EXHIBIT 10.26
CONVERTIBLE DEMAND NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF
EXCEPT WHILE SUCH A REGISTRATION IS IN EFFECT OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SAID ACT
AURA SYSTEMS, INC.
as the Borrower
$501,573.00 El Segundo, California
January 17, 2003
FOR VALUE RECEIVED, the undersigned, AURA SYSTEMS, INC., a Delaware
corporation (herein called the "Borrower"), whose principal office is located at
0000 Xxxxxx Xxxxxx, Xx Xxxxxxx, Xxxxxxxxxx 00000, hereby irrevocably and
unconditionally promises to pay to the order of THE PRUDENT BEAR FUND (the
"Holder"), at 0000 Xxxxxx Xxxx Xxxx, Xxxxx 000, Xxxxxx, XX 00000, or to its
successors and registered assigns, in lawful money of the United States of
America, in immediately available funds, the principal sum of Five Hundred One
Thousand Five Hundred Seventy-Three Dollars ($501,573.00) plus all accrued and
unpaid interest, all on demand, but in no event later than March 31, 2003.
Interest payable hereunder shall be calculated at the rate of five percent
(5.00%) per annum on the principal amount outstanding on the basis of a 360-day
year and the actual number of days elapsed. Accrued but unpaid interest shall be
payable, in cash, on March 31, 2003.
All amounts due hereunder shall be paid to the Holder in U.S. Dollars and
in immediately available funds before 1:00 p.m., Los Angeles time, on demand,
or, if later, on the due date, March 31, 2003 as directed in writing by the
Holder.
This Note is convertible into shares of Xxxxxxxx's Convertible Redeemable
Preferred Stock ("Preferred Stock") with each dollar of this Note being
converted into $1.00 of Preferred Stock.
In the event that any amount of principal of or interest on this Note is
not paid when due, then interest on any such past due amount shall be payable at
a rate per annum equal to the greater of the following: (i) fifteen percent
(15%), or (ii) the rate announced by Citibank, N.A., New York branch, as of the
relevant date as "prime" plus five percent (5%).
Upon the occurrence of any default or breach by the Borrower under the
Note, the entire principal amount hereof and the interest thereon to the date of
payment shall become immediately due and payable without further notice, and the
Borrower hereby waives all rights to notice and presentment.
The Borrower hereby waives diligence, presentment, demand, protest and
notice of every kind, and warrants to the Holder of this Note that, as to
itself, all actions and approvals required for the execution and delivery of
this Note as the legal, valid and binding obligation of the undersigned,
enforceable in accordance with the terms hereof, have been duly taken and
obtained. The non-exercise by the Holder of any of its rights hereunder in any
particular instance shall not constitute a waiver thereof in that or any
subsequent instance. A manually signed copy of this Note shall be evidence of
the rights of the Holder of this Note. This Note shall be binding upon the
Borrower and its successors and assigns and inure to the benefit of the holder
of this Note and its successors and permitted assigns.
I. REPRESENTATIONS AND WARRANTIES
X. Xxxxxxxx represents and warrants to the Holder that:
(i) Borrower has all requisite corporate power and authority to
deliver and perform its obligations under this Note.
(ii) The execution, delivery, and performance by Borrower of this Note
has been duly authorized by all necessary corporate action of
Borrower and does not and will not (A) contravene the terms of
the Certificate of Incorporation or Bylaws of Borrower or result
in a breach of or constitute a default under any indenture or
loan or credit agreement or any other agreement, lease, or
instrument to which Borrower is a party or by which it or its
assets may be bound or affected, (B) violate any provision of any
law, rule, regulation, order, writ, judgment, injunction, decree
or like instrument binding on or affecting Borrower, or (C)
result in, or require, the creation or imposition of any lien
upon or with respect to any of the assets of Borrower.
(iii)This Note constitutes a legal, valid, and binding obligation of
Borrower, enforceable against Borrower in accordance with its
terms.
(iv) No authorization, consent, approval, license, exemption of, or
filing or registration with, any governmental authority, or
approval or consent of any other person, is required for the due
execution, delivery, or performance by Borrower of this Note,
except for the filing of the Certificate of Designation attached
hereto with the Delaware Secretary of State.
(v) Borrower has a pre-existing relationship with Xxxxxx and, by
reason of its business and financial experience, Borrower has the
capacity to protect its own interests in connection with the Note
and related transactions.
X. Xxxxxx represents and warrants to Borrower that:
(i) Holder is acquiring the shares (the "Securities") for its own
account, for investment and not with a view to resale or
distribution. Holder has not offered or sold any portion of its
Securities and has no present intention of dividing its
Securities with any third party or of reselling or otherwise
disposing of any portion thereof either currently or after the
passage of a fixed or determinable period of time or upon the
occurrence of non-occurrence of any predetermined event or
circumstance.
(ii) Holder is aware that the Securities are speculative and that it
may lose its entire investment and it can afford to bear the
risks of an investment in Borrower's company ("Borrower" or the
"Company"), including the risk of losing its entire investment.
(iii) Holder:
(a) Has been provided an opportunity to obtain information
concerning the Company and any other relevant matters as
Xxxxxx has requested; and
(b) Has been given the opportunity to ask questions of and
receive answers from the Company concerning the Securities.
(iv) Holder is aware that it must bear the economic risk of its
investment in the Securities for an indefinite period of time
because: (1) the Securities have not been registered under the
Securities Act of 1933, as amended (the "Act"), or qualified
under the California Corporate Securities Law of 1968 or any
other state securities laws, and therefore cannot be sold,
assigned or otherwise disposed of unless appropriate exemptions
from such registration or qualification requirements are
available; (2) Borrower will place a legend on the certificates
evidencing the Securities (unless and until a Registration
Statement covering the Securities is in effect) stating that the
Securities have not been registered under the Act or any state
securities laws and setting forth the limitations on resale
contained above and Borrower will also require that its registrar
and transfer agent make a notation of such restrictions in its
appropriate records and (3) there is no public market for
Preferred Shares. Xxxxxx further understands and agrees that the
Borrower will not honor any attempt by Holder to sell, transfer
of otherwise dispose of the Securities in the absence of either
an effective Registration Statement and qualification under
applicable Blue Sky laws or exemptions therefrom.
(v) Holder acknowledges that a legend will be placed on any
certificates or instruments evidencing the Securities for as long
as necessary to comply with the Act and applicable state
securities laws.
(vi) Holder is an "accredited investor" as such term is defined in
Regulation D under the Act. Holder is knowledgeable and
experienced with respect to investment matters such as a proposed
purchase of Securities. Holder has such knowledge and experience
in business and financial matters as to be capable of evaluating
the merits and risks of this investment and has the capacity to
protect its own interests in connection with this investment.
(vii)Holder has decided to acquire the Securities on the basis of its
own independent investigation and has relied on no oral
statements, representations or warranties of the Company,
including its agents, consultants or employees, as to the quality
of the investment in the Securities.
(viii) Holder shall be entitled to registration rights for the resale
of the Securities on the terms set forth in the Company's
Certificate of Designation as filed with the State of Delaware
and subject to the letter agreement set forth above.
(ix) In the event of a stock split, reverse stock split or other
recapitalization, appropriate adjustments shall be made in the
number of shares and/or per share price in order to effect the
intent and purpose of the applicable provisions
iI. Miscellaneous
Notices. Notice to Holder shall be deemed to be provided on the day it is
posted by email, fax and overnight mail to the Holder's address on file with
Borrower. Holder shall use its best efforts to insure Holder actually receives
on a timely basis any notice provided hereunder.
Successors and Assigns. The rights and obligations of Borrower and the
Holder of this Note shall be binding upon and inure to the benefit of the
successors, assigns and transferees of the parties.
Waiver and Amendment. Any provision of this Note may be amended, waived or
modified upon the written consent of Xxxxxxxx and the Holder.
Assignment by Xxxxxxxx. Neither this Note nor any of the rights, interests
or obligations hereunder may be assigned, by operation of law or otherwise, in
whole or in part, by Borrower, without the prior written consent of the Holder.
Expenses; Waivers. If Borrower defaults in the performance of its
obligations under this Note, then Borrower shall pay all costs and expenses
incurred by Holder in connection with the collection of amounts due and the
enforcement of Holder's rights hereunder and under the Security Agreement
including, without limitation, reasonable attorneys' fees and costs.
Consent to Jurisdiction. Borrower hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts in and for the County
of Los Angeles, California, for the purposes of any suit, action or proceeding
arising out of or relating to this Note and hereby waives, and agrees not to
assert in any such suit, action, or proceeding, any claim that it is not
personally subject to the jurisdiction of such courts, that the suit, action or
proceeding is brought in an inconvenient forum, or that the venue of the suit,
action or proceeding is improper. Borrower consents to process being served in
any suit, action or proceeding by overnight mail, next business day delivery, by
a commercially recognized overnight mail delivery service, of a copy thereof to
Borrower at the address set forth on the first page of this Note, and Borrower
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing in this paragraph shall affect or limit any right to
serve process in any other matter permitted by law.
No Impairment. Borrower will not avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
Xxxxxxxx, but will at all times in good faith carry out the provisions of this
Note.
Governing Law. This Note shall in all respects be governed by, and
construed in accordance with, the laws of the State of California including all
matters of construction, validity and performance, without reference to
principles of conflicts of law.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed
by a duly authorized officer on the day and the year first above written.
AURA SYSTEMS, INC.
By: /s/ Xxxxx X. Xxxxxxx
--------------------
Name: Xxxxx X. Xxxxxxx
Title: Senior VP / CFO
