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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1997
REGISTRATION NO. 333-3870
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE 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)
------------------------
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......... 34,414,525(2) $2.3905 $82,267,922 $24,929.67
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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 September 9,
1997.
(1) $17,301.70 has been previously paid.
(2) Represents approximately eighty-two percent (82%) of the Company's total
outstanding securities, recognizing that 4,205,000 shares being registered
herein are subject to purchase from the Company pursuant to exercise of
warrants but are not currently outstanding. Registering such a large
percentage of the Company's total outstanding securities may have an adverse
effect on the market price 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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PROSPECTUS
SEPTEMBER 12, 1997
34,414,525 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) Common Stock
Purchase Agreements by and among the Company and certain of the Selling
Stockholders, (2) warrants issued by the Company or (3) the 1994 Bankruptcy
reorganization. The Selling Stockholders hold certain registration rights
pursuant to a Registration Rights Agreement by and among the Company and the
Selling Stockholders. All of the 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 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 OTC Bulletin Board (OTC
Bulletin Board Symbol: AURL). On September 9, 1997, the average of the closing
bid and asking price of a share of the Company's Common Stock was $2.3905. The
34,414,525 shares being offered hereby represents approximately eighty-two
percent (82%) of the Company's total outstanding securities, recognizing that
4,205,000 shares being registered herein are subject to purchase from the
Company pursuant to exercise of warrants but are not currently outstanding.
Registering such a large percentage of the Company's total outstanding
securities may have an adverse effect on the market price for the Company's
securities.
SEE "FACTORS WHICH MAY EFFECT FUTURE RESULTS" 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.
------------------------
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 September 12, 1997.
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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 29, 1996, filed on March 26, 1997.
(2) The Company's Definitive Proxy Statement relating to the Annual
Meeting of Stockholders held May 21, 1997, filed on April 15, 1997.
(3) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 30, 1997, filed on May 7, 1997.
(4) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 29, 1997, filed on August 11, 1997.
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 AND RECENT EVENTS
Aureal Semiconductor Inc., together with its subsidiary Crystal River
Engineering, Inc. (combined, the "Company") specialize in the design and
marketing of audio semiconductor technologies for use in both the PC and home
electronics markets. Crystal River Engineering, Inc. ("CRE"), founded in 1987
and acquired by Aureal in the second quarter of 1996, has been a pioneer in the
development of 3D audio technologies. The
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Company's business involves not only the development and sale of audio
processing semiconductor chips, but the licensing of technology which is
designed to define and develop advanced audio standards in the marketplace.
On August 6, 1997, the Company completed a private placement of equity
capital. The transaction provided proceeds of approximately $3.8 million from
the sale of 1.9 million common stock units. Each unit consisted of one share of
common stock and one-half of one warrant to purchase one share of common stock
at a price of $2.00 per share. The participants in this private placement
included the TCW Group, Inc., and DDJ Capital Management, LLC. In conjunction
with the equity transaction, the total availability under the Company's line of
credit was increased from $20.0 million to $31.5 million. The maturity date on
this line of credit was extended to March 31, 1999, with an additional year
extension available at the Company's option. In addition, a total of 3,150,000
warrants for the purchase of 3,150,000 shares of common stock (at the purchase
price of $2.00 per share) were issued to the debt holders of the $31.5 million
line of credit. All of the warrants issued in conjunction with the sale of
common stock units and the line of credit extension terminate if not exercised
prior to August 6, 2001. Both the TCW Group, Inc. and DDJ Capital Management
participate in the line of credit as lenders.
On July 14, 1997, the Company announced the availability of pre-production
samples of the Vortex AU8820, a PCI-based AC '97 Digital Audio Processor. It is
expected to be the first in a series of single-chip devices for the PC Market
based on the Vortex audio chip architecture. Under development at Aureal since
1995, the Vortex architecture enables advanced audio quality and features while
maintaining support of existing legacy audio functions. Production quantities
are expected to be available in the fourth quarter of this year.
In June 1997, Aureal announced three significant licensing agreements. ATI
Technologies Inc., Cirrus Logic, Inc., and S3 Incorporated agreed to license
both A3D Interactive and A3D Surround three-dimensional audio technologies from
Aureal. ATI designs and manufactures multimedia solutions for PCs and is one of
the world's leading suppliers of video and 2D/3D graphics accelerators to OEM
and retail customers. Cirrus Logic, is a leading manufacturer of advanced
integrated circuits. S3 Incorporated is the world's largest supplier of
multimedia acceleration hardware and its associated software.
In March 1997, both Diamond Multimedia Systems Inc. and Oak Technology,
Inc. announced products which include the licensed "A3D Interactive" technology
from Aureal. In addition, the A3D Interactive technology has been supported by
many leading game developers and Microsoft's new DirectSound 5.0 standard.
In early September 1996, the Company introduced Aureal 3D ("A3D"), the
first interactive 3D audio solution for implementation in both the PC and
consumer electronics applications. The introduction included the announcement of
3D technology licensing agreements with Diamond Multimedia Systems Inc. and Oak
Technology, Inc. Also in September, the Company announced the VSP901 Dolby Pro
Logic Surround Processor, an Aureal proprietary semiconductor designed to
produce a complete Dolby surround sound solution utilizing only two speakers.
The Company, in May 1996, acquired 100% ownership of CRE, a privately held
firm specializing in 3D audio technology development. The total recorded cost of
the acquisition was $6.4 million. Aureal recorded, in the second quarter of
1996, a write-off of $6.0 million due to the recognition that in-process
research and development efforts associated with CRE's 3D audio technologies had
not reached technological feasibility with respect to the Company's product line
at the date of acquisition.
In three transactions from February through June 1996, the Company
completed the private sale of 18.9 million shares of common stock for $22
million. The proceeds from the sale of this common stock have been used for
working capital, to pay down the existing working capital line of credit and to
partially fund the acquisition of CRE (see above).
In August 1995, the Company announced that it was divesting its multimedia
components business to implement a business plan based on development and sale
of software and semiconductor solutions providing advanced audio for the PC and
consumer electronics markets. As part of this change in business, in the first
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quarter of 1996, the Company licensed the Media Vision brand name and related
trade names, and transferred other assets and liabilities of its previous retail
products business to a third party. In conjunction with the Company's change in
business, it formally changed its name to Aureal Semiconductor Inc. at its
Annual Stockholders' Meeting in May 1996. The Company's stock symbol on the OTC
Bulletin Board is AURL.
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. 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."
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.
FACTORS WHICH MAY EFFECT FUTURE RESULTS
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 Company stock
offered hereby:
History of Losses and Accumulated Deficit; Expectation of Future
Losses. The Company emerged from bankruptcy on December 30, 1994. Since that
time the Company has incurred losses from (1) its previous retail products
operations in 1995, and (2) during the research and development phases of its
advanced audio technologies business operations in 1995, 1996 and 1997. The
Company divested its previous retail products operations in early 1996 through
the licensing of its prior name, Media Vision Technologies, Inc., along with
numerous trade and brand names to a third party. As part of that transaction,
the customer service and technical support liabilities associated with the prior
product sales were assumed by the licensee. In addition, product warranties on
virtually all previously sold Media Vision products have now expired.
The majority of the Company's revenue in 1996 and 1997 has consisted of
fees from the licensing of its audio technologies. While the Company sees
licensing as an important process to develop market knowledge and acceptance of
its technologies as well as generating operating revenues, its primary business
is to develop and sell semiconductor products.
The Company currently has two models of semiconductor products in full
production and its latest product, the AU8820 a PCI-based audio solution for PCs
is currently in the pre-production sampling stage. No significant revenues have
been generated by any of these products to date. The Company is working to
secure design wins for each of these products, however, there can be no
assurance that the Company will be able to sell significant volumes of any of
its semiconductor products in the future. The Company anticipates continued
operating losses and negative cash flow from operations through 1997. Future
profitability, if any, is highly dependent on the Company securing design wins
for its products and shipping significant volumes thereof.
New Technologies and Products Developed With New Technologies. The
Company's success depends on its ability to develop and market new technologies
aimed at advancing the level of audio quality in the PC and consumer electronics
devices. With respect to the PC Market, audio technology is shifting from
utilization of the ISA bus to utilization of the more advanced (higher
band-width) PC1 bus. This change enables advanced digital audio functionality
including positional 3D audio, streaming audio and higher quality presentation.
There can be no assurance that the shift from ISA-based audio to PCI-based audio
will occur and if it does, that it will develop on a timeframe for the Company
to benefit from its PCI-based products and technologies.
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As new technologies are developed, there can be no assurance that markets will
develop for them, or that markets will develop on a timely basis for the Company
to benefit therefrom.
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 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
production 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, if
any, of new products. 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 the new technological
changes or product announcements by others. A failure in any of these areas
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Each successive generation of microprocessors has provided increased
performance, which could in the future result in a microprocessor capable of
performing advanced audio functions to an extent that the need or preference for
the Company's products could be eliminated. In this regard, Intel Corporation
has created the MMX functionality with its Pentium processors and is promoting
the processing power of MMX for data and signal intensive functions such as
graphics and audio processing. At this time the processing power required to
execute high quality audio, video and graphics simultaneously and all other
functions which the host processor does has not been achieved by Intel's
products. Aureal's AU8820 is designed to utilize processing power of the Pentium
MMX in conjunction with its acceleration of the audio processing within the PC.
The Company believes that advanced audio processing, done in conjunction with
either video or graphics processing is best performed with a separate
accelerator chip in addition to the host processor. There can be no assurance
that the increased capabilities of microprocessors will not adversely affect
demand for the Company's products.
Dependence on Single Product Line and the PC and Consumer Electronics
Markets. The Company has historically derived substantially all of its revenues
from its products, all of which are related to advanced audio solutions for the
PC and consumer electronics markets. The Company expects that such revenue will
continue to represent substantially all of the Company's revenues for the
foreseeable future. Although demand for such advanced audio solutions has grown
in recent years, management believes that this market is still developing and
there can be no assurances that it will continue to grow or that, even if the
market does grow, companies will use the Company's products. The failure of this
market to continue to grow, any reduction in demand as a result of increased
competition in this market, technological change, failure by the Company to
introduce new versions of products acceptable to the marketplace or other
similar factors would have a material adverse effect on the Company's business,
operating results and financial condition.
Competition and Pricing Pressures. The markets in which the Company
competes are intensely competitive and are characterized by evolving industry
standards, rapid technological advances resulting in relatively short product
life cycles, price reductions, significant price/performance improvements and
frequent new product introductions. The Company expects competition to increase
in the future from existing competitors and from other companies which may enter
the markets with products that may be less costly or provide higher performance
or additional features. The Company is unable to predict the timing and nature
of any such competitive product offerings. In general, product prices in the
semiconductor industry have decreased over the life of a particular product. 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 cost 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.
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With respect to the AU8820 PCI-based single chip advanced audio processor,
a number of competitors have announced products to compete in the same market.
The Company believes that the AU8820 has the most complete feature set available
or announced to-date, but there can be no assurance that a competitive product
with additional features or at a lower price will not be announced by another
company in the future.
The Company anticipates that it will compete for the development of new
technologies and for the sale of semiconductor products with a number of
companies who have more extensive resources including financial, manufacturing,
technical, marketing and distribution. In addition, some of those firms have
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 existing competitors include, but
are not limited to, Cirrus Logic, Inc., Creative Technology Ltd., Ensonic Inc.,
ESS Technology, Inc., Oak Technology Inc., S3 Incorporated and Yamaha
Corporation.
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.
Increased competition could result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
the Company's business, financial condition or results of operations. There can
be no assurance that the Company will be able to compete successfully against
current or future competitors or that competitive pressures will not materially
adversely affect its business, financial condition or results of operations.
Dependence on Foundries. The Company, as a "fabless" semiconductor firm,
relies on independent foundries to manufacture all of its semiconductor
products. Currently the Company utilizes two foundries, one domestic and one
foreign to manufacture its existing products. Both of these foundries have
indicated to the Company that they have the manufacturing availability to
provide for the Company's planned production of each product through at least
1998; however the production relationships are based only upon purchase orders
and planned production forecasts. No long term production contracts have been
entered into by the Company in the case of either foundry, and there is no
assurance that the foundries will continue to provide adequate manufacturing
capacity to the Company for its current level of production or its intended
increases in production levels. If foundry capacity at either manufacturer is
substantially reduced or not increased to cover the Company's anticipated
production growth requirements, such availability of product could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Changes in world-wide demand for semiconductor products periodically
increases or decreases demand for available foundry capacity. To address foundry
capacity constraints, some "fabless" semiconductor firms have utilized various
arrangements with third party foundries including equity investments in or loans
to independent wafer manufacturers in exchange for guaranteed production
capacity, joint ventures to own or operate foundries, or "take or pay" contracts
that commit a company to purchase specified quantities of wafers over extended
periods of time. While the Company is not currently party to any such
arrangements, it may be necessary or advantageous for the Company to enter into
such arrangements in the future. There is no assurance that the Company will be
successful in this regard. Any such arrangements could require the Company to
commit substantial capital and/or grant licenses to some of its technology. The
need to commit substantial capital may require the Company to seek additional
debt or equity capitalization, which could result in dilution to the Company's
stockholders. There can be no assurance, that any such additional
capitalization, if required, will be available when needed or, if available, on
terms acceptable to the Company.
The manufacture of semiconductor products is a highly complex and precise
process. Minute levels of contaminants in the manufacturing environment, defects
in the masks used to print circuits on wafers, difficulties in the fabrication
process or other factors can cause a substantial percentage of wafers to be
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rejected or a significant number of die on each wafer to be non-functional. Many
of these problems are difficult to diagnose, time-consuming or expensive to
remedy. There can be no assurance that the Company's foundries will not
experience irregularities or adverse yield fluctuations in the 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.
Dependence on Key Personnel. The Company's success depends to a significant
extent upon the continued services of key engineering, marketing, sales and
management personnel. The Company's employees may voluntarily terminate their
employment with the Company at any time. The Company recognizes the value of the
contributions of each of its employees and has developed compensation programs,
including stock option plans for granting of options to all employees, designed
to retain its employees. 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.
Factors Inhibiting Takeover. The Company is subject to the provision 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 Amended and Restated
Certificate of Incorporation does not provide for cumulative voting in the
election of directors, and certain provisions of the Company's Amended and
Restated Certificate of Incorporation and Bylaws, including the provision which
divides the Board into three separate classes, may have the effect of delaying
or preventing changes in control or management of the Company.
Uncertainty of Trading Market for Common Stock. The Company's Common Stock
trades only on the OTC Bulletin Board and the trading volume has been generally
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 Company will meet the listing requirements or that it will be accepted
for trading on any such national exchange in the future.
Currently, approximately 76% of the outstanding Common Stock is controlled
by three parties, each of whom control at least 10% individually. There can be
no assurance that the liquidity of the market for the Common Stock will be
maintained at or increase over its current levels, and the trading price for 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 82% of the Company's current outstanding
Common Stock, recognizing that 4,205,000 shares being registered herein are
subject to purchase from the Company pursuant to exercise of warrants, but are
not currently outstanding. Sales of such a large percentage of the Company's
total outstanding Common Stock may have an adverse effect on the market price
for such securities.
Effects of Outstanding Stock Options and Warrants. The Company currently
has outstanding warrants to purchase approximately 4.2 million shares of Common
Stock. The exercise price of almost all the outstanding warrants is $2.00 per
share, with a total of 100,000 warrants exercisable at between $1.38 and $1.63
per share. The majority of these warrants are currently exercisable and will
terminate, if not previously exercised by August 2001.
In addition, the Company has issued approximately 9.5 million stock options
to employees, directors and other outside agents at exercise prices ranging from
$0.12 to $2.80. These options generally have a life of ten years and vest over
the first four years after grant. The Company intends to maintain up to 20% of
the fully diluted Common Stock available for the granting of stock options to
employees and directors. Holders of such options and warrants may exercise them
at a time when the Company would otherwise be able to obtain additional equity
capital on terms more favorable to the Company. Moreover, while these options
and warrants are outstanding, the Company's ability to obtain financing on
favorable terms may be adversely affected.
7
<PAGE> 9
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....................... 19,528,822(3) 19,528,822
11100 Santa Monica Blvd., Suite
2000
Los Angeles, California 90025
D. Richard Masson.................. 21,859,155(4) 21,859,155
Thomas K. Smith, Jr................ 19,528,822(5) 19,528,822
DDJ Capital Management, LLC........ 8,066,806(6) 6,075,000 1,991,806
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............. 586,000(9) 400,000 186,000
950 Third Avenue, 20th Floor
New York, NY 10022
IT Technology Investment........... 360,185 275,185 85,000
14 Rue de Berri
75008 Paris France
Heinz H. Steinman.................. 305,185 185,185 120,000
5797 Cedar Street
Wrightwood, CA 92397
Finova Technology Finance, Inc..... 50,000(10) 50,000
10 Waterside Drive
Farmington, CT 06032
Hambrecht & Quist.................. 50,000(11) 50,000
One Bush Street
San Francisco, CA 94104
</TABLE>
- ---------------
(1) Based on shares beneficially owned at September 9, 1997.
(2) Calculations are based on the assumption that all shares registered
hereunder will be sold in the offering.
(3) TCW Group, Inc. may be deemed to beneficially own 16,578,822 shares of the
Company's Common Stock. In addition, pursuant to warrants issued on August
6, 1997 in conjunction with the purchase of shares of the Company's Common
Stock and renegotiation of the Company's Line of Credit, TCW Group, Inc. and
its affiliates hold rights to acquire, in the aggregate, an additional
2,950,000 shares of the Company's Common Stock. The total of 19,528,822
represents shares held or acquireable 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.
8,910,637 shares represents the
8
<PAGE> 10
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 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 19,528,822 shares held by TCW Special Credits, Trust Company of the
West or their affiliates and 2,330,333 shares (2,080,333 owned and 250,000
subject to acquisition pursuant to warrants issued August 6, 1997 in
conjunction with the purchase of the Company's Common Stock) for which
Oaktree Capital Management, LLC has voting and dispotive powers over such
shares as a fiduciary on behalf of a third party separate account 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. Oaktree
provides investment sub-advisory services to TAMCO on certain funds and
accounts managed by TAMCO. 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 (3) 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) DDJ Capital Management, LLC ("DDJ") may be deemed to beneficially own
7,241,806 shares of the Company's Common Stock. In addition, pursuant to
warrants issued on August 6, 1997 in conjunction with the purchase of shares
of the Company's Common Stock and expansion of the Company's Line of Credit,
DDJ and its affiliates hold rights to acquire, in the aggregate, an
additional 825,000 shares of the Company's Common Stock. The total of
8,066,806 represents shares held or acquirable by DDJ and its affiliates.
DDJ, through its control of certain affiliates, has sole power to vote and
dispose of the 8,066,806 shares of the Company's Common Stock. See
"INFORMATION INCORPORATED BY REFERENCE."
(7) All of the 5,752,097 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. 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, 23,500
shares of Common Stock held by ZPG Securities, LLC, 31,500 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.,
167,000 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. In addition Pequod Investments, L.P. holds warrants to
purchase 50,000 additional shares.
(10) The shares are purchasable pursuant to a warrant dated February 13, 1996 by
and between the Company and Financing For Science International, Inc.
9
<PAGE> 11
(11) The shares are purchasable pursuant to a warrant dated January 28, 1997 by
and between the Company and Hambrecht & Quist.
PLAN OF DISTRIBUTION
This public offering, which is not being underwritten, relates to
34,414,525 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)
Common Stock Purchase Agreements, by and among the Company and certain of the
Selling Stockholders (2) warrants issued by the Company or (3) the 1994
bankruptcy reorganization. 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.
10
<PAGE> 12
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.
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.
11
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. 2
INFORMATION INCORPORATED BY REFERENCE................................................. 2
THE COMPANY AND RECENT EVENTS......................................................... 2
FORWARD LOOKING INFORMATION........................................................... 4
FACTORS WHICH MAY EFFECT FUTURE RESULTS............................................... 4
SELLING STOCKHOLDERS.................................................................. 8
PLAN OF DISTRIBUTION.................................................................. 10
LEGAL MATTERS......................................................................... 11
</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> 14
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............................................................ $24,930
Blue Sky Fees and Expenses (including fees of counsel)..................... 30,000
NASD Filing Fee............................................................ --
Printing and Engraving..................................................... 2,000
Legal Fees and Expenses.................................................... 17,000
Accounting Fees and Expenses............................................... 10,000
Information Agent Fees..................................................... --
Miscellaneous.............................................................. --
-------
Total............................................................ $83,930
=======
</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> 15
addition, Article VIII of the Company's Restated 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 Amended and Restated Certificate of Incorporation and Restated 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.
10.5 Unit Purchase Agreement by and among the Company and certain entities dated August
6, 1997.
10.6 Amendment Number 3 to Registration Rights Agreement by and among the Company and
certain entities dated August 6, 1997.
23.1 Consent of Arthur Andersen LLP.
23.3 Consent of Gray Cary Ware & Freidenrich (included in Exhibit 5.1 and 5.2 hereto).
24.1+ Power of Attorney.
27.1(2) Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated by reference to the exhibits filed with the Company's Form 10-K
for the year ended December 31, 1995.
(2) Incorporated by reference to exhibit 27.1 filed with the Company's Form
10-Q for the quarter ended June 30, 1997.
+ 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.
II-2
<PAGE> 16
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.
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> 17
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 Post-Effective
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 12th day of September, 1997.
AUREAL SEMICONDUCTOR INC.
By: /s/ David J. Domeier
------------------------------------
David J. Domeier
Vice President, Finance and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to Registration Statement has been signed below
on September 12, 1997 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- -------------------
<S> <C> <C>
*KENNETH A. KOKINAKIS President, Chief Executive Officer September 12, 1997
- ------------------------------------- and Director
Kenneth A. Kokinakis
/s/ DAVID J. DOMEIER Vice President, Finance, Chief September 12, 1997
- ------------------------------------- Financial Officer and Chief
David J. Domeier Accounting Officer
*L. WILLIAM KRAUSE Director September 12, 1997
- -------------------------------------
L. William Krause
*D. RICHARD MASSON Director September 12, 1997
- -------------------------------------
D. Richard Masson
*THOMAS K. SMITH, JR. Director September 12, 1997
- -------------------------------------
Thomas K. Smith, Jr.
/s/ RICHARD E. CHRISTOPHER Director September 12, 1997
- -------------------------------------
Richard E. Christopher
*By /s/ DAVID J. DOMEIER
---------------------------------
(David J. Domeier,
Attorney-in-fact)
</TABLE>
II-4
<PAGE> 18
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........
10.5 Unit Purchase Agreement by and among the Company and certain entities
dated August 6, 1997....................................................
10.6 Amendment Number 3 to Registration Rights Agreement by and among the
Company and certain entities dated August 6, 1997.......................
23.1 Consent of Arthur Andersen LLP..........................................
23.3 Consent of Gray Cary Ware & Freidenrich (included in Exhibit 5.1 and 5.2
hereto).................................................................
24.1 + Power of Attorney.......................................................
27.1 (2) Financial Data Schedule.................................................
</TABLE>
- ---------------
(1) Incorporated by reference to the exhibits filed with the Company's Form 10-K
for the year ended December 31, 1995.
(2) Incorporated by reference to exhibit 27.1 filed with the Company's Form 10-Q
for the quarter ended June 30, 1997.
+ Previously filed.
<PAGE> 1
(Gray Cary Ware Freidenrich Letterhead)
September 12, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth St. N.W.
Washington, D.C. 20549
Re: Aureal Semiconductor Inc. Registration Statement 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 34,414,525 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.
Sincerely,
GRAY CAREY WARE & FREIDENRICH
A Professional Corporation
<PAGE> 1
AUREAL SEMICONDUCTOR INC.
4245 Technology Drive
Fremont, California 94538
UNIT PURCHASE AGREEMENT
THIS UNIT PURCHASE AGREEMENT is made as of August 6, 1997, 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").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereby agree as follows:
1. Sale of Units.
1.1 Sale. Subject to the terms and conditions hereof, the
Company will issue and sell to each Purchaser, and each Purchaser will purchase
from the Company, at a Closing (as defined below), the number of Units set forth
opposite each Purchaser's name on Exhibit A. A "Unit" shall be composed of a
share of the Company's Common Stock ("Share"), and a warrant to purchase
one-half (0.5) of a share of Common Stock ("Warrant Share"). The exercise price
per Warrant Share shall be $2.00. A form of the warrant is attached as Exhibit B
("Warrant"). The purchase price per Unit ("Unit Purchase Price") shall be equal
to $2.00. Each Warrant to purchase one (1) Warrant Share shall be valued at
$0.10.
2. Closing Dates; Delivery.
2.1 Closing Dates. Each of the closings of the purchase and
sale of the Units (collectively, the "Closings," and individually, a "Closing")
shall be held at the offices of Gray Cary Ware & Freidenrich, A Professional
Corporation, 400 Hamilton Avenue, Palo Alto, California 94301-1825 on the dates
as hereinafter provided (the "Closing Dates"):
(a) The First Closing for the purchase and sale of not
less than 1,000,000 Units (the "First Closing") shall be held on August 6, 1997,
or on such other date as the Purchasers and the Company may agree (the "First
Closing Date").
(b) If the full amount of the Units authorized for sale
in Section 1.1 above is not sold at the First Closing, the Company shall have
the right any time prior to the expiration of the 90 day period which shall
commence on the day immediately following the First Closing Date (the "Second
Closing"), to sell additional Units to one or more of the Purchasers or
additional investors as approved by the Company's Board of Directors, and such
investors shall be added to Exhibit A and be considered "Purchasers" for
purposes of this Agreement.
<PAGE> 2
2.2 Delivery. Subject to the terms of this Agreement, at the
Closing the Company will deliver to the Purchasers the stock certificates
representing the Shares to be purchased by the Purchasers from the Company,
against payment of the purchase price therefor by delivery of funds via wire
transfer. In addition, the Company will deliver at the Closing a Warrant or
Warrants to each Purchaser, registered in the name of such Purchaser, based on
the number of Units purchased by such Purchaser.
3. Representations and Warranties of the Company. Except as set forth in
Exhibit C 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 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.
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 Shares,
Warrants and Warrant Shares hereunder, and to carry out and perform its
obligations under the terms of this Agreement and all other agreements
contemplated hereby, including the Warrants. 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 and no shares of Preferred Stock. As of
June 30, 1997, there were issued and outstanding 39,720,326 shares of the
Company's Common Stock. All such issued and outstanding shares have been duly
authorized and validly issued, are fully paid and non-assessable and were issued
in compliance with all applicable state and federal laws concerning the issuance
of securities. The Company maintains stock option plans and has issued stock
options and warrants as noted below:
(a) Shares of Common Stock reserved for issuance
pursuant to exercise of current or future outstanding options under the
Company's 1995 Stock Option Plan and 1994 Stock Option Plan (collectively, the
"Plans") issued to employees or consultants to the Company: 9,323,530
(b) Shares of Common Stock reserved for issuance
pursuant to exercise of current or future outstanding options under the Crystal
River Engineering, Inc.
2
<PAGE> 3
("CRE") Stock Option Plan: 2,144,069
(c) Shares of Common Stock reserved for issuance
pursuant to exercise of current or future outstanding options under the
Company's Outside Director Stock Option Plan: 200,000
(d) Shares of Common Stock reserved for issuance
pursuant to exercise of two currently outstanding warrants (one to Hambrecht &
Quist for 50,000 shares, one to Financing for Science International for 50,000
shares): 100,000
(e) Shares of Common Stock reserved for issuance
pursuant to exercise of warrants to be issued to certain lenders in connection
with the expansion and restructuring of the Company's debt and extension thereof
through March 31, 2000, for 3,150,000 shares.
Other than the above noted reserved shares and the Warrant Shares to be
reserved for issuance pursuant to exercise of the Warrants, 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 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 Shares, the Warrants and the Warrant Shares 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 Shares and the Warrants (and the Warrant Shares
issuable upon exercise of the Warrants), when issued in compliance with the
provisions of this Agreement or the Warrants, as the case may be, will be
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Shares, Warrants and Warrant Shares
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 Shares, Warrants or
Warrant Shares.
3.5 Patents, Trademarks, etc. Except as set forth in Exhibit C,
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
3
<PAGE> 4
conducted with no known 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. Except as disclosed in the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1997 (the "10-Q"),
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.
3.6 Compliance with Other Instruments, None Burdensome, etc.
Except as set forth in Exhibit C, 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 Shares, Warrants and Warrant Shares 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 Units and Warrants
pursuant hereto, will not result in a violation of any law, statute or
regulation applicable to the Company.
3.7 Employees. Each officer and key employee of the Company has
executed an Employee Proprietary and Confidential Information Agreement. 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.
3.8 Litigation, etc. Except as set forth on Exhibit C, there are
no
4
<PAGE> 5
actions, proceedings or investigations pending against the Company or its
officers, directors, or stockholders, 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.
3.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with: (a) the
valid execution and delivery of this Agreement; or (b) the offer, sale or
issuance of the Shares, Warrants and Warrant Shares; 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.
3.10 Offering. In reliance on the representations and warranties
of the Purchasers in Section 4 hereof, the offer, sale and issuance of the Units
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.
3.11 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 Company's financial
statements contained in the 10-Q or the Company's Annual Report on Form 10-K for
the fiscal year ended December 29, 1996 (the "10-K").
3.12 Registration Rights. Except pursuant to the Registration
Rights Agreement, dated as of December 30, 1994, as amended (the "Rights
Agreement"), by and among 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 to the Rights Agreement, the Copernicus Fund, L.P., the Galileo Fund,
L.P., and certain purchasers of the Company's Common Stock, the Company is not
obligated to register any of its presently outstanding securities which may
hereafter be issued.
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<PAGE> 6
3.13 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 Proxy Statement for the 1997
Annual Meeting of Stockholders, the 10-Q and the 10-K 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.
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 Units 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 Units must be held indefinitely unless the Units are subsequently registered
under the Securities Act (see Section 6.2) and qualified under the Law or an
exemption from such registration and such qualification is available.
(b) The Purchaser will not sell, negotiate, pledge or
otherwise dispose of any of the Units (other than in conjunction with an
effective registration statement for the Units under the Securities 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 (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 Units. 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 Units together with such additional information as is
necessary to verify the accuracy of the information supplied. The Purchaser is
fully aware of (i) the highly speculative nature of the investment in the Units;
(ii) the financial hazards involved; (iii) the lack of liquidity of the Shares,
Warrants and Warrant Shares, and the restrictions on the
6
<PAGE> 7
transferability of the Shares, Warrants and Warrant Shares; and (iv) the tax
consequences of investment in the Units. 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 Units 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 or other instruments representing
any of the Shares and Warrant Shares 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 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 Shares, Warrants or Warrant
Shares, and may also instruct its transfer agent not to register the transfer of
the Shares, Warrants or Warrant Shares 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 or other instrument 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
7
<PAGE> 8
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 Securities and Exchange Commission (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 Units 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 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.
5.(t) Legal Investment. At the time of the Closing, the
purchase of the Units hereunder shall be legally permitted by all laws and
regulations to which the Purchasers and the Company are subject.
8
<PAGE> 9
(e) 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) and (d) of this Section 5.1.
(f) Execution of Amendment to the Rights Agreement. The
Company and the Purchasers shall have executed Amendment No. 3 to the
Registration Rights Agreement dated December 30, 1994, in the form attached
hereto as Exhibit E.
5.2 Conditions to Obligations of the Company. The Company's
obligation to sell and issue the Units 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), and (d) of Section 5.1 shall have been fulfilled.
6. Covenants of Company.
6.1 Use of Proceeds. The Company shall use the proceeds from
this financing for working capital purposes. This may include acquisition of
certain strategic technologies. In addition, the Company may use the proceeds
from this financing to temporarily paydown its line of credit with TCW on an
interim basis to reduce borrowing costs.
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 without regard to conflict of
law principles.
7.3 Survival. The representations, warranties, covenants and
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<PAGE> 10
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.
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.
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. Notwithstanding the foregoing, the Company
shall pay the reasonable legal fees and related costs of B III Capital Partners,
L.P. up to an aggregate of $10,000.
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
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<PAGE> 11
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
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<PAGE> 12
COUNTERPART SIGNATURE PAGE TO
UNIT PURCHASE AGREEMENT
DATED AS OF __________, 1997
"PURCHASER"
If you are an individual, Name (Please Print)
please sign and print your name
to the right
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:
12
<PAGE> 13
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Name and Address Units Purchase Price
- ---------------- ------- --------------
<S> <C> <C>
IT Asset Management 60,000 $ 120,000
14 rue de Berri
75008 Paris France
Attn: Muriel Faure,
President Directeur General
B III Capital Partners, L.P. 750,000 $1,500,000
141 Linden Street, Suite 4
Wellesley, MA 02181
Attn: General Counsel
Pequod Investments L.P. 100,000 $ 200,000
450 Park Avenue, 28th Floor
New York, NY 10022
Attn: Jonathan Gallen
Oaktree Capital Management, LLC, 500,000 $1,000,000
as investment manager of the Weyerhaeuser
Master Retirement Trust, separate account
550 S. Hope Street, 22nd Floor
Los Angeles, CA 90071
Attn: Richard Masson
TCW Special Credits 500,000 $1,000,000
as agent and on behalf
of certain funds and accounts
set forth in Schedule I attached hereto
Totals 1,910,000 $3,820,000
</TABLE>
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<PAGE> 14
EXHIBIT B
FORM OF WARRANT
THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT COVERING SUCH SECURITIES, (ii) THE SALE IS MADE IN ACCORDANCE WITH RULE
144 UNDER THE ACT, OR (iii) 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 THE ACT.
AUREAL SEMICONDUCTOR INC.
COMMON STOCK PURCHASE WARRANT
1. Price and Number of Shares Subject to Warrant. FOR VALUE RECEIVED and
subject to the terms and conditions herein set forth, (the "Purchaser") is
entitled to purchase from Aureal Semiconductor Inc., a Delaware corporation (the
"Company"), at any time after 5:00 p.m. California time on August 6, 1997 and
before the termination of this Warrant pursuant to Section 11 below, at a price
per share equal to $2.00, as adjusted in accordance with Section 3 below (the
"Warrant Price"), that number of shares of fully paid and nonassessable shares
of the Common Stock of the Company indicated in Section 2 below, as adjusted
pursuant to Section 3 (the "Warrant Shares").
2. Number of Shares of Warrant Shares. The number of Warrant Shares for
which this Warrant is exercisable is ( ).
3. Adjustment of Warrant Price and Warrant Shares. The number of Warrant
Shares issuable upon the exercise of this Warrant and the exercise price thereof
shall be subject to adjustment from time to time, and the Company agrees to
provide notice upon the happening of certain events, as follows:
(a) Merger, Sale of Assets, etc. If at any time the Company
proposes to consolidate with or merge with or sell or convey all or
substantially all of its assets to any other corporation or entity (the
"Acquiror") in which the stockholders of the Company immediately prior to such
transaction hold less than fifty percent (50%) of the voting power of the
surviving entity, then the Company shall give the Purchaser thirty (30) days
advance notice of the contemplated effective date (the "Effective Date") of such
transaction and inform the Purchaser that the Warrant is fully exercisable. To
the extent the Warrant has not been exercised in full by the Effective Date, the
Acquiror may elect to either (i) exchange the Warrant for a warrant of the
Acquiror that shall entitle the holder hereof to acquire upon the exercise
thereof the number of shares of stock or other property to which the holder of
the number of Warrant Shares which are subject to this Warrant on the effective
date of the merger or consolidation would have been
14
<PAGE> 15
entitled to receive for such securities under the terms of the merger or
consolidation, or (ii) if the exchange described in (i) is not contemplated,
there shall thereafter be deliverable upon exercise of this Warrant (in lieu of
the number of Warrant Shares therefore deliverable) the number of shares of
stock or other securities or property to which the holder of the number of
Warrant Shares which would otherwise have been deliverable upon the exercise of
such Warrant would have been entitled upon such consolidation, merger or sale if
such Warrant had been exercised in full immediately prior to such consolidation,
merger or sale. The foregoing notwithstanding, a merger or consolidation of the
Company with or into another corporation after which the stockholders of the
Company immediately prior to such transaction hold more than 50% of the voting
power of the surviving entity, shall not result in the transaction contemplated
by (ii) above; instead this Warrant shall be exchanged for a warrant of the
surviving corporation that shall entitle the holder hereof to acquire upon the
exercise thereof the number of shares of stock or other property to which the
holder of the number of Warrant Shares which are subject to this Warrant on the
effective date of the merger would have been entitled to receive for such
securities under the terms of the merger.
(b) Reclassification, etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities to which purchase rights under this Warrant exist into the
same or a different number of securities of any class or classes, this Warrant
shall thereafter be to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities which
were subject to the purchase rights under this Warrant immediately prior to such
subdivision. combination, reclassification or other change. If shares of the
class of the Company's stock for which this Warrant is being exercised are
subdivided or combined into a greater or smaller number of shares of stock, the
Warrant Price shall be proportionately reduced in the case of subdivision of
shares or proportionately increased in the case of combination of shares, in
both cases by the ratio which the total number of shares of such class of stock
to be outstanding immediately after such event bears to the total number of
shares of such class of stock outstanding immediately prior to such event.
(c) Adjustment for Dividends in Stock. In case at any time or
from time to time on or after the date hereof the holders of the shares of the
Company's capital stock of the same class and series as the Warrant Shares (or
any shares of stock or other securities at the time receivable upon the exercise
of this Warrant) shall have received, or, on or after the record date fixed for
the determination of eligible stockholders, shall have become entitled to
receive, without payment therefor, other or additional stock of the Company by
way of dividend, then and in each case, the Purchaser shall, upon the exercise
hereof, be entitled to receive, in addition to the number of Warrant Shares
receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional stock of the Company which such
Purchaser would hold on the date of such exercise had it been the holder of
record of such Warrant Shares on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock receivable by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by paragraph (c) of this Section 3.
15
<PAGE> 16
4. No Stockholder Rights. This Warrant, by itself, as distinguished from
any shares purchased hereunder, shall not entitle its holder to any of the
rights of a stockholder of the Company.
5. Reservation of Stock. On and after the date of this Warrant, the
Company will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of Warrant Shares upon the exercise
of this Warrant. Issuance of this Warrant shall constitute full authority to the
Company's officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Warrant Shares
issuable upon the exercise of this Warrant.
6. Exercise of Warrant. This Warrant may be exercised in whole or part
by the Purchaser at any time after the date hereof, on any business day prior to
the termination of this Warrant, by the surrender of this Warrant, together with
(i) the Notice of Exercise attached hereto as Attachment 1, duly completed and
executed at the principal office of the Company, (ii) a spousal consent, if
applicable, in the form attached hereto as Attachment 2, and (iii) payment in
full of the Warrant Price in cash, or by check or wire transfer, with respect to
the Warrant Shares being purchased. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive the
Warrant Shares issuable upon such exercises shall be treated for all purposes as
holder of such shares of record as of the close of business on such date. As
promptly as practicable after such date, the Company shall issue and deliver to
the person or persons entitled to receive the same a certificate or certificates
for the number of full Warrant Shares issuable upon such exercise. In the event
the Warrant is exercised for less than the total number of Warrant Shares
issuable thereunder, the Company shall cancel the surrendered Warrant and issue
a new Warrant to the Purchaser for the remaining Warrant Shares. Notwithstanding
anything to the contrary contained herein, this Warrant may not be exercised as
to fewer than 1,000 Warrant Shares unless it is exercised as to all Warrant
Shares as to which this Warrant is then exercisable.
7. Registration Rights. The Warrant Shares shall be included as
"Registrable Securities," as such term is defined in Amendment Number 3 to
Registration Rights Agreement dated August 6, 1997. The Company will amend its
Registration Statement on Form S-3 (No. 333-3870) within ninety (90) days of the
Closing (as such term is defined in the Unit Purchase Agreement dated August 6,
1997 (the "Unit Purchase Agreement")) to include the Warrant Shares issued or
issuable upon exercise of this Warrant, and use its best efforts to have such
amended Registration Statement declared effective by the Securities and Exchange
Commission (the "Commission"). As of the date of this Warrant, the Registration
Statement has been declared effective by the Commission. In the event the
Company is not permitted by the Commission to amend the Registration Statement
to include the Warrant Shares, the Company will file a registration statement on
Form S-3 within ninety (90) days of the Closing (as such term is defined in the
Unit Purchase Agreement) to register the Warrant Shares issued or issuable upon
exercise of this Warrant, and shall use its best efforts to have such
registration statement declared effective by the Commission.
16
<PAGE> 17
8. Conversion. If either (i) the Company fails to include the Warrant
Shares in the Registration Statement as provided for in Section 7 above, or (ii)
the Registration Statement is not effective for a period of more than twenty
(20) days, then so long as the Registration Statement has not been declared
effective by the Securities and Exchange Commission, the holder may, in lieu of
exercising this Warrant or any portion hereof, convert this Warrant or any
portion hereof into Warrant Shares by executing and delivering to the Company at
its principal office (i) the written notice of conversion in the form attached
hereto as Attachment 3, specifying the portion of the Warrant to be converted,
and accompanied by this Warrant and (ii) a spousal consent, if applicable, in
the form attached hereto as Attachment 2. The number of Warrant Shares to be
issued upon such conversion shall be computed using the following formula:
X = (P)(Y)(A-B)/A
where X = the number of Warrant Shares to be issued to the
Purchaser for the portion of the Warrant being
converted.
P = the portion of the Warrant being converted.
Y = the total number of Warrant Shares issuable upon
exercise of the Warrant in full.
A = The fair market value of one Warrant Share, which
shall mean the average of the highest bid and
lowest asked price on such day in the
over-the-counter market, over a period of five days
consisting of the day as of which the current fair
market value of the Warrant Shares is being
determined and the four consecutive business days
prior to such day.
B = the Warrant Price on the conversion date.
Any portion of this Warrant that is converted shall be immediately canceled.
9. Certificate of Adjustment. Whenever the Warrant Price or number or
type of securities issuable upon exercise of this Warrant is adjusted, as herein
provided, the Company shall promptly deliver to the record holder of this
Warrant a certificate of an officer of the Company setting forth the nature of
such adjustment and a brief statement of the facts requiring such adjustment.
10. Transfer of Warrant. This Warrant may not be transferred or assigned
by the Purchaser in whole or in part.
11. Termination. This Warrant shall terminate on 5:00 p.m., California
time, on August 6, 2001.
17
<PAGE> 18
12. Miscellaneous. This Warrant shall be governed by the laws of the
State of California, as such laws are applied to contracts to be entered into
and performed entirely in California by California residents and without regard
to conflict of law principles. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed or waived
orally, but only by an instrument in writing signed by the Company and the
Purchaser. All notices and other communications from the Company to the
Purchaser shall be delivered personally or mailed by first class mail, postage
prepaid, to the address furnished to the Company in writing by the Purchaser who
shall have furnished an address to the Company in writing, and if mailed shall
be deemed given three days after deposit in the United States mail.
ISSUED:August 6, 1997
AUREAL SEMICONDUCTOR INC.
By:
------------------------------------
Title:
---------------------------------
18
<PAGE> 19
Attachment 1
NOTICE OF EXERCISE
TO: Aureal Semiconductor Inc.
4245 Technology Drive
Fremont, CA 94538
1. The undersigned hereby elects to purchase ________ shares of the
Common Stock of Aureal Semiconductor Inc., pursuant to the terms of the attached
Warrant, and tenders herewith either cash or by check or wire transfer, payment
of the purchase price in full, together with all applicable transfer taxes, if
any.
2. Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
- ------------------------
(Name)
- ------------------------
(Address)
- ------------------------ ---------------------------
(Date) (Name of Purchaser)
By:
------------------------
Title:
---------------------
(Name of purchaser,
and title and signature
of authorized person)
19
<PAGE> 20
Attachment 2
SPOUSE CONSENT
The undersigned spouse of the Purchaser has read, understands, and
hereby approves the Notice of Exercise/Notice of Conversion (circle the
appropriate one) between the Purchaser and the Company (the "Notice"). In
consideration of the Company's granting my spouse the right to purchase the
Warrant Shares as set forth in the Notice, the undersigned hereby agrees to be
irrevocably bound by the Agreement and further agrees that any community
property interest shall similarly be bound by the Notice. The undersigned hereby
appoints the Purchaser as my attorney-in-fact with respect to any amendment or
exercise of any rights under the Notice.
Date:___________________________ ______________________________________
Purchaser's Spouse
Address:______________________________
______________________________________
20
<PAGE> 21
Attachment 3
NOTICE OF CONVERSION
TO: Aureal Semiconductor Inc.
4245 Technology Drive
Fremont, CA 94538
1. The undersigned hereby elects to acquire ________ shares of the
Common Stock of Aureal Semiconductor Inc., pursuant to the terms of the attached
Warrant, by conversion of ________ percent (___%) of the Warrant.
2. Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
- ------------------------
(Name)
- ------------------------
(Address)
- ------------------------ ---------------------------
(Date) (Name of Purchaser)
By:
------------------------
Title:
---------------------
(Name of purchaser,
and title and signature
of authorized person)
21
<PAGE> 22
EXHIBIT C
SCHEDULE OF EXCEPTIONS
AUREAL SEMICONDUCTOR INC.
Pursuant to Section 3 of the Unit Purchase Agreement dated August 6,
1997 (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 July 25, 1994, the company and its then wholly-owned
subsidiary, Pellucid, Inc. ("Pellucid") filed separate voluntary petitions in
the United States Bankruptcy Court seeking protection under Chapter 11 of the
United States Bankruptcy Code. On December 19, 1994, the Bankruptcy Court
confirmed the companies' Second Amended Joint Plan of Reorganization (the "Plan
of Reorganization") which became effective December 30, 1994. Pursuant to the
Plan of Reorganization, certain shares of Common Stock were held in escrow for
the final satisfaction of claims pending against the Company. There are
currently approximately 48,000 shares of Common Stock held in escrow. Pursuant
to voting agreements between the Company and the escrow holders, the escrow
holders have agreed to vote all such shares in each election of directors and
with respect to other matters submitted to a stockholder vote in the same
proportions as the votes cast by the outstanding shares of Common Stock not held
in escrow.
The Company may increase the reserves under the Plans and the Outside
Director Stock Option Plan so that the reserves under such plans, in the
aggregate, equal twenty percent (20%) of the then fully diluted Common Stock of
the Company.
Section 3.5. As described in the Company's 1996 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.
Section 3.8. See Section 3.5.
22
<PAGE> 23
EXHIBIT D
FORM OF OPINION OF
GRAY CARY WARE & FREIDENRICH
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company has all
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted. The Company is not
qualified as a foreign corporation in any state or jurisdiction of the United
States and such failure to do so will not have a material adverse effect on its
properties or business as presently conducted.
2. The Company has all requisite corporate power to enter into the
Agreement, the Warrants, and Amendment No. 3 to Registration Rights Agreement
(collectively, the Agreement, the Warrants and Amendment No. 3 to Registration
Rights Agreement are referred to herein as the "Agreements"), to sell the Shares
and Warrants and assuming the exercise of the Warrants, the Warrant Shares, and
to carry out and perform its obligations under the terms thereof. The Agreements
have been duly authorized by all necessary corporate action on the part of the
Company and have been duly executed and delivered by the Company. The Agreements
are valid and binding obligations of the Company, enforceable in accordance with
their terms. Except as set forth in the Agreements and the exhibits attached
thereto, the execution, delivery and performance of the Agreements by the
Company do not, and the consummation by the Company of the transactions
contemplated thereby will not conflict with, or result in any violation or
breach of any provision of the Certificate of Incorporation or Bylaws of the
Company.
3. The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock (the "Common Stock"). To our knowledge, as of June 30,
1997, there were issued and outstanding 39,734,326 shares of Common Stock. All
such issued and outstanding shares have been duly authorized and are validly
issued, fully paid and nonassessable. To our knowledge, except as described or
disclosed in the Agreement or in the exhibits thereto, 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.
4. The Shares, when issued in compliance with the provisions of the
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable. The Warrant Shares shall be duly and validly reserved for
issuance and if exercised in accordance with the Warrants, will be validly
issued, fully paid and nonassessable. The issuance of the Shares, Warrants and
assuming the exercise of the Warrants, the Warrant Shares are not subject to any
preemptive rights or, to our knowledge, rights of first refusal created by the
Company which have not been complied with or waived.
5. To our knowledge, except as described or disclosed in the Agreement
or in exhibits thereto, no action, suit, proceeding or investigation is pending
or threatened against the Company or its properties.
23
<PAGE> 24
6. All consents, approvals and authorizations of and filings with any
federal or state governmental authority required on the part of the Company, if
any, in connection with the valid execution and delivery of the Agreement, or
the consummation of the transactions contemplated thereby, have been obtained or
made, except, if required after the sale of the Shares, Warrants and the Warrant
Shares, filings to be made under the Securities Act of 1933, as amended, and the
California Corporate Securities Law of 1968, as amended, which filings are to be
filed after the Closing in the time prescribed by law.
7. Subject to the accuracy of the Purchasers' representations and
warranties in Section 4 of the Agreement, the offer and sale of the Shares,
Warrants and assuming exercise of the Warrants, the Warrant Shares in conformity
with the terms of the Agreement are in compliance with or exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as amended
and the qualification requirements of the California Corporate Securities Law of
1968, as amended.
24
<PAGE> 25
EXHIBIT E
AMENDMENT NO. 3 TO THE REGISTRATION RIGHTS AGREEMENT
25
<PAGE> 1
AMENDMENT NUMBER 3 TO
REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NUMBER 3 (the "Amendment") to the Registration Rights
Agreement dated as of December 30, 1994, as amended by Amendment Number 1 dated
February 21, 1996 and Amendment Number 2 dated June 10, 1996 (the "Rights
Agreement"), is made as of August 6, 1997, by and among Aureal Semiconductor
Inc., a Delaware corporation (the "Company"), the purchasers of Units set forth
on Exhibit A to the Unit Purchase Agreement dated August 6, 1997 (the "Purchase
Agreement"), by and among the Company and such purchasers (the "Purchasers"),
and the Prior Holders (as defined below). 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 (collectively,
the "No. 1 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 No. 1 Prior Holders and to make each of the No. 1
Prior Holders a party to the Rights Agreement.
C. The Company, the No. 1 Prior Holders and the purchasers set forth on
Exhibit A to the Common Stock Purchase Agreement dated June 10, 1996, amended
the Rights Agreement pursuant to Amendment Number 2 to Registration Rights
Agreement dated June 10, 1996 (such purchasers and the No. 1 Prior Holders are
collectively referred to herein as the "No. 2 Prior Holders") to grant equal
registration rights to the No. 2 Prior Holders and to make each of the No. 2
Prior Holders a party to the Rights Agreement.
D. The No. 1 Prior Holders and the No. 2 Prior Holders are collectively
referred to herein as the Prior Holders and are set forth on Schedule 1 hereto.
E. 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.
<PAGE> 2
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 to the Prior Holders pursuant to the Common Stock Purchase
Agreements dated February 21, 1996, and June 10, 1996, by and among the Company
and such Prior Holders, (iii) all shares of Common Stock issued pursuant to the
Purchase Agreement to the Purchasers, (iv) all Warrant Shares issued upon
exercise of the Warrants (as defined in the Purchase Agreement) and (v) shares
of Common Stock issuable upon exercise of warrants issued pursuant to the Second
Amended and Restated Loan Agreement dated August 6, 1997 (the "Loan Agreement")
between the Company and TCW (including 470,455 shares of Common Stock issuable
upon exercise of warrants issued to B III Capital Partners as a participant
under the Loan 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, as amended, shall be
amended and restated in its entirety to provide as follows:
(a) The Company has registered the Registrable Shares,
other than those described in Sections 1(iii), (iv) and (v) and certain of those
described in Section 1(i) herein (collectively, the "Unregistered Registrable
Shares"), on Form S-3 (No. 333-3870) (the "Initial Shelf Registration"). The
Company will use its best efforts to include the Unregistered Registrable Shares
in the Initial Shelf Registration. If not included in the Initial Shelf
Registration within ninety (90) days after the Closing under the Purchase
Agreement, the Company will file a Subsequent Shelf Registration within ninety
(90) days after the Closing under the Purchase Agreement and will use its best
efforts to have such Subsequent Shelf Registration declared effective by the
SEC. 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 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
<PAGE> 3
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 and the Registrable Shares covered
thereby have been sold in the manner set forth and as contemplated in such
Subsequent Shelf Registration (the "Effectiveness Period").
3. Except as amended hereby, the Rights Agreement dated November
30, 1994, as amended on February 21, 1996, and on June 10, 1996, remains in full
force and effect.
4. By their signatures hereto, each of the Purchasers becomes a
party to the Rights Agreement.
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Amendment Number 3 as
of the day and year first above written.
THE COMPANY:
AUREAL SEMICONDUCTOR INC.
By:
Name:
Title:
<PAGE> 5
COUNTERPART SIGNATURE PAGE TO
AMENDMENT NUMBER 3 TO
REGISTRATION RIGHTS AGREEMENT
PRIOR HOLDERS:
By:
Name:
Title:
<PAGE> 6
COUNTERPART SIGNATURE PAGE TO
AMENDMENT NUMBER 3 TO
REGISTRATION RIGHTS AGREEMENT
PURCHASERS:
By:
Name:
Title:
<PAGE> 7
SCHEDULE I
Prior Holders:
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 Investment L.P.
Chestnut Investors III Inc.
Palomino Fund Ltd.
Pinto Investment LLC
Cerberus Partners, L.P.
Cerberus International
Ultra Cerberus
The Copernicus Fund, L.P.
The Galileo Fund, L.P.
IT Technologies Investment
Pequod Investments, L.P.
Senaca Capital
Oaktree Capital Management, LLC, as investment manager of Weyerhaeuser
Company Master Pension Trust, separate account
<PAGE> 8
Heinz H. Steinmann
Leslie K. Alexander
<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 report dated February 28, 1997
included in Aureal Semiconductor Inc.'s Form 10-K for the year ended December
29, 1996 and to all references to our Firm included in this registration
statement.
ARTHUR ANDERSEN LLP
San Jose, California
September 12, 1997
