GUARANTY
GUARANTY, dated as of February 22, 2000 (the "Guaranty"), made
by each of AURA CERAMICS, INC., a Delaware corporation ("Aura Ceramics"),
AURASOUND, INC., a Delaware corporation ("AuraSound"), AURA MEDICAL SYSTEMS,
INC., a Delaware corporation ("Aura Medical"), ELECTROTEC PRODUCTIONS, INC., a
California corporation ("Electrotec Productions"), DS OSCILLATOR, INC., a
California corporation ("DS Oscillator"), PHILIPS SOUND LABS, INC., a Nevada
corporation ("Philips Sound") and ELECTROTEC AUDIO LEASE LIMITED, a corporation
organized and existing under the laws of England ("Electrotec Audio" and
together with the Company, Aura Ceramics, AuraSound, Aura Medical, Electrotec
Productions, DS Oscillator, and Philips Sound, each a "Guarantor" and
collectively, the "Guarantors"). Unless the context otherwise requires, terms
used herein and defined in the Secured Notes (as defined below) shall be used
herein as so defined.
W I T N E S S E T H :
WHEREAS, each Guarantor is a wholly owned subsidiary of Aura
Systems, Inc., a Delaware corporation (the "Company").
WHEREAS, each of Infinity Investors Limited, Glacier Capital
Limited, Global Growth Limited and Summit Capital Limited (collectively, the
"Funds"), is the holder of certain Variable Interest Rate Convertible Notes due
September 30, 1998 (the "Original Notes") of the Company, which are secured by
certain assets of the Company as specified in that certain Pledge Agreement
dated September 30, 1997;
WHEREAS, on the date hereof the Company will issue and deliver
Secured Notes of even date herewith in an aggregate amount of $12,500,000.00 (as
modified, supplemented or amended from time to time, the "Secured Notes") to the
Funds in exchange for Original Notes held by the Funds after giving effect to
the Assignment (the "Exchange");
WHEREAS, it is a condition to the Exchange that each Guarantor
shall have executed and delivered this Guaranty; and
WHEREAS, each Guarantor obtained benefits as a result of the
proceeds of the Original Notes and, thus, of the Obligations evidenced by each
Secured Note and, accordingly, desires to execute and deliver this Guaranty in
order to satisfy the condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Guarantor, the receipt and sufficiency of which are
hereby acknowledged, each Guarantor hereby makes the following representations
and warranties to the Funds and hereby covenants and agrees with the Agent and
each Fund as follows:
1. Each Guarantor irrevocably and unconditionally guarantees
the full and prompt payment when due (whether by acceleration or otherwise) of
the principal of and interest on any of the Secured Notes and all other
Obligations (including, without limitation, indemnities, fees and interest
thereon) of the Company and each Guarantor now existing or hereafter incurred
under, arising out of or in connection with the Secured Notes or any other
Transaction Document and the due performance and compliance with the terms of
the Transaction Documents by the Company and each Guarantor (all such principal,
interest, and other Obligations, collectively, the "Guaranteed Obligations").
All payments by the Guarantors under this Guaranty shall be made on the same
basis as payments by the Company under the Secured Notes.
2. Each Guarantor hereby waives notice of acceptance of this
Guaranty and notice of any liability to which it may apply, and waives
presentment, demand of payment, protest, notice of dishonor or nonpayment of any
such liability, suit or taking of other action by the Agent or any Fund against,
and any other notice to, any party liable thereon (including such Guarantor).
3. The Agent and any Fund may at any time and from time to
time without the consent of, or notice to the Guarantors, without incurring
responsibility to the Guarantors and without impairing or releasing the
obligations of the Guarantors hereunder, upon or without any terms or conditions
and in whole or in part:
(a) change the manner, place or terms of payment of, and/or
change or extend the time of payment of, renew or alter, any of the
Guaranteed Obligations, any security therefor, or any liability
incurred directly or indirectly in respect thereof, and the Guaranty
herein made shall apply to the Guaranteed Obligations as so changed,
extended, renewed or altered;
(b) sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any
of those hereunder) incurred directly or indirectly in respect thereof
or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against the
Company or others or otherwise act or refrain from acting;
(d) settle or compromise any of the Guaranteed Obligations,
any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or
hereof, and may subordinate the payment of all or any part thereof to
the payment of any liability (whether due or not) of the Company to
creditors of the Company other than the Funds and the Guarantors;
(e) apply any sums by whomsoever paid or howsoever realized to
any Obligations of the Company to the Agent or the Funds regardless of
what Obligations of the Company remain unpaid; and/or
(f) consent to or waive any breach of, or any act, omission or
default under, any of the Transaction Documents, or otherwise amend,
modify or supplement any of the Transaction Documents or any of such
other instruments or agreements.
4. Obligations of each Guarantor under this Guaranty shall be
secured by that certain Security Agreement, dated as of the date hereof, among
each of the Company, each Guarantor and HW Partners, LP, as agent for the Funds
(as modified, supplemented or amended from time to time, the "Security
Agreement").
5. Obligations of each Guarantor under this Guaranty are
absolute and unconditional and shall remain in full force and effect without
regard to, and shall not be released, suspended, discharged, terminated or
otherwise affected by, any circumstance or occurrence whatsoever, including,
without limitation: (a) any action or inaction by the Agent or any Fund as
contemplated in Section 3 of this Guaranty; or (b) any invalidity, irregularity
or unenforceability of all or part of the Guaranteed Obligations or of any
security therefor (including, without limitation, the Security Agreement). This
Guaranty is a primary obligation of each Guarantor. The entirety of this Section
5 notwithstanding, prior to the occurrence of an Event of Default (which has not
been cured in accordance with the terms of the Secured Notes), the obligations
of a Guarantor under this Guaranty shall be released concurrently with the
closing of the sale of all of the capital stock of such Guarantor in accordance
with Section 4.3(d) of the Secured Notes, and the Agent and the Funds shall
execute all documents reasonably required by such purchaser to so evidence.
6. If and to the extent that any Guarantor makes any payment
to the Agent, any Fund, the holder of any Secured Note or to any other Person in
satisfaction of such Guarantor's Guaranteed Obligations under this Guaranty or
any other Transaction Document, any claim which such Guarantor may have against
the Company by reason thereof, including, without limitation, by way of
contribution, reimbursement or subrogation, is hereby waived, and such Guarantor
shall have no recourse against the Company or its assets with respect to any
such claims.
7. In order to induce the Funds to exchange the Original Notes
for the Secured Notes, each Guarantor (except where otherwise indicated below)
makes the following representations, warranties and agreements:
(a) Each of Aura Ceramics and AuraSound (i) is a duly
organized and validly existing corporation in good standing under the
laws of the jurisdiction of its incorporation, (ii) has the power and
authority to own its property and assets and to transact the business
in which it is engaged, (iii) is duly qualified as a foreign
corporation and in good standing in each jurisdiction where the
ownership, leasing or operation of its property or the conduct of its
business requires such qualification, except for failures to be so
qualified or in good standing, as the case may be, which, individually
or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect, and (iv) has no subsidiaries.
(b) The Guarantor has the corporate power to execute, deliver
and perform the terms and provisions of this Guaranty and has taken all
necessary corporate action to authorize the execution, delivery and
performance by it of this Guaranty. Each Guarantor has duly executed
and delivered this Guaranty, and this Guaranty constitutes its legal,
valid and binding obligation enforceable in accordance with its terms.
(c) Neither the execution, delivery or performance by each
Guarantor of this Guaranty, nor compliance by it with the terms and
provisions hereof, (i) will contravene any provision of any law,
statute, rule or regulation or any order, writ, injunction or decree of
any court or governmental instrumentality, (ii) will conflict or be
inconsistent with or result in any breach of any of the terms,
covenants, conditions or provisions of, or constitute a default under,
or result in the creation or imposition of (or the obligation to create
or impose) any Lien upon any of the property or assets of such
Guarantor pursuant to the terms of any indenture, mortgage, deed of
trust, credit agreement, loan agreement or any other agreement,
contract or instrument to which such Guarantor is a party or by which
it or any of its property or assets is bound or to which it may be
subject or (iii) will violate any provision of the certificate of
incorporation or by-laws of such Guarantor.
(d) With respect to Aura Ceramics and AuraSound, no order,
consent, approval, license, authorization or validation of, or filing,
recording or registration with (except as have been obtained or made
prior to the Execution Date), or exemption by, any governmental or
public body or authority, or any subdivision thereof, is required to
authorize, or is required in connection with, (i) the execution,
delivery and performance of this Guaranty or (ii) the legality,
validity, binding effect or enforceability of this Guaranty.
(e) There are no actions, suits or proceedings pending or, to
the best knowledge of each Guarantor, threatened (i) with respect to
any Transaction Document or (ii) that are reasonably likely to
materially and adversely affect the business, operations, property,
assets, condition (financial or otherwise) or prospects of such
Guarantor.
(f) All factual information (taken as a whole) heretofore or
contemporaneously furnished by or on behalf of each Guarantor in
writing to the Agent or any Fund (including, without limitation, all
information contained herein) for purposes of or in connection with
this Guaranty or any transaction contemplated herein is, and all other
such factual information (taken as a whole) hereafter furnished by or
on behalf of such Guarantor in writing to the Agent or any Fund will
be, true and accurate in all material respects on the date as of which
such information is dated or certified and not incomplete by omitting
to state any fact necessary to make such information (taken as a whole)
not misleading at such time in light of the circumstances under which
such information was provided.
(g) Each of Aura Ceramics and AuraSound is in compliance with
all applicable statutes, regulations and orders of, and all applicable
restrictions imposed by, all governmental bodies, domestic or foreign,
in respect of the conduct of its business and the ownership of its
property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls), except
such noncompliances as would not, in the aggregate, have a material
adverse effect on the business, operations, property, assets, condition
(financial or otherwise) or prospects of such Guarantor.
(h) The Security Agreement creates, as security for the
Guaranteed Obligations hereunder and under all other Transaction
Documents, a valid and enforceable security interest in all of the
right, title and interest of the relevant Guarantor as set forth
thereunder in and to the Collateral described therein in favor of the
Agent, for the benefit of the Funds and, as to Aura Ceramics and Aura
Sound, of first priority on all of the Collateral superior to all Liens
(subject to the priority rights of holders of Permitted Liens of the
types described in clauses (c) and (i) of Section 4.1 of the Secured
Notes and any extension, renewal or replacement thereof to the extent
permitted by Section 4.1(k) of the Secured Notes);
(i) Each Guarantor is not an "investment company" within the
meaning of the United States Investment Company Act of 1940, as
amended.
(j) Each Guarantor is not a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company"
within the meaning of the United States Public Utility Holding Company
Act of 1935, as amended.
8. This Guaranty is a continuing one and all liabilities to
which it applies or may apply under the terms hereof shall be conclusively
presumed to have been created in reliance hereon. No failure or delay on the
part of the Agent or any Fund in exercising any right, power or privilege
hereunder and no course of dealing between the Company, the Guarantors, the
Agent, any Fund or the holder of any Secured Note 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 other right, power or privilege. The rights, powers and remedies
herein expressly provided are cumulative and not exclusive of any rights, powers
or remedies which the Agent, any Fund or the holder of any Secured Note would
otherwise have. No notice to or demand on the Guarantors in any case shall
entitle such Guarantor to any other further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Agent, any Fund or the
holder of any Secured Note to any other or further action in any circumstances
without notice or demand.
9. This Guaranty shall be binding upon each Guarantor and its
respective successors and assigns and shall inure to the benefit of the Agent
and the Funds and their respective successors and assigns.
10. Neither this Guaranty nor any provision hereof may be
changed, waived, discharged or terminated except with the prior written approval
of the Agent.
11. The Guarantor acknowledges that an executed (or conformed)
copy of each of the Secured Notes has been made available to its principal
executive officers and such officers are familiar with the contents thereof.
12. In addition to any rights now or hereafter granted under
applicable law or otherwise, and not by way of limitation of any such rights,
upon the occurrence of an Event of Default (which has not been cured in
accordance with the terms of the Secured Notes), the Agent and each Fund is
hereby authorized at any time or from time to time, without presentment, demand,
protest, or other notice of any kind to the Guarantors or to any other Person,
any such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Indebtedness at
any time held or owing by the Agent or such Fund to or for the credit or the
account of the Guarantors against and on account of the Guaranteed Obligations
of the Guarantors to the Agent or such Fund under this Guaranty, irrespective of
whether or not the Agent or such Fund shall have made any demand hereunder and
although said Guaranteed Obligations, or any of them, shall be contingent or
unmatured.
13. All notices and other communications hereunder shall be
made at the addresses, in the manner and with the effect provided in Section
10.1 of the Security Agreement.
14. If a claim is ever made upon the Agent, any Fund or the
holder of any Secured Note for repayment or recovery of any amount or amounts
received in payment or on account of any of the Guaranteed Obligations and any
of the aforesaid payees repays all or part of said amount by reason of (a) any
judgment, decree or order of any court or administrative body having
jurisdiction over such payee or any of its property or (b) any settlement or
compromise of any such claim effected by such payee with any such claimant
(including the Company), then and in such event each Guarantor agrees that any
such judgment, decree, order, settlement or compromise shall be binding upon it,
notwithstanding any revocation hereof or the cancellation of any Secured Note or
other instrument evidencing any liability of the Company, and each Guarantor
shall be and remain liable to the aforesaid payees hereunder for the amount so
repaid or recovered to the same extent as if such amount had never originally
been received by any such payee.
15. Any acknowledgment or new promise, whether by payment of
principal or interest or otherwise and whether by the Company or others
(including the Guarantors), with respect to any of the Guaranteed Obligations
shall, if the statute of limitations in favor of the Guarantors against the
Agent, any Fund or the holder of any Note shall have commenced to run, toll the
running of such statute of limitations, and if the period of such statute of
limitations shall have expired, prevent the operation of such statute of
limitations.
16. This Guaranty and the rights and obligations of the Agent,
each of the Funds, the holders of any Secured Note and the Guarantors hereunder
shall be construed in accordance with and governed by the law of the State of
New York. Any legal action or proceeding with respect to this Guaranty may be
brought in the courts of the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this Guaranty,
each Guarantor hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each Guarantor hereby irrevocably designates, appoints and empowers
Xxxxxxxx, Diamant & Xxxxx, 0000 Xxxxxxx Xxxx Xxxx, Xxxxx 0000, Xxx Xxxxxxx,
Xxxxxxxxxx 00000, Attn. Xxxxxxxx X. Xxxxxxx, Esq. as its designee, appointee and
agent to receive, accept and acknowledge for and on its behalf, and in respect
of its property, service of any and all legal process, summons, notices and
documents which may be served in any such action or proceeding under this
Guaranty or the Security Agreement. If for any reason such designee, appointee
and agent shall cease to be available to act as such, each Guarantor agrees to
designate a new designee, appointee and agent on the terms and for the purposes
of this provision satisfactory to the Agent. Each Guarantor further irrevocably
consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such Guarantor at its address set forth
opposite its signature below, such service to become effective thirty (30) days
after such mailing. Nothing herein shall affect the right of the Agent, any Fund
or the holder of any Note to serve process in any other manner permitted by law
or to commence legal proceedings or otherwise proceed against each Guarantor in
any other jurisdiction. Each Guarantor hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Guaranty brought in the courts referred to above and hereby further irrevocably
waives and agrees not to plead or claim in any such court that any such action
or proceeding brought in any such court has been brought in an inconvenient
forum.
17. The obligation of each Guarantor to make payment in cash
of any Guaranteed Obligations due hereunder shall not be discharged or satisfied
by any tender, or any recovery pursuant to any judgment, which is expressed in
or converted into any currency other than cash, except to the extent such tender
or recovery shall result in the actual receipt by the Agent at its office on
behalf of the Funds or holders of the Secured Notes of the full amount of cash
expressed to be payable in respect of any such Guaranteed Obligations. The
obligation of each Guarantor to make payment in cash as aforesaid shall be
enforceable as an alternative or additional cause of action for the purpose of
recovery in cash of the amount, if any, by which such actual receipt shall fall
short of the full amount of cash expressed to be payable in respect of any such
Guaranteed Obligations, and shall not be affected by judgment being obtained for
any other sums due under this Guaranty.
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IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to
be executed and delivered by their duly authorized officer as of the date first
indicated above.
AURA CERAMICS, INC., as Guarantor
By:
Name: Xxxxxx X. Xxxx
Title: Vice President
By:
Name: Xxxxxxx Froch
Title: Secretary
AURASOUND, INC., as Guarantor
By:
Name: Xxxxxx X. Xxxx
Title: Vice President
By:
Name: Xxxxxxx Froch
Title: Secretary
AURA MEDICAL SYSTEMS, INC., as Guarantor
By:
Name: Xxxxxx X. Xxxx
Title: Vice President
By:
Name: Xxxxxxx Froch
Title: Secretary
ELECTROTEC PRODUCTIONS, INC., as Guarantor
By:
Name: Xxxxxx X. Xxxx
Title: Vice President
By:
Name: Xxxxxxx Froch
Title: Secretary
DS OSCILLATOR, INC., as Guarantor
By:
Name: Xxxxxx X. Xxxx
Title: Vice President
By:
Name: Xxxxxxx Froch
Title: Secretary
PHILIPS SOUND LABS, INC., as Guarantor
By:
Name: Xxxxxx X. Xxxx
Title: Vice President
By:
Name: Xxxxxxx Froch
Title: Secretary
ELECTROTEC AUDIO LEASE LIMITED, as Guarantor
By:
Name:
Title:
ACKNOWLEDGED AND ACCEPTED HW PARTNERS, LP, as Agent for the Funds
BY:
By: HW Finance, LLC
Its Managing Partner
By:
Name: Xxxxxx X. Xxxxxxxxx
Title:Senior Vice President
