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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED: DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 33-90532
SPATIALIZER AUDIO LABORATORIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-4484725
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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20700 VENTURA BOULEVARD, SUITE 140
WOODLAND HILLS, CALIFORNIA 91364-2357
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER: (818) 227-3370
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant at March 24, 2000 was approximately $83,669,000.
As of March 24, 2000, there were 46,174,970 shares of the Registrant's
Common Stock outstanding.
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PART I
ITEM 1. BUSINESS
Overview
Spatializer Audio Laboratories, Inc. ("The Company" or "we") 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
covering all of these applications. 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, in the PC
multimedia marketplace, Apple, Compaq, Dell, Gateway, Hewlett Packard, Sony,
Micron, Fujitsu, NEC, Seiko-Epson and Labtec, among others, and on the Internet
through software plug-ins for the WinAmp and Xing MP3 players. 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., ("MDT")
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 of 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 a
Website at www.spatializer.com. We were incorporated in the State of Delaware in
February, 1994.
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DESPER PRODUCTS, INC. -- 3-D AUDIO SIGNAL PROCESSING TECHNOLOGIES
DPI has developed a suite of proprietary advanced audio signal processing
technologies for the entire spectrum of applications falling under the general
category of "3-D" or virtual audio. The objective in each product category is to
create or simulate the effect of a multi-speaker sonic environment using two
ordinary speakers (or headphones) for playback. The market for 3-D audio is
segmented into five broad categories of technology as identified in the listing
below. Each of these technologies utilizes different underlying scientific
principles in accomplishing its design objectives and is targeted to a specific
class of consumer electronics or multimedia computer depending on the intended
product use and functional capability of the product. DPI currently has other
audio signal processing technologies under development which will serve to
expand its market scope and partner product capabilities.
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CATEGORY OF TECHNOLOGY PRODUCT CATEGORIES 3-D AUDIO ENHANCEMENT
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3-D Stereo Consumer electronics products Surround Sound enhancement from an
(Spatializer(R) 3-D Stereo) providing stereo playback -- DVD ordinary stereo signal
Players, Stereo TV's, VCR's,
Stereo Components and Systems, Car
Audio, Laptop and Desktop
Multimedia Computers, Set-top
Boxes
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Positional Audio Interactive Gaming for Multimedia Simulation of immersive,
(Spatializer enCompass(TM) V2.0) Computers under Windows '95/'98, interactive sonic environments
Virtual Reality Applications. including sound objects that move
in real time with related graphics
objects or changes in game player
position or perspective.
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Two-Speaker Virtualization Products incorporating Creation of spatially accurate
(Spatializer N-2-2(TM)) Digital multi-channel audio sources like multi- speaker cinematic audio
Virtual Surround Dolby Digital(R) (AC-3), Dolby experience from two speakers, and
ProLogic(R) or MPEG-2. Home headphones utilizing discrete
Theater, DVD-Video, Multimedia multi-channel audio information.
Computers utilizing DVD/MPEG and
decoding.
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Bass Enhancement Consumer electronics products Simulation of lower frequency
(Vi.B.E.(TM)) providing stereo playback -- DVD response from speakers with
Players, Stereo TV's, VCR's, relatively high low frequency
Stereo Components and Systems, Car capability
Audio, Laptop and Desktop
Multimedia Computers and Speakers
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Internet Audio Enhancement Laptop and Desktop Multimedia Surround Sound and bass
(Spatializer(R) StreamFX(TM)) Computers and portable music enhancement to playback of
devices running MP3 media player ordinary MP3 files
software
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LICENSED PRODUCTS
Our current technology product applications are directed to (1) stereo
enhancement in consumer electronics products and multimedia PCs, (2) interactive
positional audio for PC gaming, and (3) two-speaker and headphone virtualization
of multi-channel audio for DVD based multimedia computer and home theater
applications.
1. SPATIALIZER(R) 3D STEREO. Based upon proprietary and patented methods of
stereo signal processing, the Company's Spatializer(R) 3-D Stereo
technology is designed to create a vivid and expansive three-
dimensional surround sound listening experience from any stereo source
input using only two ordinary speakers. Along with professional audio
quality and coherent stable sonic imaging, the technology includes the
Company's unique DDP(TM) (Double Detect and Protect(TM)) algorithm.
DDP(TM) continuously monitors the underlying stereo signal and
dynamically optimizes spatial processing, avoiding deleterious sonic
artifacts common in other systems and provides "set and forget" ease of
use for consumers. First introduced in July 1994, in the form of a 20
pin analog integrated circuit (IC) from
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Matsushita Electronics Corporation ("MEC"), the technology is now
incorporated into low-cost, standard process ICs by four chip foundries
(Matsushita, ESS Technologies, Inc., OnChip Systems and Luxsonor) for
easy and inexpensive implementation in any consumer electronics or
computer products utilizing stereo audio. The technology is currently
available in both analog and digital formats. Matsushita introduced a
new Spatializer IC design in 1999, offering the Spatializer 3-D Stereo
effect in a simplified, lower cost package.
2. SPATIALIZER(R)ENCOMPASS(TM) V2.0. In March 1998, we introduced
Spatializer(R) enCOMPASS(TM) V2.0, a real-time software-only positional
3-D audio engine based upon our proprietary implementation of HRTF (head
related transfer functions) algorithms, and Interaural Intensity and
Interaural Time differences. Version 2.0 has variable radiation pattern
models for greater sound functionality, variable frequency dependent
propagation and distance modeling to provide greater depiction of sound
in relation to the player, and a choice of rendering quality levels to
address different processing requirements between PC CPUs. Spatializer
enCOMPASS permits PC game developers to easily create immersive and
interactive audio environments under the Windows '95 DirectSound 3-D
audio API where sound objects move in real time in response to changes
in the location or the perspective of the player in the game. This
provides the game designer the ability of developing under the industry
standard Microsoft DirectSound 5.0 open API, rather than under
proprietary systems. The system supports playback over speakers or
through headphones. On December 23, 1998, the Company signed its first
license of Spatializer(R) enCOMPASS(TM) with Apple Computer, Inc., which
released the technology in its products in October 1999.
3. SPATIALIZER(R) N-2-2(TM)DIGITAL VIRTUAL SURROUND. In September 1996, DPI
introduced Spatializer N-2-2, which the Company considers a "core", and
"enabling" technology for DVD based personal computer and home theater
products. DVD is considered by many to be the single most important and
potentially most widely adopted consumer audio/computer technology ever
introduced. The audio standards for DVD (based upon geographic region)
are multi-channel audio formats (Dolby Digital(R) (AC-3) and MPEG-2)
which carry six (or more) discrete (independent) channels of
audio -- the front left and right channels, a center channel (for vocal
tracks), two rear surround channels and a Low Frequency Effects (LFE or
"sub-woofer") channel for sound effects. The Spatializer N-2-2
software-based algorithms permit spatially accurate reproduction of this
multi-channel audio over any ordinary stereo system using two rather
than the five or six speakers normally required in traditional home
theater setups. Spatializer N-2-2 runs in real-time on general purpose
Digital Signal Processing ("DSP") hardware platforms like those offered
by C-Cube, Acer Labs, Inc., Motorola, and Zoran; may be integrated with
host based software-only MPEG-2 or DVD decoders (like SoftDVD and
DVDExpress, offered by CompCore Multimedia and Mediamatics,
respectively, for the Intel(R) Pentium(R) microprocessors); and can be
ported to any of the principal audio codecs or media
processor/accelerator platforms performing Dolby Digital (AC-3) or
MPEG-2 audio decoding. N-2-2 has been approved by Dolby Laboratories and
qualifies Spatializer licensees to use the newly created Dolby Digital
VIRTUAL(TM) trademark on products incorporating the technology. We
believe our Spatializer N-2-2 process will serve to widen and accelerate
the market for DVD acceptance, because it delivers the full cinematic
audio experience to ordinary consumers without the additional expense
and complication of multi-speaker home theater playback systems. The
Spatializer N-2-2 technology is also available for use over headphones,
which accurately renders a spatially accurate 5 speaker position
simulating the typical home theater arrangement. In the third quarter
1999, we licensed Spatializer N-2-2 to Acer Labs, Inc.
4. SPATIALIZER(R)VI.B.E. In early 1999, DPI introduced Spatializer Vi.B.E.,
a virtual bass enhancement technology. Spatializer Vi.B.E. produces a
dynamic bass response from even the lowest-end speakers or headphones.
Spatializer Vi.B.E. uses proprietary technology to generate realistic
bass frequencies that are unaffected by speaker system frequency
response.
5. SPATIALIZER(R)STREAMFX. Spatializer StreamFX creates a dramatic and
enveloping sound experience out of any pair of regular speakers or
headphones when playing MP3 music files. Spatializer StreamFX utilizes
Spatializer 3-D Stereo and is a long-time favorite of both movie and
sound studios
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in addition to numerous audio product manufacturers. Combined with
Vi.B.E., this product widens and deepens the soundfield to surround the
listener with rich and ambient enhanced audio. A headphone option
generates the same equally immersive experience over headphones creating
a dramatic audio experience.
LICENSING ACTIVITIES
We have traditionally licensed our technologies through semiconductor
manufacturing and distribution licenses ("Foundry Licenses") with semiconductor
foundries ("Foundries"). In turn, these Foundries manufacture and distribute
integrated circuits ("ICs") incorporating Spatializer technology to
manufacturers of consumer electronics and multimedia computer products ("OEMs").
The terms of the Foundry Licenses are negotiated on an individual basis
requiring the payment of a per unit running royalty according to sliding scales
based upon cumulative volume. Certain of the licenses call for the payment of an
up-front license issuance fee either in lieu of, or in addition to the running
royalty. Per unit royalties are payable in the quarter following shipment from
the Foundry to the OEM.
OEMs who desire to incorporate these ICs into their products are required
to enter into a license ("OEM Licenses") with us before they may purchase the
ICs in quantity. Foundry Licenses generally have limited the sale of Spatializer
ICs to OEMs who have entered into an OEM License with us. OEM licenses generally
provide for the payment of a further per unit royalty by the OEM for OEM
products incorporating a Spatializer IC ("Licensed Products") payable in the
quarter following shipment by the OEM of its Licensed Products.
In mid-1996, we modified our licensing program to ease the licensing
process and accelerate cash flow by offering Foundries an alternative "Bundled
Royalty" arrangement which permits the IC foundry to make a traditional
component IC sale to an OEM without requiring the OEM to negotiate a separate
royalty license agreement with the Company. In these situations, the IC Foundry
is authorized to sell Spatializer ICs to OEMs, which enter into a simplified
Logo Usage Agreement ("LUA"), or to be authorized customers in consideration for
a higher ("bundled") per unit royalty from the IC Foundry. This license
structure has relieved much of the licensing burden from the IC foundries and
has resulted in an increase in License signings.
Because the Spatializer N-2-2 technology may be fully implemented in
software to run in host based (Intel Pentium(R)) or general purpose DSP (C-Cube,
Motorola, Zoran, and Acer Labs) environments, no IC Foundry may be involved, as
is the licensing arrangement with Apple Computer, Inc. In these situations, we
will enter into royalty bearing licenses directly with the OEM. However, we may
still pursue bundled agreements with DSP providers, if appropriate.
We are currently negotiating new IC/DSP Foundry and OEM licenses for its
N-2-2, enCOMPASS V2.0, and 3-D stereo technologies.
IC Foundry Licenses
In October 1999, Acer Labs, Inc. entered into a Foundry License for
Spatializer N-2-2.
As of December 31, 1999, we have entered into six non-exclusive Foundry
Licenses for its 3-D Audio Signal Processing technologies with Matsushita
Electronics Corporation ("MEC"), ESS Technology, Inc. ("ESS"), OnChip Systems,
Inc. ("OnChip") C-Cube Technologies, Inc. ("C-Cube") Acer Labs, Inc. ("Ali") and
Luxsonor. Foundry Licenses generally require the payment of per unit running
royalties based upon a sliding scale computed on the number of Spatializer ICs
or DSPs sold.
MEC currently manufactures and sells four 3-D Stereo IC's incorporating
Spatializer audio signal processing and has several more ICs in design. ESS
currently manufactures and sells two Spatializer(R) ICs, which are primarily
used for multimedia and notebook applications. OnChip currently manufactures
three versions of the 3-D Stereo Spatializer(R) IC. C-Cube currently
incorporates N-2-2 on their Ziva-3 DSP and Ali incorporates N-2-2 into their
M3321 DSP.
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As of December 31, 1999, more than 17 million ICs and DSPs incorporating
Spatializer 3-D audio signal processing and N-2-2 digital virtual surround sound
technology had been manufactured and sold.
OEM Licensees and Customers
As of December 31, 1999, our technology has been incorporated in products
offered by over 90 separate OEM Licensees and customers on various economic and
business terms. Some of these OEM Licenses required a license issuance fee
and/or a separate per unit royalty, while others were licensed under the LUA or
were authorized customers under bundled royalty licenses with the IC foundries.
The OEM licensees and customers offer a wide range of products, which include
DVDs, car stereo systems, direct view TVs, wide screen and projection TVs, VCRs,
powered speakers, portable audio systems ("Boomboxes"), HiFi stereo systems and
components, computer sound cards and graphics accelerator cards, multimedia
desktop personal computers, notebook computers, LCD projectors, multimedia
computer monitors, and arcade pinball and video games.
The following table is a partial list of the OEM Licensees and authorized
customers as of December 31, 1999:
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PARTIAL LIST OF OEM LICENSEES OR CUSTOMERS LISTING -- CONTINUED
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Apple, Computer Inc. NEC
Compaq Computer Corp. Panasonic TV & VCR (Matsushita Kotobuki
Dell Computer Corp. Electronics Industries, Ltd.)
Digital Technology Systems Of California, Panasonic Car Audio (Matsushita
Inc. Communications Industrial Co., Ltd.)
Emerson Proton Electronic Industrial Co., Ltd.
Fujitsu Computer Corp. Samsung
Hewlett Packard Seiko Epson Corp.
Hitachi, Ltd. Sanyo Corp.
Iiyama Electric Co., Ltd. Sharp Corp.
Gateway Computer Corp. Toshiba DVD
Golden Regent Toshiba TV
LG Electronics Taisei Electric, Inc.
JVC Taiyo Electric Company, Ltd.
Labtec Enterprises, Inc. Texas Instruments
Mag Monitors Theta Digital
Marantz VM Labs, Inc.
Micron Computer Corp Zenith
Mitsubishi Image and Information Works
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HARDWARE PRODUCTS
Sales of our professional and consumer hardware products to date have not
generated significant revenues and we do not plan to manufacture these products
in the future. Instead, we are focusing our attention on licensing these product
designs to third parties and concentrating on software-only products and
"plug-ins" for use with MP3 players for PC platforms and portable audio devices.
MultiDisc Technologies, Inc. -- Network Based Modular, Scaleable Compact
Disc/DVD Servers
As its first effort to broaden our technology portfolio and capitalize on
our strong relationships with manufacturers of consumer electronics and personal
computer peripheral products, the Company acquired certain developmental stage
technologies and assets from Home Theatre Products ("HTP"), for approximately
$1,062,000 in June 1996 and formed a subsidiary, MDT. The MultiDisc transaction,
which was implemented through a court-approved sale in the HTP bankruptcy
proceeding, included an array of compact disc server robotics and software
technologies in various stages of completion. The MultiDisc transaction was
intended to position the Company for long term growth in a significant new
market. The Company expects to license this technology or enter into third party
manufacturing arrangements for sale of MDT CD/DVD changer products to OEMs.
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The MultiDisc transaction brought a unique combination of proprietary
electromechanical designs, robotics, operating software, firmware, intellectual
property, and engineering know-how and five patent applications acquired in the
asset acquisition. MDT added an additional forty-seven patent applications filed
with the United States Patent & Trademark Office ("USPTO") to bring the total to
fifty-two patent applications filed.
On September 25, 1998, we announced our plan to refocus our business on the
exploitation of its core audio technologies and to properly position the
MultiDisc assets for sale. The repositioning strategy recognized that the
capital investment required to properly commercialize the MDT technology was
beyond the Company's capacity. As a result, all research and development
activities were suspended and the Company has accounted for MDT as a
discontinued operation. The Company has explored the sale of the business or the
patent portfolio with interested parties, but to date, no transaction has been
consummated.
Revenues and Expenses
We generate revenues in its audio business from royalties pursuant to its
Foundry, OEM, and other licenses, and from non-recurring engineering fees to
port our technologies to specific licencees' applications. The Company's
revenues, which totaled $1,660,371 in 1999, were derived substantially from
Foundry and OEM license fees and royalties.
We seek to maximize return on our intellectual property base by
concentrating its efforts in very high margin licensing and software products
and has eliminated its hardware product operations. Licensing operations have
been managed internally by our personnel and through use of an international
sales rep force.
We had four major customers, C-Cube Technologies, Inc., Apple Computer,
Inc., Matsushita Electronics Corp. (MEC) and Toshiba Corporation in 1999, each
of whom accounted for greater than 10% of our total 1999 revenues. One OEM
accounted for 30%, another accounted for 26% and two accounted for between 10%
and 15% of our royalty revenues during 1999. All other OEM's accounted for less
than 10% of royalty revenues individually.
In September, 1998, the U.S. Court of Appeals for the Federal Court upheld
the U.S District Court's ruling of August 1996, in which we prevailed in a
22-month legal battle over its 3-D Stereo intellectual property when the U.S.
District Court granted the Company's motion for summary judgment against a
competitor's assertions of patent infringement.. (See ITEM 3 -- LEGAL
PROCEEDINGS, Page 8, for further detail). The uncertainties caused by the patent
litigation had hindered our corporate results, particularly since licensing
revenue depends upon OEM unit shipments, which follow three to four quarter
production cycles. The resolution of this litigation contributed to the
Company's ability to attract new licensing and financing arrangements and to
reposition the Company for positive growth in profitability.
In September 1998, we implemented cost cutting measures in conjunction with
the suspension of our research and development activities at MDT and to further
rationalize the overhead of Desper Products and the corporate office in response
to lower levels of operating performance. The result of these initiatives was to
reduce 1999 operating costs from 1998 levels, which enabled the Company to
achieve profitable operating results in 1999.
Competition
3-D AUDIO SIGNAL PROCESSING MARKETPLACE
We compete with a number of entities that produce various audio enhancement
processes, technologies and products, some utilizing traditional two-speaker
playback, others utilizing multiple speakers, and others restricted to headphone
listening. These include the consumer versions of multiple speakers, matrix and
discrete digital technologies developed for theatrical motion picture exhibition
(like Dolby Digital(R), Dolby ProLogic(R), and DTS(R)), as well as other
technologies designed to create an enhanced stereo image from two or more
speakers.
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Our principal competitors in the field of 3-D audio are QSound Labs, Inc.
("QSound"), SRS Labs, Inc., Aureal Semi-conductor, Inc., CRL and Harman
International. In the future, our products and technologies also may compete
with audio technologies and product applications developed by other companies
including entities that have business relationships with the Company.
We believe that we will favorably compete in this market because we offer a
single source, complete suite of patented and proprietary 3D Stereo, interactive
positional, and speaker virtualization technologies, and because of our superior
engineering and OEM support, the strength of our IC Foundry and OEM
relationships, and the Spatializer brand name recognition in the industry.
Patents, Trademarks and Copyrights
Our core Spatializer audio signal processing technology is covered by our
U.S. patent 5,412,731, issued May 2, 1995. On July 15, 1997, the Company filed a
patent in the U.S. Patent office on our N-2-2(TM) intellectual property with the
U.S. Patent Office. On March 20, 1998, we filed a patent on our enCompass V 2.0
technology with the U.S. Patent Office covering the Company's enCompass 2.0
positional audio gaming technology. Additional patent applications for our
reduced cost/higher performance 3-D Stereo designs and other technologies are
currently in process. Much of our intellectual property consists of trade
secrets. We possesses copyright protection for its principal software
applications and has U.S. and foreign trademark protection for its key product
names and logo marks.
The MultiDisc transaction brought a unique combination of proprietary
electromechanical designs, robotics, operating software, firmware, intellectual
property, and engineering know-how and five patent applications acquired in the
asset acquisition. MDT added an additional forty-seven patent applications filed
with the United States Patent & Trademark Office ("USPTO") to bring the total to
fifty-two patent applications filed. However, due to the suspension of all
operating activities of MDT, we are not pursuing these applications and some
applications have lapsed. The core MDT data storage technology is covered by
U.S. patents 5,774,431, 5,822,283, 5,886,960 and 5,886,974. We have either
obtained or applied for U.S. trademark protection for its principal product
names and logo marks.
On September 25, 1998, we announced our plan to refocus our business on the
exploitation of its core audio technologies and to properly position the
MultiDisc assets for sale. The repositioning strategy recognized that the
capital investment required to properly commercialize the MDT technology was
beyond our capacity. As a result, all research and development activities were
suspended and we have accounted for MDT as a discontinued operation.
Employees
We began 1999 with thirteen full-time and five part-time employees and
sales representatives and reduced our staff to five full-time and six part-time
employees by December 31, 1999. At year-end, there were two employees engaged in
research and development. From time to time, we also employ the services of
outside professional consultants. None of our employees are represented by a
labor union or are subject to a collective bargaining agreement. We consider our
relations with our employees and consultants to be satisfactory.
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PART II
ITEM 2. PROPERTIES
Our executive office is located in Woodland Hills, California where we
occupy approximately 900 square feet with an annual rent of approximately
$32,000. The lease term on this space is month to month. During 1999, we also
had leased facilities in Mountain View, CA, and Santa Clara, CA.
Our regional office in Mountain View, CA, was the primary location for our
audio technology division, ("DPI"). We occupied approximately 4,200 square feet
in this location and the annual rent on a triple net basis for these premises
was approximately $101,000, with the lease term expiring December 31, 1999. This
lease has not been renewed. On November 16, 1999, we entered into a lease for
approximately 2,700 square feet of office space in Santa Clara, CA for DPI, and
relocated our DPI office from Mountain View on December 12, 1999. The annual
rent for this facility on a full service basis is approximately $75,000, with
the lease expiring on November 30, 2002.
Our regional office in Huntington Beach, CA, was the primary location for
MDT. MDT occupied approximately 4,000 square feet of office in this location and
the annual rent for these premises was approximately $50,000, with the lease
term expiring July 31, 1999. In connection with the suspension of MDT
operations, this space was vacated in November 1998. Rent deposits were
forfeited in connection with a full settlement and termination of the lease.
We lease our space at rental rates and on terms which management believes
are consistent with those available for similar space in the applicable local
area. Our properties are well maintained, considered adequate and are being
utilized for their intended purposes.
ITEM 3. LEGAL PROCEEDINGS
In the Fall of 1994, QSound Labs, Inc. ("QSound") advised MEC that, in its
view, the Spatializer technology infringed certain U.S. patents held by QSound.
In October 1994 the Company and DPI initiated a proceeding against QSound
seeking a determination that the technology did not infringe on QSound's patents
and other relief.
On August 29, 1996 the Court granted the Company's summary judgment motion
of non-infringement in its entirety and denied the motion by QSound in the
pending patent infringement litigation between the Company and QSound. In
September, 1998, the U.S. Court of Appeals for the Federal Court upheld the U.S.
District Court's ruling of August 1996, finding in favor of DPI and the Company
on all aspects of the appeal.
In granting the Company's summary judgment motion, the Court found that the
Company's IC (Integrated Circuit) does not infringe the QSound patent and denied
QSound's motion with respect to infringement. The Company's claim that the
QSound patent is invalid was not decided and, since the issues which the Court
would need to consider on the patent invalidity claim are similar to certain
issues considered in the infringement claim, QSound was granted the right to
immediately appeal the denial of its motion and trial on the invalidity issue
was deferred until after that appeal. In substance, the Court's finding confirms
the Company's position that there is no infringement by the Company's IC of any
patent held by QSound and that the claims by QSound were without merit. QSound
has not appealed and the Company is not pursuing its other claims at the present
time.
In December 1998, a complaint was filed in the United States District Court
for the Northern District of New York, by Alexander, Wescott & Co., Inc.,
against the Company alleging breach of contract and seeking fees from the
Company based on its claim that the amounts were due for arranging a financing.
The action also sought attorneys' fees, interest and the costs of suit. The
Company filed a motion to dismiss the action. On July 20, 1999, the Court found
in favor of the Company and dismissed the complaint.
In February 1999, a complaint was filed in the Superior Court of Los
Angeles County, Northwest District, by I.N. Associates, Inc., against the
Company's wholly owned subsidiary, MultiDisc Technologies, Inc. ("MDT"),
alleging breach of contract and fraud, and claiming $499,953.94 in damages,
attorneys fees,
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<PAGE> 10
interest and the costs of suit. MDT has answered and denied the claims. The
matter was subject to a mediation preceding in March 2000, and settlement is
currently being documented. If the current settlement is finalized, the matter
will be resolved without any cost to the Company and I.N. will be entitled to a
cashless exercise of warrants for the 125,000 shares originally issued to them
in 1997 and 1998.
In October, 1999, a complaint was filed in the Superior Court of Orange
County, California, by Bentall U.S. LLC, against the Company alleging breach of
contract, and claiming $18,630.73 in damages, attorneys fees, interest and costs
of the suit. This claim was settled and the complaint dismissed in November
1999.
In connection with the downsizing of the Company, a number of employees
have been terminated and have filed various employment and compensation related
claims with the various State labor authorities which claims have either been
settled or are pending resolution and funding if Company resources allow. In
September, 1999, an entry of judgement in the Municipal Court of Santa Clara
County, California was entered on behalf of one claimant in the amount of
$8,307.30. In February, 2000, an appeal was heard in the Superior Court of
Orange County, California, relating to a claim filed by a former employee of MDT
for back vacation pay and penalties. In March 2000, both parties agreed to
dismiss the action as part of a settlement.
The Company also anticipates that, from time to time, it may be named as a
party to other legal proceedings that may arise in the ordinary course of its
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders of the
Company either through solicitation of proxies or otherwise in the fourth
quarter of the fiscal year ended December 31, 1999.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock was listed and commenced trading on the NASDAQ SmallCap
market on August 21, 1995 under the symbol "SPAZ". In January 1999, the shares
were delisted by the NASDAQ SmallCap Market due to our inability to maintain
listing requirements. Our Common Stock immediately commenced trading on the OTC
Bulletin Board under the same symbol. The following table sets forth the high
and low sales price of our Common Stock on its principal market for fiscal years
1998 and 1999:
<TABLE>
<CAPTION>
PERIOD: HIGH (U.S. $) LOW (U.S. $)
------- ------------- ------------
<S> <C> <C>
1998
First Quarter..................................... $2.88 $1.00
Second Quarter.................................... $1.56 $0.56
Third Quarter..................................... $0.75 $0.19
Fourth Quarter.................................... $0.25 $0.06
1999
First Quarter..................................... $0.44 $0.08
Second Quarter.................................... $0.36 $0.08
Third Quarter..................................... $0.90 $0.20
Fourth Quarter.................................... $0.96 $0.26
</TABLE>
On March 24, 2000, the closing price reported by NASDAQ was U.S. $1.81.
Stockholders are urged to obtain current market prices for our Common Stock.
Beginning April 1, 1997, Harris Trust Company of California has been our
transfer agent.
RECORD HOLDERS
To our knowledge there were approximately 125 holders of record of the
stock of the Company as of March 24, 2000. However, our transfer agent has
indicated that beneficial ownership is in excess of 3,300 shareholders.
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DIVIDENDS
We have not paid any cash dividends on its Common Stock and has 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 its business. Our future
dividend policy will be determined from time to time by the Board of Directors.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations", included in Item 7. The selected data presented below
under the headings "Consolidated Statement of Operations Data" and "Consolidated
Balance Sheet Data" as of and for the years ended December 31, 1997, 1996 and
1995, are derived from the consolidated financial statements of Spatializer
Audio Laboratories, Inc. and subsidiaries, which consolidated balance sheets
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The selected financial data for the years ended December 31, 1999
and 1998 are derived from the Company's consolidated financial statements which
have been audited by Farber & Hass LLP, independent public accountants. The
consolidated statements of operation and cashflows for the year ended December
31, 1997 and the report thereon are included elsewhere in this Report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995(1) 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues.................... $ 1,230 $ 2,024 $ 2,781 $ 1,680 $ 1,660
Cost Of Revenues............ (79) (186) (230) (134) (49)
----------- ---------- ----------- ----------- -----------
Gross Profit................ 1,151 1,838 2,551 1,546 1,611
Total Operating Expenses.... (4,403) (27,042)(3) (7,238) (3,490) (1,156)
Other Income (Expense),
Net....................... 74 119 27 (108) (94)
Loss from Discontinued
Operations................ (3,702)
Income taxes................ (63) (310) (60) (38) (6)
----------- ---------- ----------- ----------- -----------
Net Income (Loss)........... $ (3,241) $ (25,395)(4) $ (4,720) $ (5,792) $ 355
----------- ---------- ----------- ----------- -----------
Basic Income (Loss) Per
Share(5).................. $ (0.32) $ (2.01) $ (0.23) $ (0.29 $ 0.01
=========== ========== =========== =========== ===========
Diluted Income (Loss) Per
Share(5).................. $ (0.32) $ (2.01) $ (0.23) $ (0.29) $ 0.01
=========== ========== =========== =========== ===========
Weighted Average Common
Shares.................... 10,156,816 12,644,751 20,604,095 22,180,180 33,805,512
=========== ========== =========== =========== ===========
CONSOLIDATED BALANCE SHEET
DATA:
Cash and Cash Equivalents... $ 3,113 $ 1,587 $ 577 $ 264 $ 1,022
Working Capital (Deficit)... 3,159 2,092 83 (1,975) 395
Total Assets................ 4,420 4,141 3,165 893 2,118
Advances From Related
Parties................... 325 113 113 857 337
Shareholders' Note
Payable................... -- -- --
Total Shareholders' Equity
(Deficit)................. $ 3,697 $ 3,268 $ 1,525 $ (1,553) $ 768
</TABLE>
- ---------------
(1) A Plan of Arrangement was completed on July 27, 1994 whereby the situs of
the Company was moved to Delaware. Spatializer Audio Laboratories, Inc., a
Delaware corporation, became the parent company for
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<PAGE> 12
Spatializer-Yukon and DPI. The financial statements for this fiscal year reflect
the consolidation of all three entities.
(2) Not used.
(3) Includes two one-time significant changes. Compensation Expense of
$20,218,450 was recorded associated with the transfer of the Company's
performance shares from Canadian Escrow into a new escrow arrangement which
will provide for the release of the performance shares over the next six
years. Based on the revised escrow arrangement, which primarily converts the
escrow shares release from performance criteria to time-based criteria, the
Company recorded compensation expense on the date the new escrow arrangement
terms were accepted by the Company. Additionally, In-Process Research &
Development ("IPR&D") expense of $679,684 related to the allocation of costs
was incurred as a result of the MultiDisc Technologies, Inc. ("MDT") asset
acquisition in June 1996.
(4) The Company incurred and paid Canadian income taxes in the amount of
$249,000 during the year associated with the liquidation of
Spatializer-Yukon, the Company's Canadian predecessor.
(5) Loss per share has been calculated based on the weighted average number of
common shares outstanding including escrowed performance shares, which are
factored into the calculation as of December 30, 1996, the date on which the
British Columbia Securities Commission ("BCSC") issued its consent to the
Company's revised escrow arrangement.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis relates to the financial condition
and results of operations of Spatializer Audio Laboratories, Inc. and
subsidiaries (the "Company") for the year ended December 31, 1999 compared to
the year ended December 31, 1998, and the year ended December 31, 1998, compared
with the year ended December 31, 1997.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999, COMPARED TO THE YEAR ENDED DECEMBER 31,
1998
REVENUES
Revenues declined to $1,660,000 for the year ended December 31, 1999
compared to $1,680,000 for the year ended December 31, 1998, a decline of 1%.
Revenues include license issuance fees and royalties pertaining to the licensing
of Spatializer(R) audio signal processing designs and non-recurring engineering
fees.
The decrease in revenues is attributed primarily to the settlement in early
1998 of royalty claims from a licensee for which there was no comparable license
settlement in the current fiscal year, competitive market pricing pressure and
decreases in recurring royalties for the licensing of Spatializer audio
technology reflecting weakness in the Japanese 3-D audio market. This was
substantially offset by increases in royalties derived from DSP foundries and
OEMs for the Company's N-2-2 technology and royalty and engineering fees from a
new licensee in 1999.
Gross profit increased to 98% in the year ended December 31, 1999 compared
with 92% for the comparable period last year. This increase reflects the impact
of the discontinuation of lower margin consumer products sales, and inventory
write-downs on the remaining consumer products inventory to market in 1998, for
which there was no comparable adjustment in 1999. The Company maintains a high
margin as the majority of revenues are from licensing and royalty activities,
which have little or no associated direct costs.
OPERATING EXPENSES
Operating expenses for the year ended December 31, 1999 decreased to
$1,156,000 from $3,490,000 for the year ended December 31, 1998, a decrease of
67%. The decrease in operating expenses result from the rationalization of
overhead, particularly with regard to the corporate office, implemented in late
September 1998, as part of the Company's strategic repositioning to focus
exclusively on its core audio business.
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<PAGE> 13
Based on this strategic refocusing, MultiDisc Technologies, Inc. is being
treated as a discontinued operation for accounting purposes. Operating
expenditures in 1999 were minimal and were accrued in the year ending December
31, 1998. Operating and wind down expenses of MultiDisc Technologies, Inc
totaling $3,000,000 were excluded from 1998 operating expenses and presented
separately as a discontinued operation. Total operating expenses of MultiDisc
Technologies, Inc. for the year ended December 31, 1997 were $3,791,000.
GENERAL AND ADMINISTRATIVE
General and administrative costs decreased to $516,000 for the year ended
December 31, 1999 from $1,732,000 for the year ended December 31, 1998, a
decrease of 70%. The decrease is primarily due decreased payroll and
payroll-related costs primarily related to the downsizing of the corporate
office as a result of overhead rationalizations implemented beginning in
September 1998. General operating costs include rent, telephone, office supplies
and stationery, postage, depreciation and similar costs.
RESEARCH AND DEVELOPMENT
Research and Development costs decreased to $383,000 for the year ended
December 31, 1999, compared to $756,000 for the year ended December 31,1998, a
decrease of 49%. The decrease in research and development expense was due to
headcount attrition and a delay in efforts to fill open positions until
additional working capital became available through the December Transactions.
In addition, the Company continued efforts to identify, validate, and
develop new product ideas at DPI. Specific engineering efforts were directed
toward porting support of N-2-2(TM) -- Digital Virtual Surround technologies to
current and potential licensees during the year and toward development of
StreamFX, an Internet audio enhancement product and Vi.B.E., a virtual bass
enhancement technology.
SALES AND MARKETING
Sales and marketing costs decreased to $257,000 for the year ended December
31, 1999, compared to $1,002,000 for the year ended December 31, 1998, a
decrease of 73%. The decrease results from headcount reductions effected in
September 1998 and suspension of public relations, formal trade show
participation and advertising efforts until the additional working capital
became available through the December Transactions.
LOSS ON DISCONTINUED OPERATION
There was no loss on discontinued operation in the year ended December 31,
1999. Compared to a loss on discontinued operation of $3,702,000 for the year
ended December 31, 1998. Expenditures for MDT were minimal in fiscal 1999 and
were accrued in the year ended December 31, 1998. Loss on discontinued operation
was comprised of the reclassification of $2,847,000 of the net MDT expenses and
valuation adjustments of $855,000. The net expense primarily represented general
and administrative, sales and marketing and research and development expenses
for the period January 1 through September 30,1998. The Board of Directors
announced the discontinued operation of MDT on September 25, 1998 and had
preliminary indications from its banker and potential buyers that the sale of
MDT's assets would not result in a loss to the Company. However, since no
transaction had been consummated for the MDT assets as of the date on which the
Company filed its annual report Form 10-K in April 1999, the Company elected to
reserve for the contingency.
NET INCOME (LOSS)
Net Income increased to $355,000 for the year ended December 31, 1999,
compared to a net loss of $5,792,000 for the year ended December 31, 1998, an
increase of 103%. The improvement for the period is primarily the result of
overhead rationalization and corporate refocusing which began its implementation
in September 1998 and the wind down costs of MDT in 1998, for which there were
no such expenses in the current fiscal year.
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<PAGE> 14
FOR THE YEAR ENDED DECEMBER 31, 1998, COMPARED TO THE YEAR ENDED DECEMBER 31,
1997
REVENUES
Revenues declined to $1,680,000 for the year ended December 31, 1998
compared to $2,781,000 for the year ended December 31, 1997, a decline of 40%.
Revenues include license issuance fees and royalties pertaining to the licensing
of Spatializer(R) audio signal processing designs and the sales of professional
recording systems and consumer products.
The decrease in revenues is attributed primarily to decreases in recurring
royalties for the licensing of Spatializer audio technology reflecting
competitive market pricing pressure, the discontinuation of consumer product
sales, as well as the signing in late 1997 of a flat fee license agreement for
which there was no comparable license agreement in the current fiscal year and
weakness in the Asian market.
Gross profit was unchanged at 92% in the year ended December 31, 1998
compared with 92% for the comparable period. This increase reflects the impact
of the discontinuation of lower margin consumer products sales, partially offset
by inventory write-downs ($86,000) on the remaining consumer products inventory
to market. The Company maintains a high margin as the majority of revenues are
from licensing and royalty activities, which have little or no associated direct
costs.
OPERATING EXPENSES
Operating expenses from continuing operations for the year ended December
31, 1998 decreased to $3,490,000 from $7,238,000 for the year ended December 31,
1997, a decrease of 51%. The decrease in operating expenses result primarily
from the reclassification of certain MDT expenses as discontinued operation and
higher technology demonstrator development expense in 1997.
Based on the corporate strategic refocusing, MDT is being treated as a
discontinued operation. Operating expenses of MDT of approximately $2,800,000
have been excluded from operating expenses and presented separately as a
discontinued operation. Total operating expenses of MDT for the year ended
December 31, 1997 were $3,791,000.
GENERAL AND ADMINISTRATIVE
General and administrative costs decreased to $1,732,000 for the year ended
December 31, 1998 from $2,174,000 for the year ended December 31, 1997, a
decrease of 20%. The decrease is primarily due to the reclassification of MDT
expenses of $511,000 to discontinued operations, partially offset by a provision
of $100,000 for corporate restructuring. General operating costs include rent,
telephone, office supplies and stationery, postage, depreciation and similar
costs.
RESEARCH AND DEVELOPMENT
Research and Development costs decreased to $756,000 for the year ended
December 31, 1998, compared to $3,708,000 for the year ended December 31,1997, a
decrease of 79%. The decrease in research and development expense was due to
headcount attrition and a delay in efforts to fill open positions until the
additional working capital became available through the December Transactions.
In addition, the Company continued efforts to identify, validate, and
develop new product ideas at DPI. Specific engineering efforts were directed
toward porting support of N-2-2(TM) -- Digital Virtual Surround technologies to
current and potential licensees during the year, simplified low cost 3-D stereo
solutions and toward enCompass, a true interactive, real-time 3-D audio
positioning technology.
SALES AND MARKETING
Sales and marketing costs decreased to $1,002,000 for the year ended
December 31, 1998, compared to $1,356,000 for the year ended December 31, 1997,
a decrease of 26%. The decrease is primarily due to the reclassification of MDT
expenses of $531,000 to discontinued operations, partially offset by an
expansion in DPI sales personnel, travel and international sales representative
expenses.
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<PAGE> 15
LOSS ON DISCONTINUED OPERATION
Loss on discontinued operation was $3,702,000 for the year ended December
31, 1998. There was no comparable loss in the prior year. Loss on discontinued
operation is comprised of the reclassification of $2,847,000 of the net MDT
expenses and valuation adjustments of $855,000. The net expense represents
primarily general and administrative, sales and marketing and research and
development expenses for the period January 1 through September 30,1998. The
Board of Directors announced the discontinued operation of MDT on September 25,
1998 and had preliminary indications from its banker and potential buyers that
the sale of MDT's assets would not result in a loss to the Company. However,
since no transaction has been consummated for the MDT assets as of this filing
date, the Company has elected to reserve for this contingency.
NET LOSS
The net loss decreased to $5,792,000 for the year ended December 31, 1998,
compared to $4,720,000 for the year ended December 31, 1997, an increase of 22%.
The increased net loss for the period is primarily the result of wind down costs
at the Company's discontinued operation, MDT and lower revenues of DPI,
partially offset by significantly lower technology demonstrator development
compared with the prior year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, we had $1,022,000 in cash and cash equivalents as
compared to $264,000 at December 31, 1998. The increase in cash and cash
equivalents is attributed to cash provided by the issuance of 1,884,254
additional shares of Common Stock ($1.05 million in new capital from the
December Transaction), and cash provided by other operating activities. We had
working capital of $395,000 at December 31, 1999 as compared with a working
capital deficit of $1,975,000 at December 31, 1998. Our future cash flow will
come primarily from the audio signal processing licensing business' Foundry and
Original Equipment Manufacturers' ("OEM") royalties and common stock issuances
including warrant and option exercises. At December 31, 1999 we had six Foundry
licensees, seventy-six OEM Licensees and fourteen authorized customers for its
audio signal processing business as compared with six Foundry licensees and
seventy-three OEM Licensees and eight authorized customers at December 31, 1998.
We are actively engaged in negotiations for additional audio signal processing
licensing arrangements which will generate additional cash flow without imposing
any substantial costs on the Company.
We have related party obligations of $225,000, convertible into Common
Stock at our or Debtee's option. The obligation matures in June 2001. The
Company owed $337,500 to related parties as of December 31, 1999 and $857,500 at
December 31, 1998.
On October 30, 1998, the Compensation Committee of the Board of Directors
re-priced qualified stock options to purchase 121,000 shares of common stock
granted to various employees beginning in June 1995. The exercise price for
these options was adjusted to $0.1875 per share (the closing market price on
October 30, 1998) reducing grant date exercise prices ranging from $0.72 to
$2.34 per share. On November 12, 1998, the Compensation Committee of the Board
of Directors re-priced qualified stock options to purchase 100,000 shares of
common stock granted to an employee in March 1998. The exercise price for these
options was adjusted to $0.125 per share (the closing market price on November
12, 1998) reducing the grant date exercise price from $1.18 per share. The
vesting schedules and expiration dates for these options were not modified.
On April 14, 1998, we entered into a private placement for up to $5 million
of which $3 million was funded. In connection with the private placement, the
Company authorized 100,000 shares of a new Series A, 7% Convertible Preferred
Stock at a stated price of $50 per share and issued 60,000 shares for $3
million. In connection with the April funding, we issued purchase warrants,
exercisable for three years and entitling the holders to acquire one share of
the Company's common stock for each warrant. Of the warrants, 450,000 were
issued and 150,000 warrants were issued to placement agents. The investor
warrants are exercisable at 140% and the placement warrants are exercisable at
120%, respectively, of the average closing bid price of our common stock for the
10 days preceding the closing. In addition, cash placement fees of 10% were
paid. A
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<PAGE> 16
related party received 50,000 of the placement agent warrants and $100,000 of
the placement agent cash fee for arranging $1 million of the $3 million
investment. We do not expect any additional investment above the initial $3
million to be received under this placement. At December 31, 1999, 60,000 shares
of Series A Convertible Preferred Stock, representing the entire placement had
been converted into a total of 30,517,943 shares of our Common Stock, some of
which are covered by Form S-3 and the balance of which were issued as restricted
shares.
Holders of the Series A Preferred Stock have a right to convert their
shares, at their option on the earlier of (x) ninety (90) days after issuance or
(y) on the effective date of a Form S-3 Registration Statement (the "Conversion
Date") with such conversion to be based on a per share conversion price
("Conversion Price") equal to the lesser of a price that reflects a discount
(the "Conversion Discount") to the average of any three (3) consecutive closing
bid prices for our Common Stock within twenty (20) trading days immediately
prior to the conversion date (the "Floating Conversion Price") or a price which
is equal to one hundred thirty percent (130%) of the closing bid prices of our
Common Stock for the ten (10) trading days immediately preceding the date of
issuance (the "Fixed Conversion Price") provided that in determining the
Conversion Price, the holder shall not count any day on which its sales account
for greater than twenty percent (20%) of the volume of our Common Stock and on
which the holder has sales in the last hour of trading. The Conversion Discount
shall be equal to fifteen percent (15%) if the Conversion Rights are exercised
within one hundred twenty (120) days of first issuance of the Series A Preferred
Stock and shall be equal to seventeen and one-half percent (17.5%) if the
Conversion Rights are exercised after one hundred (120) days and prior to one
hundred forty-nine (149) days of first issuance of the Series A Preferred Stock.
The applicable Conversion Discount increased by five percent (5%) when we were
de-listed on NASDAQ. In addition, the percentage of shares that can be converted
at any one time is limited during such time periods and the holders cannot own
more than 4.99% of the equity of the Company after the Conversion.
The beneficial conversion feature of the Series A Preferred Stock will be
recorded as a dividend using the most favorable conversion terms available to
the shareholder to calculate the dividend in accordance with FASB (Emerging
Issues Task Force) Topic D-60. Since the Company has an accumulated deficit and,
under Delaware Law, must charge dividends against additional paid in capital,
the net impact of recording the beneficial conversion feature is zero since both
sides of the entry are recorded in additional paid in capital. At September 30,
1999, dividends in arrears were approximately $150,000.
On September 25, 1998, we announced that our Board of Directors was
refocusing our business on the exploitation of its audio technologies, and, as
noted above, to properly position the MultiDisc assets for sale. Currently we
are actively pursuing licensing opportunities, including possible strategic
alliances and capital funding opportunities based on its core audio
technologies. In reaching its decision of September 25, 1998, we indicated that
while we recognized the prospects of MultiDisc, the capital investment required
to properly commercialize the technology was beyond our capacity and, therefore,
we made the decision to seek a sale transaction. Effective as of that date,
Steven D. Gershick resigned as chief executive officer of the Company and as
president of MultiDisc Technologies, Inc., but continued to serve as chairman of
the board and director of the Company until February 10, 2000. Henry R. Mandell,
who joined the Company in March, 1998 as senior vice president finance was
designated as interim chief executive officer to oversee all of the corporate
activities, reporting to the Board of Directors, and continues in that capacity.
Michael Bolcerek resigned as president of Desper Products, Inc. Mr. Mandell was
elected as a director by the stockholders on February 10, 2000 and also was
designated chief executive officer and chairman of the board.
We responded to inquiries from NASDAQ and attended a hearing with respect
to its continued listing on October 29, 1998 at which time it outlined its
strategy for continued listing. In November, 1998, NASDAQ provided us with an
extension and conditional listing until December 31, 1998 to provide evidence of
compliance with all requirements for continued listing. On December 31, 1998, we
informed NASDAQ that we would be unable to comply with these requirements. On
January 5, 1999, our common stock was delisted from the NASDAQ SmallCap Market
and, on the same day, commenced trading on the NASD Bulletin Board under the
symbol "SPAZ".
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<PAGE> 17
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 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.
Funds generated by these financing activities as well as cash generated
from the Company's existing operations is expected to be sufficient for us to
meet our operating obligations and the anticipated additional research and
development for its audio technology business.
NET OPERATING LOSS CARRYFORWARDS
At December 31, 1999, we had net operating loss carryforwards of
$26,000,000 for income tax purposes. Our ability to utilize approximately
$900,000 of these tax losses which accrued during 1994 against future income may
be restricted as a result of the change in year-ends to December 31, 1994. The
net operating loss carryforwards expire through 2012.
INFLATION
We believe that the moderate inflation rate of the 1990's has not impacted
our operations.
YEAR 2000
We are aware that many computer software programs may not currently be
designed to properly handle the system date change after December 31, 1999. We
have addressed this contingency with its computer consultants and has upgraded
our software programs in 1998, the cost of which was approximately $15,000. The
Company has not experienced any Year 2000 problems as of this filing date.
THE ASIAN ECONOMIC CRISIS
Approximately 51% of our revenues for the year ended December 31, 1999 were
derived from foundries and OEM's based in Japan and other Asian countries. We
believe that the relatively moderate level of the Company's Asian business, and
the concentration of this Asian business with Matsushita Electronics
Corporation, Toshiba Corporation, Samsung and LG Electronics which comprised 85%
of revenues generated from Asian customers, has resulted in some impact on
revenues and profitability.
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<PAGE> 18
COMPREHENSIVE INCOME
The Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income ("SFAS 130"), in June 1997. FAS 130 establishes
standards for reporting and display of comprehensive income and its components
in financial statements. FAS No. 130 is effective for fiscal years beginning
after December 15, 1997. The Company will adopt FAS No. 130 in the first quarter
of fiscal year ended December 31, 1998.
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Spatializer Audit Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Spatializer
Audio Laboratories, Inc. and subsidiaries as of December 31, 1999 and 1998 and
the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for the years ended December 31, 1999 and 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Spatializer
Audio Laboratories, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flow for the years then ended in
conformity with generally accepted accounting principles.
/s/ FARBER & HASS LLP
Oxnard, California
March 10, 2000
19
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Spatializer Audio Laboratories, Inc.
We have audited the accompanying consolidated balance sheets of Spatializer
Audio Laboratories, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Spatializer
Audio Laboratories, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flow for each of the years in the
three-year period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
Los Angeles, California
March 6, 1998, except for note 19, which is
as of April 15, 1998
20
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents................................. $ 1,021,998 $ 264,054
Accounts Receivable....................................... 687,595 134,633
Inventory................................................. 12,993 7,993
Prepaid Expenses and Deposits............................. 22,640 65,718
------------ ------------
Total Current Assets.............................. 1,745,226 472,398
Property and Equipment, Net................................. 132,803 184,140
Intangible Assets, Net...................................... 207,793 236,913
Other Assets................................................ 32,177
------------ ------------
$ 2,117,999 $ 893,451
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes Payable............................................. $ 14,149 $ 14,795
Notes Payable to Related Party............................ 337,742 857,500
Accounts Payable.......................................... 234,117 335,784
Accrued Wages and Benefits................................ 53,136 84,423
Accrued Expenses.......................................... 291,117 370,548
Deferred Income........................................... 250,000
Net Liabilities of Discontinued Operation................. 419,600 533,891
------------ ------------
Total Current Liabilities......................... 1,349,861 2,446,941
------------ ------------
Commitments and Contingencies
Stockholders' Equity (Deficit):
7% Series A Convertible Preferred shares, $0.01 par value;
100,000 shares authorized; no shares and 52,900 shares
issued and outstanding at December 31, 1999 and 1998,
respectively........................................... 529
10% Series B Convertible Redeemable Preferred shares,
$0.01 par value; 1,000,000 shares authorized; 102,967
shares and no shares issued and outstanding at December
31, 1999 and 1998, respectively........................ 1,030
Common shares, $0.01 par value; 50,000,000 shares
authorized; 46,174,970 and 25,841,867 shares issued and
outstanding at December 31, 1999 and 1998,
respectively........................................... 461,750 258,418
Additional Paid-In Capital................................ 45,913,503 44,150,501
Accumulated Deficit....................................... (45,608,146) (45,962,938)
------------ ------------
Total Shareholders' Equity (Deficit).............. 768,137 (1,553,490)
------------ ------------
$ 2,117,999 $ 893,451
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
21
<PAGE> 22
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Product Revenues, Net............................. $ 39,496 $ 336,703
Licensing Revenues................................ 663,522 880,000
Royalty Revenues.................................. $ 1,660,371 976,697 1,564,530
----------- ----------- -----------
1,660,371 1,679,715 2,781,233
Cost of Revenues............................... 48,780 134,190 229,736
----------- ----------- -----------
1,611,591 1,545,525 2,551,497
----------- ----------- -----------
Operating Expenses:
General and Administrative........................ 515,843 1,732,097 2,173,717
Research and Development.......................... 383,176 755,899 3,707,995
Sales and Marketing............................... 257,017 1,001,747 1,356,196
----------- ----------- -----------
1,156,036 3,489,743 7,237,908
----------- ----------- -----------
Operating Income (Loss)........................ 455,555 (1,944,218) (4,686,411)
----------- ----------- -----------
Interest Income..................................... 3,401 27,672 57,305
Interest Expense.................................... (102,468) (84,723) (21,063)
Other Income (Expense), Net......................... 4,804 (50,955) (8,949)
----------- ----------- -----------
(94,263) (108,006) 27,293
----------- ----------- -----------
Income (Loss) from Continuing Operations..... 361,292 (2,052,224) (4,659,118)
Loss from Discontinued Operations............ (3,701,599)
----------- ----------- -----------
Income (Loss) Before Income Taxes.............. 361,292 (5,753,823) (4,659,118)
Income Taxes................................... (6,500) (38,238) (60,703)
----------- ----------- -----------
Net Income (Loss).............................. $ 354,792 $(5,792,061) $(4,719,821)
=========== =========== ===========
Basic and Diluted Income (Loss) per Share:
Continued Operations......................... $ .01 $ (.12) $ (.23)
Discontinued Operations...................... (.17)
----------- ----------- -----------
$ .01 $ (.29) $ (.23)
=========== =========== ===========
Weighted-Average Shares Outstanding.......... 33,805,512 22,180,180 20,604,095
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
22
<PAGE> 23
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss).................................. $ 354,793 $(5,792,061) $(4,719,821)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Used by Operating Activities:
Depreciation and Amortization................... 103,564 126,334 407,283
Discontinued Operations......................... 962,060
Deferred Transaction Costs...................... 146,529
Loss on Disposal of Property and Equipment...... 50,308 14,281
Provision for Doubtful Accounts................. 100,000
Options and Warrants Issued for Services........ 56,030 100,000
Net Change in Assets and Liabilities:
Accounts Receivable and Employee Advances....... (558,583) 798,675 (249,806)
Inventory....................................... (5,000) 85,257 203,289
Prepaid Expenses and Deposits................... 16,521 31,112 125,282
Other Assets.................................... (4,135)
Accounts Payable................................ (101,667) 102,737 247,506
Accrued Expenses and Other Liabilities.......... (360,718) 503,007 78,701
Discontinued Operations......................... (114,291) (66,796)
---------- ----------- -----------
Net Cash Used by Operating Activities................ (665,382) (2,996,808) (3,697,465)
---------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of Property and Equipment.............. (16,365) (43,079) (187,485)
Proceeds from Disposal.......................... 20,400
Intangible Assets............................... (6,740) (34,350) (237,036)
Deferred Transaction Costs...................... (146,529)
Discontinued Operations......................... (238,025)
---------- ----------- -----------
Net Cash Used by Investing Activities................ (23,105) (295,054) (571,050)
---------- ----------- -----------
Cash Flows from Financing Activities:
Issuance of Common and Preferred Shares, Net....... 1,959,627 2,611,474 1,966,144
Exercise of Options and Warrants................... 7,208 45,954 910,917
Notes and Amounts Due to (from) Related Parties.... (519,757) 745,000
Proceeds (Repayments) on Line of Credit............ (400,000) 400,000
Discontinued Operations............................ (20,501)
Repayments of Notes Payable........................ (647) (3,424) (18,528)
---------- ----------- -----------
Net Cash Provided by Financing Activities............ 1,446,431 2,978,503 3,258,533
---------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents..... 757,944 (313,359) (1,009,982)
Cash and Cash Equivalents, Beginning of Year......... 264,054 577,413 1,587,395
---------- ----------- -----------
Cash and Cash Equivalents, End of Year............... $1,021,998 $ 264,054 $ 577,413
========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year for:
Interest........................................ $ 11,250 $ 26,370 $ 21,063
Income Taxes.................................... $ 6,500 $ 35,838 $ 60,703
</TABLE>
See accompanying notes to consolidated financial statements
23
<PAGE> 24
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A, 7% CONVERTIBLE SERIES B, 10% CONVERTIBLE
PREFERRED SHARES PREFERRED SHARES COMMON SHARES
------------------------- ------------------------- --------------------------------------------
NUMBER OF NUMBER OF NUMBER OF ADDITIONAL
SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE PAID-IN-CAPITAL
----------- ----------- ----------- ----------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1998................ 21,410,012 $214,100 $41,481,890
Issuance of Preferred
Shares, Net......... 60,000 $ 600 2,610,874
Options Issued for
Services............ 13,333 133 12,571
Options Exercised..... 19,000 190 33,060
Warrants Exercised....
Conversion of
Preferred Shares.... (7,100) (71) 4,399,522 43,995 (43,924)
Net Loss.............. -- -- --
------- ----- ------- ------ ---------- -------- -----------
Balance, December 31,
1998................ 52,900 529 25,841,867 258,418 44,150,501
Issuance of Preferred
Shares, Net......... 102,967 $1,030 1,028,617
Issuance of Common
Shares, Net......... 1,884,254 18,843 911,137
Options Exercised..... 59,998 600 6,608
Conversion of
Preferred Shares.... (52,900) (529) 18,388,851 183,889 (183,360)
Net Income............ -- -- --
------- ----- ------- ------ ---------- -------- -----------
Balance, December 31,
1999................ 0 $ 0 102,967 $1,030 46,174,970 $461,750 $45,913,503
======= ===== ======= ====== ========== ======== ===========
<CAPTION>
TOTAL
ACCUMULATED SHAREHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
Balance, January 1,
1998................ $(40,170,877) $ 1,525,113
Issuance of Preferred
Shares, Net......... 2,611,474
Options Issued for
Services............ 12,704
Options Exercised..... 33,250
Warrants Exercised....
Conversion of
Preferred Shares....
Net Loss.............. (5,792,061) (5,792,061)
------------ -----------
Balance, December 31,
1998................ (45,962,938) (1,553,490)
Issuance of Preferred
Shares, Net......... 1,029,647
Issuance of Common
Shares, Net......... 929,980
Options Exercised..... 7,208
Conversion of
Preferred Shares....
Net Income............ 354,792 354,792
------------ -----------
Balance, December 31,
1999................ $(45,608,146) $ 768,137
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
24
<PAGE> 25
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS
Spatializer Audio Laboratories, Inc. and subsidiaries (the "Company") is in
the business of developing and licensing technology.
The Company's wholly-owned subsidiary, Desper Products, Inc. ("DPI"), is in
the business of developing proprietary advanced audio signal processing
technologies and products for consumer electronics, entertainment, and
multimedia computing.
The Company's wholly-owned subsidiary, MultiDisc Technologies, Inc.
("MDT"), was in the business of developing scaleable, modular compact disc and
digital versatile disc ("DVD") server technologies associated with a network
based compact disc/DVD server for internet and intranet applications. Operations
of MDT were discontinued in the fourth quarter of 1998 and the assets are being
marketed for sale (see Note 12).
(2) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION -- The consolidated financial statements include the
accounts of Spatializer Audio Laboratories, Inc. and its wholly-owned
subsidiary, Desper Products, Inc. MultiDisc Technologies, Inc. has been
presented as a discontinued operation (see Note 12). All significant
intercompany balances and transactions have been eliminated in consolidation.
REVENUE RECOGNITION -- The Company recognizes revenue from product sales
upon shipment to the customer. License revenues are recognized when earned, in
accordance with the contractual provisions. Royalty revenues are recognized upon
shipment of products incorporating the related technology by the original
equipment manufacturers (OEMs) and foundries.
CONCENTRATION OF CREDIT RISK -- Financial instruments which potentially
subject the company to concentrations of credit risk consist principally of cash
and trade accounts receivable.
At December 31, 1999, four customers accounted for 48%, 16%, 12% and 12%,
respectively, of the Company's trade receivables. The Company performs ongoing
credit evaluations of its customers and normally does not require collateral to
support accounts receivable.
CASH AND CASH EQUIVALENTS -- Cash equivalents consist of highly liquid
investments with original maturities of three months or less.
MAJOR CUSTOMERS -- During the year ended December 31, 1999, four customers
accounts for 30%, 26%, 15% and 10%, respectively, of the Company's net sales.
INVENTORY -- Inventory, which consists primarily of finished goods, is
stated at the lower of cost (first-in, first-out) or market.
RESEARCH AND DEVELOPMENT COSTS -- The Company expenses research and
development costs as incurred.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Property and equipment under capital leases are stated at the present value of
minimum lease payments. Property and equipment are depreciated over three to
five years using accelerated-depreciation methods, which approximates 150%
declining balance. Leasehold improvements are amortized over the shorter of the
useful life of the asset or lease term.
INTANGIBLE ASSETS -- Intangible assets consist of patent costs which are
amortized on a straight-line basis over the estimated useful lives of the
patents which range from five to ten years.
25
<PAGE> 26
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
VALUATION ACCOUNTS -- The Company had reserves for doubtful accounts
recorded in the accompanying consolidated financial statements which are
summarized as follows:
<TABLE>
<S> <C>
BALANCE AT JANUARY 1, 1998............................... $ 190,000
Charged to Expense....................................... 0
Deductions............................................... (190,000)
---------
BALANCE AT DECEMBER 31, 1998............................. 0
BALANCE AT DECEMBER 31, 1999............................. $ 0
=========
</TABLE>
EARNINGS PER SHARE -- On December 31, 1997, the Company retroactively
adopted the provisions of Statement of Financial Accounting Standards No. 128,
Earnings Per Share ("SFAS 128") which replaces the presentation of primary and
fully diluted earnings (loss) per share with a presentation of basic and diluted
earnings (loss) per share. Basic earnings (loss) per share is computed by
dividing net income (loss) available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
(loss) per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Diluted earnings (loss) per share is computed similarly
to fully diluted earnings (loss) per share pursuant to the Accounting Principles
Board ("APB") Opinion No. 15.
The impact of Statement 128 on the calculation of earnings per share is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
BASIC:
Net Income (Loss) Available to Common
Shareholders.................................... $ 354,792 $(5,792,061)
Weighted Average Shares Outstanding............... 33,805,512 22,180,180
Basic Earnings per Share.......................... $ 0.01 $ (0.29)
DILUTED:
Net Income (Loss) Available to Common
Shareholders.................................... $ 354,792 $(5,792,061)
Weighted Average Shares Outstanding............... 33,805,512 22,180,180
Net Effect of Dilutive Stock Options and Warrants
Based on the Treasury Stock Method Using Average
Market Price.................................... 1,859,519 N/A
Total Shares...................................... 35,665,031
Diluted Earnings per Share........................ $ 0.0100 N/A
Average Market Price of Common Stock.............. $ 0.4700 N/A
Ending Market Price of Common Stock............... $ 0.9375 N/A
</TABLE>
The following table presents contingently issuable shares, options and
warrants to purchase shares of common stock that were outstanding during 1998
and 1997 which were not included in the computation of diluted loss per share
because the impact would have been antidilutive:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Options................................... 1,252,500 1,972,300 1,855,070
Warrants.................................. 2,730,000 732,000 934,750
--------- --------- ---------
Total..................................... 3,982,500 2,704,300 2,789,820
========= ========= =========
</TABLE>
The loss per share for the year ended December 31, 1998 includes the effect
of approximately $371,000 of the beneficial conversion feature of the Series
"A", 72 Convertible Preferred Stock as well as dividends in arrears of
approximately $149,000 related to this Preferred Stock.
26
<PAGE> 27
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK OPTION PLAN -- Prior to January 1, 1996 the Company accounted for its
stock option plan in accordance with the provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense using the fair-value-based method
over the vesting period the fair value of all employee stock-based awards on the
date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income (loss) and
pro forma earnings (loss) per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined in SFAS
No. 123 has been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123 (Note 9).
IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS TO BE DISPOSED OF -- The Company
adopted the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of, on January 1,
1996. This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured as the amount by which the carrying
amounts of the assets exceed the fair value of the assets (see Notes 4). Assets
to be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.
SEGMENT REPORTING -- The Financial Accounting Standards Board issued
Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information ("SFAS No. 131"), in June 1997. SFAS No. 131 establishes standards
for the way public business enterprises are to report information about
operating segments in annual financial statements and requires enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
It replaces the "industry segment" concept of SFAS No. 14, Financial Reporting
for Segments of a Business Enterprise, with a "management approach" concept as
to basis for identifying reportable segments. SFAS 131 is effective for
financial statements for fiscal years beginning after December 15, 1997. The
Company adopted SFAS 131 in December 1997. MDT is considered a discontinued
operation as of September 1998. As of December 31, 1998, the Company has only
one operating segment, DPI, the Company's 3-D Audio Signal Processing business.
COMPREHENSIVE INCOME -- The Financial Accounting Standards Board issued
Statement No. 130, Reporting Comprehensive Income ("SFAS 130"), in June 1997.
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components in financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The Company adopted SFAS No. 130
January 1, 1998. Comprehensive income (loss) is the change in equity of a
business enterprise during a period from transactions and all other events and
circumstances from non-owner sources. Other comprehensive income (loss) includes
foreign currency items, minimum pension liability adjustments, and unrealized
gains and losses on certain investments in debt and equity securities. The
Company did not have components of other comprehensive income (loss) during the
years ended December 31, 1999, 1998 and 1997. As a result, comprehensive income
(loss) is the same as the net income (loss) for the years ended December 31,
1999, 1998 and 1997.
INCOME TAXES -- Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax
27
<PAGE> 28
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
USE OF ESTIMATES -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS -- The carrying values of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities at December 31,
1999 and 1998 approximated fair value due to the short maturity of those
investments.
The fair value of the advances from related parties could not be estimated
due to the nature of the borrowings.
The fair values of notes payable at December 31, 1999 and 1998 are
materially consistent with the related carrying values based on current rates
offered to the Company for instruments with similar maturities.
DISCONTINUED OPERATIONS -- In September 1998, the Board of Directors
approved a plan to refocus corporate activities on the Company's core audio
business, Desper Products, Inc. In conjunction to this strategic refocusing, the
Company permanently suspended operations of MDT and placed the business and its
related patent portfolio up for sale. The Company is accounting for the on-going
operating and termination expenses of MDT as a discontinued operation (see Note
12).
(3) PROPERTY AND EQUIPMENT
Property and equipment, as of December 31, 1999 and 1998, consists of the
following, net of a reserve for impairment loss in 1998 in accordance with
application of SFAS 121:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Office Computers, Software, Equipment and Furniture.... $242,272 $225,907
Test Equipment......................................... 60,647 60,647
Tooling Equipment...................................... 44,136 44,136
Trade Show Booth and Demonstration Equipment........... 122,768 122,768
Leasehold Improvements................................. 22,122 22,122
-------- --------
Total Property and Equipment........................... 491,945 475,580
Less Accumulated Depreciation and Amortization......... 359,142 291,440
-------- --------
Property and Equipment, Net............................ $132,803 $184,140
======== ========
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets, as of December 31, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Capitalized Patent and Technology Costs................ $373,677 $365,637
Less Accumulated Amortization.......................... 165,884 128,724
-------- --------
Intangible Assets, Net................................. $207,793 $236,913
======== ========
</TABLE>
28
<PAGE> 29
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) FINANCING ARRANGEMENTS
NOTES PAYABLE -- Notes payable at December 31, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Notes payable, secured by equipment, interest at 11.5% to
22%, payable in monthly installments through May
2002................................................... $14,149 $14,795
======= =======
</TABLE>
The notes payable balances as of December 31, 1999 and 1998 have been
classified as current liabilities since the long-term portion of the debt is not
material to the accompanying consolidated balance sheet. Capital lease
obligations totalling $25,552 at December 31, 1999 are included in the Net
Liabilities of Discontinued Operations.
(6) NOTES PAYABLE TO RELATED PARTIES
The Company was indebted to certain related parties for an amount totaling
$337,742 at December 31, 1999. This amount bears interest at a fixed rate of 10%
annually and is due on demand. It is convertible into shares of common stock
based on the 10 day average closing bid price immediately prior to notice of
conversion.
At December 31, 1998, the Company was indebted to four of its directors and
one of its executives for an amount totalling $745,000. This amount bears
interest at a fixed rate of 10% annually. Of this amount, $650,000 was due on
December 31, 1998. The remaining $95,000 was due on November 30, 1999, or upon
the sale of the MDT assets. The Company granted 95,000 warrants to purchase
common stock at $0.20 per share in connection with the $95,000 of indebtedness.
This debt was converted into Series B preferred stock in December 1999 (see Note
7).
(7) SHAREHOLDERS' EQUITY
During the year ended December 31, 1999, shares were issued or converted as
follows:
In December 1999, the Company completed a set of financial transactions
(the "December Transactions") with certain existing holders of the Company's
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 an earlier financing, the conversion of $1
million of short-term debt into a new Series B Convertible Redeemable 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 $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. The Company has 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 the Company's assets. The debt, and accrued interest, is convertible at
the Company's or the holder's options into registered common stock at a
conversion price equal to the average
29
<PAGE> 30
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 the Company's outside legal counsel in payment of a portion of its
legal fees for this transaction.
During the year ended December 31, 1998, shares were issued or converted as
follows:
On April 14, 1998, the Company entered into a private placement for up to
$5 million of which $3 million was funded at December 31, 1998. In connection
with the private placement, the Company authorized 100,000 shares of a new
Series A, 7% Convertible Preferred Stock at a stated price of $50 per share and
issued 60,000 shares for the $3 million. In connection with the April funding,
the Company issued purchase warrants, exercisable for three years and entitling
the holders to acquire one share of the Company's common stock for each warrant.
Of the warrants, 450,000 were issued and 150,000 warrants were issued to
placement agents. The investor warrants are exercisable at 140% and the
placement warrants are exercisable at 120%, respectively, of the average closing
bid price of the Company's common stock for the 10 days preceding the closing.
In addition, cash placement fees of 10% were paid. A related party of the
Company received 50,000 of the placement agent warrants and $100,000 of the
placement agent cash fee for arranging $1 million of the $3 million investment.
As of December 31, 1998, $1 million of the remaining $2 million of the funding
was due but had not yet been received.
Holders of the Series A Preferred Stock have a right to convert their
shares, at their option on the earlier of (x) ninety (90) days after issuance or
(y) on the effective date of a Form S-3 Registration Statement (the "Conversion
Date") with such conversion to be based on a per share conversion price
("Conversion Price") equal to the lesser of a price that reflects a discount
(the "Conversion Discount") to the average of any three (3) consecutive closing
bid prices for the Company's Common Stock within twenty (20) trading days
immediately prior to the conversion date (the "Floating Conversion Price") or a
price which is equal to one hundred thirty percent (130%) of the closing bid
prices of the Company's Common Stock for the ten (10) trading days immediately
preceding the date of issuance (the "Fixed Conversion Price") provided that in
determining the Conversion Price, the holder shall not count any day on which
its sales account for greater than twenty percent (20%) of the volume of the
Company's Common Stock and on which the holder has sales in the last hour of
trading. The Conversion Discount shall be equal to fifteen percent (15%) if the
Conversion Rights are exercised within one hundred twenty (120) days of first
issuance of the Series A Preferred Stock and shall be equal to seventeen and
one-half percent (17.5%) if the Conversion Rights are exercised after one
hundred twenty (120) days and prior to one hundred forty-nine (149) days of
first issuance of the Series A Preferred Stock. The applicable Conversion
Discount increased by five percent (5%) when the Company was delisted on NASDAQ.
In addition, the percentage of shares that can be converted at any one time is
limited during such time periods and the holders cannot own more than 4.99% of
the equity of the Company after the Conversion.
At December 31, 1998, 7,100 shares of the Convertible Preferred Series A
Stock had been converted into a total of 4,399,522 shares of the Company's
Common Stock.
The beneficial conversion feature of the Series A Preferred Stock will be
recorded as a dividend using the most favorable conversion terms available to
the shareholder to calculate the dividend in accordance with FASB (Emerging
Issues Task Force) Topic D-60. Since the Company has an accumulated deficit and,
under Delaware Law, must charge dividends against additional paid-in capital,
the net impact of recording the beneficial conversion feature is zero since both
sides of the entry are recorded in additional paid-in capital. At December 31,
1998, dividends in arrears were $131,148.
30
<PAGE> 31
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the private placement, the participants were granted certain rights to
participate in the separate financing of approximately $6 million currently
being pursued by the Company to fund the commercial introduction of its
MultiDisc CD/DVD server technology. However, as reported by the Company on
September 25, 1998, the Company has decided to refocus on the core audio
technologies and to properly position the MultiDisc assets for sale. Therefore
this financing is not currently being pursued actively.
During the year ended December 31, 1997, shares were issued or converted as
follows:
In March 1997, the Company completed a private placement of 1,600,000 units
at a price of $1.25 per unit, each unit comprised of one common share and
one-half of one non-transferable share purchase warrant. One warrant entitles
the holder to purchase one additional share at a price of $1.75 on or before
April 7, 1998. Stock issuance costs consisted of 67,500 shares of common stock,
12,000 warrants to purchase an equivalent number of shares of common stock at
1.50 per share and $33,856 cash.
(8) ESCROWED PERFORMANCE SHARES
In December 1996, the Company accepted the terms outlined by the British
Columbia Securities Commissions ("BCSC") for the release of the Company's
5,776,700 escrowed "Performance Shares" from Canadian Escrow into a new escrow
arrangement with the Company. The overall modification was approved by the
Company's shareholders in August 1996. Under the revised arrangement, the
performance shares will 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.
Under the revised escrow arrangement, the performance shares will vest,
provided the individual has not voluntarily terminated his/her relationship with
the Company prior to applicable vesting dates.
Based on the revised escrow arrangement, which primarily converts the
escrow shares release from performance criteria to a time-based criteria, the
Company recorded as compensation expense the excess of the fair market value of
the 5,776,700 performance shares on the date the Company accepted the terms of
the new escrow arrangement over the purchase price of such escrow shares.
All of the performance shares are included in the issued and outstanding
shares for the years ended December 31, 1999, 1998 and 1997. However, the shares
were not reflected in the calculation of loss per common share until earned by
and released to the holders on December 30, 1996, the date on which the Company
and the BCSC accepted and entered into the terms of the current escrowed
agreement as discussed above.
(9) STOCK OPTIONS
In 1995, the Company adopted a stock option plan (the "Plan") pursuant to
which the Company's Board of Directors may grant stock options to directors,
officers and employees. The Plan authorizes grants of options to purchase
authorized but unissued common stock up to 10% of total common shares
outstanding at each calendar quarter, 4,617,497 as of December 31, 1999. Stock
options are granted with an exercise price equal to the stock's fair market
value at the date of grant. Stock options have five-year terms and vest and
become fully exercisable up to three years from the date of grant.
At December 31, 1999, there were 1,758,030 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock options
granted during 1999, 1998 and 1997 was $0.32, $0.25, and $1.44, respectively, on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: 1999 and 1998 -- expected dividend yield
0%, risk-free interest rate of 9.0%,
31
<PAGE> 32
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
expected volatility of 95% and an expected life of 3 years; 1997 -- expected
dividend yield 0%, risk-free interest rate of 6.50%, expected volatility of 147%
and an expected life of 5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for the fair value of its
stock options in the consolidated financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ----------- -----------
<S> <C> <C> <C>
NET INCOME (LOSS):
As Reported................................... $354,792 $(5,792,061) $(4,719,821)
Pro Forma..................................... $(49,978) $(5,792,061) $(6,408,547)
BASIC AND DILUTED LOSS:
As Reported................................... $ 0.01 $ (.29) $ (.23)
Pro Forma..................................... $ (0.01) $ (.29) $ (.31)
</TABLE>
Pro forma net loss reflects only options granted since December 31, 1994.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting period
and compensation cost for options granted prior to January 1, 1995 is not
considered.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Options outstanding at January 1, 1997........... 1,701,732 $2.737
Options granted.................................. 780,000 $1.560
Options exercised................................ (339,833) $1.182
Options forfeited................................ (286,829) $3.208
---------
Options outstanding at December 31, 1997......... 1,855,070 $1.897
Options granted.................................. 646,000 $0.728
Options exercised................................ (13,333) $0.953
Options forfeited................................ (515,437) $1.763
---------
Options outstanding at December 31, 1998......... 1,972,300 $1.515
Options granted.................................. 1,280,000 $0.316
Options exercised................................ (59,998) $1.242
Options forfeited................................ (332,835) $1.131
---------
Options outstanding at December 31, 1999......... 2,859,467 $1.271
=========
</TABLE>
At December 31, 1999, the number of options exercisable was 2,401,300, and
the weighted-average exercise price of those options was $1.48.
On October 30, 1998, the Compensation Committee of the Board of Directors
re-priced qualified stock options to purchase 121,000 shares of common stock
granted to various employees beginning in June 1995. The exercise price for
these options was adjusted to $.01875 per share (the closing market price on
October 30, 1998) reducing grant date exercise prices ranging from $0.72 to
$2.34 per share. Also, on November 12, 1998, the compensation Committee of the
Board of Directors re-priced qualified stock options to purchase 100,000 shares
of common stock granted to an employee in March 1998. The exercise price for
these options was adjusted to $0.125 per share (the closing market price on
November 12, 1998) reducing the
32
<PAGE> 33
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
grant date exercise price from $1.18 per share. The vesting schedules and
expiration dates for these options were not modified.
(10) WARRANTS
Warrant activity for the periods indicated below is as follows:
<TABLE>
<CAPTION>
WARRANTS WARRANT PRICE
--------- -------------
<S> <C> <C>
Warrants outstanding at January 1, 1997............. 174,000 $3.79
Warrants issued..................................... 1,067,000 $1.45
Warrants exercised.................................. (287,250) $1.75
Warrants expired.................................... (19,000) $3.80
---------
Warrants outstanding at December 31, 1997........... 934,750 $1.70
Warrants issued..................................... 720,000 $1.45
Warrants exercised.................................. (19,000) $1.75
Warrants expired.................................... (903,750) $1.70
---------
Warrants outstanding at December 31, 1998........... 732,000 $1.11
Warrants issued..................................... 2,410,000 $0.60
Warrants exercised.................................. 0
Warrants expired.................................... 412,000 $1.26
---------
Warrants outstanding at December 31, 1999........... 2,730,000 $0.67
=========
</TABLE>
All of the warrants granted in 1999, 1998 and 1997 were issued in
connection with private placements except for the following: 100,000 warrants
were granted in 1997 as consideration for consulting services rendered during
1997; 25,000 warrants were granted in 1998 as consideration for consulting
services rendered during 1998; and 95,000 warrants were granted in 1998 in
connection with a debt financing with the Company's directors. For those
warrants granted as consideration for consulting services, the fair value of the
consulting services was included in research and development costs in the
accompanying consolidated statement of operations for the years ended December
31, 1998 and 1997. At December 31, 1999 and 1998, the number of warrants
exercisable was 2,730,000 and 732,000, respectively.
(11) INCOME TAXES
The Company files a consolidated return for U.S. income tax purposes.
Income tax expense for the years ended December 31, 1999, 1998 and 1997
consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- -------
<S> <C> <C> <C>
State franchise tax............................ $ 800 $ 2,400 $ 2,856
Foreign taxes.................................. 5,700 35,838 57,847
------ ------- -------
Total.......................................... $6,500 $38,238 $60,703
====== ======= =======
</TABLE>
Certain revenues received from customers in foreign countries are subject
to withholding taxes that are deducted from outgoing funds at the time of
payment. These taxes range from approximately 8.5% to 15% and are recorded as
foreign tax expense when incurred.
Income tax expense for the years ended December 31, 1999, 1998 and 1997
differed from the amounts computed by applying the U.S. federal income tax rate
of 34 percent to loss before income taxes primarily due to the generation of
additional net operating loss carryforwards for which no tax benefit has been
provided.
33
<PAGE> 34
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are presented below.
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net Operating Loss Carryforwards................. $ 9,854,000 $ 9,475,000
In-Process Research and Development Costs........ 272,000
Asset Reserves................................... 313,000
Accrued Liabilities.............................. 19,000 32,000
Property and Equipment, Principally Due to
Differences in Depreciation and Capitalized
Interest....................................... 23,000 20,000
----------- ------------
Total Gross Deferred Tax Assets.................. 9,896,000 10,112,000
Less Valuation Allowance......................... (9,896,000) (10,112,000)
----------- ------------
Net Deferred Tax Assets.......................... $ 0 $ 0
=========== ============
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1999 and 1998 was a change of $(216,000) and $2,074,000,
respectively. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers projected future taxable income and tax planning strategies in making
this assessment. Based upon the level of historical taxable losses, management
believes it is more likely than not the Company will not realize the benefits of
these deductible differences and has established a valuation allowance to fully
reserve the deferred tax assets at December 31, 1999 and 1998. Additionally, the
ultimate realizability of net operating losses may be limited by change of
control provisions under Section 382 of the Internal Revenue Code.
At December 31, 1999, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $26,000,000 which are available to
offset future Federal taxable income, if any, through 2013.
(12) DISCONTINUED OPERATION
On September 25, 1998, the Board of Directors determined that it would be
unable to raise the necessary capital required to properly commercialize the MDT
technology. Therefore, the Company ceased funding the operations of MDT and is
actively seeking to sell the assets and technology. All employees of MDT have
been terminated and the Company has vacated the MDT facilities.
Based on this action, the Company is treating MDT as a discontinued
operation. Accordingly, the balance sheet and statement of operations of MDT are
not consolidated in the continuing operations of the Company, but rather are
disclosed as Net Liabilities of Discontinued Operation and Loss From
Discontinued Operation, respectively.
The Net Liabilities of Discontinued Operation at December 31, 1999 are
comprised of the following:
<TABLE>
<S> <C>
Accounts payable......................................... $(260,364)
Accrued expenses......................................... (133,684)
Notes payable............................................ (25,552)
---------
Net liabilities of discontinued operations............... $(419,600)
=========
</TABLE>
34
<PAGE> 35
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) COMMITMENTS AND CONTINGENCIES
In February 1999, a complaint was filed in the Superior Court of Los
Angeles County, Northwest District, by I.N. Associates, Inc., against the
Company's wholly owned subsidiary, MultiDisc Technologies, Inc. ("MDT"),
alleging breach of contract and fraud, and claiming $499,953.94 in damages,
attorneys fees, interest and the costs of suit. MDT has answered and denied the
claims. The matter was subject to a mediation preceding in March 2000, and
settlement is currently being documented. If the current settlement is
finalized, the matter will be resolved without any cost to the Company and I.N.
will be entitled to a cashless exercise of warrants for the 125,000 shares
originally issued to them in 1997 and 1998.
Operating Lease Commitments
The Company is obligated for future minimum rental payments for all
operating leases of approximately $75,000 per year through November 2002. Rent
expense amounted to approximately $140,000, $251,000 and $238,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
35
<PAGE> 36
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required for this item incorporated by reference to the
Definitive Proxy filed on January 12, 2000.
ITEM 11. EXECUTIVE COMPENSATION
Information required for this item incorporated by reference to the
Definitive Proxy filed on January 12, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required for this item incorporated by reference to the
Definitive Proxy filed on January 12, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required for this item incorporated by reference to the
Definitive Proxy filed on January 12, 2000.
PART IV
ITEM 14. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1* Desper-Spatializer Reorganization Agreement dated January
29, 1992. (Incorporated by reference to the Company'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 Company's Registration
Statement on Form S-1, Registration No. 33-90532, effective
August 21, 1995.)
3.1* Certificate of Incorporation of Spatializer-Delaware as
filed February 28, 1994. (Incorporated by reference to the
Company's Registration Statement on Form S-1, Registration
No. 33-90532, effective August 21, 1995.)
3.2* Amended and Restated Bylaws of Spatializer-Delaware.
(Incorporated by reference to the Company's Registration
Statement on Form S-1, Registration No. 33-90532, effective
August 21, 1995.)
3.3 Certificate of Designation of Series B 10% Redeemable
Convertible Preferred Stock of the Company as filed December
27, 1999.
3.4 Certificate of Amendment of Certificate of Incorporation of
the Company as filed on February 25, 2000.
4.1* Form of Subscription Agreement for August 1994 Private
Placement. (Incorporated by reference to the Company's
Registration Statement on Form S-1, Registration No.
33-90532, effective August 21, 1995.)
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
4.2* Form of Subscription Agreement for November 1994 Private
Placement. (Incorporated by reference to the Company'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 Company'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 Company'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 Company'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 Company's Proxy Statement dated June 25,
1996 and previously filed with the Commission.)
4.7* Form of Subscription Agreement for 1995 Private Placements.
(Incorporated by reference to the Company's Registration
Statement on Form S-1, Registration No. 33-90532, effective
August 21, 1995.)
4.8* Form of Subscription Agreement and Warrant Agreement for
March 7, 1997 Private Placement. (Incorporated by reference
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.)
4.9* Modification Agreement for Escrowed Performance Shares.
(Incorporated by reference to the Company's Definitive Proxy
Statement dated June 28, 1996 and previously filed with the
Commission.)
4.10 * Subscription Agreement for April 1998 Private Placement.
(Incorporated by reference to the Company's Registration
Statement on Form S-3, Registrations No. 333-52863, filed
May 15, 1998.)
4.11 Common Stock Purchase Agreement dated as of December 29,
1999 among the Company, CPR (USA) Inc., LibertyView Funds,
L.P., LibertyView Fund, LLC.
4.12 Stock Purchase Warrant, dated as of December 29, 1999 issued
by the Company to CPR (USA) Inc.
4.13 Stock Purchase Warrant, dated as of December 29, 1999 issued
by the Company to LibertyView Funds, L.P.
4.14 Stock Purchase Warrant, dated as of December 29, 1999 issued
by the Company to LibertyView Fund, LLC.
4.15 Registration Rights Agreement dated as of December 29, 1999
among the Company and CPR (USA) Inc., LibertyView Funds,
L.P. and LibertyView Fund, LLC.
4.16 Secured Non-Negotiable Convertible Promissory Note dated as
of December 29, 1999 issued by the Company to CPR (USA) Inc.
4.17 Secured Non-Negotiable Convertible Promissory Note dated as
of December 29, 1999 issued by the Company to LibertyView
Funds, L.P.
4.18 Secured Non-Negotiable Convertible Promissory Note dated as
of December 29, 1999 issued by the Company to LibertyView
Fund LLC.
4.19 Registration Rights Agreement dated as of December 29, 1999
among the Company and CPR (USA) Inc., LibertyView Funds,
L.P. and LibertyView Fund, LLC.
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
4.20 Agreement Regarding Cancellation of Warrants, dated as of
December 29, 1999 among CPR (USA), Inc., LibertyView Funds,
L.P. and LibertyView Fund, LLC.
4.21 Common Stock Subscription Agreement dated as of December 29,
1999 between the Company and Lufeng Investments (as assignee
of Arab Commerce Bank).
4.22 Stock Purchase Warrant, dated as of December 29, 1999 issued
by the Company to Lufeng Investments (as assignee of Arab
Commerce Bank).
4.23 Registration Rights Agreement dated as of December 29, 1999
between the Company and Lufeng Investments (as assignee of
Arab Commerce Bank).
4.24 Common Stock Subscription Agreement dated as of December 29,
1999 between the Company and Bank Insinger de Beaufort.
4.25 Stock Purchase Warrant, dated as of December 29, 1999 issued
by the Company to Bank Insinger de Beaufort.
4.26 Registration Rights Agreement dated as of December 29, 1999
between the Company and Bank Insinger de Beaufort.
4.27 Common Stock Subscription Agreement dated as of December 29,
1999 between the Company and Romofin, A.G.
4.28 Stock Purchase Warrant, dated as of December 29, 1999 issued
by the Company to Romofin, A.G.
4.29 Registration Rights Agreement dated as of December 29, 1999
between the Company and Romofin, A.G.
4.30 10% Convertible Preferred Stock Subscription Agreement dated
as of December 29, 1999 between the Company and Clarion
Finanz, A.G. Carlo Civelli, Henry R. Mandell, James D. Pace,
Jerold H. Rubinstein, Gilbert N. Segel, Aton Select Fund
Ltd. and Romofin A.G.
10.1*** License Agreement dated June 29, 1994 between DPI and MEC.
(Incorporated by reference to the Company's Registration
Statement on Form S-1, Registration No. 33-90532, effective
August 21, 1995.)
10.2*** License Agreement dated November 11, 1994 between DPI and
ESS. (Incorporated by reference to the Company's
Registration Statement on Form S-1, Registration No.
33-90532, effective August 21, 1995.)
10.3* License Agreement dated June 10, 1994 between Joel Cohen and
DPI. (Incorporated by reference to the Company's
Registration Statement on Form S-1, Registration No.
33-90532, effective August 21, 1995.)
10.4 Agreement Regarding Indebtedness dated as of December 29,
1999 among the Company and CPR (USA) Inc., LibertyView
Funds, L.P. and LibertyView Fund, LLC.
10.5 Security Agreement dated as of December 29, 1999 among the
Company and CPR (USA) Inc., LibertyView Funds, L.P. and
LibertyView Fund, LLC.
10.6 Finder's Fee Agreement dated as of December 27, 1999 between
the Company and Bristol Capital, L.L.C.
21.1 Schedule of Subsidiaries of the Company.
27 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
*** Previously filed and portions subject to request for confidential treatment.
The confidential portions omitted have been filed separately with the
Commission.
38
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 2000 SPATIALIZER AUDIO LABORATORIES, INC.
(Registrant)
/s/ HENRY R. MANDELL
--------------------------------------
Henry R. Mandell
Chief Executive Officer & Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ CARLO CIVELLI Director March 30, 2000
- ---------------------------------------------
Carlo Civelli
/s/ STEPHEN W. DESPER Director March 30, 2000
- ---------------------------------------------
Stephen W. Desper
/s/ JAMES D. PACE Director March 30, 2000
- ---------------------------------------------
James D. Pace
/s/ GILBERT N. SEGEL Director March 30, 2000
- ---------------------------------------------
Gilbert N. Segel
</TABLE>
39
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1* Desper-Spatializer Reorganization Agreement dated January
29, 1992. (Incorporated by reference to the Company'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 Company's Registration
Statement on Form S-1, Registration No. 33-90532, effective
August 21, 1995.)
3.1* Certificate of Incorporation of Spatializer-Delaware as
filed February 28, 1994. (Incorporated by reference to the
Company's Registration Statement on Form S-1, Registration
No. 33-90532, effective August 21, 1995.)
3.2* Amended and Restated Bylaws of Spatializer-Delaware.
(Incorporated by reference to the Company's Registration
Statement on Form S-1, Registration No. 33-90532, effective
August 21, 1995.)
3.3 Certificate of Designation of Series B 10% Redeemable
Convertible Preferred Stock of the Company as filed December
27, 1999.
3.4 Certificate of Amendment of Certificate of Incorporation of
the Company as filed on February 25, 2000.
4.1* Form of Subscription Agreement for August 1994 Private
Placement. (Incorporated by reference to the Company'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 Company'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 Company'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 Company'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 Company'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 Company's Proxy Statement dated June 25,
1996 and previously filed with the Commission.)
4.7* Form of Subscription Agreement for 1995 Private Placements.
(Incorporated by reference to the Company's Registration
Statement on Form S-1, Registration No. 33-90532, effective
August 21, 1995.)
4.8* Form of Subscription Agreement and Warrant Agreement for
March 7, 1997 Private Placement. (Incorporated by reference
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.)
4.9* Modification Agreement for Escrowed Performance Shares.
(Incorporated by reference to the Company's Definitive Proxy
Statement dated June 28, 1996 and previously filed with the
Commission.)
4.10 * Subscription Agreement for April 1998 Private Placement.
(Incorporated by reference to the Company's Registration
Statement on Form S-3, Registrations No. 333-52863, filed
May 15, 1998.)
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
4.11 Common Stock Purchase Agreement dated as of December 29,
1999 among the Company, CPR (USA) Inc., LibertyView Funds,
L.P., LibertyView Fund, LLC.
4.12 Stock Purchase Warrant, dated as of December 29, 1999 issued
by the Company to CPR (USA) Inc.
4.13 Stock Purchase Warrant, dated as of December 29, 1999 issued
by the Company to LibertyView Funds, L.P.
4.14 Stock Purchase Warrant, dated as of December 29, 1999 issued
by the Company to LibertyView Fund, LLC.
4.15 Registration Rights Agreement dated as of December 29, 1999
among the Company and CPR (USA) Inc., LibertyView Funds,
L.P. and LibertyView Fund, LLC.
4.16 Secured Non-Negotiable Convertible Promissory Note dated as
of December 29, 1999 issued by the Company to CPR (USA) Inc.
4.17 Secured Non-Negotiable Convertible Promissory Note dated as
of December 29, 1999 issued by the Company to LibertyView
Funds, L.P.
4.18 Secured Non-Negotiable Convertible Promissory Note dated as
of December 29, 1999 issued by the Company to LibertyView
Fund LLC.
4.19 Registration Rights Agreement dated as of December 29, 1999
among the Company and CPR (USA) Inc., LibertyView Funds,
L.P. and LibertyView Fund, LLC.
4.20 Agreement Regarding Cancellation of Warrants, dated as of
December 29, 1999 among CPR (USA), Inc., LibertyView Funds,
L.P. and LibertyView Fund, LLC.
4.21 Common Stock Subscription Agreement dated as of December 29,
1999 between the Company and Lufeng Investments (as assignee
of Arab Commerce Bank).
4.22 Stock Purchase Warrant, dated as of December 29, 1999 issued
by the Company to Lufeng Investments (as assignee of Arab
Commerce Bank).
4.23 Registration Rights Agreement dated as of December 29, 1999
between the Company and Lufeng Investments (as assignee of
Arab Commerce Bank).
4.24 Common Stock Subscription Agreement dated as of December 29,
1999 between the Company and Bank Insinger de Beaufort.
4.25 Stock Purchase Warrant, dated as of December 29, 1999 issued
by the Company to Bank Insinger de Beaufort.
4.26 Registration Rights Agreement dated as of December 29, 1999
between the Company and Bank Insinger de Beaufort.
4.27 Common Stock Subscription Agreement dated as of December 29,
1999 between the Company and Romofin, A.G.
4.28 Stock Purchase Warrant, dated as of December 29, 1999 issued
by the Company to Romofin, A.G.
4.29 Registration Rights Agreement dated as of December 29, 1999
between the Company and Romofin, A.G.
4.30 10% Convertible Preferred Stock Subscription Agreement dated
as of December 29, 1999 between the Company and Clarion
Finanz, A.G. Carlo Civelli, Henry R. Mandell, James D. Pace,
Jerold H. Rubinstein, Gilbert N. Segel, Aton Select Fund
Ltd. and Romofin A.G.
10.1*** License Agreement dated June 29, 1994 between DPI and MEC.
(Incorporated by reference to the Company's Registration
Statement on Form S-1, Registration No. 33-90532, effective
August 21, 1995.)
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.2*** License Agreement dated November 11, 1994 between DPI and
ESS. (Incorporated by reference to the Company's
Registration Statement on Form S-1, Registration No.
33-90532, effective August 21, 1995.)
10.3* License Agreement dated June 10, 1994 between Joel Cohen and
DPI. (Incorporated by reference to the Company's
Registration Statement on Form S-1, Registration No.
33-90532, effective August 21, 1995.)
10.4 Agreement Regarding Indebtedness dated as of December 29,
1999 among the Company and CPR (USA) Inc., LibertyView
Funds, L.P. and LibertyView Fund, LLC.
10.5 Security Agreement dated as of December 29, 1999 among the
Company and CPR (USA) Inc., LibertyView Funds, L.P. and
LibertyView Fund, LLC.
10.6 Finder's Fee Agreement dated as of December 27, 1999 between
the Company and Bristol Capital, L.L.C.
21.1 Schedule of Subsidiaries of the Company.
27 Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
*** Previously filed and portions subject to request for confidential treatment.
The confidential portions omitted have been filed separately with the
Commission.
42
<PAGE> 1
EXHIBIT 3.3
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.
<PAGE> 2
Section 5. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Company, 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
<PAGE> 3
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 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.
<PAGE> 4
(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 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
<PAGE> 5
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 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
<PAGE> 6
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]
<PAGE> 7
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: /S/ Henry R. Mandell
-------------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
Attest:
By: /S/ Henry R. Mandell
---------------------------
Name: Henry R. Mandell
Title: Secretary
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
SPATIALIZER AUDIO LABORATORIES, INC.
FIRST: That at a meeting of the Board of Directors of Spatializer Audio
Laboratories, Inc. (the "Corporation") resolutions were duly adopted setting
forth a proposed amendment of the Certificate of Incorporation of the
Corporation, declaring said amendment to be advisable and calling for such
amendment to be voted upon by the stockholders of the Corporation at the annual
meeting of such stockholders. The resolution setting forth the proposed
amendment is as follows:
"RESOLVED, that the Certificate of Incorporation of Spatializer Audio
Laboratories, Inc. (the "Corporation") be amended by changing the Article
thereof numbered "IV" so that, as amended, said Article shall be and read as
follows:
"SECTION 1. The total number of shares of all classes of stock
which the Corporation shall have the authority to issue is 66,000,000
shares, consisting of 65,000,000 shares of Common Stock, par value $.01
per share ("Common Stock"), and 1,000,000 shares of Preferred Stock, par
value $.01 per share ("Preferred Stock")."
SECOND: That thereafter, pursuant to a resolution of its Board of
Directors, the above amendment was put forth for a vote of the stockholders of
the Corporation at the Corporation's Annual Meeting of Stockholders, duly called
and held, upon notice in accordance with Section 222 of the General Corporations
Law of the State of Delaware, at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That at any time prior to the filing of the foregoing Certificate
of Amendment of Certificate of Incorporation of the Corporation, notwithstanding
authorization of such proposed Certificate of Amendment by the stockholders of
the Corporation, the Board of Directors may abandon such proposed Certificate of
Amendment without further action by the stockholders.
FOURTH: That said amendment was duly adopted in accordance with Section
242 of the General Corporation law of the State of Delaware.
FIFTH: That the capital of the Corporation shall not be reduced under or
by reason of said amendment.
SPATIALIZER AUDIO LABORATORIES, INC.
By: /s/ Henry R. Mandell
-------------------------------
Henry R. Mandell
Chief Executive Officer
<PAGE> 1
EXHIBIT 4.11
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> 2
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 charter, bylaws, partnership agreement, operating agreement or
other organizational document and
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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 registered pursuant to Section 15 of the 1934
Act; any insurance company as
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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$5,000,000,
not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person as described in Section
230.506(b)(2)(ii) of Regulation D under the Act;
(viii) Any entity in which all of the equity owners are
accredited investors;
(ix) Any self-directed employee benefit plan with investment
decisions made solely by persons that are accredited
investors within the meaning of Rule 501 of Regulation D
promulgated under the Act; or
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(x) Any private investment company with assets under
management in excess of US$________________________.
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 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
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<PAGE> 6
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 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).
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<PAGE> 7
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 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.
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<PAGE> 8
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 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.
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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
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
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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, 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
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<PAGE> 11
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:
(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.
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(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.
(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:
12
<PAGE> 13
(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 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.
13
<PAGE> 14
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 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.
14
<PAGE> 15
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 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.
15
<PAGE> 16
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]
16
<PAGE> 17
IN WITNESS WHEREOF, this Agreement was duly executed on and as of
December 29, 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, CPR (USA), Inc.
----------------------------------
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:
-------------------------------
Title: Authorized Signatory
--------------------
17
<PAGE> 18
SCHEDULE A
<TABLE>
<CAPTION>
SUBSCRIBER NUMBER OF SHARES NUMBER
NAME AND ADDRESS PURCHASE PRICE OF COMMON STOCK OF WARRANTS
- ---------------- -------------- --------------- -----------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 19
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> 20
EXHIBIT A
Stock Purchase Warrant
<PAGE> 21
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 the shares thereby purchased;
<PAGE> 22
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.
<PAGE> 23
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
<PAGE> 24
its outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock, then, in
such events, the number of Warrant Shares purchasable upon exercise of this
Warrant immediately prior thereto shall be adjusted so that the 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
<PAGE> 25
date hereof. 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.
(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]
<PAGE> 26
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:
----------------------------
<PAGE> 27
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.
<PAGE> 28
EXHIBIT B
Registration Rights Agreement
<PAGE> 29
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
that such transfer may be made or (ii) a registration statement under the Act is
then in effect with respect thereto.
<PAGE> 30
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.
(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.
<PAGE> 31
(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 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:
<PAGE> 32
(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 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.
<PAGE> 33
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 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
<PAGE> 34
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 Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Holder and the indemnifying party and the Distributing Holder shall
have been advised by such counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Distributing Holder, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
<PAGE> 35
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.
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
<PAGE> 36
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.
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
<PAGE> 37
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]
<PAGE> 38
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:
----------------------------
<PAGE> 1
EXHIBIT 4.12
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> 2
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.
2
<PAGE> 3
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 Common Stock,
(iii) combine its outstanding shares of
3
<PAGE> 4
CPR (USA) INC.
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> 5
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> 6
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: /S/ Henry R. Mandell
--------------------
Name: Henry R. Mandell
----------------
Title: Interim Chief Executive Officer
-------------------------------
6
<PAGE> 7
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> 1
EXHIBIT 4.13
LIBERTYVIEW FUNDS, L.P.
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 360,000 Shares of Common Stock of
SPATIALIZER AUDIO LABORATORIES, INC.
THIS STOCK PURCHASE WARRANT (this "Warrant") certifies that, for value
received, LIBERTYVIEW FUNDS, L.P. (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"), Three Hundred Sixty Thousand
(360,000) 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 Eighty Thousand United States Dollars (US$180,000)
between the Company, the Investor, CPR (USA) INC., 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 the shares thereby purchased; whereupon the
Investor shall be entitled to receive a certificate for
<PAGE> 2
LIBERTYVIEW FUNDS, L.P.
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> 3
LIBERTYVIEW FUNDS, L.P.
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> 4
LIBERTYVIEW FUNDS, L.P.
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> 5
LIBERTYVIEW FUNDS, L.P.
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> 6
LIBERTYVIEW FUNDS, L.P.
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: /S/ Henry R. Mandell
---------------------
Name: Henry R. Mandell
----------------
Title: Interim Chief Executive Officer
-------------------------------
6
<PAGE> 7
LIBERTYVIEW FUNDS, L.P.
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:___________________ LIBERTYVIEW FUNDS, L.P.
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> 1
EXHIBIT 4.14
LIBERTYVIEW FUND, LLC
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 90,000 Shares of Common Stock of
SPATIALIZER AUDIO LABORATORIES, INC.
THIS STOCK PURCHASE WARRANT (this "Warrant") certifies that, for value
received, LIBERTYVIEW FUND, LLC (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"), Ninety Thousand (90,000) 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
Forty-five Thousand United States Dollars (US$45,000) between the Company, the
Investor, LIBERTYVIEW FUNDS, L.P., and CPR (USA) INC., 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 the shares thereby purchased; whereupon the
Investor shall be entitled to receive a certificate for
<PAGE> 2
LIBERTYVIEW FUND, LLC
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> 3
LIBERTYVIEW FUND, LLC
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> 4
LIBERTYVIEW FUND, LLC
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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<PAGE> 5
LIBERTYVIEW FUND, LLC
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
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LIBERTYVIEW FUND, LLC
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: /S/ Henry R. Mandell
---------------------
Name: Henry R. Mandell
----------------
Title: Interim Chief Executive Officer
-------------------------------
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LIBERTYVIEW FUND, LLC
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:___________________ LIBERTYVIEW FUND, LLC
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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<PAGE> 1
EXHIBIT 4.15
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
that
<PAGE> 2
SUBSCRIPTION
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
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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
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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
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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
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<PAGE> 6
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
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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.
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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.
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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]
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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: /S/ Henry R. Mandell
---------------------
Name: Henry R. Mandell
----------------
Title: Interim Chief Executive Officer
-------------------------------
WITNESSED:
/S/ Margaret G. Graf
- ---------------------
Margaret G. Graf
CPR (USA) INC.
By: /S/ Steven S. Rogers
---------------------
Name: Steven S. Rogers
----------------
Title: Managing Director,
------------------
CPR (USA), Inc.
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
--------------------
10
<PAGE> 1
EXHIBIT 4.16
CPR (USA) INC.
SECURED NON-NEGOTIABLE CONVERTIBLE PROMISSORY NOTE
<TABLE>
<S> <C>
US$112,620.55 Issued: December 29, 1999
New Principal Amount Maturity Date: June 15, 2001
</TABLE>
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
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
<PAGE> 2
CPR (USA) INC.
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. 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
2
<PAGE> 3
CPR (USA) INC.
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 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.
3
<PAGE> 4
CPR (USA) INC.
(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 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
4
<PAGE> 5
CPR (USA) INC.
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
(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
5
<PAGE> 6
CPR (USA) INC.
(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.
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
6
<PAGE> 7
CPR (USA) INC.
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 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
7
<PAGE> 8
CPR (USA) INC.
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]
8
<PAGE> 9
CPR (USA) INC.
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
<PAGE> 1
EXHIBIT 4.17
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
<PAGE> 2
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
<PAGE> 3
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
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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
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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.
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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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<PAGE> 9
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
<PAGE> 1
EXHIBIT 4.18
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
<PAGE> 2
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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LIBERTYVIEW FUND, LLC
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> 4
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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<PAGE> 5
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
5
<PAGE> 6
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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<PAGE> 7
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
7
<PAGE> 8
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]
8
<PAGE> 9
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
<PAGE> 1
EXHIBIT 4.19
CONVERTIBLE NOTES
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 29th day of December,
1999, between 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, the "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 receiving from the Company that certain Secured
Non-Negotiable Convertible Promissory Note (the "Note"), dated of even date
herewith, made by the Company in favor of the Holders.
WHEREAS, pursuant to the terms and conditions of the Note, the principal
and accrued interest outstanding under the Note may under certain circumstances
be converted into shares of Common Stock. (Capitalized terms used and not
otherwise defined herein shall have the respective meanings set forth in the
Note). The shares of Common Stock issuable to Holders pursuant to a conversion
under the Note are referred to herein as the "Note Shares"; 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" shall mean the Note 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 Holders acknowledge and
understand 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 Holders understand that no
disposition or transfer of the Registrable Securities may be made by
<PAGE> 2
CONVERTIBLE NOTES
Holders 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.
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 Holders' 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 Registrable Securities to be
registered shall be the number of shares of Common Stock that the Company would
issue if the entire amount of principal and accrued interest outstanding under
the Note as of the date hereof were converted into shares of Common Stock at the
Floor Price.
(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 Holders 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 Holders reasonably designate 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
Holders with copies of such Registration Statement and the prospectus or
offering circular included therein and other related documents in such
quantities as may be reasonably requested by the Holders.
(d) The Company shall not be required by this Section 3 to
include the Holders' Registrable Securities in the Registration Statement which
is to be filed if, in the opinion of counsel for both the Holders and the
Company (or, should they not agree, in the opinion of another counsel
experienced in securities law matters acceptable to counsel for the
2
<PAGE> 3
CONVERTIBLE NOTES
Holders 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.
(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 principal amount of the Notes 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 Securities are not effected; provided, however, that the
payment of such liquidated damages shall not relieve the Company from its
obligations to register the Securities pursuant to this Section. The
registration of the Securities pursuant to this provision shall not affect or
limit Holder's other rights or remedies as set forth in this Agreement.
(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).
3
<PAGE> 4
CONVERTIBLE NOTES
Section 4. Cooperation with Company. Holders will cooperate with the
Company in all respects in connection with this Agreement, including, timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities.
Section 5. Registration Procedures. Whenever the Company is required by
the provisions of this Agreement to effect the registration of any of the
Registrable Securities under the 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 Holders of such securities shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the sales
of securities from time to time in connection with a registration statement
pursuant to Rule 415 under the Act);
(b) furnish to the Holders 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 the Holders may reasonably request in
order to facilitate the public sale or other disposition of the securities owned
by the Holders;
(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 Holders shall reasonably request, and do any
and all other acts and things which may be necessary or advisable to enable the
Holders to consummate the public sale or other disposition in such jurisdiction
of the securities owned by the Holders; 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;
4
<PAGE> 5
CONVERTIBLE NOTES
(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 Holders under this
Agreement shall only 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 any Holder upon the occurrence
of any of the following:
(a) all of such Holder's securities subject to this
Agreement have been registered;
(b) the 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) the Holder's securities subject to this Agreement can be
sold pursuant to Rule 144(k).
Section 8. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Holders
and each person, if any, who controls any 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
5
<PAGE> 6
CONVERTIBLE NOTES
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 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
6
<PAGE> 7
CONVERTIBLE NOTES
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 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> 8
CONVERTIBLE NOTES
Section 10. Notices. Any notice pursuant to this Agreement by the
Company or by any Holder shall be in writing and shall be deemed to have been
duly given if delivered by (i) hand, (ii) by facsimile and followed by mail
delivery or (iii) if mailed by certified mail, return receipt requested, postage
prepaid, addressed as follows:
(a) If to the Holders:
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
(b) If to the Company, at the address set forth above, 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 Holders 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 Holders agree
they shall not have any piggy-back registration rights pursuant to this Section
if the Note Shares may be sold in the United States pursuant to the provisions
of Rule 144. The Holders shall have five (5) business days to notify the Company
in writing as to whether the Company is to include the Holders or not include
the Holders 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 Holders,
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
8
<PAGE> 9
CONVERTIBLE NOTES
Company in complying with this Section shall be paid by the Company, exclusive
of underwriting discounts, commissions and legal fees and expenses for counsel
to the Holders.
Section 12. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13. Headings. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 14. Governing Law, Venue. This Agreement 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 Note.
[Remainder of Page Intentionally Left Blank]
9
<PAGE> 10
CONVERTIBLE NOTES
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: Interim Chief Executive Officer
-------------------------------
WITNESSED:
/S/ Margaret G. Graf
- ---------------------
Margaret G. Graf
CPR (USA) INC.
By: /S/ Steven S. Rogers
---------------------
Name: Steven S. Rogers
----------------
Title: Managing Director,
------------------
CPR (USA), Inc.
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
--------------------
10
<PAGE> 1
EXHIBIT 4.20
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> 2
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,
------------------
CPR (USA), Inc.
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
--------------------
2
<PAGE> 3
CLARION FINANZ, A.G.
By: /S/ C. Civelli
---------------
Name: Carlo Civelli
-------------
Title: Director
--------
ATON SELECT FUND, LTD.
By: /S/ Barcikoski
---------------
Name: Barcikoski Jan
--------------
Title: Director
--------
3
<PAGE> 4
SCHEDULE A
<TABLE>
<CAPTION>
HOLDER NUMBER OF WARRANTS
------ ------------------
<S> <C>
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
</TABLE>
<PAGE> 1
LUFENG INVESTMENTS
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> 2
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 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
2
<PAGE> 3
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 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
3
<PAGE> 4
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$5,000,000,
not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person as described in Section
230.506(b)(2)(ii) of Regulation D under the Act;
(viii) Any entity in which all of the equity owners are
accredited investors;
(ix) Any self-directed employee benefit plan with investment
decisions made solely by persons that are accredited
investors within the meaning of Rule 501 of Regulation D
promulgated under the Act; or
4
<PAGE> 5
(x) Any private investment company with assets under
management in excess of US$________________________.
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 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
5
<PAGE> 6
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 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.
6
<PAGE> 7
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 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
7
<PAGE> 8
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 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.
8
<PAGE> 9
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.
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.
9
<PAGE> 10
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
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:
<PAGE> 11
(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 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
11
<PAGE> 12
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
(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.
12
<PAGE> 13
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 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.
13
<PAGE> 14
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> 15
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:
LUFENG INVESTMENTS
By: /S/ A. DE NAZARETH
Name: A. De Nazareth
Title: Co. Secretary
Executed this 29th day of December,
1999.
15
<PAGE> 16
SCHEDULE A
<TABLE>
<CAPTION>
SUBSCRIBER NUMBER OF SHARES NUMBER
NAME AND ADDRESS PURCHASE PRICE OF COMMON STOCK OF WARRANTS
- ---------------- -------------- --------------- -----------
<S> <C> <C> <C>
Lufeng Investments US $100,000 179,453 200,000
[address]
</TABLE>
<PAGE> 17
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> 18
EXHIBIT A
Stock Purchase Warrant
<PAGE> 19
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, LUFENG INVESTMENTS (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 the number of shares of
Common
<PAGE> 20
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.
<PAGE> 21
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
<PAGE> 22
its outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock, then, in
such events, the number of Warrant Shares purchasable upon exercise of this
Warrant immediately prior thereto shall be adjusted so that the 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
<PAGE> 23
date hereof. 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.
(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]
<PAGE> 24
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:
------------------------------
<PAGE> 25
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:___________________ LUFENG INVESTMENTS
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
NOTE: Signature must conform in all respects to holder's name as specified on
the face of the attached warrant.
<PAGE> 26
EXHIBIT B
Registration Rights Agreement
<PAGE> 27
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 29th day of December,
1999, between LUFENG INVESTMENTS (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.
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
<PAGE> 28
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.
(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.
<PAGE> 29
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 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.
<PAGE> 30
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, 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
<PAGE> 31
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 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
<PAGE> 32
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.
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
<PAGE> 33
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.
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.
<PAGE> 34
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]
<PAGE> 35
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
LUFENG INVESTMENTS
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 4.22
LUFENG INVESTMENTS
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, LUFENG INVESTMENTS (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
<PAGE> 2
LUFENG INVESTMENTS
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> 3
LUFENG INVESTMENTS
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
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LUFENG INVESTMENTS
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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LUFENG INVESTMENTS
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]
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LUFENG INVESTMENTS
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: /S/ Henry R. Mandell
---------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive
Officer
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LUFENG INVESTMENTS
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:___________________ LUFENG INVESTMENTS
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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<PAGE> 1
EXHIBIT 4.23
LUFENG INVESTMENTS
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the 29th day of December,
1999, between LUFENG INVESTMENTS (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> 2
LUFENG INVESTMENTS
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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LUFENG INVESTMENTS
(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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LUFENG INVESTMENTS
(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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<PAGE> 5
LUFENG INVESTMENTS
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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<PAGE> 6
LUFENG INVESTMENTS
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
6
<PAGE> 7
LUFENG INVESTMENTS
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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LUFENG INVESTMENTS
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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LUFENG INVESTMENTS
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: Interim Chief Executive Officer
WITNESSED:
/S/ Margaret G. Graf
- -------------------------------
Margaret G. Graf
LUFENG INVESTMENTS
By: /S/ A. De Nazareth
-------------------------------
Name: A. De Nazareth
Title: Co. Secretary
9
<PAGE> 1
EXHIBIT 4.24
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.
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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.
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
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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.
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
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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$5,000,000,
not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person as described in Section
230.506(b)(2)(ii) of Regulation D under the Act;
(viii) Any entity in which all of the equity owners are
accredited investors;
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(ix) Any self-directed employee benefit plan with investment
decisions made solely by persons that are accredited
investors within the meaning of Rule 501 of Regulation D
promulgated under the Act; or
(x) Any private investment company with assets under
management in excess of US$________________________.
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
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
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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) 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
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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 regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed.
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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 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
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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.
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.
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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
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:
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(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 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
11
<PAGE> 12
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
(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.
12
<PAGE> 13
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 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.
13
<PAGE> 14
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> 15
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/ M.G.Boessenhoer /S/ R. Mooji
----------------------------------------
Name: M.G. Boessenhoer R. Mooji
Title: Manager Operations Director
Executed this 29th day of December, 1999.
15
<PAGE> 16
SCHEDULE A
<TABLE>
<CAPTION>
SUBSCRIBER NUMBER OF SHARES NUMBER
NAME AND ADDRESS PURCHASE PRICE OF COMMON STOCK OF WARRANTS
- ---------------- -------------- --------------- -----------
<S> <C> <C> <C>
BANK INSINGER DE BEAUFORT US $250,000 448,632 500,000
Herengracht 551
1017 BW Amsterdam
The Netherlands
</TABLE>
<PAGE> 17
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> 18
EXHIBIT A
Stock Purchase Warrant
<PAGE> 19
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
Warrant shall have been exercised as aforesaid.
<PAGE> 20
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 state securities laws or unless, in the
opinion of counsel for the Investor acceptable to the Company, an exemption
<PAGE> 21
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
<PAGE> 22
its outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock, then, in
such events, the number of Warrant Shares purchasable upon exercise of this
Warrant immediately prior thereto shall be adjusted so that the 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.
<PAGE> 23
(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]
<PAGE> 24
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
<PAGE> 25
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.
<PAGE> 26
EXHIBIT B
Registration Rights Agreement
<PAGE> 27
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.
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
<PAGE> 28
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.
(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.
<PAGE> 29
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 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.
<PAGE> 30
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, 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
<PAGE> 31
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 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
<PAGE> 32
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.
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
<PAGE> 33
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 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.
<PAGE> 34
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> 35
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:_____________________________
<PAGE> 1
EXHIBIT 4.25
BANK INSINGER 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> 2
BANK INSINGER 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> 3
BANK INSINGER 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> 4
BANK INSINGER 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> 5
BANK INSINGER DE BEAUFORT
(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]
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BANK INSINGER 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: /S/ Henry R. Mandell
---------------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
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BANK INSINGER 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.
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<PAGE> 1
EXHIBIT 4.26
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> 2
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.
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<PAGE> 3
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;
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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,
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<PAGE> 5
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
5
<PAGE> 6
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> 7
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]
8
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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: /S/ Henry R. Mandell
-----------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
WITNESSED:
/S/ Margaret G. Graf
- -----------------------------------
Margaret G. Graf
BANK INSINGER DE BEAUFORT
By: /S/ R. Mooji /S/ M.G. Boessenhoer
--------------------------------------
Name: R. Mooji M.G. Boessenhoer
Title: Director Manager Operations
9
<PAGE> 1
EXHIBIT 4.27
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> 2
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
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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> 4
(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$5,000,000,
not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person as described in Section
230.506(b)(2)(ii) of Regulation D under the Act;
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<PAGE> 5
(viii) Any entity in which all of the equity owners are
accredited investors;
(ix) Any self-directed employee benefit plan with investment
decisions made solely by persons that are accredited
investors within the meaning of Rule 501 of Regulation D
promulgated under the Act; or
(x) Any private investment company with assets under
management in excess of US$________________________.
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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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> 7
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> 8
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
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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> 14
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> 15
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> 16
SCHEDULE A
<TABLE>
<CAPTION>
SUBSCRIBER NUMBER OF SHARES NUMBER
NAME AND ADDRESS PURCHASE PRICE OF COMMON STOCK OF WARRANTS
- ---------------- -------------- --------------- -----------
<S> <C> <C> <C>
ROMOFIN AG US $250,000 448,632 500,000
Burglestrasse 6
8027 Zurich, Switzerland
</TABLE>
<PAGE> 17
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> 18
EXHIBIT A
Stock Purchase Warrant
<PAGE> 19
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
<PAGE> 20
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 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.
<PAGE> 21
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) 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
<PAGE> 22
to adjustment from time to time upon the happening of any of the following:
In case the Company shall (i) declare or pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, then, in such events, the number of
Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the 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
<PAGE> 23
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 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]
<PAGE> 24
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:
------------------------------
<PAGE> 25
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.
<PAGE> 26
EXHIBIT B
Registration Rights Agreement
<PAGE> 27
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.
<PAGE> 28
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.
<PAGE> 29
(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;
<PAGE> 30
(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, final
prospectus, offering circular, notification or amendment, or supplement thereto
in reliance upon, and in conformity with, written information
<PAGE> 31
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 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
<PAGE> 32
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 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.
<PAGE> 33
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.
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
<PAGE> 34
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]
<PAGE> 35
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:
------------------------------
<PAGE> 1
EXHIBIT 4.28
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> 2
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> 3
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> 4
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
4
<PAGE> 5
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.
[Remainder of Page Intentionally Left Blank]
5
<PAGE> 6
ROMOFIN, A.G.
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: /S/ Henry R. Mandell
-----------------------------------
Name: Henry R. Mandell
---------------------------------
Title: Interim Chief Executive Officer
--------------------------------
6
<PAGE> 7
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.
7
<PAGE> 1
EXHIBIT 4.29
ROMOFIN, A.G.
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.
<PAGE> 2
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,
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<PAGE> 5
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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<PAGE> 6
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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<PAGE> 7
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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ROMOFIN, A.G.
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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ROMOFIN, A.G.
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: Interim Chief Executive Officer
--------------------------------------
WITNESSED:
/S/ Margaret G. Graf
- ----------------------------------
Margaret G. Graf
ROMOFIN, A.G.
By: /S/ B. J. Mosimann
-----------------------------------------
Name: B. J. Mosimann
---------------------------------------
Title: President
--------------------------------------
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<PAGE> 1
EXHIBIT 4.30
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> 2
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:
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<PAGE> 3
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 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.
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<PAGE> 4
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 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;
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<PAGE> 5
(iv) Any director, executive officer, or general partner of
the issuer of the securities being offered or sold, or
any director, executive officer, or general partner of a
general partner of that issuer;
(v) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of his
purchase exceeds $1,000,000;
(vi) Any natural person who had an individual income in
excess of $200,000 in each of the two (2) most recent
years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a
reasonable expectation of reaching that same income
level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person as described in Section
230.506(b)(2)(ii) of Regulation D under the Act;
(viii) Any entity in which all of the equity owners are
accredited investors;
(ix) Any self-directed employee benefit plan with investment
decisions made solely by persons that are accredited
investors within the meaning of Rule 501 of Regulation D
promulgated under the Act; or
(x) Any private investment company with assets under
management in excess of US$________________________.
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.
5
<PAGE> 6
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 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:
6
<PAGE> 7
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 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
7
<PAGE> 8
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 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.
8
<PAGE> 9
3.9 Governmental Consent, etc. No consent, approval or
authorization of, or designation, declaration or filing with, any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or issuance of the
Securities, or the consummation of any other transaction contemplated hereby,
except as may be required by applicable securities laws.
3.10 Intellectual Property Rights. Except as disclosed in the
Reports, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as presently conducted in the
Reports. To the Company's knowledge, and except as disclosed in the Reports,
neither the Company nor its products is infringing or will infringe any
trademark, trade name, patent right, copyright, license, trade secret or other
similar right of others currently in existence; and there is no claim being made
against the Company regarding any trademark, trade name, patent, copyright,
license, trade secret or other intellectual property right which could have a
material adverse effect on the business or financial condition of the Company.
3.11 Material Contracts. Except as set forth in the Reports, the
agreements to which the Company is a party described in the Reports are valid
agreements, in full force and effect, and the Company is not in material breach
or material default under any of such agreements.
3.12 Litigation. Except as disclosed in the Reports, there is no
action, proceeding or investigation pending, or to the Company's knowledge
threatened, against the Company which might result, either individually or in
the aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Company. The Company is not a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality.
3.13 Title to Assets. Except as set forth in Reports, the Company
has good and marketable title to all properties and material assets described in
the Reports as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest other than such as are not
material to the business of the Company.
3.14 Subsidiaries. Except as disclosed in the Reports, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
3.15 Required Governmental Permits. The Company is in possession
of and operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities which are material to the conduct of its business, all of which are
valid and in full force and effect.
3.16 Listing. The Company will use its best efforts to maintain
the listing of its Common Stock on the 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,
9
<PAGE> 10
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.
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
10
<PAGE> 11
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 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
11
<PAGE> 12
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 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.
12
<PAGE> 13
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:
(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
13
<PAGE> 14
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.
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
<PAGE> 15
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 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> 16
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:
--------------------------------
Title:
-------------------------------
CLARION FINANZ, A.G., a Swiss corporation
By: /S/ C. Civelli
----------------------------------------
Name: Carlo Civelli
--------------------------------------
Title: Director
-------------------------------------
/S/ C. Civelli
-------------------------------------------
CARLO CIVELLI, an individual
/S/ Henry R. Mandell
-------------------------------------------
HENRY R. MANDELL, an individual
/S/ James D. Pace
-------------------------------------------
JAMES D. PACE, an individual
16
<PAGE> 17
/S/ Jerold H. Rubinstein
-------------------------------------------
JEROLD H. RUBINSTEIN, an individual
/S/ Gilbert N. Segel
-------------------------------------------
GILBERT N. SEGEL, an individual
ATON SELECT FUND, LTD., a Swiss corporation
By: /S/ Jan Barcikoski
----------------------------------------
Name: Jan Barcikoski
--------------------------------------
Title: Director
-------------------------------------
ROMOFIN A.G., a Swiss corporation
By: /S/ B. J. Mosimann
----------------------------------------
Name: B. J. Mosimann
--------------------------------------
Title: President
-------------------------------------
17
<PAGE> 18
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBSCRIBER ADDRESS OF PREFERRED STOCK
<S> <C> <C>
Clarion Finanz, A.G., a Swiss corporation Seefeldstrasse 214 76,651
8034, Zurich, Switzerland
Carlo Civelli, an individual Seefeldstrasse 214 8,259
8034, Zurich, Switzerland
Henry R. Mandell, an individual 20700 Ventura Boulevard, Suite 140 551
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., a Swiss Seefeldstrasse 214 5,336
corporation 8034, Zurich, Switzerland
Romofin A.G., a Swiss corporation Seefeldstrasse 214 10,518
8034, Zurich, Switzerland
=======================
TOTAL: 102,967
</TABLE>
<PAGE> 19
SCHEDULE B
<TABLE>
<CAPTION>
NOTE, LETTER OR OTHER AGREEMENT EXISTING INDEBTEDNESS
SUBSCRIBER REGARDING EXISTING INDEBTEDNESS AS OF DECEMBER 29, 1999
- ---------- ------------------------------- -----------------------
<S> <C> <C>
Clarion Finanz, A.G., a Nonnegotiable Unsecured Promissory Note, issued on $ 766,506.85
Swiss corporation April 14, 1998, in the original principal amount of
$650,000.
Carlo Civelli, an Nonnegotiable Secured Promissory Note, issued on $ 82,582.19
individual December 14, 1998 (participant in the original
principal amount of $75,000).
Henry R. Mandell, an Nonnegotiable Secured Promissory Note, issued on $ 5,508.22
individual December 14, 1998 (participant in the original
principal amount of $5,000).
James D. Pace, an Nonnegotiable Secured Promissory Note, issued on $ 5,508.22
individual December 14, 1998 (participant in the original
principal amount of $5,000).
Jerold H. Rubinstein, an Nonnegotiable Secured Promissory Note, issued on $ 5,508.22
individual December 14, 1998 (participant in the original
principal amount of $5,000).
Gilbert N. Segel, an Nonnegotiable Secured Promissory Note, issued on $ 5,498.63
individual December 14, 1998 (participant in the original
principal amount of $5,000).
Aton Select Fund, Ltd., a ________________________________ in the original $ 53,356.16
Swiss corporation principal amount of $50,000.
Romofin A.G., a Swiss ________________________________ in the original $ 105,178.08
corporation principal amount of $100,000.
=======================
TOTAL: $ 1,029,646.57
</TABLE>
<PAGE> 20
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> 21
EXHIBIT A
Certificate of Designation of the 10% Convertible Series B Preferred Stock
<PAGE> 22
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.
<PAGE> 23
Section 5. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Company, 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
<PAGE> 24
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 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.
<PAGE> 25
(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 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,
<PAGE> 26
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 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.
<PAGE> 27
[Remainder of Page Intentionally Left Blank]
<PAGE> 28
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: /S/ Henry R. Mandell
-----------------------------------
Name: Henry R. Mandell
Title: Interim Chief Executive Officer
Attest:
By: /S/ Henry R. Mandell
------------------------------
Name: Henry R. Mandell
Title: Secretary
<PAGE> 29
EXHIBIT B
Form of Notice of Conversion
<PAGE> 30
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 Conversion Dollar Amount of 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.
<PAGE> 1
EXHIBIT 10.4
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> 2
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> 3
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: Interim Chief Executive Officer
----------------------------------------
CPR (USA) INC.
By: /S/ Steven S. Rogers
-------------------------------------------
Name: Steven S. Rogers
-----------------------------------------
Title: Managing Director,
----------------------------------------
CPR (USA), Inc.
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
<PAGE> 1
EXHIBIT 10.5
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> 2
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> 3
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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<PAGE> 4
(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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<PAGE> 5
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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<PAGE> 6
(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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<PAGE> 7
(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,
------------------------------
CPR (USA), Inc.
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.
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EXHIBIT 10.6
THIS FINDER'S FEE AGREEMENT is made as of the 27th day of December, 1999
BETWEEN:
SPATIALIZER AUDIO LABORATORIES, INC.
20700 Ventura Boulevard, Suite 140
Woodland Hills, CA 91364
(the "Company")
OF THE FIRST PART
AND:
BRISTOL CAPITAL, L.L.C.
11777 San Vicente Blvd., Suite 702
Los Angeles, California 90049
(the "Finder")
OF THE SECOND PART
WHEREAS:
A. The Company has entered into a subscription agreement with Bank Insinger de
Beaufort ("Insinger") of The Netherland, in connection with a non-brokered
private placement of Two Hundred and Fifty Thousand United States Dollars
($250,000) worth of common stock of the Company priced pursuant to the Common
Stock Subscription Agreement ("Subscription Agreement") between Insinger and
the Company dated December 29, 1999 and warrants to purchase 500,000 shares of
common stock of the Company (the "Private Placement");
B. The Finder introduced the Company to Insinger and assisted the Company in
the conclusion of the Private Placement;
C. The Company wishes to reward the Finder for its services in the manner as
hereinafter set out;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
mutual covenants, promises, conditions, warranties and representations
hereinafter set forth, the parties hereto agree as follows:
1. The Finder hereby represents and warrants that:
a) it is at arm's length with the Company;
b) has acted in good faith at all times in connection with the
introduction of the Company to Insinger and its assistance in the
conclusion of the Private Placement;
c) it has not advertised the Private Placement to the general public; and
<PAGE> 2
-2-
d) the execution and delivery of this Agreement and the
consideration provided for herein will not violate or result in
the breach of the laws of California.
2. The Company agrees to compensate the Finder by paying to Finder
Twenty-Five Thousand United States Dollars ($25,000) concurrent with Closing
Date (as that term is defined in the Subscription Agreement).
6. The parties hereto and each of them covenant and agree that each of
them shall and will upon reasonable request by the other party, make, do,
execute or cause to be made, done or executed all such further and other lawful
acts, deeds, things, devices and assurances whatsoever for the better or more
perfect and absolute performance of the terms and conditions of this Agreement.
7. Neither finder nor its representatives are presently registered as a
broker or dealer under the Securities Exchange Act of 1934, as amended. As a
result, Finder is prohibited from participating in any activities or services
that would result in Finder effecting transactions in securities for the account
of others. However, Finder may act as a "finder" of potential investors that may
be suitable to the needs of Client.
Finder is in the business of providing strategic financial advice for corporate
issuers. Finder does not provide investment advice or financial planning
services. In that regard, Finder is not yet registered as an investment adviser
under the Investment Adviser's Act of 1940, as amended, and cannot therefore
provide any advice regarding the desirability or value of purchasing, selling,
transacting in, investing in, or holding any security. Rather, Finder's services
will be limited to general strategic and financial consulting services
(unrelated to the value of securities and/or the desirability of transacting in
securities), including advising Client as to the structuring of its financing.
8. This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, administrators, successors and
assigns.
9. This Agreement constitutes the entire agreement between Finder and the
Company with respect to the subject matter hereof. This Agreement may be amended
only by a writing executed by all parties.
[space left intentionally blank]
<PAGE> 3
-3-
10. This Agreement will be governed by and construed according to the laws
of California, excluding any choice of law rules that would render California
laws inapplicable. The parties agree that in any action for the enforcement of
the terms of this Agreement, the prevailing party shall be entitled to
reimbursement of reasonable attorney fees from the non-prevailing party.
11. 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.
IN WITNESS WHEREOF the parties hereto have hereunto executed this Agreement as
of and from the day first above written.
SPATIALIZER AUDIO LABORATORIES, INC.
Signature: /s/ HENRY R. MANDELL
----------------------------
Name:
BRISTOL CAPITAL, L.L.C.
Signature: /s/ PAUL KESSLER
-------------------------
Paul Kessler
<PAGE> 1
EXHIBIT 21.1
SCHEDULE OF SUBSIDIARIES
Spatializer Audio Laboratories, Inc. (Delaware)
20700 Ventura Boulevard, Suite 140
Woodland Hills, California 91364
Wholly owned subsidiaries:
1. Desper Products, Inc. (California)
900 Lafayette Street, Suite 710
Santa Clara, California 95050
2. MultiDisc Technologies, Inc. (Delaware)
20700 Ventura Boulevard, Suite 140
Woodland Hills, California 91364
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,021,988
<SECURITIES> 0
<RECEIVABLES> 687,595
<ALLOWANCES> 0
<INVENTORY> 12,993
<CURRENT-ASSETS> 1,745,226
<PP&E> 491,945
<DEPRECIATION> (359,142)
<TOTAL-ASSETS> 2,117,999
<CURRENT-LIABILITIES> 1,349,861
<BONDS> 0
0
1,030
<COMMON> 461,750
<OTHER-SE> 45,913,503
<TOTAL-LIABILITY-AND-EQUITY> 2,117,999
<SALES> 1,660,371
<TOTAL-REVENUES> 1,660,371
<CGS> 48,750
<TOTAL-COSTS> 48,750
<OTHER-EXPENSES> 1,156,036
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,468
<INCOME-PRETAX> 361,292
<INCOME-TAX> 6,500
<INCOME-CONTINUING> 354,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 354,792
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
