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EXHIBIT 5.1
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. SEE THE RISK FACTORS SET FORTH IN
THE ATTACHED DISCLOSURE DOCUMENTS AS EXHIBIT E.
SEE ADDITIONAL LEGENDS AT SECTIONS 3.7 and 9.
THIS REGULATION D SUBSCRIPTION AGREEMENT (this "Agreement") is
made as of the _____ day of _________, 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 A Preferred Stock (the
"Preferred Stock"), of the Company. The Preferred Stock is being offered at a
purchase price of Ten Thousand Dollars ($10,000), U.S., per share, 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 Three Million Dollars ($3,000,000) (the
"Minimum Offering Amount"), and up to a maximum aggregate amount of Five
Million Dollars ($5,000,000) (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 A 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 conversion
thereof (the
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"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 10 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 into the Company's designated
escrow account for this Offering established pursuant to the Escrow Agreement
and Instructions (the "Escrow Agreement") by and among the Company, First Union
National Bank of Georgia (the "Escrow Agent") and the Placement Agent (as
defined below) (the "Escrow Account"), 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 from the Escrow Account as set forth in Section
7.1(a) for payment in consideration for the Company's delivery of certificates
representing the Preferred Stock subscribed for.
The parties hereto acknowledge that Xxxxxx Investments, LLC is acting as
placement agent (the "Placement Agent") for this Offering and will be
compensated by the Company in cash, common stock and warrants to purchase
Common Stock. The Placement Agent has acted solely as placement agent in
connection with the Offering by the Company of the Preferred Stock pursuant to
this Agreement. The information and data contained in the Disclosure Documents
(as defined in Section 2.2.4) have not been subjected to independent
verification by the Placement Agent, and no representation or warranty is made
by the Placement Agent as to the accuracy or completeness of the information
contained in the Disclosure Documents.
The Company and Subscriber acknowledge that the Xxxxxxx Fund, N.V. (the
"Fund"), which is managed by affiliates of the Placement Agent, may subscribe
for securities in the Offering. The parties acknowledge that neither the
Placement Agent nor any of its affiliates shall be under any obligation to
advise the Company or Subscriber of the activities of the Fund with respect to
such securities following the consummation of the Offering. Such
acknowledgment shall not act as a waiver of any obligation required by law or
written agreement of which the Fund is a party. It is understood that the Fund
will act independently of the Placement Agent and may take action with respect
to such investment which may be inconsistent or contrary to any action or
interest of the Placement Agent, the Company or any of the other Subscribers.
1.2 Conditions to Subscriber's Obligations. Subscriber's
obligations hereunder are conditioned upon all of the following:
(a) the following documents shall have been deposited
with the Escrow Agent: 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 the Company's counsel), 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
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name of the Subscriber, 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);
(b) the Company's Common Stock shall be listed for and
trading on the Over-the Counter Bulletin Board;
(c) other than losses described in the Risk Factors as
set forth in Section 2.2.4 below 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 (defined below in Section
2.2.4), including but not limited to incurring
material liabilities;
(d) 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 the
Escrow Agent;
(e) the Minimum Offering Amount and corresponding
subscription agreements accepted by the Company
shall have been received by the Escrow Agent; and
(f) the Company shall have reserved for issuance a
sufficient number of shares of Common Stock to
effect conversions of the Preferred Stock, which
number of shares shall initially be equal to at
least Three Million Seven Hundred Fifty Thousand
(3,750,000) shares.
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, and has checked the
applicable box set forth in Section 10 of this Agreement.
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
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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 29,
1996, (ii) the Company's quarterly report on Form 10-Q for the quarter ended
September 28, 1997, (iii) the Risk Factors, attached as Exhibit E, (iv) the
Capitalization Schedule, attached as Exhibit F, (the "Capitalization Schedule")
and (v) the Use of Proceeds Schedule, attached as Exhibit G, (the "Use of
Proceeds Schedule") (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 (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,
including any provided by the Placement Agent, 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
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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 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 such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) (i) Subscriber shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, Subscriber shall have furnished the Company with 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 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. Subscriber has reached the age of
majority (if an individual) according to the laws of the state in which he
resides, has adequate means for providing for his current needs and personal
contingencies, is able to bear the economic risk of his investment in the
Securities for an indefinite period of time and could afford a complete loss of
such investment. Subscriber's commitment to illiquid investments is reasonable
in relation to Subscriber's net worth.
2.4.2 Due Authorization. If Subscriber is a
corporation, Subscriber is duly and validly organized, validly existing and in
good tax and corporate standing as a corporation under the laws of the
jurisdiction of its incorporation with full power and authority to purchase the
Securities to be purchased by Subscriber and to execute and deliver this
Agreement.
2.4.3 Partnerships. If Subscriber is a partnership,
the representations, warranties, agreements and understandings set forth above
are true with respect to all partners of
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Subscriber (and if any such partner is itself a partnership, all persons
holding an interest in such partnership, directly or indirectly, including
through one or more partnerships), and the person executing this Agreement has
made due inquiry to determine the truthfulness of the representations and
warranties made hereby.
2.4.4 Representatives. If Subscriber is purchasing
in a representative or fiduciary capacity, the representations and warranties
shall be deemed to have been made on behalf of the person or persons for whom
Subscriber is so purchasing.
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;
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
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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 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. 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. 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, the Escrow
Agreement 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.
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
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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 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 at least Three
Million Seven Hundred Fifty Thousand (3,750,000) Conversion Shares authorized
and 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 would 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 Reporting Company. The Company is subject to the
reporting requirements of the Exchange Act, 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 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
4.7 Capitalization. The capitalization of the Company as of
September 28, 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 F. 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 (except the Registration Rights Agreement).
4.8 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 H-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 conduct of its
business as set forth on Exhibit H-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 H-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
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other instruments which preclude the Company from engaging in its business as
presently conducted.
4.9 Use of Proceeds. As of the date hereof, the Company
expects to use the proceeds from this Offering (less fees and expenses) for the
purposes and in the approximate amounts set forth on the Use of Proceeds
Schedule set forth as Exhibit G hereto. These purposes and amounts are
estimates and are subject to change without notice to any Subscriber.
4.10 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.
4.11 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.
4.12 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 March 15, 1998, which date can be extended by up to ten (10)
days upon written approval by the Company and the Placement Agent.
4.13 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.
4.14 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.
4.15 No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would prevent
the parties hereto from consummating the transactions contemplated hereby
pursuant to an exemption from registration under the Act pursuant to the
provisions of Regulation D. The Company has not engaged in any form of general
solicitation or advertising in connection with the offering of Preferred Stock.
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.
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
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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 Exhibit I. 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 on
Exhibit I.
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 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 Asset Transfers. The Company shall not transfer, sell,
convey or otherwise dispose of any of its material assets to any Subsidiary or
affiliate except for (i) a cash or cash equivalent consideration and for a
proper business purpose, while any of the Preferred Stock is outstanding, or
(ii) purposes of obtaining third party debt financing (e.g., a transfer of
assets equivalent in value to such securitized debt to a special purpose
corporation for purposes of a securitization financing).
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5.6 Capital Raising Limitations; Rights of Participation.
5.6.1 [Intentionally Omitted]
5.6.2 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").
5.6.3 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 this Offering.
5.6.4 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.
5.7 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.
5.8 Opinion of Counsel. Subscribers shall, upon purchase of
the Preferred Stock pursuant to this Agreement, receive an opinion letter from
Xxxx Xxxx Xxxx & Freidenrich, 000 Xxxxxxxx Xxxxxx, Xxxx Xxxx, XX 00000-0000
Telephone: (000) 000-0000 ("Counsel"), counsel to the Company, in the form
attached as Exhibit C.
5.9 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 J. 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
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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
Legend 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.
5.10 Listing. The Company shall (i) 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 by-laws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
5.11 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
certificates shall bear a Legend only to the extent permitted by Section 5.9
hereof. The Company warrants that no instruction, other than such instructions
referred to in Section 5.9 hereof or in this Section 5.11 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 more
certificates in such name and in such denomination as specified by such
Subscriber. The
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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 5.11
will be inadequate and agrees, in the event of a breach or threatened breach by
the Company of the provisions of this Section 5.11, 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.
6. Subscriber Covenant/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 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 Notices, Etc. 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 two (2)
day 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.
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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.
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 Escrow 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.
6.9 Arbitration. Any controversy or claim arising out of or
related to this Agreement or the breach thereof, shall be settled by binding
arbitration in Wilmington, Delaware (if the Subscriber is the Defendant in such
action) or in San Francisco, California (if the Company is the Defendant) in
accordance with the Expedited Procedures (Rules 53-57) of the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). A
proceeding shall be commenced upon written demand by Company or any Subscriber
to the other. The arbitrator(s) shall enter a judgment by default against any
party which fails or refuses to appear in any properly noticed arbitration
proceeding. The proceeding shall be conducted by one (1) arbitrator, unless
the amount alleged to be in dispute exceeds two hundred fifty thousand dollars
($250,000), in which case three (3) arbitrators shall preside. The
arbitrator(s) will be chosen by the parties from a list provided by the AAA,
and if they are unable to agree within ten (10) days, the AAA shall select the
arbitrator(s). The arbitrators must be experts in securities law and financial
transactions. The arbitrators shall assess costs and expenses of the
arbitration, including all attorneys' and experts' fees, as the arbitrators
believe is appropriate in light of the merits of the parties' respective
positions in the issues in dispute. Each party submits irrevocably to the
jurisdiction of any state court sitting in Wilmington, Delaware or to the
United States District Court sitting in Delaware (if the Subscriber is the
Defendant in such action) or in San Francisco, California (if the Company is
the Defendant) for purposes of enforcement of any discovery order, judgment or
award in connection with such arbitration. The award of the arbitrator(s)
shall be final and binding upon the parties and may be enforced in any court
having jurisdiction. The arbitration shall be held in such place as set by the
arbitrator(s) in accordance with Rule 55.
6.10 No Five Percent Holders. Notwithstanding anything to the
contrary contained herein, the Preferred Stock shall not be convertible by a
Holder to the extent (but only to the extent) that, if converted by such
Holder, the Holder would beneficially own in excess of 4.9% of the then
outstanding shares of Common Stock of the Company. To the extent this
limitation applies, the determination of whether Preferred Stock shall be
convertible (vis-a vis other securities owned by such Holder) and of which
Preferred Stock shall be converted shall be in the sole discretion of the
Holder and submission of the Preferred Stock for conversion shall be deemed to
be the Holder's determination of whether such Preferred Stock is convertible,
subject to such aggregate percentage limitations. No prior inability to
convert Preferred Stock pursuant to this subparagraph shall have any effect on
the applicability of its provisions with respect to any subsequent
determination of convertibility. For the purposes of this subparagraph,
beneficial ownership and all calculations, including without limitation, with
respect to calculations of percentage ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the Regulations thereunder. Notwithstanding the foregoing, each
Holder shall have the right to waive such restriction or increase such
percentage upon sixty one (61) days' prior notice to the Company and to
decrease any such percentage immediately upon written notice to the Company.
No transferee of Preferred Stock shall be bound by such restriction unless the
transferee expressly
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so agrees. The provisions of this subparagraph may be waived and/or
implemented in a manner otherwise than in strict conformity with the terms
hereof with the approval of the Board of Directors of the Company and the
Holders of a majority in interest in the then outstanding Preferred Stock: (i)
with respect to any matter to cure any ambiguity herein, to correct this
subparagraph (or any portion thereof) which may be defective or inconsistent
with the intended 4.9% beneficial ownership limitation herein contained or to
make changes or supplements necessary or desirable to properly give effect to
such 4.9% limitation; and (ii) with respect to any other matter, with the
further consent of the Holders of majority of the then outstanding shares of
Common Stock. The limitations contained in this subparagraph shall apply to a
successor Holder of Preferred Stock, and to the extent, elected by such
successor Holder concurrently with its acquisition of such Preferred Stock,
such election to be promptly confirmed in writing to the Company (provided no
transfer or series of transfers to a successor Holder or Holders shall be used
by a Holder to evade the limitations contained herein). The provisions of this
Section 6.10 shall not apply on or after the Maturity Date (as defined in the
Certificate of Designation).
7. Subscription and Wiring Instructions; Irrevocability.
7.1 Subscription
(a) Wire transfer of Subscription Funds. Subscriber shall
send this signed Agreement by facsimile to the
Placement Agent at (000) 000-0000, and send the
subscription funds by wire transfer, to the Escrow
Agent as follows:
First Union National Bank
ABA No. 000000000
Account No. 465946
Account Name: Trust Ledger
Attn: Xxxx Xxxxxx
Reference: Aureal Escrow #3072237467
Telephone No.: (000) 000-0000
SWIFT Code: XXXXXX00
(b) Irrevocable Subscription. Subscriber hereby
acknowledges and agrees, subject to the provisions of
any applicable laws providing for the refund of
subscription amounts submitted by Subscriber, that
this Agreement is irrevocable and that Subscriber is
not entitled to cancel, terminate or revoke this
Agreement or any other agreements executed by such
Subscriber and delivered pursuant hereto, and that
this Agreement and such other agreements shall survive
the death or disability of such Subscriber and shall
be binding upon and inure to the benefit of the
parties and their heirs, executors, administrators,
successors, legal representatives and assigns. If the
Securities subscribed for are to be owned by more than
one person, the obligations of all such owners under
this Agreement shall be joint and several, and the
agreements, representations, warranties and
acknowledgments herein contained shall be deemed to be
made by and be binding upon each such person and his
heirs, executors, administrators, successors, legal
representatives and assigns. Notwithstanding the
foregoing, (i) if the conditions to Closing are not
satisfied or (ii) if the Disclosure Documents are
discovered prior to Closing to contain statements
which are materially inaccurate, or omit statements of
material fact, Subscriber may revoke or cancel this
Agreement.
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(c) Company's Right to Reject Subscription. Subscriber
understands that this Agreement is not binding on the
Company until the Company accepts it. This Agreement
shall be accepted by the Company when the Company
countersigns this Agreement. Subscriber hereby
confirms that the Company has full right in its sole
discretion to accept or reject the subscription of
Subscriber, in whole or in part, provided that, if the
Company decides to reject such subscription, the
Company must do so promptly and in writing. In the
case of rejection, the Company will promptly return
any rejected payments and (if rejected in whole)
copies of all executed subscription documents
(including without limitation this Agreement) to
Subscriber. In the event of rejection, no interest
will be payable by the Company to Subscriber on any
return of payment, provided however, that any such
interest accrued on such funds in the Escrow Account
shall be returned to the Subscriber by the Escrow
Agent.
7.2 Acceptance of Subscription. In the case of acceptance
of Subscriber's subscription, ownership of the number of securities being
purchased hereby will pass to Subscriber upon the Closing.
7.3 Subscriber to Forward Original Signed Subscription
Agreement to Company. Subscriber agrees to courier to Company his, her or its
original inked signed Subscription Agreement within two (2) days after faxing
said signed agreement to Placement Agent.
8. Indemnification.
The Company agrees to indemnify and hold harmless Subscriber and the
Placement Agent and each of their respective officers, directors, employees and
agents, and each person who controls Subscriber or the Placement Agent within
the meaning of the Act or the Exchange Act (each, a "Subscriber Indemnified
Party") against any losses, claims, damages or liabilities, joint or several,
to which it, they or any of them, may become subject and not otherwise
reimbursed arising from or due to any untrue statement of a material fact or
the omission to state any material fact required to be stated in order to make
the statements not misleading in any representation or warranty made by the
Company contained in this Agreement or in any statements contained in the
Disclosure Documents.
Subscriber agrees to indemnify and hold harmless the Company and the
Placement Agent and each of their respective officers, directors, employees and
agents, and each person who controls Company or the Placement Agent within the
meaning of the Act or the Exchange Act (each, a "Company Indemnified Party") (a
Subscriber Indemnified Party or a Company Indemnified Party may be hereinafter
referred to singularly as "Indemnified Party") against any losses, claims,
damages or liabilities, joint or several, to which it, they or any of them, may
become subject and not otherwise reimbursed arising from or due to any untrue
statement of a material fact or the omission to state any material fact
required to be stated in order to make the statements not misleading in any
representation or warranty made by Subscriber contained in this Agreement.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought,
such Indemnified Party will, if a claim in respect thereof is to be made
against the other party (hereinafter "Indemnitor") under this Section 8,
deliver to the Indemnitor a written notice of the commencement thereof and the
Indemnitor shall have the right to participate in and to assume the defense
thereof with counsel reasonably selected by the Indemnitor, provided, however,
that an Indemnified Party shall have the right to retain its own counsel, with
the reasonably incurred fees and expenses of such counsel to be paid by the
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Indemnitor, if representation of such Indemnified Party by the counsel retained
by the Indemnitor would be inappropriate due to actual or potential conflicts
of interest between such Indemnified Party and any other party represented by
such counsel in such proceeding. The failure to deliver written notice to the
Indemnitor within a reasonable time of the commencement of any such action, if
prejudicial to the Indemnitor's ability to defend such action, shall relieve
the Indemnitor of any liability to the Indemnified Party under this Section 8,
but the omission to so deliver written notice to the Indemnitor will not
relieve it of any liability that it may have to any Indemnified Party other
than under this Section 8 to the extent it is prejudicial.
9. Certain Additional Legends and Information.
FOR FLORIDA RESIDENTS:
THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED
BY, THE HOLDER IN A TRANSACTION EXEMPT UNDER SECTION 517.061 OF THE FLORIDA
SECURITIES ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE
STATE OF FLORIDA. IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF
VOIDING THE PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY SUCH SUBSCRIBER TO THE ISSUER, AN AGENT OF THE ISSUER,
OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE
IS COMMUNICATED TO SUCH SUBSCRIBER, WHICHEVER OCCURS LATER.
FOR MAINE RESIDENTS:
THESE SECURITIES ARE BEING SOLD PURSUANT TO AN EXEMPTION FROM
REGISTRATION WITH THE BANK SUPERINTENDENT OF THE STATE OF MAINE UNDER SECTION
10502(2)(R) OF TITLE 32 OF THE MAINE REVISED STATUTES. THESE SECURITIES MAY BE
DEEMED RESTRICTED SECURITIES AND AS SUCH THE HOLDER MAY NOT BE ABLE TO RESELL
THE SECURITIES UNLESS PURSUANT TO REGISTRATION UNDER STATE OR FEDERAL SECURITIES
LAWS OR UNLESS AN EXEMPTION UNDER SUCH LAWS EXISTS.
FOR PENNSYLVANIA RESIDENTS:
EACH PENNSYLVANIA RESIDENT WHO SUBSCRIBES FOR THE SECURITIES BEING
OFFERED HEREBY AGREES NOT TO SELL THESE SECURITIES FOR A PERIOD OF TWELVE
MONTHS AFTER THE DATE OF PURCHASE UNLESS SUCH SECURITIES HAVE BEEN REGISTERED
FOR SALE. UNDER PROVISION OF THE PENNSYLVANIA SECURITIES ACT OF 1972 (THE
"1972 ACT"), EACH PENNSYLVANIA RESIDENT SHALL HAVE THE RIGHT TO WITHDRAW HIS
ACCEPTANCE WITHOUT INCURRING ANY LIABILITY, TO THE SELLER, UNDERWRITER (IF ANY)
OR ANY PERSON, WITHIN TWO (2) BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE
ISSUER OF HIS WRITTEN BINDING CONTRACT OF PURCHASE OR IN THE CASE OF A
TRANSACTION IN WHICH THERE IS NO WRITTEN BINDING CONTRACT OF PURCHASE, WITHIN
TWO BUSINESS DAYS AFTER HE MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING
OFFERED. TO ACCOMPLISH THIS WITHDRAWAL, A SUBSCRIBER NEED ONLY SEND A LETTER
OR TELEGRAM TO THE SELLING AGENT AT THE ADDRESS SET FORTH IN THE TEXT OF THE
MEMORANDUM, INDICATING HIS OR HER INTENTION TO WITHDRAW. SUCH LETTER OR
TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED
SECOND BUSINESS DAY. IT IS PRUDENT TO SEND SUCH LETTER BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE
THE TIME WHEN IT WAS MAILED. IF THE REQUEST IS MADE ORALLY (IN PERSON OR BY
TELEPHONE, TO THE SELLING AGENT AT THE NUMBER LISTED IN THE TEXT OF THE
MEMORANDUM) A WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED SHOULD BE
REQUESTED.
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FOR NEW HAMPSHIRE RESIDENTS:
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN
APPLICATION FOR A LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR
THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN
THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT
ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING.
NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE
FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN
ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL
TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO
BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
[INTENTIONALLY LEFT BLANK]
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10. Purchase Price of Preferred Stock. Subscriber subscribes for
_________ shares of Preferred Stock (in the amount of $10,000 per share)
against payment by wire transfer in the amount of $___________________
("Purchase Price").
11. Accredited Investor. Subscriber is an "accredited investor"
because (check all applicable boxes):
(a) [ ] it is an organization described in Section 501(c)(3)
of the Internal Revenue Code, or a corporation,
business trust, or partnership not formed for the
specific purpose of acquiring the securities offered,
with total assets in excess of $5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a
sophisticated person who has such knowledge and
experience in financial and business matters that he
is capable of evaluating the merits and risks of the
prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner of
the issuer of the securities being offered or sold or
a director, executive officer or general partner of a
general partner of that issuer.
[ ] has an individual net worth, or joint net worth with
that person's spouse, at the time of his purchase
exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching the
same income level in the current year.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who could
check one (1) of the last three (3) boxes under
subparagraph (c) above.
(e) [ ] other [specify]_______________________________________
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the Company as
indicated below.
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 _____ day of February, 1998.
____________________________________ _______________________________
Your Signature PRINT EXACT NAME IN WHICH YOU
WANT THE SECURITIES TO BE
REGISTERED
____________________________________ DELIVERY INSTRUCTIONS:
Name: Please Print Please type or print address
where your security is to be
delivered
____________________________________ ATTN.:_________________________
Title/Representative Capacity (if applicable)
____________________________________ _______________________________
Name of Company You Represent (if applicable) Xxxxxx Xxxxxxx
____________________________________ _______________________________
Place of Execution of this Agreement City, State or Province,
Country, Offshore Postal Code
_______________________________
Phone Number (For Federal
Express) and Fax Number
(re: Notice)
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF $ _________________
ON THE ____ DAY OF February, 1998.
Aureal Semiconductor Inc.
By:________________________________
Name:______________________________
Title:_____________________________
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