Exhibit 4.31
Form of Exchange Agreement
10% CONVERTIBLE SERIES B PREFERRED STOCK AGREEMENT
THIS 10% CONVERTIBLE SERIES B PREFERRED STOCK AGREEMENT (the "Agreement")
is entered into as of December 16, 2002, by and among Spatializer Audio
Laboratories, Inc., a Delaware corporation (the "Company") and the holders of
the Company's 10% Convertible Series B Preferred Stock listed on Schedule A
hereto (each individually a "Holder" and collectively, the "Holders").
RECITALS
A. Pursuant to the terms of that certain 10% Convertible Series B
Preferred Stock Subscription Agreement, dated December 29, 1999, by and among
the Company and the Holders, the Holders acquired an aggregate of 102,967 shares
of 10% Series B Convertible Preferred Stock of the Company (the "Series B
Preferred"), none of which shares have been converted and which shares of Series
B Preferred are the only outstanding shares of preferred stock of the Company.
B. The Company and the Holders desire to effect a partial recapitalization
in which the Holders will exchange all of their respective shares of Series B
Preferred, for a new series of shares, being the Series B-1 Convertible
Preferred Stock of the Company (the "Series B-1 Preferred") on the terms and
conditions set forth below (the "Stock Exchange").
C. The Series B Preferred provide for the accrual and payment of dividends
at the rate of 10% per annum until the Series B Preferred has been converted, in
which event all dividends are payable in Common Stock or in cash, at the option
of the Company, and the Holders and the Company wish, in connection with the
Stock Exchange, to agree to modify the dividends which are due and payable from
the date of issuance of the Series B Preferred through December 29, 2002 and to
provide for the payment of such dividends (the "Dividends Due") and for no
further accrual or payment of dividends and, in connection therewith, to have
issued to them at this time additional shares of the Series B-1 Preferred to
reflect the Dividends Due; all as set forth below.
D. The Series B Preferred provides for conversion, at the option of the
Holder, of the Series B Preferred into the Common Stock of the Company and for
an automatic conversion, if not sooner converted, of all of the outstanding
Series B Preferred into the Common Stock of the Company on December 29, 2002 and
the Company and the Holders now wish, pursuant to the Stock Exchange, to extend
the date for automatic conversion to December 29, 2005.
AGREEMENT
1. Exchange.
(a) Terms of Exchange. The Company hereby agrees to issue to the
Holders and the Holders agree to accept, a new series of preferred shares,
denominated as Series B-1 Preferred, to be issued pursuant to a Certificate of
Designation to be filed with the Secretary of State of Delaware, substantially
in the form attached as Exhibit 1. The Series B-1 Preferred are to be issued on
the basis of one share of Series B-1 Preferred for each share of Series B
Preferred now held, except that, in addition thereto, there shall be issued to
the Holders, additional shares of Series B-1 Preferred representing the
Dividends Due (the "Dividend Shares") with the number of Dividend Shares to be
issued to be calculated using a dividend of 6.6% for the year 2000, 5.9% for the
year 2001 and 2.4% for the year 2002, respectively, in lieu of, and in full
discharge of, all obligations with respect to Dividends Due and any further
dividends as set forth in the Certificate of Designation for the Series B
Preferred, a copy of which is attached as Exhibit 2. In addition, the Holders
agree that no dividends shall accrue or be payable with respect to the Series
B-1 Preferred. As set forth in the Certificate of Designation for the Series B-1
Preferred, the Series B-1 Preferred (i) shall be convertible at the option of
the Holder at any time after issuance at a Floor Price of $0.56 and at a Ceiling
Price of $1.12, such amounts being identical to the Floor Price and Ceiling
Price applicable to the Series B Preferred, and (ii) shall be automatically
converted, if not sooner converted, on December 29, 2005.
(b) Exchange of Shares. Therefore, concurrently with the execution
of this Agreement and subject to the terms and conditions set forth herein, each
Holder does hereby exchange, transfer and deliver to the Company that number of
shares of Series B Preferred set forth opposite his or its name on Schedule A
hereto (the "Stock Exchange").
(c) Issuance of the Series B-1 Preferred Stock. In exchange for each
Holder's respective shares of Series B Preferred and all Dividend Shares
issuable thereon, the Company does hereby issue and deliver to each Holder, in
exchange and in full payment for each share of Series B Preferred and all
accrued and unpaid dividends due through December 29, 2002, the aggregate number
of shares of Series B-1 Preferred, par value $0.01 per share, of the Company set
forth opposite each Holder's name on Schedule A hereto. The Series B-1 Preferred
shall have a stated value of US$10.00 per share.
(d) Delivery of the Series B Preferred. The Company does hereby
acknowledge receipt of the Series B Preferred stock certificates registered in
the name of each of the Holders, accompanied by assignments separate from
certificates duly executed by each respective Holder, and agrees that all stock
certificates shall be
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marked cancelled and the class of Series B Preferred shall be extinguished by
the Company.
(e) Delivery of the Series B-1 Preferred. Each Holder hereby
acknowledges receipt of a stock certificate registered in his, or its, name
representing that number of shares of Series B-1 Preferred set forth opposite
his or its name on Schedule A hereto.
2. Closing. The closing of the Stock Exchange shall be held at the offices
of Crosby, Heafey, Roach & May, Professional Corporation, 1901 Avenue of the
Stars, Suite 700, Los Angeles, California, 90067 at 10:00 a.m. on December 20,
2002 (the "Closing").
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to each of the Holders as follows:
(a) Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
(b) Corporate Power. The Company has, or will have, at the time of
the Closing, all requisite corporate power to enter into this Agreement, to
issue the shares of the Series B-1 Preferred to each Holder, and to carry out
and perform its obligations under the terms of this Agreement, and has, or will
have, taken all actions necessary for the authorization, execution and delivery
of this Agreement and the issuance of the shares of Series B-1 Preferred. This
Agreement is a valid and binding obligation of the Company enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, moratorium, and other laws of general application affecting the
enforcement of creditors' rights and by the availability of equitable remedies.
(c) Valid Issuance of Shares. The shares of Series B-1 Preferred,
when issued in compliance with the provisions of this Agreement, will be validly
issued, fully paid and nonassessable, and will be free of any liens or
encumbrances imposed by the Company; provided, however, that the shares of
Series B-1 Preferred will be subject to restrictions on transfer under the state
and federal securities laws as set forth herein, and as may be required by
future changes in such laws.
4. Representations and Warranties of the Holders. Each Holder represents
and warrants, severally but not jointly, to the Company as follows:
(a) Capacity. Such Holder has full legal capacity, power and
authority to execute, deliver, and perform his or its obligations under this
Agreement.
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(b) Ownership of Stock; Vesting Title. Each Holder beneficially owns
only such number of Series B Preferred as indicated opposite such Holder's name
on Schedule A attached hereto, with full right and authority to deliver such
shares hereunder, and upon delivery of such shares and one or more stock powers
with respect to such shares of Series B Preferred hereunder, the Company will
receive good, valid and marketable title thereto, free and clear of all liens or
encumbrances, and not subject to any agreements or understandings among any
persons with respect to the voting or transfer of such shares.
(c) Accredited Investor. Each Holder is an "accredited investor" as
defined under the rules promulgated under the Securities Act of 1993, as
amended.
(d) Ability to Protect Own Interest. Each Holder has a preexisting
personal or business relationship with the Company or one or more of its
directors of officers or controlling persons, or, by reason of such Holder's
business or financial experience, the business or financial experience of such
Holder's professional advisors (who are not affiliated with or compensated by
the Company or any of their affiliates) or the business or financial experience
of such Holder's representative, each Holder has the capacity to protect its own
interest in connection with the Stock Exchange.
(e) Access to Information. Each Holder (or, if applicable, such
Holder's representative) has had an opportunity to discuss the Company's
business, management and financial affairs with its management and to ask
questions of officers of the Company, which questions were answered to its
satisfaction. Each Holder understands that such discussions with management, as
well as any written information issued by the Company, were intended to describe
certain aspects of the Company's business and prospects but were not a thorough
or exhaustive description. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 3 hereof or the right
of the Holders to rely thereon.
(f) No Reliance. In deciding to enter into and consummate the
transactions contemplated hereby, each Holder has not relied, as to tax,
securities and other legal matters, on the advice that such Holder has received
from the Company or any of its attorneys or representatives, but only on the
advice of such Holder's own advisors and experts.
(g) Investment Intent. The shares of Series B-1 Preferred to be
issued to each Holder will be acquired for such Holder's own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"). Each Holder furthermore has no
current commitment or obligation, contingent or otherwise, to anyone to dispose
of the shares of Series B-1 Preferred and has no current plan or intent to
dispose of the shares of Series B-1 Preferred.
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(h) Exempt from Registration. Each Holder understands and
acknowledges that the exchange and delivery of the shares of Series B-1
Preferred pursuant to the terms of this Agreement will not be registered under
the Securities Act on the grounds that the Stock Exchange is exempt from
registration pursuant to section 3(a)(9) of the Securities Act, as an exchange
by the Company solely with its own securities holders, and are exempt from
qualification pursuant to Section 260.103(a)(1) of the California Corporate
Securities Law of 1968, as amended (the "Law"), and that the Company's reliance
upon such exemptions is predicated, in part, upon the Holder's representations
set forth in this Agreement. Each Holder acknowledges and understands that the
Company has no intention of registering the shares of Series B-1 Preferred and
that they therefore must be held indefinitely unless they are (i) converted to
Common Stock pursuant to the terms thereof and are then subsequently sold
pursuant to an effective registration statement or exemption from such
registration or (ii) the shares of Series B-1 Preferred are subsequently
registered under the Securities Act and qualified under the Law or an exemption
from such registration and such qualification is available.
(i) Indefinite Holding Period. Each Holder understands and
acknowledges that he or it may be required to hold the shares of Series B-1
Preferred for an indeterminate period.
(j) Disposition of Shares and Options. In no event will each Holder
dispose of any of his or its shares of Series B-1 Preferred (other than in
conjunction with an effective registration statement for the same under the
Securities Act) unless and until (i) such Holder shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
detailed, true and accurate statement of the circumstances surrounding the
proposed disposition, and (ii) if requested by the Company, such Holder shall
have furnished the Company with an opinion of counsel satisfactory in form and
substance to the Company to the effect that [EITHER] (a) such disposition will
not require registration under the Securities Act and (b) appropriate action has
been taken to make the disposition qualify with the Law.
(k) No Violation. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not result in the
breach of any term of, or constitute a default under, any contract, agreement,
commitment, indenture, mortgage, note or other instrument or obligation to which
each Holder, or any of such Holder's shares of Series B-1 Preferred, may be
bound.
(l) Binding Obligation. This Agreement has been duly executed and
delivered by each Holder and constitutes a legal, valid and binding obligation
of such Holder, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency and other laws affecting the enforcement of
creditors' rights and by the availability of equitable remedies.
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(m) Legends. Each document representing the shares Series B-1
Preferred shall be endorsed with 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 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.
5. Conditions to the Company's Obligation to Close. The Company's
obligation to issue shares of Series B-1 Preferred at the Closing is subject to
the fulfillment to the Company's satisfaction on or prior to the Closing of the
following conditions, any of which may be waived by the Company in its sole
discretion:
(a) Representations and Warranties Correct. The representations and
warranties made by the Holders in Section 4 hereof shall be true and correct
when made and shall be true and correct on and as of the Closing with the same
force and effect as if they had been made on and as of said date.
(b) Tender. Each Holder shall have tendered all of his or its
outstanding shares of Series B Preferred with fully executed stock powers.
(c) Consents and Waivers. The Company shall have obtained any and
all consents, permits and waivers necessary or appropriate for consummation of
the transactions contemplated by this Agreement.
6. Miscellaneous
(a) Governing Law. The Agreement shall be governed in all respects
by the laws of the State of California.
(b) Survival. The representations, warranties, covenants and
agreements made herein shall survive the Closing of the transactions
contemplated hereby.
(c) Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
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(d) Further Acts. The parties hereto shall perform all further acts
and execute and deliver all documents that may be reasonably necessary to carry
out their obligations hereunder and the purposes of this Agreement.
(e) Changes and Termination. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only by a statement in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought.
(f) Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
(g) Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
mailed by registered or certified mail, postage prepaid, return receipt
requested, or sent via internationally recognized overnight courier, addressed:
If to a Holder: To such Holder's address set forth by its or
his name on Schedule A attached hereto, or at
such other address as such Holder shall have
furnished to the Company in writing
If to the Company: Spatializer Audio Laboratories, Inc.
900 Lafayette Street, Suite 710
Santa Clara, California 95050
Attn: Chief Executive Officer
Notices that are mailed shall be deemed given one (1) day after deposit in the
United States mail.
(h) Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
(i) Expenses. The Company and the Holder shall bear his or its own
expenses and legal fees in connection with this Agreement and the transactions
contemplated thereby.
(j) Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
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(k) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
constitute one instrument.
(l) Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company shall impair any such right, power or
remedy of the Company, nor shall it be construed to be a waiver of any breach or
default under this Agreement, or any acquiescence therein, or any waiver of or
acquiescence in any similar breach or default thereafter occurring; nor shall
any delay or omission to exercise any right, power or remedy accruing to the
Company or any waiver by the Company of any single breach or default by any
other party be deemed a waiver by the Company of any other right, power or
remedy or breach or default theretofore or thereafter occurring. All remedies,
either under this Agreement, or by law otherwise afforded to the Company shall
be cumulative and not alternative.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SPATIALIZER AUDIO LABORATORIES, INC.,
a Delaware corporation
By: /s/ HENRY R. MANDELL
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Henry R. Mandell,
Chief Executive Officer
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HOLDERS:
CLARION FINANZ, A.G.,
a Swiss corporation
By: /s/
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Name:
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Title:
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/s/
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CARLO CIVELLI, an individual
/s/
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HENRY R. MANDELL, an individual
/s/
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JAMES D. PACE, an individual
/s/
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JEROLD H. RUBINSTEIN, an individual
/s/
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GILBERT N. SEGEL, an individual
ATON SELECT FUND LTD.,
a Swiss corporation
By: /s/
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Name:
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Title:
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ROMOFIN A.G.,
a Swiss corporation
By: /s/
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Name:
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Title:
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