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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 OMB APPROVAL OMB Number: 3235-0145 Expires: December 31, 2005 Estimated average burden hours per response.11 SCHEDULE 13D Aura Systems, Inc. (Name of Issuer) Common Stock (Title of Class of Securities) 051526101 (CUSIP Number) Ellyn Roberts, Esq. One Maritime Plaza, 18th Floor San Francisco, California 94111 (Name, Address and Telephone Number of Person September 14, 2004 (Date of Event Which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of sections 240.13d-1(e), 240.13d-1(f) or 140.13d-1(g), check the following box. [ ] Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See section 240.13d-7 for other parties to whom copies are to be sent. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page. The information required in the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. 1. Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). 2. Check the Appropriate Box if a Member of a Group (See Instructions) 3. SEC Use Only 4. Source of Funds (See Instructions) (with respect to shares reported on lines 7 and 9) WC (with respect to shares reported on lines 8 and 10) AF 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) ____ 6. Citizenship or Place of Organization Washington Number of Shares Beneficially Owned by Each Reporting Person With 7. Sole Voting Power 630,808 8. Shared Voting Power 588,979,117 9. Sole Dispositive Power 630,808 10. Shared Dispositive Power 588,979,117 11. Aggregate Amount Beneficially Owned by Each Reporting Person 589,609,925 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See 13. Percent of Class Represented by Amount in Row (11) 59.2% 14. Type of Reporting Person (See Instructions) IA, CO 1. Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). 2. Check the Appropriate Box if a Member of a Group (See Instructions) 3. SEC Use Only 4. Source of Funds (See Instructions) (with respect to shares reported on lines 7 and 9) PF (with respect to shares reported on lines 8 and 10) AF 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) ____ 6. Citizenship or Place of Organization U.S.A. Number of Shares Beneficially Owned by Each Reporting Person With 7. Sole Voting Power 6,145,826 8. Shared Voting Power 589,609,925 9. Sole Dispositive Power 6,145,826 10. Shared Dispositive Power 589,609,925 11. Aggregate Amount Beneficially Owned by Each Reporting Person 595,755,751 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See 13. Percent of Class Represented by Amount in Row (11) 59.5% 14. Type of Reporting Person (See Instructions) IN, HC 1. Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). 2. Check the Appropriate Box if a Member of a Group (See Instructions) 3. SEC Use Only 4. Source of Funds (See Instructions) AF 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) ____ 6. Citizenship or Place of Organization Delaware Number of Shares Beneficially Owned by Each Reporting Person With 7. Sole Voting Power 38,812,961 8. Shared Voting Power 543,551,400 9. Sole Dispositive Power 38,812,961 10. Shared Dispositive Power 543,551,400 11. Aggregate Amount Beneficially Owned by Each Reporting Person 582,364,361 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See 13. Percent of Class Represented by Amount in Row (11) 58.5% 14. Type of Reporting Person (See Instructions) OO 1. Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). 2. Check the Appropriate Box if a Member of a Group (See Instructions) 3. SEC Use Only 4. Source of Funds (See Instructions) WC 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) ____ 6. Citizenship or Place of Organization Delaware Number of Shares Beneficially Owned by Each Reporting Person With 7. Sole Voting Power 0 8. Shared Voting Power 424,691,019 9. Sole Dispositive Power 0 10. Shared Dispositive Power 424,691,019 11. Aggregate Amount Beneficially Owned by Each Reporting Person 424,691,019 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See 13. Percent of Class Represented by Amount in Row (11) 50.4% 14. Type of Reporting Person (See Instructions) PN 1. Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only). 2. Check the Appropriate Box if a Member of a Group (See Instructions) 3. SEC Use Only 4. Source of Funds (See Instructions) WC 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) ____ 6. Citizenship or Place of Organization Delaware Number of Shares Beneficially Owned by Each Reporting Person With 7. Sole Voting Power 0 8. Shared Voting Power 106,602,931 9. Sole Dispositive Power 0 10. Shared Dispositive Power 106,602,931 11. Aggregate Amount Beneficially Owned by Each Reporting Person 106,602,931 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See 13. Percent of Class Represented by Amount in Row (11) 20.0% 14. Type of Reporting Person (See Instructions) PN Item 1. Security and Issuer This statement relates to shares of Common Stock (the "Stock") of Aura Systems, Inc. (the "Issuer"). The principal executive office of the Issuer is located at 2335 Alaska Avenue, El Segundo, California 90245. Item 2. Identity and Background The persons filing this statement and the persons enumerated in Instruction C of Schedule 13D and, where applicable, their respective places of organization, general partners, directors, executive officers and controlling persons, and the information regarding them, are as follows: (a) ICM Asset Management ("ICM") Koyah Leverage Partners, L.P. ("Koyah Leverage") (b) The business address of the Filers is (c) Present principal occupation or employment or the Filers and the name, principal business and address of any corporation or other organization in which such employment is conducted: (d) During the last five years, none of the Filers has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) During the last five years, none of the Filers was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (f) Mr. Simmons is a United States citizen. Item 3. Source and Amount of Funds or Other Consideration The source and amount of funds used in purchasing the Stock were as follows: Purchaser Source of Funds Amount ICM Funds under Management(1) $14,659,457.21 ICM Working Capital $159,093.10 Mr. Simmons Personal Funds $707,005.55 Koyah Ventures, LLC Working Capital $414,004.92 Item 4. Purpose of Transaction The Filers acquired the Stock for investment purposes, and such purchases were made in the Filers' ordinary course of business. In pursuing such investment purposes, the Filers may further purchase, hold, vote, trade, dispose or otherwise deal in the Stock at times, and in such manner, as they deem advisable to benefit from changes in market price of the Stock, changes in the Issuer's operations, business strategy or prospects, or from sale or merger of the Issuer. The Filers reserve the right to formulate other plans and/or make other proposals, and take such actions with respect to their investment in the Issuer, including any or all of the actions set forth in paragraphs (a) through (j) of Item 4 of Schedule 13D, and to acquire additional Stock or dispose of all the Stock beneficially owned by them, in public market or privately negotiated transactions. The Filers may at any time reconsider and change their plans or proposals relating to the foregoing. The Filers hold, among other securities of the Issuer, shares of the Issuer's Series B Preferred Stock (the "Series B Preferred Shares"). The Issuer's Certificate of Incorporation entitles the holders of the Series B Shares to elect four of the Issuer's directors for as long as the Series B Shares are outstanding. Under that certain Shareholder Agreement effective as of September 14, 2004, among the holders of the Series B Shares (the "Series B Shareholders"), the Series B Shareholders agreed, among other things, to use their best efforts to cause the size of the Issuer's board of directors to remain set at seven directors at all times and that Koyah Leverage has the right to elect one of the four directors that the Series B Shareholders are entitled to elect. Neal F. Meehan is Koyah Leverage's designated director. The Shareholder Agreement is an exhibit to this Schedule 13D. See Item 7. Item 5. Interest in Securities of the Issuer (a), (b), (d) The beneficial ownership of the Stock of each Filer as of the date hereof is reflected on that Filer's cover page. ICM is an investment adviser with the power to invest in, vote and dispose of the Stock on behalf of its clients. Its clients have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the Stock. No client, other than Koyah Leverage and Koyah Partners, separately holds more than 5% of the outstanding Stock. Mr. Simmons is the president and controlling shareholder of ICM and the sole manager and controlling owner of Koyah Ventures. As such, ICM and Mr. Simmons share beneficial ownership of all shares of Stock held in ICM client accounts. (c) ICM, on behalf of client accounts, including Koyah Leverage and Koyah Partners, effected the following transactions in the Stock in a private transaction, on the date indicated and such transaction was the only transaction in the Stock by the Filers since sixty days before the date on the cover page of this Schedule 13D. Name Purchase or Sale Date Koyah Leverage Account Koyah Partners Account Other Client Accounts Personal/ Proprietary Account Price per Share ICM Purchase 9/14/04 401,237,013 100,309,266 9,643,007 N/A Koyah Ventures Purchase 9/14/04 38,812,961 N/A Mr. Simmons Purchase 9/14/04 4,714,688 N/A Note: As reported in earlier amendments to this Schedule 13D, the Filers hold Convertible Promissory Notes originally dated July 24, 2003, and June 14, 2004, and subsequently amended (as amended, the "Notes") that are now convertible into Series B Preferred Shares and warrants, which are convertible into shares of the Stock. No Stock was reported on those previous Schedules 13D as being beneficially owned by the Filers with respect to the Notes because the conversion price of the Notes was not fixed and it was not possible to determine the amount of Stock into which the Notes ultimately were convertible. The Issuer and the holders of the Notes, including certain of the Filers, entered into an Amendment and Conversion Agreement effective as of September 14, 2004, pursuant to which the conversion price of the Notes was fixed. The Notes are convertible into units (the "Units") at a conversion price equal to $1,000 in principal amount per Unit. Each Unit consists of 200 shares of the
Series B Preferred Shares and a Series B Warrant (the "Warrants"). Each Warrant entitles the holder to purchase up to 12,500 shares of the Stock at an exercise price of $0.02 per share. In addition, the holders of the Notes are entitled to purchase additional Units equal to 50% of the Units acquired. The Stock to be issued on exercise of the Series B Preferred Shares and the Warrants held by the Filers are included in the number of shares of the Stock shown as being beneficially owned by each Filer on that Filer's cover page. The purchase price of the Notes is included in the amount of funds used in purchasing the Stock reported in Item 3 of this Schedule 13D. That amount includes additional loans from the Filers to the Issuer made pursuant to the Notes. Copies of the Notes, the Amendment and Conversion Agreement, the Certificate of Designations for the Series B Preferred Shares and the Warrants are exhibits to this Schedule 13D. See Item 7. Item 6. Contracts, Arrangement, Understandings or Relationships with Respect to Securities of the Issuer Koyah Ventures is the general partner of investment partnerships, including Koyah Leverage and Koyah Partners, pursuant to agreements of limited partnership that grant to Koyah Ventures the authority, among other things, to invest the funds of Koyah Leverage and Koyah Partners and such other partnerships in the Stock, to vote and dispose of the Stock and to file this statement on their behalf. Pursuant to such agreements, Koyah Ventures is entitled to allocations based on assets under management and realized and unrealized gains. ICM and some of the investment funds for which it serves as investment adviser and Koyah Ventures serves as general partner, including Koyah Leverage and Koyah Partners, hold warrants to purchase the Stock. The securities for which such warrants are exercisable are included in the total shares of the Stock shown above as being beneficially owned by the Filers. Koyah Leverage and Koyah Partners are filing this Schedule 13D jointly with the other Filers, but not as members of a group, and each of them expressly disclaims membership in a group. In addition, the filing of this Schedule 13D on behalf of Koyah Leverage and Koyah Partners should not be construed as an admission that either of them is, and each of them disclaims that it is, the beneficial owner as defined in Rule 13d-3 under the Securities Exchange Act of 1934, of any of the Stock covered by this Schedule 13D. Item 7. Material to Be Filed as Exhibits Exhibit A Agreement Regarding Joint Filing of Statement on Schedule 13D or 13G previously filed. *Exhibit B Agreement dated 7/24/03 *Exhibit C Promissory Note (Term) - Koyah Partners, L.P. dated 7/24/03 *Exhibit D Promissory Note (Term) - Koyah Leverage Partners, L.P. dated 7/24/03 *Exhibit E Promissory Note (Multiple Advance) - Koyah Partners, L.P. dated 7/24/03 *Exhibit F Promissory Note (Multiple Advance) - Koyah Leverage Partners, L.P. dated 7/24/03 *Exhibit G Security Agreement dated 7/24/03 *Exhibit H Amendment and Waiver Agreement dated 8/6/03 *Exhibit I Additional Advance Agreement dated 8/18/03 *Exhibit J Stock Pledge Agreement dated 8/18/03 *Exhibit K Amendment Agreement dated 8/21/03 *Exhibit L Second Amendment Agreement dated 9/18/03 *Exhibit M Third Amendment Agreement dated 9/30/03 *Exhibit N Fourth Amendment Agreement dated 10/16/03 *Exhibit O Fifth Amendment Agreement dated 10/27/03 *Exhibit P Sixth Amendment Agreement dated 11/11/03 *Exhibit Q Seventh Amendment Agreement dated 11/25/03 *Exhibit R Eighth Amendment Agreement dated 12/19/03 *Exhibit S Ninth Amendment Agreement dated 01/08/04 *Exhibit T Security Agreement Amendment dated 01/15/04 *Exhibit U Warrant Amendment Agreement dated 01/08/04 *Exhibit V Warrant - Koyah Leverage Partners, L.P. dated 01/08/04 *Exhibit W Warrant - Koyah Partners, L.P. dated 01/08/04 *Exhibit X Warrant - James Simmons dated 01/08/04 *Exhibit Y Warrant - Raven Partners, L.P. dated 01/08/04 *Exhibit Z Tenth Amendment Agreement dated 03/10/04 *Exhibit AA Eleventh Amendment Agreement dated 03/11/04 *Exhibit BB Twelfth Amendment Agreement dated 03/18/04 **Exhibit CC Thirteenth Amendment Agreement dated 04/05/04 **Exhibit DD Warrant-Koyah Leverage Partners, L.P. dated 04/05/04 **Exhibit EE Warrant-Koyah Partners, L.P. dated 04/05/04 Exhibit FF Fourteenth Amendment Agreement dated 04/30/04 Exhibit GG Fifteenth Amendment Agreement dated 06/03/04 Exhibit HH Agreement - Koyah Ventures, LLC dated 06/14/04 Exhibit II Convertible Promissory Note (Term) dated 06/14/04 Exhibit JJ Security Agreement dated 06/14/04 Exhibit KK Stock Pledge Agreement dated 06/14/04 Exhibit LL Agreement - Raven Partners, L.P. dated 06/14/04 Exhibit MM Convertible Promissory Note (Term) dated 06/14/04 Exhibit NN Security Agreement dated 06/14/04 Exhibit OO Stock Pledge Agreement dated 06/14/04 Exhibit PP Joinder Agreement dated 06/14/04 Exhibit QQ Amendment Agreement - Koyah Ventures, LLC dated 07/07/04 ***Exhibit RR Amendment and Conversion Agreement effective 09/14/04 Exhibit SS Certificate of Designations of Series B Cumulative Preferred Stock of Aura Systems, Inc. ***Exhibit TT Shareholders Agreement effective 09/14/04 Exhibit UU Form of Warrant to Purchase Common Stock of Aura Systems, Inc. effective 09/14/04 Exhibit VV Registration Rights Agreement effective 09/14/04 Exhibit WW Form of Securities Purchase Agreement effective 09/14/04 * Incorporated by reference to the initial Schedule 13D filed by the Filers with respect to the Stock on March 18, 2004. ** Incorporated by reference to Amendment No. 1 to the Schedule 13D filed with respect to the Stock on April 9, 2004. *** Incorporated by reference to the Issuer's Form 8-K filed on September 20, 2004. SIGNATURES After reasonable inquiry and to the best of my knowledge, I certify that the information set forth in this statement is true, complete and correct. Dated: September ___, 2004 ICM Asset Management, Inc. By: ___________________________________ Robert J. Law, Senior Vice President Koyah Ventures, LLC By: _________________________________ Robert J. Law, Senior Vice President Koyah Leverage Partners, L.P. By: Koyah Ventures, LLC, General Partner By: _________________________________ Robert J. Law, Senior Vice President Koyah Partners, L.P. By: Koyah Ventures, LLC, General Partner By: _________________________________ Robert J. Law, Senior Vice President FOURTEENTH AMENDMENT AGREEMENT THIS FOURTEENTH AMENDMENT AGREEMENT (this "Agreement") is entered into as of April 30, 2004 between AURA SYSTEMS, INC., a Delaware corporation (the "Company"), and KOYAH LEVERAGE PARTNERS, L.P. ("Koyah Leverage") and KOYAH PARTNERS, L.P. ("Koyah"), each a Delaware limited partnership (collectively, the "Lenders"). WHEREAS, in connection with loans to the Company by the Lenders, the Company and the Lenders entered into an Agreement dated as of July 24, 2003 (as subsequently amended, the "Agreement"), the Company executed in favor of the Lenders four Convertible Promissory Notes dated July 24, 2003 (as subsequently amended, collectively, the "Notes"), and the Company executed in favor of Koyah Leverage Partners, L.P. (as collateral agent for the Lenders) a Security Agreement dated as of July 24, 2003 (as subsequently amended, the "Security Agreement"); WHEREAS, the Company and the Lenders also entered into an Amendment and Waiver Agreement dated as of August 6, 2003 (the "Amendment"); WHEREAS, the Lenders have made certain additional optional advances to the Company under (i) the Note in favor of Koyah Leverage in the maximum principal amount of Eight Hundred Thousand Dollars ($800,000) and (ii) the Note in favor of Koyah in the maximum principal amount of Two Hundred Thousand Dollars ($200,000) (collectively, the "Optional Advance Notes"); WHEREAS, the Company and the Lenders also entered into an Additional Advance Agreement dated as of August 18, 2003 (the "Additional Advance Agreement") and the Company executed in favor of Koyah Leverage (as collateral agent for the Lenders) a Stock Pledge Agreement dated as of August 18, 2003 (the "Stock Pledge Agreement"); WHEREAS, in connection with the Additional Advance Agreement, the Lenders have made certain further additional optional advances to the Company under the Optional Advance Notes; WHEREAS, the Company and Lenders also entered into an Amendment Agreement dated as of August 21, 2003 (the "First Amendment Agreement"); WHEREAS, in connection with the First Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes; WHEREAS, the Company and Lenders also entered into a Second Amendment Agreement dated as of September 18, 2003 (the "Second Amendment Agreement"); WHEREAS, in connection with the Second Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes; WHEREAS, the Company and Lenders also entered into a Third Amendment Agreement dated as of September 30, 2003 (the "Third Amendment Agreement"); WHEREAS, in connection with the Third Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes; WHEREAS, the Company and Lenders also entered into a Fourth Amendment Agreement dated as of October 16, 2003 (the "Fourth Amendment Agreement"); WHEREAS, in connection with the Fourth Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes; WHEREAS, the Company and Lenders also entered into a Fifth Amendment Agreement dated as of October 27, 2003 (the "Fifth Amendment Agreement"); WHEREAS, in connection with the Fifth Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes; WHEREAS, the Company and the Lenders also entered into a Sixth Amendment Agreement dated as of November 11, 2003 (the "Sixth Amendment Agreement"); WHEREAS, in connection with the Sixth Amendment Agreement, the Lenders have made further additional optional advances to the Company; WHEREAS, the Company and the Lenders also entered into a Seventh Amendment Agreement dated as of November 25, 2003 (the "Seventh Amendment Agreement"); WHEREAS, in connection with the Seventh Amendment Agreement, the Lenders have made further additional optional advances to the Company; WHEREAS, the Company and the Lenders also entered into a Eighth Amendment Agreement dated as of December 19, 2003 (the "Eighth Amendment Agreement"); WHEREAS, in connection with the Eighth Amendment Agreement, the Lenders have made further additional optional advances to the Company and extended the maturity dates of the Notes to March 31, 2004; WHEREAS, the Company and the Lenders also entered into a Ninth Amendment Agreement dated as of January 8, 2004 (the "Ninth Amendment Agreement"); WHEREAS, in connection with the Ninth Amendment Agreement, the Lenders have made further additional optional advances to the Company; WHEREAS, the Company and the Lenders also entered into a Security Agreement Amendment dated as of January 15, 2004 (the "Security Agreement Amendment"); WHEREAS, in connection with advances to the Company made by Edgar Appleby ("Appleby") and Prudent Bear Fund, Inc. ("Prudent Bear"), the Lenders, Appleby and Prudent Bear entered into an Intercreditor Agreement dated as of January 19, 2004 (the "Intercreditor Agreement") to which the Company was an additional party for purposes of acknowledging the intercreditor arrangements contained therein and agreeing to the obligations of the Company contained therein; WHEREAS, the Company and the Lenders also entered into a Tenth Amendment Agreement dated as of March 10, 2004 (the "Tenth Amendment Agreement"); WHEREAS, in connection with the Tenth Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes; WHEREAS, the Company and the Lenders also entered into an Eleventh Amendment Agreement dated as of March 11, 2004 (the "Eleventh Amendment Agreement"); WHEREAS, in connection with the Eleventh Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes; WHEREAS, the Company and the Lenders also entered into an Twelfth Amendment Agreement dated as of March 18, 2004 (the "Twelfth Amendment Agreement"); WHEREAS, in connection with the Twelfth Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes; WHEREAS, the Company and the Lenders also entered into an Thirteenth Amendment Agreement dated as of April 5, 2004 (the "Thirteenth Amendment Agreement"); WHEREAS, in connection with the Thirteenth Amendment Agreement, (i) the Lenders have made further additional optional advances to the Company and extended the maturity date of the Notes to April 30, 2004, (ii) the Lenders and the Company entered into certain other amendments of the Notes and related arrangements and (iii) the Company issued to each Lender a Warrant dated as of April 5, 2004 (collectively, the "Warrrants"); WHEREAS, the Lenders and the Company originally contemplated that prior to the original initial maturity date of the Notes of October 24, 2003 or at least the original outside maturity date of the Notes of January 24, 2004, the obligations of the Company to the Lenders under the Notes and the other Transaction Documents (as defined below) would be satisfied through completion of a debt or equity financing, which the Lenders had rights to convert into, at a twenty percent (20%) discount as set forth in the Notes, and that additional optional advances to the Company by the Lenders would not be required; WHEREAS, the Company failed to complete such debt or equity financing by either such original initial or outside maturity date; WHEREAS, as a result of the Company's inability to complete such debt or equity financing by such original initial or outside maturity date, the Company needed several rounds of additional financing before such original initial or outside maturity date in order to continue operations, which the Lenders provided at the request of the Company as referenced above; WHEREAS, the Company also requested an extension of the maturity date of the Notes to March 31, 2004, which the Lenders granted as referenced above; WHEREAS, the Lenders and the Company still contemplated that prior to the extended maturity date of the Notes of March 31, 2004, the obligations of the Company under the Notes and the other Transaction Documents would be satisfied through completion of a debt or equity financing, which the Lenders had rights to convert into at the same discount; WHEREAS, the Company again failed to complete such debt or equity financing by such extended maturity date and was in default under the Notes; WHEREAS, as a result of the Company's inability to complete such debt or equity financing by such extended maturity date, the Company needed several more rounds of additional financing before such extended maturity date in order to continue operations, which the Lenders provided in part and facilitated as to the remainder (through the collateral sharing and other intercreditor arrangements of the Intercreditor Agreement which were conditions of Appleby and Prudent Bear for making their advances), at the request of the Company as referenced above; WHEREAS, in connection with a prior failed attempt of the Company to obtain such debt or equity financing, the Company, the Lenders, Appleby and Prudent Bear entered into a Note Repayment and Waiver Agreement dated as of March 30, 2004 (the "Note Repayment and Waiver Agreement"); WHEREAS, the Company failed to make certain payments to the Lenders, Appleby and Prudent Bear required under the Note Repayment and Waiver Agreement by March 31, 2004 (as extended to April 1, 2004) and was in default under the Note Repayment and Waiver Agreement; WHEREAS, the obligations of the Lenders, Appleby and Prudent Bear under the Note Repayment and Waiver Agreement were only agreed to by them in order to bring an immediate resolution of the situation and were specifically conditioned upon receipt of such payments by such date; WHEREAS, the obligations of the Lenders, Appleby and Prudent Bear (but not the Company) under the Note Repayment and Waiver Agreement have therefore terminated and ceased to be of any further force or effect; WHEREAS, the Company also requested a further extension of the maturity date of the Notes to April 30, 2004, which the Lenders granted as referenced above; WHEREAS, the Lenders and the Company still contemplated that prior to the further extended maturity date of the Notes of April 30, 2004, the obligations of the Company under the Notes and the other Transaction Documents would be satisfied through completion of a debt or equity financing, which the Lenders had rights to convert into at the same discount; WHEREAS, as a result of the Company's inability to complete such debt or equity financing by such further extended maturity date, the Company needed several more rounds of additional financing before such further extended maturity date in order to continue operations, which the Lenders provided in part, at the request of the Company as referenced above; WHEREAS, the Lenders have ended up (i) making substantial additional advances to the Company that were not originally contemplated, (ii) total advances far in excess of the maximum amount of advances originally contemplated and (iii) as a result of several extensions of the maturity date, advances for a substantially longer term than originally contemplated, all in periods of increasing uncertainty about the Company; WHEREAS, as a result thereof, the Lenders have been subjected to increased risk and exposure; WHEREAS, the Company has now requested a further extension of the maturity date of the Notes to May 15, 2004; WHEREAS, in addition to the Notes, the Company has significant other obligations coming due in the immediate future; WHEREAS, the Company has no definite commitment at this time for (i) completing additional financing of a sufficient size and within a sufficient time to meet all of such other immediate obligations or (ii) completing a debt or equity financing of a larger size in the immediate future to effect payment or conversion of the Notes; WHEREAS, in order to continue operations while negotiations proceed on such larger debt or equity financing, the Company has also now requested that the Lenders make still further additional optional advances under the Optional Advance Notes on or around the date hereof in the aggregate principal amount of approximately One Hundred Thousand Dollars ($100,000), in the form of direct advances to the Company; WHEREAS, after making such further additional optional advances under the Optional Advances Notes on or around the date hereof, the aggregate principal amounts advanced under the Optional Advance Notes would be close to the maximum principal amount of the Optional Advance Notes; WHEREAS, the Company has requested that the maximum principal amount of the Optional Advance Notes be increased to (i) cover additional advances in the form of direct payment by the Lenders of certain additional costs and expenses of the Lenders payable by the Company which already have been incurred or later may be incurred and/or (ii) leave room and flexibility for later consideration by the Lenders of additional advances in the form of direct advances to the Company, at the option of the Lenders in their sole discretion; and WHEREAS, the parties are entering into this Agreement to further extend the maturity date of the Notes to May 15, 2004, to increase the maximum principal amount of the Optional Advance Notes, and to provide for related matters, all on the terms and conditions set forth herein. NOW, THEREFORE, for valuable consideration, the receipt of which is hereby acknowledged, the parties do hereby agree as follows:
Under the Securities Exchange Act of 1934
(Amendment No. 2)
Shartsis, Friese & Ginsburg LLP
(415) 421-6500
Authorized to Receive Notices and Communications)
ICM Asset Management, Inc.
(a) X
(b) ______
Instructions) ______
James M. Simmons
(a) X
(b) ______
Instructions) ______
Koyah Ventures, LLC
(a) X
(b) ______
Instructions) ______
Koyah Leverage Partners, L.P.
(a) ______
(b) X
Instructions) ______
Koyah Partners, L.P.
(a) ______
(b) X
Instructions) ______
James M. Simmons
Koyah Ventures, LLC ("Koyah Ventures")
Koyah Partners, L.P. ("Koyah Partners')
(collectively, the "Filers").
601 W. Main Avenue, Suite 600, Spokane, WA 99201.
ICM is an investment adviser registered with the Securities and Exchange Commission and is the investment adviser to investment limited partnerships, including Koyah Leverage and Koyah Partners, and individual client accounts. Mr. Simmons is the president and controlling shareholder of ICM and the manager and controlling owner of Koyah Ventures. Koyah Ventures is the general partner of investment limited partnerships to which ICM is investment adviser, including Koyah Leverage and Koyah Partners.
(1) Includes funds used to purchase shares held by investment limited partnerships of which Koyah Ventures is the general partner, including Koyah Leverage's funds in the amount of $8,212,281.69 and Koyah Partners' funds in the amount of $2,071,580.58.
See Note
See Note
See Note
______________________________________
James M. Simmons
Without limiting the generality of the foregoing, the Company hereby specifically confirms, acknowledges and agrees that, as of the date hereof, the Company owes all such amounts of principal, interest and legal fees and costs and all of its other obligations under the Transaction Documents in full, without any defense, setoff or reduction of any nature whatsoever (including without limitation any claims released under such re-affirmed release).
The Company further confirms, acknowledges and agrees that: (i) as reflected on the First Amendment Agreement through this Agreement, (a) the Lenders have already made substantial additional advances to the Company that were not originally contemplated, (b) the total amount of advances by the Lenders to date are far in excess of the maximum amount of advances originally contemplated, and (c) as a result of several extensions of the maturity date, the advances are for a substantially longer term than originally contemplated, (ii) the Lenders were under no obligation to make such additional advances or grant such extensions and did so to help the Company in a time of need with its tight financial position, (iii) the Lenders have been very accommodating to the Company in this regard, (iv) the Lenders are under no obligation to make any future additional advances or grant any further extensions, (v) the Company has been aware for some time of the need for the Company to line up alterna tive financing sources and put in place alternative financing arrangements, (vi) the Company is and was aware that the Lenders do not intend to make any additional advances or grant any further extensions after this Agreement, (vii) accordingly, the Company is aware that it needs to line up alternative financing sources and put in place alternative financing arrangements quickly, and (viii) it is the Company's sole responsibility to line up alternative financing sources and put in place alternative financing arrangements in amounts, on terms and at times necessary to meet its financing needs.
Without limiting the generality of the foregoing, the Company hereby specifically confirms, acknowledges and agrees that (i) the extension of the maturity date of the Notes pursuant to Section 1 hereof is only being done to give the Company a short-term extension and does not reflect any intent of the Lenders to grant further extensions and (ii) the increase in the maximum principal amount of the Optional Advance Notes pursuant to Section 3 hereof is only being done to (a) cover additional advances in the form of direct payment by the Lenders of certain additional costs and expenses of the Lenders payable by the Company which already have been incurred or later may be incurred and/or (b) leave room and flexibility for possible later consideration by the Lenders of additional advances in the form of direct advances to the Company, at the option of the Lenders in their sole discretion, and does not reflect any intent of the Lenders to make additional advances other than as may be necessa ry to pay such costs and expenses of the Lenders.
Such representations and warranties by the Company include, among others, a representation and warranty that the execution, delivery and performance by the Company of this Agreement and the other Transaction Documents and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company's Board of Directors. As a further assurance to the Lenders with respect to such representation and warranty, the Company shall deliver to the Lenders, within five (5) business days after the date hereof, evidence satisfactory to the Lenders in their sole discretion of the authorization by the Company's Board of Directors of the execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby. The Company's obligation to deliver such evidence of authorization with respect to this Agreement shall be in addition to the Company's obli gation contained in the Eleventh Amendment Agreement, the Twelfth Amendment Agreement and the Thirteenth Amendment Agreement to deliver similar evidence of authorization with respect to the other Transaction Documents.
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
Attn: Neal Meehan
Koyah Leverage Partners, L.P.
c/o ICM Asset Management, Inc.
601 West Main Avenue, Suite 600
Spokane WA 99201
Attn: Robert Law
Koyah Partners, L.P.
c/o ICM Asset Management, Inc.
601 West Main Avenue, Suite 600
Spokane WA 99201
Attn: Robert Law
[Remainder of Page Intentionally Left Blank]
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first set forth above.
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AURA SYSTEMS, INC. By: Name: Title: |
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KOYAH LEVERAGE PARTNERS, L.P. By: Koyah Ventures LLC, its general partner By: Name: Title: |
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KOYAH PARTNERS, L.P. By: Koyah Ventures LLC, its general partner By: Name: Title: |
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[Signature Page to Fourteenth Amendment Agreement]
I:\Spodocs\28601\00016\agree\00179372.DOC
FIFTEENTH AMENDMENT AGREEMENT
THIS FIFTEENTH AMENDMENT AGREEMENT (this "Agreement") is entered into as of June 3, 2004 between AURA SYSTEMS, INC., a Delaware corporation (the "Company"), and KOYAH LEVERAGE PARTNERS, L.P. ("Koyah Leverage") and KOYAH PARTNERS, L.P. ("Koyah"), each a Delaware limited partnership (collectively, the "Lenders").
WHEREAS, in connection with loans to the Company by the Lenders, the Company and the Lenders entered into an Agreement dated as of July 24, 2003 (as subsequently amended, the "Agreement"), the Company executed in favor of the Lenders four Convertible Promissory Notes dated July 24, 2003 (as subsequently amended, collectively, the "Notes"), and the Company executed in favor of Koyah Leverage Partners, L.P. (as collateral agent for the Lenders) a Security Agreement dated as of July 24, 2003 (as subsequently amended, the "Security Agreement");
WHEREAS, the Company and the Lenders also entered into an Amendment and Waiver Agreement dated as of August 6, 2003 (the "Amendment");
WHEREAS, the Lenders have made certain additional optional advances to the Company under (i) the Note in favor of Koyah Leverage in the maximum principal amount of Eight Hundred Thousand Dollars ($800,000) and (ii) the Note in favor of Koyah in the maximum principal amount of Two Hundred Thousand Dollars ($200,000) (collectively, the "Optional Advance Notes," with the other two Notes being collectively referred to as the "Term Notes");
WHEREAS, the Company and the Lenders also entered into an Additional Advance Agreement dated as of August 18, 2003 (the "Additional Advance Agreement") and the Company executed in favor of Koyah Leverage (as collateral agent for the Lenders) a Stock Pledge Agreement dated as of August 18, 2003 (the "Stock Pledge Agreement");
WHEREAS, in connection with the Additional Advance Agreement, the Lenders have made certain further additional optional advances to the Company under the Optional Advance Notes;
WHEREAS, the Company and Lenders also entered into an Amendment Agreement dated as of August 21, 2003 (the "First Amendment Agreement");
WHEREAS, in connection with the First Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes;
WHEREAS, the Company and Lenders also entered into a Second Amendment Agreement dated as of September 18, 2003 (the "Second Amendment Agreement");
WHEREAS, in connection with the Second Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes;
WHEREAS, the Company and Lenders also entered into a Third Amendment Agreement dated as of September 30, 2003 (the "Third Amendment Agreement");
WHEREAS, in connection with the Third Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes;
WHEREAS, the Company and Lenders also entered into a Fourth Amendment Agreement dated as of October 16, 2003 (the "Fourth Amendment Agreement");
WHEREAS, in connection with the Fourth Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes;
WHEREAS, the Company and Lenders also entered into a Fifth Amendment Agreement dated as of October 27, 2003 (the "Fifth Amendment Agreement");
WHEREAS, in connection with the Fifth Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes;
WHEREAS, the Company and the Lenders also entered into a Sixth Amendment Agreement dated as of November 11, 2003 (the "Sixth Amendment Agreement");
WHEREAS, in connection with the Sixth Amendment Agreement, the Lenders have made further additional optional advances to the Company;
WHEREAS, the Company and the Lenders also entered into a Seventh Amendment Agreement dated as of November 25, 2003 (the "Seventh Amendment Agreement");
WHEREAS, in connection with the Seventh Amendment Agreement, the Lenders have made further additional optional advances to the Company;
WHEREAS, the Company and the Lenders also entered into a Eighth Amendment Agreement dated as of December 19, 2003 (the "Eighth Amendment Agreement");
WHEREAS, in connection with the Eighth Amendment Agreement, the Lenders have made further additional optional advances to the Company and extended the maturity dates of the Notes to March 31, 2004;
WHEREAS, the Company and the Lenders also entered into a Ninth Amendment Agreement dated as of January 8, 2004 (the "Ninth Amendment Agreement");
WHEREAS, in connection with the Ninth Amendment Agreement, the Lenders have made further additional optional advances to the Company;
WHEREAS, the Company and the Lenders also entered into a Security Agreement Amendment dated as of January 15, 2004 (the "Security Agreement Amendment");
WHEREAS, in connection with advances to the Company made by Edgar Appleby ("Appleby") and Prudent Bear Fund, Inc. ("Prudent Bear"), the Lenders, Appleby and Prudent Bear entered into an Intercreditor Agreement dated as of January 19, 2004 (the "Intercreditor Agreement") to which the Company was an additional party for purposes of acknowledging the intercreditor arrangements contained therein and agreeing to the obligations of the Company contained therein;
WHEREAS, the Company and the Lenders also entered into a Tenth Amendment Agreement dated as of March 10, 2004 (the "Tenth Amendment Agreement");
WHEREAS, in connection with the Tenth Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes;
WHEREAS, the Company and the Lenders also entered into an Eleventh Amendment Agreement dated as of March 11, 2004 (the "Eleventh Amendment Agreement");
WHEREAS, in connection with the Eleventh Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes;
WHEREAS, the Company and the Lenders also entered into an Twelfth Amendment Agreement dated as of March 18, 2004 (the "Twelfth Amendment Agreement");
WHEREAS, in connection with the Twelfth Amendment Agreement, the Lenders have made further additional optional advances to the Company under the Optional Advance Notes;
WHEREAS, the Company and the Lenders also entered into an Thirteenth Amendment Agreement dated as of April 5, 2004 (the "Thirteenth Amendment Agreement");
WHEREAS, in connection with the Thirteenth Amendment Agreement, (i) the Lenders have made further additional optional advances to the Company and extended the maturity date of the Notes to April 30, 2004, (ii) the Lenders and the Company entered into certain other amendments of the Notes and related arrangements and (iii) the Company issued to each Lender a Warrant dated as of April 5, 2004 (collectively, the "Warrants");
WHEREAS, the Company and the Lenders also entered into a Fourteenth Amendment Agreement dated as of April 30, 2004 (the "Fourteenth Amendment Agreement");
WHEREAS, in connection with the Fourteenth Amendment Agreement, the Lenders have made further additional optional advances to the Company and extended the maturity date of the Notes to May 15, 2004;
WHEREAS, the Lenders and the Company originally contemplated that prior to the original initial maturity date of the Notes of October 24, 2003 or at least the original outside maturity date of the Notes of January 24, 2004, the obligations of the Company to the Lenders under the Notes and the other Transaction Documents (as defined below) would be satisfied through completion of a debt or equity financing, which the Lenders had rights to convert into, at a twenty percent (20%) discount as set forth in the Notes, and that additional optional advances to the Company by the Lenders would not be required;
WHEREAS, the Company failed to complete such debt or equity financing by either such original initial or outside maturity date;
WHEREAS, as a result of the Company's inability to complete such debt or equity financing by such original initial or outside maturity date, the Company needed several rounds of additional financing before such original initial or outside maturity date in order to continue operations, which the Lenders provided at the request of the Company as referenced above;
WHEREAS, the Company also requested an extension of the maturity date of the Notes to March 31, 2004, which the Lenders granted as referenced above;
WHEREAS, the Lenders and the Company still contemplated that prior to the extended maturity date of the Notes of March 31, 2004, the obligations of the Company under the Notes and the other Transaction Documents would be satisfied through completion of a debt or equity financing, which the Lenders had rights to convert into at the same discount;
WHEREAS, the Company again failed to complete such debt or equity financing by such extended maturity date and was in default under the Notes;
WHEREAS, as a result of the Company's inability to complete such debt or equity financing by such extended maturity date, the Company needed several more rounds of additional financing before such extended maturity date in order to continue operations, which the Lenders provided in part and facilitated as to the remainder (through the collateral sharing and other intercreditor arrangements of the Intercreditor Agreement which were conditions of Appleby and Prudent Bear for making their advances), at the request of the Company as referenced above;
WHEREAS, in connection with a prior failed attempt of the Company to obtain such debt or equity financing, the Company, the Lenders, Appleby and Prudent Bear entered into a Note Repayment and Waiver Agreement dated as of March 30, 2004 (the "Note Repayment and Waiver Agreement");
WHEREAS, the Company failed to make certain payments to the Lenders, Appleby and Prudent Bear required under the Note Repayment and Waiver Agreement by March 31, 2004 (as extended to April 1, 2004) and was in default under the Note Repayment and Waiver Agreement;
WHEREAS, the obligations of the Lenders, Appleby and Prudent Bear under the Note Repayment and Waiver Agreement were only agreed to by them in order to bring an immediate resolution of the situation and were specifically conditioned upon receipt of such payments by such date;
WHEREAS, the obligations of the Lenders, Appleby and Prudent Bear (but not the Company) under the Note Repayment and Waiver Agreement have therefore terminated and ceased to be of any further force or effect;
WHEREAS, the Company also requested further extensions of the maturity date of the Notes first to April 30, 2004 and then to May 15, 2004, which the Lenders granted as referenced above;
WHEREAS, the Lenders and the Company still contemplated that prior to the further extended maturity dates of the Notes of first April 30, 2004 and then May 15, 2004, the obligations of the Company under the Notes and the other Transaction Documents would be satisfied through completion of a debt or equity financing, which the Lenders had rights to convert into at the same discount;
WHEREAS, as a result of the Company's inability to complete such debt or equity financing by such further extended maturity dates, the Company needed several more rounds of additional financing before such further extended maturity dates in order to continue operations, which the Lenders provided in part, at the request of the Company as referenced above;
WHEREAS, the Lenders have ended up (i) making substantial additional advances to the Company that were not originally contemplated, (ii) total advances far in excess of the maximum amount of advances originally contemplated and (iii) as a result of several extensions of the maturity date, advances for a substantially longer term than originally contemplated, all in periods of increasing uncertainty about the Company;
WHEREAS, as a result thereof, the Lenders have been subjected to increased risk and exposure;
WHEREAS, the Company is in default under the Notes has now requested a further extension of the maturity date of the Notes to June 15, 2004;
WHEREAS, in addition to the Notes, the Company has significant other obligations coming due in the immediate future;
WHEREAS, the Company has no definite commitment at this time for (i) completing additional financing of a sufficient size and within a sufficient time to meet all of such other immediate obligations or (ii) completing a debt or equity financing of a larger size in the immediate future to effect payment or conversion of the Notes;
WHEREAS, in order to continue operations while negotiations proceed on such larger debt or equity financing, the Company has also now requested that the Lenders make still further additional optional advances under the Optional Advance Notes on or around the date hereof in the aggregate principal amount of approximately One Hundred Thousand Dollars ($100,000), in the form of direct advances to the Company;
WHEREAS, prior to making such further additional optional advances under the Optional Advance Notes on or around the date hereof, the aggregate principal amounts outstanding under the Notes (excluding any costs and expenses of the Lenders payable by the Company which have been incurred but not yet been paid) are as follows:
Term Notes |
Aggregate Principal Amount Outstanding |
Koyah Leverage |
$482,077.78 |
Koyah |
$120,519.44 |
Total |
$602,597.22 |
Optional Advance Notes |
Aggregate Principal Amount Outstanding |
Koyah Leverage |
$4,104,838.68 |
Koyah |
$1,026,209.82 |
Total |
$5,131,048.50 |
WHEREAS, after making such further additional optional advances under the Optional Advances Notes on or around the date hereof, the aggregate principal amounts outstanding under the Optional Advance Notes would exceed the maximum principal amount of the Optional Advance Notes;
WHEREAS, the Company has requested that the maximum principal amount of the Optional Advance Notes be increased; and
WHEREAS, the parties are entering into this Agreement to further extend the maturity date of the Notes to June 15, 2004, to increase the maximum principal amount of the Optional Advance Notes, and to provide for related matters, all on the terms and conditions set forth herein.
NOW, THEREFORE, for valuable consideration, the receipt of which is hereby acknowledged, the parties do hereby agree as follows:
The Company hereby re-affirms and re-makes, as of the date hereof, its full and unconditional release contained in Section 6 of the Note Repayment and Waiver Agreement. For purposes of re-affirming such release, the term "Loan Documents" as used in such release shall be replaced with the term "Transaction Documents" as used herein.
Without limiting the generality of the foregoing, the Company hereby specifically confirms, acknowledges and agrees that, as of the date hereof, the Company owes all such principal, interest and other amounts and all of its other obligations under the Transaction Documents in full, without any defense, setoff or reduction of any nature whatsoever (including without limitation any claims released under such re-affirmed release).
The Company further confirms, acknowledges and agrees that: (i) as reflected on the First Amendment Agreement through this Agreement, (a) the Lenders have already made substantial additional advances to the Company that were not originally contemplated, (b) the total amount of advances by the Lenders to date are far in excess of the maximum amount of advances originally contemplated, and (c) as a result of several extensions of the maturity date, the advances are for a substantially longer term than originally contemplated, (ii) the Lenders were under no obligation to make such additional advances or grant such extensions and did so to help the Company in a time of need with its tight financial position, (iii) the Lenders have been very accommodating to the Company in this regard, (iv) the Lenders are under no obligation to make any future additional advances or grant any further extensions, (v) the Company has been aware for some time of the need for the Company to line up alterna tive financing sources and put in place alternative financing arrangements, (vi) the Company is and was aware that the Lenders do not intend to make any additional advances or grant any further extensions after this Agreement, (vii) accordingly, the Company is aware that it needs to line up alternative financing sources and put in place alternative financing arrangements quickly, and (viii) it is the Company's sole responsibility to line up alternative financing sources and put in place alternative financing arrangements in amounts, on terms and at times necessary to meet its financing needs.
Without limiting the generality of the foregoing, the Company hereby specifically confirms, acknowledges and agrees that (i) the extension of the maturity date of the Notes pursuant to Section 1 hereof is only being done to give the Company a short-term extension and does not reflect any intent of the Lenders to grant further extensions, (ii) the increase in the maximum principal amount of the Optional Advance Notes pursuant to Section 3 hereof is only being done to (a) make the additional advances on or around the date hereof, (b) cover further additional advances in the form of direct payment by the Lenders of certain additional costs and expenses of the Lenders payable by the Company which already have been incurred or later may be incurred, and (c) leave room and flexibility for possible consideration by the Lenders of further additional advances to the Company, at the option of the Lenders in their sole discretion, and (iii) does not reflect any intent of the Lenders to make furth er additional advances other than as may be necessary to pay such costs and expenses of the Lenders; it being understood, however, that the Lenders retain the right, in their sole discretion, to grant further extensions or make further additional advances at the request of the Company, based on the then current circumstances.
Such representations and warranties by the Company include, among others, a representation and warranty that the execution, delivery and performance by the Company of this Agreement and the other Transaction Documents and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company's Board of Directors. As a further assurance to the Lenders with respect to such representation and warranty, the Company shall deliver to the Lenders, within five (5) business days after the date hereof, evidence satisfactory to the Lenders in their sole discretion of the authorization by the Company's Board of Directors of the execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby. The Company's obligation to deliver such evidence of authorization with respect to this Agreement shall be in addition to the Company's obli gation contained in the Eleventh Amendment Agreement, the Twelfth Amendment Agreement, the Thirteenth Amendment Agreement and the Fourteenth Amendment Agreement to deliver similar evidence of authorization with respect to the other Transaction Documents.
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
Attn: Neal Meehan
Koyah Leverage Partners, L.P.
c/o ICM Asset Management, Inc.
601 West Main Avenue, Suite 600
Spokane WA 99201
Attn: Robert Law
Koyah Partners, L.P.
c/o ICM Asset Management, Inc.
601 West Main Avenue, Suite 600
Spokane WA 99201
Attn: Robert Law
[Remainder of Page Intentionally Left Blank]
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first set forth above.
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AURA SYSTEMS, INC. By: Name: Title: |
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KOYAH LEVERAGE PARTNERS, L.P. By: Koyah Ventures LLC, its general partner By: Name: Title: |
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KOYAH PARTNERS, L.P. By: Koyah Ventures LLC, its general partner By: Name: Title: |
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[Signature Page to Fifteenth Amendment Agreement]
I:\Spodocs\28601\00016\agree\00184312.DOC
AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into as of June 14, 2004 between AURA SYSTEMS, INC., a Delaware corporation (the "Company"), and KOYAH VENTURES LLC, a Delaware limited liability company (the "Lender").
WHEREAS, the Company has requested that the Lender make loans to the Company;
WHEREAS, in addition to this Agreement, the Company will be executing and delivering a Convertible Promissory Note (the "Note"), a Security Agreement (the "Security Agreement") and a Stock Pledge Agreement (collectively the "Transaction Documents");
WHEREAS, in order to induce the Lender to make such loans and in connection with the Company and the Lender entering into the Transaction Documents, the parties wish to provide for certain related matters, on the terms and conditions set forth herein; and
WHEREAS, the Company has previously entered into certain secured loans with (i) Koyah Partners, L.P., a Delaware limited partnership, and Koyah Leverage Partners, L.P. a Delaware limited partnership, (ii) Prudent Bear Fund, Inc., a Maryland corporation, and (iii) Edgar Appleby, an individual (collectively, the "Prior Lenders").
NOW, THEREFORE, for valuable consideration, the receipt of which is hereby acknowledged, the parties do hereby agree as follows:
1. Representations and Warranties of the Company. The Company hereby represents and warrants to the Lender as follows:
(a) The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of Delaware; (ii) has the power and authority to own, lease and operate its properties and carry on its business as now conducted; and (iii) is duly qualified, licensed to do business and in good standing under any foreign corporation laws in each jurisdiction where the failure to be so qualified or licensed could reasonably be expected to have a material adverse effect on the business, assets, operations, prospects or financial or other condition of the Company.
(b) The execution, delivery and performance of the Transaction Documents by the Company and the performance and consummation by the Company of the transactions contemplated in the Transaction Documents have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize the Transaction Documents or the performance or consummation of any of the transactions contemplated hereby.
(c) The Transaction Documents have been duly executed and delivered by the Company and constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforceability may be limited by bankruptcy and other laws affecting the rights and remedies of creditors generally and general principles of equity.
(d) The Company has taken or will take all necessary corporate action to authorize and reserve for issuance and to permit it to issue, upon conversion of the Note, the shares issuable upon such conversion; all of such shares, upon their issuance and delivery in accordance with the terms of the Note, will be validly issued, fully paid and nonassessable.
(e) The execution and delivery by the Company of the Transaction Documents and the performance and consummation of the transactions contemplated thereby, do not and will not: (i) violate the Company's Articles of Incorporation or Bylaws ("Charter Documents") or any material judgment, order, writ, decree, statute, rule or regulation applicable to the Company; (ii) violate any provision of, or result in the breach or the acceleration of, or entitle any other person or entity to accelerate (whether after the giving of notice or lapse of time or both), any material mortgage, indenture, agreement, instrument or contract to which the Company is a party or by which it is bound; or (iii) result in the creation or imposition of any lien upon any property, asset or revenue of the Company or the suspension, revocation, impairment, forfeiture, or non-renewal of any material permit, license, authorization or approval applicable to the Company, its business or operations, or any of its assets or properties.
(f) No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority or other person or entity (including, without limitation, the shareholders of any person or entity) is required in connection with the execution and delivery of the Transaction Documents by the Company and the performance and consummation of the transactions contemplated thereby.
(g) The Company is not in violation of or in default with respect to: (i) the Charter Documents or any material judgment, order, writ, decree, statute, rule or regulation applicable to the Company; or (ii) any material mortgage, indenture, agreement, instrument or contract to which such person or entity is a party or by which it is bound (nor is there any waiver in effect which, if not in effect, would result in such a violation or default). Notwithstanding the foregoing, the Lender waives any breach of this representation and warranty arising from the existing defaults listed under the heading "Defaults" in the attached Schedule of Exceptions, so long as any creditor involved in such defaults takes no further actions and exercises no further remedies to collect on the obligations involved or enforce its related rights and the Company otherwise remains in compliance with all of the provisions of the Transaction Documents and this Agreement. In addition, the Lender also waives an y breach of this representation and warranty arising from any other defaults referred to in the Company's Form 10-Q for the quarter ended November 30, 2003, so long as any creditor involved in such defaults takes no further actions and exercises no further remedies to collect on the obligations involved or enforce its related rights and the Company otherwise remains in compliance with all of the provisions of the Transaction Documents and this Agreement; it being understood, however, that this waiver is for the purpose of acknowledging the existence of such other defaults and for waiving them under this Section 1(g) only, but this waiver shall not apply to Section 13(b) of the Note or any other provisions of the Transaction Documents or the Lender's rights and remedies with respect to such provisions.
(h) No actions (including, without limitation, derivation actions), suits, proceeds or investigations are pending or, to the knowledge of the Company, threatened against the Company at law or in equity in any court or before any other governmental authority that if adversely determined would: (i) (alone or in the aggregate) have a material adverse effect on the business, assets, operations, prospects or financial or other condition of the Company or (ii) enjoin, either directly or indirectly, the execution, delivery or performance by the Company of the Transaction Documents or the transactions contemplated thereby. Notwithstanding the foregoing, the Lender waives any breach of this representation and warranty arising from any actions or suits referred to in the Company's Form 10-Q for the quarter ended November 30, 2003, so long as any party involved in such actions or suits takes no further actions and exercises no further remedies to collect on the obligations involved or enfo rce its related rights and the Company otherwise remains in compliance with all of the provisions of the Transaction Documents and this Agreement; it being understood, however, that this waiver is for the purpose of acknowledging the existence of such actions or suits and for waiving them under this Section 1(h) only, but this waiver shall not apply to Section 13(b) of the Note or any other provisions of the Transaction Documents or the Lender's rights and remedies with respect to such provisions.
(i) The Company owns and has good and marketable title or a valid leasehold interest in all assets and properties as reflected in the most recent financial statements delivered to the Lender and all assets and properties acquired by the Company since such date, free and clear of liens and encumbrances except for liens in favor of the Prior Lenders. Notwithstanding the foregoing, the Lender waives any breach of this representation and warranty arising from the existing liens listed under the heading "Liens" in the attached Schedule of Exceptions, so long as any creditor holding such lien takes no further actions and exercises no further remedies to collect on the obligations involved or enforce its related rights and the Company otherwise remains in compliance with all of the provisions of the Transaction Documents and this Agreement.
(j) The Company owns or possesses sufficient legal rights to all patents, patent applications, trademarks, service marks, trademark and service mark applications, trade names, copyrights, trade secrets, licenses, information, processes and other intellectual property rights ("Intellectual Property Rights") necessary for its business as now conducted and as proposed to be conducted, free and clear of any liens or encumbrances and without any conflict with, or infringement of the rights of, others.
(k) The financial statements of the Company that have been delivered to the Lender: (i) are in accordance with the books and records of the Company, which have been maintained in accordance with good business practices; (ii) have been prepared in conformity with accounting principles generally accepted in the United States; and (iii) fairly present the consolidated financial position of the Company as of the dates presented therein and the results of operations, changes in financial positions or cash flows, as the case may be, for the periods presented therein. The Company does not have any contingent obligations, liability for taxes or other outstanding obligations that are material in the aggregate, except as disclosed in such financial statements. Since the date of such financial statements, there has been no material adverse change in the financial position, business, operations, assets, liabilities or prospects of the Company, except as listed in the Schedule of Exceptions.
(l) The Company has total assets in excess of $2,000,000 according to its most recent financial statements, which are dated not more than ninety (90) days prior to the date of this Agreement and the loans contemplated hereby and were prepared (i) in accordance with generally accepted accounting principles (and on a consolidated basis if the Company has consolidated subsidiaries) or (ii) in accordance with the rules and requirements of the Securities and Exchange Commission, whether or not required by law to be prepared in accordance with those rules and requirements. The Company, and its officers and directors, have a preexisting business relationship with the Lender.
2. Company Acknowledgements. The Company confirms, acknowledges and agrees that (i) the Security Agreement and the Stock Pledge Agreement secure all of the Company's obligations under the Transaction Documents (ii) the Lender is under no obligation to make any advances to the Company under the Note or to grant any extension of the maturity date of the Note, and (iii) any advances to the Company by the Lender under the Note or any extension by the Lender of the maturity date of the Note, or any other financing of the Company by the Lender or its affiliates, are at the option of the Lender and its affiliates, in their sole discretion.
3. Further Assurance. The representations and warranties of the Company contained in this Agreement include, among others, a representation and warranty that the execution, delivery and performance by the Company of this Agreement and the other Transaction Documents and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company's Board of Directors. As a further assurance to the Lender with respect to such representation and warranty, the Company shall deliver to the Lender, within five (5) business days after request of the Lender, evidence satisfactory to the Lender in its sole discretion of the authorization by the Company's Board of Directors of the execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby and thereby.
4. Survival. The representations and warranties and the covenants of the Company contained in this Agreement shall survive the closing of the transactions contemplated by the Transaction Documents.
5. Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Lender in the case of an amendment and only with the written consent of the waiving party in the case of a waiver.
6. Entire Agreement. This Agreement, together with the other Transaction Documents, constitute the entire agreement of the parties concerning the subject matter hereof and thereof, all prior discussions, proposals, negotiations and understandings having been merged herein and therein.
7. Intercreditor Agreement. The terms and conditions of this Agreement and the other Transaction Documents shall also be governed by and subject to the terms and conditions of an Intercreditor Agreement dated as of January 19, 2004 among the Company and the Prior Lenders, to which the Lender and Raven Partners, L.P. are being added as additional parties pursuant to a Joinder Agreement dated as of the date hereof (collectively, the "Intercreditor Agreement").
8. Successors. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company and the Lender. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective permitted successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
9. Severability. If any part of this Agreement is determined to be illegal or unenforceable, all other parts shall remain in full force and effect.
10. Attorneys' Fees. The Company shall pay the reasonable attorneys' fees, costs and disbursements of the Lender in enforcing any terms of this Agreement, whether or not any action at law or in equity is brought.
11. Governing Law. Consistent with the governing law and venue provisions of the Intercreditor Agreement, this Agreement shall be governed by and construed and interpreted in accordance with the law of the State of Washington, without regard to that state's conflict of laws principles. All disputes between the parties hereto, whether sounding in contract, tort, equity or otherwise, shall be resolved only by state and federal courts located in Spokane, Washington, and the courts to which an appeal therefrom may be taken. All parties hereto waive any objections to the location of the above referenced courts, including but not limited to any objection based on lack of jurisdiction, improper venue or forum non-conveniens. Notwithstanding the foregoing, any party obtaining any order or judgment in any of the above referenced courts may bring an action in a court in another jurisdiction in order to enforce such order or judgment.
12. Miscellaneous. Any notice under this Agreement shall be given in writing and shall be addressed to the party to be notified at the address indicated below, or at such other address as such party may designate by written notice to the other party.
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
Attn: Neal Meehan
Fax: 310-643-8719
Koyah Ventures LLC
c/o ICM Asset Management, Inc.
601 W. Main Avenue, Suite 600
Spokane, WA 99201
Attn: Robert Law
Fax: 509-444-4500
13. Lenders' Attorney Fees and Expenses in Connection with Transaction Documents and Financing Proposals. The Company shall pay the costs and expenses of legal counsel to the Lender in connection with (i) the negotiation, execution and delivery of this Agreement, the Note, the Security Agreement, the Stock Pledge Agreement, and any other related agreements with the Lender as well as the consummation of the transactions contemplated by such agreements, the administration of such agreements and any amendments or waivers of such agreements and (ii) the evaluation, discussion and negotiation by the Lender, as debt or equity holder of the Company, of any financing or similar proposals or expressions of interest involving the Company which previously have been, currently are or subsequently may be made or advanced by Dean Greenberg, Universal Credit, LLC or any other persons or entities (including the Lender or its affiliates) and the negotiation, execution and delivery of any related agreements as well as the consummation of the transactions contemplated thereby. The Company shall pay such costs and expenses immediately upon submittal, and the Lender may apply any retainer held by them or their legal counsel against such costs and expenses. Alternatively, the Lender may deduct some or all of such costs and expenses from the proceeds of the loan from the Lender when disbursing such loan and/or pay such costs and expenses directly and then the amounts so paid shall constitute additional amounts payable by the Company under this Agreement and the Notes and bear interest at the rate set forth in the Note. Notwithstanding that the Company is paying such costs and expenses, the Company acknowledges and agrees that such legal counsel is representing only the Lender, and not the Company.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first set forth above.
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AURA SYSTEMS, INC. By: Name: Title: |
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KOYAH VENTURES LLC By: Name: Title:
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I:\Spodocs\28601\00016\agree\00185768.DOC.cmh
Schedule of Exceptions
Liens
1. El Seguendo real property and facilities are subject to a security interest related to mortgage financing and a pending sale/leaseback transaction.
2. Note receivable for approximately $1,000,000 under Alpha Ceramics purchase agreement has been assigned as collateral to the purchasers in such sale/leaseback transaction.
3. The Plaintiffs in Arthur Schwatz v. Aura Systems, Inc. received a Writ of Attachment to collect a portion of their judgment. On May 3, 2004, the Plaintiffs used this Writ to effect a levy against the Company's primary bank account and received approximately $191,689. On May 11, 2004, Plaintiffs returned those funds to the Company without relinquishing their rights under the Writ. On June 7, 2004, the Plaintiff and the Company entered an Agreed Judgment in this case with a 45 day delayed effective date.
Defaults
1. Shareholder litigation (Barovich/Chiu et al ) judgment settlement for approximately $789,000 is in default. In April of 2003, this creditor served Writs of Execution against one of the Company's bank accounts but has taken no further action.
2. Convertible notes issued in August October 2002 for a total principal amount of $625,000 are or may be in default.
3. The $1,000,000 Note Payable to the purchasers in the sale/leaseback transaction, dated December 1, 2002, became due and payable on May 30, 2004.
Financial Statements
1. The long-term note receivable from Alpha Ceramics was assigned to the Purchasers in the Sale/Leaseback Agreement, dated December 1, 2002, as disclosed in the footnotes and MD&A of recent public filings (see Liens Note 2 above); however, this receivable was included on the balance sheet in the most recent financial statements.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION, (B) THE TRANSFER IS MADE IN ACCORANCE WITH RULE 144 UNDER SUCH ACT, (C) THE BORROWER RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THE NOTE (CONCURRED IN BY LEGAL COUNSEL FOR THE BORROWER) STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (D) THE BORROWER OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.
CONVERTIBLE PROMISSORY NOTE
Principal Amount: $300,000 Spokane, Washington
Interest Rate: 10% June 14, 2004
FOR VALUE RECEIVED, the undersigned, AURA SYSTEMS, INC., a Delaware corporation ("Borrower"), hereby promises to pay to the order of KOYAH VENTURES LLC, a Delaware limited liability company ("Lender"), at such places and times and under the terms and conditions set forth below, the lesser of (i) the maximum principal amount of this Convertible Promissory Note (this "Note") set forth above and (ii) the aggregate principal amount advanced by Lender at its option from time to time under this Note, together with interest thereon and any other amounts set forth herein.
Borrower shall give Lender ten (10) business days prior written notice of each such financing, including the terms and conditions thereof. Upon any tender of payment of this Note by Borrower, Lender shall have five (5) business days thereafter to elect either acceptance of such payment instead of conversion or exercise of its conversion right, in whole or in part. In the event Lender fails to make such election within by such date, Lender shall be deemed to have elected acceptance of payment instead of conversion, provided that the payment tendered is the full amount owing under this Note (including without limitation the fee set forth in Section 3 of this Note). If Lender does so elect conversion of this Note, in whole or in part, Lender shall refund to Borrower the fee set forth in Section 3 of this Note which was included in such tendered payment. Any exercise of such conversion right shall be at the option of Lender, in its sole discretion. Lender may exercise such conversion r ight by providing written notice of exercise to Borrower, together with delivery of this Note to the Company for surrender. In the event of any stock splits, stock dividends, recapitalizations or similar events after the date of such financing but prior to the date of conversion, then the number and kind of debt or equity securities issuable upon conversion shall be appropriately adjusted. Such conversion shall be effective immediately upon giving such notice and as of such date Lender shall be treated for all purposes as the holder of the debt or equity securities or instruments issuable upon conversion.
As soon as practicable after such conversion, Borrower, at its expense, shall cause to be issued in the name of and delivered to Lender the debt or equity securities or instruments to which Lender shall be entitled upon such conversion. Upon a partial conversion of this Note, this Note shall be surrendered by Lender and replaced with a new Note of like tenor for the remaining balance of the Note surrendered. The new Note shall be delivered to Lender as soon as practicable after such partial conversion. No fractional shares of stock shall be issued upon such conversion. If upon such conversion a fractional share results, the number of shares to be issued upon conversion shall be rounded upwards or downwards to the nearest whole number.
(d) Lender shall fail to have a valid perfected security interest in any of the collateral covered by the Security Agreement, a valid security interest in the any of the collateral covered by the Stock Pledge Agreement or a perfected security interest in any of the collateral covered by the Stock Pledge Agreement after delivery thereof to Lender or its agent or designee.
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
Attn: Neal Meehan
Fax: 310-643-8719
Koyah Ventures LLC
c/o ICM Asset Management, Inc.
601 W. Main Avenue, Suite 600
Spokane, WA 99201
Attn: Robert Law
Fax: 509-444-4500
(e) Borrower and Lender intend to comply at all times with applicable usury laws. If at any time such laws would render usurious any amounts due under this Note under applicable law, then it is Borrower's and Lender's express intention that Borrower not be required to pay interest on this Note at a rate in excess of the maximum lawful rate, that the provisions of this section shall control over all other provisions of this Note which may be in apparent conflict hereunder, that such excess amount shall be immediately credited to the principal balance of this Note, and the provisions hereof shall immediately be reformed and the amounts thereafter decreased, so as to comply with the then applicable usury law, but so as to permit the recovery of the fullest amount otherwise due under this Note.
(f) This Note may be transferred or assigned by Lender in whole or in part if, on Borrower's reasonable request, Lender provides an opinion of counsel reasonably satisfactory to Borrower that such transfer does not require registration under the Securities Act of 1933, as amended, and applicable state securities law, except that this Note may be transferred by a Lender which is a partnership or limited liability company to a partner, former partner, member, former member or other affiliate of such partner or limited liability company, as the case may be, if (i) the transferee agrees in writing to be subject to the terms of this Note and (ii) Lender delivers notice of such transfer to Borrower. Any rights and obligations of Borrower and Lender under this Note shall be binding upon and inure to the benefit of their respective permitted successors, assigns, heirs, administrators and transferees.
(g) If at any time the number of authorized but unissued shares of Borrower shall not be sufficient to effect the conversion of this Note, Borrower will take all such corporate action as may be necessary to increase its authorized but unissued shares to such number of shares as shall be sufficient for such purpose. The parties acknowledge that Borrower currently does not have any authorized but unissued shares of its common stock available for issuance and Borrower hereby agrees to use its best efforts to take action to call a shareholder meeting and increase its authorized but unissued common stock as soon as practicable.
(h) Any term of this Note may be amended and the observance of any term of this Note may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of Borrower and Lender in the case of an amendment and only with the written consent of the waiving party in the case of a waiver.
(i) All shares issued upon conversion of this Note shall be validly issued, fully paid and non-assessable, and Borrower shall pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery thereof. Borrower shall not be required to pay any transfer tax or other similar charge imposed in connection with any transfer involved in the issuance of any certificate for shares in any name other than that of Lender.
(j) Borrower will not, by amendment of its Certificate of Incorporation or Bylaws, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Lender under this Note against impairment. Without limiting the generality of the foregoing, Borrower (i) will not increase the par value of any shares issuable upon conversion of this Note above the amount payable therefore upon such exercise, and (ii) will take all such action as may be necessary or appropriate in order that Borrower may validly and legally issue fully paid and non-assessable shares upon conversion of this Note.
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ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its corporate name by its duly authorized officer and dated the day and year first above written.
AURA SYSTEMS, INC.
By:
Name:
Title:
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SCHEDULE OF EXCEPTIONS
1. Shareholder litigation (Barovich/Chiau et al) judgment settlement for approximately $789,000 is in default. In April 2003, this creditor served Writs of Execution against the Company's bank accounts but has taken no further action.
2. Convertible notes payable, issued in August October 2002 for a total principal amount of $625,000 are in default.
3. The $1,000,000 Note Payable to purchasers in a sale/leaseback transaction, dated December 1, 2002, became due and payable on May 30, 2004.
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is entered into as of June 14, 2004, by AURA SYSTEMS, INC. a Delaware corporation (the "Debtor"), for the benefit of KOYAH VENTURES LLC, a Delaware limited liability company (the "Secured Party").
R E C I T A L S :
NOW, THEREFORE, the Debtor hereby agrees with the Secured Party as follows:
ARTICLE I. DEFINITIONS
Unless otherwise defined herein, any terms used herein (whether or not capitalized, such as "accounts," "inventory" and "equipment") which are defined in the Uniform Commercial Code as enacted in the State of Washington, as amended from time to time, shall have the meaning assigned to such term therein. Unless otherwise defined herein, any capitalized terms used herein which are defined in the Note shall have the meaning assigned to them therein. In addition, the following terms shall have the meaning set forth below:
"Collateral" means all of the Debtor's personal property and fixtures of every nature whether tangible or intangible and whether now owned or hereafter acquired, wherever located, including without limitation the following:
(i) (a) All goods; (b) all inventory, merchandise, and personal property held for sale or lease or furnished or to be furnished under contracts of service, all raw materials, work in process, or materials used or consumed in Debtor's business, wherever located and whether in the possession of the Debtor, a warehouseman, a bailee, or any other person; (c) all equipment, machinery, tools, office equipment, supplies, furnishings, furniture, or other items used or useful, directly or indirectly, in the Debtor's business, (d) all fixtures; and (e) all substitutes and replacements therefore, all accessions, attachments, and other additions thereto, all tools, parts and supplies used in connection therewith, all packaging, manuals, warranties and instructions related thereto, and all leasehold or equitable interests therein;
(ii) (a) All accounts, accounts receivable, contract rights, contracts receivable, purchase orders, notes, drafts, acceptances, and other rights to payment and receivables; (b) all chattel paper (whether tangible or electronic), documents and instruments (including promissory notes); (c) all money and deposit accounts; (d) all letter of credit rights (whether or not the letter of credit is evidenced by a writing), rights under security, guaranties or other supporting obligations, tort claims and proceeds, insurance claims and proceeds, and tax refund claims and proceeds; (e) all securities and other investment property; (f) all general intangibles and payment intangibles, (g) all patents and patent applications and registrations, trademarks and trademark applications and registrations, service marks and service mark applications and registrations, and copyrights and copyright applications and registrations (collectively the "Patents, Trademarks and Copyrights"), including without limitation the patents, patent applications, trademarks and trademark applications and copyrights and copyright applications owned by the Debtor on Schedule 1 hereto, or licensed to the Debtor on Schedule 2 hereto; (h) all trade names, trade styles, goodwill, inventions, designs, methods, processes, technology, know-how, intellectual property, drawings, specifications, blue prints, confidential information, trade secrets, customer lists, supplier lists, software and computer programs, mask works, and mask work applications and registrations, goodwill, license agreements, franchise agreements and other licenses, permits, franchises, and agreements of every kind and nature pursuant to which the Debtor possesses, uses or has authority to possess or use any property (whether tangible or intangible) of the Debtor or pursuant to which others possess, use or have authority to possess or use any property (whether tangible or intangible) of the Debtor, and infringement and commercial tort claims; a nd (i) all business records, software, writings, plans, specifications, schematics, and other recorded data in any form; and
(iii) All products and proceeds of the foregoing and all other property received or receivable in disposition of or exchange of the foregoing.
"Event of Default" means any default in payment or performance of the Obligations.
"Obligations" means any and all obligations and liabilities of every nature of the Debtor to the Secured Party, whether now existing or hereafter incurred, including without limitation those arising out of or in connection with the Note, this Agreement or any other agreements with the Secured Party. The Obligations shall specifically include any and all principal, interest (including without limitation interest that, but for the filing of a petition in bankruptcy, would accrue on such obligations), fees, expenses, indemnities or other obligations or liabilities, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created, or incurred, as well as any and all of such obligations or liabilities that are paid, to the extent such payment is avoided or recovered directly or indirectly from the Secured Party as a prefere nce, fraudulent transfer, or otherwise, together with any and all amendments, modifications, extensions or renewals of the foregoing.
ARTICLE II. GRANT OF SECURITY INTEREST
To secure the payment and performance of the Obligations, the Debtor hereby grants a continuing security interest in the Collateral, and assigns the Collateral, to the Secured Party. Such security interest of the Secured party is (i) junior to the first-priority security interest previously granted to the Koyah Collateral Agent, and (ii) junior to the second-priority security interests granted in favor of Appleby and Prudent Bear, and subject to the terms and conditions of the Intercreditor Agreement (as defined below).
ARTICLE III. COVENANTS OF THE DEBTOR
The Debtor shall fully perform each of the covenants set forth below.
3.1 Further Documentation
Promptly upon request of the Secured Party and at the Debtor's expense, the Debtor (a) shall prepare, execute, deliver and file any financing statement, any filing with the Patent and Trademark Office, Copyright Office or other applicable office, and any renewal, substitution or correction thereof or any other document and shall take any such further action as the Secured Party may require in perfecting or protecting the security interested granted by the Debtor under this Agreement or in otherwise obtaining the full benefits of this Agreement and (b) authorizes the Secured Party to prepare, execute, deliver and file any such documents and to take any such actions on behalf of the Debtor.
3.2 Patents, Trademarks and Copyrights
Schedule 1 lists all Patents, Trademarks and Copyrights currently owned by the Debtor. Promptly upon any change in the Patents, Trademarks and Copyrights owned by the Debtor, the Debtor shall provide the Secured Party with an updated Schedule 1 listing all Patents, Trademarks and Copyrights then owned by the Debtor. Schedule 2 lists all Patents, Trademarks and Copyrights currently licensed to the Debtor by third parties. Promptly upon any change in the Patents, Trademarks and Copyrights licensed to the Debtor, the Debtor shall provide the Secured Party with an updated Schedule 2 listing all Patents, Trademarks and Copyrights then licensed to the Debtor.
3.3 Pledges
Following (i) payment of all obligations owed to Koyah and release of the Koyah Collateral Agent's security interest in the Collateral and (ii) payment of all obligations owed to Appleby and Prudent Bear and release of the security interests granted in favor of Appleby and Prudent Bear, upon request of the Secured Party and at Debtor's expense, the Debtor shall promptly deliver and pledge to the Secured Party, endorsed or accompanied by instruments of assignment or transfer satisfactory to the Secured Party, any Collateral consisting of instruments, investment property, documents, general intangibles or chattel paper.
3.4 Control
Following (i) payment of all obligations owed to Koyah and release of the Koyah Collateral Agent's security interest in the Collateral and (ii) payment of all obligations owed to Appleby and Prudent Bear and release of the security interests granted in favor of Appleby and Prudent Bear, upon request of the Secured Party and at Debtor's expense, the Debtor shall cooperate with the Secured Party in obtaining control with respect to any Collateral consisting of deposit accounts, investment property, letter of credit rights and electronic chattel paper.
3.5 Maintenance of Records
The Debtor shall keep and maintain satisfactory and complete records of the Collateral including but not limited to a record of all payments received and all credits granted with respect to the Collateral and all other dealings with the Collateral. The Debtor shall mark its books and records pertaining to the Collateral to evidence this Agreement and the security interest granted herein. Promptly upon request of the Secured Party, the Debtor shall deliver and turn over to the Secured Party copies of all books and records pertaining to the Collateral.
3.6 Liens
Except for (i) existing licenses of Patents, Trademarks and Copyrights by the Debtor to third parties set forth on Schedule 3 and (ii) liens in favor of the Koyah Collateral Agent, Appleby and Prudent Bear or liens in favor of other parties named in the Intercreditor Agreement (as defined below), the Debtor owns the Collateral free and clear of liens, charges, pledges, security interests, encumbrances or other claims or interests in the Collateral, and the Debtor will neither create nor permit the existence of any of the foregoing without the prior written consent of the Secured Party. Notwithstanding the foregoing, the Secured Party hereby waives any breach of the covenant set forth above arising from the existing liens set forth on Schedule 4, so long as the Debtor otherwise remains in compliance with all of the provisions of the Transaction Documents (as defined in the Agreement dated as of the date hereof between the Debtor and the Secured Party) and this Agreement.
3.7 Disposition of Collateral
The Debtor shall not sell, license, lease, transfer or otherwise dispose of any of the Collateral without the prior written consent of the Secured Party, except for sales of inventory, collection of rights to payment, and disposition of equipment or inventory which is obsolete or being replaced, all in the ordinary course of business in accordance with past practices.
3.8 Limitations on Amendments, Modifications, Terminations, Waivers and Extensions of Contracts and Agreements Giving Rise to Accounts
Without the prior written consent of Secured Party, the Debtor will not (a) amend, modify, terminate, waive or extend any provision of any agreement giving rise to an account, general intangible, instrument, chattel paper or other right to payment, licensing any Patents, Trademarks or Copyrights to the Debtor or by the Debtor or otherwise relating to the Collateral, in any manner that could reasonably be expected to have a material adverse effect on the value of any Collateral or (b) fail to exercise promptly and diligently every material right that it may have under each such agreement, other than any right of termination (which shall only be exercised with the prior written consent of the Secured Party).
3.9 Indemnification
The Debtor agrees to pay, and to indemnify the Secured Party and hold the Secured Party harmless from, all liabilities, costs and expenses (including legal fees and expenses) in connection with protecting or realizing on the Collateral, enforcing any rights or remedies of the Secured Party or otherwise arising out of this Agreement. In any suit, proceeding or action brought by the Secured Party under any account or other right to payment to enforce payment of any sum owing thereunder or to enforce any provisions of any account or other right to payment, the Debtor will indemnify the Secured Party and hold the Secured Party harmless from all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment, reduction or liability whatsoever of any account debtor thereunder arising out of a breach by the Debtor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or its successors from the Debtor.
3.10 Further Identification of Collateral
The Debtor will furnish to the Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Secured Party may request, all in reasonable detail.
3.11 Notices
The Debtor will advise the Secured Party promptly in reasonable detail (a) of any lien, charge, pledge, security interest, encumbrance or other claim or interest asserted against any of the Collateral and (b) of the occurrence of any other event that could reasonably be expected to have a material adverse effect on the Collateral.
3.12 Changes in Locations, Name, Etc.
The Debtor will not (a) change its state of organization, (b) change the location of its chief executive office/chief place of business or remove its books and records from the locations set forth in Schedule 5 to this Agreement or (c) change its name, identity or structure to such an extent that any financing statement filed by the Secured Party in connection with this Agreement would become ineffective or seriously misleading, unless it shall have given the Secured Party at least 30 days prior written notice thereof.
3.13 Further Assurances
The Debtor agrees to take all actions which the Secured Party may request to perfect or maintain the perfection of, or to otherwise protect, the security interest granted herein and the Debtor authorizes the Secured Party to take such actions on behalf of the Debtor, including without limitation (a) filing (including electronic or facsimile filing) financing statements describing the Collateral, which may include descriptions broader than as set forth in this Agreement and (b) filing any documents with the Patent and Trademark Office, Copyright Office or any other applicable office. The Debtor agrees that where allowed by law, a carbon, photographic or other reproduction of a financing statement or this Agreement is sufficient as a financing statement.
3.14 Insurance
The Debtor (a) will keep the Collateral continuously insured at its expense against fire, theft, and other hazards in amounts and with insurers as shall be sufficient to fully protect the Collateral, as reasonably approved by the Secured Party, (b) will include in such policies of insurance to the Secured Party clauses making any loss payable to the Secured Party as its interest may appear and agreeing to notify Secured Party of any cancellation or threatened cancellation not less than 30 days prior to the effective date of such cancellation and (c) will deliver copies of such policies of insurance to the Secured Party upon request.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
The Debtor hereby makes the following representations and warranties:
4.1 Title to Collateral
Except for liens in favor of the Koyah Collateral Agent, Appleby, Prudent Bear, or liens in favor of other parties named in the Intercreditor Agreement, the Debtor has good and marketable title to all of the Collateral, free and clear of all liens, charges, pledges, security interests, encumbrances or other claims or interests. Notwithstanding the foregoing, the Secured Party hereby waives any breach of the representation and warranty set forth above arising from the existing liens set forth on Schedule 4, so long as the Debtor otherwise remains in compliance with all of the provisions of the Transaction Documents and this Agreement.
4.2 No Impairment of Collateral
None of the Collateral shall be impaired or jeopardized because of the security interest granted herein.
4.3 Other Agreements
The execution and delivery of this Agreement, the consummation of the transactions provided for herein, and the fulfillment of the terms hereof will not result in the breach of any of the terms, conditions, or provisions of, or constitute a default under, or conflict with or cause any acceleration of any obligation under any agreement or other instrument to which the Debtor is a party or by which the Debtor is bound or result in the violation of any applicable law.
4.4 No Approvals
No approvals of any governmental entity or third party are required in connection with the security interest herein granted.
4.5 Authority
The Debtor has full power and authority to grant to the Secured Party a security interest in the Collateral.
4.6 Location of Records
The address(es) of the office where the books and records of the Debtor are kept concerning the Collateral is set forth on Schedule 5 to this Agreement.
4.7 State of Organization
The Debtor's state of organization is set forth on Schedule 5 to this Agreement.
4.8 Chief Executive Office
The Debtor's chief executive office and chief place of business is located at the address set forth on Schedule 5 to this Agreement.
4.9 Trade Names
The Debtor conducts its business only under its legal name except for any additional trade names set forth on Schedule 5 to this Agreement.
ARTICLE V. THE SECURED PARTY'S RIGHTS WITH RESPECT TO THE COLLATERAL
5.1 No Duty on the Secured Party's Part
The Secured Party shall not be required to realize upon any Collateral, except at its option upon the occurrence of any Event of Default; collect the principal, interest or payment due thereon or exercise any rights or options of the Debtor pertaining thereto; make presentment, demand or protest; give notice of protest, nonacceptance or nonpayment; or do any other thing for the protection, enforcement or collection of any Collateral. The powers conferred on the Secured Party hereunder are solely to protect the Secured Party's interests in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers. The Secured Party shall be accountable only for amounts that it actually received as a result of the exercise of such powers; and shall not be responsible to the Debtor for any act or failure to act hereunder.
5.2 Negotiations with Account Debtors
Upon the occurrence of any Event of Default, the Secured Party may, in its sole discretion, extend or consent to the extension of the time of payment or maturity of any instruments, accounts, chattel paper, general intangibles or other rights to payment.
5.3 Right to Assign
The Secured Party may assign or transfer the whole or any part of the Obligations and may transfer therewith as collateral security the whole or any part of the Collateral; and all obligations, rights, powers and privileges herein provided shall inure to the benefit of the assignee and shall bind the successors and assigns of the parties.
5.4 Duties Regarding Collateral
Beyond the safe custody thereof, the Secured Party shall not have any duty as to any Collateral in its possession or control, or as to any preservation of any rights of or against other parties.
5.5 Collection From Account Debtors
Upon the occurrence of any Event of Default, the Debtor shall, upon demand by the Secured Party (and without any grace or cure period), notify all account debtors to make payment to the Secured Party of any amounts due or to become due. The Debtor authorizes the Secured Party to contact the account debtors for the purpose of having all or any of them pay their obligations directly to the Secured Party. Upon demand by the Secured Party, the Debtor shall enforce collection of any indebtedness owed to it by account debtors.
5.6 Inspection
The Secured Party and its designees, from time to time at reasonable times, may inspect, audit and make copies of and extracts from all records and all other papers in the possession of the Debtor in connection with the Collateral.
ARTICLE VI. THE SECURED PARTY'S RIGHTS AND REMEDIES
6.1 Acceleration; Remedies
Upon the occurrence of any Event of Default, the Secured Party shall have all rights and remedies available to it under the Note, this Agreement, and any other documents or agreements or available at law or in equity, including without limitation the Uniform Commercial Code. The Secured Party may proceed to enforce any or all of such rights and remedies or realize on any or all security or guaranties for the Obligations in any manner or order it deems expedient without regard to any equitable principles of marshaling or otherwise. No failure or delay on the part of the Secured Party in exercising any right, power or privilege hereunder and no course of dealing shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any right, power or privilege. The rights and remedies of the Secured Party are cumulative and not exclusive of any rights or remedies that the Se cured Party would otherwise have. No notice to or demand on the Debtor, in any case, shall entitle the Debtor to any other or further notice or demand in similar or other circumstances or shall constitute a waiver of the right of the Secured Party to any other or further action in any circumstances without notice or demand.
6.2 Notice of Sale
The Debtor hereby acknowledges and agrees that written notice mailed to the Debtor at the address designated herein ten days prior to the date of public or private sale of any of the Collateral shall constitute commercially reasonable notice.
6.3 Disposition of Collateral
In addition to all other rights and remedies available to the Secured Party upon the occurrence of an Event of Default, the Secured Party may dispose of any of the Collateral at public or private sale in its then present condition or following such preparation and processing as the Secured Party deems commercially reasonable. Such sale may include licensing of the Collateral on an exclusive or non-exclusive basis, on a worldwide or geographically limited basis and on an all-uses or limited uses basis. For the purpose of enabling the Secured Party to exercise its rights and remedies hereunder, the Debtor hereby grants to the Secured Party an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Debtor) to use, license or sub-license any of the Collateral, including in such license access to all media in which any of the Collateral may be recorded or stored and to all computer software and programs used for the compilation or printout the reof. The Secured Party has no duty to prepare or process the Collateral prior to sale. The Secured Party may disclaim warranties of title, possession, quiet enjoyment and the like. Such actions by the Secured Party shall not affect the commercial reasonableness of the sale. Further, the Secured Party may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.
6.4 Rights of Other Creditors
The security interest of the Secured Party and the rights of the Secured Party upon the occurrence of any Event of Default or otherwise under this Agreement shall be subject to the senior first-priority security interest of the Koyah Collateral Agent, the senior second-priority security interest in favor of Appleby and Prudent Bear and the rights of the Koyah Collateral Agent, Appleby and Prudent Bear upon the occurrence of any event of default or otherwise under their security documents.
ARTICLE VII. GENERAL PROVISIONS
7.1 The Secured Party's Appointment as Attorney-in-Fact
(a) The Debtor hereby irrevocably constitutes and appoints the Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Debtor and in the name of the Debtor or in its own name, from time to time in the Secured Party's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or desirable to accomplish the purposes of this Agreement; and without limiting the generality of the foregoing, the Debtor hereby gives the Secured Party the power and right, on behalf of the Debtor, without consent by or notice to the Debtor, to do the following:
(i) upon the occurrence of any Event of Default, to transfer to the Secured Party or to any other person all or any of the Collateral, to endorse any instruments pledged to the Secured Party and to fill in blanks in any transfers of Collateral, powers of attorney or other documents delivered to the Secured Party;
(ii) to pay or discharge taxes and liens levied or placed on or threatened against the Collateral;
(iii) upon the occurrence of any Event of Default, (A) to take possession of, endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any account, instrument or general intangible or with respect to any other Collateral and (B) to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Secured Party for the purpose of collecting all such moneys due under any account, financial assets, instrument, investment property, or general intangible or with respect to any other Collateral whenever payable; and
(iv) upon the occurrence of any Event of Default, (A) to direct any party liable for any payment under any of the Collateral to make payment of all moneys due or to become due thereunder directly to the Secured Party or as the Secured Party shall direct; (B) to ask for, demand, collect and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against the Debtor with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharge or releases as the Secured Party may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Secured Party were the absolute owner thereof for all purposes; and to do, at the Secured Party's option and the Debtor's expense, at any time or from time to time, all acts and things that the Secured Party deems necessary to protect, preserve or realize upon the Collateral and the Secured Party's security interest therein and to effect the intent of this Agreement, all as fully and effectively as the Debtor might do.
(b) The Debtor hereby ratifies all that such attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable.
(c) The Debtor also authorizes the Secured Party, at any time and from time to time, to execute, in connection with the sale provided for in Article VI hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral.
(d) The powers conferred on the Secured Party hereunder are solely to protect the Secured Party's interests in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers. The Secured Party shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to the Debtor for any act or failure to act hereunder.
(e) The Debtor shall pay or reimburse the Secured Party for all costs and expenses, including attorneys fees, incurred by the Secured Party while acting as the Debtor's attorney-in-fact hereunder.
7.2 Termination of Agreement
This Agreement shall remain in full force and effect until the Obligations have been fully and finally discharged.
7.3 Severability
If any provision of this Agreement is for any reason and to any extent determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement will be unaffected and interpreted so as best to reasonably effect the intent of the parties hereto. Such void or unenforceable provision of this Agreement shall be replaced with a valid and enforceable provision so as to achieve, to the greatest extent possible, the economic, business and other purposes of the void or unenforceable provision.
7.4 Waiver
No waiver by any party of any breach of any provision hereof shall constitute a waiver of any other breach of that or any other provision hereof.
7.5 Assignment
All rights, powers, privileges and immunities herein granted to the Secured Party shall extend to their successors and assigns and any other legal holder of the Obligations or this Agreement, with full right by the Secured Party to assign and/or sell the same.
7.6 Successors
The rights and obligations of the parties hereto shall inure to the benefit of, and be binding and enforceable upon, the respective successors and assigns of the parties.
7.7 Entire Agreement
This Agreement constitutes the entire agreement of the parties hereto concerning the subject matter hereof, all prior discussions, proposals, negotiations and understandings having been merged herein. This Agreement or any provision hereof may be (i) modified or amended, but only by a writing signed by all parties at such time or (ii) waived (either generally or in a particular instance, either retroactively or prospectively, either for a specified period of time or indefinitely, either with or without consideration), but only by a writing signed by the party granting such waiver.
7.8 Intercreditor Agreement.
The terms and conditions of this Agreement shall also be governed by and subject to the terms and conditions of an Intercreditor Agreement dated as of January 19, 2004 among the Company, Koyah Partners, L.P., Koyah Leverage Partners, L.P., Appleby and Prudent Bear, to which the Secured Party and Raven Partners, L.P. are being added as additional parties pursuant to a Joinder Agreement dated as of the date hereof (collectively, the "Intercreditor Agreement").
7.9 Governing Law; Jurisdiction; Venue; Jury Trial
Consistent with the governing law and venue provisions of the Intercreditor Agreement, this Agreement shall be governed by, and interpreted under, the laws of the State of Washington applicable to contracts made and to be performed therein, without giving effect to the principles of conflicts of law. The parties hereby (i) agree that any legal suit, action or proceeding arising out of or relating to this Agreement must be instituted in a federal or state court located in the County of Spokane, State of Washington, (ii) irrevocably submit to the jurisdiction of any such court and waive any objection to the laying of venue in, or the inconvenience of, such forum and (iii) irrevocably waives all rights to trial by jury in any action, suit or proceeding arising out of or related to this Agreement, the Note or any other agreement or document between the Debtor and the Secured Party.
7.10 Notices
All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial messenger or courier service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to each party at the address (or at such other address for a party as shall be specified by like notice) set forth below; provided, however, that notices sent by mail will not be deemed given until received.
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
Attn: Neal Meehan
Fax: 310-643-8719
Koyah Ventures LLC
c/o ICM Asset Management, Inc.
W. 601 Main Avenue, Suite 600
Spokane, WA 99201
Attn: Robert Law
Fax: 509-444-4500
7.11 Costs and Expenses
The Debtor hereby agrees to pay to the Secured Party upon demand all costs and expenses, including attorney's fees, incurred in connection with the administration of this Agreement, including without limitation all filings or other actions required by the Secured Party in connection with perfecting or otherwise protecting the security interest granted hereunder. In addition, the Debtor hereby agrees to pay to the Secured Party upon demand all costs and expenses, including attorney's fees, incurred in connection with the enforcement of this Agreement, collection of the Obligations and the protection, preservation, collection or sale of or other realization upon the Collateral, including without limitation in any out-of-court workout, any court action, any appeal or any bankruptcy proceeding.
7.12 Counterparts
This Agreement may be executed in any number of counterparts, each of each of which will be an original, but all of which together will constitute one and the same instrument.
7.13 Title and Subtitles
The titles of the sections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the Debtor and the Secured Party have caused this Agreement to be duly executed as of the day and year first above written.
"Debtor"
AURA SYSTEMS, INC.
By:
Name:
Title:
"Secured Party"
KOYAH VENTURES LLC
By:
Name:
Title:
SCHEDULE 1
Patent and Patent Applications,
Trademark and Trademark Applications
and
Copyrights and Copyright Applications Owned by the Debtor
1. Patents.
Any and all domestic and foreign patent registrations, patent applications, patentable invention rights or patent-related rights to current and future interests owned by Debtor or assigned to Debtor, including but not restricted to the following patent registrations and patent applications:
Domestic Patent Registrations
Reg. Number |
Title |
4,892,328 |
Electromagnetic Strut Assembly |
4,912,343 |
Electromagnetic Actuator |
4,969,662 |
Active Damping System for an Automobile Suspension |
4,979,789 |
Continuous Source Scene Projector |
5,032,906 |
Intensity Calibration Method for Scene Projector |
5,035,475 |
Unique Modulation Television |
5,085,497 |
Method for fabricating mirror array for Optical Projection System |
5,099,158 |
Electromagnetic Actuator |
5,126,836 |
Actuated Mirror Optical Intensity Modulation |
5,135,070 |
Active Hydraulic Pressure Control |
5,138,309 |
Electronic Switch Matrix for a Video Display System |
5,150,205 |
Actuated Mirror Optical Intensity Modulation |
5,159,225 |
Piezoelectric Actuator |
5,162,767 |
High Efficiency Solenoid |
5,175,465 |
Piezoelectric and Electrostructive Actuators |
5,185,660 |
Actuated Mirror Optical Intensity Modulation |
5,187,398 |
Electromagnetic Actuator |
5,207,239 |
Variable Gain Servo Assist |
5,212,977 |
Electromagnetic Re-draw Sleeve Actuator |
5,222,714 |
Electromagnetically Actuated Valve |
5,245,369 |
Scene Projector |
5,260,798 |
Pixel Intensity Modulator |
5,278,953 |
Machine Tool Fixture Computer Aided Setup |
5,285,995 |
Optical Table Active Leveling and Vibration Cancellation System |
5,307,665 |
Electromagnetic Re-draw Sleeve Actuator |
5,309,050 |
Ferromagnetic Wire Electromagnetic Actuator |
5,325,699 |
Electromagnetic Re-draw Sleeve Actuator |
5,334,265 |
Magnetic Material |
5,341,054 |
Low Mass Electromagnetic Actuator |
5,350,153 |
Core Design for Electromagnetic Actuated Valve |
5,352,101 |
Electromagnetically Actuated Compressor Valve |
5,354,185 |
Electromagnetically Actuated Reciprocating Compressor Driver |
5,355,108 |
Electromagnetically Actuated Compressor Valve |
5,481,396 |
Thin Film Actuated Mirror Array |
5,548,263 |
Electromagnetically Actuated Valve |
5,589,084 |
Thin Film Actuated Mirror Array |
5,616,982 |
Piezoelectric Actuator |
5,689,380 |
Thin Film Actuated Mirror Array for Providing Double Tilt Angle |
5,710,657 |
Monomorph Thin Film Actuated Mirror Array |
5,720,468 |
Stagerred Electromagnetically Actuated Valve Design |
5,721,694 |
Non-linear Deterministic Stochastic Filtering Method and System |
5,734,217 |
Induction Machine using Ferromagnetic Conducting Material in Rotor |
5,768,392 |
Blind Adaptive Filtering of Unknown Signals in Unknown Noise in Quasi-closed Loop System |
5,768,395 |
Double Ended Field Coil Actuator |
5,772,179 |
Hinged Armature Electromagnetically Actuated Valve |
5,780,958 |
Piezoelectric Vibrating Device |
5,782,454 |
Electromagnetically Actuated Valve |
5,796,377 |
Video Display System having an Electronic Switch Matrix for controlling an MSN array of Piezoelectric Members |
5,822,370 |
Compression/Decompression for Preservation of High Fidelity Speech Quality at Low Bandwidth |
5,898,244 |
Dual Directional Field Coil Actuator |
6,032,113 |
N-Stage Predicted Feedback-Based Compression and Decompression of Spectra of Stochastic Data Using Convergent Incomplete Autoregressive Models |
6,157,175 |
Mobile Power Generation System |
6,158,403 |
Servo Control System for an Electromagnetic Valve Actuator used in an Internal Combustion Engine |
6,267,351 |
Electromagnetic Valve Actuator with Mechanical End Position Clamp or Latch |
D355,751 |
Video Game Accessory Vest |
D393,447 |
Adapter Plug |
5,097,510 |
Artificial Intelligence Pattern Recognition-based Noise Reduction System for Speech Processing |
5,140,640 |
Noise Cancellation System |
Monolithic Prestressed Ceramic Devices and Method for making same |
|
4,998,441 |
Force and Torque Measurement System |
5,321,762 |
Voice Coil Actuator |
5,418,860 |
Voice Coil Excursion and Amplitude Gain Control Device |
5,424,592 |
Electromagnetic Transducer |
5,434,458 |
Voice Coil Actuator |
5,536,984 |
Voice Coil Actuator |
5,539,262 |
Axially Focused Radial Magnet Voice Coil Actuator |
5,624,155 |
Electromagnetic Transducer |
5,652,801 |
Resonance Damper for Piezoelectric Transducer |
5,727,076 |
Audio Transducer having Piezoelectric Device |
5,736,808 |
Piezoelectric Speaker |
5,786,741 |
Polygon Magnet Structure for Voice Coil Actuator |
6,082,315 |
Electromagnetic Valve Actuator |
D363,270 |
Adapter Plug |
D364,162 |
Amplifier Housing |
D364,167 |
Speaker Motor Case |
D394,063 |
Pair of Speaker Enclosures |
D396,723 |
Speaker Basket |
D449,828 |
Speaker Basket |
Domestic Patent Applications
Serial Number |
Title |
09/799,973 |
Switched Reluctance Motor Delivering Constant Torque From Three Phase Sinusoidal Voltages |
09/939,116 |
Mobile power generation system |
09/938,967 |
Bi-directional power supply circuit |
Foreign Patent Applications
PCT Number |
Title |
US00/03815 |
Mobile Power Generation System (Europe, title not verified) |
US01/50683 |
Mobile power generation system (Europe & Canada, title not verified) |
US01/50762 |
Bi-directional power supply circuit (Europe, title not verified) |
2. Trademarks.
Any and all domestic and foreign trademark registrations, trademark applications, trade and service mark rights, or other trademark-related rights to current and future interests owned by Debtor or assigned to Debtor, including but not restricted to the following trademark registrations and trademark applications:
Serial Number |
Reg. Number |
Word Mark |
75547751 |
|
AMA |
75225690 |
2128907 |
ASPECT |
75559987 |
2372115 |
AURA |
74472095 |
1991593 |
AURA |
74369064 |
2196818 |
AURA |
74322660 |
|
AURAFLUX |
75141345 |
|
AURAGEN |
75977693 |
2202313 |
AURAGEN |
75594235 |
2477031 |
AURAGEN POWER. ON THE GO. |
74639340 |
|
AURAPHILE |
75141344 |
|
AURAPOWER |
75237652 |
|
AURAGEN OF POWER |
74134961 |
|
AURASCOPE |
74134960 |
|
AURASCOPE |
74466053 |
2142944 |
AURASCOPE |
74417408 |
|
AUTO SONICS |
74410206 |
|
AURA SONICS |
74349974 |
|
AURASOUND |
74313418 |
2482562 |
AURA SOUND |
75235513 |
|
AURA VIRTUAL SOUND |
75235817 |
|
A V S |
74679644 |
2072412 |
BASS SHAKER |
74491123 |
1894891 |
CUSTOMWARE |
74491122 |
1892461 |
CUSTOMWARE |
75235512 |
|
DO MORE THAN LISTEN |
75225341 |
2181910 |
EVA |
75225280 |
|
FAR |
75225289 |
|
FAS |
75225288 |
|
FERRODISK |
75291968 |
|
FORCE |
75225287 |
|
FORCE |
75225296 |
|
FORCE 10 |
75225297 |
|
FORCE 12 |
75225298 |
|
FORCE 15 |
75225286 |
|
FORCE 42 |
75225285 |
|
FORCE 52 |
75225284 |
|
FORCE 62 |
75229617 |
|
FORCE 150 |
75229616 |
|
FORCE 250 |
75229720 |
|
FORCE 340 |
75229718 |
|
FORCE 400Q |
75225283 |
|
FORCE 426 |
75225282 |
|
FORCE 527 |
75229719 |
|
FORCE 560 |
75225281 |
|
FORCE 629 |
75225295 |
|
FORCE 639 |
74408244 |
|
HIGH GAP |
74408232 |
|
HIGH STROKE |
74472097 |
|
INTERACTOR |
74425395 |
1920753 |
INTERACTOR |
74132488 |
1663325 |
LINAEUM |
74408446 |
|
LINEAR GAP |
74408231 |
|
LINEAR FLUX |
74408619 |
|
LINEAR MAG |
74408211 |
|
LINEAR RING |
75330407 |
|
LINE SOURCE |
75291967 |
|
LINE SOURCE |
74408243 |
|
LINEAR STROKE |
74528276 |
|
MAGFORCE |
75131644 |
|
MOBILE REFERENCE |
75579640 |
|
MOBILE REFERENCE PLATINUM |
75252086 |
2257621 |
MR |
75252085 |
2170439 |
MR 1 |
75252089 |
2219543 |
MR 5.1 |
75252090 |
2188518 |
MR 6.1 |
75252087 |
2224713 |
MR 52 |
75252088 |
2170440 |
MR 62 |
75252091 |
|
MR 629 |
74385179 |
|
MUSICAL CHAIRS |
74720723 |
2063972 |
NEO-RADIAL |
75123841 |
2111403 |
NEO-RADIAL TECHNOLOGY |
74706753 |
2067789 |
NEO-RADIAL TECHNOLOGY |
74408671 |
|
NEO RING |
75021447 |
|
NETFAX |
74408448 |
|
NEO FLUX |
74408206 |
|
NEO GAP |
74408447 |
|
NEO MAG |
74408208 |
|
NEO POWER |
74408179 |
|
NEO STROKE |
75021446 |
|
NETTALK |
75033935 |
2030035 |
NEWCOM |
75033934 |
2030034 |
NEW COM |
74618797 |
|
NEWTALK |
74706754 |
2144980 |
NRT |
74408242 |
|
PILLOW SONICS |
74394182 |
|
POWER TOWER |
74408601 |
|
RADIAL FLUX |
74408672 |
|
RADIAL GAP |
74408207 |
|
RADIAL LINE |
74408180 |
|
RADIAL MAG |
74408445 |
|
RADIAL NEO |
74408209 |
|
RADIAL POLE |
74408205 |
|
RADIAL POWER |
74408664 |
|
RADIAL RING |
74408178 |
|
RADIAL STROKE |
75579192 |
2654647 |
RPM |
74528416 |
|
SOUNDPLAY |
74408003 |
|
TALL GAP |
74431065 |
|
TECHNOLOGIES OF THE 21ST CENTURY |
74408210 |
|
THEATRE SONICS |
75579641 |
|
THE ULTIMATE UPGRADE |
74437049 |
|
THUNDERBOLT |
74367568 |
|
21ST CENTURY TECHNOLOGIES |
74388369 |
|
VIBRASONICS |
3. Copyrights.
Any and all domestic and foreign copyright registrations, copyright applications or other copyright-related rights to current and future interests owned by Debtor or assigned to Debtor.
[Remainder of page intentionally left blank]
SCHEDULE 2
Patents and Patent Applications, Trademarks and Trademark Applications
and
Copyrights and Copyright Applications Licensed to the Debtor
None.
SCHEDULE 3
Patents and Patent Applications
Trademarks and Trademark Applications,
And Copyrights and Copyright Applications
Licensed By the Debtor
None.
SCHEDULE 4
Schedule of Exceptions
1. El Seguendo real property and facilities are subject to a security interest related to mortgage financing and a pending sale/leaseback transaction.
2. Note receivable for approximately $1,000,000 under the Alpha Ceramics purchase agreement has been assigned as collateral to the purchasers in such sale/leaseback transaction.
3. The Plaintiffs in Arthur Schwatz v. Aura Systems, Inc. received a Writ of Attachment to collect a portion of their judgment. On May 3, 2004, the Plaintiffs used this Writ to effect a levy against the Company's primary bank account and received approximately $191,689. On May 11, 2004, Plaintiffs returned those funds to the Company without relinquishing their rights under the Writ. On June 7, 2004, the Plaintiff and the Company entered an Agreed Judgment in this case with a 45 day delayed effective date.
SCHEDULE 5
Debtor Information
State of organization: Delaware
Address of
chief executive office: Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
Address(es) where
books and records are kept: Same
Additional trade names: None
STOCK PLEDGE AGREEMENT
This Stock Pledge Agreement (this "Agreement") is entered as of June 14, 2004, by and among AURA SYSTEMS, INC., a Delaware corporation (the "Pledgor"), and KOYAH VENTURES LLC, a Delaware limited liability company ("Pledgee").
RECITALS
WHEREAS, in connection with a loan to the Pledgor by the Pledgee, the Pledgor and the Pledgee entered into an Agreement dated as of the date hereof (the "Agreement"), the Company executed in favor of the Pledgee a Convertible Promissory Note dated as of the date hereof (the "Note"), the Company executed in favor of Pledgee a Security Agreement dated as of the date hereof (the "Security Agreement");
WHEREAS, the Pledgee is to receive a pledge of and security interest in the 177,000 shares of Telemac Corporation, described herein, and the Pledgor is to execute and deliver this Agreement to further evidence and effectuate such pledge and security interest; and
WHEREAS, the Pledgor previously granted: (i) a first-priority pledge of and security interest in the same 177,000 shares of Telemac Corporation in favor of Koyah Leverage Partners, L.P., as collateral agent (the "Koyah Collateral Agent") for itself and Koyah Partners, L.P., a Delaware limited partnership (collectively, "Koyah") to secure loans made by Koyah; and (ii) a second-priority pledge of and security interest in the same 177,000 shares of Telemac Corporation in favor of Edgar Appleby, an individual ("Appleby") and Prudent Bear Fund, Inc., a Maryland corporation ("Prudent Bear"), to secure loans made by Appleby and Prudent Bear.
NOW, THEREFORE, for valuable consideration, the receipt of which is hereby acknowledged, the parties do hereby agree as follows:
AGREEMENT
To secure the full and punctual payment and discharge of the Obligations, the Pledgor hereby pledges the Collateral to the Pledgee and grants to the Pledgee a continuing security interest in the Collateral. Such security interest of the Pledgee is (i) junior to the first-priority security interest previously granted to the Koyah Collateral Agent and (ii) junior to the second-priority security interests previously granted to Appleby and Prudent Bear, and subject to the terms and conditions of the Intercreditor Agreement (as defined below).
The Certificates are in the possession of the Koyah Collateral Agent (or its designee), under the terms of a Stock Pledge Agreement dated August 18, 2003 and shall remain in the possession of the Koyah Collateral Agent (or its designee) until such time as released by the Koyah Collateral Agent (or its designee). Upon such release, the Pledgor shall deliver to Appleby and/or Prudent Bear the Certificates to Appleby and/or Prudent Bear. The Certificates shall remain in possession of Appleby and/or Prudent Bear until such time as released by Appleby and/or Prudent Bear. Upon such release, the Pledgor shall deliver (i) the Certificates to the Pledgee (or its designee) and (ii) stock power(s), duly executed in blank, for the Collateral to the Pledgee (or its designee).
4. Warranties and Covenants of the Pledgor.
The Pledgor represents and warrants, covenants and agrees as follows:
5. Exercise of Shareholder Rights.
(a) Receipt of Dividends and Distributions. Prior to the occurrence of a Default, the Pledgor shall have the right to receive and retain any ordinary dividends or other distributions paid on the Collateral.
(b) Right to Vote. Prior to the occurrence of a Default, the Pledgor may vote the Collateral for all purposes allowed within the restrictions set by this Agreement. The Pledgor agrees not to vote the Collateral or otherwise to act in any way which will adversely affect the value of the Collateral.
(a) Pledgee May Register Shares. Upon the occurrence of a Default, the Pledgee may cause the Collateral to be transferred to the Pledgee's name and may exercise any right normally incident to the ownership of the Collateral, including the right to vote and to receive all dividends or other payments.
(b) Collateral. Upon the occurrence of a Default, the Pledgee may sell all or any part of the Collateral at public or private sale. The Pledgee may purchase all or any part of the Collateral at the sale. Proceeds of any sale shall be applied first to pay all costs and expenses related to the Default and sale of the Collateral, including all attorneys' fees, and second, to pay all amounts owed on the Obligations, with any excess to be returned to the Pledgor.
(c) Remedies Cumulative. Upon the occurrence of a Default, the Pledgee shall have all rights and remedies available to them at law or in equity, including all rights available under the Uniform Commercial Code, and all rights and remedies granted under this Agreement, the Note, the Security Agreement and any other related documents or agreements. These rights and remedies shall be cumulative, and may be exercised singly or concurrently with all other rights and remedies the Pledgee may have.
(d) Order of Realization on the Collateral. The Pledgee may realize upon the Collateral, as well as any other collateral, in any order.
(e) Acknowledgments and Agreements of Pledgor. The Pledgor hereby acknowledges and agrees (i) that the Pledgor hereby waives all rights of redemption, stay, valuation and appraisal under any applicable laws, (ii) that ten (10) days prior written notice of the Pledgee's intention to make any sale of the Collateral is commercially reasonable notice, (iii) that the requirements of federal and state securities laws may limit the Pledgee's sale of all or part of the Collateral as well as the extent or manner in which any subsequent transferee could dispose of the same, (iv) in light of such restrictions, the Pledgee may effect a private sale to one or more purchasers who will agree, among other things, to acquire the Collateral for their own account, for investment, and not with a view to the distribution or resale thereof, (v) that the Pledgee may proceed to make such a sale whether or not a registration statement for the purpose of registering the Collateral sh all have been filed and may approach and negotiate with a single potential purchaser to effectuate such sale, (vi) any such sale might result in prices or other terms less favorable than if such sale were a public sale without such restrictions, and the Pledgee shall incur no liability for selling any Collateral under such circumstances, and (vii) the foregoing shall apply not withstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Pledgee sells.
(f) Registration. The Pledgor hereby assigns to the Pledgee, upon the occurrence of a Default, all registration rights the Pledgor now has or may hereafter acquire with respect to the Collateral. If the Pledgees desires to sell any of the Collateral at a public sale, the Pledgor will, upon request of the Pledgee, use its best efforts to cause the issuer of the Collateral to register the Collateral under federal and state securities laws and maintain the effectiveness of such registration, to the extent consistent with such registration rights. The Pledgor further agrees to indemnify, defend and hold harmless the Pledgee, any underwriter and their respective officers, directors, affiliates and controlling persons from and against all loss, liability, expenses, costs of counsel and claims (including the costs of investigation) that they may incur in so far as such loss, liability, expense or claim arising out of or is based upon any alleged untrue statement of a material fa ct contained in any prospectus, or arises out of or is based upon any alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, except in so far as they may have been caused by any untrue statement or omission based upon the information furnished in writing by the Pledgee expressly for use therein. The Pledgee will bear all costs and expenses of carrying out the foregoing obligations on its part. The Pledgor acknowledges and agrees that there is no adequate remedy at law for failure by it to comply with the provisions of this Section and that such failure would not be adequately compensable in damages, and therefore agrees that its agreements contained in this Section may be specifically enforced.
(g) Rights of Other Creditors. The security interest of the Pledgee and the rights of the Pledgee upon the occurrence of any Default or otherwise under this Agreement shall be subject to the senior first-priority security interest of the Koyah Collateral Agent, the second-priority security interests in favor of Appleby and Prudent Bear and the rights of the Koyah Collateral Agent, Appleby and Prudent Bear upon the occurrence of any default or otherwise under their security documents.
7. Termination of Agreement.
This Agreement shall remain in full force and effect until the Obligations have been fully and finally discharged.
8. Miscellaneous.
(a) Waiver. No right or obligation under this Agreement will be deemed to have been waived unless evidenced by a writing signed by the party against which the waiver is asserted or by its duly authorized representative. Any waiver will be effective only with respect to the specific instance involved, and will not impair or limit the right of the waiving party to insist upon strict performance of the right or obligation in any other instance, in any other respect, or at any other time.
(b) Notice. Any notice or other communication required or permitted under this Agreement shall be in writing and shall addressed to the party to which it is directed at such party's address or fax number set forth in the Note.
(c) Modifications to Be in Writing. To be effective, any modification to this Agreement must be in writing signed by all parties to the Agreement.
(d) Agreement Binding upon Successors and Assigns. This Agreement shall bind the Pledgor and its successors and assigns. All rights, privileges, and powers granted to the Pledgee under this Agreement shall benefit the Pledgee and its successors and assigns.
(e) Assignment of Agreement. At any time, the Pledgee may assign or transfer any of its rights or powers under this Agreement to any person or entity. The Pledgor may not transfer its rights, duties, or obligations under this Agreement without the prior written consent of the Pledgee.
(f) Further Assurances. Both the Pledgor and the Pledgee agree to take any further actions and to make, execute, and deliver any further written instruments which may be reasonably required to carry out the terms, provisions, intentions, and purposes of this Agreement.
(g) Governing Law. Consistent with the governing law and venue provision of the Intercreditor Agreement, this Agreement shall be governed by and construed and interpreted in accordance with the law of the State of Washington, without regard to that state's conflict of laws principles. All disputes between the parties hereto, whether sounding in contract, tort, equity or otherwise, shall be resolved only by state and federal courts located in Spokane, Washington, and the courts to which an appeal therefrom may be taken. All parties hereto waive any objections to the location of the above referenced courts, including but not limited to any objection based on lack of jurisdiction, improper venue or forum non-conveniens. Notwithstanding the foregoing, any party obtaining any order or judgment in any of the above referenced courts may bring an action in a court in another jurisdiction in order to enforce such order or judgment.
(h) Costs and Expenses. The Pledgor hereby agrees to pay to the Pledgee upon demand all costs and expenses, including attorney's fees, incurred in connection with the administration of this Agreement, including without limitation all filings or other actions required by the Pledgee in connection with perfecting or otherwise protecting the security interest granted hereunder. In addition, the Pledgor hereby agrees to pay to the Pledgee upon demand all costs and expenses, including attorney's fees, incurred in connection with the enforcement of this Agreement, collection of the Obligations and the protection, preservation, collection or sale of or other realization upon the Collateral, including without limitation in any out-of-court workout, any court action, any appeal or any bankruptcy proceeding.
(i) Severability. If any provision of this Agreement or any application of any provision is determined to be unenforceable, the remainder of this Agreement shall be unaffected. If the provision is found to be unenforceable when applied to particular persons or circumstances, the application of the provision to other persons or circumstances shall be unaffected.
(j) Headings. Headings used in this Agreement have been included for convenience and ease of reference only, and will not in any manner influence the construction or interpretation of any provision of this Agreement.
(k) Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed to be an original and all of which together will constitute a single agreement.
(l) Intercreditor Agreement. The terms and conditions of this Agreement shall also be governed by and subject to the terms and conditions of an Intercreditor Agreement dated as of January 19, 2004 among the Pledgor, Koyah Partners, L.P., Koyah Leverage Partners, L.P., Appleby and Prudent Bear, to which the Pledgee and Raven Partners, L.P. are being added as additional parties pursuant to a Joinder Agreement dated as of the date hereof (collectively, the "Intercreditor Agreement").
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first set forth above.
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"Pledgor" AURA SYSTEMS, INC. By: Name: Title: |
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"Pledgee" KOYAH VENTURES LLC
By: Name: Title: |
I:\Spodocs\28601\00016\agree\00185776.DOC
AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into as of June 14, 2004 between AURA SYSTEMS, INC., a Delaware corporation (the "Company"), and RAVEN PARTNERS, L.P., a Delaware limited partnership (the "Lender").
WHEREAS, the Company has requested that the Lender make loans to the Company;
WHEREAS, in addition to this Agreement, the Company will be executing and delivering a Convertible Promissory Note (the "Note"), a Security Agreement (the "Security Agreement") and a Stock Pledge Agreement (collectively the "Transaction Documents");
WHEREAS, in order to induce the Lender to make such loans and in connection with the Company and the Lender entering into the Transaction Documents, the parties wish to provide for certain related matters, on the terms and conditions set forth herein; and
WHEREAS, the Company has previously entered into certain secured loans with (i) Koyah Partners, L.P., a Delaware limited partnership, and Koyah Leverage Partners, L.P. a Delaware limited partnership, (ii) Prudent Bear Fund, Inc., a Maryland corporation, and (iii) Edgar Appleby, an individual (collectively, the "Prior Lenders").
NOW, THEREFORE, for valuable consideration, the receipt of which is hereby acknowledged, the parties do hereby agree as follows:
1. Representations and Warranties of the Company. The Company hereby represents and warrants to the Lender as follows:
(a) The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of Delaware; (ii) has the power and authority to own, lease and operate its properties and carry on its business as now conducted; and (iii) is duly qualified, licensed to do business and in good standing under any foreign corporation laws in each jurisdiction where the failure to be so qualified or licensed could reasonably be expected to have a material adverse effect on the business, assets, operations, prospects or financial or other condition of the Company.
(b) The execution, delivery and performance of the Transaction Documents by the Company and the performance and consummation by the Company of the transactions contemplated in the Transaction Documents have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize the Transaction Documents or the performance or consummation of any of the transactions contemplated hereby.
(c) The Transaction Documents have been duly executed and delivered by the Company and constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforceability may be limited by bankruptcy and other laws affecting the rights and remedies of creditors generally and general principles of equity.
(d) The Company has taken or will take all necessary corporate action to authorize and reserve for issuance and to permit it to issue, upon conversion of the Note, the shares issuable upon such conversion; all of such shares, upon their issuance and delivery in accordance with the terms of the Note, will be validly issued, fully paid and nonassessable.
(e) The execution and delivery by the Company of the Transaction Documents and the performance and consummation of the transactions contemplated thereby, do not and will not: (i) violate the Company's Articles of Incorporation or Bylaws ("Charter Documents") or any material judgment, order, writ, decree, statute, rule or regulation applicable to the Company; (ii) violate any provision of, or result in the breach or the acceleration of, or entitle any other person or entity to accelerate (whether after the giving of notice or lapse of time or both), any material mortgage, indenture, agreement, instrument or contract to which the Company is a party or by which it is bound; or (iii) result in the creation or imposition of any lien upon any property, asset or revenue of the Company or the suspension, revocation, impairment, forfeiture, or non-renewal of any material permit, license, authorization or approval applicable to the Company, its business or operations, or any of its assets or properties.
(f) No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority or other person or entity (including, without limitation, the shareholders of any person or entity) is required in connection with the execution and delivery of the Transaction Documents by the Company and the performance and consummation of the transactions contemplated thereby.
(g) The Company is not in violation of or in default with respect to: (i) the Charter Documents or any material judgment, order, writ, decree, statute, rule or regulation applicable to the Company; or (ii) any material mortgage, indenture, agreement, instrument or contract to which such person or entity is a party or by which it is bound (nor is there any waiver in effect which, if not in effect, would result in such a violation or default). Notwithstanding the foregoing, the Lender waives any breach of this representation and warranty arising from the existing defaults listed under the heading "Defaults" in the attached Schedule of Exceptions, so long as any creditor involved in such defaults takes no further actions and exercises no further remedies to collect on the obligations involved or enforce its related rights and the Company otherwise remains in compliance with all of the provisions of the Transaction Documents and this Agreement. In addition, the Lender also waives an y breach of this representation and warranty arising from any other defaults referred to in the Company's Form 10-Q for the quarter ended November 30, 2003, so long as any creditor involved in such defaults takes no further actions and exercises no further remedies to collect on the obligations involved or enforce its related rights and the Company otherwise remains in compliance with all of the provisions of the Transaction Documents and this Agreement; it being understood, however, that this waiver is for the purpose of acknowledging the existence of such other defaults and for waiving them under this Section 1(g) only, but this waiver shall not apply to Section 13(b) of the Note or any other provisions of the Transaction Documents or the Lender's rights and remedies with respect to such provisions.
(h) No actions (including, without limitation, derivation actions), suits, proceeds or investigations are pending or, to the knowledge of the Company, threatened against the Company at law or in equity in any court or before any other governmental authority that if adversely determined would: (i) (alone or in the aggregate) have a material adverse effect on the business, assets, operations, prospects or financial or other condition of the Company or (ii) enjoin, either directly or indirectly, the execution, delivery or performance by the Company of the Transaction Documents or the transactions contemplated thereby. Notwithstanding the foregoing, the Lender waives any breach of this representation and warranty arising from any actions or suits referred to in the Company's Form 10-Q for the quarter ended November 30, 2003, so long as any party involved in such actions or suits takes no further actions and exercises no further remedies to collect on the obligations involved or enfo rce its related rights and the Company otherwise remains in compliance with all of the provisions of the Transaction Documents and this Agreement; it being understood, however, that this waiver is for the purpose of acknowledging the existence of such actions or suits and for waiving them under this Section 1(h) only, but this waiver shall not apply to Section 13(b) of the Note or any other provisions of the Transaction Documents or the Lender's rights and remedies with respect to such provisions.
(i) The Company owns and has good and marketable title or a valid leasehold interest in all assets and properties as reflected in the most recent financial statements delivered to the Lender and all assets and properties acquired by the Company since such date, free and clear of liens and encumbrances except for liens in favor of the Prior Lenders. Notwithstanding the foregoing, the Lender waives any breach of this representation and warranty arising from the existing liens listed under the heading "Liens" in the attached Schedule of Exceptions, so long as any creditor holding such lien takes no further actions and exercises no further remedies to collect on the obligations involved or enforce its related rights and the Company otherwise remains in compliance with all of the provisions of the Transaction Documents and this Agreement.
(j) The Company owns or possesses sufficient legal rights to all patents, patent applications, trademarks, service marks, trademark and service mark applications, trade names, copyrights, trade secrets, licenses, information, processes and other intellectual property rights ("Intellectual Property Rights") necessary for its business as now conducted and as proposed to be conducted, free and clear of any liens or encumbrances and without any conflict with, or infringement of the rights of, others.
(k) The financial statements of the Company that have been delivered to the Lender: (i) are in accordance with the books and records of the Company, which have been maintained in accordance with good business practices; (ii) have been prepared in conformity with accounting principles generally accepted in the United States; and (iii) fairly present the consolidated financial position of the Company as of the dates presented therein and the results of operations, changes in financial positions or cash flows, as the case may be, for the periods presented therein. The Company does not have any contingent obligations, liability for taxes or other outstanding obligations that are material in the aggregate, except as disclosed in such financial statements. Since the date of such financial statements, there has been no material adverse change in the financial position, business, operations, assets, liabilities or prospects of the Company, except as listed in the Schedule of Exceptions.
(l) The Company has total assets in excess of $2,000,000 according to its most recent financial statements, which are dated not more than ninety (90) days prior to the date of this Agreement and the loans contemplated hereby and were prepared (i) in accordance with generally accepted accounting principles (and on a consolidated basis if the Company has consolidated subsidiaries) or (ii) in accordance with the rules and requirements of the Securities and Exchange Commission, whether or not required by law to be prepared in accordance with those rules and requirements. The Company, and its officers and directors, have a preexisting business relationship with the Lender.
2. Company Acknowledgements. The Company confirms, acknowledges and agrees that (i) the Security Agreement and the Stock Pledge Agreement secure all of the Company's obligations under the Transaction Documents (ii) the Lender is under no obligation to make any advances to the Company under the Note or to grant any extension of the maturity date of the Note, and (iii) any advances to the Company by the Lender under the Note or any extension by the Lender of the maturity date of the Note, or any other financing of the Company by the Lender or its affiliates, are at the option of the Lender and its affiliates, in their sole discretion.
3. Further Assurance. The representations and warranties of the Company contained in this Agreement include, among others, a representation and warranty that the execution, delivery and performance by the Company of this Agreement and the other Transaction Documents and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company's Board of Directors. As a further assurance to the Lender with respect to such representation and warranty, the Company shall deliver to the Lender, within five (5) business days after request of the Lender, evidence satisfactory to the Lender in its sole discretion of the authorization by the Company's Board of Directors of the execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby and thereby.
4. Survival. The representations and warranties and the covenants of the Company contained in this Agreement shall survive the closing of the transactions contemplated by the Transaction Documents.
5. Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Lender in the case of an amendment and only with the written consent of the waiving party in the case of a waiver.
6. Entire Agreement. This Agreement, together with the other Transaction Documents, constitute the entire agreement of the parties concerning the subject matter hereof and thereof, all prior discussions, proposals, negotiations and understandings having been merged herein and therein.
7. Intercreditor Agreement. The terms and conditions of this Agreement and the other Transaction Documents shall also be governed by and subject to the terms and conditions of an Intercreditor Agreement dated as of January 19, 2004 among the Company and the Prior Lenders, to which the Lender and Koyah Ventures LLC are being added as additional parties pursuant to a Joinder Agreement dated as of the date hereof (collectively, the "Intercreditor Agreement").
8. Successors. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company and the Lender. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective permitted successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
9. Severability. If any part of this Agreement is determined to be illegal or unenforceable, all other parts shall remain in full force and effect.
10. Attorneys' Fees. The Company shall pay the reasonable attorneys' fees, costs and disbursements of the Lender in enforcing any terms of this Agreement, whether or not any action at law or in equity is brought.
11. Governing Law. Consistent with the governing law and venue provisions of the Intercreditor Agreement, this Agreement shall be governed by and construed and interpreted in accordance with the law of the State of Washington, without regard to that state's conflict of laws principles. All disputes between the parties hereto, whether sounding in contract, tort, equity or otherwise, shall be resolved only by state and federal courts located in Spokane, Washington, and the courts to which an appeal therefrom may be taken. All parties hereto waive any objections to the location of the above referenced courts, including but not limited to any objection based on lack of jurisdiction, improper venue or forum non-conveniens. Notwithstanding the foregoing, any party obtaining any order or judgment in any of the above referenced courts may bring an action in a court in another jurisdiction in order to enforce such order or judgment.
12. Miscellaneous. Any notice under this Agreement shall be given in writing and shall be addressed to the party to be notified at the address indicated below, or at such other address as such party may designate by written notice to the other party.
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
Attn: Neal Meehan
Fax: 310-643-8719
Raven Partners, L.P.
c/o ICM Asset Management, Inc.
601 W. Main Avenue, Suite 600
Spokane, WA 99201
Attn: Robert Law
Fax: 509-444-4500
13. Lenders' Attorney Fees and Expenses in Connection with Transaction Documents and Financing Proposals. The Company shall pay the costs and expenses of legal counsel to the Lender in connection with (i) the negotiation, execution and delivery of this Agreement, the Note, the Security Agreement, the Stock Pledge Agreement, and any other related agreements with the Lender as well as the consummation of the transactions contemplated by such agreements, the administration of such agreements and any amendments or waivers of such agreements and (ii) the evaluation, discussion and negotiation by the Lender, as debt or equity holder of the Company, of any financing or similar proposals or expressions of interest involving the Company which previously have been, currently are or subsequently may be made or advanced by Dean Greenberg, Universal Credit, LLC or any other persons or entities (including the Lender or its affiliates) and the negotiation, execution and delivery of any related agreements as well as the consummation of the transactions contemplated thereby. The Company shall pay such costs and expenses immediately upon submittal, and the Lender may apply any retainer held by them or their legal counsel against such costs and expenses. Alternatively, the Lender may deduct some or all of such costs and expenses from the proceeds of the loan from the Lender when disbursing such loan and/or pay such costs and expenses directly and then the amounts so paid shall constitute additional amounts payable by the Company under this Agreement and the Notes and bear interest at the rate set forth in the Note. Notwithstanding that the Company is paying such costs and expenses, the Company acknowledges and agrees that such legal counsel is representing only the Lender, and not the Company.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first set forth above.
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AURA SYSTEMS, INC. By: Name: Title: |
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RAVEN PARTNERS, L.P. By: Koyah Ventures LLC, its general partner By: Name: Title:
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I:\Spodocs\28601\00016\agree\00168492.DOC.dlp
Schedule of Exceptions
Liens
1. El Seguendo real property and facilities are subject to a security interest related to mortgage financing and a pending sale/leaseback transaction.
2. Note receivable for approximately $1,000,000 under Alpha Ceramics purchase agreement has been assigned as collateral to the purchasers in such sale/leaseback transaction.
3. The Plaintiffs in Arthur Schwatz v. Aura Systems, Inc. received a Writ of Attachment to collect a portion of their judgment. On May 3, 2004, the Plaintiffs used this Writ to effect a levy against the Company's primary bank account and received approximately $191,689. On May 11, 2004, Plaintiffs returned those funds to the Company without relinquishing their rights under the Writ. On June 7, 2004, the Plaintiff and the Company entered an Agreed Judgment in this case with a 45 day delayed effective date.
Defaults
1. Shareholder litigation (Barovich/Chiu et al ) judgment settlement for approximately $789,000 is in default. In April of 2003, this creditor served Writs of Execution against one of the Company's bank accounts but has taken no further action.
2. Convertible notes issued in August October 2002 for a total principal amount of $625,000 are or may be in default.
3. The $1,000,000 Note Payable to the purchasers in the sale/leaseback transaction, dated December 1, 2002, became due and payable on May 30, 2004.
Financial Statements
1. The long-term note receivable from Alpha Ceramics was assigned to the Purchasers in the Sale/Leaseback Agreement, dated December 1, 2002, as disclosed in the footnotes and MD&A of recent public filings (see Liens Note 2 above); however, this receivable was included on the balance sheet in the most recent financial statements.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION, (B) THE TRANSFER IS MADE IN ACCORANCE WITH RULE 144 UNDER SUCH ACT, (C) THE BORROWER RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THE NOTE (CONCURRED IN BY LEGAL COUNSEL FOR THE BORROWER) STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (D) THE BORROWER OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.
CONVERTIBLE PROMISSORY NOTE
Principal Amount: $100,000 Spokane, Washington
Interest Rate: 10% June 14, 2004
FOR VALUE RECEIVED, the undersigned, AURA SYSTEMS, INC., a Delaware corporation ("Borrower"), hereby promises to pay to the order of RAVEN PARTNERS, L.P., a Delaware limited partnership ("Lender"), at such places and times and under the terms and conditions set forth below, the lesser of (i) the maximum principal amount of this Convertible Promissory Note (this "Note") set forth above and (ii) the aggregate principal amount advanced by Lender at its option from time to time under this Note, together with interest thereon and any other amounts set forth herein.
Borrower shall give Lender ten (10) business days prior written notice of each such financing, including the terms and conditions thereof. Upon any tender of payment of this Note by Borrower, Lender shall have five (5) business days thereafter to elect either acceptance of such payment instead of conversion or exercise of its conversion right, in whole or in part. In the event Lender fails to make such election within by such date, Lender shall be deemed to have elected acceptance of payment instead of conversion, provided that the payment tendered is the full amount owing under this Note (including without limitation the fee set forth in Section 3 of this Note). If Lender does so elect conversion of this Note, in whole or in part, Lender shall refund to Borrower the fee set forth in Section 3 of this Note which was included in such tendered payment. Any exercise of such conversion right shall be at the option of Lender, in its sole discretion. Lender may exercise such conversion r ight by providing written notice of exercise to Borrower, together with delivery of this Note to the Company for surrender. In the event of any stock splits, stock dividends, recapitalizations or similar events after the date of such financing but prior to the date of conversion, then the number and kind of debt or equity securities issuable upon conversion shall be appropriately adjusted. Such conversion shall be effective immediately upon giving such notice and as of such date Lender shall be treated for all purposes as the holder of the debt or equity securities or instruments issuable upon conversion.
As soon as practicable after such conversion, Borrower, at its expense, shall cause to be issued in the name of and delivered to Lender the debt or equity securities or instruments to which Lender shall be entitled upon such conversion. Upon a partial conversion of this Note, this Note shall be surrendered by Lender and replaced with a new Note of like tenor for the remaining balance of the Note surrendered. The new Note shall be delivered to Lender as soon as practicable after such partial conversion. No fractional shares of stock shall be issued upon such conversion. If upon such conversion a fractional share results, the number of shares to be issued upon conversion shall be rounded upwards or downwards to the nearest whole number.
(d) Lender shall fail to have a valid perfected security interest in any of the collateral covered by the Security Agreement, a valid security interest in the any of the collateral covered by the Stock Pledge Agreement or a perfected security interest in any of the collateral covered by the Stock Pledge Agreement after delivery thereof to Lender or its agent or designee.
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
Attn: Neal Meehan
Fax: 310-643-8719
Raven Partners, L.P.
c/o ICM Asset Management, Inc.
601 W. Main Avenue, Suite 600
Spokane, WA 99201
Attn: Robert Law
Fax: 509-444-4500
(e) Borrower and Lender intend to comply at all times with applicable usury laws. If at any time such laws would render usurious any amounts due under this Note under applicable law, then it is Borrower's and Lender's express intention that Borrower not be required to pay interest on this Note at a rate in excess of the maximum lawful rate, that the provisions of this section shall control over all other provisions of this Note which may be in apparent conflict hereunder, that such excess amount shall be immediately credited to the principal balance of this Note, and the provisions hereof shall immediately be reformed and the amounts thereafter decreased, so as to comply with the then applicable usury law, but so as to permit the recovery of the fullest amount otherwise due under this Note.
(f) This Note may be transferred or assigned by Lender in whole or in part if, on Borrower's reasonable request, Lender provides an opinion of counsel reasonably satisfactory to Borrower that such transfer does not require registration under the Securities Act of 1933, as amended, and applicable state securities law, except that this Note may be transferred by a Lender which is a partnership or limited liability company to a partner, former partner, member, former member or other affiliate of such partner or limited liability company, as the case may be, if (i) the transferee agrees in writing to be subject to the terms of this Note and (ii) Lender delivers notice of such transfer to Borrower. Any rights and obligations of Borrower and Lender under this Note shall be binding upon and inure to the benefit of their respective permitted successors, assigns, heirs, administrators and transferees.
(g) If at any time the number of authorized but unissued shares of Borrower shall not be sufficient to effect the conversion of this Note, Borrower will take all such corporate action as may be necessary to increase its authorized but unissued shares to such number of shares as shall be sufficient for such purpose. The parties acknowledge that Borrower currently does not have any authorized but unissued shares of its common stock available for issuance and Borrower hereby agrees to use its best efforts to take action to call a shareholder meeting and increase its authorized but unissued common stock as soon as practicable.
(h) Any term of this Note may be amended and the observance of any term of this Note may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of Borrower and Lender in the case of an amendment and only with the written consent of the waiving party in the case of a waiver.
(i) All shares issued upon conversion of this Note shall be validly issued, fully paid and non-assessable, and Borrower shall pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery thereof. Borrower shall not be required to pay any transfer tax or other similar charge imposed in connection with any transfer involved in the issuance of any certificate for shares in any name other than that of Lender.
(j) Borrower will not, by amendment of its Certificate of Incorporation or Bylaws, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Lender under this Note against impairment. Without limiting the generality of the foregoing, Borrower (i) will not increase the par value of any shares issuable upon conversion of this Note above the amount payable therefore upon such exercise, and (ii) will take all such action as may be necessary or appropriate in order that Borrower may validly and legally issue fully paid and non-assessable shares upon conversion of this Note.
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ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its corporate name by its duly authorized officer and dated the day and year first above written.
AURA SYSTEMS, INC.
By:
Name:
Title:
I:\Spodocs\28601\00016\agree\00168496.DOC
SCHEDULE OF EXCEPTIONS
1. Shareholder litigation (Barovich/Chiau et al) judgment settlement for approximately $789,000 is in default. In April 2003, this creditor served Writs of Execution against the Company's bank accounts but has taken no further action.
2. Convertible notes payable, issued in August October 2002 for a total principal amount of $625,000 are in default.
3. The $1,000,000 Note Payable to purchasers in a sale/leaseback transaction, dated December 1, 2002, became due and payable on May 30, 2004.
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is entered into as of June 14, 2004, by AURA SYSTEMS, INC. a Delaware corporation (the "Debtor"), for the benefit of RAVEN PARTNERS, L.P., a Delaware limited partnership (the "Secured Party").
R E C I T A L S :
NOW, THEREFORE, the Debtor hereby agrees with the Secured Party as follows:
ARTICLE I. DEFINITIONS
Unless otherwise defined herein, any terms used herein (whether or not capitalized, such as "accounts," "inventory" and "equipment") which are defined in the Uniform Commercial Code as enacted in the State of Washington, as amended from time to time, shall have the meaning assigned to such term therein. Unless otherwise defined herein, any capitalized terms used herein which are defined in the Note shall have the meaning assigned to them therein. In addition, the following terms shall have the meaning set forth below:
"Collateral" means all of the Debtor's personal property and fixtures of every nature whether tangible or intangible and whether now owned or hereafter acquired, wherever located, including without limitation the following:
(i) (a) All goods; (b) all inventory, merchandise, and personal property held for sale or lease or furnished or to be furnished under contracts of service, all raw materials, work in process, or materials used or consumed in Debtor's business, wherever located and whether in the possession of the Debtor, a warehouseman, a bailee, or any other person; (c) all equipment, machinery, tools, office equipment, supplies, furnishings, furniture, or other items used or useful, directly or indirectly, in the Debtor's business, (d) all fixtures; and (e) all substitutes and replacements therefore, all accessions, attachments, and other additions thereto, all tools, parts and supplies used in connection therewith, all packaging, manuals, warranties and instructions related thereto, and all leasehold or equitable interests therein;
(ii) (a) All accounts, accounts receivable, contract rights, contracts receivable, purchase orders, notes, drafts, acceptances, and other rights to payment and receivables; (b) all chattel paper (whether tangible or electronic), documents and instruments (including promissory notes); (c) all money and deposit accounts; (d) all letter of credit rights (whether or not the letter of credit is evidenced by a writing), rights under security, guaranties or other supporting obligations, tort claims and proceeds, insurance claims and proceeds, and tax refund claims and proceeds; (e) all securities and other investment property; (f) all general intangibles and payment intangibles, (g) all patents and patent applications and registrations, trademarks and trademark applications and registrations, service marks and service mark applications and registrations, and copyrights and copyright applications and registrations (collectively the "Patents, Trademarks and Copyrights"), including without limitation the patents, patent applications, trademarks and trademark applications and copyrights and copyright applications owned by the Debtor on Schedule 1 hereto, or licensed to the Debtor on Schedule 2 hereto; (h) all trade names, trade styles, goodwill, inventions, designs, methods, processes, technology, know-how, intellectual property, drawings, specifications, blue prints, confidential information, trade secrets, customer lists, supplier lists, software and computer programs, mask works, and mask work applications and registrations, goodwill, license agreements, franchise agreements and other licenses, permits, franchises, and agreements of every kind and nature pursuant to which the Debtor possesses, uses or has authority to possess or use any property (whether tangible or intangible) of the Debtor or pursuant to which others possess, use or have authority to possess or use any property (whether tangible or intangible) of the Debtor, and infringement and commercial tort claims; a nd (i) all business records, software, writings, plans, specifications, schematics, and other recorded data in any form; and
(iii) All products and proceeds of the foregoing and all other property received or receivable in disposition of or exchange of the foregoing.
"Event of Default" means any default in payment or performance of the Obligations.
"Obligations" means any and all obligations and liabilities of every nature of the Debtor to the Secured Party, whether now existing or hereafter incurred, including without limitation those arising out of or in connection with the Note, this Agreement or any other agreements with the Secured Party. The Obligations shall specifically include any and all principal, interest (including without limitation interest that, but for the filing of a petition in bankruptcy, would accrue on such obligations), fees, expenses, indemnities or other obligations or liabilities, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created, or incurred, as well as any and all of such obligations or liabilities that are paid, to the extent such payment is avoided or recovered directly or indirectly from the Secured Party as a prefere nce, fraudulent transfer, or otherwise, together with any and all amendments, modifications, extensions or renewals of the foregoing.
ARTICLE II. GRANT OF SECURITY INTEREST
To secure the payment and performance of the Obligations, the Debtor hereby grants a continuing security interest in the Collateral, and assigns the Collateral, to the Secured Party. Such security interest of the Secured party is (i) junior to the first-priority security interest previously granted to the Koyah Collateral Agent, and (ii) junior to the second-priority security interests granted in favor of Appleby and Prudent Bear, and subject to the terms and conditions of the Intercreditor Agreement (as defined below).
ARTICLE III. COVENANTS OF THE DEBTOR
The Debtor shall fully perform each of the covenants set forth below.
3.1 Further Documentation
Promptly upon request of the Secured Party and at the Debtor's expense, the Debtor (a) shall prepare, execute, deliver and file any financing statement, any filing with the Patent and Trademark Office, Copyright Office or other applicable office, and any renewal, substitution or correction thereof or any other document and shall take any such further action as the Secured Party may require in perfecting or protecting the security interested granted by the Debtor under this Agreement or in otherwise obtaining the full benefits of this Agreement and (b) authorizes the Secured Party to prepare, execute, deliver and file any such documents and to take any such actions on behalf of the Debtor.
3.2 Patents, Trademarks and Copyrights
Schedule 1 lists all Patents, Trademarks and Copyrights currently owned by the Debtor. Promptly upon any change in the Patents, Trademarks and Copyrights owned by the Debtor, the Debtor shall provide the Secured Party with an updated Schedule 1 listing all Patents, Trademarks and Copyrights then owned by the Debtor. Schedule 2 lists all Patents, Trademarks and Copyrights currently licensed to the Debtor by third parties. Promptly upon any change in the Patents, Trademarks and Copyrights licensed to the Debtor, the Debtor shall provide the Secured Party with an updated Schedule 2 listing all Patents, Trademarks and Copyrights then licensed to the Debtor.
3.3 Pledges
Following (i) payment of all obligations owed to Koyah and release of the Koyah Collateral Agent's security interest in the Collateral and (ii) payment of all obligations owed to Appleby and Prudent Bear and release of the security interests granted in favor of Appleby and Prudent Bear, upon request of the Secured Party and at Debtor's expense, the Debtor shall promptly deliver and pledge to the Secured Party, endorsed or accompanied by instruments of assignment or transfer satisfactory to the Secured Party, any Collateral consisting of instruments, investment property, documents, general intangibles or chattel paper.
3.4 Control
Following (i) payment of all obligations owed to Koyah and release of the Koyah Collateral Agent's security interest in the Collateral and (ii) payment of all obligations owed to Appleby and Prudent Bear and release of the security interests granted in favor of Appleby and Prudent Bear, upon request of the Secured Party and at Debtor's expense, the Debtor shall cooperate with the Secured Party in obtaining control with respect to any Collateral consisting of deposit accounts, investment property, letter of credit rights and electronic chattel paper.
3.5 Maintenance of Records
The Debtor shall keep and maintain satisfactory and complete records of the Collateral including but not limited to a record of all payments received and all credits granted with respect to the Collateral and all other dealings with the Collateral. The Debtor shall mark its books and records pertaining to the Collateral to evidence this Agreement and the security interest granted herein. Promptly upon request of the Secured Party, the Debtor shall deliver and turn over to the Secured Party copies of all books and records pertaining to the Collateral.
3.6 Liens
Except for (i) existing licenses of Patents, Trademarks and Copyrights by the Debtor to third parties set forth on Schedule 3 and (ii) liens in favor of the Koyah Collateral Agent, Appleby and Prudent Bear or liens in favor of other parties named in the Intercreditor Agreement (as defined below), the Debtor owns the Collateral free and clear of liens, charges, pledges, security interests, encumbrances or other claims or interests in the Collateral, and the Debtor will neither create nor permit the existence of any of the foregoing without the prior written consent of the Secured Party. Notwithstanding the foregoing, the Secured Party hereby waives any breach of the covenant set forth above arising from the existing liens set forth on Schedule 4, so long as the Debtor otherwise remains in compliance with all of the provisions of the Transaction Documents (as defined in the Agreement dated as of the date hereof between the Debtor and the Secured Party) and this Agreement.
3.7 Disposition of Collateral
The Debtor shall not sell, license, lease, transfer or otherwise dispose of any of the Collateral without the prior written consent of the Secured Party, except for sales of inventory, collection of rights to payment, and disposition of equipment or inventory which is obsolete or being replaced, all in the ordinary course of business in accordance with past practices.
3.8 Limitations on Amendments, Modifications, Terminations, Waivers and Extensions of Contracts and Agreements Giving Rise to Accounts
Without the prior written consent of Secured Party, the Debtor will not (a) amend, modify, terminate, waive or extend any provision of any agreement giving rise to an account, general intangible, instrument, chattel paper or other right to payment, licensing any Patents, Trademarks or Copyrights to the Debtor or by the Debtor or otherwise relating to the Collateral, in any manner that could reasonably be expected to have a material adverse effect on the value of any Collateral or (b) fail to exercise promptly and diligently every material right that it may have under each such agreement, other than any right of termination (which shall only be exercised with the prior written consent of the Secured Party).
3.9 Indemnification
The Debtor agrees to pay, and to indemnify the Secured Party and hold the Secured Party harmless from, all liabilities, costs and expenses (including legal fees and expenses) in connection with protecting or realizing on the Collateral, enforcing any rights or remedies of the Secured Party or otherwise arising out of this Agreement. In any suit, proceeding or action brought by the Secured Party under any account or other right to payment to enforce payment of any sum owing thereunder or to enforce any provisions of any account or other right to payment, the Debtor will indemnify the Secured Party and hold the Secured Party harmless from all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment, reduction or liability whatsoever of any account debtor thereunder arising out of a breach by the Debtor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or its successors from the Debtor.
3.10 Further Identification of Collateral
The Debtor will furnish to the Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Secured Party may request, all in reasonable detail.
3.11 Notices
The Debtor will advise the Secured Party promptly in reasonable detail (a) of any lien, charge, pledge, security interest, encumbrance or other claim or interest asserted against any of the Collateral and (b) of the occurrence of any other event that could reasonably be expected to have a material adverse effect on the Collateral.
3.12 Changes in Locations, Name, Etc.
The Debtor will not (a) change its state of organization, (b) change the location of its chief executive office/chief place of business or remove its books and records from the locations set forth in Schedule 5 to this Agreement or (c) change its name, identity or structure to such an extent that any financing statement filed by the Secured Party in connection with this Agreement would become ineffective or seriously misleading, unless it shall have given the Secured Party at least 30 days prior written notice thereof.
3.13 Further Assurances
The Debtor agrees to take all actions which the Secured Party may request to perfect or maintain the perfection of, or to otherwise protect, the security interest granted herein and the Debtor authorizes the Secured Party to take such actions on behalf of the Debtor, including without limitation (a) filing (including electronic or facsimile filing) financing statements describing the Collateral, which may include descriptions broader than as set forth in this Agreement and (b) filing any documents with the Patent and Trademark Office, Copyright Office or any other applicable office. The Debtor agrees that where allowed by law, a carbon, photographic or other reproduction of a financing statement or this Agreement is sufficient as a financing statement.
3.14 Insurance
The Debtor (a) will keep the Collateral continuously insured at its expense against fire, theft, and other hazards in amounts and with insurers as shall be sufficient to fully protect the Collateral, as reasonably approved by the Secured Party, (b) will include in such policies of insurance to the Secured Party clauses making any loss payable to the Secured Party as its interest may appear and agreeing to notify Secured Party of any cancellation or threatened cancellation not less than 30 days prior to the effective date of such cancellation and (c) will deliver copies of such policies of insurance to the Secured Party upon request.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
The Debtor hereby makes the following representations and warranties:
4.1 Title to Collateral
Except for liens in favor of the Koyah Collateral Agent, Appleby, Prudent Bear, or liens in favor of other parties named in the Intercreditor Agreement, the Debtor has good and marketable title to all of the Collateral, free and clear of all liens, charges, pledges, security interests, encumbrances or other claims or interests. Notwithstanding the foregoing, the Secured Party hereby waives any breach of the representation and warranty set forth above arising from the existing liens set forth on Schedule 4, so long as the Debtor otherwise remains in compliance with all of the provisions of the Transaction Documents and this Agreement.
4.2 No Impairment of Collateral
None of the Collateral shall be impaired or jeopardized because of the security interest granted herein.
4.3 Other Agreements
The execution and delivery of this Agreement, the consummation of the transactions provided for herein, and the fulfillment of the terms hereof will not result in the breach of any of the terms, conditions, or provisions of, or constitute a default under, or conflict with or cause any acceleration of any obligation under any agreement or other instrument to which the Debtor is a party or by which the Debtor is bound or result in the violation of any applicable law.
4.4 No Approvals
No approvals of any governmental entity or third party are required in connection with the security interest herein granted.
4.5 Authority
The Debtor has full power and authority to grant to the Secured Party a security interest in the Collateral.
4.6 Location of Records
The address(es) of the office where the books and records of the Debtor are kept concerning the Collateral is set forth on Schedule 5 to this Agreement.
4.7 State of Organization
The Debtor's state of organization is set forth on Schedule 5 to this Agreement.
4.8 Chief Executive Office
The Debtor's chief executive office and chief place of business is located at the address set forth on Schedule 5 to this Agreement.
4.9 Trade Names
The Debtor conducts its business only under its legal name except for any additional trade names set forth on Schedule 5 to this Agreement.
ARTICLE V. THE SECURED PARTY'S RIGHTS WITH RESPECT TO THE COLLATERAL
5.1 No Duty on the Secured Party's Part
The Secured Party shall not be required to realize upon any Collateral, except at its option upon the occurrence of any Event of Default; collect the principal, interest or payment due thereon or exercise any rights or options of the Debtor pertaining thereto; make presentment, demand or protest; give notice of protest, nonacceptance or nonpayment; or do any other thing for the protection, enforcement or collection of any Collateral. The powers conferred on the Secured Party hereunder are solely to protect the Secured Party's interests in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers. The Secured Party shall be accountable only for amounts that it actually received as a result of the exercise of such powers; and shall not be responsible to the Debtor for any act or failure to act hereunder.
5.2 Negotiations with Account Debtors
Upon the occurrence of any Event of Default, the Secured Party may, in its sole discretion, extend or consent to the extension of the time of payment or maturity of any instruments, accounts, chattel paper, general intangibles or other rights to payment.
5.3 Right to Assign
The Secured Party may assign or transfer the whole or any part of the Obligations and may transfer therewith as collateral security the whole or any part of the Collateral; and all obligations, rights, powers and privileges herein provided shall inure to the benefit of the assignee and shall bind the successors and assigns of the parties.
5.4 Duties Regarding Collateral
Beyond the safe custody thereof, the Secured Party shall not have any duty as to any Collateral in its possession or control, or as to any preservation of any rights of or against other parties.
5.5 Collection From Account Debtors
Upon the occurrence of any Event of Default, the Debtor shall, upon demand by the Secured Party (and without any grace or cure period), notify all account debtors to make payment to the Secured Party of any amounts due or to become due. The Debtor authorizes the Secured Party to contact the account debtors for the purpose of having all or any of them pay their obligations directly to the Secured Party. Upon demand by the Secured Party, the Debtor shall enforce collection of any indebtedness owed to it by account debtors.
5.6 Inspection
The Secured Party and its designees, from time to time at reasonable times, may inspect, audit and make copies of and extracts from all records and all other papers in the possession of the Debtor in connection with the Collateral.
ARTICLE VI. THE SECURED PARTY'S RIGHTS AND REMEDIES
6.1 Acceleration; Remedies
Upon the occurrence of any Event of Default, the Secured Party shall have all rights and remedies available to it under the Note, this Agreement, and any other documents or agreements or available at law or in equity, including without limitation the Uniform Commercial Code. The Secured Party may proceed to enforce any or all of such rights and remedies or realize on any or all security or guaranties for the Obligations in any manner or order it deems expedient without regard to any equitable principles of marshaling or otherwise. No failure or delay on the part of the Secured Party in exercising any right, power or privilege hereunder and no course of dealing shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any right, power or privilege. The rights and remedies of the Secured Party are cumulative and not exclusive of any rights or remedies that the Se cured Party would otherwise have. No notice to or demand on the Debtor, in any case, shall entitle the Debtor to any other or further notice or demand in similar or other circumstances or shall constitute a waiver of the right of the Secured Party to any other or further action in any circumstances without notice or demand.
6.2 Notice of Sale
The Debtor hereby acknowledges and agrees that written notice mailed to the Debtor at the address designated herein ten days prior to the date of public or private sale of any of the Collateral shall constitute commercially reasonable notice.
6.3 Disposition of Collateral
In addition to all other rights and remedies available to the Secured Party upon the occurrence of an Event of Default, the Secured Party may dispose of any of the Collateral at public or private sale in its then present condition or following such preparation and processing as the Secured Party deems commercially reasonable. Such sale may include licensing of the Collateral on an exclusive or non-exclusive basis, on a worldwide or geographically limited basis and on an all-uses or limited uses basis. For the purpose of enabling the Secured Party to exercise its rights and remedies hereunder, the Debtor hereby grants to the Secured Party an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Debtor) to use, license or sub-license any of the Collateral, including in such license access to all media in which any of the Collateral may be recorded or stored and to all computer software and programs used for the compilation or printout the reof. The Secured Party has no duty to prepare or process the Collateral prior to sale. The Secured Party may disclaim warranties of title, possession, quiet enjoyment and the like. Such actions by the Secured Party shall not affect the commercial reasonableness of the sale. Further, the Secured Party may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.
6.4 Rights of Other Creditors
The security interest of the Secured Party and the rights of the Secured Party upon the occurrence of any Event of Default or otherwise under this Agreement shall be subject to the senior first-priority security interest of the Koyah Collateral Agent, the senior second-priority security interest in favor of Appleby and Prudent Bear and the rights of the Koyah Collateral Agent, Appleby and Prudent Bear upon the occurrence of any event of default or otherwise under their security documents.
ARTICLE VII. GENERAL PROVISIONS
7.1 The Secured Party's Appointment as Attorney-in-Fact
(a) The Debtor hereby irrevocably constitutes and appoints the Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Debtor and in the name of the Debtor or in its own name, from time to time in the Secured Party's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or desirable to accomplish the purposes of this Agreement; and without limiting the generality of the foregoing, the Debtor hereby gives the Secured Party the power and right, on behalf of the Debtor, without consent by or notice to the Debtor, to do the following:
(i) upon the occurrence of any Event of Default, to transfer to the Secured Party or to any other person all or any of the Collateral, to endorse any instruments pledged to the Secured Party and to fill in blanks in any transfers of Collateral, powers of attorney or other documents delivered to the Secured Party;
(ii) to pay or discharge taxes and liens levied or placed on or threatened against the Collateral;
(iii) upon the occurrence of any Event of Default, (A) to take possession of, endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any account, instrument or general intangible or with respect to any other Collateral and (B) to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Secured Party for the purpose of collecting all such moneys due under any account, financial assets, instrument, investment property, or general intangible or with respect to any other Collateral whenever payable; and
(iv) upon the occurrence of any Event of Default, (A) to direct any party liable for any payment under any of the Collateral to make payment of all moneys due or to become due thereunder directly to the Secured Party or as the Secured Party shall direct; (B) to ask for, demand, collect and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against the Debtor with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharge or releases as the Secured Party may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Secured Party were the absolute owner thereof for all purposes; and to do, at the Secured Party's option and the Debtor's expense, at any time or from time to time, all acts and things that the Secured Party deems necessary to protect, preserve or realize upon the Collateral and the Secured Party's security interest therein and to effect the intent of this Agreement, all as fully and effectively as the Debtor might do.
(b) The Debtor hereby ratifies all that such attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable.
(c) The Debtor also authorizes the Secured Party, at any time and from time to time, to execute, in connection with the sale provided for in Article VI hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral.
(d) The powers conferred on the Secured Party hereunder are solely to protect the Secured Party's interests in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers. The Secured Party shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to the Debtor for any act or failure to act hereunder.
(e) The Debtor shall pay or reimburse the Secured Party for all costs and expenses, including attorneys fees, incurred by the Secured Party while acting as the Debtor's attorney-in-fact hereunder.
7.2 Termination of Agreement
This Agreement shall remain in full force and effect until the Obligations have been fully and finally discharged.
7.3 Severability
If any provision of this Agreement is for any reason and to any extent determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement will be unaffected and interpreted so as best to reasonably effect the intent of the parties hereto. Such void or unenforceable provision of this Agreement shall be replaced with a valid and enforceable provision so as to achieve, to the greatest extent possible, the economic, business and other purposes of the void or unenforceable provision.
7.4 Waiver
No waiver by any party of any breach of any provision hereof shall constitute a waiver of any other breach of that or any other provision hereof.
7.5 Assignment
All rights, powers, privileges and immunities herein granted to the Secured Party shall extend to their successors and assigns and any other legal holder of the Obligations or this Agreement, with full right by the Secured Party to assign and/or sell the same.
7.6 Successors
The rights and obligations of the parties hereto shall inure to the benefit of, and be binding and enforceable upon, the respective successors and assigns of the parties.
7.7 Entire Agreement
This Agreement constitutes the entire agreement of the parties hereto concerning the subject matter hereof, all prior discussions, proposals, negotiations and understandings having been merged herein. This Agreement or any provision hereof may be (i) modified or amended, but only by a writing signed by all parties at such time or (ii) waived (either generally or in a particular instance, either retroactively or prospectively, either for a specified period of time or indefinitely, either with or without consideration), but only by a writing signed by the party granting such waiver.
7.8 Intercreditor Agreement.
The terms and conditions of this Agreement shall also be governed by and subject to the terms and conditions of an Intercreditor Agreement dated as of January 19, 2004 among the Company, Koyah Partners, L.P., Koyah Leverage Partners, L.P., Appleby and Prudent Bear, to which the Secured Party and Koyah Ventures LLC are being added as additional parties pursuant to a Joinder Agreement dated as of the date hereof (collectively, the "Intercreditor Agreement").
7.9 Governing Law; Jurisdiction; Venue; Jury Trial
Consistent with the governing law and venue provisions of the Intercreditor Agreement, this Agreement shall be governed by, and interpreted under, the laws of the State of Washington applicable to contracts made and to be performed therein, without giving effect to the principles of conflicts of law. The parties hereby (i) agree that any legal suit, action or proceeding arising out of or relating to this Agreement must be instituted in a federal or state court located in the County of Spokane, State of Washington, (ii) irrevocably submit to the jurisdiction of any such court and waive any objection to the laying of venue in, or the inconvenience of, such forum and (iii) irrevocably waives all rights to trial by jury in any action, suit or proceeding arising out of or related to this Agreement, the Note or any other agreement or document between the Debtor and the Secured Party.
7.10 Notices
All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial messenger or courier service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to each party at the address (or at such other address for a party as shall be specified by like notice) set forth below; provided, however, that notices sent by mail will not be deemed given until received.
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
Attn: Neal Meehan
Fax: 310-643-8719
Raven Partners, L.P.
C/o ICM Asset Management, Inc.
W. 601 Main Avenue, Suite 600
Spokane, WA 99201
Attn: Robert Law
Fax: 509-444-4500
7.11 Costs and Expenses
The Debtor hereby agrees to pay to the Secured Party upon demand all costs and expenses, including attorney's fees, incurred in connection with the administration of this Agreement, including without limitation all filings or other actions required by the Secured Party in connection with perfecting or otherwise protecting the security interest granted hereunder. In addition, the Debtor hereby agrees to pay to the Secured Party upon demand all costs and expenses, including attorney's fees, incurred in connection with the enforcement of this Agreement, collection of the Obligations and the protection, preservation, collection or sale of or other realization upon the Collateral, including without limitation in any out-of-court workout, any court action, any appeal or any bankruptcy proceeding.
7.12 Counterparts
This Agreement may be executed in any number of counterparts, each of each of which will be an original, but all of which together will constitute one and the same instrument.
7.13 Title and Subtitles
The titles of the sections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
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IN WITNESS WHEREOF, the Debtor and the Secured Party have caused this Agreement to be duly executed as of the day and year first above written.
"Debtor"
AURA SYSTEMS, INC.
By:
Name:
Title:
"Secured Party"
RAVEN PARTNERS, L.P.
By: Koyah Ventures LLC, its general partner
By:
Name:
Title:
SCHEDULE 1
Patent and Patent Applications,
Trademark and Trademark Applications
and
Copyrights and Copyright Applications Owned by the Debtor
1. Patents.
Any and all domestic and foreign patent registrations, patent applications, patentable invention rights or patent-related rights to current and future interests owned by Debtor or assigned to Debtor, including but not restricted to the following patent registrations and patent applications:
Domestic Patent Registrations
Reg. Number |
Title |
4,892,328 |
Electromagnetic Strut Assembly |
4,912,343 |
Electromagnetic Actuator |
4,969,662 |
Active Damping System for an Automobile Suspension |
4,979,789 |
Continuous Source Scene Projector |
5,032,906 |
Intensity Calibration Method for Scene Projector |
5,035,475 |
Unique Modulation Television |
5,085,497 |
Method for fabricating mirror array for Optical Projection System |
5,099,158 |
Electromagnetic Actuator |
5,126,836 |
Actuated Mirror Optical Intensity Modulation |
5,135,070 |
Active Hydraulic Pressure Control |
5,138,309 |
Electronic Switch Matrix for a Video Display System |
5,150,205 |
Actuated Mirror Optical Intensity Modulation |
5,159,225 |
Piezoelectric Actuator |
5,162,767 |
High Efficiency Solenoid |
5,175,465 |
Piezoelectric and Electrostructive Actuators |
5,185,660 |
Actuated Mirror Optical Intensity Modulation |
5,187,398 |
Electromagnetic Actuator |
5,207,239 |
Variable Gain Servo Assist |
5,212,977 |
Electromagnetic Re-draw Sleeve Actuator |
5,222,714 |
Electromagnetically Actuated Valve |
5,245,369 |
Scene Projector |
5,260,798 |
Pixel Intensity Modulator |
5,278,953 |
Machine Tool Fixture Computer Aided Setup |
5,285,995 |
Optical Table Active Leveling and Vibration Cancellation System |
5,307,665 |
Electromagnetic Re-draw Sleeve Actuator |
5,309,050 |
Ferromagnetic Wire Electromagnetic Actuator |
5,325,699 |
Electromagnetic Re-draw Sleeve Actuator |
5,334,265 |
Magnetic Material |
5,341,054 |
Low Mass Electromagnetic Actuator |
5,350,153 |
Core Design for Electromagnetic Actuated Valve |
5,352,101 |
Electromagnetically Actuated Compressor Valve |
5,354,185 |
Electromagnetically Actuated Reciprocating Compressor Driver |
5,355,108 |
Electromagnetically Actuated Compressor Valve |
5,481,396 |
Thin Film Actuated Mirror Array |
5,548,263 |
Electromagnetically Actuated Valve |
5,589,084 |
Thin Film Actuated Mirror Array |
5,616,982 |
Piezoelectric Actuator |
5,689,380 |
Thin Film Actuated Mirror Array for Providing Double Tilt Angle |
5,710,657 |
Monomorph Thin Film Actuated Mirror Array |
5,720,468 |
Stagerred Electromagnetically Actuated Valve Design |
5,721,694 |
Non-linear Deterministic Stochastic Filtering Method and System |
5,734,217 |
Induction Machine using Ferromagnetic Conducting Material in Rotor |
5,768,392 |
Blind Adaptive Filtering of Unknown Signals in Unknown Noise in Quasi-closed Loop System |
5,768,395 |
Double Ended Field Coil Actuator |
5,772,179 |
Hinged Armature Electromagnetically Actuated Valve |
5,780,958 |
Piezoelectric Vibrating Device |
5,782,454 |
Electromagnetically Actuated Valve |
5,796,377 |
Video Display System having an Electronic Switch Matrix for controlling an MSN array of Piezoelectric Members |
5,822,370 |
Compression/Decompression for Preservation of High Fidelity Speech Quality at Low Bandwidth |
5,898,244 |
Dual Directional Field Coil Actuator |
6,032,113 |
N-Stage Predicted Feedback-Based Compression and Decompression of Spectra of Stochastic Data Using Convergent Incomplete Autoregressive Models |
6,157,175 |
Mobile Power Generation System |
6,158,403 |
Servo Control System for an Electromagnetic Valve Actuator used in an Internal Combustion Engine |
6,267,351 |
Electromagnetic Valve Actuator with Mechanical End Position Clamp or Latch |
D355,751 |
Video Game Accessory Vest |
D393,447 |
Adapter Plug |
5,097,510 |
Artificial Intelligence Pattern Recognition-based Noise Reduction System for Speech Processing |
5,140,640 |
Noise Cancellation System |
Monolithic Prestressed Ceramic Devices and Method for making same |
|
4,998,441 |
Force and Torque Measurement System |
5,321,762 |
Voice Coil Actuator |
5,418,860 |
Voice Coil Excursion and Amplitude Gain Control Device |
5,424,592 |
Electromagnetic Transducer |
5,434,458 |
Voice Coil Actuator |
5,536,984 |
Voice Coil Actuator |
5,539,262 |
Axially Focused Radial Magnet Voice Coil Actuator |
5,624,155 |
Electromagnetic Transducer |
5,652,801 |
Resonance Damper for Piezoelectric Transducer |
5,727,076 |
Audio Transducer having Piezoelectric Device |
5,736,808 |
Piezoelectric Speaker |
5,786,741 |
Polygon Magnet Structure for Voice Coil Actuator |
6,082,315 |
Electromagnetic Valve Actuator |
D363,270 |
Adapter Plug |
D364,162 |
Amplifier Housing |
D364,167 |
Speaker Motor Case |
D394,063 |
Pair of Speaker Enclosures |
D396,723 |
Speaker Basket |
D449,828 |
Speaker Basket |
Domestic Patent Applications
Serial Number |
Title |
09/799,973 |
Switched Reluctance Motor Delivering Constant Torque From Three Phase Sinusoidal Voltages |
09/939,116 |
Mobile power generation system |
09/938,967 |
Bi-directional power supply circuit |
Foreign Patent Applications
PCT Number |
Title |
US00/03815 |
Mobile Power Generation System (Europe, title not verified) |
US01/50683 |
Mobile power generation system (Europe & Canada, title not verified) |
US01/50762 |
Bi-directional power supply circuit (Europe, title not verified) |
2. Trademarks.
Any and all domestic and foreign trademark registrations, trademark applications, trade and service mark rights, or other trademark-related rights to current and future interests owned by Debtor or assigned to Debtor, including but not restricted to the following trademark registrations and trademark applications:
Serial Number |
Reg. Number |
Word Mark |
75547751 |
|
AMA |
75225690 |
2128907 |
ASPECT |
75559987 |
2372115 |
AURA |
74472095 |
1991593 |
AURA |
74369064 |
2196818 |
AURA |
74322660 |
|
AURAFLUX |
75141345 |
|
AURAGEN |
75977693 |
2202313 |
AURAGEN |
75594235 |
2477031 |
AURAGEN POWER. ON THE GO. |
74639340 |
|
AURAPHILE |
75141344 |
|
AURAPOWER |
75237652 |
|
AURAGEN OF POWER |
74134961 |
|
AURASCOPE |
74134960 |
|
AURASCOPE |
74466053 |
2142944 |
AURASCOPE |
74417408 |
|
AUTO SONICS |
74410206 |
|
AURA SONICS |
74349974 |
|
AURASOUND |
74313418 |
2482562 |
AURA SOUND |
75235513 |
|
AURA VIRTUAL SOUND |
75235817 |
|
A V S |
74679644 |
2072412 |
BASS SHAKER |
74491123 |
1894891 |
CUSTOMWARE |
74491122 |
1892461 |
CUSTOMWARE |
75235512 |
|
DO MORE THAN LISTEN |
75225341 |
2181910 |
EVA |
75225280 |
|
FAR |
75225289 |
|
FAS |
75225288 |
|
FERRODISK |
75291968 |
|
FORCE |
75225287 |
|
FORCE |
75225296 |
|
FORCE 10 |
75225297 |
|
FORCE 12 |
75225298 |
|
FORCE 15 |
75225286 |
|
FORCE 42 |
75225285 |
|
FORCE 52 |
75225284 |
|
FORCE 62 |
75229617 |
|
FORCE 150 |
75229616 |
|
FORCE 250 |
75229720 |
|
FORCE 340 |
75229718 |
|
FORCE 400Q |
75225283 |
|
FORCE 426 |
75225282 |
|
FORCE 527 |
75229719 |
|
FORCE 560 |
75225281 |
|
FORCE 629 |
75225295 |
|
FORCE 639 |
74408244 |
|
HIGH GAP |
74408232 |
|
HIGH STROKE |
74472097 |
|
INTERACTOR |
74425395 |
1920753 |
INTERACTOR |
74132488 |
1663325 |
LINAEUM |
74408446 |
|
LINEAR GAP |
74408231 |
|
LINEAR FLUX |
74408619 |
|
LINEAR MAG |
74408211 |
|
LINEAR RING |
75330407 |
|
LINE SOURCE |
75291967 |
|
LINE SOURCE |
74408243 |
|
LINEAR STROKE |
74528276 |
|
MAGFORCE |
75131644 |
|
MOBILE REFERENCE |
75579640 |
|
MOBILE REFERENCE PLATINUM |
75252086 |
2257621 |
MR |
75252085 |
2170439 |
MR 1 |
75252089 |
2219543 |
MR 5.1 |
75252090 |
2188518 |
MR 6.1 |
75252087 |
2224713 |
MR 52 |
75252088 |
2170440 |
MR 62 |
75252091 |
|
MR 629 |
74385179 |
|
MUSICAL CHAIRS |
74720723 |
2063972 |
NEO-RADIAL |
75123841 |
2111403 |
NEO-RADIAL TECHNOLOGY |
74706753 |
2067789 |
NEO-RADIAL TECHNOLOGY |
74408671 |
|
NEO RING |
75021447 |
|
NETFAX |
74408448 |
|
NEO FLUX |
74408206 |
|
NEO GAP |
74408447 |
|
NEO MAG |
74408208 |
|
NEO POWER |
74408179 |
|
NEO STROKE |
75021446 |
|
NETTALK |
75033935 |
2030035 |
NEWCOM |
75033934 |
2030034 |
NEW COM |
74618797 |
|
NEWTALK |
74706754 |
2144980 |
NRT |
74408242 |
|
PILLOW SONICS |
74394182 |
|
POWER TOWER |
74408601 |
|
RADIAL FLUX |
74408672 |
|
RADIAL GAP |
74408207 |
|
RADIAL LINE |
74408180 |
|
RADIAL MAG |
74408445 |
|
RADIAL NEO |
74408209 |
|
RADIAL POLE |
74408205 |
|
RADIAL POWER |
74408664 |
|
RADIAL RING |
74408178 |
|
RADIAL STROKE |
75579192 |
2654647 |
RPM |
74528416 |
|
SOUNDPLAY |
74408003 |
|
TALL GAP |
74431065 |
|
TECHNOLOGIES OF THE 21ST CENTURY |
74408210 |
|
THEATRE SONICS |
75579641 |
|
THE ULTIMATE UPGRADE |
74437049 |
|
THUNDERBOLT |
74367568 |
|
21ST CENTURY TECHNOLOGIES |
74388369 |
|
VIBRASONICS |
3. Copyrights.
Any and all domestic and foreign copyright registrations, copyright applications or other copyright-related rights to current and future interests owned by Debtor or assigned to Debtor.
[Remainder of page intentionally left blank]
SCHEDULE 2
Patents and Patent Applications, Trademarks and Trademark Applications
and
Copyrights and Copyright Applications Licensed to the Debtor
None.
SCHEDULE 3
Patents and Patent Applications
Trademarks and Trademark Applications,
And Copyrights and Copyright Applications
Licensed By the Debtor
None.
SCHEDULE 4
Schedule of Exceptions
1. El Seguendo real property and facilities are subject to a security interest related to mortgage financing and a pending sale/leaseback transaction.
2. Note receivable for approximately $1,000,000 under the Alpha Ceramics purchase agreement has been assigned as collateral to the purchasers in such sale/leaseback transaction.
3. The Plaintiffs in Arthur Schwatz v. Aura Systems, Inc. received a Writ of Attachment to collect a portion of their judgment. On May 3, 2004, the Plaintiffs used this Writ to effect a levy against the Company's primary bank account and received approximately $191,689. On May 11, 2004, Plaintiffs returned those funds to the Company without relinquishing their rights under the Writ. On June 7, 2004, the Plaintiff and the Company entered an Agreed Judgment in this case with a 45 day delayed effective date.
SCHEDULE 5
Debtor Information
State of organization: Delaware
Address of
chief executive office: Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
Address(es) where
books and records are kept: Same
Additional trade names: None
STOCK PLEDGE AGREEMENT
This Stock Pledge Agreement (this "Agreement") is entered as of June 14, 2004, by and among AURA SYSTEMS, INC., a Delaware corporation (the "Pledgor"), and RAVEN PARTNERS, L.P., a Delaware limited partnership ("Pledgee").
RECITALS
WHEREAS, in connection with a loan to the Pledgor by the Pledgee, the Pledgor and the Pledgee entered into an Agreement dated as of the date hereof (the "Agreement"), the Company executed in favor of the Pledgee a Convertible Promissory Note dated as of the date hereof (the "Note"), the Company executed in favor of Pledgee a Security Agreement dated as of the date hereof (the "Security Agreement");
WHEREAS, the Pledgee is to receive a pledge of and security interest in the 177,000 shares of Telemac Corporation, described herein, and the Pledgor is to execute and deliver this Agreement to further evidence and effectuate such pledge and security interest; and
WHEREAS, the Pledgor previously granted: (i) a first-priority pledge of and security interest in the same 177,000 shares of Telemac Corporation in favor of Koyah Leverage Partners, L.P., as collateral agent (the "Koyah Collateral Agent") for itself and Koyah Partners, L.P., a Delaware limited partnership (collectively, "Koyah") to secure loans made by Koyah; and (ii) a second-priority pledge of and security interest in the same 177,000 shares of Telemac Corporation in favor of Edgar Appleby, an individual ("Appleby") and Prudent Bear Fund, Inc., a Maryland corporation ("Prudent Bear"), to secure loans made by Appleby and Prudent Bear.
NOW, THEREFORE, for valuable consideration, the receipt of which is hereby acknowledged, the parties do hereby agree as follows:
AGREEMENT
To secure the full and punctual payment and discharge of the Obligations, the Pledgor hereby pledges the Collateral to the Pledgee and grants to the Pledgee a continuing security interest in the Collateral. Such security interest of the Pledgee is (i) junior to the first-priority security interest previously granted to the Koyah Collateral Agent and (ii) junior to the second-priority security interests previously granted to Appleby and Prudent Bear, and subject to the terms and conditions of the Intercreditor Agreement (as defined below).
The Certificates are in the possession of the Koyah Collateral Agent (or its designee), under the terms of a Stock Pledge Agreement dated August 18, 2003 and shall remain in the possession of the Koyah Collateral Agent (or its designee) until such time as released by the Koyah Collateral Agent (or its designee). Upon such release, the Pledgor shall deliver to Appleby and/or Prudent Bear the Certificates to Appleby and/or Prudent Bear. The Certificates shall remain in possession of Appleby and/or Prudent Bear until such time as released by Appleby and/or Prudent Bear. Upon such release, the Pledgor shall deliver (i) the Certificates to the Pledgee (or its designee) and (ii) stock power(s), duly executed in blank, for the Collateral to the Pledgee (or its designee).
4. Warranties and Covenants of the Pledgor.
The Pledgor represents and warrants, covenants and agrees as follows:
5. Exercise of Shareholder Rights.
(a) Receipt of Dividends and Distributions. Prior to the occurrence of a Default, the Pledgor shall have the right to receive and retain any ordinary dividends or other distributions paid on the Collateral.
(b) Right to Vote. Prior to the occurrence of a Default, the Pledgor may vote the Collateral for all purposes allowed within the restrictions set by this Agreement. The Pledgor agrees not to vote the Collateral or otherwise to act in any way which will adversely affect the value of the Collateral.
(a) Pledgee May Register Shares. Upon the occurrence of a Default, the Pledgee may cause the Collateral to be transferred to the Pledgee's name and may exercise any right normally incident to the ownership of the Collateral, including the right to vote and to receive all dividends or other payments.
(b) Collateral. Upon the occurrence of a Default, the Pledgee may sell all or any part of the Collateral at public or private sale. The Pledgee may purchase all or any part of the Collateral at the sale. Proceeds of any sale shall be applied first to pay all costs and expenses related to the Default and sale of the Collateral, including all attorneys' fees, and second, to pay all amounts owed on the Obligations, with any excess to be returned to the Pledgor.
(c) Remedies Cumulative. Upon the occurrence of a Default, the Pledgee shall have all rights and remedies available to them at law or in equity, including all rights available under the Uniform Commercial Code, and all rights and remedies granted under this Agreement, the Note, the Security Agreement and any other related documents or agreements. These rights and remedies shall be cumulative, and may be exercised singly or concurrently with all other rights and remedies the Pledgee may have.
(d) Order of Realization on the Collateral. The Pledgee may realize upon the Collateral, as well as any other collateral, in any order.
(e) Acknowledgments and Agreements of Pledgor. The Pledgor hereby acknowledges and agrees (i) that the Pledgor hereby waives all rights of redemption, stay, valuation and appraisal under any applicable laws, (ii) that ten (10) days prior written notice of the Pledgee's intention to make any sale of the Collateral is commercially reasonable notice, (iii) that the requirements of federal and state securities laws may limit the Pledgee's sale of all or part of the Collateral as well as the extent or manner in which any subsequent transferee could dispose of the same, (iv) in light of such restrictions, the Pledgee may effect a private sale to one or more purchasers who will agree, among other things, to acquire the Collateral for their own account, for investment, and not with a view to the distribution or resale thereof, (v) that the Pledgee may proceed to make such a sale whether or not a registration statement for the purpose of registering the Collateral sh all have been filed and may approach and negotiate with a single potential purchaser to effectuate such sale, (vi) any such sale might result in prices or other terms less favorable than if such sale were a public sale without such restrictions, and the Pledgee shall incur no liability for selling any Collateral under such circumstances, and (vii) the foregoing shall apply not withstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Pledgee sells.
(f) Registration. The Pledgor hereby assigns to the Pledgee, upon the occurrence of a Default, all registration rights the Pledgor now has or may hereafter acquire with respect to the Collateral. If the Pledgees desires to sell any of the Collateral at a public sale, the Pledgor will, upon request of the Pledgee, use its best efforts to cause the issuer of the Collateral to register the Collateral under federal and state securities laws and maintain the effectiveness of such registration, to the extent consistent with such registration rights. The Pledgor further agrees to indemnify, defend and hold harmless the Pledgee, any underwriter and their respective officers, directors, affiliates and controlling persons from and against all loss, liability, expenses, costs of counsel and claims (including the costs of investigation) that they may incur in so far as such loss, liability, expense or claim arising out of or is based upon any alleged untrue statement of a material fa ct contained in any prospectus, or arises out of or is based upon any alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, except in so far as they may have been caused by any untrue statement or omission based upon the information furnished in writing by the Pledgee expressly for use therein. The Pledgee will bear all costs and expenses of carrying out the foregoing obligations on its part. The Pledgor acknowledges and agrees that there is no adequate remedy at law for failure by it to comply with the provisions of this Section and that such failure would not be adequately compensable in damages, and therefore agrees that its agreements contained in this Section may be specifically enforced.
(g) Rights of Other Creditors. The security interest of the Pledgee and the rights of the Pledgee upon the occurrence of any Default or otherwise under this Agreement shall be subject to the senior first-priority security interest of the Koyah Collateral Agent, the second-priority security interests in favor of Appleby and Prudent Bear and the rights of the Koyah Collateral Agent, Appleby and Prudent Bear upon the occurrence of any default or otherwise under their security documents.
7. Termination of Agreement.
This Agreement shall remain in full force and effect until the Obligations have been fully and finally discharged.
8. Miscellaneous.
(a) Waiver. No right or obligation under this Agreement will be deemed to have been waived unless evidenced by a writing signed by the party against which the waiver is asserted or by its duly authorized representative. Any waiver will be effective only with respect to the specific instance involved, and will not impair or limit the right of the waiving party to insist upon strict performance of the right or obligation in any other instance, in any other respect, or at any other time.
(b) Notice. Any notice or other communication required or permitted under this Agreement shall be in writing and shall addressed to the party to which it is directed at such party's address or fax number set forth in the Note.
(c) Modifications to Be in Writing. To be effective, any modification to this Agreement must be in writing signed by all parties to the Agreement.
(d) Agreement Binding upon Successors and Assigns. This Agreement shall bind the Pledgor and its successors and assigns. All rights, privileges, and powers granted to the Pledgee under this Agreement shall benefit the Pledgee and its successors and assigns.
(e) Assignment of Agreement. At any time, the Pledgee may assign or transfer any of its rights or powers under this Agreement to any person or entity. The Pledgor may not transfer its rights, duties, or obligations under this Agreement without the prior written consent of the Pledgee.
(f) Further Assurances. Both the Pledgor and the Pledgee agree to take any further actions and to make, execute, and deliver any further written instruments which may be reasonably required to carry out the terms, provisions, intentions, and purposes of this Agreement.
(g) Governing Law. Consistent with the governing law and venue provision of the Intercreditor Agreement, this Agreement shall be governed by and construed and interpreted in accordance with the law of the State of Washington, without regard to that state's conflict of laws principles. All disputes between the parties hereto, whether sounding in contract, tort, equity or otherwise, shall be resolved only by state and federal courts located in Spokane, Washington, and the courts to which an appeal therefrom may be taken. All parties hereto waive any objections to the location of the above referenced courts, including but not limited to any objection based on lack of jurisdiction, improper venue or forum non-conveniens. Notwithstanding the foregoing, any party obtaining any order or judgment in any of the above referenced courts may bring an action in a court in another jurisdiction in order to enforce such order or judgment.
(h) Costs and Expenses. The Pledgor hereby agrees to pay to the Pledgee upon demand all costs and expenses, including attorney's fees, incurred in connection with the administration of this Agreement, including without limitation all filings or other actions required by the Pledgee in connection with perfecting or otherwise protecting the security interest granted hereunder. In addition, the Pledgor hereby agrees to pay to the Pledgee upon demand all costs and expenses, including attorney's fees, incurred in connection with the enforcement of this Agreement, collection of the Obligations and the protection, preservation, collection or sale of or other realization upon the Collateral, including without limitation in any out-of-court workout, any court action, any appeal or any bankruptcy proceeding.
(i) Severability. If any provision of this Agreement or any application of any provision is determined to be unenforceable, the remainder of this Agreement shall be unaffected. If the provision is found to be unenforceable when applied to particular persons or circumstances, the application of the provision to other persons or circumstances shall be unaffected.
(j) Headings. Headings used in this Agreement have been included for convenience and ease of reference only, and will not in any manner influence the construction or interpretation of any provision of this Agreement.
(k) Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed to be an original and all of which together will constitute a single agreement.
(l) Intercreditor Agreement. The terms and conditions of this Agreement shall also be governed by and subject to the terms and conditions of an Intercreditor Agreement dated as of January 19, 2004 among the Pledgor, Koyah Partners, L.P., Koyah Leverage Partners, L.P., Appleby and Prudent Bear, to which the Pledgee and Koyah Ventures LLC are being added as additional parties pursuant to a Joinder Agreement dated as of the date hereof (collectively, the "Intercreditor Agreement").
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first set forth above.
|
"Pledgor" AURA SYSTEMS, INC. By: Name: Title: |
|
"Pledgee" RAVEN PARTNERS, L.P. By: Koyah Ventures LLC, its general partner
By: Name: Title: |
I:\Spodocs\28601\00016\agree\00168505.DOC
JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this "Agreement") is made and entered into as of the 14th day of June, 2004, by and among KOYAH LEVERAGE PARTNERS, L.P., a Delaware limited partnership ("KLP"), KOYAH PARTNERS, L.P., a Delaware limited partnership ("KP") (KLP and KP are sometimes collectively referred to as "Koyah"), RAVEN PARTNERS, L.P., a Delaware limited liability partnership ("Raven"), and KOYAH VENTURES LLC, a Delaware limited liability company ("Ventures").
WITNESSETH:
WHEREAS, in connection with certain loans made to Aura Systems, Inc., a Delaware corporation (the "Company"), Koyah, Edgar Appleby, an individual ("Appleby"), and PRUDENT BEAR FUND, INC., a Maryland corporation ("Prudent Bear"), and the Company entered into an Intercreditor Agreement dated as of January 19, 2004;
WHEREAS, capitalized terms used herein but not otherwise defined herein shall have the meaning assigned to them in the Intercreditor Agreement;
WHEREAS, in connection with the Koyah Loans, the Company and Koyah entered into the Koyah Transaction Documents;
WHEREAS, in connection with the Appleby Loan, the Company and Appleby entered into the Appleby Transaction Documents;
WHEREAS, in connection with the Prudent Bear Loan, the Company and Prudent Bear entered into the Prudent Bear Transaction Documents;
WHEREAS, pursuant to the Koyah Transaction Documents, (i) KLP and KP were granted a senior first-priority security interest in the Collateral pursuant to their respective Transaction Documents and (ii) Appleby and Prudent Bear were subsequently granted junior, second-priority security interests in the Collateral pursuant to their respective Transaction Documents.
WHEREAS, pursuant to the Intercreditor Agreement, Koyah, Appleby and Prudent Bear, among other things:
WHEREAS, since the date of the Intercreditor Agreement, KLP and KP have made additional loans to the Company and KLP, KP and the Company have entered into additional Koyah Transaction Documents in accordance with Section 4(g) of the Intercreditor Agreement;
WHEREAS, as of the date hereof, the aggregate principal amounts outstanding under the Koyah Loans, the Appleby Loan and the Prudent Bear Loan (excluding any costs and expenses of the Lenders payable by the Company which have been incurred but not yet been paid) are as follows:
KLP $ 4,714,916.46
KP $ 1,178,729.26
Appleby $ 480,000.00
Prudent Bear $ 600,000.00
Total: $ 6,973,645.72
WHEREAS, in connection with optional advances that may be made by Raven to the Company, (i) the Company and Raven are entering into an Agreement dated as of the date hereof (the "Raven Agreement"), (ii) the Company is executing in favor of Raven a Convertible Promissory Note dated as of the date hereof in the maximum principal amount of $100,000 (the "Raven Note"), (iii) the Company is executing in favor of Raven a Security Agreement dated as of the date hereof granting Raven a junior, third-priority security interest in certain personal property collateral (the "Raven Security Agreement") and (iv) the Company is executing in favor of Raven a Stock Pledge Agreement dated as of the date hereof granting Raven a junior, third-priority security interest in certain stock collateral (the "Raven Stock Pledge Agreement") (the Raven Agreement, the Raven Note, the Raven Security Agreement and the Raven Stock Pledge Agreement are sometimes collectively referred to as the "Raven Tran saction Documents");
WHEREAS, in connection with optional advances that may be made by Ventures to the Company, (i) the Company and Ventures are entering into an Agreement dated as of the date hereof (the "Ventures Agreement"), (ii) the Company is executing in favor of Ventures a Convertible Promissory Note dated as of the date hereof in the maximum principal amount of $300,000 (the "Ventures Note"), (iii) the Company is executing in favor of Ventures a Security Agreement dated as of the date hereof granting Ventures a junior, third-priority security interest in certain personal property collateral (the "Ventures Security Agreement") and (iv) the Company is executing in favor of Ventures a Stock Pledge Agreement dated as of the date hereof granting Ventures a junior, third-priority security interest in certain stock collateral (the "Ventures Stock Pledge Agreement") (the Ventures Agreement, the Ventures Note, the Ventures Security Agreement and the Ventures Stock Pledge Agreement are sometime s collectively referred to as the "Ventures Transaction Documents");
WHEREAS, Raven and Ventures wish to join in the Intercreditor Agreement and be added as additional New Lenders thereunder, and Koyah, as the Majority In Interest under the Intercreditor Agreement, is willing to consent to Raven and Ventures joining in the Intercreditor Agreement and being added as additional New Lenders thereunder, on the terms and conditions set forth therein and herein.
NOW, THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in accordance with the terms of the Intercreditor Agreement:
Pursuant to Section 6 of the Intercreditor Agreement, Koyah, as the Majority In Interest under the Intercreditor Agreement, hereby approves:
Pursuant to Section 6 of the Intercreditor Agreement and subject to satisfaction of any conditions precedent to the effectiveness of this Agreement, Koyah, as the Majority In Interest under the Intercreditor Agreement, and Raven and Ventures, as additional New Lenders under the Intercreditor Agreement, hereby agree:
Raven Partners, L.P. Koyah Ventures, LLC
601 W. Main, Suite 600 601 W. Main, Suite 600
Spokane, WA 99201 Spokane, WA 99201
Attn: Robert Law Attn: Robert Law
Fax: 509-623-0588 Fax: 509-623-0588
"Credit Obligations" means all outstanding and unpaid obligations of every nature of the Company (i) to Koyah under the Koyah Transaction Documents and the Koyah Loans, as the same may be modified in accordance with Section 4(g), whether now existing or hereafter incurred and without any limit on the current or future principal amount thereof, (ii) to Appleby under the Appleby Transaction Documents and the Appleby Loans, but only up to a limit on the current and future principal amount thereof of $480,000, as (but only to the extent) the same may be modified in accordance with Section 4(g), (iii) to Prudent Bear under the Prudent Bear Transaction Documents and the Prudent Bear Loans, but only up to a limit on the current and future principal amount thereof of $600,000, as (but only to the extent) the same may be modified in accordance with Section 4(g), (iv) to Raven under the Raven Transaction Documents and the Raven Loans, but only up to a limit on the current and future principal amount thereof of $100,000 unless a greater amount is approved by KLP and KP pursuant to Section 4(g), as (but only to the extent) the same may be modified in accordance with Section 4(g); (v) to Ventures under the Ventures Transaction Documents and the Ventures Loans, but only up to a limit on the current and future principal amount thereof of $300,000 unless a greater amount is approved by KLP and KP pursuant to Section 4(g), as (but only to the extent) the same may be modified in accordance with Section 4(g) and (vi) to any additional New Lender who may be added to the Intercreditor Agreement pursuant to Section 6 thereof, as specified in another Joinder Agreement.
"Loans" means (i) the Koyah Loans, (ii) the Appleby Loan, (iii) the Prudent Bear Loan, (iv) the Raven Loans, (v) the Ventures Loans and (vi) the Loan(s) of any additional New Lender who may be added to the Intercreditor Agreement pursuant to Section 6 thereof, as specified in another Joinder Agreement.
"Notes" means (i) the Koyah Notes, (ii) the Appleby Note, (iii) the Prudent Bear Note, (iv) the Raven Note, (v) the Ventures Note and (vi) the Note(s) of any additional New Lender who may be added to the Intercreditor Agreement pursuant to Section 6 thereof, as specified in another Joinder Agreement.
"Transaction Documents" means (i) the Koyah Transaction Documents, (ii) the Appleby Transaction Documents, (iii) the Prudent Bear Transaction Documents, (iv) the Raven Transaction Documents, (v) the Ventures Transaction Documents and (vi) the Transaction Documents(s) of any additional New Lender who may be added to the Intercreditor Agreement pursuant to Section 6 thereof, as specified in another Joinder Agreement.
The effectiveness of this Agreement is conditioned upon (i) in the case of Raven, Raven completing and funding at least $50,000 principal amount of the Raven Loans not later than June 30, 2004 under the Raven Transaction Documents which shall be in form and substance acceptable to KLP and KP and (ii) in the case of Ventures, Ventures completing and funding at least $50,000 principal amount of the Ventures Loans not later than June 30, 2004 under the Ventures Transaction Documents which shall be in form and substance acceptable to KLP and KP.
Koyah, as the Majority In Interest under the Intercreditor Agreement, and Raven and Ventures, as additional New Lenders under the Intercreditor Agreement, shall promptly notify the Company and the other Lenders by sending them a copy of this Agreement.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by its duly authorized officer or officers as of the day and year first above written.
KLP: KOYAH LEVERAGE PARTNERS, L.P. By: Koyah Ventures LLC, its general partner By: Name: Title: Address: 601 W. Main, Suite 600 Spokane, WA 99201 Attn: Robert Law Fax: 509-623-0588 |
KP: KOYAH PARTNERS, L.P. By: Koyah Ventures LLC, its general partner By: Name: Address: 601 W. Main, Suite 600 Spokane, WA 99201 Attn: Robert Law Fax: 509-623-0588 |
Raven: RAVEN PARTNERS, L.P. By: Koyah Ventures LLC, its general partner By: Name: Title: Address: 601 W. Main, Suite 600 Spokane, WA 99201 Attn: Robert Law Fax: 509-623-0588 |
Ventures: KOYAH VENTURES LLC By: Name: Title: Address: 601 W. Main, Suite 600 Spokane, WA 99201 Attn: Robert Law Fax: 509-623-0588 |
[Signature page to Joinder Agreement]
I:\Spodocs\28601\00016\agree\00168488.DOC
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT (this "Agreement") is entered into as of July 9, 2004 between AURA SYSTEMS, INC., a Delaware corporation (the "Company"), and KOYAH VENTURES LLC, a Delaware limited partnership (the "Lender").
WHEREAS, in connection with loans to the Company by the Lender, the Company and the Lender entered into an Agreement dated as of June 14, 2004 (the "Agreement"), the Company executed in favor of the Lender a Convertible Promissory Note in the amount of $300,000 dated as of June 14, 2004 (the "Note"), a Security Agreement dated as of June 14, 2004 (the "Security Agreement") and a Stock Pledge Agreement dated as of June 14, 2004 (collectively the "Transaction Documents");
WHEREAS, the Lender have made advances to the Company under the Note to its maximum principal amount of Three Hundred Thousand Dollars ($300,000);
WHEREAS, the Company has requested that the Lender increase the maximum principal amount of the Note to Four Hundred Twenty Five Thousand Dollars ($425,000) make an additional advance of One Hundred Thousand Dollars ($100,000), and extend the Maturity Date of the Note; and
WHEREAS, the parties are entering into this Agreement to extend the maturity date of the Note to July 15, 2004, to increase the maximum principal amount of the Optional Advance Note to Four Hundred Twenty Five Thousand Dollars ($425,000), and to provide for related matters, all on the terms and conditions set forth herein.
NOW, THEREFORE, for valuable consideration, the receipt of which is hereby acknowledged, the parties do hereby agree as follows:
The Company hereby specifically confirms, acknowledges and agrees that (i) the extension of the maturity date of the Note pursuant to Section 1 hereof is only being done to give the Company a short-term extension and does not reflect any intent of the Lender to grant further extensions, (ii) the increase in the maximum principal amount of the Note pursuant to Section 3 hereof is only being done to make the additional advance on or around the date hereof, and (iii) does not reflect any intent of the Lender to make further additional advances other than as may be necessary to pay such costs and expenses of the Lender; it being understood, however, that the Lender retain the right, in their sole discretion, to grant further extensions or make further additional advances at the request of the Company, based on the then current circumstances.
Such representations and warranties by the Company include, among others, a representation and warranty that the execution, delivery and performance by the Company of this Agreement and the other Transaction Documents and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company's Board of Directors. As a further assurance to the Lender with respect to such representation and warranty, the Company shall deliver to the Lender, within five (5) business days after the date hereof, evidence satisfactory to the Lender in their sole discretion of the authorization by the Company's Board of Directors of the execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby. The Company's obligation to deliver such evidence of authorization with respect to this Agreement shall be in addition to the Company's obligat ion contained in the Transaction Documents to deliver similar evidence of authorization with respect to the Transaction Documents.
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
Attn: Neal Meehan
Koyah Ventures LLC
c/o ICM Asset Management, Inc.
601 West Main Avenue, Suite 600
Spokane WA 99201
Attn: Robert Law
[Remainder of Page Intentionally Left Blank]
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first set forth above.
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AURA SYSTEMS, INC. By: Name: Title: |
|
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KOYAH VENTURES, LLC By: Name: Title: |
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[Signature Page to Amendment Agreement]
I:\Spodocs\28601\00016\agree\00191094.DOC
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CUMULATIVE CONVERTIBLE
PREFERRED STOCK
OF
AURA SYSTEMS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
AURA SYSTEMS, INC., a Delaware corporation (the "Company"), hereby certifies that the following resolution was adopted by the Board of Directors of the Company:
RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company (the "Board of Directors") by the provisions of the Certificate of Incorporation of the Company, as amended and supplemented (the "Certificate of Incorporation"), there is hereby created, out of the 10,000,000 shares of Preferred Stock, par value $0.005 per share, of the Company authorized and unissued pursuant to Article IV of the Certificate of Incorporation (the "Preferred Stock"), a series of the preferred stock consisting of 5,000,000 shares, which series shall have the following powers, designations, preferences and relative, optional or other rights, and the following qualifications, limitations and restrictions (in addition to any powers, designations, preferences and relative, optional or other rights, and any qualifications, limitations and restrictions, set forth in the Certificate of Incorporation which are applicable to the Preferred Sto ck):
Section 1. Designation of Amount. The 5,000,000 shares of Preferred Stock shall be designated the "Series B Cumulative Convertible Preferred Stock" (the "Series B Preferred Stock") and the authorized number of shares constituting such series shall be 5,000,000.
Section 2. Certain Definitions. Unless the context otherwise requires, the terms defined in this Section 2 shall have, for all purposes of this resolution, the meanings specified (with terms defined in the singular having comparable meanings when used in the plural).
"Board of Directors" shall have the meaning set forth in the preamble.
"Business Day" shall mean a day other than a Saturday, Sunday or day on which banking institutions in New York are authorized or required to remain closed.
"Certificate of Incorporation" shall have the meaning set forth in the preamble.
"Closing Price" shall mean with respect to any security on any date of determination (i) the closing sale price (or, if no closing sale price is reported, the last reported sale price) of such security (regular way) on (A) if such security is listed on the New York Stock Exchange on any such date, as reported on the New York Stock Exchange on such date, (B) if such security is not listed on the New York Stock Exchange on any such date, as reported in the composite transactions for the principal United States securities exchange on which such security is so listed, (C) if such security is not so listed on a United States national or regional securities exchange, as reported by the NASDAQ Stock Market, (ii) if such security is not so reported, the last quoted bid price for such security in the over-the-counter market as reported by the National Quotation Bureau or similar organization, or (iii) if such security is not so quoted, the average of the mid-point of the last bid and ask pri ces for such security from each of at least three nationally recognized investment banking firms selected by the Company for such purpose.
"Common Stock" shall mean the Company's common stock, par value $0.005 per share.
"Conversion Date" shall have the meaning set forth in Sections 6(f).
"Conversion Price" shall have the meaning set forth in Section 6(c).
"Converted Common Stock" shall mean shares of Common Stock received upon conversion of Series B Preferred Stock.
"Current Market Value" of the Common Stock shall mean the average volume-weighted daily Closing Price of the Common Stock for the Trading Day in question.
"Dividend Rate" shall mean 8% per annum.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"Initial Issue Date" shall mean the date that any shares of Series B Preferred Stock are first issued by the Company.
"Junior Stock" shall mean the Company's Common Stock, the Company's Series A Convertible Redeemable Preferred Stock and every other series of common or preferred stock that may be designated by the Company in the future.
"Liquidation Preference" shall have the meaning set forth in Section 4.
"Mandatory Conversion Date" shall have the meaning set forth in Section 6(a)(i).
"Person" shall mean any individual, partnership, corporation, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or agency or political subdivision thereof, or other entity.
"Preferred Stock" shall have the meaning set forth in the preamble.
"Series B Preferred Stock" shall have the meaning set forth in Section 1.
"Trading Day" shall mean a business day on which the applicable security (a) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (b) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of such security.
"Voting Stock" of any Person shall mean the capital stock of such Person that is at the time entitled to vote in the election of the board of directors of such Person.
Section 3. Dividends.
(a) The holders of the outstanding shares of Series B Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds of the Company legally available therefor, cumulative dividends, accumulating at the Dividend Rate from the respective issuance date of such shares through and including the date on which such dividends are paid. The amount of any dividends per share of Series B Preferred Stock for any full quarterly period shall be computed by multiplying the Dividend Rate for such quarterly dividend period by the Liquidation Preference per share and dividing the result by four. Dividends payable on the shares of Series B Preferred Stock for any period less than a full quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed for any period less than one month.
(b) Dividends shall be payable in arrears on the first day of each of March, June, September and December, commencing on December 1, 2004; provided that: (i) if any such payment date is not a Business Day, then such dividend shall be payable on the next Business Day, and (ii) accumulated and unpaid dividends for any prior quarterly period may be paid at any time. Dividends shall accumulate on shares of Series B Preferred Stock from the respective issuance date of such shares and be cumulative whether or not earned or declared and whether or not there are profits, surplus or other funds of the Company legally available for the payment of dividends. Each such dividend shall be paid in cash (when, as and if declared) to the holders of record of the Series B Preferred Stock as they shall appear on the stock register of the Company on the record date for such dividend, not exceeding 45 days nor less than 10 days preceding any dividend payment date, as shall be fixed by the Board of Directors of the Company or a duly authorized committee thereof.
(c) The Company may elect to pay dividends provided for in Section 3(a) hereof on such Series B Preferred Stock either (i) in cash, out of funds legally available therefor, (ii) through the issuance of shares of Common Stock or (iii) in any combination of the foregoing. In the event the Company elects to pay dividends in shares of Common Stock, the number of shares of Common Stock to be issued will be the number obtained by dividing (i) the total dollar amount of dividends which are to be paid in shares of Common Stock by (ii) the Conversion Price (as defined in Section 6(c)); provided, that if any dividend payable in shares of Common Stock would otherwise require the issuance of a fractional share (after aggregating all shares issuable to each holder of Series B Preferred Stock), the Company shall not be required to issue a fractional share of Common Stock and, in lieu thereof, shall pay an amount in cash equal to the Closing Price on the dividend payment date multiplied by such fracti on; provided further, that if the cash to be paid for such fractional share is an amount less than $1.00, the Company shall not be obligated to pay such amount.
(d) Holders of shares of the Series B Preferred Stock shall be entitled to full cumulative dividends, as herein provided, on the Series B Preferred Stock and no additional amounts. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series B Preferred Stock that may be in arrears.
(e) Unless and until full cumulative dividends on the shares of Series B Preferred Stock in respect of all past quarterly dividend periods have been paid, and the full amount of dividends on the shares of Series B Preferred Stock in respect of the then current quarterly dividend period shall have been or are contemporaneously declared in full and sums set aside for the payment thereof, (i) no dividends shall be paid or declared or set aside for payment or other distribution upon the Common Stock or any other Junior Stock, other than in shares of, or warrants or rights to acquire, Common Stock or other Junior Stock; and (ii) no shares of Junior Stock shall be redeemed, retired, purchased or otherwise acquired for any consideration (or any payment made to or available for a sinking fund for the redemption of any such shares) by the Company or any of its subsidiaries (except by conversion into or exchange for shares of Junior Stock).
(f) The terms "accumulated dividends," "accrued dividends," "dividends accumulated" and "dividends accrued" whenever used herein with reference to shares of Series B Preferred Stock shall be deemed to mean an amount which shall be equal to the dividends accumulated thereon at the Dividend Rate per share from the respective date on which such dividends commence to accumulate thereon to the end of the last quarterly dividend period, plus the applicable amount for any partial dividend period as provided in Section 3(a), whether or not earned or declared and whether or not assets of the Company are legally available therefor.
(g) Notwithstanding anything to the contrary herein, in the event any conversion of Series B Preferred Stock or any liquidation, dissolution or winding up of the Company occurs on a date other than a dividend payment date, the Series B Preferred Stock shall accrue dividends for the portion of that quarterly dividend period through and including the date of such conversion or liquidation, dissolution or winding up, computed in accordance with Section 3(a).
Section 4. Liquidation Preference. In the event of a liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Series B Preferred Stock then outstanding shall be entitled to receive out of the available assets of the Company, whether such assets are stated capital or surplus of any nature, an amount on such date equal to $5.00 per share of Series B Preferred Stock plus the amount of any accumulated and unpaid dividends as of such date, calculated pursuant to Section 3 (collectively, the "Liquidation Preference"). Such payment shall be made before any payment shall be made or any assets distributed to the holders of any class or series of the Common Stock or any other Junior Stock. If upon any such liquidation, dissolution or winding up of the Company the assets of the Company are insufficient to permit the payment of the full Liquidation Preference payable with respect to all then outstanding shares of Series B Preferred Stoc k, the holders of then outstanding shares of Series B Preferred Stock shall share equally and ratably in any distribution of assets of the Company in proportion to the full respective Liquidation Preference to which they are entitled. Any (i) merger or consolidation of the Company, other than a merger or consolidation in which the holders of capital stock of the Company immediately prior to such merger or consolidation continue to hold, directly or indirectly, greater than fifty percent (50%) of the voting power of the surviving or acquiring entity after such merger or consolidation, (ii) sale, lease, exchange or other disposition of all or substantially all of its property and assets or (iii) similar transaction or series of transactions involving an acquisition of the Company shall be considered a liquidation, dissolution or winding up of the Company for purposes of this Section 4. In the event of any liquidation, dissolution or winding up of the Company, in lieu of the right to receive the Liquidatio n Preference set forth above, the holders of then outstanding shares of Series B Preferred Stock also (i) shall have the right to convert such shares of Series B Preferred Stock into Common Stock in accordance with Section 6(b) and (ii) if a conversion under Section 6(b) can not be effected due to a lack of sufficient authorized Common Stock, shall be entitled to receive an alternative Liquidation Preference equal to the amount they would have received upon conversion, at the option of such holders.
Section 5. Voting Rights.
(a) Except as otherwise provided by applicable law and in addition to any voting rights provided by law, the holders of Series B Preferred Stock:
(i) shall be entitled to vote together with the holders of the Common Stock as a single class on all matters submitted for a vote of holders of Common Stock, with each share of Series B Preferred Stock having a number of votes equal to its then Liquidation Preference divided by the then Conversion Price;
(ii) shall have such other voting rights as are provided by Delaware law;
(iii) shall be entitled to a class vote as set forth in Section 5(b) below;
(iv) shall be entitled to elect four directors as set forth in Section 5(c) below; and
(v) shall be entitled to receive notice of any stockholders' meeting in accordance with the Certificate of Incorporation and By-laws of the Company.
(b) So long as any shares of Series B Preferred Stock shall be outstanding, the Company shall not (whether by merger, consolidation or otherwise), without first obtaining the affirmative vote or written consent of more than ninety percent (90%) of such outstanding shares of Series B Preferred Stock, voting together as a separate class:
(i) (A) Recapitalize or reorganize, (B) merge or consolidate, other than a merger or consolidation in which the holders of capital stock of the Company immediately after such merger or consolidation, (C) sell, lease, exchange or otherwise dispose of all or substantially all its property and assets or (D) engage in a similar transaction or series of transactions involving an acquisition of the Company other than a merger or consolidation in which the holders of capital stock of the Company immediately prior to such merger or consolidation continue to hold, directly or indirectly, greater than fifty percent (50%) of the voting power of the Company or the surviving or acquiring entity;
(ii) increase to greater than seven (7) or decrease to fewer than five (5) the authorized number of directors of the Company;
(iii) redeem, purchase or otherwise acquire for value (or pay into or set aside for a sinking fund for such purpose) any shares of its capital stock;
(iv) declare or pay any dividends or make any distributions with respect to any shares of its capital stock, except dividends on the Series B Preferred Stock;
(v) increase or decrease the number of authorized shares of Series B Preferred Stock, Common Stock or Preferred Stock;
(vi) amend or repeal any provision of, or add any provision to this Certificate of Designations, the Company's Certificate of Incorporation or By-laws if such action would adversely alter, change or repeal the designations, preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series B Preferred Stock;
(vii) reclassify the Series B Preferred Stock or authorize or issue, or obligate itself to authorize or issue, any shares of capital stock senior to or on parity with Series B Preferred Stock as to liquidation preferences, dividend rights, conversion rights, redemption rights, preemptive rights, voting rights or otherwise; or
(viii) authorize or issue, or obligate itself to authorize or issue, shares of Series B Preferred Stock other than (A) up to a maximum of 3,000,000 shares of Series B Preferred Stock in the offering of which the initial issuances of Series B Preferred Stock on the Initial Issuance Date are a part and (B) up to a maximum of 2,000,000 shares of Series B Preferred Stock in the related conversion of indebtedness of the Company.
(c) So long as any shares of Series B Preferred Stock shall be outstanding, the holders of the Series B Preferred Stock shall be entitled, voting together as a separate class, to elect four directors to the Board of Directors of the Company. The holders of the Common Stock shall be entitled, voting together as a separate class, to elect the remaining directors.
Section 6. Conversion Rights.
(a) Mandatory or Automatic Conversion.
(i) Mandatory Conversion by the Company. Subject to and upon compliance with the provisions of this Section 6, the Company shall be entitled, on any date (a "Mandatory Conversion Date") to cause the outstanding shares of Series B Preferred Stock, in whole or from time to time in part, to be automatically converted into shares of Common Stock; provided, that the Company may not exercise such right of conversion unless:
(A) there shall be sufficient shares of Common Stock authorized and available for issuance upon conversion of all outstanding shares of Series B Preferred Stock (after taking into account all reservations of shares and commitments to reserve shares outstanding on the Initial Issuance Date);
(B) the Closing Price of the Common Stock for any twenty consecutive Tradings Days following the Initial Issuance Date shall have been greater than $.10 per share (subject to appropriate adjustment to reflect any stock dividend, stock split or stock combination from and after the Initial Issuance Date);
(C) the Company shall have filed a registration statement, and such registration statement shall be effective, registering the resale of all Common Stock to be received by the holders upon such conversion; and
(D) there shall be no restrictions imposed by the Company on the right of holders to resell such shares of Common Stock.
In the event of any partial conversions of the Series B Preferred Stock pursuant to this Section 6(a)(i), the shares of Series B Preferred Stock to be converted will be pro rata among the holders of Series B Preferred Stock in accordance with the number of shares of outstanding Series B Preferred Stock held.
To exercise the option of the Company to cause mandatory conversion under this Section 6(a)(i), the Company shall issue a press release announcing such conversion prior to the opening of business on the first Trading Day following any date on which the conditions described in this Section 6(a)(i) are met. The Company will give notice of such conversion by mail or by publication (with subsequent prompt notice by mail) to the holders of the Series B Preferred Stock not more than four (4) business days after the date of the press release announcing the Company's intention to convert the Series B Preferred Stock. Any Mandatory Conversion Date will be a date selected by the Company which shall be not less than thirty (30) nor more than sixty (60) days after the date on which the Company issues such press release. In addition to any information required by applicable law or regulation, notice of a conversion at the Company's option pursuant to this Section 6(a)(i) shall state, as appropr iate, (i) the Mandatory Conversion Date, (ii) the number of shares of Common Stock to be issued upon conversion of each share of Series B Preferred Stock, (iii) the number of shares of Series B Preferred Stock to be converted (and, if fewer than all of the shares of Series B Preferred Stock are to be converted the number of shares of Series B Preferred Stock to be converted from such holder), (iv) the manner in which the shares of Series B Preferred Stock are to be surrendered for delivery of shares of Common Stock and (v) that dividends on the Series B Preferred Stock to be converted will cease to accrue on the Mandatory Conversion Date.
(ii) Automatic Conversion. Subject to and upon compliance with the provisions of this Section 6, the outstanding shares of Series B Preferred Stock shall be automatically converted, subject to the express condition that there shall be sufficient shares of Common Stock authorized and available for issuance upon conversion of all outstanding shares of Series B Preferred Stock (after taking into account all reservations of shares and commitments to reserve shares outstanding on the Initial Issuance Date), in whole, into shares of Common Stock upon any conversion of a majority of the total number of shares of Series B Preferred Stock ever issued by the holders thereof pursuant to Section 6(b) (an "Automatic Conversion Date"). Promptly after the occurrence of an Automatic Conversion Date, the company Company shall issue a press release announcing such conversion and give notice of such conversion by mail or by publication (with subsequent prompt notice by mail) to the holders o f the Series B Preferred Stock. In addition to any information required by applicable law or regulation, notice of an automatic conversion pursuant to this Section 6(a)(ii) shall state, as appropriate, (i) the Automatic Conversion Date, (ii) the manner in which the shares of Series B Preferred Stock are to be surrendered for delivery of shares of Common Stock and (iii) that dividends on the Series B Preferred Stock will cease to accrue on the Automatic Conversion Date.
(b) Optional Conversion by Holders. Subject to and upon compliance with the provisions of this Section 6, the holders of the outstanding shares of Series B Preferred Stock shall be entitled, at their option but subject to the express condition that there shall be sufficient shares of Common Stock authorized and available for issuance upon conversion of all outstanding shares of Series B Preferred Stock (after taking into account all reservations of shares and commitments to reserve shares outstanding on the Initial Issuance Date), at any time, to convert all or any such shares of Series B Preferred Stock into shares of Common Stock.
(c) Conversion Price. The conversion price (the "Conversion Price") shall initially be $.02 per share of Common Stock, subject to adjustment from time to time in accordance with Section 6(e). The number of shares of Common Stock to which a holder of Series B Preferred Stock shall be entitled upon any conversion under this Section 6, shall be determined by dividing (i) the Liquidation Preference of such Series B Preferred Stock by (ii) the Conversion Price in effect at the close of business on the Conversion Date (determined as provided in this Section 6). All shares of Common Stock issued upon any conversion under this Section 6 shall be validly issued, fully paid and non-assessable.
(d) Fractions of Shares. No fractional share of Common Stock shall be issued upon conversion of shares of Series B Preferred Stock. The number of full shares of Common Stock to be issued upon conversion shall be computed on the basis of the aggregate number of shares of Series B Preferred Stock so converted by a holder. Instead of any fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares of Series B Preferred Stock, the Company shall pay a cash adjustment in respect of such fractional share in an amount equal to the product of such fraction multiplied by the Closing Price of one share of Common Stock on the Conversion Date, provided that no such payment need be made to any holder entitled to receive less than $1.00.
(e) Adjustments to Conversion Price. The Conversion Price shall be subject to adjustment from time to time as follows:
(i) Dividends, Stock Splits and Combinations. If at any time or from time to time after the Initial Issuance Date of the Series B Preferred Stock, the Company (a) pays a dividend in shares of Common Stock to holders of Common Stock, (b) makes a distribution in shares of Common Stock to holders of Common Stock, (c) subdivides or splits the outstanding shares of Common Stock, (d) combines or reclassifies the outstanding shares of Common Stock into a smaller number of shares or (e) issues by reclassification of the shares of Common Stock any other shares of capital stock, then the Conversion Price in effect immediately prior to that event or the record date for that event, whichever is earlier, will be adjusted so that the holder of any shares of Series B Preferred Stock thereafter converted will be entitled to receive the number of shares of Common Stock or of other securities which the holder would have owned or would have been entitled to receive after the occurrence of any of th e events described above, had those shares of Series B Preferred Stock been converted immediately before the occurrence of that event or the record date for that event, whichever is earlier.
(ii) Issuance of Rights or Warrants. For purposes of this Section 6(e)(ii) and Section 6(e)(iii), "Current Market Price" means the average of the daily Current Market Value of the Company's Common Stock for the five consecutive Trading Days selected by the Board of Directors beginning not more than 20 Trading Days before, and ending not later than the later of (a) the date of the applicable event described in this paragraph and (b) the date immediately preceding the record date fixed in connection with that event. If at any time after the Initial Issuance Date, the Company issues to all holders of Common Stock rights or warrants expiring within 45 days entitling those holders to subscribe for or purchase Common Stock at a price per share less than the Current Market Price, the Conversion Price for the Series B Preferred Stock in effect immediately before the close of business on the record date fixed for determination of stockholders entitled to receive those rights or war rants will be reduced by multiplying the Conversion Price by a fraction, the numerator of which is the sum of (x) the number of shares of Common Stock outstanding at the close of business on that record date and (y) the number of shares of Common Stock that the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at the Current Market Price and the denominator of which is the sum of (x) the number of shares of Common Stock outstanding at the close of business on that record date and (y) the number of additional shares of Common Stock so offered for subscription or purchase. For purposes of this Section 6(e)(ii), the issuance of rights or warrants to subscribe for or purchase securities convertible into shares of Common Stock will be deemed to be the issuance of rights or warrants to purchase shares of Common Stock into which those securities are convertible at an aggregate offering price equal to the sum of the aggregate offering price of those securities and the minimum aggregate amount, if any, payable upon conversion of those securities into shares of Common Stock. This adjustment will be made successively whenever any such event occurs.
(iii) Distribution of Indebtedness, Securities or Assets. If at any time the Company distributes to all holders of Common Stock, whether by dividend or in a merger, amalgamation or consolidation or otherwise, evidences of indebtedness, shares of capital stock of any class or series, other securities, cash or assets, other than (i) any capital stock, rights or warrants referred to in Sections 6(e)(i) and (ii) above, (ii) a dividend payable exclusively in cash, or (iii) other than as a result of a fundamental change as described in Section 6(e)(v) below, the Conversion Price in effect immediately before the close of business on the record date fixed for determination of shareholders entitled to receive that distribution will be reduced by multiplying the Conversion Price by a fraction, the numerator of which is the Current Market Price on that record date less the fair market value, as determined by the Board of Directors, whose determination in good faith will be conclusive, of th e portion of those evidences of indebtedness, shares of capital stock, other securities, cash and assets so distributed applicable to one share of Common Stock and the denominator of which is the Current Market Price. This adjustment will be made successively whenever any such event occurs.
(iv) Spin-offs. In respect of a dividend or other distribution to the holders of Common Stock of shares of capital stock of any class or series, or similar equity interests, of or relating to a subsidiary or other business unit of the Company (a "spin-off"), the adjustment to the conversion price under Section 6(e)(iii) will occur at the earlier of (i) 20 Trading Days after the effective date of the spin-off and (ii) the initial public offering of equity securities pertaining to the subsidiary or other business unit to which the spin-off relates, if that initial public offering is effected simultaneously with the spin-off. For purposes of such a spin-off, the "fair market value" of the securities to be distributed to holders of Common Stock means the average of the Current Market Value of those securities for the five consecutive Trading Days selected by the Board of Directors beginning on the first day of trading of those securities after the effectiveness of the spin-off and ending not later than 20 Trading Days after effectiveness of the spin-off. Also, for purposes of a spin-off, the "Current Market Price" of Common Stock means the average of the Current Market Value of Common Stock for the same five consecutive Trading Days in determining the fair market value of the securities being distributed in the spin-off. If, however, an initial public offering of the securities being distributed in the spin-off is to be effected simultaneously with the spin-off, the "fair market value" of the securities being distributed in the spin-off means the initial public offering price of such securities, while the "Current Market Price" of Common Stock means the Current Market Value of the Common Stock on the Trading Day on which the initial public offering price of the securities being distributed in the spin-off is determined.
(v) Fundamental Changes. If a fundamental change occurs, the holder of each share of Series B Preferred Stock outstanding immediately before that fundamental change occurred, will have the right upon any subsequent conversion to receive, but only out of legally available funds, to the extent required by applicable law, the kind and amount of stock, other securities, cash and assets that the holder would have received if that share had been converted immediately prior to the fundamental change. For purposes of this Section 6(e)(v), "fundamental change" means any transaction or event, including any merger, consolidation, sale of assets, tender or exchange offer, reclassification, compulsory share exchange or liquidation, in which all or substantially all outstanding shares of Common Stock are converted into or exchanged for stock, other securities, cash or assets.
(vi) Adjustment to Lower Price. In the event from and after the Initial Issuance Date and for so long as any shares of Series B Preferred Stock are outstanding the Company issues any Common Stock at a price per share lower than the Conversion Price then in effect or any option, warrant or other right to subscribe for or purchase Common Stock or a security convertible into or exchangeable for Common Stock at a price per share lower than the Conversion Price then in effect, the Conversion Price then in effect shall be adjusted downwards to the lowest such price, provided that the foregoing provisions shall not apply to any of the following:
(A) the issuance of stock options to employees, members of the Board of Directors, or consultants, in exchange for services provided to the Company or as an incentive to performance, for up to 20,000,000 shares of Common Stock;
(B) the issuance of stock or options in connection with any business transaction such as a joint venture, which transaction does not have as its primary or a secondary purpose the raising of capital for the Company, for up to 20,000,000 shares of Common Stock;
(C) the adjustment of the price at which any securities are convertible into Common Stock, unless such adjustment is part of a transaction whose primary or a secondary purpose is to raise capital for the Company;
(D) the issuance of Common Stock upon exercise of options, warrants or similar rights or convertible or exchangeable securities outstanding on the Initial Issuance Date;
(E) the issuance of Common Stock for which adjustment is otherwise made under Section 6; or
(F) the issuance of Common Stock, or options, warrants or similar rights or convertible or exchangeable securities exercisable for Common Stock, for up to 20,000,000 shares of Common Stock.
(vii) General. The Company will not be required to give effect to any adjustment in the Conversion Price unless and until the net effect of one or more adjustments, each of which will be carried forward until counted toward adjustment, will have resulted in a change of the Conversion Price by at least 1%, and when the cumulative net effect of more than one adjustment so determined will be to change the Conversion Price by at least 1%, that change in the Conversion Price will be given effect. In the event that, at any time as a result of the provisions of Section 6, the holder of Series B Preferred Stock upon subsequent conversion become entitled to receive any shares of capital stock other than Common Stock, the number of those other shares so receivable upon conversion of the Series B Preferred Stock will thereafter be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions contained in this section.
(f) Exercise of Conversion Privilege. In order to exercise the optional conversion right under Section 6(b), the holder of any shares of Series B Preferred Stock being converted shall deliver to the Company, at any office or agency of the Company maintained for such purpose, written notice that the holder elects to convert such Series B Preferred Stock or, if less than the entire amount thereof is to be converted, the portion thereof to be converted. Series B Preferred Stock shall be deemed to have been converted immediately prior to the close of business on the date (the "Conversion Date") (i) in the case of a mandatory conversion under Section 6(a)(i), the Mandatory Conversion Date, (ii) in the case of an automatic conversion under Section 6(a)(ii), the Automatic Conversion Date and (iii) in the case of an optional conversion under Section 6(b), the date of the holder giving notice of conversion, and at such time the rights of the holder of such shares of Series B Prefer red Stock as a holder shall cease, and the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock as and after such time. As promptly as practicable on or after any Conversion Date, the holder of any shares of Series B Preferred Stock being converted shall surrender the certificate or certificates evidencing such shares of Series B Preferred Stock, duly endorsed or assigned to the Company in blank, at any office or agency of the Company maintained for the surrender of Series B Preferred Stock, and the Company shall issued and deliver, at such office or agency, a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 6(d). In the case of any certificate evidencing shares of Series B Preferred Stock which is converted in part only, upon such conversion the Company shall execut e and deliver a new certificate evidencing the number of shares of Series B Preferred Stock that are not converted.
(g) Notice of Adjustment of Conversion Price. Whenever the Conversion Price is adjusted as herein provided, the Company shall:
(i) prepare a certificate signed by the Chief Financial Officer, any Vice President, the Treasurer or the Controller of the Company setting forth the adjusted Conversion Price, the method of calculation thereof in reasonable detail and the facts requiring such adjustment and upon which such adjustment is based, which certificate shall be conclusive, final and binding evidence of the correctness of the adjustment, and shall file such certificate forthwith with the transfer agent for the shares of Series B Preferred Stock;
(ii) make a prompt public announcement stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price; and
(iii) no later than 45 days after the end of the Company's fiscal quarter period during which the facts requiring such adjustment occurred, mail a notice stating that the Conversion Price has been adjusted, the facts requiring such adjustment and upon which such adjustment is based and setting forth the adjusted Conversion Price to the holders of record of the outstanding shares of the Series B Preferred Stock.
(h) Notice of Certain Corporate Action. If at any time while any of the shares of Series B Preferred Stock are outstanding:
(i) the Company shall declare a dividend (or any other distribution) on the Common Stock, excluding any cash dividends; or
(ii) the Company shall authorize the issuance to all holders of the Common Stock of rights or warrants to subscribe for or purchase shares of the Common Stock or of any other subscription rights or warrants; or
(iii) the Company shall authorize any reclassification of the Common Stock (other than a subdivision, split or combination thereof) or any consolidation or merger, sale or other disposition of all or substantially all assets, or similar transaction or series of transactions to which the Company is a party (except for a merger of the Company into one of its subsidiaries solely for the purpose of changing the corporate domicile of the Company to another state of the United States and in connection with which there is no substantive change in the rights or privileges of any securities of the Company other than changes resulting from differences in the corporate statutes of the state the Company was then domiciled in and the new state of domicile);
then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of the shares of Series B Preferred Stock, and shall cause to be mailed to the holders of shares of Series B Preferred Stock at their last addresses as they shall appear on the stock register, at least 10 business days before the date specified in clause (A) or (B) below (or the earlier of such specified dates, in the event that more than one date is specified), a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution, or issuance of rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, or issuance of rights or warrants are to be determined, or (B) the date on which any such reclassification, consolidation, merger, sale or transfer is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property (including cash), if any, deliverable upon such reclassification, consolidation, merger, sale or transfer. The failure to give or receive the notice required by this Section 6(h) or any defect therein shall not affect the legality or validity of any such dividend, distribution, issuance of any right or warrant or other action.
(i) Company to Reserve Common Stock. From and at all times after such time, if any, as there has been a sufficient increase in the number of authorized shares or a sufficient decrease in the number of outstanding shares of Common Stock to enable the Company to issue Common Stock upon conversion of all of the Series B Preferred Stock, the Company shall reserve and keep available, free from preemptive rights, out of the authorized but unissued Common Stock or out of the Common Stock held in treasury, for the purpose of effecting the conversion of Series B Preferred Stock, the full number of shares of Common Stock then issuable upon the conversion of all outstanding shares of Series B Preferred Stock. Before taking any action that would cause an adjustment reducing the Conversion Price below the then par value (if any) of the shares of Common Stock deliverable upon conversion of the Series B Preferred Stock, the Company will take any corporate action that, in the opinion of its counsel, is necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted Conversion Price.
(j) Taxes on Conversions. The Company will pay any and all original issuance, transfer, stamp and other similar taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Series B Preferred Stock pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the holder of the share(s) of Series B Preferred Stock to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid.
Section 7. Amendment. This Certificate of Designations may be amended by the affirmative vote, or the action by written consent, of the holders of ninety percent (90%) of the outstanding shares of Series B Preferred Stock.
(intentionally left blank)
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by Neal F. Meehan, its Chief Executive Officer, and attested by Melinda Mason, its Secretary, this 19'th day of August, 2004.
By: ________________________________
Name: Neal F. Meehan
Title: Chairman & Chief Executive Officer
Attested:
By:_________________________
Name: Melinda Mason
Title: Secretary
EXHIBIT B
Form of Series B Warrant
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
Warrant To Purchase Common Stock
Of
Aura Systems, Inc.
August 19, 2004
No. W-__
This certifies that __________________________ (the "Holder") is entitled, subject to the terms and conditions of this Warrant, to purchase from AURA SYSTEMS, INC., a Delaware corporation (the "Company"), all or any part of an aggregate of ______________ shares of the Company's authorized and unissued Common Stock, par value $.005 (the "Warrant Stock"), at the Warrant Price (as defined herein), upon surrender of this Warrant at the principal offices of the Company, together with a duly executed subscription form in the form attached hereto as Exhibit 1 and simultaneous payment of the Warrant Price for each share of Warrant Stock so purchased in lawful money of the United States unless exercised in accordance with the provisions of Section 2.5 hereof. The Holder may exercise the Warrant at any time after the date of this Warrant and prior to the seventh anniversary of the date hereof (the "Expiration Date").
X = Y (A-B)
A
where X = the number of shares of Warrant Stock to be issued to the Holder pursuant to this Section 2.5.
Y = the number of shares of Warrant Stock purchasable under this Warrant, or if only a portion of the Warrant is being exercised, the number of shares of Warrant Stock represented by the portion of the Warrant being exercised.
A = the Fair Market Value of one share of Warrant Stock at the time the net exercise election is made pursuant to this Section 2.5.
B = the Warrant Price.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the date and year first set forth above.
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AURA SYSTEMS, INC. By: Name: ______________________________ Title: _______________________________ |
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[Signature Page to Warrant]
Exhibit 1
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
(1) Check the box that applies and provide the necessary information:
o
Cash Payment Election. The undersigned Holder hereby elects to purchase shares of Common Stock of Aura Systems, Inc. (the "Warrant Stock"), pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.o
Net Exercise Election. The undersigned Holder elects to convert the Warrant into shares of Warrant Stock by net exercise election pursuant to Section 2.5 of the Warrant. This conversion is exercised with respect to __________ shares of Common Stock of Aura Systems, Inc. (the "Warrant Stock") covered by the Warrant.(2) In exercising the Warrant, the undersigned Holder hereby makes the representations and warranties set forth on Appendix A hereto as of the date hereof.
(3) Please issue a certificate or certificates representing such shares of Warrant Stock in the name or names specified below:
(Name) (Name)
(Signature) (Signature)
(Address) (Address)
(City, State, Zip Code) (City, State, Zip Code)
(Federal Tax Identification Number) (Federal Tax Identification Number)
(Date) (Date)
Appendix A
INVESTMENT REPRESENTATION
The undersigned, _____________________ (the "Holder"), intends to acquire shares of Common Stock (the "Common Stock") of Aura Systems, Inc. (the "Company") from the Company pursuant to the exercise or conversion of a Warrant to purchase Common Stock held by the Holder. The Common Stock will be issued to the Holder in a transaction not involving a public offering and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws. In connection with such purchase and in order to comply with the exemptions from registration relied upon by the Company, the Holder represents, warrants and agrees as follows:
(a) The Holder is acquiring the Common Stock for its own account, to hold for investment, and the Holder shall not make any sale, transfer or other disposition of the Common Stock in violation of the Securities Act or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission or in violation of any applicable state securities law. The Holder is an "accredited investor" as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act.
(b) The Holder has been advised that the Common Stock has not been registered under the Securities Act or state securities laws on the ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on the Holder's representations set forth herein.
(c) The Holder has been informed that under the Securities Act, the Common Stock must be held indefinitely unless it is subsequently registered under the Securities Act or unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition by the Holder of the Common Stock. The Holder further agrees that the Company may refuse to permit the Holder to sell, transfer or dispose of the Common Stock (except as permitted under Rule 144) unless there is in effect a registration statement under the Securities Act and any applicable state securities laws covering such transfer, or unless the Holder furnishes an opinion of counsel reasonably satisfactory to counsel for the Company to the effect that such registration is not required.
The Holder also understands and agrees that there will be placed on the certificate(s) for the Common Stock or any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. These shares have been acquired for investment purposes and may not be sold or otherwise transferred in the absence of an effective registration statement for these shares under the Securities Act and applicable state securities laws or an opinion of counsel satisfactory to the Company that registration is not required and that an applicable exemption is available."
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AURA SYSTEMS, INC.
REGISTRATION RIGHTS AGREEMENT
(Intercreditor)
Dated as of August 19, 2004
Intercreditor
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of August 19, 2004, is made by and among AURA SYSTEMS, INC., a Delaware corporation (the "Company"), and THE INVESTORS LISTED ON THE SIGNATURE PAGE HEREOF (each of whom is herein called individually, a "Investor" and all of whom are herein called, collectively, the "Investors"), with reference to the following facts:
In connection with the Amendment and Conversion Agreement dated as of August 19, 2004 (the "Amendment and Conversion Agreement"), by and among the Company and the Investors, this Agreement is to be executed and delivered by the Investors and the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein and for other consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto further agree as follows:
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, this Registration Rights Agreement has been duly executed by or on behalf of the parties hereto as of the date first above written.
"Company"
AURA SYSTEMS, INC.
By:
Name:
Title:
2335 Alaska Avenue
El Segundo, CA 90245
Attn: President
Fax: (310) 643-8719
"Investors"
KOYAH LEVERAGE PARTNERS, L.P.
By: Koyah Ventures LLC, its general partner
By:
Name:
Title:
c/o ICM Asset Management, Inc.
601 West Main Avenue, Suite 600
Spokane, WA 99201
Attn: Robert Law
Fax: (509) 444-4500
[Signature page to Registration Rights Agreement (Intercreditor)]
KOYAH PARTNERS, L.P.
By: Koyah Ventures LLC, its general partner
By:
Name:
Title:
c/o ICM Asset Management, Inc.
601 West Main Avenue, Suite 600
Spokane, WA 99201
Attn: Robert Law
Fax: (509) 444-4500
KOYAH VENTURES, LLC
By:
Name:
Title:
c/o ICM Asset Management, Inc.
601 West Main Avenue, Suite 600
Spokane, WA 99201
Attn: Robert Law
Fax: (509) 444-4500
RAVEN PARTNERS, L.P.
By: Koyah Ventures LLC, its general partner
By:
Name:
Title:
c/o ICM Asset Management, Inc.
601 West Main Avenue, Suite 600
Spokane, WA 99201
Attn: Robert Law
Fax: (509) 444-4500
[Signature page to Registration Rights Agreement (Intercreditor)]
EDGAR APPLEBY
Peacock Point
Locust Valley, NY 11560
Fax: (516) 674-3748
PRUDENT BEAR FUND, INC.
By:
Name:
Title:
8140 Walnut Hill Lane, Suite 300
Dallas, TX 75206
Attn: Greg Jahnke
Fax: (214) 696-5556
[Signature page to Registration Rights Agreement (Intercreditor)]
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EXHIBIT A
Form of Registration Warrant
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
Warrant To Purchase Common Stock
Of
Aura Systems, Inc.
______________, ______
No. W-__
This certifies that __________________________ (the "Holder") is entitled, subject to the terms and conditions of this Warrant, to purchase from AURA SYSTEMS, INC., a Delaware corporation (the "Company"), all or any part of an aggregate of ______________ shares of the Company's authorized and unissued Common Stock, par value $.005 (the "Warrant Stock"), at the Warrant Price (as defined herein), upon surrender of this Warrant at the principal offices of the Company, together with a duly executed subscription form in the form attached hereto as Exhibit 1 and simultaneous payment of the Warrant Price for each share of Warrant Stock so purchased in lawful money of the United States, unless exercised in accordance with the provisions of Section 2.5 of this Warrant. The Holder may exercise the Warrant at any time after the date of this Warrant and prior to the seventh anniversary of the date hereof (the "Expiration Date").
This Warrant is issued pursuant to the Registration Rights Agreement dated as of August 19, 2004 (the "Registration Rights Agreement"), by and among the Company, the Holder and the other Investors named therein.
where X = the number of shares of Warrant Stock to be issued to the Holder pursuant to this Section 2.5.
Y = the number of shares of Warrant Stock purchasable under this Warrant, or if only a portion of the Warrant is being exercised, the number of shares of Warrant Stock represented by the portion of the Warrant being exercised.
A = the Fair Market Value of one share of Warrant Stock at the time the net exercise election is made pursuant to this Section 2.5.
B = the Warrant Price.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the date and year first set forth above.
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AURA SYSTEMS, INC. By: Name: ______________________________ Title: _______________________________ |
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[Signature Page to Warrant]
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
(1) Check the box that applies and the provide the necessary information:
o
Cash Payment Election. The undersigned Holder hereby elects to purchase shares of Common Stock of Aura Systems, Inc. (the "Warrant Stock"), pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.o
Net Exercise Election. The undersigned Holder elects to convert the Warrant into shares of Warrant Stock by net exercise election pursuant to Section 2.5 of the Warrant. This conversion is exercised with respect to __________ shares of Common Stock of Aura Systems, Inc. (the "Warrant Stock") covered by the Warrant.(2) In exercising the Warrant, the undersigned Holder hereby makes the representations and warranties set forth on Appendix A hereto as of the date hereof.
(3) Please issue a certificate or certificates representing such shares of Warrant Stock in the name or names specified below:
(Name) (Name)
(Signature) (Signature)
(Address) (Address)
(City, State, Zip Code) (City, State, Zip Code)
(Federal Tax Identification Number) (Federal Tax Identification Number)
(Date) (Date)
Appendix A
INVESTMENT REPRESENTATION
The undersigned, _____________________ (the "Holder"), intends to acquire shares of Common Stock (the "Common Stock") of Aura Systems, Inc. (the "Company") from the Company pursuant to the exercise or conversion of a Warrant to purchase Common Stock held by the Holder. The Common Stock will be issued to the Holder in a transaction not involving a public offering and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws. In connection with such purchase and in order to comply with the exemptions from registration relied upon by the Company, the Holder represents, warrants and agrees as follows:
(a) The Holder is acquiring the Common Stock for its own account, to hold for investment, and the Holder shall not make any sale, transfer or other disposition of the Common Stock in violation of the Securities Act or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission or in violation of any applicable state securities law. The Holder is an "accredited investor" as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act.
(b) The Holder has been advised that the Common Stock has not been registered under the Securities Act or state securities laws on the ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on the Holder's representations set forth herein.
(c) The Holder has been informed that under the Securities Act, the Common Stock must be held indefinitely unless it is subsequently registered under the Securities Act or unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition by the Holder of the Common Stock. The Holder further agrees that the Company may refuse to permit the Holder to sell, transfer or dispose of the Common Stock (except as permitted under Rule 144) unless there is in effect a registration statement under the Securities Act and any applicable state securities laws covering such transfer, or unless the Holder furnishes an opinion of counsel reasonably satisfactory to counsel for the Company to the effect that such registration is not required.
The Holder also understands and agrees that there will be placed on the certificate(s) for the Common Stock or any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. These shares have been acquired for investment purposes and may not be sold or otherwise transferred in the absence of an effective registration statement for these shares under the Securities Act and applicable state securities laws or an opinion of counsel satisfactory to the Company that registration is not required and that an applicable exemption is available."
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SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT ("Agreement") is dated as of August 19, 2004, by and between AURA SYSTEMS, INC., a Delaware corporation (the "Company"), and the purchasers identified on the signature page of this Agreement ( each, a "Purchaser," and together with such other investors who participate in the "Offering" described below, "Purchasers") with regard to the following:
RECITALS
A. The Company is offering for sale (the "Offering") to accredited investors in a private placement a minimum of Five Million Dollars ($5,000,000.00) (the "Minimum Offering Amount") and a maximum of Fifteen Million Dollars ($15,000,000) (the "Maximum Offering Amount") of its units ("Units") at a purchase price of One Thousand Dollars ($1,000) per Unit, each Unit consisting of (i) Two Hundred (200) shares of Series B Preferred Stock (the "Series B Shares") having the rights, preferences and privileges set forth in the Certificate of Designations of Series B Cumulative Preferred Stock of Aura Systems, Inc., annexed as Exhibit "A" attached hereto (the "Certificate of Designations"), which Series B Shares are convertible into shares (the "Conversion Shares") of the Company's Common Stock, par value $.005 per share (the "Common Stock"), and (ii) Series B Warrants in the form of Exhibit "B" attached hereto (the "Serie s B Warrants"), each warrant entitling the holder to purchase up to Twelve Thousand Five Hundred (12,500) shares of Common Stock. The Minimum Offering Amount and the Maximum Offering Amount exclude the conversion of Intercreditor Creditor Bridge Loans and former Intercreditor Bridge Loans (as defined below) described herein. The Warrants entitle the holder thereof to purchase the number of shares (the "Warrant Shares") of Common Stock as set forth above. The Series B Shares, the Conversion Shares, the Series B Warrants and the Warrant Shares being offered and sold to a Purchaser are each referred to as a "Security" and collectively the "Securities."
B. Pursuant to the Offering, the Company desires to issue and sell to Purchasers, and Purchasers desires to purchase from the Company, the Units upon and subject to the terms and conditions hereinafter set forth.
C. Contemporaneously with the "Closing" under this Agreement, the parties will be executing and delivering (i) a Registration Rights Agreement in the form attached hereto as Exhibit C (the "Registration Rights Agreement"), pursuant to which the Company agrees to provide certain registration rights under the Securities Act, the rules and regulations promulgated thereunder and applicable state securities laws, (ii) a Shareholder Agreement in the form attached hereto as Exhibit D (the "Shareholder Agreement"), pursuant to which the holders of the Series B Shares agree to certain voting arrangements, and (iii) an Escrow Agreement in the form attached hereto as Exhibit I (the "Escrow Agreement") by and among the Company, the Purchasers and Interwest Transfer Co, Inc. as Escrow Agent (the "Escrow Agent"), pursuant to which a portion of the purchased Units will be placed in escrow with the Escrow Agent until the purchase price for such Units has been paid as pr ovided herein.
D. The Company and Purchasers are executing and delivering this Agreement in reliance upon the exemption from registration afforded by the provisions of Section 4(2) under the Securities Act of 1933 (the "Securities Act"), and Regulation D ("Regulation D"), as promulgated by the United States Securities and Exchange Commission (the "SEC").
NOW, THEREFORE, in consideration of their respective promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Purchasers hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 Purchase of Units. Subject to the terms and the satisfaction or waiver of the conditions set forth in this Agreement, the Company and each Purchaser agree that on the Closing Date (as hereinafter defined) Purchaser will purchase from the Company, and the Company will issue and sell to such Purchaser, severally and not jointly with the other Purchasers, Units in the aggregate dollar amount equal to the Subscription Amount set forth on the signature page of this Agreement next to the Purchaser's name (the "Subscription Amount").
1.2 Form and Terms of Payment. At the Closing, subject to the satisfaction or waiver of the conditions set forth in Articles VI and VII hereof, each Purchaser shall pay the Subscription Amount as follows: Each Purchaser shall pay the full Subscription Amount at Closing, which Subscription Amount consists of the Initial Payment (as hereinafter defined) and, for Purchasers who do not pay the full Subscription Amount on the Closing Date, the Purchaser's Promissory Note in the form attached hereto as Exhibit J ("Promissory Note") for the remaining balance of the Subscription Amount.
a. The Initial Payment shall be made by each Purchaser (i) in cash, by wire transfer to the Company in accordance with the Company's written wiring instructions, (ii) by credit against the purchase price for amounts previously advanced to the Company, in satisfaction thereof, and/or (iii) by conversion of outstanding indebtedness of the Company. The type and amount of consideration constituting the Initial Payment for each Purchaser is set forth in the Funding Schedule attached hereto as Exhibit E (the "Funding Schedule"), and is referred to in this Agreement as the "Initial Payment."
b. The Promissory Note for each Purchaser shall be dated the Closing Date, shall be in the principal amount equal to the Subscription Amount less the Initial Payment as set forth in the Funding Schedule, with principal payments due on the principal payment dates set forth for each Purchaser in the Funding Schedule, and otherwise containing the terms set forth in the Promissory Note.
1.3 Delivery of Certificates at Closing; Escrow. At the Closing, subject to the satisfaction or waiver of the conditions set forth in Articles VI and VII hereof, the Company shall deliver to each Purchaser certificates evidencing the number of Units paid for by the Initial Payment (i.e. the amount of the Initial Payment divided by the purchase price of One Thousand Dollars ($1,000) per Unit). Certificates evidencing the remaining purchased Units shall be delivered by the Company to the Escrow Agent at the Closing, to be held by the Escrow Agent pursuant to the terms of the Escrow Agreement.
1.4 Closing Date. Subject to the satisfaction or waiver of the conditions set forth in Articles VI and VII below, the date and time of the issuance, sale and purchase of the Units pursuant to this Agreement shall be the date of this Agreement (the "Closing Date").
1.5 Option to Purchase the Option Stock. The Company hereby grants to each of the Purchasers, severally and not jointly, an option ("Option") to purchase from the Company at any time on or before May 31, 2005, subject to the other provisions of this Agreement, including this Section 1.5, additional Units, with registration rights (collectively, the "Option Units"), in an aggregate amount up to 50% of the Units paid for by such Purchaser by the Initial Payment on the Closing Date or as principal payments received by the Company under the Promissory Note, and not to exceed, in the aggregate for any Purchaser, Fifty Percent (50%) of the number of Units subscribed for by such Purchaser under this Agreement as of the Closing Date, at a purchase price of One Thousand Dollars ($1,000) per Unit (the "Option Purchase Price") as follows:
a. For Purchasers utilizing a Promissory Note to pay for securities,
(i) such Option shall be exercisable by a Purchaser at its sole election and without any obligation to do so, in whole or in part, on any "Note Principal Payment Date" (as set forth in the Funding Schedule) for a number of Units not to exceed the number of Units obtained by dividing fifty percent (50%) of the corresponding "Note Principal Payment Amount" (and any prepayments of principal, if any, made since the prior Note Principal Payment Date) by $1,000 (the Unit Price), provided however, that on the first Note Principal Payment Date, the Option shall be exercisable for an amount equal to (A) 50% of the Note Principal Payment Amount plus the amount of the Purchaser's Initial Payment and any prepayments of principal under the Promissory Note, (B) divided by 1,000 (the Unit Price).
(ii). A Purchaser may exercise such Option by giving the Company written notice of such exercise ("Notice of Exercise") no later than five (5) business days prior to the applicable Note Principal Payment Date stating the number of Option Units proposed to be purchased. In the event a Purchaser exercises such Option, upon and subject to the terms and conditions set forth herein and in exchange for payment by of the applicable portion of Option Purchase Price, the Company hereby agrees to issue and sell to each such Purchaser, and each such Purchaser shall thereby be deemed to agree to purchase from the Company, the applicable portion of the Option Units.
(iii) The portion of an Option which was exercisable as of any Note Principal Payment Date, to the extent not exercised as of the Note Principal Payment Date, shall automatically expire. If at any time on or after the Closing Date and prior to May 31, 2005, the Company shall obtain equity funding (other than pursuant to the Offering) or debt funding, or both, in an aggregate amount of not less than $2,000,000, then upon written notice by the Company to the Purchaser ("Option Termination Notice"), the unexercised portion of the Option shall expire at 5:00 p.m., Los Angeles time, on the fifth business day following the date of such notice (the "Option Termination Date"). Upon receipt of the Option Termination Notice the Option shall be exercisable by a Purchaser at its sole election and without any obligation to do so, in whole or in part, on the Option Termination Date for a number of Units not to exceed the number of Units obtained by dividing fifty percent (50%) of any principal prepayme nts, if any, made since the prior Note Principal Payment Date or to be made on the Option Termination Date (plus, if the first Note Principal Payment Date has not occurred prior to the Option Termination Date, the Initial Payment) by $1,000 (the Unit Price).
b. For Purchasers not utilizing a Promissory Note to pay for securities (i.e. cash, conversion of cash advances or conversion of notes) such Option shall be exercisable by a Purchaser at its sole election and without any obligation to do so, in whole or in part (i) in increments of 50% by December 31, 2004 and 50% by May 31, 2005 and (ii) subject to earlier termination upon notice as set forth in Section 1.5(a)(iii) hereof but with the amount of the option exercisable under the circumstances described in Section 1.5(a)(iii) being equal to fifty percent (50%) of the unexercised portion of the original option.
c. The terms of purchase of the Option Units at the closing thereof (an "Option Closing") thereof shall be the same as for the other Units purchased by a Purchaser, except that:
(iv) At the Option Closing, the Company shall deliver to the Purchaser certificates evidencing the number of Option Units paid for by the Option Payment (i.e. the amount of the Initial Option Payment divided by the purchase price of One Thousand Dollars ($1,000) per Unit) against delivery of the full purchase price thereof.
ARTICLE II
PURCHASER'S REPRESENTATIONS AND WARRANTIES
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE SECURITIES ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS AND THE LAWS OF OTHER APPLICABLE JURISDICTIONS.
Such Purchaser further consents to the placement of one or more restrictive legends on any Securities issued in connection with this Offering as may be required by applicable securities laws. Such Purchaser is aware that the Company will make a notation in its appropriate records with respect to the restrictions on the transferability of the Securities.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
(a) The execution and delivery by the Company of the Agreements and the consummation of the transactions contemplated by the Agreements will not result in the violation by the Company of any law, statute, rule, regulation, order, writ, injunction, judgment or decree of any court or governmental authority to or by which the Company is bound, or of any provision of the Certificate of Incorporation, By-laws or other governing documents of the Company, and will not conflict with, or result in a breach or violation of, any of the terms or provisions of, or constitute (with due notice or lapse of time or both) a default under, any lease, loan agreement, mortgage, security agreement, trust indenture, securities purchase agreement, registration rights agreement or other agreement or instrument to which the Company is a party or by which it is bound or to which any of its properties or assets is subject, nor result in the creation or imposition of any lien upon any of the properties or asset s of the Company, except for such violations, conflicts, breaches or violations which individually or in the aggregate will not have a material adverse effect on the Company. The issuance and/or sale of the Securities contemplated by the Agreements will not give rise to any preemptive rights, rights of first refusal or anti-dilution pricing adjustment rights on behalf of any Person.
(b) No consent, approval, authorization or other order of any governmental authority or other third party is required to be obtained by the Company in connection with the authorization, execution and delivery of the Agreements or with the authorization, issue and/or sale of the Securities, except such filings as may be required to be made with the Securities and Exchange Commission, or with any state or foreign blue sky or securities regulatory authority. The Company shall make all such filings on a timely basis. The Offering is exempt from the registration requirements of the Securities Act and applicable state or foreign blue sky or securities laws. The Company is eligible to register the resale of the Securities as a secondary offering on a registration statement on Form S-1 under the Securities Act as contemplated (as an alternative form to Form S-3) by the Registration Rights Agreement.
3.9 Conversion of Intercreditor Bridge Loans. Three Million Five Hundred Thousand Dollars ($3,500,000) of the Intercreditor Bridge Loans and former Intercreditor Bridge Loans have been converted into Series B Shares and Series B Warrants at or prior to the Closing, consisting of (i) Two Million Five Hundred Thousand Dollars ($2,500,000) of Intercreditor Bridge Loans which have been converted by the Intercreditor Bridge Lenders pursuant to an Amendment and Conversion Agreement in the form attached hereto as Exhibit F (the "Amendment and Conversion Agreement") and (ii) One Million Dollars ($1,000,000) of former Intercreditor Bridge Loans held by certain of the Purchasers which have been converted by them pursuant to this Agreement.
3.10 Extension of Intercreditor Bridge Loans. The stated maturity of the remaining Intercreditor Bridge Loans has been extended to the first anniversary of the Closing Date pursuant to the Amendment and Conversion Agreement.
3.11 Resolution of Real Estate Situation. The Company and/or Aura Realty, Inc., a wholly owned subsidiary of the Company, have entered into (i) the Stocks Agreement dated as of May 30, 2004 between certain parties to purchase the real estate and (ii) an Agreement dated as of May 28, 2004 to divide the proceeds of the sale of the real estate and (iii) upon closing of the sale which is currently in escrow, have agreed to enter into a Lease of the real estate in the forms attached hereto as Exhibit G (collectively, the "Sale-Leaseback Agreement")
3.12 Resolution of Former Management Situation. The Company has entered into a global settlement agreement with former management pursuant to a Settlement Agreement in the form attached hereto as Exhibit H ( the "Settlement Agreement")
3.13 Minimum Subscriptions. At or prior to the Closing, the Company shall have sold Units in the Offering for an aggregate minimum Subscription Amount of Five Million Dollars ($5,000,000), excluding the conversion of Intercreditor Bridge Loans pursuant to the Amendment and Conversion Agreement and conversion of former Intercreditor Bridge Loans pursuant to this Agreement.
ARTICLE IV
COVENANTS
4.1 Best Efforts. Purchasers and the Company shall use their best efforts to timely satisfy each of the conditions precedent to their respective obligations described in Articles VI and VII, respectively, of this Agreement.
4.2 Securities Laws. The Company shall take such action as is necessary to sell the Securities to Purchaser in accordance with applicable securities laws of the states of the United States, and shall provide evidence of any such action so taken to Purchaser at its request. Without limiting any of the Company's obligations under this Agreement, the Registration Rights Agreement or the Securities, from and after the date of the Closing, neither the Company nor any person acting on its behalf shall take any action which would adversely affect any exemptions from registration under the Securities Act with respect to the transactions contemplated hereby.
4.3 Use of Proceeds. The Company shall use the cash proceeds from the sale of the Securities for (i) payments to cure arrears on real estate defaults, (ii) the payment of $180,000 to Neal F. Meehan in satisfaction of the Company's severance payment obligation, and (iii) payment in satisfaction of the Settlement Agreement and (iv) working capital.
4.4 Increase in Authorized Common Stock. Effective as of the Closing Date, the Company shall use its best efforts to take all necessary action to call a shareholders meeting and increase its authorized but unissued Common Stock as soon as practicable.
4.5 Expenses. The Company shall pay to each Purchaser, or at its direction, at the Closing (or, with the prior agreement of the Company, such Purchaser may withhold from the portion of the Subscription Amount otherwise payable by such Purchaser at the Closing), the amount of fees and expenses of legal counsel to such Purchaser incurred in connection with the negotiation, preparation, execution, and delivery of this Agreement and the other Agreements, up to a total maximum amount for all Purchasers combined of Ten Thousand Dollars ($10,000). Other than as set forth in this Section 4.5 or the other Agreements, each party shall pay the fees and expenses of its advisors, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement and the other Agreements.
4.6 D&O Insurance. Effective on the Closing Date and for a period of five years, the Company shall either (i) maintain in effect directors and officers liability insurance (covering both current and former officers and directors) or (ii) purchase tail coverage covering both current and former officers and directors in such amounts which are not less than those currently in effect, . Each member of the Board of Directors as of August 17, 2004 is expressly made a third party beneficiary of this provision.
4.7 Indemnification. The parties acknowledge that the Company has an indemnification agreement in place with each of its directors and each party acknowledges that these agreements remain in full force and effect. Further, the Company agrees that these agreements shall remain in effect and not be terminated. Each member of the Board of Directors as of August 17, 2004 is expressly made a third party beneficiary of this provision.
ARTICLE V
CERTAIN DEFINITIONS
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL UNITS
6.1 Conditions to the Closing. The obligation of the Company hereunder to issue and sell the Series B Shares and Series B Warrants comprising the Units to a Purchaser at the Closing is subject to the satisfaction, as of the date of the Closing, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion:
(i) Such Purchaser shall have executed the signature page to this Agreement, the Registration Rights Agreement, the Shareholder Agreement and the Escrow Agreement and shall have delivered the same.
(ii) Such Purchaser shall have delivered the Initial Payment and its Promissory Note, if applicable, in the aggregate amount of the Subscription Amount.
(iii) The representations and warranties of such Purchaser shall be true and correct as of each date when made as though made at that time, and such Purchaser shall have performed, satisfied and complied in all material respects with the covenants and agreements required by this Agreement to be performed or complied with by such Purchaser at or prior to the Closing. Completion of the Closing shall constitute certification of these matters by such Purchaser.
(iv) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which restricts or prohibits the consummation of any of the transactions contemplated by this Agreement.
6.2 Conditions to Option Closings. The obligation of the Company hereunder to issue and sell the Series B Shares and Series B Warrants comprising the Option Units to a Purchaser at any Option Closing is subject to the satisfaction, as of the date of the Option Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion:
(i) The Closing shall have been consummated.
(ii) The Purchaser shall not be in default under its Promissory Note.
(iii) Such Purchaser shall have delivered the applicable Option Purchase Price together with such other payments due and payable under the Promissory Note as of the Option Closing Date.
(iv) The representations and warranties of such Purchaser shall be true and correct as of each date when made as though made at that time, and such Purchaser shall have performed, satisfied and complied in all material respects with the covenants and agreements required by this Agreement to be performed or complied with by such Purchaser at or prior to the date of the Option Closing. Completion of an Option Closing shall constitute certification of these matters by such Purchaser.
(v) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE UNITS
7.1 Conditions to the Closing. The obligation of a Purchaser hereunder to purchase the Series B Shares and Series B Warrants comprising the Units at the Closing is subject to the satisfaction of each of the following conditions, provided that these conditions are for each Purchaser's sole benefit and may be waived by a Purchaser at any time in a Purchaser's sole discretion:
(i) The Company shall have executed the signature page to this Agreement, the Registration Rights Agreement and the Escrow Agreement and delivered the same.
(ii) The Company shall have delivered to such Purchaser and the Escrow Agent the Series B Shares and Series B Warrants comprising the Units being purchased by such Purchaser at the Closing, registered in the name of such Purchaser.
(iii) The representations and warranties of the Company shall be true and correct as of each date when made as though made at that time and the Company shall have performed, satisfied and complied with the covenants and agreements required by this Agreement to be performed or complied with by the Company at or prior to the Closing. Completion of the Closing shall constitute certification of these matters by the Company.
(iv) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
(v) Carl Albert, James S. Harrington and Lawrence Diamant shall have resigned as directors of the Company, the remaining directors shall have elected Raymond Yu, Dr. Fred Balister and Izar Fernbach, as three of the four nominees pursuant to the Shareholder Agreement, to serve in their place and stead as three of the four directors to be elected by the Series B Shares, effective as of the date of the Closing.
(vi) Neal F. Meehan shall have (a) delivered his written resignation as Chief Executive Officer effective on the Closing Date and (b) agreed to a severance payment of $180,000 payable in four equal monthly installments of $45,000 beginning on the Closing Date.
(vii) The Company shall have filed the Certificate of Designations with the Delaware Secretary of State.
7.2 Conditions to the Option Closings. The obligation of a Purchaser hereunder to purchase the Series B Shares and Series B Warrants comprising the Option Units on each Option Closing Date is subject to the satisfaction of each of the following conditions as of the Option Closing Date, provided that these conditions are for a Purchaser's sole benefit and may be waived by a Purchaser at any time in Purchaser's sole discretion:
(i) The Closing shall have been consummated.
(ii) The Company shall have delivered to such Purchaser the Series B Shares and Series B Warrants comprising the Option Units being purchased by such Purchaser at the Option Closing, registered in the name of such Purchaser.
(iii) The representations and warranties of the Company shall be true and correct as of each date when made as though made at that time and the Company shall have performed, satisfied and complied with the covenants and agreements required by this Agreement to be performed or complied with by the Company at or prior to the date of the applicable Option Closing. Completion of an Option Closing shall constitute certification of these matters by the Company.
(iv) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
8.1 Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California applicable to contracts made and to be performed in the State of California. The parties hereto irrevocably consent to the jurisdiction of the United States federal courts located in the Central District in the State of California and the state courts located in the County of Los Angeles in the State of California in any suit or proceeding based on or arising under this Agreement or the transactions contemplated hereby and irrevocably agree that all claims in respect of such suit or proceeding shall be determined in such courts. The parties irrevocably waive the defense of an inconvenient forum to the maintenance of such suit or proceeding. The parties further agree that service of process upon a party mailed by the first class mail shall be deemed in every respect effective service of process upon such party in any suit or proceeding a rising hereunder. Nothing herein shall affect a party's right to serve process in any other manner permitted by law. The parties hereto 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.
8.2 Counterparts. This Agreement may be executed in any number of counterparts and, notwithstanding that any of the parties did not execute the same counterpart, each of such counterparts (or facsimile copies thereof) shall, for all purposes, be deemed an original, and all such counterparts shall constitute one and the same instrument binding on all of the parties hereto. Delivery of an executed counterpart of a signature page to this Agreement by facsimile shall be as effective as delivery of a manually executed counterpart of a signature page of this Agreement.
8.3 Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.
8.4 Severability. In the event that any provision of this Agreement or the application of any provision hereof is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall not be affected except to the extent necessary to delete such illegal, invalid or unenforceable provision unless the provision held invalid shall substantially impair the benefit of the remaining portion of this Agreement.
8.5 Scope of Agreement; Amendments.
(a) This Agreement and the other Agreements set forth the entire agreement and understanding between the parties as to the subject matter hereof and thereof and supersede all prior discussions, negotiations, agreements and understandings (oral or written) with respect to such subject matter. This Agreement or any provision hereof may be (i) amended only by mutual written agreement of the Company and the Purchasers or (ii) waived only by written agreement of the waiving party. No course of dealing between or among the parties will be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any party under or by reason of this Agreement.
(b) After an amendment or waiver becomes effective, it shall bind each holder of any Securities, regardless of whether such holder held such Securities at the time such amendment or waiver became effective, or subsequently acquired such Securities
8.6 Notice. All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to duly given and received when delivered personally or transmitted by facsimile, one business day after being deposited for next-day delivery with a nationally recognized overnight delivery service, or three business days after being deposited as first class mail with the United States Postal Service, all charges or postage prepaid, and properly addressed to the party to receive the same at the address indicated below or at such other address as such party may have designated by advance written notice to the other parties. The addresses for such communications shall be:
If to the Company:
Aura Systems, Inc.
2335 Alaska Avenue
El Segundo, CA 90245
Attention: Chief Financial Officer
Facsimile No.: (310) 643-8719
If to a Purchaser:
To the address designated by each Purchaser on the signature page of this Agreement, with a copy (which shall not constitute notice hereunder) to its counsel designated on the signature page, if any.
Each party shall provide notice to the other parties of any change in address.
8.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and each Purchaser and its successors and assigns. The provisions hereof which are for each Purchaser's benefit as purchaser or holder of the Securities are also for the benefit of, and enforceable by, any subsequent holder of such Securities.
8.8 Third Party Beneficiaries. Except as set forth in Sections 4.6 and 4.7 hereof, this Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
8.9 Survival. The representations and warranties of each Purchaser and the Company shall survive the Closings hereunder and the covenants of the parties shall survive the Closings.
8.10 Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other parties may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
8.11 Remedies. No provision of this Agreement providing for any remedy to any Purchaser shall limit any remedy which would otherwise be available to such Purchaser at law or in equity. Nothing in this Agreement shall limit any rights any Purchaser may have with any applicable federal or state securities laws with respect to the investment contemplated hereby. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to a Purchaser and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such and breach or threatened breach, a Purchaser shall be entitled, in addition to all other available remedies, to an order of specific performance, without the necessity of showing economic loss and without any bond or other security being required.
8.12 Termination. In the event that the Closing shall not have occurred on or
before August 31, 2004, unless the parties agree otherwise, this Agreement shall terminate.
8.13 Directly or Indirectly. Where any provision in this Agreement refers to action to be taken by any person, or which such person is prohibited from taking, such provision shall be applicable whether the action in question is taken directly or indirectly by such person.
8.14 Failure or Indulgence Not Waiver. No failure or delay on the part of a party 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 privilege.
8.15 Publicity. As soon as is practicable following the Closing, the Company shall issue a press release with respect to the transactions contemplated hereby. The Company shall provide a draft of the press release to each Purchaser for review and comment not less than 24 hours prior to its release to the public.
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IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first above written.
COMPANY:
AURA SYSTEMS, INC.
By:_________________________________ Name:
Title:
[SIGNATURES OF PURCHASERS CONTINUED ON FOLLOWING PAGES]
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"PURCHASER" |
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American friends of Karen Chava Bnai Levi |
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By _______________________________ |
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Name: ____________________________ |
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Title: ____________________________ |
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Subscription Amount (USD): $900,000.00 |
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(900 Units @ $1,000 per Unit) |
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Address: Aries Group attn: Z. Kurtzman |
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12100 Wilshire Blvd. Suite 705 |
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Los Angeles, CA 90025 |
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Facsimile: (310) 820-4118 |
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Residence: Canada
"PURCHASER" TripleNet, LLC By ______________________________ Name: ___________________________ Title: ___________________________ Subscription Amount (USD): $500,000 (500 Units @ $1,000 per Unit) Address: 800 W. Wieuca Road Suite 150 Atlanta, GA 30342 Facsimile: (___) ___-____ Residence: Georgia
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"PURCHASER" |
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_______________________________ |
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Edgar Appleby |
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Subscription Amount (USD): $224,750.00 |
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(224.75 Units @ $1,000 per Unit) |
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Address: Peacock Point |
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Locust Valley, NY 11560 |
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Facsimile: (516) 674-3748 |
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Residence: New York |
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"PURCHASER" |
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_______________________________ |
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Yair Ben Moshe |
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Subscription Amount (USD): $1,909,155 |
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(1909.155 Units @ $1,000 per Unit) |
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Address: |
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7250 Wilshire Blvd. Suite 101 |
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Los Angeles, CA 90036 |
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Facsimile: (323) 954-8848 |
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Residence: California
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"PURCHASER" |
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_______________________________ |
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Zvi Kurtzman |
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Subscription Amount (USD): $909,155 |
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(909.155 Units @ $1,000 per Unit) |
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Address: Aries Group attn: Z. Kurtzman |
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12100 Wilshire Blvd. Suite 705 |
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Los Angeles, CA 90025 |
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Facsimile: ____________________________ |
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Residence: California |
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"PURCHASER" |
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_______________________________ |
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Cipora Lavut |
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Subscription Amount (USD): $590,000.00 |
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(590 Units @ $1,000 per Unit) |
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Address: Aries Group attn: Cipora Lavut |
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12100 Wilshire Blvd. Suite 705 |
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Los Angeles, CA 90025 |
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Facsimile: (310) 820-4118 |
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Residence: California
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"PURCHASER" |
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_______________________________ |
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Anton d'Espous |
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Subscription Amount (USD): $100,000.00 |
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(100 Units @ $1,000 per Unit) |
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Address: 22 Rue d'Bearn |
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9200 St. Cloud, France |
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92210 |
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Facsimile: (___) ___-____ |
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Residence: France
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"PURCHASER" |
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_______________________________ |
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Arthur J Schwartz |
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Subscription Amount (USD): $200,000.00 |
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(200 Units @ $1,000 per Unit) |
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Address: Aries Group |
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12100 Wilshire Blvd. Suite 705 |
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Los Angeles, CA 90025 |
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Facsimile: (310) 820-4118 |
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Residence: California
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"PURCHASER" |
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_______________________________ |
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Neal Kaufman |
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Subscription Amount (USD): $100,000.00 |
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(100 Units @ $1,000 per Unit) |
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Address: Aries Group |
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12100 Wilshire Blvd. Suite 705 |
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Los Angeles, CA 90025 |
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Facsimile: (310) 820-4118 |
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Residence: California
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"PURCHASER" |
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_______________________________ |
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David Maimon |
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Subscription Amount (USD): $2,109,155, |
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(2,109.155 Units @ $1,000 per Unit) |
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Address: P.O. Box 1406 |
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Studio City, CA 91614 |
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Facsimile: (323) 330-1390 |
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Residence: California
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"PURCHASER"
___________________________________
James F. Simmons
Subscription Amount (USD): $50,288
(50.288 Units @ $1,000 per Unit)
Address: c/o ICM Asset Management, Inc.
601 W. Main Avenue, Suite 600
Spokane, WA 99201
Facsimile: (509) 444-4500
Residence: Washington
"PURCHASER"
___________________________________
Shmuel Ben Moshe
Subscription Amount (USD): $200,000
(200 Units @ $1,000 per Unit)
Address: 7250 Beverly Blvd., Suite 101
Los Angeles, CA 90036
Facsimile: ( )
Residence: Israel
"PURCHASER"
___________________________________
Izar Fernbach
Subscription Amount (USD): $50,000
(50 Units @ $1,000 per Unit)
Address: 7250 Beverly Blvd., Suite 101
Los Angeles, CA 90036
Facsimile: ( )
Residence: Isreal
"PURCHASER"
___________________________________
Yaska Ginsberg
Subscription Amount (USD): $75,000
(75 Units @ $1,000 per Unit)
Address: P.O. Box 1406
Studio City, CA 91514
Facsimile: ( )
Residence: California
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
EXHIBIT B
WARRANT
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
EXHIBIT D
SHAREHOLDER AGREEMENT
EXHIBIT E
FUNDING SCHEDULE
EXHIBIT F
AMENDMENT AND CONVERSION AGREEMENT
EXHIBIT G
SALE-LEASEBACK AGREEMENT
EXHIBIT H
SETTLEMENT AGREEMENT
EXHIBIT I
ESCROW AGREEMENT
EXHIBIT J
PROMISSORY NOTE
EXHIBIT K
SUPPLEMENTAL DISCLOSURE MEMORANDUM
The Company makes the following disclosures to supplement the information set forth in this Agreement and the SEC Reports:
EXHIBIT L
ACCREDITED INVESTOR DEFINITION
The following persons are deemed to be "accredited investors," and each Purchaser, by executing the within Securities Purchase Agreement, represents and warrants to the Company, that it is an accredited investor meeting one or more of the following criteria:
(1) Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of purchase exceeds $1,000,000, or any entity with total assets in excess of $5,000,000; or
(2) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; or
(3) Any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purposed of acquiring Units, with total assets in excess of $5,000,000; or
(4) Any trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Units; or
(5) Any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA") if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors.