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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended November 30, 1998 Commission File Number 0-17249
AURA SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-4106894
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2335 Alaska Ave.
El Segundo, California 90245
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 643-5300
Former name, former address and former fiscal year, if changed since last
report: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at January 18, 1999
Common Stock, par value 92,510,822 Shares
$.005 per share
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AURA SYSTEMS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. Financial Statements
Statement Regarding Financial Information 2
Condensed Consolidated Balance Sheets as of 3
November 30, 1998 and February 28, 1998
Condensed Consolidated Statement of Operations for the Three Months and Nine 4
Months Ended November 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for the 5
Nine Months Ended November 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities and Use of Proceeds 13
ITEM 3. Defaults Upon Senior Securities 13
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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AURA SYSTEMS, INC. AND SUBSIDIARIES
QUARTER ENDED NOVEMBER 30, 1998
PART I. FINANCIAL INFORMATION
The financial statements included herein have been prepared by Aura Systems,
Inc. (the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). As contemplated by the SEC
under Rule 10-01 of Regulation S-X, the accompanying financial statements and
footnotes have been condensed and therefore do not contain all disclosures
required by generally accepted accounting principles. However, the Company
believes that the disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K for
the year ended February 28, 1998 as filed with the SEC (file number 0-17249).
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AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
November 30, February 28,
Assets 1998 1998
------------- ---------------
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Current assets
Cash and equivalents $ 3,312,020 $ 6,079,411
Receivables-net 49,892,806 54,418,141
Inventories and contract in process 51,092,047 58,713,875
Prepayments and deposits 10,059,877 13,326,789
Other current assets 3,678,908 5,925,642
Prepaid and deferred income taxes 1,600,000 838,000
---------------- ----------------
Total current assets 119,635,658 139,301,858
Property and equipment, at cost 78,564,238 66,667,671
Less accumulated depreciation
and amortization (17,537,660) (11,888,586)
----------------- ---------------
Net property and equipment 61,026,578 54,779,085
Joint ventures 6,395,364 6,903,918
Long-Term investments 12,301,835 7,476,299
Long-Term receivables 3,663,094 3,627,098
Patents and trademarks, net 6,464,076 6,410,771
Goodwill, net 6,055,253 6,146,642
Other assets 3,017,249 2,656,958
--------------- ----------------
Total $ 218,559,107 $ 227,302,629
================ ================
Liabilities and Stockholder's Equity
Current liabilities:
Notes payable $ 36,692,387 $ 31,147,572
Accounts payable 38,007,559 43,995,364
Accrued expenses 12,668,307 3,990,027
---------------- ----------------
Total current liabilities 87,368,253 79,132,963
Notes payable and other liabilities 8,596,825 3,282,003
---------------- ----------------
Convertible notes secured 662,900 2,112,900
---------------- ----------------
Convertible notes-unsecured 24,500,000 15,500,000
---------------- ---------------
Minority interests in subsidiaries 5,821,222 10,372,895
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
Stockholders' equity
Common stock par value $.005 per share paid in
capital. Issued and outstanding 90,186,973
and 80,001,244 shares respectively. 210,605,858 199,100,614
Accumulated deficit (118,995,951) (82,198,746)
----------------- -----------------
Total stockholders' equity 91,609,907 116,901,868
---------------- ----------------
Total $ 218,559,107 $ 227,302,629
================ ================
See accompanying notes to condensed consolidated financial statements.
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AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED NOVEMBER 30, 1998 AND 1997
(Unaudited)
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Three Months Nine Months
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues $ 33,931,756 $48,215,300 $ 105,487,348 $108,769,267
Cost of goods and overhead 44,808,406 38,622,290 100,358,647 82,576,867
------------ ---------- ------------ ----------
Gross Profit (10,876,650) 9,593,010 5,128,701 26,192,400
Expenses
Selling, general and administrative 15,291,137 14,415,182 31,625,291 26,266,825
Research and development 283,638 413,286 1,105,371 2,522,680
------------ -------------- ------------ -----------
Total costs and expenses 15,574,775 14,828,468 32,730,662 28,789,505
------------ -------------- ------------ -----------
Income (loss) from operations (26,451,425) (5,235,458) (27,601,961) (2,597,105)
Other (income) and expense
Equity in losses of unconsolidated
joint ventures 175,000 -- 675,000 --
Gain on sale and issuance of
subsidiary stock and other assets -- (9,832,688) (1,432,627) (9,832,688)
Other income (906,428) -- (1,214,530) --
Legal settlements and costs 1,300,000 -- 7,600,000 --
Interest expense-net 3,021,611 2,136,603 8,766,274 4,105,621
------------ ------------- ----------- -----------
Income (loss) before taxes (30,041,608) 2,460,627 (41,996,078) 3,129,962
Provision (benefit) for taxes (1,589,200) 970,015 (647,200) 970,015
------------- ------------- ------------ -----------
Income (loss) before minority
interest in income of
consolidated subsidiary (28,452,408) 1,490,612 (41,348,878) 2,159,947
Minority interest in income (loss)
of consolidated subsidiary (5,317,533) 741,894 (4,551,673) 741,894
----------- ---------- ------------- -----------
Net income (loss) $(23,134,875) $ 748,718 $ (36,797,205) $ 1,418,053
============ ========== ============ ===========
Net income (loss) per share $ (.27) $ .01 $ (.44) $ .02
=========== ========== ============ ===========
Weighted average shares used
to compute net income (loss) per share
86,413,616 79,749,922 83,011,249 78,728,064
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
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AURA SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED NOVEMBER 30, 1998 AND 1997
(Unaudited)
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1998 1997
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Net cash (used) in operations $ (13,970,789) $ (9,879,690)
------------ ----------------
Cash flows from investing activities:
Additions to property and equipment (11,896,567) (12,244,515)
Disposition of property and equipment -- 200,000
Equity Investments (5,000,000) --
Proceeds from sale of subsidiary stock 1,611,873 2,552,100
-------------- ---------------
Net cash provided by (used) in investing
activities (15,284,694) (9,492,415)
Cash flows from financing activities:
Net proceeds (repayment) from short-term
borrowing 5,360,734 1,454,849
Proceeds from issuance of convertible debt 12,000,000 29,000,000
Net proceeds (repayment) of debt 1,450,000 (5,834,193)
Proceeds from exercise of stock options 103,000 --
Proceeds from exercise of warrants 7,574,358 --
---------------- ----------------
Net cash provided by financing activities: 26,488,092 24,620,656
--------------- ----------------
Net increase (decrease) in cash and cash equivalents
(2,767,391) 5,248,551
Cash and cash equivalents at beginning of year 6,079,411 7,112,354
--------------- --------------
Cash and cash equivalents at end of period $ 3,312,020 $ 12,360,905
=============== ===============
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $ 3,746,051 $ 2,772,939
Income Tax 942,000 9,200
============== ==============
Supplemental disclosure of noncash investing and financing activities:
In the nine months ended November 30, 1998, $3,741,878 of convertible notes
payable were converted into common stock. In the nine months ended November 30,
1997, $5,086,600 of convertible notes payable were converted into common stock.
In the nine months ended November 30, 1997, the Company disposed of assets
in exchange for a note receivable of $503,385 and cash of $200,000, which is
included above.
See accompanying notes to condensed consolidated financial statements.
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AURA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
1) Management Opinion
The condensed consolidated financial statements include the accounts of
Aura Systems, Inc. ("the Company") and subsidiaries from the effective dates of
acquisition. All material inter-company balances and inter-company transactions
have been eliminated.
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) and reclassifications for comparability necessary to
present fairly the financial position and results of operations as of and for
the three and nine months ended November 30, 1998.
2) Capital
In the nine months ended November 30, 1998, $3,741,878 of convertible
notes were converted into common stock of the Company. In the nine months ended
November 30, 1997, $5,086,600 of convertible notes were converted into common
stock of the Company.
3) Significant Customers
The Company sold sound related products and computer related products
to four significant customers during the nine months ended November 30, 1998.
Sales of speakers to a single major electronics retailer accounted for
approximately $7.6 million in the period ended November 30, 1998 as compared to
approximately $11.1 million in the prior year comparable period. Sales of
communication and multimedia products to three major mass merchandisers
accounted for approximately $49.9 million in the nine months ended November 30,
1998 as compared to approximately $39.6 million in the prior year period.
None of the above customers are related or affiliated with the Company or
any customers of the Company. The Company has no reason to believe that sales to
any of these customers will not continue. Sales to Best Buy, one of the three
significant customers, declined from approximately $8 million in the August 31,
1998 quarter to approximately $1.5 million in the November 30, 1998 quarter.
4) Minority Interest
In September 1997, a wholly owned subsidiary of the Company, Newcom,
Inc., completed an Initial Public Offering in which 2,000,000 newly issued
shares were sold to the public along with 300,000 shares of the Company's
holdings. This results in a minority interest holding in NewCom, Inc. of
approximately 27.9%, which is reflected in the accompanying financial
statements. As a result of this transaction, the Company has reported a gain in
the quarter ended November 30, 1997 of approximately $2.1 million on the sale of
the 300,000 shares, and approximately $7.4 million on the sale of newly issued
shares.
5) Contingencies
The Company is engaged in various legal actions listed below. To the
extent that judgment has been rendered, appropriate provision has been made in
the financial statements.
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Shareholder Litigation
Barovich/Chiau v. Aura Systems, Inc.
In May, 1995 two lawsuits naming Aura, certain of its directors and
executive officers and a former officer as defendants, were filed in the United
States District Court for the Central District of California, Barovich v. Aura
Systems, Inc. et. al. (Case No. CV 95-3295) and Chiau v. Aura Systems, Inc. et.
al. (Case No. CV 95-3296), before the Honorable Manuel Real. The complaints
purported to be securities class actions on behalf of all persons who purchased
common stock of Aura during the period from May 28, 1993 through January 17,
1995, inclusive. The Complaints alleged that as a result of false and misleading
information disseminated by the defendants, the market price of Aura's common
stock was artificially inflated during the class period. The complaints were
consolidated as Barovich v. Aura Systems, Inc., et. al.
A settlement agreement for this proceeding was submitted to the Court
on July 20, 1998, for preliminary approval, at which time the Court denied the
plaintiffs' motion for approval of the settlement. On September 22, 1998, the
Company and certain of its officers and directors renoticed their motion for
summary judgment. Thereafter, on January 8, 1999, the plaintiffs and the
defendants in the Barovich action executed a Stipulation of Settlement pursuant
to which the Barovich action would be settled in return for payments by Aura and
its insurer to the plaintiff's settlement class and plaintiff's attorneys in the
amount of $2.8 million in cash (with $800,000 to be contributed by Aura and $2
million to be contributed by Aura's insurer, subject to a reservation of rights
by the insurer against the insureds) and $1.2 million in cash or common stock,
at the Company's option, to be paid by Aura. The settlement will be subject to
the review of the Court, and will not become final and fully effective unless
approved by the Court. The parties expect that the preliminary hearing on the
settlement will take place on or about February 1, 1999.
Morganstein v. Aura Systems, Inc.
On April 28, 1997, a lawsuit naming Aura, certain of its directors and
officers, and the Company's independent accounting firm was filed in the United
States District Court for the Central District of California, Morganstein v.
Aura Systems, Inc., et. al. (Case No. CV 97-3103), before the Honorable Steven
Wilson. A follow-on complaint, Ratner v. Aura Systems, Inc., et. al. (Case No.
CV 97-3944), was also filed and later consolidated with the Morganstein
complaint. The consolidated amended complaint purports to be a securities class
action on behalf of all persons who purchased common stock of Aura during the
period from January 18, 1995 to April 25, 1997, inclusive. The complaint alleges
that as a result of false and misleading information disseminated by the
defendants, the market price of Aura's common stock was artificially inflated
during the Class Period. The complaint contains allegations which assert that
the company violated federal securities laws by selling Aura Common stock at
discounts to the prevailing U.S. market price under Regulation S without
informing Aura's shareholders or the public at large.
In June, 1998, the Court entered an order staying further discovery in
order to facilitate completion of settlement discussions between the parties. On
October 12, 1998, the parties entered into a stipulation for settlement of all
claims, subject to approval by the Court Under the proposed settlement Aura will
pay $4.5 million in cash or stock, at Aura's option, plus 3.5 million warrants
at an exercise price of $2.25. In addition, Aura's insurance carrier has agreed
to pay $10.5 million. Therefore, the Company recorded a charge for this
litigation of $4.5 million in the quarter ended August 31, 1998.
The Court in November 1998 entered an order approving the form of notice
that was to be given to class members regarding the settlement terms.
Thereafter, on January 4, 1999, the Court held a hearing on (i) whether the
settlement should be approved by the Court and (ii) whether the plaintiff's
attorneys' fees request should be approved by the Court. The Court took these
matters under submission following the hearing on January 4, 1999, and has
not yet issued its ruling. The settlement will not become final and fully
effective unless it is approved by the Court.
Securities and Exchange Commission Settlement.
In October, 1996, the Securities and Exchange Commission ("Commission")
issued an order (Securities Act Release No. 7352) instituting an administrative
proceeding against Aura Systems, Zvi Kurtzman, and an Aura former officer. The
proceeding was settled on consent of all the parties, without admitting or
denying any of the Commission's findings. In its order, the Commission found
that Aura and the others violated the reporting, recordkeeping and anti-fraud
provisions of the securities laws in 1993 and 1994 in connection with its
reporting on two transactions in reports previously filed with the Commission.
The Commission's order directs that each party cease and desist from committing
or causing any future violation of these provisions.
The Commission did not require Aura to restate any of the previously
issued financial statements or otherwise amend any of its prior reports filed
with the Commission. Also, the Commission did not seek any monetary penalties
from Aura, Mr. Kurtzman or anyone else. Neither Mr. Kurtzman nor anyone else
personally benefited in any way from these events. For a more complete
description of the Commission's Order, see the Commission's release referred to
above.
Other Litigation.
The Company is also engaged in other legal actions. In the opinion of
management, based upon the advice of counsel, the ultimate resolution of these
matters will not have a material adverse effect.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
This Report may contain forward-looking statements, which involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in such statements. Certain factors could also cause actual
results to differ materially from those discussed in such forward-looking
statements, including factors discussed in the Company's Form 10-K for the
period ended February 28, 1998, and factors discussed in this Report.
Net revenue for the three and nine month periods ended November 30,
1998 decreased by $14,283,544 and $3,281,919 to $33,931,756 and $105,487,348
from the corresponding periods in the prior year. The decreased revenues
resulted primarily from a reduction in revenues by the Company's NewCom
subsidiary of $9,659,785 and $1,866,482 respectively, for the three and nine
month periods ended November 30, 1998. The decline was also partially a result
of the Company focusing its sales attention on sound related products and the
AuraGen, while reducing its emphasis on sales of its other products. Net
revenues also declined in the quarter as a result of declines in sales of one of
NewCom's significant customers to $1.5 million, compared to sales of $8 million
in the immediately preceding quarter.
The Company sold sound related products and computer related products to
four significant customers during the nine months ended November 30, 1998. Sales
of speakers to a single major electronics retailer accounted for approximately
$7.6 million in the period ended November 30, 1998 as compared to approximately
$11.1 million in the prior year comparable period. Sales of communication and
multimedia products to three major mass merchandisers accounted for
approximately $49.9 million in the nine months ended November 30, 1998 as
compared to approximately $39.6 million in the prior year period.
None of the above customers are related or affiliated with the Company or
any customers of the Company. The Company has no reason to believe that sales to
any of these customers will not continue. Sales to Best Buy, one of the three
significant customers, declined from approximately $8 million in the August 31,
1998 quarter to approximately $1.5 million in the November 30, 1998 quarter.
Cost of goods and overhead for the three and nine months ended November
30, 1998 increased by $6,186,116 and $17,781,780 in comparison with the
corresponding periods in the prior year. This increase is primarily a result of
the increase in cost of goods and overhead at the Company's NewCom subsidiary of
$6,614,694 and $12,738,910, respectively, for the three and nine months periods
ended November 30, 1998 which included a write-down in inventory of the
Company's NewCom subsidiary of approximately $10 million in the quarter ended
November 30, 1998.
Gross margins were a negative 32% and a positive 4.9% in the three and
nine months ended November 30, 1998, compared to 19.9% and 24.1% in the
corresponding prior year periods. The primary reason for the decline is the
reduction in margins at the Company's NewCom subsidiary as the result of price
pressures from the mass merchandise retailers and the previously mentioned
write-down of inventory at the Company's NewCom subsidiary in the quarter ended
November 30, 1998. The Company also sold obsolete inventory relating to
discontinued products, at prices which resulted in losses on this inventory of
approximately $1.5 million.
General and administrative costs increased for the three and nine month
periods by $875,955 and $5,358,466 respectively primarily due to the higher
level of advertising support for the products of the Company's NewCom subsidiary
including co-op advertising, rebates and Merchandise Development Funds that were
required by the competitive price pressures in the major mass merchandisers. The
increase in general and administrative expenses is also partially due to an
increase in depreciation and amortization of $1.1 million to $2.4 million and
$4.2 million to $6.3 million for the three and nine months ended November 30,
1998 over the comparable periods ended November 30, 1997. General and
administrative expenses increased by $.9 million and $5.4 million respectively,
for the three and nine months ended November 30, 1998. Exclusive of the effects
of the Company's NewCom subsidiary, Aura's general and administrative expenses
decreased by approximately $3.9 million and $2.7 million respectively, for the
three and nine months ended November 30, 1998.
Research and development costs for the three and nine months ended
November 30, 1998 decreased by $129,648 and $1,417,309 as the Company focused
its attention on marketing and manufacturing of its products such as the
AuraGen(TM) and sound products.
The Company lost $26,451,425 and $27,601,961 from operations for the
three and nine months ended November 30, 1998 compared with a loss of $5,235,458
and $2,597,105 in the prior year periods. Of the loss, approximately $15.7
million and $13.3 million, respectively, is attributed to the Company's NewCom
subsidiary. This loss also includes increases in depreciation and amortization
expense of $1.1 million and $4.2 million respectively which is primarily due to
the amortizing of product development costs over a 24 month period.
In the nine months ended November 30, 1998, the Company recorded a gain
on the sale of stock in its majority owned subsidiary NewCom of approximately
$1.4 million as compared to a recorded gain on the sale and issuance of stock in
NewCom in the prior year nine months of approximately $9.8 million in
conjunction with the IPO of NewCom. There were no such sales in the three month
periods ended November 30, 1997 and 1998.
Net interest expense increased by $885,008 to $3,021,611 and $4,660,653
to $8,766,274 in the three and nine months ended November 30, 1998 due to higher
levels of borrowing and the quarterly fee being charged to interest expense on
the $15 million note that was renegotiated in September 1997.
The net loss for the three months ended November 30, 1998, including
interest expense of $8.8 million totalled $23,134,875 compared to earnings of
$748,718 for the comparable period of Fiscal 1998. For the nine months ended
November 30, 1998, including the above charges, the Company lost $36,797,205
compared to earnings of $1,418,053 in the prior year nine months. Included in
these amounts are a loss of $15.7 million and $13.3 million respectively, by the
Company's NewCom subsidiary in the three and nine months ended November 30,
1998, compared to income of $2.7 million and $6.0 million in the prior year
comparable periods.
Liquidity and Capital Resources
In the nine months ended November 30, 1998, cash decreased by
$2,767,391 to $3,312,020 from $6,079,411 at February 28, 1998. Accounts payable
and accrued expenses increased by $2,690,475 from February 28, 1998. Inventories
decreased by $7,621,828 due to the write-down of inventory at the Company's
NewCom subsidiary as previously discussed.
The decrease in receivables of $4,525,335 is due to the lower sales
volume for the quarter coupled with the increased levels of co-op advertising
and Merchandise Development Fund credits in the quarter as previously discussed.
Cash flows used in operations increased by $4,091,099 compared to the
prior year nine months. Working capital decreased to $32,267,405 from
$60,168,895 over the fiscal year end level, with the current ratio declining to
1.37:1from 1.76:1.
In the nine months ended November 30, 1998, the Company received proceeds
of $12,000,000 from the sale of convertible notes payable. In this same period
$3,741,878 of previously issued convertible notes were converted into common
stock of the Company. In the nine months ended November 30, 1997, the Company
received proceeds of $29,000,000 from the sale of convertible notes payable. The
Company also redeemed $4,000,000 of previously issued convertible notes.
In October 1998 the Company completed a private placement to a single
institutional investor of a $3,000,000 Convertible Senior Secured Note and
Warrants to purchase 1,200,000 of the Company's Common Stock in consideration of
$3,000,000 gross cash proceeds. The Note bears interest at the rate of 14% per
annum and is due and payable on the earlier of April 1, 1999, and the closing of
an equity or convertible debt financing resulting in at least $6,000,000 of net
proceeds to the Company. The Note is secured by a junior lien on inventory,
equipment and receivables of the Company and its subsidiaries other than NewCom.
In March 1997 the Company issued $15 million of convertible Debentures
to a group of accredited investors in a private placement. The Debentures were
convertible into Common Stock of the Company in accordance with a stated
formula. In October 1997 the Company and the investors entered into an agreement
modifying the Debentures to eliminate the conversion feature in exchange for
increasing the interest rate on the principal to 18% and the payment of a
quarterly fee of $935,000 for each quarter during which the Debentures remain
outstanding. The stated maturity was shortened from March 2000 to September 30,
1998. The Debentures, as modified, are secured by a Note from NewCom to Aura in
the original principal amount of $17 million (the "NewCom Note"), which by its
terms matured in September 1998, of which the entire principal amount remains
outstanding. The Debentures are also secured by 2,500,000 shares of NewCom
Common Stock owned by Aura. In September 1998 the Company, the investors and
NewCom reached an agreement-in-principle to restructure the Debentures. The
proposed restructuring called for an initial cash payment by Aura to the
investors and the issuance by NewCom of a $3 million convertible note,
redeemable by NewCom under certain circumstances. The unpaid balance of the
Debentures would bear interest at 9% per annum and the remaining principle and
interest would be payable in six equal monthly installments. As part of the
restructuring of the Debentures NewCom and Aura agreed to restructure the
payment terms of the remaining principal balance of the NewCom Note.
The agreement-in-principle was subject to certain terms and conditions,
including the execution of definitive documents on or before October 21, 1998,
and funding from an institutional lender. The Company did not finalize its
agreement with these investors by October 21, 1998, and had not received a
commitment for third party funding by such date. Completion of the restructuring
also remains subject to completion of definitive restructuring documents with
the investors.
The investors have advised the Company that they have no present
intention of demanding payment under the Aura Note and intend to work with the
Company to complete a restructuring. There are no assurances, however, that the
restructuring will be consummated. Since October 21, 1998, the investors
converted approximately $1.53 million of principal and interest into
approximately 2 million shares of Common Stock in lieu of the initial payments
under the proposed restructuring. As of January 14, 1999, approximately $16
million of principal and interest remained outstanding under the Debentures.
In the past the Company's cash flow generated from operations has not
been sufficient to completely fund its working capital needs. Accordingly, the
Company has also relied upon external sources of financing to maintain its
liquidity. In order to finance its existing operations it will be necessary for
the Company to obtain additional working capital from external sources. In
particular, the Company's need for working capital has increased in recent
months as a result of ongoing expenditures in connection with activities
relating to the manufacturing and marketing of the Company's AuraGen product.
The Company is presently seeking additional sources of financing, including debt
and equity financing. No assurances can be provided that these funding sources
will be available at the times and in the amounts required. The Company is
temporarily curtailing certain expansion plans and is taking measures to reduce
overhead until such time as sufficient working capital is available to fully
implement its business plan. The inability of the Company to obtain sufficient
working capital at the times and in the amounts required would have a material
adverse effect on the Company's business and operations.
The ongoing financial crisis in Asia may also have a negative effect on
the Company's cash flow due to the potential requirements for cash advances to
Asian vendors in order to ensure an adequate flow of product.
Year 2000
The Company relies heavily on computers in its internal and external
financial reporting systems. In addition, computers are used extensively
throughout the Company to perform critical operating activities including the
processing of payroll, accounts receivable and accounts payable and to perform
critical analyses. The Company also makes use of computers for efficient
communication with employees and customers, including extensive use of e-mail
systems and the Internet, and is expected to expand its use of such technology
in the future. Finally, embedded technology such as microcontrollers are
commonly found in equipment used throughout the Company's operations. The
complete failure of these systems could have a material negative impact on the
operations of the Company. In addition, most of the Company's major suppliers
and customers rely heavily on similar computer systems, and failures in such
systems could disrupt their operations.
The Company is substantially complete in assessing and addressing Year
2000 issues in its major computer systems. Most of the Company's major systems
are Year 2000 compliant or have been updated in the normal course of business
with applications that are Year 2000 compliant. No system replacements were made
or accelerated to comply with Year 2000 issues, but rather were made to address
other operating issues.
In addition to substantially addressing Year 2000 issues in its own
critical computer systems, the Company is in the process of contacting its major
customers and vendors to assess their progress in addressing their Year 2000
issues. The Company expects to have responses from these customers and vendors
by the first quarter of fiscal 2000. The Company believes that in making these
contacts it can minimize the risks associated with Year 2000 failures of such
vendors and customers. The Company can give no assurance that the systems of
other companies on which the Company's systems rely will be converted or
otherwise addressed on time, or that a failure to convert by another company
would not have a material adverse effect on the Company.
While the Company has and will continue to make efforts to address Year
2000 issues, the Company could experience disruptions in its operations as a
result of failures in its own systems and those of its major vendors or
customers.
To date, the total amount spent on Year 2000 issues has been less than
$100,000 and has not been material to the Company's operations or financial
condition. Based on current assessments, the Company expects to incur less than
$100,000 in additional expenditures to address Year 2000 issues. However, these
estimates are subject to revisions based on future assessments and responses
from vendors and customers.
Estimates of the costs or consequences of incomplete or untimely
resolution of Year 2000 issues would be speculative. The Company will continue
to assess and address Year 2000 issues and expects to fund such efforts through
operating cash flows and, if necessary, external sources of financing.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
For information regarding pending legal proceedings, see Note 4 to
the Company's Condensed Consolidated Financial Statements
appearing elsewhere herein.
ITEM 2 Changes in Securities and Use of Proceeds
In October 1998 the Company completed a private placement to a
single institutional investor of a $3,000,000 Convertible Senior
Secured Note and Warrants to purchase 1,200,000 of the Company's
Common Stock in consideration of $3,000,000 gross cash proceeds.
The Note bears interest at the rate of 14% per annum and is due
and payable on the earlier of April 1, 1999, and the closing of an
equity or convertible debt financing resulting in at least
$6,000,000 of net proceeds to the Company. The Note is secured by
a junior lien on inventory and receivables of the Company and its
subsidiaries other than NewCom. The Warrants are exercisable at
$1.40 per share until January 1, 1999; from February 1, 1999 until
June 30, 1999, the Warrants are exercisable at the lesser of $1.40
and 101% of the average closing bid price of the Common Stock for
the five consecutive trading days ended January 31, 1999 (the
"January Price"); and from July 1, 1999 until October 2003 the
Warrants are exercisable at the lower of $1.40, the January Price
or 101% of the average closing bid price of the Common Stock for
the five consecutive trading days ended June 30, 1999. In November
1998 the Company completed a similar financing with another
institutional investor of a $1,000,000 Convertible Senior Secured
Note and Warrants to purchase 400,000 shares of the Company's
Common Stock.
ITEM 3 Defaults Upon Senior Securities
For information regarding defaults under outstanding indebtedness
of Aura, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources" appearing elsewhere in this Report.
ITEM 6 Exhibits and Reports on Form 8-K
a) Exhibits:
See Exhibit Index
b) Reports On Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AURA SYSTEMS, INC.
(Registrant)
Date: January 18, 1999 By: /s/Steven C. Veen
------------------------------ ---------------------------
Steven C. Veen
Senior Vice President
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit Sequential
Number Page No.
<S> <C>
EX-10.1 Parent Agreement dated as of November 30, 1998, by and among the
Company, NewCom, Inc. and the Original Holder
EX-10.2 Amendment Agreement dated as of December 28, 1998, by and among the
Company, NewCom, Inc, and the Original Holder
EX-10.3 Form of Convertible Senior Secured Note
EX-10.4 Form of Warrant
EX-27 Financial Data Schedule
</TABLE>
EXHIBIT 10.1
PARENT COMPANY AGREEMENT
THIS PARENT COMPANY AGREEMENT, dated as of November 30, 1998,
by and among AURA SYSTEMS, INC., a Delaware corporation ("Aura"), NEWCOM, INC.,
a Delaware corporation (the "Company"), and the holders of Common Shares (as
defined below) named on the signature pages hereto (the "Original Holders").
W I T N E S S E T H:
WHEREAS, pursuant to the several Subscription Agreements,
each dated as of November 30, 1998, by and between the Company and the Original
Holders (the "Subscription Agreements"), the Company has agreed, upon the terms
and subject to the conditions of the Subscription Agreements, to issue to the
Original Holders, and the Original Holders have agreed to purchase from the
Company, shares (the "Common Shares") of Common Stock, $.001 par value (the
"Common Stock"), of the Company and in connection therewith the Company has
agreed to issue certain Repricing Rights (as defined in the Subscription
Agreements) and Common Stock Purchase Warrants (the "Warrants") to the Original
Holders;
WHEREAS, Aura beneficially owns a majority of the
outstanding Common Stock of the Company; and
WHEREAS, as a condition precedent to the respective
obligations of the Original Holders to purchase the Common Shares and acquire
the Repricing Rights and the Warrants, the Original Holders require the
execution and delivery of this Agreement by Aura and the Company;
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 parties hereto
agree as follows:
1. Definitions. (a) The following terms shall have the
following meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
"Aura Affiliate" means any Aura Transferee or any Affiliate,
officer, director, security holder or lender of Aura or any Aura Transferee.
"Aura Transferee" means any Person to whom any Company
Obligations are sold, transferred, assigned or pledged.
"Company Obligations" means (i) all Indebtedness of the
Company, whether now existing or hereafter created, owed to Aura or any Aura
Affiliate, including without limitation the Company's promissory note, dated
September 17, 1998, due to Aura in the principal amount of $17,000,000 (the
"Existing Note") and (ii) all other financial obligations and liabilities of the
Company, whether now existing or hereafter created, owed to Aura or any Aura
Affiliate.
"Holders" means the Original Holders and each other holder of
Repricing Rights and Warrants.
"Indebtedness" as used in reference to any Person means all
indebtedness of such Person for borrowed money, the deferred purchase price of
property, goods and services and obligations under leases which are required to
be capitalized in accordance with generally accepted accounting principles and
shall include all such indebtedness guaranteed in any manner by such Person or
in effect guaranteed by such Person through a contingent agreement to purchase
and all indebtedness for the payment or purchase of which such Person has
contingently agreed to advance or supply funds and all indebtedness secured by
mortgage or other lien upon property owned by such Person, although such Person
has not assumed or become liable for the payment of such indebtedness, and, for
all purposes hereof, such indebtedness shall be treated as though it has been
assumed by such Person.
"Net Operating Cashflow" means for any period the lesser of
(i) the Company's earnings before interest, taxes, depreciation and amortization
(EBITDA) and (ii) the Company's cash flow from operating activities, in each
case as determined in accordance with generally accepted accounting principles,
as consistently applied by the Company in preparing its audited financial
statements.
(b) Capitalized terms defined in the introductory paragraph
or the recitals to this Agreement shall have the respective meanings therein
provided. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Subscription Agreements.
2. Payment of Company Obligations. (a) Except as permitted by
Section 2(b), Aura and the Company agree that during the period commencing on
the date hereof and ending on the 545th day after the date hereof, the Company
may only pay Company Obligations due to Aura or any Aura Affiliate from the
Company's Net Operating Cashflow, if any, in any calendar month and no other
source of funds may be used by the Company to pay Company Obligations. Aura
agrees that it will not accelerate, commence any legal action or take any other
action to compel payment by the Company of any Company Obligations if the
Company's failure to pay any amount of Company Obligations when due results from
insufficient Net Operating Cashflow in any calendar month. After the date
hereof, Aura shall not transfer, assign or pledge any Company Obligations unless
each such Aura Transferee agrees in writing to be bound by this Section 2.
Within two Business Days after the end of each calendar month while this Section
2(a) is applicable, the Company shall deliver to each Holder a compliance
certificate in the form of Exhibit A attached hereto.
(b) Notwithstanding the restrictions in Section 2(a), if the
Company receives net proceeds from (i) a secured, non-convertible debt
refinancing by a third party institutional lender after deducting all amounts
required to pay off the Indebtedness being refinanced, up to $3,000,000 of such
proceeds may be used to pay Company Obligations or (ii) an unsecured,
non-convertible debt refinancing by a third party institutional lender after
deducting all amounts required to pay off the Indebtedness being refinanced, all
of such proceeds may be used to pay Company Obligations.
3. Proposed Issuance of Convertible Notes. The Company and
Aura have advised the Original Holders that up to $3,000,000 principal amount of
outstanding Indebtedness of the Company owed to Aura represented by the Existing
Note, is proposed to be canceled and exchanged for new promissory notes of the
Company (the "Convertible Notes") in the same principal amount which will be
convertible into Common Stock. The Company and Aura agree that the Convertible
Notes (i) will not have a principal amount in excess of $3,000,000, (ii) will
bear interest at a rate not to exceed 10% per annum and (iii) will be
convertible at a conversion price of not less than $5.00 of principal amount of
such Convertible Note for each share of Common Stock.
4. Sales of Common Stock. The Company may register for resale
under the 1933 Act up to 3,000,000 shares of Common Stock held by Aura. Aura
agrees that during the period commencing on the date hereof and ending one year
after the date hereof (regardless of the number of shares beneficially owned at
any time by Aura), Aura will not sell such shares pursuant to the registration
statement filed in connection with such registration unless each such sale (i)
is at a price of at least $6.00 per share and (ii) is made in blocks of at least
100,000 shares.
5. Equitable Adjustments. All amounts with respect to shares
of Common Stock stated in dollars and numbers of shares in Section 3 and Section
4 shall be subject to equitable adjustments from time to time on terms
reasonably acceptable to the Holders for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events occurring
after the date hereof.
6. Representations and Warranties. Aura and the Company
hereby jointly and severally represent and warrant to, and covenant and agree
with, the Holders as follows:
.c.(a) Organization and Authority;. Aura is a corporation duly
organized and validly existing under the laws of Delaware, and has all requisite
corporate power and authority to (i) own, lease and operate its properties and
to carry on its business as now being conducted, and (ii) to execute, deliver
and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby.
.c.(b) Parent Company Agreement. This Agreement has been duly
and validly authorized, executed and delivered by Aura and this Agreement is a
valid and binding obligation of Aura enforceable in accordance with its terms,
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
.c.(c) Non-contravention;. The execution and delivery by Aura
of this Agreement and the consummation by Aura of the transactions contemplated
by this Agreement, do not and will not, with or without the giving of notice or
the lapse of time, or both (i) result in any violation of any terms of the
Certificate of Incorporation or by-laws of Aura, (ii) conflict with or result in
a breach by Aura or the Company of any of the terms or provisions of, or
constitute a default under, or result in the modification, amendment,
termination or cancellation of, result in the acceleration of any obligation of
Aura or the Company under, or result in the creation or imposition of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Aura or the Company pursuant to, any indenture, mortgage, deed of trust or other
agreement or instrument to which Aura or the Company is a party or by which Aura
or the Company or any of their respective properties or assets is bound or
affected, or (iii) violate or contravene any applicable law, rule or regulation
or any applicable decree, judgment or order of any court, United States federal
or state regulatory body, administrative agency or other governmental body
having jurisdiction over Aura or the Company or any of their respective
properties or assets.
.c.(d) Approvals;. No authorization, approval or consent of,
or filing with, any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the security holders of or lenders
to Aura, or any other third party, is required to be obtained or made by Aura or
the Company for the execution, delivery and performance by Aura and the Company
of this Agreement and by the Company of the Subscription Agreements and the
other agreements, transactions and instruments contemplated hereby and thereby.
.c.(e) Absence of Certain Changes; Liabilities;. Except as
disclosed in the SEC Reports, since February 28, 1998, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company. Except as and to the extent disclosed, reflected or
reserved against in the financial statements of the Company and the notes
thereto included in the SEC Reports, the Company has no material (individually
or in the aggregate) liabilities, debts or obligations (including guaranties)
whether accrued, absolute, contingent or otherwise, and whether due or to become
due, including without limitation any such liabilities or obligations to Aura,
any of its officers, directors, security holders, or lenders or any of their
respective Affiliates. Subsequent to February 28, 1998, the Company has not
incurred any liabilities, debts or obligations of any nature whatsoever which
are individually or in the aggregate material to the Company other than those
incurred in the ordinary course of its business or disclosed in the SEC Reports.
As of November 30, 1998, the aggregate amount of outstanding Indebtedness of the
Company owed to Aura and Aura Affiliates is $19,099,256.26.
7. Term. This Agreement shall become effective on the date
hereof and shall continue in full force and effect until the Holders no longer
beneficially own any Securities.
.c.8. MISCELLANEOUS;.
.c.(a) Governing Law;. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of California.
.c.(b) Counterparts;. This Agreement may be executed in
counterparts and by the parties hereto on separate counterparts, all of which
together shall constitute one and the same instrument. A facsimile transmission
of this Agreement bearing a signature on behalf of a party hereto shall be legal
and binding on such party.
.c.(c) Headings, etc.; The headings, captions and footers of
this Agreement are for convenience of reference and shall not form part of, or
affect the interpretation of, this Agreement.
.c.(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.
.c.(e) Amendments;. No amendment, modification, waiver,
discharge or termination of any provision of this Agreement nor consent to any
departure by the Holders, Aura or the Company therefrom shall in any event be
effective unless the same shall be in writing and signed by the party to be
charged with enforcement, and then shall be effective only in the specific
instance and for the purpose for which given; provided, however, this Agreement
may be amended on behalf of the Holders by written consent of those Holders
holding a majority of both the outstanding Shares and the outstanding Repricing
Rights. No course of dealing between the parties hereto shall operate as an
amendment of this Agreement.
.c.(f) Waivers;. 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, or any course of dealings between the parties, shall not
operate as a waiver thereof or an amendment hereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or exercise of any other right or power.
.c.(g) Notices;. Any notices required or permitted to be
given under the terms of this Agreement shall be delivered personally (which
shall include telephone line facsimile transmission with answer back
confirmation) or by courier and shall be effective upon receipt, if delivered
personally or by courier, in the case of the Company addressed to the Company at
its address shown in the introductory paragraph of the Subscription Agreements,
Attention: Chief Executive Officer (telephone line facsimile transmission number
(818) 597-1002), in the case of Aura addressed to Aura at 2335 Alaska Avenue, El
Segundo, California 90245, Attention: Chief Financial Officer (telephone line
facsimile transmission number (310) 643-8719) or, in the case of each Original
Holder, at its address or telephone line facsimile transmission number shown on
the signature page of this Agreement or, in the case of any Holder who is not an
Original Holder, to such address as such Holder shall have provided in writing
to the Company and Aura for such purpose or, in each such case, such other
address or telephone line facsimile transmission number as a party shall have
provided by notice to the other parties in accordance with this provision.
.c.(h) Assignment;. Each Original Holder shall have the right
to assign its rights and obligations under this Agreement to any party to whom
it assigns its rights under its Subscription Agreement. Each Holder shall be
entitled to the rights and benefits of the Original Holders under this
Agreement.
.c.(i) Survival of Representations and Warranties;. The
respective representations, warranties, covenants and agreements of Aura and the
Company contained in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall survive the delivery of payment
for the Initial Shares pursuant to the Subscription Agreements and shall remain
in full force and effect regardless of any investigation made by or on behalf of
them or any Person controlling or advising any of them.
.c.(j) Entire Agreement;. This Agreement and the Subscription
Agreements and the agreements and instruments contemplated thereby set forth the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings, whether written or
oral, with respect thereto.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto by their respective officers or other representatives
thereunto duly authorized as of the date first set forth above.
AURA SYSTEMS, INC.
By:______________________________
Name:
Title:
Newcom, INC.
By:______________________________
Name:
Title:
[ORIGINAL HOLDERS]
By:______________________________
Name:
Title:
Address:
Facsimile No.:
<PAGE>
Exhibit A
NEWCOM, INC.
COMPLIANCE CERTIFICATE
TO: The Holders
Pursuant to the Parent Company Agreement, dated as of
November 30, 1998, by and among NewCom, Inc. (the "Company"), Aura Systems, Inc.
("Aura") and the holders of Common Shares named therein (the "Agreement"; all
capitalized terms used herein without definition have the meanings given to them
in the Agreement), the undersigned Chief Executive Officer or Chief Financial
Officer of the Company hereby certifies as follows:
(1) As of the last day of the month of __________ (the "Designated
Month"), _____ [INSERT YEAR], the aggregate amount of outstanding Company
Obligations is $____________;
(2) During the Designated Month, the Company paid a total of
$__________ of Company Obligations; and
(3) The Company is in compliance with its obligations under Section 2
of the Agreement and knows of no reason why it will not be in compliance with
Section 2 for the month following the Designated Month.
Dated:
Name:
Title:
EXHIBIT 10.2
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT, dated as of December 28, 1998, by
and among AURA SYSTEMS, INC., a Delaware corporation ("Aura"), NEWCOM, INC., a
Delaware corporation (the "Company"), and the holders of Securities (as defined
below) named on the signature pages hereto (the "Original Holders").
W I T N E S S E T H:
WHEREAS, pursuant to the several Subscription Agreements,
each dated as of November 30, 1998, by and between the Company and the Original
Holders (the "subscription Agreements"), the Company issued to the Original
Holders shares (the "Initial Shares") of Common Stock, $.001 par value ("the
Common Stock"), of the Company and in connection therewith the Company issued
certain Repricing Rights (as defined in the Subscription Agreements) and Common
Stock Purchase Warrants (the "Initial Warrants") to the Original Holders;
WHEREAS, pursuant to the several Note Purchase Agreements,
each dated as of December 28, 1998, by and between the Company and the Original
Holders (the "Note Purchase Agreements"), the Company has agreed, upon the terms
and conditions of the Note Purchase Agreements, to issue to the Original Holders
Secured Promissory Notes (the "Notes") of the Company and in connection
therewith the Company has agreed to issue additional Common Stock Purchase
Warrants (the "Additional Warrants") to the Original Holders; and
WHEREAS, Aura beneficially owns a majority of the outstanding
Common Stock of the Company and is a party to the Parent Company Agreement,
dated as of November 30, 1998, with the Company and the Original Holders; and
WHEREAS, as a condition precedent to the respective
obligations of the Original Holders to purchase the Notes and acquire the
Additional Warrants, the Original Holders require the execution and delivery of
this Agreement by Aura and the Company;
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 parties hereto
agree as follows:
1. Definitions. (a) The following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
"Aura SEC Reports" means (1) Aura's Annual Report on Form
10-K for the fiscal year ended February 28, 1998, (2) Aura's Quarterly Reports
on Form 10-Q for the fiscal quarters ended May 31, 1998 and August 31, 1998, and
(3) Aura's definitive proxy statement for its 1998 Annual Meeting of
Stockholders, in each case as filed with the SEC.
"Holders" means the Original Holders and each other holder of
Repricing Rights and Securities.
"Securities" means the Initial Shares, Repricing Shares, the
Aura Repricing Shares, the Notes, the Initial Warrants and the Additional
Warrants.
(b) Capitalized terms defined in the introductory paragraph
or the recitals to this Agreement or in the amendments to the Subscription
Agreements and the Registration Rights Agreements made hereby shall have the
respective meanings therein provided. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings set forth in the
Note Purchase Agreements and, if not defined therein, in the Subscription
Agreements.
2. Amendment of Subscription Agreements. Each of the
respective Subscription Agreements is hereby amended as follows:
(a) Section 1 is amended by adding the following new definitions:
"Amendment Agreement" means the Amendment Agreement, dated as of
December 28, 1998, between and among the Company, Aura, the Buyer and the Other
Buyers.
"Aura Common Stock" means the Common Stock, $.005 par value, of
Aura.
"Aura Repricing Rate" means the number of Aura Repricing Shares
issuable upon exercise of each Repricing Right pursuant to Section 3(I) equal to
(a) the product of (1) the Repricing Rate and (2) the Average Market Price of
the Common Stock on the Exercise Date divided by (b) the Average Market Price of
the Aura Common Stock on such Exercise Date (as if, for purposes of this clause
(b), the term "Average Market Price" referred to the Aura Common Stock).
"Aura Repricing Shares" means shares of Aura Common Stock issued or
issuable to a holder of Repricing Rights upon the exercise thereof.
"Cash Consideration" means the product of (a) the number of Aura
Repricing Shares issuable upon each exercise of Repricing Rights pursuant to
Section 3(l) and (b) the then current par value of the Aura Common Stock (which
is $.005 as of December 28, 1998).
"Cash Consideration Reserve" means the funds received by Aura from the
Buyer from time to time pursuant to Section 3(l), plus accrued interest thereon,
which are held in trust by Aura from the account of the Buyer unless and until
paid to Aura as Cash Consideration upon exercise of Repricing Rights for Aura
Repricing Shares.
"Note Purchase Agreements" means the several Note Purchase Agreements,
dated as of December 28, 1998, by and between the Company and each of the Buyer
and the Other Buyers.
"Notes" means the Secured Promissory Notes of the Company in the
aggregate principal amount of $1,000,000 issued to the Buyer and the Other
Buyers pursuant to the Note Purchase Agreements.
(b) Section 3 is amended to add a new Section 3(I) at the end
thereof as follows:
(I) Aura Repricing Shares. (1) Notwithstanding anything to the contrary
in this Agreement, the Buyer may elect in its sole discretion to receive shares
of Aura Common Stock in lieu of receiving shares of Common Stock of the Company
upon exercise of Repricing Rights pursuant to this Section 3. On each Exercise
Date, the Buyer shall be entitled to exercise any whole number of Repricing
Rights for fully paid and nonassessable Aura Repricing Shares at the Aura
Repricing Rate if upon each exercise the Buyer pays Aura, or has previously
deposited in the Cash Consideration Reserve for Aura, the applicable Cash
Consideration. Upon receipt of such Exercise Notice and such Cash Consideration,
Aura and the Company shall be obligated to deliver the certificates for the Aura
Common Stock representing such Aura Repricing Shares as and when required under
this Agreement.
(2) In order to make funds available to Aura to pay the Cash
Consideration if and when required, at the closing under the Note Purchase
Agreement the Buyer will deliver to Aura the sum of $1,000.00 to be held in
trust by Aura as the Cash Consideration Reserve. Upon each exercise of Repricing
Rights for Aura Repricing Shares, the Buyer hereby authorizes and directs Aura
to deduct from its Cash Consideration Reserve the Cash Consideration due with
respect to such exercise. Such deduction shall constitute payment in full to
Aura of the applicable Cash Consideration. The Buyer may from time to time
deposit additional funds in the Cash Consideration Reserve to provide adequate
funds to cover future exercises of Repricing Rights. Upon request, Aura will
provide the Buyer with a statement of the balance held in such Cash
Consideration Reserve. Aura shall return the balance of the Cash Consideration
Reserve, plus accrued interest thereon, to the Buyer within ten Business Days of
receiving a request therefor from the Buyer.
(3) To exercise Repricing Rights for full shares of Aura Common Stock
representing Aura Repricing Shares on any Exercise Date, the Buyer shall (A)
transmit by telephone line facsimile (or otherwise deliver), for receipt on or
prior to 11:59 p.m. Eastern Time, on such date, a copy of a fully executed
Exercise Notice, in the form attached hereto as Exhibit B to the Amendment
Agreements to Aura with a copy to the Company and (B) if there shall be
insufficient fund in the Cash Consideration Reserve, deliver by check, money
order of wire transfer to an account designated by Aura, the Cash Consideration
for such exercise. Upon receipt by Aura of an executed Exercise Notice and
payment of the Cash Consideration, which payment shall be deemed made on the
Exercise Date by reason of Aura's right to deduct the Cash Consideration from
the Cash Consideration Reserve if sufficient funds are available, Aura shall,
within three Trading Days following the Exercise Date, (A) issue and deliver to
the address specified in the Exercise Notice, a certificate, registered in the
name of the Buyer or its designee, for the number of Aura Repricing Shares to
which the holder shall be entitled, or (B) credit such aggregate number of Aura
Repricing Shares to the Buyer's or its designee's account with the Depository
Trust Company as specified in the Exercise Notice. The certificates for any Aura
Repricing Shares issued to the Buyer prior to the SEC Effective Date shall bear
the restrictive legend specified in Section 6(b). On and after the SEC Effective
Date all Aura Repricing Shares issued to or upon the order of the Buyer shall
not bear any restrictive legends or be subject to any stop-transfer
restrictions.
(4) The Person or Persons entitled to receive the Aura Repricing Shares
issuable upon an exercise of Repricing Rights shall be treated for all purposes
as the record holder or holders of such shares of Aura Common Stock on the
Exercise Date.
(5) If the Buyer shall have given an Exercise Notice for Aura Repricing
Shares as provided herein, Aura's obligation to issue and deliver the
certificates for Aura Common Stock representing the Aura Repricing Shares shall
be absolute and unconditional, irrespective of any action or inaction by the
Buyer to enforce the same, any waiver or consent with respect to any provision
hereof, 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
Aura or the Company to the Buyer, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Buyer or any
other Person of any obligation to Aura or the Company or any violation or
alleged violation of law by the Buyer or any other Person, and irrespective of
any other circumstance which might otherwise limit such obligation of Aura to
the Buyer in connection with the issuance and delivery of Aura Repricing Shares.
The number of Aura Repricing Shares to be issued in connection with a particular
Exercise Date is, absent manifest error, conclusively the number of Aura
Repricing Shares stated in the applicable Exercise Notice. If in connection with
a particular Exercise Date Aura determines that manifest error has been made by
virtue of the computation of Aura Repricing Shares or other information set
forth in the applicable Exercise Notice, Aura shall have the right within one
Trading Day after the Buyer gives such Exercise Notice to notify the Buyer of
such error, which notice shall state the number of Aura Repricing Shares in
dispute, and, notwithstanding such notice from Aura, Aura shall issue to the
Buyer the number of Aura Repricing Shares not in dispute as and when required by
this Agreement. If Aura shall have notified the Buyer of any such manifest
error, and Aura and the Buyer do not agree as to a resolution of such manifest
error on or before the date of such notice by Aura of an error in such Exercise
Notice, Aura shall on the date such notice is given submit the dispute to the
Auditors for determination and shall instruct the Auditors to resolve such
dispute and to notify Aura and the Buyer of their determination, which shall be
binding on all parties, within two Trading Days after such dispute is submitted
to the Auditors. Immediately after receipt of timely notice of the Auditors'
determination (but in any event within four Trading Days after the applicable
Exercise Notice is given to Aura), Aura shall issue to the Buyer any additional
Aura Repricing Shares to which the Buyer is entitled based on the determination
of the Auditors. If the Auditors shall fail to notify Aura of their
determination within four Trading Days after the applicable Exercise Notice is
given to Aura, then Aura shall within four Trading Days after receipt of the
applicable Exercise Notice, issue to the Buyer any additional Aura Repricing
Shares to which the Buyer is entitled based on the applicable Exercise Notice.
Such immediate and prompt action shall be taken by all the parties in order to
assure that there shall be full compliance with Aura's unqualified obligation
that all Aura Repricing Shares issuable upon each Exercise Date be issued and
delivered by the due dates therefor as provided herein.
(6) If within three Trading Days after the Company's receipt of the
Exercise Notice (or such longer period specified in Section 3(l)(5)) Aura shall
for any reason fail to issue a certificate (which shall be free of all
restrictive legends other than those required by Section 6(b)) for the number of
Aura Repricing Shares to which the Buyer is entitled or to credit the Buyer's or
its designee's account with the Depository Trust Company for such number of Aura
Repricing Shares to which the Buyer is entitled upon the Buyer's exercise of the
Repricing Rights, the Buyer shall have the right to rescind such exercise Notice
or, commencing seven Business Days after the Exercise Date, to deliver a copy of
the applicable Exercise Notice to the Repricing Escrow Agent with a notice that
the Buyer is requesting Common Stock in lieu of Aura Common Stock by reason of
Aura's failure to timely deliver Aura Repricing Shares in accordance with this
Section 3(l)(6). Promptly but not later than three Trading Days after its
receipt of such Exercise Notice, the Repricing Escrow Agent shall, in accordance
with the Escrow Agreement, release the Escrow Shares from escrow in the amount
of the Repricing Shares specified in such Exercise Notice and deliver such
shares in accordance with such Exercise Notice. In addition to such right to
receive Escrow Shares and all other available remedies which the Buyer may
pursue hereunder and under applicable law, Aura shall, on a weekly basis, pay as
additional damages (and not as a penalty) to such Buyer for each day after such
third Trading Day that such Aura Repricing Shares or Repricing Shares are not
timely delivered an amount equal to 0.2% of the product of (1) the sum of the
number of Aura Repricing Shares not issued to the Buyer on a timely basis
pursuant to Section 3(c)(2) and to which the Buyer is entitled and (2) the
Closing Price of the Aura Common Stock on such third Trading Day. In addition,
if in connection with such late delivery of Aura Repricing Shares the Closing
Price on the date of delivery is less than the Closing Price on such third
Trading Day when such shares were due, then Aura shall be required to pay the
Buyer, within two Trading Days after such late delivery, an amount equal to the
product of (A) the number of such Aura Repricing Shares and (B) the difference
between such respective Closing Prices. As used in this clause (6), the term
"Closing Price" shall refer to the closing sale price of the Aura Common Stock.
Any failure of the Repricing Escrow Agent to deliver shares to the Buyer shall
not relieve Aura of its obligations under this Section 3(l)(6).
(7) Notwithstanding anything to the contrary in this Agreement, in no
event shall the Buyer be entitled to exercise any Repricing Rights in excess of
that number of Repricing Rights upon exercise of which the sum of (x) the number
of shares of Aura Common Stock beneficially owned by the Buyer and all of its
Aggregated Persons (other than shares of Aura Common Stock deemed beneficially
owned through the ownership of unexercised Repricing Rights and the unexercised
or unconverted portion of any instrument which contains limitation similar to
those set forth in this sentence) and (y) the number of shares of Aura Common
Stock issuable or deliverable upon the exercise of the number of Repricing
Rights with respect to which the determination in this sentence is being made,
would result in beneficial ownership by the Buyer and all Aggregated Persons of
the Buyer of more than 9.9% of the outstanding shares of Aura Common Stock. For
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the 1934 Act and Regulation 13D-G
thereunder, except as otherwise provided in clause (x) of the immediately
preceding sentence.
(8) Unless the Stockholder Approval shall have been obtained or waived
by the Nasdaq, Aura shall not be required to issue Aura Repricing Shares to the
extent such issuance would violate the Stockholder Approval Rule.
(d) Section 3(e)(2) is amended to add the following words at
the end of clause (x) thereof after the words "Section 3(g)(2)": "or Section
3(I)(7),. . . "
3. Amendment of Registration Rights Agreements. Each of the
respective Registration Rights Agreements is hereby amended, effective as of the
date of this Agreement, as follows:
(a) Section 1 is amended to add a new definition as follows:
"Note Purchase Agreements" means the several Note Purchase Agreements,
dated as of December 28, 1998, between the Company and each of the Initial
Investor and the Other Buyers.
(b) The term "Warrant Shares" as used in each Registration
Rights Agreement is amended to refer to the shares of Common Stock issuable upon
exercise of (i) the Warrants issued pursuant to the applicable Registration
Rights Agreement and (ii) the Common Stock Purchase Warrants issued in
connection with the applicable Note Purchase Agreement.
(c) For purposes of Section 2(f), the term "Purchase Price"
shall mean for each Investor the sum of (1) the Purchase Price for the Initial
Shares as defined in the applicable Registration Rights Agreement for such
Investor and (2) the Purchase Price for the Note as defined in the applicable
Note Purchase Agreement for such Investor.
4. Representations, Warranties, etc. by Original Holders.
Each of the Original Holders, severally and not jointly, represents and warrants
to, and covenants and agrees with, Aura as follows:
(a) Purchase for Investment. Upon issuance and delivery of
any Aura Repricing Shares, the Original Holder will acquire such Aura Repricing
Shares for its own account for investment only and not with a view towards the
public sale or distribution thereof;
(b) Accredited Investor;. The Original Holder is an
"accredited investor" as that term is defined in Rule 501 of the General Rules
and Regulations under the 1933 Act by reason of Rule 501(a)(3);
(c) Reoffers and Resales;. All subsequent offers and sales of
the Aura Repricing Shares by the Original Holder shall be made pursuant to
registration of the Aura Repricing Shares being offered and sold under the 1933
Act or pursuant to an exemption from registration; and
(d) Company Reliance. The Original Holder understands that
the Aura Repricing Shares are being offered to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that Aura is relying upon the truth and accuracy of, and the
Original Holder's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Original Holder set forth herein in
order to determine the availability of such exemptions and the eligibility of
the Original Holder to receive an offer of the Aura Repricing Shares.
5. Aura Representations, Warranties, etc.
Aura represents and warrants to, and covenants and agrees
with, each Original Holder that:
(a) Organization and Authority;. Aura is a corporation duly
organized and validly existing under the laws of Delaware, and has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and the Aura Registration Rights Agreement and the other
documents and agreements delivered by Aura in connection herewith, and to
consummate the transactions contemplated hereby and thereby. Aura is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions wherein such qualification is necessary and where failure so to
qualify could have a material adverse effect on the business, properties,
operations, condition (financial or other), results of operations or prospects
of Aura.
(b) Capitalization. The authorized capital stock of Aura
consists of 200,000,000 shares of Common Stock of which 91,181,259 shares of
Aura Common Stock were outstanding on December 27, 1998, all of which are fully
paid and nonassessable. Other than as set forth in the preceding sentence, Aura
does not have outstanding any material amount of securities (or obligations to
issue any such securities) convertible into, exchangeable for or otherwise
entitling the holders thereof to acquire shares of Aura Common Stock, except as
disclosed in the Aura SEC Reports. Aura has duly reserved from its authorized
and unissued shares of Aura Common Stock the full number of shares required for
(a) all options, warrants, convertible securities and other rights to acquire
shares of Aura Common Stock which are outstanding and (b) all shares of Aura
Common Stock and options and other rights to acquire shares of Aura Common Stock
which may be issued or granted under the stock option and similar plans which
have been adopted by Aura.
(c) Concerning the Aura Repricing Shares and the Aura Common
Stock. The Aura Repricing Shares and the Repricing Rights with respect thereto
have been duly authorized. The Aura Repricing Shares when issued in accordance
with this Agreement, will be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal liability by
reason of being such holder. There are no preemptive or similar rights of any
shareholder of Aura or any other Person to acquire any of the Aura Repricing
Shares. Aura has duly reserved 11,677,487 shares of Common Stock for issuance of
the Aura Repricing Shares and such shares shall remain so reserved. The Aura
Common Stock is listed for trading on the Nasdaq and (1) Aura and the Aura
Common Stock meet the criteria for continued listing and trading on the Nasdaq;
(2) Aura has not been notified since January 1, 1996 by the Nasdaq of any
failure or potential failure to meet the criteria for continued listing and
trading on the Nasdaq and (3) no suspension of trading in the Aura Common Stock
is in effect. Aura knows of no reason that the Aura Repricing Shares will not be
eligible for listing on the Nasdaq.
(d) Information Provided. The information provided by or on
behalf of Aura to the Original Holders in connection with the transactions
contemplated by this Agreement, including, without limitation, the information
contained in the Aura SEC Reports, does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading, it being understood that, for purposes of this Section 5(d), any
statement contained in such information shall be deemed to be modified or
superseded for purposes of this Section 5(d) to the extent that a statement in
any document included in such information which was prepared or filed with the
SEC on a later date modifies or replaces such statement, whether or not such
later prepared or filed statement so states.
(e) Absence of Certain Changes; Liabilities. Except as
disclosed in the Aura SEC Reports, since February 28, 1998, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or other), results of operations or
prospects of Aura. Except as and to the extent disclosed, reflected or reserved
against in the financial statements of Aura and the notes thereto included in
the Aura SEC Reports, Aura has no material (individually or in the aggregate)
liabilities, debts or obligations (including guaranties) whether accrued,
absolute, contingent or otherwise, and whether due or to become due, to any of
its officers, directors, security holders, or lenders or any of their respective
Affiliates. Subsequent to February 28, 1998, the Company has not incurred any
liabilities, debts or obligations of any nature whatsoever which are
individually or in the aggregate material to the Company other than those
incurred in the ordinary course of its business or disclosed in the Aura SEC
Reports.
(f) SEC Filings. Aura has timely filed all required forms,
reports and other documents required to be filed with the SEC under the 1934
Act. All of such forms, reports and other documents complied, when filed, in all
material respects, with all applicable requirements of the 1933 Act and the 1934
Act.
(g) No Solicitation. No form of general solicitation or
general advertising was used by Aura or, to the best of its knowledge, any other
Person acting on behalf of Aura, in respect of or in connection with the offer
of the Repricing Rights or the Aura Repricing Shares. Neither Aura nor, to its
knowledge, any Person acting on behalf of Aura has, either directly or
indirectly, sold or offered for sale to any Person any of the Aura Repricing
Rights or the Aura Repricing Shares or, within the six months prior to the date
hereof, any other similar security of Aura except as contemplated by this
Agreement; and neither Aura nor any Person authorized to act on its behalf will
sell or offer for sale any shares of Aura Common Stock or other securities, or
solicit any offers to buy any shares of Common Stock or other securities, so as
thereby to cause the issuance of any of the Aura Repricing Shares or the
issuance of the Repricing Rights to be in violation of Section 5 of the 1933
Act.
(h) Certain Issuances of Securities. Aura has not issued any
shares of Aura Common Stock or shares of any series of preferred stock or other
securities convertible into, exchangeable for or otherwise entitling the holder
to acquire shares of Aura Common Stock which are subject to the Stockholder
Approval Rule and which could be integrated with the issuance of Aura Repricing
Shares to the Holders under the Stockholder Approval Rule.
(i) Absence of Rights Agreement. Aura has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Aura Common Stock or a change in control of Aura.
(j) Amendment Agreement. This Agreement has been duly and
validly authorized, executed and delivered by Aura and this Agreement is a valid
and binding obligation of Aura enforceable in Accordance with its term subject
as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
(k) Non-contravention. The execution and delivery by Aura of
this Agreement and consummation by Aura of the transactions contemplated by this
Agreement, do not and will not, with or without the giving of Notice of the
lapse of time, or both (i) result in any violation of any terms of the
Certificate of Incorporation of by-laws of Aura, (ii) conflict with or result in
a breach by Aura or the Company of any of the terms or provisions of, or
constitute a result in a breach by Aura or the Company of any of the terms or
provisions of, or constitute a default under, or result in the modification,
amendment, termination or cancellation of, result in the acceleration of any
obligation of Aura or the Company under, or result in the creation or imposition
of any lien, security interest, charge or encumbrance upon any of the properties
or assets of Aura or the company pursuant to, any indenture, mortgage, deed of
trust or other agreement or instrument to which Aura or the Company is a party
or by which Aura or the Company or any of their respective properties or assets
is bound or affected, or (iii) violate or contravene any applicable law, rule or
regulation or any applicable decree, judgment or order of any court, United
States federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over Aura of the Company or any of their
respective properties or assets.
(l) Approvals. No authorization, approval or consent of, or
filing with, any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the security holders of or lenders
to Aura, or any other third party, is required to be obtained or made by Aura or
the Company for the execution, delivery and performance by Aura and the Company
of this Agreement and by the Company of the Note Purchase Agreements and the
other agreements, transactions and instruments contemplated hereby and thereby.
6. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) Transfer Restrictions. Aura and the Original Holders
acknowledge and agree that (1) except as provided in the Aura Registration
Rights Agreement with respect to the resale of the Aura Repricing Shares, the
Aura Repricing Shares have not been and are not being registered for resale
under the 1933 Act, and the Securities may not be transferred unless (A)
subsequently registered for resale thereunder or (B) the holder shall have
delivered to Aura an opinion of counsel, reasonably satisfactory in form, scope
and substance to Aura, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any resale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any such resale of
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 used 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 (3) neither Aura nor
any other Person is under any obligation to register the Securities (other than
registration of the resale of the Aura Repricing Shares pursuant to the Aura
Registration Rights Agreement) under the 1933 Act or to comply with the terms
and conditions of any exemption thereunder (other than pursuant to Section 6(d)
hereof and pursuant to the Aura Registration Rights Agreement).
(b) Restrictive Legends.
(1) Each Original Holder acknowledges and agrees that until
such time as the Aura Repricing Shares have been registered for resale under the
1933 Act as contemplated by the Aura Registration Rights Agreement, the
certificates for the Aura 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 the Aura Repricing Shares):
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 resold, transferred or assigned in the absence of an
effective registration statement for the securities under the Securities Act of
1933, as amended, or an opinion of counsel that registration is not required
under said Act.
(2) Once the Registration Statement required to be filed by
Aura pursuant to Section 2 of the Aura Registration Rights Agreement has been
declared effective, thereafter (1) upon request of an Original Holder Aura will
substitute certificates without restrictive legend for certificates for any Aura
Repricing Shares issued prior to the date such Registration Statement is
declared effective by the SEC which bear such restrictive legend and remove any
stop-transfer restriction relating thereto promptly, but in no event later than
three Trading Days after surrender of such certificates by the Original Holder
and (2) Aura shall not place any restrictive legend on certificates for any Aura
Repricing Shares issued or impose any stop-transfer restriction thereon.
(c) Aura Registration Rights Agreement. On or before the
Closing Date, Aura and each of the Original Holders agree to enter into a
separate Aura Registration Rights Agreement in the form attached hereto as
Exhibit A.
(d) Form D. Aura agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to the
Original Holders promptly after such filing. The Original Holders agree to
cooperate with Aura in connection with such filing and, upon request of Aura, to
provide all information relating to the Original Holders reasonably required for
such filing.
(e) Authorization for Trading; Reporting Status. Within two
Business Days after the Closing Date under the Note Purchase Agreements, Aura
shall file a notification for listing of additional shares with the Nasdaq
relating to the Aura Repricing Shares and on or prior to such date shall provide
evidence of such filing to the Original Holders. So long as the Original Holders
own any of the Aura Repricing Shares or the Repricing Rights, Aura shall file
all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of
the 1934 Act and Aura 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.
(f) Blue Sky Laws. On or before the Closing Date, Aura shall
take such action as and to the extent it shall be necessary or required to
qualify, or to obtain an exemption for the Repricing Rights and the Aura
Repricing Shares for issuance to the Original Holders pursuant to this Agreement
under such of the securities or "blue sky" laws of jurisdictions as shall be
applicable to the issuance to the Original Holders of the Repricing Rights and
the Aura Repricing Shares pursuant to this Agreement. The Company shall furnish
copies of all filings, applications, orders and grants or confirmations of
exemptions relating to such securities or "blue sky" laws on or prior to the
Closing Date under the Note Purchase Agreement.
(g) Exercise Notice. Aura, the Company and the Original
Holders agree that the form of Exercise Notice attached as Annex VI to the
Subscription Agreements is hereby amended and replaced in its entirety by the
form of Exercise Notice annexed hereto as Exhibit B.
(h) Certain Issuances of Securities. Unless Aura obtains the
Stockholder Approval or a waiver thereof from the Nasdaq, Aura will not issue
any shares of Aura Common Stock or shares of any series of preferred stock or
other securities convertible into, exchangeable for, or otherwise entitling the
holder to acquire, shares of Aura Common Stock which would be subject to the
requirements of the Stockholder Approval Rule and which would be integrated with
the issuance of Repricing Rights or Aura Repricing Shares to the Buyer for
purposes of the Stockholder Approval Rule.
7. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California.
(b) Counterparts. This Agreement may be executed in
counterparts and by the parties hereto on separate counterparts, all of which
together shall constitute one and the same instrument. A facsimile transmission
of this Agreement bearing a signature on behalf of a party hereto shall be legal
and binding on such party.
(c) Headings, etc. The headings, captions and footers 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 of enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
(e) Amendments. No amendment, modification, waiver, discharge
or termination of any provision of this Agreement nor consent to any departure
by the Holders, Aura or the Company therefrom shall in any event be effective
unless the same shall be in writing and signed by the party to be charged with
enforcement, and then shall be effective only in the specific instance and for
the purpose for which given. No course of dealing between the parties thereto
shall operate as an amendment of this Agreement.
(f) Waivers. 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, or any course of dealings between the parties, shall not
operate as a waiver thereof or any amendment hereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise there of exercise of any other right or power.
(g) Notices. Any notices required or permitted to be given
under the terms of this Agreement shall be delivered personally (which shall
include telephone line facsimile transmission with answer back confirmation) or
by courier and shall be effective upon receipt, if delivered personally or by
courier, in the case of the Company addressed to the Company at its address
shown in the introductory paragraph of the Subscription Agreements, Attention:
Chief Executive Officer (telephone line facsimile transmission number (818)
597-1002), in the case of Aura addressed to Aura at 2335 Alaska Avenue, El
Segundo, California 90245, Attention: Chief Financial Officer (telephone line
facsimile transmission number (818) 643-8719) or, in the case of each Original
Holder, at its address or telephone line facsimile transmission number shown on
the signature page of this Agreement or, in the case of any Holder who is not an
Original Holder, to such address as such Holder shall have provided in writing
to the Company and Aura for such purpose or, in each such case, such other
address or telephone line facsimile transmission number as a party shall have
provided by notice to the other parties in accordance with this provision.
(h) Assignment. Each Original Holder shall have the right to
assign its rights and obligations under this Agreement to any party to whom it
assigns its rights under its Subscription Agreement, Note Purchase Agreement,
Registration Rights Agreement or Aura Registration Rights Agreement. Each Holder
shall be entitled to the rights and benefits of the Original Holders under this
Agreement.
(i) Survival of Representations and Warranties. The
respective representations, warranties, covenants and agreements of Aura and the
Company contained in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall survive the delivery of payment
for the Notes pursuant to the Note Purchase Agreements and shall remain in full
force and effect regardless of any investigation made by or on behalf of them or
any Person controlling or advising any of them.
(j) Effect of Amendments; Entire Agreement. Except to the
extent expressly amended hereby, the terms and provisions of the respective
Subscription Agreements and Registration Rights Agreements are hereby confirmed
and shall remain in full force and effect. This Agreement and, as so amended,
the other agreements and instruments contemplated hereby set forth the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersede all prior agreements and understandings, whether written or oral,
with respect thereto. Aura hereby becomes a party to the respective Subscription
Agreements in order to give effect to the provisions of this Agreement.
~
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto by their respective officers or other representatives
thereunto duly authorized as of the date first set forth above.
AURA SYSTEMS, INC.
By: ___________________________
Name:
Title:
NEWCOM, INC.
By:______________________________
Name:
Title:
[ORIGINAL HOLDERS]
By:______________________________
Name:
Title:
Address:
Facsimile No.:
Exhibit A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 28,
1998 (this "Agreement"), is made by and between AURA SYSTEMS, INC., a Delaware
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Amendment Agreement, dated as
of December 28, 1998, between the Initial Investor, the other investors named
therein, NewCom, Inc., a Delaware corporation ("NewCom"), and the Company (the
"Amendment Agreement"), the Company has agreed, upon the terms and subject to
the conditions of the Amendment Agreement, to issue to the Initial Investor
shares of Common Stock, $.005 par value (the "Common Stock"), of the Company,
from time to time upon the exercise of certain Repricing Rights described in the
Amendment Agreement; and
WHEREAS, to induce the Initial Investor to execute and
deliver the Amendment 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
"Securities Act"), and applicable state securities laws with respect to the
Registrable Securities (as defined below) issuable to the Investors pursuant to
the Subscription Agreement;
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 the
Initial Investor hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have
the following meanings:
"Computation Date" means, if an event described in Section
2(f)(1) occurs, any of (1) the date which is 30 days after such event occurs, if
any such event is continuing on such date, (2) each date which is 30 days after
a Computation Date, if any such event is continuing on such date, and (3) the
date on which all such events cease to continue.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Initial Registration Amount" means 134% of the number of
Aura Repricing Shares issuable pursuant to the Amendment Agreement assuming (A)
all of the Buyer's Repricing Rights issued at the First Closing were exercised
on the SEC Filing Date (without regard to any limitations on exercise) and (B)
the Average Market Price on the SEC Filing Date was 50% of the lower of (x) the
Average Market Price on the Closing Date and (y) the Average Market Price on the
SEC Filing Date.
"Investor" or "Investors" means the Initial Investor and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
"Nasdaq" means the Nasdaq National Market.
"Other Registration Rights Agreements" means the registration
rights agreements dated the date hereof between the Company and each of the
Other Buyers.
"register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities 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").
"Registrable Securities" means the Aura Repricing Shares.
"Registration Amount" means the sum of (i) the number of Aura
Repricing Shares previously issued pursuant to the Amendment Agreement plus (ii)
the number of Aura Repricing Shares issuable pursuant to all unexercised
Repricing Rights (without regard to limitations on exercise) equal to the
greater of (A) the number of such Aura Repricing Shares issuable as if the
Average Market Price on the date of determination of the Registration Amount was
66.7% of the lower of (x) the Average Market Price on the Closing Date and (y)
the Average Market Price on the SEC Effective Date and (B) the number of such
Aura Repricing Shares issuable based on the Average Market Price on the date of
determination of the Registration Amount.
"Registration Period" means the period from the Closing Date
to the earlier of (i) the date which is two years after the date on which the
last Aura Repricing Shares may be issued to the Investors pursuant to the
Subscription Agreement, (ii) the date on which each Investor may sell all of its
Registrable Securities (including Registrable Securities which may be issued
from time to time) without registration under the Securities Act pursuant to
Rule 144, without restriction on the manner of sale or the volume of securities
which may be sold in any period and without the requirement for the giving of
any notice to, or the making of any filing with, the SEC and (iii) the date on
which the Investors no longer beneficially own any Registrable Securities.
"Registration Statement" means a registration statement of
the Company under the Securities Act, including any amendment thereto.
"Rule 144" means Rule 144 promulgated under the Securities
Act or any other similar rule or regulation of the SEC that may at any time
permit a holder of any securities to sell securities of the Company to the
public without registration under the Securities Act.
"SEC Effective Date" means the date the Registration
Statement is first declared effective by the SEC.
"SEC Filing Date" means the date the Registration Statement
is first filed with the SEC pursuant to Section 2(a).
"Subscription Agreement" means the Subscription Agreement,
dated as of November 30, 1998, between NewCom and the Initial Investor.
(b) Capitalized terms defined in the introductory paragraph
or the recitals to this Agreement shall have the respective meanings therein
provided. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Amendment Agreement and, if not
defined therein, in the Subscription Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare, and
not later than January 29, 1999, file with the SEC a Registration Statement on
Form S-3 which, on the date of filing with the SEC, covers the resale by the
Initial Investor or its assignees of a number of shares of Common Stock at least
equal to the Initial Registration Amount. If (i) at any time the number of
shares of Common Stock included in the Registration Statement required to be
filed as provided in the first sentence of this Section 2(a) shall be less than
the then applicable Registration Amount or (ii) the Second Tranche Shares and
the Aura Repricing Shares issuable upon exercise of the Second Tranche Repricing
Rights are not permitted to be included in the initial Registration Statement
filed pursuant to this Section 2(a), then promptly, but in no event later than
20 days after such insufficiency shall occur, the Company shall file with the
SEC an additional Registration Statement on Form S-3 (which shall not constitute
a post-effective amendment to the Registration Statement filed pursuant to the
first sentence of this Section 2(a)), covering such number of shares of Common
Stock at least equal to the difference between the Registration Amount and the
number of shares previously registered. For all purposes of this Agreement such
additional Registration Statement shall be deemed to be the Registration
Statement required to be filed by the Company pursuant to Section 2(a) of this
Agreement, and the Company and the Investors shall have the same rights and
obligations with respect to such additional Registration Statement as they shall
have with respect to the initial Registration Statement required to be filed by
the Company pursuant to this Section 2(a). No securities other than the
Registrable Securities and the securities registrable pursuant to the Other
Registration Rights Agreements may be included in any Registration Statement
filed pursuant to this Agreement.
(b) Certain Offerings. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering shall have the right to select
one legal counsel and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company. The Investors who hold
the Registrable Securities to be included in such underwriting shall pay all
underwriting discounts and commissions and other fees and expenses of such
investment banker or bankers and manager or managers so selected in accordance
with this Section 2(b) (other than fees and expenses relating to registration of
Registrable Securities under federal or state securities laws, which are payable
by the Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
(c) Other Registrations. The Company will not file another
registration statement with the SEC covering shares of Common Stock prior to the
SEC Effective Date, other than registration statements on Form S-4 or S-8.
(d) Piggy-Back Registrations. If at any time the Company
shall determine to prepare and file with the SEC a Registration Statement
relating to an offering for its own account or the account of others under the
Securities 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 ten (10) days after receipt 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, such
limitation is necessary to effect an orderly 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. 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 by
right to inclusion of securities in such Registration Statement; and provided
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement, based on the number of securities for which registration
is requested except to the extent such pro rata exclusion of such other
securities is prohibited under any written agreement entered into by the Company
with the holder of such other securities prior to the date of this Agreement, in
which case such other securities shall be excluded, if at all, in accordance
with the terms of such agreement. 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. The obligations of the Company under this
Section 2(d) may be waived by Investors holding a majority in interest of the
Registrable Securities and shall expire after the Company has afforded the
opportunity for the Investors to exercise registration rights under this Section
2(d) for two registrations; provided, however, that any Investor who shall have
had any Registrable Securities excluded from any Registration Statement in
accordance with this Section 2(d) shall be entitled to include in an additional
Registration Statement filed by the Company the Registrable Securities so
excluded. Notwithstanding any other provision of this Agreement, if the
Registration Statement required to be filed pursuant to Section 2(a) of this
Agreement shall have been ordered effective by the SEC and the Company shall
have maintained the effectiveness of such Registration Statement as required by
this Agreement and if the Company shall otherwise have complied in all material
respects with its obligations under this Agreement, then the Company shall not
be obligated to register any Registrable Securities on such Registration
Statement referred to in this Section 2(d).
(e) Eligibility for Form S-3. The Company meets the
requirements for the use of Forms S-3 for registration of the Registrable
Securities for resale by the Investors. 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.
(f) Certain Payments by the Company. (1) If (A) the Company
fails to file the Registration Statement with the SEC on or before January 29,
1999 or (B) the Registration Statement is not declared effective by the SEC on
or before March 30, 1999, the Company shall pay the Initial Investor an amount
in cash equal to 2.0% of the Purchase Price on the first Computation Date to
occur and 3.0% of the Purchase Price on each subsequent Computation Date (such
amounts to be pro rated for periods less than 30 days).
(2) If the Registration Statement shall cease to be available
for use by any Investor for the sale of any Registrable Securities for 15 or
more days (whether or not consecutive) for any reason (including without
limitation by reason of events described in Sections 3(f) and 3(g)), the Company
shall pay such Investor an amount in cash equal to 0.2% of the Purchase Price
for each day on which such unavailability occurs. Such payments shall be made in
arrears every 30 days after such unavailability first occurs.
(3) Any overdue payments required by this Section 3(f) shall
bear interest as provided in Section 6(o) of the Subscription Agreement. The
payments required by this Section 3(f) shall be in addition to any other rights
and remedies of the Investors under this Agreement, the Subscription Agreement
and applicable law.
3. Obligations of the Company. In connection with the
registration of the Registrable Securities, the Company shall:
(a) prepare promptly, and file with the SEC not later than
January 29, 1999, a Registration Statement with respect to the number of
Registrable Securities provided in Section 2(a), and thereafter to use its best
efforts to cause each 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 during the
Registration Period; submit to the SEC, within three business days after the
Company learns that no review of the Registration Statement will be made by the
staff of the SEC or that the staff of the SEC has no further comments on the
Registration Statement, as the case may be, a request for acceleration of
effectiveness of the Registration Statement to a time and date not later than 48
hours after the submission of such request; notify the Investors of the
effectiveness of the Registration Statement on the date the Registration
Statement is declared effective; and the Company represents and warrants to, and
covenants and agrees with, the Investors that the Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein), at the time it is first filed with the SEC, at the time it is ordered
effective by the SEC and at all times during which it is required to be
effective hereunder (and each such amendment and supplement at the time it is
filed with the SEC and at all times during which it is available for use in
connection with the offer and sale of the Registrable Securities) 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, in
light of the circumstances in which they were made, not misleading;
(b) 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 Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities 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;
(c) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel, (1) 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, 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 relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment) and (2) 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;
(d) use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such
securities or blue sky laws of such jurisdictions as the Investors who hold a
majority in interest of the Registrable Securities being offered reasonably
request, (ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times until the end of 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 (I) to qualify to do business
in any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (II) to subject itself to general taxation in any such
jurisdiction, (III) to file a general consent to service of process in any such
jurisdiction, (IV) to provide any undertakings that cause more than nominal
expense or burden to the Company or (V) to make any change in its Certificate of
Incorporation or by-laws, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
shareholders;
(e) in the event that the Registrable Securities are being
offered in an underwritten offering, enter into and perform its obligations
under an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering;
(f) as promptly as practicable after becoming aware of such
event or circumstance, notify each Investor of any event or circumstance 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 omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, 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, file such supplement or amendment with the SEC at
such time as shall permit the Investors to sell Registrable Securities pursuant
to the Registration Statement as promptly as practical, and deliver a number of
copies of such supplement or amendment to each Investor as such Investor may
reasonably request;
(g) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of any stop order or other suspension of effectiveness of
the Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
shareholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review and comment on the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC;
(i) 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 Securities 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 the Registration Statement;
(j) at the request of the Investors who hold a majority in
interest of the Registrable Securities being sold, furnish on the date that
Registrable Securities are delivered to an underwriter, if any, for sale in
connection with the Registration Statement (i) 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; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by any such
Investor or underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably necessary 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 (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court or government body of competent
jurisdiction or (iii) the information in such Records 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 the Company's own
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, the Records deemed confidential. The Company shall hold
in confidence and shall not make any disclosure of information concerning an
Investor provided to the Company pursuant to Section 4(e) hereof 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, at
such Investor's own expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information;
(l) use its best efforts (i) to cause all the Registrable
Securities covered by the Registration Statement to be listed on the Nasdaq or
such other principal securities market on which securities of the same class or
series issued by the Company are then listed or traded or (ii) if securities of
the same class or series as the Registrable Securities are not then listed on
Nasdaq or any such other securities market, to cause all of the Registrable
Securities covered by the Registration Statement to be listed on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market;
(m) provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(n) 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 Registrable Securities to be offered
pursuant to the 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 business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall 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 substantially in the form attached hereto
as Exhibit 1 and shall cause legal counsel selected by the Company to deliver to
the Investors an opinion of such counsel in the form attached hereto as Exhibit
2 (with a copy to the Company's transfer agent);
(o) during the period the Company is required to maintain
effectiveness of the Registration Statement pursuant to Section 3(a), the
Company shall not bid for or purchase any Common Stock or any right to purchase
Common Stock or attempt to induce any person to purchase any such security or
right if such bid, purchase or attempt would in any way limit the right of the
Investors to sell Registrable Securities by reason of the limitations set forth
in Regulation M under the Exchange Act; and
(p) take all other reasonable actions necessary to expedite
and facilitate disposition by the Investors of the 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 four (4)
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if any of such Investor's
Registrable Securities are eligible for inclusion in the Registration Statement.
If at least one (1) business day prior to the filing date the Company has not
received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor but shall not
be relieved of its obligation to file a Registration Statement with the SEC
relating to the Registrable Securities of such Non-Responsive Investor promptly
after such Non-Responsive Investor provides the Requested Information;
(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) In the event Investors holding a majority in interest of
the Registrable Securities being registered determine to engage the services of
an underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, 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;
(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 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; and
(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
approved by the Investors entitled hereunder to approve such arrangements, (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 other fees and expenses of
investment bankers and any manager or managers of such underwriting and legal
expenses of the underwriters applicable with respect to its Registrable
Securities, in each case to the extent not payable by the Company pursuant to
the terms of this Agreement.
5. Expenses of Registration. All reasonable expenses, other
than underwriting discounts and commissions and other fees and expenses of
investment bankers and other than brokerage commissions, incurred in connection
with registrations, filings or qualifications pursuant to Section 3, including,
without limitation, all registration, listing and qualifications fees, printers
and accounting fees and the fees and disbursements of counsel for the Company
and the Investors, shall be borne by the Company, provided, however, that the
Investors shall bear the fees and out-of-pocket expenses of the one legal
counsel selected by the Investors pursuant to Section 2(b) hereof.
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 and hold harmless each Investor who holds such Registrable Securities,
the directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein 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 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 Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth in Section 6(d) with
respect to the number of legal counsel, the Company shall reimburse the
Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any 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, the prospectus 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) with respect to any preliminary prospectus shall not inure to
the benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(c) hereof; and (III)
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. 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 to indemnify and hold
harmless, 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 Securities Act or the Exchange Act, any underwriter and any other
shareholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such shareholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, 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 such Investor will reimburse
any legal or other expenses reasonably incurred by any Indemnified Party 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 Section 6(b) for only that amount of a Claim as does not
exceed the amount by which the net proceeds to such Investor from the sale of
Registrable Securities pursuant to such Registration Statement exceeds the cost
of such Registrable Securities to such Investor. 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) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information so furnished in writing by such persons
expressly for inclusion in the Registration Statement.
(d) 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 selected by the indemnifying party
but reasonably acceptable to 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. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. 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 prejudiced in its ability
to defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount 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 (a) 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, (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the amount by which the net amount of proceeds
received by such seller from the sale of such Registrable Securities exceeds the
purchase price paid by such seller for such Registrable Securities.
8. Reports under Exchange Act. With a view to making
available to the Investors the benefits of 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 Securities Act and the
Exchange Act; 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 and the
Exchange 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.
9. Assignment of Registration Rights. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of all or any portion
of such securities (or all or any portion of the Repricing Rights) only if: (a)
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, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein. In connection with any such transfer the
Company shall, at its sole cost and expense, promptly after such assignment take
such actions as shall be reasonably acceptable to the Initial Investor and such
transferee to assure that the Registration Statement and related prospectus are
available for use by such transferee for sales of the Registrable Securities in
respect of which the rights to registration have been so assigned. In connection
with any such assignment, each Investor shall have the right to assign to such
transferee such Investor's rights under the Amendment Agreement and the
Subscription Agreement by notice of such assignment to the Company. Following
such notice of assignment of rights under the Amendment Agreement and the
Subscription Agreement, the Company shall be obligated to such transferee to
perform all of its covenants under the Amendment Agreement and the Subscription
Agreement as if such transferee were the Buyer under the Subscription Agreement
and an original Holder under the Amendment Agreement.
10. Amendment of Registration Rights. Any provision 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 the written consent of the Company and Investors who
hold a majority in 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) Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission or
other means) (i) if to the Company, at 2335 Alaska Avenue, El Segundo,
California 90245, Attention: Chief Financial Officer, telephone line facsimile
transmission number (310) 643-8719, (ii) if to the Initial Investor, at
Attention:
, telephone line facsimile transmission number and (iii) if to any other
Investor, at such address as such Investor shall have provided in writing to the
Company, or at such other address as each such party furnishes by notice given
in accordance with this Section 11(b).
(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 California 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.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(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) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company
to perform its obligations under this Agreement, including, without limitation,
the Company's obligations under Section 3(n), or any delay in such performance
could result in damages to the Investors and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct and consequential
damages caused by any such failure or delay.
(j) 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 telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
NEWCOM, INC.
By:______________________________
Name:
Title:
[INITIAL INVESTOR]
By:________________________________
Name:
Title:
EXHIBIT 1
to
Registration
Rights
Agreement
[Company Letterhead]
[Date]
Interwest Transfer Company,
as Transfer Agent, Warrant Agent and Registrar
P.O. Box 17136
Salt Lake City, Utah 84117
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction
to you to transfer or re-register the certificates for the shares of Common
Stock, $.005 par value (the "Common Stock"), of Aura Systems, Inc., a Delaware
corporation (the "Company"), represented by certificate numbers _______ and
_______ for an aggregate of _______ shares (the "Outstanding Shares") of Common
Stock presently registered in the name of [Name of Investors] upon surrender of
such certificate(s) to you, notwithstanding the legend appearing on such
certificates. The transfer or re-registration of the certificates for the
Outstanding Shares by you should be made at such time as you are requested to do
so by the record holder of the Outstanding Shares. The certificate issued upon
such transfer or re-registration should be registered in such name as requested
by the holder of record of the certificate surrendered to you and should not
bear any legend which would restrict the transfer of the shares represented
thereby. In addition, you are hereby directed to remove any stop-transfer
instruction relating to the Outstanding Shares. Certificates for shares of
Common Stock issued on or after the date hereof to the investors or their
assigns upon the exercise of certain Repricing Rights should not bear any
restrictive legend and should not be subject to any stop-transfer restriction.
Contemporaneously with the delivery of this letter, the Company is
delivering to you an opinion of Guzik & Associates as to registration of the
Outstanding Shares and the shares of Common Stock issuable upon the exercise of
certain Repricing Rights under the Securities Act of 1933, as amended.
Should you have any questions concerning this matter, please contact
me.
Very truly yours,
AURA SYSTEMS, INC.
By:_____________________________
Name:
Title:
Enclosure
cc: [Names of Investors]
~ EXHIBIT 2
to
Registration
Rights
Agreement
, 1999
[Names and Addresses of Investors]
AURA SYSTEMS INC.
Shares of Common Stock
Ladies and Gentlemen:
We are counsel to Aura Systems, Inc., a Delaware corporation (the
"Company"), and we understand that the Company has issued to [Name of Investors]
(the "Holders") certain Repricing Rights to acquire shares (the "Common Shares")
of the Company's Common Stock, $.005 par value (the "Common Stock"). The
Repricing Rights were issued, to the Holders pursuant to the several
Subscription Agreements, dated as of November 30, 1998, between the Holders and
NewCom, Inc. a Delaware corporation (the "Subscription Agreements"), as amended
by the Amendment Agreement, dated as of December 28, 1998, among the Company,
NewCom and the Holders (the "Amendment Agreement"). Pursuant to the several
Registration Rights Agreements, dated as of December 28, 1998, between the
Company and the Holders (the "Registration Rights Agreements"), the Company
agreed with each Holder, among other things, to register for resale the Aura
Repricing Shares (as such term is defined in the Amendment Agreement) under the
Securities Act of 1933, as amended (the "1933 Act"), upon the terms provided in
the Registration Rights Agreements. Pursuant to the Registration Rights
Agreements, on , 1999 the Company filed a Registration Statement on Form S-3
(File No. 333-__________) (the "Registration Statement") with the Securities and
Exchange Commission (the "SEC") relating to the Aura Repricing Shares, which
names the Holders as selling stockholders thereunder.
[Other introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that:
(1) Since the Closing Date, the Company has timely filed with the SEC all
forms, reports and other documents required to be filed with the SEC under the
Securities Exchange Act of 1934, as amended (the "1934 Act"). All of such forms,
reports and other documents complied, when filed, in all material respects, with
all applicable requirements of the 1933 Act and the 1934 Act;
(2) The Registration Statement and the Prospectus contained therein (other
than the financial statements and schedules and other financial and statistical
information contained or incorporated by reference therein, as to which we have
not been requested to and do not express any opinion) comply as to form in all
material respects with the applicable requirements of the 1933 Act and the rules
and regulations promulgated thereunder; and
(3) The Registration Statement has become effective under the 1933 Act, and
to the best of our knowledge after due inquiry, no stop order proceedings with
respect thereto have been instituted or threatened by the SEC. The Aura
Repricing Shares have been registered under the 1933 Act and may be resold by
the respective Holders pursuant to the Registration Statement.
We have participated in the preparation of the Registration
Statement and the Prospectus, including review and discussions with officers and
other representatives of the Company, representatives of the independent public
accountants for the Company, and your representatives at which the contents of
the Registration Statement and the Prospectus contained therein and related
matters were discussed, and, although we are not passing upon and do not assume
any responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus contained therein, on
the basis of the foregoing, nothing has come to our attention that leads us to
believe either that the Registration Statement at the time the Registration
Statement became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus contained in
the Registration Statement, as of its date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that we have not
been requested to and do not express any view with respect to the financial
statements and schedules and other financial and statistical data included or
incorporated by reference in the Registration Statement or the Prospectus
contained therein).
Paragraph (3) of this opinion may be relied upon by Interwest
Transfer Company, as Transfer Agent, Warrant Agent and Registrar (the "Transfer
Agent") as if addressed to the Transfer Agent.
Very truly yours,
cc: Interwest Transfer Company,
as Transfer Agent, Warrant Agent and Registrar
Exhibit B
EXERCISE NOTICE
TO: NewCom, Inc. Aura Systems, Inc.
31166 Via Colinas 2335 Alaska Avenue
Westlake Village, California 91326 El Segundo, California 90245
Attention: Chief Executive Officer Attention: Chief Financial Officer
Facsimile No.: (818) 597-1002 Facsimile No.: (310) 643-8719
This Exercise Notice is given pursuant to the terms of (i)
the Subscription Agreement, dated as of November 30, 1998, as amended (the
"Subscription Agreement"), by and between NewCom, Inc., a Delaware corporation
(the "Company"), and the undersigned (the "Buyer") and (ii) the Amendment
Agreement, dated as of December 28, 1998, by and among the Company, Aura
Systems, Inc. a Delaware corporation ("Aura"), the Buyer and the other parties
named therein. Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Subscription Agreement and the
Amendment Agreement. The Buyer hereby notifies the Company and, if the Buyer
elects to receive Aura Repricing Shares, Aura as follows:
(1) Exercise Date: _____________________
(2) No. of Initial Repricing Rights outstanding:
-----------------------
(3) No. of Initial Repricing Rights exercised hereby:
--------------------
(4) Repricing Price: ___________________
(5) Average Market Price: _______________
(6) Repricing Rate: ________________
(7) Number of Repricing Shares due to the Buyer upon
exercise of such Initial Repricing Rights:
(8) No. of Second Tranche Repricing Rights outstanding:
(9) No. of Second Tranche Repricing Rights exercised
hereby:
(10) Repricing Price:
(11) Average Market Price:
(12) Repricing Rate:
(13) Number of Repricing Shares due to the Buyer upon
exercise of such Second Tranche Repricing Rights:
(14) If the Buyer elects to receive Aura Repricing Shares
in lieu of Repricing Shares, items 14-16 are completed as follows:
the Average Market Price of the Aura Common Stock is
(15) the Aura Repricing Rate is
(16) the number of Aura Repricing Shares due to the Buyer
is:
(17) Please issue the number of Repricing Shares or Aura
Repricing Shares, as the case may be, stated in items 7 and 13 or 16,
as the case may be, in the name(s) and to the address or the account
specified immediately below or, if additional space is necessary, on
an attachment hereto:
Delivery Instructions
for Common Stock:
Address:
SS or Tax ID Number:
NAME OF BUYER:
Date:
By:________________________________
Name:
Title:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE
SECURITIES 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 CUSTOMARY FOR
OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.
CONVERTIBLE SENIOR SECURED NOTE
El Segundo, California $3,000,000.00
October 7, 1998
<PAGE>
FOR VALUE RECEIVED, Aura Systems, Inc., a Delaware corporation (hereinafter
called the "Borrower"), hereby promises to pay to the order of RGC International
Investors, LDC or registered assigns (the "Holder") the sum of Three Million
Dollars ($3,000,000), on (i) the earliest of (a) April 1, 1999, (b) the closing
of a convertible debt, convertible preferred or common equity financing with net
proceeds to the Borrower of at least $6,000,000, and (c) the occurrence of a
Maturity Date Event of Default (as defined in Section 1.2) (the earliest of such
dates is hereinafter defined as the "Maturity Date") or (ii) if, and solely to
the extent that, the Holder elects the Conversion Option (as defined below), on
October 7, 2003 (the "Automatic Conversion Date"), and to pay interest on the
unpaid principal balance hereof at the rate of fourteen percent (14%) per annum
from October 7, 1998 (the "Issue Date") until the same becomes due and payable,
whether at maturity or upon acceleration or by prepayment or otherwise. Subject
to Article VI, the Borrower may prepay the principal and interest on this Note,
without premium or penalty, at any time prior to the Maturity Date. Any amount
of principal or interest on this Note which is not paid when due shall bear
interest at the rate of twenty-two percent (22%) per annum (or such lesser
amount as is allowed by law) from the due date thereof until the same is paid
("Default Interest"). Interest shall commence accruing on October 7, 1998, shall
be computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable (i) in cash, (a) on January 2, 1999 and on the Maturity
Date (as defined herein) and (b) solely in respect of the principal amount in
respect of which the Holder elects the Conversion Option, the date on which the
Holder elects the Conversion Option or (ii) to the extent the Holder elects the
Conversion Option, at the time of optional or automatic conversion of the
principal to which such interest relates in accordance with Article I below. 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 such address as the Holder
shall hereafter give to the Borrower by written notice made in accordance with
the provisions of this Note. Whenever any amount expressed to be due by the
terms of this Note 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 and, in the
case of any interest payment date which is not the date on which this Note is
paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date. As
used in this Note, 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 October 7,
1998, pursuant to which this Note was originally issued (the "Purchase
Agreement"). The Automatic Conversion Date is subject to extension pursuant to
Section 2.4 below. This Note is a secured obligation and is subject to the terms
of that certain Security Agreement dated as of October 7, 1998 (the "Security
Agreement").
The following terms shall apply to this Note:
ARTICLE I. MANDATORY PAYMENT
1.1 Mandatory Payment. On the Maturity Date, the Borrower shall be required
to pay this Note in accordance with this Section 1.1 to the extent the Holder
hereof has not previously elected to exercise its Conversion Option (as defined
in Section 2.1(a)) in accordance with Section 2.1(a). No later than five (5)
business days after the Maturity Date (the "Payment Date"), the Borrower shall
make payment of the Mandatory Payment Amount (as defined below) in cash to or
upon the order of the Holder as specified by the Holder in writing to the
Borrower. The "Mandatory Payment Amount" shall be equal to the sum of (a) the
outstanding principal amount of this Note not subject to the Conversion Option
plus (b) accrued and unpaid interest on the principal amount of this Note not
subject to the Conversion Option 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 2.3 and 2.4(g) hereof or pursuant to
Section 2(b) of the Registration Rights Agreement; provided, however, that if
the Maturity Date results from the occurrence of one of the Events of Default
which constitutes a Maturity Date Event of Default then the Mandatory Payment
Amount shall equal the Default Amount. If the Borrower fails to pay the
Mandatory Payment Amount on the Payment Date, such portion of the Note shall, at
the sole election of the Holder, become subject to the Conversion Option. Except
as otherwise provided in the preceding sentence, the portion of this Note, if
any, in respect of which the Conversion Option is elected shall be deducted from
the Mandatory Payment Amount, and shall be convertible in accordance with
Article II. The remainder of the Mandatory Payment Amount shall continue to be
immediately due and owing. Subject to Article V, the Borrower shall have the
right to prepay any portion of this Note at any time prior to the Maturity Date.
1.2 Maturity Date Events of Default. The Events of Default (as defined in
Article IV) described in Sections 4.1, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, or 4.10 as
well as the events of default attached hereto as Schedule 1.2 shall be deemed to
be "Maturity Date Events of Default."
<PAGE>
ARTICLE II. CONVERSION RIGHTS
2.1 Conversion Right.
(a) Notwithstanding anything else contained herein to the contrary, on or
after the earlier of (i) one hundred twenty (120) days from the Issue Date; (ii)
the occurrence of an event set forth in Schedule 1.2; and (iii) the Payment Date
(to the extent the Mandatory Payment Amount is not paid on the Payment Date),
the Holder may elect to have all or a portion of this Note become convertible
into Common Stock pursuant to this Article II (the "Conversion Option"). To the
extent the Conversion Option is not exercised as a result of clause (i) above,
this Note shall become due on the Maturity Date pursuant to Section 1.1. The
Holder may elect to exercise the Conversion Option by sending written notice to
the Borrower at any time after the Conversion Option becomes effective.
Notwithstanding anything else contained herein to the contrary, to the extent
the Holder elects the Conversion Option, the Holder shall retain the right to
demand payment in accordance with Section 1.1 of any portion of this Note in
respect of which it has exercised the Conversion Option or otherwise at any time
on or after the Maturity Date upon five (5) Trading Days written notice to the
Borrower.
<PAGE>
(b) Upon election of the Conversion Option, the Holder shall have the right
from time to time, and at any time on or prior to the day that all of the
principal, accrued interest and other amounts payable hereunder are paid in
full, to convert at any time all or from time to time any part of the
outstanding and unpaid principal amount of this Note of at least $50,000, or
such lesser amount as shall remain unpaid at the time of the conversion
(together with accrued interest thereon), into fully paid and non-assessable
shares of Common Stock, as such Common Stock exists on the date of issuance of
this Note, or any shares of capital stock of Borrower into which such Common
Stock shall hereafter be changed or reclassified at the conversion price
determined as provided herein (the "Conversion Price"); provided, however, that
in no event (other than in connection with an Automatic Conversion (as defined
in Section 2.4 below) on the Automatic Conversion Date) shall the Holder be
entitled to convert any portion of this Note in excess of that portion of this
Note 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 the Notes or the unexercised or unconverted portion of
any other security of the Borrower (including, without limitation, the warrants
issued by the Borrower pursuant to the Purchase Agreement) subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (2) the number of shares of Common Stock issuable upon the
conversion of the portion of this Note with 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 proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulations 13 D-G thereunder,
except as otherwise provided in clause (1) of such proviso. The number of shares
of Common Stock to be issued upon each conversion of this Note 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 2.4 below (the "Conversion
Date"). The term "Conversion Amount" means, with respect to any conversion of
this Note, the sum of (1) the principal amount of this Note to be converted in
such conversion plus (2) accrued and unpaid interest, if any, on such principal
amount at the interest rates provided in this Note 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 2.3 and 2.4(g) hereof or pursuant to Section 2(b) of
that certain Registration Rights Agreement, dated as of October 7, 1998,
executed in connection with the initial issuance of this Note and the other
Notes issued pursuant to the Purchase Agreement (the "Registration Rights
Agreement"); provided, however, that in the event that the Conversion Option has
been elected following an event specified in Sections 2.1(a)(ii) or (iii), the
"principal amount of this Note" shall be deemed to refer to the Mandatory
Payment Amount.
2.2 Conversion Price.
<PAGE>
(a) The Conversion Price shall be the lesser of (i) the Variable Conversion
Price (as defined herein) and (ii) the Fixed Conversion Price (as defined
herein) (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). The "Variable Conversion Price" shall mean the Applicable Percentage
(as defined herein) multiplied by the Market Price (as defined herein). "Market
Price" means the average of the Closing Bid Prices for the Common Stock for any
five (5) consecutive Trading Days during the sixty (60) Trading Day period (the
"Pricing Period") ending one Trading Day prior to the date the Conversion Notice
is sent by the Holder to the Borrower via facsimile (the "Conversion Date").
"Closing Bid Price" means, for any security as of any date, the last closing bid
price on the Nasdaq National Market as reported by Bloomberg Financial Markets
or an equivalent, reliable reporting service mutually acceptable to and
hereafter designated by Holders of a majority in interest of the Notes and the
Borrower ("Bloomberg") or, if the Nasdaq National Market is not the principal
trading market for such security, the last 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
last 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 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, 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. If the Closing Bid Price cannot
be calculated for such security on such date shall be the fair market value as
mutually determined by the Borrower and the Holders of a majority in interest of
Notes being converted for which the calculation of the closing bid price is
required in order to determine the Conversion Price of such Notes. "Trading Day"
shall mean any day on which the Common Stock is traded for any period on the
Nasdaq National Market, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded. "Applicable
Percentage" shall mean 100%. The "Fixed Conversion Price" shall mean $1.40. The
"Closing Price" means, for any security as of any date, the last sale price on
the Nasdaq National Market as reported by Bloomberg or, if the Nasdaq National
Market is not the principal trading market for such security, the last sale
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 last sale 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 last sale price is reported for such security
by Bloomberg, then the average of the bid and ask prices of all active market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Price of such security on such date shall
be the fair market value as mutually determined by Borrower and the Holders of a
majority in interest of the Notes being converted for which the calculation of
the Closing Price is required in order to determine the Conversion Price of such
Notes.
(b) Notwithstanding anything contained in Section 2.2(a) to the contrary,
in the event the Borrower (i) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which
the Borrower is the surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the assets of the
Borrower or (ii) any person, group or entity (including the Borrower) publicly
announces a tender offer to purchase 50% or more of the Borrower's Common Stock
(or any other takeover scheme) (the date of the announcement referred to in
clause (i) or (ii) is hereinafter referred to as the "Announcement Date"), then
the Conversion Price shall, effective upon the Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined below), be
equal to the lower of (x) the Conversion Price which would have been applicable
for a Conversion occurring on the Announcement Date and (y) the Conversion Price
that would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in this
Section 2.2(b). For purposes hereof, "Adjusted Conversion Price Termination
Date" shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this Section
2.2(b) has been made, the date upon which the Borrower (in the case of clause
(i) above) or the person, group or entity (in the case of clause (ii) above)
consummates or publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this Section
2.2(b) to become operative.
<PAGE>
(c) In the event that (1) the Borrower fails to obtain effectiveness with
the Securities and Exchange Commission of the Registration Statement (as defined
in the Registration Rights Agreement) prior to one hundred twenty (120) days
following the Issue Date, or (2) such Registration Statement lapses in effect,
or sales of all of the Registrable Securities (as defined in the Registration
Rights Agreement) cannot otherwise be made thereunder, whether by reason of the
Borrower's failure or inability to amend or supplement the prospectus (the
"Prospectus") included therein in accordance with the Registration Rights
Agreement or otherwise, after such Registration Statement becomes effective
(including, without limitation, during an Allowed Delay (as defined in Section
3(f) of the Registration Rights Agreement)), then the Pricing Period shall be
comprised of, (i) in the case of an event described in clause (1), sixty (60)
Trading Days preceding the 120th day following the Issue Date plus all Trading
Days through and including the third Trading Day following the date of
effectiveness of the Registration Statement; and (ii) in the case of an event
described in clause (2), the number of Trading Days preceding the date on which
the Holder is first notified that sales may not be made under the Prospectus
that would otherwise then be included in the Pricing Period in accordance with
the definition thereof set forth in Section 2.2(a), plus all Trading Days
through and including the third (3rd) Trading Day following the date on which
the Holder is first notified that such sales may again be made under the
Prospectus. If a Holder determines that sales may not be made pursuant to the
Prospectus (whether by reason of the Borrower's failure or ability to amend or
supplement the Prospectus or otherwise) it shall so notify the Borrower in
writing and, unless the Borrower provider such Holder with a written opinion of
the Borrower's counsel to the contrary, such determination shall be binding for
purposes of this Paragraph.
2.3 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 Note and the other Notes issued
pursuant to the Purchase Agreement. As of the date of issuance of this Note,
4,285,715 (2x currently required) authorized and unissued shares of Common Stock
have been duly reserved for issuance upon conversion of this Note and the other
Notes issued pursuant to the Purchase Agreement (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 Note and (ii) agrees that its issuance of
this Note 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 Note.
<PAGE>
If, at any time a Holder of this Note 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 II (a "Conversion Default"), subject to Section 6.8, 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 Note 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
Note. 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 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 II.
The Holder's election shall be made in writing to the Borrower at any time
prior to 9:00 p.m., 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.
2.4 Method of Conversion.
<PAGE>
(a) This Note 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 and unpaid
interest thereon)) at any time from time to time in accordance with Section 2.1,
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
11:00 p.m., New York City Time) and (B) subject to Section 2.4(b), surrendering
this Note at the principal office of the Borrower. So long as the registration
statement filed pursuant to Section 2(a) of the Registration Rights Agreement
(the "Registration Statement") is effective (or the Common Stock issuable upon
conversion hereof may otherwise be resold publicly without restriction) and
there is not then a continuing Event of Default, each Note issued and
outstanding on the Automatic Conversion Date, automatically shall be converted
into shares of Common Stock on such date at the then effective Conversion Price
in accordance with, and subject to, the provisions of this Article II (the
"Automatic Conversion"). The Automatic Conversion Date shall be the Conversion
Date for purposes of determining the Conversion Price and the time within which
certificates representing the Common Stock must be delivered to the holder.
Notwithstanding anything to the contrary contained herein, the Automatic
Conversion Date shall be extended by one (1) day for each Trading Day occurring
prior thereto and prior to the full conversion of this Note that (i) sales of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) cannot be made pursuant to the Registration Statement (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 Allowed Delays (as defined in the Registration
Rights Agreement)), (ii) any Event of Default (as defined in Article IV) or
Trading Market Prepayment Event (as defined in Section 2.7) exists, without
regard to whether any cure periods have run or (iii) that the Borrower is in
breach of any of its obligations pursuant to Section 4 of the Purchase
Agreement.
(b) Notwithstanding anything to the contrary set forth herein, upon
conversion of this Note in accordance with the terms hereof, the Holder shall
not be required to physically surrender this Note to the Borrower unless the
entire unpaid principal amount of this Note 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 Note 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 Note is converted as aforesaid, the Holder may not transfer this Note
unless the Holder first physically surrenders this Note 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 Note. The Holder and any
assignee, by acceptance of this Note, acknowledge and agree that, by reason of
the provisions of this paragraph, following conversion of a portion of this
Note, the unpaid and unconverted principal amount of this Note represented by
this Note 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 Note 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.
<PAGE>
(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
2.4, 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 two (2) business days after such receipt (and, solely in the case of
conversion of the entire unpaid principal amount hereof, surrender of this Note)
(such second 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 Stock issued on or after the effective date of the Registration Statement
upon conversion of this Note 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 Note shall be reduced to reflect such conversion, and,
unless the Borrower defaults on its obligations under this Article II, all
rights with respect to the portion of this Note 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 11:00
p.m., 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 2.1 and in this Section 2.4, 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.
<PAGE>
(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 Note is
more than one (1) business day after the Deadline (other than a failure due to
the circumstances described in Section 2.3 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 Note,
in which event interest shall accrue thereon in accordance with the terms of
this Note and such additional principal amount shall be convertible into Common
Stock in accordance with the terms of this Note.
2.5 Concerning the Shares. The shares of Common Stock issuable upon
conversion of this Note 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) ("Rule
144") or (iv) such shares are transferred to an "affiliate" (as defined in Rule
144) of the Borrower. Except as otherwise provided in the Purchase Agreement
(and subject to the removal provisions set forth below), until such time as the
shares of Common Stock issuable upon conversion of this Note have been
registered under the Act as contemplated by the Registration Rights Agreement or
otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold,
each certificate for shares of Common Stock issuable upon conversion of this
Note, 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
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 CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT 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 of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Common Stock
may be made without registration under the Act and the shares are so sold or
transferred, (ii) such Holder provides the Borrower or its transfer agent with
reasonable assurances that the Common Stock issuable upon conversion of this
Note (to the extent such securities are deemed to have been acquired on the same
date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock
issuable upon conversion of this Note, such security is registered for sale by
the Holder under an effective registration statement filed under the Act or
otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold.
Nothing in this Note 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.
<PAGE>
2.6 Effect of Certain Events.
(a) At the option of the Holder, the sale, conveyance or disposition of all
or substantially all of the assets of the Borrower, the effectuation by the
Borrower of a transaction or series of related transactions in which more than
50% of the voting power of the Borrower is disposed of, or the consolidation,
merger or other business combination of the Borrower with or into any other
Person (as defined below) or Persons when the Borrower is not the survivor shall
either: (i) be deemed to be an Event of Default (as defined in Article IV)
pursuant to which the Borrower shall be required to pay to the Holder an amount
equal to the Default Amount (as defined in Article IV) or (ii) be treated
pursuant to Section 2.6(b) hereof. "Person" shall mean any individual,
corporation, limited liability company, partnership, association, trust or other
entity or organization.
(b) Subject to Section 3.4, if, at any time when this Note 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, to the extent the Holder has
or thereafter exercises the Conversion Option in accordance with Section 2.1,
the Holder of this Note shall thereafter have the right to receive upon
conversion of this Note, 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 Note
been converted in full immediately prior to such transaction (without regard to
any limitations on conversion set forth herein), and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holder of this Note 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 Note) shall thereafter be
applicable, as nearly as may be practicable in relation to any securities or
assets thereafter deliverable upon the exercise hereof. Subject to Section 3.4,
the Borrower shall not effect any transaction described in this Section 2.6(b)
unless (a) it first gives at least ten (10) days prior written notice of the
record date of the special meeting of stockholders to approve, or if there is no
such record date, thirty (30) days prior to 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 Note) and (b) the resulting successor or acquiring entity (if
not the Borrower) assumes by written instrument the obligations of this Section
2.6(a). The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.
<PAGE>
(c) Subject to Section 3.1, 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 Note shall be
entitled, upon any conversion of this Note 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.
(d) If, at any time when any Notes are issued and outstanding, the Borrower
issues any convertible securities or rights to purchase stock, warrants,
securities or other property (the "Purchase Rights") pro rata to the record
holders of any class of Common Stock, then the Holder of this Note will be
entitled upon any conversion of this Note after the date of record for
determining shareholders entitled to such Purchase Rights 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 Note (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.
(e) Upon the occurrence of each adjustment or readjustment of the
Conversion Price as a result of the events described in this Section 2.6, 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 Note.
<PAGE>
2.7 Certain Payments in Lieu of Conversion. Unless permitted by the
applicable rules and regulations of the principal securities market on which the
Common Stock is then listed or traded, in no event shall the Borrower issue upon
conversion of this Note and the other Notes issued pursuant to the Purchase
Agreement more than the maximum number of shares of Common Stock that the
Borrower can issue pursuant to any rule of the principal United States
securities market on which the Common Stock is then traded (including Rule
4460(i) of Nasdaq)(the "Maximum Share Amount"), which, as of the Issue Date
shall be 16,824,934 shares (19.99% of the total shares outstanding on the Issue
Date), 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. For purposes of determining
the aggregate number of shares of Common Stock issuable upon conversion of this
Note and the other Notes issued pursuant to the Purchase Agreement, if the
issuance of Common Stock hereunder is aggregated with the issuance of Common
Stock under the debentures issued to the Holder on October 31, 1997, December
31, 1997 and March 30, 1998 (the "Prior Debentures") pursuant to the regulations
of principal United States securities market on which the Common Stock is then
traded, the shares of Common Stock issuable upon conversion of the Prior
Debentures shall be aggregated with the shares of Common Stock issuable pursuant
to this Note. Once the Maximum Share Amount has been issued (the date of which
is hereinafter referred to as the "Maximum Conversion Date"), if the Borrower
fails to eliminate any prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Borrower or any of its
securities on the Borrower's ability to issue shares of Common Stock in excess
of the Maximum Share Amount (a "Trading Market Prepayment Event"), in lieu of
any further right to convert this Note, and in full satisfaction of the
Borrower's obligations under this Note, the Borrower shall pay to the Holder,
within fifteen (15) business days of the Maximum Conversion Date (the "Trading
Market Prepayment Date"), an amount equal to 130% times the sum of (a) the then
outstanding principal amount of this Note immediately following the Maximum
Conversion Date, plus (b) accrued and unpaid interest on the unpaid principal
amount of this Note to the Trading Market Prepayment Date, plus (c) Default
Interest, if any, on the amounts referred to in clause (a) and/or (b) above,
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 Note 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"). With
respect to each Holder of Notes, the Maximum Share Amount shall refer to such
Holder's pro rata share thereof determined in accordance with Section 6.8 below.
In the event that the sum of (x) the aggregate number of shares of Common Stock
issued upon conversion of this Note and the other Notes issued pursuant to the
Purchase Agreement plus (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of this Note and the other Notes issued pursuant
to the Purchase Agreement, 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. As used herein, "Stockholder Approval" means approval by the stockholders
of the Borrower to authorize the issuance of the full number of shares of Common
Stock which would be issuable upon full conversion of the then outstanding Notes
but for the Maximum Share Amount (including, but not limited to, in accordance
with Rule 4460(i) of the Nasdaq).
<PAGE>
2.8 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
Note 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 Note. 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 Note 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 Note with respect to such unconverted portions of this Note and the
Borrower shall, as soon as practicable, return such unconverted Note to the
holder or, if the Note has not been surrendered, adjust its records to reflect
that such portion of this Note 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 2.3 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 2.3) for the
Borrower's failure to convert this Note.
ARTICLE III. CERTAIN COVENANTS
3.1 Distributions on Capital Stock. So long as the Borrower shall have any
obligation under this Note, 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 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.
3.2 Restriction on Stock Repurchases. So long as the Borrower shall have
any obligation under this Note, 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.
3.3 Borrowings. So long as Borrower shall have any obligation under this
Note, the Borrower shall not without the Holder's written consent create, incur,
assume or suffer to exist any liability for borrowed money, except (a)
borrowings in existence or committed on the date hereof and of which the
Borrower has informed the Holder in writing prior to the date hereof, (b)
indebtedness to trade creditors incurred in the ordinary course of business, (c)
borrowings, the proceeds of which shall be used to repay this Note and (d)
leases entered into in the ordinary course of business.
3.4 Sale of Assets. So long as Borrower shall have any obligation under
this Note, the Borrower shall not without the Holder's written consent, sell,
lease or otherwise dispose of any of its assets outside the ordinary course of
business; provided, however, that such consent shall not be required for the
sale of the common stock of Telemac Cellular Corporation, Inc. and NewCom, Inc.
Any consent of the Holder to the disposition of any assets may be conditioned on
a specified use of the proceeds of disposition.
<PAGE>
3.5 Advances and Loans. So long as Borrower shall have any obligation under
this Note, the Borrower shall not without the Holder's written consent lend
money, give credit or make advances to, or otherwise make an investment in, any
person, firm, joint venture or corporation, including, without limitation,
officers, directors, employees, subsidiaries and affiliates of the Borrower,
except loans, credits or advances (a) in existence or committed on the date
hereof and which the Borrower has informed the Holder in writing prior to the
date hereof, and (b) made in the ordinary course of business.
3.6 Contingent Liabilities. So long as Borrower shall have any obligation
under this Note, the Borrower shall not without the Holder's written consent
assume, guarantee, endorse, contingently agree to purchase or otherwise become
liable upon the obligation of any person, firm, partnership, joint venture or
corporation, except by the endorsement of negotiable instruments for deposit or
collection and except assumptions, guarantees, endorsements and contingencies
(a) in existence or committed on the date hereof and which the Borrower has
informed the Holder in writing prior to the date hereof, and (b) similar
transactions in the ordinary course of business.
3.7 Seniority of Note. So long as Borrower shall have any obligation under
this Note, the Borrower shall not incur any obligation with respect to
indebtedness which is senior in right of payment to this Note (including,
without limitation, making any obligation outstanding as of the Issue Date
senior in right of payment to this Note) other than obligations with respect to
indebtedness incurred in connection with a Permitted Lien (as defined in the
Security Agreement).
ARTICLE IV. EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of Default")
shall occur:
4.1 Failure to Pay Principal or Interest. The Borrower fails to pay the
principal hereof or interest thereon when due, whether at maturity, upon
mandatory prepayment pursuant to Sections 1.1 or 2.7, upon acceleration or
otherwise.
<PAGE>
4.2 Conversion and the Shares. After the election of the Conversion Option,
the Borrower fails to issue shares of Common Stock to the Holder (or announces
or threatens 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 Note (for a period of at least sixty (60) days, if such failure is
solely as a result of the circumstances governed by Section 2.3 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 or cause its transfer agent to
transfer (electronically or in certificated form) any certificate for shares of
Common Stock issued to the Holder upon conversion of this Note as and when
required by this Note or the Registration Rights Agreement, or fails to remove
any restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any certificate for any shares of Common Stock issued to the Holder
upon conversion of this Note as and when required by this Note, the Purchase
Agreement or the Registration Rights Agreement (or makes any announcement,
statement or threat that it does not intend to honor the obligations described
in this paragraph) and any such failure shall continue uncured (or any
announcement, statement or threat not to honor its obligations shall not be
rescinded in writing) for ten (10) days after the Borrower shall have been
notified thereof in writing by the Holder.
4.3 Failure to Effect Registration. The Borrower fails to obtain
effectiveness with the Securities and Exchange Commission of the Registration
Statement prior to March 7, 1999 or the Registration Statement lapses in effect
(or sales of all of the Registrable Securities (as defined in the Registration
Rights Agreement) 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; provided
however, that this shall not constitute an Event of Default until after an
election of the Conversion Option;
4.4 Breach of Covenants. The Borrower breaches any material covenant or
other material term or condition contained in Sections 2.3, 2.6, 2.7 or Article
III of this Note, Sections 4(c), 4(h), 4(i), 4(j), 4(l) or 5 of the Purchase
Agreement or Sections 2, 3, 4, 5, 6 or 7 of the Security Agreement and such
breach continues for a period of ten (10) days after written notice thereof to
the Borrower from the Holder;
4.5 Breach of Representations and Warranties. Any 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 Note,
the Purchase Agreement or the Registration Rights Agreement;
4.6 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;
4.7 Judgments. Any money judgment, writ or similar process shall be entered
or filed against the Borrower or any Subsidiary (as defined in the Purchase
Agreement) of the Borrower or any of its property or other assets for more than
$250,000, 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;
4.8 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; or
4.9 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
Exchange, or the American Stock Exchange;
<PAGE>
4.10 Default Under Other Notes. An Event of Default has occurred and is
continuing under any of the other Notes issued pursuant to the Purchase
Agreement.
then, upon the occurrence and during the continuation of any Event of
Default specified in Section 4.1, 4.2, 4.3, 4.4, 4.5, 4.7, 4.9 or 4.10 at the
option of the Holders of a majority of the aggregate principal amount of the
outstanding Notes issued pursuant to the Purchase Agreement exercisable through
the delivery of written notice to the Borrower by such Holders (the "Default
Notice"), and upon the occurrence of an Event of Default specified in Section
4.6 or 4.8, the Notes 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 Note plus (x)
accrued and unpaid interest on the unpaid principal amount of this Note to the
date of payment (the "Mandatory Prepayment Date") plus (y) Default Interest, if
any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts
owed to the Holder pursuant to Sections 2.3 and 2.4(g) hereof or pursuant to
Section 2(c) of the Registration Rights Agreement (the then outstanding
principal amount of this Note 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 "parity value" of the Default Sum to be prepaid, where parity value
means (a) the highest number of shares of Common Stock issuable upon conversion
of such Default Sum in accordance with Article I (treating the Trading Day
immediately preceding the Mandatory Prepayment Date as the "Conversion Date" for
purposes of determining the lowest applicable Conversion Price, unless the
Default Event arises as a result of a breach in respect of a specific Conversion
Date in which case such Conversion Date shall be the Conversion Date),
multiplied by (b) the highest Closing Price for the Common Stock during the
period beginning on the date of first occurrence of the Event of Default and
ending one day prior to the Mandatory Prepayment Date (the greater of clause (i)
and (ii) being 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 4.3 and 130% 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.
<PAGE>
ARTICLE V. REDEMPTION
5.1 Redemption. If (i) the Conversion Option is elected by the Holder after
the 120th day following the Issue Date and prior to the Maturity Date and (ii)
(a)so long as no Event of Default or Trading Market Prepayment Event shall have
occurred and be continuing, (b) the Registration Statement is then in effect and
has been in effect and sales can be made thereunder for at least twenty (20)
days prior to the Redemption Date (as defined below) and (c) the Borrower has a
sufficient number of authorized shares of Common Stock reserved for issuance
upon full conversion of the Notes, the Borrower may redeem all or any portion of
this Note upon ten (10) days prior written notice (a "Redemption Notice")
delivered prior to the Maturity Date in accordance with this Section 5.1. Any
Redemption Notice shall be delivered to the Holder at its registered address
appearing on the records of the Borrower and shall state (1) that the Borrower
is exercising its right to redeem this Note and all other Notes issued pursuant
to the Purchase Agreement and (2) the date of redemption, which date must be on
or prior to the Maturity Date. On the date fixed for redemption (the "Redemption
Date"), the Borrower shall make payment of the Redemption 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 Redemption
Date. The "Redemption Amount" shall be equal to the sum of (a) the then
outstanding principal amount of this Note plus (b) accrued and unpaid interest
on the unpaid principal amount of this Note 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
2.3 and 2.4(g) hereof or pursuant to Section 2(b) of the Registration Rights
Agreement. Notwithstanding anything to the contrary contained in this Section
5.1, the Holder shall at all times after the 120th day following the Issue Date
and prior to the Redemption Date maintain the right to convert all or any part
of this Note in accordance with Article II and any amounts so converted after
receipt of a Redemption Notice and prior to the Redemption Date set forth in
such notice and payment of the aggregate Redemption Amount shall be deducted
from the amount which is otherwise subject to redemption pursuant to the
Redemption Notice. If the Borrower delivers a Redemption Notice and fails to pay
the Redemption Amount due to the Holders of the Notes within two (2) business
days following the Redemption Date, the Borrower shall forever forfeit its right
to redeem the Notes pursuant to this Section 5.1.
ARTICLE VI. MISCELLANEOUS
6.1 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.
<PAGE>
6.2 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 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.
6.3 Amendments. This Note and any provision hereof may only be amended by
an instrument in writing signed by the Borrower and the Holder. The term "Note"
and all reference thereto, as used throughout this instrument, shall mean this
instrument (and the other Notes issued pursuant to the Purchase Agreement) as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.
6.4 Assignability. This Note is transferable at Holder's option and 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 Note must be an "accredited investor" (as defined in Rule 501(a) of the
1933 Act). Notwithstanding anything in this Note to the contrary, this Note may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement.
6.5 Cost of Collection. If default is made in the payment of this Note, the
Borrower shall pay the Holder hereof costs of collection, including reasonable
attorneys' fees.
6.6 Governing Law. This Note shall be governed by the internal laws of the
State of Delaware, without regard to the principles of conflict of laws.
6.7 Certain Amounts. Whenever pursuant to this Note 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 Note 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 Note
and to earn a return from the sale of shares of Common Stock acquired upon
conversion of this Note at a price in excess of the price paid for such shares
pursuant to this Note. The Borrower and the Holder hereby agree that such amount
of stipulated 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 Note into shares of Common Stock.
<PAGE>
6.8 Allocations of Maximum Share Amount and Reserved Amount. The Maximum
Share Amount and Reserved Amount shall be allocated pro rata among the holders
of Notes based on the principal amount of such Notes issued to each holder. Each
increase to the Maximum Share Amount and Reserved Amount shall be allocated pro
rata among the holders of Notes based on the principal amount of such Notes held
by each holder at the time of the increase in the Maximum Share Amount or
Reserved Amount. In the event a holder shall sell or otherwise transfer any of
such holder's Notes, each transferee shall be allocated a pro rata portion of
such transferor's Maximum Share Amount and Reserved Amount. Any portion of the
Maximum Share Amount or Reserved Amount which remains allocated to any person or
entity which does not hold any Notes shall be allocated to the remaining holders
of Notes, pro rata based on the principal amount of such Notes then held by such
holders.
6.9 Damages Shares. The shares of Common Stock that may be issuable to the
Holder pursuant to Sections 2.3 and 2.4(g) hereof and pursuant to Section 2(b)
of the Registration Rights Agreement ("Damages Shares") shall be treated as
Common Stock issuable upon conversion of this Note 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.
6.10 Denominations. At the request of the Holder, upon surrender of this
Note, the Borrower shall promptly issue new Notes in the aggregate outstanding
principal amount hereof, in the form hereof, in such denominations of at least
$100,000 as the Holder shall request.
6.11 Purchase Agreement. By its acceptance of this Note, each Holder agrees
to be bound by the applicable terms of the Purchase Agreement.
6.12 Notice of Corporate Events. Except as otherwise provided below, the
Holder of this Note shall have no rights as a Holder of Common Stock unless and
only to the extent that it converts this Note 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 liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least ten (10) 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, 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
6.12.
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its duly authorized officer this 7th day of October, 1998.
AURA SYSTEMS, INC.
By:_____________________________________
Steven Veen
Chief Financial Officer
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
OF CONVERTIBLE NOTE
TO: AURA SYSTEMS, INC.
(1) Pursuant to the terms of the attached Convertible Note
(the "Note"), the undersigned hereby elects to convert $ __________ principal
amount of the Note 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 Note.
(2) The Borrower shall electronically transmit the Common
Stock issuable pursuant to this Notice of Conversion to the account of the
undersigned or its nominee with DTC through its Deposit Withdrawal Agent
Commission system ("DWAC Transfer").
Name of DTC Prime Broker:
Account Number:
|_| In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the
number of shares of Common Stock set forth above (which numbers are
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:
Address:
(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.
Date: ___________________
Signature of Registered
Holder (must be signed
exactly as name appears in
the Note).
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, 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
1,200,000
Shares of
Common Stock,
par value $.005 per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC INTERNATIONAL INVESTORS,
LDC ("RGC"), 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, One Million Two
Hundred Thousand (1,200,000) fully paid and nonassessable shares of the
Company's Common Stock, par value $.005 per share (the "Common Stock"), at an
exercise price equal to (i) on or prior to January 31, 1999, $1.40 per share;
(ii) from February 1, 1999 until June 30, 1999, the lesser of (a) $1.40 and (b)
101% of the average Closing Bid Price (as defined in Paragraph 4(l)), of the
Common Stock for the five (5) consecutive trading days ending January 31, 1999
(the "January Price"); and (iii) after June 30, 1999, the lesser of (a) $1.40,
(b) the January Price and (c) 101% of the average Closing Bid Price of the
Common Stock for the five (5) consecutive trading days ending June 30, 1999 (the
"Exercise Price"). The term "Warrant Shares," as used herein, refers to the
shares of Common Stock purchasable hereunder. The Warrant 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 October 7, 1998, by and among the
Company and RGC (the "Purchase Agreement").
This Warrant is subject to the following terms, provisions, and
conditions:
<PAGE>
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. 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.
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 Notes and the unexercised
or unconverted portion of any other securities of the Company subject to a
limitation on exercise or conversion analogous to the limitation contained
herein) 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, 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).
<PAGE>
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.
(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.
<PAGE>
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:
<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 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.
<PAGE>
(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 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.
<PAGE>
(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, 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.
<PAGE>
(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, 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.
<PAGE>
(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, means (i) 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 Company. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition 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.
<PAGE>
(iv) "Closing Bid 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 of such security in the over-the-counter market on the
electronic bulletin board for such security or in any of the foregoing manners,
the average of the bid prices of any market makers for such security that are
listed in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date in the
manner provided above, the Closing Bid 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 Company.
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). 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 October 7,
1998, 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 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.
<PAGE>
(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 the
Registration Rights Agreement.
<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 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.
<PAGE>
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 October 7, 1998
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ________, ____.
To: AURA SYSTEMS, INC.
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.
<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:
Name of Assignee Address No of Shares
, 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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 3,312,020
<SECURITIES> 0
<RECEIVABLES> 49,892,806
<ALLOWANCES> 0
<INVENTORY> 51,092,047
<CURRENT-ASSETS> 119,635,658
<PP&E> 78,564,238
<DEPRECIATION> (17,537,660)
<TOTAL-ASSETS> 218,559,107
<CURRENT-LIABILITIES> 87,368,253
<BONDS> 0
0
0
<COMMON> 210,605,858
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 218,559,107
<SALES> 105,487,348
<TOTAL-REVENUES> 105,487,348
<CGS> 98,008,647
<TOTAL-COSTS> 35,080,662
<OTHER-EXPENSES> 5,627,843
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,766,274
<INCOME-PRETAX> (41,996,078)
<INCOME-TAX> (647,200)
<INCOME-CONTINUING> (41,348,878)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (4,551,673)
<NET-INCOME> (36,797,205)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> 0
</TABLE>
