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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1996
REGISTRATION NO. 333-3870
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COMMISSION FILE NUMBER 0-20684
AUREAL SEMICONDUCTOR INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-3117385
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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4245 TECHNOLOGY DRIVE
FREMONT, CALIFORNIA, 94538
510-252-4245
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT S PRINCIPAL EXECUTIVE OFFICES)
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DAVID J. DOMEIER
VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER
AUREAL SEMICONDUCTOR INC.
4245 TECHNOLOGY DRIVE
FREMONT, CALIFORNIA 94538
510-252-4245
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copy to:
JAMES M. KOSHLAND, ESQ.
GRAY CARY WARE & FREIDENRICH
A PROFESSIONAL CORPORATION
400 HAMILTON AVENUE
PALO ALTO, CALIFORNIA 94301
415-328-6561
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE* PRICE FEE(1)
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Common Stock, $0.001 par value......... 27,682,716(2) $1.8125 $50,174,922.75 $17,301.70
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* Estimated solely for purpose of calculating the registration fee pursuant to
Rule 457(c) under the Securities Act of 1933 on the basis of the average of
the bid and asked price per share on the OTC Bulletin Board on June 10,
1996.
(1) $6,278.11 has been previously paid.
(2) Represents approximately seventy-one percent (71%) of the Company's total
outstanding securities. Registering such a large percentage of the Company's
total outstanding securities may have an adverse effect on the market for
the Company's securities.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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AUREAL SEMICONDUCTOR INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-3.
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ITEM NUMBER AND HEADING IN
FORM S-3 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front and Outside Back Cover
Pages
3. Summary Information, Risk Factors and Ratio of
Earnings....................................... The Company; Risk Factors; Incorporation
of Certain Information By Reference
4. Use of Proceeds................................ Outside Front Cover Page; Plan of
Distribution
5. Determination of Offering Price................ Plan of Distribution
6. Dilution....................................... Not Applicable
7. Selling Security Holders....................... Selling Stockholders
8. Plan of Distribution........................... Plan of Distribution
9. Description of Securities to be Registered..... Outside Front Cover Page; Plan of
Distribution
10. Interests of Named Experts and Counsel......... Legal Matters
11. Material Changes............................... Not Applicable
12. Incorporation of Certain Information by
Reference...................................... Incorporation of Certain Information By
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Not Applicable
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PROSPECTUS
SUBJECT TO COMPLETION JUNE 17, 1996
27,682,716 SHARES
AUREAL SEMICONDUCTOR INC.
COMMON STOCK
($0.001 PAR VALUE)
This Prospectus relates to the public offering, which is not being
underwritten, of shares of the common stock, $0.001 par value per share ("Common
Stock"), of Aureal Semiconductor Inc. ("Aureal" or the "Company") offered from
time to time by any or all of the Selling Stockholders named herein (the
"Selling Stockholders") who received such shares pursuant to (1) a bankruptcy
reorganization, (2) Common Stock Purchase Agreements by and among the Company
and certain of the Selling Stockholders or (3) warrants issued by the Company.
The Selling Stockholders hold certain registration rights pursuant to a
Registration Rights Agreement by and among the Company and the Selling
Stockholders. All shares issued to date have been issued pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), provided by Section 4(2) thereof. The Company
will receive no part of the proceeds of any sales made hereunder. All expenses
of registration incurred in connection with this offering are being borne by the
Company, but all selling and other expenses incurred by Selling Stockholders
will be borne by such Selling Stockholders. None of the shares offered pursuant
to this Prospectus has been registered prior to the filing of the Registration
Statement of which this Prospectus is a part.
The Common Stock offered hereby may be offered and sold from time to time
by the Selling Stockholders directly or through broker-dealers or underwriters
who may act solely as agents, or who may acquire the Common Stock as principals.
The distribution of the Common Stock may be effected in one or more transactions
that may take place through the Nasdaq OTC Bulletin Board, including block
trades or ordinary broker's transactions, or through privately negotiated
transactions, or through underwritten public offerings, or through a combination
of any such methods of sale, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Usual
and customary or specially negotiated brokerage fees or commissions may be paid
by the Selling Stockholders in connection with such sales. See "PLAN OF
DISTRIBUTION."
The Common Stock of the Company is traded on the Nasdaq OTC Bulletin Board
(OTC Bulletin Board Symbol: AURL ). On June 10, 1996, the average of the closing
bid and asking price of a share of the Company's Common Stock was $1.78125.
SEE "RISK FACTORS" ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
Each Selling Stockholder and any broker executing selling orders on behalf
of the Selling Stockholders may be deemed to be an "underwriter" within the
meaning of the Securities Act. Commissions received by any such broker may be
deemed to be underwriting commissions under the Securities Act.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFEROR TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES BY ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH
OFFER, SOLICITATION OR SALE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 17, 1996.
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AVAILABLE INFORMATION
Aureal is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's regional offices at: Seven World Trade Center, New York,
New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and copies of such material can be obtained from the Public Reference
Section of the Commission, Washington, D.C. 20549, at prescribed rates.
This Prospectus contains information concerning Aureal, but does not
contain all the information set forth in the Registration Statement on Form S-3
which the Company has filed with the Securities and Exchange Commission under
the Securities Act (the "Registration Statement"). The Registration Statement,
including various exhibits, may be inspected at the Commission's office in
Washington, D.C.
INFORMATION INCORPORATED BY REFERENCE
There are hereby incorporated by reference in this Prospectus the following
documents and information heretofore filed with the Commission:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, filed on March 27, 1996.
(2) The Company's Definitive Proxy Statement relating to the Annual
Meeting of Stockholder to be held May 8, 1996, filed on April 9, 1996.
(3) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, filed on April 24, 1996.
(4) The Company's Report on Form 8-K dated February 21, 1996, filed on
April 19, 1996.
(5) The Company's Report on Form 8-K dated May 22, 1996, filed on May
22, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of securities contemplated hereby shall be deemed to
be incorporated by reference in this Prospectus or any Prospectus Supplement and
to be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated by reference or deemed to be incorporated
by reference in this Prospectus or any Prospectus Supplement shall be deemed to
be modified or superseded for all purposes of this Prospectus or such Prospectus
Supplement to the extent that a statement contained herein, therein or in any
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein or in such Prospectus Supplement modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any Prospectus Supplement.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any and all of the documents referred to above which have been
or may be incorporated in this Prospectus by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
therein). Requests for such copies should be directed to the Company's principal
executive offices located at 4245 Technology Drive, Fremont, CA 94538, telephone
number (510) 252-4245.
THE COMPANY
Media Vision Technology Inc. filed for protection under Chapter 11 of the
Bankruptcy Code in July 1994. A Plan of Reorganization (POR) was approved and
was declared effective in December 1994. The POR resulted in a new operating
entity. Prior to August 1995, the Company designed, developed, and marketed
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multimedia add-in subsystems that added enhanced sound capabilities to personal
computers, through electronics retail and distributor channels. In August 1995,
the Company announced its intended divestiture of retail operations in order to
concentrate solely on the development of its audio semiconductor technology and
implement a business model based upon the sale of audio semiconductors and
licensing of semiconductor technology. In November 1995, the Company announced
that it was changing its name to Aureal Semiconductor and has been doing
business as Aureal Semiconductor since then. The Company changed its name to
Aureal Semiconductor Inc. on May 8, 1996 pursuant to a vote of its stockholders
at the 1996 Annual Meeting.
Aureal designs, develops and markets advanced audio solutions for
multimedia desktop PC and add-in sound card manufacturers. Aureal believes it
will be one of the first suppliers of audio components that will offer advanced
audio synthesis and true positional 3-D audio for the PC marketplace. The
Company's initial products are expected to implement true positional 3-D audio,
Windows Direct Sound acceleration, digital mixing and a wide range of other
sound-processing effects and algorithms. Future products include mixed-signal,
multi-synth solutions which incorporate both wavetable synthesis and waveguide
physical modeling technologies. The Company intends to promote true positional
3-D audio and over time surpass current synthesis solutions and establish
waveguide physical modeling synthesis as a new standard in PC audio technology.
Aureal was incorporated as Media Vision Inc. in California in May 1990 and
was reincorporated in Delaware as Media Vision Technology Inc. in November 1992.
The Company emerged from reorganization under Chapter 11 of the U.S. Bankruptcy
code on December 30, 1994 and in November 1995 changed its name to Aureal
Semiconductor Inc. The Company's stockholders approved the name change on May 8,
1996. Unless the context otherwise requires, "Aureal" and the "Company" refer to
Aureal Semiconductor Inc., a Delaware corporation, and its predecessor and
subsidiary. The Company's principal executive offices are located at 4245
Technology Drive, Fremont, California 94538, and its telephone number is (510)
252-4245. See "INFORMATION INCORPORATED BY REFERENCE."
RECENT DEVELOPMENTS
On May 7, 1996, Aureal entered into an Agreement and Plan of Reorganization
with Crystal River Engineering, Inc., a California corporation ("CRE"), and
Aureal Acquisition Corporation, a California corporation and a wholly-owned
subsidiary of the Company ("Sub"), pursuant to which Sub was merged with and
into CRE (the "Merger"). CRE is a leading developer of true positional 3D audio
technology. The terms of the Merger provided that the Company purchase each
outstanding share of common stock of CRE at a price per share of $8.30 and
assume each outstanding and unexercised option for CRE common stock and convert
such option into an option to purchase shares of the Company's Common Stock. The
total cash payment by the Company for CRE stock was $2,879,967.00 and the total
number of shares reserved for conversion of CRE options into Aureal Common Stock
was 2,644,840. In addition, bonus and incentive payments totaling $846,000.00
have been paid, or are expected to be paid by the Company over the next 18
months to the former CRE shareholders. The Company filed the Reorganization
Agreement as Exhibit 5.1 to its Form 8-K on May 22, 1996.
CRE, founded in 1987, develops and markets interactive, positional 3D audio
technology and related systems under the AudioRealty 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, 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.
On June 11, 1996, the Company announced that it had signed a Common Stock
Purchase Agreement for the sale of 8,888,888 shares of Aureal Common Stock at a
price of $1.35 per share for total proceeds of
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approximately $12 million. The participants in this private placement included
The TCW Group, Inc., DDJ Capital Management, LLC and Appaloosa Management, L.P.
The Company expects to use the proceeds from this private placement to pay down
its outstanding debt.
FORWARD LOOKING INFORMATION
This Prospectus, including the information incorporated by reference
herein, contains forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the risk factors set forth below and others detailed from time to time
in the Company's periodic reports filed with the Commission.
RISK FACTORS
In addition to the other information in this Prospectus or incorporated
herein by reference, the following factors should be considered carefully in
evaluating the Company and its business before purchasing the Common Stock
offered hereby:
HISTORY OF LOSSES; LACK OF PROFITABILITY
The Company emerged from bankruptcy on December 30, 1994. During 1995, 1994
and 1993, the Company's retail products business operations generated
substantial losses, which in the aggregate exceeded $238 million. In August
1995, the Company announced its intended divestiture of retail operations in
order to concentrate solely on the development of its audio semiconductor
technology and to implement a business model based upon the sale of audio
semiconductors and on licensing of semiconductor technology. The Company expects
that for 1996, it will continue to sustain losses from its operations and does
not expect to be cash flow positive from operations during 1996. Losses of
$103.8 million sustained during 1995, including recognition of restructuring
charges of $61.6 million pursuant to the Company's decision to exit the retail
products business, generated stockholders' deficit of $23.8 million as of
December 31, 1995. The restructuring charge recognition included a write-down of
$30.5 million of the reorganization asset generated upon exit from Chapter 11
bankruptcy proceedings on December 30, 1994.
In addition, at December 31, 1995, current liabilities exceeded current
assets by approximately $5.5 million. The Company anticipated funding the
shortfall through equity financings (received in February and March, 1996) as
well as potentially utilizing the $2.45 million remaining available under its
line of credit.
In prior years, substantially all of the Company's revenues have been
generated from its retail products business. The Company now anticipates its
revenues to be derived from sales of products based upon, or licensing of the
Company's audio technologies, including True Positional 3D Audio and
parameterized physical modeling of sound. This is effectively a new business
venture for the Company with all the attendant risks associated thereto
including those discussed in further detail below. There can be no assurance
that the Company will be able to achieve profitability. See "INFORMATION
INCORPORATED BY REFERENCE."
DELIVERY OF PRODUCTS
Although the Company has prototypes of its ASP301 chip which are
functional, it still has numerous technologically challenging silicon and
software obstacles to overcome in order to produce a viable product based on its
technology. The Company must complete the design and manufacture a custom PCI
interface chip which is required as part of the ASP301 chipset. In addition, the
Company must develop, either internally or through third party subcontracting,
various complete software device drivers, physical models and wavetable
synthesis as well as a variety of application interface software. The Company is
only in the design phase of its other products. There can be no assurance that
the Company will be successful in completion of these projects in a timely
manner, if at all. See "INFORMATION INCORPORATED BY REFERENCE."
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NEW TECHNOLOGY
Although audio physical modeling technology is becoming more widely used in
the music industry, no other semiconductor company has announced a product based
in large part on this technology. In addition, game and application developers
have not yet built capabilities within their applications to take advantage of
physical modeling technology. There can be no assurance that the Company will be
able to create a market for its form of advanced audio synthesis.
RETAIL BUSINESS LIABILITY
In February 1996, the Company sold the Media Vision brand name and other
assets (primarily specific product trademarks, product designs and inventories
of certain products designated to fulfill warranty claims -- all of diminimus
book value) to a third party. The buyer is obligated to satisfy retail customer
service, warranty and technical support obligations arising subsequent to the
date of the agreement. The Company had entered into agreements related to
expenses associated with its prior retail business including minimum purchase
commitments for supplies, components and services. The Company believes it has
accrued adequate reserves for liabilities associated with those prior retail
obligations. On December 31, 1995 (as discussed in footnote 10 to the financial
statements in the Company's Form 10-K), the remaining reserves related to
exiting the retail products business totalled approximately $2.0 million. There
can be no assurance that the Company's estimates will be adequate to cover
liabilities which may arise from these obligations.
DEPENDENCE ON FOUNDRIES AND OTHER THIRD PARTIES
The Company relies on independent foundries to manufacture all of its
semiconductor products. The Company has shifted its strategy to pursue a
business model focused entirely on the development and sales of audio solutions
including software and semiconductor products. The Company's success in
implementing this strategy will depend in large part upon its ability to
establish reliable arrangements with outside semiconductor manufacturers or
"foundries" for the manufacture of its semiconductor products. In recent
periods, a substantial majority of the Company's chip and chip set products have
been manufactured by one foundry. This foundry has indicated that it will
severely limit its production of these products in the near future. The Company
has arranged for this foundry to manufacture a limited number of prototypes of
certain of the Company's products under development. The Company has transferred
its designs from this foundry located in Taiwan to another foundry with a
similar fabrication process also located in Taiwan. This other Taiwanese foundry
has indicated it will be capable of meeting the Company's production
requirements for its future products; however, such arrangement is on a purchase
order basis and may be canceled at any time. The Company is engaged in
discussions with other foundries with respect to potential arrangements to
manufacture the Company's semiconductor products. There can be no assurance that
the Company will be able to obtain any such arrangement, or if it does obtain
such an arrangement, it does so on terms favorable to the Company. To the extent
the Company is unable to obtain suitable foundry arrangements, the Company's
business, financial condition and results of operations could be materially and
adversely affected. Further, to the extent the Company obtains an arrangement
with a foundry as a sole supplier of one or more of the Company's products, any
significant interruption in the supply of such product from the foundry could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Recent increases in semiconductor demand have reduced available foundry
capacity worldwide, which could adversely affect the Company's ability to meet
its manufacturing needs. To address foundry capacity constraints, other
semiconductor suppliers that rely on third party foundries have utilized various
arrangements, including equity investments in or loans to independent wafer
manufacturers in exchange for guaranteed production capacity, joint ventures to
own and operate foundries, or "take or pay" contracts that commit a company to
purchase specified quantities of wafers over extended periods. While the Company
is not currently a party to any such arrangements, it may be necessary or
advantageous for the Company to enter into such arrangements in the future and
there can be no assurance that it will be successful in this regard. Any such
arrangements could require the Company to commit substantial capital and grant
licenses to its technology. The need to commit substantial capital may require
the Company to seek additional debt or equity financing, which could result in
dilution to the Company's stockholders. There can be no assurance that such
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additional financing, if required, will be available when needed or, if
available, on terms acceptable to the Company.
The manufacture of semiconductors is a highly complex and precise process.
Minute levels of contaminants in the manufacturing environment, defects in the
masks used to print circuits on a wafer, difficulties in the fabrication process
or other factors can cause a substantial percentage of wafers to be rejected or
a significant number of die on each wafer to be nonfunctional. Many of these
problems are difficult to diagnose, time-consuming or expensive to remedy. The
Company's products are particularly complex and difficult to manufacture. Due to
its integration of both analog logic functions and digital logic function in its
semiconductor products, special fabrication processes are required to achieve
acceptable yields for mixed signal devices (devices integrating both analog and
digital components). There can be no assurance that the Company's foundries will
not experience irregularities or adverse yield fluctuations in their
manufacturing processes. Any yield or other production problems or shortages of
supply experienced by the Company or its foundries could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "INFORMATION INCORPORATED BY REFERENCE."
DEPENDENCE ON SINGLE PRODUCT LINE AND PC INDUSTRY
Most of the Company's initial products will be sold for use with multimedia
desktop PCs. Aureal's audio semiconductors are being designed to be used in
motherboards by multimedia PC original equipment manufacturers ("OEMs") or on
add-in sound cards manufactured by OEMs or PC peripheral suppliers. Therefore,
the Company is heavily dependent on the continued growth of the markets for
multimedia desktop PCs and multimedia applications utilizing high quality audio.
While the market for multimedia PCs has recently experienced substantial growth,
the overall PC industry has historically been cyclical, and there can be no
assurance that this growth will continue in future periods. A decline in demand
in the PC industry would result in a corresponding decline in demand for the
Company's products, which would have a material adverse effect on the Company's
business, financial condition and operating results. See "INFORMATION
INCORPORATED BY REFERENCE."
NEW MANAGEMENT TEAM; DEPENDENCE ON PERSONNEL
Only one of the Company's current officers served as an officer of the
Company prior to March 1995. All of the Company's current Board of Directors
were elected subsequent to the Company's emergence from bankruptcy in December
1994. The Company's management team and Board of Directors face significant
challenges in delivering state of the art products in a cost effective and
profitable manner. Due to the short operating history of the Company's current
management and Board of Directors, there can be no assurance that the management
team and Board of Directors can successfully manage the Company's rapidly
evolving business.
The Company's success also depends to a significant extent upon the
continued service of key engineering, marketing, sales and management personnel.
In connection with the Company's acquisition of CRE, the Company entered into an
employment agreement with Mr. Scott Foster, Aureal's new Chief Technology
Officer. The employment agreement provides that Mr. Foster shall be employed by
the Company for one year, and that in certain circumstances, if Mr. Foster's
employment with Aureal terminates, Mr. Foster will not compete with the Company
for a period of two years. The Company's other officers all have signed standard
confidentiality and nondisclosure agreements. The Company's employees may
voluntarily terminate their employment with the Company at any time. The
competition for such employees is intense, and the loss of the services of such
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. See "INFORMATION INCORPORATED BY
REFERENCE."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results are subject to quarterly and other
fluctuations due to a variety of factors, including the gain or loss of
significant customers, increased competitive pressures, the timing of new
product announcements and introductions by the Company or its competitors and
market acceptance of new or
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enhanced versions of the Company's and its customers products. Other factors
include the availability of foundry capacity, fluctuations in manufacturing
yields, availability and cost of raw materials, changes in the mix of products
sold, the cyclical nature of both the semiconductor industry and the market for
PCs, seasonal customer demand, the timing of significant orders, potential
significant increases in expenses associated with the expansion of operations,
and changes in pricing policies by the Company, its competitors or its
suppliers. The Company's operating results could also be adversely affected by
economic conditions generally in various geographic areas where the Company or
its customers do business, or order cancellations or rescheduling. These factors
are difficult to forecast, and these or other factors could materially adversely
affect the Company's quarterly or annual operating results. There can be no
assurance as to the level of sales or earnings that may be attained by the
Company in any given period in the future. See "INFORMATION INCORPORATED BY
REFERENCE."
COMPETITION; PRICING PRESSURES
The markets in which the Company competes are intensely competitive and are
characterized by rapid technological change, price declines and rapid product
obsolescence. The Company expects competition to increase in the future from
existing competitors and from other companies that may enter the Company's
existing or future markets with products that may be less costly or provide
higher performance or additional features. The Company competes with
semiconductor manufacturers offering multiple function chip solutions and single
chip solutions. The Company anticipates that it will continue to compete with
such third parties, and that competitors may offer more highly integrated
solutions in the future. The Company is unable to predict the timing and nature
of any such competitive product offerings. The announcement and commercial
shipment of competitive products could adversely affect sales of the Company's
products and may result in increased price competition that would adversely
affect the prices of the Company's products and margins. In general, product
prices in the semiconductor industry have decreased over the life of a
particular product. The markets for most of the applications for the Company's
products, particularly the PC market, are characterized by intense price
competition. The willingness of prospective customers to design the Company's
products into their products depends to a significant extent upon the ability of
the Company to price its products at a level that is cost-effective for such
customers. As the markets for the Company's products mature and competition
increases, the Company anticipates that prices for its products will continue to
decline. If the Company is unable to reduce its costs sufficiently to offset
declines in product prices or is unable to introduce new, higher performance
products with higher product prices, the Company's business, financial condition
and results of operations could be materially adversely affected.
The Company's existing and potential competitors consist principally of
large domestic and international companies that have substantially greater
financial, manufacturing, technical, marketing, distribution and other
resources, greater intellectual property rights, broader product lines and
longer-standing relationships with customers than the Company. The Company's
competitors also include a number of emerging companies. The Company's principal
existing and potential competitors include, but are not limited to, Chromatic
Research, Cirrus Logic, Inc., Creative Technology Ltd., ESS Technology, Inc.,
OPTi, Inc. and Yamaha. Certain of the Company's current and potential
competitors maintain their own semiconductor foundries and may therefore benefit
from certain capacity, cost and technical advantages. The Company believes that
its ability to compete successfully depends on a number of factors, both within
and outside of its control, including the price, quality and performance of the
Company's and its competitors products, the timing and success of new product
introductions by the Company, its customers and its competitors, the emergence
of new multimedia PC standards, the development of technical innovations, the
ability to obtain adequate foundry capacity and sources of raw materials, the
efficiency of production, the rate at which the Company's customers design the
Company's products into their products, the number and nature of the Company's
competitors in a given market, the assertion of intellectual property rights and
general market and economic conditions. There can be no assurance that the
Company will be able to compete successfully in the future.
7
<PAGE> 10
Each successive generation of microprocessors has provided increased
performance, which could in the future result in a microprocessor capable of
performing audio functions, thereby eliminating the need for the Company's
products. In this regard, Intel Corporation has developed Native Signal
Processing ("NSP") capability for use in conjunction with its Pentium
microprocessors, and is promoting the processing power of the Pentium for data
and signal intensive functions such as graphics acceleration and other
multimedia functions. Intel's NSP's strategy involves executing such signal
processing on the host processor rather than allowing such processing of audio
or graphic functions to occur on a peripheral component such as the Company's
product. At this time the processing power required to execute high quality
video, graphics, and audio simultaneously and all the other functions which the
host processor does, has not been achieved by Intel's products. There can be no
assurance that the increased capabilities of microprocessors will not adversely
affect demand for the Company's products. See "INFORMATION INCORPORATED BY
REFERENCE."
IMPORTANCE OF NEW PRODUCTS AND TECHNOLOGICAL CHANGE
The markets for the Company's products are characterized by evolving
industry standards, rapid technological change and product obsolescence. The
Company's success is highly dependent upon the successful development and timely
introduction of new products at competitive price and performance levels. The
success of new products depends on a number of factors, including timely
completion of product development, market acceptance of the Company's and its
customers new products, securing sufficient foundry capacity for volume
manufacturing of wafers, achievement of acceptable wafer fabrication yields by
the Company's independent foundries and the Company's ability to offer new
products at competitive prices. Incorporating the Company's new products into
its OEM customers new product designs requires the anticipation of market trends
and performance and functionality requirements of OEMs, the development and
productions of products that meet the timing and pricing requirements of OEMs
and that can be tested and be available in a timely manner consistent with the
OEM's development and production schedule. Accordingly, in selling to OEMs, the
Company can often incur significant expenditures in advance of volume sales of
new products, if any. There can be no assurance that the Company will be able to
successfully identify new product opportunities, develop and market new
products, achieve design wins or respond effectively to new technological
changes or product announcements by others. A failure in any of these areas
would have a material adverse effect on the Company's business, financial
condition and results of operation.
FACTORS INHIBITING TAKEOVER
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, which imposes certain restrictions on the ability of a
third party to effect an unsolicited change in control of the Company. In
addition, the Company's Certificate of Incorporation does not provide for
cumulative voting in the election of directors, and certain provisions of the
Company's Certificate of Incorporation and By-Laws, including the provisions
which divide the Board into three separate classes, may have the effect of
delaying or preventing changes in control or management of the Company. While
the Company believes these restrictions are in the best interests of the Company
and its stockholders, these restrictions could adversely affect the market price
of the Company's Common Stock.
UNCERTAINTY OF TRADING MARKET FOR COMMON STOCK
The Company's old common stock traded on the Nasdaq National Market from
November 11, 1992, the date of its initial public offering, until August 18,
1994, when it was listed on the Nasdaq Small Cap Market. The Old Common Stock
was delisted from the Nasdaq Small Cap Market on December 9, 1994 and was
canceled on December 30, 1994 pursuant to the Plan of Reorganization ("POR").
Since being issued pursuant to the POR, on December 30, 1994, the Common Stock
has only traded on Nasdaq's OTC Bulletin Board and the trading volume has been
very light. The Company does not currently meet the requirements of the Nasdaq
National Market or other national stock exchanges. There can be no assurance
that the Common Stock will meet these listing requirements and that it will be
accepted for trading on such national stock exchanges. There can be no assurance
as to the liquidity of any markets that may develop for the Common
8
<PAGE> 11
Stock. The trading price of the Common Stock may be influenced by the volume and
liquidity of the market for the Common Stock. In addition, the Common Stock
being offered pursuant to this Prospectus represents approximately seventy-one
percent (71%) of the Company's total outstanding securities. Offering such a
large percentage of the Company's total outstanding securities may have an
adverse effect on the market for the Company's securities. See "INFORMATION
INCORPORATED BY REFERENCE."
9
<PAGE> 12
SELLING STOCKHOLDERS
The following table shows, as to each Selling Stockholder, (i) such
stockholder's name, address and relationship to the Company, (ii) the number of
shares of Common Stock beneficially owned prior to the offering, and (iii) the
number of shares of Common Stock to be sold pursuant to this Prospectus:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES TO BE SOLD OWNED AFTER
NAME AND ADDRESS OFFERING(1) IN THE OFFERING OFFERING(2)
----------------------------------- ------------------- ----------------- -------------------
<S> <C> <C> <C>
The TCW Group, Inc. and its
affiliates....................... 16,992,346(3) 16,992,346
865 South Figueroa Street
Los Angeles, California 90017
D. Richard Masson.................. 16,992,346(4) 16,992,346
Thomas K. Smith, Jr................ 16,992,346(5) 16,992,346
DDJ Capital Management, LLC........ 6,147,206(6) 4,500,000 1,647,206
141 Linden Street, Suite 4
Wellesley, MA 02181
Appaloosa Management, L.P.......... 5,752,097(7) 4,250,000 1,502,097
51 JFK Parkway
Short Hills, NJ 07078
Leslie Alexander................... 1,332,500 1,000,000 332,500
1200 North Federal Highway
Suite 307
Boca Raton, FL 33143
Seneca Capital..................... 270,000(8) 270,000
575 Lexington Avenue, 7th Floor
New York, NY 10022
Cerberus Partners, L.P............. 436,000(9) 250,000 186,000
950 Third Avenue, 20th Floor
New York, NY 10022
IT Technology Investment........... 270,185 185,185 85,000
14 Rue de Berri
75008 Paris France
Heinz H. Steinman.................. 305,185 185,185 120,000
5797 Cedar Street
Wrightwood, CA 92397
Financing For Science
International, Inc............... 50,000(10) 50,000
10 Waterside Drive
Farmington, CT 06032
</TABLE>
- ---------------
(1) Based on shares beneficially owned at June 10, 1996.
(2) Calculations are based on the assumption that all shares registered
hereunder will be sold in the offering.
(3) According to a Schedule 13D filed with the Securities and Exchange
Commission March 22, 1996, TCW Group, Inc. may be deemed to beneficially own
13,743,828 shares of the Company's Common Stock. In addition, on June 10,
1996, TCW Group, Inc. and its affiliates acquired, in the aggregate, an
additional 3,248,518 shares of the Company's Common Stock. The 16,992,346
represents shares held by limited partnerships, trusts and third party
separate accounts for which The TCW Group, Inc. and its affiliates
(collectively, "TCW") act as general partner, trustee and investment
adviser, respectively. TCW may be deemed to beneficially own such shares
held by such limited partnerships, trusts and third party accounts; however,
TCW expressly disclaims beneficial ownership of these shares. 8,743,828
shares represents the number of shares received to date by TCW in exchange
for debt claims held against the Company pursuant to the Plan of
Reorganization. The actual total number of shares of Common Stock TCW
expects to receive is approximately 9,000,000 shares, which number may vary
depending upon the final
10
<PAGE> 13
allocation and distribution to the holders of debt securities and the
settlement of disputes with certain claim holders. See "INFORMATION
INCORPORATED BY REFERENCE."
(4) Includes 16,992,346 shares held by TCW Special Credits, Trust Company of the
West or their affiliates, of which Mr. Masson may be deemed a beneficial
owner to the extent of any indirect pecuniary interest therein. Mr. Masson
disclaims beneficial ownership of such shares. Mr. Masson has served as a
director of the Company since December 30, 1994 when he was appointed
pursuant to the Plan of Reorganization. Mr. Masson has been a Principal of
Oaktree Capital Management, LLC since May 1995. Prior to the founding of
Oaktree, he was a partner of TCW Special Credits and served as a Managing
Director of Trust Company of the West and TCW Asset Management Company
("TAMCO"), wholly-owned subsidiaries of The TCW Group, Inc., in various
other capacities since 1988. TCW Special Credits serves as a general partner
and investment adviser to certain limited partnerships, trusts, and accounts
invested in the securities and debt obligations of financially distressed
companies. TAMCO is the managing general partner of TCW Special Credits. See
"INFORMATION INCORPORATED BY REFERENCE."
(5) To the extent Mr. Smith, as either a Senior Vice President or authorized
representative of Trust Company of the West or TCW Asset Management Company
participates in the process to vote or dispose of the shares described in
footnote (2) above, Mr. Smith may be deemed under certain circumstances for
the purpose of Section 13 of the Securities Exchange Act of 1934, as
amended, to be the beneficial owner of such shares. Mr. Smith disclaims
beneficial ownership of such shares. See "INFORMATION INCORPORATED BY
REFERENCE."
(6) According to a Schedule 13D filed with the Securities and Exchange
Commission March 12, 1996, all 4,147,206 shares of the Company's Common
Stock may be deemed to be beneficially owned by DDJ Capital Management, LLC
("DDJ") through certain affiliates, as general partners and investment
managers of The Copernicus Fund, L.P. (the "Copernicus Fund") and the
Galileo Fund, L.P. (the "Galileo Fund"). In addition, on June 10, 1996, DDJ,
through the Copernicus Fund and the Galileo Fund, acquired in the aggregate
an additional 2,000,000 shares of the Company's Common Stock. Of the total
of 6,147,206 shares, the Galileo Fund beneficially owns 4,036,439 shares of
the Company's Common Stock and the Copernicus Fund beneficially owns
2,110,767 shares of the Company's Common Stock. DDJ, through its control of
certain affiliates and each of the Copernicus Fund and the Galileo Fund, has
sole power to vote and to dispose of the 6,147,206 shares of the Company's
Common Stock. See "INFORMATION INCORPORATED BY REFERENCE."
(7) According to a Schedule 13D filed with the Securities and Exchange
Commission February 29, 1996, 4,002,097 of the shares are beneficially owned
by Appaloosa Management L.P. ("Appaloosa"). Mr. David A. Tepper, through his
control of Appaloosa, may be deemed to beneficially own all of the shares of
the Company's stock beneficially owned by Appaloosa. On June 10, 1996,
Appaloosa and its affiliates acquired, in the aggregate, an additional
1,750,000 shares of the Company's Common Stock. Both Appaloosa and Mr.
Tepper have sole voting and dispositive power with respect to the 5,752,097
shares of the Company's Common Stock. See "INFORMATION INCORPORATED BY
REFERENCE."
(8) Includes 169,400 shares of Common Stock held by Seneca Capital L.P., 31,900
shares of Common Stock held by Seneca Capital International LTD, 31,500
shares of Common Stock held by ZPG Securities, LLC, 23,500 shares of Common
Stock held by DFG Corporation, and 13,700 shares of Common Stock held by
Palamundo LDC Camen Islands.
(9) Includes 210,000 shares of Common Stock held by Cerberus Partners, L.P.,
67,000 shares of Common Stock held by Pequod Investments, L.P., 70,000
shares of Common Stock held by Cerberus International, Ltd., 9,000 shares of
Common Stock held by Ultra Cerberus, Ltd. and 80,000 shares of Common Stock
held by Ariel Ltd.
(10) The shares are purchasable pursuant to a warrant dated February 13, 1996 by
and between the Company and Financing For Science International, Inc.
11
<PAGE> 14
PLAN OF DISTRIBUTION
This public offering, which is not being underwritten, relates to
27,682,716 shares of Common Stock of the Company offered from time to time by
any or all of the Selling Stockholders who received such shares pursuant to (1)
a bankruptcy reorganization, (2) Common Stock Purchase Agreements, by and among
the Company and certain of the Selling Stockholders or (3) warrants issued by
the Company. The Selling Stockholders hold certain registration rights pursuant
to a Registration Rights Agreement by and among the Company and the Selling
Stockholders. All shares issued to date have been issued pursuant to an
exemption from the registration requirements of the Securities Act provided by
Section 4(2) thereof.
The Company has been advised by the Selling Stockholders that they and any
person receiving shares from the Selling Stockholders in the form of a bona fide
gift or distribution to a limited partner of a Selling Stockholder (a "Donee")
intend to sell all or a portion of the shares offered hereby from time to time
in the over-the-counter market and that sales will be made at prices prevailing
at the times of such sales. The Selling Stockholders and any Donee may also make
private sales directly or through a broker or brokers, who may act as agent or
as principal. In connection with any sales, the Selling Stockholders, any Donee
and any brokers participating in such sales may be deemed to be underwriters
within the meaning of the Securities Act. The Company will receive no part of
the proceeds of sales made hereunder.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling Stockholders and any Donee (and, if they act as
agent for the purchaser of such shares, from such purchaser). Usual and
customary brokerage fees will be paid by the Selling Stockholders and any Donee.
Broker-dealers may agree with the Selling Stockholders to sell a specified
number of shares at a stipulated price per share, and, to the extent such a
broker-dealer is unable to do so acting as agent for the Selling Stockholders
and any Donee, to purchase as principal any unsold shares at the price required
to fulfill the broker-dealer commitment to the Selling Stockholders and any
Donee. Broker-dealers who acquire shares as principal may thereafter resell such
shares from time to time in transactions (which may involve crosses and block
transactions and which may involve sales to and through other broker-dealers,
including transactions of the nature described above) in the over-the-counter
market, in negotiated transactions or otherwise at market prices prevailing at
the time of sale or at negotiated prices, and in connection with such resales
may pay to or receive from the purchasers of such shares commissions computer as
described above.
The Company has advised the Selling Stockholders that the anti-manipulative
Rules 10b-6 and 10b-7 under the Exchange Act may apply to their sales in the
market, has furnished each Selling Stockholder with a copy of these Rules and
has informed them of the need for delivery of copies of this Prospectus. The
Selling Stockholders or any Donee may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act. Any
commissions paid or any discounts or concessions allowed to any such
broker-dealers, and any profits received on the resale of such shares, may be
deemed to be underwriting discounts and commissions under the Securities Act if
any such broker-dealers purchase shares as principal.
Upon notification by a Selling Stockholder or any Donee to the Company that
any material arrangement has been entered into with a broker-dealer for the sale
of shares through a cross or block trade, to the extent required, a supplemental
prospectus will be filed under Rule 424(c) under the Securities Act setting
forth the name of the participating broker-dealer(s), the number of shares
involved, the price at which such shares were sold by the Selling Stockholder or
any Donee, the commissions paid or discounts or concessions allowed by the
Selling Stockholder or any Donee to such broker-dealer(s), and where applicable,
that such broker-dealer(s) did not conduct any investigation to verify the
information set forth in this Prospectus.
Any securities covered by this Prospectus which qualify for sale pursuant
to Rule 144 under the Securities Act may be sold under that Rule rather than
pursuant to this Prospectus.
There can be no assurance that any of the Selling Stockholders or any Donee
will sell any or all of the shares of Common Stock offered by them hereunder.
12
<PAGE> 15
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Gray Cary Ware & Freidenrich a Professional Corporation,
Palo Alto, California.
13
<PAGE> 16
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. 2
INFORMATION INCORPORATED BY REFERENCE................................................. 2
THE COMPANY........................................................................... 2
RECENT DEVELOPMENTS................................................................... 3
FORWARD LOOKING INFORMATION........................................................... 3
RISK FACTORS.......................................................................... 3
SELLING STOCKHOLDERS.................................................................. 8
PLAN OF DISTRIBUTION.................................................................. 9
LEGAL MATTERS......................................................................... 10
</TABLE>
------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES TO
WHICH THIS PROSPECTUS RELATES, OR AN OFFER IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE OF SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
<PAGE> 17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an itemized statement of the estimated expenses in
connection with the issuance and distribution offered hereby:
<TABLE>
<S> <C>
SEC Filing Fees............................................................ 17,302
Blue Sky Fees and Expenses (including fees of counsel)..................... 20,000
NASD Filing Fee............................................................ --
Printing and Engraving..................................................... --
Legal Fees and Expenses.................................................... 10,000
Accounting Fees and Expenses............................................... 5,000
Information Agent Fees..................................................... --
Miscellaneous.............................................................. --
-------
Total............................................................ $52,302
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the Delaware General Corporation Law (the "DGCL")
provides in relevant part that "a corporation shall have power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful." With respect to
derivative actions, Section 145(b) of the DGCL provides in relevant part that
"[a] corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor [by reason of
his service in one of the capacities specified in the preceding sentence]
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper."
Article SIXTH of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") provides generally that to
the fullest extent permitted by the DGCL, no director of the Company shall be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (a) for any breach
of the director's duty of loyalty to the Company or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL; or (d) for any
transaction from which the director derived any improper personal benefit. The
Certificate of Incorporation also provides that no amendment or repeal of such
provision shall apply to or have any effect on the right to indemnification
permitted thereunder with respect to claims arising from acts or omissions
occurring in whole or in part before the effective date of such amendment or
repeal whether asserted before or after such amendment or repeal. In
II-1
<PAGE> 18
addition, Article VIII of the Company's Bylaws provides that the Company shall
indemnify its directors, officers, employees and agents to the fullest extent
permitted by the DGCL. The indemnification provided by the Company's Certificate
of Incorporation and Bylaws does not eliminate monetary liability of the
Company's officers, directors, employees and agents under the federal securities
laws.
ITEM 16. EXHIBITS.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ----------------------------------------------------------------------------------
<C> <S>
5.1 Opinion of Gray Cary Ware & Freidenrich.
10.1(1) Common Stock Purchase Agreement by and among the Company and certain beneficial
owners of 5% or more of the Company's Common Stock, as amended.
10.2 Common Stock Purchase Agreement by and among the Company and certain entities and
individuals dated June 10, 1996.
10.3(1) Amendment Number 1 to Registration Rights Agreement by and among the Company and
certain beneficial owners of 5% or more of the Company's Common Stock.
10.4 Amendment Number 2 to Registration Rights Agreement by and among the Company and
certain entities and individuals dated June 10, 1996.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Gray Cary Ware & Freidenrich (included as Exhibit 5.1 hereto).
24.1+ Power of Attorney (included as page II-5 hereto).
</TABLE>
- ---------------
(1) Incorporated by reference to the exhibits filed with the Company's Form 10-K
for the year ended December 31, 1995.
+ Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
provided, however, that paragraphs 1(i) and 1(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
2. That for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE> 19
4. That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant, will unless in the opinion of its counsel the matter
has settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement No. 333-3870 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fremont, State of
California, on the 17th day of June, 1996.
AUREAL SEMICONDUCTOR INC.
By: /s/ David J. Domeier
------------------------------------
David J. Domeier
Vice President, Finance and Chief
Financial Officer
POWER OF ATTORNEY
Each of the officers and directors of Aureal Semiconductor Inc. whose
signature appears below hereby constitutes and appoints Kenneth A. Kokinakis and
David J. Domeier and each of them, their true and lawful attorneys and agents,
with full power of substitution, each with power to act alone, to sign and
execute on behalf of the undersigned any amendment or amendments to this
Registration Statement on Form S-3 or any other registration statements relating
to the same offering to be filed pursuant to Rule 462(b) under the Securities
Act and to perform any acts necessary in order to file such amendments or other
registration statements, and each of the undersigned does hereby ratify and
confirm all that said attorneys and agents, or their or his substitutes, shall
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on June 17, 1996 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------- --------------
<S> <C> <C>
/s/ KENNETH A. KOKINAKIS President, Chief Executive Officer June 17, 1996
- ------------------------------------------ and Director
Kenneth A. Kokinakis
/s/ DAVID J. DOMEIER Vice President, Finance, Chief June 17, 1996
- ------------------------------------------ Financial Officer and Chief
David J. Domeier Accounting Officer
/s/ L. WILLIAM KRAUSE Director June 17, 1996
- ------------------------------------------
L. William Krause
/s/ D. RICHARD MASSON Director June 17, 1996
- ------------------------------------------
D. Richard Masson
/s/ THOMAS K. SMITH, JR. Director June 17, 1996
- ------------------------------------------
Thomas K. Smith, Jr.
/s/ ANDREW S. RAPPAPORT Director June 17, 1996
- ------------------------------------------
Andrew S. Rappaport
</TABLE>
II-4
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
5.1 Opinion of Gray Cary Ware & Freidenrich.................................
10.1(1) Common Stock Purchase Agreement by and among the Company and certain
beneficial owners of 5% or more of the Company's Common Stock, as
amended.................................................................
10.2 Common Stock Purchase Agreement by and among the Company and certain
entities and individuals dated June 10, 1996............................
10.3(1) Amendment Number 1 to Registration Rights Agreement by and among the
Company and certain beneficial owners of 5% or more of the Company's
Common Stock............................................................
10.4 Amendment Number 2 to Registration Rights Agreement by and among the
Company and certain entities and individuals dated June 10, 1996........
23.1 Consent of Arthur Andersen LLP..........................................
23.2 Consent of Ernst & Young LLP............................................
23.3 Consent of Gray Cary Ware & Freidenrich (included as Exhibit 5.1
hereto).................................................................
24.1+ Power of Attorney (included as page II-5 hereto)........................
</TABLE>
- ---------------
(1) Incorporated by reference to the exhibits filed with the Company's Form 10-K
for the year ended December 31, 1995.
+ Previously filed.
<PAGE> 1
EXHIBIT 5.1
[GRAY CARY WARE FREIDENRICH LOGO]
ATTORNEYS AT LAW
400 HAMILTON AVENUE
PALO ALTO, CA 94301-1825
TEL (415) 328-6561
fax (415) 327-3699
June 17, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Streeet, N.W.
Washington, D.C. 20549
Re: Aureal Semiconductor Inc. Registration Statment on Form S-3
Registration No. 333-3870
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-3 (the "Registration Statement"), filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, for the registration of 27,682,716 shares of Common Stock (the "Common
Stock"), par value $0.001 per share (the "Shares"), of Aureal Semiconductor Inc.
(the "Company").
We have acted as counsel for the Company in connection with the
registration of such Shares. We have examined signed copies of the Registration
Statement and all exhibits thereto as filed with the Commission.
Based upon representations of certain officers of the Company as to the
receipt of full consideration and assuming the conversion of certain warrants in
accordance with their terms, we are of the opinion that the shares of Common
Stock to be registered will be validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
/s/ Gray Cary Ware & Freidenrich
GRAY CARY WARE & FREIDENRICH
<PAGE> 1
EXHIBIT 10.2
AUREAL SEMICONDUCTOR INC.
4245 Technology Drive
Fremont, California 94538
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT is made as of June 10, 1996, by
and among AUREAL SEMICONDUCTOR INC., a Delaware corporation (the "Company"), and
the purchasers set forth on the Schedule of Purchasers attached hereto as
Exhibit A (the "Purchasers").
WHEREAS, the Company desires to issue and sell to the Purchasers and
the Purchasers desire to purchase shares of the Common Stock of the Company.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereby agree as follows:
1. Sale of the Securities.
1.1 Sale. Subject to the terms and conditions hereof, the
Company will issue and sell to the Purchasers and the Purchasers will purchase
up to an aggregate of 8,888,888 shares of Common Stock (the "Securities") at a
price of $1.35 per share, or an aggregate purchase price of $11,999,998.80.
2. Closing Dates; Delivery.
2.1 Closing Date. The closing of the purchase and sale of the
Securities (the "Closing") shall be held at the offices of Gray Cary Ware &
Freidenrich, A Professional Corporation, 400 Hamilton Avenue, Palo Alto,
California 94301-1825 at 10:00 a.m. on June 10, 1996, or at such other time and
place as the Company and a majority in interest of the Purchasers shall agree
upon, orally or in writing.
2.2 Delivery. Subject to the terms of this Agreement, at the
Closing the Company will deliver to the Purchasers the certificates representing
the Securities to be purchased by the Purchasers from the Company, against
payment of the purchase price therefor by delivery of a check or checks, payable
to the order of the Company, or by wire transfer.
3. Representations and Warranties of the Company. Except as set forth
in Exhibit B attached hereto, the Company hereby represents and warrants to the
Purchasers as follows:
3.1 Organization and Standing; Certificate of Incorporation
and Bylaws. The Company is a corporation duly organized, validly existing and in
good
1
<PAGE> 2
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as now conducted and as proposed to
be conducted. The Company is presently qualified, licensed or domesticated as a
foreign corporation or partnership in all jurisdictions in which the failure to
be so qualified, licensed or domesticated would result in material adverse
consequences to the Company or its business. Copies of the Company's Certificate
of Incorporation, Bylaws and minutes and consents of its stockholders and Board
of Directors will be provided to the Purchasers or their special counsel upon
request.
3.2 Corporate Power. The Company has now, or will have at the
Closing Date, all requisite legal and corporate power to enter into this
Agreement and all other agreements contemplated hereby, to sell the Securities
hereunder, and to carry out and perform its obligations under the terms of this
Agreement and all other agreements contemplated hereby. This Agreement and all
other agreements contemplated hereby are valid and binding obligations of the
Company, except as the same may be limited by bankruptcy, insolvency, fraudulent
conveyance, moratorium, usury, reorganization, and other laws of general
application affecting the enforcement of creditors' rights.
3.3 Capitalization. The authorized capital stock of the
Company is 100,000,000 shares of Common Stock. The Company has reserved, 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 May 31, 1996,
there are issued and outstanding 30,000,000 shares of the Company'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 the Company's 1994 Stock Option Plan and the Company's 1995 Stock
Option Plan (collectively, the "Plans") for future issuance to key employees,
consultants and members of the Board of Directors of the Company (options for
approximately 6,005,162 shares are currently outstanding under the Plan), (ii)
options to purchase 2,644,845 shares of the Company's Common Stock which were
assumed pursuant to the acquisition of Crystal River Engineering, Inc., (iii) an
agreement between the Company and Hambrecht & Quist LLC ("H&Q") to issue to H&Q
a warrant to purchase 50,000 shares of the Company's Common Stock, and (iii) a
warrant to Financing For Science International to purchase 50,000 shares of the
Company's Common Stock, there are no outstanding rights, options, warrants,
conversion rights or agreements for the purchase or acquisition from the Company
of any shares of its capital stock. The Company 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 the Company.
3.4 Line of Credit. The Company has agreed to reduce its line
of credit with TCW from $22.0 million to $20.0 million effective upon the
closing of this transaction. All net proceeds from this transaction are
anticipated to be used to pay
2
<PAGE> 3
down the line of credit which will remain available for further reborrowing
through its current termination date of March 31, 1998.
3.5 Authorization.
(a) All corporate, federal and state action on the part of the
Company, its officers, directors and stockholders necessary for the sale and
issuance of the Securities pursuant hereto and the performance of the Company's
obligations hereunder or contemplated hereby has been taken or will be taken
prior to the Closing.
(b) The Securities, when issued in compliance with the
provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Securities may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein, and as may be required by
future changes in such laws.
(c) No person has any right of first refusal or any preemptive
rights in connection with the issuance of the Securities.
3.6 Patents, Trademarks, etc. Except as set forth in Exhibit
B, the Company 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 the Company as 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 the Company 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. The
Company 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. The Company 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
the Company or that would conflict with the Company's business as proposed to be
conducted or that would prevent any such employee from assigning inventions to
the Company. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business as proposed, will, to the best of the
Company'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. The
Company does not believe that it is or will be necessary for the Company to
utilize any inventions of any of its employees (or people it currently intends
to hire) made prior to their employment by the Company.
3
<PAGE> 4
3.7 Compliance with Other Instruments, None Burdensome, etc.
Except as set forth in Exhibit B, the Company is not in violation of any term of
its Certificate of Incorporation or Bylaws, nor is the Company in violation in
any material respect of any mortgage, indenture, contract, agreement,
instrument, judgment or decree, and to the best of the Company's knowledge, the
Company is not in violation of any order, statute, rule or regulation applicable
to the Company. The execution, delivery and performance of and compliance with
this Agreement and the other agreements contemplated hereby, and the issuance
and sale of the Securities pursuant hereto, will not result in (a) any such
violation, or (b) be in conflict with or constitute a default under any such
term, or (c) result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company pursuant to any
such term. In addition, the execution, delivery and performance of and
compliance with this Agreement and the other agreements contemplated hereby, and
the issuance and sale of the Securities pursuant hereto, will not result in a
violation of any law, statute or regulation applicable to the Company.
3.8 Employees. Each officer and key employee of the Company
has executed an Employee Proprietary and Confidential Information Agreement, the
form of which has been provided to the Purchasers or their special counsel. The
Company, after reasonable investigation, is not aware that any of its employees
are in violation thereof, and the Company will use its best efforts to prevent
any such violation.
3.9 Litigation, etc. Except as set forth on Exhibit B, there
are no actions, proceedings or investigations pending against the Company or its
officers, directors, or shareholders, or to the best of the Company's knowledge,
against employees or consultants of the Company (or, to the best of the
Company'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 the Company, or in any of their properties
or assets, or (b) any material impairment of the right or ability of the Company
to carry on its business as now conducted or as proposed to be conducted, or (c)
any material liability on the part of the Company; or (2) which questions the
validity of this Agreement or any action taken or to be taken in connection
herewith. The Company does not currently plan to initiate any litigation.
3.10 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with: (a) the
valid execution and delivery of this Agreement; or (b) the offer, sale or
issuance of the Securities; or (c) the obtaining of the consents, permits and
waivers specified in subsection 5.1(c) hereof; or (d) the consummation of any
other transaction contemplated hereby; except, if required, filings or
qualifications under the Securities Act of 1933, as amended (the "Securities
Act") and California Corporate Securities Law of 1968, as amended (the "Law"),
which filings or qualifications, if required, will have been timely filed or
obtained.
4
<PAGE> 5
3.11 Offering. In reliance on the representations and
warranties of the Purchasers in Section 4 hereof, the offer, sale and issuance
of the Securities in conformity with the terms of this Agreement will not result
in a violation of the requirements of Section 5 of the Securities Act or the
qualification requirements of the Law.
3.12 Taxes. The Company has timely filed all tax returns that
are required to have been filed with appropriate federal, state, county and
local governmental agencies or instrumentalities. The Company 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 the Company has no knowledge of any proposed
liability for any tax to be imposed upon the properties or assets of the Company
for which there is not an adequate reserve reflected in the Financial Statements
(as defined below).
3.13 Registration Rights. Other than as set forth on Exhibit
B, the Company is not obligated to register any of its presently outstanding
securities or any of its securities which may hereafter be issued.
3.14 Disclosure. Neither this Agreement and the exhibits
hereto, nor any of the other statements or certificates furnished or to be
furnished to the Purchasers pursuant hereto or in connection with the
transactions contemplated hereby, including the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, and any amendments to date
thereto, the Company's Proxy Statement for the 1996 Annual Meeting of
Stockholders, and the Company'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.
4. Representations, Warranties and Covenants of the Purchasers and
Restrictions on Transfer Imposed by the Securities Act of 1933.
4.1 Representations, Warranties and Covenants by the
Purchasers. Each Purchaser represents, warrants and covenants to the Company as
follows:
(a) The Securities to be received by the
Purchaser will be acquired for investment for the Purchaser's own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act
and the Law. The Purchaser has the full right, power and authority to enter into
and perform this Agreement and all other agreements contemplated hereby, and
this Agreement and all other agreements contemplated hereby constitute valid and
binding obligations of the Purchaser. The Purchaser acknowledges and understands
that the Securities must be held indefinitely unless the Securities are
subsequently registered under the Securities Act and qualified under the Law or
an exemption from such registration and such qualification is available.
5
<PAGE> 6
(b) The Purchaser will not sell, negotiate,
pledge or otherwise dispose of any of the Securities (other than in conjunction
with an effective registration statement for the Securities under the Act) in
the United States, its territories and possessions or any area subject to its
jurisdiction, or to any person who is a national or resident of the United
States (including any estate of such person or any corporation, partnership or
other entity created or organized therein) unless and until (i) the Purchaser
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
proposed disposition, and (ii) the Purchaser shall have furnished the Company
with an opinion of counsel satisfactory in form and substance to the Company to
the effect that such disposition will not require registration under the
Securities Act.
(c) The Purchaser has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of the Purchaser's prospective investment in the Securities.
The Purchaser has the ability to bear the economic risks of the Purchaser's
prospective investment. The Purchaser has been furnished with and has had access
to such information as the Purchaser has considered necessary to make a
determination as to the purchase of the Securities together with such additional
information as is necessary to verify the accuracy of the information supplied.
The Purchaser has had all questions which have been asked by the Purchaser
satisfactorily answered by the Company. The Purchaser has not been offered the
Securities by any form of advertisement, article, notice or other communication
published in any newspaper, magazine, or similar media or broadcast over
television or radio, or any seminar or meeting whose attendees have been invited
by any such media.
4.2 Legends. Each certificate representing the Securities may
be endorsed with the following legends:
(a) THE SECURITIES EVIDENCED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE
IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
(b) THE HOLDER WILL NOT SELL, HYPOTHECATE,
PLEDGE, OR OTHERWISE DISPOSE OF ANY INTEREST IN THE SHARES IN THE UNITED STATES,
ITS TERRITORIES AND POSSESSIONS OR ANY AREA SUBJECT TO ITS JURISDICTION, OR TO
ANY PERSON WHO IS A NATIONAL OR RESIDENT OF THE UNITED STATES (INCLUDING ANY
ESTATE OF SUCH
6
<PAGE> 7
PERSON OR ANY CORPORATION, PARTNERSHIP OR OTHER ENTITY CREATED OR ORGANIZED
THEREIN) UNLESS SUCH SHARES HAVE BEEN EITHER REGISTERED UNDER THE SECURITIES ACT
OR ARE EXEMPT, IN THE OPINION OF THE COMPANY'S COUNSEL, FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
(c) Any other legends required by the Law.
The Company need not register a transfer of legended Securities, and may also
instruct its transfer agent not to register the transfer of the Securities,
unless the conditions specified in each of the foregoing legends are satisfied.
4.3 Removal of Legend and Transfer Restrictions. Any legend
endorsed on a certificate pursuant to subsection 4.2(a) and 4.2(b) and the stop
transfer instructions with respect to such legended Securities shall be removed,
and the Company shall issue a certificate without such legend to the holder of
such Securities if such Securities are registered under the Securities Act and a
prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder satisfies the requirements of Rule 144(k) and, where
reasonably deemed necessary by the Company, the holder provides the Company with
an opinion of counsel for such holder of the Securities, reasonably satisfactory
to the Company, to the effect that (i) such holder meets the requirements of
Rule 144(k) or (ii) a public sale, transfer or assignment of such Securities may
be made without registration.
4.4 Rule 144. The Purchaser is aware of the adoption of Rule
144 by the SEC promulgated under the Securities Act, which permits limited
public resales of securities acquired in a nonpublic offering, subject to the
satisfaction of certain conditions. The Purchaser understands that under Rule
144, the conditions include, among other things: the availability, under certain
conditions, of certain current public information about the issuer and the
resale occurring not less than two years after the party has purchased and paid
for the securities to be sold. The Company covenants that (i) the Company will
use its best efforts to comply with the current public information requirements
of Rule 144(c)(1) under the Securities Act; and (ii) at all such times as Rule
144 is available for use by the Purchaser, the Company will furnish the
Purchaser upon request with all information within the possession of the Company
required for the preparation and filing of Form 144.
5. Conditions to Closing.
5.1 Conditions to the Purchasers' Obligations. The obligation
of the Purchasers to purchase the Securities at the Closing is subject to the
fulfillment to their satisfaction, on or prior to the Closing Date, of the
following conditions, any of which may be waived in accordance with the
provisions of subsection 7.1 hereof:
(a) Representations and Warranties Correct;
Performance of Obligations. The representations and warranties made by the
Company in Section 3 hereof shall be true and correct when made, and shall be
true and correct in all
7
<PAGE> 8
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date. The Company's business and assets shall
not have been adversely affected in any material way prior to the Closing Date.
The Company shall have performed in all material respects all obligations and
conditions herein required to be performed or observed by it on or prior to the
Closing Date.
(b) Opinion of Company's Counsel. Gray Cary
Ware & Freidenrich, A Professional Corporation, counsel to the Company, shall
have delivered an opinion addressed to the Purchasers, dated the Closing Date,
substantially in the form as that attached hereto as Exhibit D.
(c) Consents and Waivers. The Company shall
have obtained in a timely fashion any and all consents, permits and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement.
(d) Legal Investment. At the time of the
Closing, the purchase of the Securities hereunder shall be legally permitted by
all laws and regulations to which the Purchasers and the Company are subject.
(e) Execution of Amendment to Rights Agreement.
The Company and the Purchasers shall have executed an Amendment to the
Registration Rights Agreement dated December 30, 1994, in the form attached
hereto as Exhibit C.
(f) Compliance Certificate. The Company shall
have delivered a Certificate, executed by the President and the Chief Financial
Officer of the Company, dated the Closing Date, certifying to the fulfillment of
the conditions specified in subsections (a), (c), (d) and (e) of this Section
5.1.
5.2 Conditions to Obligations of the Company. The Company's
obligation to sell and issue the Securities at the Closing is subject to the
fulfillment to the Company's satisfaction on or prior to the Closing Date of the
following conditions, any of which may be waived by the Company in accordance
with the provisions of subsection 7.1 hereof:
(a) Representations and Warranties Correct. The
representations and warranties made by the Purchasers in Section 4 hereof shall
be true and correct when made, and shall be true and correct on the Closing Date
with the same force and effect as if they had been made on and as of said date.
(b) Consents and Waivers. Each of the
Purchasers shall have obtained in a timely fashion any and all consents, permits
and waivers necessary or appropriate for consummation of the transactions
contemplated by this Agreement.
(c) Satisfaction of Conditions. The conditions
set forth in subsections (c), (d) and (e) of Section 5.1 shall have been
fulfilled.
8
<PAGE> 9
6. Use of Proceeds. The Company shall use the proceeds from this
financing to temporarily paydown its line of credit with TCW. $20 million will
remain available to the Company under its line of credit with TCW through March
31, 1998.
7. Miscellaneous.
7.1 Waivers and Amendments. This Agreement or any provision
hereof may be amended, waived, discharged or terminated only by a statement in
writing signed by the party against which enforcement of the amendment, waiver,
discharge or termination is sought.
7.2 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California.
7.3 Survival. The representations, warranties, covenants and
agreements made herein shall survive the Closing of the transactions
contemplated hereby, notwithstanding any investigation made by the Purchasers.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder as of the date of such
certificate or instrument.
7.4 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors and assigns of the parties hereto.
7.5 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and supersede
all prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties with respect thereto.
7.6 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be delivered
personally or mailed by first class mail, postage prepaid, or via facsimile or
TWX/Telex, addressed (a) if to the Purchasers at the address set forth on
Exhibit A to this Agreement, or at such other address as the Purchasers shall
have furnished to the Company in writing, or (b) if to the Company, at its
address set forth at the beginning of this Agreement, or at such other address
as the Company shall have furnished to the Purchasers in writing, with a copy of
any said notice to be sent to Gray Cary Ware & Freidenrich, 400 Hamilton Avenue,
Palo Alto, California 94301-1825, Attention: James M. Koshland, Esq. Notices
that are mailed shall be deemed received ten (10) days after deposit in the
mail. In the event that the notice is sent by facsimile or TWX/Telex, notice
shall be deemed to have been received when sent and confirmed as to receipt.
9
<PAGE> 10
7.7 Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
7.8 Expenses. The Company and the Purchasers shall each bear
their own expenses and legal fees in connection with this Agreement and the
transactions contemplated hereby.
7.9 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
7.11 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to the Company or to the Purchasers shall impair
any such right, power or remedy of the Company or the Purchasers, nor shall it
be construed to be a waiver of any breach or default under this Agreement, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any delay or omission to exercise any right, power or
remedy or any waiver of any single breach or default be deemed a waiver of any
other right, power or remedy or breach or default theretofore or thereafter
occurring. All remedies, either under this Agreement, or by law otherwise
afforded to the Company or the Purchasers, shall be cumulative and not
alternative.
AUREAL SEMICONDUCTOR INC.
By /s/
----------------------
10
<PAGE> 11
COUNTERPART SIGNATURE PAGE TO
COMMON STOCK PURCHASE AGREEMENT
DATED AS OF JUNE 10, 1996
"PURCHASER"
If you are an individual, Name (Please Print)
please sign and print your name
to the right
----------------------------
/s/
----------------------------
Signature
If you are signing on behalf of Name of Organization
an entity, please print the legal
name of the entity and sign to the
right, indicating your title
----------------------------
Name (Please Print)
----------------------------
Title:
---------------------
11
<PAGE> 12
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Name and Address Shares Purchase Price
- ---------------- ------ --------------
<S> <C> <C>
IT Asset Management
Attn: Muriel Faure
14 Rue de Berri
75008 Paris France
IT Technology Investment 185,185 $ 249,999.75
Cerberus Partners, L.P.
Attn: Jonathen Gallen
950 Third Avenue, 20th Floor
New York, NY 10022
Cerberus Partners, L.P. 165,000 $ 222,750.00
Pequod Investments, L.P. 40,000 $ 54,000.00
Cerberus International, Ltd. 40,000 $ 54,000.00
Ultra Cerberus, Ltd. 5,000 $ 6,750.00
DDJ Capital Management, LLC
Attn: Dan Harmetz
141 Linden Street, Suite S-4
Wellesley, MA 02181
The Copernicus Fund, L.P. 666,667 $ 900,000.45
The Galileo Fund, L.P. 1,333,333 $1,799,999.55
Appaloosa Management, L.P.
Attn: Jim Bolin
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Appaloosa I L.P. 1,225,000 $1,653,750.00
Chestnut Investors III Inc. 280,000 $ 378,000.00
Palomino Fund Ltd. 43,750 $ 59,062.50
Pinto Investment LLC 201,250 $ 271,687.50
Heinz H. Steinman 185,185 $ 249,999.75
5797 Cedar Street
Wrightwood, CA 92397
Leslie Alexander 1,000,000 $1,350,000.00
1200 North Federal Highway
Suite 307
Boca Raton, FL 33143
</TABLE>
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<PAGE> 13
<TABLE>
<CAPTION>
Name and Address Shares Purchase Price
- ---------------- ------ --------------
<S> <C> <C>
Seneca Capital
Attn: Stephen Hays
575 Lexington Avenue, 7th Floor
New York, NY 10022
Seneca Capital L.P. 169,400 $ 228,690.00
DFG Corporation 23,500 $ 31,725.00
ZPG Securities, LLC 31,500 $ 42,525.00
Palamundo LDC
Camen Islands 13,700 $ 18,495.00
Seneca Capital
International LTD 31,900 $ 43,065.00
TCW Special Credits,
as agent and on behalf of certain
funds and accounts set forth below:
Attn: Richard Masson
c/o Oaktree Capital Management
550 S. Hope Street, 22nd Floor
Los Angeles, CA 90071
TCW Special Credits Trust 350,300 $ 472,905.00
TCW Special Credits Fund 3b 684,000 $ 923,400.00
TCW Special Credits Trust 3b 533,800 $ 720,630.00
Delaware State Employees 100,085 $ 135,114.75
Pension Trust
Weyerhaeuser Company 1,580,333 $ 2,133,449.55
Master Pension Trust
---------- ---------------
Totals 8,888,888 $ 11,999,998.80
</TABLE>
13
<PAGE> 14
EXHIBIT B
SCHEDULE OF EXCEPTIONS
AUREAL SEMICONDUCTOR INC.
Pursuant to Section 3 of the Common Stock Purchase Agreement dated June
10, 1996 (the "Agreement"), by and among Aureal Semiconductor Inc., a Delaware
corporation (the "Company"), and the Purchasers set forth on Exhibit A thereto,
Company hereby delivers this Schedule of Exceptions to the Company's
representations and warranties given in the Agreement. The section numbers in
this schedule correspond to the section numbers in the Agreement. Any
information disclosed herein under any section, however, shall be deemed to be
disclosed and incorporated in any other section of the Agreement where such
disclosure would be appropriate. Capitalized terms used in this schedule unless
otherwise specified have the same meanings given them in the Agreement.
Section 3.3. On May 7, 1996, the Company entered into an Agreement and
Plan of Reorganization (the "Reorganization Agreement") with Aureal Acquisition
Corporation, a California corporation and a wholly-owned subsidiary of the
Company ("Sub") and Crystal River Engineering, Inc., a California corporation
("CRE") pursuant to which Sub was merged with and into CRE (the "Merger"). As
provided by the Reorganization Agreement, the Company paid $8.30 for each
outstanding share of CRE and assumed all of the outstanding options to acquire
CRE securities. The Merger closed on May 29, 1996, at which time the Company
assumed options to acquire, in the aggregate, 2,644,845 shares of the Company's
common stock.
Section 3.6. As described in its 1995 Form 10-K, on August 23, 1995,
the Company announced it had been named as a defendant in a lawsuit brought by
Creative Technology Ltd. ("Creative"). In its lawsuit, Creative claims the
Company breached a 1992 agreement between the companies settling previous
litigation. The suit seeks any revenues realized by the Company from the sale of
certain products.
As described in the Company's 1995 Form 10-K, Yamaha has aggressively
brought patent infringement actions against other companies which have developed
certain replacement FM synthesis chips. There can be no assurance that Yamaha
will not pursue the Company under similar theories.
The Company has sold its Media Vision retail trade names to a third
party.
The Company is in default of its agreement dated December 23, 1994,
with AT&T, its long distance carrier. The Company is attempting to renegotiate
the terms of its agreement with AT&T. The Company is also in default of the
terms of its Replication and Bundling Agreement with Compton's NewMedia. The
Company
14
<PAGE> 15
believes it has recorded adequate reserves for any potential liability it may
have under the AT&T and Compton's agreements in its 1995 financial statements.
Section 3.9. See Section 3.6.
Section 3.13. The Company has entered into a Registration Rights
Agreement dated December 30, 1994 (the "Rights Agreement"), with TCW Special
Credits, as agent and nominee for the entities set forth on Schedule I to such
agreement. The Rights Agreement was amended on February 21, 1996 (the "Amendment
Number 1"), to grant equal registration rights to the purchasers of the
Company's common stock set forth on Exhibit A to the Common Stock Purchase
Agreement dated February 21, 1996 by and among the Company and such purchasers
(the "Purchasers"), and those holders of warrants to purchase shares of the
Company's common stock set forth in Schedule A on the Amendment Number 1.
15
<PAGE> 16
EXHIBIT C
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
16
<PAGE> 17
EXHIBIT D
FORM OF LEGAL OPINION
17
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NUMBER 2 TO
REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NUMBER 2 (the "Amendment") to the Registration Rights
Agreement dated as of December 30, 1994, and Amendment Number 1 dated February
21, 1996 (the "Rights Agreement"), is made as of June 10, 1996, by and among
Aureal Semiconductor Inc., a Delaware corporation (the "Company"), TCW Special
Credits, a California general partnership as agent and nominee for the entities
set forth on Schedule I to the Rights Agreement, Appaloosa Management L.P., as
agent for the accounts listed on Schedule I hereto ("Appaloosa"), the Copernicus
Fund, L.P. ("Copernicus"), the Galileo Fund, L.P. ("Galileo"), and the
purchasers of Common Stock set forth on Exhibit A to the Common Stock Purchase
Agreement dated June 10, 1996 (the "Purchase Agreement"), by and among the
Company and such purchasers (the "Purchasers"). Unless specifically designated
otherwise, the capitalized terms herein shall have the same meanings given them
in the Rights Agreement.
RECITALS
A. The Company and TCW are parties to the Rights Agreement pursuant to
which the Company granted certain registration rights for the benefit of TCW.
B. The Company, TCW, Appaloosa, Copernicus, and Galileo (TCW,
Appaloosa, Copernicus, and Galileo are collectively referred to herein as the
"Prior Holders") amended the Rights Agreement pursuant to Amendment Number 1 to
Registration Rights Agreement dated February 21, 1996, to grant equal
registration rights to all the Prior Holders and to make each of the Prior
Holders a party to the Rights Agreement.
C. The Company and the Prior Holders now wish to amend the Rights
Agreement, as amended, in order to grant equal registration rights to the
Purchasers and to make each of the Purchasers a party to the Rights Agreement,
as amended.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto agree to amend certain
provisions of the Rights Agreement as set forth below:
1. Section 1 of the Rights Agreement shall be amended to
define the following terms as follows:
Registrable Shares shall mean (i) all shares of New Common Stock
originally issued to or purchased in the future by TCW, (ii) all shares of
Common Stock issued
1
<PAGE> 2
to the Prior Holders pursuant to the Common Stock Purchase Agreement dated
February 21, 1996, by and among the Company, TCW, Appaloosa, Copernicus, and
Galileo, and (iii) all shares of Common Stock issued to the Purchasers pursuant
to the Purchase Agreement. As to any particular Registrable Shares, such shares
shall cease to be Registrable Shares when (A) such shares shall have been
transferred, new certificates for such shares not bearing a legend restricting
further transfer shall have been delivered by the Company and subsequent
disposition of such shares shall not require registration or qualification under
the Securities Act or any similar state law then in force, or (B) such shares
shall have ceased to be outstanding.
2. Section 4(a) of the Rights Agreement shall be amended and
restated in its entirety to provide as follows:
(a) On or prior to June 5, 1996, the Company shall prepare and
file with the SEC a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 covering all of the Registrable Shares
(the "Initial Shelf Registration"). The Initial Shelf Registration shall be on a
Form S-3 or another appropriate form permitting registration of such Registrable
Shares for resale by such holders in the manner or manners designated by them
(including, without limitation, one of more underwritten offerings). The Company
shall not permit any securities other than the Registrable Shares to be included
in the Initial Shelf Registration or any Subsequent Shelf Registration. The
Company shall use its best efforts to cause the Initial Shelf Registration to be
declared effective under the Securities Act on or prior to the 60th day
following the date on which the Initial Shelf Registration Statement is filed
and to keep the Initial Shelf Registration continuously effective under the
Securities Act until (i) all Registrable Shares covered by the Initial Shelf
Registration have been sold in the manner set forth and as contemplated in the
Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all
of the Registrable Shares has been declared effective under the Securities Act
(the "Effectiveness Period"). The Company shall use its best efforts to include
the Registrable Shares purchased by the Purchasers pursuant to the Purchase
Agreement in the Initial Shelf Registration.
3. Except as amended hereby, the Rights Agreement dated
November 30, 1994, as amended on February 21, 1996, remains in full force and
effect.
4. By their signatures hereto, each of the Purchasers becomes
a party to the Rights Agreement, as amended by this Amendment Number 2.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment Number 2
as of the day and year first above written.
THE COMPANY:
AUREAL SEMICONDUCTOR INC.
By: /s/___________________________________________
Name:
Title:
TCW:
TCW SPECIAL CREDITS, as agent and
nominee of the entities set forth
on Schedule I
By:TCW Asset Management Company, its
managing partner
By: /s/ ___________________________________________
Name: Richard Masson
Title: Authorized Signatory
By: /s/ ___________________________________________
Name: Kenneth Liang
Title: Authorized Signatory
THE COPERNICUS FUND, L.P.,
By:DDJ Copernicus, LLC, its General Partner
By: /s/ ___________________________________________
Name: Judy K. Mencher
Title: Member
3
<PAGE> 4
The GALILEO FUND, L.P.
By:DDJ Galileo, LLC, its General Partner
By: /s/_________________________________
Name: Judy K. Mencher
Title: Member
4
<PAGE> 5
COUNTERPART SIGNATURE PAGE TO
AMENDMENT NUMBER 2 TO THE
REGISTRATION RIGHTS AGREEMENT
PURCHASER:
By: /s/ ___________________________________________
Name:
Title:
5
<PAGE> 6
SCHEDULE I
TCW Entities
TCW Special Credits Trust
TCW Special Credits Fund IIIb
TCW Special Credits Trust IIIb
The Board of Trustees of the Delaware State Employees Retirement Fund
Appaloosa Accounts
Appaloosa I L.P.
Chestnut Investors III Inc.
Palomino Fund Ltd.
Pinto Investment LLC
6
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accounts, we hereby consent to the incorporation by
reference in this registration statement of our reports dated March 11, 1996
included in Media Vision Technology, Inc.'s (now Aureal Semiconductor Inc.) Form
10-K for the year ended December 31, 1995 and to all references to our Firm
included in this registration statement.
ARTHUR ANDERSEN LLP
San Jose, California
June 14, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Amendment No. 1 to the
Registration Statement (Form S-3) and related Prospectus of Aureal Semiconductor
Inc. for the registration of 27,682,716 shares of its common stock of our report
dated August 4, 1994, except as to the first paragraph of Note 1 as to which the
date if January 20, 1995, with respect to the consolidated financial statements
and schedule of Media Vision Technology, Inc. (now Aureal Semiconductor Inc.)
included in its Annual Report (Form 10-K) for the year ended December 31, 1995,
filed with the Securities and Exchange Commission.
San Jose, California
June 14, 1996
