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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1998
Registration No. 333-66867
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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AUREAL SEMICONDUCTOR INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3117385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 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)
COPIES TO:
JAMES M. KOSHLAND, ESQ.
DAVID A. HUBB, ESQ.
GRAY CARY WARE & FREIDENRICH LLP
400 HAMILTON AVENUE
PALO ALTO, CALIFORNIA 94301-1825
(650) 328-6561
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time as described in the Prospectus after the effective date of this
Registration Statement.
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If any of the securities being registered on this Form to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [X]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legal facsimile thereof, pursuant to Item
11(a) of this Form, check the following box: [ ]
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. [ ]
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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 number of the earlier effective registration statement for the
same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, 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(1) PRICE(1) FEE(2)
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<S> <C> <C> <C> <C>
Common Stock ($0.01 par value ) 19,954,137 shares(3) $0.525 $10,475,922 $2,912
Common Stock ($0.01 par value ) 13,387,449 shares(4) $0.525 7,028,411 1,954
Total 33,341,586 shares $17,504,333 $4,867
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(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c) of the Securities Act and based on the average of the closing bid
and asked prices reported on the Over-the-Counter Electronic Bulletin Board on
October 30, 1998.
(2) This Registration Statement also includes 3,960,000 shares that were
previously registered on Registration Statement No. 333-39939 and for which the
Registrant previously paid an aggregate filing fee of $3,283. In addition, this
Registration Statement includes an additional 28,150,000 shares that were
previously registered on Registration Statement No. 333-62083 and for which the
Registrant previously paid an aggregate filing fee of $10,249.
(3) Represents additional shares of common stock issuable upon conversion of all
outstanding shares of Series C Preferred Stock as described in the Prospectus,
assuming that such conversion is as of October 30, 1998.
(4) Represents additional shares of common stock issuable upon conversion of all
outstanding shares of Series A Preferred Stock as described in the Prospectus,
assuming such conversion is as of October 30, 1998.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY
DETERMINE.
PURSUANT TO RULE 429, THE PROSPECTUS FORMING A PART OF THIS
REGISTRATION STATEMENT ALSO RELATES TO THE REGISTRANT'S EARLIER REGISTRATION
STATEMENTS ON FORM S-2/A-2 (NO. 333-39939) AND S-2/A-1 (NO. 333-62083) AND
UPDATES THE INFORMATION CONTAINED THEREIN. SUCH REGISTRATION STATEMENTS RELATE
TO, AMONG OTHER THINGS, SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
SHARES OF THE REGISTRANT'S SERIES A PREFERRED STOCK, SERIES B PREFERRED STOCK,
SERIES C PREFERRED STOCK, COMMON STOCK AND SHARES OF COMMON STOCK OF THE
REGISTRANT ISSUABLE UPON EXERCISE OF CERTAIN OUTSTANDING WARRANTS.
================================================================================
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The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
SEC is effective. This prospectus is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 18, 1998
65,451,586 SHARES
AUREAL SEMICONDUCTOR INC.
COMMON STOCK
The selling stockholders of Aureal Semiconductor Inc. listed on page 10
may offer and resell up to 65,451,586 shares of Aureal common stock under this
prospectus, for each of their own accounts. The number of shares the selling
stockholders may sell includes shares of common stock that currently are issued
and outstanding, as well as shares of common stock that they may receive if they
(1) convert their shares of Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock or (2) exercise their warrants. We will not receive
any proceeds from such sales, but we will receive the exercise price of the
warrants if the warrants are exercised. We issued shares of our common stock and
shares of Series A, Series B, Series C Preferred Stock and certain warrants in a
series of private transactions between March 1998 and June 1998 to the selling
stockholders.
Our common stock is quoted on the Over-the-Counter Electronic Bulletin
Board under the symbol "AURL." On December 14, 1998, the average of the closing
bid and asking prices of our common stock was $0.48. The 65,451,586 shares of
common stock being offered by this prospectus represent approximately 53% of our
total outstanding equity securities. Registering such a large percentage of
Aureal's total outstanding securities may have an adverse effect on the market
price for our common stock.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. PLEASE
SEE "RISK FACTORS" BEGINNING ON PAGE TWO.
The shares have not been approved or disapproved by the SEC or any
state securities commission, nor have these organizations determined that this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
THE DATE OF THIS PROSPECTUS IS ______________, 1998
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TABLE OF CONTENTS
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PAGE
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ABOUT AUREAL........................................................................1
RISK FACTORS........................................................................2
WHERE YOU CAN FIND MORE INFORMATION.................................................7
FORWARD LOOKING INFORMATION.........................................................8
USE OF PROCEEDS.....................................................................8
SELLING STOCKHOLDERS................................................................9
PLAN OF DISTRIBUTION...............................................................13
LEGAL MATTERS......................................................................14
EXPERTS............................................................................14
</TABLE>
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ABOUT AUREAL
Aureal Semiconductor Inc. is a producer of audio semiconductor products
and advanced audio technologies for the personal computer and consumer
electronics markets. We contract with independent silicon manufacturers, which
in the semiconductor industry are called foundries, for production of our
semiconductor products, and thus we do not fabricate our own semiconductor
products. The foundry that manufactures the majority of our semiconductor
products is one of the three largest foundries in the world that manufactures
products exclusively for other companies. Our objective is to be a leading
provider of advanced digital audio solutions for the personal computer and
consumer electronics markets.
In May 1996, we acquired Crystal River Engineering, Inc., a leader in
the field of 3D audio technology. Crystal River Engineering is now our
wholly-owned subsidiary and offers hardware and software solutions optimized for
3D audio presentation.
We are headquartered in Fremont, California, in a leased 36,000 square
foot building. As of September 27, 1998, we employed 105 people. Of this total,
73 were engaged in engineering functions, 22 were in sales and marketing
activities, and 10 were engaged in administrative support.
Aureal, Aureal 3D, A3D and the A3D logo are registered trademarks of
Aureal Semiconductor Inc. Other trademarks referred to in this Prospectus belong
to their respective owners.
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RISK FACTORS
In addition to the other information in this prospectus or incorporated
in this prospectus by reference, you should consider carefully the following
factors in evaluating Aureal and our business before purchasing the common stock
offered by this prospectus:
WE HAVE SUSTAINED LOSSES IN THE PAST AND WE EXPECT TO SUSTAIN LOSSES IN THE
FUTURE
We emerged from bankruptcy in December 1994. Since that time, we have
recorded an accumulated deficit of $168 million as of September 27, 1998,
comprised of $154 million of incurred losses and $14 million of accretion and
dividends on our preferred stock. We generated the majority of our revenues in
1997 and 1996 through technology licensing transactions. We anticipate that the
majority of our revenues will come from the sale of advanced audio products in
1998 and future years. However, we will not be profitable unless we sell
significant volumes of our advanced audio products in the future.
IN ORDER TO COMPETE EFFECTIVELY IN THE AUDIO TECHNOLOGY MARKET, WE NEED TO
DEVELOP NEW AUDIO TECHNOLOGIES THAT ARE ACCEPTABLE TO OUR CUSTOMERS
Our success depends on our ability to develop and market new audio
technologies aimed at advancing the level of audio quality in personal computers
and consumer electronics devices. To be successful, we must timely develop new
products that we can sell at competitive prices to our customers who will design
them into their products. In order for our customers to design our advanced
audio products into their personal computers and consumer electronic products,
we must:
1. anticipate market trends;
2. anticipate the performance and functionality requirements of
our current and potential customers;
3. develop and produce products that meet the timing and pricing
requirements of our current and potential customers; and
4. produce products that can be available in a timely manner
consistent with our current and potential customers'
development and production schedules.
A failure in any of these areas could materially adversely affect our
business, financial condition and results of operations.
NEW GENERATIONS OF MICROPROCESSORS AND OTHER NEW TECHNOLOGIES MAY DECREASE
DEMAND FOR OUR PRODUCTS
We also face the risk that new generations of microprocessors that are
capable of performing the function of advanced audio products will greatly
reduce demand for our products. 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
diminishes or eliminates the need or preference for our products. In addition,
each new generation of technology, including digital audio technology, generally
requires increased processing power. The increased capabilities of
microprocessors in the future may lower demand for our products which will
materially adversely affect our business, financial condition and results of
operations.
OUR PRODUCTS ARE CONCENTRATED IN AUDIO SOLUTIONS, AND, AS WE INCREASE THE NUMBER
OF AUDIO PRODUCTS THAT WE OFFER, WE MAY REQUIRE ADDITIONAL WORKING CAPITAL
Substantially all of our revenues are related to advanced audio
solutions for the personal computer and consumer electronics markets, and we
expect this to continue for the foreseeable future. We are beginning to expand
our semiconductor business model to provide for an increased number of audio
related products, including audio cards and audio communications combination
cards. We may require additional working capital funds for
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this expansion to provide for incremental inventory and broader marketing
programs. A number of factors may limit the success of our expansion, and each
could negatively impact our business and results of operations. These factors
include:
1. the failure of the market for advanced audio products to grow;
2. reduced demand for our products as a result of increased
competition in this market;
3. unforeseen technological change; and
4. our potential failure to introduce new versions of products
that our customers and the market accept.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE IN THE HIGHLY COMPETITIVE AUDIO
TECHNOLOGY MARKET
The markets in which we compete are intensely competitive and are
characterized by evolving industry standards that result in:
1. short product life cycles;
2. significant pressure to improve price and performance; and
3. frequent new product introductions.
We expect competition to increase from existing competitors and from
other companies that may enter the markets for advanced audio products with
devices that may be less costly or provide higher performance or additional
features than the products we currently offer. However, we are unable to predict
the timing and nature of any such competitive product offerings.
In addition, we anticipate that we 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. Furthermore, some of these competitors
have greater intellectual property rights, broader product lines and
longer-standing relationships with their customers than we do. In addition to
our established competitors, we may also face competition from a number of
emerging companies.
WE FACE INTENSE PRESSURE TO REDUCE OUR PRODUCT PRICES WHICH POTENTIALLY MAY LEAD
TO FURTHER LOSSES
Product prices in the semiconductor industry generally decrease over
the life of a particular product. The willingness of prospective customers to
design our products into their products depends to a significant extent upon our
ability to price our products at levels that are cost-effective for these
customers. As the markets for our products mature and competition increases, we
anticipate that prices for our products will generally decline over time. If we
are unable to reduce our costs sufficiently to offset declines in our product
prices, or if we are unable to introduce new, higher performance products with
higher product prices, our results of operations could be materially adversely
affected.
WE DEPEND ON A CREDIT FACILITY FROM GOLDMAN SACHS AND TRANSAMERICA TO FUND OUR
BUSINESS OPERATIONS
Because we have not been profitable to date, we have had to fund our
losses through a combination of equity and debt financings. In June 1998, we
entered into a credit facility with Goldman Sachs Credit Partners LP and the
Technology Finance Division of Transamerica Business Credit Corporation. This
credit facility provides for an aggregate maximum borrowing of $40 million. The
interest rate on the credit facility is generally the prime rate plus 3% to 5%.
Accordingly, while the credit facility provides us with needed working capital,
the high cost of servicing any borrowing under it could negatively affect our
liquidity. In addition, the credit facility may not be sufficient to meet our
working capital requirements. In the event we must secure additional capital,
there can be no
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assurance that such capital will be available on acceptable terms or at all. Our
inability to secure such potential future financing, if necessary, would
materially adversely affect our business, financial condition and results of
operations.
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER
Provisions in our Amended and Restated Certificate of Incorporation and
Bylaws may have the effect of delaying or preventing a change of control or
changes in our management. These provisions include, among others:
1. the division of the Board of Directors into three separate
classes;
2. the right of the Board to elect the director to fill a space
created by the expansion of the Board;
3. the ability of the Board to alter our Bylaws; and
4. the requirement that at least 10% of the outstanding shares
are needed to call a special meeting of stockholders.
Furthermore, because we are incorporated in Delaware, we are subject to
the provisions of Section 203 of the Delaware General Corporation Law. These
provisions prohibit certain large stockholders, in particular those owning 15%
or more of the outstanding voting stock, from consummating a merger or
combination with a corporation unless (1) 66 2/3% of the shares of voting stock
not owned by this large stockholder approve the merger or combination or (2)
Board of Directors approves the merger or combination or the transaction which
resulted in the large stockholder owning 15% or more of our outstanding voting
stock.
INVESTORS MAY FIND IT DIFFICULT TO TRADE OUR COMMON STOCK ON THE
OVER-THE-COUNTER ELECTRONIC BULLETIN BOARD
Our common stock trades only on the Over-the-Counter Electronic
Bulletin Board. We do not meet the requirements for listing on the Nasdaq
National Market or any national stock exchange. Because our common stock trades
on the Bulletin Board, an investor may find it very difficult to sell or to
obtain accurate quotations as to the market value of our common stock.
Furthermore, because our common stock is not listed on the Nasdaq National
Market, trading in our common stock is also subject to certain rules promulgated
by the SEC under the Securities Exchange Act of 1934. These rules require
additional disclosure by broker-dealers in connection with any trades involving
a stock defined as a penny stock. Generally, a penny stock is any non-Nasdaq
National Market listed equity security that has a market price of less than
$5.00 per share, subject to certain exceptions. Our common stock meets the
definition of a penny stock. The additional burdens imposed upon broker-dealers
by such requirements may discourage broker-dealers from affecting transactions
in our common stock and may limit the ability of purchasers of our common stock
to resell our common stock in the secondary market.
WE DO NOT KNOW THE EXACT NUMBER OF SHARES OF COMMON STOCK THAT WE WILL ISSUE
UPON CONVERSION OF THE SERIES A AND C PREFERRED STOCK; ANY SHARES WE DO ISSUE
WILL CAUSE SUBSTANTIAL DILUTION TO OUR CURRENT STOCKHOLDERS; THE SERIES A AND C
PREFERRED STOCKHOLDERS HAVE AN INCENTIVE TO MANIPULATE THE MARKET FOR OUR COMMON
STOCK WHICH MAY LEAD TO DECREASED PRICES FOR OUR STOCK
Because the holders of shares of Series A and Series C Preferred Stock
may convert these securities into shares of our common stock at variable
conversion prices, we do not currently know the exact number of shares of our
common stock that we may be required to issue upon conversion of the Series A
and Series C Preferred Stock. Further, this number may fluctuate based on the
market price of our common stock at the time of conversion. The variable
conversion price could lead to (1) substantial dilution to our current
stockholders, (2) a change of control of Aureal and (3) a decrease in the market
price of our common stock.
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Substantial Dilution to our Current Stockholders
We are registering a total of 65,451,586 shares of common stock to
cover certain issued but unregistered shares of our common stock, the conversion
of the Series A, B and C Preferred Stock and the exercise of the warrants.
Although this number covers more shares than the Series A, B and C Preferred
Stock is able to convert into as of December 14, 1998, because of the variable
conversion price of the Series A and C Preferred Stock, we may have to register
additional shares of common stock in the future. As of December 14, 1998, the
holders of the Series A, B and C Preferred Stock and the holders of the warrants
could have converted or have converted their securities into 43,445,949 shares
of common stock. This number of shares represents substantial dilution to our
current stockholders. Furthermore, if the market price of our common stock
declines, we may be required to register additional shares, which would be more
dilutive to our current stockholders.
Possibility of Change of Control if We Issue Additional Shares
Because the conversion mechanisms for the Series A and Series C
Preferred Stock potentially allow for the issuance of an unlimited number of
shares of common stock, certain holders of the Series A and C Preferred Stock
could gain control of Aureal. As of December 14, 1998, the holders of Series A
and Series C Preferred Stock have converted or could convert their preferred
shares into 27,023,949 shares of our common stock. This would represent 22% of
our total outstanding equity securities.
Possible Decrease in the Market Price of Our Common Stock and Incentive for
Series A and Series C Preferred Stockholders to Manipulate the Market Price of
our Common Stock.
The large number of shares of common stock to be sold under this
prospectus could lower the price of our common stock. Furthermore, because of
the variable conversion price feature of the Series A and Series C Preferred
Stock, holders of such shares have an incentive to take certain actions,
including short selling, to decrease the market price of our common stock. By
decreasing the market price for our common stock, the holders of Series A and
Series C Preferred Stock would be able to convert their shares at the lower
variable conversion price and thereby receive a greater number of shares of our
common stock. The sale by the holders of Series A and Series C Preferred Stock
of the increased number of shares of our common stock that would result from
this lower conversion price could, in turn, further lower the market price for
our common stock. Short selling is illegal if it is used to manipulate the price
of a company's securities for profit. We have no knowledge that any holder of
shares of Series A or Series C Preferred Stock intends to take any action that
would cause the price of our common stock to decline. However, we can not assure
you that the holders of shares of Series A or Series C Preferred Stock will
refrain from short selling, or otherwise manipulating the market price of, our
common stock.
THREE ENTITIES OWN OR CONTROL A SUBSTANTIAL AMOUNT OF OUR STOCK AND MAY,
THEREFORE, INFLUENCE OUR AFFAIRS
Assuming conversion of their shares of Preferred Stock, three parties
collectively control approximately 71% of our outstanding common stock:
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1. Oaktree Capital Management, LLC 46.3%
2. DDJ Capital Management, LLC 26.3%
3. Appaloosa Management L.P. 6.0%
</TABLE>
With this prospectus, we are registering 19,364,869 shares of common
stock for sale by Oaktree and 14,732,865 shares of common stock for sale by DDJ.
The 19,364, 869 shares we are registering for Oaktree represents approximately
47% of their total holdings of our equity securities, and the 14,732,865 shares
we are registering for DDJ represents approximately 65% of their total holdings
of our equity securities. In addition, Mr. Smith, a director of Aureal, is
affiliated with the TCW Group, Inc. and Oaktree manages certain funds for TCW.
Mr. Masson, a director of Aureal, is affiliated with Oaktree and has in the past
been affiliated with TCW. As a result, these stockholders as a group will be
able to substantially influence the management and affairs of Aureal and, if
acting together, would be able to influence most matters requiring the approval
by our stockholders including
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the election of directors, any merger, consolidation or sale of all or
substantially all of our assets and any other significant corporate
transactions. The concentration of ownership may delay or prevent a change of
control of Aureal at a premium price.
WE MAY NOT HAVE AN ADEQUATE SUPPLY OF OUR PRODUCT BECAUSE WE DEPEND ON FOUNDRIES
TO PRODUCE OUR SEMICONDUCTOR PRODUCTS AND SEMICONDUCTOR PRODUCTS ARE DIFFICULT
TO MANUFACTURE
We do not manufacture our own products, and we depend on outside
manufacturing resources for production of all of our semiconductor products.
Currently, we utilize two semiconductor foundries, one domestic and one foreign,
for production of our existing products. Both of these foundries have indicated
to us that they have the manufacturing availability to provide for our planned
levels of production of each of our products for the next 12 months; however,
our production relationship with each foundry is based only upon purchase
orders. Consequently, either foundry may not continue to adequately provide
manufacturing capacity to us for our current level of production or any
potential increases in our production levels. In the event that either or both
foundries cease to manufacture our semiconductor products, we would have to
contract with alternative foundries. However, we may not be able to timely
contract with alternative foundries or to contract with them at all. Such a
situation could materially adversely affect our financial condition and results
of operations.
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 and other factors can cause a substantial percentage of
wafers to be rejected or a significant number of die on each wafer not to
function. Many of these problems are difficult to diagnose and potentially
time-consuming or expensive to remedy. The foundries that we employ may, in the
future, experience such irregularities or adverse yield fluctuations in the
manufacturing processes of our products. In such event, our business, financial
condition and results of operations may be materially adversely affected.
WE MAY NOT BE ABLE TO RETAIN OUR KEY ENGINEERING, MARKETING, SALES AND
MANAGEMENT PERSONNEL WE NEED TO SUCCEED
Our success depends to a significant extent upon the continued services
of key engineering, marketing, sales and management personnel. Our employees may
voluntarily terminate their employment with us at any time. We recognize the
value of the contributions of each of our employees, and we have developed
compensation programs, including stock programs open to all employees, designed
to retain our employees. However, competition for such employees is intense, and
the loss of the services of such employees could materially adversely affect our
business, financial condition and results of operations.
OUR PRODUCTS EMPLOY PROPRIETARY TECHNOLOGY AND THIS TECHNOLOGY MAY INFRINGE ON
THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES
Our ability to compete successfully will depend, in part, on our
ability to protect our proprietary technology. We rely on a combination of
patents, trade secrets, copyright and trademark laws, nondisclosure agreements
and other contractual provisions and technical measures to protect our
proprietary rights. Nevertheless, such measures may not be adequate or safeguard
the proprietary technology underlying our advanced audio products. In addition,
employees, consultants and others who participate in the development of our
products may breach their agreements with us regarding our intellectual
property, and we may not have adequate remedies for any such breach. We also
realize that our proprietary information and trade secrets may become known
through other means not currently foreseen by us. Moreover, notwithstanding our
efforts to protect our intellectual property, our competitors may be able to
develop products that are equal or superior to our products without infringing
on any of our intellectual property rights. In addition, we may not be able to
effectively protect our intellectual property rights in certain countries. Our
failure to protect our proprietary technology may materially adversely affect
our financial condition and results of operations.
Although we do not believe that our products infringe the proprietary
rights of any third parties, third parties may still assert infringement or
invalidity claims (or claims for indemnification resulting from infringement
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claims) against us. Such assertions could materially adversely affect our
business, financial condition and results of operations. In addition,
irrespective of the validity or the successful assertion of such claims, we
could incur significant costs in defending against such claims. In defending
such claims we could incur expenses and waste resources that could have a
material adverse affect on our business, financial condition and results of
operations.
WE ARE INVOLVED IN LAWSUITS WITH CREATIVE AND E-MU WHICH COULD NEGATIVELY IMPACT
OUR BUSINESS
In February 1998, Creative Technology Ltd. and its subsidiary, E-MU
Systems, Inc., served us with a lawsuit for patent infringement that Creative
and E-MU had filed in the U.S. District Court, Northern District of California.
The lawsuit asserts that our original Vortex product infringes on a patent that
describes a specific implementation for an electronic musical instrument
designed by E-MU. Creative and E-MU seek, among other things, a preliminary and
permanent injunction against alleged continuing acts of infringement by us and
an accounting of damages plus interest. In response, we filed a motion for
summary judgment. In August 1998, E-MU and Creative filed a motion for a
preliminary injunction with respect to our original and updated Vortex product.
In October 1998, the court denied Creative's motion for preliminary injunction.
In addition, our motion for summary judgment was also denied. We believe that
the actions that Creative and E-MU filed are without merit, and we are
vigorously defending against these actions. In December 1998, we filed a lawsuit
alleging patent infringement against Creative and E-MU. Aureal believes that
Creative and E-MU have infringed on two of their patents, Patent No. 5,596,644
entitled "Method and Apparatus for Efficient Presentation of Hi-Quality
3-Dimensional Audio" and Patent No. 5,802,180 entitled "Method and Apparatus for
Efficient Presentation of 3-Dimensional Audio Including Ambient Effects."
Additional litigation may be necessary to resolve the claims asserted
by Creative and E-MU and to resolve our claims against Creative and E-MU and any
other claims asserted in the future to defend against claims of infringement or
invalidity or to enforce and protect our intellectual property rights. We cannot
assure you that we will prevail in any such litigation. Also, any such
litigation, whether or not determined in our favor or settled by us, would be
costly and would divert the efforts and attention of our management and
technical personnel from normal business operations; this could materially
adversely affect our business, financial condition and results of operations.
Adverse determinations in litigation could result in the loss of our proprietary
rights, subject us to significant liabilities, require us to seek licenses from
third parties or prevent us from licensing our technology, any of which could
have a material adverse affect on our business, financial condition and results
of operations.
THE FAILURE OF OUR KEY SUPPLIERS AND CUSTOMERS TO BE YEAR 2000 COMPLIANT COULD
NEGATIVELY IMPACT OUR BUSINESS
We use a number of computer software programs and operating systems in
our internal operations, including applications used in financial business
systems and various administration functions. To the extent that these software
applications contain source code that is unable to appropriately interpret the
upcoming calendar year "2000," some level of modification or even possible
replacement of such source code or applications could be necessary. Given the
current information, we currently do not anticipate that such "Year 2000" costs
will have a material impact upon us. We have requested and obtained information
regarding "Year 2000" compliance from suppliers and providers of all of our
mission critical software systems. Based on the information we currently have,
all mission critical systems appear to be "Year 2000" compliant. We are
currently contacting major vendors and customers to obtain "Year 2000"
compliance certificates. The failure of any of our key suppliers or customers to
be "Year 2000" compliant could have a material adverse effect on our business,
financial condition and results of operations.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the public reference facilities of the SEC in Washington, D.C., Chicago,
Illinois and New York, New York. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from the SEC's web site at http:\\www.sec.gov.
7
<PAGE> 12
The SEC allows us to "incorporate by reference" the information we have
filed with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus. We incorporate by reference the
documents listed below. This prospectus is part of a registration statement we
filed with the SEC (Registration Statement No. 333-66867).
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 1997, as amended by Amendments No. 1 and
No. 2.
(2) The Company's Report on Form 8-K filed on March 16, 1998, as
amended by Amendments No. 1 and No. 2.
(3) The Company's Definitive Proxy filed on May 6, 1998.
(4) The Company's Quarterly Report on Form 10-Q for the quarters
ended March 29, 1998, June 30, 1998 and September 27, 1998.
(5) The Company's Current Report on Form 8-K filed on June 15,
1998, as amended by Amendment No. 1.
(6) The Company's Current Report on Form 8-K filed on July 13,
1998.
(7) The Company's Registration Statement on Form S-2/A-1
(Registration No. 333-62083) filed on September 24, 1998.
(8) The Company's Definitive Proxy for a Special Meeting of
Stockholders filed on November 18, 1998.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Stockholder Services
Aureal Semiconductor Inc.
4245 Technology Drive
Fremont, California 94538
(510) 252-4245
In addition, we will deliver a copy of our (1) Annual Report on Form
10-K/A-2 for the fiscal year ended December 28, 1997 and (2) most recent
Quarterly Report on Form 10-Q, without charge, to each person receiving a copy
of this prospectus.
FORWARD-LOOKING INFORMATION
This prospectus, including the information incorporated by reference,
contains forward-looking statements made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the risk factors set forth on page 2 and others detailed from time to
time in our periodic reports filed with the SEC.
USE OF PROCEEDS
We will not receive any proceeds from sale of common stock by any of
the selling stockholders. The exercise price of the outstanding warrants range
from $1.63 to $2.16. If all of the warrants are exercised, we will receive
proceeds of approximately $11.6 million, which we will use to repay outstanding
indebtedness and develop new products.
8
<PAGE> 13
SELLING STOCKHOLDERS
The selling stockholders currently hold unregistered shares of our
common stock or will hold shares of common stock that are issuable upon
conversion of the Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock and exercise of certain warrants, if any. Following is a brief
summary of the terms of the Series A, Series B and Series Preferred Stock and
the warrants.
SERIES A PREFERRED STOCK AND WARRANTS TO PURCHASE COMMON STOCK.
We sold 500 shares of Series A Preferred Stock to institutional
investors in March 1998. The Series A Preferred Stock may convert into shares of
common stock at a price equal to the lower of $2.50 per share or a percentage,
not less than 80%, of the lowest average closing bid price of our common stock
for any five trading days during the 30 trading days immediately preceding the
date of conversion. Holders of Series A Preferred Stock may convert their shares
at any time. However, holders currently may not convert more than 15% of the
originally issued shares of Series A Preferred Stock in any month using the five
trading-day formula. All shares of Series A Preferred Stock may convert into
shares of common stock using the five trading-day formula beginning in January
1999. In addition, we can redeem the Series A Preferred Stock at a per share
price equal to a percentage of the purchase price, ranging from 115% to 130% of
the purchase price, depending on the date of redemption. Shares of Series A
Preferred Stock have no voting rights.
In February 1998, we issued 70,000 shares of common stock and warrants
to purchase 140,000 shares of common stock to certain persons as compensation
for assisting us in the sale of shares of Series A Preferred Stock. The warrants
have an exercise price of $2.50 per share.
SERIES B PREFERRED STOCK.
In June 1998, we issued 39,375 shares of Series B Preferred Stock to
TCW Special Credits and DDJ Management, LLC with a conversion value of $39.75
million in exchange for the cancellation of an aggregate of $31.5 million that
we owed them. The Series B Preferred Stock converts into common stock at a price
of $2.50 per share. Holders of Series B Preferred Stock are entitled to the
payment of dividends, either in cash or additional shares of Series B Preferred
Stock, at a rate of 8% per year. The holders of Series B Preferred Stock may
vote the equivalent number of shares of our common stock as they would hold if
they converted their shares immediately prior to the record date for such vote.
In addition, we can redeem the Series B Preferred Stock at face value, plus
accrued but unpaid dividends, at any time.
SERIES C PREFERRED STOCK.
We sold 600 shares of Series C Preferred Stock to institutional
investors in June 1998. The Series C Preferred Stock may convert into shares of
common stock at a price equal to the lower of $2.50 per share or a percentage,
not less than 80%, of the lowest average closing bid price of our common stock
for any 5 trading days during the 30 trading days immediately preceding the date
of conversion. Holders of Series C Preferred Stock may convert their shares at
any time. However, holders currently may not convert more than 15% of the
originally issued shares of Series C Preferred Stock in any month using the five
trading-day formula. All shares of Series C Preferred Stock may convert into
shares of common stock using the five trading-day formula beginning in April
1999. In addition, we can redeem the Series C Preferred Stock at a per share
price equal to a percentage of the purchase price, ranging from 115% to 130% of
the purchase price, depending on the redemption date. Shares of Series C
Preferred Stock have no voting rights.
WARRANTS TO PURCHASE COMMON STOCK.
When we entered into a $40 million line of credit with Technology
Finance Division of Transamerica Business Credit Corporation and Goldman Sachs
Credit Partners LP, we issued warrants to purchase 1,350,000
9
<PAGE> 14
shares of common stock to Transamerica and Goldman Sachs. Transamerica and
Goldman Sachs may exercise these warrants at any time during their five year
term. The exercise price of these warrants is $2.156 per share.
NUMBER OF SHARES OF COMMON STOCK THAT WE MAY ISSUE
Assuming full conversion of the Series A, Series B and Series C
Preferred Stock and the exercise of the Warrants on December 14, 1998, we would
issue 45,005,949 shares of our common stock to the selling stockholders. These
45,005,949 shares would represent 41% of our outstanding equity securities.
SELLING STOCKHOLDER TABLE.
The table below lists, in each case as of December 4, 1998:
1. the name of each selling stockholder;
2. the number of shares each selling stockholder beneficially
owns;
3. how many shares of common stock the selling stockholder may
resell under this prospectus; and
4. assuming each selling stockholder sells all the shares listed
next to its name, how many shares of common stock each selling
stockholder will beneficially own after completion of the
offering.
Beneficial ownership is determined in accordance with rules promulgated
by the SEC, and the information is not necessarily indicative of beneficial
ownership for any other purpose. This table is based upon information supplied
to us by officers, directors and principal stockholders. Except as otherwise
indicated, Aureal believes that the persons or entities named in the table have
sole voting and investment power with respect to all shares of the common stock
shown as beneficially owned by them, subject to community property laws where
applicable.
Because of certain contractual obligations that we made to the holders
of Series A and Series C Preferred Stock, we are registering 150% of the shares
of common stock that would have been issued if the Series A and C Preferred
Stockholders had converted their Preferred Stock on December 14, 1998. However,
the number of shares listed in this table is based on the number of shares into
which each selling stockholder's Preferred Stock or warrants could convert as of
December 14, 1998. As a result, these numbers could change from time to time
depending on the conversion price in effect at the time a selling stockholder
converts its shares of Preferred Stock. In order to prevent dilution to the
selling stockholders, these numbers may also change because of (1) the floating
rate conversion price mechanism, (2) stock splits, (3) stock dividends or (4)
similar events involving our common stock.
We may amend or supplement this prospectus from time to time in the
future to update or change this list of selling stockholders and shares which
may be resold.
<TABLE>
<CAPTION>
Beneficial Ownership Prior Beneficial Ownership
to the Offering Shares to be After the Offering
---------------------------- Sold in the -----------------------------
Selling Stockholder Shares Percent Offering Shares Percent
- ----------------------------------------- ---------- ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Oaktree Capital Management, LLC(1) 41,248,850 46.3% 19,364,869 21,883,981 24.6%
as investment manager of the Weyerhouser
Company Retirement Trust Account
333 South Grande Street,
28th Floor
Los Angeles, Ca 90071
TCW Special Credits Trust(2) 7,355,011 8.5% 2,955,752 4,399,259 5.1%
TCW Special Credits Fund IIIb(2) 13,570,242 15.6% 5,771,368 7,798,874 9.0%
TCW Special Credits Fund IIIB(2) 10,664,977 12.3% 4,504,320 6,160,657 7.1%
</TABLE>
10
<PAGE> 15
<TABLE>
<CAPTION>
Beneficial Ownership Prior Beneficial Ownership
to the Offering Shares to be After the Offering
---------------------------- Sold in the -----------------------------
Selling Stockholder Shares Percent Offering Shares Percent
- ----------------------------------------- ---------- ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
TCW Special Credits, as Investment 2,019,418 2.3% 844,560 1,174,858 1.4%
Manager of Delaware State Employees
Retirement Fund(2)
DDJ Capital Management, LLC 22,759,941 26.3% 14,732,865 8,027,0076 9.3%
41 Linden Street, Suite S-4
Wellesley, MA 02482-7910
EP Opportunity Fund, LLC 1,849,823 2.2% 1,849,823 0 *
Eisenberg Partners, L.L.C
33 West Monroe Street, 21st Floor
Chicago, IL 60603
Queensway Financial Holding Limited 1,310,209 1.5% 1,310,209 0 *
90 Adelaide Street West, Suite 500
Toronto, Ontario M6E3A2 Canada
Banque Franck SA 1,028,075 1.3% 1,028,075 0 *
Faisal Finance SA
Colntrin
84 Avenue Louis-Casal
Geneva, Switzerland 1216
Cranshire Capital, L.P. 501,499 * 501,499 0 *
770 Frontage Road, Suite 134
Northfield, IL 60093
LaRoque Trading Group, LLC 2,875,570 3.4% 2,875,570 0 *
440 South LaSalle, Suite 701
Chicago, IL 60605
Keyway Investments, Ltd. 1,651,597 2.0% 1,651,597 0 *
Midland Walwyn Capital, Inc.
BCE Place
181 Bay Street, Suite 500
Toronto, Ontario, Canada M5J2V8
Transamerica Business Credit Corporation 506,250 * 506,250 0 *
15260 Ventura Blvd., Suite 1240
Sherman Oaks, CA 91403
Goldman Sachs & Co. 843,750 1.0% 843,750 0 *
One New York Plaza
New York, NY 10004
Banque Edouard Constant SA 36,600 * 36,600 0 *
Kernco Trust S.A
P.O. Box 6432
2, Rue Jargonant
Geneva, Switzerland 1211
</TABLE>
11
<PAGE> 16
<TABLE>
<CAPTION>
Beneficial Ownership Prior Beneficial Ownership
to the Offering Shares to be After the Offering
-------------------------- Sold in the -------------------------
Selling Stockholder Shares Percent Offering Shares Percent
- ------------------------------------ ------ ------- ------------ ------ -------
<S> <C> <C> <C> <C> <C>
Lakeshore International, Ltd. 94,842 * 94,842 0 *
EBF & Associates
601 Carlson Parkway, Suite 200
Minnetonka, MN 55305
Swartz Investments LLC 70,000 * 70,000 0 *
1080 Holcomb Road
200 Roswell Summit
Suite 285
Roswell, Georgia 30076
Eric S. Swartz(3) 34,792 * 34,792 0 *
Kendrick Family Partnership, LP(3) 34,792 * 34,792 0 *
P. Bradford Hathorn(3) 3,500 * 3,500 0 *
Gerald David Harris(3) 10,324 * 10,324 0 *
Glenn R. Archer(3) 3,500 * 3,500 0 *
Carlton M. Johnson, Jr.(3) 2,500 * 2,500 0 *
Davis C. Holden(3) 2,000 * 2,000 0 *
Frank G. Mauro(3) 34,792 * 34,792 0 *
H. Nelson Logan(3) 1,000 * 1,000 0 *
Kelley E. Smith(3) 1,000 * 1,000 0 *
James David Mills(3) 1,000 * 1,000 0 *
Dwight B. Bronnum(4) 500 * 500 0 *
8309 Dunwoody Avenue
Atlanta, GA 30350
Robert L. Hopkins(4) 500 * 500 0 *
8309 Dunwoody Avenue
Atlanta, GA 30350
Enigma Investments, Ltd.(4) 5,600 * 5,600 0 *
P.O. Box 1894
Elizabethan Square
George Town
Grand Cayman
Charles B. Krusen(4) 4,200 * 4,200 0 *
465 Park Avenue
New York, NY 10022
TOTAL 45,005,949
</TABLE>
12
<PAGE> 17
- ------------------------
* Less than one percent
(1) The 19,364,869 shares of common stock shown as being sold by Oaktree
includes:
(a) 2,955,752 shares being sold by TCW Special Credits Trust;
(b) 5,776,368 shares being sold by TCW Special Credits Fund IIIb;
(c) 4,504,320 shares being sold by TCW Special Credits Fund IIIB;
and
(d) 844,560 shares being sold by TCW Special Credits, as
Investment Manager of Delaware State Employees Retirement
Fund.
Oaktree manages certain funds for TCW, including the funds listed
above. Oaktree has voting and dispositive powers over a total of
approximately 41.2 million shares of common stock and securities
convertible into common stock, including the TCW holdings described in
footnote 2, below, and approximately 7.6 million shares of common stock
or securities convertible into common stock held by Oaktree as a
fiduciary on behalf of a third party separate account. This figure
represents approximately 46.3% of the outstanding common stock and
securities convertible into common stock. Mr. D. Richard Masson, a
director of Aureal, is a principal of Oaktree Capital Management. Mr.
Masson may be deemed a beneficial owner of these shares to the extent
of any indirect pecuniary interest in them. Mr. Masson disclaims
beneficial ownership of all such shares.
(2) This stockholder is affiliated with, and controlled by, The TCW Group,
Inc. ("TCW"). TCW beneficially owns approximately 33.6 million shares
of common stock and securities convertible into common stock. This
figure represents approximately 37.8% of the outstanding common stock
and securities convertible into common stock. From 1988 to May 1995,
Mr. D. Richard Masson, a director of Aureal, was a partner at TCW
Special Credits and served as a managing director of Trust Company of
the West and TCW Asset Management Group, both of which are wholly-owned
subsidiaries of TCW. In addition, Mr. Thomas K. Smith, Jr., also a
director of Aureal, serves as an officer or authorized representative
of entities affiliated with, or related to, TCW. Mr. Smith has voting
and dispositive powers over approximately 33.6 million shares of common
stock or securities convertible into common stock. However, Mr. Smith
disclaims beneficial ownership of such shares. The address of this
stockholder is c/o Oaktree Capital Management, LLC, 333 South Grande
Street, 28th Floor, Los Angeles, California 90071.
(3) The address for this selling stockholder is c/o Swartz Investment LLC,
1080 Holcomb Road, 200 Roswell Summit, Suite 285, Roswell, Georgia
30076. This selling stockholder is an employee of, or otherwise
affiliated with, Swartz Investment LLC. Aureal issued this selling
stockholder a warrant as compensation for services that this selling
stockholder rendered for Aureal. The shares of common stock that this
selling stockholder may resell are issuable upon exercise of the
warrant.
(4) This selling stockholder is not affiliated with, or employed by, Swartz
Investment LLC, but performed services on behalf of Swartz in
conjunction with the sale of the Series A Preferred Stock. Aureal
issued this selling stockholder a warrant as compensation for services
that this selling stockholder rendered for Aureal. The shares of common
stock that this selling stockholder may resell are issuable upon
exercise of the warrant.
PLAN OF DISTRIBUTION
The selling stockholders may sell their shares of common stock in one
or more transactions, which may involve block transactions,
1. on the Over-the-Counter Electronic Bulletin Board;
2. on such other markets on which our common stock may from time
to time be trading;
3. in privately-negotiated transactions;
13
<PAGE> 18
4. through the writing of options on the shares of common stock,
short sales or any combination the two.
The selling stockholders may sell at market prices at the time of sale,
at prices related to the market price or at negotiated prices. It is possible
that a selling stockholder will attempt to sell shares of common stock in block
transactions to market makers or other purchasers at a price per share which may
be below the then current market price. Some or all of the shares of common
stock offered by this prospectus may not be issued to, or sold by, the selling
stockholders.
Aureal has agreed to indemnify the selling stockholders against
liabilities they may incur because of an untrue or alleged untrue statement of a
material fact contained in this prospectus or the omission or alleged omission
to state in the prospectus a material fact required to be in the prospectus, or
necessary to make the statements in this prospectus not misleading. However, we
shall not be required to indemnify any selling stockholder for liabilities that
we incur based on our reliance on written information that the selling
stockholder has furnished to us expressly for use in this prospectus. Likewise,
the selling stockholders have agreed to indemnify Aureal against liabilities
that we incur as a result of any statement or omission made in this prospectus
based on written information that the selling stockholder has provided us
against liabilities. No selling stockholder, however, shall be liable to us for
amounts in excess of the net proceeds it receives from the sale of its shares
pursuant to this prospectus.
The selling stockholders and any brokers, dealers or agents, upon
effecting the sale of any of the shares of common stock, may be deemed to be
"underwriters" as that term is defined under the Securities Act or the Exchange
Act, or the rules and regulations thereunder. In addition, the selling
stockholders and any other persons participating in the sale or distribution of
the shares of common stock will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder. These provisions may
limit the timing of purchases and sales of any of common stock by the selling
stockholders or any other such person. The foregoing may affect the
marketability of the shares of common stock.
We have agreed to use our best efforts to keep the Registration
Statement, of which this prospectus constitutes a part, effective until the
earlier of (1) the date on which the selling stockholders can sell all of the
shares of common stock pursuant to Rule 144 of the Securities Act or (2) when
the selling stockholders have resold all of the shares of their registered
common stock pursuant to Rule 144 or an effective registration statement.
LEGAL MATTERS
Gray Cary Ware & Freidenrich LLP will issue an opinion about the
legality of the shares for us.
EXPERTS
Arthur Andersen LLP, independent public accountants, audited our
consolidated financial statements incorporated by reference in this prospectus
and elsewhere in the registration statement to the extent and for the periods
indicated in their report. These documents are referenced herein in reliance
upon the authority of Arthur Andersen, as experts in accounting and auditing in
giving the report.
14
<PAGE> 19
================================================================================
No one (including any salesman or broker) is authorized to provide oral
or written information about this offering that is not included in this
prospectus.
AUREAL SEMICONDUCTOR INC.
65,451,586 SHARES OF
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
December ___, 1998
================================================================================
<PAGE> 20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses in connection
with the sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration fees.
<TABLE>
<CAPTION>
To be Paid
by the
Registrant
----------
<S> <C>
SEC registration ............................... $ 4,867
Accounting fees and expenses ................... 7,500
Legal fees and expenses ........................ 7,500
Miscellaneous expenses ......................... 5,133
----------
Total .......................................... $25,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law
(the "DGCL"), the Registrant's Certificate of Incorporation provides that each
person who is or was or who had agreed to become a director or officer of the
Registrant or who had agreed at the request of the Registrant's Board of
Directors or an officer of the Registrant to serve as an employee or agent of
the Registrant or as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified by the Registrant to the full extent permitted by the DGCL or any
other applicable laws. Such Certificate of Incorporation also provides that no
amendment or repeal of such Certificate of Incorporation shall apply to or have
any effect on the right to indemnification permitted or authorized thereunder
for or with respect to claims asserted before or after such amendment or repeal
arising from acts or omissions occurring in whole or in part before the
effective date of such amendment or repeal.
The Registrant's Bylaws provide that the Registrant shall indemnify to
the full extent authorized by law any person made or threatened to be made a
party to an action or a proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or intestate was or
is a director, officer or employee of the Registrant or any predecessor of the
Registrant or serves or served any other enterprise as a director, officer or
employee at the request of the Registrant or an predecessor of the Registrant.
The Registrant's Bylaws also provide that the Registrant may enter into one or
more agreements with any person which provides for indemnification greater or
different than that provided in such Certificate of Incorporation.
The Registrant has entered into indemnification agreements with its
directors and its officers.
The Registrant intends to purchase and maintain insurance on behalf of
any person who is a director or officer against any loss arising from any claim
asserted against him and incurred by him in any such capacity, subject to
certain exclusions.
See also the undertakings set out in response to Item 17 herein.
ITEM 16. EXHIBITS
The following exhibits are filed with this Registration Statement:
II-1
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- --------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Reorganization among the Company, Aureal
Acquisition Corporation, a wholly-owned subsidiary of the
Company and Crystal River Engineering, Inc., dated as of May
7, 1996(1)
2.2 Second Amended Joint Plan of Reorganization dated November 10,
1994(13)
4.1 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(2)
4.2 Common Stock Purchase Agreement by and among the Company and
certain entities and individuals dated June 10, 1996(3)
4.3 Common Stock Purchase Agreement by and among the Company and
certain entities and individuals dated August 6, 1997(4)
4.4 Preferred Stock Regulation D Subscription Agreement(5)
4.5 Certificate of Designation of Series A Preferred Stock of
Aureal Semiconductor Inc.(5)
4.6 Preferred Stock Registration Rights Agreement(5)
4.7 Aureal Semiconductor Inc. Regulation D Subscription Agreement
for Series C Preferred Stock(6)
4.8 Certificate of Designation of Series C Preferred Stock of
Aureal Semiconductor Inc.(6)
4.9 Registration Rights Agreement (common stock underlying Series
C Preferred Stock)(6)
4.10 Loan and Security Agreement (Goldman and TBCC Credit Facility)
(7)
4.11 Form of Warrant (Goldman and TBCC Warrants)(7)
4.12 8% Series B Convertible Preferred Stock Purchase Agreement(7)
4.13 Certificate of Designation of 8% Series B Convertible
Preferred Stock for Aureal Semiconductor Inc.(7)
4.14 Amendment Number 4 to Registration Rights Agreement(7)
10.1 Second Amended and Restated Loan Agreement between TCW Special
Credits and the Company dated August 6, 1997 increasing the
loan commitment from $20 million to $31.5 million(8)
10.2 1995 Stock Option Plan(9)
10.3 Form of incentive option agreement and non-statutory stock
option agreement used under 1995 Stock Option Plan(2)
10.4 1994 Stock Option Plan(13)
</TABLE>
II-2
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- --------------------------------------------------------------
<S> <C>
10.5 Form of incentive option agreement and non-statutory stock
option agreement used under 1994 Stock Option Plan(13)
10.6 Industrial Space Sublease with Chemical Waste Management, Inc.
dated September 13, 1995(2)
10.7 Form of Indemnity Agreement for Directors and Officers(10)
10.8 1996 Outside Directors Stock Option Plan(11)
10.9 Manufacturing, Purchase and Distribution Agreement between
Diamond Multimedia Systems, Inc. and Aureal dated July 3, 1998
(12)
5.1* Opinion of Gray Cary Ware & Freidenrich LLP
23.1 Consent of Arthur Andersen, LLP
23.2* Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1)
24.1* Power of Attorney
</TABLE>
- ------------------------------------
* Previously filed.
(1) Incorporated by reference to the exhibits filed with Form 8-K dated May
22, 1996.
(2) Incorporated by reference to the exhibits filed with Form 10-K for the
year ended December 31, 1995.
(3) Incorporated by reference to the exhibits filed with Form S-3
(Registration number 333-3870) filed June 26, 1996.
(4) Incorporated by reference to the exhibits filed with Form S-3 (as
amended by Post-Effective Amendment No. 1, Registration number
333-3870) filed September 12, 1997.
(5) Incorporated by reference to the exhibits filed with the Company's Form
8-K on March 16, 1998.
(6) Incorporated by reference to the exhibits filed with the Company's Form
8-K on June 15, 1998.
(7) Incorporated by reference to the exhibits filed with Form 8-K dated
June 15, 1998.
(8) Incorporated by reference to the exhibits filed with Form 10-Q for the
quarter ended September 28, 1997.
(9) Incorporated by reference to the exhibits filed with the Company's
preliminary proxy on November 5, 1998.
(10) Incorporated by reference to the exhibits filed with Form 10-Q for the
quarter ended September 29, 1996.
(11) Incorporated by reference to the exhibits filed with Form 10-K for the
year ended December 29, 1996.
(12) Incorporated by reference to the exhibits filed with Form 10-Q for the
quarter ended June 28, 1998.
(13) Incorporated by reference to the exhibits filed with Form 10-K for the
year ended December 31, 1994.
II-3
<PAGE> 23
ITEM 17. UNDERTAKINGS
I. The undersigned Registrant hereby undertakes:
A. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
1. To include any prospectus required by section 10(a)(3) of the
Securities Act;
2. 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. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee
"table in the effective registration statement;
3. 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 (a)(1)(i) and (a)(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.
B. That, for the purpose of determining any liability under the
Securities Act, 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.
C. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or 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.
III. The undersigned Registrant hereby undertakes to deliver or cause
to be delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is incorporated
by reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
IV. Insofar as indemnification for liabilities arising under the
Securities Act 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
Securities 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 been settled by controlling
II-4
<PAGE> 24
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
V. The undersigned Registrant hereby undertakes that:
A. For the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)or
497(h) under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
B. For the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
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.
II-5
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Amendment No. 2 to Registration Statement on Form S-2 to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Fremont, State of California on the 18th day of December, 1998.
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, this Amendment No.
2 to Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
December 18, 1998
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ KENNETH A. KOKINAKAS President, Chief Executive Officer
- -----------------------------------------
Kenneth A. Kokinakas
/s/ DAVID J. DOMEIER Vice President, Chief Financial Officer and
- ----------------------------------------- Chief Accounting Officer
David J. Domeier
/s/ L. WILLIAM KRAUSE* Director
- -----------------------------------------
L. William Krause
/s/ D. RICHARD MASSON* Director
- -----------------------------------------
D. Richard Masson
/s/ THOMAS K. SMITH, JR.* Director
- -----------------------------------------
Thomas K. Smith, Jr.*
/s/ RICHARD E. CHRISTOPHER* Director
- -----------------------------------------
Richard E. Christopher
*By: /s/ DAVID J. DOMEIER
-----------------------------------
David J. Domeier
(Attorney-in-fact)
</TABLE>
II-6
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- --------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Reorganization among the Company, Aureal
Acquisition Corporation, a wholly-owned subsidiary of the
Company and Crystal River Engineering, Inc., dated as of May
7, 1996(1)
2.2 Second Amended Joint Plan of Reorganization dated November 10,
1994(13)
4.1 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(2)
4.2 Common Stock Purchase Agreement by and among the Company and
certain entities and individuals dated June 10, 1996(3)
4.3 Common Stock Purchase Agreement by and among the Company and
certain entities and individuals dated August 6, 1997(4)
4.4 Preferred Stock Regulation D Subscription Agreement(5)
4.5 Certificate of Designation of Series A Preferred Stock of
Aureal Semiconductor Inc.(5)
4.6 Preferred Stock Registration Rights Agreement(5)
4.7 Aureal Semiconductor Inc. Regulation D Subscription Agreement
for Series C Preferred Stock(6)
4.8 Certificate of Designation of Series C Preferred Stock of
Aureal Semiconductor Inc.(6)
4.9 Registration Rights Agreement (common stock underlying Series
C Preferred Stock)(6)
4.10 Loan and Security Agreement (Goldman and TBCC Credit Facility)
(7)
4.11 Form of Warrant (Goldman and TBCC Warrants)(7)
4.12 8% Series B Convertible Preferred Stock Purchase Agreement(7)
4.13 Certificate of Designation of 8% Series B Convertible
Preferred Stock for Aureal Semiconductor Inc.(7)
4.14 Amendment Number 4 to Registration Rights Agreement(7)
10.1 Second Amended and Restated Loan Agreement between TCW Special
Credits and the Company dated August 6, 1997 increasing the
loan commitment from $20 million to $31.5 million(8)
10.2 1995 Stock Option Plan(9)
10.3 Form of incentive option agreement and non-statutory stock
option agreement used under 1995 Stock Option Plan(2)
</TABLE>
II-7
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- --------------------------------------------------------------
<S> <C>
10.4 1994 Stock Option Plan(13)
10.5 Form of incentive option agreement and non-statutory stock
option agreement used under 1994 Stock Option Plan(13)
10.6 Industrial Space Sublease with Chemical Waste Management, Inc.
dated September 13, 1995(2)
10.7 Form of Indemnity Agreement for Directors and Officers(10)
10.8 1996 Outside Directors Stock Option Plan(11)
10.9 Manufacturing, Purchase and Distribution Agreement between
Diamond Multimedia Systems, Inc. and Aureal dated July 3, 1998
(12)
5.1* Opinion of Gray Cary Ware & Freidenrich LLP
23.1 Consent of Arthur Andersen, LLP
23.2* Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1)
24.1* Power of Attorney
</TABLE>
- ------------------------------------
* Previously filed.
(1) Incorporated by reference to the exhibits filed with Form 8-K dated May
22, 1996.
(2) Incorporated by reference to the exhibits filed with Form 10-K for the
year ended December 31, 1995.
(3) Incorporated by reference to the exhibits filed with Form S-3
(Registration number 333-3870) filed June 26, 1996.
(4) Incorporated by reference to the exhibits filed with Form S-3 (as
amended by Post-Effective Amendment No. 1, Registration number
333-3870) filed September 12, 1997.
(5) Incorporated by reference to the exhibits filed with the Company's Form
8-K on March 16, 1998.
(6) Incorporated by reference to the exhibits filed with the Company's Form
8-K on June 15, 1998.
(7) Incorporated by reference to the exhibits filed with Form 8-K dated
June 15, 1998.
(8) Incorporated by reference to the exhibits filed with Form 10-Q for the
quarter ended September 28, 1997.
(9) Incorporated by reference to the exhibits filed with the Company's
preliminary proxy on November 5, 1998.
(10) Incorporated by reference to the exhibits filed with Form 10-Q for the
quarter ended September 29, 1996.
(11) Incorporated by reference to the exhibits filed with Form 10-K for the
year ended December 29, 1996.
(12) Incorporated by reference to the exhibits filed with Form 10-Q for the
quarter ended June 28, 1998.
(13) Incorporated by reference to the exhibits filed with Form 10-K for the
year ended December 31, 1994.
II-8
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
March 12, 1998 included in Aureal Semiconductor Inc.'s Form 10-K/A-2 for the
year end December 28, 1997 and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
----------------------------
ARTHUR ANDERSEN LLP
San Jose, California
December 18, 1998
