EX-10 10 exhibitnn.htm EXHIBIT NN Security Agreement - Raven Partners (00168503.DOC;3)

SECURITY AGREEMENT

This Security Agreement (this "Agreement") is entered into as of June 14, 2004, by AURA SYSTEMS, INC. a Delaware corporation (the "Debtor"), for the benefit of RAVEN PARTNERS, L.P., a Delaware limited partnership (the "Secured Party").

R E C I T A L S :

    1. The Debtor has requested that the Secured Party extend a loan to the Debtor.

    2. Such loan is to be evidenced by a Convertible Promissory Note dated the date hereof made by the Debtor in favor of the Secured Party (the "Note").

    3. Secured Party has required, as a condition of making such loan, that the Debtor grant a security interest in all of its personal property to secure such loan and any other present or future obligations of the Debtor.

    4. In order to induce the Secured Party to make such loan, the Debtor is willing to grant such security interest as further provided herein.

    5. Debtor has previously granted: (i) a first priority security interest in the same collateral in favor of Koyah Leverage Partners, L.P., a Delaware limited partnership, as collateral agent (the "Koyah Collateral Agent") for itself and Koyah Partners, L.P. a Delaware limited partnership (collectively "Koyah") to secure loans made by Koyah; (ii) a security interest to Edgar Appleby, an individual ("Appleby"), to secure a loan made by Appleby; and (iii) a security interest to Prudent Bear Fund, Inc., a Maryland corporation ("Prudent Bear"), to secure a loan made by Prudent Bear.

NOW, THEREFORE, the Debtor hereby agrees with the Secured Party as follows:

ARTICLE I. DEFINITIONS

Unless otherwise defined herein, any terms used herein (whether or not capitalized, such as "accounts," "inventory" and "equipment") which are defined in the Uniform Commercial Code as enacted in the State of Washington, as amended from time to time, shall have the meaning assigned to such term therein. Unless otherwise defined herein, any capitalized terms used herein which are defined in the Note shall have the meaning assigned to them therein. In addition, the following terms shall have the meaning set forth below:

"Collateral" means all of the Debtor's personal property and fixtures of every nature whether tangible or intangible and whether now owned or hereafter acquired, wherever located, including without limitation the following:

(i) (a) All goods; (b) all inventory, merchandise, and personal property held for sale or lease or furnished or to be furnished under contracts of service, all raw materials, work in process, or materials used or consumed in Debtor's business, wherever located and whether in the possession of the Debtor, a warehouseman, a bailee, or any other person; (c) all equipment, machinery, tools, office equipment, supplies, furnishings, furniture, or other items used or useful, directly or indirectly, in the Debtor's business, (d) all fixtures; and (e) all substitutes and replacements therefore, all accessions, attachments, and other additions thereto, all tools, parts and supplies used in connection therewith, all packaging, manuals, warranties and instructions related thereto, and all leasehold or equitable interests therein;

(ii) (a) All accounts, accounts receivable, contract rights, contracts receivable, purchase orders, notes, drafts, acceptances, and other rights to payment and receivables; (b) all chattel paper (whether tangible or electronic), documents and instruments (including promissory notes); (c) all money and deposit accounts; (d) all letter of credit rights (whether or not the letter of credit is evidenced by a writing), rights under security, guaranties or other supporting obligations, tort claims and proceeds, insurance claims and proceeds, and tax refund claims and proceeds; (e) all securities and other investment property; (f) all general intangibles and payment intangibles, (g) all patents and patent applications and registrations, trademarks and trademark applications and registrations, service marks and service mark applications and registrations, and copyrights and copyright applications and registrations (collectively the "Patents, Trademarks and Copyrights"), including without limitation the patents, patent applications, trademarks and trademark applications and copyrights and copyright applications owned by the Debtor on Schedule 1 hereto, or licensed to the Debtor on Schedule 2 hereto; (h) all trade names, trade styles, goodwill, inventions, designs, methods, processes, technology, know-how, intellectual property, drawings, specifications, blue prints, confidential information, trade secrets, customer lists, supplier lists, software and computer programs, mask works, and mask work applications and registrations, goodwill, license agreements, franchise agreements and other licenses, permits, franchises, and agreements of every kind and nature pursuant to which the Debtor possesses, uses or has authority to possess or use any property (whether tangible or intangible) of the Debtor or pursuant to which others possess, use or have authority to possess or use any property (whether tangible or intangible) of the Debtor, and infringement and commercial tort claims; and (i) all business records, software, writings, plans, specifications, schematics, and other recorded data in any form; and

(iii) All products and proceeds of the foregoing and all other property received or receivable in disposition of or exchange of the foregoing.

"Event of Default" means any default in payment or performance of the Obligations.

"Obligations" means any and all obligations and liabilities of every nature of the Debtor to the Secured Party, whether now existing or hereafter incurred, including without limitation those arising out of or in connection with the Note, this Agreement or any other agreements with the Secured Party. The Obligations shall specifically include any and all principal, interest (including without limitation interest that, but for the filing of a petition in bankruptcy, would accrue on such obligations), fees, expenses, indemnities or other obligations or liabilities, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created, or incurred, as well as any and all of such obligations or liabilities that are paid, to the extent such payment is avoided or recovered directly or indirectly from the Secured Party as a preference, fraudulent transfer, or otherwise, together with any and all amendments, modifications, extensions or renewals of the foregoing.

ARTICLE II. GRANT OF SECURITY INTEREST

To secure the payment and performance of the Obligations, the Debtor hereby grants a continuing security interest in the Collateral, and assigns the Collateral, to the Secured Party. Such security interest of the Secured party is (i) junior to the first-priority security interest previously granted to the Koyah Collateral Agent, and (ii) junior to the second-priority security interests granted in favor of Appleby and Prudent Bear, and subject to the terms and conditions of the Intercreditor Agreement (as defined below).

ARTICLE III. COVENANTS OF THE DEBTOR

The Debtor shall fully perform each of the covenants set forth below.

3.1 Further Documentation

Promptly upon request of the Secured Party and at the Debtor's expense, the Debtor (a) shall prepare, execute, deliver and file any financing statement, any filing with the Patent and Trademark Office, Copyright Office or other applicable office, and any renewal, substitution or correction thereof or any other document and shall take any such further action as the Secured Party may require in perfecting or protecting the security interested granted by the Debtor under this Agreement or in otherwise obtaining the full benefits of this Agreement and (b) authorizes the Secured Party to prepare, execute, deliver and file any such documents and to take any such actions on behalf of the Debtor.

3.2 Patents, Trademarks and Copyrights

Schedule 1 lists all Patents, Trademarks and Copyrights currently owned by the Debtor. Promptly upon any change in the Patents, Trademarks and Copyrights owned by the Debtor, the Debtor shall provide the Secured Party with an updated Schedule 1 listing all Patents, Trademarks and Copyrights then owned by the Debtor. Schedule 2 lists all Patents, Trademarks and Copyrights currently licensed to the Debtor by third parties. Promptly upon any change in the Patents, Trademarks and Copyrights licensed to the Debtor, the Debtor shall provide the Secured Party with an updated Schedule 2 listing all Patents, Trademarks and Copyrights then licensed to the Debtor.

3.3 Pledges

Following (i) payment of all obligations owed to Koyah and release of the Koyah Collateral Agent's security interest in the Collateral and (ii) payment of all obligations owed to Appleby and Prudent Bear and release of the security interests granted in favor of Appleby and Prudent Bear, upon request of the Secured Party and at Debtor's expense, the Debtor shall promptly deliver and pledge to the Secured Party, endorsed or accompanied by instruments of assignment or transfer satisfactory to the Secured Party, any Collateral consisting of instruments, investment property, documents, general intangibles or chattel paper.

3.4 Control

Following (i) payment of all obligations owed to Koyah and release of the Koyah Collateral Agent's security interest in the Collateral and (ii) payment of all obligations owed to Appleby and Prudent Bear and release of the security interests granted in favor of Appleby and Prudent Bear, upon request of the Secured Party and at Debtor's expense, the Debtor shall cooperate with the Secured Party in obtaining control with respect to any Collateral consisting of deposit accounts, investment property, letter of credit rights and electronic chattel paper.

3.5 Maintenance of Records

The Debtor shall keep and maintain satisfactory and complete records of the Collateral including but not limited to a record of all payments received and all credits granted with respect to the Collateral and all other dealings with the Collateral. The Debtor shall mark its books and records pertaining to the Collateral to evidence this Agreement and the security interest granted herein. Promptly upon request of the Secured Party, the Debtor shall deliver and turn over to the Secured Party copies of all books and records pertaining to the Collateral.

3.6 Liens

Except for (i) existing licenses of Patents, Trademarks and Copyrights by the Debtor to third parties set forth on Schedule 3 and (ii) liens in favor of the Koyah Collateral Agent, Appleby and Prudent Bear or liens in favor of other parties named in the Intercreditor Agreement (as defined below), the Debtor owns the Collateral free and clear of liens, charges, pledges, security interests, encumbrances or other claims or interests in the Collateral, and the Debtor will neither create nor permit the existence of any of the foregoing without the prior written consent of the Secured Party. Notwithstanding the foregoing, the Secured Party hereby waives any breach of the covenant set forth above arising from the existing liens set forth on Schedule 4, so long as the Debtor otherwise remains in compliance with all of the provisions of the Transaction Documents (as defined in the Agreement dated as of the date hereof between the Debtor and the Secured Party) and this Agreement.

3.7 Disposition of Collateral

The Debtor shall not sell, license, lease, transfer or otherwise dispose of any of the Collateral without the prior written consent of the Secured Party, except for sales of inventory, collection of rights to payment, and disposition of equipment or inventory which is obsolete or being replaced, all in the ordinary course of business in accordance with past practices.

3.8 Limitations on Amendments, Modifications, Terminations, Waivers and Extensions of Contracts and Agreements Giving Rise to Accounts

Without the prior written consent of Secured Party, the Debtor will not (a) amend, modify, terminate, waive or extend any provision of any agreement giving rise to an account, general intangible, instrument, chattel paper or other right to payment, licensing any Patents, Trademarks or Copyrights to the Debtor or by the Debtor or otherwise relating to the Collateral, in any manner that could reasonably be expected to have a material adverse effect on the value of any Collateral or (b) fail to exercise promptly and diligently every material right that it may have under each such agreement, other than any right of termination (which shall only be exercised with the prior written consent of the Secured Party).

3.9 Indemnification

The Debtor agrees to pay, and to indemnify the Secured Party and hold the Secured Party harmless from, all liabilities, costs and expenses (including legal fees and expenses) in connection with protecting or realizing on the Collateral, enforcing any rights or remedies of the Secured Party or otherwise arising out of this Agreement. In any suit, proceeding or action brought by the Secured Party under any account or other right to payment to enforce payment of any sum owing thereunder or to enforce any provisions of any account or other right to payment, the Debtor will indemnify the Secured Party and hold the Secured Party harmless from all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment, reduction or liability whatsoever of any account debtor thereunder arising out of a breach by the Debtor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or its successors from the Debtor.

 

 

3.10 Further Identification of Collateral

The Debtor will furnish to the Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Secured Party may request, all in reasonable detail.

3.11 Notices

The Debtor will advise the Secured Party promptly in reasonable detail (a) of any lien, charge, pledge, security interest, encumbrance or other claim or interest asserted against any of the Collateral and (b) of the occurrence of any other event that could reasonably be expected to have a material adverse effect on the Collateral.

3.12 Changes in Locations, Name, Etc.

The Debtor will not (a) change its state of organization, (b) change the location of its chief executive office/chief place of business or remove its books and records from the locations set forth in Schedule 5 to this Agreement or (c) change its name, identity or structure to such an extent that any financing statement filed by the Secured Party in connection with this Agreement would become ineffective or seriously misleading, unless it shall have given the Secured Party at least 30 days prior written notice thereof.

3.13 Further Assurances

The Debtor agrees to take all actions which the Secured Party may request to perfect or maintain the perfection of, or to otherwise protect, the security interest granted herein and the Debtor authorizes the Secured Party to take such actions on behalf of the Debtor, including without limitation (a) filing (including electronic or facsimile filing) financing statements describing the Collateral, which may include descriptions broader than as set forth in this Agreement and (b) filing any documents with the Patent and Trademark Office, Copyright Office or any other applicable office. The Debtor agrees that where allowed by law, a carbon, photographic or other reproduction of a financing statement or this Agreement is sufficient as a financing statement.

3.14 Insurance

The Debtor (a) will keep the Collateral continuously insured at its expense against fire, theft, and other hazards in amounts and with insurers as shall be sufficient to fully protect the Collateral, as reasonably approved by the Secured Party, (b) will include in such policies of insurance to the Secured Party clauses making any loss payable to the Secured Party as its interest may appear and agreeing to notify Secured Party of any cancellation or threatened cancellation not less than 30 days prior to the effective date of such cancellation and (c) will deliver copies of such policies of insurance to the Secured Party upon request.

ARTICLE IV. REPRESENTATIONS AND WARRANTIES

The Debtor hereby makes the following representations and warranties:

4.1 Title to Collateral

Except for liens in favor of the Koyah Collateral Agent, Appleby, Prudent Bear, or liens in favor of other parties named in the Intercreditor Agreement, the Debtor has good and marketable title to all of the Collateral, free and clear of all liens, charges, pledges, security interests, encumbrances or other claims or interests. Notwithstanding the foregoing, the Secured Party hereby waives any breach of the representation and warranty set forth above arising from the existing liens set forth on Schedule 4, so long as the Debtor otherwise remains in compliance with all of the provisions of the Transaction Documents and this Agreement.

4.2 No Impairment of Collateral

None of the Collateral shall be impaired or jeopardized because of the security interest granted herein.

4.3 Other Agreements

The execution and delivery of this Agreement, the consummation of the transactions provided for herein, and the fulfillment of the terms hereof will not result in the breach of any of the terms, conditions, or provisions of, or constitute a default under, or conflict with or cause any acceleration of any obligation under any agreement or other instrument to which the Debtor is a party or by which the Debtor is bound or result in the violation of any applicable law.

4.4 No Approvals

No approvals of any governmental entity or third party are required in connection with the security interest herein granted.

4.5 Authority

The Debtor has full power and authority to grant to the Secured Party a security interest in the Collateral.

 

4.6 Location of Records

The address(es) of the office where the books and records of the Debtor are kept concerning the Collateral is set forth on Schedule 5 to this Agreement.

4.7 State of Organization

The Debtor's state of organization is set forth on Schedule 5 to this Agreement.

4.8 Chief Executive Office

The Debtor's chief executive office and chief place of business is located at the address set forth on Schedule 5 to this Agreement.

4.9 Trade Names

The Debtor conducts its business only under its legal name except for any additional trade names set forth on Schedule 5 to this Agreement.

ARTICLE V. THE SECURED PARTY'S RIGHTS WITH RESPECT TO THE COLLATERAL

5.1 No Duty on the Secured Party's Part

The Secured Party shall not be required to realize upon any Collateral, except at its option upon the occurrence of any Event of Default; collect the principal, interest or payment due thereon or exercise any rights or options of the Debtor pertaining thereto; make presentment, demand or protest; give notice of protest, nonacceptance or nonpayment; or do any other thing for the protection, enforcement or collection of any Collateral. The powers conferred on the Secured Party hereunder are solely to protect the Secured Party's interests in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers. The Secured Party shall be accountable only for amounts that it actually received as a result of the exercise of such powers; and shall not be responsible to the Debtor for any act or failure to act hereunder.

5.2 Negotiations with Account Debtors

Upon the occurrence of any Event of Default, the Secured Party may, in its sole discretion, extend or consent to the extension of the time of payment or maturity of any instruments, accounts, chattel paper, general intangibles or other rights to payment.

5.3 Right to Assign

The Secured Party may assign or transfer the whole or any part of the Obligations and may transfer therewith as collateral security the whole or any part of the Collateral; and all obligations, rights, powers and privileges herein provided shall inure to the benefit of the assignee and shall bind the successors and assigns of the parties.

5.4 Duties Regarding Collateral

Beyond the safe custody thereof, the Secured Party shall not have any duty as to any Collateral in its possession or control, or as to any preservation of any rights of or against other parties.

5.5 Collection From Account Debtors

Upon the occurrence of any Event of Default, the Debtor shall, upon demand by the Secured Party (and without any grace or cure period), notify all account debtors to make payment to the Secured Party of any amounts due or to become due. The Debtor authorizes the Secured Party to contact the account debtors for the purpose of having all or any of them pay their obligations directly to the Secured Party. Upon demand by the Secured Party, the Debtor shall enforce collection of any indebtedness owed to it by account debtors.

5.6 Inspection

The Secured Party and its designees, from time to time at reasonable times, may inspect, audit and make copies of and extracts from all records and all other papers in the possession of the Debtor in connection with the Collateral.

ARTICLE VI. THE SECURED PARTY'S RIGHTS AND REMEDIES

6.1 Acceleration; Remedies

Upon the occurrence of any Event of Default, the Secured Party shall have all rights and remedies available to it under the Note, this Agreement, and any other documents or agreements or available at law or in equity, including without limitation the Uniform Commercial Code. The Secured Party may proceed to enforce any or all of such rights and remedies or realize on any or all security or guaranties for the Obligations in any manner or order it deems expedient without regard to any equitable principles of marshaling or otherwise. No failure or delay on the part of the Secured Party in exercising any right, power or privilege hereunder and no course of dealing shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any right, power or privilege. The rights and remedies of the Secured Party are cumulative and not exclusive of any rights or remedies that the Secured Party would otherwise have. No notice to or demand on the Debtor, in any case, shall entitle the Debtor to any other or further notice or demand in similar or other circumstances or shall constitute a waiver of the right of the Secured Party to any other or further action in any circumstances without notice or demand.

6.2 Notice of Sale

The Debtor hereby acknowledges and agrees that written notice mailed to the Debtor at the address designated herein ten days prior to the date of public or private sale of any of the Collateral shall constitute commercially reasonable notice.

6.3 Disposition of Collateral

In addition to all other rights and remedies available to the Secured Party upon the occurrence of an Event of Default, the Secured Party may dispose of any of the Collateral at public or private sale in its then present condition or following such preparation and processing as the Secured Party deems commercially reasonable. Such sale may include licensing of the Collateral on an exclusive or non-exclusive basis, on a worldwide or geographically limited basis and on an all-uses or limited uses basis. For the purpose of enabling the Secured Party to exercise its rights and remedies hereunder, the Debtor hereby grants to the Secured Party an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Debtor) to use, license or sub-license any of the Collateral, including in such license access to all media in which any of the Collateral may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. The Secured Party has no duty to prepare or process the Collateral prior to sale. The Secured Party may disclaim warranties of title, possession, quiet enjoyment and the like. Such actions by the Secured Party shall not affect the commercial reasonableness of the sale. Further, the Secured Party may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.

6.4 Rights of Other Creditors

The security interest of the Secured Party and the rights of the Secured Party upon the occurrence of any Event of Default or otherwise under this Agreement shall be subject to the senior first-priority security interest of the Koyah Collateral Agent, the senior second-priority security interest in favor of Appleby and Prudent Bear and the rights of the Koyah Collateral Agent, Appleby and Prudent Bear upon the occurrence of any event of default or otherwise under their security documents.

 

ARTICLE VII. GENERAL PROVISIONS

7.1 The Secured Party's Appointment as Attorney-in-Fact

(a) The Debtor hereby irrevocably constitutes and appoints the Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Debtor and in the name of the Debtor or in its own name, from time to time in the Secured Party's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or desirable to accomplish the purposes of this Agreement; and without limiting the generality of the foregoing, the Debtor hereby gives the Secured Party the power and right, on behalf of the Debtor, without consent by or notice to the Debtor, to do the following:

(i) upon the occurrence of any Event of Default, to transfer to the Secured Party or to any other person all or any of the Collateral, to endorse any instruments pledged to the Secured Party and to fill in blanks in any transfers of Collateral, powers of attorney or other documents delivered to the Secured Party;

(ii) to pay or discharge taxes and liens levied or placed on or threatened against the Collateral;

(iii) upon the occurrence of any Event of Default, (A) to take possession of, endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any account, instrument or general intangible or with respect to any other Collateral and (B) to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Secured Party for the purpose of collecting all such moneys due under any account, financial assets, instrument, investment property, or general intangible or with respect to any other Collateral whenever payable; and

(iv) upon the occurrence of any Event of Default, (A) to direct any party liable for any payment under any of the Collateral to make payment of all moneys due or to become due thereunder directly to the Secured Party or as the Secured Party shall direct; (B) to ask for, demand, collect and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against the Debtor with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharge or releases as the Secured Party may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Secured Party were the absolute owner thereof for all purposes; and to do, at the Secured Party's option and the Debtor's expense, at any time or from time to time, all acts and things that the Secured Party deems necessary to protect, preserve or realize upon the Collateral and the Secured Party's security interest therein and to effect the intent of this Agreement, all as fully and effectively as the Debtor might do.

(b) The Debtor hereby ratifies all that such attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable.

(c) The Debtor also authorizes the Secured Party, at any time and from time to time, to execute, in connection with the sale provided for in Article VI hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral.

(d) The powers conferred on the Secured Party hereunder are solely to protect the Secured Party's interests in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers. The Secured Party shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to the Debtor for any act or failure to act hereunder.

(e) The Debtor shall pay or reimburse the Secured Party for all costs and expenses, including attorneys fees, incurred by the Secured Party while acting as the Debtor's attorney-in-fact hereunder.

7.2 Termination of Agreement

This Agreement shall remain in full force and effect until the Obligations have been fully and finally discharged.

7.3 Severability

If any provision of this Agreement is for any reason and to any extent determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement will be unaffected and interpreted so as best to reasonably effect the intent of the parties hereto. Such void or unenforceable provision of this Agreement shall be replaced with a valid and enforceable provision so as to achieve, to the greatest extent possible, the economic, business and other purposes of the void or unenforceable provision.

 

7.4 Waiver

No waiver by any party of any breach of any provision hereof shall constitute a waiver of any other breach of that or any other provision hereof.

7.5 Assignment

All rights, powers, privileges and immunities herein granted to the Secured Party shall extend to their successors and assigns and any other legal holder of the Obligations or this Agreement, with full right by the Secured Party to assign and/or sell the same.

7.6 Successors

The rights and obligations of the parties hereto shall inure to the benefit of, and be binding and enforceable upon, the respective successors and assigns of the parties.

7.7 Entire Agreement

This Agreement constitutes the entire agreement of the parties hereto concerning the subject matter hereof, all prior discussions, proposals, negotiations and understandings having been merged herein. This Agreement or any provision hereof may be (i) modified or amended, but only by a writing signed by all parties at such time or (ii) waived (either generally or in a particular instance, either retroactively or prospectively, either for a specified period of time or indefinitely, either with or without consideration), but only by a writing signed by the party granting such waiver.

7.8 Intercreditor Agreement.

The terms and conditions of this Agreement shall also be governed by and subject to the terms and conditions of an Intercreditor Agreement dated as of January 19, 2004 among the Company, Koyah Partners, L.P., Koyah Leverage Partners, L.P., Appleby and Prudent Bear, to which the Secured Party and Koyah Ventures LLC are being added as additional parties pursuant to a Joinder Agreement dated as of the date hereof (collectively, the "Intercreditor Agreement").

7.9 Governing Law; Jurisdiction; Venue; Jury Trial

Consistent with the governing law and venue provisions of the Intercreditor Agreement, this Agreement shall be governed by, and interpreted under, the laws of the State of Washington applicable to contracts made and to be performed therein, without giving effect to the principles of conflicts of law. The parties hereby (i) agree that any legal suit, action or proceeding arising out of or relating to this Agreement must be instituted in a federal or state court located in the County of Spokane, State of Washington, (ii) irrevocably submit to the jurisdiction of any such court and waive any objection to the laying of venue in, or the inconvenience of, such forum and (iii) irrevocably waives all rights to trial by jury in any action, suit or proceeding arising out of or related to this Agreement, the Note or any other agreement or document between the Debtor and the Secured Party.

7.10 Notices

All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial messenger or courier service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to each party at the address (or at such other address for a party as shall be specified by like notice) set forth below; provided, however, that notices sent by mail will not be deemed given until received.

Aura Systems, Inc.

2335 Alaska Avenue

El Segundo, CA 90245

Attn: Neal Meehan

Fax: 310-643-8719

Raven Partners, L.P.

C/o ICM Asset Management, Inc.

W. 601 Main Avenue, Suite 600

Spokane, WA 99201

Attn: Robert Law

Fax: 509-444-4500

 

7.11 Costs and Expenses

The Debtor hereby agrees to pay to the Secured Party upon demand all costs and expenses, including attorney's fees, incurred in connection with the administration of this Agreement, including without limitation all filings or other actions required by the Secured Party in connection with perfecting or otherwise protecting the security interest granted hereunder. In addition, the Debtor hereby agrees to pay to the Secured Party upon demand all costs and expenses, including attorney's fees, incurred in connection with the enforcement of this Agreement, collection of the Obligations and the protection, preservation, collection or sale of or other realization upon the Collateral, including without limitation in any out-of-court workout, any court action, any appeal or any bankruptcy proceeding.

 

7.12 Counterparts

This Agreement may be executed in any number of counterparts, each of each of which will be an original, but all of which together will constitute one and the same instrument.

7.13 Title and Subtitles

The titles of the sections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

 

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IN WITNESS WHEREOF, the Debtor and the Secured Party have caused this Agreement to be duly executed as of the day and year first above written.

"Debtor"

AURA SYSTEMS, INC.

By:

Name:

Title:

 

"Secured Party"

RAVEN PARTNERS, L.P.

By: Koyah Ventures LLC, its general partner

By:

Name:

Title:

 

SCHEDULE 1

Patent and Patent Applications,

Trademark and Trademark Applications

and

Copyrights and Copyright Applications Owned by the Debtor

 

1. Patents.

Any and all domestic and foreign patent registrations, patent applications, patentable invention rights or patent-related rights to current and future interests owned by Debtor or assigned to Debtor, including but not restricted to the following patent registrations and patent applications:

Domestic Patent Registrations

Reg. Number

Title

4,892,328

Electromagnetic Strut Assembly

4,912,343

Electromagnetic Actuator

4,969,662

Active Damping System for an Automobile Suspension

4,979,789

Continuous Source Scene Projector

5,032,906

Intensity Calibration Method for Scene Projector

5,035,475

Unique Modulation Television

5,085,497

Method for fabricating mirror array for Optical Projection System

5,099,158

Electromagnetic Actuator

5,126,836

Actuated Mirror Optical Intensity Modulation

5,135,070

Active Hydraulic Pressure Control

5,138,309

Electronic Switch Matrix for a Video Display System

5,150,205

Actuated Mirror Optical Intensity Modulation

5,159,225

Piezoelectric Actuator

5,162,767

High Efficiency Solenoid

5,175,465

Piezoelectric and Electrostructive Actuators

5,185,660

Actuated Mirror Optical Intensity Modulation

5,187,398

Electromagnetic Actuator

5,207,239

Variable Gain Servo Assist

5,212,977

Electromagnetic Re-draw Sleeve Actuator

5,222,714

Electromagnetically Actuated Valve

5,245,369

Scene Projector

5,260,798

Pixel Intensity Modulator

5,278,953

Machine Tool Fixture Computer Aided Setup

5,285,995

Optical Table Active Leveling and Vibration Cancellation System

5,307,665

Electromagnetic Re-draw Sleeve Actuator

5,309,050

Ferromagnetic Wire Electromagnetic Actuator

5,325,699

Electromagnetic Re-draw Sleeve Actuator

5,334,265

Magnetic Material

5,341,054

Low Mass Electromagnetic Actuator

5,350,153

Core Design for Electromagnetic Actuated Valve

5,352,101

Electromagnetically Actuated Compressor Valve

5,354,185

Electromagnetically Actuated Reciprocating Compressor Driver

5,355,108

Electromagnetically Actuated Compressor Valve

5,481,396

Thin Film Actuated Mirror Array

5,548,263

Electromagnetically Actuated Valve

5,589,084

Thin Film Actuated Mirror Array

5,616,982

Piezoelectric Actuator

5,689,380

Thin Film Actuated Mirror Array for Providing Double Tilt Angle

5,710,657

Monomorph Thin Film Actuated Mirror Array

5,720,468

Stagerred Electromagnetically Actuated Valve Design

5,721,694

Non-linear Deterministic Stochastic Filtering Method and System

5,734,217

Induction Machine using Ferromagnetic Conducting Material in Rotor

5,768,392

Blind Adaptive Filtering of Unknown Signals in Unknown Noise in Quasi-closed Loop System

5,768,395

Double Ended Field Coil Actuator

5,772,179

Hinged Armature Electromagnetically Actuated Valve

5,780,958

Piezoelectric Vibrating Device

5,782,454

Electromagnetically Actuated Valve

5,796,377

Video Display System having an Electronic Switch Matrix for controlling an MSN array of Piezoelectric Members

5,822,370

Compression/Decompression for Preservation of High Fidelity Speech Quality at Low Bandwidth

5,898,244

Dual Directional Field Coil Actuator

6,032,113

N-Stage Predicted Feedback-Based Compression and Decompression of Spectra of Stochastic Data Using Convergent Incomplete Autoregressive Models

6,157,175

Mobile Power Generation System

6,158,403

Servo Control System for an Electromagnetic Valve Actuator used in an Internal Combustion Engine

6,267,351

Electromagnetic Valve Actuator with Mechanical End Position Clamp or Latch

D355,751

Video Game Accessory Vest

D393,447

Adapter Plug

5,097,510

Artificial Intelligence Pattern Recognition-based Noise Reduction System for Speech Processing

5,140,640

Noise Cancellation System

5,589,725

Monolithic Prestressed Ceramic Devices and Method for making same

4,998,441

Force and Torque Measurement System

5,321,762

Voice Coil Actuator

5,418,860

Voice Coil Excursion and Amplitude Gain Control Device

5,424,592

Electromagnetic Transducer

5,434,458

Voice Coil Actuator

5,536,984

Voice Coil Actuator

5,539,262

Axially Focused Radial Magnet Voice Coil Actuator

5,624,155

Electromagnetic Transducer

5,652,801

Resonance Damper for Piezoelectric Transducer

5,727,076

Audio Transducer having Piezoelectric Device

5,736,808

Piezoelectric Speaker

5,786,741

Polygon Magnet Structure for Voice Coil Actuator

6,082,315

Electromagnetic Valve Actuator

D363,270

Adapter Plug

D364,162

Amplifier Housing

D364,167

Speaker Motor Case

D394,063

Pair of Speaker Enclosures

D396,723

Speaker Basket

D449,828

Speaker Basket

 

Domestic Patent Applications

Serial Number

Title

09/799,973

Switched Reluctance Motor Delivering Constant Torque From Three Phase Sinusoidal Voltages

09/939,116

Mobile power generation system

09/938,967

Bi-directional power supply circuit

 

Foreign Patent Applications

PCT Number

Title

US00/03815

Mobile Power Generation System (Europe, title not verified)

US01/50683

Mobile power generation system (Europe & Canada, title not verified)

US01/50762

Bi-directional power supply circuit (Europe, title not verified)

2. Trademarks.

Any and all domestic and foreign trademark registrations, trademark applications, trade and service mark rights, or other trademark-related rights to current and future interests owned by Debtor or assigned to Debtor, including but not restricted to the following trademark registrations and trademark applications:

Serial Number

Reg. Number

Word Mark

75547751

 

AMA

75225690

2128907

ASPECT

75559987

2372115

AURA

74472095

1991593

AURA

74369064

2196818

AURA

74322660

 

AURAFLUX

75141345

 

AURAGEN

75977693

2202313

AURAGEN

75594235

2477031

AURAGEN POWER. ON THE GO.

74639340

 

AURAPHILE

75141344

 

AURAPOWER

75237652

 

AURAGEN OF POWER

74134961

 

AURASCOPE

74134960

 

AURASCOPE

74466053

2142944

AURASCOPE

74417408

 

AUTO SONICS

74410206

 

AURA SONICS

74349974

 

AURASOUND

74313418

2482562

AURA SOUND

75235513

 

AURA VIRTUAL SOUND

75235817

 

A V S

74679644

2072412

BASS SHAKER

74491123

1894891

CUSTOMWARE

74491122

1892461

CUSTOMWARE

75235512

 

DO MORE THAN LISTEN

75225341

2181910

EVA

75225280

 

FAR

75225289

 

FAS

75225288

 

FERRODISK

75291968

 

FORCE

75225287

 

FORCE

75225296

 

FORCE 10

75225297

 

FORCE 12

75225298

 

FORCE 15

75225286

 

FORCE 42

75225285

 

FORCE 52

75225284

 

FORCE 62

75229617

 

FORCE 150

75229616

 

FORCE 250

75229720

 

FORCE 340

75229718

 

FORCE 400Q

75225283

 

FORCE 426

75225282

 

FORCE 527

75229719

 

FORCE 560

75225281

 

FORCE 629

75225295

 

FORCE 639

74408244

 

HIGH GAP

74408232

 

HIGH STROKE

74472097

 

INTERACTOR

74425395

1920753

INTERACTOR

74132488

1663325

LINAEUM

74408446

 

LINEAR GAP

74408231

 

LINEAR FLUX

74408619

 

LINEAR MAG

74408211

 

LINEAR RING

75330407

 

LINE SOURCE

75291967

 

LINE SOURCE

74408243

 

LINEAR STROKE

74528276

 

MAGFORCE

75131644

 

MOBILE REFERENCE

75579640

 

MOBILE REFERENCE PLATINUM

75252086

2257621

MR

75252085

2170439

MR 1

75252089

2219543

MR 5.1

75252090

2188518

MR 6.1

75252087

2224713

MR 52

75252088

2170440

MR 62

75252091

 

MR 629

74385179

 

MUSICAL CHAIRS

74720723

2063972

NEO-RADIAL

75123841

2111403

NEO-RADIAL TECHNOLOGY

74706753

2067789

NEO-RADIAL TECHNOLOGY

74408671

 

NEO RING

75021447

 

NETFAX

74408448

 

NEO FLUX

74408206

 

NEO GAP

74408447

 

NEO MAG

74408208

 

NEO POWER

74408179

 

NEO STROKE

75021446

 

NETTALK

75033935

2030035

NEWCOM

75033934

2030034

NEW COM

74618797

 

NEWTALK

74706754

2144980

NRT

74408242

 

PILLOW SONICS

74394182

 

POWER TOWER

74408601

 

RADIAL FLUX

74408672

 

RADIAL GAP

74408207

 

RADIAL LINE

74408180

 

RADIAL MAG

74408445

 

RADIAL NEO

74408209

 

RADIAL POLE

74408205

 

RADIAL POWER

74408664

 

RADIAL RING

74408178

 

RADIAL STROKE

75579192

2654647

RPM

74528416

 

SOUNDPLAY

74408003

 

TALL GAP

74431065

 

TECHNOLOGIES OF THE 21ST CENTURY

74408210

 

THEATRE SONICS

75579641

 

THE ULTIMATE UPGRADE

74437049

 

THUNDERBOLT

74367568

 

21ST CENTURY TECHNOLOGIES

74388369

 

VIBRASONICS

 

 

 

 

 

3. Copyrights.

Any and all domestic and foreign copyright registrations, copyright applications or other copyright-related rights to current and future interests owned by Debtor or assigned to Debtor.

 

[Remainder of page intentionally left blank]

 

 

SCHEDULE 2

Patents and Patent Applications, Trademarks and Trademark Applications

and

Copyrights and Copyright Applications Licensed to the Debtor

 

None.

 

SCHEDULE 3

Patents and Patent Applications

Trademarks and Trademark Applications,

And Copyrights and Copyright Applications

Licensed By the Debtor

 

None.

 

 

SCHEDULE 4

Schedule of Exceptions

1. El Seguendo real property and facilities are subject to a security interest related to mortgage financing and a pending sale/leaseback transaction.

2. Note receivable for approximately $1,000,000 under the Alpha Ceramics purchase agreement has been assigned as collateral to the purchasers in such sale/leaseback transaction.

3. The Plaintiffs in Arthur Schwatz v. Aura Systems, Inc. received a Writ of Attachment to collect a portion of their judgment. On May 3, 2004, the Plaintiffs used this Writ to effect a levy against the Company's primary bank account and received approximately $191,689. On May 11, 2004, Plaintiffs returned those funds to the Company without relinquishing their rights under the Writ. On June 7, 2004, the Plaintiff and the Company entered an Agreed Judgment in this case with a 45 day delayed effective date.

SCHEDULE 5

Debtor Information

 

State of organization: Delaware

Address of
chief executive office: Aura Systems, Inc.

2335 Alaska Avenue

El Segundo, CA 90245

 

Address(es) where
books and records are kept: Same

Additional trade names: None