<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended...............................February 28, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from................. to ..................
Commission File Number.......................................0-17249
AURA SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4106894
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2335 Alaska Ave.
El Segundo, California 90245
(Address of principal executive offices)
(310) 643-5300
Registrant's telephone number
Name of each exchange
on which registered
None
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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 |_| No |X|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
On February 3, 2000 the aggregate market value of the voting stock held
by non-affiliates of the Registrant was $46,140,620. The aggregate market value
has been computed by reference to the last trading price of the stock on
February 3, 2000. On such date the Registrant had 177,249,203 shares of Common
Stock outstanding.
<PAGE>
When used in this report, the word "expects," "anticipates," and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements include, but are not limited to, statements regarding
future events and the Company's plans and expectations. The Company's actual
results may differ significantly from the results discussed in forward-looking
statements as a result of certain factors, including those discussed in this
Report. The Company expressly disclaims any obligations or undertaking to
release publicly any updates or revisions to any forward-looking statements
contained herein to reflect any changes in the Company's expectations with
regard hereto or any change in events, conditions or circumstances on which any
such statement is based. This Report includes product names, trade names and
marks of companies other than the Company. All such company or product names are
trademarks, registered trademarks, trade names or marks of their respective
owners and are not the property of the Company.
PART I
ITEM 1 BUSINESS
I. INTRODUCTION
Aura Systems, Inc. ("Aura" or the "Company"), a Delaware corporation,
was founded in 1987 to engage in the development, commercialization and sales of
products, systems and components using its patented and proprietary
electromagnetic and electro-optical technology. Since 1987 the Company's
proprietary and patented technology has been developed for use in systems and
products for commercial, industrial, consumer, and government use.
Prior to Fiscal 1992, the Company was engaged in various classified
military programs, which allowed the Company to develop its electromagnetic and
electro-optical technologies and applications. A number of "one-of-a-kind"
systems were built and successfully tested in these fields. Subsequently, the
Company developed additional electromagnetic and electro-optics know-how and
technology and transitioned from a supplier of defense technology to a supplier
of consumer and industrial related products and services.
In 1994, the Company founded NewCom, Inc. ("NewCom"), a Delaware
corporation, which engaged in the manufacture, packaging, selling and
distribution of computer related communications and sound related products,
including modems, CD-ROMs, sound cards, speaker systems and multimedia products,
thereby expanding presence in the growing multimedia, communication and
sound-related consumer electronics market.
In 1996, the Company acquired 100% of the outstanding shares of MYS
Corporation of Japan ("MYS") to expand the range of its sound products and
speaker distribution network. MYS engaged in the manufacture and sale of
speakers and speaker systems for home, entertainment and computers. Subsequent
to Fiscal 1999, the Company sold MYS to MYS management.
In September 1997, NewCom completed an initial public offering,
resulting in Aura owning a majority interest in NewCom at the conclusion of the
offering. During the second half of Fiscal 1999 NewCom's business suffered from
adverse industry conditions, including increased price reductions and a decline
in demand resulting from increased incorporation of computer peripherals at the
OEM level. These conditions resulted in heavy losses to NewCom and its
competitors, causing a buildup in inventory and difficulty in collecting
receivables from mass merchants. NewCom's business reached a critical juncture
in the fourth quarter of Fiscal 1999 when Deutsche Financial Services, which
maintained NewCom's working capital line, announced that it was unwilling to
continue to advance working capital to NewCom under its credit facility. This,
in conjunction with the actions of the retail mass merchants, resulted in NewCom
ceasing most of its operations by the end of Fiscal 1999 and the ultimate
cessation of its business shortly thereafter.
Aura anticipated that its working capital needs in Fiscal 1999 would be met
from a number of sources, including the repayment by NewCom of
approximately $20 million of indebtedness, which was due in September 1998,
and proceeds from external debt and equity financing. NewCom was ultimately
unable to meet its obligations to Aura in September 1998, ultimately
creating a significant cash shortfall to Aura. This required Aura beginning
in late January 1999 to refocus its operations in shutting down certain
operating divisions, selling its MYS subsidiary, licensing and selling
proprietary based AuraSound speaker technology and assets, and leasing its
Electrotec concert touring sound equipment. The Company also temporarily
suspended the development of certain electro-magnetic projects, including
the electromagnetic valve actuator ("EVA"). Subsequent to Fiscal 1999 the
Company entered into agreements providing for the restructuring of more
than $85 million of debt and contingent liabilities. Of this amount, over
$37 million was either converted into equity or forgiven. See "Item 7.
Management Discussion and Analysis of Financial Condition and Results of
Operations.
Following the end of Fiscal 1999 the Company's operations are now
focused on manufacturing and commercializing the AuraGen(R) ("AuraGen") family
of electromagnetic products, with applications for military, industry and the
consumer. The AuraGen is a unique, patented electromagnetic generator that is
mounted to the automobile engine, which generates both 110 and 220 volt AC power
at all engine speeds including idle. Commercial production of the AuraGen
commenced in Fiscal 1999 and product is being distributed and sold through
dealers, distributors and OEMs.
Aura intends to continue to focus its business on the AuraGen line of
products during the remainder of Fiscal 2000 and beyond. ( See "Description of
Business - Magnetic Technology".) In addition, Aura is entitled to receive
royalties from Daewoo Electronics for its electro-optics technology ("AMA")
licensed to Daewoo in 1992.
(See "Description of business - Electro-Optical Technology.")
II. DESCRIPTION OF BUSINESS
A. Technology
a. Magnetic Technology
The Company has developed and patented highly efficient magnetic
circuits, which the Company believes provides substantial improvements over
devices of similar purpose, available prior to Aura's technology. These designs
include the Ferrodisk Induction Motor applied in the Company's electromagnetic
power generator technology and electromagnetic actuators, such as the HFATM and
the EMATM actuator designs.
Ferrodisk Induction Motor (AuraGen(R))
In Fiscal 1993, the Company's research discovered that certain magnetic
circuit equations could apply, with different parameters, to describe linear
actuators that could provide unusually high force levels in a device of
relatively small volume and weight. As this concept extended from a linear
actuator to a rotary actuator, a motor called the "Ferrodisk Motor" was
developed by the Company.
In the latter half of 1995 and in early 1996, a device named the
Ferrodisk Alternator Starter (FAS(TM)) was designed, built, tested, installed on
a Ford Ranger truck, and displayed publicly at the Society of Automotive
Engineers (SAE) trade show. FAS(TM) used its large torque capacity to start the
engine with direct drive, that is, with no gearing. After starting, its function
converted to that of an alternator, which had a capacity for generating power
several times that of a conventional alternator. The Company called this
electromagnetic power generation feature the AuraGen.
The AuraGen contains aluminum bars and rings embedded in it. AC
voltages, similar to household currents, set up electric currents in the
electromagnets, creating a series of magnetic poles that whirl around the rings.
When the disk of steel is forced to spin faster than the motion of the magnetic
poles, there is an interaction between the magnetism in the disk and the coils
of the electromagnets. The electric currents in the wires are pushed so they
flow backwards against the voltages, and this effect builds up the electrical
energy content in the electronics at the expense of mechanical energy provided
by the rotor. The electronic box of the AuraGen provides the alternating
voltages to make the device work, stores the electrical energy generated, and
prepares the exact type of voltages as in household wiring. The device is
controlled by a computer processor that continuously measures the speed of the
AuraGen rotor and the power drawn by the user, so that alternating voltages of
the best phase and frequency are sent to the electromagnets.
Magnetic High Fidelity Actuators (HFATM)
An actuator is a device that creates a lateral force upon command.
Actuators are used in a wide range of applications, including high speed,
precision applications such as audio speaker drivers, computer-controlled
applications such as the control of aircraft flaps, and heavy-duty applications
such as the lifting of the bed of a dump truck. Actuators are generally
hydraulic, pneumatic, mechanical or voice coil. Hydraulic, pneumatic and
mechanical actuators can produce extremely high forces and long strokes in
relatively small packages. Voice coil actuators provide high precision and
high-speed operation, producing short stroke and very little force. Actuators
are most commonly used to position objects, or to create or cancel vibrations by
producing a force upon command.
The Company believes that its high fidelity electromagnetic actuator
HFATM, is the first "Lorenz's Law" actuator to provide both the high forces and
long strokes produced by hydraulic or pneumatic actuators at the speed and
precision of response produced by voice coil actuators. This ability is
attributable to the patented magnetic design. High-energy permanent magnets are
arranged to focus nearly all of their magnetic energy into useful work. Standard
voice coil actuators typically utilize about 40% of the available magnetic
energy whereas Aura's HFATM uses nearly 90% of that energy. The magnetic
arrangement also allows virtually unlimited stroke potential. Standard voice
coil actuators typically provide less than one inch of stroke whereas the
HFA(TM)'s stroke is virtually unlimited. For example, Aura's HFATM is capable of
producing more than 1,000 pounds of force over a 32 inch stroke. The Company has
commercially used its HFATM technology in applications such as actuated weld
heads and is currently employing HFA(TM) technology in industrial shakers.
Electromagnetic Actuator ("EMA(TM)")
During Fiscal 1995, the Company developed, built and demonstrated a new
type of actuator, called the Electromagnetic Actuator, or EMATM. The Company
developed EMATM to fill the performance gap between linear actuators and
solenoids. To date, the principal application of the EMATM has been in Aura's
Electromagnetic Valve Actuator System ("EVA(TM)"), a patented
electromagnetically powered system which opens and closes engine valves at any
user specified time interval.
Like a solenoid, EMATM operates on purely electromagnetic principles,
and therefore uses no permanent magnets. The Company developed it initially for
the industrial and automotive markets, but believes it may also be incorporated
into the test equipment market as well. An EMA(TM) is physically equivalent in
size to solenoids with comparable force capacities and can be operated at
temperatures exceeding 450 degrees Fahrenheit.
What sets EMATM apart from a standard solenoid is its ability to
custom-tailor the force produced as a function of stroke. For example, an
automotive EGR valve requires peak force at the beginning of the stroke in order
to "crack" the valve open. A standard solenoid, by its very nature, produces
peak force at the end of its stroke, not at the beginning. Therefore, a solenoid
will require a large amount of power to compensate for its inherent limitation.
Conversely, the force profile of an EMATM can be customized to provide high
force at the beginning of the stroke, resulting in a more efficient device that
is much easier to control.
Another advantage of EMATM over a solenoid is its actuator-like
ability, which provides consistent force over much longer lengths. To be used
for an application requiring proportional control, a "proportional" solenoid
requires complex electronics to compensate for this inherent non-linearity. An
EMATM basically "spreads" the solenoid's peak force over the entire stroke,
providing linear force over a greatly extended stroke length without the need
for complex electronics.
b. ELECTRO-OPTICAL Technology
Light Efficient Displays - Actuated Mirror Array ("AMATM")
The Company has developed and patented a technology (a "light valve")
for generation of images called the Actuated Mirror Array ("AMATM") technology.
The AMA(TM) technology utilizes an array of micro actuators in order to control
tiny mirrors whose position change is used to cause a variation in intensity.
The Company expects this device to have a major impact on applications where
light efficiency is paramount, such as in large screen television, movie and
exhibition displays, and the testing of electro-optical devices for military or
civilian use.
Although there can be no assurances, the Company believes that the
AMATM can be manufactured at a competitive cost in large quantities, thus making
it commercially feasible. Thus, AMATM based devices are expected to offer the
combination of increased display intensity at a competitive production cost.
Light displays, such as projectors and large screen televisions, can be
made by a number of techniques, many of which are currently available. These
include liquid crystal displays ("LCD"), cathode ray tubes ("CRT"), deformable
mirror displays ("DMD"), oil film projectors and plasma tubes. For the segment
of the display market addressing large images, the principal requirement is to
get more light out per unit watt of electricity in. However, each of these
technologies requires the utilization of an element, which causes a loss of
light efficiency in order to create the image.
Liquid crystals utilize an electric field to change the light
polarization properties of a surface, which is divided into an array of cells to
paint an image. Cathode ray tubes utilize an electron beam, which is bent by the
video signal to create images by colliding with a phosphor on the front surface
to create light. DMD's utilize an electric field to bend a mirror at a large
angle to switch it to either "on" or "off". Oil film projectors change the
transmissive properties of an oil film allowing an image to be created. Plasma
tubes create an electrical discharge in a tiny tube with gas. The gas glows
allowing an image to be created by an array of such tiny tubes. Each of these
technologies has their own advantages and limitations, thus creating niches
within the display market where competitive advantages can be achieved.
The Company believes that the AMATM technology has a technical
advantage over other technologies in achieving higher contrast, more intensity
and longer lived elements.
The Company has entered into a license and manufacturing agreement
with Daewoo Electronics Co., Ltd. to manufacture televisions and other
devices based on AMATM technology. (See " Description of Business-Certain
Product Risk Factors-AMA."
B. Products
a. AuraGen(R)
The AuraGen is a patented technology (US Patent No. 5,734,217) that
could potentially have substantial benefits in size, weight and cost for
induction type electric motors and generators. The technology allows the
construction of induction machines of somewhere between one-half to two-thirds
reduction in weight and size for the same output. The machine itself does not
use any exotic materials and the components are simple to manufacture with
conventional tooling. In addition to the mechanical advantages the system uses a
proprietary control system which optimizes efficiency as a function of required
load. The AuraGen type machine could potentially offer substantial cost savings
due to reduced material requirements and simpler components. While the
technology has wide applications over a large range of horsepower it is best
utilized for machines in the range of 1.5 to 50 horsepower. The Company has
invested substantial resources to develop the technology into a rugged system
that can be sold commercially.
The first family of products using the AuraGen technology are
generators designed to fit under the hood of a full size pickup truck, SUV or
other large vehicle. In the under the hood application the AuraGen can provide
an effective torque to weight ratio of 0.648 ft-lb/lb with efficiency of 86% as
compared to a typical heavy duty brush-less alternator which has an effective
torque to weight ratio of 0.109 ft-lb/lb and efficiency of 65%. Thus the AuraGen
produces nearly six times more power per pound than typical heavy-duty
alternators.
The Company has gone through extensive testing of its 5KW (5000 watts)
continuous power rated mobile electric generator in both the laboratory and in
the field. Over 1000 units have been in the field for up to two years. The
Company has begun selling the 5KW 120/240V pure sine wave systems with total
harmonic distortion of less than 4%. Aura currently offers full turnkey plug and
play systems that fit in over 70 different engine configurations in popular GM,
Ford and Chrysler vehicles, as well as some models of full size trucks. In
addition the Company is developing other power rated generators between 3.5KW
and 12.5KW, all of which will fit under-the-hood of the types of vehicles
described above.
The North American market for mobile generators is estimated to be in
excess of $4 billion per year and growing at 4% to 5% per year. The worldwide
use is estimated to be over $10 billion per year. Traditional mobile power users
are found in construction, cable, emergency/rescue, marine, railroad,
recreational vehicles, telecommunications, tool sales truck, utilities,
municipalities and personal use. In addition to the traditional mobile power
market for generators, due to its compactness and clean power, the AuraGen could
potentially allow for applications that were not practical until now,
particularly in areas that require computers and other sensitive instruments.
One area where the AuraGen could be used with great advantages in both
cost and logistics is the military. In military applications, getting quiet
clean power from vehicles at low speed could potentially be critical as the Army
changes to digital applications with numerous sophisticated electronics and
sensors. The US Army has been testing the AuraGen product for over one year for
numerous applications and to date the results show a reliable and effective
system that can be used by the military. The Company is currently working with
the US Army for the use of the AuraGen in multiple army vehicle types.
Another area where the AuraGen could potentially offer unique
possibilities is in the telecommunication industry. Currently the AuraGen is
used by a number of broadcasting TV stations in their mobile news vehicles. The
AuraGen is also being used on a limited basis by cable companies for numerous
applications. The technical possibilities of the AuraGen have generated numerous
interests from utilities as well as municipalities across the nation. Currently
over 23 utilities across the nation have bought AuraGens as samples and are
evaluating the product. Similarly over 33 state and city governments have bought
the AuraGen for evaluation and testing.
The Company is positioning itself in the market place as a turn key
mobile power solution that is safer, more reliable, more convenient, with
better quality and at an effective cost. The safer solution is based on the
following: a) no need to carry fuel in a container, b) no exposed hot
components to touch/start, c) nothing heavy to lift, d) no pull start required,
e) power outlets located away from hot components and f) not easily stolen.
The increased reliability is based on using the standard vehicle
engines as compared to small stand-alone engines. The system does not require
any maintenance and does not have any starting problems associated with gensets.
The system uses the standard vehicle exhaust system, which results in a quieter,
cleaner power generating system.
The AuraGen solution provides convenient power by: a) not using
up valuable cargo space, b) not requiring an additional fuel tank, c)
no need to wait for the genset to cool down, d) available power while
driving or parked and e) the power setup and use is totally transparent
to the user. The quality of power delivered by the AuraGen system is pure
60 or 50 Hz sine wave at a constant voltage. As a result one can operate
sensitive equipment such as computers and coarse power such as tools and
compressors at the same time.
b. Electromagnetic Valve Actuator ("EVA(TM)")
EVATM is an electromagnetic actuator capable of opening and closing
internal combustion engine valves, replacing the mechanical camshaft on an
engine
Two major benefits arise from the EVA's ability to open and close the
valve electromagneticaly: 1) the camshaft and associated mechanical hardware can
be eliminated; and 2) the opening and closing of the intake and exhaust valves
can be commanded by the engine computer. Computer control of the valve timing
has potentially material benefits to engine performance, fuel economy and
emissions. With EVATM, the computer can precisely control the amount of air that
is allowed into the engine in the same way that modern fuel injectors control
the amount of fuel. By optimizing this "fuel-air mixture" dynamically as a
function of engine RPM and load, optimum engine performance can be achieved over
the entire operating range of the engine. With a standard camshaft, the engine
can be optimized at only one range of RPM and load conditions. That is why very
high performance engines idle "rough", as they are optimized for high RPM,
thereby sacrificing smoothness at low RPM.
By optimizing the fuel-air mixture dynamically, both performance
(horsepower) and fuel economy will increase, while emissions are expected to
decrease. The entire camshaft assembly, which includes timing chain, camshaft,
rockerarms, etc., is replaced by very simple valve actuators. Other emission
systems currently on the vehicle, such as the EGR (exhaust gas recirculation)
and IMRC (intake manifold runner control) valves can be eliminated. The throttle
assembly can also be eliminated by using EVATM to control the amount of air
going into the engine.
In recent years, the Company has entered into agreements with 15
companies to retrofit EVA's on different types of diesel, automobile and
motorcycle engines for evaluation and testing. During Fiscal 1998 an EVA system
was delivered to a major domestic Original Equipment Manufacturer (OEM) which is
evaluating EVA for possible use in its automobile production. In Fiscal 1998,
the Company developed a new, more reliable servo control system that provides
reduced power usage and reduced noise over the entire RPM range. In addition,
the Company started work on an improved latching mechanism for EVA that will
further reduce noise in the system.
In Fiscal 1999 as part of its refocus, the Company temporarily
suspended its activities on EVA development and commercialization to focus
its resources on the AuraGen. The Company is however, pursuing licensing of
this technology to third parties. The Company has not yet entered into any
licensing agreements for EVA.
C. Certain Product Risk Factors
The Company's business on a going-forward basis is focused on the
AuraGen family of products and on royalties for the AMA technology. While the
technology for the AuraGen has been extensively tested and verified , there are
significant risks associated with developing a market place for such a new
product. Similarly, the Company is totally dependent on Daewoo Electronics for
exploiting the AMA technology.
a. AURAGEN(R)
The AuraGen is a new product with limited history in the market place.
There can be no assurances that the product will succeed in the marketplace.
Currently, the Company's AuraGen is being evaluated by the U.S. Army
with a potential for a contract to install the AuraGen in thousands of military
vehicles. No assurances can be given when or if the contract will materialize
and what the ultimate size of the contract may be.
The U.S. Army has recently completed the field test of 5kW and 10kW
AuraGens. No assurances can be given as to if and when the US Army will conduct
other and future tests.
The Company has a U.S. Army contract for 10kW AuraGens. No
assurances can be given that the Army will purchase any material quantities of
this product.
The U.S. Marine Corp. has recently purchased 5kW AuraGens for
evaluation. No assurances can be given that any sizable contract will develop.
The AuraGen is currently configured for 110 and 240 volts. The 240V
systems that are in use in other countries are different from the U.S. 240-Volt
system. The Company is currently providing a solution that requires an
additional transformer. A future solution will incorporate the required changes
into the Electronic Control Unit ("ECU). While it is straightforward to make the
changes to the international 240 Volt, it has not been done as yet. No
assurances can be given as to when the changes will be made or if they will be
made.
The Company has recently completed the development of a 10kW AuraGen in
the same geometric envelope as the 5kW unit. No assurances can be given that
such a device will succeed in the market place.
The Company is currently cooperating and working closely with General
Motors, a major automotive OEM in regard to the AuraGen. Recently General Motors
has exhibited the AuraGen as a potential option in selected future vehicles. No
assurances can be given that the Company's AuraGen will be offered by General
Motors as an OEM option.
b. AMA(TM)
The Company licensed its AMA technology to Daewoo Electronics Limited
of Korea. Since 1992, Daewoo has been responsible for the commercialization,
production and sale of the AMA products. Daewoo in fiscal 1999 announced the
completion of the commercialization of the AMA. While the Company anticipates
that the AMA will be available in the market place in the near future, no
assurances can be given as to if and when it will be available.
The AMA(TM)/Aurascope(TM) is a new product without a history in the
marketplace. There can be no assurances that the product will succeed in the
marketplace.
The Company's rights under the license agreement provide for a royalty
to be paid on every unit sold by Daewoo and 50% of all sublicensing fees
collected by Daewoo. No assurances can be given as to when and if the royalty
stream will start.
D. Competition
The Company is involved in the application of its technology
to a variety of products and services and, as such, faces substantial
competition from companies offering different and competitive technologies.
The Company believes the principal competitive factors in the
markets for the Company's products include ability to develop and market
technologically advanced products to meet changing market conditions, price,
reliability, product support and the ability to secure sufficient capital
resources for the often substantial periods between technological concept and
commercialization. The Company's ability to compete will also depend on its
continued ability to attract and retain skilled and experienced personnel, to
develop and secure patent and other protection for its technology and to exploit
commercially its technology prior to the development of competing products by
others.
The Company competes with many companies that have more
experience, name recognition, financial and other resources and expertise in
research and development, manufacturing, testing, and obtaining regulatory
approvals, marketing and distribution. Other companies may also prove to be
significant competitors, particularly through their collaborative arrangements
with research and development companies.
Portable generators ("Genset") meet a large market need for
auxiliary power. Millions of units per year are sold in North America alone, and
millions more are sold across the world to meet market demands for 1 to 10
Kilowatts of portable power. The market for these power levels basically
addresses the commercial, leisure and residential markets, and divide
essentially into: a) higher power, higher quality and higher price commercial
level units; and b) lower power, lower quality and lower price level units.
There is significant competition in the auxiliary power market
from portable generator sets with such companies as Onan, Honda and Kohler which
are well-established and respected brand names in the genset market for high
reliability auxiliary power generation. There are presently 44-registered Genset
manufacturers ("Gensets").
The following table is a summary comparing the leading Genset
products with the AuraGen(TM).
<TABLE>
<CAPTION>
TABLE 1: GENERATORS
<S> <C> <C> <C> <C> <C> <C>
Onan Honda Honda Kohler AuraGen(TM)
Parameters Marquis EG5000X EX5500 5CKM
Rated Power 5000 5,000 W 4,500 W 5,000 W 5,000 W 5,000
W
Weight 258 146 393 268 68
lbs/117.3 kg lbs/66.4 kg lbs/178.6 kg lbs/122 kg lbs/30.9 kg
Cubic Feet/
Cubic Meters 6.72/.19 5.39/.15 26.80/.76
3.71/0.11 0.25/0.01
Output 120 V 120/240 120/240 V
V 120/240 V 120/240 V
Engine RPM
@ Rated Output 1,800 3,600 3,600 1,800 1,300
Noise (DBA @
10 Ft.)` 73.5 82 65 88.5 64
Load-Follower
Economy No No No No Yes
</TABLE>
In addition to competition from Gensets, there are six major
manufacturers of Inverters in the U.S.; representative of the leaders are
Vanner, Dimension and Heart.
Inverters provide strong competition in specific markets of
the overall market place for mobile power: The specific markets where inverters
are strong competitors are Ambulance, Fire and Rescue, Small Recreational
Vehicles and Telecommunications.
Limitations of Inverters:
o Inverters address a much more limited and specialized market than Gensets;
o The most significant portion of inverter sales are in the lower power range:
i.e., 2500 watts or lower.
o True quality Inverter power above 2500 watts requires a 24-volt automotive
electrical system (twice 12 volts);
and the maximum output for quality power in the commercial market is on
the order of 4800 watts. (See Table 2).
o Quality power (pure sine wave and well-regulated 60Hz) is a significant
cost factor in Inverters (Table 2).
o Often, Inverters require upgraded vehicle alternator and battery
harness, and--for extended use period without battery charging--an additional
battery pack.
TABLE 2: INVERTERS
<TABLE>
<CAPTION>
Heart I/F Vanner Vanner Vanner AuraGen(TM)
Parameters
<S> <C> <C> <C> <C> <C> <C>
Freedom 25 Bravo 2600 TB30-12 A40-120X G5000
1. Max Rated Power 2500 2600 4800 5000
(Watts) 2800
2. Weight (LBS) 56 70 75 110 68
2A. Weight Battery Pack No No
Add/No Add/No Add/No
3. Overall Cubic In.
1207.5 1866.73 1800 2595.94 432.73
4. 60 Hz Yes Yes Yes Yes Yes
5. Sine Wave @ All RPM Yes Yes
Modified Modified Modified
6. Battery Discharge Yes Yes Yes No No
Operation
7. Vehicle Engine Noise
(DBA @ 10Ft.) 64 64 64 64 64
8. Load Follower-Economy Yes Yes Yes Yes Yes
</TABLE>
E. Manufacturing
The AuraGen is assembled at Aura's facility in El Segundo, California
with parts which are produced by various suppliers. In Fiscal 1996 the Company
acquired a 27,692 square foot manufacturing facility in El Segundo for the
AuraGen production line. In Fiscal 1998, the Company set up the production
facilities in the acquired building. This facility is for assembly and testing
and has a production capability of 5000 units per month per operating shift.
The Company's ceramic division manufactures its products at its leased
38,000 square foot ceramic facility in New Hope, Minnesota.
The class 100 clean room fabrication facility for the AMA product in
El Segundo, California was closed in Fiscal 1999 as the Company terminated all
manufacturing activities in the electro-optical area.
Subsequent to the end of Fiscal 1999 the Company either sold, leased
or terminated all of its sound related activities, including all the off-shore
facilities and joint ventures. The Company sold MYS Corporation, AuraSound
assets, leased the assets of Electrotec, and licensed the AuraSound technology.
NewCom ceased most of its operations by the end of Fiscal 1999 after
Deutsche Financial Services seized Newcom's inventory.
F. Quality Assurance and Testing
As the Company focuses its activities on the AuraGen, quality assurance
and testing is a very important component. The Company performs qualification
testing on the AuraGen hardware components, Electronic Control Unit ("ECU"), all
software and on installed in-vehicle systems to ensure reliability in the field.
The qualification testing includes; 1) in-house endurance testing, 2) in-house
parametric thermal testing, 3) in house power quality testing and 4) independent
laboratory environmental testing. In addition, field failure testing is
performed on all returned units.
In addition to the qualification testing, the Company implemented a
fully controlled manufacturing lot traceability system, documentation and
configuration control system, as well as, acceptance test and compliance
procedures at all manufacturing levels, including suppliers. The Company also
uses automated tools for "In Process Inspection" on its AuraGen assembly line.
G. Product Development Expenditures
During the fiscal years ended February 28, 1999, February 28, 1998, and
February 28, 1997 the Company spent approximately $ 2.8 million, $1.4 million
and $6.0 million, respectively, on Company sponsored research and development
activities. The Company plans to continue its research and may incur substantial
costs in doing so. All of the Company's sponsored R & D is focused on
technological enhancements and product developments for the AuraGen.
H. Patents
Since Aura is engaged in the development and commercialization of
proprietary technology, it believes patents and the protection of proprietary
technology are important to its business. The Company's policy is to protect its
technology by, among other ways, filing patent applications for technology which
it considers important to the development of its business. The U.S. Patent
Office has to date issued 78 patents. A majority of these patents expire between
the years 2008 and 2015. The Company's first issued Auragen patent however,
expires in the year 2017. Of the issued patents, 29 pertain to its
automotive/industrial applications, 21 pertain to its electrooptical
applications and 28 pertain to sound applications. There are additional patent
applications in various stages of preparation for filing and numerous patents
are pending. There are no assurances that any of the patent applications or any
new other patents will be issued in the future. The Company believes that its
issued and allowed patents enhance its competitive position.
I. Employees
As of February 28, 1999 the Company employed approximately 500 persons
worldwide. During Fiscal 1999 and continuing into Fiscal 2000 the Company has
gone through a major down-sizing and restructure. As of February 2, 2000, the
Company employed 95 persons. Thirteen people are dedicated to the ceramics
operation and 82 to the AuraGen activities. The Company believes that its
relationship with its employees is good. The Company is not a party to any
collective bargaining agreements.
J. Principal Sources of Revenues
For the year ended February 28, 1999, multimedia products and modems
were the largest single source of revenues on a consolidated basis, constituting
approximately $46.8 million or 57.4% of net revenues. Sound related products
contributed approximately $29 million or 35.6% of net revenues. During Fiscal
1998 multimedia products on a consolidated basis accounted for approximately $52
million, or 32.3% of gross revenues. Sound related products contributed
approximately $31 million or 19.3% of revenues. Modems on a consolidated basis
contributed approximately $38 million or 23.6% of Fiscal 1998 revenues. No other
products accounted for more than 10% of revenues during the foregoing periods.
After the down-sizing, ceasing of NewCom operations and selling the sound
related operations, the principal sources of revenues going forward will be
related to the Company's AuraGen technology. The AuraGen is a new product with
no historical basis for comparison.
K. Significant Customers
The Company sold sound related products and computer related products
on a consolidated basis to four significant customers during Fiscal 1999. Sales
of speakers to a major electronics retailer accounted for approximately $16.3
million or 20.1% of revenues. Sales of communications and multimedia products on
a consolidated basis to major mass merchandisers Best Buy, Circuit City and
Staples accounted for approximately $12.6 million or 15.5% of revenues.
After Fiscal 1999 none of the above will be significant customers since
the Company will no longer be in the consumer electronics business as it has
sold or leased all the sound related operations and NewCom has ceased
operations.
ITEM 2. PROPERTIES
The Company owns a 46,000 square foot headquarters facility in El
Segundo, California and a 27,692 square foot manufacturing facility also in El
Segundo, California for its AuraGen product. These properties are encumbered by
a deed of trust securing a Note in the original principal amount of $5,450,000.
The Company leases an approximate 38,000 square foot ceramic facility in New
Hope, Minnesota. Subsequent toFiscal 1999 the Company as part of its refocus and
downsizing, vacated approximately 135,000 square feet of facilities. In
addition, the Company sold or terminated all of its joint ventures and foreign
activities. The Company retains approximately 115,000 square feet in facilities
and believes that such is adequate for its present needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in various legal actions listed below. In the
case of a judgment or settlement, appropriate provisions have been made in the
financial statements.
Shareholder Litigation
Barovich/Chiau v. Aura
In May, 1995 two lawsuits naming Aura, certain of it 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. Subsequently the parties and the
insurer entered into an amended settlement agreement. As amended the settlement
calls for the total settlement amount of $4 million to remain the same, with the
insurer contributing $1.8 million, and the remaining $2.2 million to be paid by
Aura in cash over a period of three years, with accrued interest at the rate of
8% per annum. The settlement was preliminarily approved by the Court on December
6, 1999, and is subject to final confirmation by the Court on March 20, 2000.
Morganstein v. Aura.
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 stipulation for settlement
Aura agreed to 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 agreed to pay $10.5 million. The settlement was finally approved by the
Court in October 1999 and was thereafter amended in December 1999 to allow Aura
to defer payment of the settlement amount until April 2000 in exchange for an
additional 2 million shares of Aura Common Stock, subject to certain
adjustments.
NewCom Related Litigation
American Casualty v. Aura
On June 22, 1999, a lawsuit naming Aura was filed in the United States
District Court for the Central District of California, American Casualty Company
of Reading, Pennsylvania ("American Casualty") vs. Aura et. al. (Case No.
CV-99-06343). The complaint alleges that American Casualty, as surety, executed
and delivered a performance bond on behalf of NewCom to Actrade Capital, Inc.
("Actrade") in 1998, which American Casualty became liable to obligee Actrade
when NewCom defaulted on repayment of the penal sum of $4,427, 093.92. In
seeking damages from NewCom, American Casualty further alleged that Aura was
liable because it executed an express general agreement of indemnity,
indemnifying American Casualty on the referenced NewCom bond and a rider which
became the subject of the litigation. Aura answered the complaint and NewCom
defaulted. Subsequently, in December, 1999, the parties reached mutually an
agreement in principal to settle the matter, Aura agreeing to pay American
Casualty: (i) $1,000,000 plus interest at a rate of 8% per annum from December
1, 1999, in thirty-six equal monthly installments commencing March 2000; (ii)
$1,000,000 plus interest at a rate of 8% per annum from December 1, 1999, in
twenty-four equal monthly installments commencing December 1, 2002; and (iii)
warrants to purchase up to 1,000,000 shares of the Company's common stock thirty
three months from November 1, 1999 at a pre-reverse stock split exercise price
of $2.46 per share. The Company expects to enter into the settlement prior to
February 29, 2000, which is in accordance with Aura's restructure.
NEC Technologies v. NewCom
In 1998, a lawsuit naming NewCom, Inc. was filed in the Superior Court
of the State of California, Los Angeles County, NEC Technologies vs. NewCom et.
al (Case No. YC 033592). The complaint alleged that NewCom failed to pay NEC for
products purchased in the sum of approximately $3,000,000. Subsequently, NEC and
NewCom entered into a stipulated settlement where Aura guaranteed expressly
NewCom's performance on the settlement. NewCom thereafter defaulted on the
settlement and the stipulated judgment was filed in April, 1999. Following
negotiation by Aura and NEC, in November, 1999, a settlement was entered into
whereby NEC is to receive $2,479,142 plus interest at eight percent per annum
in thirty-six equal monthly installments, which is in accordance with Aura's
restructure.
Deutsche Financial Services v. Aura
In June, 1999, a lawsuit naming Aura was filed in the United States
District Court for the Central District of California, Deutsche Financial
Services ("DFS") vs. Aura (Case No. 99-03551 GHK (BQRx)). The complaint follows
DFS' termination of its credit facility with NewCom of $11,000,000 and seizure
of substantially all of NewCom's collateral in April, 1999. It alleges, among
other things, that Aura is liable to DFS for NewCom's indebtedness under the
secured credit facility purportedly guaranteed by Aura in 1996, well prior to
the NewCom initial public offering of September 1997. In the proceeding, DFS
sought an order to attach Aura's assets which was denied following an
evidentiary hearing before the Honorable Brian Quinn Robbins, U.S. Magistrate,
and the matter has been ordered by the District Court to binding arbitration.
Aura has now responded in arbitration, denying DFS'claims and has asserted in
its defense, among other things, that the guarantee, if any, is discharged. In
addition, Aura through its counsel, has asserted cross-claims for, among other
things, tortious lender liability, alleging that DFS wrongfully terminated the
NewCom credit facility, wrongfully seized the NewCom collateral and wrongfully
foreclosed upon NewCom collateral, acting in a commercially unreasonably manner.
A panel of three arbitrators has been selected and appointed by the American
Arbitration Association and a hearing in the arbitration has been set for May,
2000. The Company believes it has meritorious defenses and cross-claims.
However, no assurances can be given as to the ultimate outcome of this
proceeding.
Excalibur v. Aura
On November 12, 1999, a lawsuit was filed by three investors against Aura and
Zvi Kurtzman, Aura's Chief Executive Officer, in Los Angeles Superior Court
entitled Excalibur Limited Partnership v. Aura Systems, Inc. (Case No. BC220054)
arising out of two NewCom, Inc. financings consummated in December 1998.
The NewCom financings comprised (1) a $3 million investment into NewCom
in exchange for NewCom Common Stock, Warrants for NewCom Common Stock, and
certain "Repricing Rights" which entitled the investors to receive additional
shares of NewCom Common Stock in the event the price of NewCom Common Stock fell
below a specified level, and (2) a loan to NewCom of $1 million in exchange for
a Promissory Note and Warrants to purchase NewCom Common Stock. As part of these
financings Aura agreed with the investors to allow their Repricing Rights with
respect to NewCom Stock to be exercised for Aura Common Stock, at the investors'
option. Aura also agreed to register Aura Common Stock relating to these
Repricing Rights.
The Plaintiffs allege in their complaint that Aura breached its
agreements with the Plaintiffs by, among other things, failing to register the
Aura Common Stock relating to the Repricing Rights. The Plaintiffs further
allege that Aura misrepresented its intention to register the Aura shares in
order to induce the Plaintiffs to loan $1.0 to NewCom. The Complaint seeks
damages of not less than $4.5 million. In January 2000 Aura filed counterclaims
against the Plaintiffs, including claims that the Plaintiffs made false
representations to Aura in order to induce Aura to agree to issue its Common
Stock pursuant to the Repricing Rights. The Company believes that it has
meritorious defenses and counterclaims to the Plaintiffs' allegations. However,
no assurances can be given as to the ultimate outcome of this proceeding.
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. Neither Mr. Kurtzman nor anyone else personally benefited in any way
from these events. Also, the Commission did not seek any monetary penalties from
Aura, Mr. Kurtzman or anyone else. For a more complete description of the
Commission's Order, see the Commission's release referred to above.
Other Legal Actions
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Since 1988, Aura Common Stock has been quoted on the Nasdaq Stock
Market under the trading symbol "AURA". On May 21, 1991, Aura shares became
listed on the Nasdaq National Stock Market.
On July 21, 1999 the Company's shares were delisted from Nasdaq
National Market. This action was taken as a result of the Company's failure to
meet the filing, minimum $1.00 bid price and listing of additional shares as
stated in the Market Place Rules. Since that date the Company's stock has traded
on the over the counter market.
Set forth below are high and low sales prices for the Common Stock of
Aura for each quarterly period in each of the two most recent fiscal years. Such
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commissions and may not necessarily represent actual transactions in the Common
Stock. The Company had approximately 4450 stockholders of record as of February
3, 2000.
Period High Low
Fiscal 1998
First Quarter ended May 31, 1997 $2.78 $1.47
Second Quarter ended August 31, 1997 $2.13 $1.50
Third Quarter ended November 30, 1997 $3.94 $2.00
Fourth Quarter ended February 28, 1998 $3.75 $2.25
Fiscal 1999
First Quarter ended May 31, 1998 $3.69 $2.59
Second Quarter ended August 31, 1998 $1.25 $1.00
Third Quarter ended November 30, 1998 $1.81 $0.91
Fourth Quarter ended February 28, 1999 $1.50 $0.34
On February 3, 2000, the average high and low reported sales price for the
Company's Common Stock was $0.27.
Dividend Policy
The Company has not paid any dividends on its Common Stock and
currently intends to retain any future earnings for use in its business. The
Company does not anticipate paying any dividends on its Common Stock in the
foreseeable future but has no restrictions preventing it from paying dividends.
Changes in securities and Use of Proceeds
In December 1998 the Company completed a private placement of 3,597,300
shares of its common stock and warrants to purchase 1,798,650 shares of common
stock at an exercise price of $1.00 per share to a group of private investors.
On December 1, 1998 (the "Initial Closing Date"), NewCom consummated a
private placement of its Common Stock, warrants and Repricing Rights pursuant to
Regulation D of the Securities Act of 1933 to three private investors. On the
Initial Closing Date the Company received gross proceeds of $3 million in
exchange for the issuance of 871,288 shares of its Common Stock, Warrants
exercisible for five years for up to 166,337 shares of Common Stock at an
exercise price of $4.545, and 792,088 Repricing Rights.
On December 28, 1998, the same investors consummated an additional
financing with NewCom pursuant to certain Notes of NewCom secured by a junior
lien on Newcom's inventory and accounts receivable and issued an aggregate of
75,000 Warrants to purchase NewCom Common Stock. The Repricing Rights entitle
the holder to purchase that number of shares of Common Stock of NewCom
("Repricing Shares") determined by multiplying the number of Repricing Rights by
a fraction, the numerator of which is the Repricing Price minus the Average
Market Price (as defined below), and the denominator of which is the Average
Market Price (defined as the two lowest closing bid prices during the 20 trading
days immediately preceding the exercise date of the Repricing Rights).
The "Repricing Price" for the 792,088 Repricing Rights received on the
Initial Closing Date is $4.32, being 114% of the Initial Closing Date price of
$3.79 (computed based upon the average closing bid prices for the five
consecutive trading days ending on the day immediately preceding the Initial
closing Date) if the Repricing Rights are exercised within 135 days of the
Initial closing Date; $4.40, being 116% of the Initial closing Date Price, if
the Repricing Rights are xercised between the 136th and the 180th day of the
Initial Closing Date; and an additional 2% during each 45 day period following
180 days from the Initial closing Date.
The Repricing Price is increased by 7.5% if the Common Stock is listed for
trading on the Nasdaq SmallCap Market, and 15% if the Common stock is not listed
on a national stock exchange or the Nasdaq Stock Market or upon the occurance of
a "Repurchase Event" as described below.
The investors also have the right to elect to receive shares of Aura Common
Stock upon exercise of the Repricing rights in lieu of NewCom Common Stock,
based upon the Average Market Price of Aura Common stock at the time of exercise
of the Repricing Rights.
In January Aura commenced legal proceedings against these investors
seeking, among other things, the recission of Aura's obligations to honor the
Repricing Rights. See "Item 3, Legal Proceedings" elsewhere herein.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Financial Data has been taken or derived from
the audited consolidated financial statements of the Company and should be read
in conjunction with and is qualified in its entirety by the full consolidated
financial statements, related notes and other information included elsewhere
herein.
AURA SYSTEMS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
February 28, February 28, February 28, February 29, February 28,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Revenues $ 81,518,162 $136,715,385 $109,950,202 $77,088,850 $42,444,213
------------- ----------- ----------- ---------- ----------
Cost of goods and overhead 158,024,723 101,622,051 86,350,828 71,849,204 30,198,196
Research and development expenses 2,831,847 1,395,160 6,022,586 5,225,735 2,037,464
Impairment of long-lived assets 9,403,687 -- -- -- --
Selling, General and administrative
Expenses 74,419,812 45,018,066 18,542,840 26,399,794 12,771,151
-------------- ---------- ---------- ---------- ----------
Total costs and expenses 244,680,069 148,035,277 110,916,254 103,474,733 45,006,814
(Loss) from operations (163,161,907) (11,319,892) (966,052) (26,385,883) (2,429,340)
Other income and expense
Gain on sale and issuance of
Subsidiary stock and other assets (1,042,665) (12,952,757) (250,000) -- --
Interest expense (income) net 12,014,690 6,827,269 1,415,934 (289,793) 220,539
Class action litigation and
Other settlements 7,717,518 1,700,000 -- -- --
Loss on disposal of assets 1,188,329 -- -- -- --
Termination of license
Arrangements -- 3,114,030 -- -- --
Loss on disposal of investment 4,877,839 -- -- -- --
Equity in losses of unconsolidated
Joint ventures 6,268,384 1,937,747 -- -- --
Minority interests in income
(loss) of Consolidated (10,372,895) 946,405 -- -- --
subsidiaries
Loss in excess of basis of
consolidated subsidiary 8,080,695 -- -- -- --
Excess loss of minority interest 26,561,481 -- -- -- --
Provision (benefit) for income
Taxes 570,641 (1,256,046) 570,484 -- --
Foreign currency translation
adjustment (406,576) -- 40,642 -- --
--------------- ------------ ----------- ------------ -----------
Net (loss) $(150,148,156) $(11,636,540) $(2,880,111) $(26,087,090) $(2,649,879)
============== =========== =========== ============ ===========
Net (loss) per common share $ (1.74) $ (.15) $ (.04) $ (.48) $ (.07)
============== =========== =========== ============= ============
Weighted average number of
Common shares 85,831,688 79,045,290 68,433,521 53,860,527 37,217,673
================ ============ ========== ========== ==========
Working capital (deficit) (4,869,876) 78,143,895 62,310,715 71,362,882 33,796,181
Total assets 90,143,392 227,302,629 182,528,399 134,080,568 73,467,003
Total liabilities and deferrals 103,797,049 110,400,761 57,050,812 34,917,462 19,213,584
Net stockholders' equity (deficit) (13,653,657) 116,901,868 125,477,587 99,163,106 54,253,419
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AN
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Introduction
During the Fiscal year February 28, 1999 the Company devoted
substantial financial and human resources in furtherance of its plan to
manufacture and sell its patented, proprietary AuraGen product. As is often the
case with the introduction of a capital intensive product launch, Aura
anticipated that in order to implement it's business plan, working capital would
be required in an amount that would exceed cash flow generated from any initial
sales of the AuraGen.
The Company expected that its working capital needs would be met from,
among other things, the repayment by NewCom Inc. ("NewCom") of approximately $20
million of indebtedness which was due in September 1998 and with proceeds from
external debt and equity financing. NewCom was ultimately unable to meet its
obligations to Aura in September 1998, creating a significant cash shortfall to
Aura. NewCom's operations in the third quarter of Fiscal 1999 were severely
impacted by an industry-wide slump in the computer peripherals industry, causing
a buildup in inventory and difficulty in collecting receivables from the mass
merchants. NewCom's business reached a critical juncture in the fourth quarter
of Fiscal 1999 when Deutsche Financial Services ("DFS"), which provided NewCom's
principal working capital line, announced that it was unwilling to continue to
advance working capital to NewCom under its credit facility. This, coupled with
the retail mass merchants failure to pay NewCom for significant receivables past
due and owing, resulted in NewCom ceasing its day-to-day operations, in January
1999. These events substantially impacted Aura's results of operations for
Fiscal 1999.
Commencing January 1999 Aura's management was forced to take steps to
curtail and refocus its plans and implement measures to reduce its overhead
until such time as additional working capital could be obtained. These steps
included employee layoffs, selling the Company's MYS speaker division to its
former owners, eliminating the display division, temporarily suspending
development activities associated with the EVA program, leasing all the assets
of Electrotec, selling the AuraSound subsidiary assets and the licensing of the
proprietary NRT and Line Source speaker technologies. In Fiscal 2000 the Company
reached an agreement in principle to sell the ceramics assets located in New
Hope, Minnesota to the president of the subsidiary.
The Company's ability to maintain its focused AuraGen operations
required an infusion of working capital and the restructure of Aura's principal
indebtedness. The Company believed that the restructure of this indebtedness was
required in order to obtain working capital from other third parties. Management
therefore developed an informal restructure plan under which approximately $35.0
million of indebtedness consisting of convertible debt and other debt
obligations would be eliminated. By the end of the third quarter of Fiscal 2000
the Company had entered into agreements to eliminate approximately $32.2 million
of debt, and providing for the conversion of most of such debt into equity. In
addition, the Company has entered into an agreement to restructure approximately
$17.4 million of additional debt ("Infinity note") into a $12.5 million, 36
month 8 percent note, with interest only payments and a balloon payment at the
end of the 36 months.
The Company is also a party to certain express written corporate
guarantees of NewCom indebtedness, including a guarantee of NewCom's
indebtedness to DFS of approximately $7.2 million and two other creditors with
claims for $2.4 million and $4.4 million respectively. The Company reached a
settlement agreement with American Casualty and NEC Technologies for the above
guarantees (See Legal Item 3, Legal Proceedings, NewCom Related Litigation). In
April 1999 DFS commenced legal proceedings against the Company to obtain an
attachment on Aura's assets to secure Aura's guarantee obligations. The court
denied the DFS motion and the matter has been ordered to binding arbitration.
Aura has responded in arbitration, denying DFS claims and has asserted in its
defense, among other things, that the guarantee, if any, is discharged (See
NewCom Related Litigation).
In the third quarter of Fiscal 2000 the Company completed a private
placement of $6.9 million in the form of common stock and debt that will convert
into common stock upon the execution of the restructured Infinity note.
Since January 1999 the Company's limited resources have been devoted
almost entirely to the AuraGen product, the restructure of debt and the raising
of new working capital. Although the Company has experienced delays in the
shipping of AuraGen products since the beginning of 1999 as a result of
insufficient working capital, necessary parts started to be obtained by late
1999 and limited shipments of AuraGens are now being made. Over 33 state and
city governments across the U.S have purchased evaluation units and some cities
have already specified the AuraGen as a requirement for some of their vehicles.
Over 23 utilities in the U.S have also purchased and are evaluating the AuraGen
for their applications and requirements. The Company has shipped a number of
AuraGen units to two major telecommunication companies and numerous state and
federal agencies are evaluating the AuraGen for their specific applications. The
Company continues to support the U.S Army in its evaluation of the AuraGen
(known to the U.S. Army as VIPER). The Company has continued to develop
different engine mounts for the AuraGen. As of January 2000, the Company has
started production of mounts that will fit most of the trucks, pickups and SUV's
built in North America by the three major OEMs. The Company's 5KW model is now
available for more than 70 different vehicle models and engine configurations.
The Company continues to work closely with General Motors which has displayed
the AuraGen on both the Sierra 2000 professional concept vehicle and the
Terradyne concept vehicle.
Fiscal 1999 as Compared to Fiscal 1998
The Company continued its activity in development of commercial
applications of its proprietary magnetic technologies. The Company has reported
a net loss for each of its five most recent fiscal years. The second half of
Fiscal 1999 had significant negative results from operations which caused
significant cash shortfall problems that affected the entire operation.
Revenues
Net revenues in Fiscal 1999 declined to $81.5 million from $136.7
million, a decrease of 40.4%. The decrease was primarily due to the virtual
shutdown of operations of NewCom in the last quarter of the fiscal year, coupled
with the decline in sales of NewCom in the third quarter of the Fiscal year. The
decline in sales was primarily a result of price pressures in the retail channel
as well as a substantial decline in sales to one of NewCom's major customers. In
the last half of the fiscal year, as NewCom's business began to deteriorate in
conjunction with the overall deterioration of the computer peripherals industry,
the levels of returned goods began to accelerate. In the last quarter of the
fiscal year, when NewCom's operations virtually shutdown, returns increased
dramatically as retailers began to ship back product for fear that NewCom would
go out of business and would not be able to fulfill warranty and other business
obligations. Magnification of this stemmed from its lender "DFS" and a judgement
creditor each sending correspondence to the retail mass merchants asking that
they remit payments to them. A court battle produced an order describing whom to
pay, which was sent to the retail customer. The above actions added to the
uncertainties of NewCom's future and further deteriorated NewCom's relationships
with its customers.
Cost of Goods and Overhead
Cost of goods and overhead increased to $158.0 million in Fiscal 1999
from $101.6 million in Fiscal 1998. This increase both in dollar terms and as a
percentage of revenues is primarily a result of the price pressures from the
retail mass merchants which included the substantial rebates that were required
in order to maintain shelf space, as well as the overall business conditions at
the Company's NewCom subsidiary as described above.
Gross Margin and Net Loss
Gross margins for Fiscal 1999 were a negative 93.9% compared to 25.7%
in Fiscal 1998, primarily due to the substantial drop in gross margin at NewCom
in the third and fourth quarters of the Fiscal year. In the third and fourth
quarters of the Fiscal year, price pressure applied by NewCom's major customers
and inventory write-downs which reflected the change in the computer peripherals
industry resulted in substantially higher costs of product sold as a percentage
of the selling price. Coupled with the substantial rebates NewCom was required
to offer, the resulting gross margins were negative.
During the fourth quarter of Fiscal 1999 the Company experienced severe cash
flow problems that had a major impact on the entire operations of the Company.
The Company began to consolidate its operations around the AuraGen technology
and product. The Company terminated all of its joint ventures due to its
inability to support them. As the Company was cutting down and scaling back its
operations the Company evaluated its asset utilization and concluded that
certain assets values had been impaired. In addition numerous assets such as
machinery and equipment that were no longer needed were sold at a loss. The
Company over the years has made strategic investments in order to improve its
utilization of certain technologies. As the company eliminated operations, these
investments no longer retained their economic value. In addition to the
Company`s heavy losses in its NewCom investment the Company was also a party to
certain explicit written guarantees that were triggered when NewCom's business
deteriorated.
The following table summarizes certain fourth quarter events that contribute to
the loss in Fiscal 1999.
Termination of Joint Ventures $5.6 million
Depreciation Expense $4.6 million
Accounts Receivable reserves and write-off's $13.0 million
Asset Impairment $9.4 million
Interest Expense $3.5 million
Disposed Assets $1.2 million
Investment write-off's and losses $7.0 million
Guarantees for NewCom $9.9 million
NewCom loss (Aura Share) $45.8 million
Total $100.0 million
Research and Development
Research and development expense for Fiscal 1999 increased to $2.8
million from $1.4 million in Fiscal 1998 as the Company focused all its
remaining resources on developing additional engine mounts for the AuraGen, and
researching ways to expand its applications.
Selling, General & Administrative
Selling, general and administrative expenses increased to $74.4 million
in Fiscal 1999 from $45 million in Fiscal 1998. The increase is primarily
attributable to a substantial increase in sales and marketing related expenses
at NewCom as the major retailers required higher levels of sales promotions and
marketing allowances. Further, increased amortization of product design related
costs were necessary to account for impairment of these assets due to shorter
life cycles of products.
Bad Debt Expense
Bad debt expense in Fiscal 1999 increased to $13.3 million from $3.6
million in Fiscal 1998.
Interest Expense
Net interest expense for Fiscal 1999 increased to $12.0 million from
$6.8 million in the prior Fiscal year. The increase is attributable to higher
levels of borrowing and a quarterly fee being charged to interest expense on the
$15 million note that was renegotiated in September of 1997.
Fiscal 1998 as Compared to Fiscal 1997
The Company continued its activity in the development of commercial
applications of its proprietary technologies as well as sales of commercial
products. The Company has reported a net loss for each of its five most recent
fiscal years.
Revenues
Net revenues were $136.7 million as compared to $110.0 million in
Fiscal 1997, or an increase of 24.3%. The increase in revenue was due primarily
to the increase in sales of computer products by the Company's NewCom subsidiary
along with an increase in sales in speakers from the sound group.
Sales of computer monitors to two unrelated parties declined to
approximately $10 million in Fiscal 1998 or 6.2% of revenues, from $16.5 million
or 12.3% of revenues in Fiscal 1997. These sales are expected to continue to
decline both in dollar terms and as a percentage of revenues as the Company
continues to expand its product line and its customer base. Although the Company
does not have any long term agreement with any customers, it has no reason to
believe that sales to customers will be abruptly curtailed.
Cost of Goods and Overhead
Cost of goods and overhead increased to $101.6 million in Fiscal 1998
from $86.4 million in Fiscal 1997. While the dollar value increased as a result
of the increase in sales, as a percentage of net revenues, cost of goods
decreased to 74.3% from 78.5% in the prior fiscal year. As the Company continues
to bring new products to market and introduce new variations of existing
products, this percentage may fluctuate substantially in future periods.
Gross Margin and Net Loss
Gross margins for Fiscal 1998 increased to 25.7% from 21.5% in Fiscal
1997 partially due to the increase in gross margin for the Company's subsidiary
NewCom to 34.8% in Fiscal 1998 from 33.6% in Fiscal 1997.
Due to the increase of the Company's business and in particular as it
relates to consumer electronics, the Company in the fourth quarter increased its
reserve for potential returns of merchandise as well as product obsolescence and
potential bad debts. On a consolidated basis the reserve increased to
approximately $10.5 million or 4.6% of assets as compared to $5.8 million or
3.2% of assets in the prior year.
The following table summarizes the above discussion in the form of
percentages.
FY 98 FY 97
Net Revenues 100.0% 100.0%
Cost of Goods Sold 74.3% 78.5%
Gross Margins 25.7% 21.5%
SG&A and R&D 33.9% 22.6%
Loss from Operations 8.3% 1.1%
Net Loss 8.5% 2.7%
During the fourth quarter the Company attended two major tradeshows.
The CES show in January and the SAE show in February. Both of these had a bias
effect on expenses for the fourth quarter by approximately $0.9 million. During
the fourth quarter the Company experienced an incremental increase in interest
of approximately $1.2 million due to the conversion of a $15 million convertible
note to a straight note in late 3rd quarter and additional interest incurred on
a $10 million financing that also occurred in late 3rd quarter. Legal expenses
increased above other periods in the fourth quarter as legal activities
increased in numerous areas. After a careful analysis and review of expenses the
Company consolidated and relocated its main warehouse facilities from San Diego,
California to Kansas City, Missouri. The cost of approximately $0.8 million
associated with this consolidation will be saved in approximately one year. Due
to uncertainties created by India's detonation of nuclear devices and U.S.
sanctions against India the Company reserved $3.1 million in license fee due
from K&K in India for the AuraGen. The Company also incurred losses from foreign
non-consolidated Joint Ventures of approximately $1.9 million. After year-end
the Company settled one class action suit and other litigation and took a charge
of $1.7 million in Fiscal 1998.
The following table summarizes certain fourth quarter events
contributed to the loss in Fiscal 1998 as described above.
a. Seasonal expenses during the fourth quarter $0.9 million
b. Increment increase in 4th quarter interest expense $1.2 million
c. Increment increase in 4th quarter legal expenses $0.5 million
d. Consolidate and relocate warehouse facilities in Kansas Ci $0.8 million
e. Reserve on AuraGen License in India due to US sanctions $3.1 million
f. Loss on foreign joint ventures $1.9 million
g. Legal settlements $1.7 million
Total $10.1 million
Research & Development
Research and development costs for Fiscal 1998 decreased to $1.4
million from $6.0 million in Fiscal 1997. The Company continues its research and
development in the areas of displays and micromachines, automotive applications
of magnetics and sound systems. As a percentage of net revenues research and
development expenses declined in Fiscal 1998 to 1.0% as compared 5.5% in the
prior year.
Selling, General & Administrative
Selling, general and administrative expenses increased to $45 million
in Fiscal 1998 from $18.8 in Fiscal 1997, for an increase of $26.2 million. The
increase is comprised principally of the following: $8.86 million increase from
the NewCom subsidiary; an increase in bad debts over the prior year due to the
write-off of $4.9 million in license fees; an increase in legal fees over the
prior year of approximately $1.0 million; an increase in sales promotion of
approximately $1.5 million, an increase of payroll and associated benefits of
approximately $2.7 million with the addition of 40 new employees and an increase
in depreciation and amortization of approximately $1.3 million.
Bad Debt Expense
Bad debt expense in Fiscal 1998 increased to $3.6 million from $0.7
million in Fiscal 1997.
Interest Expense
Net interest expense for Fiscal 1998 was $6.8 million as compared to
net interest expense of approximately $1.4 million in the prior fiscal year. The
increase was due to increased lines of credit that were utilized throughout the
year, higher levels of debt issued by the Company, premiums paid on the
repurchase of convertible notes, and a higher interest rate on a $15 million
note.
Liquidity and Capital Resources
As a result of the decline in the Company's ownership percentage in
NewCom to below 50%, the balance sheet, as of February 28, 1999 does not reflect
NewCom on a consolidated basis. This resulted in a significant decrease in
current assets and current liabilities for 1999 in comparison to 1998.
Net working capital decreased by $64.5 million to $(4.8) million at
Fiscal 1999 year end, with the current ratio decreasing to .88:1 from 1.76:1.
The principal differences in the Company's accounts from February 28, 1998 to
February 28, 1999 are a decrease in cash and equivalents of $2.3 million, a
decrease in net receivables of $46 million, a decrease in inventories of $40
million a decrease in notes payable of $20.4 million and a decrease in accounts
payable and accrued expenses of $17.4 million.
The Company's cash balances were $3,822,210 at February 28, 1999, $6,079,411 at
February 28, 1998 and $7,112,354 at February 28, 1997.
The net cash used in operating activities of $24.3 million decreased by
$5.3 million due primarily to the increase in the loss incurred offset by the
decreases in accounts receivable, inventory and accounts payable as a result of
the cessation of NewCom's business.
The level of inventories has decreased primarily due to NewCom.
In Fiscal 1998, the Company raised $584,850 from the exercise of
warrants, $900,000 from the sale of warrants and $51,500 from the exercise of
stock options. The Company also received proceeds of $34,500,000 from the
issuance of convertible notes payable.
In June 1998 the Company completed a refinancing of two properties
owned by Aura in El Segundo, consisting of its headquarters and an adjacent
facility. As part of the financing the Company encumbered these properties with
a first deed of trust securing a Note in the amount of $5,450,000, resulting in
net cash to the Company of approximately $3.0 million.
Spending for property and equipment amounted to $4,053,848 in Fiscal
1999, $18,006,394 in Fiscal 1998 and $22,855,000 in Fiscal 1997. Of the Fiscal
1999, 1998 and 1997 amounts, $1,910,611, $16,096,180 and $16,539,899
respectively was due to the manufacture of tooling and the remainder was due to
the expansion of facilities and purchases of equipment which was necessary in
connection with research and development activities, services performed under
various subcontracts and manufacturing requirements.
The Company's cash flow generated from operating activities has to date
not been sufficient to fund its working capital needs. In the past, the Company
has relied upon external sources of financing to maintain its liquidity,
principally private and bank indebtedness and equity financing. No assurances
can be provided that these funding sources will be available in the future. The
Company currently intends that funding required for future growth, operations or
any joint ventures entered into would occur through a combination of existing
working capital, operating profits, bank credit lines, equity and favorable
financial terms from vendors. The inability of the Company to obtain sufficient
working capital at the times and in the amounts required would have a material
adverse affect on the Company's business and operations.
Current fixed monthly expenses corporate wide, average approximately
$900,000, principally for labor, overhead, travel and professional fees.
The Company and its subsidiaries lease space located in El Segundo, New
Hope, Minnesota, and Kansas City, Missouri. Minimum monthly rents under the
leases approximate $55,000. Rent expense was approximately $1.8 million for
Fiscal 1999, $1.3 million, for Fiscal 1998, and $1.3 million for Fiscal 1997.
Assuming no lease terminations or lease extensions, rent expense is expected to
be approximately $650,000 for Fiscal 2000, $680,000 for Fiscal 2001, and
$570,000 for Fiscal 2002. The Company has no other material long-term capital
commitments.
Debt Restructuring
Following is a description of the principle components of Aura's debt
restructuring:
Restructuring of RGC International Investors, LDC, Debt.
Between October 1997 and March 1998 the Company issued an aggregate of
$21.5 million of its convertible unsecured debentures to RGC International
Investors, LDC ("RGC"). The debentures accrued interest at the rate of 7% per
annum, with the entire principle amount due and payable between 2002 an 2003,
and were convertible into common stock based upon a formula related to the
market price of the Common Stock. In October 1998 the Company issued to RGC a $3
million convertible note which was secured by a lien on certain of the Company's
assets.
In October 1999 the Company entered into an agreement with RGC
International Investors, LDC and a third party investor (AuraSound's assets
purchaser) whereby RGC (i) sold to the third party the Company's three
Convertible Unsecured Debentures (the "RGC Debentures"), in the aggregate
principal amount of $17,365,000, (ii) exchanged with the Company its $3 million
Secured Convertible Note for a new non-convertible Secured Note (the "New RGC
Note") in the principal amount of $3 million, and (iii) cancelled Warrants to
purchase 9,000,770 shares of the Company's Common Stock in exchange for new
Warrants to purchase 1,000,000 shares of common stock exercisable at $0.375 per
share. The New RGC Note bears interest at the rate of 8% per annum, with
principal and interest payable no less frequently than quarterly. The New RGC
Note continues to be secured by a lien on certain assets of the Company,
including inventory and accounts receivable.
Under the agreement with the new holder of the RGC Debentures, the RGC
Debentures are convertible into a maximum of 46,500,000 shares of the Company's
Common Stock unless Aura fails to complete the restructuring with Infinity. The
holder of the RGC Debentures has agreed to cancel the outstanding principal and
interest owed under the RGC Debentures upon consummation of the restructuring of
approximately $17.4 million of outstanding Debentures held Infinity. See
"Restructuring of Infinity Investors debt" below.
Retirement of JNC Debt
In June 1997 the Company issued a $4 million convertible debenture in a
private placement JNC Opportunity Fund, Ltd. ("JNC"). The debenture accrued
interest at the rate of 7% per annum, payable quarterly, and is due and payable
was June 1999. The Debenture was convertible into shares of the Company's Common
Stock at the then current market price at the time of conversion. The investor
also received 318,000 warrants exercisable at ($3.50) per share.
In December 1999, the Company consummated an agreement with JNC
Opportunity Fund, Ltd. resulting in the surrender for cancellation by JNC of the
Company's Convertible Debenture and 318,000 warrants in exchange for a cash
payment of $430,000, 3,500,000 shares of the Company's Common Stock and 113,000
Restructuring of Infinity Investors Debt
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 of the Debentures was shortened from March 2000
to September 1998. The Debentures, as modified, are secured by a Note from
NewCom to Aura in the original principal amount of $17 million and 1,250,000
shares of NewCom stock, subject to adjustment under certain circumstances. As
part of the modification, the Company issued warrants for an aggregate of
2,500,000 shares of Common Stock at an exercise price of $2.50 per share,
subject to adjustment after one year under certain circumstances. The Company
was unable to retire the Debentures upon their maturity in September 1998. As of
February 28, 1999 these debentures had an outstanding balance of approximately
$17.4 million.
Subsequent to September 1998 the Company engaged in extensive
negotiations with the holders of these Debentures. In November 1999 the Company
entered into an agreement with these holders to exchange (the "Exchange") the
Debentures for $3 million in cash, 1,111,111 shares of common stock, 100,000
Warrants exercisable $0.375 per share, and a new Secured Note (the "New Secured
Note") in the principal amount of $12.5 million. The New Secured Note will be
secured by a lien on the Company's assets, will bear interest at the rate of 8%
per annum, interest only payable quarterly, with the principal due three years
from the date of the exchange. In the event of a default under the New Secured
Note, the holder is entitled to convert the unpaid principal and interest into
Common Stock of the Company at $.60 per share. The Company is entitled to a
discount if the New Secured Note is prepaid, which discount is initially 20% of
the amount prepaid, and the discount declines ratably over the three year term
of the New Secured Note. Consummation of the Exchange is subject to completion
of a definitive agreement with the holders of the Debentures, which is expected
to occur in February 2000.
Restructuring of Trade debt
In December 1999, the Company implemented a restructuring of
approximately $10.8 million of trade debt held by certain trade creditors
whereby the holders of a substantial portion of the trade debt have agreed to
the repayment of outstanding trade debt over a period of three years, with
interest at 8% per annum, commencing January 2000. Certain trade payables are
subject to continuing negotiations with the creditors.
Completion of Common Stock Private Placement
In November 1999 the Company completed a private placement of
approximately 27 million shares of its Common Stock at $0.27 per share,
resulting in gross proceeds of approximately $6.9 million.
Recently Issued Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-5 (SOP No. 98-5), "Reporting on Costs of Start-up
Activities." Adoption of SOP No. 98-5 will have no material impact on the
Company's financial statement.
<PAGE>
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Identification of Directors
The following table sets forth all of the current directors, executive
officers and key employees of Aura, their age and the office they hold with the
Company. Executive officers and employees serve at the discretion of the Board.
All directors hold office until the next annual meeting of stockholders of the
Company and until their successors have been duly elected and qualified.
<TABLE>
<CAPTION>
NameAge Position with the Company
Directors
<S> <C> <C> <C>
Zvi Kurtzman 52 Chief Executive Officer, Chairman, Board of Directors
Gerald S. Papazian 44 President and Chief Operating Officer, Director
Arthur J. Schwartz, Ph.D. 52 Executive Vice President, Director
Cipora Kurtzman Lavut 43 Senior Vice President, Corporate Communications, Director
Neal B. Kaufman 54 Senior Vice President, MIS, Director
Steven C. Veen 44 Senior Vice President and Chief Financial Officer, Director
Harvey Cohen 66 Director, member of Audit Committee
Brigadier Ashok Dewan 60 Director, member of Audit and Compensation Committees
Salvador Diaz-Verson, Jr. 47 Director, member of Audit, and Compensation Committees
Stephen A. Talesnick 50 Director
Other Executive Officers and Key Employees
Michael Froch 38 Senior Vice President, General Counsel and Secretary
Keith O. Stuart 44 Senior Vice President, Sales and Marketing
Ronald J. Goldstein 57 Senior Vice President, Sales and Marketing
Jacob Mail 49 Senior Vice President, Operations
</TABLE>
Zvi Kurtzman is the CEO and Chairman of the Board of Directors of the
Company and has served in this capacity since 1987. Mr. Kurtzman also
served as the Company's President from 1987 to 1997. Mr. Kurtzman obtained
his B.S. and M.S. degrees in physics from California State University,
Northridge in 1970 and1971, respectively, and completed all course
requirements for a Ph.D. in theoretical physics at the University of
California, Riverside. He was employed as a senior scientist with the
Science Applications International Corp. a scientific research company in
San Diego, from 1984 to 1985 and with Hughes Aircraft Company, a scientific
and aerospace company, from 1983 to 1984. Prior thereto, Mr. Kurtzman was a
consultant to major defense subcontractors in the areas of computers,
automation and engineering.
Arthur J. Schwartz, Ph.D. is the Executive Vice President
and director of the Company since February 1987. Dr.
Schwartz obtained his M.S. degree in physics from the
University of Chicago in 1971 and a Ph.D. in physics from
the University of Pittsburgh in 1978. Dr. Schwartz was
employed as a Technical Director with Science Applications
International Corp., a scientific research company in San
Diego, California from 1983 to 1984 and was a senior
physicist with Hughes Aircraft Company, a scientific and
aerospace company, from 1980 to 1984. While at Hughes, he
was responsible for advanced studies and development where
he headed a research and development effort for new
technologies to process optical signals detected by space
sensors. While at Aura, he served for 3 years on a Joint Tri
Services Committee reporting to the U.S. Government on
certain technology issues.
Cipora Kurtzman Lavut is Senior Vice President, Corporate Communications, and
has served in this capacity since December 1991. She previously served as Vice
President in charge of Marketing and Contracts for the Company since 1988 and
was appointed director of the Company in 1989. She graduated in 1984 from
California State University at Northridge with a B.S. degree in Business
Administration.
Neal B. Kaufman is Senior Vice President, Management Information Systems, and
has served in this capacity since 1988. Mr. Kaufman is also a director of the
Company and has served in this capacity since 1989. Mr. Kaufman graduated from
the University of California, Los Angeles, in 1967 where he obtained a B.S. in
engineering. He was employed as a software project manager with Abacus
Programming Corp., a software development firm, from 1975 to 1985. He headed a
team of software specialists on the Gas Centrifuge Nuclear Fuel enrichment
program for the United States Department of Energy and developed software
related to the Viking and Mariner projects for the California Institute of
Technology Jet Propulsion Laboratory in Pasadena, California.
Gerald S. Papazian has been the Company's President and Chief Operating Officer
since July 1997. He joined the Company in August 1988 from Bear, Stearns & Co.,
an investment-banking firm, where he served from 1986 as Vice President,
Corporate Finance. His responsibilities there included valuation of companies
for potential financing, merger or acquisition. Prior to joining Bear Stearns,
Mr. Papazian was an Associate in the New York law firm of Stroock & Stroock &
Lavan, where he specialized in general corporate and securities law with the
extensive experience in public offerings. He received a BA, Economics (magna cum
laude) from the University of Southern California in 1977 and a JD and MBA from
the University of California, Los Angeles in 1981. He served as a trustee of the
University of Southern California from 1994 to 1999.
Steven C. Veen, a certified public accountant, is Senior Vice President, Chief
Financial Officer, and has served in this capacity since March 1994. He joined
the Company as its Controller in December 1992. Before that, he had over 12
years experience in varying capacities in the public accounting profession. Mr.
Veen served from 1983 to December 1992 with Muller, King, Black, Mathys & Acker,
Certified Public Accountants. He received a B.A. in accounting from Michigan
State University in1981.
Harvey Cohen is a director of the Company and has served in this capacity since
August 1993. Mr. Cohen is President of Margate Advisory Group, Inc., an
investment advisor registered with the Securities and Exchange Commission, and a
management consultant since August 1981. Mr. Cohen has consulted to the Company
on various operating and growth strategies since June 1989 and assisted in the
sale of certain of the Company's securities. From December 1979 through July
1981, he was President and Chief Operating Officer of Silicon Systems, Inc., a
custom integrated circuit manufacturer which made its initial public offering in
February 1981 after having raised $4 million in venture capital in 1980. From
1975 until 1979, Mr. Cohen served as President and Chief Executive Officer of
International Communication Sciences, Inc., a communications computer
manufacturing start-up company for which he raised over $7.5 million in venture
capital. From 1966 through 1975, Mr. Cohen was employed by Scientific Data
Systems, Inc. ("S.D.S."), a computer manufacturing and service company, which
became Xerox Data Systems, Inc. ("X.D.S.") after its acquisition by Xerox in
1979. During that time, he held several senior management positions, including
Vice President-Systems Division of S.D.S. and Senior Vice President-Advanced
Systems Operating of the Business Planning Group. Mr. Cohen received his B.S.
(Honors) in Electrical Engineering in 1955 and an MBA in 1957 from Harvard
University.
Brigadier Ashok Dewan is a director of the Company and has served in this
capacity since September 1997. Mr. Dewan is the founder and Chairman of K&K
Enterprises of India (K&K), since its formation in 1986. K&K is engaged in the
manufacture, sale and distribution of consumer electronics, and has been on OEM
supplier to companies such as Philips, ASM, JBL and Infinity Systems. In 1995,
Aura and K&K formed a joint venture, Dewan-Aura, which manufactured and sold
Aura's speakers and Bass Shakers in the republic of Taiwan, the Indian
subcontinent, Middle East and Europe. In 1989, Mr. Dewan founded Chand
International, which is engaged in the manufacture and sale of garments, and has
served as its Chairman since its formation.
Salvador Diaz-Verson, Jr. is a director of the Company and has served in
this capacity since September 1997. Mr. Diaz-Verson is the founder, and since
1991 has been the Chairman and President of Diaz-Verson Capital Investments,
Inc., an Investment Adviser registered with the Securities and Exchange
Commission. Mr. Diaz-Verson served as president and member of the Board of
Directors of American Family Corporation (AFLCAC Inc.) a publicly held insurance
holding company, from 1979 until 1991. Mr. Diaz-Verson also served as Executive
Vice President and Chief Investment Officer of American Family Life Assurance
Company, subsidiary of AFLCAC Inc. from 1976 through 1991. Mr. Diaz-Verson is a
graduate of Florida State University. He is currently a director of the board of
Miramar Securities, Clemente Capital Inc., Regions Bank of Georgia and The
Philippine Strategic Investment Holding Limited.
Stephen A. Talesnick is a director of the Company and has served in this
capacity since September 1999, following appointment by resolution of the Board
of Directors to fill a vacancy pursuant to the Bylaws of the corporation. Mr.
Talesnick has owned and maintained a private law practice since 1977, which is
presently located in Beverly Hills. Mr. Talesnick specializes in business and
financial transactions in addition to entertainment industry related matters. He
originally practiced as an associate in the New York law firm of White & Case.
In 1992, Mr. Talesnick became a financial advisor in the financial services
industry and is registered with the Securities and Exchange Commission. Mr.
Talesnick is a graduate of The Wharton School Of Finance And Commerce at The
University Of Pennsylvania and received his Juris Doctor degree from Columbia
University School Of Law.
Michael I. Froch is Senior Vice President, General Counsel and Secretary of the
Company and has served as General Counsel since March 1997 and as Secretary
since July 1997. He joined the Company in 1994 as its corporate counsel. From
1991 through 1994, Mr. Froch was engaged in private law practice in California.
Mr. Froch is admitted to the California and District of Columbia bars. He
received his Juris Doctor degree from Santa Clara University School of Law in
1989, during which time he served as judicial extern to the Honorable Spencer M.
Williams, United States District Judge for the Northern District of California.
He received his A.B. degree from the University of California at Berkeley in
1984, serving from 1982 through 1983 as Staff Assistant to the Honorable Tom
Lantos, Member of Congress.
Jacob Mail is Senior Vice President, Operations, serving in this capacity since
November 1999. Previously he has served as Vice President of Operations from
1995 to 1999. Mr. Mail served over 20 years at Israeli Aircraft Industries,
starting as a Lead Engineer and progressing to Program Manager. He was
responsible for the development and production of hydraulic actuation, steering
control systems, rotor brake systems and other systems and subsystems involved
in both commercial and military aircraft. Systems designed by Mr. Mail are being
used today all over the western world. In addition, Mr. Mail has extensive
experience in the preparation of technical specifications planning and
organizing production in accordance with customer specifications at full quality
assurance.
Ronald J. Goldstein is Senior Vice President, Sales and Marketing and is
responsible for the marketing and sales of AuraGen for worldwide government
agencies, military and OEMs and has served in various capacities at Aura since
1989. He holds two M.S. degrees in Computing Technology and the Management of R
& D from George Washington University and has completed coursework for a Ph.D.
in Nuclear Engineering from North Carolina State University. Mr. Goldstein has
over 25 years of experience in high technology both in government and industry.
Since 1989 Mr. Goldstein has been responsible for all marketing and business
development activities for the Company. Prior to joining Aura, Mr. Goldstein was
Manager of Space Initiatives at Hughes Aircraft Company, a scientific and
research company, where he was responsible for the design, production and
marketing of a wide variety of aerospace systems and hardware. Prior to joining
Hughes in 1982, Mr. Goldstein was the Special Assistant for National Programs in
the Office of the Secretary of Defense, and before that held high level program
management positions with the Defense Department and Central Intelligence
Agency.
Family Relationships
Cipora Kurtzman Lavut, a Senior Vice President and director, is the
sister of Zvi Kurtzman, who is the Chief Executive Officer and a director of the
Company. Jacob Mail, Vice President, Operations is a first cousin of Cipora
Kurtzman Lavut and Zvi Kurtzman.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), requires the Company's officers and directors, and
beneficial owners of more than ten percent of the Common Stock, to file with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc. reports of ownership and changes in ownership of the Common Stock.
Copies of such reports are required to be furnished to the Company. Based solely
on its review of the copies of such reports furnished to the Company, or written
representations that no reports were required, the Company believes that during
its fiscal year ended February 28, 1999, all filing requirements applicable to
its officers, directors, and ten percent beneficial owners were satisfied.
Delinquent SEC Filings
None
ITEM 11. EXECUTIVE COMPENSATION
Cash Compensation For Executives
The following table summarizes all compensation paid to the Company's
Chief Executive Officer, and to the four most highly compensated executive
officers of the Company other than the Chief Executive Officer whose total
compensation exceeded $100,000 during the fiscal year ended February 28, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long Term All Other
Compensation(1)Compensation Awards Compensation(2)
Name and
Principal Position Year Salary Options/SARs
<S> <C> <C> <C> <C>
Zvi (Harry) Kurtzman (1) 1999 $384,290 1,000,000 $1,966
Chief Executive Officer 1998 245,018 0
1997 212,549 0
Arthur J. Schwartz (1) 1999 $204,895 500,000 $1,872
Executive 1998 172,115 0
Vice President 1997 163,971 0
Gerald Papazian (1) 1999 $203,025 100,000 $1,846
President and Chief Operating 1998 154,737 0
Officer 1997 143,122 0
Steven Veen(1) 1999 $196,412 100,000 $1,811
Senior Vice President and 1998 150,127 0
Chief Financial Officer 1997 151,817 0
Yoshikazu Masayoshi 1999 $290,500 0 $ 0
President, MYS Corporation 1998 273,242 0
1997 270,000 0
</TABLE>
(1) The amounts shown are the amounts actually paid to the named officers
during the respective fiscal years. Because of the timing of the payments, these
amounts do not represent the actual salary accrued by each individual during the
period. The actual salary rate for these individuals which was accrued during
the fiscal year ended February 1999, 1998 and 1997, respectively, were as
follows: Zvi Kurtzman - $385,000, $200,000, $200,000; Arthur J. Schwartz,-
$205,000, $160,000, $160,000; Gerald S. Papazian - $210,000, $140,000, $140,000,
Steven C. Veen - $200,000, $150,000, $150,000.
(2) Such compensation consisted of total Company contributions made to the plan
account of each individual pursuant to the Company's Employees Stock Ownership
Plan during the fiscal year ended February 28, 1999.
No cash bonuses or restricted stock awards were granted to the above
individuals during the fiscal years ended February 28, 1999, February 28, 1998
and February 28, 1997. Effective December 1992, the Company elected to begin to
compensate non-officer directors at the rate of $5,000 per year. Effective
September 1997, each non-employee director is entitled to receive $30,000 per
year for serving as a director, and $5,000 per year for each director who serves
on the audit committee.
The following table summarizes certain information regarding the number
and value of all options to purchase Common Stock of the Company held by the
Chief Executive Officer and those other executive officers named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Unexercised Value of Unexercised
Options/SARs at Fiscal In-the-Money Options/
Name Year End SARs at Fiscal Year End*
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Zvi Kurtzman 870,000 600,000 $ 0 $ 0
Arthur Schwartz 515,000 300,000 $ 0 $ 0
Gerald Papazian 166,000 60,000 $ 0 $ 0
Steven Veen 215,000 210,000 $ 0 $ 0
Yoshikazu Masayoshi 0 0 $ 0 $ 0
</TABLE>
*Based on the average high and low reported prices of the Company's Common Stock
on the last day of the fiscal year ended February 28, 1999.
No options were exercised by the above individuals during the fiscal year ended
February 28, 1999.
Compensation Committee Report
The Company maintains a Compensation Committee (the "Committee"),
consisting entirely of outside, disinterested, directors who are not employees
or former employees of the Company. The Committee recommends salary practices
for executive officers of the Company, with all compensation determinations
ultimately made by a majority of the outside, disinterested, directors. Prior to
Fiscal 1998, compensation of executive officers, other than the Chief Executive
Officer, was determined by the Chief Executive Officer after review and
consultation with the Committee.
Compensation Philosophy
The Company's policy in compensating executive officers is to establish
methods and levels of compensation that will provide strong incentives to
promote the profitability and growth of the Company and reward superior
performance. Compensation of executive officers includes salary as well as
stock-based programs. The Board believes that compensation of the Company's key
executives should be sufficient to attract and retain highly qualified personnel
and also provide meaningful incentives for measurably superior performance. The
Company places special emphasis on equity-based compensation, particularly in
the form of options. This approach also serves to match the interests of the
executive officers with the interest of the stockholders. The Company seeks to
reward achievement of long and short-term performance goals which are measured
by a number of factors, including improvements in revenue and achieving
profitability.
Included in the factors considered by the Committee in setting the
compensation of the Company's Chief Executive Officer are the growth in the
Company's commercial sales, the development of commercial applications for the
Company's technology, and the effective allocation of capital resources.
Employment Contracts
The Company offers employment contracts to key executives only when it
is in the best interest of the Company and its stockholders to attract and
retain such key executives and to ensure continuity and stability of management.
Effective as of March 1998, the Company entered into employment and severance
agreements with Mr. Kurtzman, the Company's Chief Executive Officer, and Messrs.
Schwartz and Kaufman and Ms. Kurtzman Lavut (the "Named Executive Officers") and
other key executives of the Company. The Committee reviewed and approved such
agreements unanimously after consulting with a nationally recognized employee
benefits firm and determining that such agreements were necessary in order to
retain highly qualified executives whose abilities are critical to the long-term
success and competitiveness of the Company.
Compensation of Chief Executive Officer and Other Executives
The Compensation Committee increased Mr. Kurtzman's salary in March
1998 to $385,000, effective as of December 1997, after consulting with a
nationally recognized employee benefits firm. The increase reflected the
Compensation Committee's assessment of his performance and Mr. Kurtzman's
service to the Company. Salary increases for other senior executives effected
during 1998 were based on similar considerations including individual
performance, position, tenure, experience and compensation surveys of comparable
companies.
In March 1998, the Committee reviewed and unanimously approved stock
option awards under the Company's stock option plan after consulting with a
nationally recognized employee benefits firm. The Committee granted Mr. Kurtzman
an option to purchase 1,000,000 shares of Common Stock, which vest 20% per year
over five years. The options are exercisable at $3.31 per share which was 105%
of the market price of the Company's Common Stock on the date of grant. Senior
executives in the Company participate in the stock option plan and the
Compensation Committee granted such executives options to purchase Common Stock
during Fiscal 1998. In determining the number of shares to award to Mr. Kurtzman
and other executives, the Compensation Committee considered several factors,
including primarily Mr. Kurtzman's and other executives' actual and potential
contributions to the Company's long term success, and the size of awards
provided to other executives in comparable companies holding similar positions.
In July 1997 the Compensation Committee unanimously
recommended the re-pricing of stock options granted to key
employees, including Mr. Kurtzman and the Named Executive
Officers. The Compensation Committee's re-pricing of options
for key employees was made to those persons who have made
significant contributions to the Company's business, for the
purpose of maintaining corporate morale and creating an
incentive for continued employment. See "Option Re-pricing"
Effective in Fiscal 1999 Mr. Kurtzman and the Named Executive Officers
are, pursuant to their employment agreements with the Company, entitled to a
discretionary annual bonus as determined by the Compensation Committee and a
majority of the outside, disinterested, directors of the Board of Directors. In
determining the amounts of such bonuses, the Compensation Committee considers
the individual performance of each executive and the performance of the Company.
Based upon the Company's financial performance during Fiscal 1999 the
Compensation Committee determined not to award bonuses to Mr. Kurtzman or the
Named Executive Officers.
Section 162(m) Policy
Section 162(m) of the Internal Revenue Code of 1986, as amended,
generally provides that publicly held companies may not deduct compensation paid
to certain of its top executive officers to the extent such compensation exceeds
$1 million per officer in any year. However, pursuant to regulations issued by
the Treasury Department, certain limited exemptions to Section 162(m) apply with
respect to "qualified performance-based compensation" and to compensation paid
in certain circumstances by companies in the first few years following their
initial public offering of stock. The Company has taken steps to provide that
these exemptions will apply to compensation paid to its executive officers, and
the Company will continue to monitor the applicability of Section 162(m) to its
ongoing compensation arrangements. Accordingly, the Company does not expect that
amounts of compensation paid to its executive officers will fail to be
deductible by reason of Section 162(m).
Committee Members
Brigadier Ashok Dewan
Salvator Diaz-Verson, Jr.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised of Brigadier Ashok Dewan and
Salvador Diaz-Verson, Jr. Decisions regarding compensation of executive officers
for the fiscal year ended February 28, 1999 were made unanimously by the
outside, disinterested, directors of the Board of Directors, after reviewing
recommendations of the Compensation Committee. Decisions regarding option grants
under the 1989 Option Plan for the fiscal year ended February 28, 1999 were made
unanimously by the outside, disinterested, directors of the Board of Directors,
after reviewing recommendations of the Compensation Committee.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
Company's Common Stock owned as of January 24, 2000 (i) by each person who is
known by Aura to be the beneficial owner of more than five percent (5%) of its
outstanding Common Stock, (ii) by each of the Company's directors and nominees
and those executive officers named in the Summary Compensation Table, and (iii)
by all directors and executive officers as a group:
<TABLE>
<CAPTION>
Shares of Percent of
Common Stock Common Stock
Name Beneficially Owned Beneficially Owned
<S> <C> <C>
Gardner Lewis Asset Management 20,517,936 11.58%
Zvi (Harry) Kurtzman 2,444,468 (1)(2) 1.2%
Arthur J. Schwartz 1,928,487 (1)(3)(4) 1.1%
Cipora Kurtzman Lavut 1,655,468 (5) *
Neal B. Kaufman 1,732,657 (1)(7) *
Harvey Cohen 306,250 (6) *
Yoshikazu Masayoshi 283,455 (8) *
Ashok Dewan 0 *
Salvador Diaz-Verson, Jr. 44,000 *
Stephen A. Talesnick 2,437,596 (9) 1.4%
Gerald S. Papazian 314,992 (10) *
Steven C. Veen 378,585 (11) *
Michael I. Froch 217,997 (12) *
Keith O. Stuart 322,366 (13) *
Ronald Goldstein 180,188 (14) *
Jacob Mail 214,763 (15) *
All executive officers and directors 12,461,272 7.0%
as a group (15 persons)
</TABLE>
- --------------------
* Less than 1% of outstanding shares.
(1) Includes 175,000 shares held of record by Advanced Integrated Systems,
Inc.
(2) Includes 870,000 shares which may be purchased pursuant to options and
convertible securities exercisable within 60 days of January 24, 2000.
(3) Includes 515,000 shares which may be purchased pursuant to options and
convertible securities exercisable within 60 days of January 24, 2000.
(4) Includes 32,000 shares held by Dr. Schwartz as custodian for his children,
to which Dr. Schwartz disclaims any beneficial ownership.
(5) Includes 515,000 shares which may be purchased pursuant to options
exercisable within 60 days of January 24, 2000.
(6) Includes 31,250 shares beneficially owned, and 265,000 shares which may be
purchased pursuant to options within 60 days of January 24, 2000 of which
100,000 are beneficially owned.
(7) Includes 470,000 shares which may be purchased pursuant to options and
convertible securities exercisable within 60 days of January 24, 2000.
(8) Includes 283,455 shares which were received as part of the MYS
acquisition purchase consideration.
(9) Includes 196,364 shares which may be purchased pursuant to warrants
exercisable within 60 days of January 24, 2000. Mr. Talesnick joined the Board
of Directors in September 1999.
(10) Includes 166,000 shares which may be purchased pursuant to options
exercisable within 60 days of January 24, 2000.
(11) Includes 215,000 shares which may be purchased pursuant to options and
warrants exercisable within 60 days of January 24, 2000.
(12) Includes 130,000 shares which may be purchased pursuant to options
exercisable within 60 days of January 24, 2000.
(13) Includes 300,000 shares which may be purchased pursuant to options
exercisable within 60 days of January 24, 2000. In Fiscal 2000 these options
were divided equally pursuant to a court order as part of a marital dissolution
proceeding.
(14) Includes 140,000 shares which may be purchased pursuant to options
exercisable within 60 days of January 24, 2000.
(15) Includes 150,000 shares which may be purchased pursuant to options
exercisable within 60 days of January 24, 2000.
The mailing address for each of these individuals is c/o Aura Systems,
Inc., 2335 Alaska Avenue, El Segundo, CA 90245.
a) ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE>
PART IV
ITEM 14. FINANCIAL STATEMENTS, SCHEDULES, REPORTS ON FORM 8-K AND EXHIBITS
(a) Documents filed as part of this Form 10-K:
(1) Financial Statements
See Index to Consolidated Financial Statements at page F-1
(2) Financial Statement Schedules
See Index to Consolidated Financial Statements at page F-1
(3) Exhibits
See Exhibit Index
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended February 28, 1999.
<PAGE>
INDEX TO EXHIBITS
Description of Documents
3.1(1) Certificate of Incorporation of Registrant.
3.2(1) Bylaws of Registrant.
10.1(1) Aura Systems, Inc. 1987 Stock Option Plan for Non-Employee
Directors.
10.2(1) Form of Aura Systems, Inc. Non-Statutory Stock Option
Agreement.
10.3(1) Deed of Trust and Assignment of Rents, dated as of February
27, 1989, by the Registrant in favor of Chicago Title
Insurance Company, as Trustee, for the benefit of City
National Bank.
10.4(2) Indenture, dated as of March 1, 1989, between the Registrant
and Interwest Transfer Co., Inc. as Trustee, relating to the
7% Secured Convertible Non-Recourse Notes due 1999.
10.5(2) Form of 7% Secured Convertible Non-Recourse Notes due 1999.
10.6(2) Deed of Trust, Assignment of Leases and Rents and Fixture
Filing, dated as of March 1, 1989, by the Registrant in favor
of Ticor Title Insurance Company, as Trustee, for the benefit
of Interwest Transfer Co., Inc., as trustee under the
Indenture.
10.7(3) Form of 7% Secured Convertible Non-Recourse Note due 2000.
10.8(4) 1989 Stock Option Plan.
10.9(5) Joint Development and License Agreement, dated August 24,
1992, between the Registrant and Daewoo Electronics Co., Ltd.
10.10(6) Agreement, dated September 23, 1993, between the Registrant
and Burlington Technopole SDN. BHD.
10.11(7) Dedicated Supplier Agreement, dated December 2, 1993,
between the Registrant and Daewoo Electronics Co., Ltd.
10.12(8) Form of 7% Secured Convertible Non-Recourse Note due 2002.
10.13(9) Agreement dated July 19, 1995 between the Company and K&K
Enterprises.
10.14(9) Agreement dated July 19, 1995 between the Company and K&K
Enterprises.
10.15(9) Agreement dated July 12, 1995 between the Company and K&K
Enterprises.
10.16(9) Agreement dated July 12, 1995 between the Company and K&K
Enterprises.
10.17(9) Stock Purchase and Sale Agreement dated April 30, 1996 between
the Company and MYS Corporation
10.18(9) Joint Venture Agreement dated July 26, 1995 between the
Company and Microbell
10.19 AuraSound Asset Purchase
10.19.1 Asset Purchase Agreement dated December 1, 1999 among
AuraSound, Inc., Aura Systems, Inc., AlgoSound, Inc., and Algo
Technology, Inc.
10.19.2 Amendment dated December 22, 1999 to Asset Purchase Agreement
dated December 1, 1999.
10.19.3 Assignment and License Agreement as of July 15, 1999
between Speaker Acquisition Sub, Algo Technology, Inc., Aura
Systems, Inc., AuraSound Inc.
10.20 MYS Stock Purchase
10.20.1 Escrow Agreement as of March 26, 1999 among the Company,
Inc.,Yoshikazu Masayoshi, Sadao Masayoshi, Sachie Masayoshi,
Kazuaki Masayoshi, and Wolf Haldenstein Adler Freeman & Herz
LLP.
10.20.2 Promissory Note in the amount of $1,000,000 dated March 26,
1999 payable to the Company by Yoshikazu Masayoshi, Sadao
Masayoshi, Sachie Masayoshi and Kazuaki Masayoshi.
10.20.3 Promissory Note in the amount of $3,200,000 dated March 26,
1999 payable to the Company by Yoshikazu Masayoshi, Sadao
Masayoshi, Sachie Masayoshi and Kazuaki Masayoshi.
10.20.4 Stock Purchase Agreement dated March 26, 1999 between the
Company and Yoshikazu Masayoshi, Sadao Masayoshi, Sachie
Masayoshi and Kazuaki Masayoshi.
10.21 Agreement with RGC International Investors, LDC
10.21.1 First Amendment to Security Agreement dated October 22, 1999
between RGC International Investors, LDC and the Company.
10.21.2 Settlement Agreement and Complete Release of all Claims dated
October 22, 1999 between RGC International Investors, LDC, and
the Company
10.21.3 Stock Purchase Warrant issued to RGC International Investors,
LDC by the Company. 10.21.4 Amended and Restated Convertible
Senior Secured Note dated October 7, 1998 in the amount of
$3,000,000 issued to RGC International Investors, LDC by the
Company.
10.22 Settlement Agreement and Release of Claims dated as of
December 1, 1999 between JNC Opportunity Fund, Ltd., and the
Company.
10.23 Payment Agreement by and between Credit Managers
Association of California and Aura Systems, Inc.
21.1 Aura Systems, Inc. and Subsidiaries
EX-27 Data Schedule
(1) Incorporated by reference to the Exhibits to the Registration Statement
on Form S-1 (File No. 33-19530).
(2) Incorporated by reference to the Exhibits in the Registrant's Current
Report on Form 8-K dated March 24, 1989 (File No. 0-17249).
(3) Incorporated by reference to the Exhibits to Post-Effective
Amendment No. 2 to the Registration Statement on Form S-1 (File No.
33-27164).
(4) Incorporated by reference to the Exhibits to the Registration Statement
on Form S-8 (File No. 33-32993).
(5) Incorporated by Reference to the Exhibit to the Registration Statement
on Form S-1 (File No. 35-57 454).
(6) Incorporated by reference to the Registrants Current Report in Form
10-Q dated November 30, 1993.
(7) Incorporated by reference to the Exhibits to the Registration Statement
on Form S-1 (File No.-33-57454).
(8) Incorporated by reference to the Exhibits to the registrants Annual
Report Form 10-K for the fiscal year
ended February 28, 1994 (File No. 0-17249).
(9) Incorporated by reference to the Registrants Annual Report Form 10-K
for the fiscal year ended February 29, 1996 (File No. 0-17249)
<PAGE>
Pursuant to the requirements of Section 13 or 15 (d) 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.
Dated: February 7, 2000
By: /s/ Zvi Kurtzman
Zvi Kurtzman
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/Zvi Kurtzman Chief Executive Officer and Director February 7, 2000
- ---------------------------------
Zvi Kurtzman (Principal Executive Officer)
/s/Steven C. Veen Senior Vice President, February 7, 2000
- ---------------------------------
Steven C. Veen Chief Financial Officer
(Principal Financial and Accounting
Officer)
/s/Gerald S. Papazian President and Director February 7, 2000
- ---------------------------------
Gerald Papazian
/s/Arthur J. Schwartz Executive Vice President and Director February 7, 2000
- ---------------------------------
Arthur J. Schwartz
/s/Neal Kaufman Senior Vice President and Director February 7, 2000
- ---------------------------------
Neal B. Kaufman
/s/Cipora Kurtzman Lavut Senior Vice President and Director February 7, 2000
- ---------------------------------
Cipora Kurtzman Lavut
Director February 7, 2000
- ---------------------------------
Ashok Dewan
/s/Salvador Diaz-Verson, Jr. Director February 7, 2000
- ---------------------------------
Salvador Diaz-Verson, Jr.
Director February 7, 2000
- ---------------------------------
Stephen A. Talesnick
/s/Harvey Cohen Director February 7, 2000
- ---------------------------------
Harvey Cohen
</TABLE>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report on Consolidated Financial Statements and
Financial Statement Schedule F-2
Consolidated Financial Statements of Aura Systems, Inc. and Subsidiaries:
Consolidated Balance Sheets-February 28, 1999 and February 28, 1998 F-3 to F-4
Consolidated Statements of Operations and Comprehensive Income (Loss) -
Years ended February 28, 1999, February 28, 1998 and February 28,
1997 F-5 Consolidated Statements of Stockholders' Equity (Deficit)-Years ended
February 28, 1999, February 28, 1998 and February 28, 1997 F-6
Consolidated Statements of Cash Flows-Years ended February 28, 1999,
February 28, 1998 and February 28, 1997 F-7 to F-8
Notes to Consolidated Financial Statements F-9 to F-25
Consolidated Financial Statement Schedule:
II Valuation and Qualifying Accounts F-26
Schedules other than those listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
respective consolidated financial statements or notes thereto.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Aura Systems, Inc.
El Segundo, California
We have audited the consolidated balance sheets of Aura Systems, Inc. and
subsidiaries as of February 28, 1999, and February 28, 1998 and the related
consolidated statements of operations and comprehensive loss, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
February 28, 1999 and the related financial statement schedule listed in the
accompanying Index at Item 14. These consolidated financial statements, and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aura Systems, Inc.
and subsidiaries as of February 28, 1999, and February 28, 1998 and the results
of their operations and their cash flows for each of the three years in the
period ended February 28, 1999, and the financial statement schedule presents
fairly, in all material respects, the information set forth therein, all in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming Aura Systems,
Inc. will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has generated significant losses
from operations, all major debt obligations were in default as of year-end and
the Company is currently in the process of restructuring all major debt
obligations. If the Company continues to suffer recurring losses from operations
and continues to have a net capital deficiency, there may be substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are described in Note 1.
/s/ Pannell Kerr Forster
Certified Public Accountants
A Professional Corporation
Los Angeles, California 90017
February 4, 2000
<PAGE>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
February 28, February 28,
1999 1998
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 3,822,210 $ 6,079,411
Receivables, net 8,380,414 54,418,141
Inventories 18,477,058 58,713,875
Prepayments 3,435,645 13,326,789
Other current assets 2,124,535 5,925,642
Deferred income taxes -- 838,000
Note receivable 250,000 --
------------- -------------
Total current assets 36,489,862 139,301,858
------------- -------------
PROPERTY AND EQUIPMENT, AT COST 47,976,699 66,667,671
Less accumulated depreciation and
amortization (10,994,734) (11,888,586)
----------------- --------------
Net property and equipment 36,981,965 54,779,085
JOINT VENTURES -- 6,903,918
LONG-TERM Investments 2,923,835 7,476,299
long-term receivables 2,500,000 3,627,098
Patents and trademarks-Net 5,293,278 6,410,771
GOODWILL-NET 5,383,208 6,146,642
OTHER ASSETS 571,244 2,656,958
------------- -------------
Total $ 90,143,392 $ 227,302,629
============== =============
See accompanying notes to consolidated financial statements.
<PAGE>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
February 28, February 28,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1999 1998
----------- -------
CURRENT LIABILITIES:
Notes payable $ 8,787,113 $ 31,147,572
Convertible note, unsecured 2,000,000 --
Accounts payable 22,515,842 43,995,364
Accrued expenses 8,056,783 3,990,027
------------- -------------
Total current liabilities 41,359,738 79,132,963
------------- -------------
25,955,529 3,282,003
------------- -------------
NOTES PAYABLE AND OTHER LIABILITIES
convertible Notes-SECURED 4,000,000 2,112,900
------------- -------------
CONVERTIBLE NOTES-UNSECURED 32,481,782 15,500,000
------------- -------------
MINORITY INTERESTS IN SUBSIDIARY -- 10,372,895
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock par value $.005 per share
and additional paid in capital. Issued
and outstanding 107,752,042 and
80,001,244 shares respectively. 218,693,245 199,100,614
Cumulative currency translation
adjustment (CTA) (365,932) 40,642
Accumulated deficit (231,980,970) (82,239,388)
-------------- --------------
Total stockholders' equity (deficit) (13,653,657) 116,901,868
-------------- -----------
Total $ 90,143,392 $227,302,629
============= ===========
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive
Loss Years ended February 28, 1999, February 28,
1998 and February 28, 1997
1999 1998 1997
------------- ------------- -------
<S> <C> <C> <C>
Net Revenues $81,518,162 $136,715,385 $109,950,202
Cost of GOODS AND OVERHEAD 158,024,723 101,622,051 86,350,828
------------- ------------- -------------
GROSS PROFIT (LOSS) (76,506,561) 35,093,334 23,599,374
-------------- ------------- -------------
EXPENSES:
Research and development 2,831,847 1,395,160 6,022,586
Impairment of long-lived assets 9,403,687 -- --
Selling, general and administrative expenses 74,419,812 45,018,066 18,761,123
------------- ------------- -------------
Total expenses 86,655,346 46,413,226 24,783,709
------------- ------------- -------------
(LOSS) FROM OPERATIONS (163,161,907) (11,319,892) (1,184,335)
OTHER (INCOME) AND EXPENSE
Gain on sale and issuance of subsidiary stock and
other assets (1,042,665) (12,952,757) (250,000)
Legal settlements 7,717,518 1,700,000 --
Equity in losses of unconsolidated joint ventures 6,268,384 1,937,747 --
Loss on disposal of assets 1,188,329 -- --
Loss on disposal of investment 4,877,839 -- --
Termination of license arrangement -- 3,114,030 --
Interest income (184,168) (224,385) (475,758)
Interest expense 12,198,858 7,051,654 1,891,692
------------- ------------- -------------
(LOSS) BEFORE INCOME TAXES AND OTHER ITEMS
(194,186,002) (11,946,181) (2,350,269)
Provision (benefit) for taxes 570,651 (1,256,046) 570,484
Minority interests in consolidated subsidiary:
Income -- 946,405 --
Loss 10,372,895 -- --
Loss in excess of basis of consolidated subsidiary
Aura 8,080,695 -- --
Minority interests 26,561,481 -- --
-------------- ------------- -------------
NET (LOSS) (149,741,582) (11,636,540) (2,920,753)
--------------= --------------= -------------=
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments (406,574) -- 40,642
--------------- -------------- -------------
Comprehensive loss $ (150,148,156) $ (11,636,540) $ (2,880,111)
=============== ============== =============
NET (LOSS) PER COMMON SHARE $ (1.74) $ (.15) $ (.04)
=============== ============== =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 85,831,688 79,045,290 68,433,521
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended February 28, 1999, February 28, 1998 and February 28, 1997
<TABLE>
<CAPTION>
Accumulated
Additional other
Common Stock Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit (CTA) Income (Loss) Total
<S> <C> <C> <C> <C> <C> <C>
Balances at February 29, 1996 62,222,438 $311,112 $166,534,089 $(67,682,095) $ -- $99,163,106
Private placements, net of
issuance cost 385,000 1,925 1,499,575 -- -- 1,501,500
Notes payable converted 12,815,368 64,077 24,679,389 -- -- 24,743,466
Exercise of warrants 300,000 1,500 598,500 -- -- 600,000
Exercise of stock options 10,000 50 34,950 -- -- 35,000
Stock issued to acquire assets 748,860 3,744 2,310,882 -- -- 2,314,626
Other comprehensive income (CTA) -- -- -- -- 40,642 40,642
Net (loss) -- -- -- (2,920,753) (2,920,753)
----------- ------ ------------- ----------- -------- -----------
Balances at February 28, 1997 76,481,666 382,408 195,657,385 (70,602,848) 40,642 125,477,587
Notes payable converted 3,164,001 15,820 4,528,958 -- -- 4,544,778
Exercise of warrants 241,688 1,208 583,642 -- -- 584,850
Exercise of stock options 25,000 125 51,375 -- -- 51,500
Proceeds from issuance of
warrants -- -- 900,000 -- -- 900,000
Repurchase of warrants -- -- (1,679,956) -- -- (1,679,956)
Stock issued to acquire assets 88,889 445 199,555 -- -- 200,000
Expenses of issuances -- -- (1,540,351) -- -- (1,540,351)
Net (loss) -- -- -- (11,636,540) (11,636,540)
----------- ------ ------------- ------------ -------- ------------
Balances at February 28, 1998 80,001,244 400,006 198,700,608 (82,239,388) 40,642 116,901,868
Notes payable converted 16,513,282 82,566 10,126,867 -- -- 10,209,433
Exercise of warrants 7,475,383 37,377 7,971,198 -- -- 8,008,575
Exercise of stock options 50,000 250 102,750 -- -- 103,000
Stock issued to acquire assets 114,833 574 28,134 -- -- 28,708
Private placements 3,597,300 17,986 1,779,656 -- -- 1,797,642
Expenses of issuances -- -- (554,727) -- -- (554,727)
Other comprehensive income (CTA) -- -- -- -- (406,574) (406,574)
Net (loss) -- -- -- (149,741,582) -- (149,741,582)
Balances at February 28, 1999 107,752,042 $538,759 $218,154,486 $(231,980,970) $(365,932) $(13,653,657)
============== ======== =============== ============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended February 28, 1999, February 28, 1998 and
February 28, 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(149,741,582) $(11,636,540) $(2,920,753)
-------------- ---------- ---------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 12,985,278 8,362,110 4,797,436
Provision for environmental cleanup 44,516 40,597 37,021
(Gain) Loss on disposition of assets 6,066,168 (555,326) (255,665)
Equity in losses of unconsolidated joint ventures 6,268,384 1,937,747 --
Gain on sale of subsidiary and other stock investments (262,804) (12,144,740) --
Impairment of long-lived assets 9,403,687 -- 2,005,000
Foreign currency translation adjustment (406,574) -- 172,617
Assets-(Increase) Decrease:
Receivables 46,037,727 (674,443) (12,830,713)
Inventories 40,236,817 (24,866,579) (9,410,343)
Prepayments 9,891,144 (5,631,521) --
Other current assets 3,801,107 (5,534,281) 1,245,613
Deferred income taxes 838,000 (940,000) --
Liabilities-Increase (Decrease):
Accounts payable (21,479,522) 20,279,113 3,270,971
Accrued expenses 4,614,005 2,086,583 323,435
Litigation and other liabilities 7,389,649 (345,372) --
------------ ------------ -----------
Total adjustments 125,427,582 (17,986,112) (11,986,546)
----------- ---------- ----------
Net cash used by operating activities (24,314,000) (29,622,652) (13,565,381)
------------ ---------- -------------
Cash flows from investing activities:
Proceeds from sale of assets 2,721,000 920,000 286,217
Purchase of property and equipment (2,143,237) (1,910,214) (8,606,686)
Manufacture of special tools and equipment (1,910,611) (16,096,180) (16,539,899)
Purchase of subsidiary -- -- (1,101,278)
Investment in joint ventures (164,466) 1,202,138 (3,163,475)
Long-term investments (4,940,000) (1,117,465) (2,430,756)
Long-term receivables 3,436,809 3,347,144 (2,450,959)
Patents and trademarks (467,167) (1,903,718) (696,677)
Goodwill and other assets 1,425,794 (2,398,400) (645,241)
Proceeds from subsidiary stock 1,611,873 5,472,656 --
----------- ----------- -----------
Net cash used by investing activities (430,005) (12,484,039) (35,348,754)
------------ ----------= -----------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from borrowings $17,922,584 $26,287,632 $ 9,772,600
Repayment of notes payable (3,396,083) (10,874,683) (2,624,214)
Proceeds from exercise of options 103,000 -- --
Net proceeds from issuance of common stock 1,675,873 636,350 2,136,500
Net proceeds from exercise of warrants 7,884,325 -- --
Proceeds from issuance of warrants -- 900,000 --
Net proceeds from issuance of convertible notes
11,720,000 13,959,649 24,841,239
Repayment of convertible notes (3,050,000) (5,905,223) --
Minority interest adjustment (10,372,895) 17,749,979 --
Repurchase of warrants -- (1,679,956) --
------------ --------- -----------
Net cash provided by financing activities 22,486,804 41,073,748 34,126,125
------------ ---------- -----------
Net decrease in cash and equivalents (2,257,201) (1,032,943) (14,788,010)
Cash and equivalents at beginning of year 6,079,411 7,112,354 21,900,364
------------ ----------- ----------
Cash and equivalents at end of year $ 3,822,210 $ 6,079,411 $ 7,112,354
============ =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 3,374,992 $ 6,280,859 $1,065,796
============ =========== =========
Income Taxes $ 2,244,762 $ 186,310 $ 8,000
============ =========== ===========
</TABLE>
Supplemental disclosures of non-cash investing and financing activities:
During the year ended February 28, 1997, the Company issued 748,860 shares
in connection with the acquisitions of MYS Corporation., Phillips Sound
Labs and Revolver U.K. Limited valued at $2,314,626. During the year ended
February 28, 1997, $25,900,000 of convertible notes and accrued interest
were converted into 12,815,368 shares of common stock.
During the year ended February 28, 1998, $4,544,778 of convertible notes
and accrued interest were converted into 3,164,001 shares of common stock.
Effective January 29, 1998, the Company executed a contract to purchase
title and interest to the "Aura" trademark name in several locations in
Europe, Hong Kong and Taiwan. Partial consideration paid included $200,000
worth of Aura common stock or 88,889 shares, and $1,587,678 of operating
assets transferred to the seller of the trademark name. During the year
ended February 28, 1998 the Company entered into financing arrangements
whereby it acquired assets for notes payable in the amount of $493,781.
During the year ended February 28, 1999, $10,209,433 of convertible notes
and accrued interest were converted into 16,513,282 shares of common stock.
Additionally, 90,510 shares of common stock were issued for services
received totaling $90,510. During the year ended February 28, 1999,
2,000,000 shares of the Company's investment in NewCom Inc., valued at
$2,820,000, were surrendered to a NewCom creditor pursuant to a security
agreement that collateralized a NewCom note in the amount of $1,000,000.
During the year ended February 28, 1999, $800,000 in joint ventures assets
were transferred to long term investments. During the year ended February
28, 1999, the Company sold a stock investment for $5,499,000, of which
$2,750,000 was recorded as a note receivable. During the year ended
February 28, 1999, the Company assumed explicitly certain obligations of
NewCom, effectively transferring approximately $9,900,000 from current
notes and trade payables to litigation payable. The $9,900,000 represents
NewCom obligations guaranteed by the Company, including a line of credit
with a commercial lending institution and two other trade creditors.
See accompanying notes to consolidated financial
statements.
<PAGE>
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended February 28, 1999, February 28, 1998 and February 28, 1997
(1) Business and Summary of Significant Accounting Policies
Business
Aura Systems, Inc. ("Aura" or the "Company"), a Delaware
corporation, is engaged in the development,
commercialization and sales of products, systems and
components using its patented and proprietary
electromagnetic and electro-optical technology.
In 1994, the Company founded its subsidiary NewCom, Inc. ("NewCom"), a
Delaware corporation, which was engaged in the manufacture, packaging,
selling and distribution of computer related communications and sound
related products, including modems, CD-ROMs, sound cards, speaker
systems and multimedia products, thereby expanding its presence in the
growing multimedia, communication and sound-related consumer
electronics market. NewCom ceased operations in 1999.
The Company acquired 100% of the outstanding shares of MYS Corporation
of Japan ("MYS") in 1996 to expand the range of its sound products and
speaker distribution network. Subsequent to Fiscal 1999, the Company
sold MYS to its management.
The Company is involved in the application of its technology to a
variety of products and services and, as such, faces substantial
competition from companies offering different and competitive
technologies.
The Company believes the principal competitive factors in the markets
for the Company's products include the ability to develop and market
technologically advanced products to meet changing market conditions,
price, reliability, product support and the ability to secure
sufficient capital resources for the often substantial periods between
technological concept and commercialization. The Company's ability to
compete will also depend on its continued ability to attract and retain
skilled and experienced personnel, to develop and secure patent and
other protection for its technology and to exploit commercially its
technology prior to the development of competing products by others.
The Company competes with many companies that have more experience,
name recognition, financial and other resources and expertise in
research and development, manufacturing, testing, obtaining regulatory
approvals, marketing and distribution. Other companies may also prove
to be significant competitors, particularly through their collaborative
arrangements with research and development companies.
Basis of Presentation and Going Concern
The accompanying consolidated financial statements of the Company have been
prepared on the basis that it is a going concern, which contemplates the
realization of assets and satisfaction of liabilities, except as otherwise
disclosed, in the normal course of business. However, as a result of the
Company's losses from operations and inability to service its debt
obligations, such realization of assets and liquidation of liabilities is
subject to significant uncertainties. Further, the Company's ability to
continue as a going concern is dependent upon the successful restructuring
of obligations, achievement of profitable operations and the ability to
generate sufficient cash from operations and financing sources to meet the
restructured obligations. Management is currently seeking or obtaining
additional sources of funds and the Company has restructured a significant
portion of its debt obligations. The Company intends to focus its business
on the AuraGen line of products. Except as otherwise disclosed, the
consolidated financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of
assets or the amount and classification of liabilities that may result from
the possible inability of the Company to continue as a going concern as
otherwise disclosed.
Principles of Consolidation
The consolidated financial statements include accounts of the Company
and its wholly owned subsidiaries, MYS and its subsidiaries Audio-MYS,
MYS America and MYS U.S.A, Aura Ceramics, Inc., Aura Sound Inc. and
Electrotec Productions, Inc. (and its wholly owned subsidiary
Electrotec Europe). For the years ended February 28, 1998 and 1997, the
Company's interest in NewCom, a majority owned subsidiary, is reported
on a consolidated basis, the consolidated financial statements include
100 percent of the assets and liabilities of the subsidiary, and the
ownership percentage of minority interests is recorded as "Minority
Interests in Subsidiary." In February 1999, the Company reduced its
interest in NewCom to approximately 41%. Accordingly, for the year
ended February 28, 1999, the Statement of Operations and Comprehensive
Loss reflects the operating results of NewCom through the period of
majority ownership. The balance sheet as of February 28, 1999 reflects
the Company's investment on an equity basis of accounting. In
consolidation, all significant intercompany balances and transactions
have been eliminated.
For the year ended February 28, 1999, the Company's losses from NewCom,
on a consolidated basis, were in excess of the Company's allocation of
losses as accounted for under the equity method. In accordance with
Accounting Principles Board Opinion No. 18 "The Equity Method of
Accounting for Investments in Common Stock" the Company has recognized
losses up the amount of their investment, advances, and guarantees of
indebtedness. Losses related to the consolidation of NewCom in excess
of losses appropriate under the equity method, in the amount of
$8,080,695, are reflected as an other item in the Statement of
Operations and Comprehensive Loss.
For the year ended February 28, 1999, the minority interest in loss of
subsidiary are in excess of minority interests investments. The
minoritiy interests loss in excess of investment in the amount of
$26,561,481, are reflected as an Other Item in the Statement of
Operations and Comprehensive Loss.
Revenue Recognition
The Company recognizes revenue for product sales upon shipment. The
Company provides for estimated returns and allowances based upon
experience. The Company also earns a portion of its revenues from
license fees, and generally records these fees as income when the
Company has fulfilled its obligations under the particular agreement.
Comprehensive Income
In March 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display
of comprehensive income and its components in a full set of
general-purpose financial statements. This statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial
statements. This standard requires that an enterprise classify items of
other comprehensive income by their nature in a financial statement;
display the accumulated balances of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. the Company
adopted SFAS 130 in Fiscal 1999. The adoption of this statement
did not have any impact on the Company's results of operations,
financial position, or cash flows.
Cash Equivalents
maturity of less than three months, to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual future results could
differ from those estimates.
Long-Term Investments
Investments in equity securities with no readily determinable fair
value are stated at cost. Management periodically evaluates these
investments as to whether fair value is less than cost. In the event
fair value is less than cost, and the decline is determined to be other
than temporary, the Company will reduce the carrying value accordingly.
Goodwill
Goodwill represents the excess purchase price over the fair market
value of the assets acquired of certain acquisitions. Goodwill is being
amortized over 40 years on a straight-line basis.
The carrying value of goodwill is based on management's current
assessment of recoverability. Management evaluates recoverability using
both objective and subjective factors. Objective factors include
management's best estimates of projected future earnings and cash flows
and analysis of recent sales and earnings trends. Subjective factors
include competitive analysis and the Company's strategic focus.
Inventories
Inventories are stated at the lower of (first-in,first-out) or market.
Per Share Information
The consolidated net loss per common share is based on the weighted
average number of common shares outstanding during the year. Common
share equivalents have been excluded since inclusion would dilute the
reported loss per share.
Patents and Trademarks
The Company capitalizes the costs of obtaining or acquiring patents and
trademarks. Amortization of patent costs is provided for by the straight
line method over the shorter of the legal or estimated economic life. If a
patent or trademark is rejected, abandoned, or otherwise invalidated the
un-amortized cost is expensed in that period.
Joint Ventures
The Company initially records investments in joint ventures at cost.
These cost amounts are adjusted quarterly to reflect the Company's
share of venture income or losses.
Impairment of long-lived assets
The Company reviews long-lived assets and identifiable intangibles
whenever events or circumstances indicate that the carrying amount of
such assets may not be fully recoverable. The Company evaluates the
recoverability of long-lived assets by measuring the carrying amounts
of the assets against the estimated undiscounted cash flows associated
with these assets. At the time such evaluation indicates that the
future undiscounted cash flows of certain long-lived assets are not
sufficient to recover the assets' carrying value, the assets are
adjusted to their fair values (based upon discounted cash flows).
During 1999, the Company's management redirected its strategy to focus
on the AuraGen production. The Company made the decision to cease
operations in various divisions, reduce overhead and sell or lease
Company assets that were not compatible with the Company's strategy.
Management reviewed the estimated future cash flows related to these
operations and deemed them to be insufficient to fully recover the
carrying value of the assets. Accordingly, the Company has recognized
an $9,403,687 impairment expense to reduce the assets to their
estimated fair value. The impairment includes a write down of
property and equipment and goodwill of $8,893,259 and $510,428,
respectively.
Research and Development
Research and development costs are expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising charged to
expense in Fiscal 1999, 1998 and 1997 approximated $ 9.4 million, $5.8
million and $4.5 million, respectively, including approximately nil,
$300,000 and $700,000 for the production of the advertising, which is
continuing to be used but has been expensed.
Buildings, Equipment and Leasehold Improvements
Buildings, equipment and leasehold improvements are stated at cost and
are being depreciated using the straight-line method over their
estimated useful lives as follows:
Buildings 40 years
Machinery and equipment 5-10 years
Furniture and fixtures 7 years
Leasehold improvements Life of lease
During 1999 and 1998, the Company capitalized costs of $1,910,611 and
$16,096,180, respectively, on special tools and equipment, which have
been designed for the manufacturing and development of actuators,
speakers and related products, automotive products, actuator mirror
array wafers and internet access and multimedia computer products. The
capitalized amounts, included in machinery and equipment, include
allocated costs of direct labor and overhead. During 1999, management
reduced previously capitalized amounts to their estimated fair value,
due to impairment of assets. See note on Impairment of long-lived
assets.
Depreciation and amortization expense of buildings,
machinery and equipment, furniture and fixtures and leasehold
improvements approximated $11.9 million, $5.4 million and $3.2 million
for Fiscal 1999, 1998 and 1997, respectively.
Product Return Risks
The Company has been exposed to the risk of product returns from its
retailer mass merchant and distributor customers as a result of several
factors, including returns from their customers, contractual stock
rotation privileges, returns of defective products or product
components, primarily through NewCom. In addition, the Company
generally accepts returns of unsold product from customers with whom
the Company has severed its customer relationship. Overstocking by the
Company's customers could lead to higher than normal returns, which
could have a material adverse effect on the Company's results of
operations. The Company also has a policy of offering price protection
to its customers for some or all of their inventory, whereby when the
Company reduces its prices for a product, the customer receives a
credit for the difference between the original purchase price of the
product and the Company's reduced price for the product. As a result of
this policy, significant reductions in price have had, and may in the
future have, a material adverse effect on the Company's results of
operations. In management's opinion, the financial statements include
adequate provisions to reserve for future product returns.
(2) Receivables
Receivables consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Commercial receivables:
Amounts billed $16,548,666 $59,277,378
Recoverable costs and accrued profits not billed -- 931,056
----------- -----------
Total commercial receivables 16,548,666 60,208,434
Advances due from related parties 102,773 210,837
Less allowance for uncollectible receivables and (8,271,025) (6,001,130)
----------- ----------
sales returns
$8,380,414 $54,418,141
</TABLE>
Bad debt expense was approximately $13.3 million, $3.6 million and
$.7 million in Fiscal 1999, 1998 and 1997 respectively.
(3) Long Term Investments
Long-term investments consist of the following:
1999 1998
---- ----
Telemac Cellular C $ -- $4,782,500
Aquajet Corporation 923,835 883,834
Alaris Industries, 1,200,000 1,200,000
Other 800,000 609,965
---------- -----------
$2,923,835 $7,476,299
========== ==========
During Fiscal 1999, the Company sold a portion of its shares in Telemac
Cellular Corp.(Telemac) back to Telemac. The Company then entered into a
cancellation of shares agreement whereby it tendered its shares to Telemac
in exchange for a note receivable from Telemac resulting in a gain
recognized of approximately $850,000.
In February 1998, NewCom, Inc. entered into an Equipment Buy-Sell
Agreement with Fourth Communications Network ("FCN") whereby NewCom
purchased 200,000 shares of FCN Series F Preferred Stock, which is
convertible into Common Stock at a conversion price of $25.00 per
share, and received warrants to purchase 200,000 shares of Common Stock
at $15.00 per share, in consideration of a cash payment of $5,000,000
of which $150,000 was paid in February 1998 with the balance of
$4,850,000 paid in March 1998. In Fiscal 1999, NewCom pledged the
investment as collateral to a secured creditor. The investment has been
foreclosed upon.
(4) Joint Ventures and Other Agreements
(a) Malaysian Joint Venture
In 1993, the Company entered into an agreement with Burlington
Technopole SDN. BHD., a Malaysian corporation (Burlington) for the
formation of a joint venture to manufacture and sell speakers using
Aura's proprietary technology. In Fiscal 1999 the joint venture was
terminated, and a total of $1,064,911 in joint venture losses and
write-off's were recorded during Fiscal 1999.
(b) Aura-Dewan Joint Venture
In 1995, the Company entered into an agreement with K&K Enterprises of
India ("K&K") for the formation of a joint venture to manufacture and
sell speakers using Aura's proprietary technology. In 1995 the Company
also entered into an agreement with K&K for the formation of a joint
venture to manufacture Aura's Bass ShakerTM. In Fiscal 1999 the joint
venture was terminated, and a total of $534,911 in joint venture losses
and write-off's were recorded during Fiscal 1999. The Company's
remaining investment in property of the joint venture, for the amount
of $800,000 has been reclassified to long term investments.
(c) Daewoo Agreement
In 1992, the Company entered into a joint development and licensing
agreement with Daewoo Electronics Co., Ltd. ("Daewoo") to develop and
commercialize televisions using Aura's AMA(TM) display technology. Aura
is to receive a fixed royalty (depending on television size), for each
television set manufactured by Daewoo or licensed by Daewoo to a third
party. Due to Daewoo's existing financial difficulties, it is currently
undeterminable if Daewoo will be able to commercialize a television
using Aura's AMA(TM) display technology.
(d) Eric Joint Venture
In 1997, the Company entered into an agreement with the European Group
to form a joint venture for sales, marketing and further development of
motion base simulators using the Company's proprietary technology. In
Fiscal 1999, as a result of financial crisis the Company ceased on its
commitment to continue to develop improvements to the Company's motion
base simulator technology. The parties agreed to terminate the joint
venture, and $3,856,091 was written-off to loss in joint ventures.
(e) Microbell Joint Venture
In 1995 the Company entered into an agreement with Microbell to form a
joint venture to further develop and commercialize patented and
proprietary technology developed by Microbell.
Aura's inability to continue to fund the joint venture as required, the
joint venture was terminated, and $635,902 was written-off to loss in
joint venture.
(5) Related Party Transactions
Notes and advances due from related parties, aggregated $102,773 and
$210,837 at February 28, 1999 and February 28, 1998, respectively,
included in current receivables, and $0 and $19,000 included in
(6) Inventories
Inventories, stated at the lower of cost (first-in, first-out) or
market, consist of the following:
1999 1998
---- ----
Raw materials $11,318,263 $19,202,024
Finished goods 15,034,795 44,046,851
Reserves for product obsolence (7,876,000) (4,535,000)
--------------- ---------------
$18,477,058 $58,713,875
============== ==============
Inventories at February 28, 1999 and 1998 include approximately $3.5 million and
$5.0 million, respectively, that was received subsequent to year end, but was
shipped F.O.B. shipping point, requiring the Company to include this amount in
its reported inventory and to record the corresponding liability in accounts
payable. At February 28, 1999, inventories consist primarily of components and
completed units for the Company's AuraGen product, along with speaker components
and finished product.
(7) Property and Equipment
Property and Equipment, at cost is comprised as follows:
1999 1998
---- ----
Land $ 3,877,074 $ 3,870,361
Buildings 9,396,392 9,366,512
Machinery and equipment 32,354,243 48,610,238
Furniture, fixtures and
leasehold improvements 2,348,990 4,820,560
------------ -----------
$47,976,699 $66,667,671
=========== ==========
(8) Notes Payable and Other Liabilities
Notes Payable and Other Liabilities consist of the following:
All major debt obligations were in default as of February 28, 1999, see
note 21.
1999 1998
---- --- ----
Litigation payable $17,302,047 $ --
Lines of Credit 3,000,000 9,569,235
Notes payable-equipment (a) 194,296 2,870,971
Notes payable-buildings (b) 8,549,854 3,553,187
Unsecured notes payable (c) 4,907,068 17,975,000
Unsecured bonds payable (d) 283,679 --
-------------- -----------
34,236,944 33,968,393
Less: current portion 8,787,113 31,147,572
-------------- ----------
Long term portion 25,449,831 2,820,821
Reserve for environmental cleanup 505,698 461,182
-------------- -----------
$25,955,529 $ 3,282,003
============== ===========
(a) Notes payable-equipment consists of various notes maturing at various
dates through September 2000 bearing interest at various rates and are
collaterized by equipment.
(b)
Notes payable-buildings consists of a 1st Trust Deed on a building in
California, due in Fiscal 2009, and a note due October 2000
collateralized by a building in Malaysia.
(c) Unsecured notes payable consists of two notes.
(d) There are five unsecured bonds payable.
Annual maturities of long term notes payable and litigation payable for
the next fiscal years are as follows:
Fiscal Year Amount
2000 $8,787,113
2001 7,825,765
2002 2,686,351
2003 2,493,440
2004 925,941
thereafter 11,518,334
----------
$34,236,944
==========
(9) Convertible Notes Payable
In Fiscal 1993, the Company issued its Secured 7% Convertible Notes due 2002 in
the total amount of $5.5 million. In Fiscal 1999, the remaining $2,122,900 of
these notes were redeemed by the Company.
In Fiscal 1997, the Company issued $26,350,000 of unsecured convertible notes
due at various dates, $17.9 million of these notes plus accrued interest of
$228,534 were converted into 10,069,924 shares of common stock in Fiscal 1997.
In Fiscal 1998, the Company issued $34.5 million of unsecured notes payable to
investors. During the fiscal year the Company redeemed $3.8 million of notes
issued in Fiscal 1997 and $2 million of notes issued in Fiscal 1998.
Additionally, $4.5 million of notes issued in Fiscal 1997 were converted into
3,164,001 shares of common stock. In Fiscal 1999, the Company issued $8 million
of unsecured notes payable to investors and $4,662,900 of secured notes payable
to investors. During the Fiscal year the Company redeemed $1.6 million of
convertible notes issued in Fiscal 1998. Additionally $9,662,184 worth of
convertible notes issued in Fiscal 1998 plus interest of $547,249, were
converted into 16,513,282 shares of common stock.
(10) Accrued Expenses
Accrued expenses consist of the following:
1999 1998
---- ----
Accrued payroll and related expenses $1,076,185 $1,092,082
Bond interest payable 4,535,789 880,158
Other 2,444,809 2,017,787
------------- ---------
$8,056,783 $3,990,027
(11) Income Taxes
At February 28, 1999, the Company had net operating loss carry-forwards for
Federal and state income tax purposes of approximately $216 million and $95
million respectively, which expire through 2014.
Under SFAS 109 "Accounting for Income Taxes" the Company utilizes the liability
method of accounting for income taxes. Accordingly, the Company has recorded a
deferred tax benefit of approximately $93 million for Fiscal 1999 and $23
million for Fiscal 1998. The Company has also recorded a valuation account to
fully offset the deferred benefit due to the uncertainty of the realization of
this benefit.
As of September 19, 1997, NewCom, Inc. is no longer included in the
Company's consolidated Federal tax return since the Company's ownership
percentage was reduced below 80% as of that date. In connection with the
deconsolidation of NewCom, Inc. for Federal income tax reporting purposes, the
Company recognized an income tax benefit of approximately $1.3 million for
financial reporting purposes in the accompanying statement of operations for
Fiscal 1998. The Company's Japanese subsidiary, MYS Corporation, pays income
taxes to the Japanese government at an effective rate of approximately fifty
eight percent. At February 28, 1999 and February 28, 1998, MYS Corporation had a
current income tax receivable and liability of approximately $153,000 and
$176,000, respectively.
(12) Common Stock, Stock Options and Warrants
The Company has 200,000,000 shares of $.005 par value common stock
authorized for issuance.
The Company has granted nonqualified stock options to certain directors and
employees. Options are granted at fair market value at the date of grant, vest
immediately, and are exercisable at any time within a five-year period from the
date of grant.
A summary of activity in the directors stock option plan follows:
<TABLE>
<CAPTION>
Shares Exercise Price
<S> <C> <C>
Options outstanding at February 29, 1996 1,009,578 $1.44-$5.50
Grants -- --
Cancellations -- --
Exercises -- --
---------- -------------
Options outstanding at February 28, 1997 1,009,578 1.44-5.50
Grants 50,000 2.30
Cancellations -- --
Exercises -- --
Options outstanding at February 28, 1998 1,059,578 1.44-5.50
Grants -- --
Cancellations -- --
Exercises -- --
Expired 499,578 1.44-5.50
-------------- --------------
Options outstanding at February 28,1999 560,000 $2.06-$4.75
============== ==============
</TABLE>
The following table summarizes information about director
stock options at February 28, 1999:
<TABLE>
<CAPTION>
Number Weighted Number
Range of Outstanding at Average Average Exercise Exercisable As
Exercise Price 2/28/99 Remaining Life Price of 2/28/99 Exercise Price
<S> <C> <C> <C> <C> <C>
$2.30 50,000 8.13 2.30 50,000 $2.30
$2.06 400,000 8.36 2.06 400,000 $2.06
$3.06 70,000 0.33 3.00 70,000 $3.06
$4.75 40,000 0.09 4.75 40,000 $4.75
</TABLE>
(13) Employee Stock Plans
The Company has two employee benefit plans: The Employee Stock
Ownership Plan (ESOP) and the 1989 Stock Option Plan (the Stock Option
Plan). A previous plan, the 1989 Employee Stock Ownership Plan, was
terminated in Fiscal 1992 and all plan assets were distributed to
participants.
The ESOP is a qualified discretionary employee stock ownership plan
that covers substantially all employees. This plan was formally
approved by the Board of Directors during Fiscal 1990. The Company made
no contributions to the ESOP in Fiscal 1999, 1998 and 1997
respectively.
During Fiscal 1990, the Company's Board of Directors adopted the Stock
Option Plan, a nonqualified plan which was subsequently approved by the
shareholders. The Stock Option Plan authorizes the grant of options to
purchase the greater of up to 8% of the Company's outstanding common
shares or 4,170,000 common shares. Shares currently under option
generally vest ratably over a five year period.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123 "Accounting for Stock-Based Compensation," which contains a
fair value-based method for valuing stock-based compensation that
entities may use, which measure compensation cost at the grant date
based on the fair value of the award. Compensation is then recognized
over the service period, which is usually the vesting period.
Alternatively, the standard permits entities to continue accounting for
employee stock option and similar equity instruments under APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Entities that
continue to account for stock options using APB Opinion No. 25 are
required to make pro forma disclosures of net income and earnings per
share, as if the fair value-based method of accounting defined is SFAS
No. 123 had been applied. Management accounts for options under APB
Opinion No. 25. If the alternative accounting-related provisions of
SFAS No. 123 had been adopted as of the beginning of 1995, any effect
on 1999, 1998 and 1997 net loss and loss per share would have
been immaterial.
A summary of activity in the employee stock option plan is as follows:
<TABLE>
<CAPTION>
Shares Exercise Price
<S> <C> <C>
Options outstanding at February 29, 1996 3,889,800 $1.44-7.31
----------- -------------
Grants -- --
Cancellations -- --
Exercises (10,000) 3.50
Options outstanding at February 28, 1997 3,879,800 1.44-7.31
--------- -------------
Grants 2,983,000 1.79-2.15
Cancellations (3,002,800) 1.44-3.06
Exercises (25,000) 2.06
----------- -------------
Options outstanding at February 28, 1998 3,835,000 1.44-7.31
-------------- -------------
Grants 2,800,000 3.31
Cancellations (59,700) 1.44-7.31
Exercises (50,000) 2.06
--------------- -------------
Options outstanding at February 28, 1999 6,525,300 $1.44-7.31
============== =============
</TABLE>
The following table summarizes information about employee stock options at
February 28, 1999:
<TABLE>
<CAPTION>
Number Weighted Number
Range of Outstanding at Average Average Exercise Exercisable As
Exercise Price 2/28/99 Remaining Life Price of 2/28/99 Exercise Price
<S> <C> <C> <C> <C> <C>
$3.06-$4.12 131,800 0.44 3.26 131,800 $3.06-$4.12
$1.44 431,000 1.92 1.44 431,000 $1.44
$7.25 7,500 2.75 7.25 7,500 $7.25
$3.00-$4.00 215,000 3.62 3.47 215,000 $3.00-$4.00
$3.50-$7.31 32,000 4.60 5.89 32,000 $3.50-$7.31
$1.79-$2.15 2,908,000 8.42 2.04 2,628,000 $2.06
$3.31 2,800,000 9.05 3.31 -- $3.31
</TABLE>
(14) Leases
The Company leases office facilities and equipment under operating leases
that expire through Fiscal 2009. Other costs, such as property taxes, insurance
and maintenance, are also paid by the Company. Rental expense charged to
operations approximated $ 1.8 million, $1.3 million and $1.3 million in Fiscal
1999, 1998 and 1997, respectively.
At February 28, 1999, minimum rentals under non-cancelable operating leases
are as follows: Fiscal year:
Gross Rents Sublease Net Rents
2000 $1,238,623 $77,472 $1,161,151
2001 1,030,348 18,005 1,012,343
2002 995,209 -- 995,209
2003 998,728 -- 998,728
2004 959,456 -- 959,456
2005-2009 3,049,967 -- 3,049,967
-------------- -------------- --------------
$8,272,331 $95,477 $8,176,854
============== ============== ==============
(15) Significant Customers
The Company on a consolidated basis sold sound related products and
computer related products to five significant customers during Fiscal
1999. Sales by MYS Corporation to a major electronics retailer
accounted for approximately $16.3 million or 20.1% of revenues. Sales
of communications and multimedia products to major mass merchandisers
Best Buy, Circuit City, and Staples accounted for $12.6 million or
15.5% of revenues. None of these customers are related to the Company
or any other customer of the Company.
(16) Commitments and Contingencies
The Company is engaged in various legal actions listed below. In the
case of a judgment or settlement, appropriate provisions have been made
in the financial statements.
At February 28, 1999, the Company had approximately $2.8 million in
firm non-cancelable commitments related to tooling costs incurred by
independent contractors and for the purchase of inventory.
Shareholder Litigation
Barovich/Chiau v. Aura
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. Subsequently the parties and the insurer entered into an amended
settlement agreement. As amended the settlement calls for the total
settlement amount of $4 million to remain the same, with the insurer
contributing $1.8 million and the remaining $2.2 million to be paid by
Aura in cash over a period of three years, with accrued interest at the
rate of 8% per annum. The settlement was preliminarily approved by the
Court on December 6, 1999, and is subject to final confirmation by the
Court on March 20, 2000.
Morganstein v. Aura.
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 stipulation for settlement Aura agreed to 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 agreed to pay
$10.5 million. The settlement was finally approved by the Court in
October 1999 and was thereafter amended in December 1999 to allow Aura
to defer payment of the settlement amount until April 2000 in exchange
for an additional 2 million shares of Aura Common Stock, subject to
certain adjustments.
NewCom Related Litigation
American Casualty v. Aura
On June 22, 1999, a lawsuit naming Aura was filed in the United States
District Court for the Central District of California, American
Casualty Company of Reading, Pennsylvania ("American Casualty") vs.
Aura et. al. (Case No. CV-99-06343). The complaint alleges that
American Casualty, as surety, executed and delivered a performance bond
on behalf of NewCom to Actrade Capital, Inc. ("Actrade") in 1998, which
American Casualty became liable to obligee Actrade when NewCom
defaulted on repayment of the penal sum of $4,427,093.92. In seeking
damages from NewCom, American Casualty further alleged that Aura was
liable because it executed an express general agreement of indemnity,
indemnifying American Casualty on the referenced NewCom bond and a
rider which became the subject of the litigation. Aura answered the
complaint and NewCom defaulted. Subsequently, in December, 1999, the
parties reached mutually an agreement in principal to settle the
matter, Aura agreeing to pay American Casualty: (i) $1,000,000 plus
interest at a rate of 8% per annum from December 1, 1999, in thirty-six
equal monthly installments commencing March 2000; (ii) $1,000,000 plus
interest at a rate of 8% per annum from December 1, 1999, in
twenty-four equal monthly installments commencing December 1, 2002; and
(iii) warrants to purchase up to 1,000,000 shares of the Company's
common stock thirty three months from November 1, 1999 at a pre-reverse
stock split exercise price of $2.46 per share. The Company expects to
enter into the settlement prior to February 29, 2000, which is in
accordance with the Aura's informal restructure .
NEC Technologies v. NewCom
In 1998, a lawsuit naming NewCom, Inc. was filed in the
Superior Court of the State of California, Los Angeles County, NEC
Technologies vs. NewCom et. al (Case No. YC 033592). The complaint
alleged that NewCom failed to pay NEC for products purchased in the sum
of approximately $3,000,000. Subsequently, NEC and NewCom entered into
a stipulated settlement where Aura guaranteed expressly NewCom's
performance on the settlement. NewCom thereafter defaulted on the
settlement and the stipulated judgment was filed in April, 1999.
Following negotiation by Aura and NEC, in November, 1999, a settlement
was entered into whereby NEC is to receive $2,479,142.50 plus interest
at eight percent per annum in thirty-six equal monthly installments,
which is in accordance with Aura's informal restructure.
Deutsche Financial Services v. Aura
In June, 1999, a lawsuit naming Aura was filed in United States
District Court for the Central District of California, Deutsche
Financial Services ("DFS") vs. Aura (Case No. 99-03551 GHK (BQRx)). The
complaint follows DFS' termination of its credit facility with NewCom
of $11,000,000 and seizure of substantially all of NewCom's collateral
in April, 1999. It alleges, among other things, that Aura is liable to
DFS for NewCom's indebtedness under the secured credit facility
purportedly guaranteed by Aura in 1996, well prior to the NewCom
initial public offering of September 1997. In the proceeding, DFS
sought an order to attach Aura's assets which was denied following an
evidentiary hearing before the Honorable Brian Quinn Robbins, U.S.
Magistrate, and the matter has been ordered by the District Court to
binding arbitration. Aura has now responded in arbitration, denying
DFS' claims and has asserted in its defense, among other things, that
the guarantee, if any, is discharged. In addition, Aura through its
counsel, has asserted cross-claims for, among other things, tortious
lender liability, alleging that DFS wrongfully terminated the NewCom
credit facility, wrongfully seized the NewCom collateral and wrongfully
foreclosed upon NewCom collateral, acting in a commercially
unreasonably manner. A panel of three arbitrators has been selected and
appointed by the American Arbitration Association and a hearing in the
arbitration has been set for May, 2000. The Company believes it has
meritorious defenses and cross claims. However, no assurances can be
given as to the ultimate outcome of this proceeding.
Excalibur v. Aura
On November 12, 1999, a lawsuit was filed by three investors against Aura
and Zvi Kurtzman, Aura's Chief Executive Officer, in Los Angeles Superior
Court entitled Excalibur Limited Partnership v. Aura Systems, Inc. (Case
No. BC220054) arising out of two NewCom, Inc. financings consummated in
December 1998.
The NewCom financings comprised (1) a $3 million investment into NewCom
in exchange for NewCom Common Stock, Warrants for NewCom Common Stock,
and certain "Re-pricing Rights" which entitled the investors to receive
additional shares of NewCom Common Stock in the event the price of
NewCom Common Stock fell below a specified level, and (2) a loan to
NewCom of $1 million in exchange for a Promissory Note and Warrants to
purchase NewCom Common Stock. As part of these financings Aura agreed
with the investors to allow their Re-pricing Rights with respect to
NewCom Stock to be exercised for Aura Common Stock, at the investors'
option. Aura also agreed to register Aura Common Stock relating to
these Re-pricing Rights.
The Plaintiffs allege in their complaint that Aura breached its
agreements with the Plaintiffs by, among other things, failing to
register the Aura Common Stock relating to the Re-pricing Rights. The
Plaintiffs further allege that Aura misrepresented its intention to
register the Aura shares in order to induce the Plaintiffs to loan $1.0
million to NewCom. The Complaint seeks damages of not less than $4.5
million. In January 2000 Aura filed counterclaims against the
Plaintiffs, including claims that the Plaintiffs made false
representations to Aura in order to induce Aura to agree to issue its
Common Stock pursuant to the Re-pricing Rights. The Company believes
that it has meritorious defenses and counterclaims to the Plaintiffs'
allegations. However, no assurances can be given as to the ultimate
outcome of this proceeding.
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, record-keeping 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 Legal Actions
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.
(17) Concentrations of Credit Risk
Financial instruments that subject the Company to concentration of
credit risk are cash equivalents, trade receivables, notes receivable,
trade payables and notes payable. The carrying value of these financial
instruments approximate their fair value at February 28, 1999. Cash
equivalents consist principally of short-term money market funds, these
instruments are short term in nature and bear minimal risk.
The Company performs credit background checks and evaluates the credit
worthiness of all potential new customers prior to granting credit. UCC
financing statements are filed, when deemed necessary.
(18) Recently Issued Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5 (SOP No. 98-5), "Reporting on Costs
of Start-up Activities." Adoption of SOP No. 98-5 will have no material
impact on the Company's financial statements.
(19) Fourth Quarter Adjustments
Certain fourth quarter adjustments were made in Fiscal 1999 that are
significant to the quarter and to comparisons between quarters.
Presented below are the approximate amount of adjustments which are the
result of fourth quarter events and their effects recorded in the
fourth quarter.
During the fourth quarter of Fiscal 1999 the Company experienced severe
cash flow problems that had a major impact on the entire operations of the
Company. The Company began to consolidate its operations around the AuraGen
technology and product. The Company terminated all of its joint ventures
due to its inability to support them. As the Company was cutting down and
scaling back its operations the Company evaluated its asset utilization and
concluded that certain asset values had been impaired. In addition numerous
assets such as machinery and equipment that were no longer needed were sold
at a loss. The Company over the years has made strategic investments in
order to improve its utilization of certain technologies. As the company
eliminated operations, these investments no longer retained their economic
value. In addition to the Company`s heavy losses in its NewCom investment
the Company was also a party to certain explicit written guarantees that
were triggered when NewCom's business deteriorated.
The following table summarizes certain fourth quarter events that
contribute to the loss in Fiscal 1999.
Termination of Joint Ventures $5.6 million
Depreciation Expense $4.6 million
Accounts Receivable reserves and write-off's $13.0 million
Asset Impairment $9.4 million
Interest Expense $3.5 million
Disposed Assets $1.2 million
Investment write-off's and losses $7.0 million
Guarantees for NewCom $9.9 million
NewCom loss (Aura Share) $45.8 million
Total $100.0 million
(20) Segment Reporting
The Company adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), Disclosures about Segments of an Enterprise and Related
Information," as of February 28, 1999. SFAS 131 establishes standards
for the way public business enterprises report information about
operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services
geographic areas and major customers. SFAS 131 defined operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision makers in deciding how to allocate resources and in
assessing performance. The Company has aggregated its business
activities into three operating segments: electromagnetic and
electro-optical technology (Aura), computer related communications
(NewCom) and sound and professional and consumer sound system
components (AuraSound).
The electromagnetic and electro-optical technology operating segment
consists of the development, commercialization and sales of products,
systems and components using patented and proprietary electromagnetic
and electro-optical technology. The Company has aggregated all
electromagnetic and electro-optical operating units due to commonality
of economic characteristics, technology employed, and class of
customer. In addition, this segment also includes our corporate
headquarters and revenues generated from the sale of computer monitors.
The overall management and operating results for this segment are based
on the activities and operations as noted.
The computer related communications and sound related products
operating segment consists of the manufacturing and selling of high
performance computer communication and multimedia products for the
personal computer market. The segment also includes internal and
external data fax modems, speaker phones, sound cards, and multimedia
kits. This operating segment suffered significant operating losses
during the year ended February 28, 1999 and ceased operations
subsequent to the year ended February 28, 1999.
The sound segment consists of the manufacture and sale of professional
and consumer sound system components and products, including speakers,
amplifiers, and Bass Shakers. We aggregated the sound segment operating
units due to economic characteristics, products and services, the
production process class of customer and distribution process.
Subsequent to February 28, 1999, the Company elected to discontinue
this segment and the segment was sold in two separate transactions, see
note 21.
<TABLE>
<CAPTION>
Aura NewCom AuraSound Consolidated
Net Revenues* (in thousands)
<S> <C> <C> <C> <C>
1999 $ 6,830 $ 46,820 $ 27,868 $ 81,518
1998 $ 10,252 $ 93,687 $ 32,776 $ 136,715
1997 $ 27,547 $ 50,632 $ 31,771 $ 109,950
Income (loss) from Operations
1999 $ (54,396) $ (94,357) $ (14,409) $ (163,162)
1998 $ (19,238) $ 11,872 $ (3,954) $ (11,320)
1997 $ (4,913) $ 5,164 $ (1,435) $ (1,184)
Identifiable Assets
1999 $ 63,754 $ -- $ 26,389 $ 90,143
1998 $ 96,735 $ 96,127 $ 34,441 $ 227,303
1997 $ 86,957 $ 47,435 $ 48,136 $ 182,528
Depreciation and Amortization
1999 $ 7,375 $ 1,511 $ 4,099 $ 12,985
1998 $ 3,621 $ 1,274 $ 3,467 $ 8,362
1997 $ 2,591 $ 348 $ 1,858 $ 4,797
Capital Expenditures
1999 $ 2,450 $ 161 $ 1,443 $ 4,054
1998 $ 15,322 $ 1,455 $ 1,229 $ 18,006
1997 $ 14,008 $ 2,121 $ 9,018 $ 25,147
Number of operating locations at year-end (unaudited)
1999 2 2 5 9
1998 2 2 5 9
1997 4 1 5 10
</TABLE>
* Includes revenue from external customers for all groups of products and
services in each segment reported. Products and services sold by each
segment are generally similar in nature; also it is impracticable to
disclose revenues by product.
Segment Reporting
Revenue from customer geographical segments are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
U.S., Canada, Latin America $58,871 72.22% $120,517 88.15% $84,862 77.18%
Europe $ 772 0.95 451 0.33 1,404 1.28
Pacific Rim 21,875 26.83 15,747 11.52 23,684 21.54
------- ------ -------- ------ -------- ------
$81,518 100.00% $136,715 100.00% $109,950 100.00%
======= ======= ========= ======= ========= =======
</TABLE>
The majority of the Company's operating long-lived assets are located
in the United States
(21) Subsequent Events
Sale of MYS Corp.
In March 1999, the Company entered into an agreement for the sale of
MYS Corp. and subsidiaries to the management of MYS. The terms of the
agreement called for a purchase price of $4.2 million with a down
payment of $1.0 million, which was paid on April 15, 1999, and the
balance, including interest at 8% per annum, due in twelve equal
monthly installments.
Sale of Assets of AuraSound
In July 1999, the Company entered into an agreement for the sale of
the assets of the Company's AuraSound speaker division with a supplier
to Sound. The terms of the agreement called for a purchase price of
$2.0 million plus the assumption of up to $1.6 million in debt. The
terms further stated that the liabilities assumed would not exceed the
net realizable value of the accounts receivable by more than $300,000.
In addition to the sale of the assets, the Company entered into a
licensing agreement with the purchaser which calls for a license fee of
$1.5 million payable in monthly installments, with an additional option
to purchase the patents under license. The option may be exercised at
any time prior to the third year anniversary for an additional payments
of $1,500,000.
Restructuring of RGC International Investors, LDC, debt
In October 1999 the Company entered into an agreement with RGC
International Investors, LDC and a third party investor (AuraSound's
assets purchaser) whereby RGC (i) sold to the third party the Company's
Convertible Unsecured Debentures (the "RGC debentures") in the aggregate
principal amount of $17,365,000, (ii) exchanged with the Company its $3
million Secured Convertible Note for a new non-convertible Secured Note
(the "New RGC Note") in the principal amount of $3 million, and (iii)
cancelled Warrants to purchase 9,000,770 shares of the Company's Common
Stock in exchange for new Warrants to purchase 1,000,000 shares of
common stock exercisable at $0.375 per share. The New RGC Note bears
interest at the rate of 8% per annum, with principal and interest
payable no less frequently than quarterly. The New RGC Note continues
to be secured by a lien on certain assets of the Company, including
inventory and accounts receivable.
Under the agreement with the new holder of the RGC Debentures, the RGC
Debentures are convertible into a maximum of 46,500,000 shares of the
Company's Common Stock. The holder of the RGC Debentures has agreed to
cancel the outstanding principal and interest owed under the RGC
Debentures upon consummation of the restructuring of approximately
$14.7 million of outstanding Debentures held by a third party. See
"Restructuring of Infinity Investors debt" below.
Retirement of JNC Debt
In December 1999, the Company consummated an agreement with JNC
Opportunity Fund, Ltd. resulting in the surrender for cancellation by
JNC of the Company's Convertible Debenture and 318,000 warrants in
exchange for a cash payment of $430,000, 3,500,000 shares of the
Company's Common Stock and 113,000 Warrants exercisable at $0.375 per
share expiring December 1, 2002.
Restructuring of Infinity Investors Debt
In November 1999 the Company entered into an agreement with the holders
of approximately $14.7 million of Debentures which were due in
September 1998. Under the terms of the agreement the Investors have
agreed to exchange (the "Exchange") the Debentures and Warrants to
purchase 1,111,111 shares of the Company's Common Stock for $3 million
in cash and a new Secured Note (the "New Secured Note") in the
principal amount of $12.5 million. The New Secured Note will be secured
by a lien on the Company's assets, will bear interest at the rate of 8%
per annum, payable quarterly, with the principal due three years from
the date of the exchange. In the event of a default under the New
Secured Note, the holder is entitled to convert the unpaid principal
and interest into Common Stock of the Company at $.60 per share. The
Company is entitled to a discount if the New Secured Note is prepaid,
which discount is initially 20% of the amount prepaid, and the discount
declines ratably over the three year term of the New Secured Note.
Consummation of the Exchange is subject to completion of a definitive
agreement with the holders of the Debentures.
Restructuring of Trade debt
In December 1999, the Company implemented a restructuring of
approximately $10.8 million of trade debt held by certain trade
creditors whereby the holders of a substantial portion of the trade
debt have agreed to the repayment of outstanding trade debt over a
period of three years, with interest at 8% per annum, commencing
January 2000.
Completion of Common Stock Private Placement
In November 1999 the Company completed a private placement of
approximately 27 million shares of its Common Stock at $0.27 per share,
resulting in gross proceeds of approximately $6.9 million.
<PAGE>
SCHEDULE II
AURA SYSTEMS, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended February 28, 1999, February 28, 1998 and February 28, 1997
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
beginning of costs and other end
period expenses Accounts Deductions of period
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowances are deducted from the
assets to which they apply
Year ended February 28, 1999 Allowance for:
Uncollectible Accounts $ 5,431,525 $13,314,320 $10,000,000 $20,596,294 $ 8,149,551
Reserve for returns 569,605 24,741,084 -- 25,189,215 121,474
Reserve for potential product
obsolescence 4,535,000 15,906,337 -- 12,565,337 7,876,000
--------- ---------- ------------ ---------- ---------
$10,536,130 $53,961,741 $10,000,000 $58,350,846 $16,147,025
========== ========== ========== =========== ==========
Year ended February 28, 1998:
Allowance for:
Uncollectible Accounts $2,090,652 $ 3,617,056 $ -- $ 276,183 $5,431,525
Reserve for returns 1,512,679 23,504,148 -- 24,447,222 569,605
Reserve for potential product
obsolescence 2,255,000 4,030,000 -- 1,750,000 4,535,000
--------- ------------ ---------- ----------- ----------
$5,858,331 $31,151,204 $ -- $26,473,405 $10,536,130
========= ========== ========== ========== ==========
Year ended February 28, 1997:
Allowance for:
Uncollectible Accounts $ 1,947,883 $ 737,577 $ -- $ 594,808 $2,090,652
Reserve for returns 535,119 977,560 -- -- 1,512,679
Reserve for potential product
obsolescence -- 2,255,000 -- -- 2,255,000
---------- --------- ----------- ----------- ---------
$2,483,002 $3,970,137 $ -- $ 594,808 $5,858,331
========= ========= ========== ========== =========
</TABLE>
Amounts charged to other accounts include amounts charged for price protection
and rebates.
ASSET PURCHASE AGREEMENT
among:
AURASOUND, INC.,
a Delaware corporation;
AURA SYSTEMS, INC.,
a Delaware corporation;
ALGO SOUND, INC.,
a California corporation;
and
ALGO TECHNOLOGY, INC.,
a California corporation
----------------------------
Dated as of December 1, 1999
----------------------------
<PAGE>
28
1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered into as of December
1, 1999, by and among: AURASOUND, INC., a Delaware corporation (the "Seller");
AURA SYSTEMS, INC., a Delaware corporation and Seller's sole shareholder (the
"Shareholder"); and ALGO TECHNOLOGY, INC., a California corporation ("Parent")
and ALGO SOUND, INC., a California corporation (the "Purchaser"). Certain
capitalized terms used in this Agreement are defined in Exhibit A.
RECITALS
A. The Shareholder is the sole shareholder of the Seller.
B. The Shareholder and the Seller wish to provide for the sale of
substantially all of the assets of the Seller to the Purchaser on the terms set
forth in this Agreement.
C. The Shareholder has licensed and granted an option to certain
intellectual property rights pursuant to a license agreement of even date
herewith (the "License Ageement").
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
1. SALE OF ASSETS; RELATED TRANSACTIONS.
1.1 Sale of Assets. The Shareholder and the Seller shall cause to be sold,
assigned, transferred, conveyed and delivered to the Purchaser, at the Closing
(as defined below), good and valid title to the Assets (as defined below), free
of any Encumbrances, on the terms and subject to the conditions set forth in
this Agreement. For purposes of this Agreement, "Assets" shall mean and include
all of the properties, rights, interests and other tangible and intangible
assets of the Seller (wherever located and whether or not required to be
reflected on a balance sheet prepared in accordance with generally accepted
accounting principles; provided, however, that the Assets shall not include any
Excluded Assets. Without limiting the generality of the foregoing, the Assets
shall include:
(1) all accounts receivable, notes receivable and
other receivables of the Seller (including all accounts receivable
identified in Part 2.8 of the Disclosure Schedule);
(2) all inventories and work-in-progress of the
Seller, and all rights to collect from customers (and to retain) all
fees and other amounts payable, or that may become payable, to the
Seller with respect to services performed on behalf of the Seller on or
prior to the Closing Date;
(3) all equipment, materials, prototypes, tools,
supplies, vehicles, furniture, fixtures, improvements and other
tangible assets of the Seller (including the tangible assets identified
in Part 2.11 of the Disclosure Schedule);
(4) all advertising and promotional materials
possessed by the Seller;
(5) all Proprietary Assets and goodwill of the
Seller (including the Proprietary Assets
identified in Part 2.13 of the Disclosure
Schedule);
(6) all rights of the Seller under the Seller
Contracts (including the Seller Contracts identified in Part 2.14 of
the Disclosure Schedule);
(7) all Governmental Authorizations held by the
Seller (including the Governmental
Authorizations identified in Part 2.17 of
the Disclosure Schedule);
(8) all claims (including claims for past
infringement of Proprietary Assets) and causes of action of the Seller
against other Persons (regardless of whether or not such claims and
causes of action have been asserted by the Seller), and all rights of
indemnity, warranty rights, rights of contribution, rights to refunds,
rights of reimbursement and other rights of recovery possessed by the
Seller (regardless of whether such rights are currently exercisable);
and
(9) all books, records, files and data of the Seller
or Shareholder necessary for the non-interrupted operation of the
business of Seller.
1.2 License Agreement. It shall be a condition to Closing that the parties
thereto shall have entered into that certain license agreement in substantially
the form attached hereto as Exhibit ___.
1.3 Purchase Price.
(a) As consideration for the sale of the Assets to the Purchaser:
(i) at the Closing (as defined below), the Purchaser shall (i) pay to the
Seller a total of $100,000.00 (less all principal and accrued and
unpaid interest accrued as of the Closing Date under those certain
promissory notes, dated June 7, 1999, June 25, 1999, July 1, 1999, and
July 1, 1999 (the "Notes"), issued by Seller to Lender (as defined
therein) and (ii) deliver the canceled Notes;
intentionally omitted;
(iii) subject to Section 6.4, beginning on January 15, 2000 and on the 15th
of each month thereafter for a total of nineteen (19) payments, Parent
shall pay to Seller each month, in cash, $100,000.00 for a total
payment of $1,900,000.00;
(iv) subject to Section 6.4, on each annual anniversary of the Closing Date
until such time as the payment obligations of Sections 1.2(a)(ii) and
(iii) have been completed, Parent shall pay to the Seller, in cash,
interest that has accrued on amounts unpaid under Sections 1.2(a)(ii)
and (iii). Interest shall accrue commencing on the Closing Date at the
rate of eight percent (8%) per annum; and
(v) at the Closing, the Purchaser shall assume the Assumed Liabilities by
delivering to the Seller a Bill of Sale, Assignment, and Assumption
Agreement in substantially the form of Exhibit ___ (the "Assumption
Agreement").
Notwithstanding the foregoing, Parent's payment obligations under
Sections 1.2(a)(iii) and (iv) may be suspended in accordance with Section 6.4.
(b) For purposes of this Agreement "Assumed Liabilities" shall mean only the
following liabilities of the Seller:
(i) those accounts payable of the Seller in an amount not to exceed one
million six hundred thousand dollars ($1,600,000) that arose from bona
fide transactions entered into in the Ordinary Course of Business and
that remained unpaid as of the Closing Date which are listed in Part
2.15(b) of the Disclosure Schedule; and
(ii) the obligations of the Seller under the Contracts identified in Part
2.14 to the Disclosure Schedule, but only to the extent such
obligations (A) arise after the Closing Date, (B) do not arise from or
relate to any Breach by the Seller of any provision of any of such
Contracts, (C) do not arise from or relate to any event, circumstance
or condition occurring or existing on or prior to the Closing Date
that, with notice or lapse of time, would constitute or result in a
Breach of any of such Contracts, and (D) are ascertainable (in nature
and amount) solely by reference to the express terms of such Contracts;
provided, however, that notwithstanding the foregoing, and notwithstanding
anything to the contrary contained in this Agreement, the "Assumed Liabilities"
shall not include, and the Purchaser shall not be required to assume or to
perform or discharge:
(1) any Liability of any Shareholder or any
other Person, except for the Seller;
(2) any Liability of the Seller arising
out of or relating to the execution,
delivery or performance of any of the
Transactional Agreements;
(3) any Liability of the Seller for any
fees, costs or expenses of the type
referred to in Section 8.4(a) of Agreement;
(4) any Liability of the Seller arising from or
relating to any action taken by the Seller, or any failure on the part
of the Seller to take any action, at any time after the Closing Date;
(5) any Liability of the Seller arising from or
relating to (x) any services performed by the Seller for any customer,
or (y) any claim or Proceeding against the Seller;
(6) any Liability of the Seller for the payment
of any Tax;
(7) any Liability of the Seller to any employee or
former employee of the Seller under or with respect to any Employee
Benefit Plan, profit sharing plan or dental plan or for severance pay;
(8) any Liability of the Seller to any
Shareholder or any other Related Party;
(9) any Liability under any Contract, if the Seller
shall not have obtained, prior to the Closing Date, any Consent
required to be obtained from any Person with respect to the assignment
or delegation to the Purchaser of any rights or obligations under such
Contract;
(10) any Liability that is inconsistent with or
constitutes an inaccuracy in, or that arises or exists by virtue of any
Breach of, (x) any representation or warranty made by the Seller or any
Shareholder in any of the Transactional Agreements, or (y) any covenant
or obligation of the Seller or any Shareholder contained in any of the
Transactional Agreements; or
(11) any other Liability that is not referred to
specifically in clause "(i)" or "(ii)" of this sentence.
1.4 Sales Taxes. The Seller shall bear and pay, and shall reimburse the
Purchaser and the Purchaser's affiliates for, any transfer taxes, documentary
charges, recording fees or similar taxes, charges, fees or expenses that may
become payable in connection with the sale of the Assets to the Purchaser or in
connection with any of the other Transactions.
1.5 Allocation. At or prior to the Closing, Purchaser shall deliver to the
Seller a statement setting forth the Purchaser's good faith determination of the
manner in which the consideration referred to in Sections 1.2(a)(i), 1.2(a)(ii)
and 1.2(a)(iii) is to be allocated among the Assets. The allocation prescribed
by such statement shall be conclusive and binding upon the Shareholder and the
Seller for all purposes, and neither the Seller nor Shareholder shall file any
Tax Return or other document with, or make any statement or declaration to, any
Governmental Body that is inconsistent with such allocation.
1.6 Closing.
(a) The closing of the sale of the Assets to the Purchaser (the "Closing") shall
take place at the offices of Cooley Godward LLP in Palo Alto, California, at
10:00 a.m. on such date as the Purchaser may designate in a written notice
delivered to the Seller; provided, however, that if any condition set forth in
Section 4 has not been satisfied as of the date designated by the Purchaser,
then the Purchaser may, at its election, unilaterally postpone the Scheduled
Closing Time by up to 60 days. For purposes of this Agreement, "Scheduled
Closing Time" shall mean the time and date as of which the Closing is required
to take place pursuant to this Section 1.6(a); and "Closing Date" shall mean the
time and date as of which the Closing actually takes place.
(b) At the Closing:
(i) the Seller shall execute and deliver to the Purchaser such bills of
sale, endorsements, assignments and other documents as may (in the
reasonable judgment of the Purchaser or its counsel) be necessary or
appropriate to assign, convey, transfer and deliver to the Purchaser
good and valid title to the Assets free of any Encumbrances;
(ii) the Purchaser shall pay to the Seller such amount in cash as
contemplated by Section 1.2(a)(i) and deliver the canceled Notes;
(iii) the Purchaser shall execute and deliver to the Seller the Assumption
Agreement;
(iv) the Shareholder and the Seller shall execute and deliver to the
Purchaser a certificate (the "Closing Certificate") setting forth the
representations and warranties of the Shareholder and the Seller that (A)
each of the representations and warranties made by the Shareholder and the
Seller in this Agreement was accurate in all respects as of the date of
this Agreement, (B) except as expressly set forth in the Closing
Certificate, each of the representations and warranties made by the
Shareholder and the Seller in this Agreement is accurate in all respects as
of the Closing Date as if made on the Closing Date, (C) each of the
covenants and obligations that any of the Shareholder or the Seller is
required to have complied with or performed pursuant to this Agreement at
or prior to the Closing has been duly complied with and performed in all
respects, and (D) except as expressly set forth in the Closing Certificate,
each of the conditions set forth in Section 4.3 has been satisfied in all
respects; and
(v) the parties thereto shall have executed and delivered the License
Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER AND THE SELLER.
The Shareholder and the Seller, jointly and severally,
represent and warrant, to and for the benefit of the Indemnitees, as follows:
2.1 Due Organization; No Subsidiaries; Etc. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Seller is not required to be qualified, authorized, registered or
licensed to do business as a foreign corporation in any jurisdiction other than
the jurisdictions listed in Part 2.1 of the Disclosure Schedule. The Seller is
in good standing as a foreign corporation in each of the jurisdictions listed in
Part 2.1 of the Disclosure Schedule. The Seller does not have any subsidiaries
other than those listed in Part 2.1 of the Disclosure Schedule, and does not
own, beneficially or otherwise, any shares or other securities of, or any direct
or indirect interest of any nature in, any other Entity. The Seller has never
conducted any business under or otherwise used, for any purpose or in any
jurisdiction, any fictitious name, assumed name, trade name or other name.
2.2 Certificate of Incorporation and Bylaws; Records. The Seller has delivered
to (or made available for inspection by) the Purchaser accurate and complete
copies of: (i) the certificate of incorporation and bylaws of the Seller,
including all amendments thereto; and (ii) the stock records of the Seller. The
books of account, stock records, minute books and other records of the Seller
are accurate, up-to-date and complete, and have been maintained in accordance
with sound and prudent business practices. All of the records of the Seller are
in the actual possession and direct control of the Seller.
2.3 Capitalization. The Shareholder is the sole shareholder of the Seller. No
person other than the Shareholder has any right to vote with respect to the sale
of the Assets to the Purchaser or any of the other Transactions.
2.4 Financial Statements. The Seller has delivered to the Purchaser the
following financial statements (collectively, the "Financial Statements"): (a)
the unaudited balance sheet of the Seller as of February 28, 1999, and the
unaudited statement of income of the Seller for the one year period ending
February 28, 1999 ; and (b) the balance sheet of the Seller as of May 31, 1999
(the "Unaudited Interim Balance Sheet") and the unaudited statement of income of
the Seller for the period of March 1, 1999 through May 31, 1999. The Financial
Statements are accurate and complete in all respects, have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered (except that the financial statements
referred to in clause "(b)" of this Section 2.4 do not have notes) and present
fairly the financial position of the Seller as of the respective dates thereof.
2.5 Absence Of Changes. Except as set forth in Part 2.5 of the Disclosure
Schedule, since February 28, 1999:
(a) there has not been any adverse change in, and no event has occurred
that might have an adverse effect on, the business, condition, assets,
liabilities, operations, financial performance, net income or prospects
of the Seller;
(b) there has not been any loss, damage or destruction to, or any
interruption in the use of, any of the assets of the Seller (whether
or not covered by insurance);
(c) the Seller has not purchased or otherwise acquired any asset from any
other Person, except for supplies acquired by the Seller in the
Ordinary Course of Business;
(d) the Seller has not leased or licensed any asset from any other Person;
(e) the Seller has not made any capital expenditure;
(f) the Seller has not sold or otherwise transferred, or leased or
licensed, any asset to any other Person;
(g) the Seller has not written off as uncollectible, or established any
extraordinary reserve with respect to, any account receivable or other
indebtedness;
(h) the Seller has not made any loan or advance to any other Person;
(i) the Seller has not (i) established or adopted any Employee Benefit
Plan, or (ii) paid any bonus or made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions,
fees, fringe benefits or other compensation or remuneration payable to,
any of its directors, officers, employees or independent contractors;
(j) no Contract by which the Seller or any of the assets owned or used by
the Seller is or was bound, or under which the Seller has or had any
rights or interest, has been amended or terminated;
(k) the Seller has not incurred, assumed or otherwise become subject to any
Liability, other than accounts payable (of the type required to be
reflected as current liabilities in the "liabilities" column of a
balance sheet prepared in accordance with GAAP) incurred by the Seller
in bona fide transactions entered into in the Ordinary Course of
Business;
(l) the Seller has not discharged any Encumbrance or discharged or paid any
indebtedness or other Liability, except for accounts payable that (i)
are reflected as current liabilities in the "liabilities" column of the
Unaudited Interim Balance Sheet or have been incurred by the Seller
since May 31, 1999, in bona fide transactions entered into in the
Ordinary Course of Business, and (ii) have been discharged or paid in
the Ordinary Course of Business;
(m) the Seller has not forgiven any debt or otherwise released or waived
any right or claim;
(n) the Seller has not changed any of its methods of accounting or
accounting practices in any respect;
(o) the Seller has not entered into any transaction or taken any other
action outside the Ordinary Course of Business; and
(p) the Seller has not agreed, committed or offered (in writing or
otherwise) to take any of the actions referred to in clauses "(c)"
through "(o)" above.
2.6 Title To Assets. The Seller owns, and has good and valid title to, all of
the all assets purported to be owned by it and transferred to Purchaser pursuant
to this Agreement, including: all assets reflected on the Unaudited Interim
Balance Sheet; all assets acquired by the Seller since May 31, 1999; all assets
referred to in Parts 2.7, 2.8, 2.10, 2.11, 2.12, and 2.13 of the Disclosure
Schedule; all rights of the Seller under Seller Contracts; and all other assets
reflected in the books and records of the Seller as being owned by the Seller.
Except as set forth in Part 2.6 of the Disclosure Schedule, all of said assets
are owned by the Seller free and clear of any Encumbrances. Part 2.6 of the
Disclosure Schedule identifies all of the assets that are being leased or
licensed to the Seller. The Assets, in conjunction with the License Agreement,
will collectively constitute, as of the Closing Date, all of the properties,
rights, interests and other tangible and intangible assets necessary to enable
the Purchaser to conduct Seller's business in the manner in which such business
is currently being conducted and in the manner in which such business is
proposed to be conducted.
2.7 Bank Accounts. Part 2.7 of the Disclosure Schedule accurately sets forth,
with respect to each account maintained by or for the benefit of the Seller at
any bank or other financial institution: (a) the name and location of the
institution at which such account is maintained; (b) the name in which such
account is maintained and the account number of such account; (c) a description
of such account and the purpose for which such account is used; (d) the current
balance in such account; (e) the rate of interest being earned on the funds in
such account; and (f) the names of all individuals authorized to draw on or make
withdrawals from such account. There are no safe deposit boxes or similar
arrangements maintained by or for the benefit of the Seller.
2.8 Receivables. Part 2.8 of the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Seller as of the Closing Date. Except as set forth in
Part 2.8 of the Disclosure Schedule, all existing accounts receivable of the
Seller: (i) represent valid obligations of customers of the Seller arising from
bona fide transactions entered into in the Ordinary Course of Business; and (ii)
are current and will be collected in full (without any counterclaim or setoff)
on or before September 15, 1999). Part 2.8 of the Disclosure Schedule identifies
all unreturned security deposits and other deposits made by, or held by any
Person for the benefit of, the Seller.
2.9 Customers; Distributors. Part 2.9 of the Disclosure Schedule accurately
identifies, and provides an accurate and complete breakdown of the revenues
received from, each customer or other Person that (together which such
customer's or other Person's affiliates) accounted for more than $20,000.00 of
the gross revenues of the Seller in 1997, 1998, or 1999. Other than as
identified in Part 2.9 of the Disclosure Schedule, neither the Seller nor
Shareholder has received any notice or other communication (in writing or
otherwise), and neither the Seller nor Shareholder has received any other
information, indicating that any customer or other Person identified or required
to be identified in Part 2.9 of the Disclosure Schedule may cease dealing with
the Seller or may otherwise reduce the volume of business transacted by such
Person with the Seller below historical levels. Neither the Seller nor
Shareholder has received any notice or other communication (in writing or
otherwise), or has received any other information, indicating that any
distributor of any of the Seller's products may cease acting as a distributor of
such products or otherwise dealing with the Seller.
2.10 Inventory. Part 2.10 of the Disclosure Schedule provides an accurate and
complete breakdown of all inventory (including raw materials, work in process
and finished goods) of the Seller as of the Closing Date. All of the Seller's
existing inventory not identified otherwise as "scrap" or "closeout": (a) is of
such quality and quantity as to be usable and saleable by the Seller in the
Ordinary Course of Business; (b) has been priced at the lower of cost or market
value using the "last-in, first-out" method; and (c) is free of any defect or
deficiency.
2.11 Equipment, Etc. Part 2.11 of the Disclosure Schedule accurately identifies
all equipment, materials, prototypes, tools, supplies, vehicles, furniture,
fixtures, improvements and other tangible assets owned by the Seller. Part 2.11
of the Disclosure Schedule also accurately identifies all tangible assets leased
to the Seller. Each asset identified or required to be identified in Part 2.11
of the Disclosure Schedule: (i) is structurally sound, free of defects and
deficiencies and in good condition and repair (ordinary wear and tear excepted);
(ii) complies in all respects with, and is being operated and otherwise used in
full compliance with, all applicable Legal Requirements; and (iii) is adequate
and appropriate for the uses to which it is being put. The assets identified in
Part 2.11 of the Disclosure Schedule are adequate for the conduct of the
business of the Seller in the manner in which such business is currently being
conducted and in the manner in which such business is proposed to be conducted.
2.12 Real Property. The Seller does not own any real property or any interest in
real property, except for the leaseholds created under the real property leases
identified in Part 2.12 of the Disclosure Schedule. Part 2.12 of the Disclosure
Schedule provides an accurate and complete description of the premises covered
by said leases and the facilities located on such premises. The Seller enjoys
peaceful and undisturbed possession of such premises.
2.13 Proprietary Assets.
(a) Part 2.13(a)(1) of the Disclosure Schedule identifies and provides a brief
description of all Proprietary Assets owned by the Seller (or by Shareholder and
that are needed for the conduct of, or are useful in connection with, the
business of the Seller). Part 2.13(a)(2) of the Disclosure Schedule identifies
and provides a brief description of each Proprietary Asset that is owned by any
other Person and that is licensed to or used by the Seller (except for any
Proprietary Asset that is licensed to the Seller under any third party software
license that (1) is generally available to the public, and (2) imposes no future
monetary obligation on the Seller) and identifies the license agreement or other
agreement under which such Proprietary Asset is being licensed to or used by the
Seller. The Seller or Shareholder has good and valid title to all of the
Proprietary Assets identified in Part 2.13(a)(1) of the Disclosure Schedule,
free of any Encumbrances, and has a valid right to use and otherwise exploit,
and to license others to use and otherwise exploit, all Proprietary Assets
identified in Part 2.13(a)(2) of the Disclosure Schedule. Except as set forth in
Part 2.13(a)(3) of the Disclosure Schedule, the Seller is not obligated to make
any payment to any Person for the use or other exploitation of any Proprietary
Asset. Except as set forth in Part 2.13(a)(4) of the Disclosure Schedule, the
Seller is free to use, modify, copy, distribute, sell, license or otherwise
exploit each of the Seller Proprietary Assets on an exclusive basis (other than
Proprietary Assets consisting of software licensed to the Seller under third
party licenses generally available to the public, with respect to which the
Seller's rights are not exclusive).
(b) The Seller or Shareholder has taken all reasonable measures and precautions
necessary to protect and maintain the confidentiality and secrecy of all Seller
and Shareholder Proprietary Assets (except Seller and Shareholder Proprietary
Assets whose value would be unimpaired by public disclosure) and otherwise to
maintain and protect the value of all Seller Proprietary Assets. The Seller and
Shareholder have not disclosed or delivered or permitted to be disclosed or
delivered to any Person, and no Person (other than the Seller or Shareholder)
has access to or has any rights with respect to, the source code, or any portion
or aspect of the source code, of any Seller or Shareholder Proprietary Asset.
(c) All patents, trademarks, service marks and copyrights that are registered
with any Governmental Body and held by the Seller or Shareholder are valid and
subsisting. None of the Seller Proprietary Assets infringes or conflicts with
any Proprietary Asset owned or used by any other Person. The Seller is not
infringing, misappropriating or making any unlawful use of, and the Seller has
not at any time infringed, misappropriated or made any unlawful use of, or
received any notice or other communication of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To the best of the knowledge of the
Seller and the Shareholder, no other Person is infringing, misappropriating or
making any unlawful use of, and no Proprietary Asset owned or used by any other
Person infringes or conflicts with, any Seller Proprietary Asset.
(d) The Proprietary Assets constitute all the Proprietary Assets necessary to
enable the Seller to conduct its business in the manner in which such business
is being conducted and in the manner in which such business is proposed to be
conducted. The Seller has not licensed any of the Seller Proprietary Assets to
any Person on an exclusive basis. The Seller has not entered into any covenant
not to compete or Contract limiting its ability to exploit fully any of the
Seller Proprietary Assets or to transact business in any market or geographical
area or with any Person.
(e) Except as set forth in Part 2.13(e) of the Disclosure Schedule, the Seller
has not entered into and is not bound by any Contract under which any Person has
the right to distribute or license any Proprietary Asset. The Seller has not
disclosed or delivered to any Person, or permitted the disclosure or delivery to
any Person, of the source code, or any portion or aspect of the source code, or
any proprietary information or algorithm contained in any source code, of any
Proprietary Asset. No event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could reasonably
be expected to, result in the disclosure or delivery to any Person of the source
code, or any portion or aspect of the source code, or any proprietary
information or algorithm contained in any source code, of any Proprietary Asset.
2.14 Contracts.
(a) Part 2.14 of the Disclosure Schedule identifies and provides an accurate and
complete description of each Seller Contract, except for any Immaterial
Contract. The Seller has delivered to the Purchaser accurate and complete copies
of all Contracts identified in Part 2.14 of the Disclosure Schedule, including
all amendments thereto. Each Seller Contract is valid and in full force and
effect.
(b) Except as set forth in Part 2.14 of the Disclosure Schedule: (i) no Person
has violated or breached, or declared or committed any default under, any Seller
Contract; (ii) no event has occurred, and no circumstance or condition exists,
that might (with or without notice or lapse of time) (A) result in a violation
or breach of any of the provisions of any Seller Contract, (B) give any Person
the right to declare a default or exercise any remedy under any Seller Contract,
(C) give any Person the right to accelerate the maturity or performance of any
Seller Contract, or (D) give any Person the right to cancel, terminate or modify
any Seller Contract; (iii) the Seller has not received any notice or other
communication (in writing or otherwise) regarding any actual, alleged, possible
or potential violation or breach of, or default under, any Seller Contract; and
(iv) the Seller has not waived any right under any Seller Contract.
(c) To the best of the knowledge of the Seller and the Shareholder, each Person
against which the Seller has or may acquire any rights under any Seller Contract
is solvent and is able to satisfy all of such Person's current and future
monetary obligations and other obligations and Liabilities thereunder.
(d) Except as set forth in Part 2.14 of the Disclosure Schedule, the Seller has
never guaranteed or otherwise agreed to cause, insure or become liable for, and
the Seller has never pledged any of its assets to secure, the performance or
payment of any obligation or other Liability of any other Person.
(e) The performance of the Seller Contracts will not result in any violation of
or failure to comply with any Legal Requirement.
(f) No Person is renegotiating, or has the right to renegotiate, any amount paid
or payable to the Seller under any Seller Contract or any other term or
provision of any Seller Contract.
(g) The Seller has no knowledge of any basis upon which any party to any Seller
Contract may object to (i) the assignment to the Purchaser of any right under
such Seller Contract, or (ii) the delegation to or performance by the Purchaser
of any obligation under such Seller Contract.
(h) The Contracts identified in Part 2.14 of the Disclosure Schedule
collectively constitute all of the Contracts necessary to enable the Seller to
conduct its business in the manner in which such business is currently being
conducted and in the manner in which such business is proposed to be conducted.
(i) Part 2.14 of the Disclosure Schedule identifies and provides an accurate and
complete description of each proposed Contract as to which any bid, offer,
written proposal, term sheet or similar document has been submitted or received
by the Seller.
2.15 Liabilities.
(a) Except as set forth in Part 2.15 of the Disclosure Schedule, the Seller has
no Liabilities, except for: (i) liabilities identified as such in the
"liabilities" columns of the Unaudited Interim Balance Sheet; (ii) accounts
payable (of the type required to be reflected as current liabilities in the
"liabilities" column of a balance sheet prepared in accordance with GAAP)
incurred by the Seller in bona fide transactions entered into in the Ordinary
Course of Business since May 31, 1999; and (iii) obligations under the Contracts
listed in Part 2.14 of the Disclosure Schedule, to the extent that the existence
of such obligations is ascertainable solely by reference to such Contracts.
(b) Part 2.15 of the Disclosure Schedule: (i) provides an accurate and complete
breakdown and aging of the accounts payable of the Seller as of the Closing
Date; (ii) provides an accurate and complete breakdown of any customer deposits
or other deposits held by the Seller as of the date of this Agreement; and (iii)
provides an accurate and complete breakdown of all notes payable and other
indebtedness of the Seller as of the date of this Agreement.
(c) Except as set forth in Part 2.15 of the Disclosure Schedule, the Seller has
not paid, and the Seller is not and will not become liable for the payment of,
any fees, costs or expenses of the type referred to in Section 8.4(a).
(d) Part 2.15 of the Disclosure Schedule accurately identifies, and provides an
accurate and complete breakdown of the amounts paid to, each supplier or other
Person that (together which such Person's affiliates) received more than $50,000
in the aggregate from the Seller in any of 1997, 1998, or 1999.
(e) The Seller has not, at any time, (i) made a general assignment for the
benefit of creditors, (ii) filed, or had filed against it, any bankruptcy
petition or similar filing, (iii) suffered the attachment or other judicial
seizure of all or a substantial portion of its assets, (iv) admitted in writing
its inability to pay its debts as they become due, (v) been convicted of, or
pleaded guilty or no contest to, any felony, or (vi) taken or been the subject
of any action that may have an adverse effect on its ability to comply with or
perform any of its covenants or obligations under any of the Transactional
Agreements.
2.16 Compliance with Legal Requirements. Except as set forth in Part 2.16 of the
Disclosure Schedule: (a) the Seller is in full compliance with each Legal
Requirement that is applicable to it or to the conduct of its business or the
ownership or use of any of its assets; (b) the Seller has at all times been in
full compliance with each Legal Requirement that is or was applicable to it or
to the conduct of its business or the ownership or use of any of its assets; (c)
no event has occurred, and no condition or circumstance exists, that might (with
or without notice or lapse of time) constitute or result directly or indirectly
in a violation by the Seller of, or a failure on the part of the Seller to
comply with, any Legal Requirement; and (d) the Seller has not received, at any
time, any notice or other communication (in writing or otherwise) from any
Governmental Body or any other Person regarding (i) any actual, alleged,
possible or potential violation of, or failure to comply with, any Legal
Requirement, or (ii) any actual, alleged, possible or potential obligation on
the part of the Seller to undertake, or to bear all or any portion of the cost
of, any cleanup or any remedial, corrective or response action of any nature.
The Shareholder and the Seller have delivered to the Purchaser an accurate and
complete copy of each report, study, survey or other document to which the
Shareholder or the Seller has access that addresses or otherwise relates to the
compliance of the Seller with, or the applicability to the Seller of, any Legal
Requirement. To the best of the knowledge of the Seller and the Shareholder, no
Governmental Body has proposed or is considering any Legal Requirement that, if
adopted or otherwise put into effect, (i) may have an adverse effect on the
business, condition, assets, liabilities, operations, financial performance, net
income or prospects of the Seller or on the ability of the Shareholder or the
Seller to comply with or perform any covenant or obligation under any of the
Transactional Agreements, or (ii) may have the effect of preventing, delaying,
making illegal or otherwise interfering with any of the Transactions.
2.17 Governmental Authorizations. Part 2.17 of the Disclosure Schedule
identifies: (a) each Governmental Authorization that is held by the Seller; and
(b) each other Governmental Authorization that, to the best of the knowledge of
the Shareholder and the Seller, is held by any employee of the Seller and
relates to or is useful in connection with the business of the Seller. The
Shareholder and the Seller have delivered to the Purchaser accurate and complete
copies of all of the Governmental Authorizations identified in Part 2.17 of the
Disclosure Schedule, including all renewals thereof and all amendments thereto.
Each Governmental Authorization identified or required to be identified in Part
2.17 of the Disclosure Schedule is valid and in full force and effect. Except as
set forth in Part 2.17 of the Disclosure Schedule: (i) the Seller is and has at
all times been in full compliance with all of the terms and requirements of each
Governmental Authorization identified or required to be identified in Part 2.17
of the Disclosure Schedule; (ii) no event has occurred, and no condition or
circumstance exists, that might (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of or a failure to
comply with any term or requirement of any Governmental Authorization identified
or required to be identified in Part 2.17 of the Disclosure Schedule, or (B)
result directly or indirectly in the revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization
identified or required to be identified in Part 2.17 of the Disclosure Schedule;
(iii) the Seller has never received any notice or other communication (in
writing or otherwise) from any Governmental Body or any other Person regarding
(A) any actual, alleged, possible or potential violation of or failure to comply
with any term or requirement of any Governmental Authorization, or (B) any
actual, proposed, possible or potential revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization; and
(iv) all applications required to have been filed for the renewal of the
Governmental Authorizations required to be identified in Part 2.17 of the
Disclosure Schedule have been duly filed on a timely basis with the appropriate
Governmental Bodies, and each other notice or filing required to have been given
or made with respect to such Governmental Authorizations has been duly given or
made on a timely basis with the appropriate Governmental Body. The Governmental
Authorizations identified in Part 2.17 of the Disclosure Schedule constitute all
of the Governmental Authorizations necessary (i) to enable the Seller to conduct
its business in the manner in which such business is currently being conducted
and in the manner in which such business is proposed to be conducted, and (ii)
to permit the Seller to own and use its assets in the manner in which they are
currently owned and used and in the manner in which they are proposed to be
owned and used.
2.18 Tax Matters.
(a) Each Tax required to have been paid, or claimed by any Governmental Body to
be payable, by the Seller has been duly paid in full on a timely basis. Any Tax
required to have been withheld or collected by the Seller has been duly withheld
and collected; and (to the extent required) each such Tax has been paid to the
appropriate Governmental Body.
(b) Part 2.18 of the Disclosure Schedule accurately identifies each examination
or audit of any Tax Return of the Seller that has been conducted since December
31, 1996. The Shareholders and the Seller have delivered to the Purchaser
accurate and complete copies of all audit reports and similar documents (to
which any Shareholder or the Seller has access) relating to such Tax Returns.
(c) Except as set forth in Part 2.18 of the Disclosure Schedule, no claim or
other Proceeding is pending or has been threatened against or with respect to
the Seller in respect of any Tax. There are no unsatisfied Liabilities for Taxes
(including liabilities for interest, additions to tax and penalties thereon and
related expenses) with respect to any notice of deficiency or similar document
received by the Seller. The Seller has not entered into or become bound by any
agreement or consent pursuant to Section 341(f) of the Code.
(d) There is no agreement, plan, arrangement or other Contract covering any
employee or independent contractor or former employee or independent contractor
of the Seller that, individually or collectively, could give rise directly or
indirectly to the payment of any amount that would not be deductible pursuant to
Section 280G or Section 162 of the Code.
(e) The Shareholder and the Seller have delivered to (or made available for
inspection by) the Purchaser accurate and complete copies of all Tax Returns
that have been filed on behalf of or with respect to the Seller since December
31, 1996. The information contained in such Tax Returns is accurate and complete
in all respects.
2.19 Employee And Labor Matters.
(a) Part 2.19 of the Disclosure Schedule accurately sets forth, with respect to
each employee of the Seller (including any employee who is on a leave of absence
or on layoff status): (i) the name and title of such employee; (ii) the
aggregate dollar amounts of the compensation (including wages, salary,
commissions, director's fees, fringe benefits, bonuses, profit-sharing payments
and other payments or benefits of any type) received by such employee from the
Seller with respect to services performed in 1998 and with respect to services
performed in 1999; (iii) such employee's annualized compensation as of the date
of this Agreement; (iv) the number of hours of sick-time which such employee has
accrued as of the date hereof and the aggregate dollar amount thereof; and (v)
the number of hours of vacation time which such employee has accrued as of the
date hereof and the aggregate dollar amount thereof.
(b) Part 2.19 of the Disclosure Schedule accurately identifies each former
employee of the Seller who is receiving or is scheduled to receive (or whose
spouse or other dependent is receiving or is scheduled to receive) any benefits
from the Seller relating to such former employee's employment with the Seller;
and Part 2.19 of the Disclosure Schedule accurately describes such benefits.
(c) Except as set forth in Part 2.19 of the Disclosure Schedule, the Seller is
not a party to or bound by, and has never been a party to or bound by, any
employment contract or any union contract, collective bargaining agreement or
similar Contract.
(d) The employment of the employees of the Seller is terminable by the Seller at
will and no employee is entitled to severance pay or other benefits following
termination or resignation, except as otherwise provided by law. The Shareholder
and the Seller have delivered to the Purchaser accurate and complete copies of
all employee manuals and handbooks, disclosure materials, policy statements and
other materials relating to the employment of the current and former employees
of the Seller.
(e) The Seller is not engaged in any unfair labor practice of any nature. There
has never been any slowdown, work stoppage, labor dispute or union organizing
activity, or any similar activity or dispute, affecting the Seller or any of its
employees, and no Person has threatened to commence any such slowdown, work
stoppage, labor dispute or union organizing activity or any similar activity or
dispute.
2.20 Benefit Plans; ERISA.
(a) Part 2.20 of the Disclosure Schedule identifies and provides an accurate and
complete description of each Plan. The Seller has never established, adopted,
maintained, sponsored, contributed to, participated in or incurred any Liability
with respect to any Employee Benefit Plan, except for the Plans identified in
Part 2.20 of the Disclosure Schedule; and the Seller has never provided or made
available any fringe benefit or other benefit of any nature to any of its
employees, except as set forth in Part 2.20 of the Disclosure Schedule.
(b) No Plan: (i) provides or provided any benefit guaranteed by the Pension
Benefit Guaranty Corporation; (ii) is or was a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA; or (iii) is or was subject to the minimum
funding standards of Section 412 of the Code or Section 302 of ERISA. There is
no Person that (by reason of common control or otherwise) is or has at any time
been treated together with the Seller as a single employer within the meaning of
Section 414 of the Code.
(c) The Shareholder and the Seller have caused to be delivered to the Purchaser,
with respect to each Plan: (i) an accurate and complete copy of such Plan and
all amendments thereto (including any amendment that is scheduled to take effect
in the future); (ii) an accurate and complete copy of each Contract (including
any trust agreement, funding agreement, service provider agreement, insurance
agreement, investment management agreement or recordkeeping agreement) relating
to such Plan; (iii) an accurate and complete copy of any description, summary,
notification, report or other document that has been furnished to any employee
of the Seller with respect to such Plan; (iv) an accurate and complete copy of
any form, report, registration statement or other document that has been filed
with or submitted to any Governmental Body with respect to such Plan; and (v) an
accurate and complete copy of any determination letter, notice or other document
that has been issued by, or that has been received by the Seller from, any
Governmental Body with respect to such Plan.
(d) Each Plan is being and has at all times been operated and administered in
full compliance with the provisions thereof. Each contribution or other payment
that is required to have been accrued or made under or with respect to any Plan
has been duly accrued and made on a timely basis. Each Plan has at all times
complied and been operated and administered in full compliance with all
applicable reporting, disclosure and other requirements of ERISA and the Code
and all other applicable Legal Requirements. The Seller has never incurred any
Liability to the Internal Revenue Service or any other Governmental Body with
respect to any Plan; and no event has occurred, and no condition or circumstance
exists, that might (with or without notice or lapse of time) give rise directly
or indirectly to any such Liability. Neither the Seller nor any Person that is
or was an administrator or fiduciary of any Plan (or that acts or has acted as
an agent of the Seller or any such administrator or fiduciary) has engaged in
any transaction or has otherwise acted or failed to act in a manner that has
subjected or may subject the Seller to any Liability for breach of any fiduciary
duty or any other duty. No Plan, and no Person that is or was an administrator
or fiduciary of any Plan (or that acts or has acted as an agent of any such
administrator or fiduciary): (i) has engaged in a "prohibited transaction"
within the meaning of Section 406 of ERISA or Section 4975 of the Code; (ii) has
failed to perform any of the responsibilities or obligations imposed upon
fiduciaries under Title I of ERISA; or (iii) has taken any action that (A) may
subject such Plan or such Person to any Tax, penalty or Liability relating to
any "prohibited transaction," or (B) may directly or indirectly give rise to or
serve as a basis for the assertion (by any employee or by any other Person) of
any claim under, on behalf of or with respect to such Plan.
(e) No inaccurate or misleading representation, statement or other communication
has been made or directed (in writing or otherwise) to any current or former
employee of the Seller (i) with respect to such employee's participation,
eligibility for benefits, vesting, benefit accrual or coverage under any Plan or
with respect to any other matter relating to any Plan, or (ii) with respect to
any proposal or intention on the part of the Seller to establish or sponsor any
Employee Benefit Plan or to provide or make available any fringe benefit or
other benefit of any nature.
(f) The Seller has not advised any of its employees (in writing or otherwise)
that it intends or expects to establish or sponsor any Employee Benefit Plan or
to provide or make available any fringe benefit or other benefit of any nature
in the future.
2.21 Environmental Matters.
(a) The Seller is not liable or potentially liable for any response cost or
natural resource damages under Section 107(a) of CERCLA, or under any other
so-called "superfund" or "superlien" law or similar Legal Requirement, at or
with respect to any site.
(b) The Seller has never received any notice or other communication (in writing
or otherwise) from any Governmental Body or other Person regarding any actual,
alleged, possible or potential Liability arising from or relating to the
presence, generation, manufacture, production, transportation, importation, use,
treatment, refinement, processing, handling, storage, discharge, release,
emission or disposal of any Hazardous Material. No Person has ever commenced or
threatened to commence any contribution action or other Proceeding against the
Seller in connection with any such actual, alleged, possible or potential
Liability; and no event has occurred, and no condition or circumstance exists,
that may directly or indirectly give rise to, or result in the Seller becoming
subject to, any such Liability.
(c) Except as set forth in Part 2.21 of the Disclosure Schedule, the Seller has
never generated, manufactured, produced, transported, imported, used, treated,
refined, processed, handled, stored, discharged, released or disposed of any
Hazardous Material (whether lawfully or unlawfully). Except as set forth in Part
2.21 of the Disclosure Schedule, the Seller has never permitted (knowingly or
otherwise) any Hazardous Material to be generated, manufactured, produced, used,
treated, refined, processed, handled, stored, discharged, released or disposed
of (whether lawfully or unlawfully): (i) on or beneath the surface of any real
property that is, or that has at any time been, owned by, leased to, controlled
by or used by the Seller; (ii) in or into any surface water, groundwater, soil
or air associated with or adjacent to any such real property; or (iii) in or
into any well, pit, pond, lagoon, impoundment, ditch, landfill, building,
structure, facility, improvement, installation, equipment, pipe, pipeline,
vehicle or storage container that is or was located on or beneath the surface of
any such real property or that is or has at any time been owned by, leased to,
controlled by or used by the Seller.
(d) All property that is owned by, leased to, controlled by or used by the
Seller, and all surface water, groundwater, soil and air associated with or
adjacent to such property: (i) is in clean and healthful condition; (ii) is free
of any Hazardous Material and any harmful chemical or physical conditions; and
(iii) is free of any environmental contamination of any nature.
(e) Each storage tank or other storage container that is or has been owned by,
leased to, controlled by or used by the Seller, or that is located on or beneath
the surface of any real property owned by, leased to, controlled by or used by
the Seller: (i) is in sound condition; and (ii) has been demonstrated by
accepted testing methodologies to be free of any corrosion or leaks.
2.22 Sale of Products. Each product that has been sold by the Seller to any
Person: (i) conformed and complied in all respects with the terms and
requirements of any applicable warranty or other Contract and with all
applicable Legal Requirements; and (ii) was free of any design defects
construction defects or other defects or deficiencies at the time of sale. The
Seller will not incur or otherwise become subject to any Liability arising
directly or indirectly from any product manufactured or sold by the Seller on or
at any time prior to the Closing Date. No product manufactured or sold by the
Seller has been the subject of any recall or other similar action; and no event
has occurred, and no condition or circumstance exists, that might (with or
without notice or lapse of time) directly or indirectly give rise to or serve as
a basis for any such recall or other similar action relating to any such
product.
2.23 Performance Of Services. All services that have been performed on behalf of
the Seller were performed properly and in full conformity with the terms and
requirements of all applicable warranties and other Contracts and with all
applicable Legal Requirements. The Purchaser will not incur or otherwise become
subject to any Liability arising directly or indirectly from any services
performed by the Seller. There is no claim pending or being threatened against
the Seller relating to any services performed by the Seller, and, to the best of
the knowledge of the Shareholder and the Seller, there is no basis for the
assertion of any such claim.
2.24 Insurance.
(a) Part 2.24 of the Disclosure Schedule accurately sets forth, with respect to
each insurance policy maintained by or at the expense of, or for the direct or
indirect benefit of, the Seller: (i) the name of the insurance carrier that
issued such policy and the policy number of such policy; (ii) whether such
policy is a "claims made" or an "occurrences" policy; (iii) a description of the
coverage provided by such policy and the material terms and provisions of such
policy (including all applicable coverage limits, deductible amounts and
co-insurance arrangements and any non-customary exclusions from coverage); (iv)
the annual premium payable with respect to such policy, and the cash value (if
any) of such policy; and (v) a description of any claims pending, and any claims
that have been asserted in the past, with respect to such policy or any
predecessor insurance policy. Part 2.24 of the Disclosure Schedule also
identifies (1) each pending application for insurance that has been submitted by
or on behalf of the Seller, (2) each self-insurance or risk-sharing arrangement
affecting the Seller or any of the assets of the Seller, and (3) all material
risks (of the type customarily insured by Comparable Entities) for which the
Seller does not maintain insurance coverage. The Shareholder and the Seller have
delivered to the Purchaser accurate and complete copies of all of the insurance
policies identified in Part 2.24 of the Disclosure Schedule (including all
renewals thereof and endorsements thereto) and all of the pending applications
identified in Part 2.24 of the Disclosure Schedule. Each of the policies
identified in Part 2.24 of the Disclosure Schedule is valid, enforceable and in
full force and effect, and has been issued by an insurance carrier that, to the
best of the knowledge the Seller and the Shareholder, is solvent, financially
sound and reputable. All of the information contained in the applications
submitted in connection with said policies was (at the times said applications
were submitted) accurate and complete, and all premiums and other amounts owing
with respect to said policies have been paid in full on a timely basis.
(b) Part 2.24 of the Disclosure Schedule identifies each insurance claim made by
the Seller since December 31, 1996. No event has occurred, and no condition or
circumstance exists, that might (with or without notice or lapse of time)
directly or indirectly give rise to or serve as a basis for any such insurance
claim. The Seller has not received: (i) any notice or other communication (in
writing or otherwise) regarding the actual or possible cancellation or
invalidation of any of the policies identified in Part 2.24 of the Disclosure
Schedule or regarding any actual or possible adjustment in the amount of the
premiums payable with respect to any of said policies; (ii) any notice or other
communication (in writing or otherwise) regarding any actual or possible refusal
of coverage under, or any actual or possible rejection of any claim under, any
of the policies identified in Part 2.24 of the Disclosure Schedule; or (iii) any
indication that the issuer of any of the policies identified in Part 2.24 of the
Disclosure Schedule may be unwilling or unable to perform any of its obligations
thereunder.
2.25 Related Party Transactions. Except as set forth in Part 2.25 of the
Disclosure Schedule: (a) no Related Party has any direct or indirect interest of
any nature in any of the assets of the Seller; (b) no Related Party is, or has
at any time since December 31, 1996 been, indebted to the Seller; (c) since
December 31, 1996, no Related Party has entered into, or has had any direct or
indirect financial interest in, any Seller Contract, transaction or business
dealing of any nature involving the Seller; (d) no Related Party is competing,
or has at any time since December 31, 1996 competed, directly or indirectly,
with the Seller; (e) no Related Party has any claim or right against the Seller;
and (f) no event has occurred, and no condition or circumstance exists, that
might (with or without notice or lapse of time) directly or indirectly give rise
to or serve as a basis for any claim or right in favor of any Related Party
against the Seller.
2.26 Certain Payments, Etc. The Seller has not, and no officer, employee, agent
or other Person associated with or acting for or on behalf of the Seller has, at
any time, directly or indirectly: (a) used any corporate funds (i) to make any
unlawful political contribution or gift or for any other unlawful purpose
relating to any political activity, (ii) to make any unlawful payment to any
governmental official or employee, or (iii) to establish or maintain any
unlawful or unrecorded fund or account of any nature; (b) made any false or
fictitious entry, or failed to make any entry that should have been made, in any
of the books of account or other records of the Seller; (c) made any payoff,
influence payment, bribe, rebate, kickback or unlawful payment to any Person;
(d) performed any favor or given any gift which was not deductible for federal
income tax purposes; (e) made any payment (whether or not lawful) to any Person,
or provided (whether lawfully or unlawfully) any favor or anything of value
(whether in the form of property or services, or in any other form) to any
Person, for the purpose of obtaining or paying for (i) favorable treatment in
securing business, or (ii) any other special concession; or (f) agreed,
committed or offered (in writing or otherwise) to take any of the actions
described in clauses "(a)" through "(e)" above.
2.27 Proceedings; Orders. Except as set forth in Part 2.27 of the Disclosure
Schedule, there is no pending Proceeding, and no Person has threatened to
commence any Proceeding: (i) that involves the Seller or that otherwise relates
to or might affect the business of the Seller or any of the Assets (whether or
not the Seller is named as a party thereto); or (ii) that challenges, or that
may have the effect of preventing, delaying, making illegal or otherwise
interfering with, any of the Transactions. Except as set forth in Part 2.27 of
the Disclosure Schedule, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that might directly or indirectly give rise to
or serve as a basis for the commencement of any such Proceeding. Except as set
forth in Part 2.27 of the Disclosure Schedule, no Proceeding has ever been
commenced by or against the Seller. The Shareholders and the Seller have
delivered to the Purchaser accurate and complete copies of all pleadings,
correspondence and other written materials (to which the Shareholder or the
Seller has access) that relate to the Proceedings identified in Part 2.27 of the
Disclosure Schedule. There is no Order to which the Seller, or any of the assets
owned or used by the Seller, is subject; and neither the Shareholders nor any
other Related Party is subject to any Order that relates to the Seller's
business or to any of the assets of the Seller. To the best of the knowledge of
the Seller and the Shareholder, no employee of the Seller is subject to any
Order that may prohibit employee from engaging in or continuing any conduct,
activity or practice relating to the business of the Seller. There is no
proposed Order that, if issued or otherwise put into effect, (i) may have an
adverse effect on the business, condition, assets, liabilities, operations,
financial performance, net income or prospects of the Seller or on the ability
of the Shareholder or the Seller to comply with or perform any covenant or
obligation under any of the Transactional Agreements, or (ii) may have the
effect of preventing, delaying, making illegal or otherwise interfering with any
of the Transactions.
2.28 Authority; Binding Nature Of Agreements.
(a) The Seller has the absolute and unrestricted right, power and authority to
enter into and to perform its obligations under each of the Transactional
Agreements to which it is or may become a party; and the execution, delivery and
performance by the Seller of the Transactional Agreements to which it is or may
become a party have been duly authorized by all necessary action on the part of
the Seller and its shareholders, board of directors and officers. This Agreement
constitutes the legal, valid and binding obligation of the Seller, enforceable
against the Seller in accordance with its terms. Upon the execution of each of
the other Transactional Agreements at the Closing, each of such other
Transactional Agreements to which the Seller is a party will constitute the
legal, valid and binding obligation of the Seller and will be enforceable
against the Seller in accordance with its terms.
(b) The Shareholder has the absolute and unrestricted right, power and capacity
to enter into and to perform its obligations under each of the Transactional
Agreements to which it is or may become a party. This Agreement constitutes the
legal, valid and binding obligation of the Shareholder, enforceable against the
Shareholder in accordance with its terms. Upon the execution of each of the
other Transactional Agreements at the Closing, each of such other Transactional
Agreements to which the Shareholder is a party will constitute the legal, valid
and binding obligation of Shareholder and will be enforceable against
Shareholder in accordance with its terms.
2.29 Non-Contravention; Consents. Except as set forth in Part 2.29 of the
Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any
Legal Requirement or any Order to which the Shareholder or the Seller,
or any of the assets of the Seller, is subject;
(b) cause the Purchaser or any affiliate of the Purchaser to become
subject to, or to become liable for the payment of, any Tax;
(c) cause any of the Assets to be reassessed or revalued by any taxing
authority or other Governmental Body;
(d) contravene, conflict with or result in a violation of any of the terms
or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is to be included in the Assets or is held by the
Seller or any employee of the Seller;
(e) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Contract;
(f) give any Person the right to (i) declare a default or exercise any
remedy under any Contract, (ii) accelerate the maturity or performance
of any Contract, or (iii) cancel, terminate or modify any Contract; or
(g) result in the imposition or creation of any Encumbrance upon or with
respect to any of the Assets.
Except as set forth in Part 2.29 of the Disclosure Schedule, neither the Seller
nor Shareholder was, is or will be required to make any filing with or give any
notice to, or to obtain any Consent from, any Person in connection with the
execution and delivery of any of the Transactional Agreements or the
consummation or performance of any of the Transactions.
2.30 Brokers. Neither the Seller nor Shareholder has agreed or become obligated
to pay, or has taken any action that might result in any Person claiming to be
entitled to receive, any brokerage commission, finder's fee or similar
commission or fee in connection with any of the Transactions.
2.31 The Shareholders.
(a) The Shareholder has never (i) made a general assignment for the benefit of
creditors, (ii) filed, or had filed against it, any bankruptcy petition or
similar filing, (iii) suffered the attachment or other judicial seizure of all
or a substantial portion of its assets, (iv) admitted in writing its inability
to pay its debts as they become due, or (v) taken or been the subject of any
action that may have an adverse effect on its ability to comply with or perform
any of its covenants or obligations under any of the Transactional Agreements.
(b) The Shareholder is not subject to any Order or is bound by any Contract that
may have an adverse effect on his ability to comply with or perform any of his
or her covenants or obligations under any of the Transactional Agreements. There
is no Proceeding pending, and no Person has threatened to commence any
Proceeding, that may have an adverse effect on the ability the Shareholder to
comply with or perform any of its covenants or obligations under any of the
Transactional Agreements. No event has occurred, and no claim, dispute or other
condition or circumstance exists, that might directly or indirectly give rise to
or serve as a basis for the commencement of any such Proceeding.
2.32 Full Disclosure. None of the Transactional Agreements contains or will
contain any untrue statement of fact; and none of the Transactional Agreements
omits or will omit to state any fact necessary to make any of the
representations, warranties or other statements or information contained therein
not misleading. All of the information set forth in the Disclosure Schedule, and
all other information regarding the Seller and its business, condition, assets,
liabilities, operations, financial performance, net income and prospects that
has been furnished to the Purchaser or any of the Purchaser's Representatives by
or on behalf of the Shareholder or the Seller or by any Representative of the
Shareholder or of the Seller, is accurate and complete in all respects.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser represents and warrants, to and for the benefit of the
Seller, as follows:
3.1 Authority; Binding Nature Of Agreements. The Purchaser has the absolute and
unrestricted right, power and authority to enter into and perform its
obligations under this Agreement, and the execution and delivery of this
Agreement by the Purchaser have been duly authorized by all necessary action on
the part of the Purchaser and its board of directors. The Purchaser has the
absolute and unrestricted right, power and authority to enter into and perform
its obligations under the Assumption Agreement, and the execution, delivery and
performance of the Assumption Agreement by the Purchaser have been duly
authorized by all necessary action on the part of the Purchaser and its board of
directors. This Agreement constitutes the legal, valid and binding obligation of
the Purchaser, enforceable against it in accordance with its terms. Upon the
execution and delivery of the Assumption Agreement at the Closing, the
Assumption Agreement will constitute the legal, valid and binding obligations of
the Purchaser, enforceable against the Purchaser in accordance with their terms.
3.2 Brokers. The Purchaser has not become obligated to pay, and has not taken
any action that might result in any Person claiming to be entitled to receive,
any brokerage commission, finder's fee or similar commission or fee in
connection with any of the Transactions.
4. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATION TO CLOSE.
The Purchaser's obligation to purchase the Assets and to take the other
actions required to be taken by the Purchaser at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Purchaser, in whole or in part, in writing):
4.1 Accuracy Of Representations. All of the representations and warranties made
by the Shareholder and the Seller in this Agreement (considered collectively),
and each of said representations and warranties (considered individually), shall
have been accurate in all material respects as of the date of this Agreement,
and shall be accurate in all material respects as of the Closing Date as if made
at the Closing Date, without giving effect to any update to the Disclosure
Schedule.
4.2 Performance Of Obligations.
(a) Each of the documents referred to in Sections 1.6(b)(i), 1.6(b)(iii),
1.6(b)(iv), and 1.6(b)(v), shall have been executed by each of the parties
thereto and delivered to the Purchaser.
(b) All of the covenants and obligations that the Shareholder and the Seller are
required to comply with or to perform at or prior to the Closing (considered
collectively), and each of said covenants and obligations (considered
individually), shall have been duly complied with and performed in all material
respects.
4.3 Consents. Each of the Consents identified in Part 2.29 of the Disclosure
Schedule shall have been obtained and shall be in full force and effect.
4.4 Additional Documents. Purchaser shall have received the following
documents:
(a) an opinion letter from counsel to the Seller, dated the Closing Date,
in the form of Exhibit ___; and
(b) such other documents as Purchaser may request in good faith for the purpose
of (i) evidencing the accuracy of any representation or warranty made by the
Shareholder or the Seller, (ii) evidencing the compliance by the Shareholder or
the Seller with, or the performance by the Shareholder or the Seller of, any
covenant or obligation set forth in this Agreement, (iii) evidencing the
satisfaction of any condition set forth in this Section 4, or (iv) otherwise
facilitating the consummation or performance of any of the Transactions.
4.5 No Prohibition. Neither the consummation nor the performance of any the
Transactions will, directly or indirectly (with or without notice or lapse of
time), contravene or conflict with or result in a violation of, or cause the
Purchaser or any Person affiliated with the Purchaser to suffer any adverse
consequence under, any applicable Legal Requirement or Order.
5. CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATION TO CLOSE.
The Seller's obligation to sell the Assets and to take the other
actions required to be taken by the Seller at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Shareholders' Representative, in whole or in
part, in writing):
5.1 Accuracy Of Representations. All of the representations and warranties made
by the Purchaser in this Agreement (considered collectively), and each of said
representations and warranties (considered individually), shall have been
accurate in all material respects as of the date of this Agreement and shall be
accurate in all material respects as of the Closing Date as if made at the
Closing Date.
5.2 Purchaser's Performance.
(a) The Purchaser shall have executed and delivered the Assumption Agreement and
shall have made the payment contemplated by Section 1.6(b)(ii).
(b) All of the other covenants and obligations that the Purchaser is required to
comply with or to perform pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of said covenants and obligations
(considered individually), shall have been complied with and performed in all
material respects.
6. INDEMNIFICATION, ETC.
6.1 Survival Of Representations And Covenants.
(a) The representations, warranties, covenants and obligations of each party to
this Agreement shall survive (without limitation): (i) the Closing and the sale
of the Assets to the Purchaser; (ii) any sale or other disposition of any or all
of the Assets by the Purchaser; and (iii) the death or dissolution of any party
to this Agreement. Except as set forth in Section 6.1(c), all of said
representations, warranties, covenants and obligations shall remain in full
force and effect and shall survive for an unlimited period of time.
(b) The representations, warranties, covenants and obligations of the
Shareholder and the Seller, and the rights and remedies that may be exercised by
the Indemnitees, shall not be limited or otherwise affected by or as a result of
any information furnished to, or any investigation made by or any knowledge of,
any of the Indemnitees or any of their Representatives.
(c) Subject to Section 6.1(d), the representations and warranties set forth in
Section 2 shall expire on the fourth anniversary of the Closing Date; provided,
however, that if a Claim Notice (as defined below) relating to any
representation or warranty set forth in any of said Sections is given to the
Shareholder's Representative on or prior to the fourth anniversary of the
Closing Date, then, notwithstanding anything to the contrary contained in this
Section 6.1(c), such representation or warranty shall not so expire, but rather
shall remain in full force and effect until such time as each and every claim
(including any indemnification claim asserted by any Indemnitee under Section
6.2) that is based directly or indirectly upon, or that relates directly or
indirectly to, any Breach or alleged Breach of such representation or warranty
has been fully and finally resolved, either by means of a written settlement
agreement executed on behalf of the Shareholder's Representative and the
Purchaser or by means of a final, non-appealable judgment issued by a court of
competent jurisdiction.
(d) Notwithstanding anything to the contrary contained in Section 6.1(c) (and
without limiting the generality of anything contained in Section 6.1(a)), if the
Shareholder or the Seller had knowledge, on or prior to the Closing Date, of any
circumstance that constitutes or that has given rise or could be expected to
give rise, directly or indirectly, to any Breach of any representation or
warranty set forth in Section 2, then such representation or warranty shall not
expire, but rather shall remain in full force and effect for an unlimited period
of time (regardless of whether any Claim Notice relating to such representation
or warranty is ever given).
(e) For purposes of this Agreement, a "Claim Notice" relating to a particular
representation or warranty shall be deemed to have been given if any Indemnitee,
acting in good faith, delivers to the Shareholders' Representative a written
notice stating that such Indemnitee believes that there is or has been a
possible Breach of such representation or warranty and containing (i) a brief
description of the circumstances supporting such Indemnitee's belief that there
is or has been such a possible Breach, and (ii) a non-binding, preliminary
estimate of the aggregate dollar amount of the actual and potential Damages that
have arisen and may arise as a direct or indirect result of such possible
Breach.
(f) For purposes of this Agreement, each statement or other item of information
set forth in the Disclosure Schedule or in any update to the Disclosure Schedule
shall be deemed to be a representation and warranty made by the Shareholder and
the Seller in this Agreement.
6.2 Indemnification By The Shareholders And The Seller.
(a) The Shareholder and the Seller, jointly and severally, shall hold harmless
and indemnify each of the Indemnitees from and against, and shall compensate and
reimburse each of the Indemnitees for, any Damages that are directly or
indirectly suffered or incurred by any of the Indemnitees or to which any of the
Indemnitees may otherwise become subject at any time (regardless of whether or
not such Damages relate to any third-party claim) and that arise directly or
indirectly from or as a direct or indirect result of, or are directly or
indirectly connected with:
(i) any Breach of any of the representations or warranties made by the
Shareholder or the Seller in this Agreement or in the Closing
Certificate or any of the other Transactional Agreements;
(ii) any Breach of any representation, warranty, statement, information or
provision contained in the Disclosure Schedule or in any other document
delivered or otherwise made available to the Purchaser or any of its
Representatives by or on behalf of the Shareholder, the Seller or any
Representative of the Shareholder or of the Seller;
(iii) any Breach of any covenant or obligation of the Shareholder or
the Seller contained in any of the Transactional Agreements;
(iv) any Liability of the Seller or of any Related Party, other than the
Assumed Liabilities;
(v) any Liability (other than the Assumed Liabilities) to which the
Purchaser or any of the other Indemnitees may become subject and that
arises directly or indirectly from or relates directly or indirectly to (A)
any product produced or sold or any services performed by or on behalf of
the Seller, (B) the presence of any Hazardous Material at any site owned,
leased, occupied or controlled by the Seller on or at any time prior to the
Closing Date, (C) the generation, manufacture, production, transportation,
importation, use, treatment, refinement, processing, handling, storage,
discharge, release or disposal of any Hazardous Material (whether lawfully
or unlawfully) by or on behalf of the Seller, (D) the operation by the
Seller of its business, or (E) any failure to comply with any bulk transfer
law or similar Legal Requirement in connection with any of the
Transactions;
(vi) any matter identified or referred to in Part ____ or Part ____ of the
Disclosure Schedule; or
(vii) any Proceeding relating directly or indirectly to any Breach, alleged
Breach, Liability or matter of the type referred to in clause "(i),"
"(ii)," "(iii)," "(iv)," "(v)" or "(vi)" above (including any
Proceeding commenced by any Indemnitee for the purpose of enforcing any
of its rights under this Section 7).
6.3 Indemnification By Purchaser.
(a) The Purchaser shall hold harmless and indemnify the Seller from and against,
and shall compensate and reimburse the Seller for, any Damages that are directly
or indirectly suffered or incurred by the Seller or to which the Seller may
otherwise become subject at any time (regardless of whether or not such Damages
relate to any third-party claim) and that arise directly or indirectly from or
as a direct or indirect result of, or are directly or indirectly connected with:
(i) any failure on the part of the Purchaser to perform and discharge
the Assumed Liabilities on a timely basis;
(ii) any Breach of any representation or warranty made by the Purchaser
in this Agreement; or
(iii) any Proceeding relating directly or indirectly to any failure or Breach
of the type referred to in clause "(i)" or "(ii)" above (including any
Proceeding commenced by the Seller for the purpose of enforcing its
rights under this Section 6.3).
6.4 Setoff. In addition to any rights of setoff or other rights that the Parent
or Purchaser or any of the other Indemnitees may have at common law or
otherwise, Parent and Purchaser shall have the right to withhold and deduct any
sum that may be owed to any Indemnitee under this Section 6 from any amount
otherwise payable by any Indemnitee, including amounts payable pursuant to
Sections 1.2(a) (iii) and (iv), to the Shareholder's Representative or to the
Seller or the Shareholder. Additionally, Parent and Purchaser shall have the
right, but not the obligation, to withhold and deduct such amount as is equal to
the difference between (a) (i) the June 14th Accounts Payable Amount plus any
other accounts payable amounts accrued prior to June 14, 1999 minus (ii) actual
amounts collected by Purchaser directly (or collected by Seller prior to the
Closing and delivered to Purchaser) from the June 14th Accounts Receivable
Amount minus (b) three hundred thousand dollars ($300,000); provided, however,
that Purchaser shall assign such uncollected accounts receivable to Shareholder.
The withholding and deduction of any such sum shall operate for all purposes as
a complete discharge (to the extent of such sum) of the obligation to pay the
amount from which such sum was withheld and deducted.
From time to time, Parent or Purchaser may give notice (a "Notice") to
Seller and Shareholder specifying in reasonable detail the nature and dollar
amount of any claim (a "Claim") it may have under Section 6 of this Agreement;
Parent and Purchaser may make more than one claim with respect to any underlying
state of facts. If Seller gives notice to Parent and Purchaser disputing any
Claim (a "Counter Notice") within 30 days following receipt by Seller and
Shareholder of the Notice regarding such Claim, such Claim shall be resolved as
provided below. If no Counter Notice is received by Parent and Purchaser within
such 30-day period, then the dollar amount of damages claimed by Parent or
Purchaser as set forth in its Notice shall be deemed established for purposes of
this Agreement and, at the end of such 30-day period, Purchaser shall be
entitled to withhold and deduct from payments owed to Seller the dollar amount
claimed in the Notice.
If a Counter Notice is given with respect to a Claim, Purchaser shall
withhold and deduct from payment owed to Seller with respect thereto only (i)
upon the mutual agreement of Purchaser and Shareholder or (ii) a final
non-appealable order of a court of competent jurisdiction; provided, however,
until such Claim is resolved pursuant to (i) or (ii) above, Purchasers payment
obligations under Sections 1.2(a) (iii) and (iv) shall be suspended. Purchaser's
payment obligations will only resume upon such time as the Claim is resolved.
6.5 Nonexclusivity Of Indemnification Remedies. The indemnification remedies and
other remedies provided in this Section 6 shall not be deemed to be exclusive.
Accordingly, the exercise by any Person of any of its rights under this Section
6 shall not be deemed to be an election of remedies and shall not be deemed to
prejudice, or to constitute or operate as a waiver of, any other right or remedy
that such Person may be entitled to exercise (whether under this Agreement,
under any other Contract, under any statute, rule or other Legal Requirement, at
common law, in equity or otherwise).
6.6 Defense Of Third Party Claims. In the event of the assertion or commencement
by any Person of any claim or Proceeding (whether against the Purchaser, against
any other Indemnitee or against any other Person) with respect to which the
Shareholder or the Seller may become obligated to indemnify, hold harmless,
compensate or reimburse any Indemnitee pursuant to this Section 6, the Purchaser
shall have the right, at its election, to designate the Shareholder's
Representative to assume the defense of such claim or Proceeding at the sole
expense of the Shareholder and the Seller. If the Purchaser so elects to
designate the Shareholder's Representative to assume the defense of any such
claim or Proceeding:
(a) the Shareholder's Representative shall proceed to defend such claim or
Proceeding in a diligent manner with counsel satisfactory to the
Purchaser;
(b) the Purchaser shall make available to the Shareholder's Representative
any non-privileged documents and materials in the possession of the
Purchaser that may be necessary to the defense of such claim or
Proceeding;
(c) the Shareholder's Representative shall keep the Purchaser informed of
all material developments and events relating to such claim or
Proceeding;
(d) the Purchaser shall have the right to participate in the defense of
such claim or Proceeding;
(e) the Shareholder's Representative shall not settle, adjust or compromise
such claim or Proceeding without the prior written consent of the
Purchaser; and
(f) the Purchaser may at any time (notwithstanding the prior designation of
the Shareholder's Representative to assume the defense of such claim or
Proceeding) assume the defense of such claim or Proceeding.
If the Purchaser does not elect to designate the Shareholder's Representative to
assume the defense of any such claim or Proceeding (or if, after initially
designating the Shareholder's Representative to assume such defense, the
Purchaser elects to assume such defense), the Purchaser may proceed with the
defense of such claim or Proceeding on its own. If the Purchaser so proceeds
with the defense of any such claim or Proceeding on its own:
(i) all expenses relating to the defense of such claim or Proceeding
(whether or not incurred by the Purchaser) shall be borne and paid
exclusively by the Shareholder and the Seller;
(ii) the Shareholder and the Seller shall make available to the Purchaser
any documents and materials in the possession or control of either of
the Shareholder or the Seller that may be necessary to the defense of
such claim or Proceeding;
(iii) the Purchaser shall keep the Shareholder's Representative informed of
all material developments and events relating to such claim or
Proceeding; and
(iv) the Purchaser shall have the right to settle, adjust or compromise such
claim or Proceeding with the consent of the Shareholder's
Representative; provided, however, that the Shareholder's
Representative shall not unreasonably withhold such consent.
6.7 Exercise Of Remedies By Indemnitees Other Than Purchaser. No Indemnitee
(other than the Purchaser or any successor thereto or assign thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy under
this Agreement unless the Purchaser (or any successor thereto or assign thereof)
shall have consented to the assertion of such indemnification claim or the
exercise of such other remedy.
7. CERTAIN POST-CLOSING COVENANTS.
7.1 Further Actions. From and after the Closing Date, the Shareholder and the
Seller shall cooperate with the Purchaser and the Purchaser's affiliates and
Representatives, and shall execute and deliver such documents and take such
other actions as the Purchaser may reasonably request, for the purpose of
evidencing the Transactions and putting the Purchaser in possession and control
of all of the Assets. Without limiting the generality of the foregoing, from and
after the Closing Date, the Seller shall promptly remit to the Purchaser any
funds that are received by the Seller and that are included in, or that
represent payment of receivables included in, the Assets. The Seller: (a) hereby
irrevocably authorizes the Purchaser, at all times on and after the Closing
Date, to endorse in the name of the Seller any check or other instrument that is
made payable to the Seller and that represents funds included in, or that
represents the payment of any receivable included in, the Assets; and (b) hereby
irrevocably nominates, constitutes and appoints the Purchaser as the true and
lawful attorney-in-fact of the Seller (with full power of substitution)
effective as of the Closing Date, and hereby authorizes the Purchaser, in the
name of and on behalf of the Seller, to execute, deliver, acknowledge, certify,
file and record any document, to institute and prosecute any Proceeding and to
take any other action (on or at any time after the Closing Date) that the
Purchaser may deem appropriate for the purpose of (i) collecting, asserting,
enforcing or perfecting any claim, right or interest of any kind that is
included in or relates to any of the Assets, (ii) defending or compromising any
claim or Proceeding relating to any of the Assets, or (iii) otherwise carrying
out or facilitating any of the Transactions. The power of attorney referred to
in the preceding sentence is and shall be coupled with an interest and shall be
irrevocable, and shall survive the dissolution or insolvency of the Seller.
7.2 Publicity. The Shareholder and the Seller shall ensure that, on and at all
times after the Closing Date: (a) no press release or other publicity concerning
any of the Transactions is issued or otherwise disseminated by or on behalf of
the Shareholder or the Seller without the Purchaser's prior written consent; (b)
the Shareholder and the Seller continue to keep the terms of this Agreement and
the other Transactional Agreements strictly confidential; and (c) the
Shareholder and the Seller keep strictly confidential, and neither the Seller
nor the Shareholder uses or discloses to any other Person, any non-public
document or other information that relates directly or indirectly to the
business of the Seller, the Purchaser or any affiliate of the Purchaser.
7.3 No Hiring or Solicitation of Employees. Shareholder agrees that, during the
Noncompetition Period, Shareholder shall not, and shall not permit any of its
Affiliates to: (a) hire any Employee of Purchaser, or (b) directly or
indirectly, personally or through others, encourage, induce, attempt to induce,
solicit or attempt to solicit (on the Shareholder's own behalf or on behalf of
any other Person) or any Employee to leave his or her employment with the
Purchaser or any of the Purchaser's other subsidiaries. (For purposes of this
Section 7.3, "Employee" shall mean any individual who (i) is or was an employee
of any of the Seller on the date of this Agreement or during the 180-day period
ending on the date of this Noncompetition Agreement, and (ii) remains or becomes
an employee of the Purchaser or any of the Purchaser's other subsidiaries on the
date of this Agreement or at any time during the Noncompetition Period.)
8. MISCELLANEOUS PROVISIONS.
8.1 Joint And Several Liability. The Shareholder agrees that the Shareholder
shall be jointly and severally liable with the Seller for the due and timely
compliance with and performance of each of the covenants and obligations of the
Seller set forth in the Transactional Agreements. The Shareholder's obligations
and liability under this Agreement and the other Transactional Agreements shall
not be limited in any way by: (i) any failure on the part of the Purchaser or
any other Indemnitee to exercise any right or assert any claim against the
Seller; (i) the dissolution or insolvency of, or the appointment of any
receiver, conservator or liquidator for, or the commencement of any bankruptcy,
reorganization, moratorium, arrangement or other proceeding by, against or with
respect to, the Seller or the Shareholder; (iii) any merger or consolidation of
the Seller with or into any other Entity; or (iv) the sale or other disposition
by the Shareholder of any or all of the Shareholder's shares of the stock of the
Seller.
8.2 Shareholder's and Seller's Representative.
(a) The Shareholder and the Seller hereby irrevocably nominate, constitute and
appoint Harry Kurtzman as the agent and true and lawful attorney-in-fact of the
Shareholder and the Seller (the "Shareholder's Representative"), with full power
of substitution, to act in the name, place and stead of the Shareholder and the
Seller for purposes of executing any documents and taking any actions that the
Shareholder's Representative may, in his sole discretion, determine to be
appropriate in connection with any of the Transactional Agreements or any of the
Transactions. Harry Kurtzman hereby accepts his appointment as Shareholder's
Representative.
(b) The Shareholder and the Seller hereby grant to the Shareholder's
Representative full authority to execute, deliver, acknowledge, certify, file
and record on behalf of the Shareholder and the Seller (in the name of the
Shareholder, the Seller or otherwise) any and all documents that the
Shareholder's Representative may, in his sole discretion, determine to be
appropriate, in such forms and containing such provisions as the Shareholder's
Representative may, in his sole discretion, determine to be appropriate
(including any amendment to or waiver of rights under any of the Transactional
Agreements). Notwithstanding anything to the contrary contained in any of the
Transactional Agreements: (i) the Purchaser shall be entitled to deal
exclusively with the Shareholder's Representative on all matters
relating to the respective Transactional Agreements and the respective
Transactions (including all matters relating to any notice to, or any
Consent to be given or action to be taken by, the Shareholder or the
Seller); and
(ii) each Indemnitee shall be entitled to rely conclusively (without further
evidence of any kind whatsoever) on any document executed or purported
to be executed on behalf of the Shareholder or on behalf of the Seller
by the Shareholder's Representative, and on any other action taken or
purported to be taken on behalf of the Shareholder or on behalf of the
Seller by the Shareholder's Representative, as fully binding upon the
Shareholder and on the Seller.
(c) The Shareholder and the Seller recognize and intend that the power of
attorney granted in Section 8.2(a): (i) is coupled with an interest and is
irrevocable; (ii) may be delegated by the Shareholder's Representative; and
(iii) shall survive the dissolution of the Shareholder or Seller.
(d) If the Shareholder's Representative shall die, become disabled or otherwise
be unable to fulfill his responsibilities hereunder, the Shareholder's, within
ten days after such death or disability, shall appoint a successor to the
Shareholder's Representative and immediately thereafter notify the Purchaser of
the identity of such successor. Any such successor shall succeed the
Shareholder's Representative as Shareholder's Representative hereunder.
(e) All expenses incurred by the Shareholder's Representative in connection with
the performance of his duties as Shareholder's Representative shall be borne and
paid by the Shareholder and the Seller.
8.3 Further Assurances. Each party hereto shall execute and/or cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the Transactions.
8.4 Fees and Expenses.
(a) The Shareholder and the Seller shall bear and pay all fees, costs and
expenses that have been incurred or that are in the future incurred by, on
behalf of or for the benefit of the Shareholder or the Seller in connection
with: (i) the negotiation, preparation and review of any letter of intent or
similar document relating to any of the Transactions; (ii) the investigation and
review conducted by the Purchaser and its Representatives with respect to the
business of the Seller (and the furnishing of information to the Purchaser and
its Representatives in connection with such investigation and review); (iii) the
negotiation, preparation and review of this Agreement (including the Disclosure
Schedule), the other Transactional Agreements and all bills of sale,
assignments, certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the Transactions; (iv) the
preparation and submission of any filing or notice required to be made or given
in connection with any of the Transactions, and the obtaining of any Consent
required to be obtained in connection with any of the Transactions; and (v) the
consummation and performance of the Transactions.
(b) Subject to the provisions of Section 6.2 (including the indemnification and
other obligations of the Seller and Shareholder thereunder) and Section 8.4(c),
the Purchaser shall bear and pay all fees, costs and expenses (including all
legal fees and expenses payable to Cooley Godward LLP) that have been incurred
or that are in the future incurred by or on behalf of the Purchaser in
connection with: (i) the negotiation, preparation and review of any letter of
intent or similar document relating to any of the Transactions; (ii) the
investigation and review conducted by the Purchaser and its Representatives with
respect to the business of the Seller; (iii) the negotiation, preparation and
review of this Agreement, the other Transactional Agreements and all bills of
sale, assignments, certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the Transactions; and (iv) the
consummation and performance of the Transactions.
8.5 Attorneys' Fees. If any legal action or other legal proceeding relating to
any of the Transactional Agreements or the enforcement of any provision of any
of the Transactional Agreements is brought against any party to this Agreement,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
costs and disbursements (in addition to any other relief to which the prevailing
party may be entitled).
8.6 Notices. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to the Shareholder or to the Shareholder's Representative:
Aura Systems, Inc.
Attn: Harry Kurtzman, CEO
2335 Alaska Avenue
El Segundo, CA 90245
Facsimile: 310-643-7585
if to the Seller:
Aurasound, Inc. c/o Aura Systems, Inc.
Attn: Steven Veen, CFO
2335 Alaska Avenue
El Segundo, CA 90245
Facsimile: 310-643-8719
if to the Purchaser:
Algo Technology, Inc.
47338 Fremont Blvd.
Fremont, CA 94538
Facsimile: 510-770-3622
8.7 Time Of The Essence. Time is of the essence of this Agreement.
8.8 Headings. The underlined headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
8.9 Counterparts. This Agreement may be executed in several counterparts, each
of which shall constitute an original and all of which, when taken together,
shall constitute one agreement.
8.10 Governing Law; Venue.
(a) This Agreement shall be construed in accordance with, and governed in all
respects by, the internal laws of the State of California (without giving effect
to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to this Agreement or the
enforcement of any provision of this Agreement may be brought or otherwise
commenced in any state or federal court located in the County of Santa Clara,
California. Each party to this Agreement:
(i) expressly and irrevocably consents and submits to the jurisdiction of
each state and federal court located in the County of Santa Clara,
California (and each appellate court located in the State of
California) in connection with any such legal proceeding;
(ii) agrees that each state and federal court located in the County of Santa
Clara, California shall be deemed to be a convenient forum; and
(iii) agrees not to assert (by way of motion, as a defense or otherwise), in
any such legal proceeding commenced in any state or federal court
located in the County of Santa Clara, California, any claim that such
party is not subject personally to the jurisdiction of such court, that
such legal proceeding has been brought in an inconvenient forum, that
the venue of such proceeding is improper or that this Agreement or the
subject matter of this Agreement may not be enforced in or by such
court.
(c) The Shareholder and the Seller agree that, if any Proceeding is commenced
against any Indemnitee by any Person in or before any court or other tribunal
anywhere in the world, then such Indemnitee may proceed against the Shareholder
and the Seller in or before such court or other tribunal with respect to any
indemnification claim or other claim arising directly or indirectly from or
relating directly or indirectly to such Proceeding or any of the matters alleged
therein or any of the circumstances giving rise thereto.
(d) Nothing in this Section 8.10 shall be deemed to limit or otherwise affect
the right of any Indemnitee to commence any legal proceeding against the
Shareholder or the Seller in any forum or jurisdiction.
(e) The Shareholder irrevocably constitutes and appoints the Shareholder's
Representative as its agent to receive service of process in connection with any
legal proceeding relating to this Agreement or the enforcement of any provision
of this Agreement.
8.11 Successors And Assigns; Parties In Interest.
(a) This Agreement shall be binding upon: the Seller and its successors and
assigns (if any); the Shareholder and the Shareholder's personal
representatives, executors, administrators, estate, heirs, successors and
assigns (if any); and the Purchaser and its successors and assigns (if any).
This Agreement shall inure to the benefit of: the Seller; the Shareholder; the
Purchaser; the other Indemnitees (subject to Section 6.7); and the respective
successors and assigns (if any) of the foregoing.
(b) The Purchaser may freely assign any or all of its rights under this
Agreement (including its indemnification rights under Section 6), in whole or in
part, to any other Person without obtaining the consent or approval of any other
Person. Neither the Seller nor the Shareholder shall be permitted to assign any
of his or its rights or delegate any of his or its obligations under this
Agreement without the Purchaser's prior written consent.
(c) Except for the provisions of Section 6 hereof, none of the provisions of
this Agreement is intended to provide any rights or remedies to any Person other
than the parties to this Agreement and their respective successors and assigns
(if any). Without limiting the generality of the foregoing, (i) no employee of
the Seller shall have any rights under this Agreement or under any of the other
Transactional Agreements, and (ii) no creditor of the Seller shall have any
rights under this Agreement or any of the other Transactional Agreements.
8.12 Remedies Cumulative; Specific Performance. The rights and remedies of the
parties hereto shall be cumulative (and not alternative). The Shareholder and
the Seller agree that: (a) in the event of any Breach or threatened Breach by
the Shareholder or the Seller of any covenant, obligation or other provision set
forth in this Agreement, the Purchaser shall be entitled (in addition to any
other remedy that may be available to it) to (i) a decree or order of specific
performance or mandamus to enforce the observance and performance of such
covenant, obligation or other provision, and (ii) an injunction restraining such
Breach or threatened Breach; and (b) neither the Purchaser nor any other
Indemnitee shall be required to provide any bond or other security in connection
with any such decree, order or injunction or in connection with any related
action or Proceeding.
8.13 Waiver.
(a) No failure on the part of any Person to exercise any power, right, privilege
or remedy under this Agreement, and no delay on the part of any Person in
exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No Person shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
8.14 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of the Purchaser, the Seller and the Shareholder's
Representative.
8.15 Severability. In the event that any provision of this Agreement, or the
application of any such provision to any Person or set of circumstances, shall
be determined to be invalid, unlawful, void or unenforceable to any extent, the
remainder of this Agreement, and the application of such provision to Persons or
circumstances other than those as to which it is determined to be invalid,
unlawful, void or unenforceable, shall not be impaired or otherwise affected and
shall continue to be valid and enforceable to the fullest extent permitted by
law.
8.16 Entire Agreement. The Transactional Agreements set forth the entire
understanding of the parties relating to the subject matter thereof and
supersede all prior agreements and understandings among or between any of the
parties relating to the subject matter thereof.
8.17 Knowledge. For purposes of this Agreement, a Person shall be deemed to have
"knowledge" of a particular fact or other matter if any Representative of such
Person has knowledge of such fact or other matter.
8.18 Construction.
(a) For purposes of this Agreement, whenever the context requires: the singular
number shall include the plural, and vice versa; the masculine gender shall
include the feminine and neuter genders; the feminine gender shall include the
masculine and neuter genders; and the neuter gender shall include the masculine
and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not be applied
in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
<PAGE>
The parties to this Agreement have caused this Agreement to be executed
and delivered as of December 1, 1999.
AURA SYSTEMS, INC.,
a Delaware corporation
By:
Harry Kurtzman, CEO
AURASOUND, INC.,
a Delaware corporation
By:
Steve Veen, Chief Financial Officer
ALGO TECHNOLOGY, INC.,
a California corporation
By:
Arthur Liu, Chief Executive Officer
ALGO SOUND, INC.,
a California corporation
By:
Raymond Yu, President
<PAGE>
EXHIBIT A CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
Acquisition Transaction. "Acquisition Transaction" shall mean any
transaction involving: (a) the sale or other disposition of all or any portion
of the business or assets of the Seller (other than in the Ordinary Course of
Business); (b) the issuance, sale or other disposition of (i) any capital stock
or other securities of the Seller, (ii) any option, call, warrant or right
(whether or not immediately exercisable) to acquire any capital stock or other
securities of the Seller, or (iii) any security, instrument or obligation that
is or may become convertible into or exchangeable for any capital stock or other
securities of the Seller; or (c) any merger, consolidation, business
combination, share exchange, reorganization or similar transaction involving the
Seller.
Affiliate. "Affiliate" shall mean with respect to any specified Person,
any other Person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control with such
specified Person.
Agreement. "Agreement" shall mean the Asset Purchase Agreement to which
this Exhibit A is attached (including the Disclosure Schedule), as it may be
amended from time to time.
Best Efforts. "Best Efforts" shall mean the efforts that a prudent Person
desiring to achieve a particular result would use in order to ensure that such
result is achieved as expeditiously as possible.
Breach. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been (a)
any inaccuracy in or breach (including any inadvertent or innocent breach) of,
or any failure (including any inadvertent failure) to comply with or perform,
such representation, warranty, covenant, obligation or other provision, or (b)
any claim (by any Person) or other circumstance that is inconsistent with such
representation, warranty, covenant, obligation or other provision; and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach, failure, claim
or circumstance.
CERCLA. "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act.
Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
Comparable Entities. "Comparable Entities" shall mean Entities (other than
the Seller) that are engaged in businesses similar to the business of the
Seller.
Consent. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral, implied or other
agreement, contract, understanding, arrangement, instrument, note, guaranty,
indemnity, representation, warranty, deed, assignment, power of attorney,
certificate, purchase order, work order, insurance policy, benefit plan,
commitment, covenant, assurance or undertaking of any nature.
Damages. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, Liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including any legal fee, expert fee, accounting fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature.
Disclosure Schedule. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to the Purchaser on behalf of the
Shareholder and the Seller, a copy of which is attached to the Agreement and
incorporated in the Agreement by reference.
Employee Benefit Plan. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, equity, trust, equitable
interest, claim, preference, right of possession, lease, tenancy, license,
encroachment, covenant, infringement, interference, Order, proxy, option, right
of first refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
transfer of any asset, any restriction on the receipt of any income derived from
any asset, any restriction on the use of any asset and any restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset).
Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of
1974.
ERISA Affiliate. "ERISA Affiliate" shall mean any Person that is, was
or would be treated as a single employer with any of the Specified Entities
under Section 414 of the Code.
Excluded Assets. "Excluded Assets" shall mean the assets identified on
Exhibit B (to the extent owned by the Seller on the Closing Date).
GAAP. "GAAP" shall mean generally accepted accounting principles.
Governmental Authorization. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, concession, approval, consent,
ratification, permission, clearance, confirmation, endorsement, waiver,
certification, designation, rating, registration, qualification or authorization
issued, granted, given or otherwise made available by or under the authority of
any Governmental Body or pursuant to any Legal Requirement; or (b) right under
any Contract with any Governmental Body.
Governmental Body. "Governmental Body" shall mean any: (a) nation,
principality, state, commonwealth, province, territory, county, municipality,
district or other jurisdiction of any nature; (b) federal, state, local,
municipal, foreign or other government; (c) governmental or quasi-governmental
authority of any nature (including any governmental division, subdivision,
department, agency, bureau, branch, office, commission, council, board,
instrumentality, officer, official, representative, organization, unit, body or
Entity and any court or other tribunal); (d) multi-national organization or
body; or (e) individual, Entity or body exercising, or entitled to exercise, any
executive, legislative, judicial, administrative, regulatory, police, military
or taxing authority or power of any nature.
Hazardous Material. "Hazardous Material" shall include: (a) any
petroleum, waste oil, crude oil, asbestos, urea formaldehyde or polychlorinated
biphenyl; (b) any waste, gas or other substance or material that is explosive or
radioactive; (c) any "hazardous substance," "pollutant," "contaminant,"
"hazardous waste," "regulated substance," "hazardous chemical" or "toxic
chemical" as designated, listed or defined (whether expressly or by reference)
in any statute, regulation or other Legal Requirement (including CERCLA and any
other so-called "superfund" or "superlien" law and the respective regulations
promulgated thereunder); (d) any other substance or material (regardless of
physical form) or form of energy that is subject to any Legal Requirement which
regulates or establishes standards of conduct in connection with, or which
otherwise relates to, the protection of human health, plant life, animal life,
natural resources, property or the enjoyment of life or property from the
presence in the environment of any solid, liquid, gas, odor, noise or form of
energy; and (e) any compound, mixture, solution, product or other substance or
material that contains any substance or material referred to in clause "(a)",
"(b)", "(c)" or "(d)" above.
Immaterial Contract. "Immaterial Contract" shall mean any Seller
Contract that: (a) was entered into by the Seller in the Ordinary Course of
Business; (b) is identical in all material respects to one of the Standard Form
Agreements; (c) has a term of less than 30 days or may be terminated by the
Seller (without penalty) within 30 days after the delivery of a termination
notice by the Seller to the other party thereto; and (d) does not contemplate or
involve the payment of cash or other consideration in an amount or having a
value in excess of $15,000.00.
Indemnitees. "Indemnitees" shall mean the following Persons: (a) the
Purchaser; (b) the Purchaser's current and future affiliates; (c) the respective
Representatives of the Persons referred to in clauses "(a)" and "(b)" above; and
(d) the respective successors and assigns of the Persons referred to in clauses
"(a)", "(b)" and "(c)" above.
June 14th Accounts Payable Amount. "June 14th Accounts Payable Amount"
shall mean the sum of the list of accounts payable of Seller as at June 14,
1999, attached hereto as Exhibit ___.
June 14th Accounts Receivable Amount. "June 14th Accounts Payable
Amount" shall mean the sum of the list of accounts receivable of Seller as at
June 14, 1999, attached hereto as Exhibit ___.
Legal Requirement. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, legislation, constitution,
principle of common law, resolution, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, ruling, directive,
pronouncement, requirement, specification, determination, decision, opinion or
interpretation issued, enacted, adopted, passed, approved, promulgated, made,
implemented or otherwise put into effect by or under the authority of any
Governmental Body.
Liability. "Liability" shall mean any debt, obligation, duty or
liability of any nature (including any unknown, undisclosed, unmatured,
unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious,
derivative, joint, several or secondary liability), regardless of whether such
debt, obligation, duty or liability would be required to be disclosed on a
balance sheet prepared in accordance with generally accepted accounting
principles and regardless of whether such debt, obligation, duty or liability is
immediately due and payable.
Noncompetition Period. "Noncompetition Period" shall mean the period
commencing on the date of this Agreement and ending on the fifth anniversary of
the date of this Agreement.
Order. "Order" shall mean any: (a) order, judgment, injunction, edict,
decree, ruling, pronouncement, determination, decision, opinion, verdict,
sentence, subpoena, writ or award issued, made, entered, rendered or otherwise
put into effect by or under the authority of any court, administrative agency or
other Governmental Body or any arbitrator or arbitration panel; or (b) Contract
with any Governmental Body entered into in connection with any Proceeding.
Ordinary Course of Business. An action taken by or on behalf of the
Seller shall not be deemed to have been taken in the "Ordinary Course of
Business" unless:
(a) such action is recurring in nature, is consistent
with the past practices of the Seller and is taken in the ordinary
course of the normal day-to-day operations of the Seller;
(b) such action is taken in accordance with
sound and prudent business practices;
(c) such action is not required to be authorized by
the shareholders of the Seller, the board of directors of the Seller or
any committee of the board of directors of the Seller and does not
require any other separate or special authorization of any nature; and
(d) such action is similar in nature and magnitude to
actions customarily taken, without any separate or special
authorization, in the ordinary course of the normal day-to-day
operations of Comparable Entities.
Person. "Person" shall mean any individual, Entity or
Governmental Body.
Proceeding. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding and any informal proceeding), prosecution,
contest, hearing, inquiry, inquest, audit, examination or investigation
commenced, brought, conducted or heard by or before, or otherwise involving, any
Governmental Body or any arbitrator or arbitration panel.
Proprietary Asset. "Proprietary Asset" shall mean any patent, patent
application, trademark (whether registered or unregistered and whether or not
relating to a published work), trademark application, trade name, fictitious
business name, service mark (whether registered or unregistered), service mark
application, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, know-how, customer
list, franchise, system, computer software, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset.
Related Party. Each of the following shall be deemed to be a "Related
Party": (a) each individual who is, or who has at any time been, an officer of
the Seller; (b) each member of the family of each of the individuals referred to
in clause "(a)" above; and (c) any Entity (other than the Seller) in which any
one of the individuals referred to in clauses "(a)" and "(b)" above holds or
held (or in which more than one of such individuals collectively hold or held),
beneficially or otherwise, a controlling interest or a material voting,
proprietary or equity interest.
Representatives. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
Seller Contract. "Seller Contract" shall mean any Contract: (a) to which
the Seller is a party; (b) by which the Seller or any of its assets is or may
become bound or under which the Seller has, or may become subject to, any
obligation; or (c) under which the Seller has or may acquire any right or
interest. Seller Proprietary Asset. "Seller Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Seller or otherwise used by the
Seller.
Standard Form Agreements. "Standard Form Agreements" shall mean the forms
of agreements attached as Appendices 2.14(A) and 2.14(B) to the Disclosure
Schedule.
Tax. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, estimated tax, gross receipts tax, value-added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, occupation tax, inventory tax, occupancy tax,
withholding tax or payroll tax), levy, assessment, tariff, impost, imposition,
toll, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), that is, has been or
may in the future be (a) imposed, assessed or collected by or under the
authority of any Governmental Body, or (b) payable pursuant to any tax-sharing
agreement or similar Contract.
Tax Return. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information that
is, has been or may in the future be filed with or submitted to, or required to
be filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with any
Legal Requirement relating to any Tax.
Transactional Agreements. "Transactional Agreements" shall mean: (a) the
Agreement; (b) the Assumption Agreement; (c) the License Agreement and (d) the
Closing Certificate.
Transactions. "Transactions" shall mean (a) the execution and delivery
of the respective Transactional Agreements, and (b) all of the transactions
contemplated by the respective Transactional Agreements, including: (i) the sale
of the Assets by the Seller and the execution of the License Agreement by the
Shareholder to the Purchaser in accordance with the Agreement; (ii) the
assumption of the Assumed Liabilities by the Purchaser pursuant to the
Assumption Agreement; and (iii) the performance by the Seller, the Shareholder
and the Purchaser of their respective obligations under the Transactional
Agreements, and the exercise by the Seller, the Shareholder and the Purchaser of
their respective rights under the Transactional Agreements.
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TABLE OF CONTENTS
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iii.
TABLE OF CONTENTS
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1. SALE OF ASSETS; RELATED TRANSACTIONS.....................................................................1
1.1 Sale of Assets..................................................................................1
1.2 License Agreement...............................................................................2
1.3 Purchase Price..................................................................................2
1.4 Sales Taxes.....................................................................................4
1.5 Allocation......................................................................................4
1.6 Closing.........................................................................................4
2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER AND THE SELLER.........................................5
2.1 Due Organization; No Subsidiaries; Etc..........................................................5
2.2 Certificate of Incorporation and Bylaws; Records................................................5
2.3 Capitalization..................................................................................6
2.4 Financial Statements............................................................................6
2.5 Absence Of Changes..............................................................................6
2.6 Title To Assets.................................................................................7
2.7 Bank Accounts...................................................................................8
2.8 Receivables.....................................................................................8
2.9 Customers; Distributors.........................................................................8
2.10 Inventory.......................................................................................8
2.11 Equipment, Etc..................................................................................8
2.12 Real Property...................................................................................9
2.13 Proprietary Assets..............................................................................9
2.14 Contracts......................................................................................10
2.15 Liabilities....................................................................................11
2.16 Compliance with Legal Requirements.............................................................12
2.17 Governmental Authorizations....................................................................13
2.18 Tax Matters....................................................................................13
2.19 Employee And Labor Matters.....................................................................14
2.20 Benefit Plans; ERISA...........................................................................15
2.21 Environmental Matters..........................................................................16
2.22 Sale of Products...............................................................................17
2.23 Performance Of Services........................................................................17
2.24 Insurance......................................................................................17
2.25 Related Party Transactions.....................................................................18
2.26 Certain Payments, Etc..........................................................................18
2.27 Proceedings; Orders............................................................................19
2.28 Authority; Binding Nature Of Agreements........................................................19
2.29 Non-Contravention; Consents....................................................................20
2.30 Brokers........................................................................................21
2.31 The Shareholders...............................................................................21
2.32 Full Disclosure................................................................................21
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.........................................................21
3.1 Authority; Binding Nature Of Agreements........................................................21
3.2 Brokers........................................................................................22
4. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATION TO CLOSE.............................................22
4.1 Accuracy Of Representations....................................................................22
4.2 Performance Of Obligations.....................................................................22
4.3 Consents.......................................................................................22
4.4 Additional Documents...........................................................................22
4.5 No Prohibition.................................................................................23
5. CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATION TO CLOSE...............................................23
5.1 Accuracy Of Representations....................................................................23
5.2 Purchaser's Performance........................................................................23
6. INDEMNIFICATION, ETC....................................................................................23
6.1 Survival Of Representations And Covenants......................................................23
6.2 Indemnification By The Shareholders And The Seller.............................................24
6.3 Indemnification By Purchaser...................................................................25
6.4 Setoff.........................................................................................26
6.5 Nonexclusivity Of Indemnification Remedies.....................................................26
6.6 Defense Of Third Party Claims..................................................................27
6.7 Exercise Of Remedies By Indemnitees Other Than Purchaser.......................................28
7. CERTAIN POST-CLOSING COVENANTS..........................................................................28
7.1 Further Actions................................................................................28
7.2 Publicity......................................................................................28
7.3 No Hiring or Solicitation of Employees.........................................................29
8. MISCELLANEOUS PROVISIONS................................................................................29
8.1 Joint And Several Liability....................................................................29
8.2 Shareholder's and Seller's Representative......................................................29
8.3 Further Assurances.............................................................................30
8.4 Fees and Expenses..............................................................................30
8.5 Attorneys' Fees................................................................................31
8.6 Notices........................................................................................31
8.7 Time Of The Essence............................................................................32
8.8 Headings.......................................................................................32
8.9 Counterparts...................................................................................32
8.10 Governing Law; Venue...........................................................................32
8.11 Successors And Assigns; Parties In Interest....................................................33
8.12 Remedies Cumulative; Specific Performance......................................................33
8.13 Waiver.........................................................................................33
8.14 Amendments.....................................................................................34
8.15 Severability...................................................................................34
8.16 Entire Agreement...............................................................................34
8.17 Knowledge......................................................................................34
8.18 Construction...................................................................................34
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1.
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This document is to amend the Asset Purchase Agreement entered on December 1,
1999 by and among: AuraSound, Inc., A Delaware corporation (the "Seller"); Aura
Systems, Inc., a Delaware corporation and Seller's sole shareholder (the
"shareholder"); and Algo Technology, Inc., a California corporation ("Parent")
and Algo Sound, Inc., a California corporation (the "Purchaser"), for the
following items:
Accounts Receivable as originally reported as of June 13, 1999 is adjusted from
$1,455,109.69 to $423,950.35 based on subsequent collection and adjustments
after ninety days. (Exhibit A)
Accounts Payable as originally reported as of June 13, 1999 is adjusted from
$1,607,446.43 to $2,187,795.37 based on subsequent settlement, reconciliation,
and negotiation with the creditors. (Exhibit B)
The Seller agrees to reduce the purchase price of the assets by $70,414.82 for
the Purchaser's additional assumption of the accrued personal & vacation time
liability as of November 30, 1999. (Exhibit C)
The Purchaser agrees to give the Seller a credit in the amount of $53,906.95 for
returns of products from Electrnics Boutique.
The Purchase agrees to give the Seller credit for Seismic Systems' account
receivable in the amount of $159,912.35 in exchange for the right to collect
from Seismic Systems.
The parties to this Agreement have caused this Agreement to be executed and
delivered as December 22, 1999.
Aura Systems, Inc. AuraSound, Inc.
By ______________________ By ____________________
Harry Kurtzman, CEO Steve Veen, CFO
Algo Technology, Inc. Algo Sound, Inc.
By ______________________ By _____________________
Raymond Yu, VP Raymond Yu, CEO
<PAGE>
ASSIGNMENT AND LICENSE AGREEMENT
This ASSIGNMENT AND LICENSE AGREEMENT is entered into effective as of
July 15___, 1999 (the "Effective Date") between Speaker Acquisition Sub, a
Cayman Island corporation ("Algo Sub"), and a wholly-owned subsidiary of Algo
Technology, Inc., a California corporation ("Algo"); Aura Systems, Inc., a
Delaware corporation ("Parent") and its wholly-owned subsidiary AuraSound, Inc.,
also a Delaware corporation ("Seller").
RECITALS
A. Algo, Algo Sub, Parent, and Seller intend to enter into an Asset
Purchase Agreement (the "Asset Purchase Agreement") pursuant to which Seller
agrees to sell to Algo Sub and Algo, and Algo Sub and Algo agree to purchase
from Seller, all of its assets and certain specific liabilities.
B. Parent and Seller wish to assign to Algo Sub certain Specific
Trademark Rights and grant to Algo Sub (i) a license to certain of Parent and
Seller's Speaker Technology for use in all fields; (ii) a license to all of
Parent and Seller's Intellectual Property Rights for use in the Specific Fields;
and (iii) an option to acquire all right, title and interest to certain Specific
Patent Rights.
C. Parent and Seller wish to grant to Algo Sub the licenses and option
described above, and Algo Sub wishes to acquire from Parent and Seller the
licenses and option described above, all on the terms and conditions set forth
in this Agreement.
Now, therefore, the parties agree as follows:
AGREEMENT
II. DEFINITIONS. As used in this Agreement:
(a) "Encumbrance" means any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, equity, trust, equitable interest, claim,
preference, right of possession, lease, tenancy, license, encroachment,
covenant, infringement, interference, order, proxy, option, right of first
refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
transfer of any asset, any restriction on the receipt of any income derived from
any asset, any restriction on the use of any asset and any restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset).
(b) "Intellectual Property Rights" means all (a) Patent Rights, (b) copyrights,
mask work rights, and other rights associated with works of authorship embodied
or represented in such technology, (c) trade secret rights in such technology,
(d) all trademarks, trade dress, and other identifying marks and (e) other forms
of intellectual or industrial property rights and proprietary rights of any kind
or nature applicable to such technology, including but not limited to know-how,
processes, copyright, software programs, software source documents, models,
sketches, drawings, works of authorship, and formulae, in each case under the
laws of any jurisdiction in the universe, including rights under and with
respect to all applications, registrations, extensions, renewals, continuations,
combinations, divisions, and reissues of the foregoing if applicable.
A list of all trademarks owned by Parent and/or Seller that are subject
to the licenses and assignments of this Agreement, whether registered or
unregistered, is attached hereto as Schedule B.
(c) "Licensed Parent/Seller Technology" means all of Parent and Seller's
Intellectual Property Rights, and any goods and/or services incorporating the
Licensed Parent/Seller Technology, but not including the Specific Trademark
Rights assigned to Algo Sub pursuant to this Agreement.
(d) "Option" means the option described in Section IX.
(e) "Patent Rights" means all the patents and patent applications and
docketed/identified inventions (as of the effective date) of Parent and/or
Seller (including the unfiled patent application titled "Radial Magnet Speaker"
and having docket number 99-14), any "Patent Rights" means all the patents and
patent applications of Parent, any reissue, re-examination, renewal, or
extension thereof and any patent applications deriving from the parent case of
such patents, and all provisionals, substitutions, divisionals, continuations,
and continuations-in-part of the foregoing; and any patent corresponding to such
patents, any reissue, re-examination, renewal, or extension thereof and any
patent applications deriving from the parent case of such patents, and all
provisionals, substitutions, divisionals, continuations, and
continuations-in-part of the foregoing, including all foreign counterparts and
cases claiming priority.
(f) "Trademark Rights" means all trademarks of Parent and Seller listed in
Schedule B, including foreign counterparts and/or trademarks.
(g) "Speaker Technology" means all of Parent and Seller's Intellectual Property
Rights directly or indirectly related to the business of Seller, and any goods
and/or services incorporating the Speaker Technology.
(h) "Specific Fields" means the fields of toys, sound, and entertainment
applications.
(i) "Specific Patent Rights" means those Patent Rights listed on Schedule A.
(j) "Specific Trademark Rights" means all Trademark Rights designated in
Schedule B, along with the goodwill of the business of the Parent and Seller
related to those marks, as those which are assigned to Algo Sub pursuant to this
Agreement.
III. ASSIGNMENT OF SPECIFIC TRADEMARKS
Parent and Seller hereby assign to Algo Sub all right, title, goodwill,
and interest to the Specific Trademark Rights. To that end Parent and Seller
will execute, verify and deliver such documents and perform such other acts
(including appearances as a witness), including the document in the form set
forth in Exhibit B, or as Algo Sub may otherwise reasonably request for use in
applying for, obtaining, perfecting, evidencing, sustaining and enforcing such
Specific Trademark Rights and the assignment thereof throughout the world. Algo
Sub shall reimburse Parent for its reasonable expenses incurred to comply with
this provision.
IV. LICENSE IN THE SPECIFIC FIELDS
Except for those trademarks addressed in paragraph VI below, Parent and
Seller hereby grant to Algo Sub a non-exclusive, worldwide, perpetual and
irrevocable, fully-paid and royalty-free, license (with the right to sublicense
through one or more tiers of sublicensees but only in conjunction with Algo
Sub's sublicensing of the Specific Patent Rights), for any purpose whatsoever
(e.g., to use, sell, display, offer for sale, make, have made, import,
reproduce, distribute, modify, etc.) under all of the Licensed Parent/Seller
Technology in connection with any activity in the Specific Fields.
V. LICENSE REGARDING SPEAKER TECHNOLOGY
Except for those trademarks addressed in paragraph VI below, Parent and
Seller hereby grant to Algo Sub a non-exclusive, worldwide, perpetual and
irrevocable, fully-paid and royalty-free, license (with the right to sublicense
through one or more tiers of sublicensees but only in conjunction with Algo
Sub's sublicensing of the Specific Patent Rights), for any purpose whatsoever
(e.g., to use, sell, display, offer for sale, make, have made, import,
reproduce, distribute, modify, etc.) under all of the Speaker Technology.
VI. TRADEMARK LICENSE AND OBLIGATIONS.
With respect to the trademarks of Schedule B that are not included in
the Specific Trademark Rights, Parent and Seller hereby grant to Algo Sub a
non-exclusive (subject to the exception below), worldwide, perpetual and
irrevocable, fully-paid and royalty-free, license to use the Trademarks in
connection with any activity in the Specific Fields and any activity with
respect to the Speaker Technology. In addition, Algo Sub grants Parent the right
to inspect the products for which the Trademarks of Schedule B that are not
included in the Specific Trademark Rights are used and ensure commercially
acceptable quality. In the current form, the products of Seller are considered
to be of commercially acceptable quality. If Parent believes that future
products are not of commercially acceptable quality, Parent will notify Algo Sub
in writing, and Algo Sub will have the full opportunity for cure, and Algo Sub
will have the right to continue its business without interference until such
time that the quality meets the reasonable quality standards of Parent. In the
event that no agreement is reached, the Parties shall enter mediation until cure
is sustained.
Parent and Algo Sub agree that they are obligated to work to prevent
confusion of the Trademarks of this agreement. In addition, Parent hereby agrees
that Parent will not license or assign to any other party in the field of
Speaker Technology the Trademarks of Schedule B that are not part of the
Specific Trademark Rights without prior written consent of Algo Sub which may be
withheld for any reason
VII. TRANSFER OF MATERIAL INFORMATION.
Promptly (and in any event no later than ninety (90) days) after the
Effective Date, Parent or Seller will cause to be provided to Algo Sub all
materials and information relating to the Speaker Technology, and take all steps
reasonably requested in an effort to enable Algo Sub to exploit the Speaker
Technology. Parent or Seller will deliver these materials and information to
Algo Sub in accordance with Algo Sub's instructions.
VIII. ASSIGNMENT AND LICENSE FEES.
As full consideration for the assignment of the Specific Trademark
Rights, the Option (see paragraph IX below) and the granting of the licenses set
forth above, Algo Sub agrees to pay Parent the sum of One Million Five Hundred
Thousand U.S. Dollars ($1,500,000). Subject to Section XIV, said license fee
shall be payable by Algo Sub to Parent as follows:
(a) at the Closing, Algo shall pay to Parent a total of $500,000 in cash or by
cancellation of any outstanding promissory notes due Algo from Parent;
(b) on each of the first two (2) monthly anniversaries of the Closing Date,
Algo shall pay to the Parent, in cash, the sum of $250,000;
(c) subject to Section XIV, on each of the third (3rd) through seventh (7th)
monthly anniversaries of the Closing Date, Algo shall pay to the Parent, in
cash, the sum of $100,000;
(d) subject to Section XIV, on each annual anniversary of the Closing Date until
such time as the payment obligations of Sections 57(b) and (c) have been
completed, Algo shall pay to the Parent, in cash, interest that has accrued on
amounts unpaid under Sections 75(b) and (c). Interest shall accrue commencing on
the Closing Date at the rate of eight percent (8%) per annum.
IX. OPTION.
(e) For a period of thirty-six months (36) months from the Effective Date,
Parent further grants to Algo Sub the irrevocable option (the "Option") to
acquire all right, title and interest in the Specific Patent Rights.
(f) During the thirty-six month period following the Effective Date, Parent
shall not license, exclusively, non-exclusively, or otherwise encumber in any
manner, any of the Specific Patent Rights to any third party without the prior
written consent of Algo Sub. Should Algo Sub fail to exercise the Option to
acquire the Specific Patent Rights prior to expiration of the option period,
nothing herein shall be construed to prevent Parent from subsequently licensing,
on a non-exclusive basis, any invention covered by the Specific Patent Rights
hereunder to any other for the purpose of practicing any such invention. In the
event Algo Sub elects not to exercise the Option, Algo Sub's non-exclusive
license shall continue on the terms set forth herein without modification.
(g) Algo may exercise the Option at any time prior to the third year anniversary
of the Effective Date by providing Parent written notice of its desire to
exercise such Option. As full consideration for the exercise of the Option, Algo
shall pay to Parent the sum of One Million Two Hundred Fifty Thousand Dollars
($1,250,000) payable as follows: (i) an initial payment of Eighty Thousand
Dollars ($80,000) upon the filing of the Patent Assignments (as defined below)
with the United States Patent and Trademark Office and (ii) subject to Section
XIV, eighteen monthly payments of Sixty Five Thousand Dollars ($65,000). After
Parent's receipt of the written notice and initial payment, Parent shall assist
Algo Sub in every proper way to obtain, and from time to time enforce the
Specific Patent Rights in any and all countries. To that end, Parent has
executed the patent assignment, in substantially the form attached hereto as
Exhibit A (the "Patent Assignment"), which Patent Assignment will be held in
trust by Blakely, Sokoloff, Taylor, and Zafman and filed only following the
written notice and initial payment referred to above. Parent will execute,
verify and deliver such other documents and perform such other acts (including
appearances as a witness) as Algo Sub may reasonably request for use in applying
for, obtaining, perfecting, evidencing, sustaining and enforcing such Specific
Patent Rights and the assignment thereof. Algo Sub shall reimburse Parent for
its reasonable expenses incurred to comply with this provision.
(h) Parent has executed the attached documents in Exhibit C for filing as public
records to put third parties on notice of this Option.
X. PATENT PROSECUTION AND MAINTENANCE
Parent shall prosecute and maintain during the term of this Agreement
the Patent Rights (but not including the Specific Patent Rights following
exercise of the Option). The application filings, prosecution, maintenance and
payment of all fees and expenses, including legal fees, relating to such Patent
Rights shall be the responsibility of Parent; provided, however, that the
foregoing shall become the responsibility of Algo Sub upon the exercise of the
Option with respect to the Specific Patent Rights. Should Algo Sub determine or
otherwise become aware of the lapse or anticipated lapse of the maintenance of
any patent or patent applications within the Patent Rights, Algo Sub may elect
to prosecute, maintain, or extend such patent or patent application, as the case
may be, at Algo Sub's expense and such expenses shall be offset, at Algo and
Algo Sub's discretion, (i) from amounts otherwise payable to Parent under this
Agreement, (ii) from amounts payable to Parent under the Asset Purchase
Agreement, or (iii) from any other amounts payable to Parent. If and until the
Option is exercised or expires, Parent will provide to Algo Sub both quarterly
status reports regarding the Specific Patent Rights and written notice before
any of the Specific Patent Rights are abandoned.
XI. ENFORCEMENT OF RIGHTS IN THE LICENSED PARENT/SELLER TECHNOLOGY
(i) Filing of Claims. Parent will have the right, but not the obligation, to
enforce the Patent Rights, including the Specific Patent Rights (prior to such
time as Algo Sub exercises the Option). Algo Sub will cooperate with Parent, at
Parent's reasonable request, in connection with any claim, suit, or action (a
"Claim") filed by Parent against any such infringer. Each party will promptly
notify the other in writing upon becoming aware of any known or suspected
infringement of such patents; such notice will include the identity of the party
or parties known or suspected to have infringed the patents and any available
information that is relevant to such infringement. If Parent files a Claim,
Parent will diligently prosecute the Claim until a final, non-appealable
judgment has been rendered or the Claim has been settled; if Parent fails to
prosecute the Claim diligently, Algo Sub may assume control of the prosecution
of the Claim. Algo Sub's right to assume control of the prosecution of a Claim
will be Algo Sub's sole remedy for any failure by Parent to prosecute a Claim
diligently. If Parent fails to file a Claim within twenty-one (21) days after
receipt of such notice from Algo Sub, or if and when Parent notifies Algo Sub in
writing that Parent has decided not to file a Claim against any known or
suspected infringer, Algo Sub will have the right to file a Claim itself. Parent
will cooperate with Algo Sub, at Algo Sub's reasonable request, in connection
with any Claim filed by Algo Sub. In no event will Parent settle a Claim
relating to infringement of the Specific Patent Rights without the prior written
approval of Algo Sub.
(j) Costs and Damages. Algo Sub will be responsible for all costs, expenses, and
legal fees (collectively, "Costs") incurred by Algo Sub in connection with any
Claim (whether filed by Parent or Algo Sub), and Parent will be responsible for
all Costs, incurred by Parent in connection with any Claim (whether filed by
Parent or Algo Sub). Algo Sub will be entitled to all damages awarded as a
result of, or agreed to in a monetary settlement of, any Claim (regardless of
which party files or prosecutes the Claim) to the extent that such damages are
attributable to infringement of the Specific Patent Rights. Parent will be
entitled to all damages awarded as a result of, or agreed to in a monetary
settlement of, any Claim (regardless of which party files or prosecutes the
Claim) to the extent that such damages are attributable to infringement of the
non-Specific Patent Rights. All damages not attributable to infringement will be
shared between Algo Sub and Parent as follows: each party will be entitled to
recover the Costs it incurred in connection with the Claim in proportion to the
amount of Costs incurred, respectively, by Algo Sub and Parent (for example, if
Parent incurred $700,000 in Costs and Algo Sub incurred $300,000, Parent would
receive 70% of the damages and Algo Sub would receive 30%), and if and when all
such Costs have been recovered, Algo Sub and Parent will each receive fifty
percent (50%) of the remaining amount of damages.
XII. TERM. This Agreement will take effect on the Effective Date and will remain
in effect in perpetuity until and unless either Algo Sub or Parent dissolves and
ceases to conduct business and there is no successor to such party's business
that assumes such party's rights and obligations under this Agreement. All
licenses granted in this Agreement will survive in perpetuity notwithstanding
any termination of this Agreement.
XIII. REPRESENTATIONS, WARRANTIES, AND COVENANTS.
Parent represents and warrants that:
(a) it is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) the execution, delivery and performance of this Agreement have been duly
authorized by all necessary corporate action on the part of Parent.
(c) it has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement.
(d) it is the owner of the entire right, title and interest in and to the Patent
Rights, that it has the sole right to grant licenses thereunder and that it has
not granted licenses thereunder to any other entity that would restrict rights,
including the Option, granted hereunder.
(e) it is the owner of the entire right, title and interest in and to the
Trademark Rights listed in Schedule B, that it has the full and sole right to
assign such rights and grant licenses thereunder and that it has not granted
licenses thereunder to any other entity that would restrict rights granted
hereunder
(f) all applicable maintenance fees pertaining to the Patent Rights due on or
before the Effective Date have been timely paid.
(g) the Intellectual Property Rights are owned by Parent free and clear of any
Encumbrance as of the date hereof, and Parent shall not create or permit any
Encumbrance with respect to the Specific Patent Rights or any Encumbrance with
respect to the Licensed Parent/Seller Technology that would conflict with the
rights granted hereunder.
(h) the execution and delivery of the Agreement, and the performance of the
obligations hereunder, will not contravene, conflict with or result in a
violation or breach of, or result in a default under, any provision of any
Contract.
to the best of its knowledge, no patent or patent application
within the Patent Rights is the subject of any pending interference, opposition,
cancellation or other protest proceeding. Parent further represents and warrants
to the best of its knowledge on the Effective Date, it has not received and is
not aware of any third party claims that the practice of the Patent Rights
infringes any proprietary right of such third party.
there are no in-bound licenses and only one out-bound license
(to Yoskikazu Masayoshi, Sadao Masayoshi, Sachie Masayoshi, and Kazauake
Masayoshi and pertaining to the Linaeum Loudspeaker Tweeters, but not the
intellectual properties concerning or related to neo radial technology)
regarding the Speaker Technology.
Algo Sub represents and warrants that:
(a) it is a corporation duly organized, validly existing and in good standing
under the laws of the Cayman Islands.
(b) the execution, delivery and performance of this Agreement have been duly
authorized by all necessary corporate action on the part of Algo Sub.
(c) it has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement.
(d) it shall not file the Patent Assignment executed and delivered by Parent
with the United States Patent and Trademark Office or otherwise until such time
as written notice has been given and the initial payment has been made in
accordance with Section IX.
XIV. INDEMNIFICATION BY PARENT.
(k) Parent shall defend, hold harmless and indemnify each of Algo Sub and its
affiliates, and their directors, officers, employees, and agents ("Indemnitees")
from and against any and all claims, suits, losses, damages, costs, fees and
expenses ("Indemnity Claim(s)") resulting from or arising out of any breach of
any of the representations, warranties, or covenants made by Parent in this
Agreement (regardless whether or not such Indemnity Claims relate to any third
party claim).
(l) In addition to any rights of setoff or other rights that the Algo or Algo
Sub or any of the other Indemnitees may have at common law or otherwise, Algo
and Algo Sub shall have the right to withhold and deduct any sum that may be
owed to any Indemnitee under this Section XIV from any amount otherwise payable
by any Indemnitee, including amounts payable pursuant to Section VIII(c) and
(d), to Parent. The withholding and deduction of any such sum shall operate for
all purposes as a complete discharge (to the extent of such sum) of the
obligation to pay the amount from which such sum was withheld and deducted.
From time to time, Algo Sub may give notice (a "Notice") to Parent
specifying in reasonable detail the nature and dollar amount of any Indemnity
Claim it may have under this Agreement; Algo Sub may make more than one claim
with respect to any underlying state of facts. If Parent gives notice to Algo
Sub disputing any Indemnity Claim (a "Counter Notice") within 30 days following
receipt by Parent of the Notice regarding such Indemnity Claim, such Indemnity
Claim shall be resolved as provided below. If no Counter Notice is received by
Algo Sub within such 30-day period, then the dollar amount of damages claimed by
Algo Sub as set forth in its Notice shall be deemed established for purposes of
this Agreement and, at the end of such 30-day period, Algo or Algo Sub shall be
entitled to withhold and deduct from payments owed to Parent the dollar amount
claimed in the Notice.
If a Counter Notice is given with respect to an Indemnity Claim, Algo
or Algo Sub shall withhold and deduct from payment owed to Parent with respect
thereto only (i) upon the mutual agreement of the parties or (ii) a final
non-appealable order of a court of competent jurisdiction; provided, however,
until such Indemnity Claim is resolved pursuant to (i) or (ii) above, Algo and
Algo Sub's payment obligations under Sections 57(c) and (d) shall be suspended.
Algo and Algo Sub's payment obligations will only resume upon such time as the
Indemnity Claim is resolved.
XV. GENERAL
(m) Further Actions. From and after the Effective Date, each party will
cooperate with the other parties, and will execute and deliver such documents
and take such other actions as another party may reasonably request, for the
purpose of giving effect to the licenses granted in this Agreement.
(n) Notices. Any notice or other communication required or permitted to be
delivered to any party under this Agreement must be in writing and will be
deemed properly delivered, given and received (a) when delivered by hand, or (b)
two business days after delivered by courier or express delivery service or by
facsimile to the address or facsimile number set forth beneath the name of such
party below (or to such other address or facsimile number as such party may have
specified in a written notice to the other parties):
if to Parent or Seller : if to Algo Sub or Algo:
c/o Aura Systems, Inc. c/o Algo Technology, Inc.
2335 Alaska Avenue 47338 Fremont Blvd.
El Segundo, CA 90245 Fremont, CA 94538
Attention: Zvi Harry Kurtsman, CEO Attention: Arthur Liu, CEO
Facsimile: (310) 643-7585 Facsimile: (510) 770-3622
with a copy to:
Cooley Godward LLP
3000 El Camino Real
Five Palo Alto Square
Palo Alto, CA 94306-2155
Attention: David T. Emerson
Facsimile: (650) 857-0663
(o) Governing Law; Venue. This Agreement will be construed in accordance with,
and governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws). Any legal action or
other legal proceeding relating to this Agreement or the enforcement of any
provision of this Agreement may be brought or otherwise commenced in any state
or federal court located in the County of Santa Clara, California. Each party to
this Agreement: (i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of Santa
Clara, California (and each appellate court located in the State of California)
in connection with any such legal proceeding; (ii) agrees that each state and
federal court located in the County of Santa Clara, California will be deemed to
be a convenient forum; and (iii) agrees not to assert (by way of motion, as a
defense or otherwise), in any such legal proceeding commenced in any state or
federal court located in the County of Santa Clara, California, any claim that
such party is not subject personally to the jurisdiction of such court, that
such legal proceeding has been brought in an inconvenient forum, that the venue
of such proceeding is improper or that this Agreement or the subject matter of
this Agreement may not be enforced in or by such court.
(p) Assignment. Algo Sub may freely assign any or all of the rights that it has
under this Agreement (including its rights under the licenses and sublicenses
granted to it herein), in whole or in part, to any other party without obtaining
the consent or approval of the other parties to this Agreement. Parent will not
be permitted to assign or transfer any of the rights that it has under this
Agreement or delegate any of its obligations under this Agreement without Algo
Sub's prior written consent not to be unreasonably withheld. None of the
provisions of this Agreement is intended to provide any rights or remedies to
any third party. This Agreement will be binding upon each party hereto and its
successors and assigns (if any).
(q) Cumulative Remedies. The rights and remedies of the parties hereto will
be cumulative (and not
alternative).
(r) Waiver. No failure on the part of any party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any party
in exercising any power, right, privilege or remedy under this Agreement, will
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy will preclude any
other or further exercise thereof or of any other power, right, privilege or
remedy. No party will be deemed to have waived any claim arising from this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
party; and any such waiver will not be applicable or have any effect except in
the specific instance in which it is given.
(s) Amendment. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of the parties sought to be bound by any such amendment,
modification, alteration or supplement.
(t) Severability. If any provision of this Agreement, or the application of any
such provision to any person or set of circumstances, is determined to be
invalid, unlawful, void or unenforceable to any extent, the remainder of this
Agreement, and the application of such provision to persons or circumstances
other than those as to which it is determined to be invalid, unlawful, void or
unenforceable, will not be impaired or otherwise affected, and will continue to
be valid and enforceable to the fullest extent permitted by law.
(u) Independent Contractors. Algo Sub and Parent are independent contractors and
neither will have the authority to act on behalf of the other or create any
binding obligation for the other. This Agreement is not intended to establish
any partnership, joint venture, employment, or other relationship between Algo
Sub and Parent except that of independent contractors.
(v) Construction. The section headings in this Agreement are for convenience of
reference only, will not be deemed to be a part of this Agreement, and will not
be referred to in connection with the construction or interpretation of this
Agreement. Any rule of construction to the effect that ambiguities are to be
resolved against the drafting party will not be applied in the construction or
interpretation of this Agreement. As used in this Agreement, the words "include"
and "including," and variations thereof, will not be deemed to be terms of
limitation, but rather will be deemed to be followed by the words "without
limitation." Except as otherwise expressly indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
(w) Counterparts. This Agreement may be executed in several counterparts, each
of which will constitute an original and all of which, when taken together, will
constitute one agreement.
(x) Entire Agreement. This Agreement, along with the Asset Purchase Agreement,
and the Exhibits and Schedules attached hereto, sets forth the entire
understanding of the parties relating to the subject matter hereof and
supersedes all prior agreements and understandings between the parties relating
to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the Effective Date.
SPEAKER ACQUISITION SUB AURA SYSTEMS, INC.
By: _______________________________ By: ______________________________
Name: ____________________________ Name: ____________________________
Title: _____________________________ Title: _____________________________
ALGO TECHNOLOGY, INC. AURASOUND, INC.
By: By:
Name: Name:
Title: Title:
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
SPECIFIC PATENT RIGHTS
<S> <C> <C> <C>
Docket # Title US Serial US Patent
Number Number
(if issued)
91-11 Voice Coil Actuator I 07/740,068 5,321,762
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
92-14 Voice Coil Actuator II 07/925,085
cip of
91-11
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
93-05D Teardrop Speaker Motor Case 29/005,828 D364,167
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
93-07 Voice Coil Excursion and Amplitude Gain Control Device 08/062,807 5,418,860
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
93-21 Electromagnetic Transducer 08/086,622 5,424,592
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
93-25 Apparatus and Method for Assembly 08/140,231 5,598,625
cip of of Radial Magnet Voice Coil
91-11 Actuators
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
93-46-D Amplifier Housing 29/018,102 D364,162
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
93-49 Axially Focused Radial Magnet 08/285,405 5,539,262
Voice Coil Actuator
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
94-08 Voice Coil Actuator 08/286,597 5,434,458
(FWC of
92-14)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
95-01 Electromagnetic Transducer 08/374,939 5,624,155
(Div of
93-21)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
95-08 Voice Coil Actuator 08/476,491 5,536,984
(Div of
94-08)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
95-10 Dual Axial Magnet Speaker 08/491,250
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
95-19D Angled Speaker Enclosure 29/046,225 D394,063
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
95-20 Piezo Speaker 08/577,297 5,736,808
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
95-21 Polygon Magnet Structure for 08/576,801 5,786,741
Voice Coil Actuator
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
97-03D Speaker Basket 27/056,795
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
97-14 Audio Transducer With Controlled 07/154,945 4,903,308
Flexibility Diaphragm
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
97-15 Audio Transducer with Controlled 07/556,776 4,584,439
Flexibility Diaphragm
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
97-16 Audio Transducer with Controlled 07/436,914 5,198,624
Flexibility Diaphragm
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
97-17 Centering Device for Speaker 07/499,492 5,127,060
Diaphragm
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
97-19 Audio Transducer Improvements 07/708,924 5,249,237
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
97-20 Audio Transducer Improvements 07/730,172 5,230,021
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
97-21 Audio Transducer Improvements 07/882,144 5,450,497
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
97-26 Audio Transducer having Piezoelectric Device 08/236,209 5,727,076
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
97-27 Resonance Damper for Piezoelectric 08/286,625 5,652,801
Transducer
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
97-28 Single Magnet Audio Transducer and Method of 08/272,295 5,604,815
Manufacturing
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
97-29 Audio Transducer with Etched 08/322,108 5,446,797
Voice Coil
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
97-30 Audio Transducer with Flexible Foam Enclosure 08/384,380 5,570,429
- ---------------------------------------------------------------------------------------------
98-01D Speaker Basket 29/069,434 D396,723
Div of
97-03D
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
99-02 Piezoelectric Speaker 09/056,394
(CIP of
95-20)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
99-06D Tiltable Loudspeaker Enclosure 29/090,939
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
99-07D Tiltable Loudspeaker Enclosure (woofer) 29/090,938
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
99-14 Radial Magnet Speaker
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE B
TRADEMARKS RIGHTS
The Specific Trademark Rights are denoted with an *.
Those items marked with NL (Not Licensed) are not to be included in Trademark
Rights. The Trademark Rights are denoted with an **.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Docket Mark Serial Reg.
Number Number Number
- ------------------------------------------------------------------------------------------------
TM92-01 NL AuraFlux 74/322,660 293732
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM92-02 * AURASOUND 74/313,418
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM92-03 NL AuraScope 74/134,961
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM92-04 NL AuraScope 74/134,960
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-01 * Aurasound (w/logo) 74/349,974
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-02 ** Aura 74/369,064 2,196,818
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-03 NL Write your Congressman with a Phone Call 74/360,524
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-04 NL 21st Century Technologies 74/367,568
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-05 * Musical Chairs 74/385,179
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-06 * Vibrasonics 74/388,369
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-07 NL Power Tower 74/394,182
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-08 ** Radial Flux 74/408,601
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-09 ** Radial Mag 74/408,180
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-10 ** Radial Pole 74/408,209
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-11 * Radial Neo 74/408,445
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-12 ** Radial Power 74/408,205
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-13 ** Radial Ring 74/408,664
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-14 ** Radial Line 74/408,207
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-15 NL Linear Mag 74/408,619
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-16 NL Linear Flux 74/408,231
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-17 NL Linear Ring 74/408,211
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-18 ** Neo Flux 74/408,448
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-19 ** Neo Power 74/408,208
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-20 *** Neo Ring 74/408,671
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-21 ** Neo Mag 74,408,447
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-22 NL Linear Gap 74/408,446
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-23 ** Radial Gap 74/408,672
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-24 NL High Gap 74/408,244
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-25 NL Tall Gap 74/408,003
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-26 ** Neo Gap 74/408,206
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-27 ** Radial Stroke 74/408,178
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-28 NL Linear Stroke 74/408,243
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-29 ** Neo Stroke 74/408,179
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-30 NL High Stroke 74/408,232
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-31 * Pillow Sonics 74/408,242
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-32 * Theatre Sonics 74/408,210
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-33 * Aura Sonics 74/410,206
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 93-34 * Auto Sonics 74/417,408
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 93-35 * Interactor 74/425,395 1,920,753
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 93-36 NL Technologies of the 21st Century 74/431,065
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 93-37 NL Thunderbolt 74/437,049
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 93-38 NL RAINBOW (block letters) 74/439,107 1,970,336
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 93-39 NL Rainbow (w/logo) 74/446,644 2,044,009
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 93-40 NL Rainbow (stylized) 74/446,645 2,040,868
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM-93-41 NL Aurascope 74/466,053
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 93-42 ** Aura (stylized) 74/472,095 1,991,593
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 93-43 * Interactor (stylized) 74/472,097
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 94-01 * Virtual Reality Gamewear
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 94-02 * Soundplay 74/528,416
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 94-03. * Mag Force 74/528,276
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 94-04 NL Newcom (stylized) 75/033,934 2,030,034
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 94-05 NL Newtalk 74/618,797
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM95-01 ** Auraphile 74/639,340
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM95-02 * Bass Shaker 74/679,644 2,072,412
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM95-03 * NRT 74/706,754 2,144,980
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM95-04 * Neo-Radial Technology 74/706,753 2,067,789
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM95-05 * Neo-Radial 74/720,723 2,063,972
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM95-06 NL Net Talk 75/021,446
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM95-07 NL Net Fax 75/021,447
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM95-08 NL NewCom (Block Letters) 75/033,935 2,030,035
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM96-01 * Mobile Reference (Stylized) 75/123,840
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM96-02 * Neo-Radial Technology (Stylized) 75/123,841 2,111,403
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM96-03 * Mobile Reference 75/131,644
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM96-04 NL Aurapower 75/141,344
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM96-05 NL Auragen 75/141,345 443325
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-01 * Aspect 75/225,690 2,128,907
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-02 * Force 75/225,287
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-03 NL Radiance (NEVER FILED)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-04 NL EVA 75/225,341 2,181,910
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-05 NL FAS 75/225,289
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-06 NL Ferrodisk 75/225,288
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-07 NL FAR 75/225,280
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-08 * Force 150 75/229,617
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-09 * Force 250 75/229,616
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-10 * Force 340 75/229,720
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-11 * Force 560 75/229,719
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-12 * Force 400q 75/229,718
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-13 * Force 42 75/225,286
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-14 * Force 52 75/225,285
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-15 * Force 62 75/225,284
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-16 * Force 426 75/225,283
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-17 * Force 527 75/225,282
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-18 * Force 629 75/225,281
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-19 * Force 639 75/225,295
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-20 * Force 10 75/225,296
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-21 * Force 12 75/225,297
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-22 * Force 15 75/225,298
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-23 * Aura Virtual Sound 75/235,513
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-24 * AVS 75/235,817
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-25 * Do More Than Listen 75/235,512
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-26 NL Auragen of Power 75/237,652
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-27 NL Atlas Peripherals 75/256,929 2,179,587
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-28 * MR 75/252,086
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-29 * MR 52 75/252,087
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-30 * MR 62 75/252,088 2,170,440
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-31 * MR 5.1 75/252,089 2,219,543
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-32 * MR 6.1 75/252,090 2,188,518
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-33 * MR 629 75/252,091
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-34 * MR 1 75/252,085 2,170,439
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM98-01 NL Webpal 75/267,533
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM98-02 NL Navpal 75/267,532
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM98-03 NL Newpal 75/267,531
- -------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM98-04 * Linaeum 74/132,488
- ------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
TM98-05 * Line Source 75/291,967
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM98-06 * Force (stylized) 75/291,968
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM98-07 * Line Source (design) 75/330,407
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM98-08 NL Dash 3D 75/376,536
(NewCom)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM98-09 NL Simplified Technology For 75/382,016
All Walks of Life
(NewCom)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM98-10 NL CINEMA II 75/425,789
(NewCom)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM98-11 NL EXTREME CINEMA 75/425,790
(NewCom)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 98-12 NL Aura (B&W)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 98-13 NL AURAGEN 75/977693 2,202,313
(div'l of
TM96-05)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 99-01 NL AMA
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 99-02 NL AURA (Merchant & Gould) 75/559,987
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 99-03 NL RPM 75/579,192
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 99-04 *** Beyond Red Line 75/579,642
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 99-05 NL The Ultimate Upgrade 75/579,641
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 99-06 * Mobile Reference Platinum 75/579,640
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 99-07 NL HOME ACCESS (NewCom) 75/584,002
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM99-08 NL Auragen 75/594,235
Power. On The Go. (Stylized)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM99-09 NL The Compatibility Company 75/607,594
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM99-10 NL Thin Pal
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
PATENT ASSIGNMENT
<PAGE>
FORM OF PATENT ASSIGNMENT
Attorney Docket No: PATENT
I hereby certify that this correspondence is being deposited with the United
States Postal Service with sufficient postage as first class mail in an envelope
addressed to the Assistant Commissioner for Patents, Washington, D.C. 20231 on
__________________, _____.
By:______________________________
ASSIGNMENT OF PATENT RIGHTS
Aura Systems, Inc., a corporation organized and existing under the laws of the
state of Delaware, having a place of business at _______________________________
(hereinafter called "Assignor"), hereby assigns certain patent rights to Speaker
Acquisition Sub, a corporation organized and existing under the laws of the
Cayman Islands having a place of business at ___________________________________
(hereinafter called the "Assignee"):
WHEREAS Assignor is the owner of the Letters Patents and Applications
Listed on Schedule I attached hereto,
AND WHEREAS Assignor has agreed with Assignee for the transfer to it of the
whole right, title and interest in and to said Applications and to said Letters
Patent, and inventions therein,
NOW THIS ASSIGNMENT WITNESSETH that in pursuance of the said agreement and in
consideration of the sum of One U.S. Dollar ($1.00) and such other good and
valuable consideration paid by Assignee to Assignor (the receipt of which
Assignor hereby acknowledges), Assignor, as beneficial owner, hereby assigns and
transfers to Assignee said inventions, said Applications and said Letters
Patent, and any and all Letters Patent or Patents in the United States of
America and all foreign countries which may be granted therefor and thereon, and
in and to any and all divisions, continuations, and continuations-in-part of
said applications, or reissues or extensions of said Letters Patent, and all
rights under the International Convention for the Protection of Industrial
Property, and the full exclusive benefits thereof, and all rights, privileges
and advantages appertaining thereto, including any and all rights to damages,
profits or recoveries of any nature for past infringement of said Letters
Patent, and the payment of any and all maintenance fees, taxes, and the like, TO
HOLD the same unto and to the use of Assignee, its successors and assigns
absolutely during the residue of the respective terms for which the said Letters
Patent were granted and during any such terms, and for any and all rights
extending from said applications and reissues.
ASSIGNOR hereby covenants that Assignor has full right to convey the entire
interest herein being assigned and represents that Assignor has not executed and
will not execute any agreements inconsistent with this Assignment or to the
detriment of the patents, applications, and inventions being assigned hereby.
AND for the same consideration, Assignor hereby covenants and agrees to and with
Assignee, its successor, legal representatives and assigns that, at the time of
execution and delivery of these presents, Assignor is the sole and lawful owner
of the entire right, title and interest in and to the said inventions and the
application for Letters Patent above-mentioned, that the same are unencumbered,
and that assignor has good and full right and lawful authority to sell and
convey the same in the manner herein set forth.
<PAGE>
AND for the same consideration, Assignor hereby covenants and agrees to and with
Assignee, its successors, legal representatives and assigns that Assignor will,
whenever counsel of Assignee, or the counsel of its successors, legal
representatives and assigns, shall advise that any proceeding in connection with
said inventions, or that any division, continuation or continuation-in-part of
any Letters Patent to be obtained therein, is lawful and desirable, sign all
papers and documents, take all lawful oaths, and do all acts necessary or
required to be done for the procurement, maintenance, enforcement and defense of
Letters Patent for said inventions, without charge to Assignor, its successors,
legal representatives and assigns, but at the cost and expense of the Assignee,
its successors, legal representatives and assigns.
Executed at __________________this __________ day of ______________,19__
Assignor:
Signature:
Printed Name:
Title:
State of _____________)
Country of ______________) SS:
Before me personally appeared said _______________________
And acknowledged the foregoing instrument to be his fee act and deed this
__________, 1999.
Seal __________________________
(Notary Public)
<PAGE>
SCHEDULE I
Patents:
5,321,762 5,539,262 5,786,741 5,230,021
D364,167 5,434,458 4,903,308 5,450,497
5,418,860 5,624,155 4,584,439 5,727,076
5,424,592 5,536,984 5,198,624 5,652,801
5,598,625 D394,063 5,127,060 5,604,815
D364,162 5,736,808 5,249,237 5,446,797
D396,723
Patent Applications:
08/491,250
27/056,795
09/056,394
29/090,939
29/090,938
- --------------
<PAGE>
EXHIBIT B
TRADEMARK ASSIGNMENT
<PAGE>
ASSIGNMENT OF TRADEMARKS
THIS ASSIGNMENT OF TRADEMARKS is made July ___, 1999 by and
between Speaker Acquisition Sub, a Cayman Island corporation having a principal
place of business located at ________________________ ("Algo Sub"), and Aura
Systems, Inc., a Delaware corporation having its principal place of business at
2335 Alaska Avenue, El Segundo, California 90245 ("Aura Systems"), and Aura
Systems' wholly-owned subsidiary AuraSound, Inc., also a Delaware corporation
("Seller").
WHEREAS, Algo Sub, Aura Systems, and Seller are parties to an
Assignment and License Agreement of even date herewith (the "License
Agreement"), under the terms of which Aura Systems and Seller will sell and
transfer, and Algo Sub will purchase certain trademarks; and
WHEREAS, Aura Systems and/or Seller are the owner of the trademarks set
forth in Schedule 1 (as well as various foreign counterparts and trademarks)
hereto (the "Trademarks"); and
WHEREAS, pursuant to the License Agreement, Algo Sub desires to obtain
all of Aura Systems' and Seller's right, title and interest in, to and under
said Trademarks;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by Aura Systems and Seller, Aura
Systems and Seller hereby sell, convey, assign, transfer and deliver to Algo
Sub, its successors and assigns, all of their right, title and interest
throughout the world in and to the Trademarks, together with the goodwill of the
business symbolized by the Trademarks, and the registrations thereof, together
with the right to sue and recover damages for future infringements thereof and
to stand in the place of Aura Systems and/or Seller in all matters related
thereto. Aura Systems and Seller agree to take such further action and to
execute such additional documents as may be necessary to perfect Algo Sub's
title in and to the Trademarks.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment of
Trademarks to be executed as of the day and year first written above.
SPEAKER ACQUISITION SUB, a Cayman corporation
By: ________________________________
Name:_______________________________
Title: ________________________________
AURA SYSTEMS, INC., a Delaware corporation AURASOUND, INC., a Delaware Corp.
By: _________________________________ By: ________________________________
Name: _______________________________ Name: _____________________________
Title:__________________________________ Title:_______________________________
<PAGE>
SCHEDULE 1 TO
ASSIGNMENT OF TRADEMARKS
By Aura Systems, Inc. and AuraSound, Inc.
To
Speaker Acquisition Sub
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Docket Mark Serial Reg.
Number Number Number
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TM92-02 * AURASOUND 74/313,418
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-01 * Aurasound (w/logo) 74/349,974
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-05 * Musical Chairs 74/385,179
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-06 * Vibrasonics 74/388,369
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-08 * Radial Flux 74/408,601
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-09 * Radial Mag 74/408,180
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-10 * Radial Pole 74/408,209
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-11 * Radial Neo 74/408,445
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-12 * Radial Power 74/408,205
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-13 * Radial Ring 74/408,664
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-14 * Radial Line 74/408,207
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-18 * Neo Flux 74/408,448
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-19 * Neo Power 74/408,208
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-20 * Neo Ring 74/408,671
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-21 * Neo Mag 74,408,447
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-23 * Radial Gap 74/408,672
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-26 * Neo Gap 74/408,206
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-27 * Radial Stroke 74/408,178
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-29 * Neo Stroke 74/408,179
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-31 * Pillow Sonics 74/408,242
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-32 * Theatre Sonics 74/408,210
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM93-33 * Aura Sonics 74/410,206
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 93-34 * Auto Sonics 74/417,408
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 93-35 * Interactor 74/425,395 1,920,753
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 93-43 * Interactor (stylized) 74/472,097
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 94-01 * Virtual Reality Gamewear
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 94-02 * Soundplay 74/528,416
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 94-03. * Mag Force 74/528,276
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM95-02 * Bass Shaker 74/679,644 2,072,412
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM95-03 * NRT 74/706,754 2,144,980
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM95-04 * Neo-Radial Technology 74/706,753 2,067,789
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM95-05 * Neo-Radial 74/720,723 2,063,972
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM96-01 * Mobile Reference (Stylized) 75/123,840
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM96-02 * Neo-Radial Technology (Stylized) 75/123,841 2,111,403
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM96-03 * Mobile Reference 75/131,644
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-01 * Aspect 75/225,690 2,128,907
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-02 * Force 75/225,287
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-08 * Force 150 75/229,617
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-09 * Force 250 75/229,616
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-10 * Force 340 75/229,720
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-11 * Force 560 75/229,719
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-12 * Force 400q 75/229,718
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-13 * Force 42 75/225,286
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-14 * Force 52 75/225,285
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-15 * Force 62 75/225,284
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-16 * Force 426 75/225,283
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-17 * Force 527 75/225,282
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-18 * Force 629 75/225,281
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-19 * Force 639 75/225,295
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-20 * Force 10 75/225,296
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-21 * Force 12 75/225,297
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-22 * Force 15 75/225,298
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-23 * Aura Virtual Sound 75/235,513
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-24 * AVS 75/235,817
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-25 * Do More Than Listen 75/235,512
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-28 * MR 75/252,086
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-29 * MR 52 75/252,087
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-30 * MR 62 75/252,088 2,170,440
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-31 * MR 5.1 75/252,089 2,219,543
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-32 * MR 6.1 75/252,090 2,188,518
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-33 * MR 629 75/252,091
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM97-34 * MR 1 75/252,085 2,170,439
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM98-04 * Linaeum 74/132,488
- ------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
TM98-05 * Line Source 75/291,967
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM98-06 * Force (stylized) 75/291,968
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM98-07 * Line Source (design) 75/330,407
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 99-04 * Beyond Red Line 75/579,642
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
TM 99-06 * Mobile Reference Platinum 75/579,640
- ------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Mark US Serial US Reg.
Number Number
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AURASOUND 74/313,418
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Aurasound (w/logo) 74/349,974
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Radial Flux 74/408,601
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Radial Mag 74/408,180
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Radial Pole 74/408,209
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Radial Neo 74/408,445
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Radial Power 74/408,205
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Radial Ring 74/408,664
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Radial Line 74/408,207
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Neo Flux 74/408,448
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Neo Power 74/408,208
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Neo Ring 74/408,671
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Neo Mag 74,408,447
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Radial Gap 74/408,672
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Neo Gap 74/408,206
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Radial Stroke 74/408,178
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Neo Stroke 74/408,179
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Interactor 74/425,395 1,920,753
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Aura (stylized) 74/472,095 1,991,593
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Interactor (stylized) 74/472,097
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Bass Shaker 74/679,644 2,072,412
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NRT 74/706,754 2,144,980
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Neo-Radial Technology 74/706,753 2,067,789
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Neo-Radial 74/720,723 2,063,972
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Mobile Reference (Stylized) 75/123,840
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Neo-Radial Technology (Stylized) 75/123,841 2,111,403
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Mobile Reference 75/131,644
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Aspect 75/225,690 2,128,907
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Aura Virtual Sound 75/235,513
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AVS 75/235,817
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MR 75/252,086
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MR 52 75/252,087
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MR 62 75/252,088 2,170,440
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MR 5.1 75/252,089 2,219,543
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MR 6.1 75/252,090 2,188,518
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MR 629 75/252,091
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MR 1 75/252,085 2,170,439
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Linaeum 74/132,488
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------
Line Source 75/291,967
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Line Source (design) 75/330,407
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Mobile Reference Platinum 75/579,640
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT C
DOCUMENTS REGARDING OPTION TO BE RECORDED
<PAGE>
OPTION
This option is entered into effective as of July ___, 1999 (the
"Effective Date") between Speaker Acquisition Sub, a Cayman Island corporation
("Algo Sub"), and a wholly-owned subsidiary of Algo Technology, Inc., a
California corporation ("Algo"); and Aura Systems, Inc., a Delaware corporation
("Parent"), and its wholly-owned subsidiary AuraSound, Inc., also a Delaware
corporation ("Seller").
(a) For a period of thirty-six months (36) months from the Effective
Date, Parent hereby grants to Algo Sub the irrevocable option (the "Option") to
acquire all right, title and interest to the US patents listed below (as well as
any foreign counterparts or cases that claim priority from the US patents listed
below):
5,321,762 5,539,262 5,786,741 5,230,021
D364,167 5,434,458 4,903,308 5,450,497
5,418,860 5,624,155 4,584,439 5,727,076
5,424,592 5,536,984 5,198,624 5,652,801
5,598,625 D394,063 5,127,060 5,604,815
D364,162 5,736,808 5,249,237 5,446,797
5,570,429
D396,723
(b) During the thirty-six month period following the Effective Date,
Parent shall not license, exclusively, non-exclusively, or otherwise encumber in
any manner, any of the above to any third party without the prior written
consent of Algo Sub. Should Algo Sub fail to exercise the Option, nothing herein
shall be construed to prevent Parent from subsequently licensing, on s
non-exclusive basis, any invention covered by the above hereunder to any other
for the purpose of practicing any such invention. In the event Algo Sub elects
not to exercise the Option, Algo Sub's non-exclusive license shall continue on
the terms set forth herein without modification.
SPEAKER ACQUISITION SUB AURA SYSTEMS, INC.
By: _______________________________ By: ______________________________
Name: ____________________________ Name: ____________________________
Title: _____________________________ Title: _____________________________
ALGO TECHNOLOGY, INC. AURASOUND, INC.
By: By:
Name: Name:
Title: Title:
<PAGE>
OPTION
This option is entered into effective as of July ___, 1999 (the
"Effective Date") between Speaker Acquisition Sub, a Cayman Island corporation
("Algo Sub"), and a wholly-owned subsidiary of Algo Technology, Inc., a
California corporation ("Algo"); and Aura Systems, Inc., a Delaware corporation
("Parent"), and its wholly-owned subsidiary AuraSound, Inc., also a Delaware
corporation ("Seller").
(a) For a period of thirty-six months (36) months from the Effective
Date, Parent hereby grants to Algo Sub the irrevocable option (the "Option") to
acquire all right, title and interest to the US patent application listed below
(as well as any foreign counterparts or cases that claim priority from the US
patent application listed below):
08/491,250
(b) During the thirty-six month period following the Effective Date,
Parent shall not license, exclusively, non-exclusively, or otherwise encumber in
any manner, any of the above to any third party without the prior written
consent of Algo Sub. Should Algo Sub fail to exercise the Option, nothing herein
shall be construed to prevent Parent from subsequently licensing, on s
non-exclusive basis, any invention covered by the above hereunder to any other
for the purpose of practicing any such invention. In the event Algo Sub elects
not to exercise the Option, Algo Sub's non-exclusive license shall continue on
the terms set forth herein without modification.
SPEAKER ACQUISITION SUB AURA SYSTEMS, INC.
By: _______________________________ By: ______________________________
Name: ____________________________ Name: ____________________________
Title: _____________________________ Title: _____________________________
ALGO TECHNOLOGY, INC. AURASOUND, INC.
By: By:
Name: Name:
Title: Title:
<PAGE>
OPTION
This option is entered into effective as of July ___, 1999 (the
"Effective Date") between Speaker Acquisition Sub, a Cayman Island corporation
("Algo Sub"), and a wholly-owned subsidiary of Algo Technology, Inc., a
California corporation ("Algo"); and Aura Systems, Inc., a Delaware corporation
("Parent"), and its wholly-owned subsidiary AuraSound, Inc., also a Delaware
corporation ("Seller").
(a) For a period of thirty-six months (36) months from the Effective
Date, Parent hereby grants to Algo Sub the irrevocable option (the "Option") to
acquire all right, title and interest to the US patent application listed below
(as well as any foreign counterparts or cases that claim priority from the US
patent application listed below):
27/056,795
(b) During the thirty-six month period following the Effective Date,
Parent shall not license, exclusively, non-exclusively, or otherwise encumber in
any manner, any of the above to any third party without the prior written
consent of Algo Sub. Should Algo Sub fail to exercise the Option, nothing herein
shall be construed to prevent Parent from subsequently licensing, on s
non-exclusive basis, any invention covered by the above hereunder to any other
for the purpose of practicing any such invention. In the event Algo Sub elects
not to exercise the Option, Algo Sub's non-exclusive license shall continue on
the terms set forth herein without modification.
SPEAKER ACQUISITION SUB AURA SYSTEMS, INC.
By: _______________________________ By: ______________________________
Name: ____________________________ Name: ____________________________
Title: _____________________________ Title: _____________________________
ALGO TECHNOLOGY, INC. AURASOUND, INC.
By: By:
Name: Name:
Title: Title:
<PAGE>
OPTION
This option is entered into effective as of July ___, 1999 (the
"Effective Date") between Speaker Acquisition Sub, a Cayman Island corporation
("Algo Sub"), and a wholly-owned subsidiary of Algo Technology, Inc., a
California corporation ("Algo"); and Aura Systems, Inc., a Delaware corporation
("Parent"), and its wholly-owned subsidiary AuraSound, Inc., also a Delaware
corporation ("Seller").
(a) For a period of thirty-six months (36) months from the Effective
Date, Parent hereby grants to Algo Sub the irrevocable option (the "Option") to
acquire all right, title and interest to the US patent application listed below
(as well as any foreign counterparts or cases that claim priority from the US
patent application listed below):
09/056,394
(b) During the thirty-six month period following the Effective Date,
Parent shall not license, exclusively, non-exclusively, or otherwise encumber in
any manner, any of the above to any third party without the prior written
consent of Algo Sub. Should Algo Sub fail to exercise the Option, nothing herein
shall be construed to prevent Parent from subsequently licensing, on s
non-exclusive basis, any invention covered by the above hereunder to any other
for the purpose of practicing any such invention. In the event Algo Sub elects
not to exercise the Option, Algo Sub's non-exclusive license shall continue on
the terms set forth herein without modification.
SPEAKER ACQUISITION SUB AURA SYSTEMS, INC.
By: _______________________________ By: ______________________________
Name: ____________________________ Name: ____________________________
Title: _____________________________ Title: _____________________________
ALGO TECHNOLOGY, INC. AURASOUND, INC.
By: By:
Name: Name:
Title: Title:
<PAGE>
OPTION
This option is entered into effective as of July ___, 1999 (the
"Effective Date") between Speaker Acquisition Sub, a Cayman Island corporation
("Algo Sub"), and a wholly-owned subsidiary of Algo Technology, Inc., a
California corporation ("Algo"); and Aura Systems, Inc., a Delaware corporation
("Parent"), and its wholly-owned subsidiary AuraSound, Inc., also a Delaware
corporation ("Seller").
(a) For a period of thirty-six months (36) months from the Effective
Date, Parent hereby grants to Algo Sub the irrevocable option (the "Option") to
acquire all right, title and interest to the US patent application listed below
(as well as any foreign counterparts or cases that claim priority from the US
patent application listed below):
29/090,939
(b) During the thirty-six month period following the Effective Date,
Parent shall not license, exclusively, non-exclusively, or otherwise encumber in
any manner, any of the above to any third party without the prior written
consent of Algo Sub. Should Algo Sub fail to exercise the Option, nothing herein
shall be construed to prevent Parent from subsequently licensing, on s
non-exclusive basis, any invention covered by the above hereunder to any other
for the purpose of practicing any such invention. In the event Algo Sub elects
not to exercise the Option, Algo Sub's non-exclusive license shall continue on
the terms set forth herein without modification.
SPEAKER ACQUISITION SUB AURA SYSTEMS, INC.
By: _______________________________ By: ______________________________
Name: ____________________________ Name: ____________________________
Title: _____________________________ Title: _____________________________
ALGO TECHNOLOGY, INC. AURASOUND, INC.
By: By:
Name: Name:
Title: Title:
<PAGE>
OPTION
This option is entered into effective as of July ___, 1999 (the
"Effective Date") between Speaker Acquisition Sub, a Cayman Island corporation
("Algo Sub"), and a wholly-owned subsidiary of Algo Technology, Inc., a
California corporation ("Algo"); and Aura Systems, Inc., a Delaware corporation
("Parent"), and its wholly-owned subsidiary AuraSound, Inc., also a Delaware
corporation ("Seller").
(a) For a period of thirty-six months (36) months from the Effective
Date, Parent hereby grants to Algo Sub the irrevocable option (the "Option") to
acquire all right, title and interest to the US patent application listed below
(as well as any foreign counterparts or cases that claim priority from the US
patent application listed below):
29/090,938
(b) During the thirty-six month period following the Effective Date,
Parent shall not license, exclusively, non-exclusively, or otherwise encumber in
any manner, any of the above to any third party without the prior written
consent of Algo Sub. Should Algo Sub fail to exercise the Option, nothing herein
shall be construed to prevent Parent from subsequently licensing, on s
non-exclusive basis, any invention covered by the above hereunder to any other
for the purpose of practicing any such invention. In the event Algo Sub elects
not to exercise the Option, Algo Sub's non-exclusive license shall continue on
the terms set forth herein without modification.
SPEAKER ACQUISITION SUB AURA SYSTEMS, INC.
By: _______________________________ By: ______________________________
Name: ____________________________ Name: ____________________________
Title: _____________________________ Title: _____________________________
ALGO TECHNOLOGY, INC. AURASOUND, INC.
By: By:
Name: Name:
Title: Title:
<PAGE>
ESCROW AGREEMENT
AGREEMENT made as of March 26, 1999 among Aura Systems, Inc. ("Seller"),
a Delaware corporation with a place of business at 2335 Alaska Avenue, El
Segundo, California 90245, Yoshikazu Masayoshi, Sadao Masayoshi, Sachie
Masayoshi and Kazuaki Masayoshi (jointly and severally, "Purchaser"), each
having an address c/o Sadao Masayoshi, 990 West 190th, Suite 210, Torrance,
California 90502, and WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP (the "Escrow
Agent"), a New York limited liability partnership with a place of business at
270 Madison Avenue, New York, New York 10016.
W I T N E S S E T H:
WHEREAS, Seller has sold to Purchaser, and Purchaser has purchased from
Seller, two hundred eighty (280) shares (the "Shares") of stock of MYS K.K. (the
"Corporation"), in consideration of, inter, alia two (2) certain promissory
notes (collectively, the "Note"), one in the original principal amount of
$1,000,000 and one in the original principal amount of $3,200,000; and
WHEREAS, Purchaser is delivering certificate(s) of stock representing
the Shares into escrow, together with unattached stock power(s) duly endorsed by
Purchaser in blank, as collateral to secure against a Default (as defined in the
Note) by Purchaser under the Note; and
WHEREAS, the parties are delivering into escrow such other instruments
and agreements as are described in this Agreement; and
WHEREAS, the Escrow Agent has agreed to act as escrow agent pursuant to
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, thc parties agree as follows:
1. Deposit of the Shares and Other Items.
1.1 Initial Certificate(s). Simultaneously with the execution
of this Agreement, Purchaser has deposited with the Escrow Agent the Shares,
represented by certificate(s) of stock of the Corporation issued in the name of
Purchaser, together with stock power(s) duly endorsed in blank (the "Stock
Power").
1.2 Subsequent Deposits. Any additional shares of stock of the
Corporation hereafter issued with respect to the Shares, whether due to stock
split, stock dividend or otherwise, or any certificates for shares of stock of
the Corporation or another entity hereafter issued to replace or supplement the
Shares, whether due to merger, consolidation, reorganization or otherwise, shall
be deposited with the Escrow Agent, together with appropriate stock powers duly
endorsed in blank and such stock shall be considered part of the Shares and such
stock powers shall be considered part of the Stock Power.
1.3 Other Items. Simultaneously with the execution of this
Agreement, thc following items (collectively, the "Other Escrow Items") are also
being depositing with the Escrow Agent:
1.3.1 Resignations. Blank dated resignations (the "Resignations")
from Purchasers with respect to their directorships, offices and
employment with the Corporation, its subsidiaries and affiliates.
1.3.2 Bank Letters. Blank dated letters from the Corporation to
its banks advising of the change of its authorized signatories
(the "Bank Letters").
2. Acceptance by the Escrow Agent. The Escrow Agent agrees to accept
delivery of the Shares, the Stock Power and the Other Escrow Items
(collectively. the "Escrow Items"), and agrees to hold the same in accordance
with the terms and conditions of this Agreement.
3. Release from Escrow. The Escrow Agent will hold the Escrow Items in
its possession until authorized hereunder to deliver the Escrow Items in
accordance with one of the following provisions:
3.1 Delivery to Purchaser. Upon full payment of the amount due
pursuant to the Note, including, without limitation, any accrued interest, an
affidavit (the "Payment Affidavit") made by, or on behalf of, Purchaser setting
forth that full payment has been made shall be delivered to the Escrow Agent.
The Escrow Agent shall, promptly after actual receipt of the Payment Affidavit,
give notice to Seller of the existence of the Payment Affidavit, which notice
shall include a copy of the Payment Affidavit. Unless the Escrow Agent in fact
receives an affidavit (the "Seller's Disputing Affidavit") by, or on behalf of,
Seller of a dispute with respect to the recitation in the Payment Affidavit
within twenty (20) days after the Escrow Agent gives notice to Seller of the
existence of the Payment Affidavit, then, promptly after the expiration of such
twenty (20) day period, the Escrow Agent shall deliver to Purchaser the Escrow
Items.
3.2 Delivery to Seller. Upon Default, as defined in either Note
(including the expiration of any grace period which must elapse before a Default
arises), under either Note, an affidavit (the "Default Affidavit") made by, or
on behalf of, Seller setting forth such Default shall be delivered to the Escrow
Agent. The Escrow Agent shall, promptly after actual receipt of the Default
Affidavit, give notice to Purchaser of the existence of the Default Affidavit,
which notice shall include a copy of the Default Affidavit. Unless the Escrow
Agent in fact receives an affidavit (the "Purchaser's Disputing Affidavit") by,
or on behalf of, Purchaser of a dispute with respect to the recitation in the
Default Affidavit within twenty (20) days after the Escrow Agent gives notice to
Purchaser of the existence of the Default Affidavit, then, promptly after the
expiration of such twenty (20) day period, the Escrow Agent shall deliver to
Seller the Escrow Items to be held by Seller in accordance with the provisions
of section 4. The monetary obligations which arise out of or relate to the
Default which is the basis of the Default Affidavit, including, without
limitation, any acceleration of principal and interest, any increase in the
continuing interest rate, any right to recover costs or expenses or any
penalties accruing under the Note, are hereinafter referred to as the
"Obligations."
3.3 Dispute Resolution. In the event, of the Escrow Agent's
timely receipt of either the Seller's Disputing Affidavit or the Purchaser's
Disputing Affidavit, the Escrow Agent shall (except as provided in the remainder
of this section 3.3 or in section 5) continue to hold the Escrow Items until the
dispute is resolved. Any dispute that may arise under this Agreement shall be
settled by one of the following methods: (1) mutual agreement of the parties
concerned (evidenced by appropriate instructions in writing to the Escrow Agent,
signed by all of the parties to such dispute), (2) a binding arbitration award
pursuant to an agreement signed by the parties to such dispute to submit such
dispute to arbitration or (3) by a final order, decree or judgment of a court of
competent jurisdiction in the United States of America (the time for appeal
having expired and no appeal having been perfected). The Escrow Agent shall be
under no duty whatsoever to institute or defend any such proceedings, but may,
in its discretion, deposit the Escrow Items and any funds or other documents
held by it with a court of competent jurisdiction pending the resolution of any
dispute.
4. Rights of the Parties in the Shares.
4.1 Dividends. Until the date of the receipt of the Default
Affidavit by the Escrow Agent (the "Notice Date"), the Shares shall be treated
as if they are owned outright by Purchaser and Purchaser shall be entitled to
receive any and all dividends or other distributions which may be paid, provided
that any such dividends or distributions, including, but not limited to those
paid in stock, are to be deposited with the Escrow Agent as additional Other
Escrow Items.
4.2 Voting. Until the Shares have been delivered from escrow
to Seller (the "Delivery Date"), the Shares shall be treated as if they are
owned outright by Purchaser and Purchaser shall be entitled to vote the Shares
for all purposes. From and after the Delivery Date, Seller or its transferees
shall have the right to vote the Shares for all purposes unless and until legal
title to the Shares is re-conveyed to the Purchaser in resolution of a dispute
pursuant to section 3.3 or after cure by Seller pursuant to section 4.5.
4.3 Sale. Subject to the right to cure hereinafter described,
Seller may cause the Shares delivered to it pursuant to section 3.2 to be sold
in a commercially reasonable manner upon ten (10) days written notice to
Purchaser of such sale, setting forth the time and place thereof. Seller may be
the purchaser at such sale. The monies so received by Seller shall be applied
first to the payment of the cost and expense of such sale and then to the
payment of the Obligations. Purchaser shall remain liable for any deficit, and
any surplus monies shall be paid to Purchaser. Purchaser acknowledges and agrees
that the ten (10) day notice provided in this section 4.3 constitutes reasonable
notice of a proposed sale.
4.4 Right to Retain the Shares. Subject to the right to cure
hereinafter described, Seller may elect to retain ownership of the Shares
delivered to it pursuant to section 3.2 by giving thirty (30) days written
notice to Purchaser of such election. Such retention shall be in full
satisfaction of the Obligations. Purchaser acknowledges and agrees that the
thirty (30) day notice provided in this section 4.4 constitutes reasonable
notice of a proposed retention of the Shares.
4.5 Right to Cure. Prior to or during the ten (10) thirty day
notice period described in section 4.3 or the thirty (30) day notice period
described in section 4.4, or, if Seller does not sell or take title to the
Shares upon the expiration of such ten (10) or thirty (30) day period, prior to
such sale or taking title, Purchaser may cure the Default by making full payment
to Seller with respect to all of the Obligations; in which event Seller shall
deliver the Shares, the Stock Power and the Other Escrow Items to Purchaser free
of this Agreement and any liens or interests of Seller relating to the Note or
the Obligations.
4.6 Remedies Not Exclusive. The aforesaid remedies upon Default
shall not be exclusive, and Seller shall have all other remedies permitted by
law, including, without limitation, the right to bring suit against any
Purchaser.
5. Concerning the Escrow Agent.
5.1 Reliance Upon Instrument. The Escrow Agent may act in
reliance, and is protected in so relying, upon any writing, instrument or
signature which it, in good faith, believes to be genuine, and may assume the
validity and accuracy of any statement or assertion contained in such a writing
or instrument, and may assume that any person purporting to give any writing,
notice, advice or instructions in connection with the provisions hereof has been
duly authorized to do so.
5.2 Reliance Upon Counsel. The Escrow Agent may act or refrain
from acting in respect to any matter referred to herein in full reliance upon
and by and with the advice of counsel selected by it, and shall be fully
protected in so acting or in refraining from acting upon such advice of counsel.
It is intended that the Escrow Agent, if an attorney or law firm, may choose to
act as its own counsel.
5.3 Exclusive Duties. This Agreement sets forth exclusively
the duties of the Escrow Agent with respect to any and all matters pertinent
hereto, and no implied duties or obligations shall be read into this Agreement
against the Escrow Agent.
5.4 No Representations. The Escrow Agent shall not be
considered to have made any representations as to the validity, value,
genuineness or collectibility of any instrument or other item held by or
delivered to it.
5.5 Termination of Duties. Upon final delivery, in accordance
with this Agreement, of the Escrow Items and any other items held by the Escrow
Agent, the responsibilities of the Escrow Agent shall cease and terminate
without any further obligation or liability on its part.
5.6 No Liability. The Escrow Agent shall not be responsible or
liable for any mistake of fact or error of judgment, or for any act or omission
on its part in the performance of its duties as escrow agent under this
Agreement except as such mistake, error, act or omission constitutes intentional
misconduct, bad faith, gross negligence or fraud.
5.7 Reimbursement.
5.7.1 In General. Seller and Purchaser each, jointly and severally, hereby
agrees to reimburse all of the reasonable expenses (including legal fees),
disbursements and advances incurred or made by the Escrow Agent in performance
of its duties hereunder. Legal fees, as reimbursable hereunder, expressly
include legal fees charged by the Escrow Agent itself. Seller and Purchaser
shall be solely responsible to allocate such expenses among themselves and to
seek such contribution among themselves as may be appropriate. Notwithstanding
anything in this Agreement to the contrary, the Escrow Agent (1) shall have no
obligation to release any of the Escrow Items or any other items held by the
Escrow Agent unless and until it has been fully reimbursed or received adequate
assurance (determined in its sole discretion) that it will be fully reimbursed
for all of its reasonable expenses, (2) shall have no liability for any failure
or refusal to release any of the Escrow Items or any other items held by the
Escrow Agent in accordance with clause (1) of this sentence and (3) may pay
itself from any cash held by it in escrow the amount of its reasonable expenses.
5.7.2 Indemnity. Except in cases of the Escrow Agent's intentional
misconduct, bad faith, gross negligence or fraud, the other parties to this
Agreement agree, jointly and severally, to indemnify the Escrow Agent and
hold it harmless from any and all claims, liabilities, losses, actions,
suits or proceedings at law or in equity, or any other expenses, fees or
charges of any character or nature which the Escrow may incur or with which
it may be threatened by reason of the Escrow Agent's actions as escrow
agent under this Agreement, including, without limitation, reasonable
attorneys' fees and expenses (including, but not limited to all fees and
costs incident to any appeals which may result). Notwithstanding the
foregoing, as between themselves, the other parties to this Agreement agree
that the party responsible for any such loss to the Escrow Agent shall bear
the full share thereof.
5.8 Actions by Escrow Agent/Indemnity. The Escrow Agent shall
not be required to institute or defend any action involving any matters referred
to herein or which affects its duties or liabilities hereunder unless or until
requested to do so by a party to this Agreement and then only upon receiving
full indemnity, in character satisfactory to the Escrow Agent, against any and
all claims, liabilities and expenses in relation thereto (including, without
limitation, reasonable attorneys fees). In the event of any dispute among the
parties hereto with relation to the Escrow Agent or its duties, (1) the Escrow
Agent may act or refrain from acting in respect to any matter referred to herein
in full reliance upon and by and with the advice of counsel selected by it and
shall be fully protected in so acting or in refraining from acting upon the
advice of such counsel (it is intended that the Escrow Agent, if an attorney or
law firm, may choose to act as its own counsel) or (2) the Escrow Agent may
refrain from acting until required to do so by an order of a court of competent
jurisdiction.
5.9 Substitution. The Escrow Agent may resign as escrow agent
at any time provided that it first designates a substitute or successor escrow
agent acceptable to Seller and Purchaser who agrees in writing to be bound by
the terms of this Agreement and to assume the obligations of the Escrow Agent.
The Escrow Agent may be removed as escrow agent at any time by notice from
Seller and Purchaser specifying such removal and naming the substitute or
successor escrow agent who has agreed in writing to be bound by the terms of
this Agreement and to assume the obligations of the Escrow Agent. Upon delivery
by the Escrow Agent of the Escrow Items and any other items held by the Escrow
Agent to the substitute or successor Escrow Agent, such person shall be deemed
for all purposes to be the Escrow Agent and the responsibilities of the
predecessor Escrow Agent shall cease and terminate without any further
obligation or liability on its part.
5.10 Escrow Agent as Counsel. The parties acknowledge that the
Escrow Agent is a law firm that has previously represented Seller, including
with respect to matters relating to the transactions underlying this Agreement.
Notwithstanding Escrow Agent's function as escrow agent, the parties acknowledge
and agree that the Escrow Agent may continue to represent Seller, including with
respect to any dispute arising out of or relating to this Agreement or the
transactions underlying this Agreement.
6. Entire Agreement. This Agreement represents the entire escrow
agreement among the parties and cannot be modified or terminated, nor may any of
its provisions be waived, except by a written instrument signed by all of the
parties. Any waiver by any party of the strict performance of any of the terms,
conditions and provisions of this Agreement shall not be construed as a waiver
thereof for the future, but shall be considered a waiver only in the particular
instance, for the particular purpose, and at the time when and for which it is
given. There are no other agreements and no other representations, warranties or
covenants with respect to the subject matter of this Agreement except as
expressly set forth in this Agreement.
7. Miscellaneous.
7.1 Captions. Headings contained in this Agreement have been
inserted for reference purposes only and shall not be construed as part of this
Agreement.
7.2 Governing Law/Consent to Jurisdiction.
7.2.1 Governing Law. This Agreement has been made and entered into in
the State of California and shall be governed by and construed and enforced
in accordance with the internal substantive laws of the State of
California, without regard to principles of conflicts of laws.
7.2.2 Consent to Jurisdiction. The parties irrevocably consent to
the jurisdiction of the courts of the State of California (and the
Federal courts having jurisdiction in the State of California) for
purposes of any judicial proceeding which may be instituted in
connection with any matter arising under or relating to this
Agreement.
7.3 Notice. Any notice or other communication given or made
pursuant to this Agreement must be in writing and shall be delivered to the
person to whom intended at the address set forth above (or at such other address
as such person may designate by proper notice) by personal delivery, by
telecopier, by nationally), recognized courier (Federal Express, DHL, etc.) or
by certified or registered mail, postage prepaid, and shall be deemed given when
personally delivered or sent by telecopier or two (2) business days after
deposit with a courier or five (5) business days after mailing. The Escrow Agent
shall be given copies of all notices.
7.4 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement.
7.5 Successors in Interest. This Agreement shall be binding
upon and inure to the benefit of the respective parties, their successors,
assigns, heirs, legatees, executors, administrators and legal representatives
("Successors"). Whenever a party is referred to in this Agreement, such
reference shall include reference to such party':; Successors.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
7.6 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original and all of which
together shall be deemed to be one and the same instrument. This Agreement shall
become effective when one or more counterparts have been signed by each of the
parties and delivered to each of the other parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SELLER: PURCHASER:
AURA SYSTEMS, INC.
By:
Name: Yoshikazu Masayoshi
Title:
Sadao Masayoshi
Sachie Masayoshi
Kazaki Masayoshi
ESCROW AGENT:
WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP
By:
A Partner
<PAGE>
PROMISSORY NOTE
$1,000,000 March 26, 1999
FOR VALUE RECEIVED, Yoshikazu Masayoshi, Sadao Masayoshi, Sachie
Masayoshi and Kazuaki Masayoshi (jointly and severally, the "Maker") promise to
pay to the order of Aura Systems, Inc. (the "Initial Payee") One Million dollars
($1,000,000.00) at 2335 Alaska Avenue, El Segundo, California 90245 or such
other address as the Initial Payee or any subsequent holder of this Note (the
holder from time to time being the "Payee") may designate from time to time,
together with interest in accordance with this Note.
1. Payment. The entire principal balance of this Note shall
be payable in full, without interest, on April 15, 1999.
2. Prepayment. The Maker may prepay this Note in whole at any time
without premium or penalty, but may not prepay this Note in part.
3. Default.
3.1 Definition. If the Maker shall fail to pay this Note in
full on or before April 15. 1999, then this Note shall be deemed to be in
"Default."
3.2 Post-Default Interest. If a Default shall occur, then, from
and after April 15, 1999, the entire unpaid balance then due and payable
pursuant to this Note shall accrue interest at a rate of 16% per annum,
compounded monthly. Notwithstanding the prior sentence of this section 3.3 or
any other provision of this Note, in no event shall interest be due or payable
or accrued on this Note in excess of the maximum rate of interest permitted
under applicable law. In the event that it should be determined that the Maker
has paid excess interest, such excess shall instead be treated as a prepayment
of principal.
3.3 Costs. The Maker hereby further promises to pay all costs
and expenses incurred in connection with the collection and administration of
this Note, including, without limitation, reasonable attorneys fees and court
costs and special bank charges.
4. Collateral. As security for this Note, the Maker has granted the
Payee a security interest in two hundred eighty (280) shares of the common stock
of MYS K.K., as well as certain other instruments or agreements, pursuant to
that certain Escrow Agreement among the Maker, the Initial Payee and Wolf
Haldenstein Adler Freeman & HERZ LLP executed simultaneously with this Note, the
terms of which Escrow Agreement are incorporated herein by this reference.
5. Set-Offs. The Maker may not assert any deduction for any
claim, set-off, disability, counterclaim or recoupment of
any kind whatsoever against this Note, but must assert the
same in a separate action. The Payee may, at its option,
withhold any payment which it owes at any time to the Maker
and apply such payment against this Note as a prepayment
hereof.
6. Waiver. The Maker hereby expressly waves presentment, demand,
protest, notice of protest, notice of dishonor and any and all other notices or
demands of whatever character to which the Maker might otherwise be entitled.
Each Maker further consents to any extension granted by any holder as well as
the release of :any collateral or any co-Maker and waives notice thereof.
7. Governing Law/Consent to Jurisdiction.
7.1 Governing Law. This Note has been made and entered into in
the State of California and shall be governed by and construed and enforced in
accordance with the internal substantive laws of the State of California,
without regard to principles of conflicts of laws.
7.2 Consent to Jurisdiction. Each Maker irrevocably consents
to the jurisdiction of the courts of the State of California (and the Federal
courts having jurisdiction in the State of California) for purposes of any
judicial proceeding which may be instituted in connection with any matter
arising under or relating to this Note.
8. Notices. Any notice required or permitted under this Note must be in
writing and shall be considered given when delivered personally or sent by
telecopier or two (2) days after it is sent by nationally recognized courier
(Federal Express, DHL, etc.) to the party for which intended, in each event at
the following addresses or telecopy numbers (or at such address or numbers as
either party may specify by notice to the other hereunder):
To the Maker:
c/o Sadao Masayoshi
990 West 190th, Suite 210
Torrance, California 90502
Telecopier No.: (310) 527-7148
[REMAINDER OF PAGE INTENTIONALLY' LEFT BLANK]
<PAGE>
To the Payee:
At the address established for payment.
IN WITNESS WHEREOF, the Maker has duly ,executed this Note on the date
and year first above written.
Yoshikazu Masayoshi
Sadao Masayoshi
Sachie Masayoshi
Kazuaki Masayoshi
<PAGE>
PROMISSORY NOTE
$3,200,000 March 26, 1999
FOR VALUE RECEIVED, Yoshikazu Masayoshi, Sadao Masayoshi, Sachie
Masayoshi and Kazuaki Masayoshi (jointly and severally, the "Maker") promise to
pay to the order of Aura Systems, Inc. (the "Initial Payee") Three Million Two
Hundred Thousand Dollars ($3,200,000.00) at 2335 Alaska Avenue, E1 Segundo,
California 90245 or such other address as the Initial Payee or any subsequent
holder of this Note (the holder from time to time being the "Payee") may
designate from time to time, together with interest in accordance with this
Note.
1. Payment. Principal and interest shall be payable in twelve (12)
equal monthly installments of $290,000.00 commencing May 15, 1999 and continuing
on the first business day of each month thereafter.
2. Prepayment. The Maker may prepay this Note in whole at any time by
paying the full amount of all installments remaining unpaid (that is (i)
$290,000.00 multiplied by (ii)(x) twelve (12) minus (y) the number of
installments previously paid), and may not otherwise prepay this Note.
3. Default.
3.1 Acceleration. If any "Default" (as defined in section 3.2)
shall occur, including the expiration of any grace period provided for in
section 3.2, then, without further demand or notice, the entire unpaid balance
of principle and interest pursuant to this Note shall become immediately due and
payable, and the Payee shall have all the rights and remedies available to it
under applicable law.
3.2 Definition. Thc occurrence of any of the following events
shall constitute a "Default" pursuant to this Note:
3.2.1 Thc Maker shall fail to pay any installment due
under this Note within three
(3) business days of its due date or any check given in payment of an
installment shall be returned as uncollected; or
3.2.2 Any Maker shall make an assignment for the
benefit of his creditors or admit in writing his inability to pay his debts as
they become due; or
3.2.3 Any Maker shall be adjudicated a bankrupt, or a custodian,
trustee or receiver shall be appointed for his or of all or a
substantial part of his property, and such adjudication or appointment
shall not be discharged, vacated or stayed on appeal within thirty
(30) days; or any court shall take jurisdiction of all or a
substantial part of the property of any Maker in any involuntary
proceeding for the reorganization, dissolution, liquidation or winding
up of such Maker, and such proceeding shall not be discharged or such
jurisdiction relinquished or vacated or stayed on appeal within thirty
(30) days; or any Maker shall file a petition, or an answer consenting
to or acquiescing in a petition against him, in bankruptcy or under
the Federal Bankruptcy Code or any similar law, state, federal or
foreign, whether now or hereafter existing or any such petition filed
against such Maker shall be approved or not vacated or stayed within
thirty (30) days.
3.2.4 A Default (as defined therein) by the Maker pursuant to
that certain Promissory Note in the original principal amount of
$1,000,000 of even date herewith payable to the order of the Initial
Payee.
3.3 Post-Default Interest. In view of the acceleration of
principal and interest following a Default, the Maker shall not be liable for
any additional accrual of post-Default interest from the date of such Default
through May 15, 2000, the date through which interest on this Note is computed.
If a Default shall occur and full payment has not been made by May 15, 2000,
then, from and after such date, the entire unpaid balance of principal and
interest then due and payable pursuant to this Note shall accrue interest at a
rate of 16% per annum, compounded monthly. Notwithstanding the prior sentences
of this section 3.3 or any other provision of this Note, in no event shall
interest be due or payable or accrued on this Note in excess of the maximum rate
of interest permitted under applicable law, In the event that it should be
determined that the Maker has paid excess interest, such excess shall instead be
treated as a prepayment of principal.
3.4 Costs. The Maker hereby further promises to pay all costs
and expenses incurred in connection with the collection and administration of
this Note, including, without limitation, reasonable attorneys fees and court
costs and special bank charges.
4. Collateral. As security for this Note, the Maker has granted the
Payee a security interest in two hundred eighty (280) shares of the common stock
of MYS K.K., as well as certain other instruments or agreements, pursuant to
that certain Escrow Agreement among the Maker, the Initial Payee and Wolf
Haldenstein Adler Freeman & HERZ LLP executed simultaneously with this Note, the
terms of which Escrow Agreement are incorporated herein by this reference,
5. Set-Offs. The Maker may not assert any deduction for any claim,
set-off. disability, counterclaim or recoupment of any kind whatsoever against
this Note, but must assert the same in a separate action. The Payee may, at its
option, withhold any payment which it owes at any time to the Maker and apply
such payment against this Note as a prepayment hereof.
6. Waiver. The Maker hereby expressly waives presentment, demand,
protest, notice of protest, notice of dishonor and any and all other notices or
demands of whatever character to which the Maker might otherwise be entitled.
Each Maker further consents to any extension granted by any holder as well as
the release of any collateral or any co-Maker and waives notice thereof.
7. Governing Law/Consent to Jurisdiction.
7.1 Governing Law. This Note has been made and entered into in
the State of California and shall be governed by and construed and enforced in
accordance with the internal substantive laws of the State of California,
without regard to principles of conflicts of laws.
7.2 Consent to Jurisdiction. Each Maker irrevocably consents
to the jurisdiction of the courts of the State of California (and the Federal
courts having jurisdiction in the State of California) for purposes of any
judicial proceeding which may be instituted in connection with any matter
arising under or relating to this Note.
8. Notices. Any notice required or permitted under this Note must be in
writing and shall be considered given when delivered personally or sent by
telecopier or two (2) days after it is sent by nationally recognized courier
(Federal Express, DHL etc.) to the party for which intended, in each event at
the following addresses or telecopy numbers (or at such address or numbers as
either party may specify by notice to the other hereunder):
To the Maker:
c/o Sadao Masayoshi
990 West 190th, Suite 210
Torrance, California 90502
Telecopier No.: (310) 527-7148
To the Payee:
At the address established for payment.
IN WITNESS WHEREOF, the Maker has duly executed this Note on the date
and year first above written.
Yoshikazu Masayoshi
Sadao Masayoshi
Sachie Masayoshi
Kazuaki Masayoshi
<PAGE>
10.20.4
STOCK PURCHASE AGREEMENT
AGREEMENT made March 26, 1999, between Aura Systems, Inc. ("Seller"), a
Delaware corporation with a place of business at 2335 Alaska Avenue, E1 Segundo,
California 90245, and Yoshikazu Masayoshi, Sadao Masayoshi, Sachie Masayoshi and
Kazuaki Masayoshi (jointly and severally, "Purchaser"), each having an address
c/o Sadao Masayoshi, 990 West 190th, Suite 210, Torrance, California 90502.
W I T N E S S E T H:
WHEREAS, Seller owns Two Hundred Eighty (280) shares (the "Shares") of
voting common stock, (Y)50,000 par value per share, of MYS K K., a Japanese
corporation (the "Corporation"); and
WHEREAS, Purchaser desires to purchase the Shares from Seller, and
Seller desires to sell the Shares to Purchaser, pursuant to the terms and
conditions of this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Sale of the Shares.
1.1 In General. Seller hereby sells to Purchaser, and
Purchaser hereby purchases from Seller, the Shares for the price and upon the
terms and conditions set forth in this Agreement.
1.2 Exclusion of Linaeum Loudspeaker Tweeters. Notwithstanding
anything in this Agreement to the contrary, Seller will retain all the
intellectual properties concerning and relating to "Linaeum" loudspeaker
"tweeters" (the "Linaeum Technology").
1.2.1 In keeping with such retention, the Corporation has
previously assigned the Linaeum Technology to Seller. In furtherance
of such assignment, the Corporation and Purchaser each further agrees
at any time and from time to time to execute such other documents and
take such other actions as may be necessary or desirable (as
determined in Seller's reasonable judgment) to perfect, confirm or
evidence Seller's ownership of the Linaeum Technology.
1.2.2 The Corporation, however, is hereby granted,
conditioned on Purchaser's performance of their obligations
pursuant to this Agreement, a fully-paid, perpetual,
non-exclusive license from Seller for the manufacture, sale and
distribution of the Linaeum Technology for OEM channels.
1.2.3 For purposes of clarification, the parties and the
Corporation acknowledge and agree that the intellectual
properties concerning or relating to NRT have at all times been,
and shall continue to be, the exclusive property of Seller, and
no license or other rights with respect to such properties has
been or is hereby granted to the Corporation.
2. Purchase Price/Assumption of Liabilities:
2.1 Purchase Price. The aggregate cash consideration (the
"Price") to be paid by Purchaser for the Shares is $4,200,000, plus interest as
provided in this section 2. The Price shall be paid as follows:
2.1.1 First Installment By April 15 I999. $1,000,000, without interest, to be
paid in lawful funds of the United States on or before April 15, 1999, which
obligation is evidenced by a promissory note being executed and delivered
simultaneously with this Agreement.
2.1.2 Subsequent Installments. $3,200,000, with interest, to
be paid in lawful funds of the United States in twelve (12) equal
monthly installments of $290,000 each (principal and interest)
commencing on May 15, 1999 and continuing through April 15, 2000,
which obligation is evidenced by a promissory note being executed
and delivered simultaneously with this Agreement.
2.2 Assumption of Liabilities. As additional consideration for
the Shares, Purchaser and the Corporation agree to assume all liabilities
accruing from the Corporation or the operation of its business from March 1,
1996 through the date of this Agreement (including, but not limited to, any and
all liabilities arising out of or relating to that certain judgment against
defendants in an action entitled Stutz, et. al v. Aura Systems Inc., et al in
the Circuit Court of the State of Oregon bearing case No. 9903-(12302), and each
Purchaser and the Corporation agree, jointly and severally, to indemnify and
hold Seller harmless from and against any and all such liabilities.
3. Security.
3.1 Escrow. To secure payment of the Price as well as the
performance of the other obligations of Purchaser pursuant to this Agreement,
the Shares are being delivered to Wolf Haldenstein Adler Freeman & Herz LLP (the
"Escrow Agent"), to be held in escrow pursuant to that certain Escrow Agreement
(the "Escrow Agreement") executed simultaneously with the execution of this
Agreement. To accomplish such delivery, Purchaser will deliver to the Escrow
Agent the certificate(s) for the Shares together with stock power(s) executed in
blank. Also being held in this escrow are blank dated letters of resignation
from each Purchaser and blank dated letters from the Corporation to its banks.
3.2 Remedies. In the event of any default, Seller shall have a
right of action for full performance against each Purchaser jointly and
severally, and shall not be required to first pursue any remedies available
pursuant to the Escrow Agreement.
4. Deliveries at Closing.
4.1 Delivery of the Shares. Seller has simultaneously herewith
delivered the Shares to Purchaser. To accomplish such delivery, Seller has
tendered the certificate for the Shares together with the necessary stock power.
4.2 Deliveries of Escrow Agreement and Escrow Items. Seller,
Purchaser and the Escrow Agent have simultaneously herewith executed and
delivered the Escrow Agreement among one another and the appropriate parties
have delivered to the Escrow Agent the items to be held in escrow as described
in section 3 and the Escrow Agreement.
5. Additional Terms and Conditions.
5.1 Conduct of Business. From and after the date of this
Agreement, and continuing until receipt by Seller of the full Price, the
Corporation will conduct its business only in the ordinary course. Without
limiting the generality of the prior sentence, the Corporation agrees that
during the described period it will not dispose of, transfer, assign or encumber
any asset or take any other action with respect to any matter outside of the
ordinary course of business nor will it pay dividends or otherwise make
distributions to its shareholders.
5.2 Appointment of Representative Director. From and after the
date of this Agreement, and continuing until receipt by Seller of the full
Price, Seller shall have the right to appoint one Representative Director of the
Corporation. Each Purchaser agrees to vote the Shares owned by him in favor of
the election of the Representative Director designated by Seller.
5.3 Confidentiality. Seller, on one hand, and Purchaser, on
the other hand, each agree that this Agreement and its contents shall be
maintained in confidence and that neither this Agreement nor its contents shall
be disclosed to any third parties, except that disclosure may be made on a "need
to know" basis to each party's counsel, accountants, shareholders, potential
financing sources and investment bankers, provided that such third parties in
turn agree to retain the disclosed information in confidence.
5.4 Public Announcements. Neither party shall, without the
prior written consent of the other party, make any public release of information
regarding the matters contained in or contemplated by this Agreement, except (1)
each party may communicate with its employees, customers, suppliers, lenders,
lessors, shareholders and other particular groups as may be legally required or
necessary for an appropriate business purpose and not inconsistent with the best
interests of the other party or the prompt performance of the obligations
contemplated by this Agreement and (2) as required by law. Neither party shall
issue any press releases or similar announcement regarding this Agreement or the
transactions contemplated by this Agreement without the prior written approval
of the other party which approval shall not be unreasonably withheld or delayed.
5.5 Expenses of the Transaction. Each party, for its own
behalf, shall be solely responsible for and shall bear all of its own expenses,
including, but not limited to expenses of counsel, accountants and other
advisers, incurred at any time in connection with the transactions contemplated
by this Agreement.
6. Representations.
6.1 Seller. Seller represents and warrants to Purchaser that:
6.l.1 It has full power and authority to execute, deliver
and perform this Agreement, and this Agreement is binding upon
it.
6.1.2 No brokers, finders or agents, were involved in
connection with this Agreement.
6.2 Purchaser. Purchaser represents and warrants to Seller that:
6.1.2 They each have full power and authority to
execute, deliver and perform this Agreement, and this Agreement is binding upon
each of them.
6.2.2 Each of them is fully familiar with the business
and operations of the Corporation, including, but not
limited to, the business and operations of its subsidiaries
and affiliates, has made such investigation of the
Corporation as he has deemed advisable and believes that the
Price is fair and reasonable. Each of them understands and
acknowledges that there are no representations being made by
Seller with respect to the Corporation, its subsidiaries or
affiliates.
6.2.3 No brokers, finders or agents were involved in
connection with this Agreement.
6.3 Survival. The representations, warranties and covenants
contained in this Agreement, including, but not limited to, those set forth in
section 5 and this section 6, shall survive the closing. Each party hereby
agrees to indemnify and hold harmless the other party from and against any loss,
liability or expense (including, without limitation, reasonable attorneys fees)
which such other party may incur due to the breach of any representation,
warranty or covenant of the indemnifying party.
7. Governing Law/Consent to Jurisdiction.
7.1 Governing Law. This Agreement has been made and entered
into in the State of California and shall be governed by and construed and
enforced in accordance with the internal substantive laws of the State of
California, without regard to principles of conflicts of laws.
7.2 Consent to Jurisdiction. The parties irrevocably consent
to the jurisdiction of the courts of the State of California (and the Federal
courts having jurisdiction in the State of California) for purposes of any
judicial proceeding which may be instituted in connection with any matter
arising under or relating to this Agreement.
8. Miscellaneous.
8.1 Captions. Headings contained in this Agreement have been
inserted for reference purposes only and shall not be construed as part of this
Agreement.
8.2 Entire Agreement. This Agreement represents the entire
agreement between Seller and Purchaser regarding the subject matter hereof, and
supercedes any and all prior understandings, whether oral or written, with
respect thereto, including, but not limited to, that certain binding letter of
intent dated March 19, 1999. This Agreement cannot be modified or terminated,
nor may any of its provisions be waived, except by a written instrument signed
by Seller and Purchaser. There are no representations, warranties or covenants
except as expressly set forth in this Agreement.
8.3 Notices. Any notice or other communication given or made
pursuant to this Agreement must be in writing and shall be delivered to the
person to whom intended at the address set forth above (or at such other address
as such person may designate by proper notice) by personal delivery, by
telecopier, by nationally recognized courier (Federal Express, DHL, etc.) or by
certified or registered mail, postage prepaid, and shall be deemed given when
personally delivered or sent by telecopier or two (2) business days after
deposit with a courier or five (5) business days after mailing.
8.4 Severability. This Agreement shall be enforced to the
fullest extent permitted under applicable law and with each of its provisions
regarded as severable.
8.5 Rights and Remedies Cumulative. The rights and remedies of
the parties pursuant to this Agreement and under applicable law shall be
cumulative.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SELLER: PURCHASER:
AURA SYSTEMS, INC.
By:
Name: Yoshikazu Masayoshi
Title:
Sadao Masayoshi
Sachie Masayoshi
Kazuaki Masayoshi
AGREED TO:
MYS K.K.
By:
Name:
Title:
<PAGE>
10.21.1
FIRST AMENDMENT TO SECURITY AGREEMENT
THIS FIRST AMENDMENT TO SECURITY AGREEMENT, dated as of October 22,
1999 (the "Amendment") is entered into between and among RGC INTERNATIONAL
INVESTORS, LDC, a Cayman Islands limited duration company ("Secured Party"), and
AURA SYSTEMS, INC., a Delaware corporation ("Debtor").
Preliminary Statement
WHEREAS, Debtor and Secured Party are parties to that certain Security
Agreement, dated as of October 7, 1998, (the "Existing Security Agreement")
pursuant to which Debtor has granted a lien on, and security interest in,
certain of its assets as security for, among other things, the repayment of that
certain Convertible Senior Secured Note, dated as of October 7, 1998 and amended
and restated effective as of October 22, 1999, payable from Debtor to the order
of Secured Party (the "Note"); and
WHEREAS, Debtor has requested, and Secured Party has agreed, to amend
the Existing Security Agreement in certain respects to effect such requested
modifications.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and intending to be legally bound hereby, the Debtor
and Secured Party hereby amend the Existing Security Agreement, but only to the
extent and on the terms and conditions specifically set forth herein. All
capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Existing Security Agreement.
1. Amendment to the Existing Security Agreement.
(a) Section 3.5 - Section 3.5 of the Existing Security Agreement is
hereby amended by deleting the section in its entirety and substituting
"[RESERVED]" in place thereof.
(b) Section 3.9 - Section 3.9 of the Existing Security Agreement is
hereby amended by deleting the first sentence thereof in its entirety.
(c) Section 7 - Section 7 of the Existing Security Agreement is hereby
amended by deleting the definition of "Permitted Liens" contained therein in its
entirety and substituting in place thereof the following definition:
<PAGE>
"Permitted Liens" shall mean (a) any liens for current taxes,
assessments, and other governmental charges not yet due and payable;
(b) any mechanic's, materialman's, carrier's, warehousemen's or similar
liens for sums not yet due; (c) easements, rights-of-way, restrictions
and other similar encumbrances on the real property or fixtures of the
Debtor incurred in the ordinary course of business which individually
or in the aggregate are not substantial in amount and which do not in
any case materially detract from the value or marketability of the
property subject thereto or interfere with the ordinary conduct of the
business of the Debtor; (d) liens (other than liens imposed on any
property of the Debtor pursuant to ERISA or Section 412 of the Code)
incurred or deposits made in the ordinary course of business, including
liens in connections with workers' compensation, unemployment insurance
and other types of social security and liens to secure performance of
tenders, statutory obligations, surety and appeal bonds (in the case of
appeal bonds such lien shall not secure any reimbursement or indemnity
obligation in an amount greater than $100,000), bids, leases that are
not capital leases, performance bonds, sales contracts and other
similar obligations, in each case, not incurred in connection with the
obtaining of credit or the payment of a deferred purchase price; (e)
liens on and security interests in the Collateral created in favor of
the Secured Party; (f) purchase money liens to secure the deferred
purchase price of property not to exceed the lower of the cost or fair
market value of the property that is purchased in the ordinary course
of business consistent with past practice; (g) liens evidenced by
perfected security interests existing on October 1, 1999 and listed in
the "lien searches" attached hereto as Schedule 7.2(a) and made a part
hereof and liens evidenced by judgments entered against the Debtor
prior to October 1, 1999 and listed in Schedule 7.2(b) and made a part
hereof; and (h) liens existing after October 1, 1999 so long as no such
lien (excluding judgment liens), individually, evidences indebtedness
of more than $100,000 and so long as all such liens (including judgment
liens), in the aggregate, evidence indebtedness of not more than
$500,000.
(d) Section 7.1 - Section 7.1 of the Existing Security Agreement is
hereby amended by deleting the section in its entirety and substituting in place
thereof the following:
"7.1 Except as otherwise permitted by Section 1.3 of the Notes, sell,
assign (by operation of law or otherwise), or otherwise dispose of any
of the Collateral except sales or inventory in the ordinary course of
business."
(e) Section 10 - Section 10 of the Existing Security Agreement is
hereby amended by inserting the following language at the end of the last
sentence thereof:
"; provided, however, that in connection with any
disposition of assets by Aura Ceramics, Inc., MYS
Corporation, Aura Sound, Inc. or Electrotec Productions,
Inc. in accordance with Section 1.3 of the Notes, the
Secured Party Agrees to execute termination statements with
respect to such dispositions as reasonably requested by
Debtor on or after the consummation of such transactions."
2. Effect of Amendment.
<PAGE>
This Amendment amends the Existing Security Agreement only to the
extent and in the manner herein set forth, and in all other respects the
Existing Security Agreement is ratified and confirmed.
3. Counterparts.
This Amendment may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures hereto
were upon the same instrument.
4. Governing Law.
This Amendment and all rights and obligations of the parties hereunder
shall be governed by and construed in accordance with the laws of the State of
Delaware applicable to agreements made and to be performed in the State of
Delaware (without regard to principles of conflict of laws). Both parties
irrevocably consent to the jurisdiction of the United States federal courts and
the state courts located in Delaware with respect to any suit or proceeding
based on or arising under this Amendment, the agreements entered into in
connection herewith or the transactions contemplated hereby or thereby and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. Both parties irrevocably waive the defense of an
inconvenient forum to the maintenance of such suit or proceeding. Both parties
further agree that service of process upon a party mailed by first class mail
shall be deemed in every respect effective service of process upon the party in
any such suit or proceeding. Nothing herein shall affect either party's right to
serve process in any other manner permitted by law. Both parties agree that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
<PAGE>
IN WITNESS WHEREOF, Debtor and Secured Party have caused this First
Amendment to Security Agreement to be executed by their proper corporate
officers thereunto duly authorized as of the day and year first above written.
AURA SYSTEMS, INC.
By:______________________________
Name:
Title:
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: ______________________________
Wayne D. Bloch
Managing Director
<PAGE>
1
SETTLEMENT AGREEMENT
AND COMPLETE RELEASE OF ALL CLAIMS
This Settlement Agreement and Complete Release of All Claims
("Agreement") dated as of October 22, 1999, is made and entered into by RGC
International Investors, LDC, a Cayman Islands limited duration company (?RGC?),
and AURA SYSTEMS, INC.( the "Company").
W I T N E S S E T H:
WHEREAS, the Company has previously issued to RGC
Convertible Debentures in the original aggregated principal
amount of $21,500,000 (the ?Convertible Debentures?) and has
issued Warrants (?Warrants?) to RGC, which Convertible
Debentures and Warrants are presently owned by RGC; and
WHEREAS, the Company has previously issued to RGC its Convertible
Senior Secured Note dated October 7, 1998, in the original principal amount of
$3,000,000 (the ?Secured Note?); and
WHEREAS, the Secured Note is secured by a certain Security Agreement
between the Company and RGC (the ?Aura Security Agreement?); and
WHEREAS, in order to provide for additional security for the repayment
of the Secured Note, certain subsidiaries of the Company entered into a Guaranty
Agreement (the ?Guaranty Agreements?) in favor of RGC, which Guaranty Agreements
were secured by Security Agreements between each of such subsidiaries and RGC
(the ?Subsidiary Security Agreements?); and
WHEREAS, pursuant to a certain Securities Purchase Agreement, annexed
hereto as Exhibit ?A,? RGC proposes to sell its interests in the Convertible
Debentures;
WHEREAS, RGC and the Company have agreed that outstanding Warrants
owned by RGC will be exchanged for 1,000,000 new warrants (the ?New Warrants?)
and that the terms of the Secured Notes, the Aura Security Agreement and the
Subsidiary Security Agreements will be amended as of the Closing under the
Securities Purchase Agreement; and
WHEREAS, RGC and the Company desire to enter into this Agreement, to be
effective upon (i) the Closing of the purchase and sale of the Convertible Notes
under the Securities Purchase Agreement, (ii) the amendment of the Secured
Notes, the Aura Security Agreement and the Subsidiary Security Agreements, and
(iii) the issuance of the New Warrants in exchange for the outstanding Warrants
owned by RGC.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained and other good and valuable consideration, receipt of which is
hereby acknowledged, it is hereby agreed by and between the parties as follows:
<PAGE>
1. Release by RGC. Effective as of the ?Effective Date? (as such quoted
term is hereafter defined) RGC, for itself and for its employees, agents,
predecessors and successors-in-interest, hereby irrevocably and unconditionally
releases and forever discharges the Company and each of its subsidiaries, and
each of their respective officers, directors, employees, agents, attorneys, and
shareholders, former officers, directors, and employees, agents, attorneys and
shareholders, predecessors, and successors-in-interest and each of them from any
and all claims, causes of action, demands, damages, attorneys fees, or charges
of whatever kind or nature known or unknown, suspected or unsuspected, fixed or
contingent, which they now have, own, hold, or claim to have, or claim to own,
or which they at any time, heretofore had, owned, held, or claimed to have or
claimed to own, or which they at any time hereafter may, own, hold or claimed to
have, or claimed to own, provided however, that nothing in this Paragraph 1
shall affect the rights of RGC under the Secured Note, the Aura Security
Agreement, the Subsidiary Security Agreements, the Guarantee Agreements or the
Securities Purchase Agreement (as each such agreement may be amended as
contemplated in the ?Whereas? clauses set forth above).
2. Release by the Company. Effective as of the ?Effective Date? (as
such quoted term is hereafter defined) the Company, for itself, its subsidiaries
and for their respective employees, agents, predecessors and
successors-in-interest, hereby irrevocably and unconditionally releases and
forever discharges RGC and its investment manager and each of their respective
officers, directors, employees, partners, agents, attorneys, and shareholders,
former officers, directors, employees, partners, agents, attorneys and
shareholders, predecessors, and successors-in-interest and each of them from any
and all claims, causes of action, demands, damages, attorneys fees, or charges
of whatever kind or nature known or unknown, suspected or unsuspected, fixed or
contingent, which they now have, own, hold, or claim to have, or claim to own,
or which they at any time, heretofore had, owned, held, or claimed to have or
claimed to own, or which they at any time hereafter may, own, hold or claimed to
have, or claimed to own, provided however, that nothing in this Paragraph 2
shall affect the rights of the Company under the Secured Note, the Aura Security
Agreement, the Subsidiary Security Agreements, the Guarantee Agreements or the
Securities Purchase Agreement (as each such agreement may be amended as
contemplated in the ?Whereas? clauses set forth above).
3. Waiver of Defaults. RGC hereby waives any and all defaults existing on the
Effective Date (as hereafter defined) (including events, facts and circumstances
existing on the Effective Date (as hereafter defined) which with notice or
passage of time or both could become events of default) under the Secured Note,
the Aura Security Agreement, the Subsidiary Security Agreements, or the
Guarantee Agreements. Notwithstanding the foregoing, the waiver set forth in
this Section 3 shall not be applicable to any defaults existing on the Effective
Date which have not been disclosed to RGC in writing if such defaults are both
(i) material, and (ii) relate to breaches of covenants in the Secured Notes, the
Aura Security Agreement or the Subsidiary Security Agreements which covenants
are not being eliminated in their entirety by the amendments to the foregoing
documents as of the Effective Date.
<PAGE>
4. Effect of General Release. It is the intention of the parties that
this Agreement shall be effective as a full and final accord and satisfactory
relief of each and every matter as specifically or generally referred to. In
furtherance of that intention, the parties hereby acknowledge that they are
familiar with Section 1542 of the California Civil Code which provides as
follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in its favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor." The
parties hereby waive and relinquish all rights and benefits
which they have or may have
under Section 1542 of the California Civil Code or the law of any other state or
jurisdiction to the same or similar affect to the full extent that they may
lawfully waive all such rights and benefits pertaining to the subject matter of
this Agreement.
5. Subsequent Discoveries. The parties acknowledge that there is a risk
that subsequent to the execution of this Agreement, they will discover facts,
which are unknown or unanticipated at the time this Agreement is executed, which
if known by them on a date that this Agreement is executed, may have materially
affected their decisions to execute this Agreement. The parties expressly assume
the risk of discovery of such unknown and unanticipated facts and that this
Agreement shall be fully valid notwithstanding the discovery of any such facts.
6. No Assignment of Claims. Each party represents and warrants that
they have not assigned or otherwise transferred or subrogated any interest in
any claims which are the subject matter hereto, and agrees to indemnify, defend,
and hold the other party harmless from any liability, loss, claims, demands,
damages, costs, expenses or attorneys fees incurred by it as a result of any
person or entity, including but not limited to, underwriters and insurance
carriers, asserting such assignment, transfer, or subrogation.
7. Covenant Not to Sue. The parties covenant and agree not to sue or
bring any action, whether federal, state, or local, judicial or administrative,
now or at any future time, against each other or any of the released parties,
with respect to any claim released hereby. The parties represent and warrant and
represent that they have not commenced any such action or proceeding as of the
execution date of this Agreement.
8. Legal Fees. If any party files a lawsuit based on legal claims that
either party has released, the party filing a lawsuit will pay for all costs
incurred by the defending party, including reasonable attorneys fees, in
defending against the claims asserted by that party.
9. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the heirs, administrators, executors, successors, and the
assignees of each of the parties.
10. Miscellaneous. Whenever this Agreement so requires, the singular
number shall include the plural, the plural shall include the singular, and the
masculine gender shall include the feminine and neuter genders.
<PAGE>
11. Severability. If any portion of this Agreement shall be held to be
illegal or invalid by a court of competent jurisdiction, the validity of the
remainder of this Agreement shall not be affected.
12. Entire Agreement. This Agreement and the agreements referenced
herein memorializes and constitutes the entire agreement and understanding
between the parties and supersedes and replaces all prior negotiations, proposed
agreements and agreements whether written or unwritten. Each of the parties to
this Agreement acknowledges that no other party nor any agent or attorney of any
other party has made any promise, representation, or warranty whatsoever,
express or implied, which is not expressly referred to in this Agreement.
13. Governing Law. This Agreement shall be deemed to have been made in
the State of California and shall, for all purposes be governed by and construed
exclusively in accordance with the laws thereof, regardless of where any court
action or proceeding is brought in connection with this Agreement.
14. Counterparts. This Agreement may be executed in two or more
counterparts, and an executed facsimile copy or counterpart shall be binding and
enforceable in the same manner as the original.
15. Effective Date of Agreement. This Agreement shall become effective
upon the consummation of all of the following events: (i) the Closing of the
purchase and sale of the Convertible Debentures pursuant to the Securities
Purchase Agreement, and (ii) the amendment of the Secured Notes, the Aura
Security Agreement and the Subsidiary Security Agreements, and (iii) the
issuance of the New Warrants in exchange for the outstanding Warrants owned by
RGC (the ?Effective Date?). If the Effective date shall not have occurred by
October 22, 1999, this Agreement shall become null and void, and each of the
respective parties shall be restored to their positions prior to entering into
this Agreement.
<PAGE>
IN WITNESS THEREOF, the parties have executed this Agreement as of the
date first written above.
AURA SYSTEMS, INC.
By:____________________________
Zvi Kurtzman, CEO
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By:____________________________
Wayne D. Bloch,
Managing Director
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
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 SUCH ACT OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
Right to
Purchase
1,000,000
Shares of
Common Stock, par value
$0.005
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
(1,000,000) fully paid and nonassessable shares of the Company's Common Stock,
par value $0.005 per share (the "Common Stock"), at an exercise price of $0.375
per share (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.
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 (or
an election to effect a Cashless Exercise has been made) 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 two (2) 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 the unexercised or unconverted portion of any other
securities of the Company subject to a limitation on conversion or exercise
analogous to the limitations 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) hereof.
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after October 22, 1999 (the "Issue Date") and before 5:00
p.m., New York City time on the fifth (5th) anniversary of the Issue Date (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.
<PAGE>
(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. During the Exercise Period, the
Company shall maintain its corporate existence and shall not merge, consolidate
or sell all or substantially all of the Company's assets, except in the event of
a merger or consolidation or sale of all or substantially all of the Company's
assets, where (i) the successor or acquiring entity and, if an entity different
from the successor or acquiring entity, the entity whose securities for which
the Warrant shall become entitled to purchase pursuant to Section 4(e), assumes
the Company's obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) the entity whose securities for
which the Warrant shall become entitled to purchase pursuant to Section 4(e), is
a publicly traded corporation whose Common Stock is listed for trading on
Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
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.
<PAGE>
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 Issue Date 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 (or deemed
issuance) of such Common Stock (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 of such Convertible
Securities, 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; (iii) upon the exercise of
the Warrants; or (iv) upon aggregate issuance of up to $10,000,000 of Common
Stock in a private placement undertaken by the Company at a price per share
greater than or equal to $0.27.
(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 or acquiring entity (if other than the Company) and, if
an entity different from the successor or acquiring entity, the entity whose
capital stock or assets the holders of the Common Stock of the Company are
entitled to receive as a result of such consolidation, merger or sale or
conveyance 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 of this Warrant 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 of this Warrant 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, (i) means the
average of the last reported sale prices for the shares of
Common Stock on the Nasdaq National Market ("Nasdaq") for
the five (5) trading days immediately preceding such date as
reported by Bloomberg Financial Markets or an equivalent
reliable reporting service mutually acceptable to and
hereafter designated by the holder of this Warrant and the
Company ("Bloomberg"), or (ii) if Nasdaq is not the
principal trading market for the shares of Common Stock, the
average of the last reported sale prices on the principal
trading market for the Common Stock during the same period
as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases,
the Market Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of
Directors of the Corporation or, at the option of a
majority-in-interest of the holders of the outstanding
Warrants by (b) an independent investment bank of nationally
recognized standing in the valuation of businesses similar
to the business of the corporation. The manner of
determining the Market Price of the Common Stock set forth
in the foregoing definition 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 $0.005 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
$0.005 per share, in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or
sale of the character referred to in Paragraph 4(e) hereof,
the stock or other securities or property provided for in
such Paragraph.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
<PAGE>
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Paragraph 7(e) below, provided, however, that any transfer or assignment shall
be subject to the conditions set forth in Paragraph 7(f) hereof. 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.
(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.
(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 hereof 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.
<PAGE>
(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 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. [Intentionally Omitted].
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.
<PAGE>
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN THE STATE OF DELAWARE (WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS). BOTH PARTIES IRREVOCABLY CONSENT TO THE JURISDICTION OF THE
UNITED STATES FEDERAL COURTS AND THE STATE COURTS LOCATED IN DELAWARE WITH
RESPECT TO ANY SUIT OR PROCEEDING BASED ON OR ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY AND IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH SUIT
OR PROCEEDING MAY BE DETERMINED IN SUCH COURTS. BOTH PARTIES IRREVOCABLY WAIVE
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY
MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL
AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER.
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 hereof 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 hereof 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>
(d) Remedies. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the holder hereof by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Warrant will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Agreement,
that the holder hereof shall be entitled, in addition to all other available
remedies in law or in equity, to an injunction or injunctions to prevent or cure
any breaches of the provisions of this Warrant and to enforce specifically the
terms and provisions of this Warrant, without the necessity of showing economic
loss and without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
AURA SYSTEMS, INC.
By: _____________________________
Name: _____________________________
Title: _____________________________
Dated as of October 22, 1999
<PAGE>
1-PH/1096751.3
FORM OF EXERCISE AGREEMENT
Dated: ________ __, 199_
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: ________ __, 199_
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.
<PAGE>
10.21.4
THE CONVERTIBLE SENIOR SECURED NOTE DATED OCTOBER 7, 1998 MADE BY AURA
SYSTEMS, INC. IN FAVOR OF RGC INTERNATIONAL INVESTORS, LDC (THE
"CONVERTIBLE SENIOR SECURED NOTE"), IS HEREBY AMENDED AND RESTATED
EFFECTIVE AS OF OCTOBER 22, 1999. ALL LIABILITIES AND OBLIGATIONS OF
AURA SYSTEMS, INC. UNDER THE CONVERTIBLE SENIOR SECURED NOTE SHALL
HEREAFTER BE EVIDENCED BY THIS NOTE.
AMENDED AND RESTATED CONVERTIBLE SENIOR SECURED NOTE
El Segundo, California $3,000,000.00
October 7, 1998
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 principal
amount of Three Million Dollars ($3,000,000.00) in equal quarterly installments
of $283,679.00 beginning on the 22nd day of January, 2000 and continuing on the
22nd day of each successive April, July, October and January until payment in
full of the principal amount; provided, however, that if at any time such
quarterly payments are less frequent than any regularly scheduled payments of
principal or interest to the holders of unsecured claims ("Unsecured Scheduled
Payments") pursuant to any plan of reorganization, repayment or restructuring
between the Borrower and that certain Unofficial Creditors' Committee of
Borrower, organized as of July 26, 1999, or any similarly situated committee,
then, following payment of the next quarterly installment due after the date of
the first Unsecured Scheduled Payment, this Note shall be thereafter payable in
equal monthly installments of $94,009.00 on the 22nd day of each month until
payment in full of the principal amount.
Any remaining unpaid principal balance of this Note, together
with accrued but unpaid interest, shall be due and payable in full on October
22, 2002 (the "Maturity Date"). The Borrower may prepay the principal and
interest on this Note, without premium or penalty, at any time prior to the
Maturity Date.
Interest shall accrue on the unpaid principal balance hereof
at the rate of eight percent (8%) per annum from October 22, 1999 (the "Issue
Date") until the same becomes due and payable, whether at maturity or upon
acceleration or by prepayment or otherwise, and shall be computed on the basis
of a 365-day year and the actual number of days elapsed. Accrued interest
hereunder shall be payable in arrears on the date for principal payments as set
forth above. Any amount of principal or interest on this Note which is not paid
when due shall bear interest at the rate of sixteen percent (16%) per annum (or
such lesser amount as is allowed by law) from the due date thereof until the
same is paid ("Default Interest"), such Default Interest to be payable upon
demand.
<PAGE>
All payments of principal and accrued interest 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 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").
This Note is a secured obligation and is subject to the terms
of (i) that certain Security Agreement, dated as of October 7, 1998 and amended
as of October 22, 1999, by and between the Holder and the Borrower, (the
"Borrower Security Agreement"), (ii) those certain Guarantee Agreements, dated
as of October 7, 1998, by and between each of the Borrower's subsidiaries and
the Holder (the "Guarantee Agreements), and (iii) those certain Security
Agreements, dated as of October 7, 1998, and amended as of October 22, 1999, by
and between each of the Borrower's subsidiaries and the Holder (the "Subsidiary
Security Agreements" and, together with the Borrower Security Agreement and the
Guarantee Agreements, the "Security Agreements"). All terms, covenants,
conditions and agreements contained in the Security Agreements are hereby made a
part of this Note as if they were fully set forth herein, and Borrower promises
and agrees to keep, observe and perform the same in accordance with the terms
thereof.
The Convertible Senior Secured Note dated October 7, 1998 made
by Aura Systems, Inc. in favor of RGC International Investors, LDC (the
"Convertible Senior Secured Note") is amended and restated effective as of
October 22, 1999. All liabilities and obligations of the Borrower under the
Convertible Senior Secured Note shall hereafter be evidenced by this Note.
Upon the occurrence of an Event of Default (as defined
herein), the entire unpaid principal indebtedness of this Note, together with
all interest accrued and Default Interest together with all other charges
provided for herein or in the Security Agreements, shall, at the option of
Holder, become due and payable immediately, without presentation, demand,
protest or further notice (all of which are expressly waived by Borrower), and
payment of same may be enforced and recovered in whole or in part at any time by
the Holder.
Borrower agrees to pay on demand any costs, indemnification
claims, or other expenses arising under the Security Agreements and all costs of
collection, including without limitation attorneys' fees, incurred by the Holder
hereof with respect to any default by Borrower hereunder; such amounts, until
paid by Borrower, shall be added to the principal hereof and be secured by the
Security Agreements.
<PAGE>
Any and all payments received by the Holder hereof following a
default by Borrower may, at the Holder's option, be applied to any and all sums
payable by Borrower hereunder in whatever order and manner the Holder may elect,
including, without limitation, the following: first to the payment of any and
all costs and expenses incurred by the Holder with respect to such default,
second to payments overdue hereunder (in whatever order the Holder may elect),
third to accrued interest and fourth to principal. The Holder may make such
application notwithstanding any contrary request or purported conditional
payment by Borrower.
The granting by the Holder hereof, with or without notice, of
any forbearance or any extension of time for payment of any sum or for the
performance of any covenant, condition or agreement due hereunder or under the
Security Agreements, or the granting of any other indulgence, or the taking or
releasing or subordinating of any security or additional security for the
indebtedness evidenced hereby, or any other modification or amendment of this
Note or the Security Agreements, shall in no way release or discharge the
liability of Borrower on this Note, whether or not granted or done with the
knowledge or consent of Borrower. 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.
BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY
ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD WITHIN THE STATE OF
DELAWARE OR ELSEWHERE TO APPEAR FOR BORROWER AND IN CASE ANY DEFAULT HAS
OCCURRED HEREUNDER OR UNDER THE SECURITY AGREEMENTS, WITH OR WITHOUT COMPLAINT
OR DECLARATION FILED, TO CONFESS AND ENTER JUDGMENT, OR A SERIES OF JUDGMENTS,
AGAINST BORROWER IN FAVOR OF THE THEN HOLDER OF THIS NOTE AS OF ANY TERM, FOR
THE UNPAID BALANCE OF THE PRINCIPAL DEBT HEREOF (INCLUDING WITHOUT LIMITATION
ALL SUMS ADVANCED OR PAID BY ANY HOLDER TO OR ON BEHALF OF BORROWER OR ADDED TO
THE PRINCIPAL HEREOF PURSUANT TO THE TERMS OF THIS NOTE OR THE SECURITY
AGREEMENTS) TOGETHER WITH UNPAID INTEREST AND DEFAULT INTEREST THEREON, COSTS OF
SUIT AND REASONABLE ATTORNEY'S FEES AND COSTS. THIS NOTE OR A COPY VERIFIED BY
AFFIDAVIT SHALL BE SUFFICIENT WARRANT FOR ANY SUCH ATTORNEY TO SO PROCEED. ON
SUCH JUDGMENT OR JUDGMENTS ONE OR MORE EXECUTIONS MAY ISSUE FORTHWITH. THE
AUTHORITY GRANTED HEREIN TO CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY
EXERCISE THEREOF BUT SHALL CONTINUE AND MAY BE EXERCISED FROM TIME TO TIME AND
AT ALL TIMES UNTIL PAYMENT IN FULL OF ALL THE AMOUNTS DUE HEREUNDER AND UNDER
THE SECURITY AGREEMENTS, ANY LAW, RULE OF COURT OR CUSTOM NOTWITHSTANDING.
<PAGE>
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 c/o Rose Glen
Capital Management, L.P., 3 Bala Plaza East, Suite 200, Bala Cynwyd,
Pennsylvania 19004, facsimile number: (610) 617-0570 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.
This Note is transferrable at the Holder's option and shall be
binding upon Borrower and its successors and assigns. The rights under and
benefits of this Note shall inure to Holder and its successors and assigns.
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.
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 references thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
If any term or provision of this Note or the application
thereof to any person or circumstance shall be invalid, illegal or unenforceable
in any respect, the remainder of this Note shall be construed without such
provision, and the application of such term or provision to persons or
circumstances other than those as to which it is held invalid, illegal or
unenforceable, as the case may be, shall not be affected thereby, and all other
terms and provisions of this Note shall be valid and enforceable to the fullest
extent permitted by law and equity.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed in the State of Delaware (without regard to principles of
conflict of laws). Both parties irrevocably consent to the jurisdiction of the
United States federal courts and the state courts located in Delaware with
respect to any suit or proceeding based on or arising under this Agreement, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby and irrevocably agree that all claims in respect of such suit
or proceeding may be determined in such courts. Both parties irrevocably waive
the defense of an inconvenient forum to the maintenance of such suit or
proceeding. Both parties further agree that service of process upon a party
mailed by first class mail shall be deemed in every respect effective service of
process upon the party in any such suit or proceeding. Nothing herein shall
affect either party's right to serve process in any other manner permitted by
law. Both parties agree that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
<PAGE>
The following additional terms shall apply to this Note:
ARTICLE I - CERTAIN COVENANTS
1.1 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 the Borrower's
common stock, par value $0.005 per share (the "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.
1.2 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; provided, however, that this Paragraph 1.2 shall not be deemed to
prohibit (a) the repurchase by the Borrower of (i) that certain Convertible Term
Debenture, due June 27, 1999, issued to JNC Opportunity Fund, Ltd., (ii) that
certain Convertible Debenture issued on December 31, 1997 to CEFEO Investments,
Ltd., (iii) that certain note issued to Isosceles Fund Ltd. on October 27, 1998,
or (iv) those certain Variable Interest Convertible Notes of the Company issued
on September 30, 1997, and held by Infinity Investors Ltd. and certain other
funds that are advised by H.W. Finance, in each case on terms no more favorable
than those given to Holder pursuant to that certain Securities Purchase
Agreement, dated as of October 13, 1999, by and between the Holder and Algo
Technologies, Inc., a California corporation (the "Algo Purchase Agreement"), or
(b) the issuance by the Borrower of shares of Common Stock to each of Excalibur
Limited Partnership, P.R.I.F., L.P. and Gundyco in trust for RRSP 50-9886-19
(collectively, the "NewCom Investors") in an amount not in excess of the shares
to which such parties are entitled pursuant to those certain "Aura Repricing
Rights" contained in those certain Subscription Agreements, each dated as of
November 30, 1998, between NewCom, Inc. and the NewCom Investors (as amended by
that certain Amendment Agreement, dated December 28, 1998, between NewCom, Inc.
and the NewCom Investors).
1.3 Sale of Assets. So long as Borrower shall have any
obligation under this Note, the Borrower shall not, and shall not permit any of
its Significant Subsidiaries (as defined in Section 2.3 herein) to, sell, lease
or otherwise dispose of any of its or their assets outside the ordinary course
of business without the Holder's written consent; provided, however, that this
Paragraph 1.3 shall not be deemed to prohibit (a) any such disposition of assets
the entire proceeds of which are used to repay this Note, (b) any such
disposition of assets by Aura Ceramics, Inc. or (c) any such disposition of
assets effected prior to October 1, 1999 by MYS Corporation, AuraSound, Inc. and
Electrotec Productions, Inc.
<PAGE>
1.4 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 Issue Date and which the Borrower has informed the Holder in writing
prior to the date hereof, and (b) made in the ordinary course of business
(including intercompany transactions consistent with past practice).
1.5 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 Issue Date 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.
1.6 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 Borrower Security Agreement); provided, however, that the foregoing
language shall not be deemed to restrict or otherwise limit Borrower's ability
to make payments with respect to indebtedness which is junior in right of
payment to this Note to the extent that (i) at the time of such payment, the
Borrower is not otherwise in default under the terms of this Note and (ii) the
making of such payment by the Borrower would not result in the Borrower's
inability to make payments of principal and interest hereunder.
ARTICLE II - EVENTS OF DEFAULT
The Borrower shall be in default under this Note if any one or
more of the following events (each an "Event of Default") occurs:
2.1 Failure to Pay Principal or Interest. The Borrower fails
to pay the principal hereof or interest thereon when due, whether at maturity,
upon acceleration or otherwise, and such failure continues uncured for a period
of (10) days;
<PAGE>
2.2 Breach of Covenants. The Borrower breaches any material
covenant or other material term or condition contained in this Note or Sections
2, 3, 4, 5, 6 or 7 of the Security Agreement or any subsidiary of the Borrower
breaches any material covenant or other material law or condition contained in
Sections 2, 3, 4, 5, 6 or 7 of any Subsidiary Security Agreement, and such
breach continues for a period of ten (10) days after written notice thereof to
the Borrower from the Holder;
2.3 Receiver or Trustee. The Borrower or any Significant
Subsidiary (as defined below) 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. For purposes hereof, the
term "Significant Subsidiary" shall mean any subsidiary of the Borrower which on
the Issue Date fits (based upon the financial statements of the Borrower dated
as of and for the periods ending September 30, 1999) or which may in the future
fit within the definition set forth in Rule 1-02(w) of Regulation S-X
promulgated under the Securities Act of 1933, as amended, but shall specifically
exclude NewCom, Inc.;
2.4 Judgments. Any money judgment, writ or similar process
shall be entered or filed against the Borrower or any Significant Subsidiary of
the Borrower or any of its property or other assets for more than $1,000,000,
and shall remain unvacated, unbonded or unstayed (by court order or by the
written agreement of the judgment creditor) for a period of twenty (20) days
unless otherwise consented to by the Holder in its sole discretion; provided,
however, that the existing judgment against the Borrower and certain of its
subsidiaries in favor of NEC Technologies, Inc. entered in Case No. YC033592,
Los Angeles Superior Court, pursuant to a Settlement Agreement, dated December
17, 1998, in the amount of $2,951,854 (plus interest) shall not constitute an
Event of Default under this Paragraph 2.4;
2.5 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 Significant Subsidiary of the Borrower; provided, however, that
in the case of an involuntary bankruptcy, such involuntary bankruptcy shall
continue undischarged or undismissed for a period of sixty (60) days;
2.6 Sale of Assets, Merger. The sale, conveyance or
disposition of all or substantially all of the assets of the Borrower 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. "Person" shall mean any individual, corporation, limited liability
company, partnership, association, trust or other entity or organization.
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be signed
in its name by its duly authorized officer this 22nd day of October, 1999.
AURA SYSTEMS, INC.
By:_____________________________________
Name:
Title:
ACKNOWLEDGED AND AGREED TO BY:
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: ______________________________
Wayne D. Bloch
Managing Director
<PAGE>
SETTLEMENT AGREEMENT
AND RELEASE OF CLAIMS
This Settlement Agreement and Release of Claims ("Agreement") dated as
of December 1, 1999, is made and entered into by JNC OPPORTUNITY FUND, LTD., a
Cayman Islands company ("JNC"), and AURA SYSTEMS, INC., a Delaware company (the
"Company").
W I T N E S S E T H:
WHEREAS, the Company has previously issued to JNC a Convertible
Debenture dated June 27, 1997, in the original principal amount of $4,000,000
(the "Convertible Debenture") pursuant to a certain Securities Purchase
Agreement between JNC and the Company dated as of June 27, 1997, as amended by
an agreement dated as of November 21, 1997 (the Securities Purchase Agreement,
as amended is referred to herein as the "Purchase Agreement"), and has issued
Warrants ("Warrants") to JNC, which Convertible Debenture and Warrants are
presently owned by JNC; and
WHEREAS, on October 21, 1998, JNC filed a Complaint against the
Company, entitled JNC Opportunity Fund v. Aura Systems, Inc. (CA98-595) (the
"Action"), seeking damages of not less than $3,584,983 arising out the alleged
breach of the Purchase Agreement by the Company; and
WHEREAS, the parties desire to enter into this Agreement in order to
terminate the Action and to provide for (i) a cash payment by the Company to JNC
of $430,000, (ii) the issuance to JNC of Three Million Five Hundred Thousand
(3,500,000) shares of the Company's Common Stock (the "Shares") pursuant to the
Convertible Debenture, (iii) the issuance by the Company to JNC of a warrant, in
the form attached hereto, entitling JNC from time to time to purchase One
Hundred Thirteen Thousand (113,000) shares of Company's Common Stock at an
exercise price of $0.375 per share (the "Settlement Warrant"), and (iv) the
surrender and cancellation of the Convertible Debenture and the Warrants; and
WHEREAS, contemporaneously with the execution of this Agreement the
parties are entering into an Escrow Agreement (the "Escrow Agreement") with
Robinson Silverman Pearce Aronsohn & Berman LLP, as escrow agent ("Escrow
Agent") to facilitate the consummation of the transactions contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained and other good and valuable consideration, receipt of which is
hereby acknowledged, it is hereby agreed by and between the parties as follows:
1. The Exchange. Within three business days of the date of execution of
this Agreement, the parties shall deliver to the Escrow Agent, 1290 Avenue of
the Americas, New York, NY 10104, to hold in escrow pending the consummation of
the exchange contemplated by this Section 1, the following: (A) the Company
shall deliver (i) a stock certificate evidencing the Shares, which are being
issued as a partial conversion of the Debenture, registered in the name of JNC,
free and clear of any restrictive legends, together with a legal opinion to the
effect that such shares have been validly issued and may be resold under Rule
144 promulgated under the Securities Act of 1933 and a certification that such
opinion has been accepted by the transfer agent for the Common Stock for such
purchase, (ii) the sum of Four Hundred Thirty Thousand Dollars ($430,000) (the
"Cash Payment"), in immediately available funds to the account specified prior
thereto for such purpose by Escrow Agent, (iii) the Settlement Warrant,
registered in the name of JNC, and (iv) two executed originals of this
Agreement; and (B) JNC shall deliver (i) the Convertible Debenture and Warrant,
and (ii) two executed originals of this Agreement.
2. Closing. Subject to and in accordance with the Escrow Agreement,
Escrow Agent shall notify each of the Company and JNC when it shall have
received all of the items required to have been delivered by the parties
pursuant to Section 1 (each a "Closing Item," and collectively, the "Closing
Items"). Promptly thereafter, Escrow Agent shall deliver without liability or
other risk to any party, which is hereby waived, (A) to the Company: the
Convertible Debenture, the Warrant and one executed original of this Agreement
and (B) to or as directed by JNC: the Cash Payment, the Settlement Warrant, the
Shares (and the related Rule 144 opinion) and one executed original of this
Agreement (the date that all of the Closing Items are received is the "Closing
Date"). JNC agrees that within two business days of the Closing Date it will
cause the Action to be dismissed with prejudice. If Escrow Agent shall not have
received all of the Closing Items in satisfactory form and when required under
this Agreement, this Agreement may be terminated by the non-defaulting party as
if it never existed and Escrow Agent's sole duties and obligations shall be as
set forth in the Escrow Agreement
3. Warranties of JNC. JNC represents and warrants to the Company as
follows:
(a) Authorization; Enforcement. JNC has all requisite
power and authority to enter into and perform this Agreement
and to consummate the exchange contemplated hereby. This
Agreement has been duly and validly authorized by JNC. This
Agreement has been duly executed by JNC and upon full
delivery of the Closing Items will constitute the valid and
binding obligation of JNC enforceable against it in
accordance with its terms.
(b) Information; Acknowledgment of Risk. The Company
has furnished JNC and its advisors, if any, with all
materials relating to the business, finances and operations
of the Company which have been requested by JNC and its
advisors. JNC has been afforded the opportunity to ask
questions of the Company and has received satisfactory
answers to such questions concerning the terms of the
securities offered, sold or exchanged hereby. JNC is aware
that the Shares and the Settlement Warrant are speculative,
that an investment in the Company involves a high degree of
risk, that it may lose its entire investment and JNC can
afford to bear the risks of an investment in the Company.
JNC is a sophisticated investor with considerable experience
in investments of this nature. JNC acknowledges that the
Company makes no representations or warranties with respect
to the Company, the Shares or the Settlement Warrant other
than those representations or warranties set forth in this
Agreement, and JNC has in no way relied upon any other
statement made or information provided by the Company.
(c) Accredited Investor. JNC is an "accredited
investor" within the meaning of Regulation D of the
Securities Act of 1933 (the "Securities Act").
(d) Non-Affiliate Status. JNC is not presently or at
any time within the past three months, and on the Closing
Date will not be, an "affiliate" of the Company as such
quoted term is defined in the Securities Act.
4. Warranties of the Company. The Company represents and warrants to
JNC as follows:
(e) (a) Authorization; Enforcement. The Company has all
requisite power and authority to enter into and perform this
Agreement and to consummate the exchange contemplated
hereby. This Agreement has been duly and validly authorized
by the Company. This Agreement has been duly executed by the
Company and upon full delivery of the Closing Items will
constitute the valid and binding obligation of the Company
enforceable against it in accordance with its terms.
(b) Ownership of Shares. On the Closing Date the Shares,
when delivered to JNC in accordance with the terms of this
Agreement (i) will be free and clear of any security
interests, liens, claims or other encumbrances, (ii) will
have been duly and validly authorized and delivered, fully
paid and nonassessable and will be valid and binding
obligations of the Company, (iii) will not have been,
individually and collectively, issued or sold in violation
of any preemptive or other similar rights of the holders of
any securities or obligations of the Company, (iv) will not
subject the JNC to personal liability by reason of being a
shareholder, and (v) will be eligible for sale under Rule
144(k) of the Securities Act.
(c) No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the
Company of the exchange contemplated hereby do not and will
not (i) conflict with or violate any provision of the
company's certificate of incorporation or bylaws, or (ii)
conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default)
under, or give to others any rights of termination,
acceleration or cancellation (with or without notice, lapse
of time or both ) of, any agreement or other obligation of
the Company, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to
which the Company is subject (including federal and state
securities laws and regulations).
(d) Filing, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or
registration with, any court, other governmental authority,
person or entity in connection with the execution, delivery
and performance by the Company of this Agreement other than
the filing of a Form D pursuant to the Securities Act of
1933.
(e) Other Arrangements. The Company has negotiated
settlements with certain of its investors in connection with
a general restructuring of the Company by such investors,
i.e. RGC International Investors, LDC ("RGC"), and the
investors represented by HW Partners, L.P. The Company has
not yet reached an agreement with the Isosceles Fund.
Schedule One to this Agreement sets forth the amount of cash
and securities issued or proposed to be issued to RGC and HW
Investors, L.P. The Company understands that the accuracy
and completeness of this representation and warranty is a
material inducement to JNC's willingness to enter into this
Agreement.
5. Release by JNC. Effective as of the Closing Date JNC, for itself and
for its employees, agents, predecessors and successors-in-interest, hereby
irrevocably and unconditionally releases and forever discharges the Company and
each of its subsidiaries, and each of their respective officers, directors,
employees, agents, attorneys, and shareholders, former officers, directors, and
employees, agents, attorneys and shareholders, predecessors, and
successors-in-interest and each of them from any and all claims, causes of
action, demands, damages, attorneys fees, or charges of whatever kind or nature
known or unknown, suspected or unsuspected, fixed or contingent, which they now
have, own, hold, or claim to have, or claim to own, or which they at any time,
heretofore had, owned, held, or claimed to have or claimed to own, from the
beginning of the world through the date of this Agreement, including claims
arising out of the Action.
6. Release by the Company. Effective as of the Closing Date the
Company, for itself, its subsidiaries and for its and their respective
employees, agents, predecessors and successors-in-interest, hereby irrevocably
and unconditionally releases and forever discharge JNC and each of its officers,
directors, employees, agents, attorneys, and shareholders, former officers,
directors, and employees, agents, attorneys and shareholders, predecessors, and
successors-in-interest and each of them from any and all claims, causes of
action, demands, damages, attorneys fees, or charges of whatever kind or nature
known or unknown, suspected or unsuspected, fixed or contingent, which they now
have, own, hold, or claim to have, or claim to own, or which they at any time,
heretofore had, owned, held, or claimed to have or claimed to own, from the
beginning of the world through the date of this Agreement, including claims
arising out of the Action.
4. 7. Effect of General Release.It is the intention of the parties that this
Agreement shall be effective as a full and final accord and satisfactory relief
of each and every matter as specifically or generally referred to. In
furtherance of that intention, the parties hereby acknowledge that they are
familiar with Section 1542 of the California Civil Code which provides as
follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in its favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor." The parties hereby waive and relinquish all rights
and benefits which they have or may have up to the date of
this Agreement under Section 1542 of the California Civil
Code or the law of any other state or jurisdiction to the
same or similar affect to the full extent that they may
lawfully waive all such rights and benefits pertaining to
the subject matter of this Agreement.
8. Subsequent Discoveries. The parties acknowledge that there is a risk
that subsequent to the execution of this Agreement, they will discover facts,
which are unknown or unanticipated at the time this Agreement is executed, which
if known by them on a date that this Agreement is executed, may have materially
affected their decisions to execute this Agreement. The parties expressly assume
the risk of discovery of such unknown and unanticipated facts and that this
Agreement shall be fully valid notwithstanding the discovery of any such facts.
9. No Assignment of Claims. Each party represents and warrants that
they have not assigned or otherwise transferred or subrogated any interest in
any claims which are the subject matter hereto.
10. Covenant Not to Sue. The parties covenant and agree not to sue or
bring any action, whether federal, state, or local, judicial or administrative,
now or at any future time, against each other or any of the released parties,
with respect to any claim released hereby. The parties represent and warrant and
represent that they have not commenced any such action or proceeding as of the
execution date of this Agreement except the Action.
11. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the heirs, administrators, executors, successors, and the
assignees of each of the parties.
12. Miscellaneous. Whenever this Agreement so requires, the singular
number shall include the plural, the plural shall include the singular, and the
masculine gender shall include the feminine and neuter genders.
13. Severability. If any portion of this Agreement shall be held to be
illegal or invalid by a court of competent jurisdiction, the validity of the
remainder of this Agreement shall not be affected.
14. Entire Agreement. This Agreement and the agreements referenced
herein memorializes and constitutes the entire Agreement and understanding
between the parties and supersedes and replaces all prior negotiations, proposed
Agreements and Agreements whether written or unwritten. Each of the parties to
this Agreement acknowledges that no other party nor any agent or attorney of any
other party has made any promise, representation, or warranty whatsoever,
express or implied, which is not expressly contained in this Agreement. Each
party further acknowledges that it has not executed this Agreement in reliance
upon a collateral promise, representation, or warranty.
15. Governing Law. This Agreement shall be deemed to have been made in
the State of California and shall, for all purposes be governed by and construed
exclusively in accordance with the laws thereof, regardless of where any court
action or proceeding is brought in connection with this Agreement.
16. Counterparts. This Agreement may be executed in two or more
counterparts, and an executed facsimile copy or counterpart shall be binding and
enforceable in the same manner as the original.
[REMAINER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS THEREOF, the parties have executed this Agreement
effective as of the date first written above.
AURA SYSTEMS, INC.
By:____________________________
Zvi Kurtzman, CEO
JNC OPPORTUNITY FUND, LTD.
By:____________________________
Name:
Title:
<PAGE>
Schedule One
RGC International Investors, LDC:
Five Million Dollars ($5,000,000) Cash,
One Million (1,000,000) Warrants exercisable at $.037 per share, An additional
Five Hundred Thousand (500,000) Warrants to be issued
If HW Partners, LP receives a more favorable settlement, in exchange for three
Unsecured convertible notes and outstanding warrants.
Three Million Dollar ($3,000,000) Secured Note modified to eliminate all accrued
interest and convertibility feature, and payment terms changed to 8% interest,
amortized over three years.
HW Partners, LP:
Three Million Dollars ($3,000,000) cash,
1,111,111 shares of Common Stock,
and new secured Note in the principal amount of Twelve Million Five Hundred
Thousand Dollars ($12,500,000), interest only at 8%, principal due and payable
in three years, no conversion right unless the company is in default, in which
case the conversion price is $0.60, which Note is prepayable at a discount,
initially
20%, declining on a straight line basis over the life of the Note; Issued in
exchange for outstanding Note and outstanding Warrants.
<PAGE>
10.23
PAYMENT AGREEMENT
THIS PAYMENT AGREEMENT ("Agreement"), dated as of January 1,
2000 is between AURA SYSTEMS, INC., a Delaware corporation ("Debtor"), and
CREDIT MANAGERS ASSOCIATION OF CALIFORNIA, a California non-profit mutual
benefit corporation, as collection agent (the "Agent") for and on behalf of
those creditors of the Debtor listed on Exhibit A attached hereto who vote to
accept the Debtor's plan for repayment of its creditors pending as of the date
of this Agreement and such additional creditors of the Debtor who vote to accept
the Debtor's plan for repayment of its creditors pending as of the date of this
Agreement (collectively, the "Parties," and individually, a "Party"). Exhibit A
shall be amended from time to time by the Agent as necessary to reflect the
names and current addresses of, and amounts owed to, all Parties under this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties, the parties hereby
agree as follows:
1. Definitions. When used herein, the capitalized terms below shall have the
meanings indicated:
(a) Obligations. "Obligations" means: (i) all account obligations of
Debtor to one or more of the Parties, arising prior to July 26, 1999, including,
without limitation, the amount set forth opposite each Party's name on Exhibit A
hereto; and (ii) all expenditures made or incurred by the Agent or by any Party
on or after July 26, 1999 to enforce the rights of the Parties under this
Agreement.
(b) Restructure. The phrase "Restructure" means the written
announcement by the Debtor that it has achieved all of those agreements and
consents necessary to achieve the debt for equity exchange, and the investment
of up to $10 Million in new capital into the Debtor in accordance with the
general terms of the restructure plan proposed by the Debtor in the package of
materials provided by the Debtor to Creditors at the general meeting of July 26,
1999, with modifications: (i) thereafter requested by a committee of creditors
elected by meeting attendees to represent their interests (the "Committee") and
accepted by Debtor; (ii) proposed to the Committee by the Debtor on October 1,
1999 and accepted by the Committee on October 1, 1999; proposed to the Committee
by the Debtor and accepted by the Committee on or about November 11, 1999;
proposed to the Committee by the Debtor and accepted by the Committee on or
about December 23, 1999; and (iii) as may be subsequently accepted by the
Committee.
2. Monthly Installment Payments. Debtor hereby agrees to pay to the Agent for
the benefit of the Parties, as follows:
(1) On or before the first business day of each calendar month
beginning January 1, 2000, an amount equal to 1/36 of the total of the amounts
set forth on Exhibit "A" hereto, plus such additional amounts as may be required
upon reconciliation of Exhibit "A" to the ballots accepting the Debtor's Plan
for repayment, plus interest on the total amounts unpaid at the rate of 8% per
annum running from July 26, 1999, on a fully amortized basis. Interest accruing
from July 26, 1999 through the date the first installment shall be paid by CMA
to creditors, shall be paid as a last, thirty-seventh (37th) monthly installment
payment;
(2) To those Creditors on Exhibit "A" whose claims are less than $5,000 or by
their ballot have agreed to reduce their claim to $5,000, one installment in the
allowed amount listed on Exhibit "A" as soon as claims in such category have
been reconciled.
Following the occurrence of an Event of Default under Paragraph 4(a) hereof, the
principal balance of the Obligations shall bear interest thereafter at the
default rate of 12% per annum until all delinquent amounts, including default
rate interest, are paid.
3. Quarterly Reporting. The Debtor hereby agrees to provide the Agent
for the benefit of the Parties quarterly financial reports including income
statements and balance sheets, on or before June 5th, July 20th, October 20th
and January 20th, for the preceding quarter, with the first quarterly reports
due on or about February 15, 2000.
4. Events of Default. Debtor shall be in default under this Agreement
upon the happening of any of the following events or conditions ("Events of
Default"):
(a) default in the payment on the due date therefor of any monthly installment
payment due under Paragraph 2 above, which has not been cured within fifteen
(15) calendar days after the due date thereof;
(b) dissolution, termination of existence of, appointment of a
receiver for any part of the property of, assignment for the benefit of
creditors by, or the commencement of any proceeding under any bankruptcy,
reorganization, arrangement, insolvency or other law relating to the relief of
debtors by or against, Debtor or any guarantor or surety for Debtor under any of
the Obligations;
(c) default in providing quarterly reports due under Paragraph
3 above, which has not been cured within fifteen (15) calendar days after notice
that such report is due.
5. Remedies Upon The Occurrence Of Any Event of Default. Upon the
occurrence of an Event of Default, and with the consent of the Committee, the
Agent may, without notice to or demand on Debtor, declare any of the Obligations
immediately due and payable and this Agreement in default, whereupon the Parties
shall be free to pursue collection of the Obligations, with interest as provided
herein.
6. Appointment of Agent.
(a) Each Party hereby irrevocably appoints and authorizes the Agent
to act as its agent hereunder, with such powers as are expressly delegated to
the Agent under this Agreement, together with such other powers as are
reasonably incidental thereto.
(b) If the Agent receives notice of the occurrence of an Event of
Default under this Agreement or any other notice, request or other communication
from the Debtor under this Agreement, the Agent shall give prompt notice thereof
to the Parties. The Agent shall take such action with respect to such notice,
request or other communication as may be directed by a Majority-in-Interest of
the Parties. With the approval of a Majority-in-Interest of the Parties, the
Agent may consent to any modifications, supplement or waiver under this
Agreement, provided, however, that without the prior written consent of all
Parties, the Agent shall not modify or amend this Paragraph 6(b).
(c) In the event that Credit Managers Association of
California becomes unable or unwilling to serve as Agent, a Majority-in-Interest
of the Parties shall promptly designate another person or entity to serve as
Agent hereunder.
7. General
(a) No default shall be waived by the Agent except in writing and with
prior consent of the Committee, and no waiver of any payment or other right
under this Agreement shall operate as a waiver of any other payment or right.
(b) Any consent, notice or other communication required or
contemplated by this Agreement shall be in writing. If intended for Debtor, it
shall be deemed given upon receipt by Debtor, or three days after deposit if
mailed, postage prepaid, to Debtor at the address set forth below or at such
other address given by notice as herein provided. If intended for a Party, it
shall be deemed given only if actually received by the Agent at the address set
forth below or at such other address given by notice as herein provided.
Debtor:
AURA SYSTEMS, INC.
2335 Alaska Avenue
El Segundo, California 90245
Fax No.: (310) 643-8719
Agent:
CREDIT MANAGERS ASSOCIATION
OF CALIFORNIA
40 E. Verdugo Avenue
Burbank, California 91502-1931
Fax No.: (818) 972-5301
(c) This Agreement shall be construed under and governed by the laws
of the State of California, and, where applicable and except as otherwise
defined herein, terms used herein shall have the meanings given them in the
California Uniform Commercial Code.
(d) This Agreement may be executed in any number of counterparts,
and by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
(e) All of the rights of each Party under this Agreement shall be
cumulative and shall inure to the benefit of the successors and assigns of such
Party. All obligations of Debtor hereunder shall be binding upon the successors
and assigns of Debtor. All provisions of this Agreement concerning the
relationship between the Agent and the Parties are for the benefit of such
parties, and shall not be enforceable by or inure to the benefit of the Debtor.
(f) This Agreement may be modified by the parties hereto upon the
receipt by the Agent of written instructions authorizing and directing such
modification from a majority of the members of the informal committee
representing the interests of unsecured creditors consenting to the Restructure
(the "Informal Committee") and the written agreement of the Debtor thereto. The
members of the Informal Committee are:
Please See The Attached
<PAGE>
EXECUTED on the dates set forth below, to be effective for all
purposes as of the date first above written.
DEBTOR:
AURA SYSTEMS, INC.
By:___________________________
Name: Gerald S. Papazian
Title: President
Date:___________________________
AGENT:
CREDIT MANAGERS ASSOCIATION OF
CALIFORNIA, as collateral and
collection agent for the
parties listed on Exhibit A
By:_______________________________
Name: Robert Hoder
Title:
Date:_______________________________
<PAGE>
21.1
Exhibit 21.1
Aura Systems, Inc. (Delaware)
Aura Ceramics, Inc. (Delaware)
Aura Realty, Inc. (Delaware)
AuraSound, Inc. (Delaware)
Electrotec Productions, Inc. (California)
MYS Corporation (Osaka, Japan)
NewCom, Inc. (Delaware)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 3,822,210
<SECURITIES> 0
<RECEIVABLES> 8,380,414
<ALLOWANCES> 0
<INVENTORY> 18,477,058
<CURRENT-ASSETS> 36,489,862
<PP&E> 47,976,699
<DEPRECIATION> (10,994,734)
<TOTAL-ASSETS> 90,143,392
<CURRENT-LIABILITIES> 41,359,738
<BONDS> 0
<COMMON> 218,693,245
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 90,143,392
<SALES> 81,518,162
<TOTAL-REVENUES> 81,518,162
<CGS> 158,024,723
<TOTAL-COSTS> 244,680,069
<OTHER-EXPENSES> 17,825,237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,198,858
<INCOME-PRETAX> (149,170,931)
<INCOME-TAX> 570,651
<INCOME-CONTINUING> (149,741,582)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (406,574)
<NET-INCOME> (150,148,156)
<EPS-BASIC> (1.74)
<EPS-DILUTED> (1.74)
</TABLE>
