As filed with the Securities and Exchange Commission on February 10, 2000.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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REGISTRATION STATEMENT ON FORM S-3
Under
THE SECURITIES ACT OF 1933
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SPATIALIZER AUDIO LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 3698 95-4484725
- ---------------------------- ---------------------------- -------------------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
20700 Ventura Boulevard, Suite 140
Woodland Hills, California 91364
(818) 227-3370
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Henry R. Mandell, Chief Executive Officer
Spatializer Audio Laboratories, Inc.
20700 Ventura Boulevard, Suite 140
Woodland Hills, California 91364
(818) 227-3370
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Margaret G. Graf, Esq.
Brand Farrar & Buxbaum LLP
515 South Flower Street, Suite 3500
Los Angeles, California 90071-2201
(213) 228-0288
Direct Dial: (213) 426-6260
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
Title of Each Amount to be Proposed Maximum Proposed Maximum Amount of
Class of Securities Registered (1) Offering Price Per Aggregate Offering Registration Fee
to be Registered Share Price (2)
- ------------------- -------------- ------------------ ----------------- --------------
Common Stock,
$.01 par value per 6,197,636 $2.02(2) (2) $3,305.08
share
(1) This registration statement relates to the resale of 6,197,636 shares of
Common Stock issued prior to the filing date hereof, and the resale of up to
2,525,000 shares of Common Stock issuable on the exercise of currently
outstanding Options and Warrants.
(2) Pursuant to Rule 457(c), the fee calculation is based on the average of the
high and low prices of the Registrant's Shares on the OTC Bulletin Board on
February 8, 2000. The Registration Fee is calculated based on 6,197,636 shares
at a proposed offering price per share of $2.02.
The Registrant hereby files this registration statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this registration statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to such Section 8(a), may determine.
SPATIALIZER AUDIO LABORATORIES, INC.
Cross-Reference Sheet
Item No. Form S-3 Caption
1. Forepart of the registration statement and Outside Front Outside Front and Cover Page
Cover Page of prospectus
2. Inside Front and Outside Back Cover Pages of prospectus Inside Front and Outside Back
Cover Pages of prospectus
3. Summary Information, Risk Factors and Ratio of Earnings The Company; Business; Risk
to Fixed Charges Factors; Capitalization
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Selling Stockholders
8. Plan of Distribution Outside Front Cover; The
Company; Plan of Distribution
9. Description of Securities to be Registered Description of Capital Stock
10. Interests of Named Experts and Counsel Legal Matters; Experts
11. Material Changes Not Applicable
12. Incorporation of Certain Information by Reference Incorporation of Certain
Information by Reference
13. Disclosure of SEC Position on Indemnification for Indemnification and Personal
Securities Act Liabilities Liability of Officers and Directors
[Front Cover of Prospectus]
6,197,636 Shares
SPATIALIZER AUDIO LABORATORIES, INC.
(a Delaware corporation)
Certain stockholders of Spatializer Audio Laboratories, Inc. are offering for
resale 6,197,636 shares of Common Stock, including 3,672,636 shares of Common
Stock which are currently outstanding and 2,525,000 shares of Common Stock
reserved for issuance on the exercise of outstanding Options and Warrants. Of
these, 1,933,381 shares of the Common Stock are, or upon exercise of Options and
Warrants will be, held by Selling Stockholders who are officers or directors.
Our Common Stock is traded on the OTC Bulletin Board under the symbol "SPAZ." On
February 8, 2000 the closing price of the Common Stock on the OTC Bulletin Board
was $2.03 U.S.
Before investing in the Common Stock, you should carefully consider the risks
described in the "Risk Factors" section beginning on page 4.
Per Share Total(1)
Public offering price $2.02 $12,519,224
Proceeds, before expenses, to Selling Stockholders $2.02 $10,085,884
Proceeds, before expenses, to the Company on $ 2,433,000
exercise of Options and Warrants at varying prices
(1) Reflects current exercise prices for Options and Warrants and assumes
holders immediately resold at current market price of $2.02 per share.
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is ______, 2000.
(Back Cover)
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No person is authorized in connection with this prospectus to give any
information or to make any representations about us, the Selling Stockholders,
the Common Stock, or any matter discussed in this prospectus, other than the
information and representations contained in this prospectus. If any other
information or representation is given or made, such information or
representation may not be relied upon as having been authorized by us or any
Selling Stockholder. This prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy the Common Stock in any circumstances under
which the offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any distribution of securities in accordance with this prospectus
shall, under any circumstances, imply that there has been no change in our
affairs since the date of this prospectus.
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TABLE OF CONTENTS
Page
WHERE YOU CAN FIND MORE INFORMATION.........................................i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................i
SPATIALIZER AUDIO LABORATORIES, INC..........................................1
RISK FACTORS.................................................................4
USE OF PROCEEDS..............................................................8
CAPITALIZATION...............................................................9
BUSINESS ...................................................................10
SELLING STOCKHOLDERS........................................................11
PLAN OF DISTRIBUTION........................................................14
DESCRIPTION OF CAPITAL STOCK................................................14
SHARES ELIGIBLE FOR FUTURE SALE.............................................18
INDEMNIFICATION AND PERSONAL LIABILITY OF OFFICERS AND DIRECTORS............18
LEGAL MATTERS...............................................................19
EXPERTS.....................................................................19
SPATIALIZER AUDIO
LABORATORIES, INC.
The date of this prospectus is ___________, 2000.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement that we filed with the
SEC. This prospectus does not contain all of the information set forth in the
registration statement, part of which has been omitted in accordance with the
rules and regulations of the SEC. In addition, the registration statement and
this prospectus incorporate by reference certain materials previously filed with
the SEC. You should read the exhibits carefully for provisions that may be
important to you. We became subject to the reporting requirements imposed under
the Securities Exchange Act of 1934 (the "1934 Act") on August 21, 1995, and
have filed all reports required to be filed since such date.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., Chicago, Illinois, and New
York, New York. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. Our SEC filings are also available to the public
from the SEC's Web site at "http://www.sec.gov".
Until February, 1997 when we terminated our listing on the Vancouver Stock
Exchange, we and our predecessor, Spatializer Audio Laboratories, Inc., a Yukon
corporation ("Spatializer-Yukon"), also were subject to the information and
reporting requirements under the Yukon Territory Business Corporations Act and
the British Columbia Securities Act. You may read and copy all periodic reports,
proxy materials and other reports filed with the Superintendent of Brokers for
British Columbia and the VSE at the VSE offices at 609 Granville Street, 4th
Floor, Vancouver, B.C. V7Y 1H1, CANADA and at the offices of the Superintendent
of Brokers for British Columbia at 865 Hornby Street, Suite 1200, Vancouver,
B.C. V6Z 2H4, CANADA, at prescribed rates.
Upon request, we will provide copies of materials on file at the SEC to
stockholders and any person to whom a prospectus is delivered, including
material incorporated herein by reference. Requests should be made orally or in
writing to Spatializer Audio Laboratories, Inc. at 20700 Ventura Boulevard,
Suite 140, Woodland Hills, California 91364, Attention: Secretary, telephone
(818) 227-3370.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to these documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below, which we have already filed with the
SEC, and any future filings we make with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 until we sell all of the
securities.
i
Period
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Annual Report on Form 10-K................. Year ended December 31, 1998
Current Reports on Form 8-K................ Filed December 27, 1999
Quarterly Reports on Form 10Q.............. Fiscal quarters ended March 31,
1999, June 30, 1999 and
September 30, 1999
Proxy Statement............................ Filed January 12, 2000
ii
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SPATIALIZER AUDIO LABORATORIES, INC.
Spatializer Audio Laboratories, Inc. is a leading developer, licensor and
marketer of next generation technologies for the consumer electronics, personal
computing, enterprise computing and entertainment industries. Our position as a
leading developer of next generation technologies is based on our strong
relationships with brand leaders, such as Apple, Toshiba and Hitachi. We conduct
our audio business through our parent company and our wholly owned subsidiary,
Desper Products, Inc. ("DPI"). DPI has developed a full complement of patented
and proprietary 3-D or virtual audio signal processing technologies directed to
the consumer electronics and multimedia PC markets. We continue to expand our
product offerings to take advantage of the emerging digital audio marketplace
specifically for consumer products like Digital Versatile Disc ("DVD") for
personal computers, and home entertainment; and interactive positional audio for
PC gaming on the Windows 95/98(TM) platforms. As of December 31, 1999, more than
17 million licensed units had been shipped. DPI's 3-D audio signal processing
technologies have been incorporated in over 380 products offered by global brand
leaders including in consumer electronics, Toshiba, Panasonic, JVC, Hitachi,
Mitsubishi, Samsung, Sanyo, Goldstar, Emerson, Zenith and Proton, and in the PC
multimedia marketplace, Apple, Compaq, Dell, Gateway, Hewlett Packard, Sony,
Micron, Fujitsu, NEC, Seiko-Epson and Labtec, among others. We are focused on
broadening recognition for the Spatializer brand name through association with
these and other globally recognized consumer electronics and multimedia computer
brand leaders, and on broadening our audio technology and software base to
position ourselves for continued growth. We believe that with the accelerating
growth in the digital audio/video marketplace, the market for virtual audio
technologies, and therefore for our products, is entering a new phase of
opportunity.
Our other wholly owned subsidiary, MultiDisc Technologies, Inc., formed in
June 1996 when we acquired development stage optical disc storage and robotics
assets and technologies from Home Theater Products, International, Inc., a
debtor in possession, is now inactive. In September 1998, we announced our plan
to refocus our business on the exploitation of our core audio technologies,
suspend research and development at MDT and to properly position the MultiDisc
assets for sale. Therefore, MDT has been accounted for as a discontinued
operation. Since 1998 we have been unsuccessful in identifying a purchaser for
this technology. This repositioning strategy recognized that the capital
investment required to properly commercialize the MDT technology was beyond our
current capacity. We believe this strategy provides a better opportunity to
further solidify our position as a leading provider of virtual audio solutions,
based on available capital resources.
In December 1999, we completed the placement of $1 million of Common
Stock, at no discount from market, the conversion of $1 million of short-term
debt to new Series B Redeemable Convertible Preferred Stock and the restatement
of $225,000 on existing secured debt to secured long-term debt (the "December
Transactions"). The December Transactions significantly strengthen our balance
sheet and restore working capital and shareholder's equity. The resulting
liquidity will allow us to emerge from turnaround mode and to pursue growth.
Our executive offices are located at 20700 Ventura Boulevard, Suite 140,
Woodland Hills, California 91364, Telephone (818) 227-3370. We maintain Websites
at www.spatializer.com and www.multidisc.com. Information available on our
Websites is not part of this prospectus. We were incorporated in the State of
Delaware in February, 1994.
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The Offering
The Offering relates to the resale of up to 3,672,636 shares of Common
Stock which are currently outstanding and 2,525,000 shares of Common Stock
reserved for issuance upon exercise of presently outstanding Warrants and
Options. Common Stock offered for resale hereunder is to be offered for resale
for the account of the Selling Stockholders who already hold stock, Warrants or
Options, including certain officers, directors and affiliates. We are not
entitled to any of the proceeds of sale of any such securities by the Selling
Stockholders, but we will pay the expenses of the filing of the registration
statement.
We will receive the proceeds, in the ordinary course, from any exercise of
outstanding Options and Warrants. If all outstanding Options and Warrants
registered herein are exercised, including those that currently have exercise
prices above the market price of our stock, we will receive proceeds of
approximately $2.4 million. The proceeds from the exercise of Options and
Warrants, from time to time, will be used to fund general corporate purposes and
for strategic acquisitions or alliances.
Sales by Selling Stockholders
The shares of Common Stock being offered for resale by the Selling
Stockholders pursuant to this prospectus may be offered by them in varying
amounts and transactions so long as this prospectus is then current under the
rules of the SEC and the registration statement has not been withdrawn by us.
The Offering may be through the facilities of the OTC Bulletin Board or such
other exchange or reporting system where the Common Stock may be traded.
Brokerage commissions may be paid or discounts allowed in connection with such
sales; however, it is anticipated that the discounts allowed or commissions paid
will be no more than the ordinary brokerage commissions paid on sales effected
through brokers or dealers. To our knowledge, as of the date hereof, no one has
made any arrangements with a broker or dealer concerning the offer or sale of
the Common Stock. See "Plan of Distribution."
The Selling Stockholders include the investors who participated in the
December Transactions and were granted registration rights covering the resale
of the Common Stock they acquired, entities that have provided services and
received Common Stock in connection with these services, and our officers and
directors or directors of DPI who hold warrants issued for loans advanced or
performance shares. The release of the performance shares from escrow is treated
as compensation to the some of the holders of the performance shares, as of the
date of release and those individuals may find it necessary to sell a portion of
their performance shares to meet their tax obligations. For the others, the
inclusion of the shares in our registration statement provides them with the
flexibility to dispose of a portion of their shares in the market when their
personal needs or planning require the sale.
2
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Outstanding Securities
As
Adjusted(2)
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Shares of Common Stock Outstanding at December 27, 1999 43,655,223 45,594,477
Reserved for Issuance - Options 2,859,467(1) 2,859,467(2)
Reserved for Issuance - Warrants 905,000(1) 2,640,000(2)
Total Shares of Common Stock Outstanding
Assuming Exercise of Warrants and Options 47,419,690 51,093,944
Shares Offered by Selling Shareholders N/A 6,197,636
(including 2,525,000 shares reserved for issuance on
exercise of Warrants and Options)
------------------------------
(1) Includes all employee and similar options and warrants issued in prior
financings.
(2) These amounts include the 2,100,000 warrants issued net of the 500,000
outstanding warrants that were canceled in the December Transactions.
This prospectus includes references to MultiDisc(TM), Spatializer (R) and
other trademarks, tradenames, and product names of Spatializer and of other
entities, some of which may not be designated as such.
3
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RISK FACTORS
Investment in our securities is speculative. Please consider carefully the
following factors, in addition to the other information contained in or
incorporated by reference into this prospectus, before making a decision to
purchase our securities. If one or more of these risks actually materialize, our
business and the trading price of our Common Stock would likely suffer and you
could lose all or part of the money you invested in our Common Stock.
If We Can't Obtain and Enforce Intellectual Property Protection For Our
Technologies, Our Business Will Not Be Successful.
Our success will depend significantly on our ability to obtain and enforce
intellectual property protection for our technologies in the United States and
in other jurisdictions. Desper Products, Inc. holds certain patents in the field
of audio signal processing and has a number of additional patent applications on
file with the U.S. Patent and Trademark Office. There can be no assurance that
any U.S. patent will be granted on pending applications, or that such patents
will provide the breadth of coverage intended. In addition, there is no
assurance that any of the rights obtained from our patents will not be
challenged, invalidated or circumvented, or that our competitors will not
independently develop or patent technologies that are equivalent or superior to
our technology.
While we have attempted to protect our technology and general intellectual
property rights, there is no assurance that our efforts will effectively protect
against piracy or theft. Monitoring and identifying unauthorized use of such
technology may prove difficult, and the cost of litigation may impact our
ability to adequately guard against such piracy and infringement. While we
believe the steps we have taken to guard against such abuses are reasonable,
there is no assurance we will be successful in this effort.
If Product Development Is Delayed, We Will Experience Delays in Revenues and
Competitive Products May Reach the Market Before Our Products.
We can't predict the timing or the amount, if any, of revenues which we
will receive from current or future product sales and licensing activities.
Since our inception, we have experienced delays in bringing our products to
market and commercial application as a result of delays inherent in technology
development, financial resource limits and industry responses and maturity.
These delays have resulted in delays in the timing of revenues and product
introduction. In the future, new delays in product development or technology
introduction on behalf of us, our OEMs, IC foundries or our software producers
and marketers could result in further delays in revenues and could allow
competitors to reach the market with products before us. In view of the emerging
nature of the technology involved, and the rapidly changing character of the
entire media, internet and computer markets, our expansion into other technology
areas and the uncertainties concerning the ability of our products to achieve
meaningful commercial acceptance, there can be no assurance of when or if we
will achieve or sustain profitability.
We Have a History of Losses.
The overall results for 1997 and 1998 reflect continuing losses from
operations because of the funding requirements of the development of the MDT
server technology and subsequently the wind down costs for MDT. Although we were
profitable in each of the first three quarters of fiscal 1999, the first such
profitability in our history, there can be no assurance that we will ever
sustain an overall positive profit position.
4
If We Lose Key Personnel, We May Not Be Able To Successfully Operate Our
Business.
Our future success primarily depends on the abilities and efforts of a
small number of individuals, with particular management obligations. Loss of the
services of any of these persons could adversely affect our business prospects.
While we believe that we will be able to recruit and retain personnel with the
skills required for future growth, we can't assure you that we will be
successful. Failure to do so could have an adverse impact upon our business, the
results of our operations and our prospects. Currently, we have an employment
agreement with our vice president of engineering with a term expiring in October
2000, we are finalizing an employment agreement with Henry R. Mandell for a term
expiring in 2002 and we are negotiating agreements with three engineers.
If We Can't Raise Additional Capital, We May Have To Modify or Delay Our
Development and Marketing Activities.
We have funded our operations from revenues and from a number of equity
financings. We continue to acquire new financing. While our audio subsidiary,
DPI, was profitable for the first time during the last two quarters of 1997,
these revenues were consumed in financing operations and funding the MDT
technology development until we restructured and downsized our operations in
September 1998. Since then we have achieved positive operating results at
reduced operating levels but have delayed product development.
With the recent financing and cash generated from our existing operations,
we expect to be able to meet our operating obligations and the anticipated
additional research, development, and commercial marketing cost for the audio
business during the next twelve months.
Because The Market In Which We Operate Is Highly Competitive, We May Not Be
Successful in Establishing and Maintaining the Technological Superiority of Our
Products Over Those of Our Competitors.
We are seeking commercial acceptance of our products in highly competitive
markets. Our future success is dependent on establishing and maintaining the
technological superiority of our products over those of competitors and our
ability to successfully identify and bring other compatible technologies and
products to market. Certain of our current competitors have access to greater
financial resources than we do. There is no assurance that our present or
contemplated future products will achieve or maintain sufficient commercial
acceptance, or if they do, that functionally equivalent products will not be
developed by current or future competitors with access to significantly greater
resources. The market for 3D Virtual Audio technologies is characterized by
intense competition and commodity pricing pressures. We compete with a number of
entities that produce various stereo audio enhancement processes, technologies
and products in both traditional two- speaker environments such as consumer
electronics and multimedia computing, and in multi-channel, multi- speaker
applications such as Home Theater. In the field of 3-D or Virtual Audio, our
principal competitors are SRS Labs, Inc., QSound Labs, Inc., Aureal
Semiconductor, Inc., CRL and Harman International, some of which have
considerably greater capitalization and resources than we do. In the future, our
products and technologies may also compete with audio technologies and products
developed by other companies, including entities that have business
relationships with us. There can be no assurance that we will be able to
favorably compete in this market in the future.
5
Because There Is a Limited Trading Market in Our Stock, You May Not Be Able To
Sell the Common Stock, or May Only Be Able To Sell It for Less Than the Offering
Price.
The Common Stock of the Company trades on the OTC Bulletin Board under the
symbol "SPAZ." There is no assurance that our current trading will be sustained
or expanded as to correspond with your desire for a ready market for our shares.
If We Issue Preferred Stock, Your Rights May Be Adversely Affected.
We are authorized to issue up to 1,000,000 shares of preferred stock in
one or more series, the terms of which are to be determined by the Board of
Directors, without further action by shareholders, and may include voting rights
(including the right to vote as a class on particular matters), preferences as
to dividends and liquidation, the conversion feature and dilution impact and
redemption rights and sinking fund provisions. Since the Board of Directors has
the authority to determine, from time to time, the terms of the Preferred Stock
to be issued in the future, there is no limit on the amount of Common Stock (or
the related dilution impact) that could be issuable under the terms of future
series of preferred stock authorized by the Board of Directors. Of the 1,000,000
shares of preferred stock, 102,967 shares of Series B, 10% Redeemable
Convertible Preferred Stock ("Series B Preferred Stock") are issued and
outstanding and the issuance of additional shares of Series B Preferred Stock or
any other preferred stock could affect the rights of the holders of Common Stock
and the value of the Common Stock, could result, upon conversion, in a change of
control and could also make it more difficult for the holders of the Common
Stock to control voting with respect to significant corporate transactions. See
"Description of Capital Stock."
Since Our Officers and Directors Own a Substantial Number of Shares of Our
Common Stock, They Can Substantially Control Actions by the Stockholders.
Our current directors and officers beneficially own or control or have
rights to acquire 9.3 million shares of Common Stock or approximately 21.6% of
our fully diluted Common Stock. As a result, in addition to their influence as
officers and directors, if such persons act together as stockholders, they can
substantially control actions by the stockholders with respect to our business
and affairs.
Sales of Shares Following This Offering Could Adversely Affect the Market Price
of Our Common Stock.
Virtually all of our currently outstanding Common Stock, including the
Common Stock held by our affiliates, will be tradeable currently or in the near
future, either under this prospectus or pursuant to Rule 144. Of the issued and
outstanding shares of Common Stock, officers, directors and other founders or
employees hold Escrowed Performance Shares. Under the currently effective
Performance Share Modification Agreements dated December 30, 1996, 5% of the
original 5,776,700 Performance Shares were released on June 22, 1997, 5% on June
22, 1998 and 10% on June 22, 1999, and the remainder of the Performance Shares
are scheduled to be released automatically as follows: 20% on June 22, 2000; 30%
on June 22, 2001; and 30% on June 22, 2002. In addition to the automatic
releases, performance shares can be released based on the cash flow release
criteria contained in the original June 22, 1992 escrow agreement although, to
maintain a stable market in the Company's stock, in any year not more than 30%
of the shares will be released, based on the cash flow criteria.
In addition, under the revised arrangement the performance shares will
vest if the individual holder has not voluntarily terminated his or her service
with us prior to the applicable vesting dates. Any individual
6
who is involuntarily terminated by us will be entitled to an automatic
acceleration of the unvested performance shares. The Board, in its discretion,
may allow an individual who has voluntarily terminated his or her services with
us to retain a portion or all of any unvested performance shares.
We Do Not Intend To Pay Dividends
We have not paid any cash dividends on our Common Stock and have no
present intention of paying any dividends. Our current policy is to retain
earnings, if any, for use in operations and in the development of our business.
Our future dividend policy will be determined from time to time by the Board of
Directors.
Since Our Securities Are Subject To the Penny Stock Rules, You May Find It More
Difficult To Sell Our Common Stock.
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the SEC. Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on
Nasdaq provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system).
The penny stock rules require a broker-dealer, prior to a transaction in a
penny stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in connection with the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. Our securities are presently subject to the penny stock
rules, and, as a result, investors may find it more difficult to sell their
securities.
7
USE OF PROCEEDS
Securities offered for resale hereunder are to be offered for the account
of the Selling Stockholders. We are not entitled to any of the proceeds of sale
of any such securities, but we will pay the expenses of the filing of the
registration statement. We will receive the proceeds, in the ordinary course,
from any exercise of outstanding Options and Warrants and will apply those
proceeds to general corporate purposes. If all outstanding Options and Warrants
registered herein are exercised, we will receive proceeds of approximately $2.4
million.
8
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999
(assuming none of the currently outstanding Options or Warrants are exercised).
DEBT
Notes Payable 324,149
Advanced from Related Parties 907,500
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Total Debt $ 1,231,649
STOCKHOLDERS' EQUITY
Preferred shares, $.01 par value, 1,000,000 shares 281
authorized, 28,140 shares Series A 7% Convertible
Preferred Stock Outstanding at September 30, 1999
Common Stock, $.01 par value, 50,000,000 shares 360,912
authorized 36,091,184 shares issued and
outstanding at September 30, 1999
Additional Paid-In Capital 44,048,255
Accumulated Deficit (45,915,963)
------------
Total Stockholders' Equity (1,506,515)
------------
Total Capitalization $ (274,866)
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9
BUSINESS
This prospectus incorporates by reference the documents listed herein,
including the business descriptions contained therein and, in particular, the
description of "Business" contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
10
SELLING STOCKHOLDERS
The shares of Common Stock offered hereunder are to be offered for sale,
from time to time, by persons acquiring them in private placements, or who may
acquire the shares on exercise, from time to time, of Warrants or Options held
by them. The shares offered also include the performance shares which have been
released to date and which have not been sold by the holders as well as the
performance shares to be released in June 2000.
The following tables set forth the names and addresses of each of the
Listed Selling Stockholders, other than officers and directors (who have an
address at the Company), indicate their relationship to us or our predecessors
and specify security ownership at December 27, 1999, except the security
ownership of the participants in the December Transactions, Steven D. Gershick,
Henry R. Mandell and Brand Farrar are stated to give effect to the termination
of Mr. Gershick's ownership of performance shares and the issuance of these
shares to Mr. Mandell and the issuance of shares in the December Transactions
and to Brand Farrar. The tables show security ownership before and after giving
effect to the sale of Common Stock registered hereunder.
Percentage
Securities Ownership
To Be After
Retained, Offering, if
Percentage if all all
Ownership Registered Registered
Category of Shares Before Securities Securities
Beneficially Owned Shares Offering are are Sold
Name and Relationship (1) Offered (2) Sold (2)
- ------------------------------- -------------------- --------- ----------- -------------- -------------
Henry R. Mandell Shares - 168,628 168,628 0
Chief Executive Officer, Escrow - 674,516 168,628 505,888
Chief Financial Officer, Options - 750,000 0 750,000
Secretary and Director(3) Warrants - 5,000 0 0
Total - 1,598,144 337,256 3.6% 1,255,888 2.8%
Carlo Civelli Shares - 517,924 278,176 0
Director (4) Escrow - 1,112,704 278,176 834,528
Options - 250,000 0 250,000
Warrants - 75,000 0 0
Total - 1,955,628 556,352 4.4% 1,084,528 2.5%
Stephen W. Desper Shares - 272,145 272,145 0
Director Escrow - 1,559,305 389,828 1,169,477
Options - 173,800 0 173,800
Total - 2,005,250 661,973 4.6% 1,343,277 3.06%
Gilbert N. Segel Shares - 117,000 22,000 95,000
Director Escrow - 88,000 22,000 66,000
Options - 50,000 0 50,000
Warrants - 5,000 0 5,000
Total - 260,000 44,000 * 216,000 *
11
Percentage
Securities Ownership
To Be After
Retained, Offering, if
Percentage if all all
Ownership Registered Registered
Category of Shares Before Securities Securities
Beneficially Owned Shares Offering are are Sold
Name and Relationship (1) Offered (2) Sold (2)
- ------------------------------- -------------------- --------- ----------- -------------- -------------
James D. Pace Shares - 85,400 25,400 60,000
Director Escrow - 101,597 25,400 76,197
Options - 130,000 0 130,000
Warrants - 5,000 0 5,000
Total - 321,997 50,800 * 271,197 *
Steven D. Gershick (3) Shares - 83,000 83,000 0
Options - 300,000 200,000 100,000
Total - 383,000 283,000 * 100,000 *
I.N. Inc. Warrants - 125,000 125,000 * 0 *
Lufeng Investments Ltd. Shares - 179,453 179,453 0
Warrants - 200,000 200,000 0
Total - 379,453 379,453 * 0 *
Bank Insinger de Beaufort Shares - 448,632 448,632 0
Herengracht 551 Warrants - 500,000 500,000 0
1017 BW Amsterdam Total - 948,632 948,632 2.17% 0 *
The Netherlands
Brand Farrar & Buxbaum LLP Shares - 55,000 55,000 * 0 *
515 S. Flower St., Ste. 3500
Los Angeles, CA 90071
Romofin AG Shares - 541,132 448,632 92,500
Burglestrasse 6 Warrants - 500,000 500,000 0
8027 Zurich, Switzerland Total - 1,041,132 948,632 2.17% 92,500 *
CPR (USA) Inc. Shares - 1,537,779 403,769 1,134,010
101 Hudson St., 37th Floor Warrants - 450,000 450,000 0
Jersey City, NJ 07302 Total - 1,987,779 853,769 4.99%(5) 1,134,010 4.99%(5)
LibertyView Funds, L.P. Shares - 1,447,052 323,015 1,124,037
Hemisphere House Warrants - 360,000 360,000 0
9 Church Street Total - 1,807,052 683,015 4.99%(5) 1,124,037 4.99%(5)
Hamilton, Bermuda HMDX
LibertyView Fund, LLC Shares - [406,775] 80,754 [326,021]
101 Hudson St., 37th Floor Warrants - 90,000 90,000 0
Jersey City, NJ 07302 Total - [496,775] 170,754 1% [326,021] *
12
Percentage
Securities Ownership
To Be After
Retained, Offering, if
Percentage if all all
Ownership Registered Registered
Category of Shares Before Securities Securities
Beneficially Owned Shares Offering are are Sold
Name and Relationship (1) Offered (2) Sold (2)
- ------------------------------- -------------------- --------- ----------- -------------- -------------
Cardinal Capital Mgmt, Inc. Warrants - 100,000 100,000 * 0 *
3340 Peachtree Road N.E.
Suite 620
Atlanta, GA 30326
- ----------
(1) Includes Escrowed Performance Shares of Common Stock and Options and
Warrants which are currently exercisable or exercisable within 60 days of
the date hereof. Escrowed Performance Shares which are scheduled for
release from Escrow during 2000 are included as being registered for
resale by the respective holders.
(2) Denominator includes all shares reserved for issuance to the specified
person on exercise of Options and Warrants which are exercisable within 60
days of the date hereof.
(3) In November 1999, the Board of Directors approved, subject to the
finalization of appropriate documentation, the reallocation of the 674,516
performance shares held in escrow for Steven D. Gershick to Henry R.
Mandell and the transfer among Mr. Gershick, us and Mr. Mandell of the
168,628 performance shares previously released from escrow to Mr.
Gershick. The above table reflects the transactions. Mr. Gershick has
appointed Mr. Mandell as his proxy to vote the performance shares.
(4) Clarion Finanz AG is a non-reporting investment company controlled by
Carlo Civelli. Holdings of Mr. Civelli and Clarion Finanz AG are combined,
and include all shares of the Company held of record or beneficially by
either, and all additional shares over which either currently exercises
full or partial control, without duplication through attribution.
(5) CPR (USA) Inc., LibertyView Funds, L.P. and LibertyView Fund LLC are
affiliated entities but each has made an individual investment in the
Company. In addition to limitations set forth in the Certificate of
Designation for the Series A Preferred Stock, which limits ownership of
the Common Stock by any holder to 4.99% of the Company's outstanding
Common Stock, the three entities have independent legal obligations and
internal practices which bar them from collectively owning more than 4.99%
of any company's outstanding Common Stock at any particular time.
Therefore, the disclosure reflects beneficial ownership of the aggregate
percentage of Common Stock that could be beneficially owned by the three
entities combined at any one time, during the effectiveness of this
registration statement.
* Denotes less than 1% ownership.
13
PLAN OF DISTRIBUTION
The shares of Common Stock held by the Selling Stockholders may be offered
by them in varying amounts and transactions, from time to time, including
through the facilities of the OTC Bulletin Board or such other exchange or
reporting system where the Common Stock may be traded, at prices then obtainable
and satisfactory to them so long as this prospectus is then current under the
rules of the SEC and we have not withdrawn the registration statement. Brokerage
commissions may be paid or discounts allowed in connection with such sales;
however, it is anticipated that the discounts allowed or commissions paid will
be no more than the ordinary brokerage commissions paid on sales effected
through brokers or dealers. To our knowledge, none of the Selling Stockholders
has made any arrangements with a broker or dealer concerning the offer or sale
of the Common Stock as of the date of this prospectus. We will receive the
proceeds from the exercise of Options and Warrants but the Selling Stockholders,
not we, will receive the net proceeds of any sales of their Common Stock
hereunder after payment of any discounts and commissions. We have paid the
professional fees and related costs of this registration statement from our
general funds.
Registration Rights of Certain Selling Stockholders
We have granted certain registration rights with respect to Common Stock
to the Selling Stockholders who are not our affiliates and who acquired
2,181,930 shares of Common Stock (in the December Transactions and in private
placements) or who could acquire 2,475,000 shares issuable on exercise of
Warrants issued in the December Transactions (the "Registrable Shares"). We also
have agreed that if we propose to register any of our securities under the 1933
Act in connection with the public offering of such securities for cash,
including the performance shares, as released, (other than a registration
relating solely to the sale of securities pursuant to a Rule 145 transaction) it
will allow those holders to have their Registrable Securities included in such
registration statement. The Company has agreed to bear all registration expenses
in connection with the registration of the Registrable Securities other than
underwriting commissions.
DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital consists of 65,000,000 shares of Common Stock (par
value U.S. $.01) of which 43,655,223 were outstanding at December 27, 1999 and
1,000,000 shares of Preferred Stock (par value U.S. $.01) of which no shares
were issued and outstanding at December 27, 1999.
Common Stock
All of the issued shares of our Common Stock are fully paid and
non-assessable. Subject to the release and performance conditions relating to
Escrowed Performance Shares, all of the shares of Common Stock rank equally as
to voting rights, participation in the distribution of our assets on a
liquidation, dissolution or
14
winding-up and the entitlement to dividends. Each share of Common Stock entitles
the holder to one vote. In the event of our liquidation, dissolution or
winding-up or other distribution of our assets, the holders of the Common Stock
will be entitled to receive, on a pro-rata basis, all of the assets remaining
after we have paid our liabilities. Subject to the rights granted to holders of
Preferred Stock, and the limitations on Escrowed Performance Shares, holders of
the Common Stock are entitled to dividends only when and to the extent declared
by the Board of Directors.
Of the 43,655,223 shares of Common Stock currently issued and outstanding,
4,527,359 are classified as Escrowed Performance Shares, are held in escrow by
our transfer agent, Harris Trust Company of California, and will vest under the
modification arrangements.
We have Options outstanding which could result in the issuance of up to
approximately 2.86 million shares of additional Common Stock and have Warrants
outstanding which could result in the issuance of up to approximately 2.64
million additional shares of Common Stock. The Options have been granted to
officers, directors and employees and the Warrants have been issued in private
placements and as payment for services rendered. Warrants are non-transferable
and adjusted in the event of a share consolidation or subdivision or other
similar change to our capital. See "Executive Compensation" in our Annual Report
on Form 10-K or in our Proxy materials for further information with respect to
the Options.
In December 1999, we completed a set of financial transactions (the
"December Transactions") with certain existing holders of our equity and debt
and with new institutional investors. The December Transactions included the
private placement of 1,884,254 additional shares of our Common Stock ($1.05
million in new capital or $0.55725 per share), the issuance of warrants to
acquire 2,100,000 shares of Common Stock exercisable for three years at an
exercise price of $.67 per share), the cancellation of 500,000 warrants to
acquire Common Stock issued in that earlier financing, the conversion of $1
million of short term debt into a new Series B Redeemable Convertible Preferred
Stock ("Series B Preferred Stock") and the conversion of $225,000 of secured
debt into secured long term convertible debt.
In the December Transactions, $895,000 in short term loan advances from
officers, directors and their affiliates and certain other securities holders,
and accrued interest of $134,647, were restructured into the $1,000,000 in new
Series B Preferred Stock. The Series B Preferred Stock, and any dividends
therefrom not converted into cash, are convertible commencing in 2001 into
restricted Common Stock at a 10% discount, based on the 10 day average closing
bid price prior to the conversion, but subject to a minimum conversion of $.56
per share and a maximum of $1.12 per share. We have a three year option to
redeem any Series B Preferred Stock, not sooner converted, in whole or in part,
in cash.
In the December Transactions, $225,000 of secured debt, including accrued
interest, was converted into secured long term convertible debt. The long term
debt is held by existing institutional investors and is secured by essentially
all of our assets. The debt, and accrued interest, is convertible at our or the
holder's options into registered Common Stock at a conversion price equal to the
average 10 day closing bid price prior to conversion but subject to the same
minimum and maximum conversion prices set for the Series B Preferred Stock.
Also, concurrently with the December Transactions, 55,000 shares were allocated
to Brand Farrar & Buxbaum LLP ("Brand Farrar") in payment of a portion of its
legal fees.
15
Preferred Stock Generally
The Board of Directors is authorized to issue, without stockholder action,
up to 1,000,000 shares of Preferred Stock. Preferred Stock may be issued in one
or more series, the terms of which may be determined at the time of issuance by
the Board of Directors, and may include voting rights (including the right to
vote as a series on particular matters), preferences as to dividends and
liquidation, conversion and redemption rights and sinking fund provisions.
Series A Preferred Stock
In connection with a private placement in April 1998, the Board of
Directors authorized the issuance of up to 100,000 shares of Series A, 7%
Convertible Preferred Stock ("Series A Preferred Stock") with a par value of
$.01 per share and a stated value of $50.00 per share, with a 7% per annum
dividend. In the April 1998 private placement, 60,000 shares were issued. None
of the Series A Preferred Stock is currently outstanding.
Series B Preferred Stock
In connection with the December Transaction, the Board of Directors
authorized the issuance of up to 150,000 shares of Series B Redeemable
Convertible Preferred Stock ("Series B Preferred Stock") with a par value of
$0.01 per share and a stated value of $10.00 per share, with a 10% annual
dividend. In the December Transaction 102,967 shares were issued.
The Series B Preferred Stock ranks: (i) prior to all of our Common Stock,
and (ii) prior to any class or series of capital stock created after the Series
B Preferred Stock (unless such future class specifically, by its terms, ranks on
parity with the Series B Preferred Stock), and (iii) junior to any class or
series of capital stock created before the Series B Preferred Stock, in each
case as to distributions of assets upon liquidation, dissolution or winding up,
whether voluntary or involuntary (all such distributions being referred to
together as "Distributions"). The Series B Preferred Stock will bear a 10% per
annum cumulative dividend, payable out of assets legally available therefor, at
the Conversion Date (as defined below) in cash or Common Stock at the Conversion
Price (as defined below), at our option. No dividends shall be paid on the
Common Stock or any other subsequently issued stock prior to the payment of
dividends on the Series B Preferred Stock.
In the event of any liquidation, dissolution or winding up, either
voluntary or involuntary, the holders of Series B Preferred Stock shall be
entitled to receive a liquidation preference of $10.00 per share plus any
accrued and unpaid dividends, subject to adjustments for certain change of
control and normal corporate reclassifications and to pro rata distributions in
the event that assets are insufficient to fully fund the liquidation preference.
Holders of the Series B Preferred Stock have a right to convert their shares, at
their option on or after December 29, 2000. The date we receive a notice of
conversion from a shareholder shall be treated as a "Conversion Date."
The conversion price shall be determined on the Conversion Date and shall
equal ninety percent of the average of the closing bid prices of Common Stock
for ten consecutive trading days ending on the trading day immediately preceding
the Conversion Date. The conversion price may not be lower than the average of
the closing bid prices of Common Stock for the ten consecutive trading days
ending one trading day prior to December 29, 1999 (the "Floor Price") or be
higher than 200% of the Floor Price.
16
After giving effect to the Series B Preferred Stock, we have 750,000
shares of Preferred Stock remaining reserved for issuance all of which shares
which could be issued quickly with terms calculated to delay or prevent a change
in control or to make removal of management more difficult. The issuance of
Preferred Stock may have the effect of delaying, deterring or preventing a
change in control without any further action by the stockholders or discouraging
bids for our Common Stock at a premium because the purchasers would not be in a
position to limit certain future capital transactions through the issuance of
Preferred Stock. In addition, we believe that conversions of future issuances of
Preferred Stock could discourage market interest in our Common Stock because of
the dilutive effects on the capital structure and possible price pressure and
market overhang because of a potential sale of the Common Stock into the market.
If the future preferred stock were to be issued with conversion features that
set the conversion price of the preferred stock at less than current market, it
could discourage interest in our Common Stock and could have the effect of
decreasing the market price of the Common Stock.
Application of California Corporations Code
Although incorporated in Delaware, our business has been conducted through
our operating subsidiaries in the State of California. Section 2115 of the
California Corporations Code ("Section 2115") provides that certain provisions
of the California Corporations Code shall be applicable to a corporation
organized under the laws of another state to the exclusion of the law of the
state in which it is incorporated, if the corporation meets certain tests
regarding the business done in California and the number of its California
shareholders.
An entity such as Spatializer can be subject to Section 2115 even though
we do not ourselves transact business in California if, on a consolidated basis,
the average of the property factor, payroll factor and sales factor is more than
fifty percent (50%) deemed to be in California during its latest full income
year and more than one-half of our outstanding voting securities are held of
record by persons having addresses in California. Section 2115 does not apply to
corporations with outstanding securities listed on the New York or American
Stock Exchange, or with outstanding securities designated as qualified for
trading as a national market security on NASDAQ, if such corporation has at
least 800 beneficial holders of its equity securities. We currently are deemed
to be subject to Section 2115.
Delaware Corporate Governance Issues
As a Delaware corporation, we are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover provision which generally prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination has been approved by the directors and shareholders as
provided in our Certificate of Incorporation and Bylaws. Our Certificate of
Incorporation and Bylaws incorporate the provisions of Section 203. For purposes
of Section 203, a "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock and approval of the holders of at least two-thirds of
the voting stock is required to alter, amend or repeal the foregoing provisions.
We have adopted certain provisions to limit the ability of stockholders to
change corporate management. Our Certificate of Incorporation contains
provisions which classifies the Board of Directors and provides that Board
members may only be removed for cause and with the approval of the holders of
two-
17
thirds of the voting stock. The Certificate of Incorporation adopts the
interested stockholder provisions described above. While these or similar
provisions are commonly adopted by public corporations formed under Delaware
law, such provisions may allow management to retain their positions with us and
may discourage third parties from attempting to acquire control of us. As a
result, our stockholders may have reduced opportunities to sell their stock in
transactions where third parties are seeking an interest in us and such third
parties may be discouraged from undertaking transactions to acquire a
significant interest in us.
SHARES ELIGIBLE FOR FUTURE SALE
As of December 27, 1999 and including the effect of the December
Transactions, there were 45,594,477 shares of Common Stock outstanding and
2,640,000 shares reserved for issuance on exercise of outstanding Warrants and
2,859,467 shares reserved for issuance on exercise of outstanding Options,
representing in the aggregate a fully diluted total of 51,093,944 shares. The
shares of Common Stock underlying the Series B Preferred Stock are not reflected
since the number of shares will be calculated at the time of conversion. Of that
total, approximately 9.3 million, or 21.6%, were held by persons who are
officers or directors including 3,640,557 of Escrowed Performance Shares.
INDEMNIFICATION AND PERSONAL LIABILITY
OF OFFICERS AND DIRECTORS
Our Certificate of Incorporation contains a provision authorized by
Delaware law which eliminates the personal liability of a director to us, or to
any of our stockholders, for monetary damages for a breach of his fiduciary duty
as a director, except in the case where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law, or obtained an improper
personal benefit. This provision has no effect on the availability of equitable
remedies, such as an injunction or rescission for breach of fiduciary duty,
including the duty of care. This provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
Our bylaws obligate us to indemnify our directors, officers, employees and
other agents to the fullest extent permitted by Delaware law, in respect of
expenses, judgments, penalties, fines, and settlement of claims paid or
incurred, including those resulting from liability under the 1933 Act, if the
indemnitee acted in good faith and in what he or she reasonably believed to be
in, or not opposed to, our best interest, and, in the case of criminal action,
if the indemnitee had no reasonable cause to believe his or her conduct was
unlawful. The right to indemnity conferred by the Bylaws is a contractual right.
Such indemnification may be made against (a) expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred in connection with any threatened, pending or
completed action, suit or proceeding (other than an action by, or in the right
of, us) arising out of a position with us (or with some other entity at our
request), and (b) expenses (including attorneys' fees) and amounts paid in
settlement actually and reasonably incurred in connection with a threatened,
pending or completed action or suit by, or in the right of, us, unless the
director or officer is found liable to us and an appropriate court does not
determine that he or she is nevertheless fairly and reasonably entitled to
indemnification.
18
In certain circumstances, Delaware law permits advances to cover such
expenses before a final determination that indemnification is permissible.
Delaware law requires indemnification for expenses in certain circumstances and,
in others, requires that the indemnification be approved by a majority vote of
directors not involved in the event. In certain actions brought by or on behalf
of us against a person, indemnification of that person is available only after a
judicial determination by the Court in which the matter was heard. To the extent
that an indemnitee is successful in the defense of any proceeding, he or she is
entitled to be indemnified against actual and reasonable expenses incurred in
connection with such defense. Our bylaws establish procedures pursuant to which
such a determination may be made.
Delaware law permits us to enter into written agreements confirming (and
in certain cases, extending its obligations to) the purchase of insurance on
behalf of any of our directors, officers, employees or agents or other
corporation, partnership, joint venture, trust or other enterprise whether or
not we would have the power to indemnify such insured under Delaware law,
against liabilities arising out of their positions with us. To date, we have not
obtained any such insurance.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the 1933 Act and is
therefore unenforceable.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for us
by Brand Farrar & Buxbaum LLP.
EXPERTS
The consolidated financial statements of Spatializer Audio Laboratories,
Inc. and subsidiaries as of December 31, 1998 and 1997, and for each of the
years in the three-year period ended December 31, 1998 have been included herein
in reliance upon the report of Farber & Hass, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
19
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following list itemizes all estimated expenses incurred by the
Registrant in connection with this registration statement. The fees and expenses
of the Selling Stockholders are being paid by the Company.
Registration Fees $ 3,305.08
Transfer Agent Fees $ 500.00*
Printing and Engraving Costs $ 3,000.00*
Legal Fees $15,000.00*
Accounting Fees $10,000.00*
Miscellaneous $ 5,000.00*
TOTAL $36,805.08
- ----------
* Estimated.
II-1
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are incorporated in Delaware. Under Section 145 of the General
Corporation Law of the State of Delaware (the "DGCL"), a Delaware corporation
generally has the power to indemnify its present and former directors and
officers against expenses and liabilities incurred by them in connection with
any suit to which they are, or are threatened to be made, a party by reason of
their serving in those positions so long as they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, our best interests,
and with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The statute expressly provides that the power to
indemnify authorized thereby is not exclusive of any rights granted under any
bylaw, agreement, vote of stockholders or disinterested directors, or otherwise.
Our Certificate of Incorporation contains the following provision:
"ARTICLE IX
INDEMNIFICATION
SECTION 1. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or an officer of the corporation, against expenses (including,
but not limited to, attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the fullest extent and in the manner set
forth in and permitted by Delaware law and any other applicable law as
from time to time in effect. Such right of indemnification shall not be
deemed to be exclusive of any other rights to which such director or
officer may be entitled apart from the foregoing provisions. The foregoing
provisions of this Section 1 shall be deemed to be a contract between the
Corporation and each director and officer who serves in such capacity at
any time while this Section 1 and the relevant provisions of Delaware law
and other applicable law, if any, are in effect, and any repeal or
modification thereof shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore existing
or any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts.
SECTION 2. The Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was
an employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including, but not limited to, attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding to the extent and in the manner set forth in and permitted by
Delaware law and any other applicable law as from time to time in effect.
Such right of indemnification shall not be deemed to be exclusive of any
other rights to which any such person may be entitled apart from the
foregoing provisions."
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director (i) for such breach of the director's duty
of loyalty to the corporation or its stockholder, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 (relating to liability for unauthorized
acquisitions or redemptions of, or dividends on, capital stock) of the DGCL, or
(iv) for any transactions from which the director derived an improper personal
benefit.
II-2
Our Certificate of Incorporation contains the following relevant
provision:
"ARTICLE X
LIABILITY FOR BREACH OF FIDUCIARY DUTY
To the fullest extent permitted by Delaware law, a director of the
Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. In
furtherance thereof, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, as the same exists or
hereafter may be amended, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law hereafter is amended to authorize the further elimination
or limitation of the liability of directors, then the liability of
directors shall be eliminated or limited to the full extent authorized by
the General Corporation Law of the State of Delaware, as so amended."
Our Bylaws obligate us to indemnify our directors, officers, employees and
other agents to the fullest extent permitted by Delaware law, in respect of
expenses, judgments, penalties, fines, and settlement of claims paid or
incurred, including those resulting from liability under the Act, if the
indemnitee acted in good faith and in what he or she reasonably believed to be
in, or not opposed to, the best interest of the corporation, and, in the case of
criminal action, if the indemnitee had no reasonable cause to believe his or her
conduct was unlawful. The Bylaws provide:
"ARTICLE VI
INDEMNIFICATION
SECTION 1. Directors and Officers. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director or an officer of the Corporation, against
expenses (including, but not limited to, attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding to the fullest
extent and in the manner set forth in and permitted by the General
Corporation Law of the State of Delaware and any other applicable law as
from time to time may be in effect. Such right of indemnification shall
not be deemed to be exclusive of any right to which such director or
officer may be entitled apart from the foregoing provisions. The foregoing
provisions of this Section 1 shall be deemed to be a contract between the
Corporation and each director and officer who serves in such capacity at
any time while this Section 1 and the relevant provisions of the General
Corporation Law of the State of Delaware and other applicable law, if any,
are in effect, and any repeal or modification thereof shall not affect any
right or obligation then existing, with respect to any state of facts then
or theretofore existing, or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such
state of facts.
SECTION 2. Agents and Employees. The Corporation may indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact
that he is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including, but not limited to,
attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action,
suit or
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proceeding to the extent and in the manner set forth in and permitted by
the General Corporation Law of the State of Delaware and any other
applicable law as from time to time may be in effect. Such right of
indemnification shall not be deemed to be exclusive of any other right to
which any such person may be entitled apart from the foregoing
provisions."
* * *
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the 1933 Act and is
therefore unenforceable.
The preceding discussion of our Certificate of Incorporation, Bylaws and
Section 145 of the DGCL is qualified in its entirety by reference to the
complete text of our Certificate of Incorporation and Bylaws which are on file
with the SEC.
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ITEM 16. EXHIBITS
2.1* Desper-Spatializer Reorganization Agreement dated January 29, 1992.
(Incorporated by reference to the Registrant's registration statement on
Form S-1, Registration No. 33-90532, effective August 21, 1995.)
2.2* Arrangement Agreement dated as of March 4, 1994 among Spatializer-Yukon,
DPI and Spatializer- Delaware. (Incorporated by reference to the
Registrant's registration statement on Form S-1, Registration No.
33-90532, effective August 21, 1995.)
4.1* Form of Subscription Agreement for August 1994 Private Placement.
(Incorporated by reference to the Registrant's registration statement on
Form S-1, Registration No. 33-90532, effective August 21, 1995.)
4.2* Form of Subscription Agreement for November 1994 Private Placement.
(Incorporated by reference to the Registrant's registration statement on
Form S-1, Registration No. 33-90532, effective August 21, 1995.)
4.3* Form of Spatializer-Yukon Incentive Stock Option Agreement. (Incorporated
by reference to the Registrant's registration statement on Form S-1,
Registration No. 33-90532, effective August 21, 1995.)
4.4* Spatializer-Delaware Incentive Stock Option Plan (1995 Plan).
(Incorporated by reference to the Registrant's registration statement on
Form S-1, Registration No. 33-90532, effective August 21, 1995.)
4.5* Performance Share Escrow Agreements dated June 22, 1992 among Montreal
Trust Company of Canada, Spatializer-Yukon and certain shareholders with
respect to escrow of 2,181,048 common shares of Spatializer-Yukon.
(Incorporated by reference to the Registrant's registration statement on
Form S-1, Registration No. 33-90532, effective August 21, 1995.)
4.6* Spatializer-Delaware 1996 Incentive Plan. (Incorporated by reference to
the Registrant's Proxy Statement dated June 25, 1996 and previously filed
with the SEC.)
4.7* Form of Subscription Agreement for 1995 Private Placements.
4.8* Form of Subscription Agreement and Warrant Agreement for March 7, 1997
Private Placement.
4.9* Modification Agreement for Escrowed Performance Shares.
4.10* Form of 7% Convertible Series A Preferred Stock Subscription Agreement,
Warrant Agreement and Registration Right Agreement (with Form of
Amendment) for April 14, 1998 Private Placement.
4.11 Form of Common Stock Subscription Agreement for December 1999 Private
Placement with CPR (USA) Inc., LibertyView Funds, L.P. and LibertyView
Fund, LLC.
4.12 Form of Secured Non-Negotiable Convertible Promissory Note issued to CPR
(USA) Inc., LibertyView Funds, L.P. and LibertyView Fund, LLC in the
original principal amounts of $112,620.55, $90,096.43 and $22,524.12,
respectively.
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4.13 Form of Agreement Regarding Indebtedness, dated December 29, 1999, among
the Registrant and CPR (USA) Inc., LibertyView Funds, L.P. and LibertyView
Fund, LLC.
4.14 Form of Security Agreement, dated December 29, 1999, among the Registrant
and CPR (USA) Inc., LibertyView Funds, L.P. and LibertyView Fund, LLC.
4.15 Form of Common Stock Subscription Agreement for December 1999 Private
Placement with Bank Insinger de Beaufort.
4.16 Form of Common Stock Subscription Agreement for December 1999 Private
Placement with Romofin AG.
4.17 Form of Common Stock Subscription Agreement for December 1999 Private
Placement with Arab Commerce Bank.
4.18 Form of 10% Convertible Series B Preferred Stock Subscription Agreement
for December 1999 Private Placement with Clarion Finanz, A.B., Carlo
Civelli, Henry R. Mandell, James D. Pace, Jerold H. Rubenstein, Gilbert N.
Segel, Aton Select Fund, Ltd., and Romofin A.G.
4.19 Form of Agreement Regarding Cancellation of Warrants, dated December 29,
1999, among the Registrant, CPR(USA) Inc., LibertyView Funds, L.P.,
LibertyView Fund, LLC, Clarion Finanz, A.G. and Aton Select Fund, Ltd.
4.20 Certificate of Designation of Series B 10% Redeemable Convertible
Preferred Stock (included in Exhibit 4.18).
5.1 Opinion of Brand Farrar & Buxbaum LLP concerning legality of securities
subject to registration.
23.1** Consent of Farber & Hass, independent certified public accountants.
23.2 Consent of Brand Farrar & Buxbaum LLP (included in Exhibit 5.1)
- ----------
* Previously filed.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
We hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any material
information with respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933 (the "Act"), each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) That, for purposes of determining any liability under the Act, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and where applicable each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be
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a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(4) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(5) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of Spatializer
pursuant to the provisions described in Item 6 or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement on Form S-3 to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Los Angeles,
State of California on February 10, 2000.
SPATIALIZER AUDIO LABORATORIES, INC.
By: /s/ Henry R. Mandell
-------------------------------------
Name: Henry R. Mandell
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Henry R. Mandell Chief Executive Officer, February 10, 2000
- ------------------------ Chief Financial Officer,
Henry R. Mandell Secretary and Director
/s/ Carlo Civelli Director February 10, 2000
- -------------------------
Carlo Civelli
/s/ James D. Pace Director February 10, 2000
- -------------------------
James D. Pace
/s/ Gilbert N. Segel Director February 10, 2000
- -------------------------
Gilbert N. Segel
/s/ Stephen W. Desper Director, Vice Chairman of the February 10, 2000
- ------------------------- Secretary Board
Stephen W. Desper
*By:_____________________
Henry R. Mandell,
Attorney-in-Fact
POWER OF ATTORNEY
We, the undersigned officers and directors of Spatializer Audio
Laboratories, Inc., hereby severally constitute Henry R. Mandell our true and
lawful attorney with full power to him, to sign for us and in our names in the
capacities indicated below, the Registration Statement on Form S-3 filed
herewith and any and all amendments (including post-effective amendments) to
said Registration Statement, and generally to do all such things in our name and
on behalf in the capacities indicated below to enable Spatializer Audio
Laboratories, Inc. to comply with the provisions of the Securities Act of 1933,
as amended, and all requirements of the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by our said
attorney, to said Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title
- --------- -----
/s/ Henry R. Mandell Chief Executive Officer, Chief
- -------------------------- Financial Officer, Secretary
Henry R. Mandell and Director
/s/ Stephen W. Desper Director, Vice Chairman of the Board
- --------------------------
Stephen W. Desper
/s/ Carlo Civelli Director
- --------------------------
Carlo Civelli
/s/ James D. Pace Director
- --------------------------
James D. Pace
/s/ Gilbert N. Segel Director
- --------------------------
Gilbert N. Segel
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