SCHEDULE 14A PRIVATE
(Rule 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SPATIALIZER AUDIO LABORATORIES, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
|_| $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
----------------------------------------------------------------------
|_| Check box if any part of the fee if offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
----------------------------------------------------------------------
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE>
January 12, 2000
Dear Stockholder:
On behalf of the Board of Directors (the "Board"), I cordially invite you
to the annual meeting of the stockholders (the "Annual Meeting") of Spatializer
Audio Laboratories, Inc. (the "Company") which will be held on February 10, 2000
at 10:30 a.m. at the Warner Center Marriott, located at 21850 Oxnard Street, in
Woodland Hills, California. I hope that you will be able to attend in person.
Following the formal business of the Annual Meeting, management will be
available to respond to your questions.
At the Annual Meeting, stockholders will be asked to consider and vote
upon the following matters:
(1) To approve an increase in the total amount of the Company's
authorized common stock, $.01 par value per share, from 50,000,000
authorized shares of Common Stock, to 65,000,000 authorized shares
of Common Stock, and
(2) The nomination and election of three persons to serve as Directors
of the Company until the Annual Meeting of Stockholders to be held
in 2003, and
(3) To consider and vote on such other matters as may properly be
presented incident to the conduct of the Annual Meeting or any
adjournment or postponement thereof.
After careful consideration and consultation with its legal and financial
advisors, the Board has approved, and recommends that the stockholders vote FOR
the increase in the total amount authorized Common Stock of the Company, and
that the stockholders vote FOR the Directors nominated by the Board.
At the Annual Meeting, each holder of record of shares of Common Stock as
of December 27, 1999, will be entitled at the meeting to one (1) vote on each
matter properly brought before the Annual Meeting. The increase in the Company's
authorized Common Stock (the "Capital Stock Increase") requires the approval of
the majority of the outstanding shares of Common Stock. Holders of Common Stock
are not entitled to dissenters' rights in the event the Capital Stock Increase
is approved. The election of directors requires that each person nominated as a
director receive a plurality of the votes cast pursuant to Article II, Section 3
of the Bylaws of the Company.
The Board of Directors believes the increase in the authorized Common
Stock of the Company will allow it to have greater flexibility in financing the
Company's continuing operations. For a further discussion of the purpose and
effect of the increase in the total amount of the Company's authorized Common
Stock, see "INCREASE IN THE COMPANY'S TOTAL AUTHORIZED COMMON STOCK-Purpose and
Effect of Increase in Total Authorized Common Stock of the Company" in the
accompanying Proxy Statement.
Details of the Capital Stock Increase proposal, and the names and
qualifications of the nominees for Directors of the Company and other important
information are set forth in the accompanying Proxy Statement and should be
considered carefully by stockholders.
<PAGE>
I hope that you will attend the Annual Meeting. Whether or not you plan to
attend the Annual Meeting and regardless of the number of shares of stock you
own, please complete, date and sign the enclosed proxy card and return it
promptly in the accompanying envelope. You may, of course, attend the Annual
Meeting and vote in person, even if you have previously returned your proxy
card.
Sincerely,
SPATIALIZER AUDIO LABORATORIES, INC.
HENRY R. MANDELL
Interim Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that Spatializer Audio Laboratories, Inc. (the
"Company") will hold its Annual Meeting of Stockholders on February 10, 2000 at
10:30 a.m., at the Warner Center Marriott, located at 21850 Oxnard Street, in
Woodland Hills, California, for the following purposes:
Proposal I: To approve the proposal of the Board of Directors to increase
(the "Capital Stock Increase") the total amount of the Company's
authorized common stock, $.01 par value per share (the "Common Stock")
from 50,000,000 shares to 65,000,000 shares; and
Proposal II: To elect three Directors of the Company to serve until the
Annual Meeting of Stockholders to be held in 2003; and
To act upon other matters that may properly come before the meeting.
The Board of Directors has fixed December 27, 1999 as the record date (the
"Record Date") for the determination of the stockholders entitled to notice of,
and to vote at, the Annual Meeting or any adjournment or postponement of the
Annual Meeting.
At the Annual Meeting, each share of Common Stock represented at the
meeting will be entitled to one (1) vote on each matter properly brought before
the Annual Meeting. The Capital Stock Increase requires the approval of the
majority of the outstanding shares of Common Stock. Holders of Common Stock are
not entitled to dissenters' rights in the event the Capital Stock Increase is
approved. The election of directors requires that each person nominated as a
director receive a plurality of the votes cast pursuant to Article II, Section 3
of the Bylaws of the Company.
Your attention is directed to the accompanying Proxy Statement.
Stockholders who do not expect to attend the Annual Meeting in person are
requested to date, sign and mail the enclosed proxy as promptly as possible in
the enclosed envelope.
DATED: January 12, 2000
BY ORDER OF THE BOARD OF DIRECTORS
HENRY R. MANDELL
Interim Chief Executive Officer
YOUR BOARD OF DIRECTORS HAS REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF PROPOSALS I AND II. THE BOARD BELIEVES THAT PROPOSALS I AND II ARE
FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS AND HAS
UNANIMOUSLY APPROVED PROPOSALS I AND II AND RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THEIR APPROVAL.
<PAGE>
IT IS IMPORTANT THAT ALL STOCKHOLDERS VOTE. WE URGE YOU TO SIGN AND RETURN
THE ENCLOSED PROXY WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. THE
PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE. IN ORDER TO FACILITATE
THE PROVIDING OF ADEQUATE ACCOMMODATIONS, PLEASE INDICATE ON THE PROXY WHETHER
YOU PLAN TO ATTEND THE ANNUAL MEETING.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 10, 2000
The accompanying proxy is solicited by the Board of Directors of
Spatializer Audio Laboratories, Inc. (the "Company") for use at the Annual
Meeting of Stockholders of the Company to be held on February 10, 2000, at 10:30
a.m., at the Warner Center Marriott, located at 21850 Oxnard Street, in Woodland
Hills, California, and at any adjournments or postponements of the Annual
Meeting. This proxy statement and accompanying proxy will be mailed beginning on
or about January 18, 2000, to give holders of record on December 27, 1999, the
Record Date, of the Company's Common Stock an opportunity to vote at the Annual
Meeting.
Proposal I: To approve the Capital Stock Increase proposal of the Board of
Directors to increase the total amount of authorized Common Stock of the
Company from 50,000,000 shares to 65,000,000 shares; and
Proposal II: To elect three Directors of the Company to serve until the
Annual Meeting of Stockholders to be held in 2003; and
To act upon other matters that may properly come before the meeting.
Voting
In voting, please specify your choices by marking the appropriate spaces
on the enclosed proxy, signing and dating the proxy and returning it in the
accompanying envelope. If no directions are given and the signed proxy is
returned, the proxy holders will vote the shares in favor of Proposals I and II
and at their discretion on any other matters that may properly come before the
Annual Meeting. In situations where brokers are prohibited from exercising
discretionary authority for beneficial owners who have not returned proxies to
the brokers (so-called "broker non-votes"), the affected shares will be counted
for purposes of determining the presence or absence of a quorum for the
transaction of business but will not be included in the vote totals. Therefore,
a failure by a stockholder to return a proxy and indicate their vote on
Proposals I and II will, in effect, be treated as a non-vote on Proposal I and
Proposal II, since shares cannot be counted as voting "FOR" Proposal I or
Proposal II if a proxy is not returned.
The approval of Proposal I requires that the Company's Certificate of
Incorporation be amended. Under the Delaware General Corporation Law, Section
242, amendment of the Company's Certificate of Incorporation requires the
affirmative vote of a majority of the outstanding shares of Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" PROPOSAL I TO AMEND THE
CERTIFICATE OF INCORPORATION TO EFFECT THE INCREASE IN THE TOTAL AMOUNT OF THE
COMPANY'S AUTHORIZED COMMON STOCK, $.01 PAR VALUE.
The election of Directors requires that each person nominated as a Director
receive a plurality of the votes cast pursuant to Article II, Section 3 of the
Bylaws of the Company.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" PROPOSAL II TO ELECT THREE
DIRECTORS OF THE COMPANY.
A STOCKHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A STOCKHOLDER)
TO ATTEND AND ACT FOR HIM AND ON HIS BEHALF AT THE MEETING OTHER THAN THE
PERSONS DESIGNATED IN THE ACCOMPANYING FORM OF PROXY. TO EXERCISE THIS RIGHT,
THE STOCKHOLDER MAY INSERT THE NAME OF THE DESIRED PERSON IN THE BLANK SPACE
PROVIDED IN THE PROXY AND STRIKE OUT THE OTHER NAMES OR MAY SUBMIT ANOTHER
PROXY.
THE SHARES REPRESENTED BY PROXIES IN FAVOR OF MANAGEMENT WILL BE VOTED ON ANY
BALLOT (SUBJECT TO ANY RESTRICTIONS THEY MAY CONTAIN) IN FAVOR OF THE MATTERS
DESCRIBED IN THE PROXY.
Revocability of Proxies
Any stockholder giving a proxy has the power to revoke it at any time
before the proxy is voted. In addition to revocation in any other manner
permitted by law, a proxy may be revoked by instrument in writing executed by
the stockholder or by his attorney authorized in writing, or, if the stockholder
is a corporation, under its corporate seal or by an officer or attorney thereof
duly authorized, and deposited at the executive office of the Company located at
20700 Ventura Boulevard, Suite 140, Woodland Hills, California, 91364, or at
Harris Trust Company of California located at 601 South Figueroa Street, 49th
Floor, Los Angeles, California 90017 (the "Exchange Agent"), at any time up to
and including the last business day preceding the day of the meeting, or any
adjournment thereof, or with the chairman of the meeting on the day of the
meeting. Attendance at the Annual Meeting will not in and of itself constitute
revocation of a proxy.
Outstanding Common Stock
Holders of record of Common Stock at the close of business on December 27,
1999, the Record Date, will be entitled to receive notice of and vote at the
meeting. Currently the Company is authorized to issue 50,000,000 shares of
Common Stock and 1,000,000 shares of preferred stock, par value of $.01 US per
share ("Preferred Stock"). On the Record Date, there were 43,655,223 of Common
Stock and no shares of Preferred Stock issued and outstanding. The holders of
Common Stock are entitled to one (1) vote for each share held.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information (except as otherwise indicated
by footnote) as to shares of Common Stock owned as of December 14, 1999, or
which can be acquired in sixty days, by (i) each person known by management to
beneficially own more than five percent (5%) of the Company's outstanding Common
Stock, (ii) each of the Company's directors, and officers, (iii) all executive
officers and directors as a group, including individuals who were directors in
1999 but who have resigned or are not seeking re-election. On December 14, 1999
there were 43,033,477 shares outstanding.
<PAGE>
Name and address of Beneficial Amount and Nature of Percent of Class
Owner (1) Beneficial Ownership (5)
Directors and Officers
Carlo Civelli (2) (4) (5) 4,120,958 9.5%
Stephen W. Desper (3) (4) (5) 1,955,628 4.5%
Steven D. Gershick (4) (5) (7) 1,176,144 2.7%
Scot E. Land 113,947 *
Henry Mandell (6) (7) 1,260,000 2.9
James D. Pace (4) (5) 326,997 *
Jerold H. Rubinstein (4) 170,000 *
Gilbert N. Segel (4) 167,000 *
All directors and executive officers
as a group (8 persons) (5) (7) 9,290,674 21.6%
* Indicates that the percentage of shares beneficially owned does not exceed
one percent (1%) of the class.
- --------------------------------------------------------------------------------
(1) Each of the directors and officers named can be reached at the Company's
executive offices located at 20700 Ventura Boulevard, Suite 140, Woodland
Hills, California, 91364, except for Carlo Civelli, whose address is
Seefeldstrasse 214, 8034 Zurich, Switzerland. The persons named in the
table have sole voting and investment power with respect to all shares
shown to be beneficially owned by them, subject to community property laws
where applicable and the information contained in the footnotes to this
table. Mr. Land and Mr. Rubinstein resigned as directors in February and
September of 1999 respectively.
(2) Carlo Civelli controls Clarion Finanz AG, a non-reporting investment
company. Holdings of Mr. Civelli and Clarion Finanz AG are combined, and
include all shares of the Company held of record or beneficially by them,
and all additional shares over which he either currently exercises full or
partial control, without duplication through attribution.
(3) Does not include 37,853 shares held by Sparkle Co. on behalf of the Estate
of Stephen Desper's deceased father, Ira Desper, as to which Mr. Desper
disclaims any direct or indirect beneficial interest or control.
(4) Includes an aggregate of 3,640,557 performance shares held in escrow as of
December 14, 1999, as follows: Carlo Civelli, 1,112,704 shares; Stephen W.
Desper, 1,543,740 shares; Steven D. Gershick, 674,516 shares; Gilbert N.
Segel 88,000; James D. Pace 101,597; and Jerold H. Rubinstein 120,000.
(5) Calculation includes options to purchase 2,109,467 shares exercisable at
various prices from $0.09 to $3.26 per share, and expiring on various
dated from February, 2000 to October 2004.
(6) Includes 1,260,000 options held by Mr. Mandell, exercisable at various
prices from $.125 to $1.00 with varying expiration dates of which the
final such expiration date is November, 2004.
(7) In November 1999, the Board of Directors approved, subject to the
finalization of appropriate documentation, the reallocation of the 674,516
performance shares held in escrow for Steven D. Gershick to Henry R.
Mandell and the transfer among Mr. Gershick, the Company and Mr. Mandell
of the 168,628 performance shares previously released from escrow to Mr.
Gershick. The documentation was finalized in January 2000; as a result,
the beneficial ownership for Mr. Gershick will be reduced to 333,000
shares and the beneficial ownership for Mr. Mandell would be increased to
2,103,144 shares. The above table does not reflect the transactions. (See
"Transactions With Management and Others".) Pending finalization of the
transfer, Mr. Gershick has appointed Mr. Mandell as his proxy to vote the
performances shares.
Dissenting Stockholders Rights
Dissenting Stockholders have no appraisal rights under Delaware law or
under the Company's Certificate of Incorporation or Bylaws in connection with
the Capital Stock Increase.
<PAGE>
Solicitation
The Company will bear the entire cost of the solicitation of proxies,
including preparation, assembly and mailing of this proxy statement, the proxy
and any additional material furnished to stockholders. Proxies may be solicited
by directors, officers and a small number of regular employees of the Company
personally or by mail, telephone or telegraph, but such persons will not be
specially compensated for such services. Copies of solicitation material will be
furnished to brokerage houses, fiduciaries and custodians which hold shares of
Common Stock of record for beneficial owners for forwarding to such beneficial
owners. The Company may reimburse persons representing beneficial owners for
their costs of forwarding the solicitation material to such owners.
YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR MARKED PROXY PROMPTLY SO YOUR SHARES
CAN BE REPRESENTED, EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON.
<PAGE>
PROPOSAL I. INCREASE IN THE COMPANY'S TOTAL AUTHORIZED COMMON STOCK
General
The Board of Directors of the Company has authorized a vote by the
stockholders on the amendment of the Certificate of Incorporation of the Company
to increase the total amount of the Company's authorized Common Stock from
50,000,000 shares to 65,000,000 shares (the "Capital Stock Increase").
Currently, the Company is authorized to issue 50,000,000 shares of Common Stock,
par value of $.01 per share, and 1,000,000 shares of Preferred Stock, par
value of $.01 per share ("Preferred Stock"). The Board is recommending this
proposal to assure that the Company has additional equity available to support
its capital requirements, including through equity financing, and to keep the
Company viable as a going concern.
Proposal I, if adopted, will be effected pursuant to an amendment of the
Certificate of Incorporation (the "Amendment"), which has been unanimously
approved by the Board of Directors and recommended to the stockholders for their
approval at the Annual Meeting. A copy of the Amendment is attached as Exhibit
A.
However, under the Amendment, the Board of Directors will have the
authority to determine, in its sole discretion, that it is in the best interest
of the Company to abandon the Capital Stock Increase at any time prior to its
approval by the stockholders.
The Capital Stock Increase, if it occurs, may affect any given
stockholder's proportionate equity interest in the Company, but will not affect
the relative rights, preferences, privileges or priorities of any stockholder.
Purpose and Effect of Increase in Total Authorized Common Stock of the Company
The principal effect of the Capital Stock Increase will be to increase the
total amount of authorized Common Stock of the Company from 50,000,000 shares to
65,000,000 shares. The respective voting rights and other rights that accompany
the Common Stock and the Preferred Stock will not be altered by the Capital
Stock Increase, and the par value of the Common Stock will remain at $.01 per
share. Consequently, the Board of Directors effectively will have the authority
to issue 15,000,000 more shares of Common Stock than it had the authority to
issue prior to the Capital Stock Increase. After giving effect to the Capital
Stock Increase, the number of outstanding shares of Common Stock (as of the
Record Date) would remain the same but as of the Record Date the number of
shares of Common Stock which would be available for issuance by the Company
would increase to 65,000,000 shares with the result that authorized but unissued
shares available to the Company would be approximately 21,344,777 shares. The
Board of Directors is recommending the approval of Proposal I, in part, to
assure that the Company can satisfy its obligations under the series of
financial transactions completed by the Company in December 1999 (the "December
Transactions").
The December Transactions, undertaken with certain existing holders of the
Company's equity and debt and with new institutional investors, included the
private placement of 1,884,254 additional shares of Common Stock ($1.05 million
in new capital), 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 (at a variable exercise
ratio), the conversion of $1 million of short term debt into a new Series B
Redeemable Convertible Preferred Stock ("Series B Preferred Stock") and the
conversion of $225,000 of secured debt into secured long term convertible debt.
(See "Transactions With Management and Others"). As a result of the December
Transactions, as of the date hereof, 2,100,000 of the additional shares of
Common Stock to be authorized are required to be reserved for grant on exercise
of the warrants issued in the December Transactions. Also, other shares of
Common Stock will be required if the conversion options underlying the Series B
Preferred Stock or the long term debt are exercised but the number of shares
will vary depending on the market price of the Company's Common Stock at the
time of conversion. The participants in the December Transactions acknowledged
that stockholder approval was required to fully implement the share issuances
contemplated by those transactions. If Proposal I is not approved by the
stockholders the Company will not be able to fulfill its obligations to issue
all of the shares of Common Stock underlying the warrants and the Series B
Preferred Stock issued in the December Transactions. This will have a material
adverse effect on the Company's future obligations to the investors and the
Company will not receive the up to $1.407 million proceeds from the exercise of
the warrants. In addition, if Proposal I is not approved the Company will not
have the additional authorized shares of Common Stock available for other
financings which could substantially constrain the future operation of the
Company.
If Proposal I is approved, all authorized but unissued shares of Common
Stock or Preferred Stock will be available for issuance from time to time for
any proper purpose approved by the Board of Directors including the financing of
future operations (including issuances in connection with stock-based employee
benefit plans, stock splits or dividends and issuances to raise capital or
effect acquisitions). The Board of Directors does not presently intend to seek
further stockholder approval of any future issuances of shares unless such
approval is required by law or the rules of The Nasdaq Stock Market.
Stockholders do not have any preemptive or similar rights to subscribe for
or purchase any additional shares of Common Stock that may be issued in the
future, and therefore, future issuances of Common Stock or Preferred Stock may,
depending on the circumstances, have a dilutive effect on the earnings per
share, voting power and other interests of the existing stockholders. In
reaching its decisions to submit the Capital Stock
<PAGE>
Increase Proposal to the stockholders, the Board balanced the dilution which
would result if all of the additional Common Stock is issued with the positive
contribution which will be provided from the additional capital which the
Company intends to have available for Company use from the issuance of the
additional equity. The Board of Directors concluded that the Capital Stock
Increase is important to the Company since it will enable the Company to
continue its operations on a positive basis.
The proposal could have an anti-takeover effect, although that is not its
intention. For example, if the Company were the subject of a hostile takeover
attempt, it could try to impede the takeover by issuing shares of Common Stock,
thereby diluting the voting power of the other outstanding shares and increasing
the potential cost of the takeover. The availability of this defensive strategy
to the Company could discourage unsolicited takeover attempts, thereby limiting
the opportunity for the Company's stockholders to realize a higher price for
their shares than is generally available in the public markets. The Board of
Directors is not aware of any attempt, or contemplated attempt, to acquire
control of the Company, and this proposal is not being presented with the intent
that it be utilized as a type of anti-takeover device.
The Board of Directors believes that the Capital Stock Increase is in the
best interests of the Company and its stockholders. In this regard, the Board of
Directors believes the Capital Stock Increase will allow the Company to finance
ongoing activities and is therefore critical to its ability to continue
operations and attract new capital. The Board of Directors also believes the
Capital Stock Increase may enhance the Company's flexibility in its future
financing and capitalization needs.
Changes in Stockholders' Equity
The Company's stated capital, which consists of the par value per share of
Common Stock multiplied by the number of shares of Common Stock issued, will not
be immediately affected by the Capital Stock Increase. However, if the Board of
Directors issued additional Common Stock made available as a result of the
Capital Stock Increase the Company's stated capital could be reduced. As of the
Record Date the Company's stated capital was 442,907. Correspondingly, the
Company's capital in excess of par value, which consists of the difference
between the Company's stated capital and the aggregate amount paid to the
Company upon the issuance by the Company of all currently outstanding Common
Stock, will be increased by approximately $900,000. The following table
illustrates the principal effects of the Capital Stock Increase discussed in the
preceding paragraphs:
After
Prior to Capital
Capital Stock
Stock Increase
Increase and and the
the December December
Number of Shares of Common Stock Transactions Transactions
------------ ------------
Authorized 50,000,000 65,000,000
Outstanding 43,655,223 45,539,477
Reserved for future issuance under stock
compensation plans 2,859,467 2,925,070
Reserved for Warrants 905,000 2,100,000
Available for future issuance by action of the
Board of Directors (after giving effect to the
above reservations) 2,580,310 14,435,453
The above table gives effect to the cancellation of certain warrants, the
issuance of 1,884,254 shares of Common Stock in the December Transactions and
the 2,100,000 additional shares of Common Stock issuable on the exercise of
warrants issued in the December Transactions. The shares of Common Stock
underlying the Series B Preferred Stock and the long term debt are not reflected
since the number of shares will be calculated at the time of conversion. To
fully implement the December Transactions, approval of the Capital Stock
Increase is required and the participants in the December Transactions have
acknowledged the same.
Assuming the Amendment is approved by the stockholders at the Annual
Meeting, the Amendment will be filed with the Secretary of State of the State of
Delaware immediately after the Annual Meeting and the Amendment and the proposed
Capital Stock Increase would become effective upon the Effective Date.
However, there can be no assurance that the Capital Stock Increase will
increase the Company's ability to finance ongoing activities or that it will not
adversely impact the market price of the Common Stock or that the Capital Stock
Increase will otherwise have any of the effects described herein.
Federal Income Tax Consequences
Based on the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury Department Regulations (the "Regulations") issued
pursuant thereto, and published rulings and court decisions in effect as of the
date hereof, all of which are subject to change, the Company does not believe
that the Capital Stock Increase will result in any taxable gain or loss to
stockholders or the Company for federal income tax purposes.
THE FEDERAL INCOME TAX DISCUSSION WITH RESPECT TO THE CAPITAL STOCK INCREASE SET
FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY AND IS NOT INTENDED
AS TAX ADVICE TO ANY PERSON OR ENTITY. NO RULING FROM THE INTERNAL REVENUE
SERVICE OR OPINION OF COUNSEL WILL BE OBTAINED REGARDING THE FEDERAL INCOME TAX
CONSEQUENCES TO THE STOCKHOLDERS OF THE COMPANY AS A RESULT OF THE CAPITAL STOCK
INCREASE. ACCORDINGLY, ALL STOCKHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS AS TO ANY FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCE APPLICABLE
TO THEM WHICH COULD RESULT FROM THE CAPITAL STOCK INCREASE.
Interests of Certain Persons in the Capital Stock Increase
The Company is not currently aware of any arrangements which, as a result
of the Capital Stock Increase, would benefit an officer, director or associate
of such persons, whether such persons are currently nominated to serve as
directors for the coming fiscal year or whether such persons served as directors
during the last fiscal year.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION.
<PAGE>
PROPOSAL II. NOMINATION AND ELECTION OF DIRECTORS
The current Bylaws of the Company provide for a Board of Directors of no
less than three. The Company currently has five Directors. The Board of
Directors is classified into three classes, Directors in each class being
elected to serve for three years. Of the current Board of Directors, two
Directors have terms expiring in 2001 and three are being nominated for election
for directorships with terms ending in 2003. Steve Gershick's term expires at
the annual meeting and he does not wish to be considered for re-election. Mr.
Gershick's decision not to seek re-election was not the result of any
disagreement with the Board of Directors. At this Annual Meeting, Management
intends to nominate Carlo Civelli, Stephen W. Desper and Henry R. Mandell to be
elected for three year terms expiring in 2003.
Each of the elected Directors will continue in office until such
Director's successor is elected and has been qualified, or until such Director's
earlier death, resignation or removal. The Bylaws state that in any election of
Directors, the persons receiving a plurality of the votes cast, up to the number
of Directors to be elected in such election, shall be deemed to be elected.
Shares represented by proxies marked "withhold authority" for one or more
nominees will be counted as a negative vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH NOMINEE NAMED BELOW.
The following table sets forth certain information with respect to the
nominees for directors and certain executive officers of the Company as of
December 14, 1999:
NAME AGE POSITION
- ---- --- --------
Nominees for Terms Ending 2003:
Stephen W. Desper 57 Director -- 7/92 to date.
Chairman of the Board -- 7/92 to
12/95.
Vice Chairman of the Board -- 12/95 to
date.
Principal Holder.
Carlo Civelli 51 Director -- 3/93 to date.
Vice President Finance, Europe -- 8/91
to 3/95.
Principal Holder.
Henry R. Mandell 43 Interim Chief Executive Officer and
Secretary -- 9/98 to date.
Chief Financial Officer -- 3/98 to
date.
Directors with Terms ending in 2001:
James D. Pace 44 Director - 2/95 to date.
Member of Compensation
Committee - 2/95 to date.
Gilbert N. Segel 67 Director - 5/95 to date.
Member of Audit Committee -- 5/95 to
date.
Directors with Terms Ending in 2000:
Steven D. Gershick 44 Director -- 7/92 to date.
Chairman of the Board since 12/95.
President and Chief Executive
Officer -- 7/92 to 9/98.
President of Operating Subsidiary
Desper Products, Inc. ("DPI") -- 3/97
to 1/98.
<PAGE>
Chief Executive Officer of DPI --
10/91 to 9/98.
President of Operating Subsidiary
MultiDisc Technologies, Inc.
("MDT") -- 9/97 to 9/98.
Chief Executive Officer of MDT --
6/96 to 9/98.
Member of Audit Committee - 8/91 to
11/99.
CARLO CIVELLI. Director since March 1993. VP Finance -- Europe from August 1991
to March 1995. Has extensive experience in financing emerging public companies.
Managing director of Clarion Finanz AG, Zurich, Switzerland, for more than the
last five years. Director and Financial Consultant to Clarion Finanz AG.
STEPHEN W. DESPER. Vice Chairman of the Board, Inventor. Mr. Desper devoted his
full time for a number of years to developing and refining Spatializer(R)
technology. Recording engineer, over twenty (20) years experience; Director of
Engineering for The Beach Boys Organization. Acoustician, Acoustic Design and
Noise Control Engineer. December, 1991 to December, 1995, Chairman of
Spatializer Audio Laboratories, Inc. Since December, 1995 Vice Chairman of
Spatializer Audio Laboratories, Inc. Inventor and President of Desper Products;
Inc. ("DPI") from June 1986 to October, 1991. Vice President and Director of
Research, DPI from October 1991 to December 1996.
STEVEN D. GERSHICK. Chairman of the Board, President and Chief Executive
Officer. Director since July 1992. Resigned all positions except Chairman of the
Board, September 1998. Since December 1995, Chairman of Spatializer Audio
Laboratories, Inc. Certified Public Accountant, KPMG Peat Marwick from May 1977
through June, 1980. From 1981 through September, 1991, the principal of a
Certified Public Accounting firm specializing in business consulting and
entertainment business management. Since October 1, 1991, CEO of DPI. From
October, 1991 to June, 1996, President of DPI. From March 1997 to January 1998,
resumed role as President of DPI. Since June 1996, CEO of MDT. President of MDT
since September 1997. Since December 1991, President and CEO of Spatializer
Audio Laboratories, Inc. Practicing C.P.A. to October 1991. Mr. Gershick's term
as a Director expires at the annual meeting and he has decided not to seek
re-election. Mr. Gershick's decision was not the result of any disagreement with
the Board of Directors.
HENRY R. MANDELL. Interim Chief Executive Officer and Secretary since September
1998; Chief Financial Officer since March 1998; Senior Vice President, Finance
from March 1998 until September 1998. Executive Vice President and Chief
Financial Officer of The Sirena Apparel Group, Inc. from November 1990 to
January, 1998 (The Sirena Apparel Group filed for protection under Chapter 11 of
the Bankruptcy Code in June of 1999). Senior Vice President of Finance and
Administration for Media Home Entertainment, Inc. from April 1985 to November
1990. Director of Finance and Accounting for Oak Media Corporation from June
1982 to April 1985. Senior Corporate Auditor for Twentieth Century Fox Film
Corporation from June 1981 to June 1982. Mr. Mandell was a Senior Auditor for
Arthur Young and Company from August 1978 to June 1981, where he qualified as a
Certified Public Accountant.
JAMES D. PACE. Director since February 1995. Director of DPI since July 1992.
For more than the last five years, Mr. Pace has specialized in the introduction
and distribution of new technologies into the professional recording and film
industries. He is an electronics engineer with broad experience in recording and
live sound reinforcement.
GILBERT N. SEGEL. Director since May 1995. Mr. Segel has spent more than thirty
(30) years as an independent business manager representing musical artists, film
actors and entertainment industry entrepreneurs. Since 1985, he has concentrated
on his personal investments and serves as a director of various private business
and charitable enterprises.
<PAGE>
Resignations of Certain Directors
Mr. Land and Mr. Rubinstein resigned as Directors on March 1999 and
November 1999 respectively. Mr. Land and Mr. Rubinstein did not resign as a
result of any disagreement with the Board of Directors. Mr. Gershick's term as a
Director expires at the annual meeting and he has decided not the seek
re-election. Mr. Gershick's decision not to seek re-election was not a result of
any disagreement with the Board of Directors.
Compensation of Directors
None of the Company's Directors received any cash compensation or other
arrangements for services provided in their capacity as Directors. However, the
Company has granted stock options to Directors in that capacity. Under the 1995
Stock Option Plan, each Director who is not an employee of the Company is
entitled to an automatic annual grant of an option to purchase 50,000 shares of
Common Stock which are granted as options and are available for grant under the
1995 Stock Option Plan. If the recipient has received a grant in the last two
years, the actual grant is delayed until the person is eligible. Employee
Directors may receive such a grant at the discretion of the Board of Directors.
The Company issued such options to its non-employee directors in April of 1999.
Activities of the Board of Directors and its Committees
Members of the Board of Directors are elected by the holders of the Common
Stock of the Company and represent the interests of all stockholders. The Board
of Directors meets periodically to review significant developments affecting the
Company and to act on matters requiring Board approval. Although the Board of
Directors delegates many matters to others, it reserves certain powers and
functions to itself.
During fiscal 1999, the Board of Directors of the Company, which consisted
of seven (7) members, had four formal meetings and took various actions by
written consent. All incumbent Directors of the Company were present at, or
participated in taking actions for, one hundred percent (100%) of the total
number of meetings of the Board of Directors of the Company and the Committees
on which he served.
Committees of the Board of Directors
As of December 14, 1999, standing committees of the Board of Directors of
the Company included an Audit Committee and a Compensation and Stock Option
Committee.
Audit Committee
The Audit Committee of the Company's Board of Directors consisted of
Messrs. Segel and Rubinstein until Mr. Rubinstein's resignation in fall 1999.
The Board of Directors intends to designate a replacement for Mr. Rubenstein at
its organizational meeting. Mr. Mandell will also participate. Mr. Segel is a
non-employee Director of the Company. This committee is directed to review the
scope, cost and results of the independent audit of the Company's books and
records, the results of the annual audit with Management and the internal
auditors and the adequacy of the Company's accounting, financial, and operating
controls; to recommend annually to the Board of Directors the selection of the
independent auditors; to consider proposals made by the Company's independent
auditors for consulting work; and to report to the Board of Directors, when so
requested, on any accounting or financial matters. The Audit Committee of the
Board of Directors held one meeting during fiscal 1999.
<PAGE>
Compensation and Stock Committee
The Compensation and Stock Option Committee of the Company (the
"Compensation Committee") currently consists of Messrs. Pace and Segel, each of
whom is a non-employee director of the Company and a "disinterested person" with
respect to the plans administered by such committee, as such term is defined in
Rule 16b-3 adopted under the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder (collectively, the "Exchange Act"). The
Compensation Committee reviews and approves annual salaries, bonuses and other
forms and items of compensation for senior officers and employees of the
Company. Except for plans that are, in accordance with their terms or as
required by law, administered by the Board of Directors or another particularly
designated group, the Compensation Committee also administers and implements all
of the Company's stock option and other stock-based and equity-based benefit
plans (including performance-based plans), recommends changes or additions to
those plans, and reports to the Board of Directors on compensation matters. The
Compensation Committee held one meeting in 1999. To the extent required by law,
a separate committee of disinterested parties administers the 1996 Incentive
Plan. No Compensation Committee interlock relationships existed in 1999.
Report of Compensation Committee
General
The Company's Compensation Committee is responsible for formulating and
overseeing the general executive and employee compensation policies for the
Company. Its responsibilities include determination of the compensation of
senior executive officers and administration of the annual and long-term
incentive plans and stock option plans of the Company unless such plans, in
accordance with their terms, are administered by the Board of Directors or
another particularly designated group. Specific decisions relating to
compensation earned by or awarded to the senior officers of the Company,
including the chief executive officer and the other four highest paid executive
officers (collectively, the "Named Executive Officers"), are governed by the
Compensation Committee. The Compensation Committee was formed in June 1995.
The Compensation Committee has adopted the following policy framework on
which it intends to base the Company's compensation program and its decisions:
- Efforts should be made to achieve base salaries for the senior
executives which are competitive with compensation at the Company's peer
group of companies, not withstanding the significantly larger revenues at
many of the entities in the peer group.
- Annual incentives should consider Company performance and individual
contribution. Efforts should be made to establish parity among individuals
with similar responsibilities and performance.
- The long-term incentive program should be performance-based and
emphasize stock options to ensure that long-term compensation primarily
depends on increases in stock price. Other awards, including restricted
stock, performance units or a combination, may be utilized to provide
incentives that might otherwise be reflected in stock option grants.
- Stock option grants (or other performance-based long-term incentives
that may be awarded in the future) should be competitive with peer
practices to allow the Company to attract and retain senior personnel and
to reflect the Company's operating growth and performance.
<PAGE>
- The relative mix of annual and long-term incentives should reflect
levels within the organization, so that senior executives receive a
greater proportion of long-term incentives and others receive compensation
that emphasizes annual compensation and incentives.
To implement these policies, the Compensation Committee will take into
account current market data and compensation trends for similar enterprises,
compare corporate performance of the Company to the performance of a selected
peer group, gauge achievement of corporate and individual objectives and
consider the overall effectiveness of the Company's compensation programs.
To assist in formulating its operating framework, in December 1995 the
Compensation Committee engaged an independent executive compensation consultant
to assess the current competitive position of the Company's executive
compensation program and to assist the Company in implementing an ongoing long-
term incentive program. Given the Company's reduced operations and financial
constraints, no independent adviser was engaged during 1998 or 1999. However,
the Compensation Committee has continued to consider comparisons of current
compensation levels at the Company with other small capital publicly traded
companies. In addition, broader published compensation surveys of compensation
levels for executives holding similar positions at comparable industrial
entities or organizations were used to establish competitive norms. These
assessments indicated that actual cash compensation (salary plus annual
incentives) of the Named Executive Officers were below total cash compensation
levels of the peer group.
Annual Compensation
The Compensation Committee annually reviews base salary levels of
executives and employees annually, subject to any provisions or limitations
included in their Employment Agreements and in the context of the above
policies. The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to
the Code. Section 162(m) creates a new limit on the deductibility of
compensation paid to certain officers. With respect to the Company, the covered
officers are the Chief Executive Officer and the next four most highly
compensated persons in office at the end of the year. Compensation paid to these
officers in excess of $1,000,000 per person, that is not performance-based,
cannot be claimed by the Company as a tax deduction. It is the Compensation
Committee's intention to continue to utilize performance-based compensation and
to conform such compensation to these limits.
CEO Compensation
The compensation for Henry R. Mandell, as interim CEO of the Company, was
determined in accordance with the guidelines discussed above. Based on the
performance of the Company and the compensation of the CEOs at several peer
companies, he was paid a base salary of $175,000 in 1999. He also received a fee
of $25,000 in connection with the December Transactions. As described above, in
November 1999, the Board of Directors requested that the Compensation Committee
to develop a new compensation arrangement for Mr. Mandell and oversee the
reallocation of the Mr. Gershick's performance shares and certain other shares
of Common Stock held by him to Mr. Mandell. As a result, Mr. Mandell and the
Company are finalizing a three year employment agreement in which Mr. Mandell's
base salary for 2000 will be set at $200,000 and he will be entitled to an
annual bonus equal to 5% of the Company's income after taxes (not to exceed
$100,000). Mr. Mandell's existing options to acquire 500,000 shares were treated
as having been fully vested at November 12, 1999 and at that time he was granted
options to acquire 750,000 additional shares (250,000 shares exercisable at $.50
and immediately vested; 250,000 shares exercisable at $.55 to vest on November
12, 2000; and 250,000 shares exercisable at $.75 to vest on November 12, 2001).
In addition, the 168,628 performance shares held by Mr. Gershick directly and
the 674,516 performance shares held in escrow for him are to be reallocated to
Mr. Mandell, subject to documentation which was completed in January 2000. (See
"Transactions With Management and Others.")
Conclusion
The Compensation Committee believes that the policies and concepts
discussed above will be an effective strategy since a significant portion of
compensation to the Named Executive Officers will be based on the operating
results of the Company, the commensurate results for its stockholders, and the
need to attract and retain senior management, technical and operating personnel
as the Company matures and technology and market conditions change and evolve.
At the same time, it is intended that the policies will encourage responsible
management for both long-term and short-term results and will further the
interests of the Company's stockholders. In implementing its policies, the
Compensation Committee intends to base its review on the
<PAGE>
experience of its members, on Company and management information, and on
discussions with and information compiled by various independent compensation
consultants and other appropriate sources.
Submitted by the Compensation Committee of the Company's Board of
Directors,
James D. Pace
Gilbert N. Segel
Performance Graph of Company Stock
The following Performance Graph reflects a comparison of the performance
of the Company's Common Stock to the common stock of other peer group companies
and to the NASDAQ Market Index:
[The following table was depicted as a line graph in the printed material.]
COMPARISON OF CUMULATIVE TOTAL RETURN OF
COMPANY, PEER GROUP AND BROAD MARKET
<TABLE>
<CAPTION>
------------------- FISCAL YEAR ENDING ------------------
COMPANY/INDEX/MARKET 8/22/95 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C> <C> <C>
Spatializer Audio Laboratories 100.00 89.74 74.36 30.77 2.56 2.10
Peer Group Index 100.00 69.50 68.15 71.38 51.90 61.90
NASDAQ Market Index 100.00 100.02 124.29 152.03 214.42 378.19
</TABLE>
The peer group, for purposes of the above graph, consists of other
comparable technology companies. The peer group was expanded in 1996 to include
a competitor in the advanced audio technology industry that went public during
1996.
Indemnification of Directors and Executive Officers
The Company's Certificate of Incorporation and its Amended and Restated
Bylaws provide that the Company will indemnify any officer or director of the
Company who is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, against expenses (including, but not limited to, attorneys' fees)
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding to the fullest extent
and in the manner set forth in and permitted by Delaware law and any other
applicable law as from time to time in effect.
Executive Compensation
The following table sets forth separately, for the last three complete
fiscal years, each component of compensation paid or awarded to, or earned by,
the Chief Executive Officer ("CEO") of the Company and each of the other most
highly compensated executive officers who were serving as executive officers at
December 31,
<PAGE>
1998 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
===================================================================================================================
Long Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------------------------------------
Securities
Under
Options/ Restricted
SARs Stock Awards LTIP
Name and Principal Position Year Salary Bonus Other Granted (#) ($) Payouts
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Henry R. Mandell(1)
Interim Chief Executive 12/99 $175,000 $ -- $34,000 750,000 N/A N/A
Officer 12/98 $105,833 $ -- $6,750 500,000 N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Peter S. Birch 12/99 $120,000 -- -- 120,000 -- --
Sr.Vice President, Sales
and Marketing for DPI 12/98 $129,654 $ -- $5,400 30,000 N/A N/A
===================================================================================================================
</TABLE>
(1) Mr. Mandell became an employee of the Company in March 1998. He became
Interim Chief Executive Officer of the Company on September 25, 1998, concurrent
with the effective date of Mr. Gershick's resignation as President and Chief
Executive Officer. As described above, based on actions by the Board of
Directors in November 1999, Mr. Mandell's base salary for 2000 has been set at
$200,000 and he will be entitled to a bonus equal to 5% of the Company's income
after taxes (not to exceed $100,000). The 500,000 options shown above were
treated as having been fully vested at November 12, 1999 and at that time he was
granted options to acquire 750,000 additional shares (250,000 shares exercisable
at $.50 and immediately vested; 250,000 shares exercisable at $.55 to vest on
November 12, 2000; and 250,000 shares exercisable at $.75 to vest on November
12, 2001). In addition, the 168,628 performance shares held by Mr. Gershick
directly and the 674,516 performance shares held in escrow for him are to be
reallocated to Mr. Mandell. (See "Transactions With Management and Others.")
(2) Messrs. Bos and Montelius became employees upon the Company's acquisition of
MultiDisc Technologies, Inc. in June, 1996 and left the Company in April 1999.
(3) Mr. Tanner became an employee of DPI in March 1996 and left the Company in
March 1999.
(4) The exercise price for these options was adjusted to the closing market
price on July 18, 1997.
(5) The exercise price for these options was adjusted to the closing market
price on December 12, 1997.
(6) Of the 5,776,700 originally issued performance shares, 5% were released on
each of June 22, 1997 and 1998, and, in accordance with the escrow arrangement,
10% were released on June 23, 1999. During 1998 the vesting of 55,000 shares was
accelerated when the recipient left the Company. As a result, as of December 14,
1999, 4,527,359 of the originally issued performance shares remained in escrow.
Unless released earlier based on cumulative positive cash flow of $.6285 Cdn.
per share or in a discretionary acceleration where the recipient leaves the
Company, the remainder of these shares will vest based on the following
schedule: 20% June 2000; 30% June 2001; and 30% June 2002.
<PAGE>
OPTION/STOCK APPRECIATION RIGHT ("SAR") GRANTS DURING THE
MOST RECENTLY COMPLETED FINANCIAL YEAR
The following table presented in accordance with the Securities Exchange
Act of 1934, as amended ("the Exchange Act") and the Regulations thereunder sets
forth stock options granted under the Company's Stock Option Plan ("the Stock
Option Plan") during the most recently completed financial year to each of the
Named Executive Officers:
<TABLE>
<CAPTION>
===================================================================================================================================
Alternative
Individual Grants to
- --------------------------------------------------------------------------------------------- Potential Realizable Realizable
Value at Assumed Value:
Annual Rates of Stock Grant
Market Value Price Appreciation for Value
of Option Term Date
% of Total Securities -----------------------------------
Securities Options Underlying
Under /SARs Options/ Grant
Options/ Granted to Exercise or SARs on Date Date
SARs Employees in Base Price of Grant Expiration Present
Granted Fiscal Year ($/Security) ($/Security) Date 5% ($) 10% ($) Value $
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Henry R. Mandell
250,000 25.5% $0.500/shr $0.500/shr 11/12/04 $174,128 $252,463 N/A
250,000 25.5% $0.550/shr $0.550/shr 11/12/05 $161,128 $239,963 N/A
250,000 25.5% $0.750/shr $0.750/shr 11/12/06 $111,628 $189,963 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Andrew Wheeler 150,000 15.3% $0.375/shr $0.375/shr 10/11/04 $123,227 $170,228 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Peter S. Birch 30,000 3.0% $0.1900/shr $0.1900/shr 5/14/04 $ 30,270 $ 39,671 N/A
120,000 12.2% $0.080/shr $0.080/shr 5/14/04 $133,982 $171,582 N/A
===================================================================================================================================
</TABLE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FINANCIAL YEAR
AND FINANCIAL YEAR-END OPTION/SAR VALUES
The following table (presented in accordance with the Exchange Act and the
Regulations) sets forth details of all exercises of stock options/SARs granted
during the year ended December 31, 1999 by each of the Named Executive Officers
and the financial year-end value of unexercised options/SARs on an aggregated
basis:
<TABLE>
<CAPTION>
==============================================================================================================
Value of Unexercised In-the-Money
Securities Unexercised Options/SARs at Fiscal Year-End
Acquired on Aggregate Options/SARs at ($)
Name(1) Exercise Value Realized Fiscal Year-End Exercisable/Unexercisable
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Henry R. Mandell N/A N/A 1,250,000 $256,250/$143,750
- --------------------------------------------------------------------------------------------------------------
Andrew Wheeler N/A N/A 150,000 $84,375/$0
- --------------------------------------------------------------------------------------------------------------
Peter S. Birch N/A N/A 150,000 $135,583.33/$24,916.67
==============================================================================================================
</TABLE>
(1) As of December 14, 1999, only Mr. Mandell continues as a named executive
officer. The valuation information for the other parties has not been
included.
<PAGE>
TEN-YEAR OPTION/SAR REPRICINGS
The following table (presented in accordance with the Exchange Act and
the Regulations) sets forth details of all repricings of stock options/SARs
during the year ended December 31, 1999 for the Named Executive Officers:
<TABLE>
<CAPTION>
===============================================================================================================
Length of
Number of Original
Securities Market Price Exercise Term
Underlying of Stock at Price at Remaining at
Options/SARs Time of Time of Date of
Repriced or Repricing or Repricing or New Exercise Repricing or
Name Date Amended Amendment Amendment Price Amendment
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Henry R. Mandell N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Andrew Wheeler N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Peter S. Birch N/A N/A N/A N/A N/A N/A
===============================================================================================================
</TABLE>
The above referenced stock option repricings were effected to bring the
exercise prices down to reflect the current market price in order to properly
incentivize the option holders. The modifications to the exercise prices
effected on October 30, 1998 were generally applied to all Spatializer and DPI
employees whose option
<PAGE>
exercise prices were above the then current market price. The modifications to
the exercise prices effected on November 12, 1998 were generally applied to the
interim chief executive officer whose option exercise prices were above the then
current market price.
Employment Agreements
Effective June 1996, MDT entered into employment agreements that had
original terms continuing until December 1997, with extensions, pursuant to
which Mr. Eric Rene Bos was designated as Vice President of Product Development
and Mr. Robert Montelius was designated as Vice President of Engineering, at
annual salaries of $120,000 each. In May 1997, the Company notified Messrs. Bos
and Montelius that it did not intend to renew their agreements beyond December
1997. In September 1997, the Company notified both parties that it would extend
their agreements through June 1998. Both Mr. Bos and Mr. Montelius left the
Company in April 1999.
Effective October 1996, DPI entered into an employment agreement through
December 1997 (which, by its terms, was extended through December 1998) with
Theodore Tanner pursuant to which he was designated as Vice President of
Engineering, at an annual salary of $85,000. As of May 16, 1997, the annual
salary for Mr. Tanner was increased to $100,000. As of July 1, 1997, the annual
salary for Mr. Tanner was again increased to $110,000. As of July 31, 1998, Mr.
Tanner's annual salary was increased to $120,000. Mr. Tanner resigned from the
Company effective March 12, 1999.
Transactions with Management and Others
In December 1998, the Company entered into a loan agreement with the
directors and officers pursuant to which Carlo Civelli advanced $75,000 to the
Company and Messrs. Mandell, Rubinstein, Pace and Segel each advanced $5,000 to
the Company as a loan to fund immediate operating requirements. The loan bore
interest at the rate of 10% per annum and matured on November 30, 1999.
In April 1998, Clarion Finanz AG advanced $650,000 in a working capital
loan to the Company. The loan bears interest at the rate of 10% per annum and
matured on December 31, 1998 but has been extended from time to time through the
date hereof. Clarion Finanz AG is an affiliate of Carlo Civelli, a member of the
Board of Directors.
In the December Transactions, the $745,000 in principal of loans to the
Company and $116,506.86 in accrued interest, described above, as well as other
advances from other securities holders which resulted in total short term loans
of $895,000 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. The Company has a three year
option to redeem any Series B Preferred Stock, not sooner converted, in whole or
in part, in cash.
The other participants in the December Transactions were certain existing
holders of the Company's equity and debt and new institutional investors. In
addition to the issuance of the Series B Preferred Stock, the December
Transactions included the private placement of 1,884,254 additional shares of
Common Stock ($1.05 million in new capital), the issuance of warrants to acquire
2,100,000 shares of Common Stock, the cancellation of 500,000 warrants to
acquire Common Stock (at a variable exercise ratio), and the conversion of
$225,000 of secured debt, including accrued interest, into secured long term
convertible debt. The long term debt is held by existing institutional investors
and is secured by essentially all of the assets of the Company. 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 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.
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Under the Exchange Act, the Company's directors, certain executive and
other officers, and any person holding more than ten percent (10%) of the
Company's Common Stock are required to report their ownership and any changes in
that ownership to the Securities and Exchange Commission (the "Commission") and
any exchange or quotation system on which the Common Stock is listed or quoted.
Specific due dates for these reports have been established and the Company is
required to report in this proxy statement any failure to file by directors and
officers and ten percent (10%) holders. Based solely on a review of the copies
of reports furnished to the Company as filed with the Commission, the Company is
informed that Mr. Segel was late in reporting transactions which occurred in
July 1999, November 1999 and December 1999. The Company believes that its
remaining executive officers and directors have complied with the filing
requirements applicable to them for the year ended December 31, 1999.
Annual Report
The Company has previously forwarded to each stockholder who so requested
in writing a copy of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 as filed with the Securities and Exchange
Commission and the quarterly reports for the interim periods in 1999. Requests
for additional copies of these reports should be sent to the Company at 20700
Ventura Boulevard, Suite 140, Woodland Hills, California 91364, Attention:
Investor Relations.
Information Incorporated By Reference
In addition to the materials set forth herein, this Proxy Statement
incorporates by reference the following items previously filed with the SEC:
1. The Company's Report on Form 10-K for the year ended December 31, 1998, as
amended to date; and
2. The Company's Reports on Form 10-Q for the quarters ended March 31, June 30
and September 30, 1999.
DATED: January 12, 2000
BY ORDER OF THE BOARD
/s/ Henry R. Mandell
Henry R. Mandell
Interim Chief Executive Officer
<PAGE>
EXHIBIT A
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
Interim Chief Executive Officer
<PAGE>
SPATIALIZER AUDIO LABORARTORIES, INC.
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD FEBRUARY 10, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Henry R. Mandell as proxy and
attorney-in-fact of the undersigned, with full power of substitution, to
represent and vote, as designated below, all shares of Common Stock of
Spatializer Audio Laboratories, Inc. (the "Company") which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company to be held
at the Warner Center Marriott, located at 21850 Oxnard Street, in Woodland
Hills, California, on Thursday, February 10, 2000, at 10:30 a.m., and at any
adjournments thereof.
The Board of Directors recommends a vote FOR Proposal I and FOR all nominees
listed in Proposal II.
Proposal I: To approve the proposal of the Board of Directors to increase
the total amount of the Company's authorized common stock,
$.01 par value per share (the "Common Stock") from 50,000,000
shares to 65,000,000 shares.
|_| FOR |_| AGAINST |_| ABSTAIN
Proposal II: To elect three Directors of the Company to serve until the
Annual Meeting of Stockholders to be held in 2003.
Nominees: Stephen W. Desper, Carlo Civelli, Henry R. Mandell
|_| FOR all nominees listed above. |_| WITHHOLD authority to vote
(except as marked to the contrary below).
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
(Continued on reverse side)
- --------------------------------------------------------------------------------
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL I AND FOR ALL NOMINEES LISTED IN PROPOSAL II, AND IN THE DISCRETION
OF THE PROXY HOLDER WITH RESPECT TO ANY OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING.
Dated: _________, 2000
Signed: ________________________________
(Stockholder(s) sign above)
NOTE: Please sign exactly as your name
appears hereon. Joint owners should each
sign personally. A corporation should
sign full corporate name by duly
authorized officers and affix corporate
seal. When signing as attorney,
executor, administrator, trustee or
guardian, give full title as such.
PLEASE RETURN PROMPTLY IN ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED
IN THE U.S.
