EXHIBIT 10.21
SECURITY AGREEMENT
This security agreement (the "Security Agreement") is entered into as
of January 23, 2002, by and between Aura Systems, Inc., a Delaware corporation
(the "Debtor"), and The Xxxx Xxxxxx Trust dated July 7, 0000, Xxxx Xxxxxx,
Trustee (the "Holder").
WHEREAS, Holder has made a loan to Debtor of the sum of Two Hundred
Fifty Thousand Dollars ($250,000) and Debtor has executed, for the benefit of
Holder, a Secured Promissory Note, dated as of even date herewith, in the
original principal amount of Two Hundred Fifty Thousand Dollars ($250,000) (the
"Note"); and
WHEREAS, Debtor has represented to Holder that it owns all of the
outstanding stock of Aura Realty Inc., a Delaware corporation ("Realty"), and
that Realty owns those certain parcels of real property located at 0000 Xxxxxx
Xxxxxx and 0000 Xxxx Xxxxxx in the City of El Segundo, State of California
(collectively, the "Real Property"); and
WHEREAS, in order to secure Debtor's obligation to repay the Note when
and as due, Debtor has agreed to grant to Holder and Holder has agreed to accept
either (a) a security interest in or lien on the Real Property or (b) Realty's
interest therein; and
WHEREAS, Holder wishes to perform certain due diligence regarding
Realty and the Real Property; and
WHEREAS, until Holder completes its due diligence regarding Realty and
the Real Property, the parties have agreed that Debtor will xxxxx Xxxxxx a
security interest in certain of Debtor's other assets as set forth more
particularly herein;
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. Collateral.
(a) To secure its obligations under the Note, Debtor hereby grants to Holder a
first priority security interest, senior to any present or future liens, in all
of Debtor's right, title and interest in and to that certain Cancellation
Agreement by and between Debtor and Telemac Corporation, dated November 30,
1998, with a remaining amount due from Telemac to Debtor of $1,250,000 plus all
accrued and unpaid interest (the "Telemac Agreement," also sometimes referred to
as the "Initial Collateral"). Debtor shall immediately hereafter deliver
possession of the original Telemac Agreement to Holder so that Holder may
perfect its security interest in the Telemac Agreement, and Debtor hereby
authorizes Holder to file such UCC-1 Financing Statements as Holder believes
necessary to perfect its security interests in the Telemac Agreement.
(b) Debtor hereby covenants to use its best efforts and to cooperate in good
faith with Holder to take all actions necessary to enable Debtor to grant to
Holder a first priority lien or security interest in all of Debtor's interest in
the Real Property or Realty's interest therein, such security interest to be
evidenced by, at Holder's election, (i) a lien on the Real Property in favor of
Holder, to the extent permitted by any existing deed of trust or mortgage on the
Real Property, (ii) a pledge of all shares of common stock of Realty owned by
Debtor that have not been pledged to a third party prior to the date hereof (the
"Pledged Stock"), or (iii) some other security arrangement related directly or
indirectly to the Real Property that is satisfactory to Holder (the security
interest evidenced by clause (i), (ii) or (iii), the "Real Property
Collateral");
(c) Upon receipt of evidence satisfactory to Holder that the Real Property
Collateral is sufficient to secure Holder's interest in the Note, Holder may
elect to take a lien on or a security interest in the Real Property Collateral
in lieu of the Initial Collateral. If Holder notifies Debtor that he has so
elected, Debtor will immediately execute such documents or instruments as may be
necessary or desirable to xxxxx Xxxxxx a lien on or a first priority security
interest in the Real Property Collateral (and, if applicable, shall deliver
physical possession of the Pledged Stock) and Holder will immediately release
its security interest in the Initial Collateral and will return the Telemac
Agreement to Debtor.
(d) If Holder realizes value from the Initial Collateral or the Real Property
Collateral, whether by way of foreclosure, assignment in lieu of foreclosure or
otherwise, and the value so received exceeds the full amount due under the Note
together with accrued and unpaid interest thereon, plus Holder's costs of
enforcement and collection, then Holder shall, in accordance with the Uniform
Commercial Code as adopted by the State of California (the "UCC"), remit any
such excess value to Debtor.
2. Term of Security Interest. The Initial Collateral and the Real Property
Collateral, as applicable, shall remain subject to Holder's security interest
until the payment in full of the indebtedness evidenced by the Note. Upon such
termination, Holder agrees to execute any documents reasonably requested by
Debtor to evidence the release and termination of its security interest.
3. Maintaining a Perfected Security Interest. Debtor agrees to perform all acts
which Holder may reasonably request so as to enable Holder to maintain a valid
perfected lien on or security interest in the Initial Collateral or Real
Property Collateral, as applicable.
4. Representations, Warranties, and Covenants of Debtor. Debtor hereby
represents, warrants and covenants the following:
(a) Debtor has the power, authority and legal right to own the Initial
Collateral and the Pledged Stock and to engage in the transactions contemplated
by this Security Agreement, and the execution and delivery of this Security
Agreement will not conflict with or result in a breach of the terms or
provisions of any agreement with any third party or with any order of any court
or governmental body binding on or affecting Debtor.
(b) (i) Debtor is the legal and equitable owner of the Initial Collateral and
the Pledged Stock; (ii) the Initial Collateral and the Pledged Stock are free
and clear of any liens, pledges, encumbrances or agreements whatsoever, other
than those liens and encumbrances set forth on Schedule 1 to this Security
Agreement; (iii) Debtor has the complete and unconditional authority to pledge
the Initial Collateral and the Real Property Collateral to Holder without the
consent of any other party; and (iv) Debtor has no notice or knowledge of any
facts which will impair the validity of the pledge made hereby or the validity
of Holder's security interest in the Initial Collateral or the Real Property
Collateral, as applicable.
(c) Debtor shall not impose (and shall not permit Realty to impose) any other
lien, pledge or encumbrance on any of the assets constituting the Initial
Collateral, the Pledged Stock and the Real Property.
(d) Debtor hereby represents and warrants that (i) Telemac has paid all amounts
due to Debtor pursuant to the Telemac Agreement on time and in cash; (ii) both
Debtor and Telemac have fully and completely complied with all of their
obligations under the Telemac Agreement and no default by Debtor or Telemac
exists thereunder, (iii) the Telemac Agreement is enforceable against each of
Debtor and Telemac in accordance with its terms, and (iv) there are no
amendments or supplements of any kind to the Telemac Agreement other than
Amendments 1, 2 and 3 entered into on December 16, 1998, December 18, 1998 and
May 20, 1999, respectively. Debtor hereby covenants that it will not exercise
its option under Section 5(a) of the Telemac Agreement to convert the
outstanding balance due to Debtor into shares of Telemac common stock.
(e) Because the parties intend for the Note to be exempt from the usury
provisions of the California Constitution pursuant to Section 25118 of the
California Corporations Code, Debtor hereby represents and warrants that as of
the date hereof, Debtor has total assets of at least Two Million Dollars
($2,000,000) according to its most recent financial statements. Debtor also
represents and warrants that such financial statements are of a date not more
than 90 days prior to the date hereof, were prepared in accordance with
generally accepted accounting principles and on a consolidated basis, and were
prepared in accordance with the rules and requirements of the Securities and
Exchange Commission. Debtor further represents and warrants that Debtor and
Holder had a preexisting business relationship prior to the date hereof, and
Debtor, by reason of its own business and financial experience, could reasonably
be assumed to have the capacity to protect its own interests in connection with
the issuance of the Note and the negotiation of this Security Agreement.
5. Remedies of Holder. Upon an Event of Default, Holder shall have, with respect
to the Initial Collateral or Real Property Collateral, as applicable, and
without limitation, all of the rights and obligations of a secured party under
the UCC.
6. Application of Proceeds. Proceeds from a sale of the Initial Collateral or
the Real Property Collateral, or any part thereof, as applicable, shall be
applied by Holder in the following order (or in such other order as may be
required by the UCC):
(a) To the payment of the costs and expenses of collection incurred by Holder,
including, without limitation, attorneys' fees and all other reasonable
expenses, liabilities and costs incurred by Holder in connection therewith;
(b) To the payment of the unpaid principal and interest due on the Note; and
(c) To the payment to Debtor of any surplus then remaining from such proceeds.
7. Miscellaneous.
(a) Notices. Any notice to be given pursuant to this Security Agreement may be
given personally, by telephone, telegram, telecopy, facsimile or other
electronic transmission, or by letter to an officer or administrator of the
Debtor at the address set forth on the signature page hereto. Notices may be
given in the above manner to Holder at the following address:
Xx. Xxxx Xxxxxx
X.X. Xxx 000000
Xxx Xxxxxxx, Xxxxx 00000
Fax: 000-000-0000
email: xxx@xxxxxx.xxx
(b) Waiver. The waiver by any party to this Security Agreement of any one or
more defaults, if any, on the part of any other party, shall not be construed to
operate as a waiver of the other or future defaults under this Security
Agreement. This Security Agreement may be amended or modified only by the
written consent of the parties.
(c) Successors and Assigns. This Security Agreement shall inure to the benefit
of and shall be binding upon the respective heirs, successors and assigns of the
parties hereto.
(d) Severability. In case any provision in or obligation under this Security
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
(e) Headings. Section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Security Agreement for any other purpose or be given any substantive effect.
(f) Counterparts. This Security Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
Governing Law. This Security Agreement shall be construed, interpreted and
governed by the laws of the State of California, without regard to its
conflicts-of-law provisions.
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed, as of the day and year first above written.
AURA SYSTEMS, INC.
By: ____________________________________
Xxxxx Xxxxxxxx
Chairman and CEO
THE XXXX XXXXXX TRUST
DATED JULY 7, 1991
By: ___________________________________
Xxxx Xxxxxx
Trustee
Debtor's Address
For Notices:
Aura Systems, Inc.
0000 Xxxxxx Xxxxxx
Xx Xxxxxxx, Xxxxxxxxxx 00000
Attn: General Counsel
fax: 000-000-0000
