WAIVER, RELEASE AND WARRANT MODIFICATION AGREEMENT
THIS WAIVER, RELEASE AND WARRANT
MODIFICATION AGREEMENT (this “Agreement”) is
entered into by and between AuraSound, Inc., a Nevada corporation (“AuraSound”), and the
undersigned holder of securities of AuraSound (the “Holder”).
RECITALS RELATED TO GGEC
INVESTMENT
WHEREAS, reference is hereby
made to a proposed Securities Purchase Agreement (the “SPA”), to
be entered into by and among GGEC Investment Corp., a California corporation
(“GGEC
Investment”), GGEC America, Inc., a California corporation and the parent
of GGEC Investment (“GGEC America”), and
Guogang Electric Co. Ltd., a Chinese company and the parent company of GGEC
America, on the one hand, and AuraSound, on the other hand, pursuant to which
GGEC Investment will purchase from AuraSound in a private placement (the “GGEC Private
Placement”): (i) a number
of shares of Common Stock that, following the consummation of the GGEC Private
Placement and the Reverse Split described below, will equal 55% of AuraSound’s
issued and outstanding shares of Common Stock, which AuraSound believes will be
approximately 6 million shares of its Common Stock (the “GGEC
Shares”), (ii) a 5-year
warrant to purchase a number of shares of AuraSound’s Common Stock equal to the
number of GGEC Shares at an exercise price of $1.00 per share, and (iii)
a 5-year warrant, to purchase 1,637,265 post-Reverse Split shares of Common
Stock at an exercise price of $.75 per share; for an aggregate purchase price of
$3,000,000;
WHEREAS, AuraSound has agreed
to effect a 1-for-6 reverse split of its issued and outstanding and authorized
Common Stock immediately prior to the closing of the SPA (the “Reverse
Split”);
WHEREAS, as a condition to
closing the GGEC Private Placement, Inseat Solutions, LLC (“Inseat”), a company
controlled by Xxxxxx Xxx, must agree to convert approximately $1,845,984 of debt
owed by AuraSound to Inseat into approximately 307,664 post-Reverse Split shares
of Common Stock (the “New Inseat Shares”)
and a warrant to purchase approximately 2,225,215 post-Reverse Split shares of
Common Stock at an exercise price of $0.50 per share (the “New Inseat
Warrant”);
WHEREAS, pursuant to the SPA,
AuraSound will agree to issue to certain consultants and employees 5-year
warrants to purchase an aggregate of 560,000 post-Reverse Split shares of Common
Stock at an exercise price of $0.75 per share (collectively, the “Employee
Warrants”);
WHEREAS, as a condition to the
GGEC Private Placement, GGEC is requiring that investors who purchased
AuraSound’s securities in a private placement on or about June 7, 2007 (the
“PIPE”) provide
a waiver of their anti-dilution rights under Section 6 of the Subscription
Agreements (the “PIPE
Subscription Agreements”) and Section 11(e) of the Warrants to Purchase
Common Stock (collectively, the “PIPE Warrants”)
executed by AuraSound and such investors in connection with the PIPE, such that
the GGEC Private Placement will not cause any anti-dilution adjustments under
the aforementioned provisions of the PIPE Subscription Agreements or the PIPE
Warrants, except that the exercise price of the PIPE Warrants will be reset to
$0.50 per share after giving effect to the transactions contemplated by the
SPA;
WHEREAS, on October 15, 2007, AuraSound
converted $2.5 million of debt owed to Inseat into an aggregate of 1,666,667
pre-Reverse Split shares of Common Stock and a warrant, the terms of which are
substantially the same as the PIPE Warrants, to purchase a total of 1,666,667
pre-Reverse Split shares of Common Stock at a pre-Reverse Split exercise price
of $1.50 per share (the “2007 Inseat
Warrant”);
WHEREAS, Inseat intends to
execute an agreement in the same form as this Agreement so that the 2007 Inseat
Warrant will be modified in the same manner that the PIPE Warrants are modified
pursuant to this Agreement (the “Inseat Warrant
Modification”);
WHEREAS, in consideration of
this Agreement, AuraSound is agreeing to extend the term of Holder’s PIPE
Warrant by two years;
WHEREAS, Holder understands
and agrees that the GGEC Private Placement is critical to AuraSound’s
continuation as a going concern;
RECITALS RELATED TO WARRANTS
OF GP GROUP LLC
WHEREAS, AuraSound’s former
placement agent, GP Group LLC (“GP Group”), holds a
warrant, dated August 1, 2007, to purchase 245,000 pre-Reverse Split shares of
Common Stock at an exercise price of $0.80 per share (the “Initial GP
Warrant”);
WHEREAS, AuraSound desires to
modify the exercise price of the Initial GP Warrant to be $0.50 per share after
giving effect to the Reverse Split, rather than multiplying the exercise price
by the Reverse Split ratio as would otherwise be the case, in exchange for a
full release by GP Group of all claims against AuraSound for alleged unpaid
placement fees;
WHEREAS, AuraSound engaged GP
Group as a consultant to advise AuraSound with respect to the GGEC Private
Placement, and agreed to issue to GP Group in consideration for such services a
warrant to purchase 1,200,000 pre-Reverse Split shares of common stock at a
pre-Reverse Split exercise price of $0.08333 per share (the “New GP
Warrant”);
WHEREAS, as a condition to
reducing the exercise price of the Initial GP Warrant and issuing the New GP
Warrant, GGEC is requiring that investors in the PIPE provide a waiver of their
anti-dilution rights set forth in Section 6 of the PIPE Subscription Agreements
and Section 11(e) of the PIPE Warrants, such that the reduction of the Initial
GP Warrant exercise price and issuance of the New GP Warrant shall not cause any
anti-dilution or price adjustments under the PIPE Subscription Agreements or the
PIPE Warrants, provided that the exercise price of the PIPE Warrants will be
reset to $0.50 per share after giving effect to the transactions contemplated by
the SPA;
RECITALS RELATING TO BRIDGE
WARRANTS
WHEREAS, certain bridge
lenders of AuraSound who were repaid upon closing the PIPE hold warrants to
purchase 3,200,000 pre-Reverse Split shares of Common Stock at a pre-Reverse
Split exercise price of $1.00 per share (the “Bridge
Warrants”);
WHEREAS, upon consummating the
GGEC Private Placement and the Reverse Split, AuraSound intends to voluntarily
reduce the exercise price of the Bridge Warrants to $0.50 per share, and the
number of shares underlying the Bridge Warrants will be reduced to 533,333 in
accordance with the Reverse Split ratio;
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AGREEMENT
NOW, THEREFORE, in
consideration of the premises set forth above and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned hereby agree as follows:
Section
1. Modification
of PIPE Warrant and 2007 Inseat Warrant. Holder acknowledges
and agrees that upon consummation of the GGEC Private Placement and the Reverse
Split: (i) the exercise price of Holder’s PIPE Warrant (or, if Holder is Inseat,
the 2007 Inseat Warrant) shall be reduced automatically to $0.50 per share, (ii)
the number of shares issuable upon exercise of Holder’s PIPE Warrant (or, if
Holder is Inseat, the 2007 Inseat Warrant) shall be reduced automatically by a
ratio of 1-for-6 in accordance with the Reverse Split, and (iii) the term of
Holder’s PIPE Warrant (or, if Holder is Inseat, the 2007 Inseat Warrant) shall
be extended by two years, all without any further action or documentation
necessary on the part of Holder or
AuraSound.
Section
2. Waiver of
Anti-Dilution Provision in PIPE Warrant and 2007 Inseat Warrant. Holder hereby
forever waives Holder’s right to have the number of shares issuable upon
exercise of Holder’s PIPE Warrant (or, if Holder is Inseat, the 2007 Inseat
Warrant) increased and the exercise price thereof decreased (except as provided
in Section 1 above), which Holder would otherwise have pursuant to Section 11(e)
of the PIPE Warrant (or, if Holder is Inseat, the 2007 Inseat Warrant) as a
result of: (a) the GGEC Private Placement, (b) issuance of the Employee
Warrants, (c) reduction of the exercise price of the Initial GP Warrant to $0.50
per share after giving effect to the Reverse Split, (d) issuance of the New GP
Warrant, (e) issuance of the New Inseat Shares and the New Inseat Warrant, (f)
the Inseat Warrant Modification, (g) reduction of the exercise price of the
Bridge Warrants to $0.50 per share after giving effect to the Reverse Split, and
(h) any future issuance of Common Stock or Common Stock equivalents by AuraSound
or any successor of AuraSound, regardless of the price at which the same may be
issued.
Section
3. Waiver of
Anti-Dilution Rights in Subscription Agreement. Holder hereby
forever waives Holder’s right to receive additional shares of common stock that
Holder would otherwise have pursuant to Section 6 of the PIPE Subscription
Agreement as a result of: (a) the GGEC Private Placement, (b) issuance of the
Employee Warrants, (c) reduction of the exercise price of the Initial GP Warrant
to $0.50 per share after giving effect to the Reverse Split, (d) issuance of the
New GP Warrant, (e) issuance of the New Inseat Shares and the New Inseat
Warrant, (f) the Inseat Warrant Modification, (g) reduction of the exercise
price of the Bridge Warrants to $0.50 per share after giving effect to the
Reverse Split, and (h) any future issuance of Common Stock or Common Stock
equivalents by AuraSound or any successor of AuraSound, regardless of the price
at which the same may be issued. This Section 3 does not apply if
Holder is Inseat, as Inseat did not enter into a Subscription
Agreement.
Section
4. Full
Release.
(a) Release. Holder,
for itself and its past and present officers, managers, directors, employees,
shareholders, partners, members, insurers, attorneys, agents, trustees and
representatives (the “Releasors”), upon consummation of the GGEC Private
Placement and modification of Holder’s PIPE Warrant (or, if Holder is Inseat,
the Inseat Warrant Modification) as provided herein, irrevocably and
unconditionally releases all of the claims described in subsection (b) of this
section 4 that Holder may now have against the following persons or entities
(the “Releasees”): AuraSound, all of its past and present officers,
directors, shareholders, representatives, successors, assigns, attorneys,
agents, consultants, insurers, and subsidiaries and any other persons acting by,
through, under or in concert with any of the persons or entities listed in this
subsection.
(b) Claims
Released. The claims released include all claims, promises,
debts, causes of action or similar rights of any type or nature Holder has or
had which in any way relate to (i) Holder’s PIPE Subscription Agreement (if
Holder is other than Inseat), (ii) Holder’s PIPE Warrant (or, if Holder is
Inseat, the 2007 Inseat Warrant), and (iii) any other claims or demands that any
of the Releasors may on any basis have against Releasees arising from facts or
circumstances prior to the effective date of this Agreement.
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(c) Release Extends to Both Known and
Unknown Claims. This release covers both claims that Holder
knows about and those that Holder does not know about. Holder
understands the significance of Holder’s release of unknown claims and Holder’s
waiver of any statutory protection against a release of unknown
claims. Holder expressly waives the protection of any such
governmental statutes or regulations.
More particularly, and without
limitation, Holder acknowledges that Holder has read and is familiar with and
understands the provisions of Section 1542 of the California Civil Code, which
provides:
“A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH, IF KNOWN TO HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR.”
HOLDER EXPRESSLY WAIVES ANY RIGHT OR
CLAIM OF RIGHT HOLDER MAY HAVE UNDER SECTION 1542 OF THE
CALIFORNIA CODE OF CIVIL PROCEDURE OR SIMILAR PROVISION OF LAW OF ANOTHER
JURISDICTION.
Section
5. Representations
and Warranties of Holder. Holder hereby represents
and warrants to AuraSound, as follows:
(a) Authorization. All
action on the part of Holder necessary for the authorization, execution and
delivery of this Agreement and the performance of Holder’s obligations hereunder
has been taken or will be taken prior to the effective date hereof, and this
Agreement shall constitute the valid and legally binding obligation of Holder,
enforceable in accordance with its terms except as limited by the effect of
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally and by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
(b) Validity;
Title. Holder owns, beneficially and of record, good and
marketable title to Holder’s PIPE Warrant (or, if Holder is Inseat, the 2007
Inseat Warrant), free and clear of all security interests, liens, adverse
claims, encumbrances, proxies, options or stockholders' agreements.
(c) No
Conflicts. Neither the execution and delivery of this
Agreement by Holder nor the consummation by Holder of the transactions
contemplated hereby, nor compliance by Holder with any of the provisions hereof,
will (a) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, contract,
agreement or other instrument or obligation to which Holder is a party or by
which Holder or Holder’s property may be bound or (b) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to
Holder.
(d) Governmental
Consents. All consents, approvals, orders, authorizations or
registrations, qualifications, designations, declarations or filings with any
U.S., federal or state governmental authority on the part of Holder required in
connection with the consummation of the transactions contemplated herein shall
have been obtained prior to and be effective as of the effective date of this
Agreement.
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(e) Third Party
Consents. All third party consents, approvals, orders or
authorizations required to be obtained by Holder in connection with the
consummation of the transactions contemplated herein shall have been obtained
prior to and be effective as of the effective date of this
Agreement.
Section
6. Effective
Date. This Agreement
shall be deemed effective on the expiration date of AuraSound’s tender offer
described in the Tender Offer Statement on Schedule TO filed by AuraSound with
the U.S. Securities and Exchange Commission on September 16, 2009 and any
amendments thereto (collectively, the “Tender Offer
Statement”), unless Holder earlier withdraws from such tender offer and
withdraws this Agreement in accordance with the withdrawal procedures set forth
in the Tender Offer Statement. Except as expressly set forth herein,
all of the terms and conditions of Holder’s PIPE Subscription Agreement and
Holder’s PIPE Warrant (or, if Holder is Inseat, the 2007 Inseat Warrant) shall
continue in full force and effect after the effective date of this
Agreement.
Section
7. Counterparts. This Agreement
may be executed in separate original, facsimile or “pdf” counterparts, each of
which shall be deemed to be an original instrument and all of which taken
together shall constitute a single instrument.
Section
8. Successors
and Assigns. The obligations, acknowledgements and agreements
of Holder hereunder shall be binding on Holder’s heirs, successors, assigns and
transferees.
Section
9. Recitals
Incorporated. The Recitals of this Agreement are incorporated
herein and made a part hereof.
* * * *
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IN WITNESS WHEREOF, the
undersigned have duly executed and delivered this Waiver, Release and Warrant
Modification Agreement which shall become effective on the effective date
specified therein.
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By:
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/s/ Xxxxxx Xxx
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Name: Xxxxxx
Xxx
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Its: Chief
Executive
Officer
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[SIGNATURE
PAGE OF HOLDER UNDER AURASOUND
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Holder’s Name:
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By:
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Name:
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Title:
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