As filed with the Securities and Exchange Commission on February 10, 2000.
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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REGISTRATION STATEMENT ON FORM S-3
Under
THE SECURITIES ACT OF 1933
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SPATIALIZER AUDIO LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 3698 95-4484725
- ---------------------------- ---------------------------- -------------------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
20700 Ventura Boulevard, Suite 140
Woodland Hills, California 91364
(818) 227-3370
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Henry R. Mandell, Chief Executive Officer
Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 140
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
<PAGE>
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Amount to be Proposed Maximum Proposed Maximum Amount of
Class of Securities Registered (1) Offering Price Per Aggregate Offering Registration Fee
to be Registered Share Price (2)
- ------------------- -------------- ------------------ ----------------- --------------
<S> <C> <C> <C> <C>
Common Stock,
$.01 par value per 6,197,636 $2.02(2) (2) $3,305.08
share
</TABLE>
(1) This registration statement relates to the resale of 6,197,636 shares of
Common Stock issued prior to the filing date hereof, and the resale of up to
2,525,000 shares of Common Stock issuable on the exercise of currently
outstanding Options and Warrants.
(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 OTC Bulletin Board on
February 8, 2000. The Registration Fee is calculated based on 6,197,636 shares
at a proposed offering price per share of $2.02.
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.
<PAGE>
SPATIALIZER AUDIO LABORATORIES, INC.
Cross-Reference Sheet
<TABLE>
<CAPTION>
Item No. Form S-3 Caption
<S> <C> <C>
1. Forepart of the registration statement and Outside Front Outside Front and Cover Page
Cover Page of prospectus
2. Inside Front and Outside Back Cover Pages of prospectus Inside Front and Outside Back
Cover Pages of prospectus
3. Summary Information, Risk Factors and Ratio of Earnings The Company; Business; Risk
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 SEC Position on Indemnification for Indemnification and Personal
Securities Act Liabilities Liability of Officers and Directors
</TABLE>
<PAGE>
[Front Cover of Prospectus]
6,197,636 Shares
SPATIALIZER AUDIO LABORATORIES, INC.
(a Delaware corporation)
Certain stockholders of Spatializer Audio Laboratories, Inc. are offering for
resale 6,197,636 shares of Common Stock, including 3,672,636 shares of Common
Stock which are currently outstanding and 2,525,000 shares of Common Stock
reserved for issuance on the exercise of outstanding Options and Warrants. Of
these, 1,933,381 shares of the Common Stock are, or upon exercise of Options and
Warrants will be, held by Selling Stockholders who are officers or directors.
Our Common Stock is traded on the OTC Bulletin Board under the symbol "SPAZ." On
February 8, 2000 the closing price of the Common Stock on the OTC Bulletin Board
was $2.03 U.S.
Before investing in the Common Stock, you should carefully consider the risks
described in the "Risk Factors" section beginning on page 4.
Per Share Total(1)
Public offering price $2.02 $12,519,224
Proceeds, before expenses, to Selling Stockholders $2.02 $10,085,884
Proceeds, before expenses, to the Company on $ 2,433,000
exercise of Options and Warrants at varying prices
(1) Reflects current exercise prices for Options and Warrants and assumes
holders immediately resold at current market price of $2.02 per share.
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is ______, 2000.
<PAGE>
(Back Cover)
------------------------------------
No person is authorized in connection with this prospectus to give any
information or to make any representations about us, the Selling Stockholders,
the Common Stock, or any matter discussed in this prospectus, 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 us or any
Selling Stockholder. This prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy the Common Stock in any circumstances under
which the offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any distribution of securities in accordance with this prospectus
shall, under any circumstances, imply that there has been no change in our
affairs since the date of this prospectus.
--------------------------------------
TABLE OF CONTENTS
Page
WHERE YOU CAN FIND MORE INFORMATION.........................................i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................i
SPATIALIZER AUDIO LABORATORIES, INC..........................................1
RISK FACTORS.................................................................4
USE OF PROCEEDS..............................................................8
CAPITALIZATION...............................................................9
BUSINESS ...................................................................10
SELLING STOCKHOLDERS........................................................11
PLAN OF DISTRIBUTION........................................................14
DESCRIPTION OF CAPITAL STOCK................................................14
SHARES ELIGIBLE FOR FUTURE SALE.............................................18
INDEMNIFICATION AND PERSONAL LIABILITY OF OFFICERS AND DIRECTORS............18
LEGAL MATTERS...............................................................19
EXPERTS.....................................................................19
SPATIALIZER AUDIO
LABORATORIES, INC.
The date of this prospectus is ___________, 2000.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement that we filed with the
SEC. 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 SEC. In addition, the registration statement and
this prospectus incorporate by reference certain materials previously filed with
the SEC. You should read the exhibits carefully for provisions that may be
important to you. We became subject to the reporting requirements imposed under
the Securities Exchange Act of 1934 (the "1934 Act") on August 21, 1995, and
have filed all reports required to be filed since such date.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., Chicago, Illinois, and New
York, New York. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. Our SEC filings are also available to the public
from the SEC's Web site at "http://www.sec.gov".
Until February, 1997 when we terminated our listing on the Vancouver Stock
Exchange, we and our predecessor, Spatializer Audio Laboratories, Inc., a Yukon
corporation ("Spatializer-Yukon"), also were subject to the information and
reporting requirements under the Yukon Territory Business Corporations Act and
the British Columbia Securities Act. You may read and copy all periodic reports,
proxy materials and other reports filed with the Superintendent of Brokers for
British Columbia and the VSE at the VSE offices at 609 Granville Street, 4th
Floor, Vancouver, B.C. V7Y 1H1, CANADA and at the offices of the Superintendent
of Brokers for British Columbia at 865 Hornby Street, Suite 1200, Vancouver,
B.C. V6Z 2H4, CANADA, at prescribed rates.
Upon request, we will provide copies of materials on file at the SEC to
stockholders and any person to whom a prospectus is delivered, including
material incorporated herein by reference. Requests should be made orally or in
writing to Spatializer Audio Laboratories, Inc. at 20700 Ventura Boulevard,
Suite 140, Woodland Hills, California 91364, Attention: Secretary, telephone
(818) 227-3370.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to these documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below, which we have already filed with the
SEC, and any future filings we make with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 until we sell all of the
securities.
i
<PAGE>
Period
- ------
Annual Report on Form 10-K................. Year ended December 31, 1998
Current Reports on Form 8-K................ Filed December 27, 1999
Quarterly Reports on Form 10Q.............. Fiscal quarters ended March 31,
1999, June 30, 1999 and
September 30, 1999
Proxy Statement............................ Filed January 12, 2000
ii
<PAGE>
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SPATIALIZER AUDIO LABORATORIES, INC.
Spatializer Audio Laboratories, Inc. is a leading developer, licensor and
marketer of next generation technologies for the consumer electronics, personal
computing, enterprise computing and entertainment industries. Our position as a
leading developer of next generation technologies is based on our strong
relationships with brand leaders, such as Apple, Toshiba and Hitachi. We conduct
our audio business through our parent company and our wholly owned subsidiary,
Desper Products, Inc. ("DPI"). 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. We continue to expand our
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, 1999, more than
17 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,
Mitsubishi, Samsung, Sanyo, Goldstar, Emerson, Zenith and Proton, and in the PC
multimedia marketplace, Apple, Compaq, Dell, Gateway, Hewlett Packard, Sony,
Micron, Fujitsu, NEC, Seiko-Epson and Labtec, among others. We are focused on
broadening recognition for the Spatializer brand name through association with
these and other globally recognized consumer electronics and multimedia computer
brand leaders, and on broadening our audio technology and software base to
position ourselves for continued growth. We believe that with the accelerating
growth in the digital audio/video marketplace, the market for virtual audio
technologies, and therefore for our products, is entering a new phase of
opportunity.
Our other wholly owned subsidiary, MultiDisc Technologies, Inc., formed in
June 1996 when we acquired development stage optical disc storage and robotics
assets and technologies from Home Theater Products, International, Inc., a
debtor in possession, is now inactive. In September 1998, we announced our plan
to refocus our business on the exploitation of our core audio technologies,
suspend research and development at MDT and to properly position the MultiDisc
assets for sale. Therefore, MDT has been accounted for as a discontinued
operation. Since 1998 we have been unsuccessful in identifying a purchaser for
this technology. This repositioning strategy recognized that the capital
investment required to properly commercialize the MDT technology was beyond our
current capacity. We believe this strategy provides a better opportunity to
further solidify our position as a leading provider of virtual audio solutions,
based on available capital resources.
In December 1999, we completed the placement of $1 million of Common
Stock, at no discount from market, the conversion of $1 million of short-term
debt to new Series B Redeemable Convertible Preferred Stock and the restatement
of $225,000 on existing secured debt to secured long-term debt (the "December
Transactions"). The December Transactions significantly strengthen our balance
sheet and restore working capital and shareholder's equity. The resulting
liquidity will allow us to emerge from turnaround mode and to pursue growth.
Our executive offices are located at 20700 Ventura Boulevard, Suite 140,
Woodland Hills, California 91364, Telephone (818) 227-3370. We maintain Websites
at www.spatializer.com and www.multidisc.com. Information available on our
Websites is not part of this prospectus. We were incorporated in the State of
Delaware in February, 1994.
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<PAGE>
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The Offering
The Offering relates to the resale of up to 3,672,636 shares of Common
Stock which are currently outstanding and 2,525,000 shares of Common Stock
reserved for issuance upon exercise of presently outstanding Warrants and
Options. 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. We are not
entitled to any of the proceeds of sale of any such securities by the Selling
Stockholders, but we will pay the expenses of the filing of the registration
statement.
We will receive the proceeds, in the ordinary course, from any exercise of
outstanding Options and Warrants. If all outstanding Options and Warrants
registered herein are exercised, including those that currently have exercise
prices above the market price of our stock, we will receive proceeds of
approximately $2.4 million. 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 SEC and the registration statement has not been withdrawn by us.
The Offering may be through the facilities of the OTC Bulletin Board 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 our knowledge, 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."
The Selling Stockholders include the investors who participated in the
December Transactions and were granted registration rights covering the resale
of the Common Stock they acquired, entities that have provided services and
received Common Stock in connection with these services, and our officers and
directors or directors of DPI who hold warrants issued for loans advanced or
performance shares. The release of the performance shares from escrow is treated
as compensation to the some of the holders of the performance shares, as of the
date of release and those individuals may find it necessary to sell a portion of
their performance shares to meet their tax obligations. For the others, the
inclusion of the shares in our registration statement provides them with the
flexibility to dispose of a portion of their shares in the market when their
personal needs or planning require the sale.
2
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<PAGE>
Outstanding Securities
<TABLE>
<CAPTION>
As
Adjusted(2)
--------
<S> <C> <C>
Shares of Common Stock Outstanding at December 27, 1999 43,655,223 45,594,477
Reserved for Issuance - Options 2,859,467(1) 2,859,467(2)
Reserved for Issuance - Warrants 905,000(1) 2,640,000(2)
Total Shares of Common Stock Outstanding
Assuming Exercise of Warrants and Options 47,419,690 51,093,944
Shares Offered by Selling Shareholders N/A 6,197,636
(including 2,525,000 shares reserved for issuance on
exercise of Warrants and Options)
</TABLE>
------------------------------
(1) Includes all employee and similar options and warrants issued in prior
financings.
(2) These amounts include the 2,100,000 warrants issued net of the 500,000
outstanding warrants that were canceled in the December Transactions.
This prospectus includes references to MultiDisc(TM), Spatializer (R) and
other trademarks, tradenames, and product names of Spatializer and of other
entities, some of which may not be designated as such.
3
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<PAGE>
RISK FACTORS
Investment in our securities is speculative. Please 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 our securities. If one or more of these risks actually materialize, our
business and the trading price of our Common Stock would likely suffer and you
could lose all or part of the money you invested in our Common Stock.
If We Can't Obtain and Enforce Intellectual Property Protection For Our
Technologies, Our Business Will Not Be Successful.
Our success will depend significantly on our ability to obtain and enforce
intellectual property protection for our 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. Patent and Trademark Office. There can be no assurance that
any U.S. patent will be granted 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 our patents will not be
challenged, invalidated or circumvented, or that our competitors will not
independently develop or patent technologies that are equivalent or superior to
our technology.
While we have attempted to protect our technology and general intellectual
property rights, there is no assurance that our 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 our
ability to adequately guard against such piracy and infringement. While we
believe the steps we have taken to guard against such abuses are reasonable,
there is no assurance we will be successful in this effort.
If Product Development Is Delayed, We Will Experience Delays in Revenues and
Competitive Products May Reach the Market Before Our Products.
We can't predict the timing or the amount, if any, of revenues which we
will receive from current or future product sales and licensing activities.
Since our inception, we have experienced delays in bringing our products to
market and commercial application as a result of delays inherent in technology
development, financial resource limits and industry responses and maturity.
These delays have resulted in delays in the timing of revenues and product
introduction. In the future, new delays in product development or technology
introduction on behalf of us, our OEMs, IC foundries or our software producers
and marketers could result in further delays in revenues and could allow
competitors to reach the market with products before us. In view of the emerging
nature of the technology involved, and the rapidly changing character of the
entire media, internet and computer markets, our expansion into other technology
areas and the uncertainties concerning the ability of our products to achieve
meaningful commercial acceptance, there can be no assurance of when or if we
will achieve or sustain profitability.
We Have a History of Losses.
The overall results for 1997 and 1998 reflect continuing losses from
operations because of the funding requirements of the development of the MDT
server technology and subsequently the wind down costs for MDT. Although we were
profitable in each of the first three quarters of fiscal 1999, the first such
profitability in our history, there can be no assurance that we will ever
sustain an overall positive profit position.
4
<PAGE>
If We Lose Key Personnel, We May Not Be Able To Successfully Operate Our
Business.
Our future success 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 our business prospects.
While we believe that we will be able to recruit and retain personnel with the
skills required for future growth, we can't assure you that we will be
successful. Failure to do so could have an adverse impact upon our business, the
results of our operations and our prospects. Currently, we have an employment
agreement with our vice president of engineering with a term expiring in October
2000, we are finalizing an employment agreement with Henry R. Mandell for a term
expiring in 2002 and we are negotiating agreements with three engineers.
If We Can't Raise Additional Capital, We May Have To Modify or Delay Our
Development and Marketing Activities.
We have funded our operations from revenues and from a number of equity
financings. We continue to acquire new financing. While our audio subsidiary,
DPI, was profitable for the first time during the last two quarters of 1997,
these revenues were consumed in financing operations and funding the MDT
technology development until we restructured and downsized our operations in
September 1998. Since then we have achieved positive operating results at
reduced operating levels but have delayed product development.
With the recent financing and cash generated from our existing operations,
we expect to be able to meet our operating obligations and the anticipated
additional research, development, and commercial marketing cost for the audio
business during the next twelve months.
Because The Market In Which We Operate Is Highly Competitive, We May Not Be
Successful in Establishing and Maintaining the Technological Superiority of Our
Products Over Those of Our Competitors.
We are seeking commercial acceptance of our products in highly competitive
markets. Our future success is dependent on establishing and maintaining the
technological superiority of our products over those of competitors and our
ability to successfully identify and bring other compatible technologies and
products to market. Certain of our current competitors have access to greater
financial resources than we do. There is no assurance that our 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. The market for 3D Virtual Audio technologies is characterized by
intense competition and commodity pricing pressures. We compete 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, our
principal competitors are SRS Labs, Inc., QSound Labs, Inc., Aureal
Semiconductor, Inc., CRL and Harman International, some of which have
considerably greater capitalization and resources than we do. In the future, our
products and technologies may also compete with audio technologies and products
developed by other companies, including entities that have business
relationships with us. There can be no assurance that we will be able to
favorably compete in this market in the future.
5
<PAGE>
Because There Is a Limited Trading Market in Our Stock, You May Not Be Able To
Sell the Common Stock, or May Only Be Able To Sell It for Less Than the Offering
Price.
The Common Stock of the Company trades on the OTC Bulletin Board under the
symbol "SPAZ." There is no assurance that our current trading will be sustained
or expanded as to correspond with your desire for a ready market for our shares.
If We Issue Preferred Stock, Your Rights May Be Adversely Affected.
We are authorized to issue up to 1,000,000 shares of preferred stock in
one or more series, the terms of which are to be determined by the Board of
Directors, without further action by shareholders, and may include voting rights
(including the right to vote as a class on particular matters), preferences as
to dividends and liquidation, the conversion feature and dilution impact and
redemption rights and sinking fund provisions. Since the Board of Directors has
the authority to determine, from time to time, the terms of the Preferred Stock
to be issued in the future, there is no limit on the amount of Common Stock (or
the related dilution impact) that could be issuable under the terms of future
series of preferred stock authorized by the Board of Directors. Of the 1,000,000
shares of preferred stock, 102,967 shares of Series B, 10% Redeemable
Convertible Preferred Stock ("Series B Preferred Stock") are issued and
outstanding and the issuance of additional shares of Series B Preferred Stock or
any other preferred stock could affect the rights of the holders of Common Stock
and the value of the Common Stock, could result, upon conversion, in a change of
control 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."
Since Our Officers and Directors Own a Substantial Number of Shares of Our
Common Stock, They Can Substantially Control Actions by the Stockholders.
Our current directors and officers beneficially own or control or have
rights to acquire 9.3 million shares of Common Stock or approximately 21.6% of
our fully diluted Common Stock. 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 our business
and affairs.
Sales of Shares Following This Offering Could Adversely Affect the Market Price
of Our Common Stock.
Virtually all of our currently outstanding Common Stock, including the
Common Stock held by our affiliates, will be tradeable currently or in the near
future, either under this prospectus or pursuant to Rule 144. Of the issued and
outstanding shares of Common Stock, officers, directors and other founders or
employees hold 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, 5% on June
22, 1998 and 10% on June 22, 1999, and the remainder of the Performance Shares
are scheduled to be released automatically as follows: 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
with us prior to the applicable vesting dates. Any individual
6
<PAGE>
who is involuntarily terminated by us 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 with
us to retain a portion or all of any unvested performance shares.
We Do Not Intend To Pay Dividends
We have not paid any cash dividends on our Common Stock and have no
present intention of paying any dividends. Our current policy is to retain
earnings, if any, for use in operations and in the development of our business.
Our future dividend policy will be determined from time to time by the Board of
Directors.
Since Our Securities Are Subject To the Penny Stock Rules, You May Find It More
Difficult To Sell Our Common Stock.
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the SEC. Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on
Nasdaq provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system).
The penny stock rules require a broker-dealer, prior to a transaction in a
penny stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in connection with the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. Our securities are presently subject to the penny stock
rules, and, as a result, investors may find it more difficult to sell their
securities.
7
<PAGE>
USE OF PROCEEDS
Securities offered for resale hereunder are to be offered for the account
of the Selling Stockholders. We are not entitled to any of the proceeds of sale
of any such securities, but we will pay the expenses of the filing of the
registration statement. We 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 and Warrants
registered herein are exercised, we will receive proceeds of approximately $2.4
million.
8
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999
(assuming none of the currently outstanding Options or Warrants are exercised).
DEBT
Notes Payable 324,149
Advanced from Related Parties 907,500
------------
Total Debt $ 1,231,649
STOCKHOLDERS' EQUITY
Preferred shares, $.01 par value, 1,000,000 shares 281
authorized, 28,140 shares Series A 7% Convertible
Preferred Stock Outstanding at September 30, 1999
Common Stock, $.01 par value, 50,000,000 shares 360,912
authorized 36,091,184 shares issued and
outstanding at September 30, 1999
Additional Paid-In Capital 44,048,255
Accumulated Deficit (45,915,963)
------------
Total Stockholders' Equity (1,506,515)
------------
Total Capitalization $ (274,866)
============
9
<PAGE>
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, 1998.
10
<PAGE>
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, or who may
acquire the shares on exercise, from time to time, of Warrants or Options held
by them. The shares offered also include the performance shares which have been
released to date and which have not been sold by the holders as well as the
performance shares to be released in June 2000.
The following tables set forth the names and addresses of each of the
Listed Selling Stockholders, other than officers and directors (who have an
address at the Company), indicate their relationship to us or our predecessors
and specify security ownership at December 27, 1999, except the security
ownership of the participants in the December Transactions, Steven D. Gershick,
Henry R. Mandell and Brand Farrar are stated to give effect to the termination
of Mr. Gershick's ownership of performance shares and the issuance of these
shares to Mr. Mandell and the issuance of shares in the December Transactions
and to Brand Farrar. The tables show security ownership 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>
Henry R. Mandell Shares - 168,628 168,628 0
Chief Executive Officer, Escrow - 674,516 168,628 505,888
Chief Financial Officer, Options - 750,000 0 750,000
Secretary and Director(3) Warrants - 5,000 0 0
Total - 1,598,144 337,256 3.6% 1,255,888 2.8%
Carlo Civelli Shares - 517,924 278,176 0
Director (4) Escrow - 1,112,704 278,176 834,528
Options - 250,000 0 250,000
Warrants - 75,000 0 0
Total - 1,955,628 556,352 4.4% 1,084,528 2.5%
Stephen W. Desper Shares - 272,145 272,145 0
Director Escrow - 1,559,305 389,828 1,169,477
Options - 173,800 0 173,800
Total - 2,005,250 661,973 4.6% 1,343,277 3.06%
Gilbert N. Segel Shares - 117,000 22,000 95,000
Director Escrow - 88,000 22,000 66,000
Options - 50,000 0 50,000
Warrants - 5,000 0 5,000
Total - 260,000 44,000 * 216,000 *
</TABLE>
11
<PAGE>
<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>
James D. Pace Shares - 85,400 25,400 60,000
Director Escrow - 101,597 25,400 76,197
Options - 130,000 0 130,000
Warrants - 5,000 0 5,000
Total - 321,997 50,800 * 271,197 *
Steven D. Gershick (3) Shares - 83,000 83,000 0
Options - 300,000 200,000 100,000
Total - 383,000 283,000 * 100,000 *
I.N. Inc. Warrants - 125,000 125,000 * 0 *
Lufeng Investments Ltd. Shares - 179,453 179,453 0
Warrants - 200,000 200,000 0
Total - 379,453 379,453 * 0 *
Bank Insinger de Beaufort Shares - 448,632 448,632 0
Herengracht 551 Warrants - 500,000 500,000 0
1017 BW Amsterdam Total - 948,632 948,632 2.17% 0 *
The Netherlands
Brand Farrar & Buxbaum LLP Shares - 55,000 55,000 * 0 *
515 S. Flower St., Ste. 3500
Los Angeles, CA 90071
Romofin AG Shares - 541,132 448,632 92,500
Burglestrasse 6 Warrants - 500,000 500,000 0
8027 Zurich, Switzerland Total - 1,041,132 948,632 2.17% 92,500 *
CPR (USA) Inc. Shares - 1,537,779 403,769 1,134,010
101 Hudson St., 37th Floor Warrants - 450,000 450,000 0
Jersey City, NJ 07302 Total - 1,987,779 853,769 4.99%(5) 1,134,010 4.99%(5)
LibertyView Funds, L.P. Shares - 1,447,052 323,015 1,124,037
Hemisphere House Warrants - 360,000 360,000 0
9 Church Street Total - 1,807,052 683,015 4.99%(5) 1,124,037 4.99%(5)
Hamilton, Bermuda HMDX
LibertyView Fund, LLC Shares - [406,775] 80,754 [326,021]
101 Hudson St., 37th Floor Warrants - 90,000 90,000 0
Jersey City, NJ 07302 Total - [496,775] 170,754 1% [326,021] *
</TABLE>
12
<PAGE>
<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>
Cardinal Capital Mgmt, Inc. Warrants - 100,000 100,000 * 0 *
3340 Peachtree Road N.E.
Suite 620
Atlanta, GA 30326
</TABLE>
- ----------
(1) Includes Escrowed Performance Shares of Common Stock and Options and
Warrants which are currently exercisable or exercisable within 60 days of
the date hereof. Escrowed Performance Shares which are scheduled for
release from Escrow during 2000 are included as being registered for
resale by the respective holders.
(2) Denominator includes all shares reserved for issuance to the specified
person on exercise of Options and Warrants which are exercisable within 60
days of the date hereof.
(3) In November 1999, the Board of Directors approved, subject to the
finalization of appropriate documentation, the reallocation of the 674,516
performance shares held in escrow for Steven D. Gershick to Henry R.
Mandell and the transfer among Mr. Gershick, us and Mr. Mandell of the
168,628 performance shares previously released from escrow to Mr.
Gershick. The above table reflects the transactions. Mr. Gershick has
appointed Mr. Mandell as his proxy to vote the performance shares.
(4) 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.
(5) CPR (USA) Inc., LibertyView Funds, L.P. and LibertyView Fund LLC are
affiliated entities but each has made an individual investment in the
Company. In addition to limitations set forth in the Certificate of
Designation for the Series A Preferred Stock, which limits ownership of
the Common Stock by any holder to 4.99% of the Company's outstanding
Common Stock, the three entities have independent legal obligations and
internal practices which bar them from collectively owning more than 4.99%
of any company's outstanding Common Stock at any particular time.
Therefore, the disclosure reflects beneficial ownership of the aggregate
percentage of Common Stock that could be beneficially owned by the three
entities combined at any one time, during the effectiveness of this
registration statement.
* Denotes less than 1% ownership.
13
<PAGE>
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 OTC Bulletin Board 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 SEC and we have not withdrawn the registration statement. 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 our knowledge, 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. We will receive the
proceeds from the exercise of Options and Warrants but the Selling Stockholders,
not we, will receive the net proceeds of any sales of their Common Stock
hereunder after payment of any discounts and commissions. We have paid the
professional fees and related costs of this registration statement from our
general funds.
Registration Rights of Certain Selling Stockholders
We have granted certain registration rights with respect to Common Stock
to the Selling Stockholders who are not our affiliates and who acquired
2,181,930 shares of Common Stock (in the December Transactions and in private
placements) or who could acquire 2,475,000 shares issuable on exercise of
Warrants issued in the December Transactions (the "Registrable Shares"). We also
have agreed that if we propose to register any of our securities under the 1933
Act in connection with the public offering of such securities for cash,
including the performance shares, as released, (other than a registration
relating solely to the sale of securities pursuant to a Rule 145 transaction) it
will allow those holders to have their Registrable Securities included in such
registration statement. The Company has agreed to bear all registration expenses
in connection with the registration of the Registrable Securities other than
underwriting commissions.
DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital consists of 65,000,000 shares of Common Stock (par
value U.S. $.01) of which 43,655,223 were outstanding at December 27, 1999 and
1,000,000 shares of Preferred Stock (par value U.S. $.01) of which no shares
were issued and outstanding at December 27, 1999.
Common Stock
All of the issued shares of our Common Stock are fully paid and
non-assessable. Subject to the release and performance conditions relating to
Escrowed Performance Shares, all of the shares of Common Stock rank equally as
to voting rights, participation in the distribution of our assets on a
liquidation, dissolution or
14
<PAGE>
winding-up and the entitlement to dividends. Each share of Common Stock entitles
the holder to one vote. In the event of our liquidation, dissolution or
winding-up or other distribution of our assets, the holders of the Common Stock
will be entitled to receive, on a pro-rata basis, all of the assets remaining
after we have paid our 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 43,655,223 shares of Common Stock currently issued and outstanding,
4,527,359 are classified as Escrowed Performance Shares, are held in escrow by
our transfer agent, Harris Trust Company of California, and will vest under the
modification arrangements.
We have Options outstanding which could result in the issuance of up to
approximately 2.86 million shares of additional Common Stock and have Warrants
outstanding which could result in the issuance of up to approximately 2.64
million additional shares of Common Stock. 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 our capital. See "Executive Compensation" in our Annual Report
on Form 10-K or in our Proxy materials for further information with respect to
the Options.
In December 1999, we completed a set of financial transactions (the
"December Transactions") with certain existing holders of our equity and debt
and with new institutional investors. The December Transactions included the
private placement of 1,884,254 additional shares of our Common Stock ($1.05
million in new capital or $0.55725 per share), the issuance of warrants to
acquire 2,100,000 shares of Common Stock exercisable for three years at an
exercise price of $.67 per share), the cancellation of 500,000 warrants to
acquire Common Stock issued in that earlier financing, the conversion of $1
million of short term debt into a new Series B Redeemable Convertible Preferred
Stock ("Series B Preferred Stock") and the conversion of $225,000 of secured
debt into secured long term convertible debt.
In the December Transactions, $895,000 in short term loan advances from
officers, directors and their affiliates and certain other securities holders,
and accrued interest of $134,647, were restructured into the $1,000,000 in new
Series B Preferred Stock. The Series B Preferred Stock, and any dividends
therefrom not converted into cash, are convertible commencing in 2001 into
restricted Common Stock at a 10% discount, based on the 10 day average closing
bid price prior to the conversion, but subject to a minimum conversion of $.56
per share and a maximum of $1.12 per share. We have a three year option to
redeem any Series B Preferred Stock, not sooner converted, in whole or in part,
in cash.
In the December Transactions, $225,000 of secured debt, including accrued
interest, was converted into secured long term convertible debt. The long term
debt is held by existing institutional investors and is secured by essentially
all of our assets. The debt, and accrued interest, is convertible at our or the
holder's options into registered Common Stock at a conversion price equal to the
average 10 day closing bid price prior to conversion but subject to the same
minimum and maximum conversion prices set for the Series B Preferred Stock.
Also, concurrently with the December Transactions, 55,000 shares were allocated
to Brand Farrar & Buxbaum LLP ("Brand Farrar") in payment of a portion of its
legal fees.
15
<PAGE>
Preferred Stock Generally
The Board of Directors is authorized to issue, without stockholder action,
up to 1,000,000 shares of Preferred Stock. Preferred Stock may be issued in one
or more series, the terms of which may be determined at the time of issuance by
the Board of Directors, and may include voting rights (including the right to
vote as a series on particular matters), preferences as to dividends and
liquidation, conversion and redemption rights and sinking fund provisions.
Series A Preferred Stock
In connection with a private placement in April 1998, 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 private placement, 60,000 shares were issued. None
of the Series A Preferred Stock is currently outstanding.
Series B Preferred Stock
In connection with the December Transaction, the Board of Directors
authorized the issuance of up to 150,000 shares of Series B Redeemable
Convertible Preferred Stock ("Series B Preferred Stock") with a par value of
$0.01 per share and a stated value of $10.00 per share, with a 10% annual
dividend. In the December Transaction 102,967 shares were issued.
The Series B Preferred Stock ranks: (i) prior to all of our Common Stock,
and (ii) prior to any class or series of capital stock created after the Series
B Preferred Stock (unless such future class specifically, by its terms, ranks on
parity with the Series B Preferred Stock), and (iii) junior to any class or
series of capital stock created before the Series B Preferred Stock, in each
case as to distributions of assets upon liquidation, dissolution or winding up,
whether voluntary or involuntary (all such distributions being referred to
together as "Distributions"). The Series B Preferred Stock will bear a 10% per
annum cumulative dividend, payable out of assets legally available therefor, at
the Conversion Date (as defined below) in cash or Common Stock at the Conversion
Price (as defined below), at our option. No dividends shall be paid on the
Common Stock or any other subsequently issued stock prior to the payment of
dividends on the Series B Preferred Stock.
In the event of any liquidation, dissolution or winding up, either
voluntary or involuntary, the holders of Series B Preferred Stock shall be
entitled to receive a liquidation preference of $10.00 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 B Preferred Stock have a right to convert their shares, at
their option on or after December 29, 2000. The date we receive a notice of
conversion from a shareholder shall be treated as a "Conversion Date."
The conversion price shall be determined on the Conversion Date and shall
equal ninety percent of the average of the closing bid prices of Common Stock
for ten consecutive trading days ending on the trading day immediately preceding
the Conversion Date. The conversion price may not be lower than the average of
the closing bid prices of Common Stock for the ten consecutive trading days
ending one trading day prior to December 29, 1999 (the "Floor Price") or be
higher than 200% of the Floor Price.
16
<PAGE>
After giving effect to the Series B Preferred Stock, we have 750,000
shares of Preferred Stock remaining reserved for issuance all of which shares
which could be issued quickly with terms calculated to delay or prevent a change
in control 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 without any further action by the stockholders or discouraging
bids for our Common Stock at a premium because the purchasers would not be in a
position to limit certain future capital transactions through the issuance of
Preferred Stock. In addition, we believe that conversions of future issuances of
Preferred Stock could discourage market interest in our Common Stock because of
the dilutive effects on the capital structure and possible price pressure and
market overhang because of a potential sale of the Common Stock into the market.
If the future preferred stock were to be issued with conversion features that
set the conversion price of the preferred stock at less than current market, it
could discourage interest in our Common Stock and could have the effect of
decreasing the market price of the Common Stock.
Application of California Corporations Code
Although incorporated in Delaware, our business has been conducted through
our 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 Spatializer can be subject to Section 2115 even though
we do not ourselves 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 our 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. We currently are deemed
to be subject to Section 2115.
Delaware Corporate Governance Issues
As a Delaware corporation, we are 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 our Certificate of Incorporation and Bylaws. Our 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.
We have adopted certain provisions to limit the ability of stockholders to
change corporate management. Our Certificate of Incorporation contains
provisions which classifies the Board of Directors and provides that Board
members may only be removed for cause and with the approval of the holders of
two-
17
<PAGE>
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 with us and
may discourage third parties from attempting to acquire control of us. As a
result, our stockholders may have reduced opportunities to sell their stock in
transactions where third parties are seeking an interest in us and such third
parties may be discouraged from undertaking transactions to acquire a
significant interest in us.
SHARES ELIGIBLE FOR FUTURE SALE
As of December 27, 1999 and including the effect of the December
Transactions, there were 45,594,477 shares of Common Stock outstanding and
2,640,000 shares reserved for issuance on exercise of outstanding Warrants and
2,859,467 shares reserved for issuance on exercise of outstanding Options,
representing in the aggregate a fully diluted total of 51,093,944 shares. The
shares of Common Stock underlying the Series B Preferred Stock are not reflected
since the number of shares will be calculated at the time of conversion. Of that
total, approximately 9.3 million, or 21.6%, were held by persons who are
officers or directors including 3,640,557 of Escrowed Performance Shares.
INDEMNIFICATION AND PERSONAL LIABILITY
OF OFFICERS AND DIRECTORS
Our Certificate of Incorporation contains a provision authorized by
Delaware law which eliminates the personal liability of a director to us, or to
any of our 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.
Our bylaws obligate us to indemnify our directors, officers, employees and
other agents to the fullest extent permitted by Delaware law, in respect of
expenses, judgments, penalties, fines, and settlement of claims paid or
incurred, including those resulting from liability under the 1933 Act, if the
indemnitee acted in good faith and in what he or she reasonably believed to be
in, or not opposed to, our best interest, 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, us) arising out of a position with us (or with some other entity at our
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, us, unless the
director or officer is found liable to us and an appropriate court does not
determine that he or she is nevertheless fairly and reasonably entitled to
indemnification.
18
<PAGE>
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 us 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. Our bylaws establish procedures pursuant to which
such a determination may be made.
Delaware law permits us to enter into written agreements confirming (and
in certain cases, extending its obligations to) the purchase of insurance on
behalf of any of our directors, officers, employees or agents or other
corporation, partnership, joint venture, trust or other enterprise whether or
not we would have the power to indemnify such insured under Delaware law,
against liabilities arising out of their positions with us. To date, we have not
obtained any such insurance.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC, 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 us
by Brand Farrar & Buxbaum LLP.
EXPERTS
The consolidated financial statements of Spatializer Audio Laboratories,
Inc. and subsidiaries as of December 31, 1998 and 1997, and for each of the
years in the three-year period ended December 31, 1998 have been included herein
in reliance upon the report of Farber & Hass, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following list itemizes all estimated expenses incurred by the
Registrant in connection with this registration statement. The fees and expenses
of the Selling Stockholders are being paid by the Company.
Registration Fees $ 3,305.08
Transfer Agent Fees $ 500.00*
Printing and Engraving Costs $ 3,000.00*
Legal Fees $15,000.00*
Accounting Fees $10,000.00*
Miscellaneous $ 5,000.00*
TOTAL $36,805.08
- ----------
* Estimated.
II-1
<PAGE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are 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, our best interests,
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.
Our Certificate of Incorporation contains the following provision:
"ARTICLE IX
INDEMNIFICATION
SECTION 1. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or an officer of the corporation, against expenses (including,
but not limited to, attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the fullest extent and in the manner set
forth in and permitted by Delaware law and any other applicable law as
from time to time in effect. Such right of indemnification shall not be
deemed to be exclusive of any other rights to which such director or
officer may be entitled apart from the foregoing provisions. The foregoing
provisions of this Section 1 shall be deemed to be a contract between the
Corporation and each director and officer who serves in such capacity at
any time while this Section 1 and the relevant provisions of Delaware law
and other applicable law, if any, are in effect, and any repeal or
modification thereof shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore existing
or any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts.
SECTION 2. The Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was
an employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including, but not limited to, attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding to the extent and in the manner set forth in and permitted by
Delaware law and any other applicable law as from time to time in effect.
Such right of indemnification shall not be deemed to be exclusive of any
other rights to which any such person may be entitled apart from the
foregoing provisions."
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for 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.
II-2
<PAGE>
Our 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."
Our Bylaws obligate us to indemnify our directors, officers, employees and
other agents to the fullest extent permitted by Delaware law, in respect of
expenses, judgments, penalties, fines, and settlement of claims paid or
incurred, including those resulting from liability under the Act, if the
indemnitee acted in good faith and in what he or she reasonably believed to be
in, or not opposed to, the best interest of the corporation, and, in the case of
criminal action, if the indemnitee had no reasonable cause to believe his or her
conduct was unlawful. The Bylaws provide:
"ARTICLE VI
INDEMNIFICATION
SECTION 1. Directors and Officers. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director or an officer of the Corporation, against
expenses (including, but not limited to, attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding to the fullest
extent and in the manner set forth in and permitted by the General
Corporation Law of the State of Delaware and any other applicable law as
from time to time may be in effect. Such right of indemnification shall
not be deemed to be exclusive of any right to which such director or
officer may be entitled apart from the foregoing provisions. The foregoing
provisions of this Section 1 shall be deemed to be a contract between the
Corporation and each director and officer who serves in such capacity at
any time while this Section 1 and the relevant provisions of the General
Corporation Law of the State of Delaware and other applicable law, if any,
are in effect, and any repeal or modification thereof shall not affect any
right or obligation then existing, with respect to any state of facts then
or theretofore existing, or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such
state of facts.
SECTION 2. Agents and Employees. The Corporation may indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact
that he is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including, but not limited to,
attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action,
suit or
II-3
<PAGE>
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 us pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the 1933 Act and is
therefore unenforceable.
The preceding discussion of our Certificate of Incorporation, Bylaws and
Section 145 of the DGCL is qualified in its entirety by reference to the
complete text of our Certificate of Incorporation and Bylaws which are on file
with the SEC.
II-4
<PAGE>
ITEM 16. EXHIBITS
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.)
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 SEC.)
4.7* Form of Subscription Agreement for 1995 Private Placements.
4.8* Form of Subscription Agreement and Warrant Agreement for March 7, 1997
Private Placement.
4.9* Modification Agreement for Escrowed Performance Shares.
4.10* Form of 7% Convertible Series A Preferred Stock Subscription Agreement,
Warrant Agreement and Registration Right Agreement (with Form of
Amendment) for April 14, 1998 Private Placement.
4.11 Form of Common Stock Subscription Agreement for December 1999 Private
Placement with CPR (USA) Inc., LibertyView Funds, L.P. and LibertyView
Fund, LLC.
4.12 Form of Secured Non-Negotiable Convertible Promissory Note issued to CPR
(USA) Inc., LibertyView Funds, L.P. and LibertyView Fund, LLC in the
original principal amounts of $112,620.55, $90,096.43 and $22,524.12,
respectively.
II-5
<PAGE>
4.13 Form of Agreement Regarding Indebtedness, dated December 29, 1999, among
the Registrant and CPR (USA) Inc., LibertyView Funds, L.P. and LibertyView
Fund, LLC.
4.14 Form of Security Agreement, dated December 29, 1999, among the Registrant
and CPR (USA) Inc., LibertyView Funds, L.P. and LibertyView Fund, LLC.
4.15 Form of Common Stock Subscription Agreement for December 1999 Private
Placement with Bank Insinger de Beaufort.
4.16 Form of Common Stock Subscription Agreement for December 1999 Private
Placement with Romofin AG.
4.17 Form of Common Stock Subscription Agreement for December 1999 Private
Placement with Arab Commerce Bank.
4.18 Form of 10% Convertible Series B Preferred Stock Subscription Agreement
for December 1999 Private Placement with Clarion Finanz, A.B., Carlo
Civelli, Henry R. Mandell, James D. Pace, Jerold H. Rubenstein, Gilbert N.
Segel, Aton Select Fund, Ltd., and Romofin A.G.
4.19 Form of Agreement Regarding Cancellation of Warrants, dated December 29,
1999, among the Registrant, CPR(USA) Inc., LibertyView Funds, L.P.,
LibertyView Fund, LLC, Clarion Finanz, A.G. and Aton Select Fund, Ltd.
4.20 Certificate of Designation of Series B 10% Redeemable Convertible
Preferred Stock (included in Exhibit 4.18).
5.1 Opinion of Brand Farrar & Buxbaum LLP concerning legality of securities
subject to registration.
23.1** Consent of Farber & Hass, independent certified public accountants.
23.2 Consent of Brand Farrar & Buxbaum LLP (included in Exhibit 5.1)
- ----------
* Previously filed.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
We hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any material
information with respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933 (the "Act"), each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) That, for purposes of determining any liability under the Act, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and where applicable each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be
II-6
<PAGE>
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(4) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(5) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of Spatializer
pursuant to the provisions described in Item 6 or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement on Form S-3 to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Los Angeles,
State of California on February 10, 2000.
SPATIALIZER AUDIO LABORATORIES, INC.
By: /s/ Henry R. Mandell
-------------------------------------
Name: Henry R. Mandell
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Henry R. Mandell Chief Executive Officer, February 10, 2000
- ------------------------ Chief Financial Officer,
Henry R. Mandell Secretary and Director
/s/ Carlo Civelli Director February 10, 2000
- -------------------------
Carlo Civelli
/s/ James D. Pace Director February 10, 2000
- -------------------------
James D. Pace
/s/ Gilbert N. Segel Director February 10, 2000
- -------------------------
Gilbert N. Segel
/s/ Stephen W. Desper Director, Vice Chairman of the February 10, 2000
- ------------------------- Secretary Board
Stephen W. Desper
*By:_____________________
Henry R. Mandell,
Attorney-in-Fact
<PAGE>
POWER OF ATTORNEY
We, the undersigned officers and directors of Spatializer Audio
Laboratories, Inc., hereby severally constitute Henry R. Mandell our true and
lawful attorney with full power to him, to sign for us and in our names in the
capacities indicated below, the Registration Statement on Form S-3 filed
herewith and any and all amendments (including post-effective amendments) to
said Registration Statement, and generally to do all such things in our name and
on behalf in the capacities indicated below to enable Spatializer Audio
Laboratories, Inc. to comply with the provisions of the Securities Act of 1933,
as amended, and all requirements of the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by our said
attorney, to said Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title
- --------- -----
/s/ Henry R. Mandell Chief Executive Officer, Chief
- -------------------------- Financial Officer, Secretary
Henry R. Mandell and Director
/s/ Stephen W. Desper Director, Vice Chairman of the Board
- --------------------------
Stephen W. Desper
/s/ Carlo Civelli Director
- --------------------------
Carlo Civelli
/s/ James D. Pace Director
- --------------------------
James D. Pace
/s/ Gilbert N. Segel Director
- --------------------------
Gilbert N. Segel
II-9
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") 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 ACT AND UNDER APPLICABLE STATE SECURITIES LAWS,
OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF
THE ACT AND UNDER PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
COMMON STOCK SUBSCRIPTION AGREEMENT
Spatializer Audio Laboratories, Inc.
THIS COMMON STOCK SUBSCRIPTION AGREEMENT (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 Common Stock, $0.01 par value per share (the "Common
Stock") of Spatializer Audio Laboratories, Inc. (OTC Bulletin Board symbol
"SPAZ"), located at 20700 Ventura Boulevard, Suite 140, Woodland Hills,
California 91364, a corporation organized under the laws of Delaware, USA
(hereinafter referred to as the "Company"). In addition, the Company will sell
to the Subscribers listed on Schedule A annexed hereto (collectively referred to
as a "Subscriber" or "Purchaser"), a warrant (the "Warrant") to purchase Two (2)
shares of Common Stock for each One Dollar ($1.00) funded hereunder 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 A
annexed hereto). This Subscription and, if accepted by the Company, the offer
and sale of the Common Stock, Warrant and the Common Stock underlying the
Warrant (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 Section 9 herein.
<PAGE>
Subscriber hereby represents and warrants to and agrees with the Company,
and the Company hereby represents and warrants to and agrees with Subscriber, as
follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 Closing. The Company will sell and 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, shares of Common Stock and Warrants to purchase Two (2) shares of Common
Stock for each One Dollar ($1.00) funded hereunder, for an aggregate purchase
price of Four Hundred Fifty Thousand U.S. Dollars (US$450,000.00) (the
"Aggregate Purchase Price") based on the purchase price per share of Common
Stock (the "Purchase Price") defined below. The number of shares of Common Stock
to be issued to Subscriber pursuant to this Agreement shall be determined by
dividing Four Hundred Fifty Thousand U.S. Dollars (US$450,000.00) by the
Purchase Price, provided, however, that the Company shall not issue to
Subscriber a fraction of a share of Common Stock and shall instead round the
number of shares of Common Stock issued up to the next whole share of Common
Stock.
1.2. Purchase Price. The Purchase Price shall be determined on the
Closing Date, and shall equal the average of the closing bid prices of Common
Stock for the ten (10) consecutive trading days ending one (1) trading day prior
to the Closing Date. The "closing bid price" shall mean the last bid price for
Common Stock on the OTC Bulletin Board, as reported by Bloomberg L.P.
1.3 Form of Payment. Subscriber shall pay the Aggregate Purchase
Price and the Company shall deliver the shares of Common Stock and Warrants to
counsel for Subscriber, who shall release such shares and Warrants to Subscriber
after the Aggregate Purchase Price has been paid to the Company.
Section 2. Representations and Warranties of Subscriber. Subscriber
acknowledges, represents, warrants and agrees as follows:
2.1 Organization and Authorization. Subscriber is duly incorporated
or organized and is 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 Subscriber, the performance by Subscriber of its
obligations hereunder and the consummation by Subscriber of the transactions
contemplated hereby have been duly authorized and require no other proceedings
on the part of Subscriber. The undersigned has all right, power and authority to
execute and deliver this Agreement. This Agreement has been duly executed and
delivered by Subscriber and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligation of Subscriber, enforceable against Subscriber in accordance with its
terms.
2.2 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 under, or give rise to
a right of termination, cancellation or acceleration of any material obligation
or to a loss of a material benefit with respect to, any provision of
Subscriber's
2
<PAGE>
charter, bylaws, partnership agreement, operating agreement or other
organizational document and any amendments thereto, or any material mortgage,
deed of trust, indenture, lease or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree statute, law, ordinance,
rule or regulation applicable to Subscriber.
2.3 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 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.
2.4 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.
2.5 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-Ks, and
registration statements, filed by the Company since March 1, 1998 (collectively,
the "Reports"). Except for the Reports and this Agreement, Subscriber
acknowledges that it 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 Subscriber may
reasonably request, including technical information, and other material
information about the Company. Subscriber acknowledges that the Company has
offered its full and unconditional cooperation in making such information
available to Subscriber, and that the Company has recommended that Subscriber
request and review such information prior to making an investment decision.
2.6 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 Subscriber.
2.7 This Agreement and Reports Constitute Sole Representations.
Except for the delivery of the Reports and this Agreement, no oral or written
representations or warranties have been made, or oral or written information
furnished, to Subscriber or its advisors, if any, with respect to the offer and
sale of the Securities by the Company, any agent, employee or affiliate of the
Company, or by any other person. Subscriber acknowledges that in entering into
this transaction Subscriber is not relying upon any information, other than that
contained in the Reports, this Agreement and the results of independent
investigation, if any, by Subscriber.
2.8 Subscriber is an Accredited Investor. 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
3
<PAGE>
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 US$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 US$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 US$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 US$1,000,000;
(vi) Any natural person who had an individual income in excess of
US$200,000 in each of the two (2) most recent years or joint
income with that person's spouse in excess of US$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 US$5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person
as described in Section 230.506(b)(2)(ii) of Regulation D
under the Act;
(viii) Any entity in which all of the equity owners are accredited
investors;
4
<PAGE>
(ix) Any self-directed employee benefit plan with investment
decisions made solely by persons that are accredited investors
within the meaning of Rule 501 of Regulation D promulgated
under the Act; or
(x) Any private investment company with assets under management in
excess of US$________________________.
2.9 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 Subscriber set forth herein in order to determine the
applicability of such exemptions and the suitability of Subscriber to acquire
the Securities.
2.10 Investment Intent. Without limiting its ability to resell the
Securities pursuant to an effective registration statement or pursuant to an
available exemption to registration, 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.
2.11 No Advertisements. 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.
2.12 Registration Rights. The parties have entered into a
Registration Rights Agreement (Exhibit B annexed hereto).
2.13 Restricted Securities. Subscriber hereby confirms that it has
been informed that the Securities will be, when issued, restricted securities
under the Act and may not be resold or transferred unless first registered under
the federal securities laws or unless an exemption from such registration is
available with respect to a resale in the United States. Accordingly, without
agreeing to hold the Securities for any specific period of time, Subscriber
hereby acknowledges that it is prepared to hold the Securities for an indefinite
period. Subscriber is aware that Rule 144 and Regulation S, promulgated under
the Act, permit limited public resales of securities acquired in non-public
offerings, subject to the satisfaction of certain conditions. Subscriber
understands that under Rule 144 the conditions include, among other things: the
availability of certain current public information about the issuer, the resale
occurring not fewer than one (1) year or two (2) years, as applicable, after the
party has purchased and paid for the securities to be sold, the sale being
through
5
<PAGE>
a broker in an unsolicited "broker's transaction" and the amount of securities
being sold during any three-month period not exceeding specified volume
limitations (such restrictions not in effect after two years). Subscriber
acknowledges and understands that the Company may not be satisfying the current
public information requirement of Rule 144 at the time Subscriber wishes to sell
the Securities (Subscriber is however entering into this transaction based upon
the Company's representations and covenants below in Section 5), or other
conditions under Rule 144 which are required of the Company. Subscriber
understands that Regulation S, as currently in effect, allows resales in private
and public transactions in certain circumstances, only in qualified offshore
transactions and only when certain holding periods of at least one (1) year have
been fulfilled. Subscriber understands that he or she may be precluded from
selling any of the Securities under Rule 144 or Regulation S even if the holding
periods have been satisfied either because the other conditions may not have
been fulfilled or because markets for resales do not exist. Prior to its
acquisition of the Securities, Subscriber acquired sufficient information about
the Company to reach an informed and knowledgeable decision to acquire the
Securities. Subscriber has such knowledge and experience in financial and
business matters as to make it capable of utilizing said information to evaluate
the risks of the prospective investment and to make an informed investment
decision.
2.14. Authorized Shares. Subscriber hereby acknowledges that, as of
the Closing Date, the Company may not be able to reserve from its authorized but
unissued shares of Common Stock a sufficient number of shares of Common Stock to
permit the exercise in full of all of the outstanding Warrants. Subscriber
understands that the Company is currently taking steps to increase the number of
authorized shares of Common Stock.
Section 3. Representations and Warranties of the Company. For so long as
any Securities held by 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. A "Material
Adverse Effect" shall mean any effect on the business, operations, properties,
results of operations, prospects, or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates, taken
as a whole, and/or any condition, circumstance, or situation that would prohibit
or otherwise in any material respect interfere with the ability of the Company
to enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement, or Warrants in any material respect. Except as
set forth in Section 2.14, the Company is not in violation of any material terms
of its Certificate of Incorporation (as defined below) or Bylaws (as defined
below).
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
6
<PAGE>
pursuant to Section 12 of the 1934 Act and the Common Stock is listed and trades
on the OTC Bulletin Board. 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 the Closing Date: (i) none of the Company's
filings with the SEC 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 (after giving effect to any filings
on Form 12b-25) filed all requisite forms, reports and exhibits thereto with the
SEC. 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 Subscriber which (i) could reasonably
be expected to have a Material Adverse Effect on the Company. The financial
statements of the Company included in the Company's filings with the SEC as
referenced above comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
3.4 Authorization. The Company has all requisite corporate right,
power and authority to execute and deliver this Agreement (and all Exhibits
annexed hereto) 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 (and all Exhibits annexed hereto) 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 non-assessable 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
7
<PAGE>
violation of, or default under, or give rise to a right of termination,
cancellation or acceleration of any material obligation or to a loss of a
material benefit with respect to, any provision of the Company's Certificate of
Incorporation and any amendments thereto, Bylaws, or any material mortgage, deed
of trust, 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, which would have
a Material Adverse Effect.
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 December 31, 1998, and which individually or in the aggregate, do not or
would not have a Material Adverse Effect on the Company. No event or
circumstance 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. Except as set forth in this Agreement, the Reports
or on Schedule B annexed hereto, 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 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 Bylaws 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 this
Agreement, the Reports or on Schedule B annexed hereto, 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.
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. To the
Company's knowledge, and except as disclosed in the Reports, neither
8
<PAGE>
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 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 a Material Adverse Effect on 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 OTC Bulletin Board or another organized
United States market or quotation system. The Company has not received any
notice, oral or written, regarding continued listing and, as long as the Common
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.
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 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
9
<PAGE>
Subscriber shall provide the Company's transfer agent any and all papers
necessary to complete the transfer under Rule 144, including, but not limited
to, opinions of counsel to such 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 43,033,477 shares were outstanding as of December 14, 1999, and 1,000,000
shares of Preferred Stock, $0.01 par value per share, none of which are
outstanding as of the date hereof. All issued and outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable. No shares of Common Stock or preferred stock of the Company are
entitled to preemptive or similar rights. Except (i) as disclosed in the
Reports, (ii) for the issuance to Subscribers and other investors of Common
Stock and Warrants pursuant to a private placement involving an aggregate
investment of up to One Million Twenty-five Thousand United States Dollars
(US$1,025,000), (iii) for the delivery to Subscribers of promissory notes in an
aggregate principal amount of Two Hundred Twenty-five Thousand, Two Hundred
Forty-one and 10/100 Dollars (US$225,241.10) that are convertible into Common
Stock according to their terms, and (iv) the issuance of Series B 10% Redeemable
Convertible Preferred Stock to certain investors that is convertible into Common
Stock according to the terms of the Company's Certificate of Designation of
Series B 10% Redeemable Convertible Preferred Stock, there are no outstanding
options, warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any subsidiary is or may become bound to
issue additional shares of Common Stock or securities or rights convertible or
exchangeable into shares of Common Stock. Except as disclosed in the Reports, to
the knowledge of the Company, no Person or group of Persons beneficially owns
(as determined pursuant to Rule 13d-3 promulgated under the 1934 Act) or has the
right to acquire by agreement with or by obligation binding upon the Company
beneficial ownership of in excess of five percent of the Common Stock.
3.20 Dilution. The Company is aware and acknowledges that exercise
of the Warrant would cause dilution to existing stockholders and could
significantly increase the outstanding number of shares of Common Stock.
3.21 Corporate Documents. The Company has furnished or made
available to the Subscribers true and correct copies of the Company's
Certificate of Incorporation, as amended and in effect on the date hereof (the
"Certificate of Incorporation"), and the Company's bylaws, as amended and in
effect on the date hereof (the "Bylaws"). The Certificate of Incorporation and
Bylaws are in full force and effect as of the Closing Date, without change or
amendment.
3.22 No Material Adverse Effect. Since January 1, 1999, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the Reports, or as publicly announced.
3.23 Employee Relations. The Company is not involved in any labor
dispute, nor,
10
<PAGE>
to the knowledge of the Company, is any such dispute threatened which could
reasonably be expected to have a Material Adverse Effect. None of the Company's
employees is a member of a union and the Company believes that its relations
with its employees are good.
3.24 Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has no notice to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires, or obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
3.25 Board Approval. The Board of Directors of the Company has
concluded, in its good faith business judgment that the issuances of the
Securities in connection with this Agreement are in the best interests of the
Company.
3.26 Patents and Trademarks. The Company has, or has rights to use,
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses, trade secrets and other intellectual
property rights which are necessary for use in connection with its business or
which the failure to so have would have a Material Adverse Effect (collectively,
the "Intellectual Property Rights"). To the best knowledge of the Company, none
of the Intellectual Property Rights infringe on any rights of any other Person,
and the Company either owns or has duly licensed or otherwise acquired all
necessary rights with respect to the Intellectual Property Rights. The Company
has not received any notice from any third party of any claim of infringement by
the Company of any of the Intellectual Property Rights, and has no reason to
believe there is any basis for any such claim. To the best knowledge of the
Company, there is no existing infringement by another Person on any of the
Intellectual Property Rights.
3.27 Use of Proceeds. The net proceeds are to be used for general
working capital and not for the repayment of any judgment.
3.28 Taxes. Except for the Company's failure to (i) file its federal
and state tax returns for its fiscal year 1998, and (ii) pay any federal or
state taxes owed for its fiscal year 1998, (which taxes are not of a material
amount), all federal, state, city and other tax returns, reports and
declarations required to be filed by or on behalf of the Company have been filed
and such returns are complete and accurate and disclose all taxes (whether based
upon income, operations, purchases, sales, payroll, licenses, compensation,
business, capital, properties or assets or otherwise) required to be paid in the
periods covered thereby.
3.29 No Bankruptcy. The Company is aware of no facts or claims
against it that would, and the Company has no present intention to, liquidate
the assets of the Company and/or seek bankruptcy protection either voluntarily
or involuntarily.
Section 4. Covenants of the Company. For so long as any Securities held by
Subscriber remain outstanding, the Company acknowledges, represents, warrants
and agrees as follows:
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<PAGE>
(i) The Company shall use its best efforts to reserve, prior to
February 15, 2000, a sufficient number of shares of Common
Stock from its authorized but unissued shares of Common Stock
to permit the exercise in full of all of the outstanding
Warrants. The Company is currently organizing a stockholder
meeting to increase the number of authorized shares of Common
Stock of the Company, and has filed with the SEC prior to the
date hereof a preliminary proxy statement in connection with
such stockholder meeting.
(ii) It will maintain the listing of its Common Stock on the OTC
Bulletin Board. The Company shall (a) not later than the fifth
Business Day following the Closing Date prepare and file with
the OTC Bulletin Board an additional shares listing
application covering at least the sum of (i) the shares of
Common Stock issued on the Closing Date, and (ii) the Warrant
Shares issuable upon exercise in full of the Warrants, (b)
take all steps necessary to cause such shares to be approved
for listing on the OTC Bulletin Board (as well as on any other
national securities exchange, market or trading facility on
which the Common Stock is then listed) as soon as possible
thereafter, and (c) provide to the Subscribers evidence of
such listing, and the Company shall maintain the listing of
its Common Stock on such exchange or market for so long as the
Securities is owned by any of the Subscribers. In addition, if
at any time the number of shares of Common Stock issuable on
exercise in full of the Warrant is greater than the number of
shares of Common Stock theretofore listed with the OTC
Bulletin Board (and any such other national securities
exchange, market or trading facility), the Company shall
promptly take such action (including the actions described in
the preceding sentence), if required pursuant to the rules and
regulations of the OTC Bulletin Board, to file an additional
shares listing application with the OTC Bulletin Board (and
any such other national securities exchange, market or trading
facility) covering at least a number of shares equal to the
number of Warrant Shares as would be issuable upon exercise in
full of the Warrants. The Company warrants that it (i) has not
received any notice, oral or written, affecting its continued
listing on the OTC Bulletin Board, and (ii) is in full
compliance with the requirements for continued listing on the
OTC Bulletin Board. The Company will take no action, which
would impact its continued listing or the eligibility of the
Company for such listing. The Company will comply with the
listing and trading requirements of its Common Stock on the
OTC Bulletin Board and will comply in all respects with the
Company's reporting, filing and other obligations under the
bylaws or rules of the OTC Bulletin Board. If the Company
receives notification from Nasdaq or any other controlling
entity stating that the Company is not in compliance with the
listing qualifications of such OTC Bulletin Board, the Company
will immediately thereafter give written notice to the
Subscribers and take all action necessary to bring the Company
into compliance with all applicable listing standards of the
OTC Bulletin Board.
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<PAGE>
(iii) It will permit Subscriber to exercise its right to exercise
the Warrants and shall deliver the shares of Common Stock to
the Subscriber upon exercise of the Warrants as per the terms
of the Warrant.
Section 5. 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) not take any action or file any document (whether or not
permitted by the 1934 Act or the rules thereunder) to
terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act.
(iv) furnish to 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 Subscriber may
reasonably request in availing itself of any rule or
regulation of the SEC allowing Subscriber to sell any such
Securities without registration.
Section 6. Indemnification. The Company and 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
and costs) 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.
Section 7. 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 they are registered or such
registration is not required.
Section 8. Legend. The certificates representing shares of Common Stock,
including shares of Common Stock to be issued upon exercise of the Warrants,
shall bear a legend restricting
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<PAGE>
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 THE ACT WHICH, EXCEPT IN THE CASE OF
AN EXEMPTION PURSUANT TO RULE 144 UNDER THE 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 9. Closing Date. The Closing Date hereunder shall be December 29,
1999, or such earlier date on or before December 31, 1999, 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 10. Conditions to the Company's Obligation to Sell. Subscriber
understands that the Company's obligation to sell the Common 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 immediately available funds in
United States Dollars by wire transfer to an account
designated by the Company prior to the Closing Date as payment
in full for the purchase of the Securities;
(iii) All representations and warranties of Subscriber set forth in
this Agreement shall remain true and correct as of the Closing
Date; and
(iv) The sale and issuance of the Common Stock, Warrants, and the
proposed issuance of the Common Stock underlying the Warrants
shall be legally permitted by all laws and regulations to
which Subscriber and the Company are subject.
Section 11. Conditions to Subscriber's Obligation to Purchase. The Company
understands that Subscriber's obligation to purchase the Common Stock and
Warrants is conditioned upon:
(i) Acceptance by Subscriber of a satisfactory Subscription
Agreement and all duly executed Exhibits hereto for the sale
of the Securities;
14
<PAGE>
(ii) Delivery of the original Common Stock and Warrants;
(iii) All representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Date;
and
(iv) At the Closing Date, the sale and issuance of the Common Stock
and Warrants shall be legally permitted by all laws and
regulations to which the Company and Subscriber are subject.
Section 12. Miscellaneous.
12.1 Governing Law/Jurisdiction. This Agreement will be exclusively
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 exclusive
jurisdiction of the federal court, eastern district 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.
12.2 Confidentiality. The Company and 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 Exhibit annexed hereto) 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, 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.
12.3 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 Subscriber and the
Company
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<PAGE>
with respect to the subject matter hereof. This Agreement may be amended only by
a writing executed by all parties.
12.4 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.
12.5 Entire Agreement. This Agreement and Exhibits hereto constitute
the entire agreement between Subscriber and the Company with respect to the
subject matter hereof. This Agreement may be amended only by a writing executed
by all parties.
12.6 Reliance by Company. Subscriber represents to the Company that
the representations and warranties of 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.
12.7 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.
12.8 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]
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<PAGE>
IN WITNESS WHEREOF, this Agreement was duly executed on and as of December
_______, 1999.
SPATIALIZER AUDIO LABORATORIES, INC.,
By: /s/ Henry R. Mandell
-----------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
CPR (USA) INC.
By: /s/ Steven S. Rogers
-----------------------
Name: Steven S. Rogers
Title: Managing Director
LIBERTYVIEW FUNDS, L.P.
By: /s/ Steven S. Rogers
-----------------------
Name: Steven S. Rogers
Title: Authorized Signatory
LIBERTYVIEW FUND, LLC
By: /s/ Steven S. Rogers
-----------------------
Name: Steven S. Rogers
Title: Authorized Signatory
17
<PAGE>
SCHEDULE A
Subscriber Purchase Number of Shares Number
Name and Address Price of Common Stock of Warrants
- ---------------- ----- --------------- -----------
CPR (USA) Inc. US$225,000 403,769 450,000
c/o LibertyView Capital
Management, Inc.
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
Phone: (201) 200-1199
Fax: (201) 200-1982
LibertyView Funds, L.P. US$180,000 323,015 360,000
c/o LibertyView Capital
Management, Inc.
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
Phone: (201) 200-1199
Fax: (201) 200-1982
LibertyView Fund, LLC US$45,000 80,754 90,000
c/o LibertyView Capital
Management, Inc.
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
Phone: (201) 200-1199
Fax: (201) 200-1982
<PAGE>
SCHEDULE B
1. The Company has failed to pay at the stated maturity on December 31, 1998,
the principal and accrued interest due under that certain Nonnegotiable
Unsecured Promissory Note, issued April 14, 1998, by the Company to
Clarion Finanz, A.G. in the original principal amount of US$650,000.00.
This note is being restructured on or before January 1, 2000, by agreement
between the parties.
2. The Company has failed to pay at the stated maturity on November 30, 1999,
the principal and accrued interest due under that certain Nonnegotiable
Secured Promissory Note, issued December 14, 1998, by the Company to Carlo
Civelli and certain officers and directors of the Company in the original
principal amount of US$95,000.00. This note is being restructured on or
before January 1, 2000, by agreement between the parties.
<PAGE>
EXHIBIT A
Stock Purchase Warrant
<PAGE>
CPR (USA) Inc.
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 450,000 Shares of Common Stock of
Spatializer Audio Laboratories, Inc.
THIS STOCK PURCHASE WARRANT (this "Warrant") certifies that, for value
received, CPR (USA) INC. (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 December 31, 2002 (the "Termination Date") but not
thereafter, to subscribe for and purchase from SPATIALIZER AUDIO LABORATORIES,
INC., a Delaware corporation (the "Company"), Four Hundred Fifty Thousand
(450,000) shares of Common Stock (the "Warrant Shares"). The purchase price of
one share of Common Stock (the "Exercise Price") under this Warrant shall be
Sixty-seven United States Cents (US$0.67). 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 Common
Stock Subscription Agreement (the "Agreement"), dated as of December 29, 1999,
in the amount of Two Hundred Twenty-five Thousand United States Dollars
(US$225,000) between the Company, the Investor, LIBERTYVIEW FUNDS, L.P., and
LIBERTYVIEW FUND, LLC, 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. This Warrant shall be issued in the name of the
Investor. This Warrant is not transferable or assignable other than to an
affiliate of the Investor.
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 Section 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 Investor
at the address of the Investor appearing on the books of the Company) and upon
payment of the Exercise Price of
<PAGE>
CPR (USA) Inc.
the shares thereby purchased; whereupon the Investor 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 Investor
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 Investor 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 Investor.
6. Restrictions on Transfer of Warrant Shares.
(a) Warrant Shares may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except in accordance with applicable
federal and state securities laws.
(b) Unless the Warrant Shares have been registered under the Act, or
are exempt from registration, upon exercise of the Warrant or any portion
thereof and the issuance of any 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 Investor agrees and acknowledges that this Warrant is being purchased for
its 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 Investor 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 Investor 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 Investor 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 stockholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
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CPR (USA) Inc.
8. No Rights as Stockholder until Exercise. This Warrant does not entitle
the Investor to any voting rights or other rights as a stockholder of the
Company prior to the exercise thereof. If, however, at the time of the surrender
of this Warrant and purchase of Warrant Shares the Investor shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to the Investor 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. 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,
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, if mutilated, the Company will make and deliver a new Warrant of like
tenor and dated as of such cancellation, in lieu of this Warrant.
10. 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 Saturday,
Sunday or legal holiday.
11. 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 stockholders consists solely of cash, the Company
shall give the Investor 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 any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities of the Company or another entity, or other property, the
Investor 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) The Investor shall be granted registration rights for the
Warrant Shares pursuant to a Registration Rights Agreement dated of even date
herewith.
12. 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
3
<PAGE>
CPR (USA) Inc.
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 Investor 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.
13. 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.
14. 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
Investor 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.
15. Authorized Shares. The Investor hereby acknowledges that, as of the
Closing Date (as defined in the Agreement), the Company may not be able to
reserve from its authorized but unissued shares of Common Stock a sufficient
number of shares of Common Stock to permit the exercise in full of all of the
outstanding Warrants. The Company shall use its best efforts to reserve, prior
to February 15, 2000, a sufficient number of shares of Common Stock from its
authorized but unissued shares of Common Stock to permit the exercise in full of
all of the outstanding Warrants. The Company covenants that, after such time as
it has increased the number of authorized shares of Common Stock and for the
remainder of 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. Subject to the foregoing, 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 OTC Bulletin Board or any domestic
securities exchange upon which the Common Stock may be listed.
16. 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 parties
4
<PAGE>
CPR (USA) Inc.
hereto. 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 Investor 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 Investor or the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
the Investor 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]
5
<PAGE>
CPR (USA) Inc.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated as of: December 29, 1999
SPATIALIZER AUDIO LABORATORIES, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
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<PAGE>
CPR (USA) Inc.
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.
Dated:___________________ CPR (USA) INC.
By:_________________________________
Name:_______________________________
Title:______________________________
NOTE: Signature must conform in all respects to holder's name as specified on
the face of the attached warrant.
7
<PAGE>
EXHIBIT B
Registration Rights Agreement
<PAGE>
Subscription
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 29th day of December, 1999,
between a Delaware corporation ("CPR"), LIBERTYVIEW FUNDS, L.P., a Cayman
Islands exempted limited partnership ("LP") and successor-in-interest to
LIBERTYVIEW PLUS FUND, a Cayman Islands corporation, and LIBERTYVIEW FUND, LLC,
a Delaware limited liability company ("LLC", and together with CPR and LP,
collectively referred to as the "Holder" or "Holders"), and SPATIALIZER AUDIO
LABORATORIES, INC., a Delaware corporation having its principal place of
business at 20700 Ventura Boulevard, Suite 140, Woodland Hills, California 91364
(the "Company").
WHEREAS, simultaneously with the execution and delivery of this Agreement,
the Holders are purchasing from the Company, pursuant to that certain Common
Stock Subscription Agreement (the "Subscription Agreement"), dated of even date
herewith, an aggregate of Eight Hundred Seven Thousand Five Hundred Thirty-eight
(807,538) shares of Common Stock, and a Warrant to purchase an aggregate of Nine
Hundred Thousand (900,000) shares of Common Stock. The shares of Common Stock of
the Company underlying the Warrants acquired by the Holders 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 shares of Common Stock subscribed for and purchased by the
Holders pursuant to the Subscription Agreement, 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 "Act") and disposed of pursuant thereto, (ii)
registration under the 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 Registrable Securities as
provided herein, the Registrable Securities are "restricted securities" as
defined in Rule 144 promulgated under the Act. The Holder understands that no
disposition or transfer of the Registrable Securities may be made by Holder in
the absence of (i) an opinion of counsel reasonably satisfactory to the Company
<PAGE>
Subscription
that such transfer may be made or (ii) a registration statement under the 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 (the "SEC"), within thirty (30) days after
the date hereof, a registration statement on Form S-3 or if the Company is not
eligible to use such Form S-3, another appropriate form of registration
statement (the "Registration Statement"), at the sole expense of the Company
(except as provided in Section 3(c) hereof), in respect of Holder's Registrable
Securities, so as to permit resale of the Registrable Securities under the Act.
The Company agrees that it will cause the Registration Statement to become
effective by April 15, 2000. The number of securities to be registered shall
include all of Holder's Registrable Securities.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 hereof current under 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 (the
"Effective Date").
(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 Registrable 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 the Holder reasonably designates and
shall furnish indemnification in the manner provided in Section 9 hereof.
However, the Company shall not be required to qualify the Registrable Securities
in any state or jurisdiction which will require an escrow or other restriction
relating to the Company and/or the sellers, or where the Company would be
required to qualify as a dealer in securities under the securities or blue sky
laws of such state or jurisdiction. The Company at its expense will supply the
Holder 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 Registration Statement which is to be
filed if, in the 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
2
<PAGE>
Subscription
transferees obtaining securities which are not restricted securities, as defined
in Rule 144 under the Act.
(e) 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.
(f) 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 April 15, 2000 (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 then value of the Registrable Securities then outstanding 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(s).
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 Registrable Securities are not effected; provided, however,
that the payment of such liquidated damages shall not relieve the Company from
its obligations to register the Registrable 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.
(g) The Company agrees that within three Business Days after being
notified by the SEC that the Registration Statement(s) has been cleared to go
effective, the Company it will declare such Registration Statement effective.
The Company also agrees that it shall respond in writing to any questions and/or
comments from the SEC that relate to the Registration Statement(s) within ten
business days of receipt of such question or comment.
(h) In the event the number of shares of Common Stock included in
the Registration Statement shall be insufficient to cover the number of
Registrable Securities due to the Holder under the terms of the Purchase
Agreement and/or the Notes, the Company agrees that it shall file either a new
Registration Statement including such additional shares or amend the then
existing Registration Statement. The Company agrees that in such event it will
file with the SEC either an amendment to the then existing Registration
Statement or a new Registration Statement within 30 days of when required
hereunder, and use its best efforts to cause either the amendment or such
Registration Statement to become effective within 90 calendar days from when
required. If such amendment or new Registration Statement is not filed and/or
declared effective in a timely manner as set forth herein, the Company shall be
subject to liquidated damages as pursuant to the provisions of Section 3(f).
Section 4. Cooperation with Company. Holder will cooperate with the
Company in all respects in connection with this Agreement, including, timely
supplying all information
3
<PAGE>
Subscription
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 Act, the Company shall (except as otherwise
provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the SEC 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 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 sales
of securities from time to time in connection with a registration statement
pursuant to Rule 415 under the 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 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 the
Holder to consummate the public sale or other disposition in such jurisdiction
of the securities owned by the Holder; provided, however, that: (i) 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, and (ii) the Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 5(c) 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.
(d) list such securities on the OTC Bulletin Board 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 Act, of the
happening of any event of which it has
4
<PAGE>
Subscription
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 be assigned to affiliates, heirs, and successors of the Holders. 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 upon the occurrence of any of
the following:
(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 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 Holder within the meaning of the 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 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 Act or the rules
and regulations
5
<PAGE>
Subscription
promulgated thereunder) a copy of the prospectus contained in the 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 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 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 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 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
6
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Subscription
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.
Section 9. Contribution. In order to provide for just and equitable
contribution under the 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 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 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
7
<PAGE>
Subscription
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 Holder, to its 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) business days after they are mailed in the manner set forth above. If notice
is delivered by facsimile and followed by mail, delivery shall be deemed given
two (2) days after such facsimile is sent.
Section 11. "Piggy-Back" Registration. The Holder shall have the right to
include 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 Holder agrees it
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 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 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,
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) 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.
8
<PAGE>
Subscription
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 shall be exclusively
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 exclusive
jurisdiction of the federal court, eastern district 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. 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]
9
<PAGE>
Subscription
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, on the day and year first above written.
SPATIALIZER AUDIO LABORATORIES, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
WITNESSED:
___________________________________
Margaret G. Graf
CPR (USA) INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
LIBERTYVIEW FUNDS, L.P.
By:_____________________________________
Name:___________________________________
Title:__________________________________
LIBERTYVIEW FUND, LLC
By:_____________________________________
Name:___________________________________
Title:__________________________________
10
CPR (USA) Inc.
SECURED NON-NEGOTIABLE CONVERTIBLE PROMISSORY NOTE
US$112,620.55 Issued: December 29, 1999
New Principal Amount Maturity Date: June 15, 2001
FOR VALUE RECEIVED, SPATIALIZER AUDIO LABORATORIES, INC., a Delaware
corporation ("Maker"), hereby promises to pay under this non-negotiable
convertible promissory note ("Note") to CPR (USA) INC. ("Payee"), the principal
amount of One Hundred Twelve Thousand, Six Hundred Twenty and 55/100 Dollars
(US$112,620.55), which represents the principal of the funds advanced by Payee
and accrued interest thereon from the date of advance through December 29, 1999
("New Principal"), together with interest thereon from December 29, 1999,
according to the following terms and conditions. This instrument is not
negotiable by Payee. All references herein to currency herein shall refer to
United States Dollars. This Note has been secured by the Collateral of Maker
pursuant to the terms of the security agreement (the "Security Agreement"), of
even date hereof, entered into between Maker and Payee.
1. Interest. Interest shall accrue from the date hereof on the New
Principal outstanding from time to time under this Note, at a rate per annum
equal to ten percent (10%). Interest hereunder shall be computed for the actual
number of days elapsed on the basis of a three hundred sixty (360) day year.
Cash payments of New Principal and interest are payable in lawful money of the
United States of America in same day funds.
2. Payment Schedule.
(a) Unless the outstanding New Principal and the interest accrued
thereon shall have sooner been discharged through a conversion into the common
stock, par value $0.01 per share, of Maker ("Common Stock"), or a successor to
Maker as a result of a restructuring or reorganization involving Maker (any such
successor and Maker are collectively referred to as "Maker"), as the case may
be, or through the exercise of a Conversion Option (as defined in Section 3
below), the unpaid New Principal plus interest accrued thereon shall be due and
payable to Payee on the earlier of June 15, 2001 (the "Maturity Date") or upon
the occurrence of an Event of Default as set forth below. In the event that the
outstanding New Principal shall be converted into Common Stock pursuant to
Section 3, then accrued interest due on the outstanding New Principal also shall
be paid in shares of Common Stock pursuant to Section 3 and the number of shares
issued will be adjusted to include interest accrued as of the Conversion Date
(as defined in Section 3(c) below).
(b) Provided no Event of Default (as set forth below) has occurred
and/or is occurring, the outstanding New Principal and interest accrued thereon
may be prepaid in cash by Maker, in whole or in part, at any time prior to the
Maturity Date (except that portion of the New Principal outstanding hereunder
and interest accrued thereon that is the subject of a Conversion
<PAGE>
CPR (USA) Inc.
Notice (as defined in Section 3(c) below) which has previously been sent to
Maker), without premium or penalty of any kind by giving written notice to Payee
(the "Prepayment Notice"). In the event of prepayment pursuant to Section 2(b),
Maker shall not be required to pay unaccrued interest. All payments hereunder
shall be applied first to accrued interest and the balance of such payments
shall be applied to the New Principal amount payable hereunder. Maker shall wire
transfer the appropriate amount of funds to Payee to complete the prepayment,
which shall be no later than the third business day after the Prepayment Notice
was received by Payee (the "Prepayment Date"). Upon facsimile receipt of the
Prepayment Notice, Payee's right to convert New Principal outstanding hereunder
and interest accrued thereon into Common Stock shall terminate and be canceled
immediately (the right to convert shall be immediately reinstated if Maker fails
to comply with the prepayment provisions). In the event that Maker does not wire
transfer the appropriate amount of funds to Payee, on or before the Prepayment
Date, or shall otherwise fail to comply with the prepayment provisions set forth
herein, then it shall have waived its right to prepay any portion of this Note
at any time thereafter. The Prepayment Notice shall set forth (i) the Prepayment
Date, (ii) the Prepayment Price, as defined below, and (iii) the New Principal
being prepaid. The Prepayment Notice shall be irrevocable, and it shall be
delivered by facsimile or mailed, postage prepaid, to Payee at its address as
the same shall appear on the books of Maker. The "Prepayment Price" shall be
equal to the portion or all of the New Principal being prepaid plus all accrued
and unpaid interest due thereon. At the close of business on the Prepayment
Date, subject to Payee's receipt of the applicable Prepayment Price, the portion
of this Note being prepaid shall be automatically canceled and converted into a
right to receive the Prepayment Price. Immediately following the Prepayment Date
(assuming full compliance by Maker with the prepayment provisions set forth
herein), Payee shall surrender its original Note at the office of Maker, and
Maker shall issue to Payee a new Note certificate for the principal amount that
remains outstanding, if any. Notwithstanding the foregoing, Maker shall not be
entitled to send a Prepayment Notice unless it has: (i) the full amount of the
applicable Prepayment Price in cash, available in a demand or other immediately
available account in a bank or similar financial institution; (ii) immediately
available credit facilities, in the full amount of the Prepayment Price with a
bank or similar financial institution; or (iii) a combination of the items set
forth in (i) and (ii) above, aggregating the full amount of the Prepayment
Price.
3. Conversion.
(a) Provided no Event of Default (as set forth below) has occurred
and/or is occurring, all of the shares of Common Stock underlying the Note are
then included in an effective Registration Statement, and the closing bid price
of the Common Stock as reported by Bloomberg LP as of the Conversion Date is
greater than the Conversion Price (as defined below), Maker shall have the
option (the "Maker Conversion Option") to convert, at its sole discretion at any
time prior to the Maturity Date, all New Principal outstanding hereunder and all
accrued interest thereon, into fully paid and nonassessable shares of Common
Stock based on the conversion price per share defined below (the "Conversion
Price"). The number of shares of Common Stock to be issued to Payee upon
conversion shall be determined by dividing (i) all New Principal outstanding
hereunder and accrued interest thereon as of the Conversion Date, by (ii) the
Conversion Price, provided, however, that Maker shall not issue to Payee a
fraction of a share of Common Stock and shall instead round the number of shares
of Common Stock issued up to the next whole share of Common Stock.
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CPR (USA) Inc.
In the event that Maker does not forward the shares of Common Stock to Payee
pursuant to the conversion delivery provisions set forth below, then it shall
have waived its right to force conversion of any portion of this Note at any
time thereafter. Maker's Conversion Notice shall set forth the New Principal
being prepaid. Maker's Conversion Notice shall be irrevocable, and it shall be
delivered by facsimile or mailed, postage prepaid to Payee at its address as the
same shall appear on the books of Maker.
(b) Payee shall have the option (the "Payee Conversion Option"; the
Payee Conversion Option and the Maker Conversion Option are sometimes
collectively referred to herein as "Conversion Options") to convert, at any time
on or after the issuance date of this Note, all or any portion of the New
Principal outstanding hereunder and all accrued interest thereon, into fully
paid and nonassessable shares of Common Stock based on the Conversion Price. The
number of shares of Common Stock to be issued upon conversion shall be
determined by dividing (i) the portion of New Principal outstanding hereunder
and accrued interest thereon as of the Conversion Date, by (ii) the Conversion
Price, provided, however, that Maker shall not issue to Payee a fraction of a
share of Common Stock and shall instead round the number of shares of Common
Stock issued up to the next whole share of Common Stock.
(c) Maker shall exercise the Maker Conversion Option by delivering
written notice thereof (a "Conversion Notice") to Payee, and Payee shall
exercise the Payee Conversion Option by delivering written notice thereof (also
a "Conversion Notice") to Maker. Any Conversion Notice shall be sent via
facsimile to the telecopier numbers and addresses listed below. The date on
which Maker or Payee shall send a Conversion Notice shall be the "Notice Date".
Maker shall issue and deliver to Payee the applicable number of shares of Common
Stock to Payee no later than three business days after the Notice Date. The date
on which Maker issues shares of Common Stock to Payee pursuant to an exercised
Conversion Option shall be the "Conversion Date".
(d) After all of the New Principal outstanding and accrued interest
thereon have been converted into shares of Common Stock, all New Principal and
interest payable to Payee under this Note shall be deemed paid in full, and all
obligations hereunder shall be completely satisfied. No later than ten (10)
business days after the last Conversion Date, provided that Maker has fully
complied with the conversion provisions set forth herein, Payee shall surrender
this Note to Maker for cancellation.
(e) The "Conversion Price" shall be determined on the Conversion
Date, and shall equal the average of the closing bid prices of Common Stock for
the ten (10) consecutive trading days ending on the trading day immediately
preceding the Notice Date, provided, however, that any day on which the
aggregate of the purchases and sales or either of them of Common Stock by Payee
and its affiliates account for greater than twenty-five percent (25%) of that
day's total trading volume (as reported by Bloomberg LP) shall not be counted in
calculating the Closing Price and the parties shall use the immediately
preceding trading day(s) on which this volume limitation has not been exceeded
to determine the ten day period over which the Conversion Price shall be
calculated. Notwithstanding the foregoing, the Conversion Price shall under no
circumstances: (i) be lower than the average of the closing bid prices of Common
Stock for the ten (10) consecutive
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<PAGE>
CPR (USA) Inc.
trading days ending one (1) trading day prior to the date hereof (the "Floor
Price"); or (ii) be higher than 200% of the Floor Price (the "Ceiling Price").
The "closing bid price" shall mean the last bid price for Common Stock on the
OTC Bulletin Board, as reported by Bloomberg LP.
(f) Provided that Maker is in full compliance with the terms of this
Note, Payee has agreed not to engage in any short sales of any shares of capital
stock of Maker for so long as any New Principal and accrued interest thereon
shall remain outstanding and payable under this Note.
(g) In the event of any stock split, stock dividend,
reclassification or similar event affecting the Common Stock (each an
"Adjustment Transaction"), then both the Floor Price and the Ceiling Price shall
be adjusted by multiplying them by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
Adjustment Transaction, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such Adjustment
Transaction.
(h) In the event that Maker issues shares of Common Stock pursuant
to an exercised Conversion Option, the shares of Common Stock shall be issued as
restricted securities under federal securities laws and there shall be an
appropriate legend restricting the transfer thereof (if so required under
applicable federal securities laws).
(i) This Note, and Payee's rights hereunder, are not transferable or
assignable other than to an affiliate of Payee. The foregoing limitation shall
not apply in the event that Maker is not in full compliance with the terms of
this Note and the Transaction Documents (as defined in Section 7(a) below).
4. Subordination. So long as any portion of this Note remains outstanding,
Maker agrees that neither Maker nor any direct or indirect subsidiary of Maker
shall create, incur, assume, guarantee, secure or in any manner become liable in
respect of any indebtedness, unless junior to this Note in all respects, except
for indebtedness of Maker outstanding as of the issuance date of this Note.
Maker agrees that neither Maker nor any direct or indirect subsidiary of Maker
will permit any liens, claims, or encumbrances to exist against Maker or any
direct or indirect subsidiary of Maker or any of their assets, except for (i)
indebtedness of Maker outstanding as of the issuance date of this Note, and (ii)
Permitted Indebtedness. "Permitted Indebtedness" means indebtedness secured by
the assets of Maker or any of its subsidiaries other than the Collateral (as
defined in the Security Agreement) so long as such indebtedness does not exceed
the value of the assets securing such indebtedness. Maker may, at its sole
discretion and without any required consent of Payee, incur Permitted
Indebtedness.
5. Interest Withholding. If required by law, Maker shall withhold U.S. tax
under Sections 1441 or 1442, as the case may be of the Internal Revenue Code of
1986, as amended (the "Code"), from all interest payments at the rate of thirty
percent (30%) unless Payee provides Maker three (3) duly executed copies of Form
1001, prior to the Maturity Date or earlier Conversion Date, in which case Maker
shall withhold tax at the reduced rate specified in the Form 1001. Maker shall
provide Payee, on a timely basis, with a copy of Form 1042 evidencing the
withholding of the tax
4
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CPR (USA) Inc.
under Sections 1441 or 1442, of the code, as the case may be.
6. In the event that Payee shall elect to convert any portion of this Note
as provided herein, Maker cannot refuse conversion based on any claim that Payee
or anyone associated or affiliated with Payee has been engaged in any violation
of law, unless an injunction from a court, restraining and/or enjoining
conversion of all or part of said portion of this Note shall have been issued
and Maker posts a surety bond for the benefit of Payee in the amount of 130% of
the New Principal sought to be converted plus outstanding interest through such
date, which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to Payee in the event it obtains a favorable judgment
(but shall not in any way limit any additional damages Payee may be entitled
to).
7. The following shall constitute an "Event of Default" :
(a) Any of the representations, covenants, or warranties made by
Maker herein, or in the Agreement Regarding Indebtedness, Registration Rights
Agreement, and/or Security Agreement of even date herewith (collectively
referred to as the "Transaction Documents") shall have been incorrect when made
in any material respect or shall thereafter be determined to be incorrect; or
(b) Maker shall breach, fail to perform, or fail to observe in any
material respect any material covenant, term, provision, condition, agreement or
obligation of Maker under this Note and/or the Transaction Documents; or
(c) A trustee, liquidator or receiver shall be appointed for Maker
or for a substantial part of its property or business without its consent and
shall not be discharged within thirty (30) calendar days after such appointment;
or
(d) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of Maker and
shall not be dismissed within thirty (30) calendar days thereafter; or
(e) Bankruptcy reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against Maker and, if instituted
against Maker, Maker shall by any action or answer approve of, consent to or
acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding or such proceedings
shall not be dismissed within thirty (30) calendar days thereafter; or
(f) The Common Stock is suspended and/or delisted from trading on
the OTC Bulletin Board, or Maker has received notice of final action concerning
delisting from the OTC Bulletin Board; or
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<PAGE>
CPR (USA) Inc.
(g) The effectiveness of the Registration Statement including the
shares of Common Stock underlying this Note has been suspended for a period of
five (5) business days; or
(h) Maker shall fail to pay interest and/or principal within two
business days of when due hereunder; or
(i) Maker shall have failed to deliver shares of Common Stock
issuable upon conversion of this Note pursuant to Section 3(c) above; or
(j) The occurrence of an Event of Default as that term is defined in
the Security Agreement; or
(k) Maker, or any other party, shall, at any time after the issuance
date of this Note, (1) in any way adversely alter Payee's security interest that
it has been granted in the Collateral pursuant to the Security Agreement, or (2)
sell the Collateral in violation of the Security Agreement.
8. Remedies. Upon the occurrence of an Event of Default, and in each and
every such case, unless such Event of Default shall have been waived in writing
by Payee (which waiver shall not be deemed to be a waiver of any subsequent
default) or cured as provided herein, at the option of Payee, and in Payee's
sole discretion, Payee may consider this Note (and all interest through such
date) immediately due and payable in cash (and enforce its rights under the
Security Agreement), without presentment, demand protest or notice of any kind,
all of which are hereby expressly waived, anything herein or in any note or
other instruments contained to the contrary notwithstanding, and Payee may
immediately, and without expiration of any period of grace, enforce any and all
of Payee's rights and remedies provided herein or any other rights or remedies
afforded by law (including but not limited to consequential damages if any). It
is agreed that in the event of such action, Payee shall be entitled to receive
all reasonable fees, costs and expenses incurred, including without limitation
such reasonable fees and expenses of attorneys. Nothing contained herein shall
limit the rights of Payee to collect liquidated damages as provided herein or in
any other agreement entered into between Maker and Payee, or any other damages
that Payee may otherwise be entitled to. Payee may declare all outstanding New
Principal, and all interest accrued thereon, immediately due and payable. The
rights and remedies available to Payee under this Note shall be cumulative and
in addition to any other rights or remedies that Payee may be entitled to pursue
at law or in equity. The exercise of one or more of such rights or remedies
shall not impair Payee's right to exercise any other right or remedy at law or
in equity. Notwithstanding the occurrence of a Default and/or Payee's exercise
of any of its rights or remedies hereunder, until such time as Payee receives
payment in full of all amounts due hereunder or shares of Common Stock pursuant
to an exercised Conversion Option, interest will continue to accrue on the
outstanding New Principal at the interest rate charged hereunder.
9. Costs. Maker shall pay, on demand, any and all costs and expenses,
including reasonable attorneys' fees, incurred by Payee in connection with a
Default and the collection of any portion of the outstanding New Principal and
interest accrued thereon.
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CPR (USA) Inc.
10. No Offset. The amounts due under this Note are not subject to
reduction or offset for any claims of Maker or its successors or assigns against
Payee or any third party.
11. No Continuing Waiver. The waiver of a Default shall not constitute a
continuing waiver or a waiver of any subsequent Default. Maker hereby waives
presentment, demand, dishonor and notice of nonpayment.
12. Notice. Except as provided above, all notices, requests, consents and
other communications which may be desired or required hereunder shall be in
writing, and shall be deemed to have been duly given on the date of delivery if
delivered in person to the party named below, or three (3) business days after
mailing if deposited in the United States mail, first class, registered or
certified mail, return receipt requested, with postage prepaid, addressed as
follows:
If to Maker: Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 140
Woodland Hills, CA 91364
Telephone: (818) 227-3370
Telecopier: (818) 227-9751
Attention: Henry R. Mandell
If to Payee: c/o LibertyView Capital Management, Inc.
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
Telephone: (201) 200-1199
Telecopier: (201) 200-1982
Attention: Alan Mark
or to such other persons or addresses as either party may from time to time
designate by notice given to the other party in accordance with this Section 11.
All payments made by Maker hereunder shall be made to Payee at the address set
forth above or as otherwise designated by Payee in accordance with this Section
12.
13. Severability. If any provision of this Note or the application thereof
to any person or circumstance shall be held invalid or unenforceable to any
extent, the remainder of this Note and the application of any such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
14. Supercedes Prior Indebtedness. This Note, and the indebtedness
evidenced hereby, completely replaces, supercedes and extinguishes all
outstanding principal and accrued interest existing on or prior to the date
hereof (the "Prior Indebtedness") owed by Maker to Payee and/or to any person or
entity related to or affiliated with any Payee (each a "Related Party"). This
Note and that certain Agreement Regarding Indebtedness, dated of even date
herewith, by and among Maker and Payee, together constitute the entire
understanding of Maker, Payee and all Related Parties with respect to any
indebtedness of Maker to Payee or to any other Related Party, and completely
replace
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CPR (USA) Inc.
and supercede and all prior notes, letters, communications, understandings,
certificates, instruments, documents, and agreements, both oral and written,
that evidence or relate to any portion of the Prior Indebtedness, including
without limitation: (i) that certain letter agreement by and among Maker and
Payee, dated April 14, 1999; (ii) that certain letter agreement by and among
Maker and Payee, dated April 16, 1999; and (iii) that certain Nonnegotiable
Secured Promissory Note, dated on or about March 1999, made by Maker in favor of
Payee.
15. Governing Law. This Note shall be exclusively 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 exclusive jurisdiction of the federal
court, eastern district 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.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, Maker has caused this Note to be executed and
delivered on the date first above written.
SPATIALIZER AUDIO LABORATORIES, INC.,
a Delaware corporation
By: /s/ Henry R. Mandell
----------------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
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LibertyView Funds, L.P.
SECURED NON-NEGOTIABLE CONVERTIBLE PROMISSORY NOTE
US$90,096.43 Issued: December 29, 1999
New Principal Amount Maturity Date: June 15, 2001
FOR VALUE RECEIVED, SPATIALIZER AUDIO LABORATORIES, INC., a Delaware
corporation ("Maker"), hereby promises to pay under this non-negotiable
convertible promissory note ("Note") to LIBERTYVIEW FUNDS, L.P. ("Payee"),
successor-in-interest to LIBERTYVIEW PLUS FUND, the principal amount of Ninety
Thousand, Ninety-six and 43/100 Dollars (US$90,096.43), which represents the
principal of the funds advanced by Payee and accrued interest thereon from the
date of advance through December 29, 1999 ("New Principal"), together with
interest thereon from December 29, 1999, according to the following terms and
conditions. This instrument is not negotiable by Payee. All references herein to
currency herein shall refer to United States Dollars. This Note has been secured
by the Collateral of Maker pursuant to the terms of the security agreement (the
"Security Agreement"), of even date hereof, entered into between Maker and
Payee.
1. Interest. Interest shall accrue from the date hereof on the New
Principal outstanding from time to time under this Note, at a rate per annum
equal to ten percent (10%). Interest hereunder shall be computed for the actual
number of days elapsed on the basis of a three hundred sixty (360) day year.
Cash payments of New Principal and interest are payable in lawful money of the
United States of America in same day funds.
2. Payment Schedule.
(a) Unless the outstanding New Principal and the interest accrued
thereon shall have sooner been discharged through a conversion into the common
stock, par value $0.01 per share, of Maker ("Common Stock"), or a successor to
Maker as a result of a restructuring or reorganization involving Maker (any such
successor and Maker are collectively referred to as "Maker"), as the case may
be, or through the exercise of a Conversion Option (as defined in Section 3
below), the unpaid New Principal plus interest accrued thereon shall be due and
payable to Payee on the earlier of June 15, 2001 (the "Maturity Date") or upon
the occurrence of an Event of Default as set forth below. In the event that the
outstanding New Principal shall be converted into Common Stock pursuant to
Section 3, then accrued interest due on the outstanding New Principal also shall
be paid in shares of Common Stock pursuant to Section 3 and the number of shares
issued will be adjusted to include interest accrued as of the Conversion Date
(as defined in Section 3(c) below).
(b) Provided no Event of Default (as set forth below) has occurred
and/or is occurring, the outstanding New Principal and interest accrued thereon
may be prepaid in cash by Maker, in whole or in part, at any time prior to the
Maturity Date (except that portion of the New
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LibertyView Funds, L.P.
Principal outstanding hereunder and interest accrued thereon that is the subject
of a Conversion Notice (as defined in Section 3(c) below) which has previously
been sent to Maker), without premium or penalty of any kind by giving written
notice to Payee (the "Prepayment Notice"). In the event of prepayment pursuant
to Section 2(b), Maker shall not be required to pay unaccrued interest. All
payments hereunder shall be applied first to accrued interest and the balance of
such payments shall be applied to the New Principal amount payable hereunder.
Maker shall wire transfer the appropriate amount of funds to Payee to complete
the prepayment, which shall be no later than the third business day after the
Prepayment Notice was received by Payee (the "Prepayment Date"). Upon facsimile
receipt of the Prepayment Notice, Payee's right to convert New Principal
outstanding hereunder and interest accrued thereon into Common Stock shall
terminate and be canceled immediately (the right to convert shall be immediately
reinstated if Maker fails to comply with the prepayment provisions). In the
event that Maker does not wire transfer the appropriate amount of funds to
Payee, on or before the Prepayment Date, or shall otherwise fail to comply with
the prepayment provisions set forth herein, then it shall have waived its right
to prepay any portion of this Note at any time thereafter. The Prepayment Notice
shall set forth (i) the Prepayment Date, (ii) the Prepayment Price, as defined
below, and (iii) the New Principal being prepaid. The Prepayment Notice shall be
irrevocable, and it shall be delivered by facsimile or mailed, postage prepaid,
to Payee at its address as the same shall appear on the books of Maker. The
"Prepayment Price" shall be equal to the portion or all of the New Principal
being prepaid plus all accrued and unpaid interest due thereon. At the close of
business on the Prepayment Date, subject to Payee's receipt of the applicable
Prepayment Price, the portion of this Note being prepaid shall be automatically
canceled and converted into a right to receive the Prepayment Price. Immediately
following the Prepayment Date (assuming full compliance by Maker with the
prepayment provisions set forth herein), Payee shall surrender its original Note
at the office of Maker, and Maker shall issue to Payee a new Note certificate
for the principal amount that remains outstanding, if any. Notwithstanding the
foregoing, Maker shall not be entitled to send a Prepayment Notice unless it
has: (i) the full amount of the applicable Prepayment Price in cash, available
in a demand or other immediately available account in a bank or similar
financial institution; (ii) immediately available credit facilities, in the full
amount of the Prepayment Price with a bank or similar financial institution; or
(iii) a combination of the items set forth in (i) and (ii) above, aggregating
the full amount of the Prepayment Price.
3. Conversion.
(a) Provided no Event of Default (as set forth below) has occurred
and/or is occurring, all of the shares of Common Stock underlying the Note are
then included in an effective Registration Statement, and the closing bid price
of the Common Stock as reported by Bloomberg LP as of the Conversion Date is
greater than the Conversion Price (as defined below), Maker shall have the
option (the "Maker Conversion Option") to convert, at its sole discretion at any
time prior to the Maturity Date, all New Principal outstanding hereunder and all
accrued interest thereon, into fully paid and nonassessable shares of Common
Stock based on the conversion price per share defined below (the "Conversion
Price"). The number of shares of Common Stock to be issued to Payee upon
conversion shall be determined by dividing (i) all New Principal outstanding
hereunder and accrued interest thereon as of the Conversion Date, by (ii) the
Conversion Price, provided, however, that Maker shall not issue to Payee a
fraction of a share of Common Stock and shall instead
2
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LibertyView Funds, L.P.
round the number of shares of Common Stock issued up to the next whole share of
Common Stock. In the event that Maker does not forward the shares of Common
Stock to Payee pursuant to the conversion delivery provisions set forth below,
then it shall have waived its right to force conversion of any portion of this
Note at any time thereafter. Maker's Conversion Notice shall set forth the New
Principal being prepaid. Maker's Conversion Notice shall be irrevocable, and it
shall be delivered by facsimile or mailed, postage prepaid to Payee at its
address as the same shall appear on the books of Maker.
(b) Payee shall have the option (the "Payee Conversion Option"; the
Payee Conversion Option and the Maker Conversion Option are sometimes
collectively referred to herein as "Conversion Options") to convert, at any time
on or after the issuance date of this Note, all or any portion of the New
Principal outstanding hereunder and all accrued interest thereon, into fully
paid and nonassessable shares of Common Stock based on the Conversion Price. The
number of shares of Common Stock to be issued upon conversion shall be
determined by dividing (i) the portion of New Principal outstanding hereunder
and accrued interest thereon as of the Conversion Date, by (ii) the Conversion
Price, provided, however, that Maker shall not issue to Payee a fraction of a
share of Common Stock and shall instead round the number of shares of Common
Stock issued up to the next whole share of Common Stock.
(c) Maker shall exercise the Maker Conversion Option by delivering
written notice thereof (a "Conversion Notice") to Payee, and Payee shall
exercise the Payee Conversion Option by delivering written notice thereof (also
a "Conversion Notice") to Maker. Any Conversion Notice shall be sent via
facsimile to the telecopier numbers and addresses listed below. The date on
which Maker or Payee shall send a Conversion Notice shall be the "Notice Date".
Maker shall issue and deliver to Payee the applicable number of shares of Common
Stock to Payee no later than three business days after the Notice Date. The date
on which Maker issues shares of Common Stock to Payee pursuant to an exercised
Conversion Option shall be the "Conversion Date".
(d) After all of the New Principal outstanding and accrued interest
thereon have been converted into shares of Common Stock, all New Principal and
interest payable to Payee under this Note shall be deemed paid in full, and all
obligations hereunder shall be completely satisfied. No later than ten (10)
business days after the last Conversion Date, provided that Maker has fully
complied with the conversion provisions set forth herein, Payee shall surrender
this Note to Maker for cancellation.
(e) The "Conversion Price" shall be determined on the Conversion
Date, and shall equal the average of the closing bid prices of Common Stock for
the ten (10) consecutive trading days ending on the trading day immediately
preceding the Notice Date, provided, however, that any day on which the
aggregate of the purchases and sales or either of them of Common Stock by Payee
and its affiliates account for greater than twenty-five percent (25%) of that
day's total trading volume (as reported by Bloomberg LP) shall not be counted in
calculating the Closing Price and the parties shall use the immediately
preceding trading day(s) on which this volume limitation has not been exceeded
to determine the ten day period over which the Conversion Price shall be
calculated. Notwithstanding the foregoing, the Conversion Price shall under no
circumstances: (i)
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LibertyView Funds, L.P.
be lower than the average of the closing bid prices of Common Stock for the ten
(10) consecutive trading days ending one (1) trading day prior to the date
hereof (the "Floor Price"); or (ii) be higher than 200% of the Floor Price (the
"Ceiling Price"). The "closing bid price" shall mean the last bid price for
Common Stock on the OTC Bulletin Board, as reported by Bloomberg LP.
(f) Provided that Maker is in full compliance with the terms of this
Note, Payee has agreed not to engage in any short sales of any shares of capital
stock of Maker for so long as any New Principal and accrued interest thereon
shall remain outstanding and payable under this Note.
(g) In the event of any stock split, stock dividend,
reclassification or similar event affecting the Common Stock (each an
"Adjustment Transaction"), then both the Floor Price and the Ceiling Price shall
be adjusted by multiplying them by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
Adjustment Transaction, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such Adjustment
Transaction.
(h) In the event that Maker issues shares of Common Stock pursuant
to an exercised Conversion Option, the shares of Common Stock shall be issued as
restricted securities under federal securities laws and there shall be an
appropriate legend restricting the transfer thereof (if so required under
applicable federal securities laws).
(i) This Note, and Payee's rights hereunder, are not transferable or
assignable other than to an affiliate of Payee. The foregoing limitation shall
not apply in the event that Maker is not in full compliance with the terms of
this Note and the Transaction Documents (as defined in Section 7(a) below).
4. Subordination. So long as any portion of this Note remains outstanding,
Maker agrees that neither Maker nor any direct or indirect subsidiary of Maker
shall create, incur, assume, guarantee, secure or in any manner become liable in
respect of any indebtedness, unless junior to this Note in all respects, except
for indebtedness of Maker outstanding as of the issuance date of this Note.
Maker agrees that neither Maker nor any direct or indirect subsidiary of Maker
will permit any liens, claims, or encumbrances to exist against Maker or any
direct or indirect subsidiary of Maker or any of their assets, except for (i)
indebtedness of Maker outstanding as of the issuance date of this Note, and (ii)
Permitted Indebtedness. "Permitted Indebtedness" means indebtedness secured by
the assets of Maker or any of its subsidiaries other than the Collateral (as
defined in the Security Agreement) so long as such indebtedness does not exceed
the value of the assets securing such indebtedness. Maker may, at its sole
discretion and without any required consent of Payee, incur Permitted
Indebtedness.
5. Interest Withholding. If required by law, Maker shall withhold U.S. tax
under Sections 1441 or 1442, as the case may be of the Internal Revenue Code of
1986, as amended (the "Code"), from all interest payments at the rate of thirty
percent (30%) unless Payee provides Maker three (3) duly executed copies of Form
1001, prior to the Maturity Date or earlier Conversion Date, in which case Maker
shall withhold tax at the reduced rate specified in the Form 1001. Maker shall
4
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LibertyView Funds, L.P.
provide Payee, on a timely basis, with a copy of Form 1042 evidencing the
withholding of the tax under Sections 1441 or 1442, of the code, as the case may
be.
6. In the event that Payee shall elect to convert any portion of this Note
as provided herein, Maker cannot refuse conversion based on any claim that Payee
or anyone associated or affiliated with Payee has been engaged in any violation
of law, unless an injunction from a court, restraining and/or enjoining
conversion of all or part of said portion of this Note shall have been issued
and Maker posts a surety bond for the benefit of Payee in the amount of 130% of
the New Principal sought to be converted plus outstanding interest through such
date, which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to Payee in the event it obtains a favorable judgment
(but shall not in any way limit any additional damages Payee may be entitled
to).
7. The following shall constitute an "Event of Default" :
(a) Any of the representations, covenants, or warranties made by
Maker herein, or in the Agreement Regarding Indebtedness, Registration Rights
Agreement, and/or Security Agreement of even date herewith (collectively
referred to as the "Transaction Documents") shall have been incorrect when made
in any material respect or shall thereafter be determined to be incorrect; or
(b) Maker shall breach, fail to perform, or fail to observe in any
material respect any material covenant, term, provision, condition, agreement or
obligation of Maker under this Note and/or the Transaction Documents; or
(c) A trustee, liquidator or receiver shall be appointed for Maker
or for a substantial part of its property or business without its consent and
shall not be discharged within thirty (30) calendar days after such appointment;
or
(d) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of Maker and
shall not be dismissed within thirty (30) calendar days thereafter; or
(e) Bankruptcy reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against Maker and, if instituted
against Maker, Maker shall by any action or answer approve of, consent to or
acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding or such proceedings
shall not be dismissed within thirty (30) calendar days thereafter; or
(f) The Common Stock is suspended and/or delisted from trading on
the OTC Bulletin Board, or Maker has received notice of final action concerning
delisting from the OTC Bulletin Board; or
5
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LibertyView Funds, L.P.
(g) The effectiveness of the Registration Statement including the
shares of Common Stock underlying this Note has been suspended for a period of
five (5) business days; or
(h) Maker shall fail to pay interest and/or principal within two
business days of when due hereunder; or
(i) Maker shall have failed to deliver shares of Common Stock
issuable upon conversion of this Note pursuant to Section 3(c) above; or
(j) The occurrence of an Event of Default as that term is defined in
the Security Agreement; or
(k) Maker, or any other party, shall, at any time after the issuance
date of this Note, (1) in any way adversely alter Payee's security interest that
it has been granted in the Collateral pursuant to the Security Agreement, or (2)
sell the Collateral in violation of the Security Agreement.
8. Remedies. Upon the occurrence of an Event of Default, and in each and
every such case, unless such Event of Default shall have been waived in writing
by Payee (which waiver shall not be deemed to be a waiver of any subsequent
default) or cured as provided herein, at the option of Payee, and in Payee's
sole discretion, Payee may consider this Note (and all interest through such
date) immediately due and payable in cash (and enforce its rights under the
Security Agreement), without presentment, demand protest or notice of any kind,
all of which are hereby expressly waived, anything herein or in any note or
other instruments contained to the contrary notwithstanding, and Payee may
immediately, and without expiration of any period of grace, enforce any and all
of Payee's rights and remedies provided herein or any other rights or remedies
afforded by law (including but not limited to consequential damages if any). It
is agreed that in the event of such action, Payee shall be entitled to receive
all reasonable fees, costs and expenses incurred, including without limitation
such reasonable fees and expenses of attorneys. Nothing contained herein shall
limit the rights of Payee to collect liquidated damages as provided herein or in
any other agreement entered into between Maker and Payee, or any other damages
that Payee may otherwise be entitled to. Payee may declare all outstanding New
Principal, and all interest accrued thereon, immediately due and payable. The
rights and remedies available to Payee under this Note shall be cumulative and
in addition to any other rights or remedies that Payee may be entitled to pursue
at law or in equity. The exercise of one or more of such rights or remedies
shall not impair Payee's right to exercise any other right or remedy at law or
in equity. Notwithstanding the occurrence of a Default and/or Payee's exercise
of any of its rights or remedies hereunder, until such time as Payee receives
payment in full of all amounts due hereunder or shares of Common Stock pursuant
to an exercised Conversion Option, interest will continue to accrue on the
outstanding New Principal at the interest rate charged hereunder.
9. Costs. Maker shall pay, on demand, any and all costs and expenses,
including reasonable attorneys' fees, incurred by Payee in connection with a
Default and the collection of any portion of the outstanding New Principal and
interest accrued thereon.
6
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LibertyView Funds, L.P.
10. No Offset. The amounts due under this Note are not subject to
reduction or offset for any claims of Maker or its successors or assigns against
Payee or any third party.
11. No Continuing Waiver. The waiver of a Default shall not constitute a
continuing waiver or a waiver of any subsequent Default. Maker hereby waives
presentment, demand, dishonor and notice of nonpayment.
12. Notice. Except as provided above, all notices, requests, consents and
other communications which may be desired or required hereunder shall be in
writing, and shall be deemed to have been duly given on the date of delivery if
delivered in person to the party named below, or three (3) business days after
mailing if deposited in the United States mail, first class, registered or
certified mail, return receipt requested, with postage prepaid, addressed as
follows:
If to Maker: Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 140
Woodland Hills, CA 91364
Telephone: (818) 227-3370
Telecopier: (818) 227-9751
Attention: Henry R. Mandell
If to Payee: c/o LibertyView Capital Management, Inc.
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
Telephone: (201) 200-1199
Telecopier: (201) 200-1982
Attention: Alan Mark
or to such other persons or addresses as either party may from time to time
designate by notice given to the other party in accordance with this Section 11.
All payments made by Maker hereunder shall be made to Payee at the address set
forth above or as otherwise designated by Payee in accordance with this Section
12.
13. Severability. If any provision of this Note or the application thereof
to any person or circumstance shall be held invalid or unenforceable to any
extent, the remainder of this Note and the application of any such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
14. Supercedes Prior Indebtedness. This Note, and the indebtedness
evidenced hereby, completely replaces, supercedes and extinguishes all
outstanding principal and accrued interest existing on or prior to the date
hereof (the "Prior Indebtedness") owed by Maker to Payee and/or to any person or
entity related to or affiliated with any Payee (each a "Related Party"). This
Note and that certain Agreement Regarding Indebtedness, dated of even date
herewith, by and among Maker and Payee, together constitute the entire
understanding of Maker, Payee and all Related Parties with respect to any
indebtedness of Maker to Payee or to any other Related Party, and completely
replace
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LibertyView Funds, L.P.
and supercede and all prior notes, letters, communications, understandings,
certificates, instruments, documents, and agreements, both oral and written,
that evidence or relate to any portion of the Prior Indebtedness, including
without limitation: (i) that certain letter agreement by and among Maker and
Payee, dated April 14, 1999; (ii) that certain letter agreement by and among
Maker and Payee, dated April 16, 1999; and (iii) that certain Nonnegotiable
Secured Promissory Note, dated on or about March 1999, made by Maker in favor of
Payee.
15. Governing Law. This Note shall be exclusively 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 exclusive jurisdiction of the federal
court, eastern district 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.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, Maker has caused this Note to be executed and
delivered on the date first above written.
SPATIALIZER AUDIO LABORATORIES, INC.,
a Delaware corporation
By: /s/ Henry R. Mandell
----------------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
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LibertyView Fund, LLC
SECURED NON-NEGOTIABLE CONVERTIBLE PROMISSORY NOTE
US$22,524.12 Issued: December 29, 1999
New Principal Amount Maturity Date: June 15, 2001
FOR VALUE RECEIVED, SPATIALIZER AUDIO LABORATORIES, INC., a Delaware
corporation ("Maker"), hereby promises to pay under this non-negotiable
convertible promissory note ("Note") to LIBERTYVIEW FUND, LLC ("Payee"), the
principal amount of Twenty-two Thousand, Five Hundred Twenty-four and 12/100
Dollars (US$22,524.12), which represents the principal of the funds advanced by
Payee and accrued interest thereon from the date of advance through December 29,
1999 ("New Principal"), together with interest thereon from December 29, 1999,
according to the following terms and conditions. This instrument is not
negotiable by Payee. All references herein to currency herein shall refer to
United States Dollars. This Note has been secured by the Collateral of Maker
pursuant to the terms of the security agreement (the "Security Agreement"), of
even date hereof, entered into between Maker and Payee.
1. Interest. Interest shall accrue from the date hereof on the New
Principal outstanding from time to time under this Note, at a rate per annum
equal to ten percent (10%). Interest hereunder shall be computed for the actual
number of days elapsed on the basis of a three hundred sixty (360) day year.
Cash payments of New Principal and interest are payable in lawful money of the
United States of America in same day funds.
2. Payment Schedule.
(a) Unless the outstanding New Principal and the interest accrued
thereon shall have sooner been discharged through a conversion into the common
stock, par value $0.01 per share, of Maker ("Common Stock"), or a successor to
Maker as a result of a restructuring or reorganization involving Maker (any such
successor and Maker are collectively referred to as "Maker"), as the case may
be, or through the exercise of a Conversion Option (as defined in Section 3
below), the unpaid New Principal plus interest accrued thereon shall be due and
payable to Payee on the earlier of June 15, 2001 (the "Maturity Date") or upon
the occurrence of an Event of Default as set forth below. In the event that the
outstanding New Principal shall be converted into Common Stock pursuant to
Section 3, then accrued interest due on the outstanding New Principal also shall
be paid in shares of Common Stock pursuant to Section 3 and the number of shares
issued will be adjusted to include interest accrued as of the Conversion Date
(as defined in Section 3(c) below).
(b) Provided no Event of Default (as set forth below) has occurred
and/or is occurring, the outstanding New Principal and interest accrued thereon
may be prepaid in cash by Maker, in whole or in part, at any time prior to the
Maturity Date (except that portion of the New Principal outstanding hereunder
and interest accrued thereon that is the subject of a Conversion
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LibertyView Fund, LLC
Notice (as defined in Section 3(c) below) which has previously been sent to
Maker), without premium or penalty of any kind by giving written notice to Payee
(the "Prepayment Notice"). In the event of prepayment pursuant to Section 2(b),
Maker shall not be required to pay unaccrued interest. All payments hereunder
shall be applied first to accrued interest and the balance of such payments
shall be applied to the New Principal amount payable hereunder. Maker shall wire
transfer the appropriate amount of funds to Payee to complete the prepayment,
which shall be no later than the third business day after the Prepayment Notice
was received by Payee (the "Prepayment Date"). Upon facsimile receipt of the
Prepayment Notice, Payee's right to convert New Principal outstanding hereunder
and interest accrued thereon into Common Stock shall terminate and be canceled
immediately (the right to convert shall be immediately reinstated if Maker fails
to comply with the prepayment provisions). In the event that Maker does not wire
transfer the appropriate amount of funds to Payee, on or before the Prepayment
Date, or shall otherwise fail to comply with the prepayment provisions set forth
herein, then it shall have waived its right to prepay any portion of this Note
at any time thereafter. The Prepayment Notice shall set forth (i) the Prepayment
Date, (ii) the Prepayment Price, as defined below, and (iii) the New Principal
being prepaid. The Prepayment Notice shall be irrevocable, and it shall be
delivered by facsimile or mailed, postage prepaid, to Payee at its address as
the same shall appear on the books of Maker. The "Prepayment Price" shall be
equal to the portion or all of the New Principal being prepaid plus all accrued
and unpaid interest due thereon. At the close of business on the Prepayment
Date, subject to Payee's receipt of the applicable Prepayment Price, the portion
of this Note being prepaid shall be automatically canceled and converted into a
right to receive the Prepayment Price. Immediately following the Prepayment Date
(assuming full compliance by Maker with the prepayment provisions set forth
herein), Payee shall surrender its original Note at the office of Maker, and
Maker shall issue to Payee a new Note certificate for the principal amount that
remains outstanding, if any. Notwithstanding the foregoing, Maker shall not be
entitled to send a Prepayment Notice unless it has: (i) the full amount of the
applicable Prepayment Price in cash, available in a demand or other immediately
available account in a bank or similar financial institution; (ii) immediately
available credit facilities, in the full amount of the Prepayment Price with a
bank or similar financial institution; or (iii) a combination of the items set
forth in (i) and (ii) above, aggregating the full amount of the Prepayment
Price.
3. Conversion.
(a) Provided no Event of Default (as set forth below) has occurred
and/or is occurring, all of the shares of Common Stock underlying the Note are
then included in an effective Registration Statement, and the closing bid price
of the Common Stock as reported by Bloomberg LP as of the Conversion Date is
greater than the Conversion Price (as defined below), Maker shall have the
option (the "Maker Conversion Option") to convert, at its sole discretion at any
time prior to the Maturity Date, all New Principal outstanding hereunder and all
accrued interest thereon, into fully paid and nonassessable shares of Common
Stock based on the conversion price per share defined below (the "Conversion
Price"). The number of shares of Common Stock to be issued to Payee upon
conversion shall be determined by dividing (i) all New Principal outstanding
hereunder and accrued interest thereon as of the Conversion Date, by (ii) the
Conversion Price, provided, however, that Maker shall not issue to Payee a
fraction of a share of Common Stock and shall instead round the number of shares
of Common Stock issued up to the next whole share of Common Stock.
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In the event that Maker does not forward the shares of Common Stock to Payee
pursuant to the conversion delivery provisions set forth below, then it shall
have waived its right to force conversion of any portion of this Note at any
time thereafter. Maker's Conversion Notice shall set forth the New Principal
being prepaid. Maker's Conversion Notice shall be irrevocable, and it shall be
delivered by facsimile or mailed, postage prepaid to Payee at its address as the
same shall appear on the books of Maker.
(b) Payee shall have the option (the "Payee Conversion Option"; the
Payee Conversion Option and the Maker Conversion Option are sometimes
collectively referred to herein as "Conversion Options") to convert, at any time
on or after the issuance date of this Note, all or any portion of the New
Principal outstanding hereunder and all accrued interest thereon, into fully
paid and nonassessable shares of Common Stock based on the Conversion Price. The
number of shares of Common Stock to be issued upon conversion shall be
determined by dividing (i) the portion of New Principal outstanding hereunder
and accrued interest thereon as of the Conversion Date, by (ii) the Conversion
Price, provided, however, that Maker shall not issue to Payee a fraction of a
share of Common Stock and shall instead round the number of shares of Common
Stock issued up to the next whole share of Common Stock.
(c) Maker shall exercise the Maker Conversion Option by delivering
written notice thereof (a "Conversion Notice") to Payee, and Payee shall
exercise the Payee Conversion Option by delivering written notice thereof (also
a "Conversion Notice") to Maker. Any Conversion Notice shall be sent via
facsimile to the telecopier numbers and addresses listed below. The date on
which Maker or Payee shall send a Conversion Notice shall be the "Notice Date".
Maker shall issue and deliver to Payee the applicable number of shares of Common
Stock to Payee no later than three business days after the Notice Date. The date
on which Maker issues shares of Common Stock to Payee pursuant to an exercised
Conversion Option shall be the "Conversion Date".
(d) After all of the New Principal outstanding and accrued interest
thereon have been converted into shares of Common Stock, all New Principal and
interest payable to Payee under this Note shall be deemed paid in full, and all
obligations hereunder shall be completely satisfied. No later than ten (10)
business days after the last Conversion Date, provided that Maker has fully
complied with the conversion provisions set forth herein, Payee shall surrender
this Note to Maker for cancellation.
(e) The "Conversion Price" shall be determined on the Conversion
Date, and shall equal the average of the closing bid prices of Common Stock for
the ten (10) consecutive trading days ending on the trading day immediately
preceding the Notice Date, provided, however, that any day on which the
aggregate of the purchases and sales or either of them of Common Stock by Payee
and its affiliates account for greater than twenty-five percent (25%) of that
day's total trading volume (as reported by Bloomberg LP) shall not be counted in
calculating the Closing Price and the parties shall use the immediately
preceding trading day(s) on which this volume limitation has not been exceeded
to determine the ten day period over which the Conversion Price shall be
calculated. Notwithstanding the foregoing, the Conversion Price shall under no
circumstances: (i) be lower than the average of the closing bid prices of Common
Stock for the ten (10) consecutive
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LibertyView Fund, LLC
trading days ending one (1) trading day prior to the date hereof (the "Floor
Price"); or (ii) be higher than 200% of the Floor Price (the "Ceiling Price").
The "closing bid price" shall mean the last bid price for Common Stock on the
OTC Bulletin Board, as reported by Bloomberg LP.
(f) Provided that Maker is in full compliance with the terms of this
Note, Payee has agreed not to engage in any short sales of any shares of capital
stock of Maker for so long as any New Principal and accrued interest thereon
shall remain outstanding and payable under this Note.
(g) In the event of any stock split, stock dividend,
reclassification or similar event affecting the Common Stock (each an
"Adjustment Transaction"), then both the Floor Price and the Ceiling Price shall
be adjusted by multiplying them by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
Adjustment Transaction, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such Adjustment
Transaction.
(h) In the event that Maker issues shares of Common Stock pursuant
to an exercised Conversion Option, the shares of Common Stock shall be issued as
restricted securities under federal securities laws and there shall be an
appropriate legend restricting the transfer thereof (if so required under
applicable federal securities laws).
(i) This Note, and Payee's rights hereunder, are not transferable or
assignable other than to an affiliate of Payee. The foregoing limitation shall
not apply in the event that Maker is not in full compliance with the terms of
this Note and the Transaction Documents (as defined in Section 7(a) below).
4. Subordination. So long as any portion of this Note remains outstanding,
Maker agrees that neither Maker nor any direct or indirect subsidiary of Maker
shall create, incur, assume, guarantee, secure or in any manner become liable in
respect of any indebtedness, unless junior to this Note in all respects, except
for indebtedness of Maker outstanding as of the issuance date of this Note.
Maker agrees that neither Maker nor any direct or indirect subsidiary of Maker
will permit any liens, claims, or encumbrances to exist against Maker or any
direct or indirect subsidiary of Maker or any of their assets, except for (i)
indebtedness of Maker outstanding as of the issuance date of this Note, and (ii)
Permitted Indebtedness. "Permitted Indebtedness" means indebtedness secured by
the assets of Maker or any of its subsidiaries other than the Collateral (as
defined in the Security Agreement) so long as such indebtedness does not exceed
the value of the assets securing such indebtedness. Maker may, at its sole
discretion and without any required consent of Payee, incur Permitted
Indebtedness.
5. Interest Withholding. If required by law, Maker shall withhold U.S. tax
under Sections 1441 or 1442, as the case may be of the Internal Revenue Code of
1986, as amended (the "Code"), from all interest payments at the rate of thirty
percent (30%) unless Payee provides Maker three (3) duly executed copies of Form
1001, prior to the Maturity Date or earlier Conversion Date, in which case Maker
shall withhold tax at the reduced rate specified in the Form 1001. Maker shall
provide Payee, on a timely basis, with a copy of Form 1042 evidencing the
withholding of the tax
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LibertyView Fund, LLC
under Sections 1441 or 1442, of the code, as the case may be.
6. In the event that Payee shall elect to convert any portion of this Note
as provided herein, Maker cannot refuse conversion based on any claim that Payee
or anyone associated or affiliated with Payee has been engaged in any violation
of law, unless an injunction from a court, restraining and/or enjoining
conversion of all or part of said portion of this Note shall have been issued
and Maker posts a surety bond for the benefit of Payee in the amount of 130% of
the New Principal sought to be converted plus outstanding interest through such
date, which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to Payee in the event it obtains a favorable judgment
(but shall not in any way limit any additional damages Payee may be entitled
to).
7. The following shall constitute an "Event of Default" :
(a) Any of the representations, covenants, or warranties made by
Maker herein, or in the Agreement Regarding Indebtedness, Registration Rights
Agreement, and/or Security Agreement of even date herewith (collectively
referred to as the "Transaction Documents") shall have been incorrect when made
in any material respect or shall thereafter be determined to be incorrect; or
(b) Maker shall breach, fail to perform, or fail to observe in any
material respect any material covenant, term, provision, condition, agreement or
obligation of Maker under this Note and/or the Transaction Documents; or
(c) A trustee, liquidator or receiver shall be appointed for Maker
or for a substantial part of its property or business without its consent and
shall not be discharged within thirty (30) calendar days after such appointment;
or
(d) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of Maker and
shall not be dismissed within thirty (30) calendar days thereafter; or
(e) Bankruptcy reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against Maker and, if instituted
against Maker, Maker shall by any action or answer approve of, consent to or
acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding or such proceedings
shall not be dismissed within thirty (30) calendar days thereafter; or
(f) The Common Stock is suspended and/or delisted from trading on
the OTC Bulletin Board, or Maker has received notice of final action concerning
delisting from the OTC Bulletin Board; or
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LibertyView Fund, LLC
(g) The effectiveness of the Registration Statement including the
shares of Common Stock underlying this Note has been suspended for a period of
five (5) business days; or
(h) Maker shall fail to pay interest and/or principal within two
business days of when due hereunder; or
(i) Maker shall have failed to deliver shares of Common Stock
issuable upon conversion of this Note pursuant to Section 3(c) above; or
(j) The occurrence of an Event of Default as that term is defined in
the Security Agreement; or
(k) Maker, or any other party, shall, at any time after the issuance
date of this Note, (1) in any way adversely alter Payee's security interest that
it has been granted in the Collateral pursuant to the Security Agreement, or (2)
sell the Collateral in violation of the Security Agreement.
8. Remedies. Upon the occurrence of an Event of Default, and in each and
every such case, unless such Event of Default shall have been waived in writing
by Payee (which waiver shall not be deemed to be a waiver of any subsequent
default) or cured as provided herein, at the option of Payee, and in Payee's
sole discretion, Payee may consider this Note (and all interest through such
date) immediately due and payable in cash (and enforce its rights under the
Security Agreement), without presentment, demand protest or notice of any kind,
all of which are hereby expressly waived, anything herein or in any note or
other instruments contained to the contrary notwithstanding, and Payee may
immediately, and without expiration of any period of grace, enforce any and all
of Payee's rights and remedies provided herein or any other rights or remedies
afforded by law (including but not limited to consequential damages if any). It
is agreed that in the event of such action, Payee shall be entitled to receive
all reasonable fees, costs and expenses incurred, including without limitation
such reasonable fees and expenses of attorneys. Nothing contained herein shall
limit the rights of Payee to collect liquidated damages as provided herein or in
any other agreement entered into between Maker and Payee, or any other damages
that Payee may otherwise be entitled to. Payee may declare all outstanding New
Principal, and all interest accrued thereon, immediately due and payable. The
rights and remedies available to Payee under this Note shall be cumulative and
in addition to any other rights or remedies that Payee may be entitled to pursue
at law or in equity. The exercise of one or more of such rights or remedies
shall not impair Payee's right to exercise any other right or remedy at law or
in equity. Notwithstanding the occurrence of a Default and/or Payee's exercise
of any of its rights or remedies hereunder, until such time as Payee receives
payment in full of all amounts due hereunder or shares of Common Stock pursuant
to an exercised Conversion Option, interest will continue to accrue on the
outstanding New Principal at the interest rate charged hereunder.
9. Costs. Maker shall pay, on demand, any and all costs and expenses,
including reasonable attorneys' fees, incurred by Payee in connection with a
Default and the collection of any portion of the outstanding New Principal and
interest accrued thereon.
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LibertyView Fund, LLC
10. No Offset. The amounts due under this Note are not subject to
reduction or offset for any claims of Maker or its successors or assigns against
Payee or any third party.
11. No Continuing Waiver. The waiver of a Default shall not constitute a
continuing waiver or a waiver of any subsequent Default. Maker hereby waives
presentment, demand, dishonor and notice of nonpayment.
12. Notice. Except as provided above, all notices, requests, consents and
other communications which may be desired or required hereunder shall be in
writing, and shall be deemed to have been duly given on the date of delivery if
delivered in person to the party named below, or three (3) business days after
mailing if deposited in the United States mail, first class, registered or
certified mail, return receipt requested, with postage prepaid, addressed as
follows:
If to Maker: Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 140
Woodland Hills, CA 91364
Telephone: (818) 227-3370
Telecopier: (818) 227-9751
Attention: Henry R. Mandell
If to Payee: c/o LibertyView Capital Management, Inc.
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
Telephone: (201) 200-1199
Telecopier: (201) 200-1982
Attention: Alan Mark
or to such other persons or addresses as either party may from time to time
designate by notice given to the other party in accordance with this Section 11.
All payments made by Maker hereunder shall be made to Payee at the address set
forth above or as otherwise designated by Payee in accordance with this Section
12.
13. Severability. If any provision of this Note or the application thereof
to any person or circumstance shall be held invalid or unenforceable to any
extent, the remainder of this Note and the application of any such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
14. Supercedes Prior Indebtedness. This Note, and the indebtedness
evidenced hereby, completely replaces, supercedes and extinguishes all
outstanding principal and accrued interest existing on or prior to the date
hereof (the "Prior Indebtedness") owed by Maker to Payee and/or to any person or
entity related to or affiliated with any Payee (each a "Related Party"). This
Note and that certain Agreement Regarding Indebtedness, dated of even date
herewith, by and among Maker and Payee, together constitute the entire
understanding of Maker, Payee and all Related Parties with respect to any
indebtedness of Maker to Payee or to any other Related Party, and completely
replace
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LibertyView Fund, LLC
and supercede and all prior notes, letters, communications, understandings,
certificates, instruments, documents, and agreements, both oral and written,
that evidence or relate to any portion of the Prior Indebtedness, including
without limitation: (i) that certain letter agreement by and among Maker and
Payee, dated April 14, 1999; (ii) that certain letter agreement by and among
Maker and Payee, dated April 16, 1999; and (iii) that certain Nonnegotiable
Secured Promissory Note, dated on or about March 1999, made by Maker in favor of
Payee.
15. Governing Law. This Note shall be exclusively 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 exclusive jurisdiction of the federal
court, eastern district 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.
[Remainder of Page Intentionally Left Blank]
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LibertyView Fund, LLC
IN WITNESS WHEREOF, Maker has caused this Note to be executed and
delivered on the date first above written.
SPATIALIZER AUDIO LABORATORIES, INC.,
a Delaware corporation
By: /s/ Henry R. Mandell
------------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
9
AGREEMENT REGARDING INDEBTEDNESS
This AGREEMENT REGARDING INDEBTEDNESS (this "Agreement"), dated as of
December 29, 1999, is entered into by and between SPATIALIZER AUDIO
LABORATORIES, INC., a Delaware corporation ("Maker"), CPR (USA) INC., a Delaware
corporation ("CPR"), LIBERTYVIEW FUNDS, L.P., a Cayman Islands exempted limited
partnership ("LP") and successor-in-interest to LIBERTYVIEW PLUS FUND, a Cayman
Islands corporation, and LIBERTYVIEW FUND, LLC, a Delaware limited liability
company ("LLC", and together with CPR and LP, "Payees").
WHEREAS, Payees have advanced funds to Maker in the aggregate original
principal amount of Two Hundred Ten Thousand Dollars (US$210,000) pursuant to:
(i) that certain letter agreement by and among Maker and Payees, dated April 14,
1999; (ii) that certain letter agreement by and among Maker and Payees, dated
April 16, 1999; (iii) that certain Nonnegotiable Secured Promissory Note, dated
on or about March 1999, made by Maker in favor of Payees; and (iv) certain other
agreements and understandings, whether written or oral;
WHEREAS, as of the date hereof, the aggregate amount of outstanding
principal and accrued interest that Maker owes to Payees is Two Hundred
Twenty-five Thousand, Two Hundred Forty-one and 10/100 Dollars (US$225,241.10).
WHEREAS, Maker has executed and delivered to Payees that certain
Non-Negotiable Convertible Promissory Note (the "New Note"), dated of even date
herewith, which is intended to supercede and replace all prior agreements and
understandings with respect to the indebtedness of Maker to Payees referenced
above, and the obligations of Maker with respect to such indebtedness.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. The aggregate amount of all outstanding principal and accrued interest
existing as of the date hereof (the "Prior Indebtedness") owed by Maker to
Payees, and/or to any person or entity related to or affiliated with any Payee
(each a "Related Party"), shall become the new original principal amount
outstanding under the New Note (the "New Principal"), to be repaid according to
its terms. Maker and Payees hereby agree that, as of the date hereof, the Prior
Indebtedness equals Two Hundred Twenty-five Thousand, Two Hundred Forty-one and
10/100 Dollars (US$225,241.10).
2. The New Note, and the indebtedness evidenced thereby, completely
replaces, supercedes and extinguishes all Prior Indebtedness. This Agreement,
the New Note, and that certain Security Agreement, dated of even date herewith,
among Maker and Payees, together constitute the entire understanding of Maker,
Payees and all Related Parties with respect to any indebtedness of Maker to
Payees or to any other Related Party, and completely replace and supercede all
prior notes, letters, communications, understandings, certificates, instruments,
documents, and agreements, both oral and written, that evidence or relate to any
portion of the Prior Indebtedness, including without limitation: (i) that
certain letter agreement by and among
<PAGE>
Maker and Payees, dated April 14, 1999; (ii) that certain letter agreement by
and among Maker and Payees, dated April 16, 1999; and (iii) that certain
Nonnegotiable Secured Promissory Note, dated on or about March 1999, made by
Maker in favor of Payees.
3. All written documents that evidence or relate to any portion of the
Prior Indebtedness shall be null and void and of no force or effect. Payees
shall return any original copies of such documentation to Maker for
cancellation.
4. Provided that Maker is in full compliance with the terms of this Note,
each Payee hereby agrees not to engage in any short sales of any shares of
capital stock of Maker for so long as any New Principal (as defined in the New
Note) and accrued interest thereon shall remain outstanding and payable under
the New Note.
5. Maker hereby restates and reaffirms all of the representations and
warranties contained in that certain Subscription Agreement entered into between
the Maker and the Payees of even date herewith as if same are set forth herein.
6. 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 federal securities laws, without reference to principles of conflicts of
law. Each of the parties consents to the exclusive jurisdiction of the federal
courts whose districts encompass any part 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.
[Remainder of Page Intentionally Left Blank]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, on the day and year first above written.
SPATIALIZER AUDIO LABORATORIES, INC.
By: /s/ Henry R. Mandell
------------------------------------
Name: Henry R. Mandell
Title: Chief Executive Officer
CPR (USA) INC.
By: /s/ Steven S. Rogers
------------------------------------
Name: Steven S. Rogers
Title: Managing Director
LIBERTYVIEW FUNDS, L.P.
By: /s/ Steven S. Rogers
------------------------------------
Name: Steven S. Rogers
Title: Authorized Signatory
LIBERTYVIEW FUND, LLC
By: /s/ Steven S. Rogers
------------------------------------
Name: Steven S. Rogers
Title: Authorized Signatory
3
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of December 29,
1999, by and between SPATIALIZER AUDIO LABORATORIES, INC., a Delaware
corporation ("Debtor"), CPR (USA) INC., a Delaware corporation ("CPR"),
LIBERTYVIEW FUNDS, L.P., a Cayman Islands exempted limited partnership ("LP")
and successor-in-interest to LIBERTYVIEW PLUS FUND, a Cayman Islands
corporation, and LIBERTYVIEW FUND, LLC, a Delaware limited liability company
("LLC", and collectively with CPR and LP, "Secured Party")
1. Definitions.
(a) Certain Defined Terms. The following terms, as used herein, have the
meanings set forth below:
ARI - means that certain Agreement Regarding Indebtedness (including all
Exhibits annexed thereto) of even date herewith, by and between Debtor and
Secured Party.
Assets - shall mean all of the assets (including but not limited to:
tangible, intangible and goodwill, all "equipment" (as defined in the UCC),
including, without limitation, all machinery, motor vehicles, trucks, trailers,
vessels, and rolling stock and all parts thereof and all additions and
accessions thereto and replacements therefor) of the Debtor.
Collateral - has the meaning assigned to that term in Section 2.
Event of Default - has the meaning assigned to that term in Section 9.
Material Adverse Effect - means any effect on the business, operations,
properties, results of operations, prospects, or financial condition of the
Debtor that is material and adverse to the Debtor and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise in any material respect interfere with the
ability of the Debtor to enter into and perform any of its obligations under
this Agreement or the Notes in any material respect.
Notes - mean those certain Secured Non-Negotiable Convertible Promissory
Notes of even date herewith, in the aggregate original principal amount of
$225,241.10, made and executed by Debtor and issued to Secured Party, and all
amendments and supplements thereto, restatements thereof and renewals,
extensions, restructuring and refinancings thereof.
Person - means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
Proceeds - means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, any
Collateral including, without limitation, all claims against third
1
<PAGE>
parties for loss of, damage to or destruction of, or for proceeds payable under,
or unearned premiums with respect to, policies of insurance with respect to any
Collateral, and any condemnation or requisition payments with respect to any
Collateral, in each case whether now existing or hereafter arising.
Secured Obligations - has the meaning assigned to that term in Section 3.
Security Interests - means the security interests granted pursuant to
Section 2, as well as all other security interests created or assigned as
additional security for the Secured Obligations pursuant to the provisions of
this Agreement.
UCC - means the Uniform Commercial Code as in effect on the date hereof in
the State of New York, provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
Security Interest in any Collateral or the availability of any remedy hereunder
is governed by the Uniform Commercial Code as in effect on or after the date
hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection or availability of
such remedy.
(b) Other Definition Provisions. References to "Sections", "subsections",
"Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and
Schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in Section 1(a) may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference. All references to statutes and related regulations shall include
(unless otherwise specifically provided herein) any amendments of same and any
successor statutes and regulations.
2. Grant of Security Interest
In order to secure the payment and performance of the Secured Obligations
in accordance with the terms thereof, Debtor hereby grants to Secured Party a
continuing security interest in and to all right, title and interest of Debtor
in the Assets (and any Proceeds therefrom) described on Attachment A hereto,
whether now owned or existing or hereafter acquired or arising (all being
collectively referred to as the "Collateral").
3. Security for Obligations
This Agreement secures the payment and performance of the ARI and the
Notes, and all renewals, extensions, restructuring and refinancings thereof (the
"Secured Obligations").
4. Representations and Warranties. Debtor represents and warrants as
follows:
(a) Binding Obligation. This Agreement has duly executed and delivered by
the Debtor, which is a legal, valid and binding obligation of Debtor,
enforceable against Debtor in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar
laws or equitable principles relating to or limiting creditor's rights
generally. This Agreement is not in violation of any other agreements,
2
<PAGE>
instruments, orders or judgments by which Debtor is bound or subject. The
execution, delivery and performance of this Agreement by Debtor does not require
the consent or approval of any other person, entity or governmental agency.
(b) Location of Assets. All of the Assets are located in the State
of California.
(c) Ownership of Collateral. Debtor owns the Collateral free and
clear of any lien, security interest or encumbrance. No effective financing
statement or other form of lien notice covering all or any part of the
Collateral is on file in any recording office. Debtor is, and as long as this
Agreement shall be in effect pursuant to its terms, shall be the sole, record,
legal and beneficial owner of, and has good and marketable title to, the Assets,
subject to no lien, pledge or encumbrance, except the lien on the Assets created
by this Agreement.
(d) Office Locations; Debtor Names.
(i) As of the date hereof, the chief place of business, the
chief executive office and the office where Debtor keeps its books
and records is located at 20700 Ventura Boulevard, Suite 140,
Woodland Hills, CA 91346. Debtor has not maintained any other street
address at any time during the five years preceding the date hereof.
(ii) Debtor does not do business nor, as of the date hereof,
has it done business during the past five years under any corporate
name, trade name or fictitious business name except for Debtor's
corporate name set forth above.
(e) Perfection. This Agreement, and the filing of an appropriate
UCC-1 financing statement with the Secretary of State of the State of
California, create to secure the Secured Obligations a valid, perfected and
priority security interest in the Collateral.
(f) Governmental Authorizations; Consents. No authorization,
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or consent of any other Person is required either
(i) for the grant by Debtor of the Security Interests granted hereby or for the
execution, delivery or performance of this Agreement by Debtor, or (ii) for the
perfection of or the exercise by Secured Party of its rights and remedies
hereunder (except as may have been taken by or at the direction of Debtor or
Secured Party) other than the filing of appropriate UCC-1 financing statements
in connection with the perfection of the Security Interests.
(g) Value of Collateral. The value of the Collateral as of the date
hereof is equal to not less than Three Hundred Thousand United States Dollars
($300,000).
(h) Accurate Information. All information heretofore, herein or
hereafter supplied to Secured Party by or on behalf of Debtor with respect to
the Collateral is and will be accurate and complete in all material respects.
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(i) Deficiency. Debtor will remain liable for any deficiency in the
event that the delivery of the Assets to the Secured Party is insufficient to
satisfy the Debtor's obligations under the Notes.
(j) Survival. From and after the date hereof and so long as this
Agreement shall be in effect pursuant to its terms, the Debtor agrees that it
shall not take any action that would cause the Debtor to be in breach or default
of any of the Secured Obligations, that all representations and warranties made
by Debtor shall survive this Agreement and that as of the date hereof, the
Secured Party shall be deemed to have a priority lien on the Assets for the
purposes and in accordance with the terms and provisions hereof, and the Debtor
shall cooperate with the Secured Party and take all action requested by the
Secured Party to ensure the representations and warranties shall survive this
Agreement with respect thereto.
(k) Validity. The Debtor's performance of its obligations under this
Agreement will not result in the creation or imposition by the Debtor of any
liens, charges, claims or other encumbrances upon the Assets, or any of the
assets of the Debtor other than the security interest granted under this
Agreement.
(l) No Conflicts. The execution, delivery and performance of this
Agreement by the Debtor and the consummation by the Debtor of the transactions
contemplated hereby do not and will not (i) result in a violation of its
Articles of Incorporation or ByLaws or (ii) conflict with, or constitute a
material default (or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, patent, patent license,
indenture, instrument or any "lock-up" or similar provision of any underwriting
or similar agreement to which the Debtor is a party, or (iii) result in a
violation of any federal, state or local law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations)
applicable to the Debtor or by which any property or asset of the Debtor is
bound or affected, nor is the Debtor otherwise in violation of, in conflict
with, or in default under, any of the foregoing except as would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect. The business of the Debtor is not being conducted in violation of any
law, ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate would not reasonably be
expected to have a Material Adverse Effect.
(m) Insurance. The Debtor is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Debtor believes to be prudent and customary in the businesses
in which the Debtor is engaged. The Debtor has no notice to believe that the
Debtor will not be able to renew its existing insurance coverage as and when
such coverage expires, or obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect.
(n) Taxes. Except for the Debtor 's failure to (i) file its federal
and state tax returns for its fiscal year 1998, and (ii) pay any federal or
state taxes owed for its fiscal year 1998 (which taxes are not of a material
amount), all federal, state, city and other tax returns, reports and
declarations required to be filed by or on behalf of the Debtor have been filed
and such returns are complete and accurate and disclose all taxes (whether based
upon income, operations,
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purchases, sales, payroll, licenses, compensation, business, capital, properties
or assets or otherwise) required to be paid in the periods covered thereby.
(o) Title to Assets. Debtor has good and marketable title to the
Assets, and all properties and material assets 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 Debtor.
5. Further Assurances; Covenants
(a) Other Documents and Actions. Debtor will, from time to time,
promptly execute and deliver all further instruments and documents prepared by
Secured Party at Secured Party's expense, and take all further action that may
be necessary or desirable, or that Secured Party may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, Debtor will: (i) execute such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as Secured Party may reasonably
request, in order to perfect and preserve the security interests granted or
purported to be granted hereby; (ii) at any reasonable time, upon demand by
Secured Party exhibit the Collateral to allow inspection of the Collateral by
Secured Party or persons designated by Secured Party; and (iii) upon Secured
Party's request, appear in and defend any action or proceeding that may affect
Debtor's title to, or Secured Party's security interest in, the Collateral.
(b) Secured Party Authorized. Debtor hereby authorizes Secured Party
to file one or more financing or continuation statements, and amendments
thereto, relating to all or any part of the Collateral without the signature of
Debtor where permitted by law.
(c) Corporate or Name Change. Debtor will notify Secured Party
promptly in writing at least 30 days prior to (a) any change in Debtor's name
and (b) Debtor's commencing the use of any trade name, assumed name or
fictitious name.
(d) Business Locations. Debtor will keep the Collateral at the
location specified in Section 4(b) above. Debtor shall give Secured Party thirty
(30) days' prior written notice of any change in its chief place of business or
of any new location of business or any new location for any of the Collateral.
With respect to any new location (which in any event shall be within the
continental United States), Debtor shall execute such documents and take such
actions as Secured Party reasonably deems necessary to perfect and protect the
Security Interests.
(e) Bailees. No Collateral shall at any time be in the possession or
control of any warehouseman, bailee or Debtor's agents or processors without
Secured Party's prior written consent and unless Secured Party, if Secured Party
has so requested, has received warehouse receipts or bailee letters reasonably
satisfactory to Secured Party prior to the commencement of such storage. Debtor
shall, upon the request of Secured Party, notify any such warehouseman, bailee,
agent or processor of the Security Interests.
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(f) Insurance. Debtor currently does maintain and shall maintain
insurance with respect to the Collateral of types and in amounts that are
customary for similarly situated businesses. Debtor hereby direct all insurers
under such policies of insurance with respect to its assets to pay all material
proceeds of such insurance policies to Secured Party.
(g) Taxes and Claims. Debtor will pay (i) all taxes, assessments and
other governmental charges imposed upon the Collateral before any penalty
accrues thereon and (ii) all claims (including claims for labor, services,
materials and supplies) for sums that have become due and payable and that by
law have or may become a lien upon any of the Collateral before any penalty or
fine is incurred with respect thereto; provided that no such tax, charge or
claim need be paid if Debtor is contesting same in good faith by appropriate
proceedings promptly instituted and diligently conducted and if Debtor has
established such reserve or other appropriate provision, if any, as shall be
required in conformity with generally accepted accounting principles
consistently applied.
(h) Collateral Description. Debtor will furnish to Secured Party,
from time to time, statements and schedules further identifying and describing
the Collateral and such other reports in connection with the Collateral as
Secured Party may reasonably request, all in reasonable detail.
(i) Use of Collateral. Debtor will not use or permit any Collateral
to be used unlawfully or in violation of any provision of this Agreement or any
applicable statue, regulation or ordinance or any policy of insurance covering
any of the Collateral.
(j) Records of Collateral. Debtor shall keep full and accurate books
and records relating to the Collateral and shall stamp or otherwise mark such
books and records in such manner as Secured Party may reasonably request
indicating that the Collateral is subject to the Security Interests.
(k) Other Information. Debtor will, promptly upon request, provide
to Secured Party all information and evidence it may reasonably request
concerning the Collateral to enable Secured Party to enforce the provisions of
this Agreement.
(l) Maintenance. The Debtor will maintain the condition of the
Collateral in such condition as is customary in the businesses in which the
Debtor is engaged, and shall take any and all actions necessary for such
maintenance as are customary.
6. Secured Party Appointed Attorney-in-Fact. Debtor hereby irrevocably
appoints each Secured Party as its attorney-in-fact, with full authority in the
place and stead of Debtor and in the name of Debtor, Secured Party or otherwise,
from time to time in Secured Party's discretion to take any action and to
execute any instrument that Secured Party may deem necessary or advisable after
the occurrence and during the continuation of an Event of Default to accomplish
the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to Secured
Party;
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(b) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for monies due and to become due under or in
respect of any of the Collateral;
(c) to file any claims or take any action or institute any
proceedings that Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Secured Party with respect to any of the Collateral;
(d) to pay or discharge taxes or liens, levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Secured Party in its
sole discretion, and such payments made by Secured Party to become obligations
of Debtor, due and payable immediately without demand and secured by the
Security Interests; and
(e) generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and completely
as though Secured Party were the absolute owner thereof for all purposes, and to
do, at Secured Party's option and Debtor's expense, at any time or from time to
time, all acts and things that Secured Party deems necessary to protect,
preserve or realize upon the Collateral.
Neither Secured Party nor any Person designated by Secured Party shall be
liable for any acts or omissions or for any error of judgment or mistake of fact
or law other than as a result of Secured Party's or such Person's gross
negligence or willful misconduct. These powers, being coupled with an interest,
is irrevocable so long as this Agreement shall remain in force.
7. Transfers and Other Liens
Debtor shall not, without Secured Party's prior written consent:
(a) Sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to, any of the Collateral other
than (i) in the ordinary course of its business, (ii) in connection with the
replacement of any Collateral of equivalent use and value, or (iii) with respect
to the capital stock of Multidisc Technologies, Inc. (a wholly-owned inactive
subsidiary of Debtor) or any of the assets of such subsidiary.
(b) Create or suffer to exist any lien, security interest or other
charge or encumbrance upon or with respect to any of the Collateral to secure
indebtedness of any Person except for the security interest created by this
Agreement.
8. Events of Default.
The occurrence of any one or more of the following events shall constitute
an Event of Default by Debtor under this Agreement:
(a) General Default. Debtor shall fail to observe or perform any
covenant, obligation, term or condition contained in the ARI, the Notes or this
Agreement.
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(b) Nonpayment. Debtor shall fail to pay any principal, interest or
other amount owing under the Notes when and as the same shall be due and
payable.
(c) Material Misrepresentations. Any representation or warranty by
the Debtor set forth herein shall prove to be false in any material respect.
(d) Going Concern. Debtor shall terminate its corporate existence or
shall cease to operate as a going concern.
(e) Judgments. A judgment shall be entered against Debtor or a
warrant of execution or similar process shall be issued or levied against its
property and within thirty (30) days after such judgment, warrant or process
shall not have been paid in full or proper appeal of the same made.
(f) Relief - Voluntary. Debtor shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing.
(g) Relief - Involuntary. Any involuntary case or other proceeding
shall be commenced against Debtor seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of thirty (30) days; or an
order for relief shall be entered against Debtor under the federal bankruptcy
laws as now or hereafter in effect.
(h) Transfer. The Collateral is sold or transferred by the Debtor in
violation of Section 7.
(i) Other. The occurrence of any "Event of Default" as that term is
defined in the Notes.
9. Remedies
(a) If any Event of Default shall have occurred and be continuing,
Secured Party may declare the entire outstanding principal amount of the Notes
immediately due and payable without any notice, demand or other action on the
part of Secured Party.
(b) If any Event of Default shall have occurred and be continuing,
Secured Party may exercise in respect of the Collateral, in addition to all
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on
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default under the UCC (whether or not the UCC applies to the affected
Collateral) and also may: (i) require Debtor to, and Debtor hereby agrees that
it will, at its expense and upon request of Secured Party forthwith, assemble
all or part of the Collateral as directed by Secured Party and make it available
to Secured Party at a place to be designated by Secured Party which is
reasonably convenient to both parties; (ii) without notice or demand or legal
process, enter upon any premises of Debtor and take possession of the Collateral
for sale pursuant to this Section 9; (iii) without notice except as specified
below, sell the Collateral or any part thereof in one or more parcels at public
or private sale, at any of Secured Party's offices or elsewhere, at such time or
times, for cash, on credit or for future delivery, and at such price or prices
and upon such other terms as Secured Party may deem commercially reasonable;
(iv) notify the obligors on any Accounts or Instruments to make payments there
under directly to Secured Party; (v) without notice to Debtor, renew, modify or
extend any of the Accounts and Instruments or grant waivers or indulgences with
respect thereto or accept partial payment thereof, or substitute any obligor
thereon, in any manner as Secured Party may deem advisable, without affecting or
diminishing Debtor's continuing obligations hereunder; and (v) and shall have
all applicable remedies set forth in the UCC. Debtor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to Debtor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. At any sale of the
Collateral, if permitted by law, Secured Party may bid (which bid may be, in
whole or in part, in the form of cancellation of indebtedness) for the purchase
of the Collateral or any portion thereof for the account of Secured Party.
Secured Party shall not be obligated to make any sale of Collateral regardless
of notice of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. To the extent permitted by law, Debtor
hereby specifically waives all rights of redemption, stay or appraisal, which it
has or may have under any law now existing or hereafter enacted.
(c) Upon the occurrence of an Event of Default hereunder, Secured
Party shall have the right to enter upon the premises of Debtor where the
Collateral is located (or is believed to be located) without any obligation to
pay rent to Debtor, or any other place or places where the Collateral is
believed to be located and kept, to render the Collateral useable or saleable,
to remove the Collateral therefrom to the premises of Secured Party or any agent
of Secured Party for such time as Secured Party may desire in order to
effectively collect or liquidate the Collateral, and/or to require Debtor to
assemble the Collateral and make it available to Secured Party at a place or
places to be designated by Secured Party. Upon the occurrence of an Event of
Default hereunder, Secured Party shall have the right to take possession of
Debtor's original books and records, to obtain access to Debtor's data
processing equipment, computer hardware and software relating to the Collateral
and to use all of the foregoing and the information contained therein in any
manner Secured Party deems appropriate; and Secured Party shall have the right
to notify postal authorities to change the address for delivery of Debtor's mail
to an address designated by Secured Party and to receive, open and dispose of
all mail addressed to Debtor.
10. Limitation on Duty of Secured Party with Respect to Collateral. Beyond
the safe custody thereof, Secured Party shall have no duty with respect to any
Collateral in its possession or control (or in the possession or control of any
agent or bailee) or with respect to any income thereon or the preservation of
rights against prior parties or any other rights pertaining thereto.
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Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it accords its own
property. Secured Party shall not be liable or responsible for any loss or
damage to any of the Collateral, or for any diminution in the value thereof, by
reason of the act or omission of any warehouseman, carrier, forwarding agency,
consignee or other agent or bailee selected by Secured Party in good faith.
11. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default as set forth herein, the proceeds of any sale
of, or other realization upon, all or any part of the Collateral shall be
applied (pro rata among each participant in the Secured Party based on the
indebtedness then owing): first, to all fees, costs and expenses incurred by
Secured Party with respect to the Collateral; and second, to the Secured
Obligations. Secured Party shall pay over to Debtor any surplus and Debtor shall
remain liable for any deficiency.
12. Expenses. Debtor agrees to pay all insurance expenses and all expenses
of protecting, storing, warehousing, appraising, insuring, handling, maintaining
and shipping the Collateral and any and all excise, property, sales and use
taxes imposed by any state, federal or local authority on any of the Collateral,
or with respect to periodic appraisals and inspections of the Collateral, or
with respect to the sale or other disposition thereof. If Debtor fails promptly
to pay any portion of the above expenses when due or to perform any other
obligation of Debtor under this Agreement, Secured Party may, at its option, but
shall not be required to, pay or perform the same, and Debtor agree to reimburse
Secured Party therefor on demand, or the Secured Party may deem it to be an
Event of Default. All sums so paid or incurred by Secured Party for any of the
foregoing, any and all other sums for which Debtor may become liable hereunder
and all costs and expenses (including attorneys' fees, legal expenses and court
costs) incurred by Secured Party in enforcing or protecting the Security
Interests or any of their rights or remedies under this Agreement shall be
payable on demand, shall constitute Secured Obligations, shall bear interest
until paid at the rate provided in the Notes and shall be secured by the
Collateral.
13. Termination of Security Interests; Release of Collateral. Upon payment
in full of all Secured Obligations or upon the conversion of all principal
outstanding under the Notes and all interest accrued thereon into shares of
common stock, par value $0.01 per share, of the Debtor, the Security Interests
shall terminate and all rights to the Collateral shall revert to Debtor. Upon
such termination of the Security Interests or release of any Collateral, Secured
Party will, at the expense of, and preparation by, the Debtor, execute and
deliver to Debtor such documents as Debtor shall reasonably request to evidence
the termination of the Security Interests or the release of such Collateral, as
the case may be.
14. Notices. Each notice, communication and delivery under this Agreement:
(a) shall be made in writing signed by the party giving it; (b) shall specify
the section of this Agreement pursuant to which given; (c) shall either be
delivered in person or by telecopier, a nationally recognized next business day
courier service or Express Mail; (d) unless delivered in person, shall be given
to the address specified below; (e) shall be deemed to be given (i) if delivered
in person, on the date delivered, (ii) if sent by telecopier, on the date of
telephonic confirmation of receipt, (iii) if sent by a nationally recognized
next business day courier service with all costs paid, on the next business day
after it is delivered to such courier, or (iv) if sent by
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Express Mail (with postage and other fees paid), on the next business day after
it is mailed. Such notice shall not be effective unless copies are provided
contemporaneously as specified below, but neither the manner nor the time of
giving notice to those to whom copies are to be given (which need not be the
same as the addressee) shall control the date notice is given or received. The
addresses and requirements for copies are as follows:
If to Debtor: at the address set forth in Section 4(d) above.
If to Secured Party at their respective addresses set forth in the Notes.
Except as otherwise expressly set forth in any particular provision of this
Agreement, any consent or approval required or permitted by this Agreement to be
given by Secured Party may be given, and any term of this Agreement or of any
other instrument related hereto or mentioned herein may be amended, and the
performance or observance by Debtor of any term of this Agreement, the ARI or
the Notes may be waived (either generally or in a particular instance and either
retroactively or prospectively) with, but only with, the written specific
consent of Secured Party. No waiver shall extend to or affect any obligation not
expressly waived or impair any right consequent thereon. No course of dealing or
delay or omission on the part of Secured Party in exercising any right shall
operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or
demand upon Debtor shall entitle Debtor to other or further notice or demand in
similar or other circumstances. The rights in this Agreement, the ARI and the
Notes are cumulative and are not exclusive of any other remedies provided by
law. The invalidity, illegality or unenforceability of any provision in or
obligation under this Agreement shall not affect or impair the validity,
legality or enforceability of the remaining provisions or obligations under this
Agreement.
15. Successors and Assigns. This Agreement is for the benefit of Secured
Party and its successors and assigns, and in the event of an assignment of all
or any of the Secured Obligations, the rights hereunder, to the extent
applicable to the Secured Obligations so assigned, may be transferred with such
Secured Obligations. This Agreement shall be binding on Debtor and its
successors and assigns, provided that Debtor shall not assign this Agreement
without Secured Party's prior written consent.
16. Changes in Writing. No amendment, modification, termination or waiver
of any provision of this Agreement or consent to any departure by Debtor
therefrom, shall in any event be effective without the written concurrence of
Secured Party and Debtor.
17. Governing Law/Venue/Jurisdiction. This Agreement shall be exclusively
governed by and construed in accordance with the laws of the State of New York,
without giving effect to the conflicts of law principles thereof. Each of the
parties consents to the exclusive jurisdiction of the U.S. District Court
sitting in the Southern District of the State of New York sitting in Manhattan
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 the other 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
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
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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. Each party waives
its right to a trial by jury.
18. Headings. Cross reference pages and headings contained herein are for
convenience of reference only, do not constitute a part of this Agreement, and
shall not be deemed to limit or affect any of the provisions hereof.
19. Counterparts. This Agreement may be executed by each party upon a
separate copy, and in such case one counterpart of this Agreement shall consist
of enough of such copies to reflect the signatures of all of the parties. This
Agreement may be executed in two or more counterparts, each of which shall be an
original, and each of which shall constitute one and the same agreement. Any
party may deliver an executed copy of this Agreement and of any documents
contemplated hereby by facsimile transmission to another party and such delivery
shall have the same force and effect as any other delivery of a manually signed
copy of this Agreement or of such other documents.
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DULY EXECUTED and delivered by the parties on the date first written
above.
SPATIALIZER AUDIO LABORATORIES, INC.
By: /s/ Henry R. Mandell
----------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
CPR (USA) INC.
By: /s/ Steven S. Rogers
------------------------------------
Name: Steven S. Rogers
Title: Managing Director
LIBERTYVIEW FUNDS, L.P.
By: /s/ Steven S. Rogers
------------------------------------
Name: Steven S. Rogers
Title: Authorized Signatory
LIBERTYVIEW FUND, LLC
By: /s/ Steven S. Rogers
------------------------------------
Name: Steven S. Rogers
Title: Authorized Signatory
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ATTACHMENT A
Description of Collateral
The Collateral consists of all Assets (as such term is defined in Section
1(a) of this Agreement) of the Debtor.
14
Bank Insinger de Beaufort
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") 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 ACT AND UNDER APPLICABLE STATE SECURITIES LAWS,
OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF
THE ACT AND UNDER PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
COMMON STOCK SUBSCRIPTION AGREEMENT
Spatializer Audio Laboratories, Inc.
THIS COMMON STOCK SUBSCRIPTION AGREEMENT (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 Common Stock, $0.01 par value per share (the "Common
Stock") of Spatializer Audio Laboratories, Inc. (OTC Bulletin Board symbol
"SPAZ"), located at 20700 Ventura Boulevard, Suite 140, Woodland Hills,
California 91364, a corporation organized under the laws of Delaware, USA
(hereinafter referred to as the "Company"). In addition, the Company will sell
to the Subscriber listed on Schedule A annexed hereto ("Subscriber" or
"Purchaser"), a warrant (the "Warrant") to purchase Two (2) shares of Common
Stock for each One Dollar ($1.00) funded hereunder 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 A annexed hereto). This
Subscription and, if accepted by the Company, the offer and sale of the Common
Stock, Warrant and the Common Stock underlying the Warrant (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 Section 9 herein.
<PAGE>
Subscriber hereby represents and warrants to and agrees with the Company,
and the Company hereby represents and warrants to and agrees with Subscriber, as
follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 Closing. The Company will sell and 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, shares of Common Stock for an aggregate purchase price of Two Hundred
Fifty Thousand U.S. Dollars (US$250,000.00) (the "Aggregate Purchase Price")
based on the purchase price per share (the "Purchase Price") defined below. The
number of shares of Common Stock to be issued to Subscriber pursuant to this
Agreement shall be determined by dividing Two Hundred Fifty Thousand U.S.
Dollars (US$250,000.00) by the Purchase Price, provided, however, that the
Company shall not issue to Subscriber a fraction of a share of Common Stock and
shall instead round the number of shares of Common Stock issued up to the next
whole share of Common Stock.
1.2. Purchase Price. The Purchase Price shall be determined on the
Closing Date, and shall equal the average of the closing bid prices of Common
Stock for the ten (10) consecutive trading days ending one (1) trading day prior
to the Closing Date. The "closing bid price" shall mean the last bid price for
Common Stock on the OTC Bulletin Board, as reported by any authoritative source
acceptable to the Company.
1.3 Form of Payment. Subscriber shall pay the Aggregate Purchase
Price by delivering immediately available funds in United States Dollars by wire
transfer to an account designated by the Company prior to the Closing Date
against delivery of the Common Stock and Warrants as payment in full for the
Securities. In connection with this transaction, the parties agree that the
Company shall pay a finder's fee to Bristol Capital, LLC, pursuant to the
Finder's Fee Agreement between the Company and Bristol Capital, LLC dated as of
December 27, 1999.
Section 2. Representations and Warranties of Subscriber. Subscriber
acknowledges, represents, warrants and agrees as follows:
2.1 Organization and Authorization. Subscriber is duly incorporated
or organized and is 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 Subscriber, the performance by Subscriber of its
obligations hereunder and the consummation by Subscriber of the transactions
contemplated hereby have been duly authorized and require no other proceedings
on the part of Subscriber. The undersigned has all right, power and authority to
execute and deliver this Agreement. This Agreement has been duly executed and
delivered by Subscriber and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligation of Subscriber, enforceable against Subscriber in accordance with its
terms.
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2.2 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 under, or give rise to
a right of termination, cancellation or acceleration of any material obligation
or to a loss of a material benefit with respect to, any provision of
Subscriber's charter, bylaws, partnership agreement, operating agreement or
other organizational document and any amendments thereto, or any material
mortgage, deed of trust, indenture, lease or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree statute, law,
ordinance, rule or regulation applicable to Subscriber.
2.3 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 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.
2.4 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.
2.5 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-Ks, and
registration statements, filed by the Company since March 1, 1998 (collectively,
the "Reports"). Except for the Reports and this Agreement, Subscriber
acknowledges that it 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 Subscriber may
reasonably request, including technical information, and other material
information about the Company. Subscriber acknowledges that the Company has
offered its full and unconditional cooperation in making such information
available to Subscriber, and that the Company has recommended that Subscriber
request and review such information prior to making an investment decision.
2.6 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 Subscriber.
2.7 This Agreement and Reports Constitute Sole Representations.
Except for the delivery of the Reports and this Agreement, no oral or written
representations or warranties have been made, or oral or written information
furnished, to Subscriber or its advisors, if any, with respect to the offer and
sale of the Securities by the Company, any agent, employee or affiliate of the
Company, or by any other person. Subscriber acknowledges that in entering into
this transaction Subscriber is not relying upon any information, other than that
contained in the Reports, this Agreement and the results of independent
investigation, if any, by Subscriber.
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2.8 Subscriber is an Accredited Investor. 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 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 US$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 US$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 US$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 US$1,000,000;
(vi) Any natural person who had an individual income in excess of
US$200,000 in each of the two (2) most recent years or joint
income with that person's spouse in excess of US$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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(vii) Any trust, with total assets in excess of US$5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person
as described in Section 230.506(b)(2)(ii) of Regulation D
under the Act;
(viii) Any entity in which all of the equity owners are accredited
investors;
(ix) Any self-directed employee benefit plan with investment
decisions made solely by persons that are accredited investors
within the meaning of Rule 501 of Regulation D promulgated
under the Act; or
(x) Any private investment company with assets under management in
excess of US$________________________.
2.9 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 Subscriber set forth herein in order to determine the
applicability of such exemptions and the suitability of Subscriber to acquire
the Securities.
2.10 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.
2.11 No Advertisements. 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.
2.12 Registration Rights. The parties have entered into a
Registration Rights Agreement (Exhibit B annexed hereto).
2.13 Restricted Securities. Subscriber hereby confirms that it has
been informed that the Securities will be, when issued, restricted securities
under the Act and may not be resold or transferred unless first registered under
the federal securities laws or unless an exemption from such registration is
available with respect to a resale in the United States or in an "offshore
transaction"
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(as such term is defined in Regulations S under the Act). Accordingly,
Subscriber hereby acknowledges that it is prepared to hold the Securities for an
indefinite period. Subscriber is aware that Rule 144 promulgated by the SEC
under the Act is not presently available to exempt the sale of the Securities
from the registration requirements of the Act. Subscriber is aware that Rule 144
and Regulation S, promulgated under the Act, permit limited public resales of
securities acquired in non-public offerings, subject to the satisfaction of
certain conditions. Subscriber understands that under Rule 144 the conditions
include, among other things: the availability of certain current public
information about the issuer, the resale occurring not fewer than one (1) year
or two (2) years, as applicable, after the party has purchased and paid for the
securities to be sold, the sale being through a broker in an unsolicited
"broker's transaction" and the amount of securities being sold during any
three-month period not exceeding specified volume limitations. Subscriber
acknowledges and understands that the Company may not be satisfying the current
public information requirement of Rule 144 at the time Subscriber wishes to sell
the Securities, or other conditions under Rule 144 which are required of the
Company. Subscriber understands that Regulation S, as currently in effect,
allows resales in private and public transactions in certain circumstances, only
in qualified offshore transactions and only when certain holding periods of at
least one (1) year have been fulfilled. Subscriber understands that he or she
may be precluded from selling any of the Securities under Rule 144 or Regulation
S even if the holding periods have been satisfied either because the other
conditions may not have been fulfilled or because markets for resales do not
exist. Prior to its acquisition of the Securities, Subscriber acquired
sufficient information about the Company to reach an informed and knowledgeable
decision to acquire the Securities. Subscriber has such knowledge and experience
in financial and business matters as to make it capable of utilizing said
information to evaluate the risks of the prospective investment and to make an
informed investment decision.
2.14. Authorized Shares. Subscriber hereby acknowledges that, as of
the Closing Date, the Company may not be able to reserve from its authorized but
unissued shares of Common Stock a sufficient number of shares of Common Stock to
permit the exercise in full of all of the outstanding Warrants. Subscriber
understands that the Company is currently taking steps to increase the number of
authorized shares of Common Stock.
Section 3. Representations and Warranties of the Company. For so long as
any Securities held by 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)
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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 OTC Bulletin Board. 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 the Closing Date, to the Company's knowledge:
(i) none of the Company's filings with the SEC 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 (after
giving effect to any filings on Form 12b-25) filed all requisite forms, reports
and exhibits thereto with the SEC.
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 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 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 non-assessable 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 under, or give rise to
a right of termination, cancellation or acceleration of any material obligation
or to a loss of a material benefit with respect to, any provision of the
Company's Certificate of Incorporation and any amendments thereto, Bylaws, or
any material mortgage, deed of trust, indenture, lease or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree
statute, law, ordinance, rule or regulation applicable to the
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Company, its properties or assets, 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 December 31, 1998, 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 circumstance 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. Except as set forth in this Agreement, the Reports
or on Schedule B annexed hereto, 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 Bylaws 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 this
Agreement, the Reports or on Schedule B annexed hereto, 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
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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 OTC Bulletin Board or another organized
United States market or quotation system. The Company has not received any
notice, oral or written, regarding continued listing and, as long as the Common
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.
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 exercise of the Warrants
remain outstanding and continue to be "restricted securities" within the meaning
of Rule 144 under the Act, the Company
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shall permit resales of the underlying Common Stock pursuant to Rule 144 under
the Act. The Company and Subscriber shall provide the Company's transfer agent
any and all papers necessary to complete the transfer under Rule 144, including,
but not limited to, opinions of counsel to such 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 43,033,477 shares were outstanding as of December 14, 1999, and 1,000,000
shares of Preferred Stock, $0.01 par value per share, none of which are
outstanding as of the date hereof. 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 exercise
of the Warrant would cause dilution to existing stockholders and could
significantly increase the outstanding number of shares of Common Stock.
Section 4. Covenants of the Company. For so long as any Securities held by
Subscriber remain outstanding, the Company acknowledges, represents, warrants
and agrees as follows:
(i) The Company shall use its best efforts to reserve, prior to
February 15, 2000, a sufficient number of shares of Common
Stock from its authorized but unissued shares of Common Stock
to permit the exercise in full of all of the outstanding
Warrants. The Company is currently organizing a stockholder
meeting to increase the number of authorized shares of Common
Stock of the Company, and has filed with the SEC prior to the
date hereof a preliminary proxy statement in connection with
such stockholder meeting.
(ii) It will maintain the listing of its Common Stock on the OTC
Bulletin Board.
(iii) It will permit Subscriber to exercise its right to exercise
the Warrants by telecopying an executed and completed Notice
of Exercise to the Company and delivering the original Notice
of Exercise and the original Warrant to the Company by
overnight courier. Each business date on which a Notice of
Exercise is telecopied to and received by the Company in
accordance with the provisions hereof shall be deemed an
"Exercise Date". The Company will transmit the certificates
representing shares of Common Stock issuable upon exercise of
any Warrants (together with the certificates representing the
Warrants not so exercised) to Subscriber via express courier,
by electronic transfer or otherwise within three (3) business
days
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after the Exercise Date if the Company has received the
original Notice of Exercise and Warrant being exercised by
such date. In addition to any other remedies which may be
available to Subscriber, in the event that the Company fails
to effect delivery of such shares of Common Stock within such
three (3) business day period, Subscriber will be entitled to
revoke the relevant Notice of Exercise by delivering a notice
to such effect to the Company whereupon the Company and
Subscriber shall each be restored to their respective
positions immediately prior to delivery of such Notice of
Exercise. The Notice of Exercise and Warrant representing the
portion of the Warrant exercised shall be delivered as
follows:
To the Company:
Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 140
Woodland Hills, CA 91364-2357
Fax: (818) 227-9750
Attn: Henry R. Mandell, Interim Chief Executive Officer
Section 5. 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 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 Subscriber may
reasonably request in availing itself of any rule or
regulation of the SEC allowing Subscriber to sell any such
Securities without registration.
Section 6. Indemnification. The Company and 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
and costs) 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.
Section 7. 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
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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 8. Legend. The certificates representing shares of Common Stock,
including shares of Common Stock to be issued upon exercise of the Warrants,
shall bear 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 THE ACT WHICH, EXCEPT IN THE CASE OF
AN EXEMPTION PURSUANT TO RULE 144 UNDER THE 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 9. Closing Date. The Closing Date hereunder shall be December 29,
1999, or such earlier date on or before December 31, 1999, 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 10. Conditions to the Company's Obligation to Sell. Subscriber
understands that the Company's obligation to sell the Common 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 immediately available funds in
United States Dollars by wire transfer to an account
designated by the Company prior to the Closing Date as payment
in full for the purchase of the Securities;
(iii) All representations and warranties of Subscriber set forth in
this Agreement shall remain true and correct as of the Closing
Date; and
(iv) The sale and issuance of the Common Stock, Warrants, and the
proposed issuance of the Common Stock underlying the Warrants
shall be legally
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permitted by all laws and regulations to which Subscriber and
the Company are subject.
Section 11. Conditions to Subscriber's Obligation to Purchase. The Company
understands that Subscriber's obligation to purchase the Common Stock and
Warrants is conditioned upon:
(i) Acceptance by Subscriber of a satisfactory Subscription
Agreement and all duly executed Exhibits hereto for the sale
of the Securities;
(ii) Delivery of the original Common Stock and Warrants;
(iii) All representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Dates;
and
(iv) At the Closing Date, the sale and issuance of the Common Stock
and Warrants shall be legally permitted by all laws and
regulations to which the Company and Subscriber are subject.
Section 12. Miscellaneous.
12.1 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.
12.2 Confidentiality. The Company and 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 information obtained from any other party, except information
publicly
13
<PAGE>
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.
12.3 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 Subscriber and the
Company with respect to the subject matter hereof. This Agreement may be amended
only by a writing executed by all parties.
12.4 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.
12.5 Entire Agreement. This Agreement and Exhibits hereto constitute
the entire agreement between Subscriber and the Company with respect to the
subject matter hereof. This Agreement may be amended only by a writing executed
by all parties.
12.6 Reliance by Company. Subscriber represents to the Company that
the representations and warranties of 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.
12.7 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.
12.8 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.
12.9 Restriction on Trading Prior to Exercise of Warrants.
Subscriber hereby agrees that, during the ten (10) trading days immediately
preceding any exercise of its right to purchase Common Stock under the Warrant,
it shall not, whether directly or indirectly, engage in any short sales of any
shares of capital stock of the Company. Subscriber hereby agrees that it shall
not be entitled to exercise its rights under the Warrant until ten (10)
consecutive trading days have elapsed during which Subscriber has not engaged in
any transaction prohibited by this Section 12.9.
[Remainder of Page Intentionally Left Blank]
14
<PAGE>
IN WITNESS WHEREOF, this Agreement was duly executed on and as of
the date first written below.
Agreed to and Accepted on this 29th day of December, 1999:
SPATIALIZER AUDIO LABORATORIES, INC., a
Delaware corporation
By: /s/ Henry R. Mandell
----------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
Subscriber:
BANK INSINGER DE BEAUFORT, a Netherlands bank
By: /s/ R. Mooij
-----------------------------------------
Name: R. Mooij
Title: Director
Executed this 29th day of December, 1999.
15
<PAGE>
SCHEDULE A
Subscriber Number of Shares Number
Name and Address Purchase Price of Common Stock of Warrants
- ---------------- -------------- --------------- -----------
BANK INSINGER DE BEAUFORT US $250,000 448,632 500,000
Herengracht 551
1017 BW Amsterdam
The Netherlands
<PAGE>
SCHEDULE B
1. The Company has failed to pay at the stated maturity on December 31, 1998,
the principal and accrued interest due under that certain Nonnegotiable
Unsecured Promissory Note, issued April 14, 1998, by the Company to
Clarion Finanz, A.G. in the original principal amount of US$650,000.00.
This note is being restructured on or before January 1, 2000, by agreement
between the parties.
2. The Company has failed to pay at the stated maturity on November 30, 1999,
the principal and accrued interest due under that certain Nonnegotiable
Secured Promissory Note, issued December 14, 1998, by the Company to Carlo
Civelli and certain officers and directors of the Company in the original
principal amount of US$95,000.00. This note is being restructured on or
before January 1, 2000, by agreement between the parties.
<PAGE>
EXHIBIT A
Stock Purchase Warrant
<PAGE>
Bank Insigner de Beaufort
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 500,000 Shares of Common Stock of
Spatializer Audio Laboratories, Inc.
THIS STOCK PURCHASE WARRANT (this "Warrant") certifies that, for value
received, BANK INSINGER DE BEAUFORT, a Netherlands Bank (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 December 31, 2002 (the
"Termination Date") but not thereafter, to subscribe for and purchase from
SPATIALIZER AUDIO LABORATORIES, INC., a Delaware corporation (the "Company"),
Five Hundred Thousand (500,000) shares of Common Stock (the "Warrant Shares").
The purchase price of one share of Common Stock (the "Exercise Price") under
this Warrant shall be Sixty-Seven United States Cents (US$0.67). 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 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. This Warrant shall be issued in the name of the
Investor. This Warrant is not transferable.
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 Section 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 Investor
at the address of the Investor appearing on the books of the Company) and upon
payment of the Exercise Price of the shares thereby purchased; whereupon the
Investor 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 Investor within five business days after the date on which this
<PAGE>
Bank Insigner de Beaufort
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 Investor 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 Investor.
6. Restrictions on Transfer of Warrant Shares.
(a) 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 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 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 the effectiveness of the Company's
Registration Statement on Form S-3 to be filed pursuant to that certain
Registration Rights Agreement (the "Registration Rights Agreement"), dated of
even date herewith, between the Company and the Investor.
(b) Unless the Warrant Shares have been registered under the Act, or
are exempt from registration, upon exercise of the Warrant or any portion
thereof and the issuance of any 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 Investor agrees and acknowledges that this Warrant is being purchased for
its 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 Investor 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 Investor will not
sell, hypothecate or otherwise transfer the Warrant except in accordance with
the Act thereunder and applicable
2
<PAGE>
Bank Insigner de Beaufort
state securities laws or unless, in the opinion of counsel for the Investor
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 stockholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
8. No Rights as Stockholder until Exercise. This Warrant does not entitle
the Investor to any voting rights or other rights as a stockholder of the
Company prior to the exercise thereof. If, however, at the time of the surrender
of this Warrant and purchase of Warrant Shares the Investor shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to the Investor 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. 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,
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, if mutilated, the Company will make and deliver a new Warrant of like
tenor and dated as of such cancellation, in lieu of this Warrant.
10. 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 Saturday,
Sunday or legal holiday.
11. Effect of Certain Events.
(a) In case the Company shall at any time effect any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities of the Company or another entity, or other property, the
Investor 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 would have been entitled to receive after the
happening of such transaction had this Warrant been exercised immediately prior
thereto.
(b) The Investor shall be granted registration rights for the
Warrant Shares pursuant to the Registration Rights Agreement.
12. 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
3
<PAGE>
Bank Insigner de Beaufort
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 Investor 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.
13. 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.
14. 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
Investor 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.
15. Authorized Shares. The Investor hereby acknowledges that, as of the
Closing Date (as defined in the Agreement), the Company may not be able to
reserve from its authorized but unissued shares of Common Stock a sufficient
number of shares of Common Stock to permit the exercise in full of all of the
outstanding Warrants. The Company shall use its best efforts to reserve, prior
to February 15, 2000, a sufficient number of shares of Common Stock from its
authorized but unissued shares of Common Stock to permit the exercise in full of
all of the outstanding Warrants. The Company covenants that, after such time as
it has increased the number of authorized shares of Common Stock and for the
remainder of 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. Subject to the foregoing, 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 OTC Bulletin Board or any domestic
securities exchange upon which the Common Stock may be listed.
16. Miscellaneous.
(a) Issue Date. 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.
4
<PAGE>
(b) Governing Law; Jurisdiction. This Warrant shall be binding upon
any successors or assigns of the parties hereto. 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. The Company 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 Warrant 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. The Company hereby agrees that if Investor 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 Company, and the Company hereby waives any defenses
available to it under local law and agrees to the enforcement of such a
judgment. The Company 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.
(c) Restrictions. The Investor 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.
(d) 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.
(e) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Investor or the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
the Investor at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
(f) Legal Costs and Fees. In any action to enforce the provisions of
this Warrant, the prevailing party shall be able to collect as damages from the
other party, in addition to all other remedies provided by applicable law, the
prevailing party's court costs and reasonable attorneys' fees.
[Remainder of Page Intentionally Left Blank]
5
<PAGE>
Bank Insigner de Beaufort
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated as of: December 29, 1999
SPATIALIZER AUDIO LABORATORIES, INC.
By:___________________________________
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
6
<PAGE>
Bank Insigner de Beaufort
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.
Dated:___________________ BANK INSINGER DE BEAUFORT
By:______________________________________
Name:____________________________________
Title:___________________________________
NOTE: Signature must conform in all respects to holder's name as specified on
the face of the attached warrant.
7
<PAGE>
EXHIBIT B
Registration Rights Agreement
<PAGE>
Bank Insinger de Beaufort
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated the 29th day
of December, 1999, between BANK INSINGER DE BEAUFORT, a Netherlands Bank with an
address at Herengracht 551, 1017 BW Amsterdam, The Netherlands (the "Holder"),
and SPATIALIZER AUDIO LABORATORIES, INC., a Delaware corporation having its
principal place of business at 20700 Ventura Boulevard, Suite 140, 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 that certain Common Stock
Subscription Agreement (the "Subscription Agreement"), dated of even date
herewith, Four Hundred Forty-eight Thousand Six Hundred Thirty-two (448,632)
shares of Common Stock, and a Warrant to purchase an aggregate of Five Hundred
Thousand (500,000) shares of Common Stock. 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 shares of Common Stock subscribed for and purchased by the
Holder pursuant to the Subscription Agreement, 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 "Act") and disposed of pursuant thereto, (ii) registration under
the 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 Registrable Securities as
provided herein, the Registrable Securities are "restricted securities" as
defined in Rule 144 promulgated under the Act. The Holder understands that no
disposition or transfer of the Registrable 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 Act is
then in effect with respect thereto.
<PAGE>
Bank Insinger de Beaufort
Section 3. Registration Rights.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission (the "SEC"), within thirty (30) days after
the date hereof, 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 Holder's Registrable Securities, so as to permit
resale of the Registrable Securities under the Act. The Company agrees that it
will cause the Registration Statement to become effective by May 1, 2000. The
number of securities to be registered shall include all of Holder's Registrable
Securities.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 hereof current under Act
until the earlier of (i) the date that all of the Registrable Securities have
been sold by Holder 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 (the
"Effective Date").
(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, the fees and expenses of any counsel
it selects, and such other extraordinary expenses as are necessary to qualify
the sale of the Registrable 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 the Holder reasonably designates and shall furnish
indemnification in the manner provided in Section 9 hereof. However, the Company
shall not be required to qualify the Registrable Securities in any state or
jurisdiction which will require an escrow or other restriction relating to the
Company and/or the sellers, or where the Company would be required to qualify as
a dealer in securities under the securities or blue sky laws of such state or
jurisdiction. The Company at its expense will supply the Holder 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) 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 April 15, 2000, then the Company will pay,
in cash, to the Holder by wire transfer, as liquidated damages for such failure
and not as a penalty, two percent (2%) of the Purchase Price (as defined in the
Subscription Agreement) per share of Registrable Security each month thereafter
until such 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.
2
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Bank Insinger de Beaufort
(e) 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 Act, the Company shall (except as otherwise
provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the SEC 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 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 sales
of securities from time to time in connection with a registration statement
pursuant to Rule 415 under the 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 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 the
Holder to consummate the public sale or other disposition in such jurisdiction
of the securities owned by the Holder; provided, however, that: (i) 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, and (ii) the Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 5(c) 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.
(d) list such securities on the OTC Bulletin Board 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;
3
<PAGE>
Bank Insinger de Beaufort
(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 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. 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 upon the occurrence of any of
the following:
(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 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 Holder within the meaning of the 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 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,
4
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Bank Insinger de Beaufort
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 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 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 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 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
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<PAGE>
Bank Insinger de Beaufort
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.
Section 9. Contribution. In order to provide for just and equitable
contribution under the 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 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
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<PAGE>
Bank Insinger de Beaufort
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 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 Holder, to its 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 shall have the right to
include 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 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, 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)
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. 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
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Bank Insinger de Beaufort
considered an original document and which together shall be considered a
complete document. This Agreement constitutes the entire agreement between
Subscriber and the Company with respect to the subject matter hereof. This
Agreement may be amended only by a writing executed by all parties.
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 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.
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.
Section 16. Legal Costs and Fees. In any action to enforce the provisions
of this Agreement, the prevailing party shall be able to collect as damages from
the other party, in addition to all other remedies provided by applicable law,
the prevailing party's court costs and reasonable attorneys' fees.
[Remainder of Page Intentionally Left Blank]
<PAGE>
Bank Insinger de Beaufort
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, on the day and year first above written.
SPATIALIZER AUDIO LABORATORIES, INC.
By:
-----------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
WITNESSED:
- ------------------------
Margaret G. Graf
BANK INSINGER DE BEAUFORT
By:
-----------------------------------
Name:
Title:
8
Romofin AG
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") 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 ACT AND UNDER APPLICABLE STATE SECURITIES LAWS,
OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF
THE ACT AND UNDER PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
COMMON STOCK SUBSCRIPTION AGREEMENT
Spatializer Audio Laboratories, Inc.
THIS COMMON STOCK SUBSCRIPTION AGREEMENT (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 Common Stock, $0.01 par value per share (the "Common
Stock") of Spatializer Audio Laboratories, Inc. (OTC Bulletin Board symbol
"SPAZ"), located at 20700 Ventura Boulevard, Suite 140, Woodland Hills,
California 91364, a corporation organized under the laws of Delaware, USA
(hereinafter referred to as the "Company"). In addition, the Company will sell
to the Subscriber listed on Schedule A annexed hereto ("Subscriber" or
"Purchaser"), a warrant (the "Warrant") to purchase Two (2) shares of Common
Stock for each One Dollar ($1.00) funded hereunder 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 A annexed hereto). This
Subscription and, if accepted by the Company, the offer and sale of the Common
Stock, Warrant and the Common Stock underlying the Warrant (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 Section 9 herein.
<PAGE>
Subscriber hereby represents and warrants to and agrees with the Company,
and the Company hereby represents and warrants to and agrees with Subscriber, as
follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 Closing. The Company will sell and 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, shares of Common Stock for an aggregate purchase price of Two Hundred
Fifty Thousand U.S. Dollars (US$250,000.00) (the "Aggregate Purchase Price")
based on the purchase price per share (the "Purchase Price") defined below. The
number of shares of Common Stock to be issued to Subscriber pursuant to this
Agreement shall be determined by dividing Two Hundred Fifty Thousand U.S.
Dollars (US$250,000.00) by the Purchase Price, provided, however, that the
Company shall not issue to Subscriber a fraction of a share of Common Stock and
shall instead round the number of shares of Common Stock issued up to the next
whole share of Common Stock.
1.2. Purchase Price. The Purchase Price shall be determined on the
Closing Date, and shall equal the average of the closing bid prices of Common
Stock for the ten (10) consecutive trading days ending one (1) trading day prior
to the Closing Date. The "closing bid price" shall mean the last bid price for
Common Stock on the OTC Bulletin Board, as reported by Bloomberg L.P.
1.3 Form of Payment. Subscriber shall pay the Aggregate Purchase
Price by delivering immediately available funds in United States Dollars by wire
transfer to an account designated by the Company prior to the Closing Date
against delivery of the Common Stock and Warrants as payment in full for the
Securities.
Section 2. Representations and Warranties of Subscriber. Subscriber
acknowledges, represents, warrants and agrees as follows:
2.1 Organization and Authorization. Subscriber is duly incorporated
or organized and is 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 Subscriber, the performance by Subscriber of its
obligations hereunder and the consummation by Subscriber of the transactions
contemplated hereby have been duly authorized and require no other proceedings
on the part of Subscriber. The undersigned has all right, power and authority to
execute and deliver this Agreement. This Agreement has been duly executed and
delivered by Subscriber and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligation of Subscriber, enforceable against Subscriber in accordance with its
terms.
2.2 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 under, or give rise to
a right of termination, cancellation or acceleration of any material obligation
or to a loss of a material benefit with respect to, any provision of
Subscriber's charter, bylaws, partnership agreement, operating agreement or
other organizational document and
2
<PAGE>
any amendments thereto, or any material mortgage, deed of trust, indenture,
lease or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to Subscriber.
2.3 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 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.
2.4 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.
2.5 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-Ks, and
registration statements, filed by the Company since March 1, 1998 (collectively,
the "Reports"). Except for the Reports and this Agreement, Subscriber
acknowledges that it 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 Subscriber may
reasonably request, including technical information, and other material
information about the Company. Subscriber acknowledges that the Company has
offered its full and unconditional cooperation in making such information
available to Subscriber, and that the Company has recommended that Subscriber
request and review such information prior to making an investment decision.
2.6 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 Subscriber.
2.7 This Agreement and Reports Constitute Sole Representations.
Except for the delivery of the Reports and this Agreement, no oral or written
representations or warranties have been made, or oral or written information
furnished, to Subscriber or its advisors, if any, with respect to the offer and
sale of the Securities by the Company, any agent, employee or affiliate of the
Company, or by any other person. Subscriber acknowledges that in entering into
this transaction Subscriber is not relying upon any information, other than that
contained in the Reports, this Agreement and the results of independent
investigation, if any, by Subscriber.
2.8 Subscriber is an Accredited Investor. 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
3
<PAGE>
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 US$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 US$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 US$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 US$1,000,000;
(vi) Any natural person who had an individual income in excess of
US$200,000 in each of the two (2) most recent years or joint
income with that person's spouse in excess of US$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 US$5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person
as described in Section 230.506(b)(2)(ii) of Regulation D
under the Act;
(viii) Any entity in which all of the equity owners are accredited
investors;
4
<PAGE>
(ix) Any self-directed employee benefit plan with investment
decisions made solely by persons that are accredited investors
within the meaning of Rule 501 of Regulation D promulgated
under the Act; or
(x) Any private investment company with assets under management in
excess of US$________________________.
2.9 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 Subscriber set forth herein in order to determine the
applicability of such exemptions and the suitability of Subscriber to acquire
the Securities.
2.10 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.
2.11 No Advertisements. 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.
2.12 Registration Rights. The parties have entered into a
Registration Rights Agreement (Exhibit B annexed hereto).
2.13 Restricted Securities. Subscriber hereby confirms that it has
been informed that the Securities will be, when issued, restricted securities
under the Act and may not be resold or transferred unless first registered under
the federal securities laws or unless an exemption from such registration is
available with respect to a resale in the United States or in an "offshore
transaction" (as such term is defined in Regulations S under the Act).
Accordingly, Subscriber hereby acknowledges that it is prepared to hold the
Securities for an indefinite period. Subscriber is aware that Rule 144 and
Regulation S, promulgated under the Act, permit limited public resales of
securities acquired in non-public offerings, subject to the satisfaction of
certain conditions. Subscriber understands that under Rule 144 the conditions
include, among other things: the availability of certain current public
information about the issuer, the resale occurring not fewer than one (1) year
or two (2) years, as applicable, after the party has purchased and paid for the
securities to be sold, the sale
5
<PAGE>
being through a broker in an unsolicited "broker's transaction" and the amount
of securities being sold during any three-month period not exceeding specified
volume limitations. Subscriber acknowledges and understands that the Company may
not be satisfying the current public information requirement of Rule 144 at the
time Subscriber wishes to sell the Securities, or other conditions under Rule
144 which are required of the Company. Subscriber understands that Regulation S,
as currently in effect, allows resales in private and public transactions in
certain circumstances, only in qualified offshore transactions and only when
certain holding periods of at least one (1) year have been fulfilled. Subscriber
understands that he or she may be precluded from selling any of the Securities
under Rule 144 or Regulation S even if the holding periods have been satisfied
either because the other conditions may not have been fulfilled or because
markets for resales do not exist. Prior to its acquisition of the Securities,
Subscriber acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Subscriber has
such knowledge and experience in financial and business matters as to make it
capable of utilizing said information to evaluate the risks of the prospective
investment and to make an informed investment decision.
2.14. Authorized Shares. Subscriber hereby acknowledges that, as of
the Closing Date, the Company may not be able to reserve from its authorized but
unissued shares of Common Stock a sufficient number of shares of Common Stock to
permit the exercise in full of all of the outstanding Warrants. Subscriber
understands that the Company is currently taking steps to increase the number of
authorized shares of Common Stock.
Section 3. Representations and Warranties of the Company. For so long as
any Securities held by 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
OTC Bulletin Board. 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 the Closing Date, to the Company's knowledge:
(i) none of the Company's filings with the SEC contain any untrue statement of a
material fact or omit to state any material fact
6
<PAGE>
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 (after giving effect to any filings on Form 12b-25) filed
all requisite forms, reports and exhibits thereto with the SEC.
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 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 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 non-assessable 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 under, or give rise to
a right of termination, cancellation or acceleration of any material obligation
or to a loss of a material benefit with respect to, any provision of the
Company's Certificate of Incorporation and any amendments thereto, Bylaws, or
any material mortgage, deed of trust, 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, 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 December 31, 1998, 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 circumstance 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
7
<PAGE>
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. Except as set forth in this Agreement, the Reports
or on Schedule B annexed hereto, 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 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 Bylaws 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 this
Agreement, the Reports or on Schedule B annexed hereto, 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. 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
8
<PAGE>
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 OTC Bulletin Board or another organized
United States market or quotation system. The Company has not received any
notice, oral or written, regarding continued listing and, as long as the Common
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.
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 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 Subscriber
shall provide the Company's transfer agent any and all papers necessary to
complete the transfer under Rule 144, including, but not limited to, opinions of
counsel to such 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 43,033,477 shares were outstanding as of December 14, 1999, and 1,000,000
shares of Preferred Stock, $0.01 par value per share, none of which are
outstanding as of the date hereof. All issued and outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable.
9
<PAGE>
3.20 Dilution. The Company is aware and acknowledges that exercise
of the Warrant would cause dilution to existing stockholders and could
significantly increase the outstanding number of shares of Common Stock.
Section 4. Covenants of the Company. For so long as any Securities
held by Subscriber remain outstanding, the Company acknowledges, represents,
warrants and agrees as follows:
(i) The Company shall use its best efforts to reserve, prior to
February 15, 2000, a sufficient number of shares of Common
Stock from its authorized but unissued shares of Common Stock
to permit the exercise in full of all of the outstanding
Warrants. The Company is currently organizing a stockholder
meeting to increase the number of authorized shares of Common
Stock of the Company, and has filed with the SEC prior to the
date hereof a preliminary proxy statement in connection with
such stockholder meeting.
(ii) It will maintain the listing of its Common Stock on the OTC
Bulletin Board.
(iii) It will permit Subscriber to exercise its right to exercise
the Warrants by telecopying an executed and completed Notice
of Exercise to the Company and delivering the original Notice
of Exercise and the original Warrant to the Company by
overnight courier. Each business date on which a Notice of
Exercise is telecopied to and received by the Company in
accordance with the provisions hereof shall be deemed an
"Exercise Date". The Company will transmit the certificates
representing shares of Common Stock issuable upon exercise of
any Warrants (together with the certificates representing the
Warrants not so exercised) to Subscriber via express courier,
by electronic transfer or otherwise within three (3) business
days after the Exercise Date if the Company has received the
original Notice of Exercise and Warrant being exercised by
such date. In addition to any other remedies which may be
available to Subscriber, in the event that the Company fails
to effect delivery of such shares of Common Stock within such
three (3) business day period, Subscriber will be entitled to
revoke the relevant Notice of Exercise by delivering a notice
to such effect to the Company whereupon the Company and
Subscriber shall each be restored to their respective
positions immediately prior to delivery of such Notice of
Exercise. The Notice of Exercise and Warrant representing the
portion of the Warrant exercised shall be delivered as
follows:
To the Company:
Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 140
Woodland Hills, CA 91364-2357
Fax: (818) 227-9750
Attn: Henry R. Mandell, Interim Chief Executive Officer
10
<PAGE>
Section 5. 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 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 Subscriber may
reasonably request in availing itself of any rule or
regulation of the SEC allowing Subscriber to sell any such
Securities without registration.
Section 6. Indemnification. The Company and 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
and costs) 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.
Section 7. 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 8. Legend. The certificates representing shares of Common Stock,
including shares of Common Stock to be issued upon exercise of the Warrants,
shall bear 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
11
<PAGE>
THEREFROM UNDER THE ACT WHICH, EXCEPT IN THE CASE OF AN EXEMPTION
PURSUANT TO RULE 144 UNDER THE 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 9. Closing Date. The Closing Date hereunder shall be December 29,
1999, or such earlier date on or before December 31, 1999, 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 10. Conditions to the Company's Obligation to Sell. Subscriber
understands that the Company's obligation to sell the Common 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 immediately available funds in
United States Dollars by wire transfer to an account
designated by the Company prior to the Closing Date as payment
in full for the purchase of the Securities;
(iii) All representations and warranties of Subscriber set forth in
this Agreement shall remain true and correct as of the Closing
Date; and
(iv) The sale and issuance of the Common Stock, Warrants, and the
proposed issuance of the Common Stock underlying the Warrants
shall be legally permitted by all laws and regulations to
which Subscriber and the Company are subject.
Section 11. Conditions to Subscriber's Obligation to Purchase. The Company
understands that Subscriber's obligation to purchase the Common Stock and
Warrants is conditioned upon:
(i) Acceptance by Subscriber of a satisfactory Subscription
Agreement and all duly executed Exhibits hereto for the sale
of the Securities;
(ii) Delivery of the original Common Stock and Warrants;
(iii) All representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Dates;
and
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<PAGE>
(iv) At the Closing Date, the sale and issuance of the Common Stock
and Warrants shall be legally permitted by all laws and
regulations to which the Company and Subscriber are subject.
Section 12. Miscellaneous.
12.1 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.
12.2 Confidentiality. The Company and 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 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.
12.3 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 Subscriber and the
Company with respect to the subject matter hereof. This Agreement may be amended
only by a writing executed by all parties.
12.4 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
13
<PAGE>
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.
12.5 Entire Agreement. This Agreement and Exhibits hereto constitute
the entire agreement between Subscriber and the Company with respect to the
subject matter hereof. This Agreement may be amended only by a writing executed
by all parties.
12.6 Reliance by Company. Subscriber represents to the Company that
the representations and warranties of 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.
12.7 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.
12.8 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]
14
<PAGE>
IN WITNESS WHEREOF, this Agreement was duly executed on and as of
the date first written below.
Agreed to and Accepted on this 29th day of December, 1999:
SPATIALIZER AUDIO LABORATORIES, INC.,
a Delaware corporation
By: /s/ Henry R. Mandell
----------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
Subscriber:
ROMOFIN AG
By: /s/ B.J. Mosimann
------------------------------------
Name: B.J. Mosimann
Title: President
Executed this 29th day of December,
1999.
15
<PAGE>
SCHEDULE A
Subscriber Purchase Number of Shares Number
Name and Address Price of Common Stock of Warrants
- ---------------- ----- --------------- -----------
ROMOFIN AG US $250,000 448,632 500,000
Burglestrasse 6
8027 Zurich, Switzerland
<PAGE>
SCHEDULE B
1. The Company has failed to pay at the stated maturity on December 31, 1998,
the principal and accrued interest due under that certain Nonnegotiable
Unsecured Promissory Note, issued April 14, 1998, by the Company to
Clarion Finanz, A.G. in the original principal amount of US$650,000.00.
This note is being restructured on or before January 1, 2000, by agreement
between the parties.
2. The Company has failed to pay at the stated maturity on November 30, 1999,
the principal and accrued interest due under that certain Nonnegotiable
Secured Promissory Note, issued December 14, 1998, by the Company to Carlo
Civelli and certain officers and directors of the Company in the original
principal amount of US$95,000.00. This note is being restructured on or
before January 1, 2000, by agreement between the parties.
<PAGE>
EXHIBIT A
Stock Purchase Warrant
<PAGE>
EXHIBIT B
Registration Rights Agreement
<PAGE>
Romofin, A.G.
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 500,000 Shares of Common Stock of
Spatializer Audio Laboratories, Inc.
THIS STOCK PURCHASE WARRANT (this "Warrant") certifies that, for value
received, ROMOFIN, A.G. (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 December 31, 2002 (the "Termination Date") but not
thereafter, to subscribe for and purchase from SPATIALIZER AUDIO LABORATORIES,
INC., a Delaware corporation (the "Company"), Five Hundred Thousand (500,000)
shares of Common Stock (the "Warrant Shares"). The purchase price of one share
of Common Stock (the "Exercise Price") under this Warrant shall be Sixty-Seven
United States Cents (US$0.67). 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 Common Stock
Subscription Agreement (the "Agreement"), dated as of December 29, 1999, in the
amount of Two Hundred Fifty Thousand United States Dollars (US$250,000) 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. This Warrant shall be issued in the name of the
Investor. This Warrant is not transferable.
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 Section 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 Investor
at the address of the Investor appearing on the books of the Company) and upon
payment of the Exercise Price of the shares thereby purchased; whereupon the
Investor shall be entitled to receive a certificate for
<PAGE>
Romofin, A.G.
the number of shares of Common Stock so purchased. Certificates for shares
purchased hereunder shall be delivered to the Investor 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 Investor 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 Investor.
6. Restrictions on Transfer of Warrant Shares.
(a) Warrant Shares may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except in accordance with applicable
federal and state securities laws.
(b) Unless the Warrant Shares have been registered under the Act, or
are exempt from registration, upon exercise of the Warrant or any portion
thereof and the issuance of any 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 Investor agrees and acknowledges that this Warrant is being purchased for
its 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 Investor 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 Investor 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 Investor 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 stockholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
2
<PAGE>
Romofin, A.G.
8. No Rights as Stockholder until Exercise. This Warrant does not entitle
the Investor to any voting rights or other rights as a stockholder of the
Company prior to the exercise thereof. If, however, at the time of the surrender
of this Warrant and purchase of Warrant Shares the Investor shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to the Investor 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. 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,
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, if mutilated, the Company will make and deliver a new Warrant of like
tenor and dated as of such cancellation, in lieu of this Warrant.
10. 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 Saturday,
Sunday or legal holiday.
11. 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 stockholders consists solely of cash, the Company
shall give the Investor 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 any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities of the Company or another entity, or other property, the
Investor 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) The Investor shall be granted registration rights for the
Warrant Shares pursuant to a Registration Rights Agreement dated of even date
herewith.
12. 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
3
<PAGE>
Romofin, A.G.
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 Investor 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.
13. 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.
14. 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
Investor 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.
15. Authorized Shares. The Investor hereby acknowledges that, as of the
Closing Date (as defined in the Agreement), the Company may not be able to
reserve from its authorized but unissued shares of Common Stock a sufficient
number of shares of Common Stock to permit the exercise in full of all of the
outstanding Warrants. The Company shall use its best efforts to reserve, prior
to February 15, 2000, a sufficient number of shares of Common Stock from its
authorized but unissued shares of Common Stock to permit the exercise in full of
all of the outstanding Warrants. The Company covenants that, after such time as
it has increased the number of authorized shares of Common Stock and for the
remainder of 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. Subject to the foregoing, 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 OTC Bulletin Board or any domestic
securities exchange upon which the Common Stock may be listed.
16. 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 parties
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Romofin, A.G.
hereto. 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 Investor 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 Investor or the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
the Investor at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated as of: December 29, 1999
SPATIALIZER AUDIO LABORATORIES, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
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Romofin, A.G.
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.
Dated:___________________ ROMOFIN, A.G.
By:_____________________________________
Name:___________________________________
Title:__________________________________
NOTE: Signature must conform in all respects to holder's name as specified on
the face of the attached warrant.
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 29th day of December, 1999,
between ROMOFIN, A.G. (the "Holder"), and SPATIALIZER AUDIO LABORATORIES, INC.,
a Delaware corporation having its principal place of business at 20700 Ventura
Boulevard, Suite 140, 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 that certain Common Stock
Subscription Agreement (the "Subscription Agreement"), dated of even date
herewith, Four Hundred Forty-Eight Thousand Six Hundred Thirty-Two (448,632)
shares of Common Stock, and a Warrant to purchase an aggregate of Five Hundred
Thousand (500,000) shares of Common Stock. 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 shares of Common Stock subscribed for and purchased by the
Holder pursuant to the Subscription Agreement, 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 "Act") and disposed of pursuant thereto, (ii) registration under
the 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 Registrable Securities as
provided herein, the Registrable Securities are "restricted securities" as
defined in Rule 144 promulgated under the Act. The Holder understands that no
disposition or transfer of the Registrable 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 Act is
then in effect with respect thereto.
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Romofin, A.G.
Section 3. Registration Rights.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission (the "SEC"), within thirty (30) days after
the date hereof, a registration statement on Form S-3 or if the Company is not
eligible to use such Form S-3, another appropriate form of registration
statement (the "Registration Statement"), at the sole expense of the Company
(except as provided in Section 3(c) hereof), in respect of Holder's Registrable
Securities, so as to permit resale of the Registrable Securities under the Act.
The Company agrees that it will cause the Registration Statement to become
effective by April 15, 2000. The number of securities to be registered shall
include all of Holder's Registrable Securities.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 hereof current under 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 (the
"Effective Date").
(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 Registrable 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 the Holder reasonably designates and
shall furnish indemnification in the manner provided in Section 9 hereof.
However, the Company shall not be required to qualify the Registrable Securities
in any state or jurisdiction which will require an escrow or other restriction
relating to the Company and/or the sellers, or where the Company would be
required to qualify as a dealer in securities under the securities or blue sky
laws of such state or jurisdiction. The Company at its expense will supply the
Holder 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 Registration Statement which is to be
filed if, in the 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 Act.
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Romofin, A.G.
(e) 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 Act, the Company shall (except as otherwise
provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the SEC 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 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 sales
of securities from time to time in connection with a registration statement
pursuant to Rule 415 under the 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 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 the
Holder to consummate the public sale or other disposition in such jurisdiction
of the securities owned by the Holder; provided, however, that: (i) 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, and (ii) the Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 5(c) 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.
(d) list such securities on the OTC Bulletin Board 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;
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Romofin, A.G.
(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 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. 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 upon the occurrence of any of
the following:
(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 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 Holder within the meaning of the 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 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,
4
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Romofin, A.G.
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 Act or the rules and regulations promulgated thereunder) a copy of the
prospectus contained in the 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 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 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 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 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
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Romofin, A.G.
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.
Section 9. Contribution. In order to provide for just and equitable
contribution under the 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 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
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Romofin, A.G.
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 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 Holder, to its 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 and followed by mail, delivery shall be deemed given two
(2) days after such facsimile is sent.
Section 11. "Piggy-Back" Registration. The Holder shall have the right to
include 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 Holder agrees it
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 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 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,
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) 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.
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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 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.
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]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, on the day and year first above written.
SPATIALIZER AUDIO LABORATORIES, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
WITNESSED:
___________________________________
Margaret G. Graf
ROMOFIN, A.G.
By:_____________________________________
Name:___________________________________
Title:__________________________________
9
Arab Commerce Bank
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") 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 ACT AND UNDER APPLICABLE STATE SECURITIES LAWS,
OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF
THE ACT AND UNDER PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
COMMON STOCK SUBSCRIPTION AGREEMENT
Spatializer Audio Laboratories, Inc.
THIS COMMON STOCK SUBSCRIPTION AGREEMENT (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 Common Stock, $0.01 par value per share (the "Common
Stock") of Spatializer Audio Laboratories, Inc. (OTC Bulletin Board symbol
"SPAZ"), located at 20700 Ventura Boulevard, Suite 140, Woodland Hills,
California 91364, a corporation organized under the laws of Delaware, USA
(hereinafter referred to as the "Company"). In addition, the Company will sell
to the Subscriber listed on Schedule A annexed hereto ("Subscriber" or
"Purchaser"), a warrant (the "Warrant") to purchase Two (2) shares of Common
Stock for each One Dollar ($1.00) funded hereunder 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 A annexed hereto). This
Subscription and, if accepted by the Company, the offer and sale of the Common
Stock, Warrant and the Common Stock underlying the Warrant (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 Section 9 herein.
<PAGE>
Subscriber hereby represents and warrants to and agrees with the Company,
and the Company hereby represents and warrants to and agrees with Subscriber, as
follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 Closing. The Company will sell and 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, shares of Common Stock for an aggregate purchase price of One Hundred
Thousand U.S. Dollars (US$100,000.00) (the "Aggregate Purchase Price") based on
the purchase price per share (the "Purchase Price") defined below. The number of
shares of Common Stock to be issued to Subscriber pursuant to this Agreement
shall be determined by dividing One Hundred Thousand U.S. Dollars
(US$100,000.00) by the Purchase Price, provided, however, that the Company shall
not issue to Subscriber a fraction of a share of Common Stock and shall instead
round the number of shares of Common Stock issued up to the next whole share of
Common Stock.
1.2. Purchase Price. The Purchase Price shall be determined on the
Closing Date, and shall equal the average of the closing bid prices of Common
Stock for the ten (10) consecutive trading days ending one (1) trading day prior
to the Closing Date. The "closing bid price" shall mean the last bid price for
Common Stock on the OTC Bulletin Board, as reported by Bloomberg L.P.
1.3 Form of Payment. Subscriber shall pay the Aggregate Purchase
Price by delivering immediately available funds in United States Dollars by wire
transfer to an account designated by the Company prior to the Closing Date
against delivery of the Common Stock and Warrants as payment in full for the
Securities.
Section 2. Representations and Warranties of Subscriber. Subscriber
acknowledges, represents, warrants and agrees as follows:
2.1 Organization and Authorization. Subscriber is duly incorporated
or organized and is 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 Subscriber, the performance by Subscriber of its
obligations hereunder and the consummation by Subscriber of the transactions
contemplated hereby have been duly authorized and require no other proceedings
on the part of Subscriber. The undersigned has all right, power and authority to
execute and deliver this Agreement. This Agreement has been duly executed and
delivered by Subscriber and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligation of Subscriber, enforceable against Subscriber in accordance with its
terms.
2.2 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 under, or give rise to
a right of termination, cancellation or acceleration of any material obligation
or to a loss of a material benefit with respect to, any provision of
Subscriber's
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charter, bylaws, partnership agreement, operating agreement or other
organizational document and any amendments thereto, or any material mortgage,
deed of trust, indenture, lease or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree statute, law, ordinance,
rule or regulation applicable to Subscriber.
2.3 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 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.
2.4 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.
2.5 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-Ks, and
registration statements, filed by the Company since March 1, 1998 (collectively,
the "Reports"). Except for the Reports and this Agreement, Subscriber
acknowledges that it 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 Subscriber may
reasonably request, including technical information, and other material
information about the Company. Subscriber acknowledges that the Company has
offered its full and unconditional cooperation in making such information
available to Subscriber, and that the Company has recommended that Subscriber
request and review such information prior to making an investment decision.
2.6 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 Subscriber.
2.7 This Agreement and Reports Constitute Sole Representations.
Except for the delivery of the Reports and this Agreement, no oral or written
representations or warranties have been made, or oral or written information
furnished, to Subscriber or its advisors, if any, with respect to the offer and
sale of the Securities by the Company, any agent, employee or affiliate of the
Company, or by any other person. Subscriber acknowledges that in entering into
this transaction Subscriber is not relying upon any information, other than that
contained in the Reports, this Agreement and the results of independent
investigation, if any, by Subscriber.
2.8 Subscriber is an Accredited Investor. 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:
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<PAGE>
(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 US$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 US$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 US$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 US$1,000,000;
(vi) Any natural person who had an individual income in excess of
US$200,000 in each of the two (2) most recent years or joint
income with that person's spouse in excess of US$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 US$5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person
as described in Section 230.506(b)(2)(ii) of Regulation D
under the Act;
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(viii) Any entity in which all of the equity owners are accredited
investors;
(ix) Any self-directed employee benefit plan with investment
decisions made solely by persons that are accredited investors
within the meaning of Rule 501 of Regulation D promulgated
under the Act; or
(x) Any private investment company with assets under management in
excess of US$________________________.
2.9 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 Subscriber set forth herein in order to determine the
applicability of such exemptions and the suitability of Subscriber to acquire
the Securities.
2.10 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.
2.11 No Advertisements. 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.
2.12 Registration Rights. The parties have entered into a
Registration Rights Agreement (Exhibit B annexed hereto).
2.13 Restricted Securities. Subscriber hereby confirms that it has
been informed that the Securities will be, when issued, restricted securities
under the Act and may not be resold or transferred unless first registered under
the federal securities laws or unless an exemption from such registration is
available with respect to a resale in the United States or in an "offshore
transaction" (as such term is defined in Regulations S under the Act).
Accordingly, Subscriber hereby acknowledges that it is prepared to hold the
Securities for an indefinite period. Subscriber is aware that Rule 144 and
Regulation S, promulgated under the Act, permit limited public resales of
securities acquired in non-public offerings, subject to the satisfaction of
certain conditions.
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<PAGE>
Subscriber understands that under Rule 144 the conditions include, among other
things: the availability of certain current public information about the issuer,
the resale occurring not fewer than one (1) year or two (2) years, as
applicable, after the party has purchased and paid for the securities to be
sold, the sale being through a broker in an unsolicited "broker's transaction"
and the amount of securities being sold during any three-month period not
exceeding specified volume limitations. Subscriber acknowledges and understands
that the Company may not be satisfying the current public information
requirement of Rule 144 at the time Subscriber wishes to sell the Securities, or
other conditions under Rule 144 which are required of the Company. Subscriber
understands that Regulation S, as currently in effect, allows resales in private
and public transactions in certain circumstances, only in qualified offshore
transactions and only when certain holding periods of at least one (1) year have
been fulfilled. Subscriber understands that he or she may be precluded from
selling any of the Securities under Rule 144 or Regulation S even if the holding
periods have been satisfied either because the other conditions may not have
been fulfilled or because markets for resales do not exist. Prior to its
acquisition of the Securities, Subscriber acquired sufficient information about
the Company to reach an informed and knowledgeable decision to acquire the
Securities. Subscriber has such knowledge and experience in financial and
business matters as to make it capable of utilizing said information to evaluate
the risks of the prospective investment and to make an informed investment
decision.
2.14. Authorized Shares. Subscriber hereby acknowledges that, as of
the Closing Date, the Company may not be able to reserve from its authorized but
unissued shares of Common Stock a sufficient number of shares of Common Stock to
permit the exercise in full of all of the outstanding Warrants. Subscriber
understands that the Company is currently taking steps to increase the number of
authorized shares of Common Stock.
Section 3. Representations and Warranties of the Company. For so long as
any Securities held by 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
OTC Bulletin Board. 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)
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<PAGE>
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 the Closing Date, to the Company's knowledge:
(i) none of the Company's filings with the SEC 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 (after
giving effect to any filings on Form 12b-25) filed all requisite forms, reports
and exhibits thereto with the SEC.
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 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 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 non-assessable 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 under, or give rise to
a right of termination, cancellation or acceleration of any material obligation
or to a loss of a material benefit with respect to, any provision of the
Company's Certificate of Incorporation and any amendments thereto, Bylaws, or
any material mortgage, deed of trust, 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, which would have a material adverse effect on the
Company's business and financial condition.
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<PAGE>
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 December 31, 1998, 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 circumstance 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. Except as set forth in this Agreement, the Reports
or on Schedule B annexed hereto, 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 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 Bylaws 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 this
Agreement, the Reports or on Schedule B annexed hereto, 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. 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
8
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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 OTC Bulletin Board or another organized
United States market or quotation system. The Company has not received any
notice, oral or written, regarding continued listing and, as long as the Common
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.
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 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 Subscriber
shall provide the Company's transfer agent any and all papers necessary to
complete the transfer under Rule 144, including, but not limited to, opinions of
counsel to such
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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 43,033,477 shares were outstanding as of December 14, 1999, and 1,000,000
shares of Preferred Stock, $0.01 par value per share, none of which are
outstanding as of the date hereof. 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 exercise
of the Warrant would cause dilution to existing stockholders and could
significantly increase the outstanding number of shares of Common Stock.
Section 4. Covenants of the Company. For so long as any Securities held by
Subscriber remain outstanding, the Company acknowledges, represents, warrants
and agrees as follows:
(i) The Company shall use its best efforts to reserve, prior to
February 15, 2000, a sufficient number of shares of Common
Stock from its authorized but unissued shares of Common Stock
to permit the exercise in full of all of the outstanding
Warrants. The Company is currently organizing a stockholder
meeting to increase the number of authorized shares of Common
Stock of the Company, and has filed with the SEC prior to the
date hereof a preliminary proxy statement in connection with
such stockholder meeting.
(ii) It will maintain the listing of its Common Stock on the OTC
Bulletin Board.
(iii) It will permit Subscriber to exercise its right to exercise
the Warrants by telecopying an executed and completed Notice
of Exercise to the Company and delivering the original Notice
of Exercise and the original Warrant to the Company by
overnight courier. Each business date on which a Notice of
Exercise is telecopied to and received by the Company in
accordance with the provisions hereof shall be deemed an
"Exercise Date". The Company will transmit the certificates
representing shares of Common Stock issuable upon exercise of
any Warrants (together with the certificates representing the
Warrants not so exercised) to Subscriber via express courier,
by electronic transfer or otherwise within three (3) business
days after the Exercise Date if the Company has received the
original Notice of Exercise and Warrant being exercised by
such date. In addition to any other remedies which may be
available to Subscriber, in the event that the Company fails
to effect delivery of such shares of Common Stock within such
three (3) business day period, Subscriber will be entitled to
revoke the relevant Notice of Exercise by delivering a notice
to such effect to the Company whereupon the Company and
Subscriber shall each be restored to their respective
positions
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immediately prior to delivery of such Notice of Exercise. The
Notice of Exercise and Warrant representing the portion of the
Warrant exercised shall be delivered as follows:
To the Company:
Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 140
Woodland Hills, CA 91364-2357
Fax: (818) 227-9750
Attn: Henry R. Mandell, Interim Chief Executive Officer
Section 5. 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 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 Subscriber may
reasonably request in availing itself of any rule or
regulation of the SEC allowing Subscriber to sell any such
Securities without registration.
Section 6. Indemnification. The Company and 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
and costs) 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.
Section 7. 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
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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 8. Legend. The certificates representing shares of Common Stock,
including shares of Common Stock to be issued upon exercise of the Warrants,
shall bear 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 THE ACT WHICH, EXCEPT IN THE CASE OF
AN EXEMPTION PURSUANT TO RULE 144 UNDER THE 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 9. Closing Date. The Closing Date hereunder shall be December 29,
1999, or such earlier date on or before December 31, 1999, 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 10. Conditions to the Company's Obligation to Sell. Subscriber
understands that the Company's obligation to sell the Common 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 immediately available funds in
United States Dollars by wire transfer to an account
designated by the Company prior to the Closing Date as payment
in full for the purchase of the Securities;
(iii) All representations and warranties of Subscriber set forth in
this Agreement shall remain true and correct as of the Closing
Date; and
(iv) The sale and issuance of the Common Stock, Warrants, and the
proposed issuance of the Common Stock underlying the Warrants
shall be legally permitted by all laws and regulations to
which Subscriber and the Company are subject.
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Section 11. Conditions to Subscriber's Obligation to Purchase. The Company
understands that Subscriber's obligation to purchase the Common Stock and
Warrants is conditioned upon:
(i) Acceptance by Subscriber of a satisfactory Subscription
Agreement and all duly executed Exhibits hereto for the sale
of the Securities;
(ii) Delivery of the original Common Stock and Warrants;
(iii) All representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Dates;
and
(iv) At the Closing Date, the sale and issuance of the Common Stock
and Warrants shall be legally permitted by all laws and
regulations to which the Company and Subscriber are subject.
Section 12. Miscellaneous.
12.1 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.
12.2 Confidentiality. The Company and 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 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
13
<PAGE>
written information, without retaining copies thereof, previously furnished by
it as a result of this Agreement or in connection herewith.
12.3 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 Subscriber and the
Company with respect to the subject matter hereof. This Agreement may be amended
only by a writing executed by all parties.
12.4 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.
12.5 Entire Agreement. This Agreement and Exhibits hereto constitute
the entire agreement between Subscriber and the Company with respect to the
subject matter hereof. This Agreement may be amended only by a writing executed
by all parties.
12.6 Reliance by Company. Subscriber represents to the Company that
the representations and warranties of 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.
12.7 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.
12.8 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]
14
<PAGE>
IN WITNESS WHEREOF, this Agreement was duly executed on and as of
the date first written below.
Agreed to and Accepted on this 29th day of
December, 1999:
SPATIALIZER AUDIO LABORATORIES, INC., a
Delaware corporation
By: /s/ Henry R. Mandell
----------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
Subscriber:
ARAB COMMERCE BANK
By: /s/ A. De Nazareth
-------------------------------------
Name: A. De Nazareth
Title: Co Secretary
Executed this 29th day of December, 1999.
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<PAGE>
SCHEDULE A
Subscriber Number of Shares Number
Name and Address Purchase Price of Common Stock of Warrants
- ---------------- -------------- --------------- -----------
Arab Commerce Bank US $100,000 179,453 200,000
[address]
<PAGE>
SCHEDULE B
1. The Company has failed to pay at the stated maturity on December 31, 1998,
the principal and accrued interest due under that certain Nonnegotiable
Unsecured Promissory Note, issued April 14, 1998, by the Company to
Clarion Finanz, A.G. in the original principal amount of US$650,000.00.
This note is being restructured on or before January 1, 2000, by agreement
between the parties.
2. The Company has failed to pay at the stated maturity on November 30, 1999,
the principal and accrued interest due under that certain Nonnegotiable
Secured Promissory Note, issued December 14, 1998, by the Company to Carlo
Civelli and certain officers and directors of the Company in the original
principal amount of US$95,000.00. This note is being restructured on or
before January 1, 2000, by agreement between the parties.
<PAGE>
EXHIBIT A
Stock Purchase Warrant
<PAGE>
EXHIBIT B
Registration Rights Agreement
<PAGE>
Arab Commerce Bank
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 200,000 Shares of Common Stock of
Spatializer Audio Laboratories, Inc.
THIS STOCK PURCHASE WARRANT (this "Warrant") certifies that, for value
received, ARAB COMMERCE BANK (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 December 31, 2002 (the "Termination Date") but not
thereafter, to subscribe for and purchase from SPATIALIZER AUDIO LABORATORIES,
INC., a Delaware corporation (the "Company"), Two Hundred Thousand (200,000)
shares of Common Stock (the "Warrant Shares"). The purchase price of one share
of Common Stock (the "Exercise Price") under this Warrant shall be Sixty-Seven
United States Cents (US$0.67). 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 Common Stock
Subscription Agreement (the "Agreement"), dated as of December 29, 1999, in the
amount of One Hundred Thousand United States Dollars (US$100,000) 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. This Warrant shall be issued in the name of the
Investor. This Warrant is not transferable.
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 Section 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 Investor
at the address of the Investor appearing on the books of the Company) and upon
payment of the Exercise Price of the shares thereby purchased; whereupon the
Investor shall be entitled to receive a certificate for
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Arab Commerce Bank
the number of shares of Common Stock so purchased. Certificates for shares
purchased hereunder shall be delivered to the Investor 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 Investor 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 Investor.
6. Restrictions on Transfer of Warrant Shares.
(a) Warrant Shares may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except in accordance with applicable
federal and state securities laws.
(b) Unless the Warrant Shares have been registered under the Act, or
are exempt from registration, upon exercise of the Warrant or any portion
thereof and the issuance of any 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 Investor agrees and acknowledges that this Warrant is being purchased for
its 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 Investor 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 Investor 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 Investor 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 stockholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
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Arab Commerce Bank
8. No Rights as Stockholder until Exercise. This Warrant does not entitle
the Investor to any voting rights or other rights as a stockholder of the
Company prior to the exercise thereof. If, however, at the time of the surrender
of this Warrant and purchase of Warrant Shares the Investor shall be entitled to
exercise this Warrant, the shares so purchased shall be and be deemed to be
issued to the Investor 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. 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,
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, if mutilated, the Company will make and deliver a new Warrant of like
tenor and dated as of such cancellation, in lieu of this Warrant.
10. 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 Saturday,
Sunday or legal holiday.
11. 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 stockholders consists solely of cash, the Company
shall give the Investor 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 any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities of the Company or another entity, or other property, the
Investor 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) The Investor shall be granted registration rights for the
Warrant Shares pursuant to a Registration Rights Agreement dated of even date
herewith.
12. 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
3
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Arab Commerce Bank
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 Investor 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.
13. 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.
14. 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
Investor 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.
15. Authorized Shares. The Investor hereby acknowledges that, as of the
Closing Date (as defined in the Agreement), the Company may not be able to
reserve from its authorized but unissued shares of Common Stock a sufficient
number of shares of Common Stock to permit the exercise in full of all of the
outstanding Warrants. The Company shall use its best efforts to reserve, prior
to February 15, 2000, a sufficient number of shares of Common Stock from its
authorized but unissued shares of Common Stock to permit the exercise in full of
all of the outstanding Warrants. The Company covenants that, after such time as
it has increased the number of authorized shares of Common Stock and for the
remainder of 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. Subject to the foregoing, 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 OTC Bulletin Board or any domestic
securities exchange upon which the Common Stock may be listed.
16. 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 parties
4
<PAGE>
Arab Commerce Bank
hereto. 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 Investor 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 Investor or the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
the Investor 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]
5
<PAGE>
Arab Commerce Bank
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated as of: December 29, 1999
SPATIALIZER AUDIO LABORATORIES, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
6
<PAGE>
Arab Commerce Bank
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.
Dated:___________________ ARAB COMMERCE BANK
By:____________________________________
Name:__________________________________
Title:_________________________________
NOTE: Signature must conform in all respects to holder's name as specified on
the face of the attached warrant.
7
<PAGE>
Arab Commerce Bank
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 29th day of December, 1999,
between ARAB COMMERCE BANK (the "Holder"), and SPATIALIZER AUDIO LABORATORIES,
INC., a Delaware corporation having its principal place of business at 20700
Ventura Boulevard, Suite 140, 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 that certain Common Stock
Subscription Agreement (the "Subscription Agreement"), dated of even date
herewith, One Hundred Seventy-Nine Thousand Four Hundred Fifty-Three (179,453)
shares of Common Stock, and a Warrant to purchase an aggregate of Two Hundred
Thousand (200,000) shares of Common Stock. 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 shares of Common Stock subscribed for and purchased by the
Holder pursuant to the Subscription Agreement, 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 "Act") and disposed of pursuant thereto, (ii) registration under
the 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 Registrable Securities as
provided herein, the Registrable Securities are "restricted securities" as
defined in Rule 144 promulgated under the Act. The Holder understands that no
disposition or transfer of the Registrable 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 Act is
then in effect with respect thereto.
<PAGE>
Arab Commerce Bank
Section 3. Registration Rights.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission (the "SEC"), within thirty (30) days after
the date hereof, a registration statement on Form S-3 or if the Company is not
eligible to use such Form S-3, another appropriate form of registration
statement (the "Registration Statement"), at the sole expense of the Company
(except as provided in Section 3(c) hereof), in respect of Holder's Registrable
Securities, so as to permit resale of the Registrable Securities under the Act.
The Company agrees that it will cause the Registration Statement to become
effective by April 15, 2000. The number of securities to be registered shall
include all of Holder's Registrable Securities.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 hereof current under 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 (the
"Effective Date").
(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 Registrable 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 the Holder reasonably designates and
shall furnish indemnification in the manner provided in Section 9 hereof.
However, the Company shall not be required to qualify the Registrable Securities
in any state or jurisdiction which will require an escrow or other restriction
relating to the Company and/or the sellers, or where the Company would be
required to qualify as a dealer in securities under the securities or blue sky
laws of such state or jurisdiction. The Company at its expense will supply the
Holder 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 Registration Statement which is to be
filed if, in the 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 Act.
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Arab Commerce Bank
(e) 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 Act, the Company shall (except as otherwise
provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the SEC 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 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 sales
of securities from time to time in connection with a registration statement
pursuant to Rule 415 under the 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 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 the
Holder to consummate the public sale or other disposition in such jurisdiction
of the securities owned by the Holder; provided, however, that: (i) 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, and (ii) the Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 5(c) 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.
(d) list such securities on the OTC Bulletin Board 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;
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Arab Commerce Bank
(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 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. 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 upon the occurrence of any of
the following:
(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 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 Holder within the meaning of the 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 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,
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Arab Commerce Bank
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 Act or the rules and regulations promulgated thereunder) a copy of the
prospectus contained in the 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 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 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 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 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
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Arab Commerce Bank
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.
Section 9. Contribution. In order to provide for just and equitable
contribution under the 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 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
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Arab Commerce Bank
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 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 Holder, to its 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 and followed by mail, delivery shall be deemed given two
(2) days after such facsimile is sent.
Section 11. "Piggy-Back" Registration. The Holder shall have the right to
include 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 Holder agrees it
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 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 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,
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) 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.
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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 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.
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]
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Arab Commerce Bank
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, on the day and year first above written.
SPATIALIZER AUDIO LABORATORIES, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
WITNESSED:
______________________
Margaret G. Graf
ARAB COMMERCE BANK
By:_____________________________________
Name:___________________________________
Title:__________________________________
9
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") 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 ACT AND UNDER APPLICABLE STATE SECURITIES LAWS,
OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF
THE ACT AND UNDER PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
10% CONVERTIBLE SERIES B PREFERRED STOCK
SUBSCRIPTION AGREEMENT
Spatializer Audio Laboratories, Inc.
THIS 10% CONVERTIBLE SERIES B PREFERRED STOCK SUBSCRIPTION AGREEMENT (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 parties in connection
with the private placement of the 10% Convertible Series B Preferred Stock,
$0.01 par value per share (the "Preferred Stock") of Spatializer Audio
Laboratories, Inc., a corporation organized under the laws of Delaware, USA (OTC
Bulletin Board symbol "SPAZ"), located at 20700 Ventura Boulevard, Suite 140,
Woodland Hills, California 91364, (hereinafter referred to as the "Company") to
the Subscribers listed on Schedule A annexed hereto (each a "Subscriber" or
"Purchaser"). The terms on which the Preferred Stock may be converted into
common stock of the Company, par value $0.01 per share (the "Common Stock") and
the other terms of the Preferred Stock are set forth in the Certificate of
Designation of the 10% Convertible Series B Preferred Stock (Exhibit A annexed
hereto). This Subscription and, if accepted by the Company, the offer and sale
of the Preferred Stock (sometimes referred to as 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 Section 11 herein.
<PAGE>
Each Subscriber hereby represents and warrants to and agrees with the
Company, and the Company hereby represents and warrants to and agrees with each
Subscriber, as follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 Closing. The Company will sell and each Subscriber will buy, in
reliance upon the representations and warranties of the Company and the
Subscribers contained in this Agreement, upon the terms and conditions
hereinafter set forth, shares of Preferred Stock as set forth on Schedule A.
1.2 Cancellation of Existing Indebtedness. As of December 29, 1999,
the Company owes that amount of outstanding principal and accrued interest
thereon (the "Existing Indebtedness") as conclusively indicated for each
Subscriber on Schedule B annexed hereto pursuant to those notes and agreements
listed on Schedule B. The consideration for the issuance of shares of Preferred
Stock to the Subscribers shall be the cancellation of the entire amount of
Existing Indebtedness owed to the Subscribers. The Subscribers and the Company
hereby agree that, upon the issuance of the Preferred Stock to the Subscribers
in accordance with Schedule A, all Existing Indebtedness is completely
extinguished, and that all obligations of the Company with respect to the
Existing Indebtedness are completely satisfied and discharged. This Agreement
constitutes the entire understanding of the Company and the Subscribers with
respect to the Existing Indebtedness, and completely replaces and supercedes all
prior notes, letters, communications, understandings, certificates, instruments,
documents, and agreements, both oral and written, that evidence or relate to any
portion of the Existing Indebtedness, including without limitation those notes,
agreements and understandings listed on Schedule B. All written documents that
evidence or relate to any portion of the Existing Indebtedness shall be null and
void and of no force or effect. Subscribers shall return any original copies of
such documentation to the Company for cancellation.
1.3 Number of Shares. The number of shares of Preferred Stock to be
issued to each Subscriber was determined by dividing (i) that portion of the
Existing Indebtedness owed to such Subscriber as of December 29, 1999 (as set
forth on Schedule B), by (ii) Ten Dollars (US$10.00); provided, however, that
the Company shall not issue to any Subscriber a fraction of a share of Preferred
Stock and shall instead round the number of shares of Preferred Stock issued up
to the next whole share of Preferred Stock.
1.4 Dividends. Dividends will accrue and be paid at the rate of ten
(10%) percent per annum 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. For purposes of calculating dividends, each share of Preferred Stock
shall be deemed to have a face value of Ten Dollars (US$10.00).
Section 2. Representations and Warranties of Subscriber. Each Subscriber
hereby acknowledges, represents, warrants and agrees as follows:
2.1 Organization and Authorization. If not an individual, it is duly
incorporated or organized and is validly existing in the state or country of its
incorporation or organization and has
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all requisite power and authority to purchase and hold the Securities. The
decision to invest and the execution and delivery of this Agreement by
Subscriber, the performance by Subscriber of its obligations hereunder and the
consummation by Subscriber of the transactions contemplated hereby have been
duly authorized and require no other proceedings on the part of Subscriber. The
undersigned has all right, power and authority to execute and deliver this
Agreement. This Agreement has been duly executed and delivered by Subscriber
and, assuming the execution and delivery hereof and acceptance thereof by the
Company, will constitute the legal, valid and binding obligation of Subscriber,
enforceable against Subscriber in accordance with its terms.
2.2 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 under, or give rise to
a right of termination, cancellation or acceleration of any material obligation
or to a loss of a material benefit with respect to, any provision of
Subscriber's charter, bylaws, partnership agreement, operating agreement or
other organizational document and any amendments thereto, or any material
mortgage, deed of trust, indenture, lease or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree statute, law,
ordinance, rule or regulation applicable to Subscriber.
2.3 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 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.
2.4 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.
2.5 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-Ks, and
registration statements, filed by the Company since March 1, 1998 (collectively,
the "Reports"). Except for the Reports and this Agreement, Subscriber
acknowledges that it 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 any Subscriber
may reasonably request, including technical information, and other material
information about the Company. Subscriber acknowledges that the Company has
offered its full and unconditional cooperation in making such information
available to Subscriber, and that the Company has recommended that Subscriber
request and review such information prior to making an investment decision.
2.6 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 Subscriber.
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2.7 This Agreement and Reports Constitute Sole Representations.
Except for the delivery of the Reports and this Agreement, no oral or written
representations or warranties have been made, or oral or written information
furnished, to Subscriber or its advisors, if any, with respect to the offer and
sale of the Securities by the Company, any agent, employee or affiliate of the
Company, or by any other person. Subscriber acknowledges that in entering into
this transaction Subscriber is not relying upon any information, other than that
contained in the Reports, this Agreement and the results of independent
investigation, if any, by Subscriber.
2.8 Subscriber is an Accredited Investor. 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 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;
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<PAGE>
(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 $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person
as described in Section 230.506(b)(2)(ii) of Regulation D
under the Act;
(viii) Any entity in which all of the equity owners are accredited
investors;
(ix) Any self-directed employee benefit plan with investment
decisions made solely by persons that are accredited investors
within the meaning of Rule 501 of Regulation D promulgated
under the Act; or
(x) Any private investment company with assets under management in
excess of US$________________________.
2.9 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 Subscriber set forth herein in order to determine the
applicability of such exemptions and the suitability of Subscriber to acquire
the Securities.
2.10 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.
2.11 No Advertisements. 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.
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<PAGE>
2.12 Restricted Securities. Subscriber hereby confirms that it has
been informed that the Securities will be, when issued, restricted securities
under the Act and may not be resold or transferred unless first registered under
the federal securities laws or unless an exemption from such registration is
available with respect to a resale in the United States or in an "offshore
transaction" (as such term is defined in Regulations S under the Act).
Accordingly, Subscriber hereby acknowledges that it is prepared to hold the
Securities for an indefinite period. Subscriber is aware that Rule 144
promulgated by the SEC under the Act is not presently available to exempt the
sale of the Securities from the registration requirements of the Act. Subscriber
is aware that Rule 144 and Regulation S, promulgated under the Act, permit
limited public resales of securities acquired in non-public offerings, subject
to the satisfaction of certain conditions. Subscriber understands that under
Rule 144 the conditions include, among other things: the availability of certain
current public information about the issuer, the resale occurring not fewer than
one (1) year or two (2) years, as applicable, after the party has purchased and
paid for the securities to be sold, the sale being through a broker in an
unsolicited "broker's transaction" and the amount of securities being sold
during any three-month period not exceeding specified volume limitations.
Subscriber acknowledges and understands that the Company may not be satisfying
the current public information requirement of Rule 144 at the time Subscriber
wishes to sell the Securities, or other conditions under Rule 144 which are
required of the Company. Subscriber understands that Regulation S, as currently
in effect, allows resales in private and public transactions in certain
circumstances, only in qualified offshore transactions and only when certain
holding periods of at least one (1) year have been fulfilled. Subscriber
understands that he or she may be precluded from selling any of the Securities
under Rule 144 or Regulation S even if the holding periods have been satisfied
either because the other conditions may not have been fulfilled or because
markets for resales do not exist. Prior to its acquisition of the Securities,
Subscriber acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Subscriber has
such knowledge and experience in financial and business matters as to make it
capable of utilizing said information to evaluate the risks of the prospective
investment and to make an informed investment decision.
2.13. Authorized Shares. Subscriber hereby acknowledges that, as of
the Closing Date, the Company may not be able to reserve from its authorized but
unissued shares of Common Stock a sufficient number of shares of Common Stock to
permit the exercise in full of all of the outstanding Warrants. Subscriber
understands that the Company is currently taking steps to increase the number of
authorized shares of Common Stock.
Section 3. Representations and Warranties of the Company. For so long as
any shares of Preferred Stock held by any 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
6
<PAGE>
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
OTC Bulletin Board. 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 the Closing Date, to the Company's knowledge:
(i) none of the Company's filings with the SEC 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 (after
giving effect to any filings on Form 12b-25) filed all requisite forms, reports
and exhibits thereto with the SEC.
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 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 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 non-assessable 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 under, or give rise to
a right of termination, cancellation or acceleration of any
7
<PAGE>
material obligation or to a loss of a material benefit with respect to, any
provision of the Company's Certificate of Incorporation and any amendments
thereto, Bylaws, or any material mortgage, deed of trust, 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, 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 December 31, 1998, 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 circumstance 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. Except as set forth in this Agreement, the Reports
or on Schedule C annexed hereto, 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 Bylaws 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 this
Agreement, the Reports or on Schedule C annexed hereto, 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.
8
<PAGE>
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 OTC Bulletin Board or another organized
United States market or quotation system. The Company has not received any
notice, oral or written, regarding continued listing and, as long as the
Preferred Stock is outstanding, the Company will take no action which would
impact their continued listing or eligibility of the Company for such listing.
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.
9
<PAGE>
3.18 Registration Alternative. The Company covenants and agrees that
for so long as any of the Common Stock issued upon conversion of the Preferred
Stock 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
Subscribers shall provide the Company's transfer agent any and all papers
necessary to complete the transfer under Rule 144, including, but not limited
to, opinions of counsel to such 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 43,033,477 shares were outstanding as of December 14, 1999, and 1,000,000
shares of preferred stock, $0.01 par value per share, none of which are
outstanding as of the date hereof. All issued and outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable.
Section 4. Covenants of the Company. For so long as any shares of
Preferred Stock held by Subscribers remain outstanding, the Company
acknowledges, represents, warrants and agrees as follows:
(i) The Company shall use its best efforts to reserve, prior to
February 15, 2000, a sufficient number of shares of Common
Stock from its authorized but unissued shares of Common Stock
to permit the exercise in full of all of the outstanding
Warrants. The Company is currently organizing a stockholder
meeting to increase the number of authorized shares of Common
Stock of the Company, and has filed with the SEC prior to the
date hereof a preliminary proxy statement in connection with
such stockholder meeting.
(ii) It will maintain the listing of its Common Stock on the OTC
Bulletin Board.
(iii) It will permit Subscribers to exercise its right to convert
the Preferred Stock by telecopying an executed and completed
Notice of Conversion (in the form of Exhibit B annexed hereto)
to the Company and delivering the original Notice of
Conversion and the certificates representing the Preferred
Stock to the Company by overnight courier. Each business date
on which a Notice of Conversion is telecopied to and received
by the Company in accordance with the provisions hereof shall
be deemed a "Conversion Date". The Company will transmit the
certificates representing shares of Common Stock issuable upon
conversion of any Preferred Stock (together with the
certificates representing the Preferred Stock not so
converted) to the Subscriber via overnight courier, by
electronic transfer or otherwise within three (3) business
days after the Conversion Date if the Company has received the
original Notice of Conversion and Preferred Stock Certificate
being converted by such date. In addition to any other
remedies which may be available to Subscribers, in the event
that the Company fails to effect delivery of such shares of
Common Stock within such three (3) business day period, the
Subscriber will
10
<PAGE>
be entitled to revoke the relevant Notice of Conversion 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. The Notice of Conversion and Preferred
Stock representing the portion of the Preferred Stock
converted shall be delivered as follows:
If to the Company:
Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 140
Woodland Hills, CA 91364-2357
Fax: (818) 227-9751
Attn: Henry R. Mandell, Interim Chief Executive Officer
If to Subscribers, at the respective addresses set forth on
Schedule A.
Section 5. 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 Subscribers 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 any Subscriber may
reasonably request in availing itself of any rule or
regulation of the SEC allowing Subscribers to sell any such
Securities without registration.
Section 6. Indemnification. The Company and Subscribers 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
and costs) 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.
Section 7. Restrictions on Conversion of Preferred Stock. Subscribers
acknowledge
11
<PAGE>
that any shares of Preferred Stock issued to it hereunder shall not be
convertible into shares of Common Stock at any time prior to one year after the
Closing Date.
Section 8. Mandatory Conversion. In the event the Preferred Stock has not
been converted three (3) years from the Closing Date, at that time the Preferred
Stock shall be automatically converted (and all dividends owed thereon shall be
paid by the Company) as if Subscribers voluntarily elected such conversion in
accordance with the procedure, terms and conditions set forth in this Agreement.
Section 9. 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 10. Legend. The certificates representing the Securities,
including shares of Common Stock to be issued upon conversion of the Preferred
Stock, shall bear 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 THE ACT WHICH, EXCEPT IN THE CASE OF
AN EXEMPTION PURSUANT TO RULE 144 UNDER THE 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 11. Closing Date. The Closing Date hereunder shall be December 29,
1999, or such earlier date on or before December 31, 1999 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 12. Conditions to the Company's Obligation to Sell. Subscribers
understand that the Company's obligation to sell the Preferred Stock is
conditioned upon:
12
<PAGE>
(i) The receipt and acceptance by the Company of this Subscription
Agreement and all Exhibits thereto, duly executed by the
Subscribers;
(ii) Delivery by Subscribers of the all written documentation
evidencing or relating to the Existing Indebtedness for
cancellation as payment in full for the purchase of the
Securities;
(iii) All representations and warranties of Subscribers set forth in
this Agreement shall remain true and correct as of the Closing
Date; and
(iv) The sale and issuance of the Preferred Stock shall be legally
permitted by all laws and regulations to which Subscribers and
the Company are subject.
Section 13. Conditions to Subscribers' Obligation to Purchase. The Company
understands that Subscribers' obligation to purchase the Preferred Stock is
conditioned upon:
(i) Acceptance by Subscribers of a satisfactory Subscription
Agreement and all duly executed Exhibits hereto for the sale
of the Securities;
(ii) Delivery of the original Preferred Stock;
(iii) All representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Dates;
and
(iv) At the Closing Date, the sale and issuance of the Preferred
Stock shall be legally permitted by all laws and regulations
to which the Company and Subscribers are subject.
Section 14. Miscellaneous.
14.1 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.
13
<PAGE>
14.2 Confidentiality. The Company and Subscribers 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 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.
14.3 Facsimile/Counterparts. 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.
14.4 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.
14.5 Entire Agreement. This Agreement and Exhibits hereto constitute
the entire agreement between Subscribers and the Company with respect to the
subject matter hereof. This Agreement may be amended only by a writing executed
by all parties.
14.6 Reliance by Company. Each Subscriber represents to the Company
that its representations and warranties 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.
14.7 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.
14.8 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.
14.9 Restriction on Trading. Each Subscriber hereby agrees that,
during the ten (10) trading days immediately preceding any Conversion Date (as
defined in the New Note) and the ten (10) trading days immediately following the
issuance of Common Stock in respect of such conversion, it shall not, whether
directly or indirectly: (i) buy or sell, or make or accept any offer to buy or
sell, any shares of capital stock of the Company; or (ii) buy or sell, or make
or accept any offer
14
<PAGE>
to buy or sell, any derivative security based on or relating to any capital
stock of the Company (including without limitation options to buy or sell shares
of capital stock of the Company). Each Subscriber hereby further agrees not to
engage in any short sales of any shares of capital stock of the Company for so
long as any of its shares of Preferred Stock remain issued and outstanding. No
Subscriber shall be entitled to convert its Preferred Stock into Common Stock
until ten (10) consecutive trading days have elapsed during which it has not
engaged in any of the transactions prohibited by this Section 14.9.
[Remainder of Page Intentionally Left Blank]
15
<PAGE>
IN WITNESS WHEREOF, this Agreement was duly executed on and as of
the date first written below.
Agreed to and Accepted on this
29th day of December, 1999:
SPATIALIZER AUDIO LABORATORIES, INC., a
Delaware corporation
By: /s/ Henry R. Mandell
----------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
CLARION FINANZ, A.G., a Swiss
corporation
By: /s/ Carlo Civelli
------------------------------------
Name: Carlo Civelli
Title: Director
/s/ Carlo Ciuelli
----------------------------------------
CARLO CIVELLI, an individual
/s/ Henry R. Mandell
----------------------------------------
HENRY R. MANDELL, an individual
/s/ James D. Pace
----------------------------------------
JAMES D. PACE, an individual
16
<PAGE>
________________________________________
JEROLD H. RUBINSTEIN, an individual
________________________________________
GILBERT N. SEGEL, an individual
ATON SELECT FUND, LTD., a Swiss
corporation
By: /s/ Jan Barcinowshi
------------------------------------
Name: Jan Barcinowshi
Title: Director
ROMOFIN A.G., a Swiss corporation
By: /s/ B.J. Mosimann
------------------------------------
Name: B.J. Mosimann
Title: President
17
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Shares
Subscriber Address of Preferred Stock
- ---------- ------- ------------------
<S> <C> <C>
Clarion Finanz, A.G., a Swiss Seefeldstrasse 214 76,651
corporation 8034, Zurich, Switzerland
Carlo Civelli, an individual Seefeldstrasse 214 8,259
8034, Zurich, Switzerland
Henry R. Mandell, an individual 20700 Ventura Boulevard, 551
Suite 140
Woodland Hills, CA 91364
James D. Pace, an individual 551
Jerold H. Rubinstein, an individual 551
Gilbert N. Segel, an individual 550
Aton Select Fund, Ltd., Seefeldstrasse 214 5,336
a Swiss corporation 8034, Zurich, Switzerland
Romofin A.G., a Swiss corporation Seefeldstrasse 214 10,518
8034, Zurich, Switzerland
======
Total: 102,967
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Existing
Note, Letter or Other Agreement Indebtedness
Subscriber Regarding Existing Indebtedness As of December 29, 1999
- ---------- ------------------------------- -----------------------
<S> <C> <C>
Clarion Finanz, A.G., Nonnegotiable Unsecured Promissory Note, $ 766,506.85
Swiss corporation issued on April 14, 1998, in the original
principal amount of $650,000.
Carlo Civelli, an Nonnegotiable Secured Promissory Note, $ 82,582.19
individual issued on December 14, 1998 (participant in
the original principal amount of $75,000).
Henry R. Mandell, an Nonnegotiable Secured Promissory Note, $ 5,508.22
individual issued on December 14, 1998 (participant in
the original principal amount of $5,000).
James D. Pace, an Nonnegotiable Secured Promissory Note, $ 5,508.22
individual issued on December 14, 1998 (participant in
the original principal amount of $5,000).
Jerold H. Rubinstein, Nonnegotiable Secured Promissory Note, $ 5,508.22
an individual issued on December 14, 1998 (participant in
the original principal amount of $5,000).
Gilbert N. Segel, an Nonnegotiable Secured Promissory Note, $ 5,498.63
individual issued on December 14, 1998 (participant in
the original principal amount of $5,000).
Aton Select Fund, ________________________________ in the $ 53,356.16
Ltd., a Swiss original principal amount of $50,000.
corporation
Romofin A.G., a Swiss ________________________________ in the $ 105,178.08
corporation original principal amount of $100,000.
==============
Total: $ 1,029,646.57
</TABLE>
<PAGE>
SCHEDULE C
1. The Company has failed to pay at the stated maturity on December 31, 1998,
the principal and accrued interest due under that certain Nonnegotiable
Unsecured Promissory Note, issued April 14, 1998, by the Company to
Clarion Finanz, A.G. in the original principal amount of US$650,000.00.
This note is being restructured on or before January 1, 2000, by agreement
between the parties.
2. The Company has failed to pay at the stated maturity on November 30, 1999,
the principal and accrued interest due under that certain Nonnegotiable
Secured Promissory Note, issued December 14, 1998, by the Company to Carlo
Civelli and certain officers and directors of the Company in the original
principal amount of US$95,000.00. This note is being restructured on or
before January 1, 2000, by agreement between the parties.
<PAGE>
EXHIBIT A
Certificate of Designation of the 10% Convertible Series B Preferred Stock
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES B 10% REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
SPATIALIZER AUDIO LABORATORIES, INC.
Pursuant to Section 151 of the General Corporation Law ("GCL") of the
State of Delaware, and the Bylaws of SPATIALIZER AUDIO LABORATORIES, INC., a
Delaware corporation (the "Company"), we the undersigned, being President and
Secretary, respectively, DO HEREBY CERTIFY, that the following resolution was
duly adopted by the Board of Directors on December 24, 1999:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Company's Certificate of Incorporation and Bylaws, the Board of
Directors hereby provides for the issuance of a series of Preferred Stock of the
Company consisting of 150,000 authorized shares which shall have the voting
powers, designations, preferences and relative participating, optional or other
rights, if any, and the qualifications, limitations, or restrictions, set forth
in such Certificate of Incorporation, and in addition thereto, the following:
Section 1. Designation and Amount. The series of Preferred Stock hereby
created shall be designated as the "Series B Preferred Stock", shall have a par
value of $0.01 per share and the number of shares constituting the Series B
Preferred Stock shall be 150,000 shares. The Series B Preferred Stock shall have
a stated value of US$10.00 per share, with a 10% per annum dividend as set forth
herein.
Section 2. Rank. The Series B Preferred Stock shall rank: (i) prior to all
of the Company's Common Stock, par value $0.01 per share ("Common Stock"), (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 B Preferred Stock), and (iii) junior to any class or series of capital
stock of the Company created before the date hereof (including without
limitation the Series A Preferred Stock of the Company), 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").
Section 3. Dividends. The Series B Preferred Stock will bear a 10% per
annum cumulative dividend, payable out of assets legally available therefor, at
the "Conversion Date" (as defined below) in cash or Common Stock at the
"Conversion Price" (as defined below), at the Company's option. No dividends
shall be paid on the Common Stock or any stock issued pursuant to Section 9
prior to the payment of dividends on Series B Preferred Stock.
Section 4. Sinking Funding. No provisions shall be made for any sinking
fund.
Section 5. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Company,
<PAGE>
either voluntary or involuntary, the holders of Series B Preferred Stock shall
be entitled to receive an amount per share equal to the sum of (i) US$10.00 for
each outstanding share of Series B Preferred Stock, plus (ii) an amount equal to
all accrued and unpaid dividends which shall accrue through the Conversion Date
(the "Liquidation Preference"). If upon the occurrence of such event, the assets
and funds available to be distributed among the holders of the Series B
Preferred Stock shall be insufficient to permit the payment to such holders of
the full preferential amounts due to such holders, then the entire assets and
funds of the Company legally available for distribution shall be distributed
among the holders of the Series B Preferred Stock on a pro rata basis.
(b) Notwithstanding anything set forth above, holders of Series B
Preferred Stock shall not be entitled to receive more than the Liquidation
Preference in the event of any corporate reorganizations or any other
transaction (or series of related transactions) that results in the transfer of
more than fifty percent (50%) of the outstanding voting power of the Company,
and such transactions shall not constitute a liquidation, dissolution, or
winding up of the Company if the successor assumes that obligations of the
Company with respect to the Series B Preferred Stock. A sale, conveyance, or
other disposition of all or substantially all of the Company's assets, shall
constitute a liquidation, dissolution or winding up within the meaning of this
paragraph and shall entitle the holders of the Series B Preferred Stock to the
Liquidation Preference, to the extent available above. The purchase or
redemption by the Company of stock of any class, in any number permitted by law,
for the purpose of this paragraph, shall not be regarded as a liquidation,
dissolution or winding up of the Company.
Section 6. Conversion. The record holders of this Series B Preferred Stock
shall have conversion rights as follows (the "Conversion Rights").
(a) Right to Convert.
(1) The holders may not convert shares of Series B Preferred
Stock until December 29, 2000. On or after December 29, 2000, the holders shall
have the right, subject to Section 6(a)(2) below, to convert, in whole or in
part, shares of Series B Preferred Stock into shares of Common Stock based on
the conversion price per share defined below (the "Conversion Price"). The
number of shares of Common Stock to be issued to the holder upon conversion
shall be determined by (i) multiplying the number of shares of Series B
Preferred Stock to be converted by US$10.00, and (ii) dividing this product by
the Conversion Price, provided, however, that the Company shall not issue to any
holder a fraction of a share of Common Stock and shall instead round the number
of shares of Common Stock issued up to the next whole share of Common Stock.
(2) Upon an election by a holder to convert shares of Series B
Preferred Stock into shares of Common Stock, the Company shall have the right to
pay cash to such holder in lieu of issuing shares of Common Stock. If the
Company elects to pay cash rather than issuing shares of Common Stock, the
Company shall pay to the holder US$10.00 for each share of Series B Preferred
Stock that such holder had elected to convert to shares of Common Stock. The
holder shall surrender the shares of Series B Preferred Stock to the Company for
cancellation.
(3) The "Conversion Price" shall be determined on the
Conversion Date, and shall equal Ninety percent (90%) of the average of the
closing bid prices of Common Stock for the ten (10) consecutive trading days
ending on the trading day immediately preceding the Conversion
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<PAGE>
Date, provided, however, that the Conversion Price shall under no circumstances:
(i) be lower than the average of the closing bid prices of Common Stock for the
ten (10) consecutive trading days ending one (1) trading day prior to December
29, 1999 (the "Floor Price"); or (ii) be higher than 200% of the Floor Price
(the "Ceiling Price"). The "closing bid price" shall mean the last bid price for
Common Stock on the OTC Bulletin Board, as reported by any authoritative source
acceptable to the Company.
(4) In the event of any stock split, reverse stock split,
stock dividend, reclassification or similar event affecting the Common Stock
(each an "Adjustment Transaction"), then both the Floor Price and the Ceiling
Price shall be adjusted by multiplying them by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such Adjustment Transaction, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such Adjustment
Transaction.
(b) Mechanics of Conversion. Conversion of the Series B Preferred
Stock to Common Stock may be exercised by holder telecopying an executed and
completed notice of conversion ("Notice of Conversion") to the Company, and
delivering the original Notice of Conversion and the certificate representing
the shares of Series B Preferred Stock to the Company by hand or by overnight
courier within three (3) business days of exercise. Each date on which a Notice
of Conversion is telecopied to and received by the Company in accordance with
the provisions hereof shall be deemed a "Conversion Date". The Company will
transmit the certificates representing the Common Stock issuable upon conversion
of all or any part of the shares of Series B Preferred Stock (together with any
certificates for replacement shares of Series B Preferred Stock not previously
converted but included in the original certificate presented for conversion) to
the holder via overnight courier within three (3) business days after the
Company has received the original Notice of Conversion and certificate for the
shares of Series B Preferred Stock being so converted. The Notice of Conversion
and certificate representing the portion of the shares of Series B Preferred
Stock converted shall be delivered as follows:
To the Company: Spatializer Audio Laboratories, Inc.
20700 Ventura Blvd., Suite 140
Woodland Hills, CA 91364-2357
Attention: Henry Mandell
Telephone: (818) 227-3370
Facsimile: (818) 227-9751
or to such other person at such other place as the Company shall designate to
the holder in writing.
(c) Lost or Stolen Certificates. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any certificates
representing shares of Series B Preferred Stock, and (in the case of loss, theft
or destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of the certificate(s), if mutilated, the
Company shall execute and deliver new certificate(s) of like tenor and date.
However, the Company shall not be obligated to re-issue such lost or stolen
certificates if holder contemporaneously requests the Company to convert such
Series B Preferred Stock into Common Stock.
(d) Mandatory Conversion. The Series B Preferred Stock is subject to
mandatory
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<PAGE>
conversion after three (3) years from the Closing Date, at which time all shares
of Series B Preferred Stock will automatically be converted upon the terms set
forth in Section 6(a) at the Conversion Price in effect at such time. Mandatory
conversion shall not occur in the event of the occurrence of one or both of the
following at the time of such mandatory conversion: (x) the Company is unable,
or admits in writing its inability, to pay its debts, or is not paying its debts
generally as they come due, or has made any assignment for the benefit of
creditors; or (y) the Company has commenced, or there has been commenced against
the Company, any case, proceeding, or other action seeking to have an order for
relief entered with respect to the Company, or to adjudicate the Company as a
bankrupt or insolvent.
(e) Reservation of Stock Issuable upon Conversion. As of the date
hereof, the Company may not be able to 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 shares of Series B Preferred Stock. The Company is
currently organizing a stockholder meeting to increase the number of authorized
shares of Common Stock of the Company, and has filed with the SEC prior to the
date hereof a preliminary proxy statement in connection with such stockholder
meeting. After such time as the Company has increased the number of authorized
shares of Common Stock, it shall at all times thereafter reserve and keep
available out of its authorized but unissued shares of Common Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all then outstanding shares of Series B Preferred Stock at the
Floor Price.
(f) Conversion Adjustments.
(1) Adjustment Due to Merger, Consolidation, Etc. If, prior to
the conversion of all Series B Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of another class or
classes of stock or securities of the Company or another entity, or other
property, then each holder of Series B Preferred Stock shall, upon being given
at least ten (10) business days advance written notice of such transaction,
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities or other property as would have been issuable or payable with respect
to or in exchange for the number of shares of Common Stock purchasable and
receivable upon the conversion of Series B Preferred Stock held by such holder
immediately prior to the merger, consolidation, exchange of shares,
recapitalization or reorganization. Appropriate provisions shall be made with
respect to the rights and interests of the holders of the Series B Preferred
Stock to the end that the provisions hereof shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock or securities
thereafter deliverable upon the conversion thereof. The Company shall not effect
any transaction described in this subsection unless (1) each holder of Series B
Preferred Stock has been given at least ten (10) business days advance written
notice of such transaction, and (2) the resulting successor or acquiring entity
(if not the Company) assumes by written instrument the obligation to deliver to
the holders of the Series B Preferred Stock such shares of stock and/or
securities or other property as the holders of the Series B Preferred Stock
would be entitled to receive pursuant to this Section 6(f).
(2) No Fractional Shares. If any adjustment under this Section
would create a fractional share, or a right to acquire a fractional share, of
any security, such fractional share
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<PAGE>
shall be disregarded and the number of shares of such security issuable upon
conversion shall be the next higher number of shares.
Section 7. Voting Rights. The holders of the Series B Preferred Stock
shall have no voting power whatsoever, except with respect to any amendment to
the Company's Certificate of Incorporation which would have an adverse effect on
the Series B Preferred Stock or as otherwise provided by the Delaware
Corporation Laws.
Section 8. Status of Converted Stock. In the event any shares of Series B
Preferred Stock shall be converted pursuant to Section 6 hereof, or if the
Company has elected to pay cash to such holder pursuant to Section 6(a)(2) in
lieu of issuing shares of Common Stock, the shares of Series B Preferred Stock
so converted (or for which cash was paid in lieu of conversion) shall be
cancelled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Company as Series B
Preferred Stock.
Section 9. Preference Rights. Nothing contained herein shall be construed
to prevent the Board of Directors of the Company from issuing one or more series
of Preferred Stock with dividend and/or liquidation preferences junior to the
dividend and liquidation preferences of the Series B Preferred Stock.
Section 10. Restrictions on Trading. Each holder of Series B Preferred
Stock shall agree that, during the ten (10) trading days immediately preceding
the Conversion Date, it shall not, whether directly or indirectly: (i) buy or
sell, or make or accept any offer to buy or sell, any shares of capital stock of
the Company; or (ii) buy or sell, or make or accept any offer to buy or sell,
any derivative security based on or relating to any capital stock of the Company
(including without limitation options to buy or sell shares of capital stock of
the Company). Each holder of Series B Preferred Stock shall also agree not to
engage in any short sales of any shares of capital stock of the Company for so
long as any of its shares of Series B Preferred Stock remain issued and
outstanding. No holder of Series B Preferred Stock shall be entitled to convert
its Series B Preferred Stock into Common Stock until ten (10) consecutive
trading days have elapsed during which such holder has not engaged in any of the
transactions prohibited by this Section 10.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS THEREOF, the Company has caused the undersigned to sign this
Certificate of Designation this 24th day of December, 1999.
SPATIALIZER AUDIO LABORATORIES, INC.
By:_____________________________________
Name: Henry R. Mandell
Title: Interim Chief Executive
Officer
Attest:
By:________________________________
Name: Henry R. Mandell
Title: Secretary
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<PAGE>
EXHIBIT B
Form of Notice of Conversion
<PAGE>
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to convert
10% Convertible Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert Preferred Stock
Certificate No. ______ into shares of Common Stock of Spatializer Audio
Laboratories, Inc. (the "Company") according to the conditions hereof, as of the
date written below.
The undersigned represents and warrants that:
(i) all offers and sales by the undersigned of the shares of Common Stock
issuable to the undersigned upon conversion of the Preferred Stock shall be made
pursuant to an exemption from registration under the Securities Act of 1933, as
amended (the "Act"), or pursuant to registration of the Common Stock under the
Act, subject to any restrictions on sale or transfer set forth in the 10%
Convertible Series B Preferred Stock Subscription Agreement between the Company
and the holder of the Preferred Stock submitted herewith for conversion;
(ii) the undersigned has not engaged in any transaction or series of
transaction that is a part of or a plan or scheme to evade the registration
requirements of the Act; and
(iii) upon conversion pursuant to this Notice of Conversion, the
undersigned will not own or be deemed to beneficially own (within the meaning of
the Securities Exchange Act of 1934, as amended) 4.99% or more of the then
issued and outstanding shares of the Company.
___________________________________ ________________________________________
Conversion Date Applicable Conversion Price
___________________________________ ________________________________________
Number of Common Shares upon Dollar Amount of Conversion
Conversion
___________________________________ ________________________________________
Signature Print Name
Address: ________________________________________
________________________________________
________________________________________
The original certificate(s) of Preferred Stock and Notice of Conversion
must be received by the Company by the third (3rd) business day following the
Conversion Date.
AGREEMENT REGARDING CANCELLATION OF WARRANTS
This AGREEMENT REGARDING CANCELLATION OF WARRANTS (this "Agreement"),
dated as of December 29, 1999, is entered into by and between SPATIALIZER AUDIO
LABORATORIES, INC., a Delaware corporation (the "Company"), CPR (USA) INC., a
Delaware corporation ("CPR"), LIBERTYVIEW FUNDS, L.P., a Cayman Islands exempted
limited partnership ("LP") and successor-in-interest to LIBERTYVIEW PLUS FUND, a
Cayman Islands corporation, LIBERTYVIEW FUND, LLC, a Delaware limited liability
company ("LLC"), CLARION FINANZ, A.G., a Swiss corporation ("Clarion"), and ATON
SELECT FUND, LTD., a Swiss corporation ("Aton", and together with CPR, LP, LLC
and Clarion, collectively, "Holders").
WHEREAS, the Holders are holders of Stock Purchase Warrants (the
"Warrants") to purchase shares of common stock of the Company, par value $0.01
per share (the "Common Stock"), in the amounts set forth on Schedule A attached
hereto;
WHEREAS, concurrently herewith, the Company intends to enter into a
private placement (the "Private Placement") of Common Stock in return for
investments of up to an aggregate amount of One Million Fifty Thousand United
States Dollars (US$1,050,000);
WHEREAS, the Company deems the Private Placement to be in the best
interest of the Company;
WHEREAS, the Company requires that each Holder agree to cancel its
Warrants as a condition to consummating the Private Placement and all concurrent
transactions contemplated thereby.
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. All Warrants are hereby cancelled. As of the date hereof, the Holders
shall have no further rights of any kind under the Warrants, including without
limitation the right to purchase or receive Common Stock pursuant to the
Warrants.
2. All written documentation evidencing the Warrants shall be null and
void and of no force or effect. The Holders shall return any such written
documentation to the Company for cancellation. The failure of a Holder to return
such documentation shall not affect the void and cancelled status of such
Warrant.
3. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without reference to conflict of laws
principles.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, on the day and year first above written.
SPATIALIZER AUDIO LABORATORIES, INC.
By: ________________________________________
Name: Henry R. Mandell
Title: Chief Executive Officer
CPR (USA) INC.
By: ________________________________________
Name:_______________________________________
Title:______________________________________
LIBERTYVIEW FUNDS, L.P.
By: ________________________________________
Name:_______________________________________
Title:______________________________________
LIBERTYVIEW FUND, LLC
By: ________________________________________
Name:_______________________________________
Title:______________________________________
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<PAGE>
CLARION FINANZ, A.G.
By: Carlo Civelli
Name: Carlo Civelli
Title: Director
ATON SELECT FUND, LTD.
By: Barcikowski Jan
Name: Barcikowski Jan
Title: Director
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<PAGE>
SCHEDULE A
Holder Number of Warrants
CPR (USA) Inc. 150,000
LibertyView Funds, L.P. 120,000
LibertyView Fund, LLC 30,000
Clarion Finanz, A.G. 50,000
Aton Select Fund, Ltd. 150,000
========
Total: 500,000
[LETTERHEAD OF BRAND FARRAR & BUXBAUM LLP]
February 10, 2000
Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 134
Woodland Hills, California 91364
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Spatializer Audio Laboratories, Inc. (the
"Company"), with respect to the filing of the Company's Registration Statement
on Form S-3 (the "Registration Statement") with the Securities and Exchange
Commission for the purpose of registering under the Securities Act of 1933, as
amended, the resale of an aggregate of up to 6,197,636 shares (the "Shares") of
Common Stock, par value $.01 per share ("Common Stock"), by certain
stockholders of the Company. The Shares consist of 3,672,636 shares of Common
Stock issued prior to the date hereof (the "Issued Shares"), and up to 2,525,000
shares of Common Stock issuable upon exercise of currently outstanding options
and warrants ("Option Shares"). This opinion is delivered to you in connection
with the Registration Statement for the aforementioned resales.
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.
With respect to the Issued Shares, we have assumed that such shares have
been issued and the certificates evidencing the same have been duly delivered,
against receipt of the consideration stipulated therefor, which was not less
than the par value of the Issued Shares.
With respect to the issuance of the Option Shares by the Company, we have
assumed that the Option Shares will be issued, and the certificates evidencing
the same will be duly delivered, in accordance with the respective terms of the
options and the warrants, as the case may be, and against receipt of the
consideration stipulated therefor, which will not be less than the par value of
the Option Shares.
<PAGE>
Spatializer Audio Laboratories, Inc. BRAND FARRAR & BUXBAUM LLP
February 10, 2000 COUNSELLORS AT LAW
Page 2
Based on such examination, in reliance thereon, subject to the foregoing
assumptions, and subject to compliance with applicable state securities laws, we
are of the opinion that the Issued Shares are or, in the case of the Option
Shares, when issued by the Company and paid for in the manner described in the
Registration Statement, will be, validly issued, fully paid and nonassessable.
The Company is a Delaware corporation. We are not admitted to practice in
Delaware. However, we are generally familiar with the Delaware General
Corporation Law and have made such review thereof as we consider necessary for
the purpose of this opinion. Subject to the foregoing, this opinion is limited
to Delaware, California and federal law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration Statement.
Very truly yours,
/s/ BRAND FARRAR & BUXBAUM LLP
BRAND FARRAR & BUXBAUM LLP
