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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AUREAL SEMICONDUCTOR INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-3117385
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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4245 TECHNOLOGY DRIVE
FREMONT, CALIFORNIA 94538
(510) 252-4245
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID J. DOMEIER
VICE PRESIDENT 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.
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. [ ]
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. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE(2)
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Common Stock ($0.01 par
value)................ 14,548,414 shares $0.735 $10,693,085 $2,973
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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 April 5, 1999.
(2) This Registration Statement also includes 33,341,586 shares that were
previously registered on Registration Statement No. 333-66867 and for which
Registrant previously paid an aggregate filing fee of $4,867. 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.
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
FORMS S-2/A-2 (NO. 333-66867), 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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SUBJECT TO COMPLETION, DATED APRIL 7, 1999
80,000,000 Shares
AUREAL SEMICONDUCTOR INC.
Common Stock
The selling stockholders of Aureal Semiconductor Inc. listed on page 11 may
offer and resell up to 80,000,000 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 and adjusted the conversion price for the series B preferred stock
in March 1999.
Our common stock is quoted on the Over-the-Counter Electronic Bulletin
Board under the symbol "AURL." On April 5, 1999, the average of the closing bid
and asking prices of our common stock was $0.735. The 80,000,000 shares of
common stock being offered by this prospectus represent approximately 59% 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 , 1999
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.
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TABLE OF CONTENTS
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PAGE
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About Aureal................................................ 1
Recent Developments......................................... 1
Risk Factors................................................ 2
Where You Can Find More Information......................... 8
Special Note Regarding Forward-Looking Statements........... 8
Use of Proceeds............................................. 9
Selling Stockholders........................................ 9
Plan of Distribution........................................ 14
Legal Matters............................................... 14
Experts..................................................... 15
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ABOUT AUREAL
Aureal Semiconductor Inc. is a producer of audio products and advanced
audio technologies for the personal computer and consumer electronics markets.
Our primary business is the sale of audio-related semiconductor and board-level
products and supporting software. We contract with independent silicon foundries
and independent component manufacturers and assemblers for the production of our
semiconductor and board-level 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. In January 1999, we leased an additional 8,000 square feet of office
space in the vicinity. As of January 3, 1999, the last day of our fiscal 1998,
we employed 111 people. Of this total, 74 were engaged in engineering functions,
26 were in sales and marketing activities, and 11 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.
RECENT DEVELOPMENTS
We are offering our current stockholders the right to subscribe for and
purchase up to 33,333,333 shares of common stock, pre-reverse split, at $0.60
per share. We are offering these subscription rights to stockholders who owned
common stock on April 12, 1999. In addition, on March 5, 1999, Oaktree Capital
Management LLC purchased all of the shares of our series B preferred stock held
by DDJ Management LLC. We also will be adjusting the conversion price of the
series B preferred stock from $2.50 per share to $0.90 per share. Upon the
adjustment of the conversion price of the series B preferred stock, Oaktree, the
only holder of our series B preferred stock and a major stockholder of Aureal,
will convert its shares of series B preferred stock into shares of our common
stock. In exchange for our adjusting the conversion price of the series B
preferred stock, Oaktree has agreed to subscribe for any shares of common stock
that are not subscribed for by our other stockholders in the rights offering up
to a total value of $20,000,000.
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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 ARE OFFERING OUR CURRENT STOCKHOLDERS SUBSCRIPTION RIGHTS FOR OUR COMMON
STOCK
We are offering holders of our common stock the right to subscribe for and
purchase up to 33,333,333 shares of our common stock at $0.60 per share. Every
stockholder that exercises his subscription rights may also elect to purchase
shares that other stockholders have elected not to acquire. In the event that
all 33,333,333 shares are not subscribed for by our stockholders, Oaktree has
agreed to purchase all remaining shares. If holders of our common stock on the
record date elect not to subscribe to the rights offering, their percentage
ownership of Aureal will be immediately and substantially diluted by the rights
offering. In addition, holders who acquired our stock after the record date and
hence are not able to participate in the rights offering, will experience
immediate and substantial dilution of their percentage ownership of Aureal.
IF WE ANNOUNCE AND EFFECT A ONE-FOR-FIFTEEN REVERSE STOCK SPLIT, THE MARKET
PRICE OF OUR COMMON STOCK MAY DECLINE
Our stock price may decline because we have announced our intentions to
effect a one-for-fifteen reverse stock split. Many companies that have announced
and then effected reverse stock splits have seen their stock price fall, both
before and after the reverse split is effected. On March 18, 1999, a special
committee of disinterested directors approved a one-for-fifteen reverse split in
our common stock. While a reverse stock split does not in any way affect the
value of, or your investment in, Aureal, the markets may react negatively to it
which will cause our stock price to decline further. We cannot assure you that,
as a result of the reverse stock split, our stock price will not decline to a
price that is less than fifteen times the price of our stock prior to the
reverse stock split.
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 $173 million as of January 3, 1999, the end
of our fiscal 1998. This deficit is comprised of $157 million of incurred losses
and $16 million of accretion and dividends on our preferred stock. We generated
the majority of our revenues in 1997 and 1996 through technology licensing
transactions. The majority of our revenues in 1998 came from the sale of
advanced audio products. We expect that the majority of our future revenues will
be derived from the sale of advanced audio products. However, we will not be
profitable unless we sell significant volumes of our advanced audio products in
the future.
OAKTREE CAPITAL CONTROLS A SUBSTANTIAL AMOUNT OF OUR STOCK AND MAY, THEREFORE,
INFLUENCE OUR AFFAIRS
As of the date of this document, Oaktree Capital owns approximately 59% of
our common stock. In addition, Oaktree owns 100% of the outstanding shares of
our series B preferred stock, which, upon adjustment of the conversion price to
$0.90 per share, will convert into approximately an additional 46.6 million
shares of common stock. Oaktree has agreed to convert all of its series B
preferred stock at $0.90 per share immediately following the closing of the
rights offering. Furthermore, in exchange for our agreement to
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adjust the conversion price of the series B preferred stock, Oaktree has
committed to purchase all shares offered in the rights offering and not
otherwise subscribed for by our other stockholders. Oaktree will also have the
right to subscribe for 19.7 million shares of our common stock pursuant to the
rights offering. Accordingly, Oaktree is, and after the rights offering will be
able to, control all matters requiring approval by our stockholders, including
the election of directors and the approval of mergers or other business
combinations.
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 currently do not meet the requirements for listing on the Nasdaq
National Market or any national stock exchange. However, we believe that our
common stock will qualify for listing on the Nasdaq National Market after we
effect a one-for-fifteen reverse stock split. 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 EXPECT THE AVERAGE SELLING PRICE OF OUR PRODUCTS TO DECREASE WHICH MAY REDUCE
GROSS MARGINS AND REVENUES
Product prices in the audio technology 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 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 gross margins and revenues will decline.
WE DEPEND ON A CREDIT FACILITY FROM TRANSAMERICA AND GOLDMAN SACHS 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 the Technology Finance Division of Transamerica
Business Credit Corporation and Goldman Sachs Credit Partners LP. 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 capital in addition to
the line of credit and the proceeds we receive from this rights offering, there
can be no assurance that such
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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.
TO COMPETE EFFECTIVELY IN THE AUDIO TECHNOLOGY MARKET, WE NEED TO DEVELOP NEW
AUDIO TECHNOLOGIES THAT ARE WIDELY ACCEPTED BY 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:
- anticipate market trends;
- anticipate the performance and functionality requirements of our current
and potential customers;
- develop and produce products that meet the timing and pricing
requirements of our current and potential customers; and
- produce products that can be available in a timely manner consistent with
our current and potential customers' development and production
schedules.
We are beginning to expand our 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 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:
- the failure of the market for advanced audio products to grow;
- reduced demand for our products as a result of increased competition in
this market;
- unforeseen technological change; and
- our potential failure to introduce new versions of products that our
customers and the market accept.
A failure to develop new audio technologies that will be accepted by our
customers could materially adversely affect our ability to generate revenues.
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.
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INTENSE COMPETITION IN THE MARKET FOR AUDIO PRODUCTS AND ADVANCED AUDIO
TECHNOLOGIES COULD PREVENT AUREAL FROM INCREASING REVENUE AND PREVENT AUREAL
FROM ACHIEVING PROFITABILITY
The markets for audio products and advanced audio technologies are
intensely competitive and are characterized by evolving industry standards that
result in:
- short product life cycles;
- significant pressure to improve price and performance; and
- 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. To remain competitive, we believe we must, among other
things, invest significant resources in developing new products and enhancing
our current products and maintaining customer satisfaction. If we fail to do so,
our products will not compete favorably with those of our competitors and our
revenue could be materially adversely affected.
WE MAY NOT HAVE AN ADEQUATE SUPPLY OF OUR PRODUCTS BECAUSE WE DEPEND ON
FOUNDRIES TO PRODUCE OUR PRODUCTS AND OUR 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 products. Currently, we
utilize one foreign semiconductor foundry for production of the majority of our
existing products. The foundry has indicated to us that it has 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 the
foundry is based only upon purchase orders. Consequently, the 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 the foundry ceases to manufacture our 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 ability to sell products to our
customers, which in turn would hurt 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
irregularities or adverse yield fluctuations in the manufacturing
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processes of our products. In such event, our business, financial condition and
results of operations may be materially adversely affected.
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER OF AUREAL
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:
- the division of the board of directors into three separate classes;
- the right of the board to elect the director to fill a space created by
the expansion of the board;
- the ability of the board to alter our bylaws; and
- 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) the
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.
WE MAY NOT BE ABLE TO RETAIN OUR KEY ENGINEERING, MARKETING, SALES AND
MANAGEMENT PERSONNEL THAT WE NEED TO SUCCESSFULLY MANAGE OUR BUSINESS
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 these employees is intense,
particularly in Silicon Valley, and the loss of the services of any one of these
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
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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
claims, against us. The assertion of these claims could materially adversely
affect our business, financial condition and results of operations. In addition,
irrespective of the validity or the successful assertion of any claims, we could
incur significant costs in defending against these claims. In defending claims
of alleged infringement, we could incur significant 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 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 litigation with either of them. Also, any
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 these results
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
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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.
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- ). The
documents we incorporate by reference are:
(1) Aureal's Registration Statement on Form S-2/A-2 (Registration No.
333-66867) filed on December 21, 1998.
(2) Aureal's Definitive Proxy for the Annual Meeting of Stockholders filed
on April , 1999.
(3) Aureal's Annual Report on Form 10-K for the fiscal year ended January
3, 1999 filed on April 2, 1999.
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
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus, including the above risk
factors section, contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In many cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue," or the negative
of such terms and other comparable terminology. These statements are only
predictions. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
the risks faced by us described below and elsewhere in this prospectus.
8
<PAGE> 12
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The risk factors listed
above, as well as any cautionary language in this prospectus, provide examples
of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in these risk factors and elsewhere in this prospectus
could have a material adverse effect on our business, operating results and
financial condition.
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
$2.156 to $2.50. If all of the warrants are exercised, we will receive proceeds
of approximately $3.3 million, which we will use to repay outstanding
indebtedness and develop new products.
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. The following is a brief summary
of the terms of the series A, series B and series C 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. Holders currently may convert all of the originally issued shares of
series A preferred stock using the five trading-day formula. 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 under an existing line of credit. On March 5, 1999, Oaktree Capital
Management LLC purchased all of the outstanding shares of our series B preferred
stock from DDJ Management, LLC. As consideration for Oaktree agreeing to
purchase any shares not subscribed for in our rights offering, we entered into
an agreement with Oaktree on March 31, 1999 to lower the price at which series B
preferred stock converts into common stock from $2.50 per share to $0.90 per
share. The terms of the agreement call for the holders of the series B preferred
stock to convert 100% of the outstanding shares of series B preferred stock
immediately after we complete the $20 million rights offering. Holders of series
B
9
<PAGE> 13
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 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 exercise of the warrants on April 5, 1999, we have issued or would
issue approximately 75.6 million shares of our common stock to the selling
stockholders. This figure assumes the series B preferred stock is converted at
the $0.90 conversion price. These 75.6 million shares would represent 59% of our
outstanding equity securities.
SELLING STOCKHOLDER TABLE
The table below lists, in each case as of April 5, 1999:
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
10
<PAGE> 14
principal stockholders. Except as otherwise indicated, we believe 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 remaining unconverted series A
and C preferred stockholders had converted their preferred stock on April 5,
1999. 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 April 5, 1999. 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. The table also assumes the
subscription rights offering is completed with each stockholder purchasing their
pro rata portion of the offering. In addition, the series B preferred stock is
assumed to be converted at the $0.90 conversion price.
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) 110,603,525 73.3% 62,263,300 48,340,225 32.0%
333 South Grand Street,
28th Floor
Los Angeles, CA 90071
The TCW Group, Inc. and its
affiliates(2) 67,978,642 45.3% 40,069,445 27,909,197 18.6%
11100 Santa Monica Blvd
Suite 2000
Los Angeles, CA 90025
DDJ Capital Management, LLC 3,146,097 2.1% 2,466,097 680,000 *
41 Linden Street, Suite S-4
Wellesley, MA 02482-7910
EP Opportunity Fund, LLC 1,864,174 1.3% 1,864,174 0 *
Eisenberg Partners, L.L.C
77 West Wacker Drive, 46th Floor
Chicago, IL 60601
Queensway Financial Holding Limited 1,341,256 * 1,341,256 0 *
90 Adelaide Street West, Suite 500
Toronto, Ontario M6E3A2 Canada
Banque Franck SA 1,034,598 * 1,034,598 0 *
Faisal Finance SA
Colntrin
84 Avenue Louis-Casal
Geneva, Switzerland 1216
Cranshire Capital, L.P. 515,011 * 515,011 0 *
770 Frontage Road,
Suite 134
Northfield, IL 60093
</TABLE>
11
<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>
LaRoque Trading Group, LLC 2,910,309 2.0% 2,910,309 0 *
440 South LaSalle, Suite 701
Chicago, IL 60605
Keyway Investments, Ltd. 1,472,304 1.0% 1,472,304 0 *
Midland Walwyn Capital, Inc.
BCE Place
181 Bay Street, Suite 500
Toronto, Ontario, Canada M5J2V8
Transamerica Business Credit 506,250 * 506,250 0 *
Corporation
15260 Ventura Blvd., Suite 1240
Sherman Oaks, CA 91403
Goldman Sachs & Co. 843,750 * 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
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
</TABLE>
12
<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>
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 75,562,491
</TABLE>
- -------------------------
* Less than one percent
(1) Oaktree acts as an investment manager for certain entities and, in that
capacity, may be deemed to beneficially own securities held by those
entities. In addition, Oaktree provides sub-advisory services to certain
entities affiliated with The Trust Company of the West and, in that
capacity, may be deemed to beneficially own securities held by those
entities. Within the 110,603,525 shares controlled by Oaktree, 67,978,642
shares are owned by entities associated with The Trust Company of the West
and 42,624,883 shares are owned by entities managed directly by Oaktree. Mr.
D. Richard Masson, a director of Aureal, is a principal of Oaktree and, as
such, may be deemed to be a beneficial owner of the 110,603,525 shares
controlled by Oaktree. Mr. Masson disclaims any beneficial ownership of all
these shares.
(2) 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. In addition, Mr. Thomas K. Smith, Jr., also a director
of Aureal, serves as a senior vice president of The Trust Company of the
West. Mr. Smith has voting and dispositive powers over approximately 68
million shares of common stock or securities convertible into common stock.
However, Mr. Smith disclaims beneficial ownership of such shares.
(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.
13
<PAGE> 17
PLAN OF DISTRIBUTION
The selling stockholders may sell their shares of common stock in one or
more transactions, which may involve block transactions,
- on the Over-the-Counter Electronic Bulletin Board;
- on such other markets on which our common stock may from time to time be
trading;
- in privately-negotiated transactions; or
- 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.
14
<PAGE> 18
EXPERTS
The audited consolidated financial statements incorporated by reference in
this registration statement have been audited by Arthur Anderson LLP,
independent public accountants, as indicated in their report and are
incorporated by reference in this registration statement in reliance upon the
authority of Arthur Anderson LLP as experts in accounting and auditing in giving
their report.
15
<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.
80,000,000 SHARES OF
COMMON STOCK
------------------------
PROSPECTUS
------------------------
April , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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............................................ $16,346
Accounting fees and expenses................................ 7,500
Legal fees and expenses..................................... 10,000
Miscellaneous expenses...................................... 6,154
-------
Total..................................................... $40,000
=======
</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.
II-1
<PAGE> 21
ITEM 16. EXHIBITS
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER 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)
4.15 Form of Subscription Agreement(14)
4.16 Form of Instructions to Stockholders(14)
4.17 Form of Letter to Common Stockholders (Record)(14)
4.18 Form of Letter to Banks and Brokers(14)
4.19 Form of Letter to Common Stockholders (Beneficial)(14)
5.1 Opinion of Gray Cary Ware & Freidenrich LLP
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)
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)
</TABLE>
II-2
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.9 Manufacturing, Purchase and Distribution Agreement between
Diamond Multimedia Systems, Inc. and Aureal dated July 3,
1998(12)
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-6 of the Registration
Statement)
</TABLE>
- -------------------------
(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.
(14) Incorporated by reference to the exhibits filed with Form S-3 (Registration
number 333-75631) filed April 2, 1999.
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
II-3
<PAGE> 23
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 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.
II-4
<PAGE> 24
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 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 6th day of April, 1999.
AUREAL SEMICONDUCTOR INC.
By: /s/ DAVID J. DOMEIER
-----------------------------------
David J. Domeier, Vice President,
Finance and Chief Financial
Officer
POWER OF ATTORNEY
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-2 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 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
date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ KENNETH A. KOKINAKAS President, Chief Executive April 6, 1999
- ------------------------------------------ Officer
Kenneth A. Kokinakas
/s/ DAVID J. DOMEIER Vice President, Chief Financial April 6, 1999
- ------------------------------------------ Officer and Chief Accounting
David J. Domeier Officer
/s/ L. WILLIAM KRAUSE Director April 6, 1999
- ------------------------------------------
L. William Krause
/s/ D. RICHARD MASSON Director April 6, 1999
- ------------------------------------------
D. Richard Masson
/s/ THOMAS K. SMITH, JR. Director April 6, 1999
- ------------------------------------------
Thomas K. Smith, Jr.
/s/ RICHARD E. CHRISTOPHER Director April 6, 1999
- ------------------------------------------
Richard E. Christopher
</TABLE>
II-6
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER 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)
4.15 Form of Subscription Agreement(14)
4.16 Form of Instructions to Stockholders(14)
4.17 Form of Letter to Common Stockholders (Record)(14)
4.18 Form of Letter to Banks and Brokers(14)
4.19 Form of Letter to Common Stockholders (Beneficial)(14)
5.1 Opinion of Gray Cary Ware & Freidenrich LLP
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)
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)
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.9 Manufacturing, Purchase and Distribution Agreement between
Diamond Multimedia Systems, Inc. and Aureal dated July 3,
1998(12)
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-6 of the Registration
Statement)
</TABLE>
- -------------------------
(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.
(14) Incorporated by reference to the exhibits filed with Form S-3 (Registration
number 333-75631) filed April 2, 1999.
<PAGE> 1
Exhibit 5.1
[Letterhead of Gray Cary Ware & Freidenrich LLP]
April 6, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: AUREAL SEMICONDUCTOR INC. REGISTRATION STATEMENT ON FORM S-2
Ladies and Gentlemen:
As legal counsel to Aureal Semiconductor Inc., a Delaware corporation (the
"Company"), we are rendering this opinion in connection with the registration
under the Securities Act of 1933, as amended, of those shares of the Company's
Common Stock to be issued by the Company upon conversion of the Company's Series
B Preferred Stock as set forth in the Registration Statement on Form S-2 to
which this opinion is being filed as Exhibit 5.1 (the "Shares").
We have examined all instruments, documents and records which 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.
We express no opinion with respect to (i) the availability of equitable
remedies, including specific performance or (ii) the effect of bankruptcy,
insolvency, reorganization, moratorium or equitable principles relating to or
limiting creditors' rights generally.
Based on such examination, we are of the opinion that the Shares identified
in the above-referenced Registration Statement will be, upon effectiveness of
the Registration Statement and when issued in accordance with the Company's
Certificate of Designation of Series B Preferred Stock, validly authorized,
legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting a
part thereof, as originally filed or as subsequently amended.
Respectfully submitted,
/s/ Gray Cary Ware & Freidenrich
---------------------------------
GRAY CARY WARE & FREIDENRICH LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form S-2 of our report dated March 31, 1999
included in Aureal Semiconductor Inc.'s Form 10-K for the year end January 3,
1999 and to all references to our Firm included in this registration statement.
It should be noted that we have not audited any financial statements of the
company subsequent to January 3, 1999 or performed any audit procedures
subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
-----------------------------------
ARTHUR ANDERSEN LLP
San Jose, California
April 1, 1999
