NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SHAREHOLDERS
TO BE HELD ON __________, 2003
10:30 a.m., OCTOBER 27, 2011
To the StockholdersShareholders of Aura Systems, Inc.:
The
NOTICE IS HEREBY GIVEN that the Annual Meeting of StockholdersShareholders of Aura Systems, Inc., a Delaware
corporation (the "Company"“Annual Meeting”), will be held on __________, 2003October 27, 2011, at __________,
PST,10:30 a.m., Pacific Time, at the Company's headquarter facilities at 2335 Alaska1310 E. Grand Avenue, El Segundo, California,CA 90245, for the following purposes:
(1) To elect a Board of Directors of seven members;
(2) To consider and act upon a proposal to approve an amendment topurposes, as more fully described in the Company's Certificate of Incorporation increasing the number of
authorized shares of Common Stock from 500,000,000 to 1,000,000,000;
(3) To consider and act upon a proposal to effect a possible reverse split
of the Company's Common Stock;
(4) To consider and act upon a proposal to approve an amendment to the
Company's 2000 Stock Option Plan;
(5) To consider and act upon a proposal to ratify the election of Singer
Lewak Greenbaum & Goldstein LLP as the Company's independent
auditors for Fiscal 2003; and
(6) To transact any other business which may properly come before the
meeting.
Stockholdersaccompanying proxy statement (the “Proxy Statement”):
| 1. | to elect a Board of Directors of five members to hold office until the next Annual Meeting of Shareholders and until their respective successors have been duly elected and qualified; |
| 2. | to approve an amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 75,000,000 to 150,000,000; |
| 3. | to approve an amendment to our Amended and Restated Certificate of Incorporation to effect a reverse stock split at a ratio of between 1 for 2 and 1 for 10, as determined by the Board of Directors, at any time prior to September 30, 2012; |
| 4. | to amend the Aura Systems, Inc. 2006 Stock Option Plan to increase the number of shares of common stock issuable thereunder; |
| 5. | to approve the Aura Systems, Inc. 2011 Director and Executive Officer Stock Option Plan; and |
| 6. | to transact such other business as may properly come before the Annual Meeting. |
Only shareholders of record at the close of business on __________ will beSeptember 14, 2011 are entitled to notice of and to vote at the meeting andAnnual Meeting or any adjournmentsadjournment thereof. A list of the shareholders entitled to vote at the Annual Meeting will be available for examination by any shareholder for any purpose reasonably related to the Annual Meeting during ordinary business hours in the office of the Secretary of the Company during the ten days prior to the Annual Meeting.
All Stockholdersshareholders are cordially invited to attend the meeting in person. Whether or not you expectplan to attend the meeting, PLEASE COMPLETE AND SIGN THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.we urge you to vote your shares as described in the enclosed materials (1) via the toll-free telephone number, (2) over the Internet, or (3) you may sign, date and mail the proxy card in the enclosed envelope. The giving of your proxy will not affect your right to vote in person should you later decide to attend the meeting.
Any Stockholder of record
Your vote is very important, and we appreciate you taking the time to review the proxy material and to vote. We hope to see you at the meeting.
Cordially,
Melvin Gagerman
__________ __, 2011 Chairman of the Company at the close of business on
__________ may attend. Any beneficial owner of shares with a letter of
authorization from his record holder may attend the meeting.
By Order of the Board of Directors
/s/ Michael I. Froch
Michael I. Froch
SECRETARY
AURA SYSTEMS, INC.
1310 E. Grand Avenue
El Segundo, California ______________, 2003
PLEASE MARK, DATE, AND SIGN THE ENCLOSED PROXY AND RETURN IT AT AN EARLY DATE IN
THE ENCLOSED RETURN ENVELOPE SO THAT, IF YOU ARE UNABLE TO ATTEND THE ANNUAL
MEETING, YOUR SHARES MAY BE VOTED.
AURA SYSTEMS, INC.
2335 Alaska Avenue
El Segundo, CA 90245
(310) 643-5300
PROXY STATEMENT
__________ ___, 2003
GENERAL INFORMATION
General Information
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Aura Systems, Inc. ("Aura"(the “Company”, “Aura”, “we”, “us” or the
"Company"“our”) for the Annual Meeting of StockholdersShareholders to be held on __________, 2003
at __________ PST, at the at the Company's headquarter facilities at 2335 Alaska
Avenue, El Segundo, CaliforniaOctober 27, 2011 (the "Annual Meeting"“Annual Meeting”) and any postponements or adjournments thereof. Any Stockholdershareholder giving a proxy may revoke it before or at the meeting by providing a proxy bearing a later date or by attending the meeting and expressing a desire to vote in person. If the enclosed proxy is
properly signed and returned, the shares represented thereby
All proxies will be voted at
the Annual Meeting as directed by the Stockholdershareholder on the proxy card; and, if no choice is specified, they will be voted (i) "FOR"voted:
1. “FOR” the Directors nominated by the Board of Directors, (ii) "FOR"Directors;
2. “FOR” the proposed amendmentsamendment to the Company'sour amended and restated Certificate of Incorporation increasing the number of authorized shares of Common Stockcommon stock from 500,000,00075,000,000 to 1,000,000,000, (iii) "FOR"150,000,000;
3. “FOR” the proposalproposed amendment of our amended and restated Certificate of Incorporation to effect a possible reverse stock split at a ratio of between 1 for 2 and 1 for 10 at any time prior to September 30, 2012;
4. “FOR” amending the Company's Common Stock, (iv) "FOR" the
proposal to approve an amendment to the Company's 2000Aura Systems, Inc. 2006 Stock Option Plan to increase the number of shares of common stock issuable thereunder;
5. “FOR” approving the Aura Systems, Inc. 2011 Directors and (v) inExecutive Officers Stock Option Plan; and
6. at the discretion of the persons acting as proxies, forproxy holders, with regard to any other matters.
matter that is property presented at the Annual Meeting.
Your cooperation in promptly returning the enclosed proxy card will reduce Aura'sour expenses and enable its management and employees to continue their normal duties for your benefit with minimum interruption for follow-up proxy solicitation.
Only Stockholdersshareholders of record at the close of business on __________September 14, 2011 (the “record date”), are entitled to receive notice of and to vote at the meeting.Annual Meeting. On that date, Aurawe had outstanding 432,272,27569,983,542 shares of Common Stock and no Preferred Stock.common stock. The shares of Common Stockcommon stock vote as a single class. Holders of shares of Common Stockcommon stock on the record date are entitled to one vote for each share held. The presence at the Annual Meeting, either in person or by proxy, of the holders of a majority of the shares of Common Stockcommon stock issued, outstanding and entitled to vote is necessary to constitute a quorum for the transaction of business.
In accordance with Delaware law, abstentions and "broker non-votes"“broker nonvotes” (i.e. proxies from brokers or nominees indicating that such persons have not received instructions from the beneficial owners or other persons entitled to vote shares as to a matter with respect to which brokers or nominees do not have discretionary power to vote) will be treated as present for purposes of determining the presence of a quorum. For purposes of determining approval of a matter presented at the meeting,Annual Meeting, abstentions will be deemed present and entitled to vote and will, therefore, have the same legal effect as a vote "against"“against” a matter presented at the meeting. Broker non-votesnonvotes will be deemed not entitled to vote on the matter as to which the non-votenonvote is indicated. Therefore, a broker
non-voteindicated and will, therefore, have no legal effect on any matter requiring the affirmative vote on such matter.
This proxy statement and the accompanying Notice of a pluralityAnnual Meeting and form of the votes cast, and will have the same legal effect as a vote
"against" any other matters presented at the meeting which require approval by a
majority of the shares represented in personproxy are being mailed or by proxy at the meeting.
delivered to shareholders on or about October 3, 2011.
In the event that sufficient votes in favor of any of the proposals are not received by the date of the Annual Meeting, the persons named as proxies may propose one or more adjournments of the Annual Meeting to permit
further solicitations of proxies. Any such adjournment will require the affirmative vote of the holders of a majority of the shares of Common Stockcommon stock present in person or by proxy at the Annual Meeting. The persons named as proxies will vote in favor of such adjournment or adjournments.
The cost of preparing, assembling, printing, and mailing the materials, the Notice and the enclosed form of Proxy,proxy, as well as the cost of soliciting proxies relating to the Annual Meeting, will be borne by the Company. The Companyus. We will request banks, brokers, dealers, and voting trustees or other nominees to forward solicitation materials to their customers who are beneficial owners of shares, and will reimburse them for the reasonable out-of-pocket expenses of such solicitations. The original solicitation of proxies by mail may be supplemented by telephone, telegram, personal solicitation or other means by officers and other regular employees or agents of the Company, but no additional compensation will be paid to such individuals on account of such activities.
This Proxy Statement and the accompanying Notice of Annual Meeting and form of
Proxy are being mailed or delivered to Stockholders on or about __________ ___,
2003.
PROPOSAL NO. 1
ELECTION
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO VOTE YOUR SHARES AS DESCRIBED IN THE ENCLOSED MATERIALS (1) VIA THE TOLL-FREE TELEPHONE NUMBER, (2) OVER THE INTERNET, OR (3) YOU MAY SIGN, DATE AND MAIL THE PROXY CARD IN THE ENCLOSED ENVELOPE. THE GIVING OF SEVEN NOMINEES FOR YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON SHOULD YOU LATER DECIDE TO ATTEND THE MEETING.
DIRECTORS, THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE ELECTION OF THE SEVEN NOMINEES FOR DIRECTOR.
NOMINEESEXECUTIVE OFFICERS AND VOTING
TheCORPORATE GOVERNANCE
Directors
Our By-Laws of the Company provide for a Board of sevenno less than five Directors. Consequently, at the Annual Meeting, sevenfive Directors will be elected to serve until the next Annual Meeting and until their successors are elected and qualified. Proxies may not be voted for more than sevenfive persons. The Company hasWe have nominated for election as Directors the sevenfive persons named below. Each of these nominees has indicated that they are able and willing to serve as Directors.
a Director.
Unless otherwise instructed, the Company's proxy holders intend to vote the shares of Common Stockcommon stock represented by the proxies in favor of the election of these nominees. If for any reason any of these nominees will be unable or unwilling to serve, the shares represented by the enclosed proxy will be voted for the election of the balance of those named and such other person or persons as the Board of Directors may recommend. The Board of Directors has no reason to believe that any such nominee will be unable or unwilling to serve. Directors are elected by a plurality of the votes cast.
The Company'stable below sets forth the names of the nominees, and Directors are listed below, together with their ages, principal occupations, the offices withthey hold and the Company and year in which each became a DirectorDirector.
| Name | Age | Title | Director Since |
Melvin Gagerman | 69 | Chairman, Director, Chief Executive Officer, and Chief Financial Officer | 2006 |
| Arthur J. Schwartz, Ph.D. | 63 | Director, Chief Technical Officer | 2006 |
| James Marvin Simmons | 62 | Director, Chairman - Nominating Committee; member, Compensation Committee and Audit Committee (1) | new |
| Warren Breslow | 68 | Director, Chairman – Audit Committee; member, Nominating Committee and Compensation Committee | 2006 |
| Salvador Diaz-Verson, Jr. | 56 | Director, Chairman, Compensation Committee; member, Audit Committee and Nominating Committee | 2006 |
(1) Assuming election of Mr. Simmons, the Board of Directors intends to appoint him to these offices following the Annual Meeting.
Business Experience of Directors and Nominees
Melvin Gagerman - Mr. Gagerman is a CPA and has been our Chief Executive Officer and Chief Financial Officer since we emerged from Chapter 11 proceedings on January 31, 2006. As Chief Executive Officer Mr. Gagerman formulates policies, defines our values, directs the operations of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE ELECTION OF THE SEVEN NOMINEES FOR DIRECTOR.
NAME AGE TITLE
---- --- -----
Neal Meehan......................... 61business and defines our corporate culture. He is also responsible for overseeing our other executive officers. Mr. Gagerman has many years of experience in performing these duties and a strong background in accounting and financing. Prior to joining Aura Mr. Gagerman was the CEO of a number of companies including Surface Protection Industries and Applause. Mr. Gagerman has also served as Managing Partner of Good, Gagerman & Berns, an accounting firm, National Audit Partner for Laventhol and Horwath and Audit Supervisor at Coopers and Lybrand. As the Chairman of the Board, Mr. Gagerman’s background and experience provides the Board with a solid understanding of the business issues and financial planning and execution required by the business.
Arthur J. Schwartz, Ph.D. - Dr. Schwartz has a Ph.D. in Physics and has been Chief Technical Officer (“CTO”) and a director of the Company since it emerged from Chapter 11 proceedings on January 31, 2006. He is one of the original founders of the Company and was a member of Aura’s executive management team from1987 until 2002 as Executive Vice President, CTO and director. Dr. Schwartz has been involved in all technical aspects of the Company and his technical knowledge and experience in magnetics, electronics and controls have been instrumental in many of our past and present government programs. From 2002 to 2006 Dr. Schwartz was a principal in the business-consulting firm Aries Group Ltd. Prior to founding Aura; he worked at Hughes Aircraft
Company as a senior scientist. Dr. Schwartz provides the Board with a clear understanding of the technical issues and challenges as well as an understanding of the technical merits of our IP. In addition he is instrumental in helping the Board understand the research and development budgets necessary to achieve our technical objectives.
James Marvin Simmons - Mr. Simmons has a B.A degree in Economics and is the Chief Executive Officer Carl Albert......................... 60 Director, Board of Directors
Harvey Cohen........................ 69 Director, Member of Audit Committee
Lawrence Diamant.................... 61 Director, Member of Compensation Committee
Salvador Diaz-Verson, Jr............ 51 Director, Member of Compensation Committee
John Pincavage...................... 58 Director, Member of Audit Committee
Norman Reitman...................... 79 Director, Member of Audit Committee
NEAL MEEHAN is Chairman of the Board of Directors and Chief ExecutiveInvestment Officer effective July 2002, following appointment by resolution of the BoardICM Asset Management, Inc, which he founded in 1981 in Spokane, WA. The firm offers investment management services for individuals, businesses, and foundations utilizing small and large cap equity investments as well as fixed income investments, with a particular emphasis on small capitalization companies. Mr. Simmons is a Chartered Financial Analyst with approximately 40 years of Directors pursuant to the By-Laws of the Corporation.experience in investing. He has been a Directormember of the board of directors of various for-profit and nonprofit companies. He has also been the managing member of Koyah Partners, LLC, an investment partnership that emphasized venture investing in very small companies, both public and private. Mr. Simmons knowledge and experience in finance provides the Board with an understanding of the principles of valuation and financial positioning as they apply to the Company. In addition, his many years of investment experience provides us with a better understanding of operational performance and business transactions that provide added value to us and to our shareholders.
Warren Breslow - Mr. Breslow is a CPA and has been a director and Chairman of the Audit Committee since we emerged from Chapter 11 bankruptcy proceedings on January 31, 2006. Mr. Breslow is the General Partner and Chief Financial Officer of Goldrich & Kest Industries (“G & K Industries”). He joined G & K Industries in 1972 as controller and assumed his current position as General Partner and Chief Financial Officer in 1974. As General Partner and Chief Financial Officer of G & K Industries, Mr. Breslow oversees the financial aspects of its construction activity, as well as its management operations and information systems center. He is also past president and a lifetime member of the board of directors of the Stephen S. Wise Temple, and supports numerous charitable and civic organizations. Prior to his association with G & K Industries, Mr. Breslow was a manager with the international accounting firm of Laventhol & Horwath. We believe that Mr. Breslow’s extensive financial and accounting experience uniquely qualifies him for the position of Chairman of the Audit Committee.
Salvador Diaz-Verson, Jr. - Mr. Diaz-Verson is a director of the Company and has served in this capacity since October 2000. Mr. Meehan's
business career spans the transportation and telecommunications sectors. Since
July 2002, Mr. Meehan has served as the Chairman of the Board and Chief
Executive Officer of the Company. Mr. Meehan serves in such capacities under the
terms of a Consulting Agreement between the Company and air2ground, LLC.June 2007. He is
currently Managing Partner of air2ground, LLC and is involved in business
development and strategic planning for start-up and mature companies. He has
served as President and Chief Executive Officer of a number of airlines
including New York Air, Midway Airlines, Chicago Air and Continental Express. He
has also served in various marketing and operations capacities for American
Airlines and Continental Airlines. In addition, he has served in various senior
capacities for a number of telecommunications firms including In-Flight Phone
Corp., Iridium LLC and Hush Communications USA, Inc., a firm specializing in
data encryption. After a tour as an officer in the United States Marine Corps,
Mr. Meehan received his MBA from St. Johns University. Mr. Meehan is also the
recipient of an honorary Doctorate of Commercial Science from St. Johns
University.
CARL ALBERT is a Director of Company and has served in this capacity since
July 2001. From March 2002 until July 2002, Mr. Albert served as Chairman of the
Board of Directors. Mr. Albert was, until February 2002, a member of the Board
of Directors of Fairchild Dornier Corporation, a privately held company in the
business of manufacturing aircraft. Mr. Albert held a significant interest in
Fairchild Dornier Corporation from 1990, when he provided the venture capital
necessary for acquiring ownership control of the company's predecessor
corporation, Fairchild Aircraft, until April 2000 when the majority interest in
the company was sold. From 1996 through April 2000, following Fairchild
Aircraft's purchase of Daimler-Benz's 80% interest in Dornier, he was the
Chairman of the Board of Directors of Fairchild Dornier Corporation, its Chief
Executive Officer and the majority stockholder. Mr. Albert was the Chairman of
the Board of Directors of Fairchild Aircraft, its Chief Executive Officer and
the majority stockholder from 1990 through 1996. From 1986 through 1989, he
provided venture capital and served as the CEO or President of a California
based regional airline, West Wings Airlines, which operated as an American Eagle
franchisee until acquired by the parent of American Airlines in 1988. Mr.
Albert's business experience includes 18 years as an attorney, specializing in
business and corporate law in Los Angeles, California. He also serves and haspreviously served as a Member of the Board of Directors of a number of privately and
publicly held corporations, including Dr. Pepper Bottling Company of California,
K & K Properties, Ozark Airlines and Tulip Corporation. Mr. Albert holds a B.A.
from UCLA in political science and an L.L.B. from the UCLA School of Law.
HARVEY COHEN is a Directordirector of the Company and has served in this capacity
since August 1993. Mr. Cohen is President of Margate Advisory Group, Inc., an
investment advisor registered with the Securities and Exchange Commission, and a
management consultant since August 1981. Mr. Cohen has consulted with the
Company on various operating and growth strategies since June 1989 and assisted
in the sale of certain of the Company's securities. From December 1979 through
July 1981, he was President and Chief Operating Officer of Silicon Systems,
Inc., a custom integrated circuit manufacturer which made its initial public
offering in February 1981 after having raised $4 million in venture capital in
1980. From 1975 until 1979, Mr. Cohen served as President and Chief Executive
Officer of International Communication Sciences, Inc., a communications computer
manufacturing start-up company for which he raised over $7.5 million in venture
capital. From 1966 through 1975, Mr. Cohen was employed by Scientific Data
Systems, Inc. ("S.D.S."), a computer manufacturing and service company, which
became Xerox Data Systems, Inc. ("X.D.S.") after its acquisition by Xerox in
1969. During that time, he held several senior management positions, including
Vice President-Systems Division of S.D.S. and Senior Vice President-Advanced
Systems Operating of the Business Planning Group. Mr. Cohen received his B.S.
(Honors) in Electrical Engineering in 1955 and an MBA from Harvard University in
1957.
LAWRENCE DIAMANT is a Director of the Company and has served in this
capacity since April 2002. He is a senior partner of the Los Angeles based law
firm Robinson, Diamant & Wolkowitz, a professional corporation. Mr. Diamant is
a member of the State Bar of California and of the American Bar Association
Business Law Section Committees on Banking Law, Commercial Financial Services
and Business Bankruptcy. He has served as a reporter for its Ethics Task Force
sub-section and currently serves as a sub-committee vice chair on Courts,
Jurisdiction, Venue and Administration. Mr. Diamant has also served as Chairman
of the Los Angeles County Bar Association Executive Committee on Commercial Law
and Bankruptcy and is a member of the Financial Lawyers Conference. Mr. Diamant
is a graduate from UCLA School of Law.
SALVADOR DIAZ-VERSON, JR., is a Director of the Company and has served in
this capacity since September 1997.1997 to 2005. Mr. Diaz-Verson is the founder, and since
1991 has been the Chairman and President of Diaz-Verson Capital Investments, Inc., an Investment Adviserinvestment adviser registered with the Securities and Exchange Commission.Commission, where he has served since 1991. Mr. Diaz-Verson is currently the Chairman of United Americas
Bankshares. Mr. Diaz-Verson has served as President and Membermember of the Boardboard of Directorsdirectors of American Family Corporation ("AFLCAC(AFLCAC Inc."), a publicly held
insurance holding company, from 1979 until 1991. Mr. Diaz-Verson also served as Executive Vice President and Chief Investment Officer of American Family Life Assurance Company, a subsidiary of AFLCACAFLAC Inc., from 1976 through 1991. Mr.
Diaz-Verson is a graduate of Florida State University. He is currently a Directordirector of the Boardboard of Miramar Securities, Clemente Capital Inc., Regions Bank of Georgia and The Philippine Strategic Investment Holding Limited. Since 1992, Mr. Diaz-Verson has also been a member of the Board of Trustees of the Christopher Columbus Fellowship Foundation, appointed by President George H.W. Bush in 1992, and re-appointed by President Clinton in early 2000. JOHN PINCAVAGEMr. Diaz-Verson is a Directorgraduate of the Company and has served in this capacity
since March 2002.Florida State University. Mr. Pincavage is a Chartered Financial Analyst with many years
of experience on Wall Street. Since 2001, heDiaz-Verson has been employedselected to serve as a Registered
Representative by C. L. Glazer & Co., a NASD-member firmdirector in Greenwich,
Connecticut. Since 1999, he has been the Presidentview of his lengthy experience in managing companies and founderhis knowledge of Pincavage
& Associates, LLC, a consulting and financial advisory firm for the aviation
industry. From 1995 to 1999, he was an Executive Director in equity research at
Warburg Dillon Read, LLC, a Partner and Director at the Transportation Group,
LLC heading research efforts from 1989 to 1995, Executive Vice President -
Research at Paine Webber Incorporated from 1975 to 1989, and Vice President -
Research at Blyth Eastman Dillon from 1971 to 1975. Mr. Pincavage is a member of
the New York Society of Securities Analysts and has served on numerous boards
includingcapital investment.
Shareholder Communications with the Board of DirectorsDirectors/Attendance at Annual Meeting
A shareholder may contact one or more of the Virginia Engineering Foundation. He
holds a Bachelor of Aerospace Engineering and an MBA, both from University of
Virginia.
NORMAN REITMAN is a Director of the Company and has served in this capacity
since March 2000. He previously served as a Director of the Company from January
1989 to September 1998. Mr. Reitman obtained his B.B.A. degree in business
administration from St. Johns University in 1946 and became licensed as a public
accountant in New York in 1955. Mr. Reitman is the retired Chairman of the Board
and President of Norman Reitman Co., Inc., insurance auditors, where he served
from 1979 until June 1990. Mr. Reitman was a senior partner in Norman Reitman
Co., a public accounting firm, where he served from 1952 through 1979. Mr.
Reitman served on the Board of Directors and was a Vice President of American
Family Life Assurance Co., a publicly held insurance company, from 1966 until
April 1991.
MANAGEMENT
Information concerning the executive officers of the Company during Fiscal
2002 is included in the Company's annual report on Form 10-K for the fiscal year
ended February 28, 2002. Listed below are the current executive officers of the
Company who are not Directors or nominees, their ages, titles and background
information. Executive officers serve at the discretion of the Board.
NAME AGE POSITION
Neal Meehan......................... 61 Chairmanmembers of the Board of Directors and Chief Executive Officer
Michael Froch....................... 41 Sr. Vice President, General Counsel andin writing by sending such communication to the Secretary Government and International Affairs
Craig Lipus......................... 47 Vice President - Sales and Marketing
Jacob Mail.......................... 51 Sr. Vice President - AuraGen(R) Operations
David Rescino....................... 44 Sr. Vice President - Finance and Chief Financial Officer
NEAL MEEHAN isat our address. The Secretary will forward shareholder communications to the appropriate director or directors for review. Anyone who has a concern about the Company’s conduct or about our accounting, internal accounting controls or auditing matters, may communicate that concern to the Secretary, the Chairman of the Board or any member of the Board of Directors at our address.
We encourage individual directors to attend the Annual Meeting. All of our directors attended last year’s Annual Meeting.
Board of Directors Leadership Structure and Risk Oversight
Board Leadership Structure. The positions of Chief Executive Officer and Chairman of the Board are both held by Mr. Melvin Gagerman. The Board believes that the combined role of Chairman and Chief Executive
Officer is the most effective leadership structure for the Company and in the best interests of its shareholders. It serves to promote strong and consistent leadership, allowing management to speak with a single voice and delineate primary responsibility for management of the Company. The Board believes that Mr. Gagerman is best suited to serve as Chairman because, as Chief Executive Officer, he is most knowledgeable regarding the Company’s business, can best identify strategic priorities and opportunities, and thus lead discussion at the Board level to execute the Company’s strategy. The Board also believes that the combined role of Chairman and Chief Executive Officer effective July 2002, following appointment by resolutionfacilitates the flow of information between the Board and executive management. In considering its leadership structure, the Board believes that the majority of independent directors serving on the Board appropriately balance the combined roles of Chairman and Chief Executive Officer. The Board has not designated a lead independent director.
Board Risk Oversight. Risk management is primarily the responsibility of our management. However, the Board has responsibility for overseeing management’s identification and management of those risks. The Board considers risks in making significant business decisions and as part of our overall business strategy. The Board and its committees, as appropriate, discuss and receive periodic updates from senior management regarding significant risks to us in connection with the periodic review of our business plan and in the Board’s review of strategy and major transactions.
The Board’s committees also assist the Board in overseeing the management of risks within the areas delegated to that committee, which in turn report to the full Board, as appropriate. The Audit Committee, which is comprised solely of independent directors, is responsible for risks relating to its review of our financial statements and financial reporting processes, the evaluation of the effectiveness of internal control over financial reporting, compliance with legal and regulatory requirements, and reviewing related party transactions. The Compensation Committee is responsible for monitoring risks associated with our compensation programs. Each committee has full access to management.
Board of Directors pursuant to the By-Laws of the Corporation. He has been a Director of
the Company and has served in this capacity since October 2000. Mr. Meehan's
business career spans the transportation and telecommunications sectors. Since
July 2002, Mr. Meehan has served as the Chairman of the Board and Chief
Executive Officer of the Company. Mr. Meehan serves in such capacities under the
terms of a Consulting Agreement between the Company and air2ground, LLC. He is
currently Managing Partner of air2ground, LLC and is involved in business
development and strategic planning for start-up and mature companies. He has
served as President and Chief Executive Officer of a number of airlines
including New York Air, Midway Airlines, Chicago Air and Continental Express. He
has also served in various marketing and operations capacities for American
Airlines and Continental Airlines. In addition, he has served in various senior
capacities for a number of telecommunications firms including In-Flight Phone
Corp., Iridium LLC and Hush Communications USA, Inc., a firm specializing in
data encryption. After a tour as an officer in the United States Marine Corps,
Mr. Meehan received his MBA from St. Johns University. Mr. Meehan is also the
recipient of an honorary Doctorate of Commercial Science from St. Johns
University.
MICHAEL FROCH is Senior Vice President, General Counsel and Secretary of
the Company and has served as General Counsel since March 1997 and as Secretary
since July 1997. Since August 2002, in addition to his role as General Counsel
and Secretary, he has served as the Company's Senior Vice President, Government
and International Affairs. He is also in charge of company administrative
affairs and leads a newly formed Strategic Business Alliance Task Force
reporting to the senior management team and the Chairman. He joined the Company
in 1994 as its corporate counsel. From 1991 through 1994, Mr. Froch was engaged
in private law practice in California. Mr. Froch is admitted to the California
and District of Columbia bars. He received his Juris Doctor degree from Santa
Clara University School of Law in 1989, during which time he served as Judicial
Extern to the Honorable Spencer M. Williams, United States District Judge for
the Northern District of California. He received his A.B. degree from the
University of California at Berkeley in 1984, serving from 1982 through 1983 as
Congressional Intern and Staff Assistant to the Honorable Tom Lantos, Member of
Congress, presently the Ranking Member of the Committee on International
Relations of the United States House of Representatives.
CRAIG LIPUS is Vice President - Sales and Marketing and has served in this
capacity since June 2002. From 1993 through 2001, Mr. Lipus was the Business
Unit Manager and Director of Sales for Interlink Electronics, a publicly traded
corporation in the wireless communication and technologies business located in
Camarillo, California. At Interlink, Mr. Lipus was responsible for both branded
and OEM products, and executing the sales and marketing strategy. Prior to 1993,
from 1983 through 1993, he held various positions at Polaroid Corporation,
including Western Regional Sales Manager, Electronic Imaging, District Sales
Manager, and Marketing Representative, Professional Products Group. Throughout
his career to date, Mr. Lipus has managed various sales organizations that
marketed a full line of product solutions through diverse channels. He holds a
B.A. in Marketing from California State University, Fullerton, California.
JACOB MAIL is Senior Vice President - AuraGen(R) Operations and has served
in this capacity since 1995. While at Aura, Mr. Mail has identified, negotiated
and contracted all the supply chain arrangements for the AuraGen(R). In
addition, Mr. Mail implemented programs to monitor and project needs for
production schedules and provide full traceability of all components. Mr. Mail
is responsible for the implementation of the "Call Home" programs, which
provides the Company with a user database for every AuraGen(R) installed in a
vehicle. In addition to the manufacturing and infrastructure implementations,
Mr. Mail is also responsible for all engineering and vehicle integration, as
well as customer service and training. Prior to joining the Company, Mr. Mail
served over 20 years at Israeli Aircraft Industries. He holds a B.S. degree in
Mechanical Engineering from the Technion and a Master degree from the University
of Tel Aviv.
DAVID RESCINO is Senior Vice President - Finance and Chief Financial
Officer of the Company and has served in this capacity since November 2002. From
2001 to 2002, Mr. Rescino was the Vice President - Finance and Chief Financial
Officer of Vanguard Airlines, Inc. ("Vanguard"). Mr. Rescino has some continuing
responsibilities with Vanguard, including his November 2002 appointment to
Vanguard's Board of Directors. From 1999 to 2001, Mr. Rescino was an aviation
consultant in Dallas, Texas. From 1995 to 1999, Mr. Rescino was Chief Financial
Officer of Aspen Mountain Air/Lone Star Airlines. In addition to prior financial
management positions in the transportation sector, Mr. Rescino has several
years' experience in public accounting. He holds a B.S. degree in Accountancy
from the University of Illinois - Urbana.
CHANGE IN MANAGEMENT
In December 2001, the Company and six former members of the Company's
senior management, including Zvi Kurtzman, the former Chief Executive Officer,
Gerald Papazian, the former President and Steven Veen, the former Chief
Financial Officer, entered into agreements providing for the termination of
their employment with the Company effective February 28, 2002.
Effective March 2002, the Company retained Joshua Hauser as the Company's
President and Chief Executive Officer and Steven Burdick as the Company's Chief
Financial Officer. Craig Lipus, the Company's Vice President - Sales and
Marketing, joined the Company in June 2002, filling a vacancy created in
December 2001. In July 2002, Carl Albert stepped down as Chairman, remaining on
the Board, and Neal Meehan was appointed Chairman to fill the vacancy pursuant
to the Company's By-Laws. Thereafter, Mr. Hauser's employment relationship with
the Company ended and Mr. Meehan was appointed Chief Executive Officer. In
October 2002, Mr. Burdick's employment relationship with the Company ceased,
with David Rescino becoming the Chief Financial Officer, effective November
2002.
FAMILY RELATIONSHIPS
None.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the Company's
Common Stock owned as of November 30, 2002 (i) by each person who is known by
Aura to be the beneficial owner of more than five percent (5%) of its
outstanding Common Stock, (ii) by each of the Company's Directors and those
executive officers named in the Summary Compensation Table, and (iii) by all
Directors and executive officers as a group:
NUMBER OF SHARES OF PERCENT OF COMMON
BENEFICIAL OWNER COMMON STOCK STOCK
---------------- ------------------- -----------------
Gardner Lewis Asset Management L.P. (1).................................... 23,212,336 5.37%
ICM Asset Management Inc. (2).............................................. 23,499,933 5.44%
James M. Simmons (3) ...................................................... 24,980,042 5.78%
Harvey Cohen (4) .......................................................... 958,287 *
Lawrence A. Diamant (5) ................................................... 1,019,727 *
Salvador Diaz-Verson, Jr. (6) ............................................. 2,595,128 *
Norman Reitman (7) ........................................................ 867,142 *
Neal Meehan (8) ........................................................... 3,610,625 *
Carl Albert (9)............................................................ 4,970,893 1.04%
John Pincavage (10) ....................................................... 250,000 *
Zvi Kurtzman (11) ......................................................... 10,404,592 2.19%
Cipora Kurtzman Lavut (12)(16)............................................. 4,351,009 *
Gerald Papazian (13)(16) .................................................. 2,315,262 *
Arthur Schwartz (14)(16) .................................................. 5,122,228 1.08%
Steven Veen (15)(16) ...................................................... 2,593,947 *
All current executive officers and Directors as a group
(14 persons) .......................................................... 18,350,468 ___3.84%
* Less than 1% of outstanding shares.
(1) Based upon information contained in Schedule 13G/A dated February 14, 2002,
as filed with the SEC by Gardner Lewis Asset Management Inc. Of the
23,212,336 shares beneficially owned by this person, it has sole
dispositive power with respect to all of these shares, sole voting power
with respect to 22,345,736 shares, and shared voting power with respect to
338,700 shares.
(2) Based upon information contained in Schedule 13G dated February 14, 2002,
as filed with the SEC by ICM Asset Management, Inc. ICM Asset Management,
Inc. is a registered investment advisor whose clients have the right to
receive or the power to direct the receipt of dividends from, or the
proceeds from the sale of, the stock. Such person has neither sole voting
nor sole dispositive power with respect to any of the 23,499,933 shares
reported as being beneficially owned. Of the 23,499,933 shares beneficially
owned by ICM Asset Management, Inc. it has shared dispositive power with
respect to all of these shares, and shared voting power with respect to
22,562,390 shares. James M. Simmons is the President of ICM Asset
Management, Inc, and is also the beneficial owner of these shares in such
capacity. Accordingly, these shares are also included in the shares
reflected as being beneficially owned by James M. Simmons.
(3) Based upon information contained in Schedule 13G dated February 14, 2002,
as filed with the SEC by James M. Simmons. Included in the shares
beneficially owned by Mr. Simmons are 23,499,933 shares shown as being
beneficially owned by ICM Asset Management, Inc., a registered investment
advisor whose clients have the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, the stock.
James M. Simmons is the President of ICM Asset Management, Inc, and is
therefore also the beneficial owner of these shares in such capacity. Mr.
Simmons has neither sole voting nor sole dispositive power with respect to
any of the 24,980,042 shares reported as being beneficially owned by him.
Of the 24,980,042 shares beneficially owned by Mr. Simmons, he has shared
dispositive power with respect to all of these shares, and shared voting
power with respect to 24,042,499 shares.
(4) Includes 31,250 shares beneficially owned, and 755,000 shares which may be
purchased pursuant to options within 60 days of November 30, 2002.
(5) Includes 340,989 shares which are held by the firm Robinson, Diamant &
Wolkowitz where Mr. Diamant is a senior partner. Mr. Diamant disclaims
beneficial ownership of these shares. Includes 250,000 shares which may be
purchased pursuant to options within 60 days of November 30, 2002.
(6) Includes 680,000 shares which may be purchased pursuant to options
exercisable within 60 days of November 30, 2002.
(7) Includes 625,000 shares which may be purchased pursuant to options
exercisable within 60 days of November 30, 2002 and 12,500 shares owned by
Mr. Reitman's wife, as to which 12,500 shares he disclaims any beneficial
ownership.
(8) Includes 3,466,875 shares which may be purchased pursuant to options and
warrants exercisable within 60 days of November 30, 2002.
(9) Includes 3,250,000 shares which may be purchased pursuant to options and
warrants exercisable within 60 days of November 30, 2002.
(10) Includes 250,000 shares which may be purchased pursuant to options and
warrants exercisable within 60 days of November 30, 2002.
(11) Includes 175,000 shares beneficially owned which are held of record by
Advanced Integrated Systems, Inc., and 7,567,917 shares which may be
purchased pursuant to options within 60 days of November 30, 2002.
(12) Includes 2,872,083 shares which may be purchased pursuant to options
exercisable within 60 days of November 30, 2002.
(13) Includes 1,870,583 shares which may be purchased pursuant to options
exercisable within 60 days of November 30, 2002.
(14) Includes 175,000 shares beneficially owned which are held of record by
Advanced Integrated Systems, Inc., 74,000 shares owned by Mr. Schwartz's
children, to which Mr. Schwartz disclaims beneficial ownership, and
2,934,583 shares which may be purchased pursuant to options within 60 days
of November 30, 2002.
(15) Includes 20,000 shares owned by Mr. Veen's children, to which Mr. Veen
disclaims beneficial ownership, and 2,038,333 shares which may be purchased
pursuant to options within 60 days of November 30, 2002.
(16) These individuals are no longer officers or employees of the Company.
The mailing address for Gardner Lewis Asset Management, L.P. is 285 Wilmington
West Chester Pike, Chadds Ford, PA 19317.
The mailing address for ICM Asset Management, Inc. and James M. Simmons is W.
601 Main Avenue, Suite 600, Spokane, WA 99201.
The mailing address for the others is c/o Aura Systems, Inc., 2335 Alaska
Avenue, El Segundo, CA 90245.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
Aura'sMeetings
Our Board of Directors held nine21 meetings during the year ended February 28, 2002.2011. Each Director whose term is expected to continue attended more than 75% of the Board meetings and committee meetings of which he was a member during Fiscal 2002.fiscal 2011.
Director Independence
Our Board is comprised of a majority of independent directors under the listing standards of The Nasdaq Stock Market. Assuming the election of our director-nominees, our independent directors will be Messrs. Diaz-Verson, Breslow and Simmons.
There are no family relationships among our executive officers and directors.
Board Committees
The Board maintains the following committees to assist it in discharging its oversight responsibilities. The current membership of each committee is indicated in the table above which sets forth the names of the Directors.
• Audit Committee - The Audit Committee does not have a formal charter but is responsible primarily for overseeing the services performed by our independent registered public accounting firm, evaluating our accounting policies and system of internal controls, and reviewing our annual and quarterly reports before filing with the Securities and Exchange Commission. During the last2011 fiscal year, Dr. Maurice Zeitlin was a member of the Audit Committee. Assuming the election of our director-nominees, the members of the Audit Committee will be Mr. Warren Breslow, (Chairperson), Mr. James Simmons and Mr. Salvador Diaz-Verson. Our Board has determined that all of the members of the Audit Committee will be “independent” under the listing standards of The Nasdaq Stock Market. Our Board has also determined that Mr. Breslow is an “audit committee financial expert”. The Audit Committee held 4 meetings during the 2011 fiscal year.
• Compensation Committee - The Compensation Committee does not have a formal charter however the
committee reviews and recommends to the full Board the amounts and types of compensation to be paid to the Chairman and Chief Executive Officer; reviews and approves the amounts and types of compensation to be paid to our other executive officers and the non-employee directors; reviews and approves, on behalf of the Board, salary, bonus and equity guidelines for our other employees; and administers our 2006 Stock Option Plan. During the 2011 fiscal year, Dr. Maurice Zeitlin was a member of the Compensation Committee. Assuming the election of our director-nominees, the members of the Compensation Committee will be comprised of Mr. Diaz-Verson. (Chairperson), Mr. Breslow and Mr. Simmons.
• Nominating Committee - The Nominating Committee does not have formal charter but assists the Board in identifying qualified individuals to become directors, determines the composition of the Board and its committees, monitors the process to assess the Board’s effectiveness and helps develop and implement our corporate governance guidelines. The Nominating Committee also considers nominees proposed by shareholders. A shareholder’s proposal must follow the following procedures; (i) the shareholder must have no less than 5% holdings of the common shares of the Company,(ii) the shareholder must communicate in writing with any of the Nominating Committee members no less than 60 days prior to the end of the fiscal year his desire to nominate a candidate to the Board of Directors for the next fiscal year, (iii) no less than 30 days prior to the end of the fiscal year, the Company did not maintainshareholder must provide a nominating committee. Since August 1993,written resume and qualifications of the proposed nominee. The resume should include as a minimum, education, business, investments or technical experience, and experience dealing with small public companies, (iv) the Committee may request an interview with the nominee to take place no less than 10 days before the end of the fiscal year. The Committee will then evaluate the nomine, and present its recommendation to the Board of Directors no later than the day after the end of the fiscal year. Once a decision is made, the shareholder will be notified in writing as to the Board’s decision in regard to the nominee. The Nominating Committee is committed to actively seeking out highly qualified individuals to include in the pool from which Board nominees are chosen. The Nominating Committee has recommended to the Board the nomination of Mr. James Simmons, a long time shareholder of the Company, has maintainedto be added to the Board of Directors. The Nominating Committee considered Mr. Simmons considerable experience in valuation of small public and private companies, his extensive knowledge of the financial markets and how they operate as well as his experience in capital structure and formation. During the 2011 fiscal year, Dr. Maurice Zeitlin was a Compensationmember of the Nominating Committee. Assuming the election of our director-nominees, the members of the Nominating Committee which presently consistswill be Mr. Simmons (Chairperson), Mr. Breslow and Mr. Diaz-Verson.
Principal Accounting Fees
The following table sets forth the aggregate fees billed to us by Kabani & Co. for the years ended February 28, 2011, and February 28, 2010:
| Year Ended February 28, | ||||||
| 2011 | 2010 | |||||
Audit Fees(1) | $ | 82,500 | $ | 82,500 | ||
Audit-related fees(2) | - | - | ||||
Tax fees(3) | - | - | ||||
| All other fees | - | - | ||||
| Total | $ | 82,500 | $ | 82,500 | ||
| (1) | Included fees for professional services rendered for the audit of our annual financial statements and review of our annual report on Form 10-K and for reviews of the financial statements included in our quarterly reports on Form 10-Q for the first three quarters of the years ended February 28, 2011 and February 28, 2010. |
| (2) | Includes fees for professional services rendered in connection with our evaluation of internal controls. |
| (3) | Includes fees for professional services rendered in connection with the preparation of our income tax returns. |
We have retained Kabani & Co. to continue to provide professional services to us during the current fiscal year. A representative of Salvador
Diaz-Verson, Jr.Kabani & Co will attend the shareholders meeting and Lawrence Diamant. The Compensation Committee met not less
than four times during Fiscal 2002. Since January 1989,will be available to answer questions or comments from any shareholder of record at the Company has
maintained anmeeting.
Policy on Audit Committee which presently consistsPre-Approval of Harvey Cohen, Norman
ReitmanAudit and John Pincavage. Permissible Non-Audit Services of Independent Auditors
The Audit Committee approvespre-approves all audit and permissible non-audit services provided by our independent auditors. These services may include audit services, audit-related services, tax and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the selectionparticular service or category of services and engagementis generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent accountantsauditors in accordance with this pre-approval, and reviews with them the plan and scope
of their audit for each year, the results of the audit when completed, and their fees for the services performed.performed to date. The Audit Committee met not less than four times
duringmay also pre-approve particular services on a case-by-case basis. During fiscal 2011 and 2010 all services provided by Kabani & Co. were pre-approved by the Audit Committee in accordance with this policy.
Audit Committee Report
The Audit Committee has, in the course of its duties, reviewed and discussed with management the audited financial statements, and has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61. The Audit Committee has also received the appropriate auditors disclosures regarding the auditors’ independence as required by Independence Standards Board Standard No. 1 and discussed with them its independence. Based on the foregoing, the Audit Committee, as it was constituted on June 14, 2011, recommended to the Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2002.
Effective Fiscal 2002, each non-employee2011.
Audit Committee Members
Warren Breslow (Chairman) and Salvador Diaz-Verson.
Non-Employee Director is entitled to receive
100,000 stock options per year for serving as a Director, and an additional
25,000 stock options per year for each Director who serves on the Audit
Committee. Effective Fiscal 2002, new Directors are entitled to receive an
initial membership grant of 250,000 stock options. The above options vest six
months plus one day from the date of grant and the exercise price is set at or
above market as of the date of grant.
EXECUTIVE COMPENSATION
CASH COMPENSATION FOR EXECUTIVES
Compensation
The following table summarizes all compensation paid to directors other than named executive officers during fiscal 2011. The compensation paid to Messrs. Gagerman and Schwartz are presented below under “Executive Compensation.”
FISCAL YEAR-END FEBRUARY 28, 2011 DIRECTOR COMPENSATION TABLE
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) (1)(2) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) |
Maurice Zeitlin (3) | - | - | 23,911 | - | - | 23,911 |
Warren Breslow (4) | - | - | 23,911 | - | - | 23,911 |
Salvador Diaz-Verson, Jr. (5) | - | - | 23,911 | - | - | 23,911 |
_________________________
(1) Reflects the Company's Chief
Executive Officer, andfair market value amount at the date of grant using the assumptions set forth in Note 10 to the four most highly compensatedfinancial statements included in the Annual Report on Form 10-K, which accompanies this Proxy Statement.
(2) In fiscal 2011 Messrs. Zeitlin, Diaz-Verson and Breslow were each granted Director Warrants (options) to acquire 50,000 shares of our common stock at an exercise price of $0.75 per share. In fiscal 2010 Messrs. Zeitlin and Diaz-Verson were each granted Director Warrants(options) to acquire 300,000 shares of our common stock at an exercise price of $1.50 per share, and Mr. Breslow was granted Director Warrants(options) to acquire 1,300,000 shares of our common stock at an exercise price of $1.50 per share, being not less than the fair market value on the date of grant, which options vested immediately and expire in June 2014. In fiscal 2008 Messrs. Zeitlin, Breslow and Diaz-Verson were each granted Director Warrants (options) to acquire 25,000 shares of our common stock at an exercise price of $2.50 per share, being not less than the fair market value of our common stock on the date of grant, which options vest at a rate of 25% every six months and expire in October 2012.
(3) The director had 375,000 options outstanding as of February 28, 2011.
(4) The director had 1,675,000 options outstanding as of February 28, 2011.
(5) The director had 375,000 options outstanding as of February 28, 2011.
Our Board of Directors may, at its discretion, compensate Directors for attending Board and committee meetings and reimburse the Directors for out-of-pocket expenses incurred in connection with attending such meetings. Our Directors are also eligible to receive stock option grants under our 2006 Stock Option Plan and Director Warrants authorized under our Chapter 11 Plan of Reorganization. There is no payment due to any Director other then Mr. Gagerman (see the discussion of his employment agreement under the section entitled “Executive Compensation”) at a change in control event, nor are there any payments to Directors upon their resignation or retirement.
Executive Officers
The following sets forth certain information regarding executive officers of the Company. Information
pertaining to Messrs. Gagerman and Schwartz, who are both directors and executive officers of the Company, may be found in the section entitled “Directors.”
Name Age Title
Yedidia Cohen 55 Vice President of Engineering
Yedidia Cohen – Mr. Cohen has been employed by us since July, 2001, developing numerous magnetic applications, and has been our Vice President of Engineering since May, 2006. Prior to being appointed Vice President of Engineering he was the lead engineer on the AuraGen mechanical tasks. Mr. Cohen has extensive experience in designing and building highly reliable and durable weapons systems. He spent much of his professional carrier at Raphael, a weapons development and testing facility for the Israeli Army. In addition to his experience in weapons systems, Mr. Cohen worked for Electric Power Corporation in Haifa, Israel, where he specialized in the conceptual design of power generation plane, thermodynamic calculations, design of boilers, pressure vessels and heat exchangers. In addition to his engineering skills Mr. Cohen has experience in building and managing teams of engineers working on complex tasks. Mr. Cohen has an M.S.E.E degree in Mechanical Engineering from the Technion in Haifa, Israel.
EXECUTIVE COMPENSATION
Executive Compensation Policy and Objectives
Our policy in compensating executive officers, including the executive officers named in the Summary Compensation Table appearing below (the “named executive officers”), is to establish methods and levels of compensation that will
• attract and retain highly qualified personnel, and
• provide meaningful incentives to promote profitability and growth and reward superior performance.
To achieve these policies we follow the basic principles that annual compensation should be competitive with similar companies and long term compensation should generally be linked to the Company’s return to shareholders.
We also believe that compensation for individual executives should be aligned to the performance of areas of the business over which the executive has the most control.
Executive compensation policies are implemented through a combination of annual and long-term methods of compensation. Compensation for the named executive officers includes
• base salary,
• eligibility to receive annual cash bonuses, and
• stock-based compensation in the form of stock options.
These primary components are available for flexible use by our company in a manner that will effectively implement our stated objectives with respect to compensation arrangements for each of the executive officers. Each of these components is discussed in more detail below. When setting the compensation arrangements for each executive officer, the Compensation Committee considers these components individually, as well as on an aggregate (total compensation) basis. There is no pre-determined relationship between base salary of our executives and any of the other thanprincipal components of compensation. Each element of compensation is considered both individually and in terms of total overall compensation.
Primary Components of Executive Compensation.
Base Salary
The base salaries of our executive officers are set by the Compensation Committee after consideration of a number of factors, including the executive’s position, level of responsibility, tenure and performance. The Compensation Committee also considers the compensation levels of executives in comparable companies, along with the executive compensation recommendations made by our Chief Executive Officer whose totalOfficer. In addition, the Compensation Committee evaluates whether the base salary levels of our executives are appropriate relative to our size and financial performance compared with the other companies reviewed. Relying primarily on these factors, the Compensation Committee sets the base salaries of our executive officers at levels designed to meet its objective of attracting and retaining highly qualified individuals. The Compensation Committee also believes that the continuity of leadership derived from the retention of well-qualified executive officers is in the best interests of our shareholders. The base salaries of our executive officers are not set at any specific level as compared to the compensation exceeded $100,000levels of companies reviewed and the Compensation Committee does not assign relative weights or importance to any specific measure of the company’s financial performance.
Performance Bonuses
We consider the use of performance bonuses from time to time where appropriate, to motivate participants to achieve company growth and enhance shareholder value. Performance bonuses permit our executives to receive a cash bonus that is tied to the Company’s performance and achievement of measures relating to an individual’s own performance during a specified fiscal year. The types of measures and relative weight of those measures used in determining incentive awards are tailored to the named executive officer’s position and responsibilities. There were no performance bonuses made to the named executive officers during the fiscal year ended February 28, 2002. Each of the
individuals named in the table ceased to be executive officers as of February
28, 2002.
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM ALL OTHER
NAME AND PRINCIPAL POSITION YEAR COMPENSATION(1) COMPENSATION AWARDS COMPENSATION(2)
--------------------------- ---- --------------- ------------------- ---------------
SALARY OPTIONS/SARS
------ ------------
Zvi (Harry) Kurtzman (1) 2002 $385,000 7,718,750 $0
Chief Executive Officer 2001 385,000 4,500,000 0
2000 386,232 0 0
Gerald S. Papazian (1) 2002 $210,000 2,268,750 $0
President and Chief Operating 2001 210,000 1,000,000 2,029
Officer 2000 217,777 0 0
Arthur J. Schwartz (1) 2002 $205,000 4,143,750 $0
Executive Vice President 2001 205,000 1,000,000 0
2000 210,192 0 0
Steven C. Veen (1) 2002 $200,000 2,175,000 $0
Senior Vice President and 2001 200,000 1,000,000 2,100
Chief Financial Officer 2000 205,469 0 0
Cipora Kurtzman Lavut (1) 2002 $195,000 3,956,250 $0
Senior Vice President 2001 195,000 1,000,000 0
2000 203,942 0 0
(1) The amounts shown are the amounts actually paid to the named officers during
the respective fiscal years. Because of the timing of the payments, these
amounts do not always represent the actual salary accrued for each individual
during the period. The actual salary rate for these individuals which was
accrued during the fiscal year ended February 2002, 2001 and 2000, respectively,
were as follows: Zvi (Harry) Kurtzman - $385,000, $385,000, $385,000; Gerald S.
Papazian - $210,000, $210,000, $210,000; Arthur J. Schwartz - $205,000,
$205,000, $205,000; Steven C. Veen - $200,000, $200,000, $200,000; Cipora
Kurtzman Lavut - $195,000, $195,000, $195,000. Of the2011.
Long-Term Equity Based Compensation Awards
To date we have had limited cash flow from operations. As a result, we have placed special emphasis on equity-based compensation, paid in
fiscal 2001, $100,427, $53,140, $50,254, $35,301, $38,027 was paid in the form of 315,361, 166,869, 157,807, 110,851, 119,414options and warrants, to preserve our cash for operations. Long-term equity based compensation awards are granted to our executive officers pursuant to our 2006 Stock Option Plan. The Compensation Committee believes that long-term equity based compensation awards are an effective incentive for senior management to increase the long-term value of our common stock as well as aiding the Company in attracting and retaining senior management. These objectives are accomplished by making awards under the plan, thereby providing senior management with a proprietary interest in our continued growth and performance and more closely aligning their interests with those of our shareholders. In addition, because options may sometimes terminate when an executive leaves the Company, we believe that options are a useful incentive in promoting the retention of executives.
2006 Stock Option Plan
In September, 2006, our Board of Directors adopted the Aura Systems, Inc. 2006 Stock Option Plan, subject to shareholder approval, which was obtained at a special shareholders meeting. Under the Plan, we may grant options for up to the greater of 3,000,000 shares respectively, of
restricted Common Stockor 10% of the Companynumber of shares of our common stock from time to Mr. Kurtzman, Mr. Papazian, Mr.
Schwartz, Mr. Veen and Ms. Kurtzman Lavut, respectively. Oftime outstanding. The exercise price of each option must be at least equal to the compensation
paid in fiscal 2000, $144,561, $34,781, $78,201, $44,918 and $58,520 was paid in
the formfair market value of 535,413, 128,818, 289,632, 166,363, and 216,742such shares respectively, of restricted Common Stock of the Company, valued as ofon the date of issuance, to Mr. Kurtzman, Mr. Papazian, Mr. Schwartz, Mr. Veengrant. The term of the options may not be greater than ten years, and Ms.
Kurtzman Lavut, respectively.
(2) Such compensation consisted of total Company contributions made to the plan
account of each individual pursuant to the Company's Employee Retirement Savings
Plan duringthey typically vest over a three year period.
During the fiscal year ended February 28, 2002.2011, the Board of Directors determined that, in order to provide incentives to its employees, it was in the best interests of the Company to re-price the outstanding employee options
that had been granted. Accordingly, the outstanding options were re-priced to an exercise price of $0.75 with all other terms remaining the same.
Also during the year ended February 28, 2011, the Company granted 424,000 options to certain employees. These options vest over three years, have an exercise price of $1.50, and have a five-year life. In December 2010, these options were re-priced to $0.75.
Other Benefits
We provide all eligible employees, including executive officers, with certain benefits, including health and dental coverage, Company-paid term life insurance coverage, disability insurance, 401(k) plan, paid time off and paid holiday programs. Other perquisites and personal benefits, such as automobile allowances and country club dues, are considered on a case-by-case basis. Executive perquisites and benefits are provided to ensure overall compensation for named executive officers is adequate.
Our executive officers are eligible to participate in our 401(k) plan, and we do not presently maintain any other deferred compensation or retirement plans.
We provide the foregoing benefit programs to provide executive officers with benefits that are competitive with those in the marketplace without incurring substantial cost to the Company.
2010 and 2011 Executive Compensation
The following table summarizes all compensation earned for the fiscal years ended February 28, 2011 and 2010, to the individual who served as our Chief Executive Officer during fiscal 2011, and the two other most highly compensated executive officers who were serving in such capacity as of February 28, 2011 (the “named executive officers”). No cashother executive officer earned compensation in excess of $100,000 in fiscal 2011.
2011 Summary Compensation Table
Name and Principal Position | Fiscal Year | Salary ($) | Option Awards ($) (2) | Non-Equity Incentive Plan Compensation | All Other Compensation ($) | Total ($) |
Melvin Gagerman (1) | 2011 | 360,000 | 23,911 | - | 27,118(4) | 411,029 |
Chief Executive Officer, Chief Financial Officer | 2010 | 360,000 | 1,047,679 | - | 26,781(4) | 1,434,460 |
| Arthur J. Schwartz | 2011 | 180,000 | 23,911 | - | 1,108(5) | 205,019 |
| Chief Technical Officer | 2010 | 180,000 | 559,457 | - | 2,326(5) | 741,783 |
| Donald Macleod | 2011 | 300,000 | 110,064 | - | - | 410,064 |
President(3) | 2010 | 248,000 | 64,203 | - | - | 312,203 |
| (1) | Mr. Gagerman was elected Chairman and Chief Financial Officer effective February 1, 2006. |
| (2) | Reflects the fair market value amount at the date of grant using the assumptions set forth in Note 10 to the financial statements included in the Annual Report on Form 10-K which accompanies this Proxy Statement. |
| (3) | Mr. Macleod was appointed president in April 2009, with a base salary of $25,000 per month. He resigned as President effective August 5, 2011. |
| (4) | Represents automobile and country club dues allowances, the cost of life insurance premiums, and medical expense reimbursements. |
| (5) | Represents Company matching contributions to the 401(k) plan. |
No bonuses or restricted stock awards were granted to the above individuals duringfor the 2011 or 2010 fiscal years ended February 28, 2002, February 28, 2001, and February
29, 2000. Effectiveyears.
Outstanding Equity Awards at 2011 Fiscal 2002, each non-employee Director is entitled to
receive 100,000 stock options per year for serving as a Director, and an
additional 25,000 stock options per year for each Director who serves on the
Audit Committee. Effective Fiscal 2002, new Directors are entitled to receive an
initial membership grant of 250,000 stock options. The above options vest six
months plus one day from the date of grant and the exercise price is set at or
above market as of the date of grant.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table summarizes certain information regarding option grants
to purchase Common Stock of the Company to the Chief Executive Officer and those
other executive officers named in the Summary Compensation Table (the "Named
Executive Officers").
OPTIONS / SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
----------------------------- ------------------------------------------- ------------- -------------------------
Number of % of Potential
Securities Total Realizable Value at
Under- Options/ Assumed Annual
lying SARs Rates of Stock Price
Options/ Granted to Exercise Appreciation
SARs Employees Or Base For Option Term*
Granted In fiscal Price Expiration
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
----------------------------- -------------- -------------- ------------- ------------- ----------- -------------
Zvi (Harry) Kurtzman 7,718,750 36.8% 0.55 12/21/11 385,938 3,164,687
Gerald Papazian 2,268,750 10.8% 0.55 12/21/11 113,438 1,043,625
Arthur J. Schwartz 4,143,750 19.8% 0.55 12/21/11 207,188 1,698,938
Steven C. Veen 2,175,000 10.4% 0.55 12/21/11 108,750 891,750
Cipora Kurtzman Lavut 3,956,250 18.9% 0.55 12/21/11 197,813 1,622,063
Year-End
The following table summarizes certain information regarding the number and value of all options to purchase Common Stock of the Companyour common stock held by the Chief
Executive Officerindividuals named in the Summary Compensation Table at February 28, 2011. No stock awards or equity incentive plan awards were issued or outstanding during fiscal 2011.
2011 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| Option Awards | ||||||
Number of Securities Underlying Unexercised Options (#) | Number of Securities Underlying Unexercised Options (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | ||
| Name | Exercisable | Un-exercisable | ||||
| Melvin Gagerman | 1,400,000 | 0 | -- | $0.75 | 6/18/14 | |
Don Macleod(a) | 211,111 | 188,889 | -- | $0.75 | 8/5/12(a) | |
| Arthur J. Schwartz | 900,000 | 0 | -- | $0.75 | 6/18/14 | |
Arthur J. Schwartz(b) | - | 200,000 | - | $0.75 | 12/15/15 | |
| Yedidia Cohen | 400,000 | 0 | -- | $0.75 | 6/18/14 | |
| (a) | Mr. Macleod’s options vested ratably over a three year period from the date of grant. The options that were vested on the date of Mr. Macleod’s resignation will expire on August 5, 2012. | ||
| (b) | Mr. Schwartz’ options vest six months from date of grant. | ||
Option Exercises and those other executive officersStock Vesting During 2011
No stock options were exercised during fiscal 2011 by the individuals named in the Summary Compensation Table. AGGREGATED OPTION / SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION / SAR VALUES
NumberNo stock awards were issued or outstanding during fiscal 2011.
Employment Contracts, Termination of Unexercised ValueEmployment Contracts and Change in Control Arrangements
Gagerman Employment Agreement
Effective November 1, 2006, we entered into a written employment agreement with Melvin Gagerman (the “Gagerman Agreement”) regarding the terms and conditions of Unexercised
Options/SARshis employment as Chief Executive Officer. The Gagerman Agreement originally was in effect through February 28, 2010, and, commencing March 1, 2007, is automatically extended by an additional year at Fiscal In-the-Money Options/
Name Year End SARs at Fiscal Year End*
---- ---------------------------- ------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Zvi (Harry) Kurtzman 6,734,583 6,804,167 $ 180,000 $ 90,000
Gerald S. Papazian 1,653,917 1,840,833 $ 40,000 $ 20,000
Arthur J. Schwartz 2,717,917 3,170,833 $ 40,000 $ 20,000
Steven C. Veen 1,821,670 1,778,333 $ 40,000 $ 20,000
Cipora Kurtzman Lavut 2,655,417 3,045,833 $ 40,000 $ 20,000
* Based on the average high and low reported pricesbeginning of the Company's Common
Stock on the last day of theeach fiscal year ended February 28, 2002.
No options were exercised by the above individuals during the fiscal year
ended February 28, 2002.
COMPENSATION COMMITTEE REPORT
The Company maintains a Compensation Committee (the "Committee"),
consisting entirely of outside, disinterested, Directors who are not employees
or former employees of the Company. The Committee recommends salary practices
for executive officers of the Company, with all compensation determinations
ultimately made by a majority of the outside, disinterested Directors.
COMPENSATION PHILOSOPHY
The Company's policy in compensating executive officers is to establish
methods and levels of compensation that will provide strong incentives to
promote the profitability and growth of the Company and reward superior
performance. Compensation of executive officers includes salary as well as
stock-based programs. The Board believes that compensation of the Company's key
executives should be sufficient to attract and retain highly qualified personnel
and also provide meaningful incentives for measurably superior performance. The
Company places special emphasis on equity-based compensation, particularly in
the form of options. This approach also serves to match the interests of the
executive officers with the interest of the Stockholders. The Company seeks to
reward achievement of long and short-term performance goals which are measured
by a number of factors, including improvements in revenue and achieving
profitability.
Included in the factors considered by the Committee in setting the
compensation of the Company's Chief Executive Officer are the growth in the
Company's commercial sales, the development of commercial applications for the
Company's technology, and the effective allocation of capital resources.
TERMINATION OF CERTAIN EMPLOYMENT CONTRACTS
The Company offers employment contracts to key executives only when it is
in the best interest of the Company and its stockholders to attract and retain
such key executives and to ensure continuity and stability of management.
Effective as of March 1998, the Company entered into employment agreements and
severance agreements with Messrs. Kurtzman, Schwartz, Papazian, Veen, Froch,
Kaufman, and Ms. Kurtzman Lavut and entered into severance agreements with
Messrs. Goldstein, Mail, and Stuart. The Committee reviewed and approved such
agreements unanimously after consulting with a nationally recognized employee
benefits firm and determining that such agreements were necessary in order to
retain highly qualified executives whose abilities are critical to the long-term
success and competitiveness of the Company.
The employment agreements with Mr. Kurtzman and the Named Executive
Officers had an initial term of three years. The term would be automatically
extended for one year on each anniversary of the effective date of the
employment agreement unless either party gavewe give prior notice of terminationour intent not to extend the agreement. Accordingly, the Gagerman Agreement is currently in effect until February 28, 2014. The agreement may be terminated before its stated expiration by either of the agreement. Uponparties under specified terms and conditions. Following are the death or disability of these executives, their employment
agreements provided for a lump sum payment equal to one year's salary and the
immediate vesting of stock based compensation awards. In the eventmaterial terms of the executive's termination for cause, the terminated executive was entitled only to
compensation accrued through the date of termination. If the executive was
terminated by the Company other than by reason of death, disability or cause,
the terminated executive would beGagerman Agreement.
Base Salary and Annual Bonus
Mr. Gagerman is entitled to continued payment of thea base salary through the end of the stated term together with$360,000 per year. The Gagerman Agreement also provides for an annual bonus for each
of the remaining years under the employment agreement equal to the highest
annual bonus amount receivedbe approved by the terminated executive in the three years
preceding terminationBoard of Directors of up to $100,000 based on objective and the immediate vesting of stock based compensation
awards.
Pursuant to severance agreements entered into effective March 1998 between
the Company and key executives of the Company, including Mr. Kurtzman and the
Named Executive Officers, these individuals were entitled to certain additional
benefits, which would become effective at such time as there was a "change in
control" of the Company, as defined in the severance agreements. If such
executive's employment was terminated following a change in control other than
by reason of death, disability or by the executive without "good reason", or if
following a change in control the executive elected to terminate his employment
on the one year anniversary following a change in control, the terminating
executive would be entitled to specified severance payments in lieu of salary,
bonus and other compensation which would otherwise accrue to the executive upon
termination of the employment agreement. Specifically, the severance agreements
provided that, for Messrs. Kurtzman and Schwartz and Ms. Kurtzman Lavut, a lump
sum severance payment would be due upon termination in the amount of three times
the sum of the terminated executive's base salary then in effect plus the
highest annual bonus earned in the three years preceding the date of
termination;subjective milestones and, in the case of Messrs. Veen and Papazian, 1.5 times such base
salary and bonus. The severance agreements alsothe 2007 fiscal year, provided for the accelerated
vesting of stock based awards and the continuation of life and health insurance
benefits following the date of termination for 36 months.
In March 2000, Mr. Kurtzman proposed to the Board of Directors that
consideration be given to restructuring employment and severance agreements to
allow the Company has the flexibility to implementavailable cash, and an orderly management transition,
if and when deemed advisable byadditional annual bonus at the Board. Certain members of the Company's
senior management believed that at some time in the future, as market acceptance
of the AuraGen(R) accelerated and manufacturing operations expanded, it might be
desirable to replace all or part of the senior members of the management team
with individuals having focused experience in large scale manufacturing and
sales operation.
Subsequently, the Company's Board of Directors entered into discussions
with certain members of senior management with a view towards restructuring the
employment and severance agreements. The Board of Directors, through its
Compensation Committee, retained independent outside consultants to formulate a
proposal whereby the existing employment and severance agreements with senior
management would be modified to allow for the possibility of an orderly
management transition in the future if and when deemed advisable by the Board.
In December 2001, following deliberations by the Compensation Committee and
the Board of Directors in consultation with independent consultants and after
concluding discussions with the affected members of the management team the
Company entered into separation agreements with Messrs. Kurtzman, Papazian,
Schwartz, Kaufman and Veen and Ms. Kurtzman Lavut, terminating their existing
employment contracts and restructuring their severance benefits. Pursuant to
these separation agreements, these individuals terminated their employment
relationship with the Company effective February 28, 2002. Under the terms of
the separation agreements, the departing officers relinquished their right to
any multi-year cash severance benefits in exchange for a one time grant of stock
options and warrants exercisable at a price of $.55 per share, which vest over a
period of 18 months from the termination of employment. The aggregate number of
shares underlying the options and warrants issued under these separation
agreements is 22,218,750. The number of stock options for each person was
determined based on the underlying total compensation due to the employee upon
termination under each person's existing employment agreement, multiplied by two
and divided by $0.32 per share. Each of the officers has agreed to continue as a
consultant to the Company for a period of one year at 85% of their former
compensation. In addition, each executive is entitled to receive continued
medical benefits for three years following termination of employment.
SECTION 162(m) POLICY
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
provides that publicly held companies may not deduct compensation paid to
certain of its top executive officers to the extent such compensation exceeds $1
million per officer in any year. However, pursuant to regulations issued by the
Treasury Department, certain limited exemptions to Section 162(m) apply with
respect to "qualified performance-based compensation" and to compensation paid
in certain circumstances by companies in the first few years following their
initial public offering of stock. The Company has taken steps to provide that
these exemptions will apply to compensation paid to its executive officers, and
the Company will continue to monitor the applicability of Section 162(m) to its
ongoing compensation arrangements.
To date, no executive officer has received compensation in excess of $1
million in any year. The Company has recently learned, however, that its 2000
Stock Option Plan does not contain the provisions necessary to allow for options
to qualify for exemption. The proposed Amended and Restated 2000 Stock Option
Plan does contain such provisions.
COMMITTEE MEMBERS
-----------------
Salvador Diaz-Verson, Jr. and Lawrence A. Diamant
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee for the fiscal year ended February 28, 2002
comprised Salvador Diaz-Verson, Jr., Stephen A. Talesnick, and Harry Haisfield.
Decisions regarding compensation of executive officers for the fiscal year ended
February 28, 2002 were made unanimously by the outside, disinterested Directorsdiscretion of the Board of Directors after reviewing recommendationsof up to $100,000 for achievements in excess of expected milestones. The initial qualitative milestones and their quantitative relative weight were specified in the Gagerman Agreement for fiscal 2007, fiscal 2008 and fiscal 2009, and relate to achievement of specified business, financial and organizational performance goals. The Company may change both the qualitative goals and relative weight of the Compensation
Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATED PARTY TRANSACTIONSgoals by giving notice to Mr. Gagerman prior to the fiscal quarter that the change will take effect. In addition, we retain the third quarterdiscretion under the Gagerman Agreement to pay an annual bonus regardless of Fiscal 2002,whether the Company entered intostated milestones are achieved. Bonuses are payable within 45 days after the end of the applicable fiscal year.
Stock Options
The Gagerman Agreement provides the Mr. Gagerman will receive options to purchase 300,000 shares of common stock at an exercise price of $2.00 per share, of which 50,000 options are designated for tax purposes as “incentive stock options” and the remaining options are non-qualified options. The Gagerman Agreement originally provided for an option term of three years, which was subsequently extended to five years. The options vest at the rate of 25,000 per month. Unvested options vest if the Gagerman Agreement is terminated by either party under specified circumstances. All of these options vested as of November 2007. In addition to the 300,000 options granted under the Gagerman Agreement, Mr. Gagerman has been granted an additional 700,000 options and warrants and remains eligible for future equity compensation awards. In June of 2009, all outstanding options granted to Mr. Gagerman were cancelled with his agreement, and 1,400,000 new five year options exercisable at $1.50 were granted. As the table above indicates, the right to purchase all 1,400,000 shares of common stock is vested.
Life Insurance, Dues and Car Allowance
The Gagerman Agreement requires us to pay life insurance premiums on Mr. Gagerman’s private life insurance policy, up to $7,500 per year. Mr. Gagerman is also entitled to receive $2,000 per month as an automobile allowance and reimbursement of a short-term
loancountry club initiation fee of up to $8,000, which was a one-time fee that was paid in 2007.
Medical Benefits
In addition to health and dental insurance generally available to all of our employees, Mr. Gagerman is also entitled to receive reimbursement of up to $15,000 per year for all non-covered medical and dental expenses for himself and his spouse, including deductibles and co-payments. His agreement with Carl Albert,also entitles him to reimbursement for the cost of long term care insurance.
Early Termination of Agreement
The Gagerman Agreement provides that either party may terminate the agreement prior to its stated term upon occurrence of the following events:
| · | Death or Permanent Disability – The agreement automatically terminates upon Mr. Gagerman’s death or disability (as determined under our Long-Term Disability Plan, which provides for a benefit of 50% of his monthly salary to a maximum of $6,000 per month). |
| · | By the Company For Cause - We may terminate the agreement for “cause”. The agreement defines “cause” to include: |
| · | a breach by Mr. Gagerman of his obligations not to compete with us during the term of his employment; |
| · | a breach by Mr. Gagerman of his obligation to maintain confidential information; |
| · | commission of an act of fraud, embezzlement or dishonesty which is injurious to us; |
| · | intentional misconduct which is detrimental to our business or reputation. |
| · | By the Company for Non-Performance – We may terminate the agreement upon 120 days prior notice in the event of “non-performance” by Mr. Gagerman. The agreement defines “non-performance” to mean a determination by not less than 75% of the members of our Board of Directors that Mr. Gagerman is not performing his duties as Chief Executive Officer and the continuation of the non-performance for 15 days after receiving notice of the Board’s determination. |
| · | By The Company Without Cause or Non-Performance – We may terminate the agreement upon not less than 12 months notice, without regard to Mr. Gagerman’s performance. |
·By Mr. Gagerman For Cause – Mr. Gagerman may terminate the agreement for “cause” upon not less than 45 days notice. The agreement defines “cause” to include:
· a change in his job responsibilities resulting from a demotion;
· his removal as a member of the Board of Directors,Directors.
| · | By Mr. Gagerman Without Cause – Mr. Gagerman may terminate the agreement upon not less than 120 days notice without regard to whether we are meeting our obligation under the agreement. |
| · | By Mr. Gagerman Upon a Change of Control - Mr. Gagerman may terminate the agreement upon not less than 30 days notice at any time following a “change in control.” The agreement defines change of control to mean: |
| · | the acquisition by a new investor of more than 50% of our common stock, or |
| · | the change of a majority of our Board members either by an individual or by one or more groups acting together. |
Severance Benefits Upon Termination
Base Salary and Bonus. Upon the termination of Mr. Gagerman’s employment as Chief Executive Officer, he is entitled to receive accrued salary and unpaid bonus payments (if any) through the effective date of his termination.
Employee Benefits. All employee benefits, including life insurance premiums and automobile and dues allowances, cease to accrue as of the date of termination.
Stock Options – Upon the termination of Mr. Gagerman’s employment as Chief Executive Officer the vested options and warrants remain exercisable in accordance with their terms. If the termination is
| · | a result of a “change in control”; or |
| · | other than for “cause” or “non-performance” |
the unvested options will become fully exercisable upon termination. All of these options were fully vested as of November 2007.
Lump Sum Severance Payment - Under the terms of the agreement Mr. Gagerman is entitled to a lump sum severance payment within 45 days of termination equal to the greater of one year’s base salary ($360,000), or the unpaid balance of the base salary which would have been payable if Mr. Gagerman remained employed through the stated term of employment in effect immediately prior to the termination if:
| · | termination is a result of a “change in control”; |
| · | Mr. Gagerman terminates the agreement for “cause”; or |
| · | we terminate the agreement other than for “cause” or “non-performance.” |
Each of these events is referred to as a “severance payment event.”
Potential Payments to the Named Executive Officers Upon Termination or Change in Control
Other than the benefits provided for $250,000, bearing interest atin the Gagerman Employment Agreement, which are described above, none of the named executive officers are entitled to any payments or benefits upon termination, whether by change in control or otherwise, other than benefits available generally to all employees.
Upon the occurrence of a rateseverance payment event for Mr. Gagerman, assuming he were terminated as of 10%. The note, including accrued
interest of $2,500, was repaid within the third quarter. In the fourth quarter
of Fiscal 2002, the Company entered into a short-term loan agreement with Carl
Albert for another $250,000, bearing interest at a rate of 10%. The note, which
is included in current notes payable at February 28, 2002,2011, he would have been entitled to a severance payment of $1,080,000, payable within 45 days of the date of his termination. Subsequent to year-end, as of August 31, 2011, Mr. Gagerman converted all of his
unpaid salary and bonuses into equity therefore, upon the occurrence of a severance payment event, he would be entitled to receive a severance payment of $360,000 plus any accrued interest
and unpaid past due salary, vacation, etc. rather than the sum of $4,400, was repaid in March 2002. $1,080,000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incurred approximately $15,000
in legal fees to Mr. Albert's counsel pursuantfollowing table sets forth, to the loan agreements.
In May 2002, Mr. Albert acquired 500,000extent of our knowledge, certain information regarding our common stock owned as of the record date (i) by each person who is known to be the beneficial owner of more than 5% of our outstanding common stock, (ii) by each of our Directors and the named executive officers in the Summary Compensation Table, and (iii) by all Directors and executive officers as a group. Each of the individuals named in the table below has agreed not to exercise a portion, or all, of the options and warrants reported as beneficially owned unless Proposal No. 2, increasing our authorized shares of Common Stock from the
Company for $100,000 in connection with a private placementcommon stock, is approved by the Company to ashareholders.
Beneficial Ownership Table
| Beneficial Owner | Number of Shares of Common Stock | Percent of Common Stock (1) |
| Directors and Named Executive Officers | ||
Melvin Gagerman (2) | 6,724,273 | 8.8% |
Arthur Schwartz (3) | 3,038,176 | 4.2% |
Maurice Zeitlin (4) | 2,178,760 | 3.1% |
Warren Breslow (5) | 5,925,878 | 7.9% |
Salvador Diaz-Verson, Jr. (6) | 690,934 | 1.0% |
Donald Macleod (7) | 721,092 | 1.0% |
| All current executive officers and Directors as a group (six) | 19,143,576 | 23.0% |
| 5% Shareholders | ||
Harry Kurtzman (8) | 8,285,955 | 11.5% |
* Less than 1% of outstanding shares.
(1) Beneficial ownership is determined in accordance with rules of the U.S. Securities and Exchange Commission. The calculation of the percentage of beneficial ownership is based upon 69,983,542 shares of common stock outstanding on the record date. In computing the number of third party investors.
During Fiscal 2002,shares beneficially owned by any shareholder and the law firmpercentage ownership of Robinson, Diamant and Wolkowitz
received $50,000 and 483,846such shareholder, shares of Aura Common Stock valued at approximately
$159,000 in considerationcommon stock which may be acquired by such shareholder upon exercise or conversion of legal services rendered by the firm to Aura.
Lawrence Diamant, a Directorwarrants or options which are currently exercisable or exercisable within 60 days of the Company, is a memberrecord date, are deemed to be exercised and outstanding. Such shares, however, are not deemed outstanding for purposes of this law firm. In
July 2002, Mr. Diamant acquired 50,000computing the beneficial ownership percentage of any other person. Shares issuable upon exercise of warrants and options which are subject to shareholder approval are not deemed outstanding for purposes of determining beneficial ownership. Except as indicated by footnote, to our knowledge, the persons named in the table above have the sole voting and investment power with respect to all shares of Common Stock from the Company
for $10,000 in connection with a private placementcommon stock shown as beneficially owned by the Company to a number of
third party investors.
As more fully described in the Company's 8-K filed on December 13, 2002,
the Company consummated the initial closing under an Agreement for Salethem.
(2) Includes 4,602,730 warrants and Leaseback on December 1, 2002 with a group of individuals, (the "Purchasers")
pursuant to which the Company agreed to sell its Aura Realty, Inc. ("Aura
Realty") subsidiary to Purchasers and enter into a new 10-year leaseoptions exercisable within 60 days of the properties owned by Aura Realty. Aura Realty was a wholly-owned subsidiaryrecord date.
(3) Includes 1,920,749 warrants and options exercisable within 60 days of the Company whose sole assets consistrecord date.
(4) Includes 1,113,692 warrants and options exercisable within 60 days of certain real properties currently
occupied by the Companyrecord date.
(5) Includes 4,561,813 warrants and options exercisable within 60 days of the record date.
(6) Includes 623,489 warrants and options exercisable within 60 days of the record date.
(7) Includes 452,521 warrants and options exercisable within 60 days of the record date. Mr. Macleod resigned as its headquarter facilities inPresident effective August 5, 2011.
(8) Includes 6,430,054 options exercisable within 60 days of the record date.
The mailing address for the officers and directors is c/o Aura Systems, Inc., 1310 E. Grand Ave., El Segundo, California.
Of the sixteen Purchasers, five are current consultants to the Company and
members of the Company's former management who separated from the Company at the
end of February 2002 (the "Consultants"). A fee of $50,000 was paid by the
Company to the Consultants in connection with the Agreement. The Company also
paid to the Consultants approximately $135,000 from the funds it received at
closing representing a portion of unpaid consulting fees contractually due to
the Consultants at December 1, 2002.
SECTIONCA 90245.
Section 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 as amended (the
"Exchange Act"), requires the Company'sour officers and Directors,directors, and beneficial owners of more than ten percent of the Common Stock,common stock, to file with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. reports of ownership and changes in ownership of the Common Stock. Copies of
such reports are required to be furnished to the Company.common stock. Based solely on itsupon a review of the copies of such reportsForms 3, 4 and 5 furnished to the Company or written
representations that no reports were required,covering its 2011 fiscal year filed under Section 16(a) of the Company believes thatSecurities Exchange Act of
1934, the following officers and directors failed to timely comply with the reporting requirements under Section 16(a) for the 2011 fiscal year.
During the year ended February 28, 2002, all filing requirements applicable2011, Warren Breslow, a Director, was granted options to its
officers, directors, and ten percent beneficial owners were satisfied except
that Messrs. Cohen and Mr. Diaz-Verson did not timelypurchase 50,000 shares of common stock for which he failed to file a single Form 5 with
two transaction acquisitions reported.
PERFORMANCE GRAPH
4, Maurice Zeitlin, a Director, was granted options to purchase 50,000 shares of common stock for which he failed to file a Form 4, Salvador Diaz-Verson, a Director, was granted options to purchase 50,000 shares of common stock for which he failed to file a Form 4, Melvin Gagerman, a Director and our Chief Executive Officer, was granted options to purchase 50,000 shares of common stock for which he failed to file a Form 4, and Arthur Schwartz, a Director, was granted 250,000 options for which he failed to file a Form 4.
RELATED PARTY TRANSACTIONS
The following graph comparesdescribes all transactions since March 1, 2009 and all proposed transactions in which we are, or we will be, a participant and the cumulative total stockholder returnamount involved exceeds an amount that is the lesser of $120,000 or 1% of the Company withaverage of our total assets as of year-end for the cumulative total returnlast two completed fiscal years, other than compensation arrangements that are otherwise required to be described under “Executive Compensation.”
Mr. Breslow, a Director and one of our founders, routinely makes temporary advances to us. Currently, we owe to Mr. Breslow $9,975,000 in principal and $1,642,068 in interest. During the period from March 1, 2009 to the present, the highest outstanding amount of principal we owed to Mr. Breslow was $9,975,000. Interest on the NASDAQ Stock Market Index (U.S.)advances accrues at a rate of 10% per annum. A payment of $200,000 was made to Mr. Breslow on November 22, 2010. Of this amount, $200,000 was applied to the principal amount and $0 was applied to interest.
On March 12, 2010, Mr. Gagerman, our Chief Executive Officer, loaned us $360,000, with interest at the rate of 10%, convertible into shares of our common stock at $0.75 per share. In May 2011, he converted the entire principal amount and all accrued interest totaling $45,496.47 into 540,661 shares of our common stock.
On June 18, 2009, Dr. Macleod, our former President, loaned us $50,000 with an interest rate of 10%, for a period of 180 days, convertible into shares of our common stock at $0.75 per share. In August 2011, Dr. Macleod converted the principal amount and all accrued interest totaling $11,331.37 into 81,775 shares of our common stock.
Dr. Macleod was appointed as President, effective April 27, 2009. Pursuant to a two-year employment agreement between the Company and Dr. Macleod, dated April 20, 2009, Dr. Macleod was entitled to (1) an annual salary of $300,000; (2) an option to purchase up to 400,000 shares of our common stock at a price of $1.50 per share, including a provision for cashless exercise of the options; (3) relocation and recruiting expense reimbursement and; (4) participation in all benefit and bonus programs established by the Company for its executive officers. The stock options granted to Dr. Macleod under his employment agreement vested monthly over a three-year period with 1/36th of the shares vesting monthly until all shares were vested, and provided for earlier vesting under certain circumstances, including upon termination by the Company of Dr. Macleod’s employment other than for cause or by Dr. Macleod without good reason. The stock options had a term of up to five years, subject to earlier termination in the event of the termination of his employment prior to the expiration of the options. Dr. Macleod resigned his position on August 5, 2011. On that date, the expiration date of Mr. Macleod’s vested options was extended to August 5, 2012 and the S&P Industrial Index+. The Comparisonsoptions that were not yet vested expired.
Review and Approval of Related Party Transactions
Our Audit Committee is responsible for the review and approval of all related party transactions. This procedure has been established by our Board of Directors in order to serve the graphinterests of our shareholders. Related party transactions are requiredreviewed and approved by the SecuritiesAudit Committee on a case-by-case basis. Under existing, unwritten policy no related party transaction can be approved by the Audit Committee unless it is first determined that the terms of such transaction is on terms no less favorable to us than could be obtained from an unaffiliated third party on an arms-length basis and Exchange Commissionis otherwise in our best interest.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board has nominated Messrs. Gagerman, Simmons, Breslow, Schwartz and Diaz-Verson to be elected to serve until the next annual meeting of shareholders and until their successors are not intended to forecastduly elected and qualified. At the Annual Meeting, proxies cannot be voted for a greater number of individuals than the five nominees named in this Proxy Statement. Holders of proxies solicited by this Proxy Statement will vote the proxies received by them as directed on the proxy card or, be
indicative of possible future performanceif no direction is made, for the election of the Company's Common Stock.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG AURA SYSTEMS,
INCORPORATED, THE NASDAQ STOCK MARKET (U.S.) INDEX AND THE S & P INDUSTRIAL
INDEX
*$100 INVESTED ON 2/28/97 IN STOCK OR INDEX- INCLUDING REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING FEBRUARY 28 CUMULATIVE TOTAL RETURN - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- Aura Systems, Inc. Return % 16.30 -84.00 -31.58 36.36 -17.78 Cum $ $100.00 $116.30 $18.61 $12.73 $17.36 $14.27 S&P INDUSTRIALS Return % 34.56 23.21 17.39 -15.99 -8.95 Cum $ $100.00 $134.56 $165.79 $194.62 $163.50 $148.88 NASDAQ US Return % 36.64 30.24 104.32 -54.45 -18.85 Cum $ $100.00 $136.64 $177.96 $363.60 $165.62 $134.40 - ------------------------------------------------------------------------------------------------------------------------------------ + In 2001,Board’s five nominees. If any nominee is unable or declines to serve as a director at theS&P Technology Index was divided into individual technology sectors which do not matchtime of theCompany's business area. AsAnnual Meeting, the proxy holders will vote for aresult, onnominee designated by the present Board to fill the vacancy.
Vote Required
Directors are elected by a going
forward basis comparisonsplurality of votes, meaning that the five nominees receiving the highest number of affirmative votes of the shares entitled to be voted will be made versuselected as directors to serve until the Industrial Index which is more
indicativenext annual meeting of shareholders and until their successors are duly elected and qualified.
Recommendation of the Company's business.
Board
The Board recommends that shareholders vote “FOR” the election of Messrs. Gagerman, Simmons, Breslow, Diaz-Verson and Dr. Schwartz.
PROPOSAL NO. 2
PROPOSED AMENDMENT TO THE COMPANY'SCOMPANY’S
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE PROPOSED
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER
OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE.
On December 10, 2002, the
The Board of Directors adopted resolutions effective as of September 14, 2011, approving an amendment to the Company'sCompany’s Amended and Restated Certificate of Incorporation to increase the number of shares of Common Stock, $.005common stock, $.0001 par value per share, authorized for issuance from 500,000,00075,000,000 to 1,000,000,000150,000,000 (the "Common Stock Amendment"“Authorized Shares Amendment”), and directing that the Authorized Shares Amendment be presented to the Stockholdersshareholders for approval at the Company's2011 Annual Meeting.Meeting of Shareholders. The Authorized Shares Amendment is attached to this Proxy Statement as Appendix “A”. If the Authorized Shares Amendment is approved, we will have 80,016,458 shares of common stock available to issue as compared to 5,016,458 shares of common stock which is currently available.
Purpose of the Amendment
Our corporate charter currently authorizes our Board of Directors to issue up to 75,000,000 shares of common stock. As of December 10, 2002, approximately 432,272,225August 31, 2011, the Company had 69,983,542 shares of the Company's
Common Stock were outstanding. Accordingly, after including shares, including
optionscommon stock outstanding and warrants, reserved for future issuance, no shares of Common Stock
are available for issuance and the Company is not able to fulfill all of its
current obligations for32,372,994 shares reserved for future issuance. Additionalissuance under outstanding options and warrants. Holders of options or warrants for the purchase of a total of 28,587,548 shares of Common Stock beyond the amount currently authorizedour common stock have agreed that they will be required by the
Company in the near future for the following reasons:
o The Company will be impeded in its ability to raise needed capital to
sustain and expand its operations if it does not have additional
authorized shares of Common Stock available for issuance.
o The Company will be impeded in its ability to attract and build
strategic relationships if it does not have additional authorized
shares of Common Stock available for issuance.
o The availability of proceeds from future sales of Common Stock will
allow the Company the flexibility to reduce existing debt.
o Additional authorized shares of Common Stock will be required to make
full use of the 2000 Stock Option Plan, which the Company believes
will be necessary to attract, retain and motivate qualified personnel.
Forexercise these reasons, Management believes it is both necessary and appropriate
to increase the number of its authorized shares of Common Stock from 500,000,000
to 1,000,000,000. Management believes that this increase would be necessary and
appropriate even if stockholders approve Proposal No. 2 to authorize a possible
reverse stock split because it is unlikely that any such split would be effected
in the near term, and the Company requires an immediate increase for the reasons
discussed above. However, ifsecurities unless Proposal No. 2 is approved by our shareholders.
We have raised the funds necessary to continue our operations by selling our securities. In order to save cash resources, we have also made agreements with some of our executive officers and others to accept our securities in lieu of cash payments and with some of our vendors to accept our securities in lieu of cash. We also wish to reward certain of our employees for exceptional services and, in order to save cash, we have issued common stock or options for the purchase of common stock to them.
Aside from using the additional authorized shares to permit all the holders of our options or warrants to exercise them if they so chose, the increase in authorized shares will provide the Company with greater flexibility with respect to its capital structure and will be available for a number of purposes, including equity financings for working capital and capital expenditures, to fund future expansion, equipment purchases, and production tooling as well as for potential acquisitions and joint ventures. The additional authorized shares may also be used as
compensation in the event that the Company expands its Board of Directors of the Company would be authorized to effect a reverse stock split at any time
prior to the next annual meeting of stockholders. If a reverse stock split were
effected in the near term, then the reasons for an increase in shares of Common
Stock authorized for issuance discussed above would be no longer relevant to the
extent that any such split resulted in a significant number of authorized but
unissued shares.
NEED FOR ADDITIONAL WORKING CAPITAL
Historically, the Company's cash flow from operations has not been
sufficient to maintain its business. In the past, the Company has financed its
growth from external sources of financing. These sources have included,
principally, the sale of its Common Stockor adds technical and private indebtedness convertible
into Common Stock. Access to conventional bank financing has been limited.
In the fiscal year ended February 28, 2002, significant steps were taken to
downsize and refocus the Company's business on the Company's AuraGen(R) mobile
generator. Management believes that despite these actions, current and projected
cash flow for at least the next six months will not be sufficient to maintain
and expand these operations. Thereafter, the Company anticipates that additional
capital will be required to meet the anticipated increased demand for the
AuraGen products. Absent an increase in the number of authorized shares of its
Common Stock, the Company will be limited in its ability to implement its
planned future growth and expansion.
ABILITY TO REDUCE EXISTING DEBT
Following the Company's debt restructuring in Fiscal 2002, the Company
still has significant indebtedness. It may be in the Company's interest in the
future to raise additional funds from the sale of its Common Stock to reduce a
portion of this outstanding indebtedness. Certain creditors of the Company have
expressed an interest in forgiving a portion of outstanding debt in exchange for
early payment. Therefore, depending upon a number of factors, including the
future price of the Company's Common Stock, it may be desirable to utilize
proceeds from the future sale of Common Stock to prepay debt.
CONTINUATION OF THE 2000 STOCK OPTION PLAN
The Company must continue to use its 2000 Stock Option Plan, which the
Company believes is essential to attract, retain and motivate key personnel.
Absent an increase in the number of authorized shares of Common Stock, the
Company will be unable to continue utilizing the Option Plan.
Therefore, management believes it is essential that the Stockholders vote
in favor of the proposal to increase the number of authorized shares of Common
Stock from 500,000,000 to 1,000,000,000. Although the Company has no plans to
utilize all of the increased authorized shares which would be available if the
Common Stock Amendment is approved, managementstaff.
Management believes that it is important that the Company have the flexibility to issue additional shares without further authorization from the Stockholders.shareholders. If the Common Stockshareholders approve the Authorized Shares Amendment, is approved
by the Stockholders, the Company willdoes not intend to seek further authorization from the Stockholdersshareholders prior to any issuances of Common Stock,common stock, except as may be required by law, the Company’s Bylaws or securities exchanges. In additionapplicable rules of any stock exchange.
Anti-takeover Effect of Amendment
The increase in our authorized common stock could make any attempt to issuing sharesgain control of Common Stock
pursuant to the 2000 Stock Option Plan, the Company intends to issue
approximately _______ shares of Common Stock pursuant to outstanding warrants
and approximately ___ shares of Common Stock pursuant to other outstanding
convertible securities.
POSSIBLE ANTI-TAKEOVER EFFECTS
The authorized number of shares of Common Stockour company more difficult, costly or time consuming and the subsequent issuanceavailability of such shares could have the effect of delaying or preventing a change in
control of the Company without further action by the Stockholders. Shares ofadditional authorized and unissued Preferred Stock could (withinshares might make it more difficult to remove management. Please see the limits imposedmore detailed discussion below entitled “Effect of the Proposal/Advantages and Disadvantages”.
The Authorized Shares Amendment was not adopted as a result of management’s knowledge of any specific effort to accumulate our securities or to obtain control of our company by applicable law) be issuedmeans of a merger, tender offer, solicitation in opposition to management or otherwise. Neither our Amended and Restated Certificate of Incorporation nor our Bylaws contain provisions having an anti-takeover effect, the adoption of the Authorized Shares Amendment is not part of a plan by management to adopt a series of such amendments, and management does not intend to propose other anti-takeover measures.
Effect of the Proposal/Advantages and Disadvantages
In the future it is possible that we may wish to raise equity capital, acquire other businesses that are compatible with our business or enter into a joint venture, strategic partnership or other types of working relationships with one or more service providers in our industry. Any of these types of transactions which would make a change
in controlmay include the issuance of securities, including common stock, warrants or convertible promissory notes. Subject to the Company more difficultprovisions of our Bylaws, we want to be able to enter into financing transactions, acquisition transactions or other working relationships when and therefore, less likely. Once
authorized, the additionalas we deem it advantageous. If adequate shares of Common Stockour common stock are not available when an opportunity presents itself, we may be issued with approval oflose the opportunity. If the Authorized Shares Amendment is not approved, our Board of Directors but without furtherwould be required to obtain approval offor each proposed issuance from our stockholders unless
stockholder approval is required by applicable law, rule or regulation. Ifshareholders before the proposed amendment becomes effective, itsecurities could under certain circumstances,
have an anti-takeover effect, although that is not its intention. For example,
if we were the subject of a hostile takeover attempt, we could try tobe issued. This would impede the takeover by issuing sharesability of Common Stock, thereby diluting the voting power of
the other outstanding shares and increasing the potential cost of the takeover.
Theour Board of Directors isto act quickly to consummate transactions requiring the issuance of our securities and would greatly increase our costs of doing business. Furthermore, if the holders of our options and warrants wanted to exercise them, they are not aware of any attempt or planable to acquire controldo so. Until we increase our authorized common stock, this will deprive us of the Company,capital that could be raised from the exercise of the options and this proposal is not being presented as an anti-takeover
device. We have no plans to subsequently implementwarrants.
On the other hand, the additional measures having
anti-takeover effects,authorized and the only existing provisionsunissued shares of our certificate of
incorporation, bylaws and agreements which have material anti-takeover effects
are the provisions in our certificate of incorporation allowing us to issue
preferredcommon stock with such rights and privileges as may be designatedissued by the Board of Directors to make any attempt to gain control of our company more difficult, costly or time consuming or to make it more difficult to remove management, even if it were in its sole discretion.
NEGATIVE EFFECTS ON EXISTING SHAREHOLDERS
Any such issuancethe best interests of additionalthe shareholders. Shares of common stock could have the effectbe issued by our Board of diluting the
earnings per share and book value per share of outstanding shares of the
Company's Common Stock, and such additional shares could be usedDirectors to dilute the percentage of common stock ownershipowned by a significant shareholder or voting rightsa group of persons seekingsignificant shareholders, thereby making it difficult or impossible for them to obtain controlinfluence the outcome of shareholder voting. Issuing additional shares of common stock could also increase the Company. If Proposal No. 2 and Proposal 3 are approved, and ifcosts associated with, or the Board
implements the Reverse Stock Split Proposal, there would be an extraordinarily
large number of authorized but unissuedvoting shares of Common Stock, exacerbatingnecessary for, removing management or meeting the negative effects discussed above and possibly depressing the trading price of
the Common Stock as additional shares are issued from timevoting requirements imposed by Delaware law with respect to time.
The holders of Common Stock have equal rights to dividends when, as and if
declared by thea merger, tender offer or proxy contest. Our Board of Directors and are entitledcurrently has no intention to share ratably in allissue shares of our common stock for any of these purposes.
Finally, the issuance of the assetsnewly authorized shares of common stock will dilute the percentage ownership of our current shareholders.
Limitations on the Adoption of the Company availableAuthorized Shares Amendment
Our common stock is traded on the OTC Bulletin Board, which is a quotation service, not an exchange. The OTC Bulletin Board does not reserve the right to refuse to list or to de-list any stock which has unusual voting
provisions that nullify or restrict voting nor does it have requirements calling for distributiona shareholder vote on issuances of additional shares.
Amendment to holdersCertificate of Common Stock
upon the liquidation, dissolution or winding up of the affairs of the Company,
subject to the rights of the holders of any outstanding Preferred Stock. Holders
of Common Stock do not have preemptive rights. Holders of Common Stock are
entitled to one vote per share on all matters which Stockholders are entitled to
vote upon at all meetings of Stockholders.
AMENDMENT TO ARTICLES OF INCORPORATION
Incorporation
If approved, Article "FOURTH"“Fourth” of the ArticlesCompany’s Amended and Restated Certificate of Incorporation would be amended and restated as follows:
"FOURTH".
Fourth: The total number of shares of stock which this corporationthe Corporation is authorized to issue is:is One Billion TenHundred Fifty Million (1,010,000,000)(150,000,000) shares of thecommon stock with a par value of $.005 each, amounting to Five Million Fifty Thousand
Dollars ($5,050,000.00), of which One Billion (1,000,000,000) shares shall
be Common Stock and Ten Million (10,000,000) Shares shall be Preferred
Stock. The Preferred Stock shall have such designations, powers,
preferences, rights, qualifications, limitations and restrictions permitted
under the General Corporation Law of the State of Delaware, which the Board
of Directors of the Corporation may fix by resolution.
STOCKHOLDER VOTE
$0.0001 per share.
Vote Required
The affirmative vote of the holders of shares representing a majority of the outstanding shares of common stock on the record date, voting in person or represented by proxy, is required for approval of the Authorized Shares Amendment.
Recommendation of the Board
The Board of Directors of the Company recommends that the Shareholders vote “FOR” the proposed amendment to authorize the Common
Stock Amendment.
Company’s Amended and Restated Certificate of Incorporation.
PROPOSAL NO. 3
TO CONSIDER
APPROVAL OF THE AMENDMENT OF OUR AMENDED AND ACT UPON A PROPOSALRESTATED
CERTIFICATE OF INCORPORATION TO EFFECT A POSSIBLE
REVERSE SPLIT OF THE COMPANY'S COMMON STOCK
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO
EFFECT A POSSIBLE REVERSE SPLIT.
THE REVERSE STOCK SPLIT PROPOSAL
On DecemberOF
OUR COMMON STOCK AT A RATIO OF BETWEEN 1 FOR 2 AND 1 FOR 10 2002, the
AT ANY TIME PRIOR TO SEPTEMBER 30, 2012
Our Board of Directors adopted resolutions directing
that the Stockholders consider and vote upon a possible Reverseis submitting for shareholder approval an amendment (the “Reverse Stock Split Amendment”) to our Amended and Restated Certificate of Incorporation which will allow our Board of Directors the Company's Common Stock.discretionary authority to effect a reverse split of our common stock in a ratio of between 1 for 2 and 1 for 10 in the event of either:
| 1. | An offering of our securities for no less than $15 million; or |
2. Submission of an application for a listing of our common stock on The Board believes that the Reverse Split is
beneficial to the Company and the Stockholders. The principal reasons for the
Reverse Split are to aid the Company in meeting listing requirements for the Nasdaq Stock Market or other national securities exchange.
The Reverse Split Amendment is attached to attempt to enhance investor interest in the Common
Stock, and to attempt to help the investment community realize the underlying
value of the Common Stock.this Proxy Statement as Appendix “B”. Under the terms of the proposal, if the Reverse Stock Split Proposal being submitted toAmendment is not filed with the Stockholders,Delaware Secretary of State and effective by September 30, 2012, the authority of the Board of Directors would be authorized to file an amendment to
the Company's Certificate of Incorporation to effect a Reverse Stock Split of
the Company's outstanding Common Stock in an amount not greater than one share
of Common Stock for each 10 shares of outstanding Common Stock at any time prior
to the Company's next Annual Meeting of Stockholders. Assuming Stockholder
approval of the Reverse Stock Split Amendment will expire. Under the proposed amendment the total number of authorized shares would remain the same (currently 75,000,000, and 150,000,000 if Proposal No. 2 to increase the number of authorized shares is approved), which means that a reverse stock split would result in an increased number of authorized but unissued shares of our common stock, whether or not Proposal No. 2 is approved. Pursuant to the law of our state of incorporation, Delaware, in order to effect a reverse split of our common stock, our Board of Directors would
retainmust first adopt an amendment to our Amended and Restated Certificate of Incorporation and submit the amendment to our shareholders for their approval.
Our Board of Directors, in its discretion, may elect to effect any one (but not more than one) of the reverse split ratios between 1 for 2 and 1 for 10 upon receipt of shareholder approval, or none of them if our Board of Directors determines in its discretion not to proceed with the reverse stock split following shareholder approval. We believe that the availability of a range of reverse split ratios will provide the Company with the flexibility to implement the reverse stock split in a Reverse Stock Split of not greater than
1:10, ormanner designed to abandonmaximize the Reverse Stock Split Proposal.anticipated benefits for the Company and its shareholders. In determining when or if the Board willwhether to implement the Reverse Stock Split
Proposal,reverse stock split and which of the reverse stock split ratios to implement, if any, following the receipt of shareholder approval, our Board of Directors may consider, a varietyamong other things, factors such as:
· the historical and the then prevailing trading price and trading volume of factors in
determining whether to proceed withour common stock and the Reverse Split, including, but not
limited to, overall trends in the stock market, recent changes and anticipated trends in the per share market priceimpact of the Company's Common Stock,reverse stock split on the trading market for our common stock;
· our ability to list our common stock on a national securities exchange; and
· prevailing general market and economic conditions.
To avoid the existence of fractional shares of our common stock, fractional shares which would otherwise result from the reverse stock split will be rounded up to the nearest whole share in lieu of such fractional shares.
At the close of business developments,on August 31, 2011, we had 69,983,542 shares of common stock issued and outstanding. The actual number of shares outstanding after giving effect to the Company's actual and projected financial performance.
Presently,reverse stock split will depend on the reverse split ratio that is ultimately selected by our Board of Directors doesDirectors. We do not intendexpect the reverse stock split itself to implementhave any economic effect on our shareholders or option holders or warrant holders.
Reasons for the Reverse Stock Split Proposal unless the market price
Our Board of the Company's Common Stock
trades at or near $1.00 per share. However, following StockholderDirectors is seeking shareholder approval of the Reverse Stock Split Proposal,authorization to effect the Boardreverse split of Directors will retainour common stock under the absolute discretion to implement the Reverse Stock Split Proposal infollowing two conditions
| 1. | The occurrence of a secondary offering of no less than $15 million; or |
2. Submission of an amount
not greater than 1:10 at any time prior to the Company's next Annual Meeting of
Stockholders or to abandon implementation of the Reverse Split. On December 10,
2002, the closing price of the Company's Common Stock was $0.07 per share. There
can be no assurance that the price of the Common Stock will increase, that the
Board will implement the Reverse Stock Split Proposal if the price does increase
to or near $1.00 per share, or that the Board will not implement the Reverse
Stock Split Proposal even if the price does not increase to or near $1.00 per
share. The Board would have absolute flexibility over whether to implement the
Reverse Stock Split Proposal, irrespective of the price of the Common Stock.
If the Stockholders approve the Reverse Stock Split Proposal and the Board
of Directors thereafter elects to implement the Reverse Split, the Company
intends to issueapplication for a press release announcing the terms and effective date of the
Reverse Split not less than 10 days prior to the effective date of the Reverse
Split.
REASONS FOR THE REVERSE STOCK SPLIT PROPOSAL
From 1988 until July 1999, the Company's Common Stock was listedlisting on The Nasdaq Stock Market ("Nasdaq"). In July 1999,or other national securities exchange.
with the Company's Common Stock was
delisted fromprimary intent of increasing the price of our common stock to a level which may make our common stock more attractive to a broader range of institutional and other investors and meet minimum stock price requirements of a national securities exchange, such as The Nasdaq Stock Market as a result of the Company's inability to
timely file its Annual Report on Form 10-K with the Securities and Exchange
Commission because of the delay in completing the audit of its annual financial
statements. The audit was completed in February 2000 and the Company regained
compliance with its SEC reporting obligations.
The Common StockMarket. Our common stock is currently quotedpublicly traded on the over-the-counter market. The
CompanyOTC Bulletin Board under the symbol “AUSI.”
Our Board of Directors believes that increasing the Reverse Split is necessary to achieve compliance with the
quantitative listing maintenance criteria established by Nasdaq regarding the
minimum bidper share trading price of listed securities. For initial inclusion onour common stock would help the Nasdaq
National Market,share price increase to a level which may make our common stock more attractive to a broader range of institutional and other investors, as the minimum bid price per share is required to be at least
$5.00. The Company believes that, other than the minimum bid price, it will meet
all of the listing requirements required for listing on Nasdaq.
The Company expects that, as a result of the Reverse Split, thecurrent market price of the Common Stock would increase significantly, thereby enabling the
Companyour common stock may affect its acceptability to comply with the Nasdaq $5.00 minimum bid price requirement.
Because the Common Stock is not listed on Nasdaq, tradingcertain institutional investors, professional investors and other members of the Common
Stock is conducted in the over-the-counter market. Because of the absence of a
Nasdaq listing, an investor could find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of, the Common Stock. In
addition, because the Common Stock is not listed on Nasdaqinvesting public. Many brokerage houses and presently trades
at less than $5.00 per share, trading in the Common Stock is also be subject to
the requirements of certain rules promulgated under the Exchange Act, which
require additional disclosure by brokers or dealers in connection with any
trades involving a stock defined as a "penny stock" (generally, any non-Nasdaq
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions). Because the Company's Common Stock is presently classified
as a "penny stock," prior to effectuating any trade in the Common Stock, a
broker or dealer is required under such Exchange Act rules to make a suitability
determination as to such proposed purchaser of the Common Stock and to receive a
written agreement, meeting certain requirements, prior to effectuating any
transaction in the Common Stock. The additional burdens imposed upon brokers or
dealers by such requirements could discourage brokers or dealers from effecting
transactions in the Common Stock, which could severely limit the market
liquidity of the Common Stock and the ability ofinstitutional investors to trade the Common
Stock.
The Board also believes that the current low per share price of the Common
Stock may have a negative effect on the price and marketability of existing
shares, the amount and percentage (relative to share price) of transaction costs
paid by individual Stockholders and the potential ability of the Company to
raise capital by issuing additional shares of Common Stock or other securities
convertible into Common Stock or to undertake merger or acquisition
transactions. Reasons for these effects include internal policies and practices of certain institutional investors which prevent or tend to discourage the
purchase ofthat either prohibit them from investing in low-priced stocks the fact that many brokerage houses do not permit
low-priced stocks to be used as collateral for margin accounts or to be
purchased on margin, and a variety of brokerage house policies and practices
which tend to discourage individual brokers withinfrom recommending low-priced stocks to their customers. In addition, some of those firms from dealingpolicies and practices may function to make the processing of trades in low-priced stocks.
In addition, since broker'sstocks economically unattractive to brokers. Moreover, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher
pricedhigher-priced stocks, the current average price per share price of the Common Stockcommon stock can result in individual Stockholdersshareholders paying transaction costs which arerepresenting a higher percentage of thetheir total share pricevalue than would be the case if the share price were substantially higher.
Increasing the share price of our common stock is also necessary to meet minimum share price requirements for listing on a national stock market. The Board believes that the Reverse Split, and the expected resulting
increased price level, may enhance investor interest in the Common Stock and may
help the investment community realize the underlying value of the Common Stock.
There is however, no assurance that any of the foregoing effects will occur.
While the Board of Directors believes it is in the best interests of its shareholders to list its common stock on a national securities exchange, such as The Nasdaq Stock Market, at some time in the future when it meets all of the applicable listing requirements, in order to enhance liquidity and increase the acceptability to investors. For example, currently The Nasdaq Stock Market has a minimum share price requirement of $4.00 per share. However, in this regard, the Company does not currently meet other listing requirements, and there are no assurances that the Company’s common stock would be eligible for listing even if a reverse stock split is effected.
Reducing the number of outstanding shares of Common Stock will
trade at higher prices than those which have prevailed in recent months,our common stock through the reverse stock split is intended, absent other factors, to increase the per share market price of our common stock. However, other factors, such as our financial results, market conditions and the market perception of our business may adversely affect the market price of our common stock. As a result, there is no assurance that such increase in the trading price will occur or, if it
does occur, that it will equal or exceed the direct arithmetical result of the
Reverse Split since there are numerous factors and contingencies which could
affect such price. There iscan be no assurance that the Companyreverse stock split, if completed, will meetresult in the listing
requirements for Nasdaq intended benefits described above, that the market price of our common stock will increase
following the Reverse Split.
IMPLEMENTATION OF THE REVERSE SPLITreverse stock split, that the market price of our common stock will not decrease in the future, or that we will otherwise be able to comply with applicable listing requirements. Moreover, some investors may view the reverse stock split negatively since it reduces the number of shares of common stock available in the public market.
Depending on the exact reverse stock split ratio chosen by our Board of Directors, the number of shares of common stock issued and outstanding would be reduced, and the number of shares of unreserved authorized common stock available for future issuance would be increased, as the Company is not asking the shareholders to authorize the reduction of the number of authorized shares of common stock as part of the reverse split proposal. The Reverse Split,table below shows the number of shares that would be (a) issued and outstanding, (b) unissued shares which are authorized and reserved for issuance (representing outstanding and available stock options and warrants), (c) unissued shares which are authorized but not reserved for issuance if implemented, will be formally implemented by filing
an amendmentProposal No. 2 (increasing the number of authorized shares from 75,000,000 to 150,000,000) is not approved, and (d) unissued shares which are authorized but not reserved for issuance if Proposal No. 2 is approved, in each case after giving effect to the Company's Certificate of Incorporation with the Secretary of
Stateimplementation of the Statereverse split at specified ratios from 1 for 2 to 1 for 10, based on the Company’s outstanding common stock on August 31, 2011, of Delaware amending69,983,542 shares. The exact number of shares would be determined by the Company's Certificatenumber of Incorporation to reflect the Reverse Stock Split, effective as of 5:00 p.m.,
Eastern time,outstanding shares on the date of the filing of such amendment withreverse stock split was effected, and the Delaware
Secretary of State (the "Effective Time"). At the Effective Time all outstanding
shares of Common Stock held by each holder of record on such dateexact reverse split ratio would be
automatically combined into such lesser number of shares as is determined by the Board of Directors, withoutin its sole discretion, at any further actionratio deemed advisable between 1 for 2and 1 for 10.
Shares of Aura Systems, Inc. Common Stock
Reverse Split Ratio | Shares Issued and Outstanding | Unissued Shares Authorized and Reserved for Issuance | 75,000,000 Authorized Shares: Unissued Shares Authorized but Unreserved | 150,000,000 Authorized Shares: Unissued Shares Authorized but Unreserved |
| One-For-Two (1:2) | 34,991,771 | 16,186,497 | 23,821,732 | 98,821,732 |
| One-For-Three (1:3) | 23,327,847 | 10,790,998 | 40,881,155 | 115,881,155 |
| One-For-Four (1:4) | 17,495,886 | 8,093,249 | 49,410,865 | 124,410,865 |
| One-For-Five (1:5) | 13,996,708 | 6,474,599 | 54,528,693 | 129,528,693 |
| One-For-Ten (1:10) | 6,998,354 | 3,237,300 | 64,764,346 | 139,764,346 |
The Company has no present plans, proposals or arrangements to issue the additional authorized shares of its common stock at this time, other than (i) 5,133,334 shares and 5,133,334 shares covered by a warrant reserved for issuance in connection with a $3.5 million convertible note and associated fees, (ii) 25,431,494 shares reserved for issuance in connection with outstanding warrants, and (iii) 6,998,316 shares reserved for issuance under the 2006 Stock Option Plan.
The Board of Directors does not intend to seek shareholder approval of any future issuances of authorized common stock unless required by the laws of Delaware, the Company’s state of incorporation, our Bylaws, or listing requirements of any applicable exchange.
Required Vote for the Reverse Stock Split Proposal
The affirmative vote of a majority of the outstanding shares of common stock on the partrecord date, voting in person or represented by proxy, is required for approval of the Stockholders.
No fractional shares will be issued. All fractional shares for one-half share or
more will be increased toreverse stock split and the next higher whole number of shares and all
fractional shares less than one-half share will be decreased to the next lower
whole number of shares, respectively.
EFFECTS OF THE REVERSE STOCK SPLIT
The effectReverse Stock Split Amendment.
Effects of the Reverse Stock Split upon holders of Common StockProposal
General
If the reverse stock split proposal is approved and implemented, the principal effect will be that
the total number of shares of the Company's Common Stock (each, an "Old Share")
held by each Stockholder will be automatically converted intoto proportionately decrease the number of wholeoutstanding shares of Common Stock equal toour common stock based on the number of shares of Common Stock owned
immediately prior to the Reverse Split dividedreverse stock split ratio selected by the number determined by theour Board of Directors, not to exceed 10, adjusted, as described, for any fractional
shares (each, a "New Share").
Assuming the Reverse Split is approved by the Company's Stockholders at the
Annual Meeting and implemented by the Company, each Stockholder's percentage
ownership interest in the Company and proportional voting power will remain
unchanged, except for minor differences resulting from adjustments for
fractional shares. The rights and privileges of the holders of shares of Common
Stock will be substantially unaffected by the Reverse Split.
All issued and outstanding options, warrants, and convertible securities
would be appropriately adjusted for the Reverse Split automatically on the
effective date of the Reverse Split. The Reverse Split would not affect any
Stockholder's proportionate equity interest in the Company except for those
Stockholders who would receive an additional share of Common Stock in lieu of
fractional shares.
The Reverse Split may result in some Stockholders owning "odd-lots" of less
than 100 shares of Common Stock. Brokerage commissions and other costs of
transactions in odd-lots are generally somewhat higher than the costs of
transactions in "round-lots" of even multiples of 100 shares.
CERTAIN RIGHTS OF COMMON STOCK HOLDERS
The holders of Common Stock have equal rights to dividends when, as and if
declared by the Board of Directors and are entitled to share ratably in all of
the assets of the Company available for distribution to holders of Common Stock
upon the liquidation, dissolution or winding up of the affairs of the Company,
subject to any rights, preferences or privileges of holders of any outstanding
Preferred Stock. Holders of Common Stock do not have preemptive rights. Holders
of Common Stock are entitled to one vote per share on all matters which
Stockholders are entitled to vote upon at all meetings of Stockholders.
The Common StockDirectors. Our common stock is currently registered under Section 12(g) of the Securities Exchange Act of 1934, or the Exchange Act, and as a result, the Company iswe are subject to the periodic reporting and other requirements of the Exchange Act. The Reverse Splitreverse stock split will not affect the registration of the Common Stockour common stock under the Exchange Act.
PursuantAct or the continued quotation of our common stock on the OTC Bulletin Board. Following the reverse stock split, we expect that our common stock will be listed for tradingon The Nasdaq Stock Market or other national securities exchange. If for whatever reason the common stock is not listed for trading on The Nasdaq Stock Market or other national securities exchange, it will continue to Delaware law,be quoted on the Company's Stockholders are not entitled to
dissenters'OTC Bulletin Board under the symbol “AUSI.”
Proportionate voting rights and other rights of appraisal with respectthe holders of our common stock will not be affected by the reverse stock split, other than as a result of the treatment of fractional shares by rounding them up to the nearest whole share, as described below. For example, a holder of 5% of the voting power of the outstanding shares of our common stock immediately prior to the effectiveness of the reverse stock split will generally continue to hold 5% of the voting power of the outstanding shares of our common stock after the reverse stock split. The number of shareholders of record will not be affected by the reverse stock split. If approved and implemented, the reverse stock split may result in some shareholders owning “odd lots” of less than 100 shares of our common stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares. Our Board of Directors believes, however, that these potential effects are outweighed by the benefits of the reverse stock split.
Effectiveness of Reverse Stock Split
The reverse stock split proposal, if approved by our shareholders, would become effective upon the filing and effectiveness (the “Effective Time”) of the Reverse Stock Split Proposal.
EXCHANGE OF STOCK CERTIFICATES
AssumingAmendment with the Secretary of State of the State of Delaware. If the Reverse Stock Split Amendment is approvednot effective by September 30, 2012, the authority of the Board of Directors to effect the reverse stock split will expire. However, the exact timing of the filing and effectiveness of the Reverse Stock Split Amendment will be determined by our Board of Directors based on its evaluation as to when such action will be the most advantageous to our Company and our shareholders. In addition, our Board of Directors reserves the right, notwithstanding shareholder approval and without further action by the Stockholdersshareholders, to elect not to proceed with the reverse stock split proposal if, at any time prior to filing the Reverse Stock Split Amendment, our Board of Directors, in its sole discretion, determines that it is not in our Company’s best interests and implementedthe best interests of our shareholders to proceed with the implementation of the reverse stock split proposal.
Effect on Authorized but Unissued Shares
As set forth above, the reverse stock split proposal will increase the number of authorized shares of common stock available for future issuance. The Company has no present plans, proposals or arrangements to issue the additional authorized shares of its common stock at this time, other than (i) 5,133,334 shares and 5,133,334 shares covered by a warrant reserved for issuance in connection with a $3.5 million convertible note and associated fees, (ii) 25,431,494 shares reserved for issuance in connection with outstanding warrants, and (iii) 6,998,316 shares reserved for issuance under the 2006 Stock Option Plan.
The Board of Directors does not intend to seek shareholder approval of any future issuances of authorized common stock unless required by the laws of Delaware, the Company’s state of incorporation, our Bylaws, or listing requirements of any applicable exchange.
Potential Anti-Takeover Effect
Although the reverse stock split proposal is not intended to have any anti-takeover effect, the Company’s shareholders should note that the availability of additional authorized and unissued shares of common stock could make any attempt to gain control of the Company Stockholdersor the Company’s Board of Directors more difficult or time consuming, and that the availability of additional authorized and unissued shares might make it more difficult to remove management. Although the Board of Directors currently has no intention of doing so, shares of common stock could be issued by the Board of Directors to dilute the percentage of common stock owned by a significant shareholder and increase the cost of, or the number of, voting shares necessary to acquire control of the Board of Directors or to meet the voting requirements imposed by applicable law with respect to a merger or other business combinations involving the Company.
Effect on Stock Options, Stock Option Plans and Warrants
If the reverse stock split proposal is effected the number of shares of common stock reserved for issuance under the Company’s 2006 Stock Option Plan will be reduced proportionately based upon the reverse split ratio selected by the Board of Directors. In addition, the number of shares issuable upon exercise of outstanding options and warrants will be decreased proportionately and the exercise price for such options will be increased proportionately based upon the reverse split ratio selected by the Board of Directors.
Effect on Par Value
The reverse stock split will not affect the par value of our common stock, which will remain at $0.0001.
Reduction in Stated Capital
As a result of the reverse stock split, upon the Effective Time the stated capital on our balance sheet attributable to our common stock, which consists of the par value per share of our common stock multiplied by the aggregate number of shares of our common stock issued and outstanding, will be reduced in proportion to the size of the reverse stock split. Correspondingly, our additional paid-in capital account, which consists of the difference between our stated capital and the aggregate amount paid to us upon issuance of all currently outstanding shares of our common stock, will be credited with the amount by which the stated capital is reduced. Our shareholders’ equity, in the aggregate, will remain substantially unchanged.
No Going Private Transaction
Notwithstanding the decrease in the number of outstanding shares following the proposed Reverse Split, our Board of Directors does not intend for this transaction to be the first step in a “going private transaction” within the meaning of Rule 13e-3 of the Exchange Act.
Exchange of Stock Certificates
If the reverse stock split proposal is effected, shareholders holding certificated shares (i.e. shares represented by one or more physical stock certificates) will be required to exchange their stockexisting certificates (“Old Certificate(s)”) for new certificatescertificate(s) representing the appropriate number of shares of new Common Stock.
Stockholdersour common stock resulting from the reverse stock split (“New Certificates”). Shareholders of record upon the effective time of the reverse stock split proposal will be furnished with the necessary materials and instructions for the surrender and exchange of stock certificatestheir Old Certificate(s) at the appropriate time by the
Company'sour transfer agent following the effectiveness of the Reverse Split.
Stockholdersagent. Shareholders will not be requiredhave to pay aany transfer fee or other fee in connection with such exchange. As soon as practicable after the effective time, our transfer agent will send a transmittal letter to each shareholder advising such holder of the procedure for surrendering Old Certificate(s) in exchange for New Certificate(s).
YOU SHOULD NOT SEND YOUR OLD CERTIFICATES NOW. YOU SHOULD SEND THEM ONLY AFTER YOU RECEIVE THE LETTER OF TRANSMITTAL FROM OUR TRANSFER AGENT.
As soon as practicable after the surrender to the transfer agent of any Old Certificate(s), together with a properly completed and duly executed transmittal letter and any other documents the transfer agent may specify, the transfer agent will deliver to the person in whose name such Old Certificate(s) had been issued a New Certificate registered in the name of such person.
Until surrendered as contemplated herein, a shareholder’s Old Certificate(s) shall be deemed at and after the Effective Time to represent the number of full shares of our common stock resulting from the reverse stock split. Until shareholders have returned their properly completed and duly executed transmittal letter and surrendered their Old Certificate(s) for exchange, shareholders will not be entitled to receive any other distributions, if any, that may be declared and payable to holders of record following the reverse stock split.
Any shareholder whose Old Certificate(s) have been lost, destroyed or stolen will be entitled to a New Certificate only after complying with the requirements that we and the transfer agent customarily apply in connection with lost, stolen or destroyed certificates. Stockholders
No service charges, brokerage commissions or transfer taxes shall be payable by any holder of any Old Certificate, except that if any New Certificate is to be issued in a name other than that in which the Old Certificate(s) are registered, it will be a condition of such issuance that (1) the person requesting such issuance must pay to us any applicable transfer taxes or establish to our satisfaction that such taxes have been paid or are not payable, (2) the transfer complies with all applicable federal and state securities laws, and (3) the surrendered certificate is properly endorsed and otherwise in proper form for transfer.
If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in “street name” with respect to those shares. Your broker or other nominee is considered, with respect to those shares, the shareholder of record. Shareholders holding common stock in street name should contact their bank, broker or nominee regarding the treatment of their shares.
Fractional Shares
No fractional shares will be issued in connection with the reverse stock split. In the event that the number of shares of post-split common stock for any shareholder includes a fraction, such fractional shares will be rounded up to the nearest whole share. Ownership percentages are not submitexpected to change meaningfully as a result of rounding up fractional shares that result from the exchange. Similarly, no fractional shares will be issued on the exercise of outstanding options or rights, except as otherwise expressly specified in the documents governing such options or rights.
No Appraisal Rights
Under the Delaware Corporation Law, our shareholders are not entitled to dissenter’s rights or appraisal rights with respect to the reverse stock split described in this Proposal No. 3, and we will not independently provide our shareholders with any such rights.
New CUSIP Number
If the reverse stock split is implemented, a new CUSIP number will be issued for the new common stock and the CUSIP for the underlying common stock will be suspended. Accordingly, your new stock certificates until requested to do so.
FEDERAL INCOME TAX CONSEQUENCES
The following description ofrepresenting the post-reverse stock split shares will bear a new CUSIP number.
Certain Federal Income Tax Consequences of the Reverse Stock Split
The following is a summary of certain material United States federal income tax consequences of the reverse stock split, does not purport to be a complete discussion of all of the possible federal income tax consequences of the reverse stock split and is included for general information only. Further, it does not address any state, local or foreign income or other tax consequences. Also, it does not address the tax consequences to holders that are subject to special tax rules, such as banks, insurance companies, regulated investment companies, personal holding companies, foreign entities, nonresident alien individuals, broker-dealers and tax-exempt entities. The
discussion is based uponon the provisions of the United States federal income tax law as of the date hereof, which is subject to change retroactively as well as prospectively. This summary also assumes that the pre-reverse stock split shares of common stock were, and the post-reverse stock split shares of common stock will be, held as a “capital asset,” as defined in the Internal Revenue Code of 1986, as amended (the "Code")(i.e., generally, property held for investment). The tax treatment of a shareholder may vary depending upon the applicable
Treasury Regulations promulgated thereunder, judicial authorityparticular facts and current
administrative rulings and practices as in effect oncircumstances of such shareholder. Each shareholder is urged to consult with such shareholder’s own tax advisor with respect to the date of this Proxy
Statement.
The Company has not sought and will not seek an opinion of counsel or a
ruling from the Internal Revenue Service regarding the Federal income tax consequences of the Reverse Split. The Company, however, believesreverse stock split. As used herein, the term United States holder means a shareholder that because
the Reverse Split is, not part offor federal income tax purposes: a plan to periodically increase a Stockholder's
proportionate interest in the assetscitizen or earnings and profitsresident of the Company,United States; a corporation or other entity taxed as a corporation created or organized in or under the Reverse Split willlaws of the United States, any State of the United States or the District of Columbia; an estate the income of which is subject to federal income tax regardless of its source; or a trust if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the following Federal income tax effects:
1. The Reverse Split will constitute a reorganization within the meaning
of Section 368(a)(1)(E)(5)authority to control all substantial decisions of the Code.
2. A Stockholder will not recognizetrust.
No gain or loss onshould be recognized by a shareholder upon such shareholder’s exchange of pre-reverse stock split shares of common stock for post-reverse stock split shares of common stock pursuant to the exchange. Inreverse stock split. The aggregate tax basis of the aggregate, the Stockholder's basispost-reverse stock split shares received in the New Shares will equal such
Stockholder's basis in the Old Shares.
3. A Stockholder's holding period for the New Sharesreverse stock split (including any fraction of a post-reverse stock split share deemed to have been received) will be the same as the shareholder’s aggregate tax basis in the pre-reverse stock split shares exchanged therefor. The shareholder’s holding period for the post-reverse stock split shares will include the period during which the shareholder held the pre-reverse stock split shares surrendered in the reverse stock split.
Our view regarding the tax consequences of the Old Shares exchanged therefore.
The Company willreverse stock split is not recognize any gain or lossbinding on the exchange by reason
of Section 1032Internal Revenue Service or the courts. ACCORDINGLY, EACH SHAREHOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR WITH RESPECT TO ALL OF THE POTENTIAL TAX CONSEQUENCES TO HIM OR HER OF THE REVERSE STOCK SPLIT.
Recommendation of the Code.
The Federal Income Tax discussion with respect toBoard
Our Board of Directors recommends that you vote FOR the Reverse Split set
forth above is included for general information only. All Stockholders are
advised to consult their own tax advisors as to federal, stateamendment of our Amended and local or
foreign tax consequences applicable to them which could result from the Reverse
Split.
STOCKHOLDER VOTE
The affirmative voteRestated Certificate of the holders of shares representing a majority of
the outstanding shares on the record date is required to adopt the Reverse Stock
Split Proposal.
AMENDMENT TO ARTICLES OF INCORPORATION IF PROPOSAL 2 IS APPROVED
If Proposal 2 of this Proxy Statement is approved thereby increasing the
number of authorized shares of Common Stock to 1,000,000,000, and if Proposal 3
of this Proxy statement is approved thereby authorizing the BoardIncorporation to effect a possible reverse stock split of our common stock at a reverse split ratio of between 1 for 2 and if the Board elects to file an amendment to
effect the Reverse Stock Split, then Article "FOURTH" of the Articles of
Incorporation would1 for 10, as will be amended and restated as follows:
"FOURTH". The total number of shares of stock which this corporation is
authorized to issue is: One Billion Ten Million (1,010,000,000) shares of
the par value of $.005 each, amounting to Five Hundred Fifty Thousand
Dollars ($550,000.00), of which One Hundred Million (100,000,000) shares
shall be Common Stock and Ten Million (10,000,000) Shares shall be
Preferred Stock. The Preferred Stock shall have such designations, powers,
preferences, rights, qualifications, limitations and restrictions permitted
under the General Corporation Law of the State of Delaware, which theselected by our Board of Directors of the Corporation may fix by resolution. Upon the effective
date of this Amendment (the "Effective Date"), each 10 shares of Common
Stock outstanding immediately prior to the Effective Date shall be
automatically converted into and reclassified as one sharetime of Common Stock.
No fractional shares will be issued. All fractional shares for one-half
share or more will be increased tofiling such certificate of amendment with the next higher whole numberDelaware Secretary of shares
and all fractional shares less than one-half share will be decreased to the
next lower number of shares, respectively.
AMENDMENT TO ARTICLES OF INCORPORATION IF PROPOSAL 2 IS NOT APPROVED
If Proposal 2 of this Proxy Statement is not approved, and the total number
of authorized shares of Common Stock remains at 500,000,000, and if Proposal 3
of this Proxy statement is approved thereby authorizing the Board to effect a
possible reverse stock split, and if the Board elects to file an amendment to
effect the Reverse Stock Split, then Article "FOURTH" of the Articles of
Incorporation would be amended and restated as follows:
"FOURTH". The total number of shares of stock which this corporation is
authorized to issue is: Five Hundred Ten Million (510,000,000) shares of
the par value of $.005 each, amounting to Two Million Five Hundred Fifty
Thousand Dollars ($2,550,000.00), of which Five Hundred Million
(500,000,000) shares shall be Common Stock and Ten Million (10,000,000)
Shares shall be Preferred Stock. The Preferred Stock shall have such
designations, powers, preferences, rights, qualifications, limitations and
restrictions permitted under the General Corporation Law of the State of
Delaware, which the Board of Directors of the Corporation may fix by
resolution. Upon the effective date of this Amendment (the "Effective
Date"), each 10 shares of Common Stock outstanding immediately prior to the
Effective Date shall be automatically converted into and reclassified as
one share of Common Stock. No fractional shares will be issued. All
fractional shares for one-half share or more will be increased to the next
higher whole number of shares and all fractional shares less than one-half
share will be decreased to the next lower number of shares, respectively.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL
TO EFFECT A POSSIBLE REVERSE SPLIT.
State.
PROPOSAL NO. 4
TO CONSIDER AND ACT UPON A PROPOSAL TO APPROVE
APPROVAL OF AN AMENDMENT TO THE COMPANY'S 20002006 STOCK OPTION PLAN
TO INCLUDE THE BOARDNUMBER OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO
ADOPT THE AMENDED AND RESTATED AURA SYSTEMS, INC. 2000SHARES OF COMMON STOCK OPTION PLAN.
The Company's 2000
INCLUDED THEREIN
In September 2006, our Board of Directors approved the Aura Systems, Inc. 2006 Stock Option Plan (the “Plan”). The Plan was adoptedsubsequently approved by our shareholders on March 6, 2000. In order17, 2009. The Plan is intended to support the Company's long-term incentive compensation programallow designated employees, executive officers, directors, consultants, advisors and enable it
to continue to attractother corporate and retain employees, directors and consultants, the
Board of Directors has determined that it is necessary to amend the plan to
increase the number of shares available for awards and to make certain changes
in the termsdivisional officers of the Plan. Material changesCompany (each a “Participant” and collectively the “Participants”) to the plan include, but are not
limited to: (1) providing that the shares of Common Stock shall be 100,000,000;
(2) the addition of Incentive Stock Options; (3) the addition of other forms of
equity compensation; and (4) the substitution of new Stock Options for
previously granted Stock Options, or for thereceive options granted under other plans
or agreements, in each case including previously granted options having higher
option prices. The changes to the Plan are intended to provide greater
flexibility as to the types of awards that may be granted and the manner in
which they are administered.
The following is a description of the material terms of the Plan as amended
subject to shareholder approval, and as such is qualified by the actual terms of
the Plan, the full text of which is set forth in Exhibit A to this Proxy
Statement.
DESCRIPTION OF THE PLAN
STOCK SUBJECT TO PLAN
The total number of shares of Common Stock which may be issued Shares
awarded under the Plan shall be 100,000,000. Such shares may be authorized but
unissued shares or shares that have been issued and reacquired by the Company.
The payment of any award in cash shall not count against the Plan's share limit.
To the extent a stock option is surrendered for cash or terminates without
having been exercised, or an award terminates without the holder having received
payment of the award, or shares awarded are forfeited, the shares subject to
such award will be available for future awards under the Plan. In addition,
shares surrendered to the Company in payment of the option price or withheld by
the Company to satisfy the award holder's tax liability with respect to an award
will not count against the share limit and will become available for issuance
under the Plan.
ADMINISTRATIONpurchase our common stock. The Plan shall be administered by a committee designated by the Board, or
if no committee is designated, then the plan shall be administered by the entire
Board. (The Board of Directors or committee so acting is referred to in this
description asCompensation Committee, which has the "Administrator"). The Administrator is authorizedauthority to, among other things, grant and amend (provided however that no amendmentthe options, determine the number of options to be granted, determine the time at which the options shall impair
the rights of the award holder without his or her written consent) awards to
eligible persons under the Plan; to adopt, alter and repeal such administrative
rules, guidelines and practices governing the Plan as it shall deem advisable;
to interpretbe granted, establish the terms and provisions ofconditions upon which the Plan and any award granted under
the Plan; and to make all factual and other determinations necessary or
advisable for the administration of the Plan.
ELIGIBILITY
Awards under the Plan may be made by the Administrator, in its discretion,
to all Employees, officers, directors, consultants, advisors and suppliers of
the Company or of any Subsidiary of the Company. In addition, awards under such
Sections may be granted to prospective employees, officers, directors,
consultants, advisors and suppliers but such awards shall not become effective
until the recipient's commencement of employment or service with the Company or
a Subsidiary. Incentive Options may be granted only to employees and prospective
employees. Award recipients under the Plan shall be selected from time to time
by the Administrator, in its sole discretion, from among those eligible. The
maximum number of Stock Options and/or Stock Appreciation Rights that can be
granted in any fiscal year is 25,000,000.
TYPES OF AWARDS
A summary of the types of awards available under the Plan is set forth
below. In general, the Administrator has the authority to grant awards on such
terms and conditions as it may determine in its sole discretion, except where
such discretion is limited by an express provision of the Plan.
1. STOCK OPTIONS. Incentive stock options ("ISOs") and non-qualified stock options may be granted for such numberexercised and determine any conditions or restrictions which will apply to the options. The exercise price of the shares of Common Stock as the
Administrator determines. Acommon stock option will be exercisable at such times, over
such term and subject to such terms and conditions as the Administrator
determines, at an exercise price determined by the Administrator. (ISOs are
subject to restrictions as to exercise period and price as required by the
Internal Revenue Code and may be granted only to employees.) Payment of the
exercise price may be made in such manner as the Administrator may provide,
including one or more of cash, delivery of shares of Common Stock already owned
or subject to award under the Plan, broker-assisted "cashless exercise," or any
other manner determined by the Administrator. The Administrator may provide that
the stock options will be transferable. Upon an optionee's termination of
service, the option will be exercisable to the extent determined by the
Administrator, either in the initial grant or an amendment thereto. The
Administrator may provide that an option that is outstanding on the date of an
optionee's death will remain outstanding for an additional period after the date
of such death, notwithstanding that such option would otherwise have expired
earlier.
If the Company acquires another business, by merger or otherwise, the
Administrator may grant stock options in substitution for any options or other
stock awards or stock-based awards granted by such other business or an
affiliate thereof. Such substitute stock options may be granted on such terms as
the Administrator deems appropriate in the circumstances, notwithstanding any
limitations on stock options contained in the Plan.
2. RESTRICTED STOCK. Restricted stock is stock that has been issued,
subject to forfeiture. In making an award of restricted stock, the Administrator
will determine the periods, if any, during which the stock is subject to
forfeiture, and the purchase price, if any, for the stock. The vesting of
restricted stock (i.e., the point at which it becomes non-forfeitable) may be
conditioned upon the completion of a specified period of service with the
Company or a related company, the attainment of specific performance goals, or
such other criteria as the Administrator may determine. During the restricted
period, the award holder may not sell, transfer, pledge or assign the restricted
stock, except as may be permitted by the Administrator. The certificate
evidencing the restricted stock will be registered in the holder's name,
although the Administrator may direct that it remain in the possession of the
Company until the restrictions have lapsed. Except as may otherwise be provided
by the Administrator, upon the termination of the award holder's service for any
reason during the period before the restricted stock has vested, or in the event
the conditions to vesting are not satisfied, all restricted stock that has not
vested will be subject to forfeiture and the Administrator may provide that any
purchase price paid by the holder, or an amount equal to the restricted stock's
fair market value on the date of forfeiture, if lower, shall be paid to the
holder. During the restricted period, the holder will have the right to vote the
restricted stock and to receive any cash dividends, if so provided by the
Administrator. Stock dividends will be treated as additional shares of
restricted stock and will be subject to the same terms and conditions as the
initial grant, unless otherwise provided by the Administrator.
3. DEFERRED STOCK. A deferred stock award represents the Company's
agreement to deliver shares of Common Stock (or their cash equivalent)options must be at a
specified future time. Such delivery may be conditioned upon the completion of a
specified period of service, the attainment of specific performance goals, or
such other criteria as the Administrator may determine, or may provide for the
unconditional delivery of shares (or their cash equivalent) on the specified
date. In making an award of deferred stock the Administrator will determine the
period during which receipt of the Common Stock will be deferred, and the
period, if any, during which the award is subject to forfeiture, and may provide
for the issuance of stock pursuant to the award without payment therefore. At
the end of the deferral period, and assuming the satisfaction of any
condition(s) to vesting of the award, the award will be settled in shares of
Common Stock, cashleast equal to the fair market value of such stock, or a
combination thereof, as provided by the Administrator. During the deferral
period set by the Administrator, the award holder may not sell, transfer, pledge
or assign the deferred stock award. In the event of termination of service
before the deferred stock award has vested, the award will be forfeited, except
as may be provided by the Administrator. Deferred stock will carry no voting
rights until such time as shares of Common Stock are actually issued. The
Administrator has the right to determine whether and when dividend equivalents
will be paid with respect to a deferred stock award.
4. STOCK APPRECIATION RIGHTS. A Stock Appreciation Right shall entitle the
holder thereof to receive, for each share as to which the award is granted,
payment of an amount, in cash, shares of Common Stock, or a combination thereof,
as determined by the Committee, equal in value to the excess of the Fair Market
Value of a share of Common Stock on the date of grant. The exercise over an amount
specified by the Committee. Any such award shall be in such form and shall have
such terms and conditions as the Committee may determine. The grant shall
specify the numberprice of shares of Common Stock as to which the Stock Appreciation
Right is granted. The Committee may provide that a Stock Appreciation Right may
be exercised only within the 60-day period following occurrence of a Change in
Control. The Committee may also provide that in the event of a Change in Control
the amount to be paid upon exercise of a Stock Appreciation Right shall be based
on the Change in Control Price.
5. BONUS STOCK AWARDS. The Committee may award Bonus Stock to any eligible
award recipient subject to such terms and conditions as the Committee shall
determine. The grant of Bonus Stock may, but need not, be conditioned upon the
attainment of specified performance objectives or upon such other criteria as
the Committee may determine. The Committee may waive such conditions in whole or
in part (except that the Committee may not waive conditions or restrictions with
respect to awards intended to qualify under Section 162(m) of the Code unless
such waiver would not cause the award to fail to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code). Unless
otherwise specified by the Committee, no money shall be paid by the recipient
for the Bonus Stock. Alternatively, the Committee may, after considering any
accounting impact to the Company, offer eligible employees the opportunity to
purchase Bonus Stock at a discount from its Fair Market Value. The Bonus Stock
award shall be satisfied by the delivery of the designated number of shares of
Common Stock which are not subject to restriction.
DEFERRALS OF AWARDS
The Administrator may permit an award recipient to elect to defer receipt
of any award for a specified period or until a specified event, upon such terms
as are determined by the Administrator.
CHANGE OF CONTROL PROVISIONS
The Plan authorizes the Administrator to grant awards that contain special
vesting provisions if there is a Change of Control. If and to the extent
provided in the award, upon a Change of Controlincentive stock options will become fully
exercisable, the restrictions and vesting conditions applicable to restricted
stock and deferred stock will lapse and such shares and awards willmust be deemed
fully vested, and the Administrator, in its sole discretion, may accelerate the
payment date of all vested restricted stock and deferred stock. A "Change of
Control" means generally (1) the acquisition of a majority of the voting power
of the Company's stock by a person, entity, or group (with certain exceptions)
that owned less than 5% of such voting power immediately prior to the Company's
initial public offering; (2) the date on which a majority of the members of the
Board of Directors are not "Current Directors" (which term is defined to mean
the Company's current Directors and Directors whose nomination or election was
approved by a majority of the Directors who at the time were "Current
Directors"); (3) a merger or consolidation with another entity where the
Company's Stockholders immediately prior to the merger or consolidation would no
longer comprise a majority of the voting shares of the surviving Corporation in
substantially the same proportions as their prior ownership, or where the
directors of the Company would not constitute a majority of the Board of
Directors of the surviving Corporation; (4) a sale of substantially all of the
assets of the Company; or (5) approval by the Stockholders of a plan of complete
liquidation of the Company.
AMENDMENT
The Plan is of unlimited duration. The Plan may be discontinued or amended
by the Board of Directors, except that no amendment or discontinuation may
adversely affect any outstanding award without the holder's written consent.
Amendments may be made without Stockholder approval except as required to
satisfy stock exchange or regulatory requirements.
ADJUSTMENT
In the case of certain changes in the Company's structure affecting the
Common Stock, appropriate adjustments may be made by the Board of Directors, in
its sole discretion, in order to prevent dilution or enlargement of benefits, in
the number of shares reserved under the Plan, the number of shares as to which
awards can be granted to any individual in any fiscal year, in the number and
kind of shares or other property subject to awards then outstanding under the
Plan and, where applicable, the amount to be paid by the award holders or the
Company pursuant to awards under the Plan. In addition, upon certain corporate
transactions the Board may, in its discretion, (1) accelerate the vesting and/or
payment date of awards, (2) cash-out outstanding awards, (3) provide for the
assumption of outstanding awards by a surviving or transferee company, (4)
provide that in lieu of shares of Common Stock of the Company, the award
recipient will be entitled to receive the consideration he would have received
for such shares in the transaction (or the value of such consideration in cash),
and/or (5) require stock options to be either exercised prior to the transaction
or forfeited.
AWARDS UNDER THE PLAN
The following table sets forth the number of stock options granted to the
persons set forth below since the adoption of the Plan, including options that
have been exercised, and options that are outstanding.
OPTIONS RECEIVED (OR RECEIVED SUBJECT TO
NAME AND PRINCIPAL POSITION AVAILABILITY OF SHARES)
- --------------------------- ----------------------------------------
Zvi (Harry) Kurtzman 9,934,823
Former Chief Executive Officer
Gerald C. Papazian 2,645,861
Former Chief Operating Officer
Steven C. Veen 2,581,722
Former Chief Financial Officer
Cipora Kurtzman Lavut 3,799,456
Former Senior Vice President
Arthur J. Schwartz 3,927,633
Former Senior Vice President
All current executive officers as a group 7,145,000
All current Directors who are not executive officers as a group 5,480,000
Neal Meehan 3,420,000
Nominee for election as a Director
Carl Albert 3,000,000
Nominee for election as a Director
Harvey Cohen 700,000
Nominee for election as a Director
Lawrence Diamant 250,000
Nominee for election as a Director
Salvador Diaz-Verson, Jr. 680,000
Nominee for election as a Director
John Pincavage 250,000
Nominee for election as a Director
Norman Reitman 600,000
Nominee for election as a Director
All former and current employees, including all current officers 29,896,951
who are not executive officers, as a group
Each other person who received or is to receive 0
5 percent of such options, warrants or rights
Each associate of any Director, executive officer, or nominee 0
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain Federal Income Tax aspects of stock
options that may be awarded under the Plan based upon the laws in effect on the
date hereof.
NON-QUALIFIED STOCK OPTIONS
No income is recognized by the optionee at the time a non-qualified option
is granted. Upon exercise of the option, the optionee recognizes ordinary income
in an amount equal to the excessleast 110% of the fair market value of the shares on the date of exercise overgrant if the option price. At dispositionis awarded to a Participant who owns 10% of the shares,total combined voting power of our stock. The term of an option granted to a Participant may not be more than 10 years and Participants who are subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 may not exercise an option for a period of at least six months and one day from the date of grant. A Participant may exercise an option only if he or she remains employed by the Company from the date of grant to the date of exercise. Upon the termination of employment for any appreciationreason (with the exception of retirement, death or disability), all options that are exercisable by the Participant on the date of termination shall remain exercisable for a period of 90 days after the date of exercisetermination. If a
Participant retires, dies or is treateddisabled, all options that are exercisable by the Participant shall remain exercisable through the end of the term. Unless the stock option agreement indicates otherwise, options granted under the Plan may be transferable only by will or the laws of descent and distribution. Our Board of Directors may suspend, amend or terminate the Plan. However, no amendment or modification of the Plan may be adopted without shareholder approval if such amendment or modification would materially increase the benefits accruing to the Participants or materially increase the number of securities which may be issued under the Plan or which would materially modify the requirements as capital gain.
INCENTIVE STOCK OPTIONS
An optionee generally will not recognize income uponto eligibility for participation in the Plan. As adopted, the Plan indicates that the number of shares of common stock issued and issuable pursuant to the exercise of stock options granted under the Plan may not exceed the greater of 3,000,000 shares or 10% of the number of shares of our common stock from time to time outstanding. On the record date we had a total of 69,983,542 shares of common stock outstanding, therefore the maximum number of shares that could be issued or issuable from the Plan on that date was 6,998,354 shares. As of September 7, 2011, the closing price of a share of our common stock was $0.69.
The table below discloses information about the Plan as of February 28, 2011.
Equity Compensation Plan Information
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted average exercise price of outstanding options warrants and rights (b) | Number of securities remaining available for future issuance under the equity compensation plan (excluding securities reflected in column (a) (c) |
Equity Compensation Plan approved by shareholders(1) | 6,606,500 | $0.75 | XXX |
| Equity Compensation Plan not approved by shareholders | 12,825,000 | $0.75 | 0 |
| (1) | The 2006 Stock Option Plan is the only equity compensation plan we have that has been approved by shareholders. The 2006 Stock Option Plan authorizes the Company to grant stock options exercisable for up to an aggregate number of shares of common stock equal to the greater of (i) 3,000,000 shares of common stock, or (ii) 10% of the number of shares of common stock outstanding from time to time. The numbers in this table are as of February 28, 2011. |
We are asking our shareholders to approve an Incentive Stock Option duringamendment to the periodPlan that would increase the number of his/her employment with the Company
or oneshares of its subsidiaries or within three months after termination of
employment. (The optionee also will not recognize income uponcommon stock issued and issuable pursuant to the exercise of stock options granted under the Plan so that the number will not exceed the greater of 10,000,000 shares or 15% of the number of shares of our common stock from time to time outstanding. A copy of the amendment to the Plan is included as Appendix “C” to this proxy statement. If the amendment is approved, the maximum number of shares issued or issuable under the Plan pursuant to the exercise of stock options will be increased from 6,983,542 shares to 10,497,531 shares.
As of the record date, we had authorized, but not issued, the following stock options to the Participants named in the table below. The total number of option shares covered by the following grants exceed the number of shares currently reserved for issuance under the Plan. As noted in Proposal No. 2, holders of these options have agreed that they will not exercise the options unless Proposal No. 2 is approved by our shareholders.
| Name and Position | Dollar Value | Number of Option Shares |
| Executive officers | ||
| Melvin Gagerman, CEO and Chairman of the Board | 2,450,000 | |
| Dr. Arthur Schwartz, CTO | 1,162,500 | |
| Mr. Yedidia Cohen, VP of Engineering | 400,000 | |
| Dr. Donald Macleod President* | 300,000 | |
| Subtotal Executive officers | 4,312,500 | |
| Nonemployee Directors | ||
| Warren Breslow, Chairman the Audit Committee | 1,650,000 | |
| Salvador Diaz Verson, Chairman of the Compensation Committee | 562,500 | |
| Dr. Maurice Zeitlin, Chairman of the nomination Committee | 862,500 | |
| James Simmons, nominee | 200,000 | |
| Subtotal Nonemployee Directors | 3,275,000 | |
| Harry Kurtzman, general consultant | 5,150,000 |
* Dr. Macleod resigned his position on August 5, 2011. At the time of his resignation, options covering a total of 300,000 shares of our common stock were vested.
As we indicated in our discussion relating to executive compensation, we have placed special emphasis on equity-based compensation, in the form of options and warrants, to preserve our cash for operations. We believe that long-term equity based compensation awards are an Incentiveeffective incentive for senior management to increase the long-term value of our common stock and that these awards aid us in attracting and retaining senior management. These awards provide management with a proprietary interest in our continued growth and performance and more closely align their interests with those of our shareholders. In addition, because options may sometimes terminate when an executive leaves his or her employment, we believe that options are a useful incentive in promoting the retention of executives.
Required Vote for Approval of the Amendment to the 2006 Stock Option within 12 months after the optionee's terminationPlan
The affirmative vote of employment by reason of permanent and total disability, or within the remaining
terma majority of the outstanding shares of common stock on the record date, voting in person or represented by proxy, is required for approval of the amendment to the 2006 Stock Option Plan.
Recommendation of the Board
Our Board of Directors recommends that you vote FOR the Amendment to the 2006 Stock Option Plan.
PROPOSAL NO. 5
APPROVAL OF THE AURA SYSTEMS, INC.
DIRECTOR AND EXECUTIVE OFFICER STOCK OPTION PLAN
Description of the Plan
On September 14, 2011 our Board adopted the Aura Systems, Inc. Directors and Executive Officers Stock Option Plan (the “DEO Plan”). A copy of the DEO Plan is attached to this Proxy Statement as Appendix “D”.
The purpose of the DEO Plan is to attract and retain the services of experienced and knowledgeable individuals to serve as our Directors and executive officers. We currently have five Directors and three executive
officers (two of whom are also Directors) eligible to participate in the DEO Plan. The total number of shares of common stock subject to the DEO Plan is 15% of our shares of common stock outstanding. As of the date the DEO Plan was adopted we had a total of 69,983,542 shares of common stock outstanding, therefore, assuming shareholder approval of Proposal No. 2 and this Proposal No. 5, there will be included in the DEO Plan 10,497,531 shares of common stock available for awards. As of September 7, 2011, the closing price of a share of our common stock was $0.69. The DEO Plan will be administered by the Board of Directors, or any Committee that may be authorized by the Board of Directors, so long as any such Committee is made up of Non-Employee Directors, as that term is defined in Rule 16(b)-3(b) of the Securities Exchange Act of 1934. The grant of an option followingunder the optionee's death). However,DEO Plan is discretionary. The exercise price of an option must be the "spread"
betweenfair market value of the common stock on the date of grant. The exercise price of incentive stock options, which may be issued only to executive officers, must be at least 110% of the fair market value of the shares on the date of grant if the option is awarded to an executive officer who owns 10% of the total combined voting power of our stock. An option grant may be subject to vesting conditions. Options may be exercised in cash, or with shares of our common stock already owned by the participant. The term of an option granted pursuant to the DEO Plan may not be more than 5 years.
A participant in the DEO Plan may not exercise an option for a period of at least six months and one day from the date of grant. A participant may exercise an option only if he continues to serve as a Director or remains employed by us from the date of grant to the date of exercise. Upon termination as a Director or upon termination of employment (for any reason with the exception of retirement, death or disability), all options that are exercisable by the participant on the date of termination shall remain exercisable for a period of 90 days after the date of termination. If a participant retires, dies or is disabled, all options that are exercisable by the participant shall remain exercisable through the longer of 90 days after the date of termination or the end of the term. Unless the stock option agreement indicates otherwise, options granted under the DEO Plan may be transferable only by will or the laws of descent and distribution.
The Board may at any time terminate the DEO Plan or modify or amend the DEO Plan as it deems advisable. The Board may not amend the provisions in the DEO Plan regarding the amount, pricing, and timing for grants more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder.
The issuance of awards is discretionary and, to date, there have been no awards from the DEO Plan that have been allocated to any individual.
Federal Income Tax Consequences
The following is a summary of the federal income tax consequences to us and to participants who receive options under the DEO Plan.
Option Grants. Options granted under the DEO Plan to executive officers may be either “incentive stock options” which satisfy the requirements of Internal Revenue Code Section 422 or “non-qualified stock options” which are not intended to meet such requirements. Directors who are not employees may receive only non-qualified stock options. The federal income tax treatment for the two types of options differs as follows.
Incentive Options. No taxable income is recognized by the executive officer at the time of exercisethe option grant, and no taxable income is recognized for regular tax purposes at the time the option is exercised, although taxable income may arise at that time for alternative minimum tax purposes. The executive officer will recognize taxable income in the year in which the purchased shares are sold or otherwise made the subject of certain other dispositions. For federal tax purposes, dispositions are divided into two categories: (i) qualifying, and (ii) disqualifying. A qualifying disposition occurs if the sale or other disposition is made more than two years after the date the option for the shares involved in such sale or disposition is granted and more than one year after the date the option is exercised for those shares. If the sale or disposition occurs before these two periods are satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the executive officer will recognize long-term capital gain in an amount equal to the excess of (a) the amount realized upon the sale or other disposition of the purchased shares over (b) the exercise price paid for the shares. If there is includible in the calculation of alternative minimum taxable
income for purposesa disqualifying disposition of the alternative minimum tax. Theshares, then the excess of (y) the fair
market value of those shares on the exercise of an Incentive
Stock Option afterdate or (if less) the expirationamount realized upon such sale or disposition over (z) the exercise price paid for the shares will be taxable as ordinary income to the executive officer. Any additional gain recognized upon the disposition will be a capital gain. If the executive officer makes a disqualifying disposition of the specified time periods resultspurchased shares, then we will be entitled to an income tax deduction, for the taxable year in which such exercise being treated indisposition occurs, equal to the same manneramount of ordinary income recognized by the executive officer as the exercise of a non-qualified
stock option.
If the optionee holds the shares received throughout the "ISO holding
period", which is both the two-year period after the ISO was granted and the
one-year period after the exerciseresult of the ISO,disposition. We will not be entitled to any income tax deduction if the optionee will recognize
capital gain or loss when he/she disposesexecutive officer makes a qualifying disposition of the shares. Such gain or lossThe deduction will in general be measuredallowed for our taxable year in which such ordinary income is recognized by the difference betweenexecutive officer.
Non-Qualified Stock Options. No taxable income is recognized by a participant upon the exercise price and the amount received
for the shares at the timegrant of disposition. If the shares acquired upon exercise
of an ISO are disposed of before the end of the ISO holding period, the
disposition is a "disqualifying disposition," which causes the optionee tonon-statutory option. The participant will, in general, recognize ordinary income in an amount generallythe year in which the option is exercised, equal to the lesser of (i) the excess of the fair market value of the purchased shares on the option exercise date over the exercise price or (ii) the excess of the amount received upon disposition ofpaid for the shares, overand the exercise price. Any excess of the amount received upon disposition of
the shares over the value of the shares on the exercise dateparticipant will be taxedrequired to satisfy the optionee as capital gain.
COMPANY DEDUCTIONS
As a general rule, the Company or one of its subsidiariestax withholding requirements applicable to such income. We will be entitled to aan income tax deduction for Federal Income Tax purposes atequal to the same time and in the same
amount that an employee or Director recognizesof ordinary income from awards underrecognized by the Plan, to the extent such income is considered reasonable compensation under
the Internal Revenue Code. The Company will not, however, be entitled to a
deductionparticipant with respect to payments that are contingent upon a change of control
ifthe exercised non-statutory option. The deduction will in general be allowed for our taxable year in which such payments are deemed to constitute "excess parachute payments" pursuant
to Section 280Gordinary income is recognized by the participant.
Required Vote for Approval of the CodeAura Systems, Inc. Directors and do not qualify as reasonable compensation
pursuant to that Section; such payments will subject the recipients toExecutive Officers Stock Option Plan
The affirmative vote of a 20%
excise tax. In addition, the Company will not be entitled to a deduction to the
extent compensation in excess of $1 million is paid to an executive officer
named in the proxy statement who was employed by the Company at year-end, unless
the compensation qualifies as "performance based" under Section 162(m)majority of the Code. The Plan authorizesoutstanding shares of common stock on the Administrator to grant awards that qualify as
"performance based", as well as awards that do not qualify.
MISCELLANEOUS
On December 10, 2002, the pricerecord date, voting in person or represented by proxy, is required for approval of the Company's stock was $0.07 per share.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL
TO ADOPT THE AMENDED AND RESTATED AURA SYSTEMS, INC. 2000 STOCK OPTION PLAN.
PROPOSAL NO. 5
INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSED
RATIFICATION OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP AS THE COMPANY'S
INDEPENDENT AUDITORS.
Theadoption of the Aura Systems, Inc. Directors and Executive Officers Stock Option Plan.
Recommendation of the Board
Our Board of Directors upon recommendationrecommends that you vote FOR the approval of the Audit Committee, has
selected Singer Lewak Greenbaum & Goldstein LLP as independent auditors to
examine the Company's accounts for the fiscal year ending February 28, 2003,Aura Systems, Inc. Directors and has further directed that Management submit the selection of independent
auditors for ratification by the Stockholders at the Annual Meeting of
Shareholders. Representatives of Singer Lewak Greenbaum & Goldstein LLP are
expected to be present at the Executive Officers Stock Option Plan.
MISCELLANEOUS
Shareholder Meeting, will have the opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions. If the Stockholders do not ratify the selection of Singer
Lewak Greenbaum & Goldstein LLP, the Board of Directors will reconsider the
selection of independent auditors.
FEES PAID TO SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
---------------------------------------------------
The Audit Committee retained Singer Lewak Greenbaum & Goldstein LLP as the
Company's independent auditors to audit the Company's financial statements for
Fiscal 2002. The aggregate fees billed by Singer Lewak Greenbaum & Goldstein LLP
include fees for the following services rendered during Fiscal 2002:
AUDIT FEES - totaling $74,588.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES - Singer did
not render professional services relating to financial information systems
design and implementation for the fiscal year ended February 28, 2002.
ALL OTHER FEES - totaling $44,813.
The Audit Committee has concluded that the provisions of the non-audit
services listed above as "All Other Fees" and "Financial Information Systems
Design and Implementation Fees" are compatible with maintaining the independence
of Singer Lewak Greenbaum & Goldstein LLP.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSED
RATIFICATION OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP AS THE COMPANY'S
INDEPENDENT AUDITORS.
AUDIT COMMITTEE REPORT
The Company maintains an Audit Committee (the "Committee"), consisting
entirely of outside, disinterested Directors who are not employees or former
employees of the Company. The primary purpose of the Audit Committee is to
assist the Board of Directors in its general oversight of the Company's
financial reporting process. The Committee annually reviews the NASD standard of
independence for audit committees and at its most recent review determined that
the Committee meets that standard.
Management is responsible for the preparation, presentation, and integrity
of the Company's financial statements, accounting and financial reporting
principles, internal controls, and procedures designed to ensure compliance with
accounting standards, applicable laws, and regulations. The Company's
independent auditors, Singer Lewak Greenbaum & Goldstein LLP, are
responsible for performing an independent audit of the consolidated financial
statements and expressing an opinion on the conformity of those financial
statements with generally accepted accounting principles.
The Committee has reviewed and discussed the audited financial statements
of the Company for the fiscal year ended February 28, 2002 with the Company's
management and has discussed with Singer Lewak Greenbaum & Goldstein LLP the
matters required to be discussed by Statement on Auditing Standards Board
Standard No. 61, as amended, "Communication with Audit Committees". In addition,
Singer Lewak Greenbaum & Goldstein LLP has provided the Audit Committee with the
written disclosures and the letter required by the Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees", and the Audit
Committee has discussed with Singer Lewak Greenbaum & Goldstein LLP their
independence. Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that our audited financial
statements be included in our Annual Report on Form 10-K for the fiscal year
ended February 28, 2002.B
In August 1998, a lawsuit captioned COLLINS V. KURTZMAN ET AL. was filed in
U.S. District Court in the Central District of California, which purported to be
a derivative Proposals
Shareholder suit on behalf of Aura against members of the Board of
Directors of the Company. Aura believes that the action was without merit. In
April 1999, a final settlement was entered into by the parties which called for
a dismissal of the action and no payments by any of the defendants. In
consideration of the plaintiff dismissing its lawsuit, Aura agreed to adopt and
implement a fraud detection program (the "Program") under the auspices of the
Audit Committee, after consulting with the Company's outside legal counsel and
independent auditors. The purpose of the Program is to detect and prevent fraud,
maintain accurate books and records for financial transactions, establish
procedures to ensure the recording of transactions to be in accordance with
generally accepted accounting principles, and to ensure that the Company's SEC
filings comply with SEC rules and regulations. The Audit Committee is
responsible for monitoring the Program on an ongoing basis with the assistance
of the Company's outside legal counsel and its independent auditors.
COMMITTEE MEMBERS
-----------------
John Pincavage, Harvey Cohen, and Norman Reitman
MISCELLANEOUS
STOCKHOLDER PROPOSALS FOR THE FISCAL 2003 ANNUAL MEETING
Stockholder proposals complying with the applicable rules under the Securities Exchange Act of 1934 intended to be presented at the Fiscal 20032012 Annual Meeting of StockholdersShareholders must be received at the offices of the Company by September 15,
20031January 1 2012, to be considered by Aura for inclusion in Aura's Proxy Statementthe Company’s proxy statement and Formform of Proxyproxy relating to that meeting. Such proposals should be directed to the attention of the Corporate Secretary, Aura Systems, Inc., 2335 Alaska1310 E. Grand Avenue, El Segundo, CA 90245. The Stockholder's written notice relating to proposals otherSecurities and Exchange Commission rules provide that if the date of our 2011 Annual Meeting is advanced or delayed more than for
Director nominees must contain (i)30 days from the name and addressdate of the Stockholder
making the proposal, (ii) any material interest of the Stockholder in the
proposal, and (iii) such information concerning the person making the proposal
and the proposal itself as would be required by SEC rules2011 Annual Meeting, shareholder proposals intended to be included in the proxy materials for the 2012 Annual Meeting must be received by us within a reasonable time before we begin to print and mail the proxy materials for the 2012 Annual Meeting. Upon determination by the Company that the date of the 2012 Annual Meeting will be advanced or delayed by more than 30 days from the date of the 2011 Annual Meeting, we will disclose that change in the earliest possible Quarterly Report on Form 10-Q or as otherwise permitted by Securities and Exchange Commission rules.
Additional Information
A copy of our Annual Report on Form 10-K for the fiscal year ended February 28, 2011, which has been filed with the SEC pursuant to the Exchange Act, is being furnished to you along with this Proxy Statement Additional copies of this Proxy Statement, Annual Report, as well as copies of any Quarterly Report on Form 10-Q or Current Reports on Form 8-K may be obtained without charge upon written request to the Corporate Secretary, Aura Systems, Inc., 1310 E. Grand Avenue, El Segundo, CA 90245, or on the SEC’s Internet website at www.sec.gov.
Householding of Meeting Materials
Some banks, brokers, and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our Proxy Statement or Annual Report may have been sent to multiple shareholders in your household. We will promptly provide a separate copy of either document to you if you contact us c/o Corporate Secretary, Aura Systems, Inc., 1310 E. Grand Avenue, El Segundo, CA 90245. If you want to receive separate copies of the annual report and proxy statement soliciting proxiesin the future or if you are receiving multiple copies and would like to receive only one copy for such proposal. Presentationyour household, you should contact your bank, broker or other nominee record holders, or you may contact us.
Other Matters
We know of any
Stockholder proposal at the Annual Meeting is also subject to procedures
established by the Chairman of the Meeting consistent with Delaware corporate
law.
OTHER MATTERS
Neither Aura, nor any of the persons named as Proxies, knows ofno other matters
other than those above stated to be voted onsubmitted to the shareholders at the Annual Meeting. However, ifIf any other matters are properly presentedcome before the shareholders at the meeting,Annual Meeting, it is the intention of the persons named as Proxieson the proxy to vote the shares represented thereby on such matters in accordance with their best judgment, on such
matters, subject to direction by the Board of Directors.
Under the Company's By-Laws, nominations for Director
APPENDIX “A”
AUTHORIZED SHARES AMENDMENT
CERTIFICATE of AMENDMENT of
AMENDED AND RESTATED CERTIFICATE of INCORPORATION of
AURA SYSTEMS, INC.
Pursuant to §242 of the CompanyGeneral Corporation Law of the State of Delaware
Aura Systems, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), hereby certifies as follows:
The Amended and Restated Certificate of Incorporation of the Corporation is hereby amended as follows:
1. Article Fourth is hereby amended as follows:
“Fourth: The total number of shares of stock which the Corporation is authorized to issue is One Hundred Fifty Million (150,000,000) shares of common stock with a par value of $0.0001 per share.”
The foregoing amendment has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by the vote of a majority of each class of outstanding stock of the Corporation entitled to vote thereon.
IN WITNESS WHEREOF, I have signed this Certificate this _____ day of October, 2011.
Melvin Gagerman
Authorized Officer
APPENDIX “B”
FORM OF REVERSE SPLIT AMENDMENT
CERTIFICATE of AMENDMENT of
AMENDED AND RESTATED CERTIFICATE of INCORPORATION of
AURA SYSTEMS, INC.
Pursuant to §242 of the General Corporation Law of the State of Delaware
Aura Systems, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), hereby certifies as follows:
The Amended and Restated Certificate of Incorporation of the Corporation is hereby amended as follows:
1. Article Fourth is hereby amended as follows:
Fourth: The total number of shares of stock which the Corporation is authorized to issue is ________________ Million (___0,000,000) shares of common stock with a par value of $0.0001 per share. Each _____________ (___) shares of the Corporation’s common stock, par value $0.0001 per share, issued and outstanding as of 5:00 p.m. eastern time on the date this Certificate of Amendment is filed with the Secretary of State of the State of Delaware shall be converted and reclassified into one (1) share of the Corporation’s common stock, par value $0.0001 per share. Any fractional shares resulting from such conversion will be rounded up to the nearest whole number.
The foregoing amendment has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by the vote of a majority of each class of outstanding stock of the Corporation entitled to vote thereon.
IN WITNESS WHEREOF, I have signed this Certificate this _____ day of _____________, 201__.
Melvin Gagerman
Authorized Officer
APPENDIX “C”
AMENDMENT TO AURA SYSTEMS, INC. 2006 STOCK OPTION PLAN
AMENDMENT DATED OCTOBER ___, 2011 TO THE
AURA SYSTEMS, INC.
2006 STOCK OPTION PLAN
In accordance with paragraph 14 of that certain Aura Systems, Inc. 2006 Stock Option Plan (the “Plan”), the board of directors of Aura Systems, Inc. does hereby amend the Plan by modifying the following sentence of paragraph 4 which states:
Subject to the provisions of paragraph 11 hereof, the number of shares of Common Stock issued and issuable pursuant to the exercise of Stock Options granted hereunder shall not exceed the greater of Three Million (3,000,000) or 10% of the number of shares of the Common Stock of Aura from time to time outstanding.
to state as follows:
Subject to the provisions of paragraph 11 hereof, the number of shares of Common Stock issued and issuable pursuant to the exercise of Stock Options granted hereunder shall not exceed the greater of Ten Million (10,000,000) or 15% of the number of shares of the Common Stock of Aura from time to time outstanding.
In all other Stockholder proposals,respects, the terms and conditions of the Plan shall remain the same.
WHEREFORE, this Amendment dated October ___, 2011 to the Aura Systems, Inc. 2006 Stock Option Plan has been executed in El Segundo, California on October ___, 2011.
| DIRECTORS: |
______________________________
Melvin Gagerman
_______________________________
Arthur J. Schwartz, Ph.D.
_____________________________
James M. Simmons
_____________________________
Warren Breslow
Salvador Diaz-Verson, Jr.
APPENDIX “D”
AURA SYSTEMS, INC.
DIRECTORS AND EXECUTIVE OFFICERS STOCK OPTION PLAN
1. Purpose
The purpose of the Aura Systems, Inc. Director and Executive Officer Stock Option Plan (the “Plan”) is to attract and retain the services of experienced and knowledgeable directors and executive officers of Aura Systems, Inc. (the “Corporation”) for the benefit of the Corporation and its stockholders and to provide additional incentive for such directors and executive officers to continue to work for the best interests of the Corporation and its stockholders through continuing ownership of its common stock.
2. Shares Subject to the Plan
The total number of shares of common stock (“Shares”) of the Corporation for which options may be granted under the Plan shall not exceed 15% of the Corporation’s issued and outstanding shares of common stock. Subject to the foregoing, the total aggregate number of Shares reserved and available for grant and issuance pursuant to the Plan will be 10,497,473, and shall increase as the number of shares of common stock outstanding is increased. Within the foregoing limitations, Shares for which options have been granted pursuant to the Plan but which options have lapsed or otherwise terminated shall become available for the grant of additional options.
3. Administration of Plan
The Board of Directors of the Corporation shall administer the Plan. The Board may delegate responsibility for administration of the Plan to a Board committee (the “Committee”) composed solely of two or more directors, each of whom is a “Non-Employee Director” as that term is defined in Rule 16b-3(b) promulgated by the Securities and Exchange Commission pursuant to its authority under the Securities Exchange Act of 1934 (the “Exchange Act”). The Board or the Committee, as the case may be, shall have the power to construe the Plan, to determine all questions arising thereunder, and to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable. References to the “Board” in this Plan shall be deemed to refer to either the Board or the Committee, whichever is appropriate in the context in which the word is used.
4. Discretionary Option Grants
Pursuant to this Plan, the Board may grant in its discretion an option to any person who is elected or appointed a director or an executive officer of the Corporation. An executive officer shall be defined in accordance with Rule 3b-7 of the Securities Exchange Act of 1934. No director or executive officer shall have any claim or right to be granted an option under this Plan. Having received an option under this Plan shall not give a director or an executive officer any right to receive any other grant or option under this Plan and the Board may determine that any or all director(s) or executive officer(s)
are not eligible to receive an option under this Plan for an indefinite period or for a specified year or years.
5. Option Agreement
Each option granted under the Plan shall be evidenced by an option agreement (the “Agreement”) duly executed on behalf of the Corporation and by the director or executive officer to whom such option is granted, which Agreements may, but need not be, identical and which shall (a) comply with and be subject to the terms and conditions of the Plan and (b) provide that the director or executive officer agrees not to exercise an option granted from this Plan for a period of at least six months and one day from the date of grant. Any Agreement may contain such other terms, provisions, and conditions not inconsistent with the Plan as may be determined by the Board. No option shall be deemed granted within the meaning of the Plan and no purported grant of any option shall be effective, until such Agreement shall have been duly executed on behalf of the Corporation and the director to whom the option is to be granted.
6. Option Exercise Price
The exercise price for an option granted pursuant to Section 4 of the Plan may not be less than fair market value, provided, however, that the exercise price must be at least 110% of the fair market value of the shares on the date of grant if the option is intended to compy with Section 422 of the Internal Revenue Code and is awarded to an executive officer who owns 10% of the total combined voting power of the Corporation’s common stock. For purposes hereof, fair market value shall be the closing price of the Corporation’s common stock on the date of the option grant, as reported on the principal national securities exchange or quotation service on which the Shares are then listed for trading.
7. Time and Manner of Exercise of Option
(a) The Board shall set the vesting schedule for options granted pursuant to Section 4 of the Plan in its discretion.
(b) To the extent that the right to exercise an option has vested and is in effect, the option may be exercised from time to time, by giving written notice, signed by the person or persons exercising the option, to the Corporation, stating the number of Shares with respect to which the option is being exercised, accompanied by payment in full for such Shares, which payment may be in whole or in part in shares of the common stock of the Corporation already owned by the person or persons exercising the option, valued at fair market value on the date of payment. For purposes hereof, the fair market value of shares already owned by the person or persons exercising the option shall be the closing price of the shares on the exercise date as reported on the principal national securities exchange or the quotation service on which the Shares are then listed for trading.
(c) Upon exercise of the option, delivery of a certificate for fully paid and non-assessable Shares shall be made at the principal office of the Corporation to the person or persons exercising the option as soon as practicable (but in no event more than 30 days) after the date of receipt of the notice of exercise by the Corporation, or at such time, place, and manner as may be agreed upon by the Corporation and the person or persons exercising the option.
8. Term of Options
Each option shall expire no more than five years from the date of the granting thereof. The options shall be subject to earlier termination as follows:
(a) In the event of the death, retirement or disability of an option holder, the option granted to such person may be exercised, to the extent exercisable on the date of such person’s death, retirement or disability, on the later of (i) any date prior to the date on which the option expires by its terms or (ii) 90 days, by the person or the estate of such person, or by any person or persons who acquired the right to exercise such option by will or by the laws of descent and distribution.
(b) In the event that an option holder ceases to be a director or executive officer of the Corporation, other than thoseby reason of his or her death, retirement or disability, an option granted to such person may be exercised, to the extent exercisable on the date such person ceases to be a director or executive officer, within 90 days after the date such person ceases to be a director or executive officer (irrespective of the option expiration date) unless the Board or the Committee designates another date that is a later date.
9. Merger, Consolidation, Sale of Assets, etc., Resulting in a Change in Control
(a) In the event of a Change in Control (as hereinafter defined), notwithstanding the vesting provisions contained in the Agreement granting an option to a director or an executive officer pursuant to this Plan, such option shall become fully exercisable if, within one year of such Change in Control, such director or executive officer shall cease for any reason to be a member of the Board or an employee of the Corporation. For purposes hereof, a Change in Control of the Corporation shall be deemed to have occurred if (i) there shall be consummated (x) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the common stock of the Corporation would be converted into cash, securities, or other property, other than a merger of the Corporation in which the holders of the common stock of the Corporation immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (y) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation; or (ii) the stockholders of the Corporation approve any plan or proposal for the liquidation or dissolution of the Corporation; or (iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) shall
become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of more that 50% of the Corporation’s outstanding common stock.
(b) Any exercise of an option permitted pursuant to this Section 9 shall be made within 15 days of the director’s or the executive officer’s termination as a director or employee.
10. Options Not Transferable
An option granted pursuant to the Plan may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the option holder, only by the option holder; provided that the Board may permit further transferability, on a general or specific basis, and may impose conditions and limitations on any permitted transferability.
11. No Rights as Stockholder Until Exercise
Neither the recipient of an option under the Plan nor his successors in interest shall have any rights as a stockholder of the Corporation with respect to any Shares subject to an option granted to such person until such person becomes a holder of record of such Shares.
12. Adjustments Upon Changes in Capitalization or Merger
Subject to any required action by the stockholders of the Corporation, the number of shares of common stock covered by each outstanding option, and the number of shares of common stock which have been authorized for issuance under the Plan but as to which no options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an option, as well as the price per share of common stock covered by each outstanding option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the common stock, or any other increase or decrease in the number of issued shares of common stock effected without receipt of consideration by the Corporation; provided, however, that conversion of any convertible securities of the Corporation shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding, and conclusive. Except as expressly provided herein, no issuance by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of common stock subject to an option.
In the event of the proposed dissolution or liquidation of the Corporation, an outstanding option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any option shall terminate as of a date fixed by the Board and give each option holder the right to exercise an option as to all or any part of the stock covered by such option, including Shares as to which the option would not otherwise be exercisable. In the event of a proposed sale of all or substantially all of the assets of the Corporation, or the merger of the Corporation with or into another corporation, each option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless such successor corporation does not agree to assume each option or to substitute an equivalent option, in which case the Board shall, in lieu of such assumption or substitution, provide for the option holder to have the right to exercise such option as to all of the stock covered by such option, including Shares as to which such option would not otherwise be exercisable. If the Board makes an option fully exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the option holder that the option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the option will terminate upon the expiration of such period.
13. Restrictions on Issue of Shares
Notwithstanding anything in this Plan to the contrary, the Corporation may delay the issuance of Shares covered by the exercise of any option and the delivery of a certificate for such Shares until one of the following conditions shall be satisfied:
(a) the Shares with respect to which an option has been exercised are at the time of the issue or transfer of such Shares effectively registered under applicable federal securities laws now in force or hereafter amended; or
(b) counsel for the Corporation shall have given an opinion, which opinion shall not be unreasonably conditioned or withheld, that such Shares are exempt from registration under applicable federal securities laws now in force or hereafter amended.
It is intended that all exercises of options shall be effective. Accordingly, the Corporation shall use its best efforts to bring about compliance with the above conditions within a reasonable time, except that the Corporation shall be under no obligation to cause a registration statement or a post-effective amendment to any registration statement to be prepared at its expense solely for the purpose of covering the issuance or transfer from the Corporation’s treasury of Shares in respect of which any option may be exercised.
14. Purchase for Investment
Unless the Shares to be issued upon exercise of an option granted under the Plan have been effectively registered under the Securities Act of 1933 as now in force or hereafter amended, the Corporation shall be under no obligation to issue or transfer any Shares covered by any option unless the person or persons who exercise such option, in whole or in part, shall give a written representation and undertaking to the Corporation,
which is satisfactory in form and scope to counsel to the Corporation and upon which, in the opinion of such counsel, the Corporation may reasonably rely, that he or she is acquiring the shares issued or transferred to him or her for his or her own account as an investment and not with a view to, or for sale in connection with, the distribution for any such Shares, and that he or she will make no transfer of the same except in compliance with any rules and regulations in force at the time of such transfer under the Securities Act of 1933, or any other applicable law, and that if Shares are issued or transferred without such registration a legend to this effect may be placed upon the certificates representing the Shares.
15. Effective Date
The effective date (the “Effective Date”) of this Plan shall be the date on which the Plan is approved by the Board of Directors of the Corporation.
16. Expenses of the Plan
All costs and expenses of the adoption and administration of the Plan shall be borne by the Corporation and none of such expenses shall be charged to any director.
17. Termination and Amendment of Plan
Unless sooner terminated as herein provided, the Plan shall terminate ten years from the Effective Date. The Board may only be made by Stockholdersat any time terminate the Plan or make such modification or amendment thereof as it deems advisable. The Board shall not amend the provisions in the Plan regarding the amount, pricing, and timing for grants pursuant to this Plan more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. Termination or any modification or amendment of record on the record date who have delivered
a written noticePlan shall not, without the consent of an option holder, affect his or her rights under an option previously granted to him or her.
AURA SYSTEMS, INC.
1310 E. Grand Avenue
El Segundo, California 90245
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Aura Systems, Inc. (the “Company”) hereby appoints Melvin Gagerman and Arthur J. Schwartz, and each of them, as the Secretaryattorneys and proxies of the undersigned, with the powers the undersigned would possess if personally present, and with full power of substitution, to vote all shares of common stock of the Company no later than 10 days followingat the NoticeAnnual Meeting of Annual Meeting.
AVAILABLE INFORMATION
The 2002 Annual ReportShareholders of the Company to Stockholders accompanies thisbe held on Thursday, October 27, 2011 at 10:30 a.m. Pacific Time at 1310 E. Grand Avenue, El Segundo, CA 90245, and at any adjournment or postponement thereof, upon all subjects that may properly come before the meeting, including the matters described in the Proxy Statement butfurnished herewith, subject to any directions indicated below.
PROPOSAL 1 – Election of Directors: (CHECK ONE ONLY)
| FOR all five nominees listed below. |
| WITHHOLD AUTHORITY to vote for all five nominees for director listed below. |
FOR all five nominees for director listed below, except WITHHOLD AUTHORITY to vote for the nominee(s)
whose name(s) is not(are) lined through.
Nominees for election to the Board of Directors are MELVIN GAGERMAN, ARTHUR J. SCHWARTZ, JAMES MARVIN SIMMONS, WARREN BRESLOW and SALVADOR DIAZ-VERSON, JR.
PROPOSAL 2 – To approve an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 75,000,000 to 150,000,000.
FOR AGAINST ABSTAIN
PROPOSAL 3 – To approve an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split at a ratio of between 1 for 2 and 1 for 10, as determined by the Board of Directors, at any time prior to September 30, 2012.
FOR AGAINST ABSTAIN
PROPOSAL 4 – To amend the Aura Systems, Inc. 2006 Stock Option Plan to increase the number of shares of common stock issuable thereunder.
FOR AGAINST ABSTAIN
PROPOSAL 5 – To approve the Aura Systems, Inc. 2011 Director and Executive Officer Stock Option Plan.
FOR AGAINST ABSTAIN
This proxy when properly executed will be deemed a part ofvoted in the manner directed herein by the undersigned shareholders(s). If no direction is made, this proxy soliciting material.
While you havewill be voted “FOR” the matter in mind, please complete, sign and return the
enclosed proxy card promptly.
By Ordernominees of the Board of Directors /s/ Michael I. Froch
Michael I. Froch
SECRETARY
El Segundo, California
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1 SEC requirement is forin the election of directors and “FOR” proposals 2, 3, 4 and 5. This proxy also delegates discretionary authority to be received at a reasonable timevote with respect to any other business that may properly come before the Company begins to printmeeting or any adjournment or postponement thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT FURNISHED IN CONNECTION THEREWITH AND HEREBY RATIFIES ALL THAT THE SAID ATTORNEYS AND PROXIES MAY DO BY VIRTUE HEREOF.
Dated: , 2011
Shareholder Signature
Shareholder Signature
Note: Please mark, date and mail itssign this proxy materials. Accordingly,card and return it in the date inserted must be reasonableenclosed envelope. Please sign as your name appears hereon. If shares are registered in termsmore than one name, all owners should sign. If signing in a fiduciary or representative capacity, please give full title and attach evidence of next year's mailing schedule.
(See Reg. 14a-8(e)).
EXHIBIT A
AMENDED AND RESTATED 2000 STOCK OPTION PLAN