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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY , 1996
AUREAL SEMICONDUCTOR INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-20684 94-3117385
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
4245 TECHNOLOGY DRIVE, FREMONT, CA 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 252-4245
(Former name, former address and former fiscal year, if changed since last
report)
This report, including exhibits, consists of pages. The Exhibit Index is
located on page 4.
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Aureal Semiconductor Inc. (the "Company"), Aureal Acquisition
Corporation, a California corporation and a wholly-owned subsidiary of the
Company ("Sub"), and Crystal River Engineering, Inc., a California corporation
("CRE"), have entered into an Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of May 7, 1996, whereby Sub will be merged
with and into CRE and CRE will become a wholly-owned subsidiary of the Company
(the "Acquisition"). Subject to the terms and conditions of the Reorganization
Agreement (including, without limitation, the consent of the shareholders of
CRE), upon the effective time of the Acquisition, each outstanding share of
Common Stock of CRE will be acquired by the Company at a price per share of
$8.30, and each outstanding and unexercised option for CRE Common Stock will be
assumed by the Company and converted into a option to purchase that number of
shares of the Common Stock of the Company ("Option Shares") determined by
multiplying the number of shares of CRE Common Stock purchasable under such
option by $8.30, with an exercise price per share of the Company's Common Stock
equal to the aggregate exercise price of the assumed CRE option by the Option
Shares. The Closing Date is anticipated to be on or about May 25, 1996. A copy
of the Reorganization Agreement is attached as Exhibit 1 and is incorporated
herein by reference.
The per share price paid by the Company for CRE's Common Stock
represents the fair market value of such stock, as determined by arms-length
negotiations between the Company and CRE. The Company intends to use some of the
proceeds from its sale of 10,000,000 shares of Common Stock to certain investors
in February and March, 1996, to fund the Acquisition.
In connection with the Acquisition, the Company will acquire the rights
to 3D audio software which CRE has developed. Prior to the Acquisition, the
Company had contracted with CRE to develop certain audio software.
A copy of the press release announcing the execution of the
Reorganization Agreement is attached as Exhibit 2 and is incorporated herein by
reference.
The Company will file the required financial statements and pro forma
financial information as an amendment to this Form 8-K as soon as practicable
but not later than sixty (60) days from the date of this Form.
ITEM 7. EXHIBITS
Exhibit No. Description
----------- -----------
5.1 Agreement and Plan of Reorganization dated
May 7, 1996, by and among Aureal
Semiconductor Inc., a Delaware corporation
(the "Company"), Aureal Acquisition
Corporation, a California corporation and a
wholly-owned subsidiary of the Company, and
Crystal River Engineering, Inc., a
California corporation ("CRE").
5.2 Press Release dated May 8, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May , 1996 AUREAL SEMICONDUCTOR INC.
By: ________________________
Brendan R. O'Flaherty
Vice President,
Business Development and
General Counsel
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Aureal Semiconductor Inc.
Exhibit Index
to Form 8-K
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Sequentially
Numbered
Exhibit No. Description Page
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5.1 Agreement and Plan of Reorganization dated
May 7, 1996, by and among Aureal
Semiconductor Inc. (the "Company"), Aureal
Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of
the Company, and Crystal River Engineering,
Inc., a California corporation.
5.2 Press Release dated May , 1996.
</TABLE>
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Exhibit 5.1
AGREEMENT AND PLAN OF REORGANIZATION
among Aureal Semiconductor,
Aureal Acquisition Corporation,
and Crystal River Engineering, Inc.
May 7, 1996
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TABLE OF CONTENTS
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1. Definitions............................................................................................. 1
2. Plan of Reorganization.................................................................................. 5
2.1 The Merger..................................................................................... 5
2.2 Cancellation of Shares; Delivery of Consideration and Assumption of Options; Acceleration of
Options........................................................................................ 5
2.3 Exchange Procedures............................................................................ 6
2.4 Fractional Shares.............................................................................. 7
2.5 Appraisal Rights............................................................................... 7
2.6 The Closing.................................................................................... 8
2.7 Effective Time................................................................................. 8
3. Representations and Warranties of CRE................................................................... 8
3.1 Organization................................................................................... 8
3.2 Capitalization................................................................................. 9
3.3 Authority Relative to this Agreement........................................................... 9
3.4 Financial Statements........................................................................... 10
3.5 Tax Matters.................................................................................... 10
3.6 Absence of Certain Changes or Events........................................................... 11
3.7 Title and Related Matters...................................................................... 12
3.8 Proprietary Assets............................................................................. 13
3.9 Employee Benefit Plans......................................................................... 14
3.10 Bank Accounts.................................................................................. 15
3.11 Contracts...................................................................................... 15
3.12 Orders, Commitments and Returns................................................................ 17
3.13 Compliance With Law............................................................................ 17
3.14 Labor Difficulties............................................................................. 17
3.15 Trade Regulation and Practices................................................................. 18
3.16 Insider Transactions........................................................................... 18
3.17 Employees, Independent Contractors and Consultants............................................. 18
3.18 Insurance...................................................................................... 18
3.19 Litigation..................................................................................... 18
3.20 Governmental Authorizations and Regulations.................................................... 19
3.21 Corporate Minutes, Etc......................................................................... 19
3.22 Subsidiaries................................................................................... 19
3.23 Compliance with Environmental Requirements..................................................... 19
3.24 Corporate Documents and Contracts.............................................................. 20
3.25 No Brokers..................................................................................... 20
3.26 Proxies........................................................................................ 20
3.27 Disclosure..................................................................................... 20
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4. Representations and Warranties of Aureal and Sub........................................................ 21
4.1 Organization and Good Standing................................................................. 21
4.2 Power, Authorization and Validity.............................................................. 21
4.3 Capitalization................................................................................. 22
4.4 No Violation of Existing Agreements............................................................ 22
4.5 Compliance With Other Instruments and Laws..................................................... 22
4.6 Financial Condition............................................................................ 23
4.7 No Brokers..................................................................................... 23
4.8 Patents, Trademarks, etc....................................................................... 23
4.9 Employees...................................................................................... 24
4.10 Governmental Consent, etc...................................................................... 24
4.11 Litigation, etc................................................................................ 24
4.12 Taxes.......................................................................................... 24
4.13 Disclosure..................................................................................... 24
5. Preclosing Covenants of CRE............................................................................. 25
5.1 Advise of Changes.............................................................................. 25
5.2 Conduct of Business............................................................................ 25
5.3 Risk of Loss................................................................................... 26
5.4 Access to Information.......................................................................... 26
5.5 Regulatory Approvals........................................................................... 27
5.6 Satisfaction of Conditions Precedent........................................................... 27
5.7 Shareholder Vote............................................................................... 27
5.8 Proxies........................................................................................ 27
5.9 Employment Arrangements........................................................................ 27
5.10 Merger Bonus................................................................................... 27
5.11 Section 25102(f) Filing........................................................................ 28
6. Preclosing and Postclosing Covenants of Aureal and Sub.................................................. 28
6.1 Advise of Changes.............................................................................. 28
6.2 Regulatory Approvals........................................................................... 28
6.3 Satisfaction of Conditions Precedent........................................................... 28
6.4 Contingent License Agreement................................................................... 28
6.5 Aureal Employee Benefits....................................................................... 29
6.6 Form S-8....................................................................................... 29
6.7 Access to Information.......................................................................... 29
6.8 Bonus Plan..................................................................................... 29
6.9 Audit.......................................................................................... 30
6.10 Reservation, Registration and Issuance of Aureal Common Stock.................................. 30
7. Mutual Covenants........................................................................................ 30
7.1 Confidentiality................................................................................ 30
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7.2 Exclusivity.................................................................................... 31
7.3 Further Assurances............................................................................. 32
7.4 Press Releases................................................................................. 32
8. The Closing............................................................................................. 32
8.1 Merger......................................................................................... 32
8.2 Additional Documents........................................................................... 32
9. Conditions to CRE's Obligations......................................................................... 33
9.1 Accuracy of Representations and Warranties..................................................... 33
9.2 Covenants...................................................................................... 33
9.3 No Litigation.................................................................................. 33
9.4 Authorizations................................................................................. 33
9.5 No Catastrophic Event.......................................................................... 33
9.6 Government Consents............................................................................ 33
9.7 Federal and State Securities Laws.............................................................. 33
9.8 Aureal Certificate............................................................................. 34
9.9 Opinion of Aureal's Counsel.................................................................... 34
9.10 California Department of Corporations Permit................................................... 34
10. Conditions to Aureal and Sub's Obligations.............................................................. 34
10.1 Accuracy of Representations and Warranties..................................................... 34
10.2 Covenants...................................................................................... 34
10.3 No Litigation.................................................................................. 34
10.4 Authorizations................................................................................. 34
10.5 No Catastrophic Event.......................................................................... 35
10.6 Required Consents.............................................................................. 35
10.7 Opinion of CRE's Counsel....................................................................... 35
10.8 Employment and Noncompete Agreements........................................................... 35
10.9 Shareholder Approval........................................................................... 35
10.10 Government Consents............................................................................ 35
10.11 Accounting Requirements........................................................................ 35
11. Termination of Agreement................................................................................ 35
11.1 Mutual Agreement............................................................................... 35
11.2 Failure to Fulfill Conditions.................................................................. 35
11.3 No Liability................................................................................... 36
11.4 Effect of Termination.......................................................................... 36
11.5 Non-Solicitation............................................................................... 36
11.6 Deposit; Account Receivable of Aureal.......................................................... 36
12. Indemnification......................................................................................... 37
12.1 Survival of Representations.................................................................... 37
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12.2 Indemnification by CRE Shareholders............................................................ 37
12.3 Threshold; Ceiling; Exclusivity................................................................ 38
12.4 Satisfaction of Indemnification Claim.......................................................... 38
12.5 Limitation on Claims........................................................................... 39
12.6 No Contribution................................................................................ 39
12.7 Interest....................................................................................... 39
12.8 Defense of Third Party Claims.................................................................. 39
12.9 Exercise of Remedies by Indemnitees Other Than Aureal.......................................... 41
12.10 CRE Shareholder Representative................................................................. 41
13. Miscellaneous........................................................................................... 42
13.1 Governing Laws................................................................................. 42
13.2 Binding upon Successors and Assigns............................................................ 42
13.3 Severability................................................................................... 42
13.4 Entire Agreement............................................................................... 43
13.5 Counterparts................................................................................... 43
13.6 Expenses....................................................................................... 43
13.7 Other Remedies................................................................................. 43
13.8 Amendment and Waivers.......................................................................... 43
13.9 Survival of Agreements......................................................................... 43
13.10 No Waiver...................................................................................... 43
13.11 Attorneys' Fees................................................................................ 43
13.12 Notices........................................................................................ 44
13.13 Time........................................................................................... 45
13.14 Construction of Agreement...................................................................... 45
13.15 No Joint Venture............................................................................... 45
13.16 Pronouns....................................................................................... 45
13.17 Further Assurances............................................................................. 45
13.18 Absence of Third Party Beneficiary Rights...................................................... 45
</TABLE>
EXHIBIT A KEY EMPLOYEES
EXHIBIT B MERGER CONSIDERATION SCHEDULE
EXHIBIT C ALLOCATION OF BONUS FUNDS
EXHIBIT D EMPLOYMENT AGREEMENT
EXHIBIT E WORK STATEMENT FOR CONSULTING AGREEMENT
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered
into as of this 7th day of May, 1996, by and among Aureal Semiconductor, a
Delaware corporation ("Aureal"), Aureal Acquisition Corporation, a California
corporation and wholly-owned subsidiary of Aureal ("Sub"), and Crystal River
Engineering, Inc., a California corporation ("CRE").
RECITAL
The parties intend that, subject to the terms and conditions
hereinafter set forth, Sub shall be merged with and into CRE, with CRE the
surviving corporation (the "Merger"), pursuant to a Certificate of Merger and
the applicable provisions of the laws of the State of California. Upon the
Merger, the holders of common stock of CRE shall be entitled to receive cash,
and the holders of options for common stock of CRE shall be entitled to receive
options to purchase Aureal common stock, in the manner and on the basis
determined herein, all as provided in the Certificate of Merger.
AGREEMENT
NOW, THEREFORE, in reliance on the foregoing recitals and in and for
the consideration and mutual covenants set forth herein, the parties agree as
follows:
1. DEFINITIONS .
1.1 "Affiliate" shall have the meaning set forth in the rules
and regulations promulgated by the Commission pursuant to the Securities Act.
1.2 "Aureal Audit" means the audit of the books and records of
CRE to be conducted by Arthur Andersen LLP, Aureal's auditors, for the years
ending April 30, 1994, April 30, 1995 and April 30, 1996.
1.3 "Bonus Fund" shall have the meaning set forth in Section
6.8 ("Bonus Plan").
1.4 "Bonus Plan" shall have the meaning set forth in Section
6.8 ("Bonus Plan").
1.5 "Cash Consideration" shall mean the cash consideration to
be paid by Aureal to the shareholders of CRE and the holders of Exercised Vested
CRE Options as consideration for the Merger, which shall not exceed Four Million
Three Hundred Forty-Six Thousand Seven Hundred Two Dollars ($4,346,702.00).
1.6 "Closing" and "Closing Date" shall have the meanings set
forth in Section .2.6 (the "Closing").
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1.7 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.8 "Commission" shall mean the Securities and Exchange
Commission.
1.9 "Confidential Information" shall mean that information of
a party ("Disclosing Party") which is disclosed to another party ("Receiving
Party") pursuant to this Agreement, in written form and marked "Confidential."
If Confidential Information is initially disclosed orally, the Disclosing Party
shall send a written summary of such information to the Receiving Party within
forty (40) days of disclosure and mark such summary "Confidential." Confidential
Information shall include, but not be limited to, trade secrets, know-how,
inventions, techniques, processes, algorithms, software programs, schematics,
designs, contracts, customer lists, financial information, sales and marketing
plans and business information.
1.10 "CRE Common Share Price" shall mean the price per share
to be paid by Aureal for the CRE Common Shares outstanding as of the Closing,
which will be Eight Dollars and Thirty Cents ($8.30) per share.
1.11 "CRE Common Shares" shall mean the shares of CRE common
stock issued and outstanding at the Effective Time, other than shares held by
holders who perfect their appraisal rights under California law with respect
thereto ("Dissenting Shares").
1.12 "CRE Core Technology" shall mean the CRE Technology
covered by the patent applications listed in Part 3.8(a)(i).
1.13 "CRE Technology" shall mean all versions and
implementations of any technology which has been or is being marketed, developed
or contracted for by CRE.
1.14 "Damages" shall include any loss, damage, injury, decline
in value, lost opportunity, liability, claim, demand, settlement, judgment,
award, fine, penalty, tax, fee (including reasonable attorneys' fees), charge,
costs (including costs of investigation) or expense of any nature, net of
insurance recovery or reimbursement or tax benefits realized.
1.15 "Effective Time" shall mean the time the Merger becomes
effective as defined in Section .2.7 ("Effective Time").
1.16 "Entity" shall mean corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
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1.17 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
1.18 "Exercised Vested CRE Options" shall mean the portion of
any Vested CRE Options that the optionholder has indicated by written notice to
CRE that he or she wishes to convert into the right to receive the CRE Common
Share Price.
1.19 "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body, or Entity and any court or
other tribunal).
1.20 "Indemnification Period" shall mean the period commencing
on the Closing Date and ending at the close of business on the eighteen month
anniversary of the Closing Date.
1.21 "Indemnitees" shall mean the following Persons: (a)
Aureal; (b) Aureal's current and future affiliates; (c) the respective
Representatives of the Persons referred to in clauses "(a)" and "(b)" above; and
(d) the respective successors and assigns of the Persons referred to in clauses
"(a)" and "(b)" and "(c)" above; provided, however, that any Person receiving
Aureal common stock pursuant to this Agreement shall not be deemed to be an
"Indemnitee."
1.22 "Key Employees" shall mean those employees set forth on
Exhibit A.
1.23 "Knowledge," when used to refer to the "knowledge of CRE"
or "the best knowledge of CRE"shall mean the present actual knowledge of CRE, as
reflected in its books and records, and the present actual knowledge of the
following directors and senior officers of CRE: Scott Foster, Kristine Foster,
Hardee Dunn, Toni Snyder, Mike Taylor and John Blair.
1.24 "Legal Proceeding" shall mean any action, suit,
litigation, arbitration proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving any court or other Governmental Body or any
arbitrator or arbitration panel.
1.25 "Material" when capitalized and used in reference to the
business, products or financial situation of CRE shall be construed, except as
specifically provided, to limit reference to matters with a value in excess of
$25,000. For example, a "Material adverse effect"
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would be an adverse effect resulting in costs or expenses in excess of $25,000.
When the word "material" is not capitalized it shall mean material with respect
to the matter referenced. For example, a reference to a material breach of a
particular agreement would mean a breach that is material with respect to the
particular contract (and not with respect to the overall business of CRE or
Aureal).
1.26 "Merger" shall mean the merger of Sub with and into CRE,
on the terms and conditions described herein.
1.27 "Merger Bonus" shall have the meaning set forth in
Section 5.10 ("Merger Bonus").
1.28 "Options" shall mean options issued pursuant to the CRE
Stock Option Plan and outstanding as of the Closing.
1.29 "Person" shall mean any individual, Entity or
Governmental Body.
1.30 "Proprietary Asset" shall mean: (a) any patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; and (b) any right to use or exploit any of
the foregoing including rights granted by third parties under license
agreements.
1.31 "Securities" shall mean the CRE Common Shares, the shares
to be canceled pursuant to Section .2.2(a), Dissenting Shares and the Options.
1.32 "Securities Act" shall mean the Securities Act of 1933,
as amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
1.33 "Transaction Documents" shall mean all documents or
agreements required to be delivered by any party hereunder, including the
Certificate of Merger.
1.34 "Unvested CRE Options" shall mean the portion of any
Options that have not vested as of the Closing Date, but excluding therefrom the
portion of any Options the vesting of which has been accelerated pursuant to the
provisions of Section 2.2(d) below.
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1.35 "Vested CRE Options" shall mean the portion of any
Options that have vested as of the Closing Date, including the portion of any
Options the vesting of which has been accelerated pursuant to the provisions of
Section 2.2(d) below.
2. PLAN OF REORGANIZATION .
2.1 THE MERGER . Subject to the terms and conditions of this
Agreement, Sub shall be merged with and into CRE in accordance with the
applicable provisions of the laws of California and with the terms and
conditions of this Agreement so that:
(a) At the Effective Time, Sub shall be merged with
and into CRE. As a result of the Merger, the separate corporate existence of Sub
shall cease and CRE shall continue as the surviving corporation (sometimes
referred to herein as the "Surviving Corporation"), which shall succeed to and
assume all of the rights and obligations of Sub in accordance with the laws of
California.
(b) The Articles of Incorporation and Bylaws of CRE
in effect immediately prior to the Effective Time shall be the articles of
incorporation and bylaws, respectively, of the Surviving Corporation after the
Effective Time unless and until further amended as provided by law.
(c) The directors and officers of Sub immediately
prior to the Effective Time shall be the directors and officers of the Surviving
Corporation after the Effective Time. Such directors and officers shall hold
their position until the election and qualification of their respective
successors or until their tenure is otherwise terminated in accordance with the
Bylaws of the Surviving Corporation.
2.2 CANCELLATION OF SHARES; DELIVERY OF CONSIDERATION AND
ASSUMPTION OF OPTIONS; ACCELERATION OF OPTIONS .
(a) At the Effective Time, each share of CRE capital
stock, if any, that is owned directly or indirectly by CRE shall be canceled and
no cash or other consideration shall be delivered in exchange therefor.
(b) At the Effective Time, each CRE Common Share
shall, by virtue of the Merger, and without further action on the part of any
holder thereof, be converted into the right to receive the CRE Common Share
Price in accordance with Sections .2.2 ("Cancellation of Shares; Delivery of
Consideration and Assumption of Options") and .2.3 ("Exchange Procedures");
provided, however, that the right to receive certain portions of such amounts or
to receive such amounts with respect to certain CRE Common Shares shall be
subject to applicable tax withholding and reporting requirements.
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(c) At the Effective Time, each share of capital
stock of Sub outstanding immediately prior to the Merger shall, by virtue of the
Merger, and without further action on the part of any holder thereof, continue
to be issued and shall be converted into one share of CRE common stock
outstanding after the Merger.
(d) At the discretion of CRE upon notice thereof to
Aureal on or before the Closing Date, the vesting of that portion of any Option
which would have vested after the Closing Date, but on or before September 30,
1996, shall be accelerated so that such vesting shall occur and be effective on
the Closing Date.
2.3 EXCHANGE PROCEDURES .
(a) At the Effective Time, each holder of a
certificate or certificates (each a "Certificate" and collectively, the
"Certificates") representing shares of CRE capital stock issued and outstanding
immediately prior to the Effective Time shall surrender such certificate(s) to
an officer of CRE designated for such purpose. Each Certificate which
immediately before the Effective Time evidenced CRE capital stock shall, from
and after the Effective Time until such certificate is surrendered to CRE or its
transfer agent, be deemed, for all corporate purposes, to evidence the right to
receive the consideration described above; provided, however, that no dividend
or other distribution payable to the holder of such certificate after the
Effective Time shall be paid in respect of such certificate until such
certificate is so surrendered by such holder.
(b) At the Effective Time, Aureal shall make
available to each CRE shareholder such consideration as is set forth on Exhibit
A (the "Merger Consideration Schedule") and to each holder of a CRE Option who
has notified CRE in writing of his intent to exercise his Exercised Vested CRE
Option within fourteen (14) days of the date of this Agreement an amount equal
to the CRE Common Share Price multiplied by the number of CRE Shares for which
the Exercised Vested CRE Option was exercised, less the amount required to
exercise the Exercised Vested CRE Option (the amount required to exercise the
Exercised Vested CRE Option shall be paid by Aureal to CRE on the Closing Date);
provided, however, that the amount made available by Aureal to all CRE
shareholders and holders of Exercised Vested CRE Options shall not exceed the
Cash Consideration.
(c) Each Exercised Vested CRE Option that is
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and at the Effective Time, automatically and without further action on
the part of any holder thereof, be exercised by the CRE option holder for CRE
common stock and thereafter converted into the right to receive the CRE Common
Share Price in accordance with Sections .2.2 ("Cancellation of Shares; Delivery
of Consideration and Assumption of Options") and .2.3 ("Exchange Procedures");
provided, however, that such amount made available by Aureal to all CRE
shareholders and holders of
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Exercised Vested CRE Options shall not exceed the
Cash Consideration. In order to exercise a Vested CRE Option, a CRE option
holder shall notify CRE in writing within fourteen (14) days of the date of this
Agreement, including with such notice a form W-9, of his desire to exercise all
or any portion of such Vested CRE Option. Each person who has notified CRE in
writing within fourteen (14) days of the date of this Agreement of his intent to
exercise a Vested CRE Option shall be deemed a shareholder of CRE on the date of
such exercise, as to the number of shares exercised by such person, for all
purposes of this Agreement, including, without limitation, the indemnification
provisions of Section 12 ("Indemnification and Escrow").
(d) Each holder of an Unvested CRE Option or a Vested
CRE Option that is outstanding at the Effective Time shall, by virtue of the
Merger and at the Effective Time, have such Unvested CRE Option or Vested CRE
Option be assumed by Aureal and converted into an option (an "Aureal Option") to
purchase that number of shares of Aureal common stock (the "Aureal Option
Shares") determined by multiplying the number of shares of CRE common stock
purchasable under the Unvested CRE Option and Vested CRE Option immediately
prior to the Effective Time by the CRE Common Share Price, with an exercise
price per share of Aureal common stock purchasable under each such Aureal Option
equal to the aggregate exercise price by grant of the Unvested CRE Option and
Vested CRE Option divided by the Aureal Option Shares. After the Effective Time,
Aureal shall issue to those holders of an outstanding Unvested CRE Option or
Vested CRE Option a document evidencing the assumption by Aureal referenced
above. No fractional shares of Aureal common stock shall be issued in connection
with an Aureal Option. All fractional shares which would otherwise be issuable
shall be provided for in accordance with Section .2.4 hereof ("Fractional
Shares"). All of the other terms of each Unvested CRE Option and Vested CRE
Option assumed by Aureal including, without limitation, the vesting period, will
remain the same.
(e) Notwithstanding anything to the contrary in this
Section .2.3 ("Exchange Procedures"), no party hereto shall be liable to a
holder of shares of CRE capital stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(f) In the event any Certificates evidencing CRE
capital stock shall have been lost, stolen or destroyed, Aureal shall issue in
exchange for such lost, stolen or destroyed certificates, the cash amount
otherwise issuable under Section .2.2 ("Cancellation of Shares; Delivery of
Consideration and Assumption of Options") upon the making of an affidavit of
that fact by the holder thereof, provided, however, Aureal may, in its
discretion and as a condition precedent to the issue thereof, require the owner
of such lost, stolen or destroyed Certificates to indemnify Aureal against any
claim that may be made against Aureal with respect to the Certificate alleged to
have been lost, stolen or destroyed.
2.4 FRACTIONAL SHARES . No fractional shares of Aureal common
stock will be issued in connection with the Merger, but in lieu thereof, a
holder of an Unvested CRE Option or
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Vested CRE Option who would otherwise be entitled to receive a fraction of a
share of Aureal common stock will receive from Aureal, promptly upon the
exercise of such option, an amount of cash equal to the CRE Common Share Price
multiplied by the fraction of a share of Aureal common stock to which such
holder would otherwise be entitled.
2.5 APPRAISAL RIGHTS . Any Dissenting Shares shall not receive
the CRE Common Share Price in cash but shall be converted into the right to
receive such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to the law of the State of California. CRE shall give
Aureal prompt notice of any demand received by CRE for appraisal of CRE capital
stock, and Aureal shall have the right to participate in all negotiations and
proceedings with respect to such demand. CRE agrees that, except with the prior
written consent of Aureal or as required under the California Corporations Code,
it will not voluntarily make any payment with respect to, or settle or offer to
settle, any such demand for appraisal. Each holder of Dissenting Shares
("Dissenting Stockholder") who, pursuant to the provisions of the California
Corporations Code, becomes entitled to payment of the value of shares of CRE
common stock shall receive payment therefor (but only after the value therefor
shall have been agreed upon or finally determined pursuant to such provisions).
In the event of legal obligation, after the Effective Time, to deliver the CRE
Common Share Price to a holder of shares of CRE common stock who shall have
failed to make an effective demand for appraisal or shall have lost his status
as a Dissenting Shareholder, Aureal shall deliver, upon surrender by such holder
of his certificate or certificates representing shares of CRE common stock, as
applicable, the cash to which such holder is then entitled under Section .2.2
("Cancellation of Shares; Delivery of Consideration and Assumption of Options").
2.6 THE CLOSING . Subject to termination of this Agreement as
provided in Section .11 ("Termination of Agreement") below, the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Gray Cary Ware & Freidenrich, A Professional Corporation, 400
Hamilton Avenue, Palo Alto, California as soon as possible after all conditions
to closing have been satisfied, or such other place, time and date as Aureal and
CRE may mutually select (the "Closing Date").
2.7 EFFECTIVE TIME . Simultaneously with the Closing, the
Certificate of Merger shall be filed in the office of the Secretary of State of
the State of California. The Merger shall become effective immediately upon the
filing of the Certificate of Merger with such office (the "Effective Time").
3. REPRESENTATIONS AND WARRANTIES OF CRE .
Except as otherwise set forth in the "CRE Disclosure Schedule"
delivered as of the date hereof or amended pursuant to the provisions of Section
5.10("Review by Jonathan Abel") ("CRE Disclosure Schedule"), CRE represents and
warrants to Aureal as set forth below.
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No fact or circumstance disclosed to Aureal shall constitute an exception to
these representations and warranties unless such fact or circumstance is set
forth in the CRE Disclosure Schedule with specific reference to the primary
representation as to which it is an exception.
3.1 ORGANIZATION . CRE is a corporation duly organized,
validly existing and in good standing under the laws of the State of California
and has corporate power and authority to carry on its business as it is now
being conducted. CRE is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the nature of its business or properties
makes such qualification or licensing necessary except to the extent that any
failure to qualify or obtain licenses would not in the aggregate have a Material
adverse effect on the operations, assets, financial condition or prospects of
CRE. The CRE Disclosure Schedule contains a true and complete listing of the
locations of all sales offices, manufacturing facilities, and any other offices
or facilities of CRE and a true and complete list of all states in which CRE
maintains any employees. The CRE Disclosure Schedule contains a true and
complete list of all states in which CRE is duly qualified to transact business
as a foreign corporation.
3.2 CAPITALIZATION .
(a) The authorized capital stock of CRE as of the
date of this Agreement consists of 50,000,000 shares of common stock. As of the
date of this Agreement 166,510 shares of CRE common stock are issued and
outstanding and held of record by CRE's Shareholders as set forth and identified
in the CRE Disclosure Schedule.
(b) On the date of this Agreement, 1,000,000 shares
of CRE common stock are available or reserved for issuance under the CRE 1994
Stock Option Plan (the "CRE Plan"), and as of the date of this Agreement,
531,780 shares are subject to outstanding options and held of record by CRE's
option holders as set forth and identified in the option holder list provided to
Aureal or its representatives.
(c) All of the outstanding Securities have been duly
authorized and are validly issued, fully paid and nonassessable. All outstanding
Securities were issued in compliance with applicable securities laws other than
as specifically identified in the CRE Disclosure Schedule. Except as otherwise
set forth in the CRE Disclosure Schedule, none of the outstanding Securities
were issued in consideration in whole or in part for any contribution, transfer
or assignment of the CRE Technology or proprietary assets or any proprietary
rights incorporated therein or otherwise related thereto. Except as otherwise
set forth in the CRE Disclosure Schedule, CRE does not have any other shares of
its capital stock issued or outstanding and does not have any other outstanding
subscriptions, options, warrants, rights or other agreements or commitments
obligating CRE to issue shares of its capital stock or other securities.
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3.3 AUTHORITY RELATIVE TO THIS AGREEMENT . CRE has the
corporate power to enter into this Agreement and the other Transaction Documents
to which it is a party and to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by its Board of Directors and no other
corporate proceedings on the part of CRE are necessary to authorize this
Agreement, the other Transaction Documents and the transactions contemplated
herein and therein other than the consent of the outstanding shares of CRE. CRE
is not subject to or obligated under any charter, bylaw or contract provision or
any license, franchise or permit, or subject to any order or decree, which would
be breached or violated by or in conflict with its executing and carrying out
this Agreement and the transactions contemplated hereunder and under the
Transaction Documents. Except as contemplated by this Agreement, no consent of
any person who is a party to a contract the loss or termination of which could
reasonably result in expenses or damages in excess of Twenty-Five Thousand
Dollars ($25,000), nor consent of any governmental authority, is required to be
obtained on the part of CRE to permit the transactions contemplated herein and
continue the business activities of CRE as previously conducted by CRE. This
Agreement and the other Transaction Documents when executed by CRE shall be the
valid and binding obligations of CRE enforceable in accordance with their terms.
3.4 FINANCIAL STATEMENTS .
(a) CRE has delivered, or will deliver prior to the
Effective Time, to Aureal copies of (i) CRE's unaudited balance sheets and
related statements of income, retained earnings and cash flows compiled by
Robert Davis Accountancy Corporation for the fiscal years ended September 30,
1995, September 30, 1994 and September 30, 1993 and (ii) CRE's unaudited balance
sheet as of March 31, 1996 (the "CRE Balance Sheet") and related statements of
income, retained earnings and cash flows for the period then ended.
(b) All financial statements delivered pursuant to
Section .3.4(a) (collectively, the "CRE Financial Statements") are complete and
in accordance with the books and records of CRE and present fairly the financial
position of CRE as of their historical dates. Except as to the extent reflected
or reserved against in such balance sheets (including the notes thereto), CRE
does not have, as of the dates of such balance sheets, any Material liabilities
or obligations (absolute or contingent) of a nature required or customarily
reflected in an unaudited balance sheet.
(c) CRE has no Material debt, liability, or
obligation of any nature, whether accrued, absolute, contingent, or otherwise,
and whether due or to become due, that is not reflected or reserved against in
the CRE Financial Statements, except for those (i) that may have been incurred
after the date of the CRE Financial Statements or (ii) that are not required in
order to fairly present the financial position of CRE. All debts, liabilities,
and obligations
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incurred after the date of the CRE Financial Statements were
incurred in the ordinary course of business, and are usual and normal in amount
both individually and in the aggregate, and none of which are Material.
3.5 TAX MATTERS .
(a) CRE has fully and timely, properly and accurately filed
all tax returns and reports required to be filed by it, including all federal,
foreign, state and local tax returns and estimates for all years and periods
(and portions thereof) for which any such returns, reports or estimates were
due. All such returns, reports and estimates were prepared in the manner
required by applicable law. All income, sales, use, occupation, property or
other taxes or assessments due from CRE have been paid. There are no pending
assessments, asserted deficiencies or claims for additional taxes that have not
been paid. The reserves for taxes, if any, reflected on the CRE Balance Sheet
are adequate as of the Closing, in accordance with generally accepted accounting
principles, and there are no tax liens on any property or assets of CRE. There
have been no examinations of any tax returns or reports by any applicable
governmental agency. No state of facts exists or has existed which would
constitute grounds for the assessment of any penalty or of any further tax
liabilities beyond that shown on the respective tax reports, returns or
estimates. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any federal income tax return or
report for any period.
(b) All taxes which CRE has been required to collect or
withhold have been duly collected or withheld and, to the extent required, have
been paid to the proper taxing authority.
(c) CRE is not a party to any tax-sharing agreement or similar
arrangement with any other party.
(d) At no time has CRE been included in the federal
consolidated income tax return of any affiliated group of corporations.
(e) No payment which CRE is obliged to pay to any director,
officer, employee or independent contractor pursuant to the terms of an
employment agreement, severance agreement or otherwise will constitute an excess
parachute payment as defined in Section 280G of the Code.
(f) CRE will not be required to include any Material
adjustment in taxable income for any tax period (or portion thereof) ending
before the Closing Date pursuant to Section 481(c) of the Code or any provision
of the tax laws of any jurisdiction requiring tax adjustments as a result of a
change in method of accounting implemented by CRE (other than as a result of any
change in method of accounting required as a result of the Aureal Audit) prior
to
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the Closing Date for any tax period (or portion thereof) ending on or before
the Closing Date.
(g) CRE is not currently under any contractual obligation to
pay any tax obligations of, or with respect to any transaction relating to, any
other person or to indemnify any other person with respect to any tax.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS . Since the date of the CRE
Balance Sheet, CRE has not (a) suffered any Material adverse change in its
financial condition or in the operations of its business; (b) suffered any
damage, destruction or loss, whether covered by insurance or not, Materially and
adversely affecting its properties or businesses; (c) granted any increase in
the compensation payable or to become payable by CRE to its officers or
employees without the knowledge and consent of Aureal; (d) declared, set aside
or paid any dividend or made any other distribution on or in respect of the
shares of the capital stock of CRE or declared any direct or indirect
redemption, retirement, purchase or other acquisition by CRE of such shares; (e)
issued any shares of capital stock of CRE or any warrants, rights, options or
entered into any commitment relating to the shares of CRE except for the
issuance of CRE Common Shares pursuant to the exercise of outstanding options;
(f) other than as may be required pursuant to the Aureal Audit, made any change
in the accounting methods or practices it follows, whether for general financial
or tax purposes, or any change in depreciation or amortization policies or rates
adopted therein; (g) sold, leased, abandoned or otherwise disposed of any real
property or any machinery, equipment or other operating property other than in
the ordinary course of business; (h) sold, assigned, transferred, licensed or
otherwise disposed of any patent, trademark, trade name, brand name, copyright
(or pending application for any patent, trademark or copyright) invention,
process, know-how, formula or trade secret or interest thereunder or other
intangible asset except in the ordinary course of its business; (i) suffered any
labor dispute; (j) engaged in any activity or entered into any Material
commitment or transaction (including, without limitation, any borrowing or
capital expenditure) other than in the ordinary course of business; (k) incurred
any liabilities except in the ordinary course of business and consistent with
past practice which would be required to be disclosed in financial statements
prepared in accordance with generally accepted accounting principles; (l)
permitted or allowed any of its property or assets to be subjected to any
mortgage, deed of trust, pledge, lien, security interest or other encumbrance of
any kind, except those permitted under Section .3.7 ("Title and Related
Matters") hereof, other than any purchase money security interests incurred in
the ordinary course of business; (m) made any capital expenditure or commitment
for additions to property, plant or equipment except in the ordinary course of
business; (n) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or arrangement
with any of its Affiliates, officers, directors or shareholders or any Affiliate
or associate of any of the foregoing; (o) made any amendment to or terminated
any agreement which, if not so amended or terminated, would be required to be
disclosed on the CRE Disclosure Schedule; or (p) agreed to take any action
described in this Section .3.6 ("Absence of Certain Changes or Events") or
outside of its ordinary course of business or which would
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constitute a breach of any of the representations contained in this Agreement.
3.7 TITLE AND RELATED MATTERS . CRE has good and marketable
title to all the properties, interests in properties and assets, real and
personal, reflected in the CRE Balance Sheet or acquired after the date of the
CRE Balance Sheet (except properties, interests in properties and assets sold or
otherwise disposed of since the date of the CRE Balance Sheet in the ordinary
course of business), free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) liens for current taxes and
other governmental charges not yet due and payable, (ii) liens of carriers,
warehousemen, mechanics and materialmen and similar liens incurred in the
ordinary course of business, and (iii) liens which in the aggregate do not
secure more than Ten Thousand Dollars ($10,000) in liabilities. The equipment of
CRE necessary to the operation of its business is in good operating condition
and repair, ordinary wear and tear excepted. All real or personal property
leases to which CRE is a party are valid, binding, enforceable and effective in
accordance with their respective terms. CRE is not in material default under any
of such leases and to the best of CRE's knowledge, no other party is in material
default under such leases. There is not under any of such leases any event
which, with notice or lapse of time or both, would constitute a material default
by CRE. The CRE Disclosure Schedule contains a description of all personal
property having a book value exceeding Ten Thousand Dollars ($10,000) and all
real property leased or owned by CRE, describing its interest in said property
and with respect to real property the street address of such parcel. True and
correct copies of CRE's leases have been provided to Aureal or its
representatives.
3.8 PROPRIETARY ASSETS .
(a) Part .3.8(a)(i) of the CRE Disclosure Schedule
sets forth, with respect to each CRE Proprietary Asset registered with any
Governmental Body or for which an application has been filed with any
Governmental Body, (i) a brief description of such Proprietary Asset, and (ii)
the names of the jurisdictions covered by the applicable registration or
application. Part .3.8(a)(ii) of the CRE Disclosure Schedule identifies and
provides a brief description of all other types of CRE Proprietary Assets owned
by CRE. Part .3.8(a)(iii) of the CRE Disclosure Schedule identifies and provides
a description of the CRE Technology which, to the knowledge of CRE, may be
patentable once an application has been filed with the appropriate Governmental
Body. Part .3.8(a)(iv) of the CRE Disclosure Schedule identifies and provides a
brief description of each Proprietary Asset licensed to CRE by any Person
(except for any Proprietary Asset that is licensed to CRE under any third party
software license generally available to the public at a cost of less than Ten
Thousand Dollars ($10,000)), and identifies the license agreement under which
such Proprietary Asset is being licensed to CRE. Except as set forth in Part
.3.8(a)(v) of the CRE Disclosure Schedule and to the best of CRE's knowledge,
CRE has good, valid and marketable title to all of the CRE Proprietary Assets
and CRE Technology identified in Parts .3.8(a)(i), .3.8(a)(ii) and .3.8(a)(iii)
of the CRE Disclosure Schedule, free and clear of all liens and other
encumbrances, and has a valid right to use all Proprietary Assets and
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CRE Technology identified in Part .3.8(a)(iv) of the CRE Disclosure Schedule.
Except as set forth in Part .3.8(a)(vi) of the CRE Disclosure Schedule, CRE is
not obligated to make any payment to any Person for the use of any CRE
Proprietary Asset. Except as set forth in Part .3.8(a)(vii) of the CRE
Disclosure Schedule, CRE has not developed jointly with any other Person any CRE
Proprietary Asset with respect to which such other Person has any rights.
(b) Except as set forth in Part .3.8(b) of the CRE
Disclosure Schedule, CRE has taken measures and precautions necessary to protect
and maintain the confidentiality and secrecy of all CRE Proprietary Assets
(except CRE Proprietary Assets whose value would be unimpaired by public
disclosure) and otherwise to maintain and protect the value of all CRE
Proprietary Assets. Except as set forth in Part .3.8(b) of the CRE Disclosure
Schedule, CRE has not disclosed or delivered to any Person, or permitted the
disclosure or delivery to any Person of the source code, or any portion or
aspect of the source code, of any CRE Core Technology.
(c) Except as set forth in Part 3.8(c) of the CRE
Disclosure Schedule, to the knowledge of CRE, none of the CRE Proprietary Assets
infringes or conflicts with any Proprietary Asset owned or used by any other
Person. Except as set forth in Part 3.8(c) of the CRE Disclosure Statement, to
the knowledge of CRE, CRE is not infringing, misappropriating or making any
unlawful use of, and CRE has not at any time infringed, misappropriated or made
any unlawful use of, or received any notice or other communication (in writing
or otherwise) of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Proprietary Asset owned or used by any
other Person. To CRE's knowledge, no other Person is infringing,
misappropriating or making any unlawful use of, and no Proprietary Asset owned
or used by any other Person infringes or conflicts with, any CRE Proprietary
Asset.
(d) All CRE Technology conforms in all material
respects with any published specification, technical documentation or
performance standard with respect thereto made or provided by CRE. There has not
been any claim by any customer or other Person given to CRE alleging that any
CRE Technology (including each version thereof that has ever been licensed or
otherwise made available by CRE to any Person) does not conform in all material
respects with any published specification, technical documentation or
performance standard made or provided by CRE, and, to CRE's best knowledge,
there is no basis for any such claim.
(e) The CRE Proprietary Assets constitute all the
Proprietary Assets used by CRE to conduct its business in the manner in which
such business has been and is being conducted. CRE has not licensed any of the
CRE Proprietary Assets to any Person on an exclusive basis. CRE has not entered
into any covenant not to compete or contract limiting its ability to exploit
fully any of the CRE Proprietary Assets or to transact business in any market or
geographical area or with any Person.
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(f) Each current and former employee, consultant and
independent contractor of CRE has executed and delivered to CRE an agreement
providing for the conveyance to CRE, subject to the rights of the employee,
consultant or contractor under State or federal law, of full right and title to
all works created by the employee, while employed, or by the consultant or
contractor as to the work undertaken for and delivered to CRE by such consultant
or contractor. Such agreements, when executed by an employee, consultant or
contractor, as the case may be, are enforceable in accordance with the terms
thereof.
(g) No product liability or warranty claims which
individually or in the aggregate could exceed the reserves therefor on the CRE
Financial Statements have been communicated in writing to or threatened against
CRE.
(h) CRE has discussed the representations contained
in this Section 3.8 with Jonathan Abel, has asked Mr. Abel to review Part 3.8 of
the Disclosure Statement and has incorporated Mr. Abel's material, substantive
comments into said Part 3.8.
3.9 EMPLOYEE BENEFIT PLANS . There is no unfunded prior
service cost with respect to any bonus, deferred compensation, pension,
profit-sharing, retirement, stock purchase, stock option, or other employee
benefit or fringe benefit plans, whether formal or informal, maintained by CRE.
Each bonus, deferred compensation, pension, profit-sharing, retirement, stock
purchase, stock option, and other employee benefit or fringe benefit plans,
whether formal or informal, maintained by CRE conforms to all applicable
requirements of the Employees Retirement Income Security Act of 1974. Part 3.9
of the CRE Disclosure Schedule lists and describes all profit-sharing, bonus,
incentive, deferred compensation, vacation, severance pay retirement, stock
option, group insurance or other plans (whether written or not) providing
employee benefits. Except as provided in the plans listed in Part 3.9 of the CRE
Disclosure Schedule and for the compensation described in Part 3.17 of the CRE
Disclosure Schedule, CRE has no obligations to provide compensation or benefits
to its employees.
3.10 BANK ACCOUNTS . Part 3.10 of the CRE Disclosure Schedule
sets forth the names and locations of all banks, trusts, companies, savings and
loan associations, and other financial institutions at which CRE maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
3.11 CONTRACTS .
(a) Except as listed in Part 3.11(a) of the CRE
Disclosure Schedule, CRE has no agreements, contracts or commitments that
provide for the sale, licensing or distribution by CRE of any of its products,
technology, know-how, trademarks or trade names except in the ordinary course of
its business.
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(b) Except as listed in Part 3.11(b) of the CRE
Disclosure Schedule, CRE has no agreements, contracts or commitments that call
for fixed and/or contingent payments or expenditures by or to CRE of more than
Twenty Five Thousand Dollars ($25,000).
(c) Except as listed in Part 3.11(c) of the CRE
Disclosure Schedule, CRE, CRE has not granted to any third party any rights to
reproduce or manufacture (for CRE or for others) any of the CRE Core Technology,
nor has CRE granted to any third party any exclusive rights of any kind with
respect to any of the CRE Core Technology, including, without limitation,
territorial exclusivity or exclusivity with respect to particular versions,
implementations or translations of any of the CRE Core Technology, nor has CRE
granted any third party any right to market any of the CRE CoreTechnology under
any "private label" arrangements pursuant to which CRE is not identified as the
source of such goods.
(d) CRE has no purchase agreement, contract or
commitment that calls for fixed and/or contingent payments by CRE that are in
excess of the normal, ordinary and usual requirements of the business of CRE as
it has historically been conducted.
(e) There is no outstanding sales contract,
commitment or proposal (including, without limitation, porting and development
projects) of CRE that is currently expected to result in any loss (before
allocation of overhead and administrative costs) upon completion or performance
thereof.
(f) Except as listed in Part 3.11(d) of the CRE
Disclosure Statement, CRE has no outstanding agreements, contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable by it on
notice of not longer than thirty (30) days and without liability, penalty or
premium.
(g) CRE has no employment, independent contractor or
similar agreement, contract or commitment that is not terminable on no more than
thirty (30) days' notice without penalty or liability of any type, including,
without limitation, severance or termination pay.
(h) CRE has no currently effective collective
bargaining or union agreements, contracts or commitments.
(i) CRE is not restricted by agreement from carrying
on its business anywhere in the world.
(j) CRE is under no liability or obligation, and no
such outstanding claim has been made, with respect to the return of inventory or
merchandise in the possession of
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wholesalers, distributors, retailers, or other customers, except such
liabilities, obligations and claims as, in the aggregate, do not exceed the
amount reserved therefor on the CRE Balance Sheet.
(k) CRE has not guaranteed any obligations of other
persons or made any agreements to acquire or guarantee any obligations of other
persons.
(l) CRE has no outstanding loan or advance to any
person; nor is it party to any line of credit, standby financing, revolving
credit or other similar financing arrangement of any sort which would permit the
borrowing by CRE of any sum not reflected in the Financial Statements.
(m) All Material contracts, agreements and
instruments to which CRE is a party are valid, binding, in full force and
effect, and enforceable by CRE in accordance with their respective terms, and
CRE is not in material breach thereof. No such Material contract, agreement or
instrument contains any Material liquidated-damages, penalty or similar
provision. To the best of CRE's knowledge, no party to any such Material
contract, agreement or instrument intends to cancel, withdraw, modify or amend
such contract, agreement or arrangement. CRE has received no notice that it is
in material default under or in material breach or violation of any Material
contract, commitment or restriction to which CRE is a party or to which it or
any of its properties is bound. To CRE's best knowledge, no other party is in
material default under or in material breach or violation of, nor is there any
valid basis for any claim of material default by any other party under or any
material breach or violation by any other party of, any Material contract,
commitment, or restriction to which CRE is bound or by which any of its
properties is bound.
(n) The CRE Disclosure Schedule also lists each
vendor who manufactures for or supplies to CRE any Material product or component
or is the sole source for any product or component.
3.12 ORDERS, COMMITMENTS AND RETURNS . All accepted and
unfilled orders entered into by CRE for the sale, license, or lease or other
disposition by CRE of its technology, and all agreements, contracts, or
commitments for the purchase of supplies, were made in the ordinary course of
business.
3.13 COMPLIANCE WITH LAW . To the best of CRE's knowledge, CRE
is in compliance in all Material respects with all applicable laws and
regulations. Neither CRE nor, to CRE's best knowledge, any of its employees has
directly or indirectly paid or delivered any fee, commission or other sum of
money or item of property, however characterized, to any finder, agent,
government official or other party in the United States or any other country,
that was or is in violation of any federal, state, or local statute or law or of
any statute or law of any other
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country having jurisdiction. CRE has not knowingly participated directly or
indirectly in any boycotts or other similar practices affecting any of its
customers. To the best of its knowledge, CRE has complied at all times with any
and all applicable federal, state and foreign laws, rules, regulations,
proclamations and orders relating to the importation or exportation of its
technologies.
3.14 LABOR DIFFICULTIES .
(a) CRE is not engaged in any unfair labor practice
and is not in violation of any applicable laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours.
(b) There is no unfair labor practice complaint
against CRE actually pending or threatened before the National Labor Relations
Board.
(c) There is no strike, labor dispute, slowdown, or
stoppage actually pending or threatened against CRE.
(d) to CRE's best knowledge, no union organizing
activities are taking place.
(e) No grievance that might have an adverse effect on
CRE or the conduct of its business, nor any arbitration proceeding arising out
of or under any collective bargaining agreement is pending and no claims
therefor exist.
(f) No collective bargaining agreement that is
binding on CRE restricts it from relocating or closing any of its operations.
(g) CRE has not experienced any Material work
stoppage or other Material labor difficulty.
3.15 TRADE REGULATION AND PRACTICES . CRE has not terminated
its relationship with or refused to ship CRE Technology to any third party which
in the twelve (12) month period prior to the date of this Agreement had been a
dealer, distributor, OEM, third party marketing entity or customer of CRE. All
of the prices charged by CRE in connection with the marketing or sale of any
products or services have been in compliance with all applicable laws and
regulations. No claims have been communicated or threatened against CRE with
respect to wrongful termination of any dealer, distributor or any other
marketing entity, discriminatory pricing, price fixing, unfair competition,
false advertising, or any other violation of any laws or regulations relating to
anti-competitive practices or unfair trade practices of any kind, and no
specific situation, set of facts, or occurrence provides any basis for any such
claim.
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3.16 INSIDER TRANSACTIONS . No Affiliate of CRE has any
beneficial interest (other than as a shareholder of CRE) in (i) any equipment,
Proprietary Asset or other property used in connection with or pertaining to the
business of CRE, or (ii) any creditor, supplier, customer, manufacturer, agent,
representative, or distributor of products of CRE; provided, however, that no
such Affiliate or other person shall be deemed to have such an interest solely
by virtue of the ownership of less than one percent (1%) of the outstanding
stock or debt securities of any publicly-held company, the stock or debt
securities of which are traded on a recognized stock exchange or quoted on the
National Association of Securities Dealers Automated Quotation System or the New
York Stock Exchange.
3.17 EMPLOYEES, INDEPENDENT CONTRACTORS AND CONSULTANTS . The
CRE Disclosure Schedule lists and describes all currently effective consulting,
independent contractor and/or employment agreements and other Material
agreements concluded with individual employees, independent contractors or
consultants to which CRE is a party. All salaries and wages paid by CRE are in
compliance with applicable federal, state and local laws. Part 3.17 of the CRE
Disclosure Schedule lists the names of all CRE employees and their annual rate
of compensation, including bonuses and other cash payments of any kind. CRE's
aggregate accrued vacation and severance pay as of March 31, 1996 is as set
forth on the CRE Disclosure Schedule. CRE is not aware of any CRE employees who
intend to terminate their employment with Aureal after the Merger.
3.18 INSURANCE . The CRE Disclosure Schedule contains a list
of the principal policies of fire, liability and other forms of insurance held
by CRE. CRE has not done anything, either by way of action or inaction, that
might invalidate such policies in whole or in part.
3.19 LITIGATION . There are no suits, actions or proceedings
pending or, to CRE's best knowledge, threatened against or affecting CRE or
which questions or challenges the validity of this Agreement. There is no
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against CRE.
3.20 GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS . All
Material licenses, franchises, permits and other governmental authorizations
held by CRE are valid and sufficient for the business presently carried on by
CRE. The business of CRE is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for violations which
either singly or in the aggregate do not and will not result in liability or
penalties in excess of Twenty-Five Thousand Dollars ($25,000).
3.21 CORPORATE MINUTES, ETC . The corporate minute books,
stock certificate books, stock registers and other corporate records of CRE are
complete and accurate in all Material respects, and the signatures appearing on
all documents contained therein are the true
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signatures of the persons purporting to have signed the same. All actions
reflected in such books and records were duly and validly taken in compliance
with the laws of the applicable jurisdiction. True and correct copies of such
records have been provided to Aureal or its representatives.
3.22 SUBSIDIARIES . CRE has no subsidiaries. CRE does not own
or control (directly or indirectly) any capital stock, bonds or other securities
of, and does not have any proprietary interest in, any other corporation,
general or limited partnership, firm, association or business organization,
entity or enterprise, and CRE does not control (directly or indirectly) the
management or policies of any other corporation, partnership, firm, association
or business organization, entity or enterprise.
3.23 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS .
(a) As of the date hereof, to the best knowledge of
CRE, no underground storage tanks are present under any property that CRE or any
of its subsidiaries has at any time owned, operated, occupied or leased. As of
the date hereof, except as set forth in the CRE Disclosure Schedule, no Material
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws (a
"Hazardous Material"), are present as a result of the actions of CRE, or any
actions of any third party or otherwise, in, on or under any property, including
the land and the improvements, ground water and surface water, that CRE has at
any time owned, operated, occupied or leased.
(b) At no time has CRE transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Closing
Date, nor has CRE disposed of, transported, sold, or manufactured any product
containing a Hazardous Material (collectively, "Hazardous Materials Activities")
in violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) CRE currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of its Hazardous Material Activities and other
businesses of CRE as such activities and businesses are currently being
conducted, the absence of which would be reasonably likely to result in fines to
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CRE in excess of Twenty-Five Thousand Dollars ($25,000).
(d) No action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim is pending or, to the best
knowledge of CRE, threatened concerning any Environmental Permit or any
Hazardous Material Activity of CRE. CRE is not aware of any fact or circumstance
which could involve CRE in any environmental litigation or impose upon CRE any
environmental liability which would be reasonably likely to exceed Twenty Five
Thousand Dollars ($25,000).
3.24 CORPORATE DOCUMENTS AND CONTRACTS . CRE has furnished to
Aureal for its examination: (i) copies of its Articles of Incorporation, as
amended, and Bylaws, as amended; (ii) its Minute Book containing all records
required to be set forth of all proceedings, consents, actions, and meetings of
the shareholders, the board of directors and any committees thereof; (iii) all
permits, orders, and consents issued by any regulatory agency with respect to
CRE, or any securities of CRE, and all applications for such permits, orders,
and consents; and (iv) the stock transfer books of CRE setting forth all
transfers of any capital stock. CRE has delivered to Aureal and/or Aureal's
counsel true and correct copies of all agreements or other documents listed or
referred to in the CRE Disclosure Schedule.
3.25 NO BROKERS . Neither CRE nor, to the best of CRE's
knowledge, any CRE shareholder, is obligated for the payment of fees or expenses
of any broker or finder in connection with the origin, negotiation or execution
of this Agreement or in connection with any transaction contemplated hereby or
thereby.
3.26 PROXIES . Pursuant to the request of Aureal, CRE shall
cause Scott Foster to execute and deliver to Aureal simultaneously with the
execution of this Agreement proxies which may only be revoked upon material
breach of this Agreement by Aureal or upon failure of any condition to CRE's
obligations to close the Merger.
3.27 DISCLOSURE . No statements by CRE contained in this
Agreement and the Exhibits attached hereto, any other Transaction Document or
any written statement or certificate furnished or to be furnished pursuant
hereto or in connection with the transactions contemplated hereby and thereby
(when read together) contains any untrue statement of a Material fact or omits
to state a Material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.
4. REPRESENTATIONS AND WARRANTIES OF AUREAL AND SUB .
Except as otherwise set forth in the "Aureal Disclosure
Schedule" delivered as of the date hereof ("Aureal Disclosure Schedule"), Aureal
and Sub jointly and severally represent and warrant to CRE as set forth below.
No fact or circumstance disclosed to CRE shall
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constitute an exception to these representations and warranties unless such fact
or circumstance is set forth in the Aureal Disclosure Schedule with specific
reference to the representation as to which it is an exception.
4.1 ORGANIZATION AND GOOD STANDING . Aureal and Sub are
corporations duly organized, validly existing and in good standing under the
laws of the States of Delaware and California, respectively, and have full power
and authority to carry on their businesses as now conducted. Aureal and Sub are
qualified as foreign corporations in any jurisdiction in which a failure to
qualify would have a material adverse effect on the operations or financial
condition of Aureal and/or Sub.
4.2 POWER, AUTHORIZATION AND VALIDITY .
(a) Aureal and Sub have the right, power, legal
capacity and authority to enter into and perform their respective obligations
under this Agreement and other Transaction Documents.
(b) The execution, delivery and performance of this
Agreement and the Certificate of Merger have been, or will have been prior to
the Closing, duly and validly approved and authorized by the Boards of Directors
of Aureal and Sub and the shareholder of Sub. No authorization or approval,
governmental or otherwise, is necessary in order to enable Aureal and Sub to
enter into and to perform the applicable terms of this Agreement or the
Certificate of Merger.
(c) This Agreement and any agreements which are
exhibits to this Agreement are the valid and binding obligations of Aureal and
Sub enforceable in accordance with their terms.
(d) The adoption of the Bonus Plan, the issuance of
the Aureal Options, the amendment of the 1995 Stock Option Plan to provide for
the issuance of the Aureal Options, the reservation of shares of Aureal's common
stock for issuance upon exercise of the Aureal Options, and the issuance of such
shares have been, or will have been prior to or effective on the Closing, duly
and validly approved and authorized by the Board of Directors of Aureal.
4.3 CAPITALIZATION . The authorized capital stock of Aureal is
50,000,000 shares of Common Stock. Aureal's Board of Directors has, subject to
stockholder approval, increased the authorized capital stock of Aureal to
100,000,000 shares of Common Stock and intends to reserve, after the Closing, up
to twenty percent (20%) of the then fully diluted Common Stock (including
outstanding shares and all options and warrants to purchase Common Stock) for
issuance under the Plans (as such term is defined below). As of April 30, 1996,
there
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are issued and outstanding 30,000,000 shares of Aureal's Common Stock. All
such issued and outstanding shares have been duly authorized and validly issued,
are fully paid and nonassessable and were issued in compliance with all
applicable state and federal laws concerning the issuance of securities. Except
for (i) 7,500,000 shares of Common Stock which are currently reserved under
Aureal's 1994 Stock Option Plan and Aureal's 1995 Stock Option Plan
(collectively, the "Plans") for future issuance to key employees, consultants
and members of the Board of Directors of Aureal (options for approximately
3,988,000 shares are currently outstanding under the Plans), (ii) an agreement
between Aureal and Hambrecht & Quist LLC ("H&Q") to issue to H&Q a warrant to
purchase 50,000 shares of Aureal's Common Stock, and (iii) an agreement between
Aureal and Financing For Science International ("FFSI") to issue a warrant to
FFSI to purchase 50,000 shares of Aureal's Common Stock, there are no
outstanding rights, options, warrants, conversion rights or agreements for the
purchase or acquisition from Aureal of any shares of its capital stock. Aureal
is not a party or subject to any agreement or understanding between any persons
or entities which affects or relates to the voting or giving of written consents
with respect to any securities or by any director of Aureal.
4.4 NO VIOLATION OF EXISTING AGREEMENTS . Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will conflict with, or result in a material
breach or violation of, any provision of Aureal's or Sub's Certificate of
Incorporation or Articles of Incorporation, respectively, or their respective
Bylaws, as currently in effect, any instrument or contract to which Aureal or
Sub is a party or by which any such party is bound, or any federal, state or
local judgment, writ, decree, order, statute, rule or regulation applicable to
any such party. Neither the execution and delivery of this Agreement, nor any
document attached hereto as an Exhibit, nor the consummation of the transactions
contemplated hereby or thereby will directly have a material adverse effect on
the operations, assets, financial condition or prospects of Aureal.
4.5 COMPLIANCE WITH OTHER INSTRUMENTS AND LAWS . Aureal is not
in violation of any provisions of its Certificate of Incorporation or Bylaws as
currently in effect or in effect at the Closing, or any federal, state or local
judgment, writ, decree, or order applicable to Aureal. Sub is not in violation
of any provision of its Articles of Incorporation or Bylaws as currently in
effect or in effect at the Closing, or any federal, state or local judgment,
writ, decree, or order applicable to Sub. The operations of Aureal have not
violated any federal, state or local laws, regulations or orders with which
failure to comply would have a material adverse effect on the operations,
assets, financial conditions or prospects of Aureal.
4.6 FINANCIAL CONDITION . Aureal's financial condition is
adequate for Aureal to perform its obligations under this Agreement. All
financial statements contained in the 1995 Annual Report of Aureal and in the
Form 10-Q's of Aureal for the quarters ended October 1, 1995 and March 31, 1996
(collectively, the "Aureal Financial Statements") are complete and in
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accordance with the books and records of Aureal and present fairly the financial
position of Aureal as of their historical dates. The Aureal Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a basis consistent with prior periods. Except as to the extent
reflected or reserved against in such balance sheets (including the notes
thereto), Aureal does not have, as of the dates of such balance sheets, any
Material liabilities or obligations (absolute or contingent) of a nature
required or customarily reflected in a balance sheet (or the notes thereto)
prepared in accordance with generally accepted accounting principles. The
statements of income, shareholder's equity and changes in financial position are
complete and in accordance with the books and records of Aureal and present
fairly the results of operations, equity transactions and changes in financial
position of Aureal for the periods indicated in all Material respects.
4.7 NO BROKERS . Neither Aureal nor Sub is obligated for the
payment of fees or expenses of any broker or finder in connection with the
origin, negotiation or execution of this Agreement or in connection with any
transaction contemplated hereby or thereby.
4.8 PATENTS, TRADEMARKS, ETC. Except as set forth in Part 4.8
of the Aureal Disclosure Schedule, Aureal owns and possesses or is licensed
under all patents, patent applications, licenses, trademarks, trade names, brand
names, inventions, processes, formulae and copyrights necessary for the
operation of the business of Aureal is now conducted and as proposed to be
conducted with no infringement of or conflict with the rights of others. Except
as contemplated in this Agreement, there are no outstanding options, licenses,
or agreements of any kind relating to the foregoing, nor is Aureal bound by or a
party to any other options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other person or
entity. Aureal has not received any communications alleging that it has violated
or, by conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. Aureal is not aware that any
of its employees are obligated under any contract (including licenses, covenants
or commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of his or her best efforts to promote the interests of Aureal or that
would conflict with Aureal's business as proposed to be conducted or that would
prevent any such employee from assigning inventions to Aureal. Neither the
execution nor delivery of this Agreement, nor the carrying on of Aureal's
business as proposed, will, to Aureal's knowledge, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees is now
obligated. Aureal does not believe that it is or will be necessary for Aureal to
utilize any inventions of any of its employees (or people it currently intends
to hire) made prior to their employment by Aureal.
4.9 EMPLOYEES . Each officer and key employee of Aureal has
executed an
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Employee Proprietary and Confidential Information Agreement, the form of which
has been provided to the Purchaser or its counsel. Aureal after reasonable
investigation, is not aware that any of its employees are in violation thereof,
and Aureal will use its best efforts to prevent any such violation.
4.10 GOVERNMENTAL CONSENT, ETC. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of Aureal is required in connection with (a) the valid
execution and delivery of this Agreement; (b) the offer, sale or issuance of the
Aureal Options; (c) the consummation of any other transaction contemplated
hereby; except, if required, filings or qualifications under the Securities Act
and the California Corporate Securities Act of 1968, as amended, which filings
or qualifications, if required, will have been timely filed or obtained.
4.11 LITIGATION, ETC. Except as set forth on Part 4.11 of the
Aureal Disclosure Schedule, there are no actions, proceedings or investigations
pending against Aureal or its officers, directors, or shareholders, or to the
best of Aureal's knowledge, against employees or consultants of Aureal (or, to
the best of Aureal's knowledge, any basis therefor or threat thereof): (1) which
might result in (a) any material adverse change in the business, prospects,
conditions, affairs or operations of Aureal, or in any of its properties or
assets, or (b) any material impairment of the right or ability of Aureal to
carry on its business as now conducted or as proposed to be conducted, or (c)
any material liability on the part of Aureal; or (2) which questions the
validity of this Agreement or any action taken or to be taken in connection
herewith. Aureal does not currently plan to initiate any litigation.
4.12 TAXES . Aureal has timely filed all tax returns that are
required to have been filed with appropriate federal, state, county and local
governmental agencies or instrumentalities. Aureal has paid or established
reserves for all income, franchise and other taxes due as reflected on said
returns. There is no pending dispute with any taxing authority relating to any
of such returns and Aureal has no knowledge of any proposed liability for any
tax to be imposed upon the properties or assets of Aureal for which there is not
an adequate reserve reflected in Aureal's financial statements.
4.13 DISCLOSURE . Neither this Agreement, its exhibits and
schedules, nor any of the certificates or documents furnished or to be furnished
to CRE pursuant to this Agreement or in connection with the transactions
contemplated hereby, including the Aureal's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 and any amendments thereto, Aureal's Proxy
Statement for the 1996 Annual Meeting of Stockholders, and Aureal's first
quarter 1996 Report on Form 10-Q contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements contained herein and therein not misleading in light of the
circumstances under which such statements were made.
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5. PRECLOSING COVENANTS OF CRE .
5.1 ADVISE OF CHANGES . CRE will promptly advise Aureal in
writing (i) of any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of CRE contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (ii) of any material adverse
change in CRE's business, taken as a whole.
5.2 CONDUCT OF BUSINESS . Until the Closing, CRE will continue
to conduct its business and maintain its business relationships in the ordinary
and usual course and will not, without the prior written consent of Aureal:
(a) borrow any money from third parties;
(b) incur any liability other than in the ordinary
and usual course of business or in connection with the performance or
consummation of this Agreement;
(c) encumber or permit to be encumbered any of its
assets except in the ordinary course of its business;
(d) dispose of any of its assets, except inventory in
the regular and ordinary course of business;
(e) enter into any lease or contract for the purchase
or sale of any property, real or personal;
(f) fail to maintain its equipment and other assets
in good working condition and repair according to the standards it has
maintained up to the date of this Agreement, subject only to ordinary wear and
tear;
(g) pay any bonus, increased salary, or special
remuneration to any officer or employee, including any amounts for accrued but
unpaid salary or bonuses;
(h) adopt or change any accounting methods;
(i) declare, set aside or pay any cash or stock
dividend or other distribution in respect of capital, or redeem or otherwise
acquire any of its capital stock;
(j) amend or terminate any contract, agreement or
license to which it is a party except in the ordinary course of business;
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(k) enter into any Material contract;
(l) loan any amount to any person or entity, or
guaranty or act as a surety for any obligation;
(m) waive or release any right or claim, except in
the ordinary course of business;
(n) issue or sell any shares of its capital stock of
any class or any other of its securities, or issue or create any warrants,
obligations, subscriptions, options, convertible securities, or other
commitments to issue shares of capital stock or amend the terms of any agreement
regarding the foregoing;
(o) split or combine the outstanding shares of its
capital stock of any class or enter into any recapitalization affecting the
number of outstanding shares of its capital stock of any class or affecting any
other of its securities;
(p) merge, consolidate or reorganize with any entity;
(q) amend its Articles of Incorporation or Bylaws;
(r) make or change any election, change any annual
accounting period, file any tax return or amended tax return, enter into any
closing agreement, settle any tax claim or assessment relating to CRE, surrender
any right or claim refund of taxes, consent to any extension or waiver of the
limitation period applicable to any tax claim or assessment relating to CRE, or
take any other action or omit to take any action, if any such election,
adoption, change, amendment, agreement, settlement, surrender, consent or other
action or omission would have the effect of increasing the tax liability of CRE
or Aureal; or
(s) agree to do any of the things described in the
preceding clauses of this Section .5.2.
5.3 RISK OF LOSS . Until the Closing, all risk of loss, damage
or destruction to CRE's assets shall be borne by CRE, and the merger terms
described in Section .2 ("Plan of Reorganization") shall, in case of any such
loss, damage or destruction, be reduced as the parties may agree, or this
Agreement shall be terminated in accordance with Section .11 ("Termination of
Agreement").
5.4 ACCESS TO INFORMATION . Until the Closing, CRE shall allow
Aureal and its agents and representatives free access upon reasonable notice and
during normal working hours to its files, books, records, and offices,
including, without limitation, any and all information
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relating to taxes, commitments, contracts, leases, licenses, and personal
property and financial condition. Until the Closing, CRE shall cause its
accountants to cooperate with Aureal and its agents and representatives in
making available all financial information requested, including, without
limitation, the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.
5.5 REGULATORY APPROVALS . Prior to the Closing, CRE shall
execute and file, or join in the execution and filing, of any application or
other document which may be necessary in order to obtain the authorization,
approval or consent of any governmental body, federal, state or local, which may
be reasonably required, or which Aureal may reasonably request, in connection
with the consummation of the transactions contemplated by this Agreement. Such
persons and entities shall use their best efforts to obtain all such
authorizations, approvals and consents.
5.6 SATISFACTION OF CONDITIONS PRECEDENT . CRE will use its
best efforts to satisfy or cause to be satisfied all the conditions precedent
which are set forth in Section .10 ("Conditions to Aureal's Obligations"), and
CRE will use its best efforts to cause the transactions contemplated by this
Agreement to be consummated, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties which may be
necessary or reasonably required on its part in order to effect the transactions
contemplated hereby.
5.7 SHAREHOLDER VOTE . Prior to the Closing, whether by
special meeting or written consent of its shareholders, CRE will submit this
Agreement and related matters to its shareholders for consideration and
approval, and the Board of Directors of CRE will recommend such approval to the
CRE shareholders.
5.8 PROXIES . CRE shall cause Scott Foster to execute and
deliver to Aureal a proxy concurrently with the execution of this Agreement,
which proxy may only be revoked by Scott Foster upon material breach of this
Agreement by Aureal or upon failure of any condition to CRE's obligations to
close the Merger.
5.9 EMPLOYMENT ARRANGEMENTS . At the Closing, the Key
Employees shall each enter into an employment and noncompete agreement with
Aureal in the form of Exhibit D attached hereto and incorporated by reference.
Such Agreement will have a term of one (1) year from the Effective Time. If such
Key Employee is terminated for other than good cause during the one (1) year
period, such Key Employee shall be paid for the remainder of such period.
5.10 MERGER BONUS . On or before the Closing, CRE shall have
approved a bonus plan (the "Merger Bonus") on the terms provided in this Section
5.10. The Merger Bonus shall consist of Three Hundred Forty-Eight Thousand
Dollars ($348,000). One Hundred Eighty
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Thousand Dollars ($180,000) of the Merger Bonus shall be paid on or before the
Closing to certain CRE employees designated by CRE who will not continue to be
employed by CRE or Aureal after the Closing. The remainder of the Merger Bonus,
One Hundred Sixty-Eight Thousand Dollars ($168,000), shall be paid on or before
the Closing to employees who continue to serve as employees of CRE or Aureal
after the Closing. The allocation of the Merger Bonus to such employees shall be
as set forth in Exhibit C.
5.11 SECTION 25102(F) FILING . Prior to the Closing, CRE shall
file a Notice under Section 25102(f) of the California Corporate Securities Law
of 1968 with respect to all securities issued prior to the Closing for which
such a Notice has not otherwise been filed.
6. PRECLOSING AND POSTCLOSING COVENANTS OF AUREAL AND SUB .
6.1 ADVISE OF CHANGES . Aureal and Sub will promptly advise
CRE in writing of any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of Aureal or Sub contained in
this Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect.
6.2 REGULATORY APPROVALS . Prior to the Closing, Aureal and
Sub shall execute and file, or join in the execution and filing, of any
application or other document which may be necessary in order to obtain the
authorization, approval or consent of any governmental body, federal, state or
local, which may be reasonably required, or which CRE may reasonably request, in
connection with the consummation of the transactions contemplated by this
Agreement. Such persons and entities shall use their best efforts to obtain all
such authorizations, approvals and consents.
6.3 SATISFACTION OF CONDITIONS PRECEDENT . Aureal will use its
best efforts to satisfy or cause to be satisfied all the conditions precedent
which are set forth in Section .9 ("Conditions to CRE's Obligations"), and
Aureal will use its best efforts to cause the transactions contemplated by this
Agreement to be consummated on or before May 30, 1996, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of third
parties and to make all filings with, and give all notices to, third parties
which may be necessary or reasonably required on its part in order to effect the
transactions contemplated hereby.
6.4 CONTINGENT LICENSE AGREEMENT . Upon receipt of written
notice from the CRE Shareholder Representative, as defined in Section 12.10
("CRE Shareholder Representative") herein, by Aureal prior to the Closing, CRE
shall grant to an entity to be formed by CRE (the "CRE New Entity") a contingent
nonexclusive license to use and exploit all of CRE's Technology and Proprietary
Assets. The terms of the contingent nonexclusive license will be valid for a
period of one year from the Effective Date and will be negotiated between Aureal
and the CRE New Entity prior to the Closing and will include, among other
things, that the
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license will become effective only if Aureal materially breaches the
representations set forth in Section 4 ("Representations and Warranties of
Aureal and Sub"), breaches the covenants set forth in Sections 6 ("Preclosing
and Postclosing Covenants of Aureal and Sub") or 7 ("Mutual Covenants"), becomes
insolvent, or ceases its 3D audio operations, other than through an arms-length
sale of Aureal's 3D audio operations on a going-concern basis, in which event
the CRE New Entity shall have a first right of refusal for thirty (30) days to
match any such bona fide offer.
6.5 AUREAL EMPLOYEE BENEFITS
(a) CRE employees who continue with CRE or Aureal
after the Closing Date will be eligible for any profit sharing, stock plan,
performance bonus or other additional compensation plan provided by Aureal for
the purpose of incentivising or rewarding employee performance.
(b) CRE employees who continue with CRE or Aureal
after the Closing Date shall also be entitled to the same benefits as are now
provided, or, from time to time, will be provided, generally to the employees of
Aureal, it being the intent of the Aureal that all employees of Aureal and CRE
shall be entitled to the same benefits (other than with respect to the Aureal
Options issued under this Agreement in exchange for the Vested CRE Options and
Unvested CRE Options) as soon as practicable after the Effective Date.
6.6 FORM S-8 . Within thirty (30) days after the Closing,
Aureal shall have filed a Form S-8 registering (i) the Aureal Options to be
issued in exchange for the Vested CRE Options and Unvested CRE Options and (ii)
the shares of Aureal common stock to be issued upon exercise thereof.
6.7 ACCESS TO INFORMATION . Until the Closing, Aureal shall
allow CRE and its agents and representatives free access upon reasonable notice
and during normal working hours to its files, books, records, and offices,
including, without limitation, any and all information relating to taxes,
commitments, contracts, leases, licenses, and personal property and financial
condition.
6.8 BONUS PLAN . On or before the Closing, Aureal shall have
approved a bonus plan (the "Bonus Plan") on the terms provided in this Section
6.8. The Bonus Plan shall consist of Five Hundred Three Thousand Dollars
($503,000) (the "Bonus Fund"). On or before the Closing, Aureal shall deposit
Two Hundred Forty Thousand Dollars ($240,000) of the Bonus Fund into an escrow
account at a financial institution reasonably acceptable to CRE and Aureal,
pursuant to escrow instructions to be agreed upon by CRE and Aureal prior to the
Closing. Any interest earned on the portion of the Bonus Fund held in escrow
shall be paid to Aureal from time to time. The Bonus Fund shall be distributed
in three (3) equal payments, the
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three payments to be made to be made on the sixth, twelfth and eighteenth month
anniversaries of the Closing, respectively. The Bonus Plan shall be administered
by the CRE Shareholder Representative to employees who continue to serve as
employees of CRE or Aureal after the Closing; provided, however, that any such
designated employee who is terminated without good cause, as such term is
defined in the Employment Agreement (with respect to any Key Employee) or in the
employment policies of Aureal (with respect to any other designated employee)
may continue to receive an allocated portion of the Bonus Plan payments. The
allocation of the Bonus Funds shall be as set forth in Exhibit C. If a
designated employee is terminated for good cause or resigns from his position,
such designated employee's allocated portion of the Bonus Fund will be returned
to Aureal. The amounts in the Bonus Fund shall be used to satisfy any claims of
Aureal for indemnification, as provided in Section 12 of this Agreement. In the
event that Aureal has any claim for indemnification, Aureal shall notify the CRE
Shareholder Representative of the amount of such claim and such amount shall
thereupon be held in the Bonus Fund and not distributed until such claim has
been established by the agreement of Aureal and the CRE Shareholder
Representative or, in the absence of such agreement, by judicial determination.
At such time as an agreement or judicial determination is reached, then the
amount of the claim, together with any interest earned thereon, shall be paid
from the Bonus Fund to Aureal; if the claim is not valid, then such amount,
together with any interest earned thereon, shall be distributed to the employees
in accordance with the allocations set forth on Exhibit C. In the event that CRE
does not have sufficient cash on hand at the Closing to pay all or any portion
of the Merger Bonus, Aureal shall be obligated to fund the Merger Bonus at the
Closing, and such failure by CRE shall not constitute a breach of this
Agreement.
6.9 AUDIT . Aureal acknowledges that its accountants have
begun to conduct the Aureal Audit and shall use its best efforts to assure that
its accountants shall promptly conduct such review and investigation of the
books and records of CRE as may be necessary to establish whether CRE's
financial statements can be integrated into Aureal's financials so as to be in
compliance with the rules and regulations of the Commission.
6.10 RESERVATION, REGISTRATION AND ISSUANCE OF AUREAL COMMON
STOCK . Aureal shall reserve and make available for issuance in connection with
the Merger and in accordance with the terms of this Agreement the maximum number
of shares of common stock of Aureal to which the holders of Unvested CRE Options
and Vested CRE Options may be entitled upon exercise of such options. All such
shares will, when issued and delivered pursuant to and in accordance with the
terms of this Agreement be duly authorized, legally and validly issued, fully
paid and nonassessable. Aureal shall file and use its best efforts to cause to
be declared effective pursuant to the Securities Act one or more registration
statements covering all such shares and shall cause all such shares to be issued
in compliance with the Securities Act and in compliance with all applicable
state securities laws and regulations.
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7. MUTUAL COVENANTS .
7.1 CONFIDENTIALITY . Each party acknowledges that in the
course of the performance of this Agreement, it may obtain the Confidential
Information of the other party. The Receiving Party shall, at all times, both
during the term of this Agreement and thereafter, keep in confidence and trust
all of the Disclosing Party's Confidential Information received by it. The
Receiving Party shall not use the Confidential Information of the Disclosing
Party other than as expressly permitted under the terms of this Agreement or by
a separate written agreement. The Receiving Party shall take all reasonable
steps to prevent unauthorized disclosure or use of the Disclosing Party's
Confidential Information and to prevent it from falling into the public domain
or into the possession of unauthorized persons. The Receiving Party shall not
disclose Confidential Information of the Disclosing Party to any person or
entity other than its officers, employees, consultants and permitted
sublicensees who need access to such Confidential Information in order to effect
the intent of this Agreement and who have entered into confidentiality
agreements with such person's employer which protects the Confidential
Information of the Disclosing Party. The Receiving Party shall immediately give
notice to the Disclosing Party of any unauthorized use or disclosure of
Disclosing Party's Confidential Information. The Receiving Party agrees to
assist the Disclosing Party to remedy such unauthorized use or disclosure of its
Confidential Information, which remedies shall include injunctive relief without
the necessity of posting a bond or proving damages. These obligations shall not
apply to the extent that Confidential Information includes information which:
(a) is already known to the Receiving Party (as
evidenced by documents in the possession of Receiving Party that were prepared
prior to receipt of such information from Disclosing Party), without the
obligation to keep it confidential, which knowledge the Receiving Party shall
have the burden of proving;
(b) is, or, through no act or failure to act of the
Receiving Party, becomes publicly known;
(c) is received by the Receiving Party from a third
party without restriction on disclosure and without breach by such third party
to the Disclosing Party;
(d) is independently developed by the Receiving Party
without reference to the Confidential Information of the Disclosing Party, which
independent development the Receiving Party will have the burden of proving;
(e) is approved for release by written authorization
of the Disclosing Party; or
(f) is required to be disclosed by a government
agency to further the
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objectives of this Agreement or by a proper order of a court of competent
jurisdiction; provided, however that the Receiving Party will use its best
efforts to minimize such disclosure and will consult with and assist the
Disclosing Party in obtaining a protective order prior to such disclosure.
7.2 EXCLUSIVITY . Until the earlier of the Closing Date or
June 15, 1996, CRE agrees that it will not (and that it will use best efforts to
assure that its employees, agents and affiliates do not on its behalf) discuss
or enter any agreement concerning the sale or acquisition of CRE, its stock
(including by means of any public offering thereof, but excluding issuance of
stock and options to employees in the ordinary course of business consistent
with past practices) or a substantial part of its assets with any party other
than Aureal, and that any such discussions presently in progress will be
terminated or suspended during that period. CRE represents and warrants that it
has the legal right to terminate or suspend any such pending negotiations and
agrees to indemnify Aureal, its representatives and agents from and against any
claims by any party to such negotiations based upon or arising out of the
discussion or any consummation of the Merger.
7.3 FURTHER ASSURANCES . Each party agrees to cooperate fully
with the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
7.4 PRESS RELEASES . Neither party shall issue any press
release or written statement for general circulation relating to the Merger or
this Agreement unless previously provided to the other party for review and
approval (which approval will not be unreasonably withheld or delayed). Each
party cooperate with the other in the development and distribution of all news
releases and other public information disclosures with respect to the Merger and
this Agreement; provided that Aureal may, without the consent of CRE, make any
disclosure with regard to the Merger or this Agreement that it determines is
required under any applicable law or regulation.
8. THE CLOSING .
8.1 MERGER .
(a) On the date of the Closing, but not prior to the
Closing, the Certificate of Merger shall be filed with the office of the
Secretary of State of the State of California and the merger of Sub with and
into CRE shall be consummated.
(b) At the Closing, Aureal shall deliver to the CRE
Shareholders such
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consideration as set forth on Exhibit A (the "Merger Consideration Schedule");
provided, however, that such amount made available by Aureal to all CRE
Shareholders or option holders shall not exceed the Cash Consideration.
8.2 ADDITIONAL DOCUMENTS .
(a) At any time and from time to time at or after the
Closing, the parties shall at the request of the other party execute and deliver
or cause to be executed and delivered all such assignments, consents and other
documents and take or cause to be taken all such other actions as either party
may reasonably deem necessary or desirable, in order to more fully and
effectively carry out the intents and purposes of this Agreement.
(b) CRE shall execute and deliver to Aureal a
statement meeting the requirements of Treasury Regulation Section 1.897-2(h)(2)
stating that interests in CRE are not United States real property interests.
9. CONDITIONS TO CRE'S OBLIGATIONS .
CRE's obligations hereunder are subject to the fulfillment or
satisfaction on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by CRE, but only in a writing signed by CRE):
9.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES . The
representations and warranties of Aureal and Sub set forth in Section .4
("Representations and Warranties of Aureal and Sub") shall be true on and as of
the Closing with the same force and effect as if they had been made at the
Closing, and CRE shall receive a certificate to such effect from an executive
officer of Aureal and Sub, respectively.
9.2 COVENANTS . Aureal and Sub shall have performed and
complied with all of their covenants contained in Sections .6 ("Preclosing and
Postclosing Covenants of Aureal and Sub") and .7 ("Mutual Covenants") on or
before the Closing, and Aureal and Sub shall each deliver to CRE a certificate
executed by an executive officer of each, respectively, at the Closing stating
that such condition has been satisfied.
9.3 NO LITIGATION . No litigation or proceeding shall be
threatened or pending against Aureal and Sub with the purpose or with the
probable effect of enjoining or preventing the consummation of any of the
transactions contemplated by this Agreement, and CRE shall receive a certificate
to such effect signed by an executive officer and Sub, respectively.
9.4 AUTHORIZATIONS . CRE shall have received from Aureal and
Sub written evidence that the execution, delivery and performance of Aureal's
and Sub's obligations under
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this Agreement and the Certificate of Merger have been duly and validly approved
and authorized by the Board of Directors of Aureal and Sub, respectively, and
the shareholder of Sub.
9.5 NO CATASTROPHIC EVENT . No catastrophic event shall have
occurred the effect of which is to render the business of Aureal wholly without
value to CRE.
9.6 GOVERNMENT CONSENTS . There shall have been obtained at or
prior to the date of Closing such permits or authorizations, and there shall
have been taken such other action, as may be required by any regulatory
authority having jurisdiction over the parties and the subject matter and the
actions herein proposed to be taken, including, but not limited to, compliance
with applicable state and federal securities laws.
9.7 FEDERAL AND STATE SECURITIES LAWS . Aureal shall have
complied with all applicable federal and state securities laws.
9.8 AUREAL CERTIFICATE . Aureal shall deliver a certificate at
the Closing certifying that it has no knowledge of any information limiting or
otherwise affecting the representations, warranties, covenants and obligations
of CRE other than that included in the CRE Disclosure Schedule.
9.9 OPINION OF AUREAL'S COUNSEL . CRE shall have received from
Gray Cary Ware & Freidenrich, the counsel to Aureal, an opinion satisfactory to
CRE in form and substance.
9.10 CALIFORNIA DEPARTMENT OF CORPORATIONS PERMIT . Aureal
shall have a received a permit under Section 25121 of the California
Corporations Code providing for the exchange of Vested CRE Options and Unvested
CRE Options for Aureal options.
10. CONDITIONS TO AUREAL AND SUB'S OBLIGATIONS .
The obligations of Aureal and Sub hereunder are subject to the
fulfillment or satisfaction on, and as of the Closing, of each of the following
conditions (any one or more of which may be waived by Aureal, but only in a
writing signed by Aureal). At the Closing, Aureal shall have received a
certificate executed by the President of CRE stating that the conditions in
Sections .10.1 ("Accuracy of Representations and Warranties"), .10.2
("Covenants"), .10.3 ("No Litigation") and .10.4 ("Authorizations") have been
satisfied.
10.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES . The
representations and warranties of CRE contained in Section .3 ("Representations
and Warranties of CRE") shall be true on and as of the Closing with the same
force and effect as if they had been made at the Closing.
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10.2 COVENANTS . CRE shall have performed and complied with
all of its covenants contained in Sections .5 ("Preclosing Covenants of CRE")
and .7 ("Mutual Covenants") on or before the Closing.
10.3 NO LITIGATION . On and as of the Closing, no litigation
or proceeding shall be threatened or pending against CRE for the purpose or with
the probable effect of enjoining or preventing the consummation of any of the
transactions contemplated by this Agreement, or which would have a material
adverse effect on the business, liabilities, income, property, operations or
prospects of CRE subsequent to the Closing.
10.4 AUTHORIZATIONS . Aureal shall have received from CRE
written evidence that (i) the execution, delivery and performance of this
Agreement and the Certificate of Merger have been duly and validly approved and
authorized by its Board of Directors and by the shareholders of CRE, and (ii)
shareholders of CRE holding no more than twenty percent (20%) of the outstanding
shares of CRE common stock have, or might be able to perfect, dissenters' rights
in connection with the Merger.
10.5 NO CATASTROPHIC EVENT . No catastrophic event shall have
occurred the effect of which is to render the business of CRE wholly without
value to Aureal.
10.6 REQUIRED CONSENTS . Aureal shall have received all
written consents, assignments, waivers, authorizations or other certificates
reasonably deemed necessary by Aureal's legal counsel to provide for the
continuation in full force and effect of any and all contracts and leases of
CRE.
10.7 OPINION OF CRE'S COUNSEL . Aureal shall have received
from Mendelson & Brown LLP, counsel to CRE, an opinion satisfactory to Aureal in
form and substance.
10.8 EMPLOYMENT AND NONCOMPETE AGREEMENTS . The employment and
noncompete agreements specified in Section .5.9 ("Employment Arrangements")
shall have been executed by Aureal, the Key Employees and the other designated
employees.
10.9 SHAREHOLDER APPROVAL . This Agreement and the Merger
shall have been approved and adopted by the holders of at least eighty percent
(80%) of the outstanding shares of CRE common stock.
10.10 GOVERNMENT CONSENTS . There shall have been obtained at
or prior to the date of Closing such permits or authorizations and there shall
have been taken such other action as may be required by any regulatory authority
having jurisdiction over the parties and the subject matter and the actions
herein proposed to be taken, including, but not limited to, compliance with
applicable state and federal securities laws.
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10.11 ACCOUNTING REQUIREMENTS . Aureal shall be reasonably
satisfied that CRE's financial statements can be integrated into Aureal's
financials so as to be in compliance with the rules and regulations of the
Commission.
11. TERMINATION OF AGREEMENT .
11.1 MUTUAL AGREEMENT . This Agreement may be terminated at
any time prior to the Closing by the mutual written consent of each of the
parties hereto.
11.2 FAILURE TO FULFILL CONDITIONS . CRE may terminate this
Agreement if the Merger shall not have been consummated by June 15, 1996, and
either Aureal or CRE may terminate this Agreement if the Merger has not been
consummated by July 15, 1996 (provided that the right to terminate this
Agreement under this Section .11.2 shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date).
Any termination of this Agreement under this Section .11.2 shall be
effective by the delivery of notice of the terminating party to the other
parties hereto.
11.3 NO LIABILITY . Except as provided in Section 11.6, any
termination of this Agreement pursuant to this Section .11 ("Termination of
Agreement") shall be without further obligation or liability upon any party in
favor of any other party hereto.
11.4 EFFECT OF TERMINATION . The termination of this Agreement
pursuant to this Section .11 ("Termination of Agreement") shall terminate all
Sections hereof other than Section .7.1 ("Confidentiality"), this Section 11
("Termination of Agreement") and Section 13 ("Miscellaneous"), other than
Section 13.9 ("Survival of Agreements") thereof.
11.5 NON-SOLICITATION . For a period of one year following the
termination of this Agreement, neither party hereto shall (i) induce or attempt
to induce any employee of the other party to leave the employ of such party,
(ii) in any way interfere adversely with the relationship between any such
employee and such party, or (iii) induce or attempt to induce any employee of
the other party to work for, render services or provide advice to or supply
confidential information of such party to any Person.
11.6 DEPOSIT; ACCOUNT RECEIVABLE OF AUREAL .
(a) Within five (5) days after execution of this
Agreement, Aureal shall deposit into an escrow account with a financial
institution reasonably acceptable to CRE the amount of Two Hundred Fifty
Thousand Dollars ($250,000)(the "Deposit"). The Deposit shall be held pursuant
to escrow instructions to be mutually agreed to by Aureal and CRE, which
instructions shall provide that in the event that this Agreement is terminated
by CRE due to the
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material breach of this Agreement by Aureal or due to the
failure to occur of any conditions precedent to the obligations of CRE contained
in Section 9 ("Conditions to CRE's Obligations") other than Section 9.6
("Government Consents") or Section 9.10 ("California Department of Corporations
Permit"), the Deposit shall be immediately disbursed to CRE.
(b) In the event that the Agreement is terminated by
CRE for the failure to occur of the conditions specified in Section 9.6
("Government Consents") or Section 9.10 ("California Department of Corporations
Permit"), or by Aureal for the failure to occur of the conditions specified in
Section 10.10 ("Government Consents"), the Deposit shall be immediately
disbursed to CRE as payment in advance for consulting services to be provided to
Aureal by CRE pursuant to a consulting agreement to be entered into by CRE and
Aureal, the work statement for which is attached hereto as Exhibit E and
incorporated by reference. The parties shall agree on the complete form of such
consulting agreement within five (5) days after the date of this Agreement.
(c) In the event that this Agreement is terminated by
Aureal due to the material breach of this Agreement by CRE, then that certain
outstanding account receivable of Aureal in the amount of Seventy-Five Thousand
Dollars ($75,000) shall be immediately forgiven by CRE, and Aureal shall owe no
further amount to CRE with respect to such receivable.
(d) CRE and Aureal acknowledge that the provisions of
this Section 11.6 are fair and reasonable under the circumstances existing at
the time this Agreement was made and entered into.
12. INDEMNIFICATION .
12.1 SURVIVAL OF REPRESENTATIONS .
(a) The representations and warranties made by CRE
(including the representations and warranties set forth in Section .3
("Representations and Warranties of CRE") hereof and the representations and
warranties set forth in any certificate delivered by CRE in connection with this
Agreement) shall survive the Closing and shall remain in full force and effect
and shall survive until the end of the Indemnification Period and shall survive
thereafter only with respect to any claims made prior to the end of the
Indemnification Period. The representations and warranties made by Aureal and
Sub shall survive the Closing and shall remain in full force and effect and
shall survive until the end of the Indemnification Period.
(b) The representations, warranties, covenants and
obligations of CRE, and the rights and remedies that may be exercised by the
Indemnitees, shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, any of
the Indemnitees or any of their Representatives. Aureal shall deliver a
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certificate at the Closing certifying that it has no knowledge of any
information limiting or otherwise affecting the representations, warranties,
covenants and obligations of CRE other than that included in the CRE Disclosure
Schedule.
(c) For purposes of this Agreement, each statement or
other item of information set forth in the CRE Disclosure Schedule or in any
update to the CRE Disclosure Schedule accepted in writing by Aureal shall be
deemed to be a representation and warranty made by CRE in this Agreement.
12.2 INDEMNIFICATION BY CRE SHAREHOLDERS .
(a) From and after the Closing Date (but subject to the
limitations in Sections .12.1(a) and .12.3 ("Threshold; Ceiling; Exclusivity"),
the shareholders of CRE (the "CRE Shareholders") shall hold harmless and
indemnify each of the Indemnitees from and against, and shall compensate and
reimburse each of the Indemnitees for, any Damages which are directly or
indirectly suffered or incurred by any of the Indemnitees or to which any of the
Indemnitees may otherwise become subject (regardless of whether or not such
Damages relate to any third-party claim) and which arise from or as a result of,
or are directly or indirectly connected with: (i) any inaccuracy in or breach of
any representation or warranty set forth in Section .3 ("Representations and
Warranties of CRE") hereunder or in any certificate delivered by CRE in
connection with this Agreement; (ii) any breach of any covenant or obligation of
CRE hereunder; or (iii) any Legal Proceeding relating to any inaccuracy, breach
or expense of the type referred to in clause "(i)" or "(ii)" above (including
any Legal Proceeding commenced by any Indemnitee for the purpose of enforcing
any of its rights under this Section .12, .12 if such Indemnitee is the
prevailing party in any such Legal Proceeding).
(b) If the Surviving Corporation suffers, incurs or otherwise
becomes subject to any Damages as a result of or in connection with any
inaccuracy in or breach of any representation, warranty, covenant or obligation,
then (without limiting any of the rights of the Surviving Corporation as an
Indemnitee) Aureal shall also be deemed, by virtue of its ownership of the stock
of the Surviving Corporation, to have incurred Damages as a result of and in
connection with such inaccuracy or breach.
12.3 THRESHOLD; CEILING; EXCLUSIVITY .
(a) The CRE Shareholders shall not be required to make any
indemnification payment (including, without limitation, any payment from the
Bonus Fund), pursuant to Section .12.2 ("Indemnification by CRE Shareholders")
for any inaccuracy in or breach of any of the representations and warranties set
forth in Section .3 ("Representations and Warranties of CRE") hereof or in any
certificate delivered by CRE in connection with this Agreement until such time
as the total amount of all Damages (including the Damages arising
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from such inaccuracy or breach and all other Damages arising from any other
inaccuracies in or breaches of any representations or warranties) that have been
directly or indirectly suffered or incurred by any one or more of the
Indemnitees, or to which any one or more of the Indemnitees has or have
otherwise become subject, exceeds Fifty Thousand Dollars ($50,000) in the
aggregate.
(b) Other than with respect to fraudulent breaches or
misrepresentations, the CRE Shareholders' maximum aggregate liability under the
indemnification provisions of this Section 12, including any amounts paid from
the Bonus Fund (as provided in Section 12.4 below), shall be $2,000,000 (the
"Maximum Damages"). With respect to fraudulent breaches or misrepresentations,
there shall be no maximum liability under the indemnification provisions of this
Section 12.
(c) The sole and exclusive remedy for any and all Damages
suffered or incurred by an Indemnitee arising from or related to this Agreement
or the transactions contemplated herein shall be the indemnification rights set
forth in this Section 12. Notwithstanding the foregoing, each party to an
Employment Agreement shall have the rights and remedies arising from or related
to a breach or default under such Agreement as are available to such party under
law or in equity.
12.4 SATISFACTION OF INDEMNIFICATION CLAIM . In the event the CRE
Shareholders shall have any liability (for indemnification or otherwise) to any
Indemnitee under this Section .12, .12, satisfaction of such liability shall
occur initially from the remaining proceeds in the Bonus Fund and then from the
CRE Shareholders, who shall be severally liable therefor, but in no case shall
such liability to any CRE Shareholder exceed such shareholder's pro rata share
of such liability (based on a fraction, (i) the numerator of which is the total
number of shares of CRE Common Stock owned by such shareholder at the Closing,
plus the number of shares of CRE Common Stock issuable upon exercise of any
Exercised Vested CRE Options of such shareholder, and (ii) the denominator of
which is the number of shares of CRE Common Stock outstanding at the Closing,
plus the number of shares of CRE Common Stock issuable upon exercise of the
Exercised Vested CRE Options.
12.5 LIMITATION ON CLAIMS . In case any event shall occur which would
otherwise entitle an Indemnitee to assert a claim for indemnification hereunder,
the amount of Damages determined to have been sustained by such Indemnitee shall
be reduced by (a) any tax savings actually realized by such Indemnitee with
respect thereto after taking into account the effect for tax purposes of both
the event giving rise to such Damages and the receipt of the indemnification
payment, and (b) any proceeds received by such Indemnitee from any insurance
policies with respect thereto.
12.6 NO CONTRIBUTION . The CRE Shareholders acknowledge and agree that
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they shall not have and shall not exercise or assert (or attempt to exercise or
assert), any right of contribution, right of indemnity or other right or remedy
against the Surviving Corporation in connection with any indemnification
obligation or any other liability to which it may become subject under or in
connection with this Agreement or any certificate delivered by CRE in connection
with this Agreement.
12.7 INTEREST . If the CRE Shareholders are required to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section .12,
.12 with respect to any Damages, then the CRE Shareholders shall also be liable
to such Indemnitee for interest on the amount of such Damages (for the period
commencing as of thirty (30) days after the date on which the CRE Shareholder
Representative first received notice of a claim for recovery by such Indemnitee
and ending on the date on which the liability to Indemnitee is fully satisfied
by such CRE Shareholder) at a floating rate equal to the rate of interest
publicly announced by Bank of America, N.T.& S.A. from time to time as its
prime, base or reference rate.
12.8 DEFENSE OF THIRD PARTY CLAIMS . In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against Aureal or against any other Person) with respect
to which CRE may become obligated to hold harmless, indemnify, compensate or
reimburse any Indemnitee pursuant to this Section .12, .12, the procedure set
forth below shall be followed.
(a) NOTICE. Aureal shall give prompt written notice of the
commencement of any such Legal Proceeding against Aureal or the Surviving
Corporation for which indemnity may be sought under Section .12, .12
("Indemnification and Escrow"); provided, however, that any failure on the part
of Aureal to so notify CRE shall not limit any of the obligations of CRE under
this Section .12, .12. The Indemnification Period shall be tolled solely with
respect to a particular claim for the period beginning on the date the
Indemnifying Party receives written notice of that claim until the final
resolution of such claim so long as such claim is made within the
Indemnification Period.
(b) DEFENSE OF CLAIM. The Indemnitee shall have the right to
be represented by counsel of its choice and to defend or otherwise control the
handling of any claim, or Legal Proceeding for which indemnity is sought.
Notwithstanding the foregoing, CRE may elect (by written notice by the CRE
Shareholder Representative to Aureal within fifteen (15) days after receipt of
written notice under Section .12.8 ("Defense of Third Party Claims")) to assume
the defense of or otherwise control the handling of any such claim including tax
audit for any year prior to the Closing or Legal Proceeding (other than for
matters relating to the intellectual property rights of Aureal (including CRE),
or claims by customers of Aureal) for which indemnity is sought, subject to the
limitations provided herein.
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If the CRE Shareholders so elect to assume the defense of any such claim or
Legal Proceeding:
(i) the CRE Shareholders shall proceed to defend such
claim or Legal Proceeding in a diligent manner with counsel reasonably
satisfactory to the Indemnitee, and all expenses relating to the defense of such
claim or Legal Proceeding shall be borne and paid exclusively by the CRE
Shareholders;
(ii) the Indemnitee shall make available to the CRE
Shareholders any non-privileged documents and materials in the possession of the
Indemnitee that may be necessary to the defense of such claim or Legal
Proceeding;
(iii) the CRE Shareholders shall keep the Indemnitee
informed of all material developments and events relating to such claim or Legal
Proceeding;
(iv) the Indemnitee shall have the right to
participate in the defense of such claim or Legal Proceeding at its sole cost
and expense; and
(v) the CRE Shareholders shall not be entitled to
settle, adjust or compromise such claim or Legal Proceeding without the prior
written consent of the Indemnitee, so long as the Indemnitee has any
responsibility for such claim or Legal Proceeding or has the right to bring any
claim in response to such claim or Legal Proceeding.
If the CRE Shareholders do not (or cannot) elect to assume the defense of any
such claim or Legal Proceeding, the Indemnitee may proceed with the defense of
such claim or Legal Proceeding on its own. If the Indemnitee so proceeds with
the defense of any such claim or Legal Proceeding on its own:
(vi) all expenses relating to the defense of such
claim or Legal Proceeding (whether or not incurred by the Indemnitee) shall be
borne and paid exclusively by the CRE Shareholders;
(vii) the CRE Shareholders shall make available to
the Indemnitee any documents and materials in the possession or control of the
CRE Shareholders that may be necessary to the defense of such claim or Legal
Proceeding except for documents or materials which are sealed by a court order
or are subject to a nondisclosure agreement prohibiting disclosure by the CRE
Shareholders;
(viii) the Indemnitee shall keep the CRE Shareholders
informed of all material developments and events relating to such claim or Legal
Proceeding; and
(ix) the Indemnitee shall not have the right to
settle, adjust or
42
<PAGE> 48
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compromise such claim or Legal Proceeding without the consent of the CRE
Shareholders; provided, however, that the CRE Shareholders shall not
unreasonably withhold such consent.
12.9 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN AUREAL . No
Indemnitee (other than Aureal or any successor thereto or assignee thereof)
shall be permitted to assert any indemnification claim or exercise any other
remedy under this Agreement unless Aureal (or any successor thereto or assign
thereof) shall have consented to the assertion of such indemnification claim or
the exercise of such other remedy.
12.10 CRE SHAREHOLDER REPRESENTATIVE .
(a) Subject to the limitations on indemnification contained in
this Section 12, the Bonus Fund shall be available to compensate Aureal for any
Damages, to the extent of the amount of Damages that Aureal has incurred by
reason of the breach of CRE of any representation, warranty, covenant or
agreement of CRE contained herein, or by reason of any misrepresentation by CRE
made in or pursuant to Section 3 ("Representations and Warranties of CRE") of
this Agreement or in any certificate delivered by CRE pursuant to this
Agreement.
(b) By virtue of their approval of this Agreement, the
shareholders of CRE will be deemed to have irrevocably constituted and
appointed, effective as of the Effective Time, Scott Foster (together with his
permitted successors, the "CRE Shareholder Representative"), as their true and
lawful agent and attorney-in-fact to enter into any agreement in connection with
the transactions contemplated by this Agreement or amounts demanded from the
Bonus Plan to exercise all or any of the powers, authority and discretion
conferred on him under any such agreement, to waive any terms and conditions of
any such agreement to give and receive notices and communications, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of the
CRE Shareholder Representative for the accomplishment of the foregoing. No bond
shall be required of the CRE Shareholder Representative, and the CRE Shareholder
Representative shall receive no compensation for his services. Notices or
communications to or from the CRE Shareholder Representative shall constitute
notice to or from each of the CRE Shareholders. This power of attorney is
coupled with an interest and is irrevocable.
(c) The CRE Shareholder Representative shall not be liable for
any act done or omitted hereunder as CRE Shareholder Representative while acting
in good faith and not in a manner constituting gross negligence, and any act
done or omitted pursuant to the advice of counsel shall be conclusive evidence
of such good faith. The CRE Shareholders shall severally indemnify the CRE
Shareholder Representative and hold him harmless against any loss, liability or
expense incurred without gross negligence or bad faith on the part of the CRE
Shareholder Representative and arising out of or in connection with the
acceptance or administration of his
43
<PAGE> 49
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duties hereunder. Notwithstanding anything contained in this Agreement to the
contrary, in no event shall Scott Foster, acting as the CRE Shareholder
Representative, have any liability arising from any act or omission as
representative in excess of the maximum indemnification amount he could be
responsible for pursuant to Section 12.3.
13. MISCELLANEOUS .
13.1 GOVERNING LAWS . It is the intention of the parties
hereto that the internal laws of the State of California (irrespective of its
choice of law principles) shall govern the validity of this Agreement, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto. The parties hereby agree that any suit to
enforce any provision of this Agreement or arising out of or based upon this
Agreement or the business relationship between any of the parties hereto brought
by CRE or Aureal shall be brought in the United States District Court for the
Northern District of California or the Superior or Municipal Court in and for
the County of Santa Clara, California. Each party hereby agrees that such
courts, as applicable, shall have in personam jurisdiction with respect to such
party, and such party hereby submits to the personal jurisdiction of such
courts.
13.2 BINDING UPON SUCCESSORS AND ASSIGNS . Subject to, and
unless otherwise provided in, this Agreement, each and all of the covenants,
terms, provisions, and agreements contained herein shall be binding upon, and
inure to the benefit of, the permitted successors, executors, heirs,
representatives, administrators and assigns of the parties hereto.
13.3 SEVERABILITY . If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
13.4 ENTIRE AGREEMENT . This Agreement, the exhibits hereto,
the documents referenced herein, and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect hereto and thereto. The express terms
hereof control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
13.5 COUNTERPARTS . This Agreement may be executed in any
number of counterparts, each of which shall be an original as against any party
whose signature appears
44
<PAGE> 50
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thereon and all of which together shall constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as signatories.
13.6 EXPENSES . Except as provided to the contrary herein,
each party shall pay all of its own costs and expenses incurred with respect to
the negotiation, execution and delivery of this Agreement and the exhibits
hereto.
13.7 OTHER REMEDIES . Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party shall be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy shall not preclude the
exercise of any other. Notwithstanding the foregoing, if the Closing occurs, the
sole and exclusive remedy of Aureal and Sub shall be as set forth in Section
.12, .12 ("Indemnification and Escrow").
13.8 AMENDMENT AND WAIVERS . Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or any succeeding breach or default.
13.9 SURVIVAL OF AGREEMENTS . Subject to Section .12.1(a), all
covenants, agreements, representations and warranties made herein shall survive
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby notwithstanding any investigation of the
parties hereto.
13.10 NO WAIVER . The failure of any party to enforce any of
the provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
13.11 ATTORNEYS' FEES . Should suit be brought to enforce or
interpret any part of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit and not as damages, reasonable
attorneys' fees to be fixed by the court (including, without limitation, costs,
expenses and fees on any appeal). The prevailing party shall be the party
entitled to recover its costs of suit, regardless of whether such suit proceeds
to final judgment. A party not entitled to recover its costs shall not be
entitled to recover attorneys' fees. No sum for attorneys' fees shall be counted
in calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
13.12 NOTICES . Any notice provided for or permitted under
this Agreement will
45
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be treated as having been received (a) when delivered personally, (b) when sent
by confirmed telex or telecopy, (c) one (1) day following when sent by
commercial overnight courier with written verification of receipt, or (d) three
(3) days following when mailed postage prepaid by certified or registered mail,
return receipt requested, to the party to be notified, at the address set forth
below, or at such other place of which the other party has been notified in
accordance with the provisions of this Section .13.12 ("Notices").
CRE: Crystal River Engineering, Inc.
490 California Avenue, Suite 200
Palo Alto, CA 94306
Attention: Scott Foster
CRE Shareholder Representative:
Scott Foster
c/o Crystal River Engineering, Inc.
490 California Avenue, Suite 200
Palo Alto, CA 94306
With copy to: Mendelson & Brown LLP
1040 Marina Village Parkway, Suite B
Alameda, CA 94501
Facsimile: (510) 521-1211
Attention: Gregory Beattie
Aureal: Aureal Semiconductor
4245 Technology Drive
Fremont, CA 94538
Attention: Brendan O'Flaherty
With copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Facsimile: (415) 327-3699
Attention: James M. Koshland
13.13 TIME . Time is of the essence of this Agreement.
13.14 CONSTRUCTION OF AGREEMENT . This Agreement has been
negotiated by the respective parties hereto and their attorneys and the language
hereof shall not be construed for or against any party. The titles and headings
herein are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole.
46
<PAGE> 52
Table of Contents, continued
13.15 NO JOINT VENTURE . Nothing contained in this Agreement
shall be deemed or construed as creating a joint venture or partnership between
any of the parties hereto. No party is by virtue of this Agreement authorized as
an agent, employee or legal representative of any other party. No party shall
have the power to control the activities and operations of any other and their
status is, and at all times, will continue to be, that of independent
contractors with respect to each other. No party shall have any power or
authority to bind or commit any other. No party shall hold itself out as having
any authority or relationship in contravention of this Section .13.15 ("No Joint
Venture").
13.16 PRONOUNS . All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the person, persons, entity or entities may require.
13.17 FURTHER ASSURANCES . Each party agrees to cooperate
fully with the other parties and to execute such further instruments, documents
and agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
13.18 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS . No
provisions of this Agreement are intended, nor shall be interpreted, to provide
or create any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, stockholder, partner of any party hereto or any
other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof shall be personal solely between
the parties to this Agreement.
47
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
AUREAL SEMICONDUCTOR CRYSTAL RIVER ENGINEERING, INC.
By: By:
---------------------------------
Title: Title:
------------------------------
AUREAL ACQUISITION CRE SHAREHOLDER
CORPORATION REPRESENTATIVE
(as to acceptance of that responsibility in
accordance with Section .12, .12)
By: By:
---------------------------------
Title:
------------------------- -------------------------------------
PRINTED NAME
[SIGNATURE PAGE FOR AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE> 54
Table of Contents, continued
EXHIBIT A
KEY EMPLOYEES
Scott Foster
Toni Schneider
R. Michael Taylor
<PAGE> 55
Table of Contents, continued
EXHIBIT B
MERGER CONSIDERATION SCHEDULE
<TABLE>
<CAPTION>
Name Number of Shares $8.30 Per Share
- ---- ---------------- ---------------
<S> <C> <C>
Susan and Hardie Dunn 25,000 $ 207,000.00
Scott Foster 141,000 $1,170,300.00
Lester Longley 500 $ 4,150.00
Mark P. Morgenthaler 10 $ 83.00
</TABLE>
<PAGE> 56
Table of Contents, continued
EXHIBIT C
ALLOCATION OF BONUS FUNDS
<PAGE> 57
Table of Contents, continued
EXHIBIT D
EMPLOYMENT AGREEMENT
<PAGE> 58
Table of Contents, continued
EXHIBIT E
WORK STATEMENT FOR CONSULTING AGREEMENT
<PAGE> 1
Exhibit 5.2
[AUREAL LETTERHEAD]
FOR IMMEDIATE RELEASE
AUREAL SEMICONDUCTOR ACQUIRES CRYSTAL RIVER ENGINEERING
FREMONT, CALIFORNIA -- MAY 8, 1996 -- (MVSN: OTC Bulletin Board) Aureal
Semiconductor announced today that it has entered into an agreement to acquire
Crystal River Engineering ("CRE"), a privately held, leading developer of True
Positional 3D audio technology. The acquisition was accomplished through a
merger of CRE with an existing Aureal subsidiary. Under the merger, Aureal will
incorporate CRE's technologies into Aureal's future product releases and will
continue to develop, market and promote CRE's existing product offering under
the CRE name. The financial terms of the transaction were not disclosed.
"We are extremely excited about joining forces with CRE and providing
3D audio solutions beyond the level of existing products in the market today"
stated Kip Kokinakis, Aureal's President and CEO. "This merger strengthens our
existing licensing relationship and expands the capabilities of our respective
hardware and software technologies to provide a higher level of interactive
audio solutions for the PC and Home Entertainment market segments. We strongly
believe that CRE's positional 3D audio technology is the best available, and we
are committed to proliferating this technology through our worldwide sales and
marketing network," added Kokinakis.
CRE, founded in 1987, develops and markets - interactive, positional
3D audio technology and related systems under the AudioReality(TM) brand name.
Using conventional stereo speakers or headphones, CRE's technology allows sounds
to be dynamically positioned in the three-dimensional space surrounding a
listener. CRE's first product was the NASA-commissioned Convolvotron(TM), the
world's first real-time 3D sound simulator. Since then, CRE's products have been
installed in many psycho-acoustic research labs, commercial flight and driving
simulators, and advanced virtual reality systems. Over the last 18 months, CRE
has worked with industry leaders to establish the standards and requirements
that are expected to bring advanced, interactive 3D audio from today's high-end
applications to mainstream Internet, multimedia and electronic gaming platforms.
<PAGE> 2
Aureal Acquires Crystal River Engineering
May 8, 1996
Page Two
Both Aureal and CRE expect exciting market opportunities for positional
3D audio. This belief has been strengthened by the public statements by Apple
and Microsoft that they intend to provide support for 3D audio technologies in
their future operating systems; by the inclusion of positional 3D audio in VRML
(virtual reality modeling language - the specification for browsing 3D worlds on
the world wide web), by recently disclosed plans from Dolby Labs to bring
surround sound multi-dimensional sound tracks to PCs and other interactive
entertainment platforms, as well as by the emergence of affordable interactive
3D graphics solutions (the visual counterpart to positional 3D audio).
"This combination of resources is much more valuable than the two
companies working separately," stated Scott Foster, CRE's Chairman and CEO. "The
merger with Aureal provides the environment which will allow us to continue our
research as well as significantly expand the market for our existing technology.
In addition, the integration of CRE's true positional 3D and Aureal's ongoing
advanced synthesis technology is intended to provide audio realism beyond
today's standards." Mr. Foster will become General Manager of Crystal River
Engineering and Vice President of Aureal.
Forward-looking statements in this release are made pursuant to the
safe harbor provisions of the Private Securities Act of 1995. Investors are
cautioned that such forward-looking statements involve risks and uncertainties,
including, but not limited to, dependence on new technology, on foundry capacity
availability and reliability; on the PC industry and on a single product line;
dependence on a new management team; competition and pricing pressures; and
other risks detailed from time to time in the company's periodic reports filed
with the Securities and Exchange Commission.
Aureal Semiconductor designs, develops and markets advanced audio
solutions for the PC and Consumer markets The company's initial products are
targeted to implement Windows Direct Sound acceleration, digital mixing, True
Positional 3D audio, and a wide-range of other sound processing effects and
algorithms
###
Aureal and CRE are trademarks of Aureal Semiconductor.
Windows and Direct Sound is a registered trademark of Microsoft Corporation.
All other registered trademarks retain the rights of their respective holders.
<PAGE> 3
<TABLE>
<CAPTION>
----------
CRYSTAL RIVER SHAREHOLDER INFO VALUE PER CRE SHARE: $ 8.30
----------
ASSUMES EXTRA 2 QTRS VESTING, VESTED OPTIONS EXERCISED FOR ALL CASH
TOTAL % OF SHARES OPTIONS OPTIONS OPTIONS OPTION
NAME SHARES TOTAL OWNED O/S VESTED NON-VST PRICE
<S> <C> <C> <C> <C> <C> <C> <C>
Abel, Jonathan 31,574 4.5% 31,574 31,574 - 1.00
Altmen, Denny 226 0.0% 226 226 - 1.00
Blair, John 1,000 0.1% 1,000 1,000 - 1.00
21,000 21,000 14,000 7,000 1.00
45,000 45,000 18,750 26,250 3.00
JB Total 67,000 9.6% 67,000 33,750 33,250
Cadet, Stephanie 3,830 3,830 3,192 638 1.00
15,000 15,000 6,250 8,750 3.00
SC Total 18,830 2.7% 18,830 9,442 9,388
Chapin, Bill 8,000 1.1% 8,000 8,000 - 1.00
Dunn, Hardie 25,000 3.6% 25,000 - -
Foster, Kristine 15,000 15,000 15,000 - 1.00
6,000 6,000 2,500 3,500 3.00
KF Total 21,000 3.0% 21,000 17,500 3,500
Foster, Scott 141,000 141,000 - -
77,692 77,692 64,743 12,949 1.00
107,000 107,000 44,583 62,417 3.30
SF Total 325,692 46.6% 141,000 184,692 109,326 75,366
Foster Total 346,692 49.6% 205,692 126,826 78,866
Foug, Diane 500 0.1% 500 500 - 1.00
Jacob, Matt - 0.0% - - 3.00
Longley, Lester 8,886 1.3% 500 8,386 8,386 - 1.00
Morgenthaler, Mark 40,737 5.8% 10 40,727 40,727 - 1.00
Reinosa, Irene 400 0.1% 400 167 233 3.00
Schneider, Tony 19,000 19,000 19,000 - 1.00
50,154 50,154 41,795 8,359 1.00
37,500 37,500 15,625 21,875 3.00
TS Total 106,654 15.3% 106,654 76,420 30,234
Singh, Lisa 4,500 0.6% 4,500 1,875 2,625 3.00
Sparling, Dale 3,500 0.5% 3,500 875 2,625 3.00
Taylor, Mike 3,352 3,352 2,235 1,117 1.00
19,000 19,000 7,917 11,083 3.00
MT Total 22,352 3.2% 22,352 10,152 12,200
Weish, Lynn 417 0.1% 417 417 - 3.00
Wheeler, Andrew 5,122 5,122 4,268 854 1.00
500 500 500 - 1.00
7,000 7,000 2,917 4,083 3.00
AW Total 12,622 1.8% 12,622 7,685 4,937
Williams, Virginia 400 0.1% 400 167 233 3.00
Totals 698,290 100.0% 166,510 531,780 357,189 174,591
</TABLE>
<TABLE>
<CAPTION>
CRYSTAL RIVER SHAREHOLDER INFO VALUE PER CRE SHARE: $ 8.30
----------
ASSUMES EXTRA 2 QTRS VESTING, VESTED OPTIONS EXERCISED FOR ALL CASH
VESTED TOTAL CASH NEW TOTAL BONUS ONE
EXER EXER PURCH AUREAL PURCH 25% TIME
NAME COST COST PRICE OPTIONS PRICE 3@25% BONUS
<S> <C> <C> <C> <C> <C> <C> <C>
Abel, Jonathan 31,574 31,574 262,064 - 262,064 10,000
Altmen, Denny 226 226 1,876 - 1,876
Blair, John 1,000 1,000 8,300 - 8,300
14,000 21,000 116,200 58,100 174,300
56,250 135,000 155,625 217,875 373,500
JB Total 71,250 157,000 280,125 275,975 556,100 35,000
Cadet, Stephanie 3,192 3,830 26,494 5,295 31,789
18,750 45,000 51,875 72,625 124,500
SC Total 21,942 48,830 78,369 77,920 156,289 55,000
Chapin, Bill 8,000 8,000 66,400 - 66,400 15,000
Dunn, Hardie - - 207,500 - 207,500
Foster, Kristine 15,000 15,000 124,500 - 124,500
7,500 18,000 20,750 29,050 49,800
KF Total 22,500 33,000 145,250 29,050 174,300 35,000
Foster, Scott - - 1,170,300 - 1,170,300
64,743 77,692 537,367 107,477 644,844
147,124 353,100 370,039 518,061 888,100
SF Total 211,867 430,792 2,077,706 625,538 2,703,244 200,000
Foster Total 234,367 463,792 2,222,956 654,588 2,877,544
Foug, Diane 500 500 4,150 - 4,150 5,000
Jacob, Matt - - - - -
Longley, Lester 8,386 8,386 73,754 - 73,754 10,000
Morgenthaler, Mark 40,727 40,727 338,117 - 338,117
Reinosa, Irene 501 1,200 1,386 1,934 3,320 15,000
Schneider, Tony 19,000 19,000 157,700 - 157,700
41,795 50,154 346,899 69,380 416,278
46,875 112,500 129,688 181,563 311,250
TS Total 107,670 181,654 634,286 250,942 885,228 150,000
Singh, Lisa 5,625 13,500 15,563 21,788 37,350 30,000
Sparling, Dale 2,625 10,500 7,263 21,788 29,050 60,000
Taylor, Mike 2,235 3,352 18,551 9,271 27,822
23,751 57,000 65,711 91,989 157,700
MT Total 25,986 60,352 84,262 101,260 185,522 125,000
Weish, Lynn 1,251 1,251 3,461 - 3,461
Wheeler, Andrew 4,268 5,122 35,424 7,088 42,513
500 500 4,150 - 4,150
8,751 21,000 24,211 33,889 58,100
AW Total 13,519 26,622 63,786 40,977 104,763 80,000
Williams, Virginia 501 1,200 1,386 1,934 3,320 25,000
Totals 574,650 1,055,314 4,346,702 1,449,105 5,795,807 670,000 180,000
</TABLE>
<TABLE>
<CAPTION>
CRYSTAL RIVER SHAREHOLDER INFO VALUE PER CRE SHARE: $ 8.30
----------
ASSUMES EXTRA 2 QTRS VESTING, VESTED OPTIONS EXERCISED FOR ALL CASH
TOTAL
CASH TOTAL
NAME TODAY DEAL
<S> <C> <C>
Abel, Jonathan 272,064 272,064
Altmen, Denny 1,876 1,876
Blair, John 8,300 8,300
116,200 174,300
155,625 373,500
JB Total 315,125 591,100
Cadet, Stephanie 26,494 31,789
51,875 124,500
SC Total 92,119 211,289
Chapin, Bill 81,400 81,400
Dunn, Hardie 207,500 207,500
Foster, Kristine 124,500 124,500
20,750 49,800
KF Total 180,250 209,300
Foster, Scott 1,170,300 1,170,300
537,367 644,844
370,039 888,100
SF Total 2,127,706 2,903,244
Foster Total 2,222,956 2,877,544
Foug, Diane 9,150 9,150
Jacob, Matt - -
Longley, Lester 83,754 83,754
Morgenthaler, Mark 338,117 338,117
Reinosa, Irene 16,386 18,320
Schneider, Tony 157,700 157,700
346,899 416,278
129,688 311,250
TS Total 671,786 1,035,228
Singh, Lisa 45,563 67,350
Sparling, Dale 22,263 89,050
Taylor, Mike 18,551 27,822
65,711 157,700
MT Total 115,512 310,522
Weish, Lynn 3,461 3,461
Wheeler, Andrew 35,424 42,513
4,150 4,150
24,211 58,100
AW Total 83,786 184,763
Williams, Virginia 26,386 28,320
- -
Totals 4,694,202 6,645,807
</TABLE>
