Document:

exv10w5

 

EXHIBIT 10.5

SPATIALIZER AUDIO LABORATORIES, INC.

EMPLOYMENT AGREEMENT

     This
Employment Agreement (this “Agreement”) sets out the terms and conditions of your
employment by Spatializer Audio Laboratories, Inc., a Delaware corporation (the “Company”).

1. Period of Employment.

     A. Your employment by the Company under the terms of this Agreement is effective as
of November 12, 1999 (the “Commencement Date”). Your employment will continue under the
terms of this Agreement for a period of three years (3) years (the “Initial Term”) from the
Commencement Date, and shall be automatically renewed thereafter for additional one year
periods
(“Successive Terms”), until terminated in accordance with the terms of this Agreement or
until you
are notified that the Agreement will not be automatically renewed. Such notification is to be
provided to you no less than 6 months before the commencement of a Successive Term and if you
elect to terminate your employment during the Initial Term or any Successive Term, you shall
provide the Company with notice pursuant to Section 8(A)(1).

2. Job Description.

     A. You are to be employed as the Company’s Chief Executive Officer (“CEO”) and you
shall continue to be employed as the Company’s Chief Financial Officer (“CFO”). As CEO, you
shall be responsible for the general and active supervision and management over the business
of the
Company and over its officers, assistants, agents and employees. In your capacity as CFO, you
shall
have the general care and custody of the funds and securities of the Company, the bank and
trust
accounts of the Company and you shall exercise general supervision over expenditures and
disbursements made by Company as well as the Company’s preparation of financial records and
reports in connection therewith as may be necessary. If requested by the Board of Directors of
the
Company (the “Board”), your duties shall include performing services on behalf of the Company
or to affiliates of the Company and in that regard, you agree to serve as the President and
Treasurer
of Desper Products, Inc (“DPI”). Finally, you agree to serve as a Director of DPI when so
elected
by the Company as sole shareholder of DPI. You shall devote your full professional time and
energy, attention, skills and ability to the performance of your duties during your employment
and
shall faithfully and diligently endeavor to promote the business and best interests of the
Company.
You shall make available to the Board and the officers of the Company all knowledge possessed
by you relating to any aspect of your duties and responsibilities hereunder. You agree that
during
your employment with the Company, you will not render or perform services for any other
corporation, entity, person or firm actively involved with the Industry without the prior
written
consent of the Board. For purposes of this Agreement, the term the “Industry” shall consist of
firms
engaged in the development, licensing and marketing of digital audio signal processing
technologies
for the consumer electronics, personal computing, enterprise computing and entertainment
industries,
or those activities of a kind with which you were concerned or involved in the term of this
Agreement. You hereby agree to appear and actively participate on behalf of the Company in the
Industry and in the general promotion of its business.

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     B. You further agree, during the course of your employment under this Agreement, to
conduct yourself and all business on behalf of the Company in a manner intended to be in full
compliance with all laws applicable to the duties undertaken by you during this Agreement.

3. Compensation.

     A. Salary. As compensation for the performance by you of your obligations hereunder,
and provided that you satisfactorily perform your obligations hereunder, you will receive an
annual
salary of two hundred thousand dollars ($200,000) on the normal payroll schedule followed by
the
Company. On each anniversary of the Commencement Date, you will be eligible for a salary
increase as approved by the Compensation Committee.

     B. Performance
Shares. In addition to your salary, as set forth above, as
November
12, 1999, those 168,628 performance shares held by the Company’s former CEO, Stephen D.
Gershick directly, and those 674,516 performance shares held in escrow for him shall be
transferred
directly to you, to be released in accordance with the terms of that Escrow Agreement dated
June
22, 1992. as amended (the “Escrow Agreement”). Other than due to your voluntary termination
pursuant to Section 8(A)(1) or 8(B) or termination for Cause as defined in Section 8(A)(2),
the
Company will continue to distribute these performance shares to you under the schedule in the
Escrow Agreement. If you complete the Initial Term of this Agreement, in all events, all
remaining
performance shares will be distributed to you in accordance with the schedule in the Escrow
Agreement.

     C. Stock
Options. Of the previously issued 500,000 options to acquire Company
common stock, par value $.01 (“Common Stock”) held by you, all 500,000 of such options shall
be
treated as having been fully vested at November 12,1999 and shall be immediately exercisable
by
you from that date. Additionally, as November 12, 1999, you shall be granted options
to acquire
an additional 750,000 options to acquire Common Stock, of which 250,000 shares shall be
exercisable at $.50 and immediately vested; 250,000 shares shall be exercisable at $.55 and
will vest
on November 12, 2000; and 250,000 shares shall be exercisable at $.75 and will vest on November
12, 2001.

     D. Annual
Bonus. You shall be entitled to receive, in addition to your annual
compensation set forth above, a bonus equal to 5% of the Company’s income after taxes each
year,
provided however, that in no case shall your bonus exceed $100,000 in any given year.

     E. Other Benefits:

	 	(1)  	During the term of this Agreement, you will be entitled, at
Company expense,
to such medical, disability, accident, life or other insurance or welfare
plans,
programs or arrangements as may be offered generally to the employees of
the Company.
	 
	 	(2)  	The Company shall pay or reimburse you for all reasonable
and necessary
business expenses incurred by you which relate to the business of the
Company, as approved by the Board, with such payments or reimbursements

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	 	   	to be made monthly on the first scheduled payroll period in the month
following that month in which such expenses were incurred, and upon
presentation of receipts or other evidence of such expenses. These expenses
include, but are not limited to the necessary reasonable and customary
expenses associated with your work at the Company’s Santa Clara, California
office, including an apartment of reasonable nature in the Santa Clara
area,
automobile use in the Santa Clara area, round-trip airfare and airport car
service to and from the Santa Clara area and meals while working in the
Santa Clara area.
	 
	 	(3)  	A monthly automobile allowance of nine hundred ($900) dollars.

     F. The compensation provided to you pursuant to this Agreement shall be subject to any
required federal, state, local and other governmental withholdings or other deductions that
may be
required from time to time under applicable tax laws.

4. Place of Work. Your principle place of work shall be at the Company’s business offices
located at 20700 Ventura Boulevard, Suite 140, in Woodland Hills, California. You also agree to
be available to travel and to work from time to time in such other places as may be requested by
the
Company for the reasonable performance of your duties. You have agreed that you will be available
to work from the Company’s Santa Clara, California office on average of four (4) days per week but
this commitment shall not apply in the event of any Change of Control (as defined below) and shall
not, in any event, require you to relocate your principal residence to the Santa Clara, California
area.

5. Authorizations. You agree to provide to the Company, as a condition precedent to your
employment under this Agreement, all legally required proof of your authorization to work in the
United States. You further agree to allow the Company to use your name, biography and likeness
in connection with information that may be disseminated concerning the Company. You hereby
warrant and represent that there are no existing or proposed agreements to which you are a party
that
may adversely affect your ability to your duties under this Agreement.

6. Vacations and Holidays.

     A. You will be entitled to take as vacation time all official Company holidays each year,
as offered to all Company employees. You will also be entitled to three weeks of paid vacation
each year.

     B. Holiday and vacation days accrued may be carried over from one year to the next as
outlined in the Company’s employment manual or unless otherwise agreed in advance by the
Board.
Unused holiday days may be reimbursed to you as hours worked at your normal basic salary rate
at the sole discretion of the Board.

     C. If you leave the Company before taking vacation days due to you, you will receive
a pro-rata payment of your salary in respect to those vacation days you have not used during
the
year, in accordance with the Company’s policy then in effect for executive officers.

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7. Sick Pay.

     A. The Company, subject to your compliance with the following procedures, will pay
you your salary in respect of periods of absence through illness or injury for up to 14 days
absence
(in the aggregate) in any period of 12 months, or until the Company’s Short term Disability
Plan
begins payments. Unless otherwise required by law, sick leave is only to be used when, owing
to
health reasons, you are unable to work.

     B. Your unused sick leave is not carried forward from one year to the next and you will
not be paid for unused sick leave.

8. Termination.

     A. Notice
of Termination.

          (1) If you desire to terminate your employment with the Company, you must give
the Company 30 days prior written notice; provided however, that if a Change of Control (as
defined
below) or a change in you place of work, as set forth in Section 4 above, is made, you may
choose
to terminate your employment by providing 10 days prior written notice to the Company. A
“Change of Control” shall mean if and when (i) any person, as that term is used in Section
13(d) and
14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”), becomes or is discovered
to
be a beneficial owner (as defined in Rule 13d-3 under the Exchange Act as in effect on the
date
hereof) directly or indirectly of securities of the Company representing 20% or more of the
combined
voting power of the Company’s then outstanding securities (unless such person is known by you
to
already be a beneficial owner on the date of this Agreement); and (ii) the individuals who, as
of the
date hereof, constitute the Board of Directors of the Company cease for any reason to
constitute at
least a majority of the Board of Directors of the Company, unless such change is approved
unanimously by the Board of Directors in office immediately prior to such cessation.

          (2) Except in the case of termination for “Cause” (as defined below), if the
Company desires to terminate your employment, for any reason, the Company must give you 30
days written notice. Termination not for “Cause” is subject to the conditions set forth in
Section 8(C)(2) below.

          (3) Any salary paid or owing to you from the Company upon termination shall
be subject to any deductions for:

	 	i.  	Social Security, disability, unemployment or other
taxes customarily
paid by an employer and employee;
	 
	 	ii.  	for any deductions in respect of any indebtedness
that you may have
to the Company; and
	 
	 	iii.  	for any obligations the Company may have to any
third party on your
behalf.

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          (4) The Company may, in its sole discretion, choose to pay your salary for
the
duration of the notice period set forth in Section 8(A)(3) in lieu of
providing notice above or
following such notice of termination of employment, require you to carry
out none or only some of
your duties at or away from the Company offices.

     B. For purposes of this Agreement, the following events shall constitute “Termination
Events”:

          (1) Any termination of which notice is given under Section 8(A) above;

          (2) Termination of this Agreement by the Company for “Cause.” For purposes
of this Agreement, the term “Cause,” when used in connection with the termination of this
Agreement by the Company shall mean, and shall be limited to: (a) your commission of a felony;
(b) your failure to act on behalf of the Company in its business or in the Industry in breach
of this
Agreement; (c) your participation actively in a Restricted Business in violation of Section 11
hereof,
without the Board’s prior written consent; provided that the Company shall provide to you
written
notice of its belief that you are in breach pursuant to this section and that you shall have a
period of
30 days from the date you receive such written notice of such event or breach to cure such
event or
breach. In the event of any termination for “Cause” the Company shall be entitled to
immediately
Terminate your employment with the Company; or

          (3) Your failure to substantially perform the duties required of you hereunder for
a period of 30 consecutive days or for shorter periods aggregating 30 days in any 6 month
period on
account of a physical or mental disability or incapacity, as verified by a written statement
from a
physician mutually agreeable to you and the Company or your death.

     C. Upon the occurrence of a Termination Event, you shall be entitled to the following
payments from the Company:

          (1) Payments in the Event of a Voluntary Termination or a Termination for
Cause: Upon the termination of your employment as a result of a voluntary termination by you
pursuant to Section 8(A)(1) or a termination for Cause by the Company, you shall be entitled
to any
Base Salary and accrued vacation pay if any, due and owing at the date of such termination,
but not
yet paid. You shall not be entitled to any other compensation or payments hereunder after the
date
of, or otherwise with respect to, such termination of your employment.

          (2) Payments
Upon Termination not for Cause. Non-Renewal of Employment. Change of Control of the Company or Place of Work: Upon the termination of your
employment
not for Cause (including on account of your disability or death) or due to a Change in Control
or a
change in your place of work as set forth in Section 4 above, you shall be entitled to six
months full
salary and any accrued vacation, plus one year of Company medical and health benefits.

          (3) Timing of Payments: If you comply with the requirements of Section 13, the
Company will pay all amounts payable to you under Section 8(D) no later than fifteen (15)
business
days after the Termination Event, and shall be paid in legal tender into such bank account as
you (or

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your legal representative) may designate; provided that the Company shall be entitled to
withhold
any amounts payable to you until you have fully complied with
Section 13.

9. Confidentiality.

     A. You acknowledge that you may acquire the trade secrets and confidential information
of the Company (“Confidential Information”) during the course of your employment and that the
unauthorized disclosure of any such Confidential Information could cause serious harm and
damage
to the Company.

     B. For the purpose of avoiding such harm you agree that you must not make use of,
divulge or communicate to any person (other than with proper authority) any Confidential
Information of or relating to the Company or any of its customers or suppliers or any holding
company or subsidiary of the Company including (but not limited to) such Confidential
Information
as: details of customers, potential customers, consultants, suppliers and potential suppliers,
product
details, prices, financial and accounting information, financial statements, discounts,
specific product
applications, product designs, product plans, manufacturing processes, computer programs,
algorithms, future product developments, research reports, marketing plans, existing trade
arrangements or terms of business, which you may receive or become aware of as a result of
being
in the employment of the Company. This obligation of confidentiality towards such Confidential
Information shall continue to apply without limit in time after the termination (for whatever
reason)
of your employment but it shall not apply to information which is or is already disclosed into
the
public domain for reasons other than your fault or is required to be disclosed by law, but
only to the
extent that it is so disclosed.

10. Proprietary Property.

     A. Any proprietary rights whatsoever, including without limitation patents, copyrights
and design rights, as a result of the development of, and the application of, all work
produced by you
during your employment under this Agreement, including (but not limited to) any invention,
design,
discovery or improvement, secret process, computer program, documentation, confidential
information, copyright work or other material which you conceive, discover or create during or
in
consequence of your employment with the Company shall belong to the Company (“Proprietary
Property”). You must promptly communicate to the Company all information concerning such
Proprietary Property and if requested provide all such assistance at the Company’s expense as
is
necessary to secure the vesting of all rights to such Proprietary Property in the Company.

     B. You
hereby irrevocably appoint the Company as your attorney-in-fact with full power
in your name to execute and sign any document and do any other thing which the Company may
consider to be desirable for the purposes of giving effect to this Section 10 and agree to
notify and
confirm whatever the Company may lawfully do as your attorney-in-fact.

11. Non-Solicitation.

     A. You shall not during employment, or for a period of 12 months after the
Termination
Date, either personally or by an agent and either on his own account or for
or in association with any

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other person directly or indirectly solicit, endeavor to entice away, induce to break their
contract of
employment or offer employment to any Restricted Person.

     B. For the purposes of this section the following words have the following
meanings:

	 	          i.  
“Restricted Business” means any business in the Industry.
	 
	 	          ii.  
“Restricted Person” means any person who has at any time in the period of
twelve months prior to the Termination Date been employed by the Company or who is a
consultant to the Company, who works in the Restricted Business and who was known to or
worked with you during that period.
	 
	 	          iii.  
“Termination Date” means the date on which your employment under this
Agreement terminates.

12. Non-Interference with Suppliers. You shall not for a period of 12 months after the
Termination Date either personally or by an agent and either on your own account or for or in
association with any other person directly or indirectly interfere or seek to interfere or take
such steps
as may be likely to interfere with the continuance of supplies to the Company in respect of the
Restricted Business and the Industry (or the terms relating to such supplies) from any supplier or
seek to damage the relationship between any supplier and the Company who has supplied goods or
services to the Company in the 12 month period immediately prior to the Termination Date.

13. Return of Documents, Materials and Equipment. You shall within 72 hours of a
Termination Date, deliver to the Company, at the Company’s expense, and at any other time as the
Company may request, all equipment owned or leased by the Company for your office use, and all
documents, financial records, technology, software, source codes, object codes, hardware (and all
copies thereof), all products, product samples, product designs or
proto-types, or other items
relating
to the business of the Company, in whatever medium, that you possess or have under your control.
For purposes hereof, any equipment, supplies or materials for which you received reimbursement
from the Company shall be presumed to be owned by the Company.

14. Indemnification.

     A. You hereby agree to indemnify, defend and hold harmless the Company, and each
of its officers, directors, shareholders, agents, employees and attorneys for the Company,
their
successors and assigns, from and against, and pay or reimburse each of them for, any and all
claims,
losses, damages, judgments, amounts paid in settlement, costs and legal, accounting or other
expenses that any of them may sustain or incur as a result of any misrepresentation or any
non-performance of any covenant or other obligation on the part of you contained in this
Agreement.

     B. The Company agrees to indemnify, defend and hold harmless you from and against,
and pay or reimburse you for any and all claims, losses, damages, judgments, amounts paid in
settlement, costs and legal, accounting or other expenses that any of you may sustain or incur
as a
result of any misrepresentation or any non-performance of any covenant or other obligation on
the
part of the Company contained in this Agreement.

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15. Entire Agreement. This Agreement constitutes the entire Agreement of the parties relating
to the subject matter hereof. There are no terms, conditions or obligations other than those
contained
in this Agreement. This Agreement supersedes all prior communications, representations or
agreements between the parties relating to the subject matter hereof. This Agreement may not be
amended except in writing executed by you and the Company.

16. Separability of Provisions. The invalidity or unenforceability of any particular provision
of this Agreement shall not effect the other provisions hereof; all of which shall remain
enforceable
in accordance with their terms. Should any of the obligations hereunder be found illegal or
unenforceable, such obligations shall be enforceable within whatever terms a court of competent
jurisdiction shall deem allowable by law.

17. Assignment. You may not assign, sell, subcontract, delegate or otherwise transfer your
obligations under this Agreement, without the prior written consent of the Board, and any attempted
assignment or delegation shall be void and without effect.

18. Governing Law. This Agreement shall be governed by and construed in accordance with
the laws of the Delaware for agreements wholly negotiated, entered into and performed within the
State of Delaware.

19. Injunctive Relief. You hereby acknowledge that the Company and its affiliated companies
are new and evolving companies and that protection of Proprietary Property and Confidential
Information are important to future prospects for growth and business development of the Company.
You further acknowledge that the Company may not have an adequate remedy at law in the event
of any breach or threatened breach by you of any provision of Sections 9,10,11,12 and 13, and that
the Company may suffer irreparable damage and injury as a result. Accordingly, in the event of any
such breach or threatened breach, you hereby consent to the
application the Company for injunctive
relief against you by any court of competent jurisdiction without the posting of any bond or
security
therefor.

20. Policies and procedures. You further agree to abide by the Company’s policies and
procedures and any changes that may be made to them from time to time.

21. Counterparts. This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which, together, shall
constitute
One and the same instrument.

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     WHEREAS, this Agreement is hereby entered to by the undersigned as of the date indicated
below.

Dated:                                        

	 	 	 	 	 
	 	 	SPATIALIZER AUDIO LABORATORIES, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Stephen W. Desper
	

	 	 	 	 
	

	 	Name:
	 	 Stephen W. Desper
	

	 	Title:
	 	Director and designated signatory

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	AGREED AND ACCEPTED BY EMPLOYEE:

	 

	/s/
Henry R. Mandell

	Henry R. Mandell

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SPATIALIZER AUDIO LABORATORIES, INC.

February 5, 2002

Henry R. Mandell

5192 Pesto Way

Agoura Hills, CA 91301

Dear Henry:

     This letter agreement amends certain terms of the Employment Agreement (the “Agreement”)
effective as of November 12, 1999 between you and Spatializer Audio Laboratories, Inc. (the
“Company”) regarding: (i) your compensation and (ii) the terms of your severance in the event of
“Change in Control” pursuant to the Agreement. We are pleased that you will be continuing with the
Company for another year. For calendar year 2002, your base compensation will consist of a salary
of $214,200, a monthly car allowance of $1,250 and the other executive benefits consistent with the
Company’s current arrangements with you. In addition, in accordance with our discussions, we have
agreed that the Agreement is hereby amended as follows:

“Compensation

     1. Performance Shares. Pursuant to Sections 3(b) of the Agreement, you were to be
issued Performance Shares in the Company which are subject to the terms of that certain Escrow
Agreement, dated as of June 22, 1992, as amended, by and among the Company and the signatories
thereto.

     In
November 2000, 168,632 performance shares were issued to you, but you declined to accept
these shares (the “2000 Performance Shares”) and, in lieu thereof, in 2001 you were granted options
to acquire 250,000 shares exercisable at $0.22 per share (“2001 Options”). In June of 2001,
252,944 of the 674,516 Performance Shares held in escrow for you (the “2001 Performance Shares”)
were released, but you declined to accept the 2001 Performance Shares and now wish to decline the
2001 Options.

     In lieu of your decision to decline the 2001 Performance Shares and the 2001 Options, the
Company has agreed to release to you from escrow 425,000 performance shares, therefore:

     Section 3(b) of the Agreement is amended to read as follows:

 

 

Henry R. Mandell

February 5, 2002

Page 2

     “B. Performance Shares. In addition to your salary, as set forth above, we agree that
as of December 20, 2001, 425,000 performance shares including performance shares released to you in
accordance with the terms of that Escrow Agreement dated June 22, 1992, as amended (the “Escrow
Agreement”) and subsequently declined by you along with additional performance shares (previously
returned to escrow when the holders left the employ of the Company) shall be and hereby are
reallocated to your account as of January 2, 2002 and held for you along with the 252,942
performance shares previously allocated to and held in escrow for you pursuant to this Agreement.
Other than due to your voluntary termination pursuant to Section 8(A)(1) or 8(B) or termination for
Cause as defined in Section 8(A)(2), the Company will continue to distribute these performance
shares to you under the schedule in the Escrow Agreement. If you complete the Initial Term of this
Agreement, in all events, all remaining performance shares will be distributed to you in accordance
with the schedule in the Escrow Agreement.”

     Section 3(c) of the Agreement is amended to read as follows:

     “C. Stock Options. Of the previously issued 500,000 options to acquire Company common
stock, par value $.01 (“Common Stock”) held by you, all 500,000 of such options were fully vested
at November 12, 1999 and were immediately exercisable by you from that date, including options to
acquire 250,000 shares of Common Stock exercisable at $1.00. Additionally, as of November 12,
1999, you were granted options to acquire an additional 750,000 options to acquire Common Stock, of
which 250,000 shares were exercisable at $.50 and immediately vested; 250,000 shares were
exercisable at $.55 and vested on November 12, 2000; and the 250,000 shares vested on November 12,
2001 and were exercisable at $.75. The options to acquire 250,000 shares of Common Stock at an
exercise price of $1.00 and options to acquire 250,000 shares of Common Stock at an exercise price
of $.75 are terminated as of November 12, 2001. If you are an employee of the Company on the day
following the Company’s 2002 Annual Shareholders Meeting, you will be granted on that date, in your
capacity as an employee, options to purchase 500,000 shares of Common Stock which shall be fully
vested and convertible at the Fair Market Value (as defined the Company’s 1996 Incentive
Compensation Plan) of the Company’s Common Stock as of the date of grant.

SEVERANCE

     4. Section 8(C)(2) of the Agreement, is hereby amended to read as follows:

          “Upon the termination of your employment not for Cause (including on account of
your disability or death) a change in your

 

 

Henry R. Mandell

February 5, 2002

Page 3

place of work as set forth in Section 4 above, you shall be entitled to six
months full salary and any accrued vacation, plus one year of Company medical and
health benefits. Upon termination of your employment in the event of a Change in
Control, you shall be entitled to twelve months full salary, any accrued vacation
and medical and health benefits.”

        Except as set forth herein, the Agreement shall remain in full force and effect and shall
otherwise be unaffected hereby. If the foregoing accurately and completely sets forth the terms and
understanding of our agreement, please indicate your acceptance by signing the enclosed copy of
this letter in the indicated space below.

	 	 	 	 	 
	 	 	Very truly yours,
	 
	 	 	 	 
	 	 	SPATIALIZER AUDIO LABORATORIES, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Gilbert N. Segel
	

	 	 	 	 
	

	 	 	 	Gilbert N. Segel, for the Compensation
	

	 	 	 	Committee

ACCEPTED AND AGREED:

	 	 	 
	/s/ Henry R. Mandell
	 	 
	Henry R. Mandell
	 	 

 

 

SPATIALIZER AUDIO LABORATORIES, INC.

February 21, 2005

Henry R. Mandell

2025 Gateway Place, Suite 365

San Jose, CA 95110

Dear Henry:

     This letter agreement, effective as of November 12, 2004, amends the following terms of the
Employment Agreement (the “Agreement”) between you and Spatializer Audio Laboratories, Inc. (the
“Company”) effective as of November 12, 1999, as amended on February 2, 2002 and amended hereby:
(i) the extension of the term of the Agreement for an additional one-year period until November 12,
2006 and (ii) the grant of stock options to replace stock options previously issued to you which
stock options have since expired unexercised. We are pleased that you will be continuing with the
Company for another year. Your base compensation, consisting of a salary of $214,200 and all other
executive benefits remain unchanged. In addition, in accordance with our discussions, we have
agreed that the Agreement is hereby amended as follows:

     The following sentence shall be added to Section 3.C. of the Agreement:

          “As of February 21, 2005, you are hereby granted an option to purchase 500,000
shares of Common Stock at an exercise price of $0.10 per share. An option to
purchase 250,000 shares of Common Stock is immediately vested as of February 21,
2005 and an option to purchase the remaining 250,000 shares of Common Stock shall
vest on November 12, 2005 as long as you remain continuously employed by the Company
or a subsidiary until such time.”

     Except as set forth herein, the Agreement shall remain in full force and effect and shall
otherwise be unaffected hereby. If the foregoing accurately and completely sets forth the terms and
understanding of our agreement, please indicate your acceptance by signing the enclosed copy of
this letter in the indicated space below.

	 	 	 	 	 
	 	 	Very truly yours,
	 
	 	 	 	 
	 	 	SPATIALIZER AUDIO LABORATORIES, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Gilbert N. Segel
	

	 	 	 	 
	

	 	 	 	Gilbert N. Segel, for the Compensation
	

	 	 	 	Committee

ACCEPTED AND AGREED:

	 	 
	/s/ Henry R. Mandell
	 
	Henry R. Mandellexv10w6

 

EXHIBIT 10.6

PROMISSORY NOTE

	 	 	 
	$112,500.00

	 	November 1, 2003

     FOR VALUE RECEIVED, the undersigned (the “Maker”) will pay to the order of the SUNTRUST BANK
NATURE COAST, AS SUCCESSOR TRUSTEE OF THE IRA A. DESPER MARITAL TRUST (hereinafter together with
any holder hereof, called “Holder”) at
P.O. Box 1029, Crystal River, FL 34423, or at such other
place as the Holder may from time to time designate in writing, the principal sum of One Hundred
Twelve Thousand Five Hundred and 00/100 Dollars ($112,500.00), together with interest at the rate
ten percent (10%) per annum on the unpaid principal balance from time to time outstanding, from the
date hereof, payable as follows:

	   	The first payment of $5,191.30 shall be due and payable on December 1, 2003, and continuing on
the first day of each and every month thereafter until the entire balance of principal and interest
is paid in full.

     This Note is, by mutual consent of the parties hereto, and for mutual considerations passing
to each party hereto, receipt of which is hereby acknowledged by all parties hereto, a replacement
of and in substitution of that certain obligation of maker hereof to Payee hereof in the principal
sum of $112,500.00 and as is more particularly described in LOST INSTRUMENT BOND #5927420 wherein
Sun Trust Bank is principal; Desper Products, Inc. and Spatializer Audio Laboratories, Inc. are
Obligees; and Safeco Insurance Company of America is Surety; such obligation being also described
in the Annual Report of Maker for the year 2002 as note
[      ] on page
[      ] thereof.

     Although Maker is executing this Note in California, this Note and its terms and provisions
are to be governed and construed by and in accordance with the laws of the State of Florida. The
Maker expressly consents to jurisdiction in Florida. Furthermore, exclusive venue for any dispute
shall lie solely in Pirrellas County, Florida.

     This Note may be prepaid in whole or in part at any time without payment of premium or
penalty. Any prepayments shall be applied to the last installments due hereunder.

     The Holder shall have the optional right to declare the amount of the total unpaid balance
hereof to be due and forthwith payable in advance of the maturity date, as fixed herein, upon the
Maker’s failure to remit any monthly payment when due. Upon exercise of this option by the Holder,
the entire unpaid principal shall bear interest at the maximum contract rate permitted by law until
paid. Forbearance to exercise this option with respect to any failure or breach of the undersigned
shall not constitute a waiver of the right as to any continuing failure or breach or any subsequent
failure or breach.

     Time is of the essence of this contract and, in the event of default, if this Note is collected
by law or through an attorney at law, or under advice therefrom the undersigned agrees to pay all
costs of collection, including reasonable attorneys’ fees. Such attorneys’

 

 

fees and costs shall
include, but note be limited to, fees and costs incurred in all matters of collection and
enforcement, construction and interpretation, before, during and after suit, trial, proceedings and
appeals, as well as appearances in and connected with any bankruptcy proceedings or creditor’s
reorganization or arrangement proceedings.

     No act of omission or commission of the Holder, including specifically any failure to exercise
any right, remedy or recourse, shall be deemed to be a waiver or release of the same, such waiver
or release to be effected only through a written document executed by the Holder and then only to
the extent specifically recited therein. A waiver or release with reference to any one event shall
not be construed as continuing, as a bar to, or as a waiver or release of, any subsequent right,
remedy or recourse as to a subsequent event.

     The Maker, for itself, its legal representatives, successors and assigns, hereby: (a) for any
default due to Maker’s failure to pay any amount due and owing under this Note, expressly waives
presentment, demand for payment, notice of dishonor, protest, notice of non-payment or protest, and
diligence in collection; (b) consents that the time of all payments or any part thereof may be
extended, rearranged, renewed or postponed by the Holder hereof; and (c) agrees that the Holder, in
order to enforce payment of this Note, shall not be required first to institute any suit or to
exhaust any of its remedies against the undersigned.

     In this Note, whenever the context so requires, the neuter gender includes the feminine and/or
masculine, as the case may be, and the singular number includes the plural.

     The undersigned is duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full power and authority to enter into this Note, and the undersigned
corporate officer has full power and authority to execute this Note on behalf of the undersigned.

     The undersigned has executed this Note on the day and year first above written.

	 	 	 	 	 
	 	MAKER:

SPATIALIZER AUDIO LABORATORIES INC.

a Delaware Corporation

 	 
	 	By:  	/s/ HENRY MANDELL
 	 
	 	 	 	 
	 	 	Its:  CEO                                        11/6/03

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