EXHIBIT 10.13
AGREEMENT
This Agreement is made by and between K & K Enterprises, with principal
offices in Noida, India ("Majority Owner") and Aura Systems, Inc. ("Aura"), a
Delaware corporation, with principal offices in El Segundo, California, USA, for
the formation of a joint venture between them.
WITNESSETH
WHEREAS, Aura has developed, and is the owner of patented and proprietary
technology relating to the development, design and manufacture of speaker
motors, speakers and speaker systems;
WHEREAS, Aura has identified product applications incorporating the Aura
patented and proprietary technology;
WHEREAS, Aura does not possess the resources with which to pursue the
manufacture of such product applications;
WHEREAS, Majority Owner is interested in funding the further manufacture of
products for such applications incorporating the Aura proprietary technology in
exchange for certain rights;
WHEREAS, to accomplish the above, the parties are desirous of entering into
a joint venture to further the development, design, manufacture and marketing of
such product applications.
NOW, THEREFORE, the parties hereby acknowledge this Agreement to be the
understanding reached by and between the parties hereto as of the date set forth
hereinbelow:
1. OBJECT
(a) The object of this Agreement is to form an Indian company to be called
Dewan Aurasound (hereinafter referred to as "NEWCO") with principal
offices in or about Noida, India under the joint ownership of Majority
Owner and Aura for the manufacture of products (within the scope of a
certain license agreement more particularly set forth hereinbelow)
incorporating Aura patented and proprietary technology. NEWCO will
conduct business as an independent entity separate and apart from its
shareholders.
(b) Majority Owner acknowledge that time is of the essence of making and
performance of this Agreement.
2. STRUCTURE
(a) The ownership of NEWCO will be 49% held by Aura and 51% held by
Majority Owner. Upon incorporation of NEWCO as a privately held
company, NEWCO shall issue shares (in an amount to be determined)
equal to such percentages.
(b) The NEWCO Board of Directors shall be comprised of five board members,
two of which shall be appointed by Aura and three of which shall be
appointed by Majority Owner. Majority Owner shall serve as Chairman
of the Board. Each party shall have the sole power to appoint its
respective board members and each party shall have the sole power to
remove and replace or substitute its respective board members. Except
as expressly set forth in Paragraphs 2(b) and 2(c) hereinbelow, all
resolutions and other matters to be determined by a vote of the NEWCO
Board of Directors shall be decided by a simple majority of the total
Board.
(c) Aura and Majority Owner agree that the Articles of Incorporation of
NEWCO, and/or its By-Laws, shall provide and establish the structure
of the Board of Directors as set forth in Section 2(b), including the
number of its members and the representations on the NEWCO Board of
Directors by the parties hereto, and further agree that such provision
in the Articles of Incorporation and/or the By-Laws of NEWCO shall not
be amended or modified unless such amendments or modifications are
consented to by a three-quarters vote of the NEWCO shareholders.
(d) Aura and Majority Owner agree that the Articles of Incorporation of
NEWCO, and/or its By-Laws, shall provide and establish that NEWCO
shall not be liquidated unless such liquidation is approved by a
three-quarters vote of NEWCO shareholders, and further agree that such
provision in the Articles of Incorporation and/or the By-Laws of NEWCO
shall not be amended or modified unless such amendments or
modifications are consented to by a three-quarters vote of the NEWCO
shareholders.
(e) Majority Owner shall jointly manage the administration of NEWCO. Aura
shall have primary responsibility over development and design of the
products. Majority Owner shall have primary responsibility over
manufacturing of the products and financing of NEWCO.
(f) NEWCO shall be incorporated as soon as practicable after execution of
this Agreement.
(g) NEWCO, upon receiving its initial capitalization, shall establish a
factory in Noida, India.
-2-
3. CONTRIBUTION AND COMMITMENTS
(a) Aura shall contribute and has contributed to NEWCO a working prototype
of an exemplary product of the type to be manufactured by NEWCO.
(b) Majority owner shall purchase from Aura the license described in
Article 4. Majority Owner shall contribute the rights under the
license to NEWCO but not the obligation to pay the license fee.
(c) The parties shall contribute working capital in the amount of
$500,000.00 to NEWCO in proportion to their ownership interest.
Additional capital shall be contributed as needed in proportion or by
either, as required, in the form of a loan at prevailing commercial
bank loan interest rates. Such loans shall be approved by a three-
quarters majority of the Board. Additional financing by third parties
shall dilute each party in equal shares of their ownership proportion.
(d) Majority Owner shall make arrangements to facilitate and coordinate
all engagements and necessary licenses with local governments and
regulatory authorities.
(e) Each of the parties shall further contribute, without compensation for
consultancy or otherwise, their respective expertise and know how
regarding the Board and management functions assumed under Article 2
of this Agreement. Nothing contained in this paragraph 3(d) shall
limit or restrict Aura's rights to receive payment from NEWCO for
engineering services ordered by NEWCO. Any such order for engineering
services shall, however, be at Aura's standard labor rates burdened
with overhead and G & A, as defined by generally accepted accounting
principals, plus 10%.
(f) Aura shall provide training to NEWCO personnel at Aura's facility to
establish the assembly procedure for manufacturing the Product. Any
additional expenses not related to the technology transfer under the
license, including but not limited to travel, per diem fees and
special materials, which may be required of Aura at NEWCO's facility,
shall be reimbursed by NEWCO to Aura at Aura's regular billing rates,
and shall be initiated at NEWCO's sole discretion.
(g) Aura shall purchase from NEWCO 20,000,000 units of the licensed
product (as such term is defined in Paragraph 4(a)) within the first
seven years of this Agreement at such times and in such quantities,
sizes, and types as Aura shall in its sole discretion determine.
During the first two years under this agreement, the sales price of
licensed product shall be NEWCO's costs + 20% (but in
-3-
any event competitive with prevailing wholesale prices for similar
products) and thereafter at competitive wholesale prices as shall be
agreed by and between the parties.
Aura's obligations on this Paragraph 3(g) shall be suspended in the
event of Force Majeure. For the purposes of Aura's purchase
obligations, the term "force majeure" shall mean an act of god,
strike, lockout, act of public enemy, war, blockade, public riot,
fire, storm, flood or other act of nature, explosion, governmental
action, governmental delay, restraint or inaction, unavailability of
equipment, and any other cause, whether of the kind specifically
enumerated above or otherwise, which is not reasonably within the
control of the party claiming suspension. Aura shall use all
reasonable diligence to remove the force majeure as quickly as
practicable. In the event Aura claims an event of force majeure, the
payments outlined in Paragraph 4(b) of this Agreement shall be
suspended for a like period or periods of time.
4. LICENSE
(a) AURA will grant, by separate written instrument, to Majority Owner an
exclusive, life of patents, non-transferable, non-assignable and non-
divisible right, license, without further right of sub-license, and
privilege to use only in the context of Paragraph 3(b) above the Aura
patented and proprietary technology, including patents, patent
applications and trade secrets (hereinafter referred to as the
"Licensed Technology") in the field of speaker motors, speakers and
speaker systems (hereinafter referred to as the "License Field") for
the manufacture of products in the License Field incorporating the
Licensed Technology (hereinafter referred to as the "Licensed
Products") and for the sale of Licensed Products in Indian
subcontinent (India, Pakistan, Nepal, Sri Lanka and Bangladesh),
Middle East countries (Saudi Arabia, Kuwait, UAE, Jordan and Israel),
Taiwan, and Western Europe (except Volkswagen, Mercedes and Fiat, for
which territory such license shall be non-exclusive) (the
"Territory"). Nothing contained herein shall prohibit or restrict the
secondary vertical sale of Licensed Products outside the Territory.
(b) In consideration of the license granted by Aura to Majority Owner,
Majority Owner agrees to pay to Aura a one-time, non-creditable, lump
sum, non-refundable license fee of $1,000,000 within twenty four
months of the date of this agreement according to India law and the
schedule as attached hereto as Exhibit "A".
-4-
Except for such subsequent events as specified in this Paragraph
3(b), no contingency shall exist to Aura's receipt of the License Fee
when due. Majority Owners's obligations to pay the License Fee when
due shall be suspended in the event of Aura's suspension of payments
under Paragraph 3(g) due to Force Majeure. The parties agree to
execute such license, on usual and customary terms not inconsistent
with this Agreement, within 5 calendar days of the signing of this
Agreement.
(c) Majority Owner further agrees not to compete in the License Field with
either Aura or NEWCO, nor invest in or fund others in competition with
Aura or NEWCO in the License Field. The covenant of this paragraph
4(b) shall survive termination of this Agreement for a period of seven
(7) years. Nothing contained herein shall prohibit ownership of
shares in any company in competition with Aura or NEWCO provided that
such ownership does not exceed 4.9% of the outstanding shares of such
company.
(d) In the event an assignment of any or all of the Aura proprietary
technology is made for the benefit of creditors under an India analog
either Chapter 7 or Chapter 11 of the U.S. Bankruptcy Law, then this
license shall not revert and the assignee-creditor takes title to such
transferred technology subject to the terms of this Agreement.
(e) In the event an assignment of any or all of the assets of NEWCO is
made for the benefit of creditors under an Indian analog to Chapter 7
of the U.S. Bankruptcy law, then the license granted to Majority Owner
shall terminate and all rights under the sub-license revert to Aura.
(f) Any and all improvements to the Licensed Technology made by Aura
subsequent to the date of this Agreement shall be licensed to NEWCO
under the same terms and conditions as set forth in Section 4(a)
without further payment of license fee or royalty to Aura.
(g) Any and all improvements to the Licensed Technology made by NEWCO
(without funding or other assistance by Aura) shall belong to NEWCO
subject to a grant of a fully paid, royalty free license to Aura for
such improvements.
-5-
5. BOOKS AND RECORDS
(a) NEWCO shall establish and maintain at its principal place of business,
or at such other place as the parties may consent to in writing, full,
true and accurate books of account, records and other data, kept in
accordance with generally accepted accounting principles, containing
all particulars necessary for a precise auditing of the complete
financial statements of NEWCO. The parties and its agents, including
their accountants and attorneys, shall, during the term of this
Agreement, have the right, during normal business hours, and upon
reasonable prior notice, to inspect and make extracts from such books
of account, records and other data relating to the financial condition
of NEWCO provided, however, that such examinations shall be conducted
no more often than once for each fiscal year period.
(b) All financial reporting and accounting of NEWCO shall be performed by
a qualified, independent international auditor.
6. REPRESENTATIONS AND WARRANTIES
(a) AURA represents and warrants to Majority Owner that, as of the date of
this Agreement: (i) AURA has the corporate power and authority to
enter into and to carry out the terms and provisions of this
Agreement; (ii) AURA has not entered into any agreement or
understanding regarding the manufacture of the Licensed Products in
the License Field which is in conflict with or inconsistent with any
of the terms or conditions of this Agreement; (iii) AURA has no actual
knowledge after diligent inquiry that its Licensed Technology or
Licensed Products conflict with, violate or infringe any rights of any
third party, and (iv) there are no actions or proceedings pending, or
to Aura's knowledge, threatened, which would prevent or make unlawful
the consummation of the transactions contemplated by this Agreement.
Aura will indemnify NEWCO and Majority Owner from and against any
cost, expense, lawsuit, legal proceeding, judgment or liability
arising out of or associated with any claim brought by any third party
claiming a violation or infringement by the Licensed Technology or
Licensed Products of such third party's patent rights wheresoever
situated.
NEWCO and Majority Owner shall have the right to engage independent
counsel to defend any claims of such third parties for
violations/infringement of any patent or intellectual property rights,
the cost of which shall be
-6-
borne solely by Aura.
Aura has applied for and received a patent from the United States
Patent Office relating to the License Technology and has not granted
any rights to any third party which are inconsistent with the rights
to be granted NEWCO under the License Agreement.
(b) Majority Owner represents and warrants to AURA that, as of the date of
this Agreement: (i) Majority Owner has the power and authority to
enter into and to carry out the terms and provisions of this
Agreement, (ii) the execution, delivery and performance of this
Agreement by Majority Owner will not conflict with or violate any
agreements or understandings to which Majority Owner is a party or by
which it may be bound, (iii) Majority Owner has the financial
resources, liquidity, equity, credit and net worth to make the
contribution and arrange for the credit to be extended to NEWCO as
required under Section 3(b), and (iv) there are no actions or
proceedings pending, or to either's knowledge, threatened, which would
prevent or make unlawful the consummation of the transactions
contemplated by this Agreement.
(c) The parties represent and warrant to each other that neither of them
shall liquidate its ownership of NEWCO without first offering to the
other of them the right to obtain the liquidating party's ownership
upon the same or better term's to the liquidating party as offered by
a third party.
(d) The parties agree that NEWCO shall warrant the Licensed Products to be
free from defects in material and workmanship upon such terms as shall
be agreed to in writing between NEWCO and its customers. NEWCO shall
indemnify and hold Aura and Majority Owner harmless from all loss
resulting from the manufacture, use or sale of licensed products.
7. INSURANCE
(a) NEWCO shall at all times during the term of this Agreement and
thereafter carry Director and Officer insurance and product, hazard
(including, but not limited to fire, earthquake, flood, theft and
burglary) and general liability insurance, and any other insurance
required under law, covering acts, omissions or occurrences during the
term of this Agreement, in the amount which shall be commercially
reasonable. Such policies shall name AURA and Majority Owner as
additional insureds and beneficiaries in the same percentages of their
respective stock ownership in
-0-
XXXXX. XXXXX shall use its best efforts to obtain a policy which
provides that it shall not be cancellable except upon thirty (30) days
prior written notice to AURA and Majority Owner NEWCO agrees to
provide Aura and Majority Owner with one or more certificates
evidencing the insurance coverage hereunder and the insurance policies
promptly upon the request of Aura and/or Majority Owner Aura, Majority
Owner and NEWCO acknowledge that insurance markets are rapidly
changing and that insurance in the form and amounts described in this
paragraph may not be available in the future. In such event, NEWCO
shall nevertheless maintain insurance coverage which is customary and
commercially reasonable.
8. DEFAULT
(a) Each of the following shall constitute an event of default hereunder
("Event of Default"): (i) Either Party fails to perform any material
covenant or agreement contained in this Agreement and Either Party
fails to perform such covenant following thirty (30) days' written
notice from the other party and opportunity to cure, provided,
however, if the default is of such a nature that it cannot reasonably
be cured within such thirty (30)-day period, then the defaulting party
shall not be deemed to be in default so long as the defaulting party
promptly commences to cure such default and diligently pursues such
cure to completion; (ii) Any representation or warranty of either
party herein shall prove to be incorrect in any material respect;
(iii) Majority Owner shall at any time challenge or otherwise assert
the invalidity of any of AURA's rights to Licensed Technology licensed
hereunder; or (iv) Majority Owner or AURA makes a general assignment
or general arrangement for the benefit of creditors without the prior
written consent of the other party, a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or
against either party and is not dismissed within thirty (30) days, a
trustee or receiver is appointed to take possession of all or a
substantial portion of either party's properties and possession
thereof is not restored to such party within sixty (60) days, or all
or a substantial portion of either party's assets shall be subjected
to attachment, execution or other judicial seizure which is not
discharged, stayed or bonded within sixty (60) days.
(b) If a Default shall occur hereunder, either party shall have the right,
to be exercised by it in its sole discretion (after reasonable
opportunity to cure the default has been given), to terminate this
Agreement upon written notice to the defaulting party. The right
-8-
of either party to terminate this Agreement for Default shall be in
addition to any other rights or remedies to which either party shall
be entitled at law. Termination of this Agreement shall be without
prejudice to any rights or remedies which either party may have, under
this Agreement
(c) In the event this Agreement is terminated by Aura by reason of default
of Majority Owner, then the license granted to NEWCO under Section
4(a) shall terminate and revert to Aura.
9. SECRECY
(a) AURA has taken reasonable security measures to protect the secrecy of
its proprietary technology in speakers, speaker manufacturing
processes and tooling for the manufacture of speakers. The parties
agree that this proprietary technology is valuable only so long as it
remains secret. Accordingly, each party agrees to take all steps
reasonably necessary to protect Confidential Information (as
hereinafter defined) from entering the public domain or falling into
the hands of unauthorized third parties. All information which in any
way embodies, evidences or relates to the proprietary technology is
referred to herein as "Confidential Information". Confidential
Information excludes any information which is or becomes in the public
domain by public use, publication, general knowledge or similar means
other than by breach of this Agreement.
(b) Each party agrees to take reasonable steps to maintain the secrecy of
Confidential Information.
10. BUSINESS PLAN
(a) The parties hereto shall, as soon as practicable after execution of
this Agreement, develop a business plan for NEWCO.
11. SUCCESSORS
(a) Except as otherwise provided herein, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
permitted successors and assigns.
-9-
12. SEVERABILITY
(a) The provisions of this Agreement are severable, and if any one or more
provisions are determined to be judicially unenforceable, in whole or
in part, the remaining provisions, and any partially unenforceable
provisions to the extent enforceable, shall nevertheless be binding
and enforceable. In the event that any act, regulation, directive, or
law of a government having jurisdiction and respect of this Agreement,
including its departments, agencies or courts, should make it
impossible or prohibit, restrain, modify or eliminate any act or
obligation of Majority Owner under this Agreement, Aura shall have the
right, at its option, to suspend this Agreement or to make such
modifications therein as may be necessary.
13. NOTICES
(a) All notices and other communications permitted or required by the
provisions of this Agreement shall be in writing and shall be
personally delivered or deposited in the United States Mail, bearing
adequate first class postage and addressed as hereinafter provided.
Notices delivered in person shall be effective upon the date of
delivery. Notices by mail shall be effective upon the receipt thereof
by the addressee or upon the tenth (10th) calendar day after being
deposited in the U.S. mail, as the case may be, whichever is earlier.
Any party hereto shall have the right from time to time and at any
time while this Agreement is in effect to change the respective
addressees thereof and each shall have the right to specify as the
address thereof any other address. Any notice herein required or
permitted to be given may be given, in addition to the manner set
forth above, by courier, telex, TWX, cable or facsimile transmission,
provided that the party giving such notice obtains acknowledgment by
courier proof of delivery, telex, TWX, cable or facsimile transmission
that such notice has been received by the party to be notified. Notice
given in this manner shall be effective upon transmission of
acknowledgment of receipt of same by the parties to be notified.
14. DISPUTES
(a) All disputes between the parties arising under or out of this
Agreement shall be settled by arbitration conducted in Los Angeles,
California. Either side to the dispute may institute arbitration by
giving written notice to the other party of its intention to
arbitrate.
-10-
(b) Unless otherwise expressly provided herein or agreed upon by the
parties in writing, the arbitration shall be conducted in accordance
with the commercial rules then obtaining of the American Arbitration
Association.
(c) Any award made pursuant to arbitration may be entered as a judgment by
any court of competent jurisdiction upon the application of any party
to said arbitration. Such award shall include an award of costs and
reasonable attorney's fees incurred by the prevailing party.
(d) Notwithstanding the foregoing provisions of this Paragraph 11, either
party shall have the right to petition a court of appropriate
jurisdiction seeking injunctive or other similar relief pending the
conclusion of any arbitration proceedings.
15. LITIGATION
(a) In the event of any litigation or proceeding in arbitration between
the parties arising in any manner out of this Agreement or the
asserted breach thereof, the prevailing party shall recover court
costs or costs of arbitration, as appropriate, and actual attorneys'
fees.
16. WAIVER
(a) The waiver or excuse by either party hereto as to any breach, default
or deficiency and the performance by the other party of any duty or
obligation by the other party to be performed hereunder shall not
constitute or be deemed a continuing waiver or excuse of the same or
any other duty or obligation owed by the other.
17. REMEDIES NOT EXCLUSIVE
(a) No remedy conferred by any of the specific provisions of this
Agreement is intended to be exclusive of any other remedy and each and
every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise. The election of any one or more
remedies by any of the parties shall not constitute a waiver of the
right to pursue other remedies.
-11-
18. CAPTIONS
(a) Captions and paragraph headings used herein are for convenience only
and are not a part of this Agreement and shall not be used in
construing it.
19. ENTIRE AGREEMENT
(a) This Agreement contains the entire understanding between the parties
concerning the subject matter of this Agreement and supersedes all
prior understandings and agreements, whether oral or written, between
them respecting the subject matter hereof. There are no
representations, agreements, arrangements or understandings, oral or
written, between the parties hereto relating to the subject matter of
this Agreement which are not fully expressed herein. This Agreement
may be modified only by an agreement in writing signed by all of the
parties hereto.
20. COUNTERPARTS
(a) This Agreement may be executed in any number of counterparts, each of
which shall constitute an original and all of which together shall
constitute one and the same instrument.
21. GENDER; NUMBER
(a) Terms used herein in any number or gender include other numbers or
genders, as the context may require.
22. GOVERNING LAW
This Agreement is made and entered into in the State of California, United
States of America. It is the intention of the parties hereto that this
Agreement shall be subject to and shall be enforced and construed under
tenets of international law.
-12-
WHEREFORE, the parties agree that this Agreement constitutes and
memorializes the understanding reached by and between the parties on the date
set forth hereinbelow, and intend to be legally bound by the mutual covenants,
terms and conditions herein. The parties shall use their best efforts to enter
into a definitive agreement setting forth the entire relationship between the
parties hereto.
AURA SYSTEMS, INC. K & K ENTERPRISES
By: /s/ Xxxxx Xxx Xxxxxxxx By: /s/ Xxxxx X. Xxxxx
---------------------- ------------------
Xxxxx Xxx Xxxxxxxx Xxxxx X. Xxxxx
Chief Executive Officer Vice President
Date: July 19, 1995 Date: July 19, 1995
-13-
EXHIBIT A
---------
. $50,000 no later than August 31, 1995.
. $100,000 no later than November 30, 1995.
. $250,000 no later than February 29, 1996.
. $40,000 per month thereafter until paid in full.
EXHIBIT A
