SETTLEMENT AGREEMENT
AND COMPLETE RELEASE OF ALL CLAIMS
This Settlement Agreement and Complete Release of All Claims
("Agreement") dated as of October 22, 1999, is made and entered into by RGC
International Investors, LDC, a Cayman Islands limited duration company (?RGC?),
and AURA SYSTEMS, INC.( the "Company").
W I T N E S S E T H:
WHEREAS, the Company has previously issued to RGC
Convertible Debentures in the original aggregated principal
amount of $21,500,000 (the ?Convertible Debentures?) and has
issued Warrants (?Warrants?) to RGC, which Convertible
Debentures and Warrants are presently owned by RGC; and
WHEREAS, the Company has previously issued to RGC its Convertible
Senior Secured Note dated October 7, 1998, in the original principal amount of
$3,000,000 (the ?Secured Note?); and
WHEREAS, the Secured Note is secured by a certain Security Agreement
between the Company and RGC (the ?Aura Security Agreement?); and
WHEREAS, in order to provide for additional security for the repayment
of the Secured Note, certain subsidiaries of the Company entered into a Guaranty
Agreement (the ?Guaranty Agreements?) in favor of RGC, which Guaranty Agreements
were secured by Security Agreements between each of such subsidiaries and RGC
(the ?Subsidiary Security Agreements?); and
WHEREAS, pursuant to a certain Securities Purchase Agreement, annexed
hereto as Exhibit ?A,? RGC proposes to sell its interests in the Convertible
Debentures;
WHEREAS, RGC and the Company have agreed that outstanding Warrants
owned by RGC will be exchanged for 1,000,000 new warrants (the ?New Warrants?)
and that the terms of the Secured Notes, the Aura Security Agreement and the
Subsidiary Security Agreements will be amended as of the Closing under the
Securities Purchase Agreement; and
WHEREAS, RGC and the Company desire to enter into this Agreement, to be
effective upon (i) the Closing of the purchase and sale of the Convertible Notes
under the Securities Purchase Agreement, (ii) the amendment of the Secured
Notes, the Aura Security Agreement and the Subsidiary Security Agreements, and
(iii) the issuance of the New Warrants in exchange for the outstanding Warrants
owned by RGC.
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. Release by RGC. Effective as of the ?Effective Date? (as such quoted
term is hereafter defined) RGC, 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, or which they at any time hereafter may, own, hold or claimed to
have, or claimed to own, provided however, that nothing in this Paragraph 1
shall affect the rights of RGC under the Secured Note, the Aura Security
Agreement, the Subsidiary Security Agreements, the Guarantee Agreements or the
Securities Purchase Agreement (as each such agreement may be amended as
contemplated in the ?Whereas? clauses set forth above).
2. Release by the Company. Effective as of the ?Effective Date? (as
such quoted term is hereafter defined) the Company, for itself, its subsidiaries
and for their respective employees, agents, predecessors and
successors-in-interest, hereby irrevocably and unconditionally releases and
forever discharges RGC and its investment manager and each of their respective
officers, directors, employees, partners, agents, attorneys, and shareholders,
former officers, directors, employees, partners, 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, or which they at any time hereafter may, own, hold or claimed to
have, or claimed to own, provided however, that nothing in this Paragraph 2
shall affect the rights of the Company under the Secured Note, the Aura Security
Agreement, the Subsidiary Security Agreements, the Guarantee Agreements or the
Securities Purchase Agreement (as each such agreement may be amended as
contemplated in the ?Whereas? clauses set forth above).
3. Waiver of Defaults. RGC hereby waives any and all defaults existing on the
Effective Date (as hereafter defined) (including events, facts and circumstances
existing on the Effective Date (as hereafter defined) which with notice or
passage of time or both could become events of default) under the Secured Note,
the Aura Security Agreement, the Subsidiary Security Agreements, or the
Guarantee Agreements. Notwithstanding the foregoing, the waiver set forth in
this Section 3 shall not be applicable to any defaults existing on the Effective
Date which have not been disclosed to RGC in writing if such defaults are both
(i) material, and (ii) relate to breaches of covenants in the Secured Notes, the
Aura Security Agreement or the Subsidiary Security Agreements which covenants
are not being eliminated in their entirety by the amendments to the foregoing
documents as of the Effective Date.
4. Effect of General Release. It 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
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.
5. 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.
6. 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, and agrees to indemnify, defend,
and hold the other party harmless from any liability, loss, claims, demands,
damages, costs, expenses or attorneys fees incurred by it as a result of any
person or entity, including but not limited to, underwriters and insurance
carriers, asserting such assignment, transfer, or subrogation.
7. 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.
8. Legal Fees. If any party files a lawsuit based on legal claims that
either party has released, the party filing a lawsuit will pay for all costs
incurred by the defending party, including reasonable attorneys fees, in
defending against the claims asserted by that party.
9. 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.
10. 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.
11. 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.
12. 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 referred to in this Agreement.
13. 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.
14. 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.
15. Effective Date of Agreement. This Agreement shall become effective
upon the consummation of all of the following events: (i) the Closing of the
purchase and sale of the Convertible Debentures pursuant to the Securities
Purchase Agreement, and (ii) the amendment of the Secured Notes, the Aura
Security Agreement and the Subsidiary Security Agreements, and (iii) the
issuance of the New Warrants in exchange for the outstanding Warrants owned by
RGC (the ?Effective Date?). If the Effective date shall not have occurred by
October 22, 1999, this Agreement shall become null and void, and each of the
respective parties shall be restored to their positions prior to entering into
this Agreement.
IN WITNESS THEREOF, the parties have executed this Agreement as of the
date first written above.
AURA SYSTEMS, INC.
By:____________________________
▇▇▇ ▇▇▇▇▇▇▇▇, CEO
RGC INTERNATIONAL INVESTORS, LDC
By: ▇▇▇▇ ▇▇▇▇ Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By:____________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇,
Managing Director