THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR THE SECURITIES COMMISSION OF ANY STATE
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THIS SUBSCRIPTION AGREEMENT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES MAY NOT BE
SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES LAWS,
OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF
THE ACT AND UNDER PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
10% CONVERTIBLE SERIES B PREFERRED STOCK
SUBSCRIPTION AGREEMENT
Spatializer Audio Laboratories, Inc.
THIS 10% CONVERTIBLE SERIES B PREFERRED STOCK SUBSCRIPTION AGREEMENT (this
"Agreement") is executed in reliance upon the transaction exemption afforded by
Regulation D as promulgated by the Securities and Exchange Commission ("SEC"),
under the Securities Act of 1933, as amended (the "Act").
This Agreement has been executed by the undersigned parties in connection
with the private placement of the 10% Convertible Series B Preferred Stock,
$0.01 par value per share (the "Preferred Stock") of Spatializer Audio
Laboratories, Inc., a corporation organized under the laws of Delaware, USA (OTC
Bulletin Board symbol "SPAZ"), located at 00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000,
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000, (hereinafter referred to as the "Company") to
the Subscribers listed on Schedule A annexed hereto (each a "Subscriber" or
"Purchaser"). The terms on which the Preferred Stock may be converted into
common stock of the Company, par value $0.01 per share (the "Common Stock") and
the other terms of the Preferred Stock are set forth in the Certificate of
Designation of the 10% Convertible Series B Preferred Stock (Exhibit A annexed
hereto). This Subscription and, if accepted by the Company, the offer and sale
of the Preferred Stock (sometimes referred to as the "Securities"), are being
made in reliance upon the provisions of Regulation D under the Act.
The Closing Date shall be determined in accordance with Section 11 herein.
Each Subscriber hereby represents and warrants to and agrees with the
Company, and the Company hereby represents and warrants to and agrees with each
Subscriber, as follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 Closing. The Company will sell and each Subscriber will buy, in
reliance upon the representations and warranties of the Company and the
Subscribers contained in this Agreement, upon the terms and conditions
hereinafter set forth, shares of Preferred Stock as set forth on Schedule A.
1.2 Cancellation of Existing Indebtedness. As of December 29, 1999,
the Company owes that amount of outstanding principal and accrued interest
thereon (the "Existing Indebtedness") as conclusively indicated for each
Subscriber on Schedule B annexed hereto pursuant to those notes and agreements
listed on Schedule B. The consideration for the issuance of shares of Preferred
Stock to the Subscribers shall be the cancellation of the entire amount of
Existing Indebtedness owed to the Subscribers. The Subscribers and the Company
hereby agree that, upon the issuance of the Preferred Stock to the Subscribers
in accordance with Schedule A, all Existing Indebtedness is completely
extinguished, and that all obligations of the Company with respect to the
Existing Indebtedness are completely satisfied and discharged. This Agreement
constitutes the entire understanding of the Company and the Subscribers with
respect to the Existing Indebtedness, and completely replaces and supercedes all
prior notes, letters, communications, understandings, certificates, instruments,
documents, and agreements, both oral and written, that evidence or relate to any
portion of the Existing Indebtedness, including without limitation those notes,
agreements and understandings listed on Schedule B. All written documents that
evidence or relate to any portion of the Existing Indebtedness shall be null and
void and of no force or effect. Subscribers shall return any original copies of
such documentation to the Company for cancellation.
1.3 Number of Shares. The number of shares of Preferred Stock to be
issued to each Subscriber was determined by dividing (i) that portion of the
Existing Indebtedness owed to such Subscriber as of December 29, 1999 (as set
forth on Schedule B), by (ii) Ten Dollars (US$10.00); provided, however, that
the Company shall not issue to any Subscriber a fraction of a share of Preferred
Stock and shall instead round the number of shares of Preferred Stock issued up
to the next whole share of Preferred Stock.
1.4 Dividends. Dividends will accrue and be paid at the rate of ten
(10%) percent per annum on the Preferred Stock until the Preferred Stock has
been converted, and all accrued dividends thereon shall be payable in Common
Stock of the Company or in cash at the time of conversion at the option of the
Company. For purposes of calculating dividends, each share of Preferred Stock
shall be deemed to have a face value of Ten Dollars (US$10.00).
Section 2. Representations and Warranties of Subscriber. Each Subscriber
hereby acknowledges, represents, warrants and agrees as follows:
2.1 Organization and Authorization. If not an individual, it is duly
incorporated or organized and is validly existing in the state or country of its
incorporation or organization and has
2
all requisite power and authority to purchase and hold the Securities. The
decision to invest and the execution and delivery of this Agreement by
Subscriber, the performance by Subscriber of its obligations hereunder and the
consummation by Subscriber of the transactions contemplated hereby have been
duly authorized and require no other proceedings on the part of Subscriber. The
undersigned has all right, power and authority to execute and deliver this
Agreement. This Agreement has been duly executed and delivered by Subscriber
and, assuming the execution and delivery hereof and acceptance thereof by the
Company, will constitute the legal, valid and binding obligation of Subscriber,
enforceable against Subscriber in accordance with its terms.
2.2 No Conflict. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under, or give rise to
a right of termination, cancellation or acceleration of any material obligation
or to a loss of a material benefit with respect to, any provision of
Subscriber's charter, bylaws, partnership agreement, operating agreement or
other organizational document and any amendments thereto, or any material
mortgage, deed of trust, indenture, lease or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree statute, law,
ordinance, rule or regulation applicable to Subscriber.
2.3 Evaluation of Risks. Subscriber has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of, and bearing the economic risks entailed by, an investment
in the Company and of protecting its interests in connection with this
transaction. Subscriber recognizes that its investment in the Company involves a
high degree of risk and it can afford the complete loss of its investment.
2.4 Independent Counsel. Subscriber acknowledges that it has been
advised to consult with its own attorney regarding legal matters concerning the
Company and to consult with its tax advisor regarding the tax consequences of
acquiring the Securities.
2.5 Disclosure Documentation. Subscriber has received and reviewed
copies of the Company's reports filed under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the Act, including its 10-Ks, 10-Qs, 8-Ks, and
registration statements, filed by the Company since March 1, 1998 (collectively,
the "Reports"). Except for the Reports and this Agreement, Subscriber
acknowledges that it is not relying on any other information relating to the
offer and sale of the Securities. Subscriber acknowledges that the Company has
offered to make available any additional public information that any Subscriber
may reasonably request, including technical information, and other material
information about the Company. Subscriber acknowledges that the Company has
offered its full and unconditional cooperation in making such information
available to Subscriber, and that the Company has recommended that Subscriber
request and review such information prior to making an investment decision.
2.6 Opportunity to Ask Questions. Subscriber has had a reasonable
opportunity to ask questions of and receive answers from the Company concerning
the Company and the offering, and all such questions, if any, have been answered
to the full satisfaction of Subscriber.
3
2.7 This Agreement and Reports Constitute Sole Representations.
Except for the delivery of the Reports and this Agreement, no oral or written
representations or warranties have been made, or oral or written information
furnished, to Subscriber or its advisors, if any, with respect to the offer and
sale of the Securities by the Company, any agent, employee or affiliate of the
Company, or by any other person. Subscriber acknowledges that in entering into
this transaction Subscriber is not relying upon any information, other than that
contained in the Reports, this Agreement and the results of independent
investigation, if any, by Subscriber.
2.8 Subscriber is an Accredited Investor. Subscriber is an
"Accredited Investor" as defined below and represents and warrants it is
included within one or more of the following categories of Accredited Investors:
(i) Any bank as defined in Section 3(a)(2) of the Act, or any
savings and loan associated or other institution as defined in
Section 3(a)(5)A of the Act whether acting in its individual
or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the 1934 Act; any insurance company
as defined in Section 2(13) of the Act; any investment company
registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of
that Act; any Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or
(d) of the Small Business Act of 1958; any plan established
and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political
subdivision, for the benefits of its employees if such plan
has total assets in excess of $5,000,000; and employee benefit
plan within the meaning of Title I of the Employee Retirement
Income Security Act of 1974 if the investment decision is made
by a plan fiduciary, as defined in Section 3(21) of such Act,
which is either a bank, savings and loan association,
insurance company, or registered investment advisor, or if the
employee benefit plan has total assets in excess of $5,000,000
or, if a self-directed plan, with investment decisions made
solely by persons that are accredited investors;
(ii) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(iii) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific
purpose of acquiring the securities offered, with total assets
in excess of $5,000,000;
(iv) Any director, executive officer, or general partner of the
issuer of the securities being offered or sold, or any
director, executive officer, or general partner of a general
partner of that issuer;
4
(v) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase
exceeds $1,000,000;
(vi) Any natural person who had an individual income in excess of
$200,000 in each of the two (2) most recent years or joint
income with that person's spouse in excess of $300,000 in each
of those years and has a reasonable expectation of reaching
that same income level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person
as described in Section 230.506(b)(2)(ii) of Regulation D
under the Act;
(viii) Any entity in which all of the equity owners are accredited
investors;
(ix) Any self-directed employee benefit plan with investment
decisions made solely by persons that are accredited investors
within the meaning of Rule 501 of Regulation D promulgated
under the Act; or
(x) Any private investment company with assets under management in
excess of US$________________________.
2.9 No Registration, Review or Approval. Subscriber acknowledges and
understands that the limited private offering and sale of Securities pursuant to
this Agreement has not been reviewed or approved by the SEC or by any state
securities commission, authority or agency, and is not registered under the Act
or under the securities or "blue sky" laws, rules or regulations of any state.
Subscriber acknowledges, understands and agrees that the Securities are being
offered and sold hereunder pursuant to (i) a private placement exemption to the
registration provisions of the Act pursuant to Section 3(b) or Section 4(2) of
such Act and Regulation D promulgated under such Act, and (ii) a similar
exemption to the registration provisions of applicable state securities laws.
Subscriber understands that the Company is relying upon the truth and accuracy
of the representations, warranties, agreements, acknowledgments and
understandings of Subscriber set forth herein in order to determine the
applicability of such exemptions and the suitability of Subscriber to acquire
the Securities.
2.10 Investment Intent. Without limiting its ability to resell the
Securities pursuant to an effective registration statement, Subscriber is
acquiring the Securities solely for its own account and not with a view to the
distribution, assignment or resale to others. Subscriber understands and agrees
that it may bear the economic risk of its investment in the Securities for an
indefinite period of time.
2.11 No Advertisements. Subscriber is not subscribing for the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
5
2.12 Restricted Securities. Subscriber hereby confirms that it has
been informed that the Securities will be, when issued, restricted securities
under the Act and may not be resold or transferred unless first registered under
the federal securities laws or unless an exemption from such registration is
available with respect to a resale in the United States or in an "offshore
transaction" (as such term is defined in Regulations S under the Act).
Accordingly, Subscriber hereby acknowledges that it is prepared to hold the
Securities for an indefinite period. Subscriber is aware that Rule 144
promulgated by the SEC under the Act is not presently available to exempt the
sale of the Securities from the registration requirements of the Act. Subscriber
is aware that Rule 144 and Regulation S, promulgated under the Act, permit
limited public resales of securities acquired in non-public offerings, subject
to the satisfaction of certain conditions. Subscriber understands that under
Rule 144 the conditions include, among other things: the availability of certain
current public information about the issuer, the resale occurring not fewer than
one (1) year or two (2) years, as applicable, after the party has purchased and
paid for the securities to be sold, the sale being through a broker in an
unsolicited "broker's transaction" and the amount of securities being sold
during any three-month period not exceeding specified volume limitations.
Subscriber acknowledges and understands that the Company may not be satisfying
the current public information requirement of Rule 144 at the time Subscriber
wishes to sell the Securities, or other conditions under Rule 144 which are
required of the Company. Subscriber understands that Regulation S, as currently
in effect, allows resales in private and public transactions in certain
circumstances, only in qualified offshore transactions and only when certain
holding periods of at least one (1) year have been fulfilled. Subscriber
understands that he or she may be precluded from selling any of the Securities
under Rule 144 or Regulation S even if the holding periods have been satisfied
either because the other conditions may not have been fulfilled or because
markets for resales do not exist. Prior to its acquisition of the Securities,
Subscriber acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Subscriber has
such knowledge and experience in financial and business matters as to make it
capable of utilizing said information to evaluate the risks of the prospective
investment and to make an informed investment decision.
2.13. Authorized Shares. Subscriber hereby acknowledges that, as of
the Closing Date, the Company may not be able to reserve from its authorized but
unissued shares of Common Stock a sufficient number of shares of Common Stock to
permit the exercise in full of all of the outstanding Warrants. Subscriber
understands that the Company is currently taking steps to increase the number of
authorized shares of Common Stock.
Section 3. Representations and Warranties of the Company. For so long as
any shares of Preferred Stock held by any Subscriber remain outstanding, the
Company acknowledges, represents, warrants and agrees as follows:
3.1 Organization/Qualification. The Company is a corporation duly
organized and validly existing under the laws of the State of Delaware and is in
good standing under such laws. The Company has all requisite corporate power and
authority to own, lease and operate its properties and assets, and to carry on
its business as presently conducted. The Company is qualified to do business as
a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of
6
its business requires such qualification, except where failure to so qualify
would not have a material adverse effect on the Company.
3.2 Accuracy of Reports and Information. The Company is in
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the 1934 Act, and shall maintain such
status on a timely basis. The Company has registered its Common Stock pursuant
to Section 12 of the 1934 Act and the Common Stock is listed and trades on the
OTC Bulletin Board. The Company has filed all material required to be filed
pursuant to all reporting obligations, under either Section 13(a) or 15(d) of
the 1934 Act for a period of at least twelve (12) months immediately preceding
the offer and sale of the Securities (or for such shorter period that the
Company has been required to file such material).
3.3 SEC Filings/Full Disclosure. For a period of at least twelve
(12) months immediately preceding the Closing Date, to the Company's knowledge:
(i) none of the Company's filings with the SEC contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances under
which they were made, not misleading; and (ii) the Company has timely (after
giving effect to any filings on Form 12b-25) filed all requisite forms, reports
and exhibits thereto with the SEC.
There is no fact known to the Company (other than general economic
conditions known to the public generally) that has not been publicly disclosed
by the Company or disclosed in writing to Subscribers which (i) could reasonably
be expected to have a material adverse effect on the condition (financial or
otherwise) or on earnings, business affairs, properties or assets of the
Company, or (ii) could reasonably be expected to materially and adversely affect
the ability of the Company to perform its obligations pursuant to this
Agreement.
3.4 Authorization. The Company has all requisite corporate right,
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Company, the
authorization, sale, issuance and delivery of the Securities and the performance
of the Company's obligations hereunder has been taken. This Agreement has been
duly executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company enforceable in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and to limitations of public
policy as they may apply to the indemnification provisions set forth in this
Agreement. Upon their issuance and delivery pursuant to this Agreement, the
Securities will be validly issued, fully paid and non-assessable and will be
free of any liens or encumbrances; provided, however, that the Securities are
subject to restrictions on transfer under state and/or federal securities laws.
The issuance and sale of the Securities will not give rise to any preemptive
right or right of first refusal or right of participation on behalf of any
person.
3.5 No Conflict. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under, or give rise to
a right of termination, cancellation or acceleration of any
7
material obligation or to a loss of a material benefit with respect to, any
provision of the Company's Certificate of Incorporation and any amendments
thereto, Bylaws, or any material mortgage, deed of trust, indenture, lease or
other agreement or instrument, permit, concession, franchise, license, judgment,
order, decree statute, law, ordinance, rule or regulation applicable to the
Company, its properties or assets, which would have a material adverse effect on
the Company's business and financial condition.
3.6 No Undisclosed Liabilities or Events. The Company has no
liabilities or obligations other than those disclosed in the Reports, this
Agreement or those incurred in the ordinary course of the Company's business
since December 31, 1998, and which individually or in the aggregate, do not or
would not have a material adverse effect on the properties, business, condition
(financial or otherwise), results of operations or prospects of the Company. No
event or circumstance has occurred or exists with respect to the Company or its
properties, business, condition (financial or otherwise), results of operations
or prospects, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed.
3.7 No Default. Except as set forth in this Agreement, the Reports
or on Schedule C annexed hereto, The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its property
is bound, and neither the execution, nor the delivery by the Company, nor the
performance by the Company of its obligations under this Agreement, including
the conversion or exercise provision of the Securities, will conflict with or
result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under, any material indenture,
mortgage, deed of trust or other material agreement applicable to the Company or
instrument to which the Company is a party or by which it is bound or any
statute or the Certificate of Incorporation or Bylaws of the Company, or any
decree, judgment, order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or its properties, or the Company's
listing agreement for its Common Stock.
3.8 Absence of Events of Default. Except as set forth in this
Agreement, the Reports or on Schedule C annexed hereto, no default, as defined
in the respective agreement to which the Company is a party, and no event which,
with the giving of notice or the passage of time or both, would become a
default, has occurred and is continuing, which would have a material adverse
effect on the Company's business, properties, prospects, condition (financial or
otherwise) or results of operations.
3.9 Governmental Consent, etc. No consent, approval or authorization
of, or designation, declaration or filing with, any governmental authority on
the part of the Company is required in connection with the valid execution and
delivery of this Agreement, or the offer, sale or issuance of the Securities, or
the consummation of any other transaction contemplated hereby, except as may be
required by applicable securities laws.
8
3.10 Intellectual Property Rights. Except as disclosed in the
Reports, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as presently conducted in the
Reports. To the Company's knowledge, and except as disclosed in the Reports,
neither the Company nor its products is infringing or will infringe any
trademark, trade name, patent right, copyright, license, trade secret or other
similar right of others currently in existence; and there is no claim being made
against the Company regarding any trademark, trade name, patent, copyright,
license, trade secret or other intellectual property right which could have a
material adverse effect on the business or financial condition of the Company.
3.11 Material Contracts. Except as set forth in the Reports, the
agreements to which the Company is a party described in the Reports are valid
agreements, in full force and effect, and the Company is not in material breach
or material default under any of such agreements.
3.12 Litigation. Except as disclosed in the Reports, there is no
action, proceeding or investigation pending, or to the Company's knowledge
threatened, against the Company which might result, either individually or in
the aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Company. The Company is not a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality.
3.13 Title to Assets. Except as set forth in Reports, the Company
has good and marketable title to all properties and material assets described in
the Reports as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest other than such as are not
material to the business of the Company.
3.14 Subsidiaries. Except as disclosed in the Reports, the Company
does not presently own or control, directly or indirectly, any interest in any
other corporation, partnership, association or other business entity.
3.15 Required Governmental Permits. The Company is in possession of
and operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities which are material to the conduct of its business, all of which are
valid and in full force and effect.
3.16 Listing. The Company will use its best efforts to maintain the
listing of its Common Stock on the OTC Bulletin Board or another organized
United States market or quotation system. The Company has not received any
notice, oral or written, regarding continued listing and, as long as the
Preferred Stock is outstanding, the Company will take no action which would
impact their continued listing or eligibility of the Company for such listing.
3.17 Other Outstanding Securities/Financing Restrictions. Except as
disclosed in the Reports, the Company has no outstanding restricted shares, or
shares of Common Stock sold under Regulation S, Regulation D or outstanding
under any other exemption from registration, which are available for sale as
unrestricted ("free trading") stock.
9
3.18 Registration Alternative. The Company covenants and agrees that
for so long as any of the Common Stock issued upon conversion of the Preferred
Stock remain outstanding and continue to be "restricted securities" within the
meaning of Rule 144 under the Act, the Company shall permit resales of the
underlying Common Stock pursuant to Rule 144 under the Act. The Company and
Subscribers shall provide the Company's transfer agent any and all papers
necessary to complete the transfer under Rule 144, including, but not limited
to, opinions of counsel to such transfer agent, and the Company shall continue
to file all material required to be filed pursuant to Sections 13(a) or 15(d) of
the 0000 Xxx.
3.19 Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, $0.01 par value per share, of
which 43,033,477 shares were outstanding as of December 14, 1999, and 1,000,000
shares of preferred stock, $0.01 par value per share, none of which are
outstanding as of the date hereof. All issued and outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable.
Section 4. Covenants of the Company. For so long as any shares of
Preferred Stock held by Subscribers remain outstanding, the Company
acknowledges, represents, warrants and agrees as follows:
(i) The Company shall use its best efforts to reserve, prior to
February 15, 2000, a sufficient number of shares of Common
Stock from its authorized but unissued shares of Common Stock
to permit the exercise in full of all of the outstanding
Warrants. The Company is currently organizing a stockholder
meeting to increase the number of authorized shares of Common
Stock of the Company, and has filed with the SEC prior to the
date hereof a preliminary proxy statement in connection with
such stockholder meeting.
(ii) It will maintain the listing of its Common Stock on the OTC
Bulletin Board.
(iii) It will permit Subscribers to exercise its right to convert
the Preferred Stock by telecopying an executed and completed
Notice of Conversion (in the form of Exhibit B annexed hereto)
to the Company and delivering the original Notice of
Conversion and the certificates representing the Preferred
Stock to the Company by overnight courier. Each business date
on which a Notice of Conversion is telecopied to and received
by the Company in accordance with the provisions hereof shall
be deemed a "Conversion Date". The Company will transmit the
certificates representing shares of Common Stock issuable upon
conversion of any Preferred Stock (together with the
certificates representing the Preferred Stock not so
converted) to the Subscriber via overnight courier, by
electronic transfer or otherwise within three (3) business
days after the Conversion Date if the Company has received the
original Notice of Conversion and Preferred Stock Certificate
being converted by such date. In addition to any other
remedies which may be available to Subscribers, in the event
that the Company fails to effect delivery of such shares of
Common Stock within such three (3) business day period, the
Subscriber will
10
be entitled to revoke the relevant Notice of Conversion by
delivering a notice to such effect to the Company whereupon
the Company and the Subscriber shall each be restored to their
respective positions immediately prior to delivery of such
Notice of Conversion. The Notice of Conversion and Preferred
Stock representing the portion of the Preferred Stock
converted shall be delivered as follows:
If to the Company:
Spatializer Audio Laboratories, Inc.
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx Xxxxx, XX 00000-0000
Fax: (000) 000-0000
Attn: Xxxxx X. Xxxxxxx, Interim Chief Executive Officer
If to Subscribers, at the respective addresses set forth on
Schedule A.
Section 5. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Securities to the public without registration, the
Company agrees to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Act, at all times
after the effective date on which the Company becomes subject
to the reporting requirements of the Act or the 1934 Act;
(ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934
Act;
(iii) furnish to Subscribers forthwith, upon request, a written
statement by the Company as to its compliance with the
reporting requirements of said Rule 144, and of the Act and
the 1934 Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of
the Company and other information in the possession of or
reasonably obtainable by the Company as any Subscriber may
reasonably request in availing itself of any rule or
regulation of the SEC allowing Subscribers to sell any such
Securities without registration.
Section 6. Indemnification. The Company and Subscribers agree to indemnify
the other and to hold the other harmless from and against any and all losses,
damages, liabilities, costs and expenses (including reasonable attorneys' fees
and costs) which the other may sustain or incur in connection with the breach by
the indemnifying party of any representation, warranty or covenant made by it in
this Agreement.
Section 7. Restrictions on Conversion of Preferred Stock. Subscribers
acknowledge
11
that any shares of Preferred Stock issued to it hereunder shall not be
convertible into shares of Common Stock at any time prior to one year after the
Closing Date.
Section 8. Mandatory Conversion. In the event the Preferred Stock has not
been converted three (3) years from the Closing Date, at that time the Preferred
Stock shall be automatically converted (and all dividends owed thereon shall be
paid by the Company) as if Subscribers voluntarily elected such conversion in
accordance with the procedure, terms and conditions set forth in this Agreement.
Section 9. Registration or Exemption Requirements. Subscribers acknowledge
and understand that the Securities may not be resold or otherwise transferred
except in a transaction registered under the Act and any applicable state
securities laws, or unless an exemption from such registration is available.
Subscribers understand that the Securities will be imprinted with a legend that
prohibits the transfer of the Securities unless (i) they are registered or such
registration is not required, and (ii) if the transfer is pursuant to an
exemption from registration other than Rule 144 under the Act and, if the
Company shall so request in writing, an opinion of counsel reasonably
satisfactory to the Company is obtained to the effect that the transaction is so
exempt.
Section 10. Legend. The certificates representing the Securities,
including shares of Common Stock to be issued upon conversion of the Preferred
Stock, shall bear a legend restricting transfer under the Act, such legend to be
substantially as follows:
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
SUCH SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN THE
UNITED STATES OR TO U.S. PERSONS IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER THE ACT WHICH, EXCEPT IN THE CASE OF
AN EXEMPTION PURSUANT TO RULE 144 UNDER THE ACT, IS CONFIRMED IN A
LEGAL OPINION SATISFACTORY TO THE COMPANY.
The certificates representing these Securities, and each certificate issued in
transfer thereof, will also bear any legend required under any applicable state
securities law.
Section 11. Closing Date. The Closing Date hereunder shall be December 29,
1999, or such earlier date on or before December 31, 1999 on which the terms and
conditions hereof are satisfied (the "Closing Date"), and all acts, deliveries
and confirmations comprising the Closing Date regardless of chronological
sequence, shall be deemed to occur contemporaneously and simultaneously, and
such acts, deliveries, or confirmations shall not be effective unless and until
the last of same shall have occurred, and as shall be mutually agreed upon as to
time and place.
Section 12. Conditions to the Company's Obligation to Sell. Subscribers
understand that the Company's obligation to sell the Preferred Stock is
conditioned upon:
12
(i) The receipt and acceptance by the Company of this Subscription
Agreement and all Exhibits thereto, duly executed by the
Subscribers;
(ii) Delivery by Subscribers of the all written documentation
evidencing or relating to the Existing Indebtedness for
cancellation as payment in full for the purchase of the
Securities;
(iii) All representations and warranties of Subscribers set forth in
this Agreement shall remain true and correct as of the Closing
Date; and
(iv) The sale and issuance of the Preferred Stock shall be legally
permitted by all laws and regulations to which Subscribers and
the Company are subject.
Section 13. Conditions to Subscribers' Obligation to Purchase. The Company
understands that Subscribers' obligation to purchase the Preferred Stock is
conditioned upon:
(i) Acceptance by Subscribers of a satisfactory Subscription
Agreement and all duly executed Exhibits hereto for the sale
of the Securities;
(ii) Delivery of the original Preferred Stock;
(iii) All representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Dates;
and
(iv) At the Closing Date, the sale and issuance of the Preferred
Stock shall be legally permitted by all laws and regulations
to which the Company and Subscribers are subject.
Section 14. Miscellaneous.
14.1 Governing Law/Jurisdiction. This Agreement will be construed and
enforced in accordance with and governed by the laws of the State of California
except for matters arising under the Act, without reference to principles of
conflicts of law. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the State of California or
the state courts of the State of California in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any state or country having jurisdiction over
the party against whom such judgment was obtained, and each party hereby waives
any defenses available to it under local law and agrees to the enforcement of
such a judgment. Each party to this Agreement irrevocably consents to the
service of process in any such proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its address set
forth herein. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
13
14.2 Confidentiality. The Company and Subscribers agree to keep
confidential and not to disclose to or use for the benefit of any third party
the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law. If for any reason the transactions contemplated
by this Agreement are not consummated, each of the parties hereto shall keep
confidential any information obtained from any other party, except information
publicly available or in such party's domain prior to the date hereof, and
except as required by court order and shall promptly return to the other parties
all schedules, documents, instruments, work papers or other written information,
without retaining copies thereof, previously furnished by it as a result of this
Agreement or in connection herewith.
14.3 Facsimile/Counterparts. Except as otherwise stated herein, in
lieu of the original, a facsimile transmission or copy of the original shall be
as effective and enforceable as the original. This Agreement may be executed in
counterparts which shall be considered an original document and which together
shall be considered a complete document.
14.4 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
14.5 Entire Agreement. This Agreement and Exhibits hereto constitute
the entire agreement between Subscribers and the Company with respect to the
subject matter hereof. This Agreement may be amended only by a writing executed
by all parties.
14.6 Reliance by Company. Each Subscriber represents to the Company
that its representations and warranties contained herein are complete and
accurate and may be relied upon by the Company in determining the availability
of an exemption from registration under federal and state securities laws in
connection with a private offering of securities.
14.7 Legal Fees and Expenses. Each of the parties shall pay its own
fees and expenses (including the fees of any accountants, appraisers or others
engaged by such party) in connection with this Agreement and the transactions
contemplated hereby.
14.8 Authorization. Each of the parties hereto represents that the
individual executing this Agreement on its behalf has been duly and
appropriately authorized to execute the Agreement.
14.9 Restriction on Trading. Each Subscriber hereby agrees that,
during the ten (10) trading days immediately preceding any Conversion Date (as
defined in the New Note) and the ten (10) trading days immediately following the
issuance of Common Stock in respect of such conversion, it shall not, whether
directly or indirectly: (i) buy or sell, or make or accept any offer to buy or
sell, any shares of capital stock of the Company; or (ii) buy or sell, or make
or accept any offer
14
to buy or sell, any derivative security based on or relating to any capital
stock of the Company (including without limitation options to buy or sell shares
of capital stock of the Company). Each Subscriber hereby further agrees not to
engage in any short sales of any shares of capital stock of the Company for so
long as any of its shares of Preferred Stock remain issued and outstanding. No
Subscriber shall be entitled to convert its Preferred Stock into Common Stock
until ten (10) consecutive trading days have elapsed during which it has not
engaged in any of the transactions prohibited by this Section 14.9.
[Remainder of Page Intentionally Left Blank]
15
IN WITNESS WHEREOF, this Agreement was duly executed on and as of
the date first written below.
Agreed to and Accepted on this
29th day of December, 1999:
SPATIALIZER AUDIO LABORATORIES, INC., a
Delaware corporation
By: /s/ Xxxxx X. Xxxxxxx
----------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Interim Chief Executive Officer
CLARION FINANZ, A.G., a Swiss
corporation
By: /s/ Xxxxx Xxxxxxx
------------------------------------
Name: Xxxxx Xxxxxxx
Title: Director
/s/ Carlo Ciuelli
----------------------------------------
XXXXX XXXXXXX, an individual
/s/ Xxxxx X. Xxxxxxx
----------------------------------------
XXXXX X. XXXXXXX, an individual
/s/ Xxxxx X. Xxxx
----------------------------------------
XXXXX X. XXXX, an individual
16
________________________________________
XXXXXX X. XXXXXXXXXX, an individual
________________________________________
XXXXXXX X. XXXXX, an individual
ATON SELECT FUND, LTD., a Swiss
corporation
By: /s/ Jan Barcinowshi
------------------------------------
Name: Jan Barcinowshi
Title: Director
ROMOFIN A.G., a Swiss corporation
By: /s/ X.X. Xxxxxxxx
------------------------------------
Name: X.X. Xxxxxxxx
Title: President
17
SCHEDULE A
Number of Shares
Subscriber Address of Preferred Stock
---------- ------- ------------------
Clarion Finanz, A.G., a Swiss Xxxxxxxxxxxxxx 000 76,651
corporation 0000, Xxxxxx, Xxxxxxxxxxx
Xxxxx Xxxxxxx, an individual Xxxxxxxxxxxxxx 000 8,259
0000, Xxxxxx, Xxxxxxxxxxx
Xxxxx X. Xxxxxxx, an individual 00000 Xxxxxxx Xxxxxxxxx, 000
Xxxxx 000
Xxxxxxxx Xxxxx, XX 00000
Xxxxx X. Xxxx, an individual 551
Xxxxxx X. Xxxxxxxxxx, an individual 000
Xxxxxxx X. Xxxxx, an individual 550
Aton Select Fund, Ltd., Xxxxxxxxxxxxxx 000 5,336
a Swiss corporation 0000, Xxxxxx, Xxxxxxxxxxx
Romofin A.G., a Swiss corporation Xxxxxxxxxxxxxx 000 00,000
0000, Xxxxxx, Xxxxxxxxxxx
======
Total: 102,967
SCHEDULE B
Existing
Note, Letter or Other Agreement Indebtedness
Subscriber Regarding Existing Indebtedness As of December 29, 1999
---------- ------------------------------- -----------------------
Clarion Finanz, A.G., Nonnegotiable Unsecured Promissory Note, $ 766,506.85
Swiss corporation issued on April 14, 1998, in the original
principal amount of $650,000.
Xxxxx Xxxxxxx, an Nonnegotiable Secured Promissory Note, $ 82,582.19
individual issued on December 14, 1998 (participant in
the original principal amount of $75,000).
Xxxxx X. Xxxxxxx, an Nonnegotiable Secured Promissory Note, $ 5,508.22
individual issued on December 14, 1998 (participant in
the original principal amount of $5,000).
Xxxxx X. Xxxx, an Nonnegotiable Secured Promissory Note, $ 5,508.22
individual issued on December 14, 1998 (participant in
the original principal amount of $5,000).
Xxxxxx X. Xxxxxxxxxx, Nonnegotiable Secured Promissory Note, $ 5,508.22
an individual issued on December 14, 1998 (participant in
the original principal amount of $5,000).
Xxxxxxx X. Xxxxx, an Nonnegotiable Secured Promissory Note, $ 5,498.63
individual issued on December 14, 1998 (participant in
the original principal amount of $5,000).
Aton Select Fund, ________________________________ in the $ 53,356.16
Ltd., a Swiss original principal amount of $50,000.
corporation
Romofin A.G., a Swiss ________________________________ in the $ 105,178.08
corporation original principal amount of $100,000.
==============
Total: $ 1,029,646.57
SCHEDULE C
1. The Company has failed to pay at the stated maturity on December 31, 1998,
the principal and accrued interest due under that certain Nonnegotiable
Unsecured Promissory Note, issued April 14, 1998, by the Company to
Clarion Finanz, A.G. in the original principal amount of US$650,000.00.
This note is being restructured on or before January 1, 2000, by agreement
between the parties.
2. The Company has failed to pay at the stated maturity on November 30, 1999,
the principal and accrued interest due under that certain Nonnegotiable
Secured Promissory Note, issued December 14, 1998, by the Company to Xxxxx
Xxxxxxx and certain officers and directors of the Company in the original
principal amount of US$95,000.00. This note is being restructured on or
before January 1, 2000, by agreement between the parties.
EXHIBIT A
Certificate of Designation of the 10% Convertible Series B Preferred Stock
CERTIFICATE OF DESIGNATION
OF
SERIES B 10% REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
SPATIALIZER AUDIO LABORATORIES, INC.
Pursuant to Section 151 of the General Corporation Law ("GCL") of the
State of Delaware, and the Bylaws of SPATIALIZER AUDIO LABORATORIES, INC., a
Delaware corporation (the "Company"), we the undersigned, being President and
Secretary, respectively, DO HEREBY CERTIFY, that the following resolution was
duly adopted by the Board of Directors on December 24, 1999:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by the Company's Certificate of Incorporation and Bylaws, the Board of
Directors hereby provides for the issuance of a series of Preferred Stock of the
Company consisting of 150,000 authorized shares which shall have the voting
powers, designations, preferences and relative participating, optional or other
rights, if any, and the qualifications, limitations, or restrictions, set forth
in such Certificate of Incorporation, and in addition thereto, the following:
Section 1. Designation and Amount. The series of Preferred Stock hereby
created shall be designated as the "Series B Preferred Stock", shall have a par
value of $0.01 per share and the number of shares constituting the Series B
Preferred Stock shall be 150,000 shares. The Series B Preferred Stock shall have
a stated value of US$10.00 per share, with a 10% per annum dividend as set forth
herein.
Section 2. Rank. The Series B Preferred Stock shall rank: (i) prior to all
of the Company's Common Stock, par value $0.01 per share ("Common Stock"), (ii)
prior to any class or series of capital stock of the Company hereafter created
(unless such future class specifically, by its terms, ranks on parity with the
Series B Preferred Stock), and (iii) junior to any class or series of capital
stock of the Company created before the date hereof (including without
limitation the Series A Preferred Stock of the Company), in each case as to
distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
Section 3. Dividends. The Series B Preferred Stock will bear a 10% per
annum cumulative dividend, payable out of assets legally available therefor, at
the "Conversion Date" (as defined below) in cash or Common Stock at the
"Conversion Price" (as defined below), at the Company's option. No dividends
shall be paid on the Common Stock or any stock issued pursuant to Section 9
prior to the payment of dividends on Series B Preferred Stock.
Section 4. Sinking Funding. No provisions shall be made for any sinking
fund.
Section 5. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Company,
either voluntary or involuntary, the holders of Series B Preferred Stock shall
be entitled to receive an amount per share equal to the sum of (i) US$10.00 for
each outstanding share of Series B Preferred Stock, plus (ii) an amount equal to
all accrued and unpaid dividends which shall accrue through the Conversion Date
(the "Liquidation Preference"). If upon the occurrence of such event, the assets
and funds available to be distributed among the holders of the Series B
Preferred Stock shall be insufficient to permit the payment to such holders of
the full preferential amounts due to such holders, then the entire assets and
funds of the Company legally available for distribution shall be distributed
among the holders of the Series B Preferred Stock on a pro rata basis.
(b) Notwithstanding anything set forth above, holders of Series B
Preferred Stock shall not be entitled to receive more than the Liquidation
Preference in the event of any corporate reorganizations or any other
transaction (or series of related transactions) that results in the transfer of
more than fifty percent (50%) of the outstanding voting power of the Company,
and such transactions shall not constitute a liquidation, dissolution, or
winding up of the Company if the successor assumes that obligations of the
Company with respect to the Series B Preferred Stock. A sale, conveyance, or
other disposition of all or substantially all of the Company's assets, shall
constitute a liquidation, dissolution or winding up within the meaning of this
paragraph and shall entitle the holders of the Series B Preferred Stock to the
Liquidation Preference, to the extent available above. The purchase or
redemption by the Company of stock of any class, in any number permitted by law,
for the purpose of this paragraph, shall not be regarded as a liquidation,
dissolution or winding up of the Company.
Section 6. Conversion. The record holders of this Series B Preferred Stock
shall have conversion rights as follows (the "Conversion Rights").
(a) Right to Convert.
(1) The holders may not convert shares of Series B Preferred
Stock until December 29, 2000. On or after December 29, 2000, the holders shall
have the right, subject to Section 6(a)(2) below, to convert, in whole or in
part, shares of Series B Preferred Stock into shares of Common Stock based on
the conversion price per share defined below (the "Conversion Price"). The
number of shares of Common Stock to be issued to the holder upon conversion
shall be determined by (i) multiplying the number of shares of Series B
Preferred Stock to be converted by US$10.00, and (ii) dividing this product by
the Conversion Price, provided, however, that the Company shall not issue to any
holder a fraction of a share of Common Stock and shall instead round the number
of shares of Common Stock issued up to the next whole share of Common Stock.
(2) Upon an election by a holder to convert shares of Series B
Preferred Stock into shares of Common Stock, the Company shall have the right to
pay cash to such holder in lieu of issuing shares of Common Stock. If the
Company elects to pay cash rather than issuing shares of Common Stock, the
Company shall pay to the holder US$10.00 for each share of Series B Preferred
Stock that such holder had elected to convert to shares of Common Stock. The
holder shall surrender the shares of Series B Preferred Stock to the Company for
cancellation.
(3) The "Conversion Price" shall be determined on the
Conversion Date, and shall equal Ninety percent (90%) of the average of the
closing bid prices of Common Stock for the ten (10) consecutive trading days
ending on the trading day immediately preceding the Conversion
2
Date, provided, however, that the Conversion Price shall under no circumstances:
(i) be lower than the average of the closing bid prices of Common Stock for the
ten (10) consecutive trading days ending one (1) trading day prior to December
29, 1999 (the "Floor Price"); or (ii) be higher than 200% of the Floor Price
(the "Ceiling Price"). The "closing bid price" shall mean the last bid price for
Common Stock on the OTC Bulletin Board, as reported by any authoritative source
acceptable to the Company.
(4) In the event of any stock split, reverse stock split,
stock dividend, reclassification or similar event affecting the Common Stock
(each an "Adjustment Transaction"), then both the Floor Price and the Ceiling
Price shall be adjusted by multiplying them by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such Adjustment Transaction, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such Adjustment
Transaction.
(b) Mechanics of Conversion. Conversion of the Series B Preferred
Stock to Common Stock may be exercised by holder telecopying an executed and
completed notice of conversion ("Notice of Conversion") to the Company, and
delivering the original Notice of Conversion and the certificate representing
the shares of Series B Preferred Stock to the Company by hand or by overnight
courier within three (3) business days of exercise. Each date on which a Notice
of Conversion is telecopied to and received by the Company in accordance with
the provisions hereof shall be deemed a "Conversion Date". The Company will
transmit the certificates representing the Common Stock issuable upon conversion
of all or any part of the shares of Series B Preferred Stock (together with any
certificates for replacement shares of Series B Preferred Stock not previously
converted but included in the original certificate presented for conversion) to
the holder via overnight courier within three (3) business days after the
Company has received the original Notice of Conversion and certificate for the
shares of Series B Preferred Stock being so converted. The Notice of Conversion
and certificate representing the portion of the shares of Series B Preferred
Stock converted shall be delivered as follows:
To the Company: Spatializer Audio Laboratories, Inc.
00000 Xxxxxxx Xxxx., Xxxxx 000
Xxxxxxxx Xxxxx, XX 00000-0000
Attention: Xxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or to such other person at such other place as the Company shall designate to
the holder in writing.
(c) Lost or Stolen Certificates. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any certificates
representing shares of Series B Preferred Stock, and (in the case of loss, theft
or destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of the certificate(s), if mutilated, the
Company shall execute and deliver new certificate(s) of like tenor and date.
However, the Company shall not be obligated to re-issue such lost or stolen
certificates if holder contemporaneously requests the Company to convert such
Series B Preferred Stock into Common Stock.
(d) Mandatory Conversion. The Series B Preferred Stock is subject to
mandatory
3
conversion after three (3) years from the Closing Date, at which time all shares
of Series B Preferred Stock will automatically be converted upon the terms set
forth in Section 6(a) at the Conversion Price in effect at such time. Mandatory
conversion shall not occur in the event of the occurrence of one or both of the
following at the time of such mandatory conversion: (x) the Company is unable,
or admits in writing its inability, to pay its debts, or is not paying its debts
generally as they come due, or has made any assignment for the benefit of
creditors; or (y) the Company has commenced, or there has been commenced against
the Company, any case, proceeding, or other action seeking to have an order for
relief entered with respect to the Company, or to adjudicate the Company as a
bankrupt or insolvent.
(e) Reservation of Stock Issuable upon Conversion. As of the date
hereof, the Company may not be able to reserve from its authorized but unissued
shares of Common Stock a sufficient number of shares of Common Stock to permit
the conversion in full of all shares of Series B Preferred Stock. The Company is
currently organizing a stockholder meeting to increase the number of authorized
shares of Common Stock of the Company, and has filed with the SEC prior to the
date hereof a preliminary proxy statement in connection with such stockholder
meeting. After such time as the Company has increased the number of authorized
shares of Common Stock, it shall at all times thereafter reserve and keep
available out of its authorized but unissued shares of Common Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all then outstanding shares of Series B Preferred Stock at the
Floor Price.
(f) Conversion Adjustments.
(1) Adjustment Due to Merger, Consolidation, Etc. If, prior to
the conversion of all Series B Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of another class or
classes of stock or securities of the Company or another entity, or other
property, then each holder of Series B Preferred Stock shall, upon being given
at least ten (10) business days advance written notice of such transaction,
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities or other property as would have been issuable or payable with respect
to or in exchange for the number of shares of Common Stock purchasable and
receivable upon the conversion of Series B Preferred Stock held by such holder
immediately prior to the merger, consolidation, exchange of shares,
recapitalization or reorganization. Appropriate provisions shall be made with
respect to the rights and interests of the holders of the Series B Preferred
Stock to the end that the provisions hereof shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock or securities
thereafter deliverable upon the conversion thereof. The Company shall not effect
any transaction described in this subsection unless (1) each holder of Series B
Preferred Stock has been given at least ten (10) business days advance written
notice of such transaction, and (2) the resulting successor or acquiring entity
(if not the Company) assumes by written instrument the obligation to deliver to
the holders of the Series B Preferred Stock such shares of stock and/or
securities or other property as the holders of the Series B Preferred Stock
would be entitled to receive pursuant to this Section 6(f).
(2) No Fractional Shares. If any adjustment under this Section
would create a fractional share, or a right to acquire a fractional share, of
any security, such fractional share
4
shall be disregarded and the number of shares of such security issuable upon
conversion shall be the next higher number of shares.
Section 7. Voting Rights. The holders of the Series B Preferred Stock
shall have no voting power whatsoever, except with respect to any amendment to
the Company's Certificate of Incorporation which would have an adverse effect on
the Series B Preferred Stock or as otherwise provided by the Delaware
Corporation Laws.
Section 8. Status of Converted Stock. In the event any shares of Series B
Preferred Stock shall be converted pursuant to Section 6 hereof, or if the
Company has elected to pay cash to such holder pursuant to Section 6(a)(2) in
lieu of issuing shares of Common Stock, the shares of Series B Preferred Stock
so converted (or for which cash was paid in lieu of conversion) shall be
cancelled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Company as Series B
Preferred Stock.
Section 9. Preference Rights. Nothing contained herein shall be construed
to prevent the Board of Directors of the Company from issuing one or more series
of Preferred Stock with dividend and/or liquidation preferences junior to the
dividend and liquidation preferences of the Series B Preferred Stock.
Section 10. Restrictions on Trading. Each holder of Series B Preferred
Stock shall agree that, during the ten (10) trading days immediately preceding
the Conversion Date, it shall not, whether directly or indirectly: (i) buy or
sell, or make or accept any offer to buy or sell, any shares of capital stock of
the Company; or (ii) buy or sell, or make or accept any offer to buy or sell,
any derivative security based on or relating to any capital stock of the Company
(including without limitation options to buy or sell shares of capital stock of
the Company). Each holder of Series B Preferred Stock shall also agree not to
engage in any short sales of any shares of capital stock of the Company for so
long as any of its shares of Series B Preferred Stock remain issued and
outstanding. No holder of Series B Preferred Stock shall be entitled to convert
its Series B Preferred Stock into Common Stock until ten (10) consecutive
trading days have elapsed during which such holder has not engaged in any of the
transactions prohibited by this Section 10.
[Remainder of Page Intentionally Left Blank]
5
IN WITNESS THEREOF, the Company has caused the undersigned to sign this
Certificate of Designation this 24th day of December, 1999.
SPATIALIZER AUDIO LABORATORIES, INC.
By:_____________________________________
Name: Xxxxx X. Xxxxxxx
Title: Interim Chief Executive
Officer
Attest:
By:________________________________
Name: Xxxxx X. Xxxxxxx
Title: Secretary
6
EXHIBIT B
Form of Notice of Conversion
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to convert
10% Convertible Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert Preferred Stock
Certificate No. ______ into shares of Common Stock of Spatializer Audio
Laboratories, Inc. (the "Company") according to the conditions hereof, as of the
date written below.
The undersigned represents and warrants that:
(i) all offers and sales by the undersigned of the shares of Common Stock
issuable to the undersigned upon conversion of the Preferred Stock shall be made
pursuant to an exemption from registration under the Securities Act of 1933, as
amended (the "Act"), or pursuant to registration of the Common Stock under the
Act, subject to any restrictions on sale or transfer set forth in the 10%
Convertible Series B Preferred Stock Subscription Agreement between the Company
and the holder of the Preferred Stock submitted herewith for conversion;
(ii) the undersigned has not engaged in any transaction or series of
transaction that is a part of or a plan or scheme to evade the registration
requirements of the Act; and
(iii) upon conversion pursuant to this Notice of Conversion, the
undersigned will not own or be deemed to beneficially own (within the meaning of
the Securities Exchange Act of 1934, as amended) 4.99% or more of the then
issued and outstanding shares of the Company.
___________________________________ ________________________________________
Conversion Date Applicable Conversion Price
___________________________________ ________________________________________
Number of Common Shares upon Dollar Amount of Conversion
Conversion
___________________________________ ________________________________________
Signature Print Name
Address: ________________________________________
________________________________________
________________________________________
The original certificate(s) of Preferred Stock and Notice of Conversion
must be received by the Company by the third (3rd) business day following the
Conversion Date.
