AMENDMENT AND CONVERSION AGREEMENT
THIS AMENDMENT AND CONVERSION AGREEMENT (this "Agreement") is entered into
as of August 19, 2004 between AURA SYSTEMS, INC., a Delaware corporation (the
"Company"), and KOYAH LEVERAGE PARTNERS, L.P., a Delaware limited partnership
("Leverage"), KOYAH PARTNERS, L.P., a Delaware limited partnership ("Koyah"),
XXXXX XXXXXXX, an individual ("Xxxxxxx"), PRUDENT BEAR FUND, INC., a Maryland
corporation ("Prudent Bear"), KOYAH VENTURES LLC, a Delaware limited liability
company ("Ventures"), and RAVEN PARTNERS, L.P., a Delaware limited partnership
("Raven") (collectively, the "Lenders").
WHEREAS, in connection with loans by Leverage to the Company, (i) the
Company, Leverage and Koyah entered into an Agreement dated as of July 24, 2003
(the "Leverage Agreement"), (ii) the Company executed in favor of Leverage two
Convertible Promissory Notes dated as of July 24, 2003 (collectively, the
"Leverage Notes"), (iii) the Company executed in favor of Leverage (as
collateral agent for Leverage and Koyah) a Security Agreement dated as of July
24, 2003 (the "Leverage Security Agreement"), and (iv) the Company executed in
favor of Leverage (as collateral agent for Leverage and Koyah) a Stock Pledge
Agreement dated as of August 18, 2003 (the "Leverage Pledge Agreement")
(collectively, the "Leverage Loan Documents");
WHEREAS, in connection with loans by Koyah to the Company, (i) the
Company, Leverage and Koyah entered into an Agreement dated as of July 24, 2003
(the "Koyah Agreement"), (ii) the Company executed in favor of Koyah two
Convertible Promissory Notes dated as of July 24, 2003 (collectively, the "Koyah
Notes"), (iii) the Company executed in favor of Leverage (as collateral agent
for Leverage and Koyah) a Security Agreement dated as of July 24, 2003 (the
"Koyah Security Agreement"), and (iv) the Company executed in favor of Leverage
(as collateral agent for Leverage and Koyah) a Stock Pledge Agreement dated as
of August 18, 2003 (the "Koyah Pledge Agreement") (collectively, the "Koyah Loan
Documents");
WHEREAS, in connection with loans by Xxxxxxx to the Company, (i) the
Company and Xxxxxxx entered into an Agreement dated as of January 19, 2004 (the
"Xxxxxxx Agreement"), (ii) the Company executed in favor of Xxxxxxx a
Convertible Promissory Note dated as of January 19, 2004 (the "Xxxxxxx Note"),
(iii) the Company executed in favor of Xxxxxxx a Security Agreement dated as of
January 19, 2004 (the "Xxxxxxx Security Agreement"), and (iv) the Company
executed in favor of Xxxxxxx a Stock Pledge Agreement dated as of January 19,
2004 (the "Xxxxxxx Pledge Agreement") (collectively, the "Xxxxxxx Loan
Documents");
WHEREAS, in connection with loans by Prudent Bear to the Company, (i) the
Company and Prudent Bear entered into an Agreement dated as of January 19, 2004
(the "Prudent Bear Agreement"), (ii) the Company executed in favor of Prudent
Bear a Convertible Promissory Note dated as of January 19, 2004 (the "Prudent
Bear Note"), (iii) the Company executed in favor of Prudent Bear a Security
Agreement dated as of January 19, 2004 (the "Prudent Bear Security Agreement"),
and (iv) the Company executed in favor of Prudent Bear a Stock Pledge Agreement
dated as of January 19, 2004 (the "Prudent Bear Pledge Agreement")
(collectively, the "Prudent Bear Loan Documents");
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WHEREAS, in connection with loans by Ventures to the Company, (i) the
Company and Ventures entered into an Agreement dated as of June 14, 2004 (the
"Ventures Agreement"), (ii) the Company executed in favor of Ventures a
Convertible Promissory Note dated as of June 14, 2004 (the "Ventures Note"),
(iii) the Company executed in favor of Ventures a Security Agreement dated as of
June 14, 2004 (the "Ventures Security Agreement"), and (iv) the Company executed
in favor of Ventures a Stock Pledge Agreement dated as of June 14, 2004 (the
"Ventures Pledge Agreement") (collectively, the "Ventures Loan Documents");
WHEREAS, in connection with loans by Raven to the Company, (i) the Company
and Raven entered into an Agreement dated as of June 14, 2004 (the "Raven
Agreement"), (ii) the Company executed in favor of Raven a Convertible
Promissory Note dated as of June 14, 2004 (collectively the "Raven Note"), (iii)
the Company executed in favor of Raven a Security Agreement dated as of June 14,
2004 (the "Raven Security Agreement"), and (iv) the Company executed in favor of
Raven a Stock Pledge Agreement dated as of June 14, 2004 (the "Raven Pledge
Agreement") (collectively, the "Raven Loan Documents");
WHEREAS, certain of the Notes are for a term loan in a set principal
amount (collectively, the "Term Notes") and certain of the Notes are for
optional advance loans up to a maximum principal amount (the "Optional Advance
Notes").
WHEREAS, certain of the Loan Documents have been further amended or
supplemented and all references in this Agreement to the "Agreements", the
"Notes", the "Security Agreements", the "Pledge Agreements" or the "Loan
Documents" of the various parties shall mean and refer to the Agreements, the
Notes, the Security Agreements, the Pledge Agreements and the Loan Documents of
such parties as so further amended or supplemented;
WHEREAS, Leverage, Koyah, Xxxxxxx 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, Leverage and Koyah, as the majority lenders under the
Intercreditor Agreement, entered into a Joinder Agreement dated as of June 14,
2004 (the "Joinder Agreement") with Ventures and Raven to add them as additional
lenders under the Intercreditor Agreement;
WHEREAS, the Company is entering into a Securities Purchase Agreement
dated as of the date hereof (the "Securities Purchase Agreement") with certain
investors, for the purchase of units (the "Units") consisting of Series B
Cumulative Convertible Preferred Stock (the "Series B Stock") and warrants to
purchase Common Stock (the "Warrants"), as part of a $5,000,000
minimum/$15,000,000 maximum financing (the "Series B Financing"), and is
completing the initial issuance and funding of the Series B Financing on the
date hereof;
WHEREAS, 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 invoiced) and the accrued interest on the
Notes as of the date hereof are as set forth in Schedule 1 attached hereto;
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WHEREAS, in connection with the initial issuance and funding of the Series
B Financing, the Company has requested that the Lenders extend the maturity date
of the Notes, amend the Notes and convert the Notes over time into Units; and
WHEREAS, the parties are entering into this Agreement to extend the
maturity date of the Notes, to amend the Notes, to convert the Notes over time
into Units 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:
1. Extension of Maturity Dates. The Maturity Date (as defined in the
Notes) set forth in Section 1 of each of the Notes hereby is amended and
extended to August 19, 2005, after which date each of the Notes shall be due and
payable upon five (5) days demand; provided however, that if all of the
conditions set forth in Section 9(b) of this Agreement, other than the condition
set forth in clause (iii)(A) thereof have been satisfied as of August 19, 2005,
then the Maturity Date (if all other Section 9(b) conditions remain satisfied at
the commencement of each extension) shall be further amended and extended for up
to four (4) successive three (3) month periods (ending respectively on November
19, 2005, February 19, 2006, May 19, 2006 and August 19, 2006) to allow such
condition set forth in Section 9(b)(iii)(A) to be satisfied. If the condition
set forth in Section 9(b)(iii)(A) is not satisfied by August 19, 2006, each of
the Notes shall be due and payable upon five (5) days demand.
2. Amendment of Prepayment Terms. Section 3 of each Note, entitled
"Payment Terms" in the case of the Leverage Note, the Koyah Note, the Ventures
Note and the Raven Note and "Prepayment" in the case of the Xxxxxxx Note and the
Prudent Bear Note, hereby is deleted in its entirety and replaced with the
following:
3. Prepayment. This Note may be prepaid in whole but not in part, at
any time upon ten (10) business days' prior written notice, without
any premium or penalty. In the event of any tender of prepayment of
this Note by Borrower, Lender shall have the right to exercise its
conversion rights instead of electing acceptance of such prepayment,
as provided in Section 9 of this Note.
3. Amendment of Conversion Terms. Section 9 of each Note, entitled
"Conversion of Note", hereby is deleted in its entirety and replaced with
following:
9. Conversion of Note.
At the option of Lender, the outstanding principal balance of
this Note and all accrued interest, fees or other amounts payable
under this Note, at any time prior to acceptance by Lender of
payment thereof instead of conversion as provided below, may be
converted, in whole or in part, into units (the "Units") consisting
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of shares of Series B Cumulative Convertible Preferred Stock (the
"Series B Stock") and warrants to purchase Common Stock (the
"Warrants") of Borrower, at the same price and on the same other
terms and conditions as the $5,000,000 minimum/$15,000,000 maximum
Series B Cumulative Convertible Preferred Stock financing (the
"Series B Financing"), as set forth in the Securities Purchase
Agreement (the "Securities Purchase Agreement") with the initial
investors in the Series B Financing which is attached as Exhibit A
to the Amendment and Conversion Agreement dated as of August 19,
2004 (the "Amendment and Conversion Agreement") among Borrower and
the Lenders named therein (collectively, the "Intercreditor
Lenders"), the terms and conditions of which are incorporated herein
by reference; provided, however, that the following terms shall be
adjusted as applied to the Intercreditor Lenders: (i) the
subscription amount shall be the amount being converted by an
Intercreditor Lender in the particular conversion involved and the
subscription date shall be the date of such conversion; (ii) the
option to purchase additional Units contained in Section 1.5 of the
Securities Purchase Agreement (A) shall be in an amount up to fifty
percent (50%) of the total number of Units issuable to an
Intercreditor Lender in the Initial Conversions and Additional
Conversions (as defined in the Amendment and Conversion Agreement)
and (B) shall be exercisable by an Intercreditor Lender, in whole or
in part, at any time on or before May 31, 2005, (1) in increments as
set forth in Schedule 3 attached to the Amendment and Conversion
Agreement and (2) subject to earlier termination upon notice as set
forth in Section 1.5(a)(iii) of the Securities Purchase Agreement,
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;
(iii) Section 4.5 of the Securities Purchase Agreement shall not
apply to an Intercreditor Lender and instead shall be replaced by
Section 24 of the Amendment and Conversion Agreement; (iv) Section
8.1 of the Securities Purchase Agreement shall not apply to an
Intercreditor Lender and instead shall be replaced by Section 20 of
this Agreement; and (v) the Registration Rights Agreement referred
to in the Securities Purchase Agreement shall not apply to an
Intercreditor Lender and shall be replaced by the Registration
Rights Agreement referred to in the Amendment and Conversion
Agreement. Upon any conversion, Borrower and Lender shall be deemed
to have entered into a Securities Purchase Agreement (with such
adjusted terms) for such conversion, as if executed and delivered by
them.
Upon any tender of payment of this Note by Borrower (whether
by prepayment before maturity or payment at or after maturity),
Lender shall have ten (10) 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 by such date, Lender shall be deemed to have
elected acceptance of payment instead of conversion, provided that
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the payment tendered is the full amount owing under this Note. Any
exercise of such conversion right shall be at the option of Lender,
in its sole discretion. Lender may exercise such conversion right by
providing to Borrower written notice of exercise in the form
attached as Exhibit B to the Amendment and Conversion Agreement or
other appropriate form. In the event of any stock splits, stock
dividends, recapitalizations or similar events after August 19, 2004
but prior to the date of conversion, then the number and kind of
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 securities 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 securities to which Lender shall be entitled upon such
conversion. Upon a partial conversion of this Note, (i) this Note
may be surrendered by Lender and replaced with a new Note of like
tenor for the remaining balance of the Note surrendered or (ii)
Lender may retain this Note and the parties may keep separate
records of the outstanding balance of this Note. A new Note shall be
delivered to Lender as soon as practicable after any such surrender.
No fractional shares 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.
4. Amendment of Defaults. Section 13 of each Note, entitled "Defaults,"
hereby is amended to add an additional "Default" reading as follows:
(e) The investors in the Series B Financing shall fail to
fulfill or default on any of their respective obligations under the
Securities Purchase Agreement(s) for the Series B Financing or any
related promissory notes or other agreements or documents or
Borrower shall fail to receive all of the funds as scheduled under
such Securities Purchase Agreement(s) or any related promissory
notes or other agreements or documents, in each case if (i) the
subscription amount(s) of the defaulting or non-paying investor(s)
is at least twenty percent (20%) of the total subscription amounts
of all investors in the Series B Financing and (ii) the default or
failure to receive funds continues for sixty (60) days from the
scheduled due date.
5. Amendment of Maximum Principal Amount of Raven Optional Advance Note.
The maximum principal amount of the Optional Advance Note in favor of Raven
hereby is amended to be One Hundred Twenty-Five Thousand Dollars ($125,000).
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6. Amendment of Schedule of Exceptions.
(a) Agreements. The last sentence of Section 1(k) of the Leverage
Agreement, the Koyah Agreement, the Xxxxxxx Agreement and the Prudent Bear
Agreement hereby is amended to add at the end thereof ", except as listed
in the Schedule of Exceptions". In addition, the Schedule of Exception
attached to each such Agreement hereby is amended to read as set forth in
the Schedule of Exceptions attached hereto as Exhibit C.
(b) Notes. The Schedule of Exceptions attached to the Leverage Note,
the Koyah Note, the Xxxxxxx Note and the Prudent Bear Note hereby is
amended to read as set forth in the Schedule of Exceptions attached hereto
as Exhibit D.
(c) Security Agreements. The Schedule of Exceptions attached to the
Leverage Security Agreement, the Koyah Security Agreement, the Xxxxxxx
Security Agreement and the Prudent Bear Security Agreement hereby is
amended to read as set forth in the Schedule of Exceptions attached hereto
as Exhibit E.
7. Amendment of Warrants. The last sentence of the first paragraph of the
Warrant dated April 5, 2004 issued by the Company to Leverage and the Warrant
dated April 5, 2004 issued by the Company to Koyah hereby is amended to read as
follows:
The Holder may exercise this Warrant at any time after the date of
this Warrant and prior to the seventh anniversary of the date hereof
(the "Expiration Date").
8. Confirmations and Releases.
(a) Loan Balance Confirmation. The Company hereby confirms,
acknowledges and agrees that (i) the respective amounts for the Lenders
set forth in Schedule 1 attached hereto are the aggregate amounts of
principal outstanding and accrued interest under the Notes as of the date
hereof (excluding any costs and expenses of the Lenders payable by the
Company which have been incurred but not yet been invoiced) and (ii) such
principal amounts and accrued interest, together with any other amounts
payable by the Company under the Notes or other Loan Documents, are owing
under the Notes and other Loan Documents.
(b) Release. (i) The Company, on behalf of itself and its heirs,
successors and assigns, and (ii) each Lender, on behalf of its heirs,
successors and assigns, hereby fully and irrevocably: (A) releases,
acquits, satisfies and forever discharges each of the Lenders, and each of
their respective past, present and future affiliates, officers, directors,
partners, employees, agents, attorneys, representatives, heirs, successors
and assigns, from any and all manner of liabilities, obligations,
expenses, damages, judgments, executions, actions, claims, demands and
causes of action of any nature whatsoever, whether at law or in equity,
known or unknown or now accrued or subsequently maturing, which such
releasing party now has or hereafter may have arising under, related to or
in connection with the Loan Documents, the Intercreditor Agreement or the
Joinder Agreement (the "Claims"); (ii) covenants and agrees never to
institute or cause to be instituted or continue prosecution of any suit or
other form of action or proceeding of any kind or nature whatsoever
against any released party with respect to the Claims; and (iii) waives
any and all rights and benefits which it now has or hereafter may have by
virtue of the provisions of Section 1542 of the Civil Code of the State of
California which provides as follows:
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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR
AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY
HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH
THE DEBTOR.
Each releasing party specifically agrees, represents and warrants
that (x) such releasing party realizes and acknowledges that factual
matters now unknown to it may have given or hereafter may give rise to
Claims which are presently unknown, unanticipated or unsuspected, (y) the
release contained herein has been negotiated and agreed upon in light of
such realization and (z) such releasing party nevertheless hereby intends
the release contained herein to fully and irrevocably release, acquit,
satisfy and forever discharge each of the released parties from any such
unknown, unanticipated or unsuspected Claims.
The foregoing release, however, is not intended to release any
Lender from its express, continuing obligations specifically contained in
the Loan Documents, the Intercreditor Agreement, the Joinder Agreement,
this Agreement, the Securities Purchase Agreement (as deemed executed and
delivered upon any conversion (with adjusted terms) pursuant to the
amended conversion rights under Section 9 of the Notes), the Registration
Rights Agreement (as defined below), the Shareholder Agreement (as defined
below), the Certificate of Designations (as defined in the Securities
Purchase Agreement) or any related agreements or documents (collectively,
the "Transaction Documents").
(c) Additional Confirmation. Without limiting the generality of the
foregoing, the Company hereby specifically confirms, acknowledges and
agrees that, as of the date hereof and as of the date of any conversion,
the Company owes all such principal, interest and other amounts under the
Notes and the other Loan Documents and all of its other obligations under
the Notes, the other Loan Documents and the other Transaction Documents in
full, without any defense, setoff or reduction of any nature whatsoever
(including without limitation any claims released under such release).
9. Conversion of Notes.
(a) Initial Conversions. Upon the initial closing of the Series B
Financing, the Lenders shall exercise their amended conversion rights
under Section 9 of the Notes for an aggregate conversion amount of Two
Million Five Hundred Thousand Dollars ($2,500,000), allocated among the
Lenders and the Notes on a non-pro rata basis in accordance with the
initial conversion amounts set forth in Schedule 2 attached hereto for
each Lender and Note (the "Initial Conversions"). Each Lender shall
exercise such conversion right by giving written notice thereof.
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(b) Additional Conversions. At the end of each calendar quarter
after the Company has received a total of $4,100,000.00 in New Funds, plus
an additional amount equal to Costs and Fees (as those terms are defined
below), but subject to the conditions set forth below, the Lenders shall
exercise their amended conversion rights under Section 9 of the Notes for
an aggregate conversion amount equal to the amount of funds actually
received by the Company in the Series B Financing during such quarter,
allocated among the remaining Lenders and the remaining Notes on a pro
rata basis in accordance with the then outstanding total amounts of the
remaining Notes (the "Additional Conversions"). Each remaining Lender
shall exercise such conversion right by giving written notice thereof. For
purposes of this paragraph the term "New Funds" means cash received by the
Company after the initial closing of the Series B financing from payments
due under notes made by investors under the Securities Purchase Agreement
or from cash received from new investors. New Funds shall not include,
among other things (1) funds received at or prior to the time of initial
closing of the Series B financing, (2) debt converted at the time of
initial closing of the Series B financing, (3) conversions of dividend
accruals or stock issued in exchange for non-cash consideration (4) funds
paid to or on account of the Company in connection with the sale of the
real property located at 0000 Xxxxxx Xxxxxx and 0000 Xxxx Xxxxxx, Xx
Xxxxxxx, Xxxxxxxxxx (the "Real Estate") For purposes of this paragraph the
term "Costs and Fees" means any legal costs and legal fees incurred by
others and paid or payable by the Company in connection with the (m) sale
of the Real Estate including, without limitation, assumption by the
purchasers thereof of the debt on the Real Estate, (n) settlement with the
minority Shareholders of Aura Realty, Inc., and (o) settlement of
litigation filed by, and other claims of, certain former officers and
employees pursuant to a Mutual Settlement Agreement and Release between
the Company and Xxxxxx Xxxxxxxx, et. al., dated as of August ___, 2004.
The obligations of the remaining Lenders to do any Additional
Conversion shall be subject to the following conditions: (i) all investors
in the Series B Financing have fulfilled all of their respective
obligations under the Securities Purchase Agreement(s) for the Series B
Financing and any related promissory notes or other agreements or
documents and the Company has received all of the funds as scheduled under
such Securities Purchase Agreement(s) and any related promissory notes or
other agreements or documents; (ii) the authorized number of shares of
Common Stock of the Company has been increased sufficiently; (iii) (A) the
registration statement described in Section 1.3 of the Registration Rights
Agreement is effective or (B) an automatic conversion has occurred under
Section 6(a)(ii) of the Certificate of Designations; and (iv) the
Company's has resolved matters with its creditors in a manner satisfactory
to the Lenders holding a majority of the then outstanding total balance of
the Notes.
In the event that any remaining Lender has previously exercised its
amended conversion right other than as part of the Initial Conversions or
the Additional Conversions, the amount of such other conversion shall be
credited against such remaining Lender's amount of subsequent Additional
Conversions. In the event that (x) additional issuances and fundings of
the Series B Financing occur during any calendar quarter but the
conditions to the obligations of the remaining Lenders to do any
Additional Conversion are not satisfied at the end of such calendar
quarter and (y) such conditions are subsequently satisfied, the
obligations of the remaining Lenders to do such Additional Conversion
shall become effective on the date that such conditions are subsequently
satisfied.
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10. Registration Rights Agreement and Shareholder Agreement. In connection
with this Agreement, each Lender is entering into (i) a Registration Rights
Agreement with the Company in the form attached hereto as Exhibit F (the
"Registration Rights Agreement") and (ii) a Shareholder Agreement with other
investors in the Series B Financing in the form attached to the Securities
Purchase Agreement (the "Shareholder Agreement").
11. Company Acknowledgements. The Company confirms, acknowledges and
agrees that (i) after giving effect to the Initial Conversions and the
Additional Conversions, the Security Agreements and the Stock Pledge Agreements
will continue to secure all of the Company's remaining obligations under the
Loan Documents and (ii) any future additional advances to the Company by the
Lenders under the Optional Advance Notes, or any conversions or other future
financing of the Company by the Lenders or their affiliates (other than the
Initial Conversion and the Additional Conversions on the terms and conditions
hereof), are at the option of the Lenders or their affiliates, in their sole
discretion.
The Company further confirms, acknowledges and agrees that: (i) as
reflected in the Loan Documents, (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, grant
any further extensions, or do any conversions or other future financing of the
Company (other than the Initial Conversions and the Additional Conversions on
the terms and conditions hereof), (v) the Company has been aware for some time
of the need for the Company to line up alternative 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, (vii) accordingly, the Company is aware that it needs to line up
alternative financing sources and put in place alternative financing
arrangements, 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.
12. [Intentionally Omitted.].
13. Further Assurances. If requested by the Lenders, the Company shall
promptly execute and deliver amended and restated documents to replace the Notes
or any other Transaction Documents and appropriately reflect the amendments of
the Notes or any other Transaction Documents which are contained in this
Agreement or any other Transaction Documents, as further evidence of the
Company's obligations thereunder.
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14. Representations and Warranties. The Company hereby re-affirms and
re-makes, as of the date hereof and as of the date of any conversion, all of its
representations and warranties contained in the Loan Documents, as modified by
the amendments and waivers set forth in this Agreement and certain of the Loan
Documents. For purposes of re-affirming the representations and warranties
contained in the Loan Documents, the term "Transaction Documents" as used
therein shall mean the Transaction Documents as defined in this Agreement. In
addition, the Company hereby affirms and makes, as of the date hereof and as of
the date of any conversion, all of its representation and warranties contained
in the Securities Purchase Agreement for such conversion, it being understood
that pursuant to Section 9 of the Notes, such representations and warranties of
the Company like all of the other terms and conditions of the Securities
Purchase Agreement (as adjusted pursuant to Section 9 of the Notes) apply to any
conversion, including the Initial Conversions and the Additional Conversions.
All of such representations and warranties shall survive the closing of the
transactions contemplated by this Agreement and the other Transaction Documents.
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 request by the Lenders, 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 other Transaction Documents and the consummation by the
Company of the transactions contemplated hereby and thereby, to the extent such
evidence has not been previously delivered to the Lenders.
15. Acknowledgements. The Lenders acknowledge that (i) the Company has
agreed to provide continued directors and officers insurance as provided in
Section 4.6 of the Securities Purchase Agreement and (ii) the Company has
entered into indemnification agreements with its directors and that such
agreements shall remain in effect as provided in Section 4.7 of the Securities
Purchase Agreement.
16. 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
(i) the written consent of the Company and all affected Lenders in the case of
an amendment and (ii) the written consent of the waiving party in the case of a
waiver.
17. 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. Except as specifically
modified by this Agreement, the other Transaction Documents shall remainn
unchanged and in full force and effect. The Company hereby re-affirms all of its
obligations under the Transaction Documents, as amended hereby.
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18. Successors. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company and the Lenders. 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 may be expressly provided in this Agreement.
19. Severability. If any part of this Agreement is determined to be
illegal or unenforceable, all other parts shall remain in full force and effect.
20. Attorneys' Fees. The Company shall pay the reasonable attorneys' fees,
costs and disbursements of the Lenders in enforcing any terms of this Agreement
and the other Transaction Documents, whether or not any action at law or in
equity is brought.
21. Governing Law. THE 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 TO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, 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.
22. Notice. 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.
0000 Xxxxxx Xxxxxx
Xx Xxxxxxx, XX 00000
Attn: Xxxx Xxxxxx
Fax: 000-000-0000
Koyah Leverage Partners, L.P.
c/o ICM Asset Management, Inc.
000 Xxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx XX 00000
Attn: Xxxxxx Xxx
Fax: 000-000-0000
Koyah Partners, L.P.
c/o ICM Asset Management, Inc.
000 Xxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx XX 00000
Attn: Xxxxxx Xxx
Fax: 000-000-0000
00
Xxxxx Xxxxxxx
Xxxxxxx Xxxxx
Xxxxxx Xxxxxx, XX 00000
Fax: (000) 000-0000
Prudent Bear Fund, Inc.
0000 Xxxxxx Xxxx Xxxx, Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxx Xxxxxx
Fax: (000) 000-0000
Koyah Ventures LLC
c/o ICM Asset Management, Inc.
000 Xxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxxx Xxx
Fax: (000) 000-0000
Raven Partners, L.P.
c/o ICM Asset Management, Inc.
000 Xxxx Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxxx Xxx
Fax: (000) 000-0000
23. Independent Nature of Lenders' Obligations and Rights. The obligations
of a Lender under this Agreement and the other Transaction Documents are several
and not joint with the obligations of any other Lenders, and each Lender shall
not be responsible in any way for the performance of the obligations of any
other Lenders under this Agreement or the other Transaction Documents. The
investment and/or credit decision of each Lender to enter into this Agreement
and the other Transaction Documents has been made by such Lender independently
of any other Lenders and independently of any information, materials, statements
or opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operation, condition (financial or otherwise) or
prospects of the Company or of any subsidiary which have been made or given by
any other Lenders or by any agent or employee of any other Lenders, and each
Lender and its agents and employees shall have no liability to any other Lenders
(or any other person) relating to or arising from any such information,
materials, statements or opinions. Each Lender acknowledges that it has the
sophistication and ability to look out for its own interest and has
independently made its own investment and/or credit decision to enter into this
Agreement and the other Transaction Documents based upon such evaluation and
information as it has deemed appropriate.
12
Nothing contained in this Agreement or in the other Transaction Documents,
and no action taken by any Lender pursuant thereto, shall be deemed to
constitute the Lenders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Lenders are in any way
acting in concert or as a group with respect to the obligations contained in or
the transactions contemplated by this Agreement or the other Transaction
Documents. Each Lender acknowledges that no other Lenders have acted as agent
for such Lender in connection with entering into this Agreement and the other
Transaction Documents and that no other Lenders will be acting as agent of such
Lender in connection with monitoring its investment or making any future
investment and/or credit decisions. Each Lender shall be entitled to
independently protect and enforce its rights, including with limitation, the
rights arising out of this Agreement or the other Transaction Documents, and it
shall not be necessary for any other Lenders to be joined as an additional party
in any proceeding for such purpose, except as otherwise provided in the
Intercreditor Agreement or the Joinder Agreement.
24. LEGAL REPRESENTATION. THE COMPANY AND EACH LENDER ACKNOWLEDGE THAT
XXXXX XXXXXXX XXXXXX XXXXX & XXXXXX LLP ("XXXXX XXXXXXX") HAS REPRESENTED ONLY
LEVERAGE, KOYAH, VENTURES, RAVEN AND THEIR AFFILIATES IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, AND THAT XXXXX XXXXXXX HAS NOT
REPRESENTED THE COMPANY OR ANY OTHER LENDER IN ANY WAY IN CONNECTION THEREWITH.
EACH LENDER ALSO ACKNOWLEDGES THAT THE INTERESTS OF LEVERAGE, KOYAH, VENTURES,
RAVEN AND THEIR AFFILIATES ARE DIFFERENT THAN THE INTERESTS OF SUCH LENDER AND
THAT SUCH LENDER HAS THE SOPHISTICATION AND ABILITY TO LOOK OUT FOR ITS OWN
INTEREST. THE COMPANY AND EACH LENDER FURTHER ACKNOWLEDGES THAT IT HAS BEEN
REPRESENTED BY ITS (OR THE CASE OF XXXXXXX, IS AN ATTORNEY ACTING AS HIS) OWN
LEGAL COUNSEL IN CONNECTION WITH THIS AGREEMENT AND THE OTHER TRANSACTION
DOCUMENTS AND HAS CONSULTED WITH AND RELIED UPON THE LEGAL REPRESENTATION AND
ADVICE OF SUCH LEGAL COUNSEL IN CONNECTION THEREWITH.
25. Lenders' Attorney Fees and Expenses. On the terms and conditions set
forth below, the Company shall pay the costs and expenses of legal counsel to
the Lenders in connection with (i) the negotiation, execution and delivery of
this Agreement and the other Transaction Documents 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 Lenders, as debt or equity holders
of the Company, of any other 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 or any persons or entities (including
the Lenders) and the negotiation, execution and delivery of any related
agreements or documents as well as the consummation of the transactions
contemplated thereby. The Company shall pay such costs and expenses within ten
(10) business days of submittal, and the Lenders may apply any retainer held by
them or their legal counsel against such costs and expenses. Alternatively, the
Lenders may pay such costs and expenses directly and then the amounts so paid
shall constitute advances made under the Optional Advance Notes to the extent
such advances are within the maximum principal amount of the Optional Advance
Notes and otherwise shall constitute additional amounts payable by the Company
under this Agreement and bear interest at the rate set forth in the Notes until
paid by the Company. All such costs and expenses incurred and invoiced on or
before the date of this Agreement are already reflected in the principal amounts
set forth in Schedule 1 attached hereto and shall be paid by the Company in full
13
through advances under the Optional Advance Notes. All such costs and expenses
incurred but not yet invoiced on or before the closing date of the Initial
Conversions are not reflected in Schedule 1 attached hereto and shall be paid by
the Company in full through advances under the Optional Advance Notes. All such
costs and expenses incurred after the closing date of the Initial Conversions
are not reflected in Schedule 1 attached hereto and (x) shall be paid by the
Company up to a maximum amount of $25,000 (it being understood that such maximum
amount shall only apply to the attorney fee provision set forth in this Section
24, but not any other attorney fee provisions of the Transaction Documents) and
(y) shall not be paid by the Company through any additional advances under the
Optional Advance Notes, and instead shall only be paid by the Company in cash.
Notwithstanding that the Company is paying such costs and expenses, the Company
acknowledges and agrees that such legal counsel is representing only the
Lenders, and not the Company.
[Remainder of Page Intentionally Left Blank]
14
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.
AURA SYSTEMS, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
KOYAH LEVERAGE PARTNERS, L.P.
By: Koyah Ventures LLC, its general partner
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
KOYAH PARTNERS, L.P.
By: Koyah Ventures LLC, its general partner
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
XXXXX XXXXXXX
-------------------------------------------
PRUDENT BEAR FUND, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
[Signature Page to Amendment and Conversion Agreement]
15
KOYAH VENTURES LLC
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
RAVEN PARTNERS, L.P.
By: Koyah Ventures LLC, its general partner
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
[Signature Page to Amendment and Conversion Agreement]
16
SCHEDULE 1
NOTE BALANCES
(08/19/04)
[ATTACH EXCEL SPREADSHEET]
17
SCHEDULE 2
INITIAL CONVERSION AMOUNTS
(08/19/04)
[ATTACH EXCEL SPREADSHEET]
18
SCHEDULE 3
OPTION EXERCISABILITY
1. Exercisable Increments.
The option of each Intercreditor Lender under Section 1.5 of the
Securities Purchase Agreement (as adjusted pursuant to Section 9 of the Notes)
shall be exercisable at any time in an amount equal to the total amount of the
Initial Conversion and the Additional Conversions of such Intercreditor Lender
actually done up to that time.
2. Termination.
The option of each Intercreditor Lender under such Section (as so
adjusted) shall terminate in increments (expressed as a percentage of the
original total amount of such option) as follows:
Terminated
Increment
---------
December 31, 2004 50%
May 31, 2005 50%
--------
TOTAL 100%
Notwithstanding the foregoing, if any portion of the option of an
Intercreditor Lender is not exercisable on December 31, 2004 because the
conditions to the obligation of such Intercreditor Lender to do an Additional
Conversion underlying such portion of the option have not been satisfied by such
date, then such portion of the Option shall not terminate on December 31, 2004
and shall instead be extended to May 31, 2005.
19
EXHIBIT A
SECURITIES PURCHASE AGREEMENT
[ATTACH]
20
EXHIBIT B
NOTICE OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE)
To: Aura Systems, Inc.
The undersigned holder hereby elects to convert $___________ (the
"Conversion Amount") of the outstanding total balance of the Convertible
Promissory Note dated as of ________________ in the original principal amount of
$__________ made by Aura Systems, Inc. (the "Company") in favor of the
undersigned holder, as amended (the "Note"), pursuant to Section 9 of the Note
and effective as of _______________ . Unless otherwise specified below, the
Conversion Amount shall be allocated (i) first to accrued interest on the Note,
(ii) second to fees or other amounts payable under the Note and (iii) third to
the principal balance of the Note.
Other Instructions: ______________________________________________________
_______________________________________________________________________________.
Please issue the stock certificates and warrants issuable upon such
conversion in the name or names specified below:
----------------------------------- --------------------------------------
(Name of Holder) (Name of Holder)
----------------------------------- --------------------------------------
(Name of Signer) (Name of Signer)
----------------------------------- --------------------------------------
(Signature) (Signature)
----------------------------------- --------------------------------------
(Title of Signer) (Title of Signer)
----------------------------------- --------------------------------------
(Address) (Address)
----------------------------------- --------------------------------------
(City, State, Zip Code) (City, State, Zip Code)
----------------------------------- --------------------------------------
(Federal Tax Identification Number) (Federal Tax Identification Number)
----------------------------------- --------------------------------------
(Date) (Date)
21
EXHIBIT C
SCHEDULE OF EXCEPTIONS
(AGREEMENTS)
Liens
1. El Segundo 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 Xxxxxx Xxxxxxx 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 (Xxxxxxxx/Xxxx 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.
22
EXHIBIT D
SCHEDULE OF EXCEPTIONS
(NOTES)
1. Shareholder litigation (Xxxxxxxx/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.
23
EXHIBIT E
SCHEDULE OF EXCEPTIONS
(SECURITY AGREEMENTS)
1. El Segundo 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 Xxxxxx Xxxxxxx 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.
24
EXHIBIT F
REGISTRATION RIGHTS AGREEMENT
[ATTACH INTERCREDITOR FORM]
25
