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Exhibit 4.7
AUREAL SEMICONDUCTOR INC.
REGULATION D SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE SECURITIES LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN BY
OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD
BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES REVIEWED OR DETERMINED THE
ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SUBSCRIBERS
MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED.
THIS REGULATION D SUBSCRIPTION AGREEMENT (this "Agreement") is made as
of the 5th day of June, 1998, by and between Aureal Semiconductor Inc., a
corporation duly organized and existing under the laws of the State of Delaware
(the "Company"), and the undersigned subscriber executing this Agreement
("Subscriber" or "Holder").
THE PARTIES HEREBY AGREE AS FOLLOWS:
This Agreement is executed by Subscriber in connection with the offer by
the Company and the purchase by Subscriber of Series C Preferred Stock (the
"Preferred Stock"), of the Company. The Preferred Stock is being offered at a
per share purchase price of Ten Thousand Dollars ($10,000), U.S., in minimum
subscription amounts of at least Two Hundred Thousand Dollars ($200,000), and
increments of Fifty Thousand Dollars ($50,000) in excess thereof, with a minimum
aggregate offering amount of Five Million Dollars ($5,000,000) (the "Minimum
Offering Amount"), and up to a maximum aggregate amount of Fifteen Million
Dollars ($15,000,000) (the "Maximum Offering Amount") (collectively, the
"Offering"). The terms of the Preferred Stock, 'including, the terms on which
the Preferred Stock may be converted into common stock, $.001 par value, of the
Company (the "Common Stock"), are set forth in the Certificate of Designation of
the Series C Preferred Stock (the "Certificate of Designation"), substantially
in the form attached hereto as Exhibit A. The solicitation of this subscription
and, if accepted by the Company, the offer and sale of the Preferred Stock are
being made in reliance upon the provisions of Regulation D ("Regulation D")
promulgated under the Securities Act of 1933, as amended ("the Act"). The
Preferred Stock and the Common Stock issuable upon
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conversion thereof (the "Conversion Shares"), are sometimes referred to herein
singularly as "Security" and collectively as the "Securities."
It is agreed as follows:
1. Offering.
1.1 Offer to Subscribe; Purchase Price and Closing; and Placement
Fees. Subject to satisfaction of the conditions to closing set forth in Section
1.2 below, Subscriber hereby offers to subscribe for and purchase Preferred
Stock for the aggregate purchase price in the amount set forth in Section 8 of
this Agreement, in accordance with the terms and conditions of this Agreement.
Assuming that the Minimum Offering Amount and corresponding subscription
agreements accepted by the Company are received the closing of a sale and
purchase of Preferred Stock as to each Subscriber (the "Closing") shall be
deemed to occur when this Agreement has been executed by both Subscriber and the
Company, the conditions herein have been satisfied and full payment shall have
been made to the Company, by wire transfer for payment or cancellation of
indebtedness in consideration for the Company's delivery of certificates
representing the Preferred Stock subscribed for.
1.2 Conditions to Subscriber's Obligations. Subscriber's
obligations hereunder are conditioned upon all of the following:
1.2.1 the following documents shall have been executed and
received by Xxxx Xxxx Xxxx & Freidenrich LLP, legal counsel of the Company
("GCWF") and a copy has been received by Subscriber: the Registration Rights
Agreement, substantially in the form attached hereto as Exhibit B (the
"Registration Rights Agreement") (executed by the Company), an opinion of
counsel, substantially in the form attached hereto as Exhibit C (the "Opinion of
Counsel") (signed by GCWF), the Irrevocable Instructions to Transfer Agent,
substantially in the form attached hereto as Exhibit D (the "Irrevocable
Instructions to Transfer Agent") (executed by the Company and the Company's
transfer agent, the "Transfer Agent"), certificates representing the Preferred
Stock issued in the name of the Subscriber (or its nominee), and the Certificate
of Designation, in the form of Exhibit A (together with written evidence showing
that it has been filed with and accepted by the Secretary of State of Delaware);
1.2.2 the Company's Common Stock shall be listed for and
trading, on the Over-the Counter Bulletin Board;
1.2.3 other than losses described in the Disclosure
Documents (defined below in Section 2.2.4), there have been no material adverse
changes in the Company's business prospects or financial condition since the
date of the last balance sheet included in the Disclosure Documents, including
but not limited to incurring material liabilities;
1.2.4 the representations and warranties of the Company
are true and correct in all material respects at the Closing as if made on such
date, and the Company shall deliver a certificate, signed by an officer of the
Company, to such effect to GCWF;
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1.2.5 the Minimum Offering Amount and corresponding
subscription agreements accepted by the Company shall have been received by
GCWF; and
1.2.6 the Company shall have reserved for issuance a
sufficient number of shares of Common Stock to effect conversions of the
Preferred Stock.
2. Representations and Warranties of Subscriber. Subscriber hereby
represents and warrants to the Company as follows:
2.1 Accredited Investor. Subscriber is an accredited investor, as
defined in Rule 501 of Regulation D.
2.2 Investment Experience, Access to Information; Independent
Investigation.
2.2.1 Access to Information. Subscriber or Subscriber's
professional advisor has been granted the opportunity to ask questions of and
receive answers from representatives of the Company, its officers, directors,
employees and agents concerning the terms and conditions of this Offering, the
Company and its business and prospects, and to obtain any additional information
which Subscriber or Subscriber's professional advisor deems necessary to verify
the accuracy and completeness of the information received.
2.2.2 Reliance on Own Advisors. Subscriber has relied
completely on the advice of, or has consulted with, Subscriber's own personal
tax, investment, legal or other advisors and has not relied on the Company or
any of its affiliates, officers, directors, attorneys, accountants or any
affiliates of any thereof and each other person, if any, who controls any
thereof, within the meaning of Section 15 of the Act for any tax or legal advice
(other than reliance on information in the Disclosure Documents as defined in
Section 2.2.4 below and on the Opinion of Counsel). The foregoing, however, does
not limit or modify Subscriber's right to rely upon representations and
warranties of the Company in Section 4 of this Agreement.
2.2.3 Capability to Evaluate. Subscriber has such
knowledge and experience in financial and business matters so as to enable such
Subscriber to utilize the information made available to It in connection with
the Offering, in order to evaluate the merits and risks of the prospective
investment, which are substantial, including without limitation those set forth
in the Disclosure Documents (as defined in Section 2.2.4 below).
2.2.4 Disclosure Documents. Subscriber, in making,
Subscriber's investment decision to subscribe for the Securities hereunder,
represents that (a) Subscriber has received and had an opportunity to review (i)
the Company's Annual Report on Form 10-K for the year ended December 28, 1997
(the "Company's Annual Report") and the Company's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1998, and (ii) the Capitalization Schedule,
attached as Exhibit E, (the "Capitalization Schedule") and (b) Subscriber has
read, reviewed, and relied solely on the documents described in (a) above, the
Company's representations and warranties and other information in this
Agreement, including the exhibits, any other written information prepared by the
Company which has been specifically provided to Subscriber in connection with
this Offering (the documents described in this Section 2.2.4(a) and
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(b) are collectively referred to as the "Disclosure Documents"), and an
independent investigation made by Subscriber and Subscriber's representatives,
if any; (c) Subscriber has, prior to the date of this Agreement, been given an
opportunity to review material contracts and documents of the Company which have
been filed as exhibits to the Company's filings under the Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and has had an opportunity
to ask questions of and receive answers from the Company's officers and
directors; and (d) is not relying, on any oral representation of the Company or
any other person, nor any written representation or assurance from the Company
other than those referred to in Section 4 or otherwise contained in the
Disclosure Documents or incorporated herein or therein. The foregoing however,
does not limit or modify Subscriber's right to rely upon representations and
warranties of the Company in Section 4 of this Agreement. Subscriber
acknowledges and agrees that the Company has no responsibility for, does not
ratify, and is under no responsibility whatsoever to comment upon or correct any
reports, analyses or other comments made about the Company by any third parties,
including, but not limited to, analysts' research reports or comments
(collectively, "Third Party Reports"), and Subscriber has not relied upon any
Third Party Reports in making the decision to invest.
2.2.5 Investment Experience; Fend for Self. Subscriber has
substantial experience in investing in securities and he, she or it has made
investments in securities other than those of the Company. Subscriber
acknowledges that Subscriber is able to fend for Subscriber's self in the
transaction contemplated by this Agreement, that Subscriber has the ability to
bear the economic risk of Subscriber's investment pursuant to this Agreement and
that Subscriber is an "Accredited Investor" by virtue of the fact that
Subscriber meets the investor qualification standards set forth in Section 2.1
above. Subscriber has not been organized for the purpose of investing in
securities of the Company, although such investment is consistent with
Subscriber's purposes.
2.3 Exempt Offering Under Regulation D.
2.3.1 Investment; No Distribution. Subscriber is acquiring
the Securities to be issued and sold hereunder for his, her or its own account
(or a trust account if such Subscriber is a trustee) for investment and not as a
nominee and not with a present view to the distribution thereof. Subscriber is
aware that there are legal and practical limits on Subscriber's ability to sell
or dispose of the Securities and, therefore, that Subscriber must bear the
economic risk of the investment for an indefinite period of time and has
adequate means of providing for Subscriber's current needs and possible personal
contingencies and has need for only limited liquidity of this investment.
Subscriber's commitment to illiquid investments is reasonable in relation to
Subscriber's net worth. By making the representations in this Section 2.3.1, the
Subscriber does not agree to hold the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption from
registration under the Act, except as otherwise required in this Agreement or in
the Registration Rights Agreement.
2.3.2 No General Solicitation. The Securities were not
offered to Subscriber through, and Subscriber is not aware of, any form of
general solicitation or general advertising, including, without limitation, (i)
any advertisement, article, notice or other
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communication published in any newspaper, magazine or similar media or broadcast
over television or radio, and (ii) any seminar or meeting whose attendees have
been invited by any general solicitation or general advertising.
2.3.3 Restricted Securities. Subscriber understands that
the Preferred Stock issued at Closing is, and the Conversion Shares will be,
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving, a public offering and that under such laws and applicable regulations
such securities may not be transferred or resold without registration under the
Act or pursuant to an exemption therefrom. In this connection, Subscriber
represents that Subscriber is familiar with Rule 144 under the Act, as presently
in effect, and understands the resale limitations imposed thereby and by the
Act.
2.3.4 Disposition. Without in any way limiting the
representations set forth above, Subscriber further agrees not to make any
disposition of all or any portion of the Securities unless and until:
(a) There is then in effect a registration statement
under the Act covering a such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b) such disposition is made pursuant to an exemption
from registration under the Act.
(c) In the case of Section 2.3.4(b), in order to have
a disposition of any or all of the Securities registered on the books of the
Company, the Company may reasonable request an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
of the Securities under the Act. It is agreed that the Company does not require
opinions of counsel for transactions made pursuant to Regulation D under the
Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances.
2.4 Due Authorization.
2.4.1 Authority. The person executing this Subscription
Agreement, if executing this Agreement in a representative or fiduciary
capacity, has full power and authority to execute and deliver this Agreement and
each other document included herein for which a signature is required in such
capacity and on behalf of the subscribing individual, partnership, trust,
estate, corporation or other entity for whom or which Subscriber is executing
this Agreement.
3. Acknowledgments. Subscriber is aware that:
3.1 Risks of Investment. Subscriber recognizes that an investment
in the Company involves substantial risks, including the potential loss of
Subscriber's entire investment herein. Subscriber recognizes that this Agreement
and the exhibits hereto do not purport to contain all the information which
would be contained in a registration statement under the Act;
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3.2 No Government Approval. No federal or state agency has passed
upon the Securities, recommended or endorsed the Offering, or made any finding
or determination as to the fairness of this transaction;
3.3 No Registration. The Securities and any component thereof
have not been registered under the Act or any applicable state securities laws
by reason of exemptions from the registration requirements of the Act and such
laws, and may not be sold, pledged, assigned or otherwise disposed of in the
absence of an effective registration of the Securities and any component thereof
under the Act or unless an exemption from such registration is available;
3.4 Restrictions on Transfer. Subscriber may not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of the
Act and applicable state securities laws;
3.5 No Assurances of Registration. There can be no assurance that
any registration statement will become effective at the scheduled time.
Therefore, Subscriber may bear the economic risk of Subscriber's investment for
an indefinite period of time;
3.6 Exempt Transaction. Subscriber understands that the
Securities are being offered and sold in reliance on specific exemptions from
the registration requirements of federal and state law and that the
representations, warranties, agreements, acknowledgments and understandings set
forth herein are being relied upon by the Company in determining the
applicability of such exemptions and the suitability of Subscriber to acquire
such Securities;
3.7 Legends. It is understood that the certificates evidencing
the Preferred Stock and the Conversion Shares shall bear the following legend
(the "Legend") (prior to registration as provided in Section 5.3):
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities laws,
nor the securities laws of any other Jurisdiction. They may not be sold
or transferred in the absence of an effective registration statement
under those securities laws or pursuant to an exemption therefrom."
4. Representations and Warranties of the Company. Subject to the
exceptions set forth in the disclosure schedule attached hereto as Schedule A,
the Company hereby makes the following representations and warranties to
Subscriber (which shall be true at the signing of this Agreement, as of Closing,
and as of any such later date as contemplated hereunder) and agrees With
Subscriber that:
4.1 Organization, Good Standing, and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, USA 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 duly qualified to transact business and is in good
standing, in each Jurisdiction in which the failure to so qualify would have
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a material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. The Company is not the subject of any pending,
threatened or, to its knowledge, contemplated' investigation or administrative
or legal proceeding by the Internal Revenue Service, the taxing authorities of
any state or local Jurisdiction, or the Securities and Exchange Commission
("SEC"), or any state securities commission, or any other governmental entity,
which have not been disclosed in the Disclosure Documents.
4.2 Corporate Condition. The Company's condition is, in all
material respects, as described in the Disclosure Documents, except for changes
in the ordinary course of business and normal year-end adjustments that are not,
in the aggregate, materially adverse to the Company. There have been no material
adverse changes to the Company's business, financial condition, or prospects
since the date of such Disclosure Documents. In addition, other than losses
described in the Disclosure Documents, there have been no material adverse
changes in the Company's business prospects or financial condition since the
date of the last balance sheet included in the Disclosure Documents, including
but not limited to incurring material liabilities. The financial statements
contained in the Disclosure Documents have been prepared in accordance with
Generally accepted accounting principles, consistently applied (except as
otherwise permitted by Regulation S-X of the Exchange Act), and fairly present
the consolidated financial condition of the Company as of the dates of the
balance sheets included therein and the consolidated results of its operations
and cash flows for the periods then ended. Without limiting the foregoing, there
are no material liabilities, contingent or actual, that are not disclosed in the
Disclosure Documents (other than liabilities incurred by the Company in the
ordinary course of its business, consistent with its past practice, after the
period covered by the Disclosure Documents). The Company has paid all material
taxes which are due, except for taxes which it reasonably disputes and have been
disclosed in the Disclosure Documents. There is no material claim, litigation,
or administrative proceeding pending, or, to the best of the Company's
knowledge, threatened against the Company, except as disclosed in the Disclosure
Documents. This Agreement and the Disclosure Documents do not contain any untrue
statement of a material fact and do not omit to state any material fact
required to be stated therein or herein necessary to make the statements
contained therein or herein not misleading in the light of the circumstances
under which they were made. No event or circumstance exists relating to the
Company which under applicable law, requires public disclosure but which has not
been so publicly announced or disclosed.
4.3 Authorization. All corporate action on the part of the
Company by its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the certificates representing, the Preferred Stock being sold
hereunder and the issuance (and/or the reservation for issuance) of the
Conversion Shares have been taken, and this Agreement, the Certificate of
Designation, the Irrevocable Instructions to Transfer Agent and the Registration
Rights Agreement constitute valid and legally binding obligations of the
Company, enforceable in accordance with their terms, except insofar as the
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting creditors' rights generally or
by principles governing the availability of equitable remedies. The Company has
obtained all consents and approvals required for it to execute, deliver and
perform each agreement referenced in the previous sentence. No filings or
registration with any
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governmental authority are necessary for the execution, delivery or performance
by the Company of the aforementioned agreements.
4.4 Valid Issuance of Preferred Stock and Common Stock. The
Preferred Stock when issued, sold and delivered in accordance with the terms
hereof, for the consideration expressed herein will be validly issued, fully
paid and nonassessable and, based in part upon the representations of Subscriber
in this Agreement, will be issued in compliance with all applicable U.S. federal
and state securities laws. The Conversion Shares, when issued in accordance with
the terms of the Certificate of Designation, shall be duly and validly issued
and outstanding, fully paid and nonassessable, and based in part on the
representations and warranties of Subscriber of and the Preferred Stock, will be
issued in compliance with all applicable U.S. federal and state securities laws.
The Preferred Stock and the Conversion Shares will be issued free of any
preemptive rights. The Company currently has or will have as of the first
Closing Date that number of shares equal to one hundred fifty percent (150%) of
the number of shares of Common Stock issuable upon conversion of the Preferred
Stock at the Fixed Conversion Price (as defined in the Certificate of
Designation) determined as of the Last Closing date reserved for issuance upon
conversion of the Preferred Stock.
4.5 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws each as amended, and in effect on and as of the date of the Agreement or
of any material provision of any material instrument or material contract to
which it is a party or by which it is bound or, to its knowledge, of any
provision of any federal or state judgment, writ, decree, order, statute, rule
or governmental regulation applicable to the Company, which could reasonably
have a material adverse affect on the Company's business or prospects, except as
described in the Disclosure Documents. The execution, delivery and performance
of this Agreement and the other agreements entered into in conjunction with the
Offering and the consummation of the transactions contemplated hereby will not
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving, of notice, either a default under any
such provision, instrument or contract or an event which results in the creation
of any lien, charge or encumbrance upon any assets of the Company.
4.6 Compliance with Law. Except as disclosed in the SEC Documents
(as defined below) filed and publicly available prior to the date of this
Agreement, the Company is in compliance with all applicable statutes, laws,
ordinances, regulations, rules, judgments, decrees and orders of any
governmental authority applicable to its business or operations, except for
instances of possible noncompliance that, individually or in the aggregate,
would not have a material adverse effect on the Company and its financial
position or results of operations. The Company has in effect all federal, state,
local and foreign governmental approvals, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights ("Permits") necessary for it
to own, lease or operate its properties and assets and to carry on its business
as now conducted, except for Permits that absence of which would not cause,
individually or in the aggregate, a material adverse effect on the Company and
its financial position or results of operations. No default has occurred under
any such Permits which, individually or in the aggregate, would have a material
adverse effect on the Company and its financial position or results of
operations. None
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of such Permits is or will be impaired or in any way affected by the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
4.7 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act (therefore, a "Reporting Company"), has a class
of securities registered under Section 12 of the Exchange Act, and has filed all
reports required by the Exchange Act since November 18, 1992 (the "SEC
Documents"). As of their respective dates, the SEC Documents complied as to form
in all material respects with the requirements of the Exchange Act, and the
rules and regulations of the Commission promulgated thereunder applicable to
such SEC Documents. The SEC Documents have been prepared in accordance with GAAP
(except in the case of unaudited statements, as permitted by Form 10-QSB, Form
10-Q or Form 8-K), applied on a consistent basis during the period involved
(except as may be indicated in the notes thereto) and fairly present the
financial position, results of operations and cash flows of the Company as of
and at the dates and for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set forth
in the SEC Documents and except for liabilities or obligations incurred in the
ordinary course of business consistent with past practice, the Company does not
have any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by GAAP to be set forth on a balance sheet of
the Company or in the notes thereto which, individually or in the aggregate,
could reasonably be expected to have a material adverse effect on the Company
and its financial position or results of operations. The Company undertakes to
furnish Subscriber with copies of such reports as may be reasonably requested by
Subscriber prior to consummation of this Offering and thereafter, to make such
reports available, as long as Subscriber holds the Securities. The Company has
not furnished to the Subscriber any material nonpublic information concerning
the Company.
4.8 Capitalization. The capitalization of the Company as of March
31, 1997, is, and the capitalization as of the Closing, after taking into
account the offering of the Securities contemplated by this Agreement and all
other share issuances occurring prior to this Offering, will be, as set forth in
the Capitalization Schedule as set forth in Exhibit E. Except as disclosed in
the Capitalization Schedule, as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital,
stock of the Company or any of its subsidiaries, or arrangements by which the
Company or any of its subsidiaries is or may become bound to issue additional
shares of capital stock of the, Company or any of its subsidiaries, and (ii)
there are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of its or their securities
under the Act or relating to the voting, transfer or sale of any such securities
(except the Registration Rights Agreement).
4.9 Intellectual Property. The Company has valid, unrestricted
and exclusive patents, trademarks, trademark- registrations, trade names,
copyrights, know-how, technology and other intellectual property necessary to
the conduct of its business as set forth on Exhibit F 1. The Company has granted
such licenses or has assigned or otherwise transferred a portion of (or all of)
such valid, unrestricted and exclusive patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the
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conduct of its business as set forth on Exhibit F-2. The Company has been
granted licenses, know-how, technology and/or other intellectual property
necessary to the conduct of its business as set forth on Exhibit F-3. To the
best of the Company's knowledge, the Company is not infringing on the
intellectual property rights of any third party, nor is any third party
infringing, on the Company's intellectual property rights. There are no
restrictions in any agreements, licenses, franchises, or other instruments which
preclude the Company from engaging in its business as presently conducted.
4.10 Use of Proceeds. As of the date hereof, the Company expects
to use the proceeds from this Offering (less fees and expenses) for the
retirement of debt and general working capital purposes.
4.11 No Rights of Participation. No person or entity, including,
but not limited to, current or former stockholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the financing contemplated by this Agreement which has not been waived.
4.12 Company Acknowledgment. The Company hereby acknowledges that
Subscriber may elect to hold the Securities for various periods of time, as
permitted by the terms of this Agreement, the Certificate of Designation, and
other agreements contemplated hereby, and the Company further acknowledges that
Subscriber and the Placement Agent have made no representations or warranties,
either written or oral, as to how long the Securities will be held by Subscriber
or regarding, Subscriber's trading history or investment strategies.
4.13 Termination Date of Offering. In no event shall the Last
Closing ("Last Closing") of a sale and purchase of the Preferred Stock occur
later than July 10, 1998. Which date can be extended upon written approval by
the: Company and holders of a majority of the Preferred Stock.
4.14 Underwriter's Fees and Rights of First Refusal. The Company
is not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative other than the Placement Agent in connection with this Offering.
4.15 Current Public Information. The Company is currently
eligible to register the resale of its Common Stock on a registration statement
on Form S-3 under the Act.
4.16 Acknowledgment of Dilution. The number of Conversion Shares
issuable upon conversion of the Preferred Stock may increase substantially in
certain circumstances including the circumstance wherein the trading price of
the Common Stock declines. The Company has studied and fully understands the
nature of the Securities being sold hereunder and recognizes that they have a
potential dilutive effect. The board of directors of the Company has concluded
in its (good faith business judgment that such issuance is in the best interests
of the Company. The Company acknowledges that its obligation to issue Conversion
Shares upon conversion of the Preferred Stock is binding upon it and enforceable
regardless of the dilution that such issuance may have on the ownership
interests of the other stockholders.
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4.17 Foreign Corrupt Practices. Neither the Company nor any of
its subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U. S. Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
Government official or employee.
4.18 Key Employees. Each Key Employee (as defined below) is
currently serving the Company in the capacity disclosed in the Company's Annual
Report. No Key Employee, to the best knowledge of the Company and its
subsidiaries, is in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing, matters. No Key Employee has, to the best knowledge of the Company
and its subsidiaries, any intention to terminate his employment with, or
services to, the Company or any of its subsidiaries. "Key Employee" means each
of the employees listed in the Company's Annual Report.
4.19 Representations Correct. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive the Closing and the issuance of the Preferred Stock.
5. Covenants of the Company.
5.1 Independent Auditors. The Company shall, until at least three
(3) years after the date of the Last Closing, maintain as its independent
auditors an accounting firm authorized to practice before the SEC.
5.2 Corporate Existence and Taxes. The Company shall, until at
least the later of (i) the date that is three (3) years after the date of the
Last Closing or (ii) the conversion or redemption of all of the Preferred Stock
purchased pursuant to this Agreement, maintain its corporate existence in good
standing and remain a Reporting Company (provided, however, that the foregoing
covenant shall not prevent the Company from entering into any merger or
corporate reorganization as otherwise allowed pursuant to the terms of the
Certificate of Designation) and shall pay all its taxes when due except for
taxes which the Company disputes.
5.3 Registration Rights. The Company will enter into a
registration rights agreement covering the resale of the Conversion Shares
substantially in the form of the Registration Rights Agreement attached as
Exhibit B.
5.4 Notification of Final Closing Date by Company. Within five
(5) business days after the Last Closing, the Company shall notify Subscriber in
writing that the Last Closing has occurred, the date of the Last Closing, the
dates that Subscriber is entitled to convert
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Subscriber's Preferred Stock, the value of the Fixed Conversion Price, as that
term is defined in the Certificate of Designation, and the name and telephone
number of an administrative contact person at the Company whom Subscriber may
contact regarding, information related to conversion of the Preferred Stock as
contemplated by the Certificate of Designation.
5.5 Capital Raising Limitations; Rights of Participation.
5.5.1 Right of First Offer. The Company agrees that,
during the period beginning, on the date hereof and terminating on the first
anniversary of the date of the Last Closing, if the Company issues or sells, or
agrees to issue or sell any equity or debt securities of the Company or any of
its subsidiaries (or any security convertible into or exercisable or
exchangeable, directly or indirectly, for equity or debt securities of the
Company or any of its subsidiaries) ("Future Offerings"), the Company shall
deliver to each Subscriber at least ten (10) business days prior to the closing
of such Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof, and providing each Subscriber and
its affiliates an option (a "Right of Participation"), during the ten (10)
business day period following delivery of such notice, to purchase an amount of
the securities being offered in the Future Offering, equal to the Right of
Participation Amount (as defined below), on the same terms as contemplated by
such Future Offering (the limitations referred to in this sentence are
collectively referred to as the "Capital Raising, Limitations").
5.5.2 Amount of Subscriber's Right of Participation. The
amount of securities which a Subscriber is entitled to purchase in such a Future
Offering (the "Right of Participation Amount") shall be the lesser of (i) the
dollar amount invested by Subscriber in this Offering or (ii) a number obtained
by multiplying the aggregate amount of securities being offered in the Future
Offering by a fraction, the numerator of which is the purchase price of the
Preferred Stock purchased by the Subscriber pursuant to this Agreement and the
denominator of which is the aggregate dollar amount of Preferred Stock placed in
the future Offering
5.5.3 Exceptions to the Capital Raising Limitation. The
Capital Raising, Limitations shall not apply to any transaction involving
issuances of securities in connection with a merger, consolidation, acquisition
or sale of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product or license
by the Company or exercise of options by employees, consultants or directors.
The Capital Raising Limitations also shall not apply to (a) the issuance of
securities pursuant to an underwritten public offering, (b) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof or (c) the grant
of additional options or warrants, or the issuance of additional securities,
under any Company stock option or restricted stock plan for the benefit of the
Company's employees, directors or consultants.
5.6 Financial 10-K Statements, Etc. and Current Reports on Form
8-K. The Company shall make available to the Subscriber copies of its annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on form
8-K for as long as the Preferred Stock may remain outstanding
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5.7 Opinion of Counsel. Subscribers shall, upon purchase of the
Preferred Stock pursuant to this Agreement, receive an opinion letter from GCWF,
in the form attached as Exhibit C.
5.8 Removal of Legend Upon Conversion. As contemplated by the
Certificate of Designation. upon conversion of the Preferred Stock, Subscriber
shall submit a Notice of Conversion and Resale, substantially in the form
attached hereto as Exhibit G. The Legend shall be removed and the Company shall
issue a certificate without such Legend to the holder of any Security upon which
it is stamped, and a certificate for a security shall be originally issued
without the Legend if, unless otherwise required by state securities laws, (a)
the sale of such Security is registered under the Act, or (b) such holder
provides the Company with an opinion of counsel (if so required by the Company
or the Transfer Agent), in form, substance and scope customary for opinions of
counsel in comparable transactions (the reasonable cost of which shall be borne
by the Company), to the effect that a public sale or transfer of such Security
may be made without registration under the Act, or (c) such holder provides the
Company with reasonable assurances that such Security can be sold pursuant to
Rule 144. Each Subscriber agrees to sell all Securities, including those
represented by a certificate(s) from which the Legend has been removed, or which
were originally issued without the Legend, pursuant to an effective registration
statement and to deliver a prospectus in connection with such sale or in
compliance with an exemption from the registration requirements of the Act. In
the event the Legend is removed from any Security or any Security is issued
without the Leaned and thereafter the effectiveness of a registration statement
covering the resale of such Security is suspended or the Company determines that
a supplement or amendment thereto is required by applicable securities laws,
then upon reasonable advance notice to Subscriber holding such Security, the
Company may require that the Legend be placed on any such Security that cannot
then be sold pursuant to an effective registration statement or Rule 144 or with
respect to which the opinion referred to in clause (b) next above has not been
rendered, which Legend shall be removed when such Security may be sold pursuant
to an effective registration statement or Rule 144 or such holder provides the
opinion with respect thereto described in clause (b) next above.
5.9 Listing. The Company shall (1) use its best efforts to
continue the listing and trading of its Common Stock (including all Conversion
Shares) on either the OTC Bulletin Board, the Nasdaq Small Cap Market, the
Nasdaq National Market System ("NMS"), the New York Stock Exchange ("NYSE"), or
the American Stock Exchange ("AMEX") or any other national exchange or
over-the-counter market system; (ii) take all action necessary to cause and
maintain the listing and trading, of its Common Stock on the OTC Bulletin Board
or the Nasdaq Small Cap Market at any time the Common Stock is not listed and
traded on NMS, NYSE or AMEX; and (iii) comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
5.10 The Company's Instructions to Transfer Agent. The Company
will issue to its Transfer Agent the Irrevocable Instructions to Transfer Agent
substantially in the form of Exhibit D instructing the Transfer Agent to issue
certificates, registered in the name of each Subscriber or its nominee, for the
Conversion Shares in such amounts as specified from time to time by such
Subscriber to the Company upon conversion of the Preferred Stock. Such
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certificates shall bear a Legend only to the extent permitted by Section 5.7
hereof. The Company warrants that no instruction, other than such instructions
referred to in Section 5.7 hereof or in this Section 5.10 and stop transfer
instructions to give effect to Section 3.7 hereof in the case of Conversion
Shares prior to registration of the Conversion Shares under the Act, will be
given by the Company to its Transfer Agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way each Subscriber's obligations
and agreement set forth in Sections 2.3.3 or 2.3.4 hereof to resell the
Securities pursuant to an effective registration statement and to deliver a
prospectus in connection with such sale or in compliance with an exemption from
the registration requirements of applicable securities laws. If (a) a Subscriber
provides the Company with an opinion of counsel (if so required by the Company
or the Transfer Agent), which opinion of counsel shall be in form, substance and
scope Customary for opinions of counsel in comparable transactions (the
reasonable cost of which shall be borne by the Company), to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration or (b) a Subscriber transfers Securities to an
affiliate which is an accredited investor pursuant to Rule 144, the Company
shall permit the transfer, and, in the case of Conversion Shares, promptly
instruct its transfer agent to issue one or if more certificates in such name
and in such denomination as specified by such Subscriber. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Subscriber by vitiating, the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5.10 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5.10, that a Subscriber shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring , immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required. The Company shall not terminate its agency relationship with the
Transfer Agent for any reason prior to the date which is three (3) years after
the Last Closing, unless the Company's Transfer Agent shall continue acting as
transfer agent pursuant to the terms of the Irrevocable Instructions to Transfer
Agent until such time that a successor transfer agent (i) is appointed by the
Company; and (ii) executes and agrees to be bound by the terms of the
Irrevocable Instructions to Transfer Agent.
5.11 Restrictions on Performance. The Company shall not at any
time after the date hereof enter into an agreement or other instrument limiting
in any manner its ability to perform its obligations under this Agreement or the
Certificate of Designation, or making such performance or the issuance of the
Conversion Shares a default under any such agreement or instrument.
6. Miscellaneous.
6.1 Representations and Warranties Survive the Closing;
Severability. Subscriber's and the Company's representations and warranties
shall survive the Closing of the transactions contemplated by this Agreement
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said
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provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
6.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Subscriber may assign Subscriber s rights hereunder, in
connection with any private sale of the Preferred Stock of such Subscriber, so
long, as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement.
6.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California without respect to conflict
of laws principles.
6.4 Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
6.5 Titles and Subtitles; Gender. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference to
the others.
6.6 Written Notice. Any notice, demand or request required or
permitted to be given by the Company or Subscriber pursuant to the terms of this
Agreement shall be in writing, and shall be deemed given when delivered
personally, or by facsimile (with a hard copy to follow by overnight courier
addressed to the parties at the addresses and/or facsimile telephone number of
the parties set forth at the end of this Agreement or such other address as a
party may request by notifying, the other in writing,
6.7 Expenses. Each of the Company and Subscriber shall pay all
costs and expenses that it respectively incurs, with respect to the negotiation,
execution, delivery and performance of this Agreement.
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6.8 Entire Agreement; Written Amendments Required. This
Agreement, including the Exhibits attached hereto, the Certificate of
Designation, the Preferred Stock certificates, the Registration Rights
Agreement, the Irrevocable Instructions to Transfer Agent 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
thereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants except as specifically set forth
herein or therein. Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
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IN WITNESS WHEREOF, the undersigned Subscriber does represent and
certify under penalty of perjury that the foregoing statements are true and
correct and that Subscriber by the following signature(s) executed this
Agreement.
Dated this 5th of June, 1998.
B III Capital Partners, L.P.,
By: DDJ Capital III, LLC,
its General Partner
By: DDJ Capital Management, LLC,
its Manager
Xxxxxxx Xxxxx & Company
/s/ Xxxxxx X. Xxxxxxx FFC B III Capital Partners, L.P.
----------------------------------------------- ------------------------------------------------------------------
Your Signature
PRINT EXACT NAME IN WHICH YOU WANT THE SECURITIES TO BE REGISTERED
Xxxxxx X. Xxxxxxx DELIVERY INSTRUCTIONS Xxxxxxx Sachs & Co.
----------------------------------------------- ------------------------------------------------------------------
Name: Please Print Please type or print address where your security is to be delivered
Member ATTN: Xxxxxxx Xxxxxxxx
----------------------------------------------- ------------------------------------------------------------------
Title/Representative Capacity (if applicable)
One New York Plaza
----------------------------------------------- ------------------------------------------------------------------
Name of Company You Represent (if applicable) Xxxxxx Xxxxxxx
Xxxxxxxxx, Xxxxxxxxxxxxx Xxx Xxxx, XX
----------------------------------------------- ------------------------------------------------------------------
Place of Execution of this Agreement City, State or Province, Country, Offshore Postal Code
T: 000-000-0000 F: 000-000-0000
------------------------------------------------------------------
Phone Number (For Federal Express) and Fax Number (re: Notice)
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF $5,000,000 ON
THE 5TH DAY OF JUNE, 1998.
Aureal Semiconductor Inc.
/s/ Xxxxxxx X. Xxxxxxxxx
-------------------------------
Xxxxxxx X. Xxxxxxxxx, President
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