<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1998
REGISTRATION NO. 333-____________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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, 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.
DAVID A. HUBB, ESQ.
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
(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.
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, as amended (the "Securities Act") other than securities offered only in
connection with dividend or 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 statement 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
under the Securities Act, please check the following box. [ ]
________________________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- - - ----------------------------------------------------------------------------------------------------------------
Title of Each Class of Amount to be Proposed Maximum Proposed Amount of
Securities to be Registered Offering Price Per Maximum Registration
Registered Share (1) Aggregate Fee
Offering Price
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($0.001 par value) 70,000 shares (2) $2.81 $ 196,700 $ 58.00
- - - ----------------------------------------------------------------------------------------------------------------
Common Stock ($0.001 par value) 3,750,000 shares (3) $2.81 $10,537,500 $3,109.00
- - - ----------------------------------------------------------------------------------------------------------------
Common Stock ($0.001 par value) 140,000 shares (4) $2.81 $ 393,400 $ 116.00
- - - ----------------------------------------------------------------------------------------------------------------
TOTAL 3,960,000 shares $11,127,600 $3,283.00
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
(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
high and low sales prices reported on the OTC Bulletin Board on April 13, 1998.
(2) Represents shares issued and outstanding.
(3) Represents 188% of the shares of Common Stock issuable upon conversion
of all outstanding shares of Series A Preferred Stock as described in the
Prospectus, assuming that such conversion is as of the date of this Registration
Statement. Pursuant to Rule 416 of the Securities Act, this Registration
Statement also covers such indeterminable additional shares as may become
issuable upon conversion of Series A Preferred Stock as a result of any future
stock splits, stock dividends or similar transactions.
(4) Represents shares issuable upon exercise of outstanding warrants issued
as described in the Prospectus. Pursuant to Rule 416 of the Securities Act, this
Registration Statement also covers such indeterminable additional shares as may
become issuable as a result of any future stock splits, stock dividends or
similar transactions.
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.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED APRIL 15, 1998 PROSPECTUS
3,750,000 SHARES (issuable upon conversion of Series A Preferred Stock)
140,000 SHARES (issuable upon exercise of Warrants)
70,000 SHARES (issued)
AUREAL SEMICONDUCTOR INC.
COMMON STOCK
($0.001 Par Value)
Of the aggregate 3,960,000 shares (the "Shares") of Common Stock of
Aureal Semiconductor Inc., a Delaware corporation ("Aureal" or the "Company"),
offered by this Prospectus, 70,000 shares are issued and outstanding (the
"Common Shares"), 3,750,000 shares are issuable upon conversion of issued shares
of Series A Preferred Stock of the Company (the "Series A Shares") and 140,000
shares are issuable upon exercise of issued warrants to purchase Common Stock
(the "Definitive Warrants"). The Common Shares, the Series A Shares and the
Definitive Warrants were issued in connection with a privately placed equity
financing to institutional investors (the "Selling Stockholders") pursuant to a
series of subscription agreements (the "Financing Agreements"). The Series A
Shares are convertible into shares of the Company's Common Stock, calculated
pursuant to a formula based on the lower of (i) $2.50 (the "Fixed Conversion
Price") or (ii) a defined percentage (not less than 80%) of the lowest average
closing bid price of the Company's Common Stock for any five (5) trading days
during the thirty (30) trading days immediately preceding the date of conversion
(the "Variable Conversion Price"), all as set forth in the Company's Certificate
of Designation for the Series A Shares (the "Certificate of Designation").
Conversion of the Series A Preferred Stock can commence at a date four months
after the final closing date (March 11, 1998). Variable Conversion Price
conversions can be completed at the rate of 15% of the originally issued
Preferred Stock per month. 100% of the Series A Preferred Stock is thus
available for Variable Conversion Price conversion as of January 1999. No such
limitations apply to Fixed Conversion Price conversions. The Certificate of
Designation also gives the Company the right to redeem some or all of the Series
A Shares at a per share price equal to a percentage of the purchase price of the
Series A Shares being called for redemption, ranging from 115% to 130%,
depending upon the date of the redemption.
The Company will bear all out-of-pocket expenses incurred in connection
with the registration of the Shares, including, without limitation, all
registration and filing fees imposed by the Securities and Exchange Commission
(the "Commission"), the National Association of Securities Dealers, Inc. (the
"NASD") and blue sky laws, printing expenses, transfer agents' and registrars'
fees, and the reasonable fees and disbursements of the Company's outside counsel
and independent accountants, but excluding transfer or other taxes and other
costs and expenses incident to the issuances of the Shares.
The Company's Common Stock is quoted on the OTC Bulletin Board under the
symbol "AURL" On April 13, 1998, the average of the closing bid and asking price
of the Company's Common Stock was $2.81. The 3,960,000 shares being offered
hereby represent approximately 8.6% of the Company's total outstanding
securities, recognizing that 3,890,000 shares being registered herein are
subject to purchase from the Company pursuant to conversion of Series A
Preferred Stock and 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 "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE COMMON STOCK OFFERED HEREBY.
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.
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 April ___, 1998.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational 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 Commission. The reports, proxy statements and other information filed by the
Company with the Commission may be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60611 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can also be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such reports and other information may also be inspected
without charge at a Web site maintained by the Commission. The address of the
site is http:\\www.sec.gov. The Company's Common Stock is traded on the OTC
Bulletin Board.
INFORMATION INCORPORATED BY REFERENCE
There are hereby incorporated by reference in this Prospectus the
following documents and information heretofore with the Commission:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1997, filed on March 30, 1998.
(2) The Company's Report on Form 8-K filed on March 11, 1998.
THE COMPANY
Aureal Semiconductor Inc. is a producer of audio semiconductor products
and advanced audio technologies for the PC and consumer electronics markets. The
Company contracts with independent silicon foundries for production of its
semiconductor products, and thus is a "fabless" semiconductor company. The
Company's objective is to be the leading provider of advanced digital audio
solutions for the PC and consumer electronics markets. In its pursuit of this
objective, the Company has had several significant accomplishments over the past
year.
In February and March of 1998, Aureal announced several major design
wins for the Vortex AU8820 Digital Audio Processor, including: Dell Computer
Corporation, the world's leading direct computer systems company; Turtle Beach
Systems, a leading U.S. provider of premier audio products for the PC; TerraTec
Electronic GmbH, a leading European provider of sound card products; and Aztech
Systems Ltd., a leading sound card retail and OEM company. These customers,
along with others, have begun to take volume shipments of Aureal's Vortex AU8820
chip and will promote the Company's A3D technology.
Earlier in 1998, the Vortex AU8820 received Microsoft's Windows Hardware
Quality Labs (WHQL) certification. Microsoft's WHQL certification virtually
ensures that customers integrating the Vortex AU8820 chip into their audio
subsystems will receive quality approval from Microsoft which is a key
differentiation for consumers looking for quality in PC products.
During the fourth quarter of 1997, Aureal made initial customer
shipments of the Vortex AU8820. This important milestone brought to an end a
transition period of over two years where Aureal was primarily focused on the
development of the Company's new technology.
The Company also completed some significant financing transactions in
1997 and early 1998. The most recent occurred in March of 1998 with the
completion of a $5 million private placement transaction for three-year 8%
convertible preferred stock. A prior transaction consisted of a private
placement of 1.9 million shares of the Company's Common Stock on August 6, 1997
for proceeds of $3.8 million. In conjunction with the equity placement, the
Company's working capital line of credit was increased from $20.0 million to
$31.5 million.
In the consumer electronics field, the Company has announced licensing
deals with Zoran Corporation, LSI Logic Corporation and Yamaha Corporation for
its A3D Surround technology. Advent has introduced its Powered Partners speaker
product line, which is based on Aureal's VSP901 ProLogic chip. The Company
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continues to invest significant resources towards the development of
semiconductor products targeted for the multi-channel mini-component and audio
receiver markets that will include the Company's A3D Surround technology for
Dolby ProLogic, Dolby Digital and MPEG II audio.
In September 1996, the Company announced "A3D", the Company's
proprietary 3D audio technologies. These technologies provide an interactive
audio experience by surrounding the listener with sounds in all three
dimensions, with only two-speaker or headphone presentations. The Company now
has numerous game developers and over twenty companies utilizing A3D either as a
licensed product or as a product utilizing the Vortex AU8820. Many of these
companies are actively promoting the A3D brand name on packaging, advertising
and at tradeshows.
The Company's revenues for 1997 were primarily related to the up-front
licensing fees for its A3D technologies, the sale of a modest number of VSP901
chips and the initial shipments of the Vortex AU8820 chip. The Company has begun
volume shipments of its Vortex AU8820 device in 1998.
The Company, in May 1996, acquired 100% ownership of Crystal River
Engineering, Inc. (CRE) a leader in the field of 3D audio technology. This
merger of resources has enabled Aureal Semiconductor to offer hardware and
software solutions optimized for 3D audio presentation.
In August 1995, the Company announced that it was divesting its
multimedia components business to implement its current business plan based on
development and sale of software and semiconductor solutions providing advanced
audio for the PC and consumer electronics markets. The Company was active in the
business of selling multimedia components for the retail market from its
founding in 1990 through mid-1995 (operating as Media Vision Technology Inc.)
Since November of 1995, the Company has operated under its current name, which
was formally changed at its Annual Stockholders' Meeting in May 1996.
The Company is headquartered in Fremont, California in a leased 36,000
square foot building. As of December 28, 1997, the Company had 81 employees. Of
this total, 47 were engaged in engineering functions, 23 were in sales and
marketing activities, and 11 were engaged in administrative support. Competition
for employees in the Company's industry is intense. None of the Company's
employees are represented by a labor union. The Company considers its relations
with its employees to be good.
Aureal, Aureal 3D, A3D and the A3D logo are trademarks of Aureal
Semiconductor Inc. Other trademarks referred to herein are properties of their
respective owners.
Aureal was incorporated as Media Vision Inc. in California in May 1990
and was reincorporated in Delaware as Media Vision Technology Inc. in November
1992. The Company emerged from reorganization under Chapter 11 of the U.S.
Bankruptcy code on December 30, 1994 and in November 1995 changed its name to
Aureal Semiconductor. Unless the context otherwise requires, "Aureal" and the
"Company" refer to Aureal Semiconductor, a Delaware corporation, and its
predecessor and subsidiary. The Company's principal executive offices are
located at 4245 Technology Drive, Fremont, California 94538, and its telephone
number is (510) 252-4245. See "INFORMATION INCORPORATED BY REFERENCE."
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.
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<PAGE> 5
RISK FACTORS
In addition to the other information in this Prospectus or incorporated
herein by reference, the following factors should be considered carefully in
evaluating the Company and its business before purchasing the Common Stock
offered hereby:
History of Losses 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 1996 and 1997. 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 three semiconductor products in full
production. The Company has not generated significant revenues from 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.
Future profitability, if any, is highly dependent on the Company securing design
wins for its products and shipping significant volumes thereof. There can be no
assurance that the Company will attain profitability or generate positive cash
flows.
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) PCI 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 in a timeframe for the Company to benefit from its PCI-based products
and technologies. 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 line of processors and is
promoting the processing power of MMX for data and signal intensive functions
such as graphics and audio processing. A product with the processing power
required to execute high quality audio, video and graphics simultaneously with
all other functions which the host processor does, has not yet been marketed by
Intel. 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 future revenues,
if any, will continue to be derived from such 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
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<PAGE> 6
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 that 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.
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 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
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 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.
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 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" 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.
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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. Sales of a large percentage of the Company's total
outstanding Common Stock may have an adverse effect on the market price for such
securities.
USE OF PROCEEDS
The Company will receive the proceeds from the exercise of the Warrants,
if any, and expects to use such proceeds, if any, for working capital. The
Company will not receive any proceeds from conversions of the Series A Shares.
The Company will not receive any proceeds from the sale of the shares of Common
Stock by the Selling Stockholders and all proceeds will go to the Selling
Stockholders to be used for their own purposes.
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SELLING STOCKHOLDERS
The Selling Stockholders hold Common Shares and will hold shares of
Common Stock which are issuable upon conversion of the Series A Shares and
exercise of the Warrants, if any. The table below lists the Selling
Stockholders, the number of shares of Common Stock which each owns or will own,
assuming a conversion date of April 13, 1998, the number of shares of Common
Stock subject to sale pursuant to this Registration Statement and the number of
shares of Common Stock each would own assuming sale of all shares of Common
Stock registered by this Registration Statement.(1)
<TABLE>
<CAPTION>
Shares Beneficially Shares To Be Sold
Selling Stockholder(2) Owned Before Offering(1) In The Offering(3)
- - - ----------------------------- ------------------------- ------------------
<S> <C> <C>
Banque Edouard Constant SA 160,000 160,000
Kemco Trust S.A.
P.O. Box 6432
2, Rue Jargonant
Geneva, Switzerland 1211
160,000 160,000
Banque Franck SA
Faisal Finance SA
Colntrin
84, Avenue Louis-Casal
Geneva, Switzerland 1216
Cranshire Capital, L.P. 80,000 80,000
770 Frontage Road, Suite 134
Northfield, IL 60093
Lakeshore International, Ltd. 800,000 800,000
EBF & Associates
601 Carlson Parkway, Suite 200
Minnetonka, MN 55305
LaRoque Trading Group, LLC 400,000 400,000
Castle Creek Partners
333 West Wacker Dr., Suite 1410
Chicago, IL 60606
Keyway Investments, Ltd. 300,000 300,000
Midland Walwyn Capital, Inc.
BCE Place
181 Bay Street, Suite 500
Toronto, Ontario, CANADA M5J 2V8
Queensway Financial Holdings 100,000 100,000
Limited
90 Adelaide Street, West
Toronto, Ontario, CANADA M5H 3V9
Swartz Investments LLC 70,000 70,000
1080 Holcomb Bridge Road
200 Roswell Summit, Suite 285
Roswell, Georgia 30076
Eric S. Swartz(4) 34,792 34,792
Kendrick Family Partnership, LP(4) 34,792 34,792
P. Bradford Hathorn(4) 3,500 3,500
Gerald David Harris(4) 10,324 10,324
Glenn R. Archer(4) 3,500 3,500
Carlton M. Johnson, Jr.(4) 2,500 2,500
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Shares Beneficially Shares To Be Sold
Selling Stockholder(2) Owned Before Offering(1) In The Offering(3)
- - - ----------------------------- ------------------------- ------------------
<S> <C> <C>
Davis C. Holden(4) 2,000 2,000
Enigma Investments, Ltd.(4) 5,600 5,600
Charles B. Krusen(4) 4,200 4,200
Frank G. Mauro(4) 34,792 34,792
H. Nelson Logan(4) 1,000 1,000
Kelley E. Smith(4) 1,000 1,000
James David Mills(4) 1,000 1,000
Dwight B. Bronnum(4) 500 500
Robert L. Hopkins(4) 500 500
Total 2,210,000 2,210,000
</TABLE>
- - - ------------------------------
(1) The number of shares set forth in the table represents an estimate of
the number of shares of Common Stock to be offered by the Selling
Stockholders and assumes the exercise of all Warrants issued as
described in this Prospectus. Pursuant to the Company's agreement with
the Selling Stockholders as set forth in the Financing Agreements, the
number of shares of Common Stock registered by this Registration
Statement equals approximately 188% of the shares of Common Stock that
would be issued had the Series A Shares been converted on April 13,
1998. The actual number of shares of Common Stock issuable upon
conversion of Series A Shares and exercise of the Warrants issued or
issuable is indeterminate, is subject to adjustment and could be
materially more than such estimated number depending on factors which
cannot be predicted by the Company at this time, including the future
market price of the Common Stock. The actual number of shares of Common
Stock offered hereby, and included in the Registration Statement of
which this Prospectus is a part, includes such additional number of
shares of Common Stock as may be issued or issuable upon conversion of
the Series A Shares and exercise of the issued or issuable Warrants by
reason of the floating rate conversion price mechanism or other
adjustment mechanisms described therein, or by reason of any stock
split, stock dividend or similar transaction involving the Common Stock,
in order to prevent dilution, in accordance with Rule 416 under the
Securities Act. Pursuant to the terms of the Series A Shares, if the
Series A Shares had been actually converted on April 13, 1998, the
conversion price would have been $2.50, at which price the Series A
Shares would have been converted into approximately 2,000,000 shares of
Common Stock. Pursuant to the Certificate of Designation of the Series A
Shares, the Series A Shares are convertible by any holder only to the
extent that the number of shares of Common Stock thereby issuable,
together with the number of shares of Common Stock owned by such holder
and its affiliates (but not including shares of Common Stock underlying
unconverted shares of Series A Shares) would not exceed 5.0% of the then
outstanding Common Stock as determined in accordance with Section 13(a)
of the Exchange Act.
(2) The persons named in the table have sole voting and investment power
with respect to all shares of Aureal Common Stock shown as beneficially
owned by them, subject to community property laws, where applicable.
(3) Assumes the sale of all shares offered hereby.
(4) The address for such stockholders is c/o Swartz Investment LLC, 1080
Holcomb Bridge Road, 200 Roswell Summit, Suite 285, Roswell, Georgia
30076.
PLAN OF DISTRIBUTION
The Shares being offered by the Selling Stockholders or their respective
pledgees, donees, transferees or other successors in interest, will be sold in
one or more transactions (which may involve block transactions) on the OTC
Bulletin Board or on such other market on which the Common Stock may from time
to time be trading, in privately-negotiated transactions, through the writing of
options on the Shares, short sales or any combination thereof. The sale price to
the public may be the market price prevailing at the time of sale, a price
related to such prevailing market price or such other price as the Selling
Stockholders determine from time to time.
The Selling Stockholders or their respective pledgees, donees,
transferees or other successors in interest, may also sell the Shares directly
to market makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Brokers acting as agents for the Selling
Stockholders will receive usual and customary commissions for brokerage
transactions, and market makers and block purchasers purchasing the Shares will
do so for their own account and at their own risk. 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 market price. There can be no assurance that all or any of the Shares
offered hereby will be issued to, or sold by, the Selling Stockholders. The
Selling Stockholders and any brokers, dealers or agents,
9
<PAGE> 10
upon effecting the sale of any of the Shares offered hereby, may be deemed
"underwriters" as that term is defined under the Securities Act or the Exchange
Act, or the rules and regulations thereunder.
The Selling Stockholders and any other persons participating in the sale
or distribution of the Shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Shares by the Selling
Stockholders or any other such person. The foregoing may affect the
marketability of the Shares.
The Company has agreed to indemnify in certain circumstances the Selling
Stockholders against certain liabilities, including liabilities under the
Securities Act. The Selling Stockholders have agreed to indemnify in certain
circumstances the Company against certain liabilities, including liabilities
under the Securities Act.
The Company has agreed to use its best efforts to keep the Registration
Statement, of which this Prospectus constitutes a part, effective until the
earlier of (i) the date on which the Selling Shareholders can sell all the
Shares pursuant to Rule 144 of the Security Act (without regard to volume
limitations), or (ii) when all of the Shares have been resold pursuant to Rule
144 or an effective registration statement.
LEGAL MATTERS
The legality of the Shares is being passed upon by Gray Cary Ware &
Freidenrich LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of AUREAL SEMICONDUCTOR INC. for the
year ended December 28, 1997 have been so incorporated in reliance on the report
of Arthur Andersen LLP, independent accountants, given on the authority of such
firm as experts in auditing and accounting.
10
<PAGE> 11
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION 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 OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information .................................................. 3
Information Incorporated By Reference .................................. 3
The Company ............................................................ 3
Forward Looking Information ............................................ 4
Risk Factors ........................................................... 5
Use Of Proceeds ........................................................ 7
Selling Stockholders ................................................... 8
Plan Of Distribution ................................................... 9
Legal Matters .......................................................... 10
Experts ................................................................ 10
</TABLE>
3,960,000 SHARES
AUREAL SEMICONDUCTOR INC.
COMMON STOCK
PROSPECTUS
, 1998
================================================================================
<PAGE> 12
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 fee................................................. $3,283
Accounting fees and expenses......................................... 7,500
Legal fees and expenses.............................................. 10,000
Miscellaneous expenses............................................... 1,717
Total........................................................ $22,500
</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 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.
II-1
<PAGE> 13
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- - - ----------- -----------------------
<S> <C>
3.1(1) Certificate of Designation of Series A Preferred Stock of Aureal
Semiconductor Inc.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
10.1(1) Aureal Semiconductor Inc. Regulation D Subscription Agreement.
10.2(1) Registration Rights Agreement.
10.3(1) Form of Warrant.
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 (see page II-4 of the Registration Statement).
</TABLE>
- - - ----------
(1) Incorporated by reference to the exhibits filed with the Company's Form 8-K
on March 11, 1998.
ITEM 17. UNDERTAKINGS.
(a) 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;
(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. 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;
(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 (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.
(2) 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.
(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.
(b) 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.
II-2
<PAGE> 14
(c) 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.
(d) 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 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.
(e) The undersigned Registrant hereby undertakes that:
(1) 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.
(2) 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-3
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement on Form S-3 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Fremont, State of
California on the 14th day of April, 1998.
AUREAL SEMICONDUCTOR INC.
By: /s/ DAVID J. DOMEIER
-----------------------------------
David J. Domeier, Vice President,
Finance and Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make,
constitute and appoint Kenneth A. Kokinakas and David J. Domeier and each of
them, acting together or alone, his true and lawful attorneys-in-fact and agents
with full power of substitution, in his name, place and stead to execute on his
behalf, in his capacity as a Director and/or officer of AUREAL SEMICONDUCTOR
INC. (the "Company"), a registration statement on Form S-3 or other appropriate
form and any and all amendments thereto (including post-effective amendments),
registering shares of the Common Stock of the Company, to be filed with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Act of 1933, as amended (the "Securities Act") and any and all instruments which
said attorneys-in-fact and agents deem necessary or advisable to enable the
Company to comply with the Securities Act and the rules, regulations and
requirements of the Commission in respect thereof, giving and granting to said
attorneys-in-fact and agents, and each of them, acting together or alone, full
power and authority to do and perform each and every act and thing whatsoever
necessary or appropriate to be done in and about the premises as fully to all
intents as he might or would do if personally present at the doing thereof, with
full power of substitution and revocation, hereby ratifying and confirming all
that his said attorneys-in-fact or substitutes may or shall lawfully do or cause
to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION STATEMENT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Kenneth A. Kokinakas President, Chief Executive Officer April 14, 1998
----------------------------- and Director
Kenneth A. Kokinakas
/s/ David J. Domeier Vice President, Chief Financial April 14, 1998
----------------------------- Officer and Chief Accounting
David J. Domeier Officer
/s/ L. William Krause Director April 14, 1998
-----------------------------
L. William Krause
----------------------------- Director April 14, 1998
D. Richard Masson
/s/ Thomas K. Smith, Jr. Director April 14, 1998
-----------------------------
Thomas K. Smith, Jr.
/s/ Richard E. Christopher Director April 14, 1998
-----------------------------
Richard E. Christopher
</TABLE>
II-4
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- - - ----------- -----------------------
<S> <C>
3.1(1) Certificate of Designation of Series A Preferred Stock of Aureal
Semiconductor Inc.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
10.1(1) Aureal Semiconductor Inc. Regulation D Subscription Agreement.
10.2(1) Registration Rights Agreement.
10.3(1) Form of Warrant.
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 (see page II-4 of the Registration Statement).
</TABLE>
- - - ----------
(1) Incorporated by reference to the exhibits filed with the Company's Form 8-K
on March 11, 1998.
<PAGE> 1
EXHIBIT 5.1
April 14, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: AUREAL SEMICONDUCTOR INC.
REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
As legal counsel for AUREAL SEMICONDUCTOR INC., a Delaware corporation
(the "Company"), we are rendering this opinion in connection with the
preparation and filing of a registration statement on Form S-3 (the
"Registration Statement") relating to the registration under the Securities Act
of 1933, as amended, of 3,960,000 shares of Common Stock, par value $0.001 per
share (the "Common Stock"), to be issued by the Company upon conversion of
shares of the Company's Series A Preferred Stock and upon exercise of certain
warrants.
We have examined such instruments, documents and records as we deemed
relevant and necessary for the basis of our opinion hereinafter expressed. In
such examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that the 3,960,000
shares of Common Stock of the Company being registered pursuant to the
Registration Statement and to be issued to the Purchasers will be, upon issuance
in accordance with the terms of the Company's Certificate of Designation of
Series A Preferred Stock or the terms of the warrants, as applicable, duly
authorized shares, validly issued, fully paid, and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement referred to above and the use of our name wherever it
appears in said Registration Statement.
This opinion is to be used only in connection with the issuance of the
Common Stock while the Registration Statement is in effect.
Respectfully submitted,
/s/ Gray Cary Ware & Freidenrich
GRAY CARY WARE & FREIDENRICH LLP
<PAGE> 1
EXHIBIT 23.1
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 for the year
ended December 28, 1997, and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
San Jose, California
April 15, 1998
