If to the Holders, to its, his or her address set forth on
Schedule A attached to this Agreement.
(b) If to the Company, at the address set forth herein, or to
such other address as any such party may designate by notice to the other party.
Notices shall be deemed given at the time they are delivered personally or five
(5) days after they are mailed in the manner set forth above. If notice is
delivered by facsimile to the Company and followed by mail, delivery shall be
deemed given two (2) days after such facsimile is sent.
<PAGE> 78
Section 11. "Piggy-Back" Registration. The Holders shall have
the right to include all of the Registrable Securities as part of any
registration of securities filed by the Company (other than in connection with a
transaction contemplated by Rule 145(a) promulgated under the Act or pursuant to
Form S-8) and must be notified in writing of such filing; provided, however,
that the Holders agree they shall not have any piggy-back registration rights
pursuant to this Section if the Registrable Securities may be sold in the United
States pursuant to the provisions of Rule 144. The Holders shall have five (5)
business days to notify the Company in writing as to whether the Company is to
include the Holder(s) or not include the Holder(s) as part of the registration;
provided, however, that if any registration pursuant to this Section shall be
underwritten, in whole or in part, the Company may require that the Registrable
Securities requested for inclusion pursuant to this Section be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If in the good faith judgment of the underwriter
evidenced in writing of such offering only a limited number of Registrable
Securities should be included in such offering, or no such shares should be
included, the Holder(s), and all other selling stockholders, shall be limited to
registering such proportion of their respective shares as shall equal the
proportion that the number of shares of selling stockholders permitted to be
registered by the underwriter in such offering bears to the total number of all
shares then held by all selling stockholders desiring to participate in such
offering. Those Registrable Securities which are excluded from an underwritten
offering pursuant to the foregoing provisions of this Section (and all other
Registrable Securities held by the selling stockholders) shall be withheld from
the market by the holders thereof for a period, not to exceed one hundred eighty
(180) days, which the underwriter may reasonably determine is necessary in order
to effect such underwritten offering. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Section prior
to the effectiveness of such registration whether or not any Holder elected to
include securities in such registration. All registration expenses incurred by
the Company in complying with this Section shall be paid by the Company,
exclusive of underwriting discounts, commissions and legal fees and expenses for
counsel to the Holders.
Section 12. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 14. Governing Law, Venue. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Securities Act, without
reference to principles of conflicts of law. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
State of New York or the state courts of the State of New York in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens, to the bringing of any such proceeding in such jurisdictions.
Each party hereby agrees that if another party to this Agreement obtains a
judgment against it in such a proceeding, the party which obtained such judgment
may enforce same by summary judgment in the courts of any state or
<PAGE> 79
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law.
Section 15. Severability/Defined Terms. If any provision of
this Agreement shall for any reason be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provision hereof and
this Agreement shall be construed as if such invalid or unenforceable provision
had never been contained herein. Terms not otherwise defined herein shall be
defined in accordance with the Subscription Agreement.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
<PAGE> 80
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, on the day and year first above written.
Attest: SPATIALIZER AUDIO LABORATORIES, INC.
By: /s/ Henry Mandell By: /s/ Steven D. Gershick
------------------------- ----------------------------------
Name: Name:
Title: Secretary Title: President
CPR (USA) INC.
By: /s/
-----------------------------------
Name: Steven Rogers/Philippe Rousseau
Title: Authorized Signatories
LIBERTYVIEW FUND, LLC
By: /s/
-----------------------------------
Name: Steven Rogers/Philippe Rousseau
Title: Authorized Signatories
LIBERTYVIEW PLUS FUND
By: /s/
-----------------------------------
Name: Steven Rogers/Philippe Rousseau
Title: Authorized Signatories
<PAGE> 81
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 14th day of
April, 1998, between Aton Select Fund, Ltd., with an address at or Clarion
Finanz A.G., Seefeldstrasse 213, 8034, Zurich Switzerland, and Spatializer Audio
Laboratories, Inc., a Delaware corporation having its principal place of
business at 20700 Ventura Boulevard, Suite
134, Woodland Hills, California 91364 (the "Company").
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Holder is purchasing from the Company, pursuant to the
Subscription Agreement dated April 14, 1998 Twenty Thousand (20,000) shares of
Preferred Stock, and a Warrant to purchase an aggregate of One Hundred Fifty
Thousand (150,000) shares of Common Stock and certain other entities and parties
are also acquiring shares of Preferred Stock and Warrants pursuant to a
Subscription Agreement of even date. The shares of Common Stock of the Company
underlying the Preferred Stock acquired by the Holder or the other purchasers
are referred to as the "Conversion Shares", and the shares of Common Stock of
the Company underlying the Warrants acquired by the Holder or the other
purchasers are referred to as the "Warrant Shares" (capitalized terms defined in
the Subscription Agreement and not otherwise defined herein have the meanings
specified in the Subscription Agreement); and
WHEREAS, the Company desires to grant to the Holder the
registration rights set forth herein.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
Registrable Securities means the Conversion Shares, and the Warrant Shares;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date of
determination, (i) it has been effectively registered under the Securities Act
of 1933, as amended (the Securities Act) and disposed of pursuant thereto, (ii)
registration under the Securities Act is no longer required for the immediate
public distribution of such security as a result of the provisions of Rule 144,
or (iii) it has ceased to be outstanding. In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of Registrable Security as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Section 1.
Section 2. Restrictions on Transfer. The Holder acknowledges
and understands that prior to the registration of the Securities as provided
herein, the Securities are "restricted securities" as defined in Rule 144
promulgated under the Securities Act. The Holder understands that no disposition
or transfer of the Securities may be made by Holder in the absence of (i) an
opinion of counsel reasonably satisfactory to the Company that such transfer
<PAGE> 82
may be made or (ii) a registration statement under the Securities Act is then in
effect with respect thereto.
Section 3. Registration Rights.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("SEC"), within thirty (30) days after the
Closing Date, a registration statement on Form S-3(the "Registration
Statement"), at the sole expense of the Company (except as provided in Section
3(c) hereof), in respect of all holders of Registrable Securities, so as to
permit resale of the Registrable Securities under the Securities Act, provided,
the Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 3(a) in any
jurisdiction in which the Company would be required to qualify as a dealer in
securities, under the securities or blue sky laws of such jurisdiction.
The Company agrees that it will cause the Registration
Statement to become effective within ninety (90) days after the Closing Date.
The number of Registrable Securities to be registered shall be two hundred
(200%) percent of the number of shares that would be required if all of the
Registrable Securities were converted in accordance with the Certificate of
Designation, on a date which is five (5) business days prior to the filing of
the Registration Statement.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 hereof current under the
Securities Act until the earlier of (i) the date that all of the Registrable
Securities have been sold pursuant to the Registration Statement, (ii) the date
that the Registrable Securities may be sold under the provisions of Rule 144 or
(iii) three (3) years after the effective date of the Registration Statement.
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
the Registration Statement under Section 3(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys'
fees) shall be borne by the Company. The Holder shall bear the costs of
underwriting discounts and commissions, if any, applicable to the Registrable
Securities being registered on its behalf and all of the other fees and expenses
of such registration, including of its counsel and such other expenses as are
necessary to qualify the sale of Securities in compliance with any state Blue
Sky laws. The Company shall use its best efforts to qualify any of the
securities for sale in such states as such Holders reasonably designates and
shall furnish indemnification in the manner provided in Section 9 hereof.
However, the Company shall not be required to qualify in any state which will
require an escrow or other restriction relating to the Company and/or the
sellers. The Company at its expense will supply the Holders with copies of such
Registration Statement and the prospectus or offering circular included therein
and other related documents in such quantities as may be reasonably requested by
the Holder.
(d) The Company shall not be required by this Section 3 to
include Holder's Registrable Securities in the Amended Registration Statement
which is to be filed if, in the
<PAGE> 83
opinion of counsel for both the Holder and the Company (or, should they not
agree, in the opinion of another counsel experienced in securities law matters
acceptable to counsel for the Holder and the Company) the proposed offering or
other transfer as to which such registration is requested is exempt from
applicable federal and state securities laws and would result in all purchasers
or transferees obtaining securities which are not restricted securities, as
defined in Rule 144 under the Securities Act.
(e) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above is not filed by the Company by the
thirtieth (30th) day after the Closing Date, or if the Registration Statement is
not declared effective by the SEC by the ninetieth (90th) day after the Closing
Date (the Effective Date), then the Company will pay, in cash, to the Holder on
a pro-rata basis by wire transfer, as liquidated damages for such failure and
not as a penalty, two (2%) percent of the principal amount of the Securities
each month thereafter until the Registration Statement has been filed and/or
declared effective. The liquidated damages shall be payable within five (5)
calendar days of written demand by the Holder.
If the Company does not remit the damages to the Holder as set
forth above, the Company will pay the to the Holder the reasonable costs of
collection, including attorneys fees, in addition to the liquidated damages.
Such payment shall be made to the Holder in cash immediately if the registration
of the Securities are not effected; provided, however, that the payment of such
liquidated damages shall not relieve the Company from its obligations to
register the Securities pursuant to this Section. The registration of the
Securities pursuant to this provision shall not affect or limit Holder's other
rights or remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the Company
from selling securities pursuant to any registration statement in which it is
required to include Registrable Securities pursuant to this Section 3.
Section 4. Cooperation with Company. Holder will cooperate
with the Company in all respects in connection with this Agreement, including,
timely supplying all information reasonably requested by the Company and
executing and returning all documents reasonably requested in connection with
the registration and sale of the Registrable Securities.
Section 5. Registration Procedures. Whenever the Company is
required by the provisions of this Agreement to effect the registration of any
of the Registrable Securities under the Securities Act, the Company shall
(except as otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the Commission such amendments and
supplements to such registration statement and the Prospectus used in connection
therewith as may be necessary to keep such registration statement effective as
per Section 3(b) herein and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all securities covered by such
registration statement when the Holder of such securities shall desire to sell
or otherwise dispose of the same (including prospectus supplements with respect
to the
<PAGE> 84
sales of securities from time to time in connection with a registration
statement pursuant to Rule 415 under the Securities Act);
(b) furnish to the Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Securities Act, and such other documents, as such Holder may reasonably
request in order to facilitate the public sale or other disposition of the
securities owned by such Holder;
(c) use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as the Holder, shall reasonably request, and
do any and all other acts and things which may be necessary or advisable to
enable each Holder to consummate the public sale or other disposition in such
jurisdiction of the securities owned by the Holder, except that the Company
shall not for any such purpose be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified or to
file therein any general consent to service of process;
(d) list such securities on the Nasdaq Small Cap Market or any
securities exchange on which any securities of the Company is then listed, if
the listing of such securities is then permitted under the rules of such
exchange;
(e) enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
(f) notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
Securities Act, of the happening of any event of which it has knowledge as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
Section 6. Assignment. The rights granted the Holder under
this Agreement shall not be assigned without the written consent of the Company,
which consent shall not be unnecessarily withheld. In the event of a transfer of
the rights granted under this Agreement, the Holder agrees that the Company may
require that the transferee comply with reasonable conditions as determined in
the discretion of the Company. This Agreement is binding upon and inures to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
Section 7. Termination of Registration Rights. The rights
granted pursuant to this Agreement shall terminate as to the Holder (and
permitted transferees or assignees ) upon the occurrence of any of the
following:
<PAGE> 85
(a) all of the Holder's securities subject to this Agreement
have been registered;
(b) such Holder's securities subject to this Agreement may be
sold without such registration pursuant to Rule 144 promulgated by the SEC
pursuant to the Securities Act;
(c) such Holder's securities subject to this Agreement can be
sold pursuant to Rule 144(k).
Section 8. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Holder and each person, if any, who controls each Holder within the meaning of
the Securities Act (Distributing Holders) against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), to which the Distributing Holder may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, or any related preliminary prospectus, final
prospectus, offering circular, notification or amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
preliminary prospectus, final prospectus, offering circular, notification or
amendment, or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by the Distributing Holders,
specifically for use in the preparation thereof. This Section shall not inure to
the benefit of any Distributing Holder with respect to any person asserting such
loss, claim, damage or liability who purchased the Registrable Securities which
are the subject thereof if the Distributing Holder failed to send or give (in
violation of the Securities Act or the rules and regulations promulgated
thereunder) a copy of the prospectus contained in the Amended Registration
Statement to such person at or prior to the written confirmation to such person
of the sale of such Registrable Securities, where the Distributing Holder was
obligated to do so under the Securities Act or the rules and regulations
promulgated hereunder. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which the Company or any such
officer, director or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses claims, damages or liabilities (or
actions in respect thereof); arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Amended
Registration Statement prepared by the Company, or any related
<PAGE> 86
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each
case only to the extent that such untrue statement or alleged untrue statement
or omission or alleged omission was made in such Registration Statement,
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by such Distributing Holder,
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the distributing Holders may otherwise
have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the provisions herein
stated and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Holder and the indemnifying party and the Distributing Holder shall
have been advised by such counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Distributing Holder, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
<PAGE> 87
Section 9. Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
Distributing Holder, or the Company, makes a claim for indemnification, but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of this Agreement provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any Distributing Holder, or the Company, then the
Company and the applicable Distributing Holder shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), in either such case
(after contribution from others) on the basis of relative fault as well as any
other relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
the applicable Distributing Holder, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Distributing Holder agree that
it would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Section 10. Notices. Any notice pursuant to this Agreement by
the Company or by the Holder shall be in writing and shall be deemed to have
been duly given if delivered by (i) hand, (ii) by facsimile and followed by mail
delivery or (iii) if mailed by certified mail, return receipt requested, postage
prepaid, addressed as follows:
(a) If to the Holders, to its, his or her address set forth
herein.
(b) If to the Company, at the address set forth herein, or to
such other address as any such party may designate by notice to the other party.
Notices shall be deemed given at the time they are delivered personally or five
(5) days after they are mailed in the manner set forth above. If notice is
delivered by facsimile to the Company and followed by mail, delivery shall be
deemed given two (2) days after such facsimile is sent.
Section 11. "Piggy-Back" Registration. The Holder of the
Registerable Securities Warrants shall have the right to include the
Registerable Securities as part of any registration of securities filed by the
Company (other than in connection with a transaction contemplated by Rule 145(a)
promulgated under the Act or pursuant to Form S-8) and must be notified in
writing of such filing; provided, however, that the Holder agrees it shall not
have any piggy-back
<PAGE> 88
registration rights pursuant to this Section if the shares of Common Stock
underlying the Warrants may be sold in the United States pursuant to the
provisions of Rule 144. The Holder shall have five (5) business days to notify
the Company in writing as to whether the Company is to include the holder or not
include the holder as part of the registration; provided, however, that if any
registration pursuant to this Section shall be underwritten, in whole or in
part, the Company may require that the Registerable Securities requested for
inclusion pursuant to this Section be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. If in the good faith judgment of the underwriter evidenced in
writing of such offering only a limited number of Registerable Securities should
be included in such offering, or no such shares should be included, the holder,
and all other selling stockholders, shall be limited to registering such
proportion of their respective shares as shall equal the proportion that the
number of shares of selling stockholders permitted to be registered by the
underwriter in such offering bears to the total number of all shares then held
by all selling stockholders desiring to participate in such offering. Those
Registerable Securities which are excluded from an underwritten offering
pursuant to the foregoing provisions of this Section (and all other Registerable
Securities) shall be withheld from the market by the holders thereof for a
period, not to exceed one hundred eighty (180) days, which the underwriter may
reasonably determine is necessary in order to effect such underwritten offering.
The Company shall have the right to terminate or withdraw any registration
initiated by it under this Section prior to the effectiveness of such
registration. All registration expenses incurred by the Company in complying
with this Section shall be paid by the Company, exclusive of underwriting
discounts, commissions and legal fees and expenses for counsel to the Holder.
Section 12. Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13. Headings. The headings in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 14. Governing Law, Venue. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of California, except for matters arising under the Securities Act, without
reference to principles of conflicts of law. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
State of California or the state courts of the State of California in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens, to the bringing of any such proceeding in such jurisdictions.
Each party hereby agrees that if another party to this Agreement obtains a
judgment against it in such a proceeding, the party which obtained such judgment
may enforce same by summary judgment in the courts of any state or country
having jurisdiction over the party against whom such judgment was obtained, and
each party hereby waives any defenses available to it under local law and agrees
to the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
<PAGE> 89
Section 15. Severability/Defined Terms. If any provision
of this Agreement shall for any reason be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provision hereof and
this Agreement shall be construed as if such invalid or unenforceable provision
had never been contained herein. Terms not otherwise defined herein shall be
defined in accordance with the Subscription Agreement.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
<PAGE> 90
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, on the day and year first above written.
Attest: Spatializer Audio Laboratories, Inc.
By: /s/ Henry Mandell By: /s/ Steven D. Gershick
------------------------------ ---------------------------------
Name: Name:
Title: Secretary Title: President
Aton Select Fund, Ltd.
By: /s/ Werner Keicher
---------------------------------
Name:
Title: Director
<PAGE> 91
FORM OF AMENDMENT TO THE REGISTRATION RIGHTS AGREEMENT
WHEREAS, on April 14 and 15, 1998, Registration Rights
Agreements ("Registration Agreements") were executed by Spatializer Audio
Laboratories, Inc. (the "Corporation") and certain investors CPR [USA], Inc.,
LibertyView Plus Fund, The LibertyView Fund, LLC (the "Liberty Investors") and
Aton Select Fund, Ltd. ("Aton" and collectively with the Liberty Investors, the
"Investors") as set forth in the 7% Convertible Series A Preferred Stock
Subscription Agreements dated April 14 and 15, 1998 (the "Subscription
Agreements"); and
WHEREAS, Section 3(a) of each of the Registration Agreements
obligates the Corporation to prepare and file a Registration Statement with the
Securities and Exchange Commission registering two hundred percent (200%) of the
number of Registerable Securities, as defined in the Registration Agreements,
that would be required to be registered if all the Registerable Securities were
converted in accordance with the terms set forth therein; and
WHEREAS, the Registration Agreements, by their current terms,
would require the Corporation to register securities in an amount greater than
twenty percent (20%) of the Corporation's issued and outstanding Common Stock on
the date hereof, and, as a consequence, requires stockholder approval of the
possible issuance of additional Common Stock in order for the Corporation to
remain in compliance with the NASDAQ Stock Exchange listing requirements; and
WHEREAS, the Corporation, on the one hand, and the Liberty
Investors and Aton on the other, by their respective execution of Amendments to
the Registration Rights Agreement wish to have the issuance of Common Stock be
undertaken in a manner that allows the Corporation to remain in compliance with
the NASDAQ Stock Exchange listing and governance requirements;
NOW THEREFORE IT IS AGREED THAT:
1. Defined terms not otherwise defined in this Amendment shall
have the meanings set forth in the Subscription Agreement. The Liberty Investors
will temporarily waive the two hundred percent (200%) requirement as stated in
Section 3(a) of their Registration Agreement on the condition that the
Corporation registers 4,284,000 shares of its Common Stock in the Registration
Statement currently being filed by the Corporation on Form S-3, in accordance
with the terms of the Subscription Agreement and, upon receipt of stockholder
approval, at the Corporation's annual meeting will timely amend such
Registration Statement (or file a new Registration Statement on Form S-3 if so
required) to comply with the two hundred percent (200%) requirement set forth in
the Subscription Agreement;
2. The Corporation agrees to submit at its annual
stockholder's meeting a resolution ratifying the transaction with the Investors
and authorizing the Amendment to the Registration Rights Agreement and the
issuance of Common Stock in an amount which requires stockholder approval;
1
<PAGE> 92
3. Upon approval by its stockholders, the Corporation agrees
to amend its S-3 Registration Form filed with the Securities and Exchange
Commission, pursuant to Rule 462(b) of the Securities Act of 1933, to include
additional shares of Common Stock if needed, based on the conversion price in
effect after the annual meeting or to file a new Registration Statement on Form
S-3 if so required, with such filings to be made within thirty (30) days of the
approval by the stockholders;
4. Except as set forth in this Amendment to the Registration
Rights Agreement between the Corporation and the Liberty Investors, the terms
thereof, as well as the provisions of their Subscription Agreement and the
exhibits thereto shall each remain in full force and effect as originally
executed.
IN WITNESS THEREOF, this Amendment to the Registration Rights Agreement
was duly executed on the date first written below.
Agreed and accepted on
this ____ day of May, 1998
Spatializer Audio Laboratories, Inc.
By: _________________________
Title:________________________
CPR [USA], Inc.
By: _________________________
Title:________________________
LibertyView Fund, LLC
By: _________________________
Title:________________________
LibertyView Plus Fund
By: _________________________
Title:________________________
NOTE: A comparable amendment was signed by Aton Select Fund, Ltd.
2
<PAGE> 1
Exhibit 5.1
BRAND FARRAR & BUXBAUM LLP
COUNSELLORS AT LAW
515 South Flower Street, Suite 3500 LOS
ANGELES, CALIFORNIA 90071-2201
Telephone: (213) 228-0288
Facsimile: (213) 426-6222
e-mail: [email protected]
May 14, 1998
Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 134
Woodland Hills, California 91364
Re: Spatializer Audio Laboratories, Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Spatializer Audio Laboratories, Inc. (the
"Company"), in connection with the filing of the Company's Registration
Statement on Form S-3 (the "Registration Statement") in connection with the
registration under the Securities Act of 1933, as amended, of an aggregate of up
to 8,339,800 shares of Common Stock, par value $.01 per share (the "Shares"),
all of which are or will be offered for resale by certain stockholders of the
Company.
As such counsel, we have examined such documents and records of the
Company as we deemed necessary as a basis for the opinion set forth herein, and
we are familiar with actions anticipated to be taken by the Company in
connection with the authorization and issuance of the Shares.
Based on such examination and subject to compliance with applicable
state securities laws, we are of the opinion that the Shares are or, when issued
by the Company in the manner described in the Registration Statement, will be
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an Exhibit to the Registration
Statement.
Very truly yours,
/s/ BRAND FARRAR & BUXBAUM, LLP
BEIJING o CHENGDU o GUANGZHOU o HONG KONG o NEW YORK o SHANGHAI
SHENZHEN o ULAANBAATAR o XIAMEN
<PAGE> 1
Exhibit 23.1 : 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
May 12, 1998
