SETTLEMENT AGREEMENT
AND RELEASE OF CLAIMS
This Settlement Agreement and Release of Claims ("Agreement") dated as
of December 1, 1999, is made and entered into by JNC OPPORTUNITY FUND, LTD., a
Cayman Islands company ("JNC"), and AURA SYSTEMS, INC., a Delaware company (the
"Company").
W I T N E S S E T H:
WHEREAS, the Company has previously issued to JNC a Convertible
Debenture dated June 27, 1997, in the original principal amount of $4,000,000
(the "Convertible Debenture") pursuant to a certain Securities Purchase
Agreement between JNC and the Company dated as of June 27, 1997, as amended by
an agreement dated as of November 21, 1997 (the Securities Purchase Agreement,
as amended is referred to herein as the "Purchase Agreement"), and has issued
Warrants ("Warrants") to JNC, which Convertible Debenture and Warrants are
presently owned by JNC; and
WHEREAS, on October 21, 1998, JNC filed a Complaint against the
Company, entitled JNC Opportunity Fund v. Aura Systems, Inc. (CA98-595) (the
"Action"), seeking damages of not less than $3,584,983 arising out the alleged
breach of the Purchase Agreement by the Company; and
WHEREAS, the parties desire to enter into this Agreement in order to
terminate the Action and to provide for (i) a cash payment by the Company to JNC
of $430,000, (ii) the issuance to JNC of Three Million Five Hundred Thousand
(3,500,000) shares of the Company's Common Stock (the "Shares") pursuant to the
Convertible Debenture, (iii) the issuance by the Company to JNC of a warrant, in
the form attached hereto, entitling JNC from time to time to purchase One
Hundred Thirteen Thousand (113,000) shares of Company's Common Stock at an
exercise price of $0.375 per share (the "Settlement Warrant"), and (iv) the
surrender and cancellation of the Convertible Debenture and the Warrants; and
WHEREAS, contemporaneously with the execution of this Agreement the
parties are entering into an Escrow Agreement (the "Escrow Agreement") with
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, as escrow agent ("Escrow
Agent") to facilitate the consummation of the transactions contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained and other good and valuable consideration, receipt of which is
hereby acknowledged, it is hereby agreed by and between the parties as follows:
1. The Exchange. Within three business days of the date of execution of
this Agreement, the parties shall deliver to the Escrow Agent, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, to hold in escrow pending the consummation of
the exchange contemplated by this Section 1, the following: (A) the Company
shall deliver (i) a stock certificate evidencing the Shares, which are being
issued as a partial conversion of the Debenture, registered in the name of JNC,
free and clear of any restrictive legends, together with a legal opinion to the
effect that such shares have been validly issued and may be resold under Rule
144 promulgated under the Securities Act of 1933 and a certification that such
opinion has been accepted by the transfer agent for the Common Stock for such
purchase, (ii) the sum of Four Hundred Thirty Thousand Dollars ($430,000) (the
"Cash Payment"), in immediately available funds to the account specified prior
thereto for such purpose by Escrow Agent, (iii) the Settlement Warrant,
registered in the name of JNC, and (iv) two executed originals of this
Agreement; and (B) JNC shall deliver (i) the Convertible Debenture and Warrant,
and (ii) two executed originals of this Agreement.
2. Closing. Subject to and in accordance with the Escrow Agreement,
Escrow Agent shall notify each of the Company and JNC when it shall have
received all of the items required to have been delivered by the parties
pursuant to Section 1 (each a "Closing Item," and collectively, the "Closing
Items"). Promptly thereafter, Escrow Agent shall deliver without liability or
other risk to any party, which is hereby waived, (A) to the Company: the
Convertible Debenture, the Warrant and one executed original of this Agreement
and (B) to or as directed by JNC: the Cash Payment, the Settlement Warrant, the
Shares (and the related Rule 144 opinion) and one executed original of this
Agreement (the date that all of the Closing Items are received is the "Closing
Date"). JNC agrees that within two business days of the Closing Date it will
cause the Action to be dismissed with prejudice. If Escrow Agent shall not have
received all of the Closing Items in satisfactory form and when required under
this Agreement, this Agreement may be terminated by the non-defaulting party as
if it never existed and Escrow Agent's sole duties and obligations shall be as
set forth in the Escrow Agreement
3. Warranties of JNC. JNC represents and warrants to the Company as
follows:
(a) Authorization; Enforcement. JNC has all requisite
power and authority to enter into and perform this Agreement
and to consummate the exchange contemplated hereby. This
Agreement has been duly and validly authorized by JNC. This
Agreement has been duly executed by JNC and upon full
delivery of the Closing Items will constitute the valid and
binding obligation of JNC enforceable against it in
accordance with its terms.
(b) Information; Acknowledgment of Risk. The Company
has furnished JNC and its advisors, if any, with all
materials relating to the business, finances and operations
of the Company which have been requested by JNC and its
advisors. JNC has been afforded the opportunity to ask
questions of the Company and has received satisfactory
answers to such questions concerning the terms of the
securities offered, sold or exchanged hereby. JNC is aware
that the Shares and the Settlement Warrant are speculative,
that an investment in the Company involves a high degree of
risk, that it may lose its entire investment and JNC can
afford to bear the risks of an investment in the Company.
JNC is a sophisticated investor with considerable experience
in investments of this nature. JNC acknowledges that the
Company makes no representations or warranties with respect
to the Company, the Shares or the Settlement Warrant other
than those representations or warranties set forth in this
Agreement, and JNC has in no way relied upon any other
statement made or information provided by the Company.
(c) Accredited Investor. JNC is an "accredited
investor" within the meaning of Regulation D of the
Securities Act of 1933 (the "Securities Act").
(d) Non-Affiliate Status. JNC is not presently or at
any time within the past three months, and on the Closing
Date will not be, an "affiliate" of the Company as such
quoted term is defined in the Securities Act.
4. Warranties of the Company. The Company represents and warrants to
JNC as follows:
(e) (a) Authorization; Enforcement. The Company has all
requisite power and authority to enter into and perform this
Agreement and to consummate the exchange contemplated
hereby. This Agreement has been duly and validly authorized
by the Company. This Agreement has been duly executed by the
Company and upon full delivery of the Closing Items will
constitute the valid and binding obligation of the Company
enforceable against it in accordance with its terms.
(b) Ownership of Shares. On the Closing Date the Shares,
when delivered to JNC in accordance with the terms of this
Agreement (i) will be free and clear of any security
interests, liens, claims or other encumbrances, (ii) will
have been duly and validly authorized and delivered, fully
paid and nonassessable and will be valid and binding
obligations of the Company, (iii) will not have been,
individually and collectively, issued or sold in violation
of any preemptive or other similar rights of the holders of
any securities or obligations of the Company, (iv) will not
subject the JNC to personal liability by reason of being a
shareholder, and (v) will be eligible for sale under Rule
144(k) of the Securities Act.
(c) No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the
Company of the exchange contemplated hereby do not and will
not (i) conflict with or violate any provision of the
company's certificate of incorporation or bylaws, or (ii)
conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default)
under, or give to others any rights of termination,
acceleration or cancellation (with or without notice, lapse
of time or both ) of, any agreement or other obligation of
the Company, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to
which the Company is subject (including federal and state
securities laws and regulations).
(d) Filing, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or
registration with, any court, other governmental authority,
person or entity in connection with the execution, delivery
and performance by the Company of this Agreement other than
the filing of a Form D pursuant to the Securities Act of
1933.
(e) Other Arrangements. The Company has negotiated
settlements with certain of its investors in connection with
a general restructuring of the Company by such investors,
i.e. RGC International Investors, LDC ("RGC"), and the
investors represented by HW Partners, L.P. The Company has
not yet reached an agreement with the Isosceles Fund.
Schedule One to this Agreement sets forth the amount of cash
and securities issued or proposed to be issued to RGC and HW
Investors, L.P. The Company understands that the accuracy
and completeness of this representation and warranty is a
material inducement to JNC's willingness to enter into this
Agreement.
5. Release by JNC. Effective as of the Closing Date JNC, for itself and
for its employees, agents, predecessors and successors-in-interest, hereby
irrevocably and unconditionally releases and forever discharges the Company and
each of its subsidiaries, and each of their respective officers, directors,
employees, agents, attorneys, and shareholders, former officers, directors, and
employees, agents, attorneys and shareholders, predecessors, and
successors-in-interest and each of them from any and all claims, causes of
action, demands, damages, attorneys fees, or charges of whatever kind or nature
known or unknown, suspected or unsuspected, fixed or contingent, which they now
have, own, hold, or claim to have, or claim to own, or which they at any time,
heretofore had, owned, held, or claimed to have or claimed to own, from the
beginning of the world through the date of this Agreement, including claims
arising out of the Action.
6. Release by the Company. Effective as of the Closing Date the
Company, for itself, its subsidiaries and for its and their respective
employees, agents, predecessors and successors-in-interest, hereby irrevocably
and unconditionally releases and forever discharge JNC and each of its officers,
directors, employees, agents, attorneys, and shareholders, former officers,
directors, and employees, agents, attorneys and shareholders, predecessors, and
successors-in-interest and each of them from any and all claims, causes of
action, demands, damages, attorneys fees, or charges of whatever kind or nature
known or unknown, suspected or unsuspected, fixed or contingent, which they now
have, own, hold, or claim to have, or claim to own, or which they at any time,
heretofore had, owned, held, or claimed to have or claimed to own, from the
beginning of the world through the date of this Agreement, including claims
arising out of the Action.
4. 7. Effect of General ▇▇▇▇▇▇▇.▇▇ is the intention of the parties that this
Agreement shall be effective as a full and final accord and satisfactory relief
of each and every matter as specifically or generally referred to. In
furtherance of that intention, the parties hereby acknowledge that they are
familiar with Section 1542 of the California Civil Code which provides as
follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in its favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor." The parties hereby waive and relinquish all rights
and benefits which they have or may have up to the date of
this Agreement under Section 1542 of the California Civil
Code or the law of any other state or jurisdiction to the
same or similar affect to the full extent that they may
lawfully waive all such rights and benefits pertaining to
the subject matter of this Agreement.
8. Subsequent Discoveries. The parties acknowledge that there is a risk
that subsequent to the execution of this Agreement, they will discover facts,
which are unknown or unanticipated at the time this Agreement is executed, which
if known by them on a date that this Agreement is executed, may have materially
affected their decisions to execute this Agreement. The parties expressly assume
the risk of discovery of such unknown and unanticipated facts and that this
Agreement shall be fully valid notwithstanding the discovery of any such facts.
9. No Assignment of Claims. Each party represents and warrants that
they have not assigned or otherwise transferred or subrogated any interest in
any claims which are the subject matter hereto.
10. Covenant Not to ▇▇▇. The parties covenant and agree not to ▇▇▇ or
bring any action, whether federal, state, or local, judicial or administrative,
now or at any future time, against each other or any of the released parties,
with respect to any claim released hereby. The parties represent and warrant and
represent that they have not commenced any such action or proceeding as of the
execution date of this Agreement except the Action.
11. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the heirs, administrators, executors, successors, and the
assignees of each of the parties.
12. Miscellaneous. Whenever this Agreement so requires, the singular
number shall include the plural, the plural shall include the singular, and the
masculine gender shall include the feminine and neuter genders.
13. Severability. If any portion of this Agreement shall be held to be
illegal or invalid by a court of competent jurisdiction, the validity of the
remainder of this Agreement shall not be affected.
14. Entire Agreement. This Agreement and the agreements referenced
herein memorializes and constitutes the entire Agreement and understanding
between the parties and supersedes and replaces all prior negotiations, proposed
Agreements and Agreements whether written or unwritten. Each of the parties to
this Agreement acknowledges that no other party nor any agent or attorney of any
other party has made any promise, representation, or warranty whatsoever,
express or implied, which is not expressly contained in this Agreement. Each
party further acknowledges that it has not executed this Agreement in reliance
upon a collateral promise, representation, or warranty.
15. Governing Law. This Agreement shall be deemed to have been made in
the State of California and shall, for all purposes be governed by and construed
exclusively in accordance with the laws thereof, regardless of where any court
action or proceeding is brought in connection with this Agreement.
16. Counterparts. This Agreement may be executed in two or more
counterparts, and an executed facsimile copy or counterpart shall be binding and
enforceable in the same manner as the original.
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IN WITNESS THEREOF, the parties have executed this Agreement
effective as of the date first written above.
AURA SYSTEMS, INC.
By:____________________________
▇▇▇ ▇▇▇▇▇▇▇▇, CEO
JNC OPPORTUNITY FUND, LTD.
By:____________________________
Name:
Title:
Schedule One
RGC International Investors, LDC:
Five Million Dollars ($5,000,000) Cash,
One Million (1,000,000) Warrants exercisable at $.037 per share, An additional
Five Hundred Thousand (500,000) Warrants to be issued
If HW Partners, LP receives a more favorable settlement, in exchange for three
Unsecured convertible notes and outstanding warrants.
Three Million Dollar ($3,000,000) Secured Note modified to eliminate all accrued
interest and convertibility feature, and payment terms changed to 8% interest,
amortized over three years.
HW Partners, LP:
Three Million Dollars ($3,000,000) cash,
1,111,111 shares of Common Stock,
and new secured Note in the principal amount of Twelve Million Five Hundred
Thousand Dollars ($12,500,000), interest only at 8%, principal due and payable
in three years, no conversion right unless the company is in default, in which
case the conversion price is $0.60, which Note is prepayable at a discount,
initially
20%, declining on a straight line basis over the life of the Note; Issued in
exchange for outstanding Note and outstanding Warrants.