<PAGE>
As filed with the Securities and Exchange Commission on February 24, 1998
Registration No. 333-
_____________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
____________________________
AURA SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 95-4106894
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2335 Alaska Avenue, El Segundo, California 90245
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(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive office)
Zvi (Harry) Kurtzman, Chief Executive Officer
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
(310) 643-5300
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(Name, Address, including zip code, and
telephone number, including area code, of agent for service)
Copy to:
Samuel S. Guzik, Esq.
Guzik & Associates
1800 Century Park East, Fifth Floor
Los Angeles, CA 90067
(310) 788-8600
-----------------------------
Approximate date of proposed sale to the public: From time to time after the
effective date of the Registration Statement.
If the only securities registered on this form are being offered pursuant to
dividend or interest reinvestment plans,
check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(c) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Proposed
Title of each class Proposed maximum
of securities to be Amount to be maximum offering aggregate offering Amount of
registered registered(2) price per share(1) price(1) registration fee
- --------------------- ---------------- ------------------- --------------------- ----------------
<S> <C> <C> <C> <C>
Common Stock,
$.005 par value 4,743,736 $3.14 $14,895,331 $4,394.12
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated for the purpose of calculating the registration fee pursuant to
Rule 457(c) on the basis of the high and low price of the Registrant's
Common Stock on February 6, 1998.
(2) Included in this amount are 4,543,736 shares issuable upon conversion of
the Registrant's Convertible Debentures (the "Debentures") and exercise of
the Registrant's Warrants issued in connection with the sale of the
Debentures (the "Debenture Warrants"), which is equal to 150% of the number
of shares currently issuable under the Debentures and the Debenture
Warrants. For purposes of estimating the number of shares of Common
Stock to be included in this Registration Statement, the Registrant
calculated 150% of the number of shares of Common Stock issuable in
connection with the conversion of the Debentures (based on a conversion
price of $3.81, which is 110% of the average closing bid price of the
Common Stock as reported on the Nasdaq National Market for the five
consecutive trading days ending December 30, 1997) and the exercise of the
Debenture Warrants. In addition to the shares set forth in the table, the
amount to be registered includes an indeterminate number of shares issuable
upon conversion of or in respect of the Debentures or exercise of or in
respect of the Debenture Warrants and other Warrants to which the
registrable securities relate, as such number may be adjusted as a result
of stock splits, stock dividends and antidilution provisions (including
floating rate conversion prices) in accordance with Rule 416.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
AVAILABLE INFORMATION............................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE... 2
SUMMARY........................................... 3
RISK FACTORS...................................... 4
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION..... 6
DESCRIPTION OF CAPITAL STOCK...................... 9
LEGAL MATTERS..................................... 9
EXPERTS........................................... 9
ADDITIONAL INFORMATION............................ 10
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN A OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
STATE.
Subject to completion, dated February 20, 1998
PROSPECTUS
_______________________________________________________________________________
AURA SYSTEMS, INC.
Common Stock
_______________________________________________________________________________
This Prospectus relates to the resale by the Selling Stockholders
identified herein of (i) an aggregate of 1,785,586 shares of Common Stock, $.005
par value ("Common Stock") of Aura Systems, Inc. ("Aura" or the "Company") which
may be acquired by the Selling Stockholders upon the exercise of outstanding
warrants at exercise prices ranging from $1.69 to $3.47 per share, subject to
adjustment (the "Warrants"); and (ii) an indeterminate number of shares,
initially 1,443,571 shares, which may be acquired by two of the Selling
Stockholders upon conversion of the Company's Convertible Debentures (the
"Debentures"); which are being offered for the account of the Selling
Stockholders named herein. See "Selling Stockholders and Plan of Distribution."
Although the Company will receive proceeds from the exercise of outstanding
Warrants from time to time if and when they are exercised, the Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders
offered hereby.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," AT PAGE FOUR, FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "AURA". On February 19, 1998, the last reported sales price
for Aura's Common Stock on the Nasdaq National Market was $3.12.
The date of this Prospectus is __________ ____,1998
<PAGE>
AVAILABLE INFORMATION
Aura is subject to the informational reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices located at 7 World Trade Center, New
York, New York 10048 and Northwestern Atrium Center, 500 W. Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can also be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a Web site on the Internet, http://www.sec.gov, that also contains
such reports, proxy statements and other information filed by the Company.
The Company has filed with the Commission a Registration Statement
(together with all amendments and exhibits, the "Registration Statement") on
Form S-3 under the Securities Act of 1933 (the "Securities Act") with respect to
the Common Stock offered pursuant to this Prospectus. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
agreement or other document referred to herein are not necessarily complete and
reference is made to the copy of such agreement or other reference is made to
the Registration Statement and to the exhibits and schedules filed therewith.
Copies of the material containing this information may be obtained from the
Commission upon payment of the prescribed fee.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, all of which are previously filed with the
Commission pursuant to the Securities Exchange Act of 1934, are hereby
incorporated by reference in this Prospectus: (i) the Company's Annual Report on
Form 10-K for the fiscal year ended February 28, 1997 ("1997 Form 10-K"); (ii)
the Company's Quarterly Reports on Form 10-Q for the quarters ended May 31,
1997, August 31, 1997, and November 30, 1997; and (iii) the Company's Form 8-K
dated November 12, 1997; and (iv) the Company's Proxy Statement dated August 8,
1997.
All other reports and documents filed by the Company subsequent to the date
of this Prospectus pursuant to Sections 13(a), 13(c), and 14 or 15(d) of the
Exchange Act prior to the termination of the offering of the Common Stock
covered by this Prospectus shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of those
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that such statement is modified or
replaced by a statement contained in this Prospectus or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference into this Prospectus. Any such statement so modified or superseded
shall not be deemed, except as so modified or replaced, to constitute a part of
this Prospectus. The Company will provide without charge to each person to whom
a copy of this Prospectus has been delivered, upon the written request of any
such person, a copy of any or all of the documents referred to above that have
been or may be incorporated in this Prospectus by reference, other than exhibits
to such documents. Written requests for such copies should be directed to
Steven C. Veen, Senior Vice President and Chief Financial Officer, Aura Systems,
Inc., 2335 Alaska Avenue, El Segundo, California 90245, (310) 643-5300.
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<PAGE>
SUMMARY
This Prospectus, which includes the documents incorporated herein, contains
forward-looking statements that involve risk and uncertainties. The Company's
actual results could differ materially from those anticipated in such forward-
looking statements as a result of certain factors, including those set forth
under "Risk Factors" and elsewhere in this Prospectus. The following summary is
qualified in its entirety by reference to the more detailed information and
financial statements (including the notes thereto) appearing elsewhere in this
Prospectus, including the documents incorporated herein. An investment in the
shares of the Common Stock offered hereby involves a high degree of risk.
Prospective investors should carefully consider the factors discussed under
"Risk Factors."
THE COMPANY
Aura Systems, Inc. ("Aura" or the "Company") is engaged in the development,
commercialization and sales of products, systems and components using its
patented and proprietary electromagnetic and electro-optical technology, as well
as the sale of other products which do not utilize this technology, such as
sound cards, CD ROMs, multimedia kits, modems, and computer monitors. The
Company's proprietary and patented technology is being developed for use in
systems and products for commercial, industrial, consumer and government use.
To date, a combination of Aura funds and commercial and governmental development
contracts have been utilized in the process of developing product applications.
In 1996 the Company merged its operations into four operating divisions:
(1) AuraSound, which manufactures and sells professional and consumer sound
systems and components and interactive products, including speakers, amplifiers,
Bass Shakers; (2) NewCom, which manufacturers or packages for sale, and
distributes computer related products, including CD ROM drives, modems, computer
speakers, monitors, sound cards and multimedia kits; (3) Automotive and
Industrial, which is commercializing products with automotive and industrial
applications, including AuraGen and EVA; and (4) Display Systems, which is
commercializing Aura's actuated mirror array technology in consumer and
commercial display systems for use in televisions, computer displays and
theaters. In September 1997 Aura's NewCom subsidiary completed its initial
public offering, with Aura owning more than two-thirds of NewCom following
completion of the public offering.
References herein to the "Company" or "Aura" include Aura and its
subsidiaries, unless the context indicates otherwise. The Company's
headquarters are located at 2335 Alaska Avenue, El Segundo, California 90245,
and its telephone number is (310) 643-5300.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that investors
should consider carefully in evaluating an investment in the Common Stock
offered hereby. These risk factors include, among other things, a history of
operating losses, the continuing need for additional capital, competition and
other factors.
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<PAGE>
RISK FACTORS
THE SHARES OF AURA'S COMMON STOCK MUST BE CONSIDERED A SPECULATIVE
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INVESTMENT INVOLVING A HIGH DEGREE OF RISK. IN ADDITION TO OTHER INFORMATION
- -----------------------------------------------------------------------------
CONTAINED IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER
- -----------------------------------------------------------------------------
THE FOLLOWING FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
- -----------------------------------------------------------------------
INVESTING IN THE SHARES OF COMMON STOCK OFFERED HEREBY.
- ------------------------------------------------------
HISTORY OF LOSSES; SIGNIFICANT ACCUMULATED DEFICIT; POSSIBILITY OF FUTURE LOSSES
The Company and its predecessors on a consolidated basis have recognized
net losses in each fiscal year to date. The Company has incurred cumulative
losses in each fiscal year to date and has an accumulated deficit through
November 30, 1997 of approximately $71 million. There can be no assurance that
Company will be able to achieve or maintain profitability on a sustained basis
or that its activities or operations will be successful. In addition, because
the Company's efforts have been directed towards product development and the
introduction of new products in the recent past, revenues and operating results
have been uneven and may continue to be so during Fiscal 1998 and beyond.
GENERAL NEED FOR ADDITIONAL CAPITAL; NO ASSURANCE IT WILL BE AVAILABLE
The cash flow generated from the Company's operations to date has not been
sufficient to fund its working capital needs. The Company has relied upon
external sources of financing to maintain its liquidity, principally private and
bank indebtedness and equity financing. The Company expects to fund any
operating shortfall in Fiscal 1998 from cash on hand and available credit
facilities, and expects to continue to seek external sources of capital such as
debt and equity financing. There are no assurances that such funds will be
available at the times or in the amounts required by the Company. In the event
any such financing involves the issuance of equity securities, existing
stockholders may suffer dilution in net tangible book value per share. The
unavailability of funds could have a material adverse effect on the Company's
financial statements, results of operations and ability to expand its
operations.
HIGHLY COMPETITIVE INDUSTRIES; RAPID TECHNOLOGICAL CHANGE
The industries in which the Company operates are extremely competitive and
characterized by rapid technological change. Many of its competitors have
substantially greater financial resources than the Company, spend considerably
larger sums than the Company on research, new product development and marketing,
and have long-standing customer relationships. Furthermore, the Company must
compete with many larger and better established companies in the hiring and
retention of qualified personnel. Although the Company believes it has certain
technological advantages over its competitors, realizing and maintaining such
advantages will require the Company to develop customer relationships and will
depend on market acceptance of its products. Future revenues and profits will
be dependent to a large extent on the introduction of new products. Competitive
pressures could reduce market acceptance of the Company's products, and there
can be no assurance the Company will have the financial resources, technical
expertise or marketing and support capabilities to compete successfully in the
future.
PROTECTION OF PATENTS AND PROPRIETARY TECHNOLOGY
The Company protects its proprietary technology by means of patent
protection, trade secrets and unpatented proprietary know-how. No assurance can
be given that pending or future patent applications will issue as patents or
that any patents which have been or may be issued will provide the Company with
adequate protection with respect to the covered products or technology.
Moreover, a portion of the Company's proprietary
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<PAGE>
technology is dependent upon unpatented trade secrets and know-how. Although the
Company enters into confidentiality agreements with individuals and companies
having access to proprietary technology whenever practicable, such agreements
may not provide meaningful protection for this technology in the event of any
unauthorized use or disclosure of such know-how. Further, in cases where patent
protection does not exist, the Company may be exposed to competitors who
independently develop substantially equivalent technology or otherwise gain
access to the Company's trade secrets, know-how or other proprietary
information.
DEPENDENCE UPON THIRD PARTY MANUFACTURERS
The Company currently has limited capability to manufacture its proposed
products or certain of their components by itself on a commercial scale, and
relies extensively on subcontracts with third party manufacturers and joint
ventures for such products and components. The use of third party manufacturers
increases the risk of delay of shipments to its customers and increases the risk
of higher costs if the Company's manufacturers are not available when required.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock in the public market by stockholders (and
future issuances of Common Stock upon the exercise of options, warrants, or
convertible debt) may adversely affect the market price of the Company's stock.
For example, pursuant to outstanding registration statements on file with the
Commission a total of approximately 19,000,000 shares of Common Stock issuable
upon the exercise of outstanding warrants and options are eligible for future
resale in the public market. This includes approximately 1,443,571 shares,
subject to adjustment, which will become eligible for resale upon the conversion
of the Debentures which are convertible into shares of Common Stock.
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does not
expect to pay any cash dividends in the foreseeable future. The Company
currently intends to retain any future earnings for use in its business.
EFFECT OF ANTI-TAKEOVER PROVISIONS
The Company is subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law, which prohibits the Company from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person first becomes
an "interested stockholder," unless the business combination is approved in a
prescribed manner. The application of Section 203 could also have the effect of
delaying or preventing a change in control of the Company.
FORWARD-LOOKING STATEMENTS
When used in this Prospectus and the documents incorporated herein by
reference, the words "believes," "anticipates," "expects" and similar
expressions are intended to identify, in certain circumstances, forward-looking
statements. Such statements are subject to a number of risks and uncertainties
that could cause actual results to differ materially from those projected,
including the risks described in this "Risk Factors" section. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such statements. The Company also undertakes no obligation to update these
forward-looking statements.
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<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
All of the shares of Common Stock of the Company covered by this Prospectus
are being sold for the account of the selling stockholders named in the table
below under "Shares of Common Stock Offered by Selling Stockholders (the
"Selling Stockholders"). 1,785,586 shares are being offered by the Selling
Stockholders upon the exercise of outstanding, unexercised Warrants consist of
the following: (i) 200,000 shares issuable upon exercise of outstanding Warrants
at an exercise price of $1.69 per share; and (ii) 1,585,586 shares issuable
upon exercise of outstanding Warrants at $2.85 per share. An indeterminate
number of shares, initially 1,443,571 shares as of the date of this Prospectus,
are being offered by two Selling Stockholder upon the conversion of the
Debentures.
The Debentures are initially convertible into shares of Common Stock of the
Company at a conversion price of $3.81 (110% of the average closing bid price of
the Common Stock for the five consecutive trading days ending December 30,
1997). Under certain circumstances, the Company may be required, at the option
of the holder of the Debentures, to prepay the Debentures in accordance with the
terms thereof. In the event the Company fails to prepay the Debentures within
five days of the date fixed for prepayment, the conversion price of the
Debentures for all conversions taking place thereafter will equal the lowest
closing bid price of the Common Stock during the sixty trading day period ending
one day prior to any conversion date.
The shares being offered by the Selling Stockholders or their respective
pledgees, donees, transferees or other successors in interest, may be sold in
one or more transactions (which may involve block transactions) on the Nasdaq
National Market or on such other market on which the Common Stock may from time
to time be trading, in privately-negotiated transactions, through the writing of
options on the shares, short sales or any combination thereof. The sale price
to the public may be the market price prevailing at the time of sale, a price
related to such prevailing market price or such other price as the Selling
Stockholders determine from time to time. The shares may also be sold pursuant
to Section 4(1) of the Securities Act or Rule 144 thereunder.
The Selling Stockholders or their respective pledgees, donees, transferees
or other successors in interest, may also sell the Shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Brokers acting as agents for the Selling
Stockholders will receive usual and customary commissions for brokerage
transactions, and market makers and block purchasers purchasing the shares will
do so for their own account and at their own risk. It is possible that a
Selling Stockholder will attempt to sell shares of Common Stock in block
transactions to market makers or other purchasers at a price per share which may
be below the then market price. There can be no assurance that all or any of
the shares offered hereby will be issued to, or sold by, the Selling
Stockholders. The Selling Stockholders and any brokers, dealers or agents, upon
effecting the sale of any of the shares offered hereby, may be deemed
"underwriters" as that term is defined under the Securities Act or the Exchange
Act, or the rules and regulations thereunder.
The Selling Stockholders and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any other such person. The foregoing
may affect the marketability of the shares.
The Company has agreed to indemnify the Selling Stockholders, or their
transferees or assignees, against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments the Selling Stockholders
or their respective pledgees, donees, transferees or other successors in
interest, may be required to make in respect thereof.
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<PAGE>
Listed below are the names of each selling stockholder (the "Selling
Stockholders"), the total number of shares owned and the number of shares to be
sold in this offering by each Selling Stockholder, and the percentage of Common
Stock owned by each Selling Stockholder before and after this Offering:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF SHARES OF
COMMON STOCK TO COMMON STOCK
SHARES OF BE OFFERED FOR OWNED OF
COMMON STOCK SELLING RECORD AFTER
OWNED OF RECORD STOCKHOLDER'S COMPLETION OF
PRIOR TO OFFERING** ACCOUNT** OFFERING
---------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
NAME NUMBER PERCENT NUMBER PERCENT
- ---- ------- -------- ------ -------
Camden Financial 200,000 * 200,000 *
Cefeo Investments Limited (1) 1,101,512 1.0 1,101,512 *
RGC International
Investors, LDC(1) 8,837,019 10.0 1,927,645(1) 6,909,374 8.0
- ----------------------------
</TABLE>
*Less than one percent.
**Assumes the exercise of all Warrants and conversion of all Debentures.
(1) The number of shares set forth in the table represents an estimate of the
number of shares of Common Stock to be offered by this Selling Stockholder.
The actual number of shares of Common Stock issuable upon conversion of the
Debentures and exercise of the Warrants issued to the Debenture holder in
connection therewith (the "Debenture Warrants") is indeterminate, is
subject to adjustment and could be materially more than such estimated
number depending on factors which cannot be predicted by the Company at
this time. The actual number of shares of Common Stock offered hereby, and
included in the Registration Statement of which this Prospectus is a part,
includes such additional number of shares of Common Stock as may be issued
or issuable upon conversion of the Debenture and exercise of the Debenture
Warrants by reason of the floating rate conversion price mechanism or other
adjustment mechanisms described therein, or by reason of any stock split,
stock dividend or similar transaction involving the Common Stock, in order
to prevent dilution, in accordance with Rule 416 under the Securities Act.
Pursuant to the terms of the Debentures, if the Debentures had been
actually converted on the date of this Prospectus the conversion price
would have been $3.81 (110% of the average closing bid price of the Common
Stock for the five consecutive trading days ending December 30, 1997) at
which price the Debentures would have been converted into approximately
1,443,571 shares of Common Stock. However, under ceratin circumstances the
conversion price is adjustable. For example, if the Company fails to
prepay the Debentures when required thereunder, the conversion price is
adjusted to equal the lowest closing bid price of the Common Stock during
the 60 trading day period ending one day prior to the conversion date.
Pursuant to the terms of the Debentures and the Debenture Warrants, the
Debentures and Debenture Warrants are convertible or exercisable by any
holder only to the extent that the number of shares of Common Stock thereby
issuable, together with the number of shares of Common Stock owned by such
holder and its affiliates (but not including shares of Common Stock
underlying unconverted and unexercised portions of the Debentures and
Debenture Warrants) would not exceed 4.9% of the then outstanding Common
Stock as determined in accordance with Section 13(d) of the
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<PAGE>
Exchange Act. Accordingly, the number of shares of Common Stock set forth
in the table for this Selling Stockholder exceeds the number of shares of
Common Stock that this Selling Stockholder could own beneficially at any
given time through their ownership of the Debentures. In that regard,
beneficial ownership of this Selling Stockholder set forth in the table is
not determined in accordance with Rule 13d-3 under the Exchange Act.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of February 20, 1998, the authorized capital stock of the Company
consisted of 200,000,000 shares of Common Stock, par value $.005 per share, of
which 80,091,077 were issued and outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Common stockholders are entitled to
receive such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor. The Common Stock
has no preemptive or conversion rights or other subscription rights and there
are no redemptive or sinking funds provisions applicable to the Common Stock.
All outstanding shares of Common Stock are fully paid and non-assessable, and
all the shares of Common Stock offered by the Company hereby will, when issued,
be fully paid and non-assessable.
ANTI-TAKEOVER PROVISIONS
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"). In general, Section 203 prohibits certain publicly held
Delaware corporations from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date of the
transaction in which the person or entity became an interested stockholder,
unless the business combination is approved in a prescribed manner. For
purposes of Section 203, "business combination" is defined broadly to include
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. An "interested stockholder" is any person or entity
who, together with affiliates and associates, owns (or within the three
immediately preceding years did own) 15% or more of the Company's voting stock.
The provisions of Section 203 requiring a super majority vote to approve certain
corporate transactions could enable a minority of the Company's stockholders to
exercise veto powers over such transactions and could have the effect of
delaying or preventing a change in control of the Company without further action
by the stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
Interwest Transfer, Salt Lake City, Utah.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Guzik & Associates,
Los Angeles, California.
EXPERTS
The consolidated financial statements of the Company and subsidiaries for
the years ended February 28, 1997, February 29, 1996, February 28, 1996,
incorporated by reference in this Prospectus and Registration Statement, have
been audited by Pannell Kerr Forster, independent auditors. Such financial
statements and schedules have been so incorporated in reliance upon such report
given the authority of such firm as experts in accounting and auditing.
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<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement under the Securities Act of 1933, as amended, with
respect to the Common Stock offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is hereby made to such Registration Statement, exhibit
and schedules. Statements contained in this Prospectus regarding the contents
of any contract or other document are not necessarily complete with respect to
each such contract or document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement, including the exhibits
and schedules thereto, may be inspected without charge at the Commission in
Washington, D.C. and copies of such material may be obtained from such upon
payment of the fees prescribed by the Commission.
No dealer, salesman or other person has been authorized to give any
information or to make any representation orth than those contained in this
Prospectus. If given or made, such information or representation must not be
relied upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or solicitation of an offer to buy any securities
other than the shares of Common Stock to which it relates or an offer or
solicitation to any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither delivery of this Prospectus nor sale
made hereunder shall under any circumstances create an implication that
information contained herein is correct as of any time subsequent to its date.
-10-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable by the Registrant in
connection with the sale and distribution of the securities being registered
hereby. All amounts are estimated except the Securities and Exchange Commission
registration fee.
<TABLE>
<S> <C>
SEC registration fee.................. $ 4,513.37
Blue Sky fees and expenses............ 1,000.00
Accounting fees and expenses.......... 1,000.00
Legal fees and expenses............... 7,500.00
Printing and engraving expenses....... 1,000.00
Registrar and Transfer Agent's fees... 500.00
Miscellaneous fees and expenses....... 500.00
Total................................. $16,013.37
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant has entered into
agreements with its directors to provide indemnity to such persons to the
maximum extent permitted under applicable laws.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<S> <C> <C>
(1) 4.1 Certificate of Incorporation of Registrant.
(2) 4.2 Form of Certificate of Amendment of Certificate of Incorporation of Registrant.
(1) 4.3 Bylaws of Registrant.
(3) 4.4 Form of Warrant.
4.5 Securities Purchase Agreement dated December 31, 1997, by and among
the Registrant and the Buyers.
4.6 Form of Convertible Debenture dated December 31, 1997.
4.7 Form of Warrant dated December 31, 1997.
4.8 Registration Rights Agreement dated December 31, 1997, by and between
the Registrant and the Buyers.
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C> <C>
5.1 Opinion of Guzik & Associates.
23.1 Consent of Pannell Kerr Forster, certified public accountants.
(4) 23.2 Consent of Guzik & Associates.
24.1 Power of Attorney (included in signature page)
</TABLE>
___________________________
(1) Incorporated by reference to the Exhibits to the Registration Statement on
Form S-1 (File No. 33-19530).
(2) Incorporated by reference to the Exhibit to the Registrant's Proxy
Statement dated August 8, 1997.
(3) Incorporated by reference to the Exhibits to the Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1994 (File No. 0-
17249).
(3) Incorporated by reference to Exhibit 23.2 to Amendment No. 1 to this
Registration Statement.
(4) Included in Exhibit 5.1.
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement which, individually or in the aggregate,
represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the
II-2
<PAGE>
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section do
not apply if the registration statement is on Form S-3, Form S-8 or Form F-3,
and the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of El Segundo, State of
California, on the 19th day of February, 1998.
AURA SYSTEMS, INC.
By /s/ Zvi (Harry) Kurtzman
------------------------------
Zvi (Harry) Kurtzman
Chief Executive Officer
KNOW BY ALL MEN THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Steven C. Veen or Zvi (Harry) Kurtzman or either
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and ratifying
and confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Zvi (Harry) Kurtzman President and Director February 19, 1998
- --------------------------------- (Principal Executive Officer)
Zvi (Harry) Kurtzman
/s/ Steven C. Veen Vice President, Chief February 19, 1998
- --------------------------------- Financial Officer, Director
Steven C. Veen (Principal Financial Officer and
Principal Accounting Officer)
/s/ Arthur J. Schwartz Director February 19, 1998
- ---------------------------------
Arthur J. Schwartz
/s/ Cipora Kurtzman Lavut Director February 19, 1998
- ---------------------------------
Cipora Kurtzman Lavut
/s/ Norman Reitman Director February 19, 1998
- ---------------------------------
Norman Reitman
/s/ Harvey Cohen Director February 19, 1998
- ---------------------------------
Harvey Cohen
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Neal B. Kaufman
- --------------------------------- Director February 19, 1998
Neal B. Kaufman
/s/ Ashok Dewan
- --------------------------------- Director February 19, 1998
Ashok Dewan
/s/ Gerald S. Papazian
- --------------------------------- Director February 19, 1998
Gerald S. Papazian
/s/ Salvatore Diaz-Verson, Jr.
- --------------------------------- Director February 19, 1998
Salvatore Diaz-Verson, Jr.
/s/ Peter Liu
- --------------------------------- Director February 19, 1998
Peter Liu
</TABLE>
II-5
<PAGE>
EXHIBIT 4.5
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of December 31,
1997, by and among Aura Systems, Inc., a Delaware corporation, with headquarters
located at 2335 Alaska Avenue, El Segundo, California 90245 ("COMPANY"), and
each of the purchasers set forth on the signature pages hereto (the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Company has authorized the issuance to the Buyers of (i)
convertible debentures of the Company, in the form attached hereto as EXHIBIT
"A", in the aggregate principal amount of Five Million Five Hundred Thousand
Dollars ($5,500,000), convertible into shares of common stock, $.005 par value
per share, of the Company (the "COMMON STOCK"), upon the terms and subject to
the limitations and conditions set forth in such debentures (collectively,
together with any debenture(s) issued in replacement thereof or as a dividend
thereon or otherwise with respect thereto in accordance with the terms thereof,
the "DEBENTURES") and (ii) warrants, in the form attached hereto as EXHIBIT "B",
to purchase One Million Five Hundred Eighty-Five Thousand Five Hundred Eighty-
Six (1,585,586) shares of Common Stock (the "WARRANTS");
C. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, the Debentures
and Warrants, for an aggregate purchase price of Five Million Five Hundred
Thousand Dollars ($5,500,000);
D. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, such principal amount of Debentures and number of Warrants as is
set forth immediately below its name on the signature pages hereto;
E. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws; and
<PAGE>
NOW THEREFORE, the Company and each of the Buyers (severally and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
--------------------------------------------
a. Purchase of Debentures and Warrants. The Company shall
-----------------------------------
issue and sell to each Buyer and each Buyer severally agrees to purchase from
the Company such principal amount of Debentures and number of Warrants for the
aggregate purchase price (the "PURCHASE PRICE") as is set forth immediately
below such Buyer's name on the signature pages hereto. The aggregate principal
amount of Debentures to be issued at the Closing (as defined below) is Five
Million Five Hundred Thousand Dollars ($5,500,000) and the aggregate number of
Warrants to be issued at the Closing is One Million Five Hundred Eighty-Five
Thousand Five Hundred Eighty-Six (1,585,586), for an aggregate purchase price of
Five Million Five Hundred Thousand Dollars ($5,500,000).
b. Form of Payment. On the Closing Date (as defined below),
---------------
(i) each Buyer shall pay the Purchase Price for the Debentures and the Warrants
to be issued and sold to it at the Closing (as defined below) by wire transfer
of immediately available funds to the Company, in accordance with the Company's
written wiring instructions, against delivery of the Debentures in the principal
amount equal to the Purchase Price and the number of Warrants as is set forth
immediately below such Buyer's name on the signature pages hereto, and (ii) the
Company shall deliver such Debentures and Warrants duly executed on behalf of
the Company, to the Buyer, against delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of
------------
the conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Debentures and the Warrants pursuant to
this Agreement (the "CLOSING DATE") shall be 12:00 noon Eastern Standard Time on
December 31, 1997 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "CLOSING") shall occur on the
Closing Date at the offices of Ballard Spahr Andrews & Ingersoll, 1735 Market
Street, 51st Floor, Philadelphia, PA 19103, or at such other location as may be
agreed to be the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally
--------------------------------------
(and not jointly) represents and warrants to the Company solely as to such Buyer
that:
a. Investment Purpose. As of the date hereof, the Buyer is
------------------
purchasing the Debentures and the shares of Common Stock issuable upon
conversion thereof (the "CONVERSION SHARES") and the Warrants and the shares of
Common Stock issuable upon exercise thereof (the "WARRANT SHARES" and,
collectively with the Debentures, Warrants and Conversion Shares the
"SECURITIES") for its own account for investment only and not with a present
view
2
<PAGE>
towards the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited
--------------------------
investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Buyer understands that the
----------------------
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been
-----------
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received what the Buyer believes to be satisfactory answers to
any such inquiries. Neither such inquiries nor any other due diligence
investigation conducted by Buyer or any of its advisors or representatives shall
modify, amend or affect Buyer's right to rely on the Company's representations
and warranties contained in Section 3 below. The Buyer understands that its
investment in the Securities involves a significant degree of risk.
e. Governmental Review. The Buyer understands that no United
-------------------
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Buyer understands that (i) except
------------------
as provided in the Registration Rights Agreement, the Securities have not been
and are not being registered under the 1933 Act or any applicable state
securities laws, and may not be transferred unless (a) subsequently included in
an effective registration statement thereunder, or (b) the Buyer shall have
delivered to the Company an opinion of counsel (which opinion shall be
reasonably acceptable to the Company) to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
such registration or (c) sold pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule); (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule and further,
if said Rule is not applicable, any resale of such Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities
3
<PAGE>
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement.
---- ----
g. Legends. The Buyer understands that the Debentures and the
-------
Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the Conversion Shares and Warrant Shares, may bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be sold,
transferred or assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion of counsel,
in form, substance and scope reasonably acceptable to the Company,
that registration is not required under said Act or unless sold
pursuant to Rule 144 under said Act."
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon which
it is stamped, if, unless otherwise required by applicable state securities
laws, (a) such Security is registered for sale under an effective registration
statement filed under the 1933 Act, or (b) such holder provides the Company with
an opinion of counsel, in form, substance and scope reasonably acceptable to the
Company, to the effect that a public sale or transfer of such Security may be
made without registration under the 1933 Act or (c) such holder provides the
Company with reasonable assurances that such Security can be sold pursuant to
Rule 144 under the 1933 Act (or a successor rule thereto) without any
restriction as to the number of Securities acquired as of a particular date that
can then be immediately sold. The Buyer agrees to sell all Securities,
including those represented by a certificate(s) from which the legend has been
removed, in compliance with applicable prospectus delivery requirements, if any.
h. Authorization; Enforcement. This Agreement and the
--------------------------
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Buyer and are valid and binding agreements of the
Buyer enforceable in accordance with their terms.
i. Residency. The Buyer is a resident of the jurisdiction set
---------
forth immediately below such Buyer's name on the signature pages hereto.
4
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
---------------------------------------------
represents and warrants to each Buyer that:
a. Organization and Qualification. The Company and each of its
------------------------------
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. SCHEDULE 3(A) sets forth
a list of all of the Subsidiaries of the Company. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on the operations,
assets, financial condition or prospects of the Company or its Subsidiaries, if
any, taken as a whole, or on the transactions contemplated hereby or by the
agreements or instruments to be entered into in connection herewith.
"SUBSIDIARIES" means any corporation or other organization, whether incorporated
or unincorporated, in which the Company owns, directly or indirectly, any equity
or other ownership interest and in which such ownership interest entitles the
Company to elect a majority of the Board of Directors or which meets the
significance test under Regulation S-X of the 1933 Act.
b. Authorization; Enforcement. (i) The Company has all
--------------------------
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Debentures and the Warrants
and to consummate the transactions contemplated hereby and thereby and to issue
the Securities, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement, the
Debentures and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation, the
issuance of the Debentures and the Warrants and the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares issuable upon conversion or
exercise thereof) have been duly authorized by the Company's Board of Directors
and no further consent or authorization of the Company, its Board of Directors,
or its shareholders is required, (iii) this Agreement has been duly executed and
delivered by the Company, and (iv) this Agreement constitutes, and upon
execution and delivery by the Company of the Registration Rights Agreement, the
Debentures and the Warrants, each of such instruments will constitute, a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms.
c. Capitalization. As of the date hereof, the authorized
--------------
capital stock of the Company consists of (i) 200,000,000 shares of Common Stock
of which 79,946,474 shares are issued and outstanding, approximately 6,400,000
shares are reserved for issuance pursuant to the Company's stock option plans,
approximately 35,818,768 shares are reserved for issuance pursuant to securities
(other than the Debentures and the Warrants) exercisable for,
5
<PAGE>
or convertible into or exchangeable for shares of Common Stock and 6,058,312
required) shares are reserved for issuance upon conversion of the Debentures and
exercise of the Warrants (subject to adjustment pursuant to the Company's
covenant set forth in Section 4(h) below); and (ii) no shares of preferred stock
are authorized, issued or outstanding. All of such outstanding shares of
capital stock are, or upon issuance will be, duly authorized, validly issued,
fully paid and nonassessable. No shares of capital stock of the Company are
subject to preemptive rights or any other similar rights of the stockholders of
the Company or any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in SCHEDULE 3(C), as of the
effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into 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 1933 Act (except the
Registration Rights Agreement) and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered by the
issuance of the Debentures, the Warrants, the Conversion Shares or Warrant
Shares. The Company has furnished to the Buyer true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof
("CERTIFICATE OF INCORPORATION"), the Company's By-laws, as in effect on the
date hereof (the "BY-LAWS"), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto. The Company shall provide the Buyer with a
written update of this representation signed by the Company's Chief Executive or
Chief Financial Officer on behalf of the Company as of the Closing Date.
d. Issuance of Shares. The Conversion Shares and Warrant
------------------
Shares are duly authorized and, upon issuance in accordance with their
respective terms of this Agreement (including the issuance of the Conversion
Shares upon conversion of the Debentures and the Warrant Shares upon exercise of
the Warrants in accordance with their respective terms) will be validly issued,
fully paid and non-assessable, and free from all taxes, liens and charges with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of stockholders of the Company. The term Conversion Shares
and Warrant Shares includes the shares of Common Stock issuable upon conversion
of the Debentures or exercise of the Warrants, including without limitation,
such additional shares, if any, as are issuable as a result of the events
described in Section 2(c) of the Registration Rights Agreement. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
upon the issuance of the Conversion Shares and Warrant Shares upon conversion or
exercise of the Debentures or Warrants. The Company further acknowledges that
its obligation to issue Conversion Shares and Warrant Shares upon conversion of
the Debentures or exercise of the
6
<PAGE>
Warrants in accordance with this Agreement, the Debentures and the Warrants is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
e. No Conflicts. The execution, delivery and performance of
------------
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance of the Conversion Shares and Warrant Shares) will not (i) conflict
with or result in a violation of any provision of the Certificate of
Incorporation or By-laws or (ii) violate or conflict with, or result in a breach
of any provision of, or constitute a default (or an event which with notice or
lapse of time or both could become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). Neither the Company nor any of its
Subsidiaries is in violation of its Certificate of Incorporation, By-laws or
other organizational documents and neither the Company nor any of its
Subsidiaries is in default (and no event has occurred which with notice or lapse
of time or both could put the Company or any of its Subsidiaries in default)
under, and neither the Company nor any of its Subsidiaries has taken any action
or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the 1933 Act
and any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self regulatory agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement, the Debentures or the Warrants in
accordance with the terms hereof or thereof. All consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company is not in violation of the listing requirements of
the Nasdaq National Market ("NASDAQ") and does not reasonably anticipate that
the Common Stock will be delisted by the Nasdaq in the foreseeable future. The
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
7
<PAGE>
f. SEC Documents, Financial Statements. Since February 28,
-----------------------------------
1995, the Company has timely filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act of 1934, as amended (the "1934 ACT")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits) incorporated by reference therein, being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered to each Buyer true and
complete copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
February 28, 1997 and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
g. Absence of Certain Changes. Since February 28, 1997, there
--------------------------
has been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition,
results of operations or prospects of the Company or any of its Subsidiaries,
taken as a whole.
h. Absence of Litigation. Except as disclosed in Item 3 of the
---------------------
Company's Report on Form 10-K for the Fiscal Year ended February 28, 1997 and
Note 4 to the Company's Condensed Consolidated Financial Statements contained in
the Company's Quarterly Reports on Form 10-Q for the quarters ended August 31,
1997 and May 31, 1997, there is no action, suit, claim, proceeding, inquiry or
investigation before or by any court, public board, government agency, self-
regulatory organization or body pending or, to the knowledge of the Company or
any of its Subsidiaries, threatened against or affecting the Company or any of
its Subsidiaries that could have a Material Adverse Effect.
8
<PAGE>
i. Patents, Copyrights, etc. The Company and each of its
------------------------
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent rights, inventions, know-how, trade secrets, trademarks, service
marks, service names, trade names and copyrights ("INTELLECTUAL PROPERTY")
necessary to enable it to conduct its business as now operated (and to the best
of the Company's knowledge, as presently contemplated to be operated in the
future); there is no claim or action by any person pertaining to, or proceeding
pending, or to the Company's knowledge threatened which challenges the right of
the Company or of a Subsidiary with respect to any Intellectual Property
necessary to enable it to conduct its business as now operated (and to the best
of the Company's knowledge, as presently contemplated to be operated in the
future); to the best of the Company's knowledge, the Company's or its
Subsidiaries, current and intended products, services and processes do not
infringe on any Intellectual Property or other rights held by any person; and
the Company is unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their Intellectual Property.
j. No Materially Adverse Contracts, Etc. Neither the Company
------------------------------------
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
k. Tax Status. The Company and each of its Subsidiaries has
----------
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
l. Certain Transactions. Except for arm's length transactions
--------------------
pursuant to which the Company or any of its Subsidiaries makes payments in the
ordinary course of business upon terms no less favorable than the Company or any
of its Subsidiaries could obtain from third parties and other than the grant of
stock options disclosed on SCHEDULE 3(C), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing
9
<PAGE>
of services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
m. Disclosure. All information relating to or concerning the
----------
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purposes that the Company's reports filed under the
1934 Act are being incorporated into an effective registration statement filed
by the Company under the 1933 Act).
n. Acknowledgment Regarding Buyers' Purchase of Securities.
-------------------------------------------------------
The Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Buyers, purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
o. 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 in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) which requires stockholder
approval under the rules of The Nasdaq Stock Market.
p. No Brokers. The Company has taken no action which would
----------
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for dealings with Manzur Associates Ltd. whose commissions and
fees will be paid for by the Company.
10
<PAGE>
q. Permits; Compliance. The Company and each of its Subsidiaries is
-------------------
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "COMPANY PERMITS"), and there is
no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits. Neither the Company
nor any of its Subsidiaries is in conflict with, or in default or violation of,
any of the Company Permits, except for any such conflicts, defaults or
violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. Since February 28, 1996, neither
the Company nor any of its Subsidiaries has received any notification with
respect to possible conflicts, defaults or violations of applicable laws, except
for notices relating to possible conflicts, defaults or violations, which
conflicts, defaults or violations would not have a Material Adverse Effect.
r. Environmental Matters.
---------------------
(i) There are, to the Company's knowledge, with respect to the
Company or any of its Subsidiaries or any predecessor of the Company, no past or
present violations of Environmental Laws (as defined below), releases of any
material into the environment, actions, activities, circumstances, conditions,
events, incidents, or contractual obligations which may give rise to any common
law environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the foregoing, nor
is any action pending or, to the Company's knowledge, threatened in connection
with any of the foregoing. The term "ENVIRONMENTAL LAWS" means all federal,
state, local or foreign laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
any of its Subsidiaries during the period the property was owned,
11
<PAGE>
leased or used by the Company or any of its Subsidiaries, except in the normal
course of the Company's or any of its Subsidiaries' business.
(iii)There are no underground storage tanks on or under any
real property owned, leased or used by the Company or any of its Subsidiaries
that are not in compliance with applicable law.
s. Title to Property. The Company and its Subsidiaries have
-----------------
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as would not have a Material Adverse
Effect. Any real property and facilities held under lease by the Company and
its Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as would not have a Material Adverse Effect.
t. Insurance. The Company and each of its Subsidiaries are
---------
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
u. Internal Accounting Controls. The Company and each of its
----------------------------
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
4. COVENANTS.
---------
a. Best Efforts. The parties shall use their best efforts to
------------
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D
---------------------
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take
12
<PAGE>
such action as the Company shall reasonably determine is necessary to qualify
the Securities for sale to the Buyers at the applicable closing pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Buyer on or prior to the
Closing Date.
c. Reporting Status; Eligibility to Use Form S-3; Accurate
-------------------------------------------------------
Disclosure. The Company's Common Stock is registered under Section 12(g) of the
- ----------
1934 Act. So long as any Buyer beneficially owns any of the Securities, the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination. The Company currently
meets, and will take all necessary action to continue to meet, the "registrant
eligibility" requirements set forth in the general instructions to Form S-3.
The Company agrees to fully comply with the disclosure requirements of the 1933
Act and the 1934 Act and to file all reports, forms, statements and schedules
thereunder in a manner such that at the time of filing, there are not material
misstatements of omissions therein, and to seek and maintain the assistance of
outside legal counsel and accountants on an ongoing basis regarding the
Company's disclosure obligations and public disclosures, including SEC reports,
shareholder communications, press releases and the like.
d. Use of Proceeds. The Company shall use the proceeds from
---------------
the sale of the Debentures and the Warrants for working capital and general
corporate purposes and shall not, directly or indirectly, use such proceeds for
any loan to or investment in any other corporation, partnership, enterprise or
other person (except in connection with its currently existing direct or
indirect Subsidiaries).
e. Additional Equity Capital; Right of First Refusal. Subject
-------------------------------------------------
to the exceptions described below, the Company will not, without the prior
written consent of Rose Glen Capital Management, L.P. ("RGC"), negotiate or
contract with any party to obtain additional equity financing (including debt
financing with an equity component) that involves (A) the issuance of Common
Stock at a discount to the market price of the Common Stock on the date of
issuance, (B) the issuance of convertible securities that are convertible into
an indeterminate number of shares of Common Stock, (C) the issuance of
securities which are putable to the Company at the option of the holder, other
than at cost or up to a 10% premium (plus accrued interest or dividends) in
connection with a default event (which event of default cannot arise as result
of the price of the Company's Common Stock) and (D) the issuance of securities
with warrant coverage in excess of 20%, during the period (the "LOCK-UP PERIOD")
beginning on the Closing Date and ending on the later of (i) one hundred twenty
(120) days from the Closing Date and (ii) ninety (90) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective. In addition, subject to the exceptions described below, the
Company will not conduct any equity financing (including debt
13
<PAGE>
with an equity component) ("FUTURE OFFERINGS") during the period beginning on
the Closing Date and ending two hundred forty (240) days thereafter unless it
shall have first delivered to RGC, 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 RGC and its
affiliates an option during the ten (10) day period following delivery of such
notice to purchase of the securities being offered in the Future Offering on the
same terms as contemplated by such Future Offering (the limitations referred to
in this and the immediately preceding sentence are collectively referred to as
the "CAPITAL RAISING LIMITATIONS"). The Capital Raising Limitations shall not
apply to any transaction involving (i) issuances of securities in a firm
commitment underwritten public offering (excluding a continuous offering
pursuant to Rule 415 under the 1933 Act), (ii) issuances of securities as
consideration for a merger, consolidation 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 and as consideration for the
disposition or acquisition of a business, product or license by the Company,
(iii) issuances of equity at a fixed price greater than $5.72 or (iv) the
issuance to JNC Opportunity Fund of five year warrants to purchase 218,000
shares of Common Stock at an exercise price of $3.00 and 100,000 shares of
Common Stock at an exercise price of $4.00. The Capital Raising Limitations
also shall not apply to 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 to the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plan approved by a majority of the Company's disinterested directors.
f. Expenses. The Company shall pay to RGC a $15,000
--------
nonaccountable expense allowance to cover RGC's expenses in connection with the
negotiation, preparation, execution, delivery and performance of this Agreement
and the other agreements to be executed in connection herewith, including,
without limitation, attorneys' and consultants' fees and expenses.
g. Financial Information. The Company agrees to send the
---------------------
following reports to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and
any Current Reports on Form 8-K; (ii) within one (1) day after release, copies
of all press releases issued by the Company or any of its Subsidiaries; and
(iii) contemporaneously with the making available or giving to the stockholders
of the Company, copies of any notices or other information the Company makes
available or gives to such stockholders.
h. Reservation of Shares. The Company shall at all times have
---------------------
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise of the
outstanding Debentures and Warrants and issuance of the Conversion Shares and
Warrant Shares in connection therewith (based on
14
<PAGE>
the Conversion Price of the Debentures or Exercise Price of the Warrants in
effect from time to time). The Company shall not reduce the number of shares of
Common Stock reserved for issuance upon conversion of Debentures and exercise of
the Warrants without the consent of each Buyer, which consent will not be
unreasonably withheld. The Company shall use its best efforts at all times to
maintain the number of shares of Common Stock so reserved for issuance at no
less than two (2) times the number that is then actually issuable upon full
conversion of the Debentures and exercise of the Warrants (based on the
Conversion Price of the Debentures or Exercise Price of the Warrants in effect
from time to time). If at any time the number of shares of Common Stock
authorized and reserved for issuance is below the number of Conversion Shares
and Warrant Shares issued and issuable upon conversion of the Debentures and
exercise of the Warrants (based on the Conversion Price of the Debentures or
Exercise price of the Warrants then in effect), the Company will promptly take
all corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of shareholders
to authorize additional shares to meet the Company's obligations under this
Section 4(h), in the case of an insufficient number of authorized shares, and
using its best efforts to obtain shareholder approval of an increase in such
authorized number of shares.
i. Listing. The Company shall promptly secure the listing of
-------
the Conversion Shares and Warrant Shares upon each national securities exchange
or automated quotation system, if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance) and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares and Warrant Shares from time to time issuable upon conversion
of the Debentures or exercise of the Warrants. The Company will obtain and
maintain the listing and trading of its Common Stock on Nasdaq, the Nasdaq
SmallCap Market ("NASDAQ SMALLCAP"), the New York Stock Exchange ("NYSE"), or
the American Stock Exchange ("AMEX") and will 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. The Company shall promptly provide to each Buyer copies of any
notices it receives from Nasdaq regarding the continued eligibility of the
Common Stock for listing on Nasdaq.
j. Corporate Existence. So long as a Buyer beneficially owns
-------------------
any Debentures or Warrants, the Company shall maintain its corporate existence
and shall not sell all or substantially all of the Company's assets, except in
the event of a merger or consolidation or sale of all or substantially all of
the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose Common Stock is listed for trading on Nasdaq,
Nasdaq SmallCap, NYSE or AMEX.
k. No Integration. The Company will not conduct any future
--------------
offering that will be integrated with the issuance of the Securities solely for
purposes of Rule 4460(i) of the Nasdaq Stock Market.
15
<PAGE>
l. Solvency. The Company (both before and after giving effect to
--------
the transactions contemplated by this Agreement) is solvent (i.e., its assets
----
have a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not have, nor does it intend to take any action
that would impair, its ability to pay its debts from time to time incurred in
connection therewith as such debts mature. The Company did not receive a
qualified opinion from its auditors with respect to its most recent fiscal year
end and does not anticipate or know of any basis upon which its auditors might
issue a qualified opinion in respect of its current fiscal year.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
---------------------------
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
proper conversion of the Debentures or exercise of the Warrants (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the
Conversion Shares and Warrant Shares under the 1933 Act, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 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
the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon resale of the
Securities. If a Buyer provides the Company with an opinion of counsel,
reasonably satisfactory to the Company in form, substance and scope, that
registration of a resale by such Buyer of any of the Securities is not required
under the 1933 Act, the Company shall permit the transfer, and, in the case of
the Conversion Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by such Buyer. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers, 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 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section, that the
Buyers shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate transfer, without the
necessity of showing economic loss and without any bond or other security being
required.
16
<PAGE>
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
----------------------------------------------
the Company hereunder to issue and sell the Debentures and Warrants to a Buyer
at the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions thereto, provided that these conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion:
a. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price
in accordance with Section 1(b) above.
c. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and the applicable Buyer shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
-------------------------------------------------
obligation of each Buyer hereunder to purchase the Debentures and Warrants at
the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly executed
Debentures (in such denominations as the Buyer shall request) and Warrants in
accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
17
<PAGE>
d. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
f. The Conversion Shares and Warrant Shares shall have been
authorized for quotation on Nasdaq and trading in the Common Stock on Nasdaq
shall not have been suspended by the SEC or Nasdaq.
g. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as EXHIBIT "D"
attached hereto.
h. The Buyer shall have received an officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
----------------------------
a. Governing Law. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of Delaware without regard
to the principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States Federal Courts located in Delaware
with respect to any dispute arising under this Agreement, the agreements entered
into in connection herewith or the transactions contemplated hereby or thereby.
b. Counterparts; Signatures by Facsimile. This Agreement may
-------------------------------------
be executed in two or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to
18
<PAGE>
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
c. Headings. The headings of this Agreement are for
--------
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
------------
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the
----------------------------
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given
-------
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular U.S. mail, or
upon receipt, if delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, in each case addressed to a party.
The addresses for such communications shall be:
If to the Company:
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, California 90245
Attention: President
Facsimile: (310) 643-8719
With copy to:
Michael Froch
General Counsel
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, California 90245
Facsimile: (310) 643-8719
19
<PAGE>
If to a Buyer: To the address set forth immediately below such
Buyer's name on the signature pages hereto.
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for
-------------------------
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations and warranties of the Company
--------
and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers.
j. Publicity. The Company and each of the Buyers shall have
---------
the right to review a reasonable period of time before issuance of any press
releases, SEC, Nasdaq or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
-------- -------
Company shall be entitled, without the prior approval of each of the Buyers, to
make any press release or SEC, Nasdaq or NASD filings with respect to such
transactions as is required by applicable law and regulations (although each of
the Buyers shall be consulted by the Company in connection with any such press
release prior to its release and shall be provided with a copy thereof and be
given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or
------------------
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement
----------------------
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
20
<PAGE>
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
AURA SYSTEMS, INC.
By: __________________________________
Steven Veen
Chief Financial Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: __________________________________
Wayne D. Bloch
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
<TABLE>
<CAPTION>
<S> <C>
Aggregate Principal Amount of Debentures: $3,500,000
Number of Warrants: 1,009,009
Aggregate Purchase Price: $3,500,000
</TABLE>
21
<PAGE>
CEFEO INVESTMENTS LTD.
By: ____________________________
Name:
Title:
RESIDENCE: Switzerland
ADDRESS: c/o Banca Privata Solari & Blum S.A.
Via Glnevra 2, CH-6901
Lugano
Switzerland
Facsimile: 011-41-91-913-4502
Telephone: 011-41-91-913-4500
AGGREGATE SUBSCRIPTION AMOUNT:
<TABLE>
<CAPTION>
<S> <C>
Aggregate Principal Amount of Debentures: $2,000,000
Number of Warrants: 576,577
Aggregate Purchase Price: $2,000,000
</TABLE>
22
<PAGE>
EXHIBIT 4.6
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID
ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE
TO THE BORROWER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.
CONVERTIBLE DEBENTURE
El Segundo, California
December 31, 1997 $_____________
FOR VALUE RECEIVED, AURA SYSTEMS, INC., a Delaware corporation
(hereinafter called the "Borrower") hereby promises to pay to the order of
_____________________________ or registered assigns (the "Holder") the sum of
___________________ Dollars ($_________), on December 31, 2002 (the "Maturity
Date"), and to pay interest on the unpaid principal balance hereof at the rate
of seven percent (7%) per annum from December 31, 1997 (the "Issue Date") until
the same becomes due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise. Any amount of principal of or interest on this
Debenture which is not paid when due shall bear interest at the rate of twelve
percent (12%) per annum from the due date thereof until the same is paid
("Default Interest"). Interest shall accrue commencing on December 31, 1997,
shall be computed on the basis of a 365-day year and the actual number of days
elapsed and shall be payable quarterly, in cash, on March 30, June 30, September
30 and December 31 of each year until the Maturity Date and any accrued and
unpaid interest on the Maturity Date shall be paid in full in the Maturity Date
together with the then outstanding principal balance hereof. All payments of
principal and accrued interest (to the extent not converted into common stock,
par value $.005 per share, of the Borrower (the "Common Stock") in accordance
with the terms hereof) shall be made in lawful money of the United States of
America. All payments shall be made at
<PAGE>
such address as the Holder shall hereafter give to the Borrower by written
notice made in accordance with the provisions of this Debenture. Whenever any
amount expressed to be due by the terms of this Debenture is due on any day
which is not a business day, the same shall instead be due on the next
succeeding day which is a business day. As used in this Debenture, the term
"business day" shall mean any day other than a Saturday, Sunday or a day on
which commercial banks in the city of New York, New York are authorized or
required by law or executive order to remain closed. Each capitalized term used
herein, and not otherwise defined, shall have the meaning ascribed thereto in
that certain Securities Purchase Agreement, dated December 31, 1997, pursuant to
which this Debenture was originally issued (the "Purchase Agreement"). The
Maturity Date shall be extended by one (1) day for each Trading Day (as defined
herein) occurring prior thereto and prior to the full conversion of this
Debenture that (i) sales cannot be made pursuant to the Registration Statement
(as defined in the Registration Rights Agreement (as defined below)) (whether by
reason of the Company's failure to properly supplement or amend the prospectus
included therein in accordance with the terms of the Registration Rights
Agreement or otherwise, including any Allowed Delay as described in the
Registration Rights Agreement) or (ii) any Event of Default (as defined in
Article III) exists, without regard to whether any cure periods have run.
The following terms shall apply to this Debenture:
ARTICLE I. CONVERSION RIGHTS
1.1 CONVERSION RIGHT.
----------------
The Holder shall have the right from time to time, and at any
time on or prior to the Maturity Date, to convert at any time all or from time
to time any part of the outstanding and unpaid principal amount of this
Debenture of at least $50,000, or such lesser amount as shall remain unpaid at
the time of the conversion (together with accrued interest thereon that remains
unpaid on the due date thereof, if any), into fully paid and non-assessable
shares of Common Stock, as such Common Stock exists on the date of issuance of
this Debenture, or any shares of capital stock of Borrower into which such
Common Stock shall hereafter be changed or reclassified (the "Common Stock") at
the conversion price determined as provided herein (the "Conversion Price");
provided, however, that unless the Holder delivers a waiver in accordance with
- -------- -------
the immediately following sentence, in no event shall the Holder be entitled to
convert any portion of this Debenture in excess of that portion of this
Debenture upon conversion of which the sum of (1) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of this Debenture) and (2) the number of shares of Common
Stock issuable upon the conversion of the portion of this Debenture with
2
<PAGE>
respect to which the determination of this proviso is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 4.9% of
the outstanding shares of Common Stock. For purposes of the first proviso to the
immediately preceding sentence, (i) beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13 D-G thereunder, except as otherwise provided in
clause (1) of such proviso and (ii) the Holder may waive the limitations set
forth therein by written notice to the Borrower upon not less than sixty-one
(61) days prior notice (with such waiver taking effect only upon the expiration
of such 61 day notice period). The number of shares of Common Stock to be issued
upon each conversion of this Debenture shall be determined by dividing the
Conversion Amount (as defined below) by the Conversion Price in effect on the
date a notice of conversion, in the form attached hereto as Exhibit A (the
"Notice of Conversion"), is delivered to the Borrower by the Holder in
accordance with Section 1.4 below (the "Conversion Date"). The term "Conversion
Amount" means, with respect to any conversion of this Debenture, the sum of (1)
the principal amount of this Debenture to be converted in such conversion
plus (2) accrued interest that remains unpaid as of the due date thereof, if
- ----
any, on such principal amount at the interest rates provided in this
Debenture to the Conversion Date plus (3) Default Interest, if any, on the
----
interest referred to in the immediately preceding clause (2) plus (4) at the
----
Holder's option, any amounts owed to the Holder pursuant to Sections 1.4 and
1.5(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
Agreement, dated as of December 31, 1997, executed in connection with the
initial issuance of this Debenture and the other Debentures issued on the Issue
Date (the "Registration Rights Agreement").
1.2 CONVERSION PRICE. Subject to Section 1.3 below, the Conversion
----------------
Price shall be $3.81 (subject, in each case, to equitable adjustments for stock
splits, stock dividends or rights offerings by the Borrower relating to the
Borrower's securities or the securities of any subsidiary of the Borrower,
combinations, recapitalization, reclassifications, extraordinary distributions
and similar events). "Trading Day" shall mean any day on which the Common Stock
is traded for any period on Nasdaq, or on the principal securities exchange or
other securities market on which the Common Stock is then being traded.
1.3 ADJUSTMENTS TO CONVERSION PRICE. If, pursuant to Section 4.1,
-------------------------------
the Borrower does not pay the Prepayment Amount (as defined in Section 4.1) to
the Holder by the twentieth (20th) day following the date of the Prepayment
Notice (as defined in Section 4.1), for any and all conversions taking place
thereafter the Conversion Price shall be equal 100% of the Lowest Closing Bid
Price (as defined below) during the sixty (60) Trading Day ending one (1)
Trading Day prior to the Conversion Date. "Lowest Closing Bid Price" period
means, for any security as of any date, the lowest closing bid price on Nasdaq
as reported by Bloomberg, L.P. ("Bloomberg") or if Nasdaq is not the principal
trading market for such security, the lowest closing bid price of such security
on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
lowest closing bid price of such security in the over-the-
3
<PAGE>
counter market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no lowest closing bid price is reported for such security by
Bloomberg, then the average of the bid prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau, Inc.
1.4 AUTHORIZED SHARES. The Borrower covenants that during the period
-----------------
the conversion right exists, the Borrower will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the full conversion of this Debenture and the other
Debentures issued on the Issue Date. As of the date of issuance of this
Debenture, 2,887,140 authorized and unissued shares of Common Stock have been
duly reserved for issuance upon conversion of this Debenture and the other
Debentures issued on the Issue Date (the "Reserved Amount"). The Borrower
represents that upon issuance, such shares will be duly and validly issued,
fully paid and non-assessable. The Borrower (i) acknowledges that it has
irrevocably instructed its transfer agent to issue certificates for the Common
Stock issuable upon conversion of this Debenture and (ii) agrees that its
issuance of this Debenture shall constitute full authority to its officers and
agents who are charged with the duty of executing stock certificates to execute
and issue the necessary certificates for shares of Common Stock in accordance
with the terms and conditions of this Debenture.
If, at any time a Holder of this Debenture submits a Notice of
Conversion, the Borrower does not have sufficient authorized but unissued shares
of Common Stock available to effect such conversion in accordance with the
provisions of this Article I (a "Conversion Default"), subject to Section 5.8,
the Borrower shall issue to the Holder all of the shares of Common Stock which
are then available to effect such conversion. The portion of this Debenture
which the Holder included in its Conversion Notice and which exceeds the amount
which is then convertible into available shares of Common Stock (the "Excess
Amount") shall, notwithstanding anything to the contrary contained herein, not
be convertible into Common Stock in accordance with the terms hereof until (and
at the Holder's option at any time after) the date additional shares of Common
Stock are authorized by the Borrower, at which time the Conversion Price in
respect thereof shall be the lower of (i) the Conversion Price on the Conversion
Default Date (as defined below) and (ii) the Conversion Price on the Conversion
Date thereafter elected by the Holder in respect thereof. The Borrower shall
pay to the Holder payments ("Conversion Default Payments") for a Conversion
Default in the amount of (N/365) x .24 x the Excess Amount on the Conversion
Date in respect of the Conversion Default (the "Conversion Default Date"), where
N = the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Borrower authorizes a sufficient number of shares
of Common Stock to effect conversion of the full outstanding principal balance
of this Debenture. The Borrower shall use its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable following the
earlier of (i) such time that the Holder notifies the Borrower or that the
Borrower otherwise becomes aware that there are or likely will be insufficient
authorized and unissued
4
<PAGE>
shares to allow full conversion thereof and (ii) a Conversion Default. The
Borrower shall send notice to the Holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of Holder's
accrued Conversion Default Payments. The accrued Conversion Default Payments for
each calendar month shall be paid in cash or shall be convertible into Common
Stock (at such time as there are sufficient authorized shares of Common Stock)
at the Market Price (as defined below), at the Holder's option, as follows:
(a) In the event Holder elects to take such payment in cash, cash
payment shall be made to Holder by the fifth day of the month following the
month in which it has accrued; and
(b) In the event Holder elects to take such payment in Common Stock,
the Holder may convert such payment amount into Common Stock at the Conversion
Price (as in effect at the time of conversion) at any time after the fifth day
of the month following the month in which it has accrued (at such time as there
are sufficient authorized shares of Common Stock) in accordance with the terms
of this Article I.
The Holder's election shall be made in writing to the Borrower at any
time prior to 12:00 Midnight, New York City Time, on the third day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, the Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the Holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) due to the Borrower's
failure to maintain a sufficient number of authorized shares of Common Stock.
"Market Price" means, for any security as of any date, the closing bid price on
Nasdaq as reported by Bloomberg or if Nasdaq is not the principal trading market
for such security, the closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the closing bid price
of such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, then the average of the bid prices of
any market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc.
1.5 METHOD OF CONVERSION.
--------------------
(a) This Debenture may be converted by the Holder in whole or in
part (provided such partial conversion is at least $50,000, or such lesser
amount as shall remain unpaid at the time of the conversion (together with
accrued interest thereon that remains unpaid on the due date thereof)) at any
time from time to time after the Issue Date, by (A) submitting to the Borrower a
Notice of Conversion (by facsimile or other reasonable means of communication
dispatched on the Conversion Date prior to 12:00 Midnight, New
5
<PAGE>
York City Time) and (B) subject to Section 1.5(b), surrendering this Debenture
at the principal office of the Borrower.
(b) Notwithstanding anything to the contrary set forth herein, upon
conversion of this Debenture in accordance with the terms hereof, the Holder
shall not be required to physically surrender this Debenture to the Borrower
unless the entire unpaid principal amount of this Debenture is so converted.
The Holder and the Borrower shall maintain records showing the principal amount
so converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Borrower, so as not to require
physical surrender of this Debenture upon each such conversion. In the event of
any dispute or discrepancy, such records of the Borrower shall be controlling
and determinative in the absence of manifest error. Notwithstanding the
foregoing, if any portion of this Debenture is converted as aforesaid, the
Holder may not transfer this Debenture unless the Holder first physically
surrenders this Debenture to the Borrower, whereupon the Borrower will forthwith
issue and deliver upon the order of the Holder a new note of like tenor,
registered as the Holder (upon payment by the Holder of any applicable transfer
taxes) may request, representing in the aggregate the remaining unpaid principal
amount of this Debenture. The Holder and any assignee, by acceptance of this
Debenture, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Debenture, the unpaid and
unconverted principal amount of this Debenture represented by this Debenture may
be less than the amount stated on the face hereof.
(c) The Borrower shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of shares
of Common Stock or other securities or property on conversion of this Debenture
in a name other than that of the Holder (or in street name), and the Borrower
shall not be required to issue or deliver any such shares or other securities or
property unless and until the person or persons (other than the Holder or the
custodian in whose street name such shares are to be held for the Holder's
account) requesting the issuance thereof shall have paid to the Borrower the
amount of any such tax or shall have established to the satisfaction of the
Borrower that such tax has been paid.
(d) Upon receipt by the Borrower from the Holder of a facsimile
transmission (or other reasonable means of communication) of a Notice of
Conversion meeting the requirements for conversion as provided in this Section
1.5, the Borrower shall issue and deliver or cause to be issued and delivered to
the Holder certificates for the Common Stock issuable upon such conversion
within three (3) business days after such receipt (and, solely in the case of
conversion of the entire unpaid principal amount hereof, surrender of this
Debenture) (such third business day being hereinafter referred to as the
"Deadline") in accordance with the terms hereof and the Purchase Agreement
(including, without limitation, in accordance with the requirement that
certificates for shares of Common
6
<PAGE>
Stock issued on or after the effective date of the Registration Statement upon
conversion of this Debenture shall not bear any restrictive legend).
(e) Upon receipt by the Borrower of a Notice of Conversion, the
Holder shall be deemed to be the holder of record of the Common Stock issuable
upon such conversion, the outstanding principal amount and the amount of accrued
and unpaid interest on this Debenture shall be reduced to reflect such
conversion, and, unless the Borrower defaults on its obligations under this
Article I, all rights with respect to the portion of this Debenture being so
converted shall forthwith terminate except the right to receive the Common Stock
or other securities, cash or other assets, as herein provided, on such
conversion. If the Holder shall have given a Notice of Conversion as provided
herein, the Borrower's obligation to issue and deliver the certificates for
Common Stock shall be absolute and unconditional, irrespective of the absence of
any action by the Holder to enforce the same, any waiver or consent with respect
to any provision thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any other
obligation of the Borrower to the holder of record, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder of any obligation to the Borrower, and irrespective of any other
circumstance which might otherwise limit such obligation of the Borrower to the
Holder in connection with such conversion. The date of receipt of such Notice of
Conversion shall be the Conversion Date so long as it is received before 12:00
Midnight, New York City Time, on such date.
(f) In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Borrower's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the Holder and its compliance with
the provisions contained in Section 1.1 and in this Section 1.5, the Borrower
shall use its best efforts to cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the Holder by crediting
the account of Holder's Prime Broker with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system.
(g) Without in any way limiting the Holder's right to pursue other
remedies, including actual damages and/or equitable relief, the parties agree
that if delivery of the Common Stock issuable upon conversion of this Debenture
is more than one (1) business day after the Deadline (other than a failure due
to the circumstances described in Section 1.4 above, which failure shall be
governed by such Section) the Borrower shall pay to the Holder $500 per day in
cash, for each of the first two (2) days beyond the Deadline and $2,500 per day
in cash for each day thereafter that the Borrower fails to deliver such Common
Stock. Such cash amount shall be paid to Holder by the fifth day of the month
following the month in which it has accrued or, at the option of the Holder (by
written notice to the Borrower by the first day of the month following the month
in which it has accrued), shall be added to the principal amount of this
Debenture, in which event interest shall accrue
7
<PAGE>
thereon in accordance with the terms of this Debenture and such additional
principal amount shall be convertible into Common Stock in accordance with the
terms of this Debenture.
1.6 CONCERNING THE SHARES. The shares of Common Stock issuable upon
---------------------
conversion of this Debenture may not be sold or transferred unless either (i)
such shares shall have been included in an effective registration statement
under the Act or (ii) the Borrower or its transfer agent shall have been
furnished with an opinion or other similar letter of legal counsel to the effect
that such sale or transfer is exempt from the registration requirements of the
Act or (iii) such shares are sold pursuant to Rule 144 under the Act (or a
successor rule). Except as otherwise provided in the Purchase Agreement (and
subject to the removal provisions set forth below), each certificate for shares
of Common Stock issuable upon conversion of this Debenture that has not been so
included in an effective registration statement or that has not been sold
pursuant to an effective registration statement or an exemption that permits
removal of the legend, shall bear a legend substantially in the following form,
as appropriate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN
OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."
The legend set forth above shall be removed and the Borrower shall
issue to the Holder a new certificate therefor free of any transfer legend if
(i) the Borrower or its transfer agent shall have received an opinion or other
similar letter of counsel, to the effect that a public sale or transfer of such
Common Stock may be made without registration under the Act and any applicable
state securities laws and the shares are so sold or transferred, or that the
Common Stock issuable upon conversion of this Debenture can be sold pursuant to
Rule 144 (or a successor rule thereto) without any restriction as to the number
of shares of Common Stock acquired as of a particular date that can then be
immediately sold or (ii) in the case of the Common Stock issuable upon
conversion of this Debenture, a registration statement under the Act covering
such securities is in effect. Nothing in this Debenture shall (i) limit the
Borrower's obligation under the Registration Rights Agreement or (ii) affect in
any way the Holder's obligations to comply with applicable prospectus delivery
requirements upon the resale of the securities referred to herein.
8
<PAGE>
1.7 EFFECT OF CERTAIN EVENTS.
------------------------
(a) If, at any time when this Debenture is issued and outstanding,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Borrower shall be changed into the same or a different number of
shares of another class or classes of stock or securities of the Borrower or
another entity, or in case of any sale or conveyance of all or substantially all
of the assets of the Borrower other than in connection with a plan of complete
liquidation of the Borrower, then the Holder of this Debenture shall thereafter
have the right to receive upon conversion of this Debenture, upon the bases and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such stock,
securities or assets which the Holder would have been entitled to receive in
such transaction had this Debenture been converted immediately prior to such
transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holder of this Debenture to the end
that the provisions hereof (including, without limitation, provisions for
adjustment of the Conversion Price and of the number of shares issuable upon
conversion of the Debenture) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter deliverable upon
the exercise hereof. The Borrower shall not effect any transaction described in
this Section 1.7 unless (a) it first gives, to the extent practicable, forty-
five (45) days prior written notice (but in any event at least thirty (30) days
prior written notice) of the record date of the special meeting of stockholders
to approve, or if there is no such record date, the consummation of, such
merger, consolidation, exchange of shares, recapitalization, reorganization or
other similar event or sale of assets (during which time the Holder shall be
entitled to convert this Debenture) and (b) the resulting successor or acquiring
entity (if not the Borrower) assumes by written instrument the obligations of
this Section 1.7(a). The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
(b) If the Borrower shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock as a
dividend, stock repurchase, by way of return of capital or otherwise (including
any dividend or distribution to the Borrower's shareholders in cash or shares
(or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-
off) (a "Distribution"), the Holder of this Debenture shall be entitled, upon
any conversion of this Debenture after the date of record for determining
shareholders entitled to such Distribution, to receive the amount of such assets
which would have been payable to the Holder with respect to the shares of Common
Stock issuable upon such conversion had such Holder been the holder of such
shares of Common Stock on the record date for the determination of shareholders
entitled to such Distribution.
(c) If, at any time when any Debentures are issued and outstanding,
the Borrower issues any convertible securities or rights to purchase stock,
warrants,
9
<PAGE>
securities or other property (the "Purchase Rights") pro rata to the record
holders of any class of Common Stock, then the Holder of this Debenture will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such Holder could have acquired if such Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of this Debenture (without regard to any limitations on conversion
contained herein) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
(d) If, at any time after the Issue Date, the Corporation sells Common
Stock or securities convertible into, or exchangeable for, Common Stock, other
than a sale pursuant to bona fide registered public offering of Common Stock by
the Corporation (not including a continuous offering pursuant to Rule 415 under
the Securities Act of 1933, as amended), and other than sales of shares to
underwriters (collectively, the "Other Common Stock"), then, if the effective or
maximum sales price of the Common Stock with respect to such transaction
(including the effective or maximum conversion, or exchange price) ("Other
Price") is less than the effective Conversion Price of the Debenture at such
time and such Other Common Stock is eligible for resale prior to March 31, 1999,
at the option of the Holder, the Corporation shall adjust the Conversion Price
applicable to the portion of the Debenture not yet converted in form and
substance reasonably satisfactory to the Holders so that the Conversion Price
shall not, in any event, be greater, after giving effect to all other
adjustments contained herein, than the Other Price. The adjustments to the
Conversion Price pursuant to this paragraph 1.7(d) shall not apply to the
issuance of Common Stock upon conversion or exchange of convertible securities
outstanding on the Issue Date.
(e) Upon the occurrence of each adjustment or readjustment of the
Conversion Price as a result of the events described in this Section 1.7, the
Borrower, at its expense, shall promptly compute such adjustment or readjustment
and prepare and furnish to the Holder of a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Borrower shall, upon the written
request at any time of the Holder, furnish to such Holder a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at
the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon conversion of the Debenture.
1.8 CERTAIN PAYMENTS IN LIEU OF CONVERSION. In the event this
--------------------------------------
Debenture becomes convertible at the Conversion Price determined in accordance
with Section 1.3 and, as a result, the Borrower gets written advice from the
Nasdaq Stock Market that Rule 4460(i) of the rules of the Nasdaq Stock Market is
applicable to the issuance of Common Stock upon Conversion of this Debenture
then, in no event shall the Borrower issue more than the
10
<PAGE>
Maximum Share Amount (as defined below and subject to adjustment as provided
herein) upon conversion of this Debenture, unless the Borrower shall have
obtained Stockholder Approval (as defined below) or a waiver of such requirement
by the Nasdaq Stock Market. As used herein, Stockholder Approval means approval
by the stockholders of the Borrower in accordance with Rule 4460(i) of the rules
of the Nasdaq Stock Market. Once the Maximum Share Amount has been issued (the
date of which is hereinafter referred to as the "Maximum Conversion Date"),
unless the Borrower shall have obtained Stockholder Approval or a waiver of such
requirement by the Nasdaq Stock Market, in lieu of any further right to convert
this Debenture, and in full satisfaction of the Borrower's obligations under
this Debenture, the Borrower shall pay to the Holder, within fifteen (15)
business days of the Maximum Conversion Date, an amount equal to the greater
of (i) 130% times the sum of (a) the then outstanding principal amount of
----- ---
this Debenture immediately following the Maximum Conversion Date plus (b)
----
accrued and unpaid interest on such principal amount plus (c) accrued and unpaid
----
Default Interest, if any, on the amount referred to in the immediately
preceding clause (b) at the rate provided in this Debenture plus (d) any
----
optional amounts that may be added thereto at the Maximum Conversion Date by
the Holder in accordance with the terms hereof (the then outstanding
principal amount of this Debenture immediately following the Maximum Conversion
Date plus the amounts referred to in clauses (b), (c) and (d) above shall
----
collectively be referred to as the "Remaining Convertible Amount"), or
(ii) the Remaining Convertible Amount divided by the Conversion Price (based on
----------
the sixty (60) Trading Day period ending on the Trading Day which is one (1)
Trading Day prior to the date of payment) multiplied by the Closing Price of the
-------------
Common Stock on the Trading Day immediately preceding the date of payment. The
Maximum Share Amount shall mean an aggregate of 15,981,300 shares of Common
Stock (19.9% of the Borrower's outstanding shares of Common Stock as of December
31, 19978, subject to equitable adjustment from time to time for stock splits,
stock dividends, combinations, capital reorganizations and similar events
relating to the Common Stock occurring after the date hereof. With respect to
each Holder of Debentures, the Maximum Share Amount shall refer to such Holder's
pro rata share thereof determined in accordance with Section 5.8 below. In the
- --- ----
event that Borrower obtains Stockholder Approval, the approval of the Nasdaq
Stock Market or otherwise concludes that it is able to increase the number of
shares to be issued above the Maximum Share Amount (such increased number being
the "New Maximum Share Amount"), the references to Maximum Share Amount, above,
shall be deemed to be, instead, references to the greater New Maximum Share
Amount. In the event that Stockholder Approval is not obtained or a
registration statement covering the additional shares of Common Stock which
constitute the New Maximum Share Amount is not effective prior to the Maximum
Share Amount being issued (if such registration statement is necessary to allow
for the public resale of such securities), the Maximum Share Amount shall remain
unchanged; provided, however, that the Holder may grant an extension of the
effective date of such registration statement. In the event Rule 4460(i) of the
rules of the Nasdaq Stock Market apply, and in the event that (a) the aggregate
number of shares of Common Stock issued pursuant to this Debenture and the other
Debentures issued on the Issue Date
11
<PAGE>
represents at least twenty percent (20%) of the Maximum Share Amount and (b) the
sum of (x) the aggregate number of shares of Common Stock issued pursuant to
this Debenture and the other Debentures issued on the Issue Date plus (y) the
----
aggregate number of shares of Common Stock that remain issuable pursuant to this
Debenture and the other Debentures issued on the Issue Date, represents at least
one hundred percent (100%) of the Maximum Share Amount (the "Triggering Event"),
the Borrower will use its best efforts to seek and obtain Stockholder Approval
(or obtain such other relief as will allow conversions hereunder in excess of
the Maximum Share Amount) as soon as practicable following the Triggering Event
and before the Maximum Conversion Date.
1.9 STATUS AS STOCKHOLDER. Upon submission of a Notice of Conversion
---------------------
by a Holder, (i) the shares covered thereby (other than the shares, if any,
which cannot be issued because their issuance would exceed such Holder's
allocated portion of the Reserved Amount) shall be deemed converted into shares
of Common Stock and (ii) the Holder's rights as a Holder of such converted
portion of this Debenture shall cease and terminate, excepting only the right to
receive certificates for such shares of Common Stock and to any remedies
provided herein or otherwise available at law or in equity to such Holder
because of a failure by the Borrower to comply with the terms of this
Debenture. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Deadline with respect to a conversion of any
portion of this Debenture for any reason, then (unless the Holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Borrower), the Holder shall regain the rights of a Holder of this Debenture with
respect to such unconverted portions of this Debenture and the Borrower shall,
as soon as practicable, return such unconverted Debenture to the holder or, if
the Debenture has not been surrendered, adjust its records to reflect that such
portion of this Debenture has not been converted. In all cases, the Holder
shall retain all of its rights and remedies (including, without limitation, (i)
the right to receive Conversion Default Payments pursuant to Section 1.4 the
extent required thereby for such Conversion Default and any subsequent
Conversion Default and (ii) the right to have the Conversion Price with respect
to subsequent conversions determined in accordance with Section 1.4) for the
Borrower's failure to convert this Debenture.
ARTICLE II. CERTAIN COVENANTS
2.1 DISTRIBUTIONS ON CAPITAL STOCK. Unless (i) no Event of Default
------------------------------
has occurred or is continuing, (ii) this Debenture is then prepayable pursuant
to Section 4.1, (iii) the Borrower has sufficient cash on hand to meet the
prepayment obligations of Section 4.1, and (iv) the Borrower provides the Holder
with fifteen (15) Trading Days prior written notice, the Borrower shall not,
without the Holder's written consent, (a) pay, declare or set apart for such
payment, any dividend or other distribution (whether in cash, property or other
securities) on shares of capital stock other than dividends on shares of Common
Stock
12
<PAGE>
solely in the form of additional shares of Common Stock or (b) directly or
indirectly or through any subsidiary make any other payment or distribution in
respect of its capital stock.
2.2 RESTRICTION ON STOCK REPURCHASES. Unless (i) no Event of Default
--------------------------------
has occurred or is continuing, (ii) this Debenture is then prepayable pursuant
to Section 4.1, (iii) the Borrower has sufficient cash on hand to meet the
prepayment obligations of Section 4.1, and (iv) the Borrower provides the Holder
with fifteen (15) Trading Days prior written notice, the Borrower shall not,
without the Holder's written consent, redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or otherwise)
in any one transaction or series of related transactions any shares of capital
stock of the Borrower or any warrants, rights or options to purchase or acquire
any such shares.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of
Default") shall occur:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails (a) to
------------------------------------
pay the principal hereof when due, whether at maturity, upon mandatory
prepayment pursuant to Section 1.8, upon acceleration or otherwise or (b) to pay
any installment of interest hereon when due and, in the case of this clause (b)
only, such failure continues for a period of five (5) days after the date of
receipt of notice by the Company that such amount is due (but in no event later
than twenty (20) days from the due date thereof).
3.2 CONVERSION AND THE SHARES. The Borrower fails to issue shares of
-------------------------
Common Stock to the Holder (or announces that it will not honor its obligation
to do so) upon exercise by the Holder of the conversion rights of the Holder in
accordance with the terms of this Debenture (for a period of at least ninety
(90) days, if such failure is solely as a result of the circumstances governed
by Section 1.4 and the Borrower is using its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable), fails to
transfer any certificate for shares of Common Stock issued to the Holder upon
conversion of this Debenture and when required by this Debenture or the
Registration Rights Agreement, or fails to remove any restrictive legend on any
certificate for any shares of Common Stock issued to the Holder upon conversion
of this Debenture as and when required by this Debenture, the Purchase Agreement
or the Registration Rights Agreement and any such failure shall continue uncured
(or any announcement or statement not to honor conversions shall not be
rescinded in writing) for ten (10) days after the Borrower shall have been
notified thereof in writing by the Holder.
3.3 FAILURE TO EFFECT REGISTRATION. The Borrower fails to obtain
------------------------------
effectiveness with the Securities and Exchange Commission of the Registration
Statement
13
<PAGE>
prior to June 30, 1998 or the Registration Statement lapses in effect
(or sales cannot otherwise be made thereunder) for more than fifteen (15)
consecutive Trading Days or thirty (30) Trading Days in any twelve (12) month
period after the Registration Statement becomes effective;
3.4 BREACH OF COVENANTS. The Borrower breaches any material covenant
-------------------
or other material term or condition contained in Sections 1.4, 1.7, 1.8 or 4.1
of this Debenture, or Sections 4(c), 4(e), 4(h), 4(i) or 4(j) of the Purchase
Agreement and such breach continues for a period of ten (10) days after written
notice thereof to the Borrower from the Holder;
3.5 BREACH OF REPRESENTATIONS AND WARRANTIES. Any (i) representation
----------------------------------------
or warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement and the Registration
Rights Agreement), shall be false or misleading in any material respect when
made and the breach of which has (or with the passage of time will have) a
material adverse effect on the rights of the Holder with respect to this
Debenture, the Purchase Agreement or the Registration Rights Agreement or (ii)
press release or other public statement or filing is made by the Borrower or
that contains any material false or misleading statement or omission.
3.6 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of the
-------------------
Borrower shall make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee shall otherwise
be appointed;
3.7 JUDGMENTS. Any money judgment, writ or similar process shall be
---------
entered or filed against the Borrower or any subsidiary of the Borrower or any
of its property or other assets for more than $500,000, and shall remain
unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld;
3.8 BANKRUPTCY. Bankruptcy, insolvency, reorganization or
----------
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower or any subsidiary of the Borrower; provided, however, that in the case
-------- -------
of any involuntary bankruptcy, such involuntary bankruptcy shall continue and
undischarged or undismissed for a period of sixty (60) days; or
3.9 DELISTING OF COMMON STOCK. The Common Stock is not listed on at
-------------------------
least one of the Nasdaq National Market, Nasdaq Small Cap Market, the New York
Stock
14
<PAGE>
Exchange, or the American Stock Exchange and such breach continues for a
period of ten (10) days after written notice thereof to the Borrower from the
Holder;
then, upon the occurrence and during the continuation of any Event of
Default specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7 or 3.9, at the option
of the Holders of a majority of the aggregate principal amount of the
outstanding Debentures issued pursuant to the Securities Purchase Agreement, and
upon the occurrence of an Event of Default specified in Section 3.6 or 3.8, the
Debentures shall become immediately due and payable and the Borrower shall pay
to the Holder, in full satisfaction of its obligations hereunder, an amount
equal to the greater of (i) the Default Percentage (as defined below) times the
-----
sum of (w) the then outstanding principal amount of this Debenture plus (x)
- --- ----
accrued and unpaid interest on the unpaid principal amount of this Debenture to
the date of payment plus (y) Default Interest, if any, on the interest referred
----
to in the immediately preceding clause plus (z) any amounts owed to the Holder
----
pursuant to Sections 1.4 and 1.5(g) hereof or pursuant to Section 2(c) of the
Registration Rights Agreement (the then outstanding principal amount of this
Debenture to the date of payment plus the amounts referred to in clauses (x),
----
(y) and (z) shall collectively be known as the "Default Sum") or (ii) the
Default Sum divided by the then applicable Conversion Price multiplied by the
---------- ----------
Closing Price of the Common Stock on the date the Holders exercise their option
pursuant to this paragraph or the date of the occurrence of an event referred to
in Section 3.6 or 3.8 (the "Default Amount") and all other amounts payable
hereunder shall immediately become due and payable, all without demand,
presentment or notice, all of which hereby are expressly waived, together with
all costs, including, without limitation, legal fees and expenses, of
collection, and the Holder shall be entitled to exercise all other rights and
remedies available at law or in equity. The "Default Percentage" shall mean 115%
for purposes of an Event of Default pursuant to Section 3.3 and 120% for any
other Event of Default.
If the Borrower fails to pay the Default Amount within five (5)
business days of written notice that such amount is due and payable, then the
Holder shall have the right at any time, so long as the Borrower remains in
default (and so long and to the extent that there are sufficient authorized
shares), to require the Borrower, upon written notice, to immediately issue, in
lieu of the Default Amount, the number of shares of Common Stock of the Borrower
equal to the Default Amount divided by the Conversion Price then in effect.
ARTICLE IV. PREPAYMENT
4.1 PREPAYMENT. Subject to the terms of this Section 4.1, the Holder
----------
may demand prepayment, in whole or in part, of this Debenture upon twenty-five
(25) days prior written notice in accordance with this Section 4.1. Any notice
of prepayment (a "Prepayment Notice") shall be delivered to the Borrower and
shall state (1) that the Holder is exercising its right to demand prepayment of
this Debenture and (2) the date of prepayment,
15
<PAGE>
which shall be not more than twenty-five (25) days from the date of the
Prepayment Notice. On or prior to the date fixed for prepayment (the "Prepayment
Date"), the Borrower shall make payment of the Prepayment Amount (as hereinafter
defined) in cash to or upon the order of the Holder as specified by the Holder
in writing to the Borrower at least one business day prior to the Prepayment
Date. The "Prepayment Amount" shall be equal to 115% times the sum of (a) the
----- ---
then outstanding principal amount of this Debenture plus (b) accrued and unpaid
----
interest on the unpaid principal amount of this Debenture to the date of payment
plus (c) Default Interest, if any, on the interest referred to in the
- ----
immediately preceding clause plus (d) any amounts owed to the Holder pursuant to
----
Sections 1.4 and 1.5(g) hereof or pursuant to Section 2(c) of the Registration
Rights Agreement. Notwithstanding anything to the contrary contained in this
Section 4.1, the Holder shall at all times maintain the right to convert all or
any part of this Debenture in accordance with Article I, and any amounts so
converted after delivery to the Borrower of a Prepayment Notice and prior to the
Prepayment Date set forth in such notice and payment of the Prepayment Amount
shall be deducted from the amount which is otherwise subject to prepayment
pursuant to the Prepayment Notice. During the period beginning on the Issue Date
and ending on April 30, 1998, the Holders shall only be able to demand
prepayment of this Debenture pursuant to this Section 4.1 if the Market Price
(as defined in Section 1.4) of the Common Stock is below $1.25 for five (5)
consecutive Trading Days. During the period beginning on May 1, 1998 and ending
on July 30, 1998, the Holders shall only be able to demand prepayment of this
Debenture pursuant to this Section 4.1 if the Market Price of the Common Stock
is below $1.50 for five (5) consecutive Trading Days. If the Borrower fails to
pay to the Borrower the Prepayment Amount within five (5) days of the Prepayment
Date, the Conversion Price in respect of any conversion occurring thereafter
shall be adjusted as set forth in Section 1.3. Notwithstanding anything to the
contrary contained in this Debenture, in additional to all other remedies
available hereunder or at law or in equity, if the Borrower fails to pay the
Prepayment Amount when due pursuant to this Section 4.1, the Holder shall
maintain all rights pursuant to Article III as well as all rights to convert
this Debenture pursuant to Article I.
ARTICLE V. MISCELLANEOUS
5.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
--------------------------------
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
5.2 NOTICES. Any notice herein required or permitted to be given
-------
shall be in writing and may be personally served or delivered by courier or sent
by United States mail
16
<PAGE>
and shall be deemed to have been given upon receipt if personally served (which
shall include telephone line facsimile transmission) or sent by courier or three
(3) days after being deposited in the United States mail, certified, with
postage pre-paid and properly addressed, if sent by mail. For the purposes
hereof, the address of the Holder shall be as shown on the records of the
Borrower; and the address of the Borrower shall be Aura Systems, Inc., 2335
Alaska Avenue, El Segundo, California 90245, facsimile number: (310) 643-8719.
Both the Holder and the Borrower may change the address for service by service
of written notice to the other as herein provided.
5.3 AMENDMENTS. This Debenture and any provision hereof may only be
----------
amended by an instrument in writing signed by the Borrower and the Holder. The
term "Debenture" and all reference thereto, as used throughout this instrument,
shall mean this instrument (and the other Debentures issued pursuant to the
Purchase Agreement) as originally executed, or if later amended or supplemented,
then as so amended or supplemented.
5.4 ASSIGNABILITY. This Debenture shall be binding upon the Borrower
-------------
and its successors and assigns, and shall inure to be the benefit of the Holder
and its successors and assigns. Each transferee of this Debenture must be an
"accredited investor" (as defined in Rule 501(a) of the 1933 Act).
Notwithstanding anything in this Debenture to the contrary, this Debenture may
be pledged as collateral in connection with a bona fide margin account or other
---- ----
lending arrangement.
5.5 RANK; COST OF COLLECTION. The obligation of the Borrower under
------------------------
this Debenture shall rank in right of payment on parity with all other
unsubordinated obligations of the Borrower for indebtedness for borrowed money
or the purchase price of property. If default is made in the payment of this
Debenture, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
5.6 GOVERNING LAW. This Debenture shall be governed by the internal
-------------
laws of the State of Delaware, without regard to the principles of conflict of
laws.
5.7 CERTAIN AMOUNTS. Whenever pursuant to this Debenture the
---------------
Borrower is required to pay an amount in excess of the outstanding principal
amount (or the portion thereof required to be paid at that time) plus accrued
and unpaid interest plus Default Interest on such interest, the Borrower and the
Holder agree that the actual damages to the Holder from the receipt of cash
payment on this Debenture may be difficult to determine and the amount to be so
paid by the Borrower represents stipulated damages and not a penalty and is
intended to compensate the Holder in part for loss of the opportunity to convert
this Debenture and to earn a return from the sale of shares of Common Stock
acquired upon conversion of this Debenture at a price in excess of the price
paid for such shares pursuant to this Debenture. The Borrower and the Holder
hereby agree that such amount of stipulated
17
<PAGE>
damages is not plainly disproportionate to the possible loss to the Holder from
the receipt of a cash payment without the opportunity to convert this Debenture
into shares of Common Stock.
5.8 ALLOCATIONS OF MAXIMUM SHARE AMOUNT AND RESERVED AMOUNT. The
-------------------------------------------------------
Maximum Share Amount and the Reserved Amount (including any increases thereto)
shall be allocated pro rata among the Holders of Debentures based on the
principal amount of Debentures then held by each Holder relative to the
aggregate principal amount of the Debentures then outstanding.
5.9 DAMAGES SHARES. The shares of Common Stock that may be issuable
--------------
to the Holder pursuant to Sections 1.4 and 1.5(g) hereof and pursuant to Section
2(c) of the Registration Rights Agreement ("Damages Shares") shall be treated as
Common Stock issuable upon conversion of this Debenture for all purposes hereof
and shall be subject to all of the limitations and afforded all of the rights of
the other shares of Common Stock issuable hereunder, including without
limitation, the right to be included in the Registration Statement filed
pursuant to the Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein, amounts convertible into Damages Shares ("Damages Amounts")
shall not bear interest but must be converted prior to the conversion of any
outstanding principal amount hereof, until the outstanding Damages Amounts is
zero.
5.10 DENOMINATIONS. At the request of the Holder, upon surrender of
-------------
this Debenture, the Borrower shall promptly issue new Debentures in the
aggregate outstanding principal amount hereof, in the form hereof, in such
denominations of at least $100,000 as the Holder shall request.
5.11 PURCHASE AGREEMENT. By its acceptance of this Debenture, each
------------------
Holder agrees to be bound by the applicable terms of the Purchase Agreement.
5.12 NOTICE OF CORPORATE EVENTS. Except as otherwise provided below,
--------------------------
the Holder of this Debenture shall have no rights as a Holder of Common Stock
unless and only to the extent that it converts this Debenture into Common Stock.
The Borrower shall provide the Holder with prior notification of any meeting of
the Borrower's shareholders (and copies of proxy materials and other information
sent to shareholders). In the event of any taking by the Borrower of a record
of its shareholders for the purpose of determining shareholders who are entitled
to receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation,
reclassification or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Borrower or any proposed
18
<PAGE>
liquidation, dissolution or winding up of the Borrower, the Borrower shall mail
a notice to the Holder, at least twenty (20) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event (or such earlier notice as may be required by an event covered by
Section 1.7(a)), and a brief statement regarding the amount and character of
such dividend, distribution, right or other event to the extent known at such
time. The Borrower shall make a public announcement of any event requiring
notification to the Holder hereunder substantially simultaneously with the
notification to the Holder in accordance with the terms of this Section 5.12.
IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in
its name by its duly authorized officer this 31st day of December, 1997.
AURA SYSTEMS, INC.
By:_____________________________________
Steven Veen
Chief Financial Officer
19
<PAGE>
Exhibit A
NOTICE OF CONVERSION
OF CONVERTIBLE DEBENTURE
TO: Aura Systems, Inc.
(1) Pursuant to the terms of the attached Convertible Debenture (the
"Debenture"), the undersigned hereby elects to convert $ principal
amount of the Debenture into shares of Common Stock of Aura Systems, Inc., a
Delaware corporation (the "Borrower"). Capitalized terms used herein and not
otherwise defined herein have the respective meanings provided in the Debenture.
(2) Please issue a certificate or certificates for the number of
shares of Common Stock into which such principal amount of the Debenture (plus
interest thereon to the extent not paid in cash in accordance with the terms of
the Debenture) is convertible (_____ shares, based on the Holder's calculation
attached hereto) in the name(s) specified immediately below or, if additional
space is necessary, on an attachment hereto:
_____________________________ ___________________________________
Name Name
_____________________________ ___________________________________
Address Address
_____________________________ ___________________________________
SS or Tax ID Number SS or Tax ID Number
(3) Holder acknowledges and affirms that the Common Stock issued
pursuant to this Notice of Conversion has been or will be sold in accordance
with the requirements of the 1933 Act, if applicable, or pursuant to an
exemption under the 1933 Act.
(4) Capitalized terms used in this Notice of Conversion and not
otherwise defined herein shall have the respective meanings provided in the
Debenture.
Date_________________ ______________________________________________
Signature of Registered Holder (must be signed
exactly as name appears in the Debenture).
20
<PAGE>
EXHIBIT 4.7
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT
AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED
AS OF DECEMBER 31, 1997, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE
SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF REGISTRATION UNDER SUCH ACT OR AN OPINION OF COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SUCH ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY
WITH APPLICABLE STATE SECURITIES LAWS.
Right to
Purchase
__________
Shares of
Common Stock, par value
$.005 per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, ____________________________, or
its registered assigns, is entitled to purchase from Aura Systems, Inc., a
Delaware corporation (the "Company"), at any time or from time to time during
the period specified in Paragraph 2 hereof, _______________________
(___________) fully paid and nonassessable shares of the Company's Common Stock,
par value $.005 per share (the "Common Stock"), at an exercise price of $3.47
per share (the "Exercise Price"). The term "Warrant Shares," as used herein,
refers to the shares of Common Stock purchasable hereunder. The Warrant
<PAGE>
Shares and the Exercise Price are subject to adjustment as provided in Paragraph
4 hereof. The term Warrants means this Warrant and the other warrants issued
pursuant to that certain Securities Purchase Agreement, dated December 31, 1997,
by and among the Company and the Buyers listed on the execution page thereof
(the "Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
----------------------------------------------------------------
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. Notwithstanding the foregoing, the
exercise of the Warrants are subject to the following restrictions: (i) up to
fifty percent (50%) of the Warrants shall become exercisable at the time that
the registration statement to be filed pursuant to the Registration Rights
Agreement (as defined in Paragraph 7 below) is declared effective; and (ii) the
remaining fifty percent (50%) Warrants shall become exercisable upon the
earliest of (w) the date the Holder waives its right to demand prepayment as set
forth in Section 4.1 of the Debenture (as defined in the Securities Purchase
Agreement), (x) the date the Debenture is fully converted, (y) the date the
option set forth in that certain side letter dated December 31, 1997 from the
Company to, and acknowledged by, RGC International Investors, LDC is exercised
in full and (z) December 31, 1999. The Warrant Shares so purchased shall be
deemed to be issued to the holder hereof or such holder's designee, as the
record owner of such shares, as of the close of business on the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement shall
have been delivered, and payment shall have been made for such shares as set
forth above. Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding three (3)
business days, after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested by
the holder hereof and shall be registered in the name of such holder or such
other name as shall be designated by such holder. If this Warrant shall have
been exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of such certificates, deliver to
the holder a new Warrant representing the number of shares with respect to which
this Warrant shall not then have been exercised.
-2-
<PAGE>
Notwithstanding anything in this Warrant to the contrary, in no event
shall the Holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and unconverted portions of the Debenture and (ii) the
number of shares of Common Stock issuable upon exercise of the Warrants (or
portions thereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, (a) beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided
in clause (i) hereof and (b) the Holder may waive the limitations set forth
therein by written notice to the Company upon not less than sixty-one (61) days
prior notice (with such waiver taking effect only upon the expiration of such 61
day notice period).
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
------------------
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement and before 5:00 p.m.,
New York City time on the fifth (5th) anniversary of the date of issuance (the
"Exercise Period").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
---------------------------------
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance
-----------------------
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.
(b) RESERVATION OF SHARES. During the Exercise Period, the Company
---------------------
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) LISTING. The Company shall promptly secure the listing of the
-------
shares of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
-3-
<PAGE>
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
--------------------------
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any
----------------------
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise
-----------------------
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up to the
nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE OF
------------------------------------------------------------------
COMMON STOCK. Except as otherwise provided in Paragraphs 4(c) and 4(e) hereof,
- ------------
if and whenever on or after the date of issuance of this Warrant, the Company
issues or sells, or in accordance with Paragraph 4(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than the
Market Price (as hereinafter defined) on the date of issuance (a "Dilutive
Issuance"), then immediately upon the Dilutive Issuance, the Exercise Price will
be reduced to a price determined by multiplying the Exercise Price in effect
immediately prior to the Dilutive Issuance by a fraction, (i) the numerator of
which is an amount equal to the sum of (x) the number of shares of Common Stock
actually outstanding immediately prior to the Dilutive Issuance, plus (y) the
quotient of the aggregate consideration, calculated as set forth in Paragraph
4(b) hereof, received by the Company upon such Dilutive Issuance divided by the
Market Price in effect immediately prior to the Dilutive Issuance, and (ii) the
denominator of which is the total number of shares of Common Stock Deemed
Outstanding (as defined below) immediately after the Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
------------------------------------------
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
-4-
<PAGE>
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any manner
-----------------------------
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("Convertible Securities")
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options") and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Market Price on the date of issuance or grant of such Options, then the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Options will, as of the date of the issuance or grant of such Options, be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon the exercise of such Options" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of all such Options,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of all such Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Options, the minimum
aggregate amount of additional consideration payable upon the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner
----------------------------------
issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Market Price on the date of issuance,
then the maximum total number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities will, as of the date
of the issuance of such Convertible Securities, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For the
purposes of the preceding sentence, the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by dividing (i) the
total amount, if any, received or receivable by the Company as consideration for
the issuance or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof at the time such Convertible Securities
first become convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon conversion or exchange
of such Convertible Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is a
-----------------------------------------
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable
-5-
<PAGE>
to the Company upon the conversion or exchange of any Convertible Securities; or
(iii) the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock (other than under or by reason of provisions
designed to protect against dilution), the Exercise Price in effect at the time
of such change will be readjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed additional consideration or changed conversion rate,
as the case may be, at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
--------------------------------------------------------
SECURITIES. If, in any case, the total number of shares of Common Stock
- ----------
issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be readjusted to the
Exercise Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock,
-------------------------------------
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In
case any Common Stock, Options or Convertible Securities are issued or sold for
a consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No adjustment to the
------------------------------------------
Exercise Price will be made (i) upon the exercise of any warrants, options or
convertible securities granted, issued and outstanding on the date of issuance
of this Warrant; (ii) upon the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee benefit plan of the
Company now existing or to be implemented in the future, so long as the issuance
of such stock or options is approved by a majority of the independent members of
the Board of Directors of the Company or a
-6-
<PAGE>
majority of the members of a committee of independent directors established for
such purpose; or (iii) upon the exercise of the Warrants.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any
------------------------------------------
time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at
any time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
------------------------------
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) CONSOLIDATION, MERGER OR SALE. In case of any consolidation of
-----------------------------
the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the holder of this Warrant
will have the right to acquire and receive upon exercise of this Warrant in lieu
of the shares of Common Stock immediately theretofore acquirable upon the
exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall declare or make
----------------------
any distribution of its assets (including cash) to holders of Common Stock as a
partial liquidating dividend, by way of return of capital or otherwise, then,
after the date of record for determining stockholders entitled to such
distribution, but prior to the date of distribution,
-7-
<PAGE>
the holder of this Warrant shall be entitled upon exercise of this Warrant for
the purchase of any or all of the shares of Common Stock subject hereto, to
receive the amount of such assets which would have been payable to the holder
had such holder been the holder of such shares of Common Stock on the record
date for the determination of stockholders entitled to such distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
--------------------
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
------------------------------------
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common Stock are to
--------------------
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.
(j) OTHER NOTICES. In case at any time:
-------------
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution,
-8-
<PAGE>
or subscription rights or for determining the holders of Common Stock entitled
to vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take place.
Such notice shall also specify the date on which the holders of Common Stock
shall be entitled to receive such dividend, distribution, or subscription rights
or to exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding-up, as the case may be. Such notice
shall be given at least 30 days prior to the record date or the date on which
the Company's books are closed in respect thereto. Failure to give any such
notice or any defect therein shall not affect the validity of the proceedings
referred to in clauses (i), (ii), (iii) and (iv) above.
(k) CERTAIN EVENTS. If any event occurs of the type contemplated by
--------------
the adjustment provisions of this Paragraph 4 but not expressly provided for by
such provisions, the Company will give notice of such event as provided in
Paragraph 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the Holder
shall be neither enhanced nor diminished by such event.
(l) CERTAIN DEFINITIONS.
-------------------
(i) "Common Stock Deemed Outstanding" shall mean the number of
-------------------------------
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum
total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.
(ii) "Market Price," as of any date, (i) means the average of the
------------
last reported sale prices for the shares of Common Stock on the Nasdaq National
Market ("Nasdaq") for the five (5) trading days immediately preceding such date
as reported by Bloomberg, L.P. ("Bloomberg"), or (ii) if Nasdaq is not the
principal trading market for the shares of Common Stock, the average of the last
reported sale prices on the principal trading market for the Common Stock during
the same period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price shall
be the fair market value as reasonably determined in good faith by (a) the Board
of Directors of the Corporation or, at the option of a majority-in-interest of
the holders of the outstanding Warrants by (b) an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the corporation. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition
-9-
<PAGE>
shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Paragraph 4, includes
------------
the Common Stock, par value $.005 per share, and any additional class of stock
of the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, par value $.005 per share, in respect of
which this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
---------
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
-----------------------------------------
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
----------------------------------------------
(a) RESTRICTION ON TRANSFER. This Warrant and the rights granted to
-----------------------
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary.
Notwithstanding anything to the contrary contained herein, the registration
rights described in Paragraph 8 are assignable only in accordance with the
provisions of that certain Registration Rights Agreement, dated as of December
31, 1997, by and among the Company and the other signatories thereto (the
"Registration Rights Agreement").
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant
------------------------------------------------
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in
-10-
<PAGE>
the aggregate the right to purchase the number of shares of Common Stock which
may be purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by the holder hereof at
the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
---------------------------------
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.
(e) REGISTER. The Company shall maintain, at its principal executive
--------
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee and each prior
owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time of
-----------------------------------------
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the "Securities Act") and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.
8. REGISTRATION RIGHTS. The initial holder of this Warrant (and certain
-------------------
assignees thereof) is entitled to the benefit of such registration rights in
respect of this Warrant and the Warrant Shares as are set forth in Section 2 of
the Registration Rights Agreement.
-11-
<PAGE>
9. NOTICES. All notices, requests, and other communications required or
-------
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 2335 Alaska Avenue, El
Segundo, California 90245, Attention: President, or at such other address as
shall have been furnished to the holder of this Warrant by notice from the
Company. Any such notice, request, or other communication may be sent by
facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address of
such person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage is prepaid
and the mailing is properly addressed, as the case may be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
-------------
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW.
11. MISCELLANEOUS.
-------------
(a) AMENDMENTS. This Warrant and any provision hereof may only be
----------
amended by an instrument in writing signed by the Company and the holder hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
--------------------
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to the contrary
-----------------
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the
-12-
<PAGE>
numerator of which shall be the difference between the then current Market Price
per share of the Common Stock and the Exercise Price, and the denominator of
which shall be the then current Market Price per share of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-13-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
AURA SYSTEMS, INC.
____________________________________
Steven Veen
Chief Financial Officer
Dated as of December 31, 1997
-14-
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ________, ____.
To:_____________________________
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name: ________________________________
Signature: ________________________________
Address: ________________________________
________________________________
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
-15-
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
<TABLE>
<CAPTION>
Name of Assignee Address No of Shares
- ---------------- ------- ------------
<S> <C> <C>
</TABLE>
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____,
In the presence of
__________________
Name: __________________________________________
Signature: ______________________________
Title of Signing Officer or Agent (if any):
__________________________________________
Address: ________________________________
________________________________
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
-16-
<PAGE>
EXHIBIT 4.8
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of December 31,
1997, by and among Aura Systems, Inc., a Delaware corporation, with headquarters
located at 2335 Alaska Avenue, El Segundo, California 90245 (the "COMPANY"), and
each of the undersigned (together with their respective affiliates and any
assignee or transferee of all of their respective rights hereunder, the "INITIAL
INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) convertible debentures
(the "DEBENTURES") that are convertible into shares (the "CONVERSION SHARES") of
the Company's common stock (the "COMMON STOCK"), upon the terms and subject to
the limitations and conditions set forth in such Debentures and (ii) warrants
(the "WARRANTS") to acquire 1,585,586 shares of Common Stock (the "WARRANT
SHARES"), upon the terms and conditions and subject to the limitations and
conditions set forth in the Warrants dated December 31, 1997; and
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Initial Investors hereby agree as follows:
<PAGE>
1. DEFINITIONS.
-----------
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "INVESTORS" means the Initial Investors and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("RULE 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iii) "REGISTRABLE SECURITIES" means the Conversion Shares,
Warrants and Warrant Shares issued or issuable and any shares of capital stock
issued or issuable as a dividend on or in exchange for or otherwise with respect
to any of the foregoing.
(iv) "REGISTRATION STATEMENT" means a registration statement
of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
------------
a. Mandatory Registration. The Company shall prepare, and, on or
----------------------
prior to the date which is thirty (30) days after the date of the Closing under
the Securities Purchase Agreement (the "CLOSING DATE"), file with the SEC a
Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities including the Warrants and Registrable
Securities underlying the Debentures and the Warrants issued or issuable
pursuant to the Securities Purchase Agreement and covering the issuance of the
Warrants Shares upon exercise of the Warrants, which Registration Statement, to
the extent allowable under the 1933 Act and the Rules promulgated thereunder
(including Rule 416), shall state that such Registration Statement also covers
such indeterminate number of additional shares of Common Stock as may become
issuable upon conversion of the Debentures and exercise of the Warrants (i) to
prevent dilution resulting from stock splits, stock dividends or similar
transactions or (ii) by reason of changes in the Conversion Price of the
Debentures or the Exercise Price of the Warrants in accordance with the terms
thereof. The number of
2
<PAGE>
shares of Common Stock initially included in such Registration Statement shall
be no less than one and one-half (1 1/2) times the sum of the number of
Conversion Shares and Warrant Shares that are then issuable upon conversion of
the Debentures and exercise of the Warrants without regard to any limitation on
the Investor's ability to convert the Debentures or exercise the Warrants.
b. [Intentionally Omitted]
c. Payments by the Company. The Company shall use its best efforts
-----------------------
to obtain effectiveness of the Registration Statements as soon as practicable.
If (i) the Registration Statement(s) covering the Registrable Securities
required to be filed by the Company pursuant to Section 2(a) hereof is not
declared effective by the SEC within one hundred twenty (120) days after the
Closing Date or if, after the Registration Statement has been declared effective
by the SEC, sales cannot be made pursuant to the Registration Statement, or (ii)
the Common Stock is not listed or included for quotation on the Nasdaq National
Market ("NASDAQ"), the Nasdaq SmallCap Market ("NASDAQ SMALLCAP"), the New York
Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") after
being so listed or included for quotation, then the Company will make payments
to the Investors in such amounts and at such times as shall be determined
pursuant to this Section 2(c) as partial relief for the damages to the Investors
by reason of any such delay in or reduction of their ability to sell the
Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity). The Company shall pay to each holder
of the Debentures or Registerable Securities an amount equal to the then
outstanding principal amount of the Debentures (and, in the case of holders of
Registerable Securities, the principal amount of Debentures from which such
Registerable Securities were converted) ("OUTSTANDING PRINCIPAL AMOUNT")
multiplied by the Applicable Percentage (as defined below) times the sum of: (i)
the number of months (prorated for partial months) after the end of such 120-day
period and prior to the date the Registration Statement is declared effective by
the SEC, provided, however, that there shall be excluded from such period any
delays which are solely attributable to changes required by the Investors in the
Registration Statement with respect to information relating to the Investors,
including, without limitation, changes to the plan of distribution, or to the
failure of the Investors to conduct their review of the Registration Statement
pursuant to Section 3(h) below in a reasonably prompt manner; (ii) the number of
months (prorated for partial months) that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by reason of
the Company's failure to properly supplement or amend the prospectus included
therein in accordance with the terms of this Agreement or otherwise for any
reason outside the Investors' control, but excluding Allowed Delays (as defined
in Section 3(f)); and (iii) the number of months (prorated for partial months)
that the Common Stock is not listed or included for quotation on the Nasdaq,
Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted after the
Registration Statement has been declared effective. (For example, if the
Registration Statement becomes effective one (1) month after the end of such
120-day period, the Company would pay $10,000 for each $1,000,000 of Outstanding
Principal Amount. If thereafter, sales could not be made pursuant
3
<PAGE>
to the Registration Statement for an additional period of one (1) month, the
Company would pay an additional $20,000 for each $1,000,000 of Outstanding
Principal Amount.) Such amounts shall be paid in cash or, at each Investor's
option, may be added to the principal amount of the Debentures and thereafter be
convertible into Common Stock at the "CONVERSION PRICE" (as defined in the
Debentures) in accordance with the terms of the Debentures. Any shares of
Common Stock issued upon conversion of such amounts shall be Registrable
Securities. If the Investor desires to convert the amounts due hereunder into
Registrable Securities, it shall so notify the Company in writing within two (2)
business days of the date on which such amounts are first payable in cash and
such amounts shall be so convertible (pursuant to the mechanics set forth under
Article I of the Debentures), beginning on the last day upon which the cash
amount would otherwise be due in accordance with the following sentence.
Payments of cash pursuant hereto shall be made within five (5) days after the
end of each period that gives rise to such obligation, provided that, if any
such period extends for more than thirty (30) days, interim payments shall be
made for each such thirty (30) day period. The term "APPLICABLE PERCENTAGE"
means one hundredth (.010) with respect to the first thirty (30) days of any
calculation under clause (i) of the sentence in which the term is used, and two
(.020) for any other purpose.
d. Piggy-Back Registrations. Subject to the last sentence of this
------------------------
Section 2(d), if at any time prior to the expiration of the Registration Period
(as hereinafter defined) the Company shall file with the SEC a Registration
Statement relating to an offering for its own account or the account of others
under the 1933 Act of any of its equity securities (other than on Form S-4 or
Form S-8 or their then equivalents relating to equity securities to be issued
solely in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans), the Company shall send to each Investor who is entitled to registration
rights under this Section 2(d) written notice of such determination and, if
within fifteen (15) days after the effective date of such notice, such Investor
shall so request in writing, the Company shall include in such Registration
Statement all or any part of the Registrable Securities such Investor requests
to be registered, except that if, in connection with any underwritten public
offering for the account of the Company the managing underwriter(s) thereof
shall impose a limitation on the number of shares of Common Stock which may be
included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion hereunder
as the underwriter shall permit. Any exclusion of Registrable Securities shall
be made pro rata among the Investors seeking to include Registrable Securities
in proportion to the number of Registrable Securities sought to be included by
such Investors; provided, however, that the Company shall not exclude any
-------- -------
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not entitled to inclusion of such
securities in such Registration Statement or are not entitled to pro rata
inclusion with the Registrable Securities; and provided, further, however, that,
-------- ------- -------
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata
4
<PAGE>
with holders of other securities having the right to include such securities in
the Registration Statement other than holders of securities entitled to
inclusion of their securities in such Registration Statement by reason of demand
registration rights. No right to registration of Registrable Securities under
this Section 2(d) shall be construed to limit any registration required under
Section 2(a) hereof. If an offering in connection with which an Investor is
entitled to registration under this Section 2(d) is an underwritten offering,
then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer and
sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering. Notwithstanding anything to the contrary set forth
herein, the registration rights of the Investors pursuant to this Section 2(d)
shall only be available in the event the Company fails to timely file, obtain
effectiveness or maintain effectiveness of the Registration Statement to be
filed pursuant to Section 2(a) in accordance with the terms of this Agreement.
e. Eligibility for Form S-3. The Company represents and warrants
------------------------
that it meets the registrant eligibility and transaction requirements for the
use of Form S-3 for registration of the sale by the Initial Investors and any
other Investors of the Registrable Securities and the Company shall file all
reports required to be filed by the Company with the SEC in a timely manner so
as to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
--------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC not
later than thirty (30) days after the Closing Date, a Registration Statements
with respect to the number of Registrable Securities provided in Section 2(a),
and thereafter use its best efforts to cause such Registration Statement
relating to Registrable Securities to become effective as soon as possible after
such filing, and keep the Registration Statement effective pursuant to Rule 415
at all times until such date as is the earlier of (i) the date on which all of
the Registrable Securities have been sold and (ii) the date on which the
Registrable Securities (in the opinion of counsel to the Initial Investors) may
be immediately sold without restriction (including without limitation as to
volume by each holder thereof) without registration under the 1933 Act (the
"REGISTRATION PERIOD"), which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the
5
<PAGE>
Registration Statement effective at all times during the Registration Period,
and, during such period, comply with the provisions of the 1933 Act with respect
to the disposition of all Registrable Securities of the Company covered by the
Registration Statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof as set forth in the Registration Statement. In
the event the number of shares available under a Registration Statement filed
pursuant to this Agreement is insufficient to cover all of the Registrable
Securities issued or issuable upon conversion of the Debentures, the Company
shall amend the Registration Statement, or file a new Registration Statement (on
the short form available therefore, if applicable), or both, so as to cover all
of the Registrable Securities, in each case, as soon as practicable, but in any
event within twenty (20) business days after the necessity therefor arises
(based on the market price of the Common Stock and other relevant factors on
which the Company reasonably elects to rely). The Company shall use its best
efforts to cause such amendment and/or new Registration Statements to become
effective as soon as practicable following the filing thereof. The provisions
of Section 2(c) above shall be applicable with respect to such obligation, with
the one hundred twenty (120) days pursuant to Section 2(c) running from the day
after the date on which the Company reasonably first determines (or reasonably
should have determined) the need therefor.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion of any thereof which contains information for which the Company
has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of the Registration Statement or any post-
effective amendment. The Company will promptly respond to any and all comments
received from the SEC, with a view towards causing any Registration Statement or
any amendment thereto to be declared effective by the SEC as soon as practicable
and shall promptly file an acceleration request as soon as practicable following
the resolution or clearance of all SEC comments or, if applicable, following
notification by the SEC that the Registration Statement or any amendment thereto
will not be subject to review.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as the Investors who hold a majority in interest of the Registrable
Securities being offered reasonably request, (ii) prepare and file in
6
<PAGE>
those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
-------- -------
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. [Intentionally Omitted]
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor of the happening of any event, of which
the Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than fifteen (15) consecutive
trading days (or a total of not more than thirty (30) trading days in any twelve
(12) month period), the Company may delay the disclosure of material non-public
information concerning the Company (as well as prospectus or Registration
Statement updating) the disclosure of which at the time is not, in the good
faith opinion of the Company, the best interests of the Company (an "ALLOWED
DELAY"); provided, further, that the Company shall promptly (i) notify the
Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under the Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest possible moment and to notify each Investor who holds Registrable
Securities being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof.
7
<PAGE>
h. The Company shall permit a single firm of counsel designated by
the Initial Investors to review the Registration Statement and all amendments
and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of any Registration Statement without
prior notice to such counsel. The sections of the Registration Statements
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of each Registration Statement.
j. At the request of any Investor, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with the Registration Statement or, if such securities are
not being sold by an underwriter, on the date of effectiveness thereof (i) an
opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"INSPECTORS") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "RECORDS"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
-------- -------
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records
8
<PAGE>
has been made generally available to the public other than by disclosure in
violation of this or any other agreement. The Company shall not be required to
disclose any confidential information in such Records to any Inspector until and
unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(k). Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investor's ability to sell Registrable Securities in a manner which
is otherwise consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement (other than the Warrants) to be listed on
each national securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure the designation and quotation, of all the Registrable Securities
covered by the Registration Statements (other than the Warrants) on the Nasdaq
or, if not eligible for the Nasdaq on the Nasdaq SmallCap and, without limiting
the generality of the foregoing, to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. ("NASD") as
such with respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar, which
may be a single entity, for each Registrable Securities not later than the
effective date of Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing
9
<PAGE>
Registrable Securities to be offered pursuant to a Registration Statement, and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or the Investors may
reasonably request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as EXHIBIT 1 and an opinion of such counsel in the form
attached hereto as EXHIBIT 2.
p. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
----------------------------
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three
(3) business days prior to the first anticipated filing date of each
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
c. [Intentionally Omitted]
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed
10
<PAGE>
by the Company, such Investor shall deliver to the Company (at the expense of
the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
------------------------
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees and the fees and disbursements
of counsel for the Company shall be borne by the Company. Subject to Section
4(f) of the Securities Purchase Agreement, the Investors shall be responsible
for their own legal fees.
6. INDEMNIFICATION.
---------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities,
(ii) the directors, officers, partners, employees, agents and each person who
controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), if any, (iii) any underwriter
(as defined in the 1933 Act) for the Investors, and (iv) the directors,
officers, partners, employees and each person who controls any such underwriter
within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration
11
<PAGE>
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading; or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section
6(c) with respect to the number of legal counsel, the Company shall reimburse
the Indemnified Person, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and
12
<PAGE>
subject to Section 6(c) such Investor will reimburse any legal or other expenses
(promptly as such expenses are incurred and are due and payable) reasonably
incurred by them in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 6(b)
- -------- -------
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Investor, which consent shall
not be unreasonably withheld; provided, further, however, that the Investor
-------- ------- -------
shall be liable under this Agreement (including this Section 6(b) and Section 7)
for only that amount as does not exceed the net proceeds to such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
-------- -------
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a majority-in-
interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount
13
<PAGE>
thereof during the course of the investigation or defense, as such expense,
loss, damage or liability is incurred and is due and payable.
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that (i) no
-------- -------
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
--------------------------
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
14
<PAGE>
9. ASSIGNMENT OF REGISTRATION RIGHTS.
---------------------------------
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "ACCREDITED INVESTOR" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
--------------------------------
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, each of the Initial
Investors (to the extent such Initial Investor still owns Registrable
Securities) and Investors who hold a majority interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
-------------
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt requested)
or delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular U.S. mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:
15
<PAGE>
If to the Company:
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, California 90245
Attention: President
Facsimile: (310) 643-8719
With copy to:
Michael Froch
General Counsel
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, California 90245
Facsimile: (310) 643-8719
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State. In the event that any provision
of this Agreement is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision hereof. The parties hereto hereby submit to the exclusive
jurisdiction of the United States Federal Courts located in Delaware with
respect to any dispute arising under this Agreement or the transactions
contemplated hereby.
e. This Agreement and the Securities Purchase Agreement (including
all schedules and exhibits thereto) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the Securities
Purchase Agreement supersede all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof and thereof.
16
<PAGE>
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the Debentures then outstanding have been converted into for
Registrable Securities.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors
have caused this Agreement to be duly executed as of the date first above
written.
AURA SYSTEMS, INC.
- ------------------
By:___________________________
Steven Veen
Chief Financial Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By:___________________________
Wayne D. Bloch
Managing Director
CEFEO INVESTMENTS LTD.
By:___________________________
Name:
Title:
18
<PAGE>
Exhibit 5.1
[Letterhead of Guzik & Associates]
February 19, 1998
VIA EDGAR
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Aura Systems, Inc. Registration Statement on Form S-3
-----------------------------------------------------
Ladies and Gentlemen:
You have requested our opinion regarding the validity of the issuance of
shares of Aura Systems, Inc. Common Stock covered by the above-referenced
Registration Statement on Form S-3. These shares include: (i) 1,785,586 shares
of Common Stock issuable upon the exercise of outstanding Warrants (the
"Warrants"); and (ii) up to 4,543,736 of Common Stock issuable upon conversion
of the Company's Convertible Debentures.
In our opinion the 1,785,586 shares of Common Stock issuable upon exercise
of the Warrants and the 4,543,736 shares of Common Stock issuable upon
conversion of the Convertible Debentures, when issued in accordance with the
terms of the Warrants or Convertible Debentures, as the case may be, will be
duly and validly issued by the Company, fully paid and non-assessable.
We hereby consent to the inclusion of this opinion in the Registration
Statement, including any amendments thereto, and to the reference to this firm
in the Registration Statement under the section entitled "Legal Matters."
Very truly yours,
GUZIK & ASSOCIATES
/s/ Samuel S. Guzik
Samuel S. Guzik
<PAGE>
Exhibit 23.1
CONSENT OF PANNELL KERR FORSTER
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 of our report dated June 11, 1997, on our audits of the
consolidated financial statements of Aura Systems, Inc. as of February 28, 1997
February 29, 1996, and February 28, 1995, and for each of the three years then
ended, which report appears in Form 10-K. for the fiscal year ended February 28,
1997. We also hereby consent to the reference to our firm under the caption
"Experts" in the Registration Statement.
PANNELL KERR FORSTER
Los Angeles, California
February 20, 1998
