SERVICES, OPERATIONS AND MANAGEMENT AGREEMENT
This
Agreement, effective as of October 8, 2008 (this “Agreement”),
is
made and entered into by and between Aura Sound, Inc., a Nevada corporation
(“Aura
Sound”),
and
its wholly owned subsidiary Aura Sound, Inc., a California corporation, having
their principal place of business at 00000 X. Xxxxx Xxx., Xxxxx Xx Xxxxxxx,
XX
00000 (“Subsidiary”), and GGEC America Inc., a California company (“GGEC”)
having
its principle place of business at 0000 X. Xxxxxxx Xxx. #000, Xxxxx Xxx, XX
00000 (each, a “Party”,
collectively the “Parties”).
RECITALS
WHEREAS,
Aura
Sound and Subsidiary (collectively “Company”) are in the business of developing,
manufacturing and marketing premium audio products;
WHEREAS,
GGEC
and its parent company GGEC China is currently the sole manufacturer of the
products sold by AuraSound and/or Subsidiary;
WHEREAS,
GGEC’s
principal place of business is located in California;
WHEREAS,
Company
is in need of capital and immediate financial assistance and has a continuing
need for operational assistance and desires to obtain such assistance from
GGEC
and whereas GGEC has expressed a desire to provide this assistance to Aura
Sound
and/or Subsidiary;
WHEREAS,
in
furtherance of this desire, GGEC has entered into a non-binding October 6,
2008
Letter of Intent (“LOI”) with Aura Sound to explore and pursue the acquisition
of a controlling percentage of the common stock of Aura Sound (“Acquisition”),
which LOI is incorporated into this Agreement by this reference; and
WHEREAS,
the
board of directors of Aura Sound and Subsidiary, respectively, have adopted
resolutions approving the assumption by GGEC of the operational control of
Aura
Sound and Subsidiary, respectively, upon the terms and conditions set forth
in
this Agreement.
NOW,
THEREFORE,
the
Parties hereto, intending to be legally bound, agree as follows:
ARTICLE
1
SERVICES
& FINANCING
1.1 Services
to be Provided.
In view
of the contemplated Acquisition, GGEC, directly or indirectly as provided in
Section 1.2, agrees to provide Company during the term of this Agreement, the
following services (the “Services”)
as it
deems appropriate for Company:
(a)
general management services, including (i) the services of executive, operations
and financial personnel of GGEC; (ii) advice concerning the preparation of
budgets, forecasts, capital expenditures, financing, and long range strategic
planning; (iii) managing accounts receivables; (iv) managing accounts payables;
and (iv) such other management services as GGEC may deem reasonably necessary
to
further the contemplated Acquisition or Subsidiary’s performance of its duties
and responsibilities on the Bridge Loans; and
(b)
general administrative and technical services, advice and direction, including
(i) accounting, including cost accounting and inventory control; (ii) PRC legal,
trademark and patent advice, including advice with respect to compliance with
applicable legal regulations, patent applications and prosecutions outside
the
United States; (iii) market servicing, product pricing and costs controls and
evaluations; (iv) preparation of advertising and publicity literature and other
materials; (v) providing, training, supervision, guidelines and policies to
staff and consultants; (vi) compensation planning and human resources services;
(vii) purchasing services; (viii) importing and exporting; (ix) preparation
of
reporting forms; and (x) such other general administrative and technical
services as Company may reasonably request from time to time.
1.2 Services
Providers.
It is
understood that GGEC may provide any, all or some of the Services directly
or
through any of its affiliates, professional advisors or other representatives.
(The entity providing the Services is hereinafter referred to as the
“Services
Provider”).
The
Services Provider shall, in its supervision of the Services hereunder, utilize
a
standard of duty and care equal to that of a reasonably prudent person acting
on
its own behalf in similar circumstances.
1.3 Property
and Equipment.
All
properties and equipment owned by Company shall remain the properties and
equipment of Company.
1.4 Management.
The
Company shall use commercially reasonable efforts to convince all directors,
officers, employees and consultants of Company to remain with Company in their
current capacities and to continue to perform their day-to-day duties in
accordance with the normal operations of the Company, as may be managed by
GGEC
from time to time, until such time as the Company shall determine to replace
any
such directors, officers, employees or consultants.
1.5 Loans.
GGEC
agrees to make monthly loans of up to $150,000 to Subsidiary, during the term
of
this Agreement, to fund Subsidiary’s operating expenses and working capital
requirements (“Bridge Loans”), provided that Company has not breached this
Agreement or defaulted on a Bridge Loan. Each Bridge Loan shall be evidenced
by
a promissory note which shall provide: (a) for simple interest at a rate of
six
percent (6%) per annum; (b) that the entire loan amount, principal and interest,
be due and payable upon the earlier of the termination or breach of this
Agreement, or completion (closing) of the Acquisition; and (c) GGEC may elect,
in its sole discretion, to apply any or all of the principal and interest owed
on any or all of the Bridge Loans towards the purchase price of the Aura Sound
equity it will acquire in the contemplated Acquisition.
2
ARTICLE
2
CONSIDERATION;
CONFIDENTIALITY
2.1 Consideration
for the Services.
In
further consideration of the Services and Bridge Loans,
(a) Company
shall cooperate with GGEC and its agents and consultants in a commercially
reasonable due diligence review of the Company by GGEC in connection with its
contemplated purchase of a controlling equity interest in Aura Sound.
(b) Notwithstanding
Article 1.4, during the term of this Agreement, Company and its directors,
officers, employees and consultants shall not,
without
the written consent of GGEC, make any decisions; take any actions which are
outside the ordinary course of business; enter into any material agreements;
dispose of, transfer, assign, sell, lien, lease, license, pledge, encumber,
alienate, hypothecate, depreciate or deplete any property, real or personal,
tangible or intangible, owned by Company in whole or in part or in which Company
has an ownership interest, regardless of the nature or extent of Company’s
interest or the manner in which Company obtained such ownership interest; OR
incur material liabilities, debts, loans or obligations of any kind in excess
of
$5,000 on behalf of the Company outside the ordinary course of
business.
(c) GGEC
shall have absolute authority and discretion on the payment of any accounts
payables or monies owed by Company to any third parties, including but not
limited to the order, amount and timing of such payments. Subsidiary shall
open
a separate bank account where the Bridge Loans will be deposited (the “Bridge
Loan Account”), in order that such Bridge Loans are segregated from other funds
of Subsidiary or Company.
(d)
Upon
Subsidiary’s default on the payment of interest or principal due on any
Bridge
Loan, GGEC and Company shall each instruct Company’s customers and any other
third parties owing monies to Company to forward such monies directly to GGEC
until the principal and interest due on any defaulted Bridge Loan(s) has been
paid. Upon receipt of full payment of the principal and interest due on any
defaulted Bridge Loan(s), GGEC and Company shall so inform Company’s customers
and other third parties owing monies to Company.
(e) It
is the
intent of the Parties that all existing and future loans, credit, factoring
or
other financing agreements and liens of the Company shall be subordinated to
the
Bridge Loans, and the Company shall take all reasonable steps to accomplish
this
subordination
(f) The
Company shall grant in favor of GGEC a security interest in Company’s property,
real or personal, tangible or intangible, to secure Company’s performance under
this Agreement and payment of the principal and interest due on the Bridge
Loans, as more specifically set forth in the accompanying Security Agreement,
Exhibit
“A”.
Company shall also enter into a Deposit Account Control agreement in the form
of
Exhibit
“B”
for
the
Bridge Loan Account.
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(g) During
the period this Agreement is operative, Company shall not, without the consent
of GGEC, solicit or engage in discussions with another to sell or exchange
Company’s stocks or assets, merge with or into another entity, or dissolve or
re-organize Company.
(h) During
the term of this Agreement, Company shall keep GGEC reasonably informed of
its
financial and operational condition, including but not limited to providing
GGEC
with reports, summaries and/or statements of sales, expenses, costs, purchases,
accounts receivables, accounts payables, gross receipts, payments, debts,
liabilities, balance sheets, profit and loss statements and agreements entered
into; daily reports of Company’s deposit account balances, withdrawals,
deposits, charges and fees; monthly bank statements, financial statements and
records, minutes of meetings of Company’s directors and shareholders, corporate
books, documents and records.
(i) During
the term of this Agreement, so long as any Bridge Loan or interest thereon
is
outstanding, Company shall not, without the written approval of GGEC, issue
dividends or make cash or earnings distributions to any Company shareholder,
redeem the stock shares of any Company shareholder, or pay or award any
compensation of any kind to any employee, officer or director of Company other
than the salary and wages, none of which includes bonuses, and commissions
they
currently earn.
(j)
Attached
as Exhibit “C” is a true and correct list of Company’s key assets.
(k)
Attached
as Exhibit “D” is a complete list of all key or senior management employees,
officers and directors of Company.
2.2
Confidentiality
Agreement.
GGEC’s
due diligence review of Aura Sound, and GGEC’s provision of the Services
hereunder, shall be subject to a Mutual Confidentiality Agreement in the form
of
Exhibit
“E”
attached
hereto.
2.3
Non-Solicitation.
GGEC,
on the one hand, and Aura Sound and Subsidiary, on the other hand, agree that
during the term of this Agreement and for a period of two (2) years thereafter,
GGEC shall not solicit, hire or employ any officers, employees or consultants
of
Aura Sound or Subsidiary, and neither Aura Sound nor Subsidiary shall solicit,
hire or employ any officers, employees or consultants of GGEC, in either case
without the express written consent of the non-hiring/soliciting/employing
Party.
ARTICLE
3
TERM
AND TERMINATION
3.1
Term
and Termination.
The
term of this Agreement shall begin on October 6, 2008 and shall continue for
a
period of six (6) months or until the completion (closing) of the Acquisition,
whichever occurs earlier.
Any
funds loaned to the Company or Subsidiary by GGEC prior to the date hereof
shall
be deemed Bridge Loans within the meaning set forth herein and shall be governed
by this Agreement and its attachments. This Agreement may be renewed in writing
upon the mutual agreement of the Parties.
4
ARTICLE
4
GENERAL
PROVISIONS
4.1
Notices.
All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, sent by overnight
courier or mailed by registered or certified mail (postage prepaid and return
receipt requested) to the Party to whom the same is so delivered, sent or mailed
at the addresses set forth on the signature page hereof (or at such other
address for a Party as shall be specified by like notice).
4.2
Interpretation.
The
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
References to Sections and Articles refer to sections and articles of this
Agreement unless otherwise stated.
4.3
Severability.
If any
term, provision, covenant or restriction of this Agreement is held by a court
of
competent jurisdiction to be invalid, void or unenforceable, the remainder
of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated and the Parties shall negotiate in good faith to modify this
Agreement to preserve each Party's anticipated benefits under this
Agreement.
4.4
Miscellaneous.
This
Agreement (a) constitutes the entire agreement and supersedes all other prior
agreements and undertakings, both written and oral, among the Parties with
respect to the subject matter hereof; (b) except as expressly set forth herein,
is not intended to confer upon any other person any rights or remedies hereunder
and (c) shall not be assigned by operation of law or otherwise, except as may
be
mutually agreed upon by the Parties hereto.
4.5
Governing
Law; Venue.
This
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of California without giving effect to any choice or
conflict of law provision or rule. Any and all actions brought under this
Agreement shall be brought in the California state or federal court of the
United States sitting in the County of Orange, California and each Party hereby
waives any right to object to the convenience of such venue.
4.6
Counterparts
and Facsimile Signatures.
This
Agreement may be executed in two or more counterparts, which together shall
constitute a single agreement. This Agreement and any documents relating to
it
may be executed and transmitted to any other Party by facsimile or email of
a
“pdf” file, which facsimile or “pdf” file shall be deemed to be, and utilized in
all respects as, an original, wet-inked document.
4.7 Amendment.
This
Agreement may be amended, modified or supplemented only by an instrument in
writing executed by the Parties.
4.8 Waiver.
No
waiver by any Party of any default or breach by the other Party of any provision
contained in this Agreement shall be deemed to be a waiver of any subsequent
default or breach by such Party of the same. No act, delay, omission or course
of dealing on the part of any Party in exercising any right, power or remedy
under this Agreement or at law or in equity shall operate as a waiver thereof
or
otherwise prejudice any of such Party's rights, powers and remedies. All
remedies, whether at law or in equity, shall be cumulative and the election
of
any one or more shall not constitute a waiver of the right to pursue other
available remedies.
4.9
Recitals
Incorporated.
The
recitals of this Agreement are incorporated herein.
[SIGNATURES
FOLLOW]
5
IN
WITNESS WHEREOF,
the
Parties have executed this Agreement as of the date first written
above.
| Aura Sound, Inc., a California corporation | Aura Sound, Inc., a Nevada corporation | |||
| By: | /S/ Xxxxxx Xxx | By: | /S/ Xxxxxx Xxx | |
| Name: | Xxxxxx Xxx | Name: | Xxxxxx Xxx | |
| Title: | CEO & Chairman of the Board | Title: | CEO & Chairman of the Board | |
| Address: | Address: | |||
| AuraSound, Inc. | AuraSound, Inc. | |||
| 00000 Xxxx Xxxxx Xxxxxx | 00000 Xxxx Xxxxx Xxxxxx | |||
| Xxxxx Xx Xxxxxxx, XX 00000 | Xxxxx Xx Xxxxxxx, XX 00000 | |||
| GGEC America Inc.. | ||||
| By: | /S/ Xxxxx Xxxxx | |||
| Name: | Xxxxx Xxxxx | |||
| Title: | President | |||
Address:
0000
X. Xxxxxxx Xxx. #000.
Xxxxx
Xxx, XX 00000
6
