-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M4kmk/jvvhycHzRzjPgWWszE9J/QL0xOSIvQF9wkSSpWpssMs+K+xQTwp1ercUpC O6eK8x4tAiC5QDtcG5qcsQ== 0001005477-99-005959.txt : 19991221 0001005477-99-005959.hdr.sgml : 19991221 ACCESSION NUMBER: 0001005477-99-005959 CONFORMED SUBMISSION TYPE: PRES14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000125 FILED AS OF DATE: 19991220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPATIALIZER AUDIO LABORATORIES INC CENTRAL INDEX KEY: 0000890821 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 954484725 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRES14A SEC ACT: SEC FILE NUMBER: 000-26460 FILM NUMBER: 99777199 BUSINESS ADDRESS: STREET 1: 20700 VENTURA BOULEVARD SUITE 134 STREET 2: STE 1100 CITY: WOODLAND HILLS STATE: CA ZIP: 90034 BUSINESS PHONE: 3102273370 MAIL ADDRESS: STREET 1: 20700 VENTURA BLVD. #134 CITY: WOODLAND HILLS STATE: CA ZIP: 90034 PRES14A 1 PRELIMINARY PROXY STATEMENT SCHEDULE 14A PRIVATE (Rule 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant Filed by a Party other than the Registrant |_| Check the appropriate box: |X| Preliminary Proxy Statement |_| Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |_| Definitive Proxy Statement |_| Definitive Additional Materials |_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 SPATIALIZER AUDIO LABORATORIES, INC. ------------------------------------------------ (Name of Registrant as Specified in Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): |_| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. |_| $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). |_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ---------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ---------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ---------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ---------------------------------------------------------------------- (5) Total fee paid: ---------------------------------------------------------------------- |_| Fee paid previously with preliminary materials. ---------------------------------------------------------------------- |_| Check box if any part of the fee if offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. ---------------------------------------------------------------------- (1) Amount Previously Paid: ---------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ---------------------------------------------------------------------- (3) Filing Party: ---------------------------------------------------------------------- (4) Date Filed: ---------------------------------------------------------------------- January ___, 2000 Dear Stockholder: On behalf of the Board of Directors (the "Board"), I cordially invite you to a special meeting of the stockholders (the "Annual Meeting") of Spatializer Audio Laboratories, Inc. (the "Company") which will be held on January 25, 2000 at 10:30 a.m. at the Hilton Hotel, located at 6360 Canoga Avenue, in Woodland Hills, California. I hope that you will be able to attend in person. Following the formal business of the Annual Meeting, management will be available to respond to your questions. At the Annual Meeting, stockholders will be asked to consider and vote upon the following matters: (1) To approve an increase in the total amount of the Company's authorized common stock, $.01 par value per share (the "Common Stock"), from 50,000,000 authorized shares of Common Stock, to 65,000,000 authorized shares of Common Stock, and (2) The nomination and election of three persons to serve as Directors of the Company until the Annual Meeting of Stockholders to be held in 2003, and (3) To consider and vote on such other matters as may properly be presented incident to the conduct of the Annual Meeting or any adjournment or postponement thereof. After careful consideration and consultation with its legal and financial advisors, the Board has approved, and recommends that the stockholders vote FOR the increase in the total amount authorized Common Stock of the Company, and that the stockholders vote FOR the Directors nominated by the Board. At the Annual Meeting, each holder of record of shares of Common Stock as of December 27, 1999 (the "Record Date"), will be entitled at the meeting to one (1) vote on each matter properly brought before the Annual Meeting. The increase in the Company's authorized Common Stock (the "Capital Stock Increase") requires the approval of the majority of the outstanding shares of Common Stock. Holders of Common Stock are not entitled to dissenters' rights in the event the Capital Stock Increase is approved. The election of directors requires that each person nominated as a director receive a plurality of the votes cast pursuant to Article II, Section 3 of the Bylaws of the Company. The Board of Directors believes the increase in the authorized Common Stock of the Company will allow it to have greater flexibility in financing the Company's continuing operations. For a further discussion of the purpose and effect of the increase in the total amount of the Company's authorized Common Stock, see "INCREASE IN THE COMPANY'S TOTAL AUTHORIZED COMMON STOCK-Purpose and Effect of Increase in Total Authorized Common Stock of the Company" in the accompanying Proxy Statement. Details of the Capital Stock Increase proposal, and the names and qualifications of the nominees for Directors of the Company and other important information are set forth in the accompanying Proxy Statement and should be considered carefully by stockholders. I hope that you will attend the Annual Meeting. Whether or not you plan to attend the Annual Meeting and regardless of the number of shares of stock you own, please complete, date and sign the enclosed proxy card and return it promptly in the accompanying envelope. You may, of course, attend the Annual Meeting and vote in person, even if you have previously returned your proxy card. Sincerely, SPATIALIZER AUDIO LABORATORIES, INC. HENRY R. MANDELL Interim Chief Executive Officer, Secretary and Chief Financial Officer NOTICE OF SPECIAL MEETING OF STOCKHOLDERS Notice is hereby given that Spatializer Audio Laboratories, Inc. (the "Company") will hold a Annual Meeting of Stockholders on January 25, 2000 at 10:30 a.m., at the Hilton Hotel, located at 6360 Canoga Avenue, in Woodland Hills, California, for the following purposes: Proposal I: To approve the proposal of the Board of Directors to increase the total amount of the Company's authorized common stock, $.01 par value per share (the "Common Stock") from 50,000,000 shares to 65,000,000 shares; and Proposal II: To elect three Directors of the Company to serve until the Annual Meeting of Stockholders to be held in 2003; and To act upon other matters that may properly come before the meeting. The Board of Directors has fixed December 27, 1999 as the Record Date for the determination of the stockholders entitled to notice of, and to vote at, the Annual Meeting or any adjournment or postponement of the Annual Meeting. At the Annual Meeting, each share of Common Stock represented at the meeting will be entitled to one (1) vote on each matter properly brought before the Annual Meeting. The increase in the Company's authorized Common Stock (the "Capital Stock Increase") requires the approval of the majority of the outstanding shares of Common Stock. Holders of Common Stock are not entitled to dissenters' rights in the event the Capital Stock Increase is approved. The election of directors requires that each person nominated as a director receive a plurality of the votes cast pursuant to Article II, Section 3 of the Bylaws of the Company. Your attention is directed to the accompanying Proxy Statement. Stockholders who do not expect to attend the Annual Meeting in person are requested to date, sign and mail the enclosed proxy as promptly as possible in the enclosed envelope. DATED: January ___, 2000 BY ORDER OF THE BOARD OF DIRECTORS HENRY R. MANDELL Interim Chief Executive Officer, Secretary and Chief Financial Officer YOUR BOARD OF DIRECTORS HAS REVIEWED AND CONSIDERED THE TERMS AND CONDITIONS OF PROPOSALS I AND II. THE BOARD BELIEVES THAT PROPOSALS I AND II ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED PROPOSALS I AND II AND RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THEIR APPROVAL. IT IS IMPORTANT THAT ALL STOCKHOLDERS VOTE. WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE. IN ORDER TO FACILITATE THE PROVIDING OF ADEQUATE ACCOMMODATIONS, PLEASE INDICATE ON THE PROXY WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING. PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS JANUARY 25, 2000 The accompanying proxy is solicited by the Board of Directors of Spatializer Audio Laboratories, Inc. (the "Company") for use at the Annual Meeting of Stockholders of the Company (the "Annual Meeting") to be held on January 25, 2000, at 10:30 a.m., at the Hilton Hotel, located at 6360 Canoga Avenue, in Woodland Hills, California, and at any adjournments or postponements of the Annual Meeting. This proxy statement and accompanying proxy will be mailed beginning on or about January ____, 2000, to give holders of record on December 27, 1999 (the "Record Date"), of the Company's common stock, $.01 par value per share (the "Common Stock"), an opportunity to vote at the Annual Meeting. Proposal I: To approve the proposal of the Board of Directors increase the total amount of authorized Common Stock of the Company from 50,000,000 shares to 65,000,000 shares; and Proposal II: To elect three Directors of the Company to serve until the Annual Meeting of Stockholders to be held in 2003; and To act upon other matters that may properly come before the meeting. Voting In voting, please specify your choices by marking the appropriate spaces on the enclosed proxy, signing and dating the proxy and returning it in the accompanying envelope. If no directions are given and the signed proxy is returned, the proxy holders will vote the shares in favor of Proposals I and II and at their discretion on any other matters that may properly come before the Annual Meeting. In situations where brokers are prohibited from exercising discretionary authority for beneficial owners who have not returned proxies to the brokers (so-called "broker non-votes"), the affected shares will be counted for purposes of determining the presence or absence of a quorum for the transaction of business but will not be included in the vote totals. Therefore, a failure by a stockholder to return a proxy and indicate their vote on Proposals I and II will, in effect, be treated as a non-vote on Proposal I and Proposal II, since shares cannot be counted as voting "FOR" Proposal I or Proposal II if a proxy is not returned. The approval of Proposal I requires that the Company's Certificate of Incorporation be amended. Under the Delaware General Corporations Law, Section 242, amendment of the Company's Certificate of Incorporation requires the affirmative vote of a majority of the outstanding shares of Common Stock. THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" PROPOSAL I TO AMEND THE CERTIFICATE OF INCORPORATION TO EFFECT THE INCREASE IN THE TOTAL AMOUNT OF THE COMPANY'S AUTHORIZED COMMON STOCK, $.01 PAR VALUE. The election of directors requires that each person nominated as a director receive a plurality of the votes cast pursuant to Article II, Section 3 of the Bylaws of the Company. THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" PROPOSAL II TO ELECT THREE DIRECTORS OF THE COMPANY. A STOCKHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A STOCKHOLDER) TO ATTEND AND ACT FOR HIM AND ON HIS BEHALF AT THE MEETING OTHER THAN THE PERSONS DESIGNATED IN THE ACCOMPANYING FORM OF PROXY. TO EXERCISE THIS RIGHT, THE STOCKHOLDER MAY INSERT THE NAME OF THE DESIRED PERSON IN THE BLANK SPACE PROVIDED IN THE PROXY AND STRIKE OUT THE OTHER NAMES OR MAY SUBMIT ANOTHER PROXY. THE SHARES REPRESENTED BY PROXIES IN FAVOR OF MANAGEMENT WILL BE VOTED ON ANY BALLOT (SUBJECT TO ANY RESTRICTIONS THEY MAY CONTAIN) IN FAVOR OF THE MATTERS DESCRIBED IN THE PROXY. Revocability of Proxies Any stockholder giving a proxy has the power to revoke it at any time before the proxy is voted. In addition to revocation in any other manner permitted by law, a proxy may be revoked by instrument in writing executed by the stockholder or by his attorney authorized in writing, or, if the stockholder is a corporation, under its corporate seal or by an officer or attorney thereof duly authorized, and deposited at the executive office of the Company located at 20700 Ventura Boulevard, Suite 140, Woodland Hills, California, 91364, or at Harris Trust Company of California located at 601 South Figueroa, 49th Floor, Los Angeles, California 90017 (the "Exchange Agent"), at any time up to and including the last business day preceding the day of the meeting, or any adjournment thereof, or with the chairman of the meeting on the day of the meeting. Attendance at the Annual Meeting will not in and of itself constitute revocation of a proxy. Outstanding Common Stock Holders of record of Common Stock at the close of business on December 27, 1999 ("Record Date") will be entitled to receive notice of and vote at the meeting. Currently the Company is authorized to issue 50,000,000 shares of Common Stock, par value of $.01 US per share ("Common Stock") and 1,000,000 shares of Preferred Stock, par value of $.01 US per share ("Preferred Stock"). On the Record Date, there were [__________] of Common Stock and no shares of Preferred Stock issued and outstanding. The holders of Common Stock are entitled to one (1) vote for each share held. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information (except as otherwise indicated by footnote) as to shares of Common Stock owned as of December 14, 1999, or which can be acquired in sixty days, by (i) each person known by management to beneficially own more than five percent (5%) of the Company's outstanding Common Stock, (ii) each of the Company's directors, and officers, (iii) all executive officers and directors as a group, including individuals who were directors in 1999 but who have resigned or are not seeking re-election. Name and address of Beneficial Amount and Nature of Percent of Class Owner (1) Beneficial Ownership (5) Directors and Officers Carlo Civelli (2) (4) (5) 4,120,958 9.5% Stephen W. Desper (3) (4) (5) 1,955,628 4.5% Steven D. Gershick (4) (5) (7) 1,326,144 3.0% Scot E. Land 113,947 * Henry Mandell (6) (7) 176,667 * James D. Pace (4) (5) 326,997 * Jerold H. Rubinstein (4) 170,000 * Gilbert N. Segel (4) 167,000 * All directors and executive officers as a group (12 persons) (5) (7) 8,357,341 19.4% * Indicates that the percentage of shares beneficially owned does not exceed one percent (1%) of the class. - -------------------------------------------------------------------------------- (1) Each of the directors and officers named can be reached at the Company's executive offices located at 20700 Ventura Boulevard, Suite 140, Woodland Hills, California, 91364, except for Carlo Civelli, whose address is Seefeldstrasse 214, 8034 Zurich, Switzerland. The persons named in the table have sole voting and investment power with respect to all shares shown to be beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table. Mr. Land and Mr. Rubinstein resigned as directors in February and September of 1999 respectively. (2) Carlo Civelli controls Clarion Finanz AG, a non-reporting investment company. Holdings of Mr. Civelli and Clarion Finanz AG are combined, and include all shares of the Company held of record or beneficially by them, and all additional shares over which he either currently exercises full or partial control, without duplication through attribution. (3) Does not include 37,853 shares held by Sparkle Co. on behalf of the Estate of Stephen Desper's deceased father, Ira Desper, as to which Mr. Desper disclaims any direct or indirect beneficial interest or control. (4) Includes an aggregate of 3,640,557 escrowed performance shares held as of December 14, 1999, as follows: Carlo Civelli, 1,112,704 shares; Stephen W. Desper, 1,543,740 shares; Steven D. Gershick, 674,516 shares; Gilbert N. Segel 88,000; James D. Pace 101,597; and Jerold H. Rubinstein 120,000. (5) Calculation includes options to purchase 2,109,467 shares exercisable at various prices from $0.09 to $3.26 per share, and expiring on various dated from February, 2000 to October 2004. (6) Includes 166,667 options held by Mr. Mandell, exercisable at various prices from $.125 to $1.00 with varying expiration dates of which the final such expiration date is October, 2004. (7) In November the Board approved, subject to the finalization of appropriate documentation, reallocations of equity and the issuance of additional options. The transactions affect Mr. Gershick and Mr. Mandell. The transactions will be reflected in the definitive proxy. Dissenting Stockholders Rights Dissenting Stockholders have no appraisal rights under Delaware law or under the Company's Certificate of Incorporation or Bylaws in connection with the Capital Stock Increase. Solicitation The Company will bear the entire cost of the solicitation of proxies, including preparation, assembly and mailing of this proxy statement, the proxy and any additional material furnished to stockholders. Proxies may be solicited by directors, officers and a small number of regular employees of the Company personally or by mail, telephone or telegraph, but such persons will not be specially compensated for such services. Copies of solicitation material will be furnished to brokerage houses, fiduciaries and custodians which hold shares of Common Stock of record for beneficial owners for forwarding to such beneficial owners. The Company may reimburse persons representing beneficial owners for their costs of forwarding the solicitation material to such owners. YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR MARKED PROXY PROMPTLY SO YOUR SHARES CAN BE REPRESENTED, EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. PROPOSAL I. INCREASE IN THE COMPANY'S TOTAL AUTHORIZED COMMON STOCK General The Board of Directors of the Company has authorized a vote by the stockholders on the amendment of the Certificate of Incorporation of the Company to increase the total amount of the Company's authorized Common Stock, from 50,000,000 shares to 65,000,000 shares (the "Capital Stock Increase"). Currently, the Company is authorized to issue 50,000,000 shares of Common Stock, par value of $0.01 US per share, and 1,000,000 shares of Preferred Stock, par value of $0.01 US per share ("Preferred Stock"). The Board is recommending this proposal to assure that the Company has additional equity available to support its capital requirements, including through equity financing, and to keep the Company viable as a going concern. Proposal I, if adopted, will be effected pursuant to an amendment of the Certificate of Incorporation (the "Amended Certificate"), which has been unanimously approved by the Board of Directors and recommended to the stockholders for their approval at the Annual Meeting. A copy of the Amended Certificate is attached as Exhibit A. However, under the Amended Certificate, the Board of Directors will have the authority to determine, in its sole discretion, that it is in the best interest of the Company to abandon the Capital Stock Increase at any time prior to its approval by the stockholders. The Capital Stock Increase, if it occurs, may affect any given stockholder's proportionate equity interest in the Company, but will not affect the relative rights, preferences, privileges or priorities of any stockholder. Purpose and Effect of Increase in Total Authorized Common Stock of the Company The principal effect of the Capital Stock Increase will be to increase the total amount of authorized Common Stock of the Company from 50,000,000 shares to 65,000,000 shares. The respective voting rights and other rights that accompany the Common Stock and the Preferred Stock will not be altered by the Capital Stock Increase, and the par value of the Common Stock will remain at $0.01 per share. Consequently, the Board of Directors effectively will have the authority to issue 15,000,000 more shares of Common Stock than it had the authority to issue prior to the Capital Stock Increase. After giving effect to the Capital Stock Increase, the number of outstanding shares of Common Stock (as of the Record Date) would remain the same but the number of shares of Common Stock which would be available for issuance by the Company would increase to 65,000,000 shares with the result that authorized but unissued shares available to the Company would be approximately [___________] shares. All authorized but unissued shares of Common Stock or Preferred Stock will be available for issuance from time to time for any proper purpose approved by the Board of Directors including the financing of future operations (including issuances in connection with stock-based employee benefit plans, stock splits or dividends and issuances to raise capital or effect acquisitions). There are currently no arrangements, agreements and understandings for the issuance and the use of the additional shares of the authorized capital stock of the Company (other than issuances permitted or required under the Company's stock-based employee benefit plans or awards made pursuant to those plans). The Board of Directors does not presently intend to seek further stockholder approval of any future issuances of shares unless such approval is required by law or the rules of The Nasdaq Stock Market. Stockholders do not have any preemptive or similar rights to subscribe for or purchase any additional shares of Common Stock that may be issued in the future, and therefore, future issuances of Common Stock or Preferred Stock may, depending on the circumstances, have a dilutive effect on the earnings per share, voting power and other interests of the existing stockholders. In reaching its decisions to submit the Capital Stock Increase Proposal to the stockholders, the Board balanced the dilution which would result if all of the additional Common Stock is issued with the positive contribution which will be provided from the additional capital which the Company intends to have available for Company use from the issuance of the additional equity. The Board concluded that the Capital Stock Increase is important to the Company since it will enable the Company to continue its operations on a positive basis. The proposal could have an anti-takeover effect, although that is not its intention. For example, if the Company were the subject of a hostile takeover attempt, it could try to impede the takeover by issuing shares of Common Stock, thereby diluting the voting power of the other outstanding shares and increasing the potential cost of the takeover. The availability of this defensive strategy to the Company could discourage unsolicited takeover attempts, thereby limiting the opportunity for the Company's stockholders to realize a higher price for their shares than is generally available in the public markets. The Board of Directors is not aware of any attempt, or contemplated attempt, to acquire control of the Company, and this proposal is not being presented with the intent that it be utilized as a type of anti-takeover device. The Board of Directors believes that the Capital Stock Increase is in the best interests of the Company and its stockholders. In this regard, the Board of Directors believes the Capital Stock Increase will allow the Company to finance ongoing activities and is therefore critical to its ability to continue operations and attract new capital. The Board of Directors also believes the Capital Stock Increase may enhance the Company's flexibility in its future financing and capitalization needs. Changes in Stockholders' Equity The Company's stated capital, which consists of the par value per share of Common Stock multiplied by the number of shares of Common Stock issued, will not be immediately affected by the Capital Stock Increase. However, if the Board of Directors issued additional Common Stock made available as a result of the Capital Stock Increase the Company's stated capital could be reduced. As of the Record Date the Company's stated capital was [_______]. Correspondingly, the Company's capital in excess of par value, which consists of the difference between the Company's stated capital and the aggregate amount paid to the Company upon the issuance by the Company of all currently outstanding Common Stock, will be increased by approximately ___________. The following table illustrates the principal effects of the Capital Stock Increase discussed in the preceding paragraphs:
Prior to Capital After Capital Stock Increase Stock Increase and Amendment to and Amendment Number of Shares of Common Stock Certificate to Certificate ------------------- ---------------- Authorized 50,000,000 65,000,000 Outstanding [________] [________] Reserved for future issuance under stock compensation plans [________] [________] Available for future issuance by action of the Board of Directors (after giving effect to the above reservations) [________] [________]
Assuming the Amended Certificate is approved by the stockholders at the Annual Meeting, the Amended Certificate will be filed with the Secretary of State of the State of Delaware immediately after the Annual Meeting and the Amended Certificate and the proposed Capital Stock Increase would become effective upon the Effective Date. However, there can be no assurance that the Capital Stock Increase will increase the Company's ability to finance ongoing activities or that it will not adversely impact the market price of the Common Stock or that the Capital Stock Increase will otherwise have any of the effects described herein. Federal Income Tax Consequences The following is a summary of the material anticipated federal income tax consequences of the Capital Stock Increase to stockholders of the Company. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Department Regulations (the "Regulations") issued pursuant thereto, and published rulings and court decisions in effect as of the date hereof, all of which are subject to change. This summary does not take into account possible changes in such laws or interpretations, including amendments to the Code, applicable statutes, Regulations and proposed Regulations or changes in judicial or administrative rulings, some of which may have retroactive effect. No assurance can be given that any such changes will not adversely affect the discussion of this summary. In particular, and without limiting the foregoing, this summary does not consider the federal income tax consequences to stockholders of the Company in light of their individual investment circumstances or to holders subject to special treatment under the federal income tax laws (for example, tax exempt entities, life insurance companies, regulated investment companies and foreign taxpayers). In addition, this summary does not address any consequences of the Capital Stock Increase under any state, local or foreign tax laws. As a result, it is the responsibility of each stockholder to obtain and rely on advice from his, her or its personal tax advisor as to: (i) the effect on his, her or its personal tax situation of the Capital Stock Increase, including the application and effect of state, local and foreign income and other tax laws; (ii) the effect of possible future legislation and Regulations; and (iii) the reporting of information required in connection with the Capital Stock Increase on his, her or its own tax returns. It will be the responsibility of each stockholder to prepare and file all appropriate federal, state and local tax returns. The Company believes that the Capital Stock Increase will not result in any taxable gain or loss to stockholders or the Company for federal income tax purposes. THE FEDERAL INCOME TAX DISCUSSION WITH RESPECT TO THE CAPITAL STOCK INCREASE SET FORTH ABOVE IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY AND IS NOT INTENDED AS TAX ADVICE TO ANY PERSON OR ENTITY. NO RULING FROM THE INTERNAL REVENUE SERVICE OR OPINION OF COUNSEL WILL BE OBTAINED REGARDING THE FEDERAL INCOME TAX CONSEQUENCES TO THE STOCKHOLDERS OF THE COMPANY AS A RESULT OF THE CAPITAL STOCK INCREASE. ACCORDINGLY, ALL STOCKHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS TO ANY FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCE APPLICABLE TO THEM WHICH COULD RESULT FROM THE CAPITAL STOCK INCREASE. Interests of Certain Persons in the Capital Stock Increase The Company is not currently aware of any arrangements which, as a result of the Capital Stock Increase, would benefit an officer, director or associate of such persons, whether such persons are currently nominated to serve as directors for the coming fiscal year or whether such persons served as directors during the last fiscal year. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION. PROPOSAL II. NOMINATION AND ELECTION OF DIRECTORS The current Bylaws of the Company provide for a Board of Directors of no less than three. The Company currently has five positions on its Board of Directors. The Board of Directors is classified into three classes, Directors in each class being elected to serve for three years. Of the current Board, two Directors have terms expiring in 2001 and three are being nominated for election for directorships with terms ending in 2003. At this Annual Meeting, Management intends to nominate Carlo Civelli, Stephen W. Desper and Henry R. Mandell to be elected for three year terms expiring in 2003. The elected Directors will continue in office until such Director's successor is elected and has been qualified, or until such Director's earlier death, resignation or removal. The Bylaws state that in any election of Directors, the persons receiving a plurality of the votes cast, up to the number of Directors to be elected in such election, shall be deemed to be elected. Shares represented by proxies marked "withhold authority" for one or more nominees will be counted as a negative vote. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE NAMED BELOW. The following table sets forth certain information with respect to the nominees for directors and certain executive officers of the Company as of December 14, 1999: NAME AGE POSITION - ---- --- -------- Nominees for Terms Ending 2003: Stephen W. Desper 57 Director -- 7/92 to date. Chairman of the Board -- 7/92 to 12/95. Vice Chairman of the Board -- 12/95 to date. Principal Holder. Carlo Civelli 51 Director -- 3/93 to date. Vice President Finance, Europe -- 8/91 to 3/95. Principal Holder. Henry R. Mandell 43 Interim Chief Executive Officer and Secretary -- 9/98 to date. Chief Financial Officer -- 3/98 to date. Directors with Terms ending in 2001: James D. Pace 44 Director - 2/95 to date. Member of Compensation Committee - 2/95 to date. Gilbert N. Segel 67 Director - 5/95 to date. Member of Audit Committee -- 5/95 to date. Directors with Terms Ending in 2000: Steven D. Gershick 44 Director -- 7/92-11/99. Chairman of the Board since 12/95. President and Chief Executive Officer -- 7/92 to 9/98. President of Operating Subsidiary Desper Products, Inc. ("DPI") -- 3/97 to 1/98. Chief Executive Officer of DPI -- 10/91 to 9/98. President of Operating Subsidiary MultiDisc Technologies, Inc. ("MDT") -- 9/97 to 9/98. Chief Executive Officer of MDT -- 6/96 to 9/98. Member of Audit Committee - 8/91 to 11/99. CARLO CIVELLI. Director since March 1993. VP Finance -- Europe from August 1991 to March 1995. Has extensive experience in financing emerging public companies. Managing director of Clarion Finanz AG, Zurich, Switzerland, for more than the last five years. Director and Financial Consultant to Clarion Finanz AG. STEPHEN W. DESPER. Vice Chairman of the Board, Inventor. Devoted his full time for a number of years to developing and refining Spatializer(R) technology. Recording engineer, over twenty (20) years experience; Director of Engineering for The Beach Boys Organization. Acoustician, Acoustic Design and Noise Control Engineer. December, 1991 to December, 1995, Chairman of Spatializer Audio Laboratories, Inc. Since December, 1995 Vice Chairman of Spatializer Audio Laboratories, Inc. Inventor and President of Desper Products; Inc. ("DPI") from June 1986 to October, 1991. Vice President and Director of Research, DPI from October 1991 to December 1996. STEVEN D. GERSHICK. Chairman of the Board, President and Chief Executive Officer. Director since July 1992. Resigned all positions except Chairman of the Board, September 1998. Since December 1995, Chairman of Spatializer Audio Laboratories, Inc. Certified Public Accountant, KPMG Peat Marwick from May 1977 through June, 1980. From 1981 through September, 1991, the principal of a Certified Public Accounting firm specializing in business consulting and entertainment business management. Since October 1, 1991, CEO of DPI. From October, 1991 to June, 1996, President of DPI. From March 1997 to January 1998, resumed role as President of DPI. Since June 1996, CEO of MDT. President of MDT since September 1997. Since December 1991, President and CEO of Spatializer Audio Laboratories, Inc. Practicing C.P.A. to October 1991. HENRY R. MANDELL. Interim Chief Executive Officer and Secretary since September 1998; Chief Financial Officer since March 1998; Senior Vice President, Finance from March 1998 until September 1998. Executive Vice President and Chief Financial Officer of The Sirena Apparel Group, Inc. from November 1990 to January, 1998 (The Sirena Apparel Group filed for protection under Chapter 11 of the Bankruptcy Code in June of 1999). Senior Vice President of Finance and Administration for Media Home Entertainment, Inc. from April 1985 to November 1990. Director of Finance and Accounting for Oak Media Corporation from June 1982 to April 1985. Senior Corporate Auditor for Twentieth Century Fox Film Corporation from June 1981 to June 1982. Senior Auditor for Arthur Young and Company from August 1978 to June 1981, where he qualified as a Certified Public Accountant. JAMES D. PACE. Director since February 1995. Director of DPI since July 1992. For more than the last five years, Mr. Pace has specialized in the introduction and distribution of new technologies into the professional recording and film industries. He is an electronics engineer with broad experience in recording and live sound reinforcement. GILBERT N. SEGEL. Director since May 1995. Mr. Segel has spent more than thirty (30) years as an independent business manager representing musical artists, film actors and entertainment industry entrepreneurs. Since 1985, he has concentrated on his personal investments and serves as a director of various private business and charitable enterprises. Resignations of Certain Directors Mr. Land and Mr. Rubinstein resigned as Directors on March 1999 and November 1999 respectively. Mr. Land and Mr. Rubinstein did not resign as a result of any disagreement with the Board of Directors. Compensation of Directors None of the Company's Directors received any cash compensation or other arrangements for services provided in their capacity as Directors. However, the Company has granted stock options to Directors in that capacity. Under the 1995 Stock Option Plan, each director who is not an employee of the Company is entitled to an automatic annual grant of an option to purchase 50,000 shares of Common Stock, which are granted as options and are available for grant under the 1995 Stock Option Plan. If the recipient has received a grant in the last two years, the actual grant is delayed until the person is eligible. Employee Directors may receive such a grant at the discretion of the Board of Directors. The Company issued such options to its non-employee directors in April of 1999. Activities of the Board of Directors and its Committees Members of the Board of Directors are elected by the holders of the Common Stock of the Company and represent the interests of all stockholders. The Board of Directors meets periodically to review significant developments affecting the Company and to act on matters requiring Board approval. Although the Board of Directors delegates many matters to others, it reserves certain powers and functions to itself. During fiscal 1999, the Board of Directors of the Company, which consisted of seven (7) members, had 4 formal meetings. All incumbent Directors of the Company were present at, or participated in taking actions for, one hundred percent (100%) of the total number of meetings of the Board of Directors of the Company and the Committees on which he served. Committees of the Board of Directors As of December 14, 1999, standing committees of the Board of Directors of the Company included an Audit Committee and a Compensation and Stock Option Committee. Audit Committee The Audit Committee of the Company's Board of Directors currently consists of Messrs. Segel and Mandell. Mr. Segel is a non-employee Director of the Company and Mr. Mandell currently serves as a Director and the Interim Chief Executive Officer, Chief Financial Officer and Secretary of the Company. This committee is directed to review the scope, cost and results of the independent audit of the Company's books and records, the results of the annual audit with Management and the internal auditors and the adequacy of the Company's accounting, financial, and operating controls; to recommend annually to the Board of Directors the selection of the independent auditors; to consider proposals made by the Company's independent auditors for consulting work; and to report to the Board of Directors, when so requested, on any accounting or financial matters. The Audit Committee of the Board of Directors held one meeting during fiscal 1999. Compensation and Stock Committee The Compensation and Stock Option Committee of the Company (the "Compensation Committee") currently consists of Messrs. Pace and Segel, each of whom is a non-employee director of the Company and a "disinterested person" with respect to the plans administered by such committee, as such term is defined in Rule 16b-3 adopted under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (collectively, the "Exchange Act"). The Compensation Committee reviews and approves annual salaries, bonuses and other forms and items of compensation for senior officers and employees of the Company. Except for plans that are, in accordance with their terms or as required by law, administered by the Board or another particularly designated group, the Compensation Committee also administers and implements all of the Company's stock option and other stock-based and equity-based benefit plans (including performance-based plans), recommends changes or additions to those plans, and reports to the Board of Directors on compensation matters. The Compensation Committee held one meeting in 1999. To the extent required by law, a separate committee of disinterested parties administers the 1996 Incentive Plan. No Compensation Committee interlock relationships existed in 1999. Report of Compensation Committee General The Company's Compensation Committee is responsible for formulating and overseeing the general executive and employee compensation policies for the Company. Its responsibilities include determination of the compensation of senior executive officers and administration of the annual and long-term incentive plans and stock option plans of the Company unless such plans, in accordance with their terms, are administered by the Board or another particularly designated group. Specific decisions relating to compensation earned by or awarded to the senior officers of the Company, including the chief executive officer and the other four highest paid executive officers (collectively, the "Named Executive Officers") are governed by the Compensation Committee. The Compensation Committee was formed in June, 1995. The Compensation Committee has adopted the following policy framework on which it intends to base the Company's compensation program and its decisions: - Efforts should be made to achieve base salaries for the senior executives which are competitive with compensation at the Company's peer group of companies, not withstanding the significantly larger revenues at many of the entities in the peer group. - Annual incentives should consider Company performance and individual contribution. Efforts should be made to establish parity among individuals with similar responsibilities and performance. - The long-term incentive program should be performance-based and emphasize stock options to ensure that long-term compensation primarily depends on increases in stock price. Other awards, including restricted stock, performance units or a combination may be utilized to provide incentives that might otherwise be reflected in stock option grants. - Stock option grants (or other performance-based long-term incentives that may be awarded in the future) should be competitive with peer practices to allow the Company to attract and retain senior personnel and to reflect the Company's operating growth and performance. - The relative mix of annual and long-term incentives should reflect levels within the organization, so that senior executives receive a greater proportion of long-term incentives and others receive compensation that emphasizes annual compensation and incentives. To implement these policies, the Compensation Committee will take into account current market data and compensation trends for similar enterprises, compare corporate performance of the Company to the performance of a selected peer group, gauge achievement of corporate and individual objectives and consider the overall effectiveness of the Company's compensation programs. To assist in formulating its operating framework, in December, 1995 the Compensation Committee engaged an independent executive compensation consultant to assess the current competitive position of the Company's executive compensation program and to assist the Company in implementing an ongoing long- term incentive program. Given the Company's reduced operations and financial constraints, no independent adviser was engaged during 1998 or 1999. However, the Compensation Committee has continued to consider comparisons of current compensation levels at the Company with other small capital publicly traded companies. In addition, broader published compensation surveys of compensation levels for executives holding similar positions at comparable industrial entities or organizations were used to establish competitive norms. These assessments indicated that actual cash compensation (salary plus annual incentives) of the Named Executive Officers were below total cash compensation levels of the peer group. Annual Compensation The Compensation Committee annually reviews base salary levels of executives and employees annually, subject to any provisions or limitations included in their Employment Agreements and in the context of the above policies. The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the Internal Revenue Code of 1986, as amended (the "Code"). Section 162(m) creates a new limit on the deductibility of compensation paid to certain officers. With respect to the Company, the covered officers are the Chief Executive Officer and the next four most highly compensated persons in office at the end of the year. Compensation paid to these officers in excess of $1,000,000 per person, that is not performance-based, cannot be claimed by the Company as a tax deduction. It is the Compensation Committee's intention to continue to utilize performance-based compensation and to conform such compensation to these limits. In order to conform to these new limitations, the Company is seeking stockholder approval of the material terms of the performance goals under the Plan. CEO Compensation The Compensation for Henry R. Mandell, as interim CEO of the Company, was determined in accordance with the guidelines discussed above. Based on the performance of the Company and the compensation of the CEOs at several peer companies, no annual bonus was paid in 1999 and base salary was set at $175,000. Conclusion The Compensation Committee believes that the policies and concepts discussed above will be an effective strategy since a significant portion of compensation to the Named Executive Officers will be based on the operating results of the Company, the commensurate results for its stockholders, and the need to attract and retain senior management, technical and operating personnel as the Company matures and the technology and market conditions change and evolve. At the same time, it is intended that the policies will encourage responsible management for both long-term and short-term results and will further the interests of the Company's stockholders. In implementing its policies, the Compensation Committee intends to base its review on the experience of its members, on Company and management information, and on discussions with and information compiled by various independent compensation consultants and other appropriate sources. Submitted by the Compensation Committee of the Company's Board of Directors, James D. Pace Gilbert N. Segel Performance Graph of Company Stock The following Performance Graph reflects a comparison of the performance of the Company's Common Stock to the common stock of other peer group companies and to the NASDAQ Market Index: [The following table was depicted as a line graph in the printed material.] COMPARISON OF CUMULATIVE TOTAL RETURN OF COMPANY, PEER GROUP AND BROAD MARKET -------------- FISCAL YEAR ENDING ------------ COMPANY/INDEX/MARKET 8/22/95 12/31/95 12/31/96 12/31/97 12/31/98 Spatializer Audio Laboratories 100.00 89.74 74.36 30.77 2.56 Peer Group Index 100.00 69.50 68.15 71.38 51.90 NASDAQ Market Index 100.00 100.02 124.29 152.03 214.42 The peer group, for purposes of the above graph, consists of other comparable technology companies. The peer group was expanded in 1996 to include a competitor in the advanced audio technology industry that went public during 1996. Indemnification of Directors and Executive Officers The Company's Certificate of Incorporation and its Amended and Restated Bylaws provide that the Company will indemnify any officer or director of the Company who is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, against expenses (including, but not limited to, attorneys' fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the fullest extent and in the manner set forth in and permitted by Delaware law and any other applicable law as from time to time in effect. Executive Compensation The following table sets forth separately, for the last three complete fiscal years, each component of compensation paid or awarded to, or earned by, the Chief Executive Officer ("CEO") of the Company and each of the other most highly compensated executive officers who were serving as executive officers at December 31, 1998 (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
=================================================================================================================== Long Term Compensation ------------------------------------- Annual Compensation Awards Payouts -------------------------------------------------------------------------- Securities Under Options/ Restricted SARs Stock Awards LTIP Name and Principal Position Year Salary Bonus Other Granted (#) ($) Payouts - ------------------------------------------------------------------------------------------------------------------- Henry R. Mandell(1) Interim Chief Executive 12/99 $175,000 $ -- $9,000 N/A N/A N/A Officer 12/98 $105,833 $ -- $6,750 500,000 N/A N/A - ------------------------------------------------------------------------------------------------------------------- Eric Rene Bos(2) 12/99 $30,000 N/A N/A N/A N/A N/A Vice President, Product 12/98 $120,000 $75,000 N/A N/A N/A N/A Development for MDT 12/97 $120,000 $136,500 N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- Robert L. Montelius(2) 12/99 $30,000 N/A N/A N/A N/A N/A Vice President, Engineering 12/98 $120,000 $75,000 N/A N/A N/A N/A for MDT 12/97 $120,000 $136,500 N/A N/A(5) N/A N/A - ------------------------------------------------------------------------------------------------------------------- Theodore C. Tanner(3) 12/99 $30,000 N/A -- -- -- -- Vice President, Engineering 12/98 $122,427 $ -- $4,800 50,000 N/A N/A for DPI 12/97 $98,770 $13,000 $6,000 15,000(4) See note 6 N/A - ------------------------------------------------------------------------------------------------------------------- Peter S. Birch 12/99 $120,000 -- -- 120,000 -- -- Sr.Vice President, Sales and Marketing for DPI 12/98 $129,654 $ -- $5,400 30,000 N/A N/A ===================================================================================================================
(1) Mr. Mandell became an employee of the Company in March, 1998. He became Interim Chief Executive Officer of the Company on September 25, 1998, concurrent with the effective date of Mr. Gershick's resignation as President and Chief Executive Officer. (2) Messrs. Bos and Montelius became employees upon the Company's acquisition of MultiDisc Technologies, Inc. in June, 1996 and left the Company in April, 1999. (3) Mr. Tanner became an employee of DPI in March, 1996 and left the Company in March, 1999. (4) The exercise price for these options was adjusted to the closing market price on July 18, 1997. (5) The exercise price for these options was adjusted to the closing market price on December 12, 1997. (6) Of the 5,776,700 originally issued performance shares, 5% were released on each of June 22, 1997 and 1998, and, in accordance with the escrow arrangement, 10% were released on June 23, 1999. During 1998 the vesting of 55,000 shares was accelerated when the recipient left the Company. As a result, as of December 14, 1999, 4,527,359 of the originally issued performance shares remained in escrow. Unless released earlier based on cumulative positive cash flow of $.6285 Cdn. per share or in a discretionary acceleration where the recipient leaves the Company, the remainder of these shares will vest based on the following schedule: 20% June, 2000; 30% June 2001; and, 30% June, 2002. OPTION/STOCK APPRECIATION RIGHT ("SAR") GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR The following table presented in accordance with the Securities Exchange Act of 1934, as amended ("the Exchange Act") and the Regulations thereunder sets forth stock options granted under the Company's Stock Option Plan ("the Stock Option Plan") during the most recently completed financial year to each of the Named Executive Officers:
=================================================================================================================================== Alternative Individual Grants to - --------------------------------------------------------------------------------------------- Potential Realizable Realizable Value at Assumed Value: Annual Rates of Stock Grant Market Value Price Appreciation for Value of Option Term Date % of Total Securities ----------------------------------- Securities Options Underlying Under /SARs Options/ Grant Options/ Granted to Exercise or SARs on Date Date SARs Employees in Base Price of Grant Expiration Present Granted Fiscal Year ($/Security) ($/Security) Date 5% ($) 10% ($) Value $ - ----------------------------------------------------------------------------------------------------------------------------------- Henry R. Mandell - ----------------------------------------------------------------------------------------------------------------------------------- Eric Rene Bos N/A N/A N/A N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------------------- Steven D. Gershick(1) N/A N/A N/A N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------------------- Robert L. Montelius N/A N/A N/A N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------------------- Theodore C. Tanner N/A N/A N/A N/A N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------------------- Peter S. Birch(2) 20,000 3.1% $0.1875/shr(2) $0.1875/shr(2) 1/16/03 $188 $375 $0 10,000 1.5% $0.1875/shr $0.1875/shr 10/30/03 $94 $188 $0 ===================================================================================================================================
(1) In 1999 Mr. Gershick was granted 50,000 options, exercisable at $.09 per share until April 1, 2004. (2) In 1999, Mr. Birch was granted 130,000 options, exercisable at $.08 per share until May 14, 2004. AGGREGATED OPTIONS/SAR EXERCISES IN LAST FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION/SAR VALUES The following table (presented in accordance with the Exchange Act and the Regulations) sets forth details of all exercises of stock options/SARs granted during the year ended December 31, 1999 and in the most recently completed financial year by each of the Named Executive Officers and the financial year-end value of unexercised options/SARs on an aggregated basis:
============================================================================================================== Value of Unexercised In-the-Money Securities Unexercised Options/SARs at Fiscal Year-End Acquired on Aggregate Options/SARs at ($) Name(1) Exercise Value Realized Fiscal Year-End Exercisable/Unexercisable - -------------------------------------------------------------------------------------------------------------- Henry R. Mandell N/A N/A 500,000 $0/$0 - -------------------------------------------------------------------------------------------------------------- Eric Rene Bos N/A N/A 25,000 $0/$0 - -------------------------------------------------------------------------------------------------------------- Steven D. Gershick N/A N/A 333,000 $0/$0 - -------------------------------------------------------------------------------------------------------------- Robert L. Montelius N/A N/A 25,000 $0/$0 - -------------------------------------------------------------------------------------------------------------- Theodore C. Tanner N/A N/A 110,000 $0/$0 - -------------------------------------------------------------------------------------------------------------- Peter S. Birch N/A N/A 30,000 $0/$0 ==============================================================================================================
(1) As of December 14, 1999, only Mr. Mandell continues as a named executive officer. The valuation information for the other parties has not been included. TEN-YEAR OPTION/SAR REPRICINGS The following table (presented in accordance with the Exchange Act and the Regulations) sets forth details of all repricings of stock options/SARs during the year ended December 31, 1999 for the Named Executive Officers:
=============================================================================================================== Length of Number of Original Securities Market Price Exercise Term Underlying of Stock at Price at Remaining at Options/SARs Time of Time of Date of Repriced or Repricing or Repricing or New Exercise Repricing or Name Date Amended Amendment Amendment Price Amendment - --------------------------------------------------------------------------------------------------------------- Henry R. Mandell 11/12/98 100,000 $0.125 $1.18 $0.125 4 yrs 4 mths - --------------------------------------------------------------------------------------------------------------- Eric Rene Bos N/A N/A N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------- Steven D. Gershick N/A N/A N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------- Robert L. Montelius N/A N/A N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------- Theodore C. Tanner(1) 1/25/99 60,000 $0.125 $1.31 $.0125 1997 1/25/99 50,000 $.0125 $2.15 $.0125 1998 - --------------------------------------------------------------------------------------------------------------- Peter S. Birch 10/30/98 20,000 $0.1875 $1.62 $0.1875 4 yrs 2 mths ===============================================================================================================
(1) Mr. Tanner resigned from the Company in March 1999, and has exercised 51,666 options; the balance have lapsed. The above referenced stock option repricings were effected to bring the exercise prices down to reflect the current market price in order to properly incentivize the option holders. The modifications to the exercise prices effected on October 30, 1998 were generally applied to all Spatializer and DPI employees whose option exercise prices were above the then current market price. The modifications to the exercise prices effected on November 12, 1998 were generally applied to the interim chief executive officer whose option exercise prices were above the then current market price. Employment Agreements Effective June 1996, MDT entered into employment agreements that had original terms continuing until December 1997, with extensions, pursuant to which Mr. Eric Rene Bos was designated as Vice President of Product Development and Mr. Robert Montelius was designated as Vice President of Engineering, at annual salaries of $120,000 each. In May 1997, the Company notified Messrs. Bos and Montelius that it did not intend to renew their agreements beyond December 1997. In September 1997, the Company notified both parties that it would extend their agreements through June 1998. Both Mr. Bos and Mr. Montelius left the Company in April, 1999. Effective October 1996, DPI entered into an employment agreement through December 1997 (which, by its terms, was extended through December 1998) with Theodore Tanner pursuant to which he was designated as Vice President of Engineering, at an annual salary of $85,000. As of May 16, 1997, the annual salary for Mr. Tanner was increased to $100,000. As of July 1, 1997, the annual salary for Mr. Tanner was again increased to $110,000. As of July 31, 1998, Mr. Tanner's annual salary was increased to $120,000. Mr. Tanner resigned from the Company effective March 12, 1999. Transactions with Management and Others In December 1998, the Company entered into a loan agreement with the directors and officers pursuant to which Carlo Civelli advanced $75,000 to the Company and Messrs. Mandell, Rubenstein, Pace and Segel each advanced $5,000 to the Company as a loan to fund immediate operating requirements. The loan bears interest at the rate of 10% per annum and matured on November 30, 1999. Currently, the Company and the lenders are in discussions with respect to the restructuring of the loan arrangement. In April 1998, Clarion Finanz AG advanced $650,000 in a working capital loan to the Company. The loan bears interest at the rate of 10% per annum and matured on December 31, 1998 but has been extended from time to time through the date hereof. Clarion Finanz AG is an affiliate of Carlo Civelli, a member of the Board. Currently, the Company and Clarion Finanz AG are in discussions with respect to the restructuring of the loan arrangement. Compliance with Section 16(a) of the Exchange Act Under the Exchange Act, the Company's directors, certain executive and other officers, and any person holding more than ten percent (10%) of the Company's Common Stock are required to report their ownership and any changes in that ownership to the Securities and Exchange Commission (the "Commission") and any exchange or quotation system on which the Common Stock is listed or quoted. Specific due dates for these reports have been established and the Company is required to report in this proxy statement any failure to file by directors and officers and ten percent (10%) holders. Based solely on a review of the copies of reports furnished to the Company as filed with the Commission, the Company believes that its executive officers and directors have complied with the filing requirements applicable to them for the year ended December 31, 1998. Annual Report The Company has previously forwarded to each stockholder who so requested in writing a copy of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 as filed with the Securities and Exchange Commission and the quarterly reports for the interim periods in 1999. Requests for additional copies of these reports should be sent to the Company at 20700 Ventura Boulevard, Suite 140, Woodland Hills, California 91364, Attention: Investor Relations. Information Incorporated By Reference In addition to the materials set forth herein, this Proxy Statement incorporates by reference the following items previously filed with the SEC: 1. The Company's Report on Form 10-K for the year ended December 31, 1998, as amended to date; and 2. The Company's Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1999. DATED: January ____, 2000 BY ORDER OF THE BOARD Henry R. Mandell Interim Chief Executive Officer, Secretary and Chief Financial Officer EXHIBIT A CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SPATIALIZER AUDIO LABORATORIES, INC. FIRST: That at a meeting of the Board of Directors of Spatializer Audio Laboratories, Inc. (the "Corporation") resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and calling for such amendment to be voted upon by the stockholders of the Corporation at the annual meeting of such stockholders. The resolution setting forth the proposed amendment is as follows: "RESOLVED, that the Certificate of Incorporation of Spatializer Audio Laboratories, Inc. (the "Corporation") be amended by changing the Article thereof numbered "IV" so that, as amended, said Article shall be and read as follows: "SECTION 1. The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 66,000,000 shares, consisting of 65,000,000 shares of Common Stock, par value $.01 per share ("Common Stock"), and 1,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred Stock")." SECOND: That thereafter, pursuant to a resolution of its Board of Directors, the above amendment was put forth for a vote of the stockholders of the Corporation at the Corporation's Annual Meeting of Stockholders, duly called and held, upon notice in accordance with Section 222 of the General Corporations Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with Section 242 of the General Corporation law of the State of Delaware. FOURTH: That the capital of the Corporation shall not be reduced under or by reason of said amendment. SPATIALIZER AUDIO LABORATORIES, INC. By: ------------------------------------------ Henry R. Mandell Interim Chief Executive Officer, Secretary and Chief Financial Officer SPATIALIZER AUDIO LABORARTORIES, INC. ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JANUAURY 25, 2000 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Steven D. Gershick and Henry R. Mandell, and each one of them, as proxy and attorney-in-fact of the undersigned, with full power of substitution, to represent and vote, as designated below, all shares of Common Stock of Spatializer Audio Laboratories, Inc. (the "Company") which the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company to be held at the Hilton Hotel located at 6360 Canoga Avenue, in Woodland Hills, California, on Tuesday, January 25, 2000, at 10:30 a.m., and at any adjournments thereof. The Board of Directors recommends a vote FOR Proposal I and FOR all nominees listed in Proposal II. Proposal I: To approve the proposal of the Board of Directors to increase the total amount of the Company's authorized common stock, $.01 par value per share (the "Common Stock") from 50,000,000 shares to 65,000,000 shares. |_| FOR |_| AGAINST |_| ABSTAIN Proposal II: To elect three Directors of the Company to serve until the Annual Meeting of Stockholders to be held in 2003. Nominees: Stephen W. Desper, Carlo Civelli, Henry R. Mandell |_| FOR all nominees listed above. |_| WITHHOLD authority to vote (except as marked to the contrary below). (INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided below.) (Continued on reverse side) - -------------------------------------------------------------------------------- THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL I AND FOR ALL NOMINEES LISTED IN PROPOSAL II, AND IN THE DISCRETION OF EITHER PROXY HOLDER WITH RESPECT TO ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. Dated: _________, 2000 Signed (Stockholder(s) sign above) NOTE: Please sign exactly as your name appears hereon. Joint owners should each sign personally. A corporation should sign full corporate name by duly authorized officers and affix corporate seal. When signing as attorney, executor, administrator, trustee or guardian, give full title as such. PLEASE RETURN PROMPTLY IN ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE U.S. -----END PRIVACY-ENHANCED MESSAGE-----