-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B4iVbD+J2wf2UZGzpXVU3lLv8n+4V2D4HDlDMD6bLoLywmYHsCmVzzGf9AfuR172 R82bAK0myS3KpmdPjoLlng== 0000891618-97-003748.txt : 19970918 0000891618-97-003748.hdr.sgml : 19970918 ACCESSION NUMBER: 0000891618-97-003748 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19970912 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUREAL SEMICONDUCTOR INC CENTRAL INDEX KEY: 0000892433 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 943117385 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-03870 FILM NUMBER: 97679906 BUSINESS ADDRESS: STREET 1: 4245 TECHNOLOGY DR CITY: FREMONT STATE: CA ZIP: 94538-6339 BUSINESS PHONE: 5102524245 MAIL ADDRESS: STREET 1: 4245 TECHNOLOGY DR CITY: FREMONT STATE: CA ZIP: 94538-6339 FORMER COMPANY: FORMER CONFORMED NAME: MEDIA VISION TECHNOLOGY INC DATE OF NAME CHANGE: 19931210 POS AM 1 POST-EFFECTIVE AMENDMENT NO. 1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1997 REGISTRATION NO. 333-3870 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ COMMISSION FILE NUMBER 0-20684 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. GRAY CARY WARE & FREIDENRICH A PROFESSIONAL CORPORATION 400 HAMILTON AVENUE PALO ALTO, CALIFORNIA 94301 415-328-6561 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time 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, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER SHARE* PRICE FEE(1) - --------------------------------------------------------------------------------------------------------------- Common Stock, $0.001 par value......... 34,414,525(2) $2.3905 $82,267,922 $24,929.67
================================================================================ * Estimated solely for purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933 on the basis of the average of the bid and asked price per share on the OTC Bulletin Board on September 9, 1997. (1) $17,301.70 has been previously paid. (2) Represents approximately eighty-two percent (82%) of the Company's total outstanding securities, recognizing that 4,205,000 shares being registered herein are subject to purchase from the Company pursuant to exercise of warrants but are not currently outstanding. Registering such a large percentage of the Company's total outstanding securities may have an adverse effect on the market price for the Company's securities. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 PROSPECTUS SEPTEMBER 12, 1997 34,414,525 SHARES AUREAL SEMICONDUCTOR INC. COMMON STOCK ($0.001 PAR VALUE) This Prospectus relates to the public offering, which is not being underwritten, of shares of the common stock, $0.001 par value per share ("Common Stock"), of Aureal Semiconductor Inc. ("Aureal" or the "Company") offered from time to time by any or all of the Selling Stockholders named herein (the "Selling Stockholders") who received such shares pursuant to (1) Common Stock Purchase Agreements by and among the Company and certain of the Selling Stockholders, (2) warrants issued by the Company or (3) the 1994 Bankruptcy reorganization. The Selling Stockholders hold certain registration rights pursuant to a Registration Rights Agreement by and among the Company and the Selling Stockholders. All of the shares issued to date have been issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), provided by Section 4(2) thereof. The Company will receive no part of the proceeds of any sales made hereunder. All expenses of registration incurred in connection with this offering are being borne by the Company, but all selling and other expenses incurred by Selling Stockholders will be borne by such Selling Stockholders. None of the shares offered pursuant to this Prospectus has been registered prior to the filing of the Registration Statement of which this Prospectus is a part. The Common Stock offered hereby may be offered and sold from time to time by the Selling Stockholders directly or through broker-dealers or underwriters who may act solely as agents, or who may acquire the Common Stock as principals. The distribution of the Common Stock may be effected in one or more transactions that may take place through the OTC Bulletin Board, including block trades or ordinary broker's transactions, or through privately negotiated transactions, or through underwritten public offerings, or through a combination of any such methods of sale, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specially negotiated brokerage fees or commissions may be paid by the Selling Stockholders in connection with such sales. See "PLAN OF DISTRIBUTION." The Common Stock of the Company is traded on the OTC Bulletin Board (OTC Bulletin Board Symbol: AURL). On September 9, 1997, the average of the closing bid and asking price of a share of the Company's Common Stock was $2.3905. The 34,414,525 shares being offered hereby represents approximately eighty-two percent (82%) of the Company's total outstanding securities, recognizing that 4,205,000 shares being registered herein are subject to purchase from the Company pursuant to exercise of warrants but are not currently outstanding. Registering such a large percentage of the Company's total outstanding securities may have an adverse effect on the market price for the Company's securities. SEE "FACTORS WHICH MAY EFFECT FUTURE RESULTS" ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. Each Selling Stockholder and any broker executing selling orders on behalf of the Selling Stockholders may be deemed to be an "underwriter" within the meaning of the Securities Act. Commissions received by any such broker may be deemed to be underwriting commissions under the Securities Act. ------------------------ NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFEROR TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is September 12, 1997. 3 AVAILABLE INFORMATION Aureal is subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the Public Reference Room of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at: Seven World Trade Center, New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and copies of such material can be obtained from the Public Reference Section of the Commission, Washington, D.C. 20549, at prescribed rates. This Prospectus contains information concerning Aureal, but does not contain all the information set forth in the Registration Statement on Form S-3 which the Company has filed with the Securities and Exchange Commission under the Securities Act (the "Registration Statement"). The Registration Statement, including various exhibits, may be inspected at the Commission's office in Washington, D.C. INFORMATION INCORPORATED BY REFERENCE There are hereby incorporated by reference in this Prospectus the following documents and information heretofore filed with the Commission: (1) The Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1996, filed on March 26, 1997. (2) The Company's Definitive Proxy Statement relating to the Annual Meeting of Stockholders held May 21, 1997, filed on April 15, 1997. (3) The Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 1997, filed on May 7, 1997. (4) The Company's Quarterly Report on Form 10-Q for the quarter ended June 29, 1997, filed on August 11, 1997. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of securities contemplated hereby shall be deemed to be incorporated by reference in this Prospectus or any Prospectus Supplement and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated by reference or deemed to be incorporated by reference in this Prospectus or any Prospectus Supplement shall be deemed to be modified or superseded for all purposes of this Prospectus or such Prospectus Supplement to the extent that a statement contained herein, therein or in any subsequently filed document which also is incorporated or deemed to be incorporated by reference herein or in such Prospectus Supplement modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus or any Prospectus Supplement. The Company will provide without charge to each person to whom a copy of this Prospectus has been delivered, upon the written or oral request of such person, a copy of any and all of the documents referred to above which have been or may be incorporated in this Prospectus by reference (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference therein). Requests for such copies should be directed to the Company's principal executive offices located at 4245 Technology Drive, Fremont, CA 94538, telephone number (510) 252-4245. THE COMPANY AND RECENT EVENTS Aureal Semiconductor Inc., together with its subsidiary Crystal River Engineering, Inc. (combined, the "Company") specialize in the design and marketing of audio semiconductor technologies for use in both the PC and home electronics markets. Crystal River Engineering, Inc. ("CRE"), founded in 1987 and acquired by Aureal in the second quarter of 1996, has been a pioneer in the development of 3D audio technologies. The 2 4 Company's business involves not only the development and sale of audio processing semiconductor chips, but the licensing of technology which is designed to define and develop advanced audio standards in the marketplace. On August 6, 1997, the Company completed a private placement of equity capital. The transaction provided proceeds of approximately $3.8 million from the sale of 1.9 million common stock units. Each unit consisted of one share of common stock and one-half of one warrant to purchase one share of common stock at a price of $2.00 per share. The participants in this private placement included the TCW Group, Inc., and DDJ Capital Management, LLC. In conjunction with the equity transaction, the total availability under the Company's line of credit was increased from $20.0 million to $31.5 million. The maturity date on this line of credit was extended to March 31, 1999, with an additional year extension available at the Company's option. In addition, a total of 3,150,000 warrants for the purchase of 3,150,000 shares of common stock (at the purchase price of $2.00 per share) were issued to the debt holders of the $31.5 million line of credit. All of the warrants issued in conjunction with the sale of common stock units and the line of credit extension terminate if not exercised prior to August 6, 2001. Both the TCW Group, Inc. and DDJ Capital Management participate in the line of credit as lenders. On July 14, 1997, the Company announced the availability of pre-production samples of the Vortex AU8820, a PCI-based AC '97 Digital Audio Processor. It is expected to be the first in a series of single-chip devices for the PC Market based on the Vortex audio chip architecture. Under development at Aureal since 1995, the Vortex architecture enables advanced audio quality and features while maintaining support of existing legacy audio functions. Production quantities are expected to be available in the fourth quarter of this year. In June 1997, Aureal announced three significant licensing agreements. ATI Technologies Inc., Cirrus Logic, Inc., and S3 Incorporated agreed to license both A3D Interactive and A3D Surround three-dimensional audio technologies from Aureal. ATI designs and manufactures multimedia solutions for PCs and is one of the world's leading suppliers of video and 2D/3D graphics accelerators to OEM and retail customers. Cirrus Logic, is a leading manufacturer of advanced integrated circuits. S3 Incorporated is the world's largest supplier of multimedia acceleration hardware and its associated software. In March 1997, both Diamond Multimedia Systems Inc. and Oak Technology, Inc. announced products which include the licensed "A3D Interactive" technology from Aureal. In addition, the A3D Interactive technology has been supported by many leading game developers and Microsoft's new DirectSound 5.0 standard. In early September 1996, the Company introduced Aureal 3D ("A3D"), the first interactive 3D audio solution for implementation in both the PC and consumer electronics applications. The introduction included the announcement of 3D technology licensing agreements with Diamond Multimedia Systems Inc. and Oak Technology, Inc. Also in September, the Company announced the VSP901 Dolby Pro Logic Surround Processor, an Aureal proprietary semiconductor designed to produce a complete Dolby surround sound solution utilizing only two speakers. The Company, in May 1996, acquired 100% ownership of CRE, a privately held firm specializing in 3D audio technology development. The total recorded cost of the acquisition was $6.4 million. Aureal recorded, in the second quarter of 1996, a write-off of $6.0 million due to the recognition that in-process research and development efforts associated with CRE's 3D audio technologies had not reached technological feasibility with respect to the Company's product line at the date of acquisition. In three transactions from February through June 1996, the Company completed the private sale of 18.9 million shares of common stock for $22 million. The proceeds from the sale of this common stock have been used for working capital, to pay down the existing working capital line of credit and to partially fund the acquisition of CRE (see above). In August 1995, the Company announced that it was divesting its multimedia components business to implement a business plan based on development and sale of software and semiconductor solutions providing advanced audio for the PC and consumer electronics markets. As part of this change in business, in the first 3 5 quarter of 1996, the Company licensed the Media Vision brand name and related trade names, and transferred other assets and liabilities of its previous retail products business to a third party. In conjunction with the Company's change in business, it formally changed its name to Aureal Semiconductor Inc. at its Annual Stockholders' Meeting in May 1996. The Company's stock symbol on the OTC Bulletin Board is AURL. Aureal was incorporated as Media Vision Inc. in California in May 1990 and was reincorporated in Delaware as Media Vision Technology Inc. in November 1992. The Company emerged from reorganization under Chapter 11 of the U.S. Bankruptcy code on December 30, 1994. The Company's principal executive offices are located at 4245 Technology Drive, Fremont, California 94538, and its telephone number is (510) 252-4245. See "INFORMATION INCORPORATED BY REFERENCE." FORWARD LOOKING INFORMATION This Prospectus, including the information incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth below and others detailed from time to time in the Company's periodic reports filed with the Commission. FACTORS WHICH MAY EFFECT FUTURE RESULTS In addition to the other information in this Prospectus or incorporated herein by reference, the following factors should be considered carefully in evaluating the Company and its business before purchasing the Company stock offered hereby: History of Losses and Accumulated Deficit; Expectation of Future Losses. The Company emerged from bankruptcy on December 30, 1994. Since that time the Company has incurred losses from (1) its previous retail products operations in 1995, and (2) during the research and development phases of its advanced audio technologies business operations in 1995, 1996 and 1997. The Company divested its previous retail products operations in early 1996 through the licensing of its prior name, Media Vision Technologies, Inc., along with numerous trade and brand names to a third party. As part of that transaction, the customer service and technical support liabilities associated with the prior product sales were assumed by the licensee. In addition, product warranties on virtually all previously sold Media Vision products have now expired. The majority of the Company's revenue in 1996 and 1997 has consisted of fees from the licensing of its audio technologies. While the Company sees licensing as an important process to develop market knowledge and acceptance of its technologies as well as generating operating revenues, its primary business is to develop and sell semiconductor products. The Company currently has two models of semiconductor products in full production and its latest product, the AU8820 a PCI-based audio solution for PCs is currently in the pre-production sampling stage. No significant revenues have been generated by any of these products to date. The Company is working to secure design wins for each of these products, however, there can be no assurance that the Company will be able to sell significant volumes of any of its semiconductor products in the future. The Company anticipates continued operating losses and negative cash flow from operations through 1997. Future profitability, if any, is highly dependent on the Company securing design wins for its products and shipping significant volumes thereof. New Technologies and Products Developed With New Technologies. The Company's success depends on its ability to develop and market new technologies aimed at advancing the level of audio quality in the PC and consumer electronics devices. With respect to the PC Market, audio technology is shifting from utilization of the ISA bus to utilization of the more advanced (higher band-width) PC1 bus. This change enables advanced digital audio functionality including positional 3D audio, streaming audio and higher quality presentation. There can be no assurance that the shift from ISA-based audio to PCI-based audio will occur and if it does, that it will develop on a timeframe for the Company to benefit from its PCI-based products and technologies. 4 6 As new technologies are developed, there can be no assurance that markets will develop for them, or that markets will develop on a timely basis for the Company to benefit therefrom. The success of new products depends on a number of factors, including timely completion of product development, market acceptance of the Company's and its customers new products and the Company's ability to offer new products at competitive prices. Incorporating the Company's new products into its OEM customers' new product designs requires the anticipation of market trends and performance and functionality requirements of OEMs, the development and production of products that meet the timing and pricing requirements of OEMs and that can be tested and be available in a timely manner consistent with the OEM's development and production schedule. Accordingly, in selling to OEMs, the Company can often incur significant expenditures in advance of volume sales, if any, of new products. There can be no assurance that the Company will be able to successfully identify new product opportunities, develop and market new products, achieve design wins or respond effectively to the new technological changes or product announcements by others. A failure in any of these areas could have a material adverse effect on the Company's business, financial condition and results of operations. Each successive generation of microprocessors has provided increased performance, which could in the future result in a microprocessor capable of performing advanced audio functions to an extent that the need or preference for the Company's products could be eliminated. In this regard, Intel Corporation has created the MMX functionality with its Pentium processors and is promoting the processing power of MMX for data and signal intensive functions such as graphics and audio processing. At this time the processing power required to execute high quality audio, video and graphics simultaneously and all other functions which the host processor does has not been achieved by Intel's products. Aureal's AU8820 is designed to utilize processing power of the Pentium MMX in conjunction with its acceleration of the audio processing within the PC. The Company believes that advanced audio processing, done in conjunction with either video or graphics processing is best performed with a separate accelerator chip in addition to the host processor. There can be no assurance that the increased capabilities of microprocessors will not adversely affect demand for the Company's products. Dependence on Single Product Line and the PC and Consumer Electronics Markets. The Company has historically derived substantially all of its revenues from its products, all of which are related to advanced audio solutions for the PC and consumer electronics markets. The Company expects that such revenue will continue to represent substantially all of the Company's revenues for the foreseeable future. Although demand for such advanced audio solutions has grown in recent years, management believes that this market is still developing and there can be no assurances that it will continue to grow or that, even if the market does grow, companies will use the Company's products. The failure of this market to continue to grow, any reduction in demand as a result of increased competition in this market, technological change, failure by the Company to introduce new versions of products acceptable to the marketplace or other similar factors would have a material adverse effect on the Company's business, operating results and financial condition. Competition and Pricing Pressures. The markets in which the Company competes are intensely competitive and are characterized by evolving industry standards, rapid technological advances resulting in relatively short product life cycles, price reductions, significant price/performance improvements and frequent new product introductions. The Company expects competition to increase in the future from existing competitors and from other companies which may enter the markets with products that may be less costly or provide higher performance or additional features. The Company is unable to predict the timing and nature of any such competitive product offerings. In general, product prices in the semiconductor industry have decreased over the life of a particular product. The willingness of prospective customers to design the Company's products into their products depends to a significant extent upon the ability of the Company to price its products at a level that is cost-effective for such customers. As the markets for the Company's products mature and competition increases, the Company anticipates that prices for its products will continue to decline. If the Company is unable to reduce its cost sufficiently to offset declines in product prices or is unable to introduce new, higher performance products with higher product prices, the Company's business, financial condition and results of operations could be materially adversely affected. 5 7 With respect to the AU8820 PCI-based single chip advanced audio processor, a number of competitors have announced products to compete in the same market. The Company believes that the AU8820 has the most complete feature set available or announced to-date, but there can be no assurance that a competitive product with additional features or at a lower price will not be announced by another company in the future. The Company anticipates that it will compete for the development of new technologies and for the sale of semiconductor products with a number of companies who have more extensive resources including financial, manufacturing, technical, marketing and distribution. In addition, some of those firms have greater intellectual property rights, broader product lines and longer-standing relationships with customers than the Company. The Company's competitors also include a number of emerging companies. The existing competitors include, but are not limited to, Cirrus Logic, Inc., Creative Technology Ltd., Ensonic Inc., ESS Technology, Inc., Oak Technology Inc., S3 Incorporated and Yamaha Corporation. The Company believes that its ability to compete successfully depends on a number of factors, both within and outside of its control, including the price, quality and performance of the Company's and its competitors' products, the timing and success of new product introductions by the Company, its customers and its competitors, the emergence of new multimedia PC standards, the development of technical innovations, the ability to obtain adequate foundry capacity and sources of raw materials, the efficiency of production, the rate at which the Company's customers design the Company's products into their products, the number and nature of the Company's competitors in a given market, the assertion of intellectual property rights and general market and economic conditions. Increased competition could result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely affect the Company's business, financial condition or results of operations. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures will not materially adversely affect its business, financial condition or results of operations. Dependence on Foundries. The Company, as a "fabless" semiconductor firm, relies on independent foundries to manufacture all of its semiconductor products. Currently the Company utilizes two foundries, one domestic and one foreign to manufacture its existing products. Both of these foundries have indicated to the Company that they have the manufacturing availability to provide for the Company's planned production of each product through at least 1998; however the production relationships are based only upon purchase orders and planned production forecasts. No long term production contracts have been entered into by the Company in the case of either foundry, and there is no assurance that the foundries will continue to provide adequate manufacturing capacity to the Company for its current level of production or its intended increases in production levels. If foundry capacity at either manufacturer is substantially reduced or not increased to cover the Company's anticipated production growth requirements, such availability of product could have a material adverse effect on the Company's business, financial condition and results of operations. Changes in world-wide demand for semiconductor products periodically increases or decreases demand for available foundry capacity. To address foundry capacity constraints, some "fabless" semiconductor firms have utilized various arrangements with third party foundries including equity investments in or loans to independent wafer manufacturers in exchange for guaranteed production capacity, joint ventures to own or operate foundries, or "take or pay" contracts that commit a company to purchase specified quantities of wafers over extended periods of time. While the Company is not currently party to any such arrangements, it may be necessary or advantageous for the Company to enter into such arrangements in the future. There is no assurance that the Company will be successful in this regard. Any such arrangements could require the Company to commit substantial capital and/or grant licenses to some of its technology. The need to commit substantial capital may require the Company to seek additional debt or equity capitalization, which could result in dilution to the Company's stockholders. There can be no assurance, that any such additional capitalization, if required, will be available when needed or, if available, on terms acceptable to the Company. The manufacture of semiconductor products is a highly complex and precise process. Minute levels of contaminants in the manufacturing environment, defects in the masks used to print circuits on wafers, difficulties in the fabrication process or other factors can cause a substantial percentage of wafers to be 6 8 rejected or a significant number of die on each wafer to be non-functional. Many of these problems are difficult to diagnose, time-consuming or expensive to remedy. There can be no assurance that the Company's foundries will not experience irregularities or adverse yield fluctuations in the manufacturing processes. Any yield or other production problems or shortages of supply experienced by the Company or its foundries could have a material adverse effect on the Company's business, financial condition and results of operations. Dependence on Key Personnel. The Company's success depends to a significant extent upon the continued services of key engineering, marketing, sales and management personnel. The Company's employees may voluntarily terminate their employment with the Company at any time. The Company recognizes the value of the contributions of each of its employees and has developed compensation programs, including stock option plans for granting of options to all employees, designed to retain its employees. Competition for such employees is intense and the loss of the services of such employees could have a material adverse effect on the Company's business, financial condition and results of operations. Factors Inhibiting Takeover. The Company is subject to the provision of Section 203 of the Delaware General Corporation Law, which imposes certain restrictions on the ability of a third party to effect an unsolicited change in control of the Company. In addition, the Company's Amended and Restated Certificate of Incorporation does not provide for cumulative voting in the election of directors, and certain provisions of the Company's Amended and Restated Certificate of Incorporation and Bylaws, including the provision which divides the Board into three separate classes, may have the effect of delaying or preventing changes in control or management of the Company. Uncertainty of Trading Market for Common Stock. The Company's Common Stock trades only on the OTC Bulletin Board and the trading volume has been generally light. The Company does not currently meet the requirements of the Nasdaq National Market or other national stock exchanges. There can be no assurance that the Company will meet the listing requirements or that it will be accepted for trading on any such national exchange in the future. Currently, approximately 76% of the outstanding Common Stock is controlled by three parties, each of whom control at least 10% individually. There can be no assurance that the liquidity of the market for the Common Stock will be maintained at or increase over its current levels, and the trading price for the Common Stock may be influenced by the volume and liquidity of the market for the Common Stock. In addition, the Common Stock being offered pursuant to this Prospectus represents approximately 82% of the Company's current outstanding Common Stock, recognizing that 4,205,000 shares being registered herein are subject to purchase from the Company pursuant to exercise of warrants, but are not currently outstanding. Sales of such a large percentage of the Company's total outstanding Common Stock may have an adverse effect on the market price for such securities. Effects of Outstanding Stock Options and Warrants. The Company currently has outstanding warrants to purchase approximately 4.2 million shares of Common Stock. The exercise price of almost all the outstanding warrants is $2.00 per share, with a total of 100,000 warrants exercisable at between $1.38 and $1.63 per share. The majority of these warrants are currently exercisable and will terminate, if not previously exercised by August 2001. In addition, the Company has issued approximately 9.5 million stock options to employees, directors and other outside agents at exercise prices ranging from $0.12 to $2.80. These options generally have a life of ten years and vest over the first four years after grant. The Company intends to maintain up to 20% of the fully diluted Common Stock available for the granting of stock options to employees and directors. Holders of such options and warrants may exercise them at a time when the Company would otherwise be able to obtain additional equity capital on terms more favorable to the Company. Moreover, while these options and warrants are outstanding, the Company's ability to obtain financing on favorable terms may be adversely affected. 7 9 SELLING STOCKHOLDERS The following table shows, as to each Selling Stockholder, (i) such stockholder's name, address and relationship to the Company, (ii) the number of shares of Common Stock beneficially owned prior to the offering, and (iii) the number of shares of Common Stock to be sold pursuant to this Prospectus:
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED PRIOR TO SHARES TO BE SOLD OWNED AFTER NAME AND ADDRESS OFFERING(1) IN THE OFFERING OFFERING(2) ----------------------------------- ------------------- ----------------- ------------------- The TCW Group, Inc. and its affiliates....................... 19,528,822(3) 19,528,822 11100 Santa Monica Blvd., Suite 2000 Los Angeles, California 90025 D. Richard Masson.................. 21,859,155(4) 21,859,155 Thomas K. Smith, Jr................ 19,528,822(5) 19,528,822 DDJ Capital Management, LLC........ 8,066,806(6) 6,075,000 1,991,806 141 Linden Street, Suite 4 Wellesley, MA 02181 Appaloosa Management, L.P.......... 5,752,097(7) 4,250,000 1,502,097 51 JFK Parkway Short Hills, NJ 07078 Leslie Alexander................... 1,332,500 1,000,000 332,500 1200 North Federal Highway Suite 307 Boca Raton, FL 33143 Seneca Capital..................... 270,000(8) 270,000 575 Lexington Avenue, 7th Floor New York, NY 10022 Cerberus Partners, L.P............. 586,000(9) 400,000 186,000 950 Third Avenue, 20th Floor New York, NY 10022 IT Technology Investment........... 360,185 275,185 85,000 14 Rue de Berri 75008 Paris France Heinz H. Steinman.................. 305,185 185,185 120,000 5797 Cedar Street Wrightwood, CA 92397 Finova Technology Finance, Inc..... 50,000(10) 50,000 10 Waterside Drive Farmington, CT 06032 Hambrecht & Quist.................. 50,000(11) 50,000 One Bush Street San Francisco, CA 94104
- --------------- (1) Based on shares beneficially owned at September 9, 1997. (2) Calculations are based on the assumption that all shares registered hereunder will be sold in the offering. (3) TCW Group, Inc. may be deemed to beneficially own 16,578,822 shares of the Company's Common Stock. In addition, pursuant to warrants issued on August 6, 1997 in conjunction with the purchase of shares of the Company's Common Stock and renegotiation of the Company's Line of Credit, TCW Group, Inc. and its affiliates hold rights to acquire, in the aggregate, an additional 2,950,000 shares of the Company's Common Stock. The total of 19,528,822 represents shares held or acquireable by limited partnerships, trusts and third party separate accounts for which The TCW Group, Inc. and its affiliates (collectively, "TCW") act as general partner, trustee and investment adviser, respectively. TCW may be deemed to beneficially own such shares held by such limited partnerships, trusts and third party accounts; however, TCW expressly disclaims beneficial ownership of these shares. 8,910,637 shares represents the 8 10 number of shares received to date by TCW in exchange for debt claims held against the Company pursuant to the Plan of Reorganization. The actual total number of shares of Common Stock TCW expects to receive is approximately 9,000,000 shares, which number may vary depending upon the final allocation and distribution to the holders of debt securities and the settlement of disputes with certain claim holders. See "INFORMATION INCORPORATED BY REFERENCE." (4) Includes 19,528,822 shares held by TCW Special Credits, Trust Company of the West or their affiliates and 2,330,333 shares (2,080,333 owned and 250,000 subject to acquisition pursuant to warrants issued August 6, 1997 in conjunction with the purchase of the Company's Common Stock) for which Oaktree Capital Management, LLC has voting and dispotive powers over such shares as a fiduciary on behalf of a third party separate account of which Mr. Masson may be deemed a beneficial owner to the extent of any indirect pecuniary interest therein. Mr. Masson disclaims beneficial ownership of such shares. Mr. Masson has served as a director of the Company since December 30, 1994 when he was appointed pursuant to the Plan of Reorganization. Mr. Masson has been a Principal of Oaktree Capital Management, LLC since May 1995. Prior to the founding of Oaktree, he was a partner of TCW Special Credits and served as a Managing Director of Trust Company of the West and TCW Asset Management Company ("TAMCO"), wholly-owned subsidiaries of The TCW Group, Inc., in various other capacities since 1988. TCW Special Credits serves as a general partner and investment adviser to certain limited partnerships, trusts, and accounts invested in the securities and debt obligations of financially distressed companies. Oaktree provides investment sub-advisory services to TAMCO on certain funds and accounts managed by TAMCO. TAMCO is the managing general partner of TCW Special Credits. See "INFORMATION INCORPORATED BY REFERENCE." (5) To the extent Mr. Smith, as either a Senior Vice President or authorized representative of Trust Company of the West or TCW Asset Management Company participates in the process to vote or dispose of the shares described in footnote (3) above, Mr. Smith may be deemed under certain circumstances for the purpose of Section 13 of the Securities Exchange Act of 1934, as amended, to be the beneficial owner of such shares. Mr. Smith disclaims beneficial ownership of such shares. See "INFORMATION INCORPORATED BY REFERENCE." (6) DDJ Capital Management, LLC ("DDJ") may be deemed to beneficially own 7,241,806 shares of the Company's Common Stock. In addition, pursuant to warrants issued on August 6, 1997 in conjunction with the purchase of shares of the Company's Common Stock and expansion of the Company's Line of Credit, DDJ and its affiliates hold rights to acquire, in the aggregate, an additional 825,000 shares of the Company's Common Stock. The total of 8,066,806 represents shares held or acquirable by DDJ and its affiliates. DDJ, through its control of certain affiliates, has sole power to vote and dispose of the 8,066,806 shares of the Company's Common Stock. See "INFORMATION INCORPORATED BY REFERENCE." (7) All of the 5,752,097 shares are beneficially owned by Appaloosa Management L.P. ("Appaloosa"). Mr. David A. Tepper, through his control of Appaloosa, may be deemed to beneficially own all of the shares of the Company's stock beneficially owned by Appaloosa. Both Appaloosa and Mr. Tepper have sole voting and dispositive power with respect to the 5,752,097 shares of the Company's Common Stock. See "INFORMATION INCORPORATED BY REFERENCE." (8) Includes 169,400 shares of Common Stock held by Seneca Capital L.P., 31,900 shares of Common Stock held by Seneca Capital International LTD, 23,500 shares of Common Stock held by ZPG Securities, LLC, 31,500 shares of Common Stock held by DFG Corporation, and 13,700 shares of Common Stock held by Palamundo LDC Camen Islands. (9) Includes 210,000 shares of Common Stock held by Cerberus Partners, L.P., 167,000 shares of Common Stock held by Pequod Investments, L.P., 70,000 shares of Common Stock held by Cerberus International, Ltd., 9,000 shares of Common Stock held by Ultra Cerberus, Ltd. and 80,000 shares of Common Stock held by Ariel Ltd. In addition Pequod Investments, L.P. holds warrants to purchase 50,000 additional shares. (10) The shares are purchasable pursuant to a warrant dated February 13, 1996 by and between the Company and Financing For Science International, Inc. 9 11 (11) The shares are purchasable pursuant to a warrant dated January 28, 1997 by and between the Company and Hambrecht & Quist. PLAN OF DISTRIBUTION This public offering, which is not being underwritten, relates to 34,414,525 shares of Common Stock of the Company offered from time to time by any or all of the Selling Stockholders who received such shares pursuant to, (1) Common Stock Purchase Agreements, by and among the Company and certain of the Selling Stockholders (2) warrants issued by the Company or (3) the 1994 bankruptcy reorganization. The Selling Stockholders hold certain registration rights pursuant to a Registration Rights Agreement by and among the Company and the Selling Stockholders. All shares issued to date have been issued pursuant to an exemption from the registration requirements of the Securities Act provided by Section 4(2) thereof. The Company has been advised by the Selling Stockholders that they and any person receiving shares from the Selling Stockholders in the form of a bona fide gift or distribution to a limited partner of a Selling Stockholder (a "Donee") intend to sell all or a portion of the shares offered hereby from time to time in the over-the-counter market and that sales will be made at prices prevailing at the times of such sales. The Selling Stockholders and any Donee may also make private sales directly or through a broker or brokers, who may act as agent or as principal. In connection with any sales, the Selling Stockholders, any Donee and any brokers participating in such sales may be deemed to be underwriters within the meaning of the Securities Act. The Company will receive no part of the proceeds of sales made hereunder. Any broker-dealer participating in such transactions as agent may receive commissions from the Selling Stockholders and any Donee (and, if they act as agent for the purchaser of such shares, from such purchaser). Usual and customary brokerage fees will be paid by the Selling Stockholders and any Donee. Broker-dealers may agree with the Selling Stockholders to sell a specified number of shares at a stipulated price per share, and, to the extent such a broker-dealer is unable to do so acting as agent for the Selling Stockholders and any Donee, to purchase as principal any unsold shares at the price required to fulfill the broker-dealer commitment to the Selling Stockholders and any Donee. Broker-dealers who acquire shares as principal may thereafter resell such shares from time to time in transactions (which may involve crosses and block transactions and which may involve sales to and through other broker-dealers, including transactions of the nature described above) in the over-the-counter market, in negotiated transactions or otherwise at market prices prevailing at the time of sale or at negotiated prices, and in connection with such resales may pay to or receive from the purchasers of such shares commissions computer as described above. The Company has advised the Selling Stockholders that the anti-manipulative Rules 10b-6 and 10b-7 under the Exchange Act may apply to their sales in the market, has furnished each Selling Stockholder with a copy of these Rules and has informed them of the need for delivery of copies of this Prospectus. The Selling Stockholders or any Donee may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act. Any commissions paid or any discounts or concessions allowed to any such broker-dealers, and any profits received on the resale of such shares, may be deemed to be underwriting discounts and commissions under the Securities Act if any such broker-dealers purchase shares as principal. Upon notification by a Selling Stockholder or any Donee to the Company that any material arrangement has been entered into with a broker-dealer for the sale of shares through a cross or block trade, to the extent required, a supplemental prospectus will be filed under Rule 424(c) under the Securities Act setting forth the name of the participating broker-dealer(s), the number of shares involved, the price at which such shares were sold by the Selling Stockholder or any Donee, the commissions paid or discounts or concessions allowed by the Selling Stockholder or any Donee to such broker-dealer(s), and where applicable, that such broker-dealer(s) did not conduct any investigation to verify the information set forth in this Prospectus. Any securities covered by this Prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under that Rule rather than pursuant to this Prospectus. 10 12 There can be no assurance that any of the Selling Stockholders or any Donee will sell any or all of the shares of Common Stock offered by them hereunder. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Gray Cary Ware & Freidenrich a Professional Corporation, Palo Alto, California. 11 13 TABLE OF CONTENTS
PAGE ---- AVAILABLE INFORMATION................................................................. 2 INFORMATION INCORPORATED BY REFERENCE................................................. 2 THE COMPANY AND RECENT EVENTS......................................................... 2 FORWARD LOOKING INFORMATION........................................................... 4 FACTORS WHICH MAY EFFECT FUTURE RESULTS............................................... 4 SELLING STOCKHOLDERS.................................................................. 8 PLAN OF DISTRIBUTION.................................................................. 10 LEGAL MATTERS......................................................................... 11
------------------------ NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES TO WHICH THIS PROSPECTUS RELATES, OR AN OFFER IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE OF SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. 14 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Set forth below is an itemized statement of the estimated expenses in connection with the issuance and distribution offered hereby: SEC Filing Fees............................................................ $24,930 Blue Sky Fees and Expenses (including fees of counsel)..................... 30,000 NASD Filing Fee............................................................ -- Printing and Engraving..................................................... 2,000 Legal Fees and Expenses.................................................... 17,000 Accounting Fees and Expenses............................................... 10,000 Information Agent Fees..................................................... -- Miscellaneous.............................................................. -- ------- Total............................................................ $83,930 =======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145(a) of the Delaware General Corporation Law (the "DGCL") provides in relevant part that "a corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful." With respect to derivative actions, Section 145(b) of the DGCL provides in relevant part that "[a] corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor [by reason of his service in one of the capacities specified in the preceding sentence] against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper." Article SIXTH of the Company's Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") provides generally that to the fullest extent permitted by the DGCL, no director of the Company shall be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the Company or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL; or (d) for any transaction from which the director derived any improper personal benefit. The Certificate of Incorporation also provides that no amendment or repeal of such provision shall apply to or have any effect on the right to indemnification permitted thereunder with respect to claims arising from acts or omissions occurring in whole or in part before the effective date of such amendment or repeal whether asserted before or after such amendment or repeal. In II-1 15 addition, Article VIII of the Company's Restated Bylaws provides that the Company shall indemnify its directors, officers, employees and agents to the fullest extent permitted by the DGCL. The indemnification provided by the Company's Amended and Restated Certificate of Incorporation and Restated Bylaws does not eliminate monetary liability of the Company's officers, directors, employees and agents under the federal securities laws. ITEM 16. EXHIBITS. (A) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------ ---------------------------------------------------------------------------------- 5.1 Opinion of Gray Cary Ware & Freidenrich. 10.1(1) Common Stock Purchase Agreement by and among the Company and certain beneficial owners of 5% or more of the Company's Common Stock, as amended. 10.2+ Common Stock Purchase Agreement by and among the Company and certain entities and individuals dated June 10, 1996. 10.3(1) Amendment Number 1 to Registration Rights Agreement by and among the Company and certain beneficial owners of 5% or more of the Company's Common Stock. 10.4+ Amendment Number 2 to Registration Rights Agreement by and among the Company and certain entities and individuals dated June 10, 1996. 10.5 Unit Purchase Agreement by and among the Company and certain entities dated August 6, 1997. 10.6 Amendment Number 3 to Registration Rights Agreement by and among the Company and certain entities dated August 6, 1997. 23.1 Consent of Arthur Andersen LLP. 23.3 Consent of Gray Cary Ware & Freidenrich (included in Exhibit 5.1 and 5.2 hereto). 24.1+ Power of Attorney. 27.1(2) Financial Data Schedule.
- --------------- (1) Incorporated by reference to the exhibits filed with the Company's Form 10-K for the year ended December 31, 1995. (2) Incorporated by reference to exhibit 27.1 filed with the Company's Form 10-Q for the quarter ended June 30, 1997. + Previously filed. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: 1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. provided, however, that paragraphs 1(i) and 1(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. II-2 16 2. That for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 4. That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant, will unless in the opinion of its counsel the matter has settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 17 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Post-Effective Amendment No. 1 to Registration Statement No. 333-3870 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fremont, State of California, on the 12th day of September, 1997. AUREAL SEMICONDUCTOR INC. By: /s/ David J. Domeier ------------------------------------ David J. Domeier Vice President, Finance and Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 1 to Registration Statement has been signed below on September 12, 1997 by the following persons in the capacities indicated.
SIGNATURE TITLE DATE - ------------------------------------- ----------------------------------- ------------------- *KENNETH A. KOKINAKIS President, Chief Executive Officer September 12, 1997 - ------------------------------------- and Director Kenneth A. Kokinakis /s/ DAVID J. DOMEIER Vice President, Finance, Chief September 12, 1997 - ------------------------------------- Financial Officer and Chief David J. Domeier Accounting Officer *L. WILLIAM KRAUSE Director September 12, 1997 - ------------------------------------- L. William Krause *D. RICHARD MASSON Director September 12, 1997 - ------------------------------------- D. Richard Masson *THOMAS K. SMITH, JR. Director September 12, 1997 - ------------------------------------- Thomas K. Smith, Jr. /s/ RICHARD E. CHRISTOPHER Director September 12, 1997 - ------------------------------------- Richard E. Christopher *By /s/ DAVID J. DOMEIER --------------------------------- (David J. Domeier, Attorney-in-fact)
II-4 18 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE - ------ ------------------------------------------------------------------------ ------------ 5.1 Opinion of Gray Cary Ware & Freidenrich................................. 10.1 (1) Common Stock Purchase Agreement by and among the Company and certain beneficial owners of 5% or more of the Company's Common Stock, as amended................................................................. 10.2 + Common Stock Purchase Agreement by and among the Company and certain entities and individuals dated June 10, 1996............................ 10.3 (1) Amendment Number 1 to Registration Rights Agreement by and among the Company and certain beneficial owners of 5% or more of the Company's Common Stock............................................................ 10.4 + Amendment Number 2 to Registration Rights Agreement by and among the Company and certain entities and individuals dated June 10, 1996........ 10.5 Unit Purchase Agreement by and among the Company and certain entities dated August 6, 1997.................................................... 10.6 Amendment Number 3 to Registration Rights Agreement by and among the Company and certain entities dated August 6, 1997....................... 23.1 Consent of Arthur Andersen LLP.......................................... 23.3 Consent of Gray Cary Ware & Freidenrich (included in Exhibit 5.1 and 5.2 hereto)................................................................. 24.1 + Power of Attorney....................................................... 27.1 (2) Financial Data Schedule.................................................
- --------------- (1) Incorporated by reference to the exhibits filed with the Company's Form 10-K for the year ended December 31, 1995. (2) Incorporated by reference to exhibit 27.1 filed with the Company's Form 10-Q for the quarter ended June 30, 1997. + Previously filed. EX-5.1 2 OPINION OF GRAY CARY WARE & FREIDENRICH 1 (Gray Cary Ware Freidenrich Letterhead) September 12, 1997 Securities and Exchange Commission Judiciary Plaza 450 Fifth St. N.W. Washington, D.C. 20549 Re: Aureal Semiconductor Inc. Registration Statement on Form S-3 Registration No. 333-3870 Ladies and Gentlemen: This opinion is furnished to you in connection with a Registration Statement on Form S-3 (the "Registration Statement"), filed with the Securities and Exchange Commission the ("Commission") under the Securities Act of 1933, as amended, for the registration of 34,414,525 shares of Common Stock (the "Common Stock"), par value $0.001 per share (the "Shares"), of Aureal Semiconductor Inc. (the "Company"). We have acted as counsel for the Company in connection with the registration of such Shares. We have examined signed copies of the Registration Statement and all exhibits thereto as filed with the Commission. Based upon representations of certain officers of the Company as to the receipt of full consideration and assuming the conversion of certain warrants in accordance with their terms, we are of the opinion that the shares of Common Stock to be registered will be validly issued, fully paid and non-assessable. We consent to the use of this opinion as an exhibit to the Registration Statement, and further consent to the use of our name wherever appearing in the Registration Statement, including the Prospectus constituting a part thereof, and any amendment thereto. Sincerely, GRAY CAREY WARE & FREIDENRICH A Professional Corporation EX-10.5 3 UNIT PURCHASE AGREEMENT 1 AUREAL SEMICONDUCTOR INC. 4245 Technology Drive Fremont, California 94538 UNIT PURCHASE AGREEMENT THIS UNIT PURCHASE AGREEMENT is made as of August 6, 1997, by and among AUREAL SEMICONDUCTOR INC., a Delaware corporation (the "Company"), and the purchasers set forth on the Schedule of Purchasers attached hereto as Exhibit A (the "Purchasers"). In consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereby agree as follows: 1. Sale of Units. 1.1 Sale. Subject to the terms and conditions hereof, the Company will issue and sell to each Purchaser, and each Purchaser will purchase from the Company, at a Closing (as defined below), the number of Units set forth opposite each Purchaser's name on Exhibit A. A "Unit" shall be composed of a share of the Company's Common Stock ("Share"), and a warrant to purchase one-half (0.5) of a share of Common Stock ("Warrant Share"). The exercise price per Warrant Share shall be $2.00. A form of the warrant is attached as Exhibit B ("Warrant"). The purchase price per Unit ("Unit Purchase Price") shall be equal to $2.00. Each Warrant to purchase one (1) Warrant Share shall be valued at $0.10. 2. Closing Dates; Delivery. 2.1 Closing Dates. Each of the closings of the purchase and sale of the Units (collectively, the "Closings," and individually, a "Closing") shall be held at the offices of Gray Cary Ware & Freidenrich, A Professional Corporation, 400 Hamilton Avenue, Palo Alto, California 94301-1825 on the dates as hereinafter provided (the "Closing Dates"): (a) The First Closing for the purchase and sale of not less than 1,000,000 Units (the "First Closing") shall be held on August 6, 1997, or on such other date as the Purchasers and the Company may agree (the "First Closing Date"). (b) If the full amount of the Units authorized for sale in Section 1.1 above is not sold at the First Closing, the Company shall have the right any time prior to the expiration of the 90 day period which shall commence on the day immediately following the First Closing Date (the "Second Closing"), to sell additional Units to one or more of the Purchasers or additional investors as approved by the Company's Board of Directors, and such investors shall be added to Exhibit A and be considered "Purchasers" for purposes of this Agreement. 2 2.2 Delivery. Subject to the terms of this Agreement, at the Closing the Company will deliver to the Purchasers the stock certificates representing the Shares to be purchased by the Purchasers from the Company, against payment of the purchase price therefor by delivery of funds via wire transfer. In addition, the Company will deliver at the Closing a Warrant or Warrants to each Purchaser, registered in the name of such Purchaser, based on the number of Units purchased by such Purchaser. 3. Representations and Warranties of the Company. Except as set forth in Exhibit C attached hereto, the Company hereby represents and warrants to the Purchasers as follows: 3.1 Organization and Standing; Certificate of Incorporation and Bylaws. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is presently qualified, licensed or domesticated as a foreign corporation or partnership in all jurisdictions in which the failure to be so qualified, licensed or domesticated would result in material adverse consequences to the Company or its business. 3.2 Corporate Power. The Company has now, or will have at the Closing Date, all requisite legal and corporate power to enter into this Agreement and all other agreements contemplated hereby, to sell the Shares, Warrants and Warrant Shares hereunder, and to carry out and perform its obligations under the terms of this Agreement and all other agreements contemplated hereby, including the Warrants. This Agreement and all other agreements contemplated hereby are valid and binding obligations of the Company, except as the same may be limited by bankruptcy, insolvency, fraudulent conveyance, moratorium, usury, reorganization, and other laws of general application affecting the enforcement of creditors' rights. 3.3 Capitalization. The authorized capital stock of the Company is 100,000,000 shares of Common Stock and no shares of Preferred Stock. As of June 30, 1997, there were issued and outstanding 39,720,326 shares of the Company's Common Stock. All such issued and outstanding shares have been duly authorized and validly issued, are fully paid and non-assessable and were issued in compliance with all applicable state and federal laws concerning the issuance of securities. The Company maintains stock option plans and has issued stock options and warrants as noted below: (a) Shares of Common Stock reserved for issuance pursuant to exercise of current or future outstanding options under the Company's 1995 Stock Option Plan and 1994 Stock Option Plan (collectively, the "Plans") issued to employees or consultants to the Company: 9,323,530 (b) Shares of Common Stock reserved for issuance pursuant to exercise of current or future outstanding options under the Crystal River Engineering, Inc. 2 3 ("CRE") Stock Option Plan: 2,144,069 (c) Shares of Common Stock reserved for issuance pursuant to exercise of current or future outstanding options under the Company's Outside Director Stock Option Plan: 200,000 (d) Shares of Common Stock reserved for issuance pursuant to exercise of two currently outstanding warrants (one to Hambrecht & Quist for 50,000 shares, one to Financing for Science International for 50,000 shares): 100,000 (e) Shares of Common Stock reserved for issuance pursuant to exercise of warrants to be issued to certain lenders in connection with the expansion and restructuring of the Company's debt and extension thereof through March 31, 2000, for 3,150,000 shares. Other than the above noted reserved shares and the Warrant Shares to be reserved for issuance pursuant to exercise of the Warrants, there are no outstanding rights, options, warrants, conversion rights or agreements for the purchase or acquisition from the Company of any shares of its capital stock. The Company is not a party or subject to any agreement or understanding between any persons or entities which affects or relates to the voting or giving of written consents with respect to any securities or by any director of the Company. 3.4 Authorization. (a) All corporate, federal and state action on the part of the Company, its officers, directors and stockholders necessary for the sale and issuance of the Shares, the Warrants and the Warrant Shares pursuant hereto and the performance of the Company's obligations hereunder or contemplated hereby has been taken or will be taken prior to the Closing. (b) The Shares and the Warrants (and the Warrant Shares issuable upon exercise of the Warrants), when issued in compliance with the provisions of this Agreement or the Warrants, as the case may be, will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Shares, Warrants and Warrant Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein, and as may be required by future changes in such laws. (c) No person has any right of first refusal or any preemptive rights in connection with the issuance of the Shares, Warrants or Warrant Shares. 3.5 Patents, Trademarks, etc. Except as set forth in Exhibit C, the Company owns and possesses or is licensed under all patents, patent applications, licenses, trademarks, trade names, brand names, inventions, processes, formulae and copyrights necessary for the operation of the business of the Company as now conducted and as proposed to be 3 4 conducted with no known infringement of or conflict with the rights of others. Except as contemplated in this Agreement, there are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any other options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. Except as disclosed in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1997 (the "10-Q"), the Company has not received any communications alleging that it has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted or that would prevent any such employee from assigning inventions to the Company. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business as proposed, will, to the best of the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Company does not believe that it is or will be necessary for the Company to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company. 3.6 Compliance with Other Instruments, None Burdensome, etc. Except as set forth in Exhibit C, the Company is not in violation of any term of its Certificate of Incorporation or Bylaws, nor is the Company in violation in any material respect of any mortgage, indenture, contract, agreement, instrument, judgment or decree, and to the best of the Company's knowledge, the Company is not in violation of any order, statute, rule or regulation applicable to the Company. The execution, delivery and performance of and compliance with this Agreement and the other agreements contemplated hereby, and the issuance and sale of the Shares, Warrants and Warrant Shares pursuant hereto, will not result in (a) any such violation, or (b) be in conflict with or constitute a default under any such term or (c) result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company pursuant to any such term. In addition, the execution, delivery and performance of and compliance with this Agreement and the other agreements contemplated hereby, and the issuance and sale of the Units and Warrants pursuant hereto, will not result in a violation of any law, statute or regulation applicable to the Company. 3.7 Employees. Each officer and key employee of the Company has executed an Employee Proprietary and Confidential Information Agreement. The Company, after reasonable investigation, is not aware that any of its employees are in violation thereof, and the Company will use its best efforts to prevent any such violation. 3.8 Litigation, etc. Except as set forth on Exhibit C, there are no 4 5 actions, proceedings or investigations pending against the Company or its officers, directors, or stockholders, or to the best of the Company's knowledge, against employees or consultants of the Company (or, to the best of the Company's knowledge, any basis therefor or threat thereof): (1) which might result in (a) any material adverse change in the business, prospects, conditions, affairs or operations of the Company, or in any of their properties or assets, or (b) any material impairment of the right or ability of the Company to carry on its business as now conducted or as proposed to be conducted, or (c) any material liability on the part of the Company; or (2) which questions the validity of this Agreement or any action taken or to be taken in connection herewith. The Company does not currently plan to initiate any litigation. 3.9 Governmental Consent, etc. No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with: (a) the valid execution and delivery of this Agreement; or (b) the offer, sale or issuance of the Shares, Warrants and Warrant Shares; or (c) the obtaining of the consents, permits and waivers specified in subsection 5.1(c) hereof; or (d) the consummation of any other transaction contemplated hereby; except, if required, filings or qualifications under the Securities Act of 1933, as amended (the "Securities Act") and California Corporate Securities Law of 1968, as amended (the "Law"), which filings or qualifications, if required, will have been timely filed or obtained. 3.10 Offering. In reliance on the representations and warranties of the Purchasers in Section 4 hereof, the offer, sale and issuance of the Units in conformity with the terms of this Agreement will not result in a violation of the requirements of Section 5 of the Securities Act or the qualification requirements of the Law. 3.11 Taxes. The Company has timely filed all tax returns that are required to have been filed with appropriate federal, state, county and local governmental agencies or instrumentalities. The Company has paid or established reserves for all income, franchise and other taxes due as reflected on said returns. There is no pending dispute with any taxing authority relating to any of such returns and the Company has no knowledge of any proposed liability for any tax to be imposed upon the properties or assets of the Company for which there is not an adequate reserve reflected in the Company's financial statements contained in the 10-Q or the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1996 (the "10-K"). 3.12 Registration Rights. Except pursuant to the Registration Rights Agreement, dated as of December 30, 1994, as amended (the "Rights Agreement"), by and among the Company, TCW Special Credits, a California general partnership as agent and nominee for the entities set forth on Schedule I to the Rights Agreement, Appaloosa Management L.P., as agent for the accounts listed on Schedule I to the Rights Agreement, the Copernicus Fund, L.P., the Galileo Fund, L.P., and certain purchasers of the Company's Common Stock, the Company is not obligated to register any of its presently outstanding securities which may hereafter be issued. 5 6 3.13 Disclosure. Neither this Agreement and the exhibits hereto, nor any of the other statements or certificates furnished or to be furnished to the Purchasers pursuant hereto or in connection with the transactions contemplated hereby, including, the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders, the 10-Q and the 10-K contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained herein and therein not misleading in light of the circumstances under which such statements were made. Representations, Warranties and Covenants of the Purchasers and Restrictions on Transfer Imposed by the Securities Act of 1933. 4.1 Representations, Warranties and Covenants by the Purchasers. Each Purchaser represents, warrants and covenants to the Company as follows: (a) The Units to be received by the Purchaser will be acquired for investment for the Purchaser's own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act and the Law. The Purchaser has the full right, power and authority to enter into and perform this Agreement and all other agreements contemplated hereby, and this Agreement and all other agreements contemplated hereby constitute valid and binding obligations of the Purchaser. The Purchaser acknowledges and understands that the Units must be held indefinitely unless the Units are subsequently registered under the Securities Act (see Section 6.2) and qualified under the Law or an exemption from such registration and such qualification is available. (b) The Purchaser will not sell, negotiate, pledge or otherwise dispose of any of the Units (other than in conjunction with an effective registration statement for the Units under the Securities Act) in the United States, its territories and possessions or any area subject to its jurisdiction, or to any person who is a national or resident of the United States (including any estate of such person or any corporation, partnership or other entity created or organized therein) unless and until (i) the Purchaser shall have notified the Company of the proposed disposition, and (ii) the Purchaser shall have furnished the Company with an opinion of counsel satisfactory in form and substance to the Company to the effect that such disposition will not require registration under the Securities Act. (c) The Purchaser has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the Purchaser's prospective investment in the Units. The Purchaser has the ability to bear the economic risks of the Purchaser's prospective investment. The Purchaser has been furnished with and has had access to such information as the Purchaser has considered necessary to make a determination as to the purchase of the Units together with such additional information as is necessary to verify the accuracy of the information supplied. The Purchaser is fully aware of (i) the highly speculative nature of the investment in the Units; (ii) the financial hazards involved; (iii) the lack of liquidity of the Shares, Warrants and Warrant Shares, and the restrictions on the 6 7 transferability of the Shares, Warrants and Warrant Shares; and (iv) the tax consequences of investment in the Units. The Purchaser has had all questions which have been asked by the Purchaser satisfactorily answered by the Company. The Purchaser has not been offered the Units by any form of advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any such media. 4.2 Legends. Each certificate or other instruments representing any of the Shares and Warrant Shares may be endorsed with the following legends: (a) THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. (b) THE HOLDER WILL NOT SELL, HYPOTHECATE, PLEDGE, OR OTHERWISE DISPOSE OF ANY INTEREST IN THE SHARES IN THE UNITED STATES, ITS TERRITORIES AND POSSESSIONS OR ANY AREA SUBJECT TO ITS JURISDICTION, OR TO ANY PERSON WHO IS A NATIONAL OR RESIDENT OF THE UNITED STATES (INCLUDING ANY ESTATE OF SUCH PERSON OR ANY CORPORATION, PARTNERSHIP OR OTHER ENTITY CREATED OR ORGANIZED THEREIN) UNLESS SUCH SHARES HAVE BEEN EITHER REGISTERED UNDER THE SECURITIES ACT OR ARE EXEMPT, IN THE OPINION OF THE COMPANY'S COUNSEL, FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. (c) Any other legends required by the Law. The Company need not register a transfer of legended Shares, Warrants or Warrant Shares, and may also instruct its transfer agent not to register the transfer of the Shares, Warrants or Warrant Shares unless the conditions specified in each of the foregoing legends are satisfied. 4.3 Removal of Legend and Transfer Restrictions. Any legend endorsed on a certificate or other instrument pursuant to subsection 4.2(a) and 4.2(b) and the stop transfer instructions with respect to such legended securities shall be removed, and the Company shall issue a certificate without such legend to the holder of such securities if such securities are registered under the Securities Act and a prospectus meeting the requirements of Section 10 of the Securities Act is available or if such holder satisfies the requirements of Rule 144(k) and, where reasonably deemed necessary by the Company, the holder provides the Company with an 7 8 opinion of counsel for such holder of the securities, reasonably satisfactory to the Company, to the effect that (i) such holder meets the requirements of Rule 144(k) or (ii) a public sale, transfer or assignment of such securities may be made without registration. 4.4 Rule 144. The Purchaser is aware of the adoption of Rule 144 by the Securities and Exchange Commission (the "SEC") promulgated under the Securities Act, which permits limited public resales of securities acquired in a nonpublic offering, subject to the satisfaction of certain conditions. The Purchaser understands that under Rule 144, the conditions include, among other things: the availability, under certain conditions, of certain current public information about the issuer and the resale occurring not less than two years after the party has purchased and paid for the securities to be sold. The Company covenants that (i) the Company will use its best efforts to comply with the current public information requirements of Rule 144(c)(1) under the Securities Act and (ii) at all such times as Rule 144 is available for use by the Purchaser, the Company will furnish the Purchaser upon request with all information within the possession of the Company required for the preparation and filing of Form 144. 5. Conditions to Closing. 5.1 Conditions to the Purchasers' Obligations. The obligation of the Purchasers to purchase the Units at the Closing is subject to the fulfillment to their satisfaction, on or prior to the Closing Date, of the following conditions, any of which may be waived in accordance with the provisions of subsection 7.1 hereof: (a) Representations and Warranties Correct; Performance of Obligations. The representations and warranties made by the Company in Section 3 hereof shall be true and correct when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date. The Company's business and assets shall not have been adversely affected in any material way prior to the Closing Date. The Company shall have performed in all material respects all obligations and conditions herein required to be performed or observed by it on or prior to the Closing Date. (b) Opinion of Company's Counsel. Gray Cary Ware & Freidenrich, A Professional Corporation, counsel to the Company, shall have delivered an opinion addressed to the Purchasers, dated the Closing Date, substantially in the form as that attached hereto as Exhibit D. (c) Consents and Waivers. The Company shall have obtained in a timely fashion any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement. 5.(t) Legal Investment. At the time of the Closing, the purchase of the Units hereunder shall be legally permitted by all laws and regulations to which the Purchasers and the Company are subject. 8 9 (e) Compliance Certificate. The Company shall have delivered a Certificate, executed by the President and the Chief Financial Officer of the Company, dated the Closing Date, certifying to the fulfillment of the conditions specified in subsections (a), (c) and (d) of this Section 5.1. (f) Execution of Amendment to the Rights Agreement. The Company and the Purchasers shall have executed Amendment No. 3 to the Registration Rights Agreement dated December 30, 1994, in the form attached hereto as Exhibit E. 5.2 Conditions to Obligations of the Company. The Company's obligation to sell and issue the Units at the Closing is subject to the fulfillment to the Company's satisfaction on or prior to the Closing Date of the following conditions, any of which may be waived by the Company in accordance with the provisions of subsection 7.1 hereof: (a) Representations and Warranties Correct. The representations and warranties made by the Purchasers in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date with the same force and effect as if they had been made on and as of said date. (b) Consents and Waivers. Each of the Purchasers shall have obtained in a timely fashion any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement. (c) Satisfaction of Conditions. The conditions set forth in subsections (c), and (d) of Section 5.1 shall have been fulfilled. 6. Covenants of Company. 6.1 Use of Proceeds. The Company shall use the proceeds from this financing for working capital purposes. This may include acquisition of certain strategic technologies. In addition, the Company may use the proceeds from this financing to temporarily paydown its line of credit with TCW on an interim basis to reduce borrowing costs. 7. Miscellaneous. 7.1 Waivers and Amendments. This Agreement or any provision hereof may be amended, waived, discharged or terminated only by a statement in writing signed by the party against which enforcement of the amendment, waiver, discharge or termination is sought. 7.2 Governing Law. This Agreement shall be governed in all respects by the laws of the State of California without regard to conflict of law principles. 7.3 Survival. The representations, warranties, covenants and 9 10 agreements made herein shall survive the Closing of the transactions contemplated hereby, notwithstanding any investigation made by the Purchasers. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder as of the date of such certificate or instrument. 7.4 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors and assigns of the parties hereto. Entire Agreement. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties with respect thereto. 7.6 Notices, etc. All notices and other communications required or permitted hereunder shall be in writing and shall be delivered personally or mailed by first class mail, postage prepaid, or via facsimile or TWX/Telex, addressed (a) if to the Purchasers at the address set forth on Exhibit A to this Agreement, or at such other address as the Purchasers shall have furnished to the Company in writing, or (b) if to the Company, at its address set forth at the beginning of this Agreement, or at such other address as the Company shall have furnished to the Purchasers in writing, with a copy of any said notice to be sent to Gray Cary Ware & Freidenrich, 400 Hamilton Avenue, Palo Alto, California 94301-1825, Attention: James M. Koshland, Esq. Notices that are mailed shall be deemed received ten (10) days after deposit in the mail. In the event that the notice is sent by facsimile or TWX/Telex, notice shall be deemed to have been received when sent and confirmed as to receipt. 7.7 Severability. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 7.8 Expenses. The Company and the Purchasers shall each bear their own expenses and legal fees in connection with this Agreement and the transactions contemplated hereby. Notwithstanding the foregoing, the Company shall pay the reasonable legal fees and related costs of B III Capital Partners, L.P. up to an aggregate of $10,000. 7.9 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 7.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one 10 11 instrument. 7.11 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to the Company or to the Purchasers shall impair any such right, power or remedy of the Company or the Purchasers, nor shall it be construed to be a waiver of any breach or default under this Agreement, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any delay or omission to exercise any right, power or remedy or any waiver of any single breach or default be deemed a waiver of any other right, power or remedy or breach or default theretofore or thereafter occurring. All remedies, either under this Agreement, or by law otherwise afforded to the Company or the Purchasers, shall be cumulative and not alternative. AUREAL SEMICONDUCTOR INC. By 11 12 COUNTERPART SIGNATURE PAGE TO UNIT PURCHASE AGREEMENT DATED AS OF __________, 1997 "PURCHASER" If you are an individual, Name (Please Print) please sign and print your name to the right Signature If you are signing on behalf of Name of Organization an entity, please print the legal name of the entity and sign to the right, indicating your title Name (Please Print) Title: 12 13 EXHIBIT A SCHEDULE OF PURCHASERS
Name and Address Units Purchase Price - ---------------- ------- -------------- IT Asset Management 60,000 $ 120,000 14 rue de Berri 75008 Paris France Attn: Muriel Faure, President Directeur General B III Capital Partners, L.P. 750,000 $1,500,000 141 Linden Street, Suite 4 Wellesley, MA 02181 Attn: General Counsel Pequod Investments L.P. 100,000 $ 200,000 450 Park Avenue, 28th Floor New York, NY 10022 Attn: Jonathan Gallen Oaktree Capital Management, LLC, 500,000 $1,000,000 as investment manager of the Weyerhaeuser Master Retirement Trust, separate account 550 S. Hope Street, 22nd Floor Los Angeles, CA 90071 Attn: Richard Masson TCW Special Credits 500,000 $1,000,000 as agent and on behalf of certain funds and accounts set forth in Schedule I attached hereto Totals 1,910,000 $3,820,000
13 14 EXHIBIT B FORM OF WARRANT THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, (ii) THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR (iii) THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. AUREAL SEMICONDUCTOR INC. COMMON STOCK PURCHASE WARRANT 1. Price and Number of Shares Subject to Warrant. FOR VALUE RECEIVED and subject to the terms and conditions herein set forth, (the "Purchaser") is entitled to purchase from Aureal Semiconductor Inc., a Delaware corporation (the "Company"), at any time after 5:00 p.m. California time on August 6, 1997 and before the termination of this Warrant pursuant to Section 11 below, at a price per share equal to $2.00, as adjusted in accordance with Section 3 below (the "Warrant Price"), that number of shares of fully paid and nonassessable shares of the Common Stock of the Company indicated in Section 2 below, as adjusted pursuant to Section 3 (the "Warrant Shares"). 2. Number of Shares of Warrant Shares. The number of Warrant Shares for which this Warrant is exercisable is ( ). 3. Adjustment of Warrant Price and Warrant Shares. The number of Warrant Shares issuable upon the exercise of this Warrant and the exercise price thereof shall be subject to adjustment from time to time, and the Company agrees to provide notice upon the happening of certain events, as follows: (a) Merger, Sale of Assets, etc. If at any time the Company proposes to consolidate with or merge with or sell or convey all or substantially all of its assets to any other corporation or entity (the "Acquiror") in which the stockholders of the Company immediately prior to such transaction hold less than fifty percent (50%) of the voting power of the surviving entity, then the Company shall give the Purchaser thirty (30) days advance notice of the contemplated effective date (the "Effective Date") of such transaction and inform the Purchaser that the Warrant is fully exercisable. To the extent the Warrant has not been exercised in full by the Effective Date, the Acquiror may elect to either (i) exchange the Warrant for a warrant of the Acquiror that shall entitle the holder hereof to acquire upon the exercise thereof the number of shares of stock or other property to which the holder of the number of Warrant Shares which are subject to this Warrant on the effective date of the merger or consolidation would have been 14 15 entitled to receive for such securities under the terms of the merger or consolidation, or (ii) if the exchange described in (i) is not contemplated, there shall thereafter be deliverable upon exercise of this Warrant (in lieu of the number of Warrant Shares therefore deliverable) the number of shares of stock or other securities or property to which the holder of the number of Warrant Shares which would otherwise have been deliverable upon the exercise of such Warrant would have been entitled upon such consolidation, merger or sale if such Warrant had been exercised in full immediately prior to such consolidation, merger or sale. The foregoing notwithstanding, a merger or consolidation of the Company with or into another corporation after which the stockholders of the Company immediately prior to such transaction hold more than 50% of the voting power of the surviving entity, shall not result in the transaction contemplated by (ii) above; instead this Warrant shall be exchanged for a warrant of the surviving corporation that shall entitle the holder hereof to acquire upon the exercise thereof the number of shares of stock or other property to which the holder of the number of Warrant Shares which are subject to this Warrant on the effective date of the merger would have been entitled to receive for such securities under the terms of the merger. (b) Reclassification, etc. If the Company at any time shall, by subdivision, combination or reclassification of securities or otherwise, change any of the securities to which purchase rights under this Warrant exist into the same or a different number of securities of any class or classes, this Warrant shall thereafter be to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such subdivision. combination, reclassification or other change. If shares of the class of the Company's stock for which this Warrant is being exercised are subdivided or combined into a greater or smaller number of shares of stock, the Warrant Price shall be proportionately reduced in the case of subdivision of shares or proportionately increased in the case of combination of shares, in both cases by the ratio which the total number of shares of such class of stock to be outstanding immediately after such event bears to the total number of shares of such class of stock outstanding immediately prior to such event. (c) Adjustment for Dividends in Stock. In case at any time or from time to time on or after the date hereof the holders of the shares of the Company's capital stock of the same class and series as the Warrant Shares (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock of the Company by way of dividend, then and in each case, the Purchaser shall, upon the exercise hereof, be entitled to receive, in addition to the number of Warrant Shares receivable thereupon, and without payment of any additional consideration therefor, the amount of such other or additional stock of the Company which such Purchaser would hold on the date of such exercise had it been the holder of record of such Warrant Shares on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional stock receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by paragraph (c) of this Section 3. 15 16 4. No Stockholder Rights. This Warrant, by itself, as distinguished from any shares purchased hereunder, shall not entitle its holder to any of the rights of a stockholder of the Company. 5. Reservation of Stock. On and after the date of this Warrant, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Warrant Shares upon the exercise of this Warrant. Issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Warrant Shares issuable upon the exercise of this Warrant. 6. Exercise of Warrant. This Warrant may be exercised in whole or part by the Purchaser at any time after the date hereof, on any business day prior to the termination of this Warrant, by the surrender of this Warrant, together with (i) the Notice of Exercise attached hereto as Attachment 1, duly completed and executed at the principal office of the Company, (ii) a spousal consent, if applicable, in the form attached hereto as Attachment 2, and (iii) payment in full of the Warrant Price in cash, or by check or wire transfer, with respect to the Warrant Shares being purchased. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Warrant Shares issuable upon such exercises shall be treated for all purposes as holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full Warrant Shares issuable upon such exercise. In the event the Warrant is exercised for less than the total number of Warrant Shares issuable thereunder, the Company shall cancel the surrendered Warrant and issue a new Warrant to the Purchaser for the remaining Warrant Shares. Notwithstanding anything to the contrary contained herein, this Warrant may not be exercised as to fewer than 1,000 Warrant Shares unless it is exercised as to all Warrant Shares as to which this Warrant is then exercisable. 7. Registration Rights. The Warrant Shares shall be included as "Registrable Securities," as such term is defined in Amendment Number 3 to Registration Rights Agreement dated August 6, 1997. The Company will amend its Registration Statement on Form S-3 (No. 333-3870) within ninety (90) days of the Closing (as such term is defined in the Unit Purchase Agreement dated August 6, 1997 (the "Unit Purchase Agreement")) to include the Warrant Shares issued or issuable upon exercise of this Warrant, and use its best efforts to have such amended Registration Statement declared effective by the Securities and Exchange Commission (the "Commission"). As of the date of this Warrant, the Registration Statement has been declared effective by the Commission. In the event the Company is not permitted by the Commission to amend the Registration Statement to include the Warrant Shares, the Company will file a registration statement on Form S-3 within ninety (90) days of the Closing (as such term is defined in the Unit Purchase Agreement) to register the Warrant Shares issued or issuable upon exercise of this Warrant, and shall use its best efforts to have such registration statement declared effective by the Commission. 16 17 8. Conversion. If either (i) the Company fails to include the Warrant Shares in the Registration Statement as provided for in Section 7 above, or (ii) the Registration Statement is not effective for a period of more than twenty (20) days, then so long as the Registration Statement has not been declared effective by the Securities and Exchange Commission, the holder may, in lieu of exercising this Warrant or any portion hereof, convert this Warrant or any portion hereof into Warrant Shares by executing and delivering to the Company at its principal office (i) the written notice of conversion in the form attached hereto as Attachment 3, specifying the portion of the Warrant to be converted, and accompanied by this Warrant and (ii) a spousal consent, if applicable, in the form attached hereto as Attachment 2. The number of Warrant Shares to be issued upon such conversion shall be computed using the following formula: X = (P)(Y)(A-B)/A where X = the number of Warrant Shares to be issued to the Purchaser for the portion of the Warrant being converted. P = the portion of the Warrant being converted. Y = the total number of Warrant Shares issuable upon exercise of the Warrant in full. A = The fair market value of one Warrant Share, which shall mean the average of the highest bid and lowest asked price on such day in the over-the-counter market, over a period of five days consisting of the day as of which the current fair market value of the Warrant Shares is being determined and the four consecutive business days prior to such day. B = the Warrant Price on the conversion date. Any portion of this Warrant that is converted shall be immediately canceled. 9. Certificate of Adjustment. Whenever the Warrant Price or number or type of securities issuable upon exercise of this Warrant is adjusted, as herein provided, the Company shall promptly deliver to the record holder of this Warrant a certificate of an officer of the Company setting forth the nature of such adjustment and a brief statement of the facts requiring such adjustment. 10. Transfer of Warrant. This Warrant may not be transferred or assigned by the Purchaser in whole or in part. 11. Termination. This Warrant shall terminate on 5:00 p.m., California time, on August 6, 2001. 17 18 12. Miscellaneous. This Warrant shall be governed by the laws of the State of California, as such laws are applied to contracts to be entered into and performed entirely in California by California residents and without regard to conflict of law principles. The headings in this Warrant are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed or waived orally, but only by an instrument in writing signed by the Company and the Purchaser. All notices and other communications from the Company to the Purchaser shall be delivered personally or mailed by first class mail, postage prepaid, to the address furnished to the Company in writing by the Purchaser who shall have furnished an address to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. ISSUED:August 6, 1997 AUREAL SEMICONDUCTOR INC. By: ------------------------------------ Title: --------------------------------- 18 19 Attachment 1 NOTICE OF EXERCISE TO: Aureal Semiconductor Inc. 4245 Technology Drive Fremont, CA 94538 1. The undersigned hereby elects to purchase ________ shares of the Common Stock of Aureal Semiconductor Inc., pursuant to the terms of the attached Warrant, and tenders herewith either cash or by check or wire transfer, payment of the purchase price in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: - ------------------------ (Name) - ------------------------ (Address) - ------------------------ --------------------------- (Date) (Name of Purchaser) By: ------------------------ Title: --------------------- (Name of purchaser, and title and signature of authorized person) 19 20 Attachment 2 SPOUSE CONSENT The undersigned spouse of the Purchaser has read, understands, and hereby approves the Notice of Exercise/Notice of Conversion (circle the appropriate one) between the Purchaser and the Company (the "Notice"). In consideration of the Company's granting my spouse the right to purchase the Warrant Shares as set forth in the Notice, the undersigned hereby agrees to be irrevocably bound by the Agreement and further agrees that any community property interest shall similarly be bound by the Notice. The undersigned hereby appoints the Purchaser as my attorney-in-fact with respect to any amendment or exercise of any rights under the Notice. Date:___________________________ ______________________________________ Purchaser's Spouse Address:______________________________ ______________________________________ 20 21 Attachment 3 NOTICE OF CONVERSION TO: Aureal Semiconductor Inc. 4245 Technology Drive Fremont, CA 94538 1. The undersigned hereby elects to acquire ________ shares of the Common Stock of Aureal Semiconductor Inc., pursuant to the terms of the attached Warrant, by conversion of ________ percent (___%) of the Warrant. 2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: - ------------------------ (Name) - ------------------------ (Address) - ------------------------ --------------------------- (Date) (Name of Purchaser) By: ------------------------ Title: --------------------- (Name of purchaser, and title and signature of authorized person) 21 22 EXHIBIT C SCHEDULE OF EXCEPTIONS AUREAL SEMICONDUCTOR INC. Pursuant to Section 3 of the Unit Purchase Agreement dated August 6, 1997 (the "Agreement"), by and among Aureal Semiconductor Inc., a Delaware corporation (the "Company"), and the Purchasers set forth on Exhibit A thereto, Company hereby delivers this Schedule of Exceptions to the Company's representations and warranties given in the Agreement. The section numbers in this schedule correspond to the section numbers in the Agreement. Any information disclosed herein under any section, however, shall be deemed to be disclosed and incorporated in any other section of the Agreement where such disclosure would be appropriate. Capitalized terms used in this schedule unless otherwise specified have the same meanings given them in the Agreement. Section 3.3. On July 25, 1994, the company and its then wholly-owned subsidiary, Pellucid, Inc. ("Pellucid") filed separate voluntary petitions in the United States Bankruptcy Court seeking protection under Chapter 11 of the United States Bankruptcy Code. On December 19, 1994, the Bankruptcy Court confirmed the companies' Second Amended Joint Plan of Reorganization (the "Plan of Reorganization") which became effective December 30, 1994. Pursuant to the Plan of Reorganization, certain shares of Common Stock were held in escrow for the final satisfaction of claims pending against the Company. There are currently approximately 48,000 shares of Common Stock held in escrow. Pursuant to voting agreements between the Company and the escrow holders, the escrow holders have agreed to vote all such shares in each election of directors and with respect to other matters submitted to a stockholder vote in the same proportions as the votes cast by the outstanding shares of Common Stock not held in escrow. The Company may increase the reserves under the Plans and the Outside Director Stock Option Plan so that the reserves under such plans, in the aggregate, equal twenty percent (20%) of the then fully diluted Common Stock of the Company. Section 3.5. As described in the Company's 1996 Form 10-K, Yamaha has aggressively brought patent infringement actions against other companies which have developed certain replacement FM synthesis chips. There can be no assurance that Yamaha will not pursue the Company under similar theories. The Company has sold its Media Vision retail trade names to a third party. Section 3.8. See Section 3.5. 22 23 EXHIBIT D FORM OF OPINION OF GRAY CARY WARE & FREIDENRICH 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to own and operate its properties and assets, and to carry on its business as presently conducted. The Company is not qualified as a foreign corporation in any state or jurisdiction of the United States and such failure to do so will not have a material adverse effect on its properties or business as presently conducted. 2. The Company has all requisite corporate power to enter into the Agreement, the Warrants, and Amendment No. 3 to Registration Rights Agreement (collectively, the Agreement, the Warrants and Amendment No. 3 to Registration Rights Agreement are referred to herein as the "Agreements"), to sell the Shares and Warrants and assuming the exercise of the Warrants, the Warrant Shares, and to carry out and perform its obligations under the terms thereof. The Agreements have been duly authorized by all necessary corporate action on the part of the Company and have been duly executed and delivered by the Company. The Agreements are valid and binding obligations of the Company, enforceable in accordance with their terms. Except as set forth in the Agreements and the exhibits attached thereto, the execution, delivery and performance of the Agreements by the Company do not, and the consummation by the Company of the transactions contemplated thereby will not conflict with, or result in any violation or breach of any provision of the Certificate of Incorporation or Bylaws of the Company. 3. The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock (the "Common Stock"). To our knowledge, as of June 30, 1997, there were issued and outstanding 39,734,326 shares of Common Stock. All such issued and outstanding shares have been duly authorized and are validly issued, fully paid and nonassessable. To our knowledge, except as described or disclosed in the Agreement or in the exhibits thereto, there are no outstanding rights, options, warrants, conversion rights or agreements for the purchase or acquisition from the Company of any shares of its capital stock. 4. The Shares, when issued in compliance with the provisions of the Agreement, will be duly authorized, validly issued, fully paid and nonassessable. The Warrant Shares shall be duly and validly reserved for issuance and if exercised in accordance with the Warrants, will be validly issued, fully paid and nonassessable. The issuance of the Shares, Warrants and assuming the exercise of the Warrants, the Warrant Shares are not subject to any preemptive rights or, to our knowledge, rights of first refusal created by the Company which have not been complied with or waived. 5. To our knowledge, except as described or disclosed in the Agreement or in exhibits thereto, no action, suit, proceeding or investigation is pending or threatened against the Company or its properties. 23 24 6. All consents, approvals and authorizations of and filings with any federal or state governmental authority required on the part of the Company, if any, in connection with the valid execution and delivery of the Agreement, or the consummation of the transactions contemplated thereby, have been obtained or made, except, if required after the sale of the Shares, Warrants and the Warrant Shares, filings to be made under the Securities Act of 1933, as amended, and the California Corporate Securities Law of 1968, as amended, which filings are to be filed after the Closing in the time prescribed by law. 7. Subject to the accuracy of the Purchasers' representations and warranties in Section 4 of the Agreement, the offer and sale of the Shares, Warrants and assuming exercise of the Warrants, the Warrant Shares in conformity with the terms of the Agreement are in compliance with or exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended and the qualification requirements of the California Corporate Securities Law of 1968, as amended. 24 25 EXHIBIT E AMENDMENT NO. 3 TO THE REGISTRATION RIGHTS AGREEMENT 25 EX-10.6 4 AMENDMENT NO.3 TO REGISTRATION RIGHTS AGREEMENT 1 AMENDMENT NUMBER 3 TO REGISTRATION RIGHTS AGREEMENT THIS AMENDMENT NUMBER 3 (the "Amendment") to the Registration Rights Agreement dated as of December 30, 1994, as amended by Amendment Number 1 dated February 21, 1996 and Amendment Number 2 dated June 10, 1996 (the "Rights Agreement"), is made as of August 6, 1997, by and among Aureal Semiconductor Inc., a Delaware corporation (the "Company"), the purchasers of Units set forth on Exhibit A to the Unit Purchase Agreement dated August 6, 1997 (the "Purchase Agreement"), by and among the Company and such purchasers (the "Purchasers"), and the Prior Holders (as defined below). Unless specifically designated otherwise, the capitalized terms herein shall have the same meanings given them in the Rights Agreement. RECITALS A. The Company and TCW are parties to the Rights Agreement pursuant to which the Company granted certain registration rights for the benefit of TCW. B. The Company, TCW, Appaloosa, Copernicus, and Galileo (collectively, the "No. 1 Prior Holders") amended the Rights Agreement pursuant to Amendment Number 1 to Registration Rights Agreement dated February 21, 1996 to grant equal registration rights to all the No. 1 Prior Holders and to make each of the No. 1 Prior Holders a party to the Rights Agreement. C. The Company, the No. 1 Prior Holders and the purchasers set forth on Exhibit A to the Common Stock Purchase Agreement dated June 10, 1996, amended the Rights Agreement pursuant to Amendment Number 2 to Registration Rights Agreement dated June 10, 1996 (such purchasers and the No. 1 Prior Holders are collectively referred to herein as the "No. 2 Prior Holders") to grant equal registration rights to the No. 2 Prior Holders and to make each of the No. 2 Prior Holders a party to the Rights Agreement. D. The No. 1 Prior Holders and the No. 2 Prior Holders are collectively referred to herein as the Prior Holders and are set forth on Schedule 1 hereto. E. The Company and the Prior Holders now wish to amend the Rights Agreement, as amended, in order to grant equal registration rights to the Purchasers and to make each of the Purchasers a party to the Rights Agreement, as amended. 2 AGREEMENT NOW THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto agree to amend certain provisions of the Rights Agreement as set forth below: 1. Section 1 of the Rights Agreement shall be amended to define the following terms as follows: Registrable Shares shall mean (i) all shares of New Common Stock originally issued to or purchased in the future by TCW, (ii) all shares of Common Stock issued to the Prior Holders pursuant to the Common Stock Purchase Agreements dated February 21, 1996, and June 10, 1996, by and among the Company and such Prior Holders, (iii) all shares of Common Stock issued pursuant to the Purchase Agreement to the Purchasers, (iv) all Warrant Shares issued upon exercise of the Warrants (as defined in the Purchase Agreement) and (v) shares of Common Stock issuable upon exercise of warrants issued pursuant to the Second Amended and Restated Loan Agreement dated August 6, 1997 (the "Loan Agreement") between the Company and TCW (including 470,455 shares of Common Stock issuable upon exercise of warrants issued to B III Capital Partners as a participant under the Loan Agreement). As to any particular Registrable Shares, such shares shall cease to be Registrable Shares when (A) such shares shall have been transferred, new certificates for such shares not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of such shares shall not require registration or qualification under the Securities Act or any similar state law then in force, or (B) such shares shall have ceased to be outstanding. 2. Section 4(a) of the Rights Agreement, as amended, shall be amended and restated in its entirety to provide as follows: (a) The Company has registered the Registrable Shares, other than those described in Sections 1(iii), (iv) and (v) and certain of those described in Section 1(i) herein (collectively, the "Unregistered Registrable Shares"), on Form S-3 (No. 333-3870) (the "Initial Shelf Registration"). The Company will use its best efforts to include the Unregistered Registrable Shares in the Initial Shelf Registration. If not included in the Initial Shelf Registration within ninety (90) days after the Closing under the Purchase Agreement, the Company will file a Subsequent Shelf Registration within ninety (90) days after the Closing under the Purchase Agreement and will use its best efforts to have such Subsequent Shelf Registration declared effective by the SEC. The Company shall not permit any securities other than the Registrable Shares to be included in the Initial Shelf Registration or any Subsequent Shelf Registration. The Company shall use its best efforts to keep the Initial Shelf Registration continuously effective under the Securities Act until (i) all Registrable Shares covered by the Initial Shelf Registration have been sold in the manner 3 set forth and as contemplated in the Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all of the Registrable Shares has been declared effective under the Securities Act and the Registrable Shares covered thereby have been sold in the manner set forth and as contemplated in such Subsequent Shelf Registration (the "Effectiveness Period"). 3. Except as amended hereby, the Rights Agreement dated November 30, 1994, as amended on February 21, 1996, and on June 10, 1996, remains in full force and effect. 4. By their signatures hereto, each of the Purchasers becomes a party to the Rights Agreement. 4 IN WITNESS WHEREOF, the parties have executed this Amendment Number 3 as of the day and year first above written. THE COMPANY: AUREAL SEMICONDUCTOR INC. By: Name: Title: 5 COUNTERPART SIGNATURE PAGE TO AMENDMENT NUMBER 3 TO REGISTRATION RIGHTS AGREEMENT PRIOR HOLDERS: By: Name: Title: 6 COUNTERPART SIGNATURE PAGE TO AMENDMENT NUMBER 3 TO REGISTRATION RIGHTS AGREEMENT PURCHASERS: By: Name: Title: 7 SCHEDULE I Prior Holders: TCW Entities TCW Special Credits Trust TCW Special Credits Fund IIIb TCW Special Credits Trust IIIb The Board of Trustees of the Delaware State Employees Retirement Fund Appaloosa Accounts Appaloosa Investment L.P. Chestnut Investors III Inc. Palomino Fund Ltd. Pinto Investment LLC Cerberus Partners, L.P. Cerberus International Ultra Cerberus The Copernicus Fund, L.P. The Galileo Fund, L.P. IT Technologies Investment Pequod Investments, L.P. Senaca Capital Oaktree Capital Management, LLC, as investment manager of Weyerhaeuser Company Master Pension Trust, separate account 8 Heinz H. Steinmann Leslie K. Alexander EX-23.1 5 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accounts, we hereby consent to the incorporation by reference in this registration statement of our report dated February 28, 1997 included in Aureal Semiconductor Inc.'s Form 10-K for the year ended December 29, 1996 and to all references to our Firm included in this registration statement. ARTHUR ANDERSEN LLP San Jose, California September 12, 1997 -----END PRIVACY-ENHANCED MESSAGE-----