UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14A
Rule 14a-101
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. ___)
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Preliminary Proxy Statement
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Definitive Proxy Statement
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Soliciting Material Pursuant to
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AURA SYSTEMS, INC.
(Name of Registrant as
Specified in its Charter)
Not Applicable
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Registrant)
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Aura Systems, Inc.
10541 Ashdale St.,
Stanton, California 90680
(310) 643-5300
____________________________________
NOTICE OF ANNUAL MEETING
OF
STOCKHOLDERS
TO BE HELD JANUARY 11, 2018
____________________________________
To the Stockholders of Aura Systems, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the “Annual Meeting”) of Aura
Systems, Inc. (the “Company”) will be held on January 11, 2018, at 10:00 a.m., Pacific Time, at The Crown Plaza Hotel,
located at 5985 W. Century Boulevard, Los Angeles, California 90045, for the following purposes, as more fully described in the
accompanying proxy statement (the “Proxy Statement”):
1.
to
elect a Board of Directors of five members to hold office until the
next Annual Meeting of stockholders 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 effect, at the discretion of the Board of
Directors, a reverse stock split of all of the outstanding shares
of the Company’s common stock, whereby each seven (7) shares
would be combined and changed into
one (1) share
of common
stock;
3.
to
approve, by non-binding advisory vote, the compensation of the
Company’s named executive officers;
4.
to
recommend, by non-binding advisory vote, the frequency of future
non-binding advisory votes to approve the compensation of the
Company’s named executive officers;
5.
to
ratify the appointment of KSP Group, Inc. as the Company’s
independent registered public accounting firm for the fiscal year
ending February 28, 2018; and
6.
to
transact such other business as may properly come before the Annual
Meeting.
Only stockholders of record at the close of business on December
13, 2017 are entitled to notice of and to vote at the Annual
Meeting or any adjournment thereof. A list of the stockholders
entitled to vote at the Annual Meeting will be available for
examination by any stockholder 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 stockholders are cordially invited to attend the meeting in
person. 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 your proxy will not affect your right to vote in
person should you later decide to attend the meeting.
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
Chief Executive
Officer, Acting Chief Financial Officer and Director
December 22, 2017
AURA SYSTEMS, INC.
10541 Ashdale St.,
Stanton, California 90680
PROXY
STATEMENT
General
Information
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors
of Aura Systems, Inc. (the “Company”, “Aura”, “we”, “us” or “our”)
for the annual meeting of stockholders to be held on January 11, 2018 (the “Annual Meeting”) at 10:00 a.m., Pacific
Time at The Crown Plaza Hotel, located at 5985 W. Century Boulevard, Los Angeles, California 90045, and any postponements or adjournments
thereof. Any stockholder 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.
All proxies will be voted as directed by the stockholder on the
proxy card; and, if no choice is specified, they will be voted:
1.
“FOR” the five Directors nominated by the Board of
Directors;
2.
“FOR” the proposed amendment to our Amended and
Restated Certificate of Incorporation to effect, at the discretion
of the Board of Directors, a reverse stock split of all of the
outstanding shares of the Company’s common stock, whereby
each seven (7) shares would be combined and changed into one (1)
share of common stock (which is referred to in this Proxy Statement
as the “Reverse Split”);
3.
“FOR” the approval on an advisory basis of the
compensation of the Company’s named executive officers;
4.
For
“ONE YEAR” with respect to the frequency of future
non-binding advisory votes to approve the compensation of the
Company’s named executive officers;
5.
“FOR” the ratification of the appointment of KSP Group,
Inc. as the Company’s independent registered public
accounting firm for the fiscal year ending February 28, 2018;
and
6.
at
the discretion of the proxy holders, with regard to any other
matter that is property presented at the Annual Meeting.
Your cooperation in promptly returning the enclosed proxy card will
reduce our expenses and enable management and employees to continue
their normal duties for your benefit with minimum interruption for
follow-up proxy solicitation.
Only stockholders of record at the close of business on December
13, 2017 (the “record date”), are entitled to receive
notice of and to vote at the Annual Meeting. On that date, we had
outstanding 126,602,875 shares of common stock. The shares of
common stock vote as a single class. Holders of shares of common
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 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” (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. A broker non-vote
occurs when a proxy received from a broker or other nominee holding
shares on behalf of a client does not contain voting instructions
on a “non-routine” matter because the broker or nominee
has not received specific voting instructions from the client with
respect to such non-routine matter. With the exception of the
proposal to ratify the appointment of KSP Group, Inc. as the
Company’s independent registered public accounting firm for
the fiscal year ending February 28, 2018, the proposals in this
Proxy Statement are non-routine matters, and, accordingly, for all
such other matters, the brokerage firm cannot vote your shares on
those proposals without your instructions.
Broker non-votes and abstentions will be treated as votes
“against” the approval of the proposed amendment to our
Amended and Restated Certificate of Incorporation to effect, at the
discretion of the Board of Directors, a reverse
1
stock split. In addition, abstentions will be treated as votes
“against” the ratification of the appointment of KSP
Group, Inc. as the Company’s independent registered public
accounting firm for the fiscal year ending February 28, 2018.
However, for all other proposals in this Proxy Statement,
abstentions and broker non-votes are not considered “votes
cast” and, therefore, will not have an effect on, the results
of the votes on such proposals.
This Proxy Statement and the accompanying Notice of Annual Meeting
and form of proxy are being mailed or delivered to stockholders on
or about December 22, 2017.
In the event that sufficient votes in favor 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 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, as well as
the cost of soliciting proxies relating to the Annual Meeting, will
be borne by us. We have engaged Laurel Hill Advisory Group, LLC, to
assist in the solicitation of proxies and provide related advice
and informational support, for a services fee and the reimbursement
of customary disbursements that are not expected to exceed $7,500
in the aggregate. 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.
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 YOUR PROXY WILL NOT
AFFECT YOUR RIGHT TO VOTE IN PERSON SHOULD YOU LATER DECIDE TO
ATTEND THE MEETING.
2
DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
Directors
Our Amended and Restated Bylaws provide for a Board of no less than
five Directors. Consequently, at the Annual Meeting, five 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 five persons.
Pursuant to a recent agreement with certain of our secured
creditors and two other parties, as further described in
“Amendment to 2013 Securities Purchase Agreement” in
the section entitled “Related Party Transactions,” the
Company has agreed to elect a new board of at least five directors.
Accordingly, three of our current directors, Salvador Diaz-Verson,
Jr., Melvin Gagerman and Robert Kopple, have all agreed not to
stand for re-election at the Annual Meeting. In addition, two of
our current directors, Robert T. Lempert and David Mann, each of
whom were appointed to the Board on November 28, 2017 to fill Board
vacancies, have also chosen not to stand for re-election at the
Annual Meeting. Our Nominating Committee has nominated for election
as Directors the five persons named below. Each of the five
nominees nominated for election as a Director was initially
identified as a potential director by Mr. Melvin Gagerman, a
Director and the Chief Executive Officer and acting Chief Financial
Officer of the Company. All of the five nominees nominated for
election as Directors have indicated that they are able and willing
to serve as Directors.
Unless otherwise instructed, the proxy holders intend to vote the
shares of common 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 table below sets forth the names of the nominees, together with
their ages, principal occupations and the offices they hold.
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Roland J. Bopp
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65
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President and CEO of Renewable Energy
LLC
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Ronald J. Buschur
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President, CEO and Director of PROplus
Technology Inc.
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Michael Paritee
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54
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Managing Partner of Serrada LLC
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Jonathon Sloane
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59
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Management Principal of Sloane
Partners
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Gary Wells
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69
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Director, Wells’ Dairy
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Business Experience of
Director Nominees
Roland J. Bopp
— Mr. Roland Bopp has more than 20
years of executive leadership in telecom service organizations
throughout North America, Central, and South America, as well as
Western and Eastern Europe. He has broad, senior, global
corporate/operating experiences which include environmental,
sustainability and clean technology companies. Mr. Bopp has a
proven track record of building rapidly growing businesses,
increasing profitability, and creating significant shareholder
value in several industry sectors under various business
conditions. Mr. Bopp has served as Chairman, President & Chief
Executive Officer of the Americas for Deutsche Telekom Inc., a
subsidiary of Deutsche Telekom AG of Germany as well as US Chief
Executive Officer and Managing Director of Mannesmann. At
Mannesmann North America, Mr. Bopp was instrumental in expanding
the business from $300 million to over $3.0 billion over a
fifteen-year time span. Mr. Bopp has also served as an Operating
Advisor at Pegasus Capital Advisors; L.P. Mr. Bopp holds a BA and
an MBA from Julius-Maximilians University in Würzberg, Germany
and an MBA from Clark University.
Mr. Bopp’s background and experience dealing with major
international organizations as well as his experience in industrial
applications will provide the Company with the required insight to
pursue international business for its mobile power solution as well
as potentially restart the previous line of electromagnetic linear
actuator.
Ronald J. Buschur
— Mr. Ronald Buschur is a senior
executive with extensive international resources, experience, and
broad global relationships. Consistently successful in defining
real-time business strategies,
3
increasing profitability, improving market share and translating
these techniques into high-impact financial results. Mr. Buschur
has a proven and global track record in business, and has run
formerly listed NASDAQ technology company Powerwave Technologies,
Inc., a Delaware corporation (“Powerwave”), as CEO.
Prior to joining Powerwave, Mr. Buschur served as President and
Chief Operating Officer at HMT Technologies in Silicon Valley and
has been consistently involved in cutting edge technology
development and deployment in the United States, Europe, Middle
East, and Asia. Mr. Buschur holds a B.A in Business Administration
and Management. Powerwave filed for bankruptcy protection under
chapter 11 of the U.S. bankruptcy code on January 28, 2013. At that
time, Mr. Buschur was the Chief Executive Officer and a director of
Powerwave. Powerwave was subsequently liquidated and ceased
operations and the bankruptcy case was concluded under chapter 7,
at which time, Mr. Buschur was not affiliated with Powerwave.
Mr. Buschur’s background and contacts will provide the
Company with the opportunity to explore applications in the
telecommunication business for the AuraGen mobile power
solution.
Michael Paritee
— Mr. Michael Paritee has 30 years of
leadership experience in the automotive and transportation
industries. His experience covers many diverse areas: early stage
ventures, product development, business strategy, finance, channel
development, and manufacturing. In addition to managing major
industry initiatives and large organizations in multiple regions of
the world, Mr. Paritee has experience in the development of
conventional electric and hydrogen fueled vehicles; being an expert
in advance vehicle deployment and commercialization of emerging
technologies. Mr. Paritee has served as the program manager for the
General Motors S-10 electric truck program, head of operation
planning for the EV-1 program, and program executive for the first
700 Bar Hydrogen fueling station developments in North America. Mr.
Paritee is currently the Managing Partner of Serrada LLC, which is
focused on business development in the renewable transportation and
energy sectors. His formal undergraduate education is in Industrial
Engineering and his executive MBA education is in business strategy
and finance.
Mr. Paritee’s background and experience will help the Company
in pursuing automotive transportation and utility sector
opportunities for the AuraGen Mobile Power solution.
Gary Wells
— Mr. Gary Wells is the previous Chief
Executive Officer of Wells’ Dairy and is a current
Wells’ Dairy Board member. Gary joined Wells’ Dairy in
1970 after receiving his BS Degree from Marquette University, where
he majored in marketing and finance. In 1985, he was promoted to
Executive Vice President of Wells’ Dairy before being named
its CEO in 2001. Gary has served on the Boards of several companies
during his career, as well as on the Advisory Board of the Federal
Reserve Bank of Chicago. In the Dairy industry, Mr. Wells served as
Chairman of the International Ice Cream Association and
International Dairy Foods Association in 2004 & 2005. In 2006
Mr. Wells was honored by Marquette University’s College of
Business Administration as its distinguished Alumni of the Year. In
2010 Mr. Wells co-founded SEEQU, an Internet based communication,
social, and commerce application soon to be released in
Apple’s App Store.
Mr. Wells’ background and experience would provide the
Company into the required insight, knowledge, and contacts to
pursue the Company’s Electric Transport Refrigeration
business for the AuraGen mobile power solution.
Jonathan G. Sloane
— Mr. Jonathan G. Sloane is the
Managing Principal of Sloane Partners, a strategic consulting firm,
which advises companies on governance, revenue opportunities,
business strategy, and succession. His past experience includes
being Co-CEO and Director of Century Bancorp, Inc. and Century Bank
and Trust Company. Mr. Sloane is a proven public company executive
with valuable corporate governance capabilities. With extensive
experience building winning teams and engaging clients, Mr. Sloane
has been able to deliver consistent results and build sustainable
organizations. He looks for market niches, industry disruption, and
believes in revenue diversification. Mr. Sloane also has an
impressive community service record with leadership positions on
numerous charitable Boards. Mr. Sloane has a BA degree in economics
from Tufts University as well as multiple graduate education
programs in numerous financial, business and banking.
Mr. Sloane’s background and experience in the financial
services industry will provide the Company with the required
insight dealing with banks and lenders as the Company expands its
operations.
Information pertaining to Mr. Gagerman, a director who has elected
not to stand for re-election, and an executive officer of the
Company, may be found in the section entitled “Executive
Officers.”
4
Stockholder
Communications with the Board of Directors/Attendance at Annual
Meeting
A stockholder may contact one or more of the members of the Board
of Directors in writing by sending such communication to the
Secretary at our address. The Secretary will forward stockholder
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 or any member of the
Board of Directors at our address.
We encourage individual directors to attend the Annual Meeting. We
did not hold an annual meeting of stockholders in 2016.
Board of Directors
Leadership Structure and Risk Oversight
Board Leadership
Structure.
From 2006 until 2015, the positions of Chief
Executive Officer and Chairman of the Board were both held by Mr.
Melvin Gagerman. In late 2015, the Board appointed Warren Breslow
as Chairman of the Board. Mr. Breslow resigned from the Board in
March 2017. The Board has historically believed that the combined
role of Chairman and Chief Executive Officer was the most effective
leadership structure for the Company and in the best interests of
its stockholders. Going forward, the Board believes that the
separation of the Chairman and CEO roles allows the CEO to focus
time and energy on operating and managing Aura and leverages the
Chairman’s experience and perspectives. The Board
periodically reviews the leadership structure to determine whether
it continues to best serve Aura and its stockholders.
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 and
Committee Meetings
Our Board of Directors held three meetings during the year ended
February 28, 2017. Each Director attended more than 75% of the
Board meetings and committee meetings of which he was a member
during fiscal 2017. At the Company’s last annual meeting of
stockholders held in 2011, all of the Company’s directors
serving at that time attended the annual meeting.
Director
Independence
Using the definition of “independence” included in the
listing rules of The Nasdaq Stock Market, our Board has determined
that director Mr. Diaz-Verson is independent.
None of our directors or executive officers is related to one
another.
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
5
Securities and Exchange Commission (“SEC”). The sole
current member of the Audit Committee is Mr. Salvador Diaz-Verson.
Mr. Breslow had also been a member of the Audit Committee prior to
his resignation as a director in March 2017. The Board of Directors
has determined that the Audit Committee does not have a member who
is an “audit committee financial expert” as such term
is defined by the rules and regulations of the SEC. While the Board
recognizes that the Board member serving on the Audit Committee
does not meet the qualifications required of an “audit
committee financial expert,” the Board believes that the
appointment of a new director to the Board of Directors and to the
Audit Committee at this time is not necessary as the level of
financial knowledge and experience of the current member of the
Audit Committee, including such member’s ability to read and
understand fundamental financial statements, is sufficient to
adequately discharge the Audit Committee’s
responsibilities.
Compensation Committee
— The Compensation Committee
does not have a formal charter but 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. The
Compensation Committee is currently comprised solely of Mr.
Diaz-Verson. Mr. Breslow had also been a member of the Compensation
Committee prior to his resignation as a director in March 2017. Mr.
Breslow has provided loans to us in the aggregate principal amount
of $14,930,041. For a discussion about Mr. Breslow’s loans to
us, see “Related Party Transactions.”
Nominating Committee
— The Nominating Committee does
not have a 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 stockholders. The
Nominating Committee currently consists of Mr. Diaz-Verson.
Special Committee
— In September 2016, the Board of
Directors appointed Messrs. Gagerman and Diaz-Verson to a Special
Committee to seek to negotiate restructuring agreements with each
of Mr. Breslow and Mr. Kopple, to review the Company’s
relationships with each of Mr. Breslow and Mr. Kopple, to
independently assess the transactions with each of Mr. Breslow and
Mr. Kopple, and to undertake such other inquiries and
investigations, and make such recommendations, as the Special
Committee considers in the best interests of the Company and its
stockholders as a whole. See the related party transactions
disclosure in the section entitled “Related Party
Transactions.”
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,
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, 2017.
Audit Committee Member
Salvador Diaz-Verson
Non-Employee Director
Compensation
Although we do not currently compensate our directors in cash for
their service as members of our Board of Directors, the Board may,
in its discretion, elect to compensate directors for attending
Board and Committee meetings and to reimburse directors for
out-of-pocket expenses incurred in connection with attending such
meetings. Additionally, our directors are eligible to receive stock
options under the 2011 Directors and Executive Officer Stock Option
Plan. During fiscal 2017, no Directors received any stock options.
There are no payments due to any directors upon their resignation
or retirement as members of the Board.
Biographical information with respect to our director nominees is
provided above.
6
Executive
Officers
The following sets forth certain information regarding the
executive officers of the Company:
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Melvin Gagerman
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Chief Executive Officer, Acting Chief Financial
Officer and Director
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Melvin Gagerman
. Mr. Gagerman is a CPA and has been a
director and our Chief Executive Officer and acting 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 business 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 served as the Chief Executive Officer 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. Mr. Gagerman is currently serving as our Chief
Financial Officer while we search for a permanent candidate for
that position.
7
EXECUTIVE
COMPENSATION
Executive Compensation
Policy and Objectives
Historically, our policy in compensating executive officers,
including the executive officer named in the Summary Compensation
Table, was 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 followed 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 stockholders and 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 were implemented through a
combination of annual and long-term methods of compensation.
Compensation for the named executive officers included:
•
base salary,
•
eligibility to receive annual cash bonuses, and
•
stock-based compensation in the form of stock options.
These primary components were available for flexible use by our
company in a manner designed to 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
principal components of compensation. Each element of compensation
was considered both individually and in terms of total overall
compensation.
During the first half of fiscal 2016, the Company significantly
reduced operations due to lack of financial resources. During the
second half of fiscal 2016 the Company’s operations were
disrupted when the Company was forced to move from its facilities
in Redondo Beach, California to a smaller facility in Stanton,
California. Operations during the second half of fiscal 2016 were
sporadic. During fiscal 2017, the Company suspended its
engineering, manufacturing, sales, and marketing activities to
focus on renegotiating numerous financial obligations. As a result
of the Company’s financial difficulties, Mr. Gagerman is the
Company’s only executive officer as of the date of this Proxy
Statement. For the fiscal year ended February 29, 2016, the Company
accrued $360,000 for Mr. Gagerman’s base salary, however due
to the Company’s financial constraints Mr. Gagerman has not
been paid any base salary for fiscal year 2016. It is expected that
the Company will pay Mr. Gagerman his fiscal year 2016 base salary
when and if the Company generates sufficient revenue to do so. In
the fiscal year ended February 28, 2017, Mr. Gagerman waived his
right to any salary for services performed during fiscal years 2017
and 2018. Currently, Mr. Gagerman is eligible to earn a
discretionary bonus in connection with services performed during
the 2017 calendar year.
The following table summarizes all compensation earned for the
fiscal years ended February 28, 2017 and February 29, 2016, to the
individual who served as our chief executive officer during fiscal
2017. We had no other officers who would qualify as “named
executive officers” as such term is defined in Item 402 of
Regulation S-K and serving in such capacity at any time during the
year ended February 28, 2017 (the “Named Executive
Officer”).
8
Summary Compensation
Table
Name and Principal Position
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan
Compensation
|
|
All Other Compensation ($)
|
|
|
Melvin Gagerman
(1)
|
|
2017
|
|
|
—
|
(2)
|
|
—
|
|
—
|
|
|
—
|
(3)
|
|
|
—
|
|
Chief Executive Officer, Acting Chief Financial
Officer
|
|
2016
|
|
$
|
360,000
|
|
|
—
|
|
—
|
|
$
|
44,961
|
(4)
|
|
$
|
404,961
|
(5)
|
Outstanding Equity
Awards at 2017 Fiscal Year-End
The following table summarizes certain information regarding the
number and value of all options to purchase our common stock held
by our Named Executive Officer for the year ended February 28,
2017. No stock awards or equity incentive plan awards were issued
or outstanding during fiscal 2017.
2017 OUTSTANDING EQUITY
AWARDS AT FISCAL YEAR END
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Melvin Gagerman
|
|
1,100,000
|
|
0
|
|
—
|
|
$
|
0.75
|
|
2/28/20
|
Melvin Gagerman
|
|
1,400,000
|
|
0
|
|
—
|
|
$
|
0.75
|
|
6/2/21
|
Melvin Gagerman
|
|
1,000,000
|
|
0
|
|
—
|
|
$
|
0.50
|
|
6/2/21
|
Option Exercises and
Stock Vesting During 2017
No stock options were exercised during fiscal 2017 by the Named
Executive Officer. No stock awards were issued or outstanding
during fiscal 2017.
Employment Contracts,
Termination of Employment Contracts and Change in Control
Arrangements
We do not currently have any employment agreements with any of our
Named Executive Officers.
For the fiscal year ended February 29, 2016, the Company accrued
$360,000 for Mr. Gagerman’s base salary, however due to the
Company’s financial constraints Mr. Gagerman has not been
paid any base salary for fiscal year 2016. It is expected that the
Company will pay Mr. Gagerman his fiscal year 2016 base salary when
and if the Company generates sufficient revenue to do so. In the
fiscal year ended February 28, 2017, Mr. Gagerman waived his right
to any salary for services performed during fiscal years 2017 and
2018. Currently, Mr. Gagerman is eligible to earn a discretionary
bonus in connection with services performed during the 2017 fiscal
year.
Potential Payments to
the Named Executive Officers Upon Termination or Change in
Control
The Named Executive Officers is not entitled to any payments or
benefits upon termination, whether by change in control or
otherwise, other than benefits available generally to all
employees.
9
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, to the extent of our knowledge,
certain information regarding our common stock owned as of December
13, 2017 (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 Officer in the Summary
Compensation Table, and (iii) by all Directors and current
executive officers as a group:
Beneficial Ownership
Table
|
|
Number of Shares of Common Stock
|
|
Percent of Common Stock
(1)
|
Melvin Gagerman
(2)
|
|
7,363,284
|
|
5.8
|
%
|
Salvador Diaz-Verson, Jr.
(3)
|
|
717,445
|
|
.57
|
%
|
Robert Kopple
(4)
|
|
25,349,089
|
|
20.0
|
%
|
David Mann
|
|
4,947,080
|
|
3.9
|
%
|
Robert T. Lempert
(5)
|
|
1,238,600
|
|
.98
|
%
|
Nominee Roland J. Bopp
|
|
—
|
|
—
|
|
Nominee Ronald J. Buschur
|
|
—
|
|
—
|
|
Nominee Michael Paritee
|
|
—
|
|
—
|
|
Nominee Gary Wells
|
|
2,395,262
|
|
1.9
|
%
|
Nominee Jonathon Sloan
|
|
—
|
|
—
|
|
All
current executive officers and Directors as a group
(three individuals)
(6)
|
|
39,615,498
|
|
29.78
|
%
|
|
|
|
|
|
|
5%
Stockholders
|
|
|
|
|
|
None other than the Directors named
above
|
|
|
|
|
|
The mailing address for each of the officers and directors is c/o
Aura Systems, Inc., 10541 Ashdale St., Stanton, CA 90680.
10
Section 16(a) Beneficial
Ownership Reporting Compliance
Our shares of common stock are registered under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)
and therefore our executive officers and directors and persons who
beneficially own more than 10% of a registered class of our equity
securities to file with the SEC initial statements of beneficial
ownership, reports of changes in ownership and annual reports
concerning their ownership of our common shares and other equity
securities, on Forms 3, 4 and 5 respectively. Executive officers,
directors and greater than 10% stockholders are required by the SEC
regulations to furnish us with copies of all Section 16(a) reports
they file. Based on our review of the copies of such forms received
by us, and to the best of our knowledge, executive officers,
directors and persons holding greater than 10% of our issued and
outstanding stock have failed to file the required reports during
the year ended February 28, 2017.
11
RELATED PARTY
TRANSACTIONS
The following describes all transactions since March 1, 2015 and
all proposed transactions in which we are, or we will be, a
participant and the amount involved exceeds an amount that is the
lesser of $120,000 or 1% of the average of our total assets as of
year-end for the last two completed fiscal years, other than
compensation arrangements that are otherwise required to be
described under the section entitled “Executive
Compensation.”
Amendment to 2013
Securities Purchase Agreement
— On January 30,
2017, the Company entered into an agreement with five of our
secured creditors (the “Secured Creditors”), pursuant
to which a Securities Purchase Agreement dated May 6, 2013 (the
“2013 Purchase Agreement”) among the Company, the
Secured Creditors, and two other parties was amended (as amended
from time to time, the “Amended Agreement”).
Pursuant to the 2013 Purchase Agreement, we offered and sold
convertible notes (the “2013 Notes”) and warrants (the
“2013 Warrants”) to the Secured Creditors and the two
other parties (collectively, the “2013 Buyers”). The
2013 Buyers purchased an aggregate of approximately $4.9 million
principal amount of convertible notes and warrants to purchase
shares of common stock. As part of the 2013 transaction, we entered
into a security agreement dated on or about May 7, 2013 (the
“2013 Security Agreement”) with the 2013 Buyers
pursuant to which the 2013 Buyers were granted a security interest
in all of the Company’s assets except for its patents and
other intellectual properties in order to secure performance of the
convertible notes.
The 2013 Purchase Agreement, as well as the related transaction
documents can be amended by a written instrument signed by the
Company and those 2013 Buyers holding or having the right to
acquire at least 75% of the shares of Company’s common stock
issuable upon conversion of the convertible notes and exercise of
the warrants and any such amendment is binding equally on all
Buyers. The Amended Agreement amends the 2013 Purchase Agreement
and the 2013 Security Agreement, replaces the convertible notes
with “Amended 2013 Notes” and replaces the warrants
with “Amended 2013 Warrants.” Pursuant to the Amended
Agreement, the Company is obligated to file with the SEC a
preliminary proxy statement, which requirement is satisfied by the
filing of this preliminary proxy statement, for a stockholders
meeting at which the Company will seek stockholder approval of
resolutions to (i) elect a new board of at least five directors,
and (ii) approve the Reverse Split. The Company is obligated to use
its best efforts to solicit stockholder approval of these
resolutions. In addition, the Amendment waives any and all events
of default under the 2013 Purchase Agreement and related
transaction documents existing on or prior to January 30, 2017 and
amends the defaults and remedies section of the 2013 Purchase
Agreement.
The Amended Notes provide that all accrued and unpaid interest on
the 2013 Notes through October 31, 2016 be added to the principal
amount of the Amended Notes. The Amended Notes bear interest at the
rate of 0% through the sooner of (i) January 15, 2018 or (ii) the
fifth business day following a stockholder meeting and 5% per annum
thereafter, subject to reduction to comply with applicable law, and
mature in 60 months from the effective date of the Reverse Split.
Upon certain financings, within five business days following
stockholder approval of the Reverse Split, the Company is obligated
to make a payment to the holders of the Amended Notes in the amount
of 20% of the outstanding Notes. Immediately upon the effectiveness
of the Reverse Split, there shall be a mandatory conversion of 80%
of the then-unpaid principal of and all of the then accrued but
unpaid interest on the Amended Notes. After the effectiveness of
the Reverse Split, and so long as any portion of the Amended Notes
are outstanding, the holders thereof may voluntarily convert the
unpaid principal and interest thereon into the Company’s
common stock at the conversion price of $1.40 per share.
The Secured Creditors hold or have the right to acquire at least
97% of the shares of Company’s common stock issuable upon
conversion of the 2013 Notes and exercise of the 2013 Warrants. Two
secured creditors, who together hold or have the right to acquire
less than 3% of the Company’s common stock issuable upon
conversion of the 2013 Notes and exercise of the 2013 Warrants, did
not sign the amendment and have named the Company and the
Company’s Chief Executive Officer among several defendants in
a lawsuit demanding repayment of loans totaling $125,000 plus
accrued interest and exemplary damages. However, in that secured
creditors holding in excess of 97% of the shares of Company’s
common stock issuable upon conversion of the 2013 Notes and
exercise of the 2013 Warrants under the 2013 Purchase Agreement
have executed the amendment, the 2013 Purchase Agreement provides
that the Amendment is binding on all of the secured creditors,
including the two plaintiffs in the lawsuit. Management believes
that the two plaintiffs have no valid claim against the Company or
our Chief Executive Officer. In March 2017, plaintiffs moved for
partial summary adjudication against the Company and our Chief
Executive Officer; however, the Court denied plaintiffs’
motion. Both the Company and Mr. Gagerman have filed demurrers
12
seeking dismissal of this action, which remain pending at this
time. See “Item 3. Legal Proceedings” in the
Company’s Annual Report on Form 10-K for the fiscal year
ended February 28, 2017 for additional information.
Establishment of the
Special Committee of the Board
— In September
2016, our Board of Directors appointed a special committee
comprised of disinterested directors to negotiate with Mr. Breslow
and Mr. Kopple, who at the time were both interested board members,
in an effort to reach a settlement on the obligations that Messrs.
Breslow and Kopple claim are due to them, as discussed in more
detail below. The Special Committee was granted full power and
authority to act in the name of the entire Board in negotiating
with Messrs. Breslow and Kopple in the best interest, and for the
benefit of, the Company’s stockholders, and in approving (or
rejecting) the terms of any proposed transactions with these
individuals.
Breslow
Debt Refinancing Agreement
— Warren Breslow
served as a director of the Company from 2006 to 2017. He resigned
his position on our board in March 2017. During the period from
2006 through 2016, Mr. Breslow and his affiliates made various
temporary advances to the Company of approximately $14,981,040 in
aggregate amount advanced over the years (the “Breslow
Advances”). Interest on the Breslow Advances was at a rate of
10% per annum. As of January 24, 2017, there was an outstanding
balance of $23,872,614 which represents outstanding principal in
the amount of approximately $14,981,040 together with accrued and
unpaid interest in the amount of approximately $8,890,573.
On January 24, 2017, the Special Committee approved, and the
Company entered into, a Debt Refinancing Agreement (the
“Breslow Refinancing Agreement”) with Warren Breslow
and the Survivor’s Trust under the Warren L. Breslow Trust
(collectively, the “Breslow Parties”), and issued an
unsecured convertible promissory note (the “Breslow
Note”). At the time of the Breslow Advances and the entering
into of the Breslow Refinancing Agreement and at all times in
between, Breslow was a director of the Company and, in addition,
beneficially owns approximately 4.9% of Company’s common
stock. Mr. Breslow is also a trustee of the Survivor’s Trust
under the Warren L. Breslow Trust.
Pursuant to the Breslow Refinancing Agreement, the parties agreed
that, as of the date thereof, the Company owed the Breslow Parties
outstanding principal in the amount of approximately $14,982,040,
together with accrued and unpaid interest in the amount of
approximately $8,890,573, or a total of approximately
$23,872,614.
Pursuant to the Breslow Refinancing Agreement, the Breslow Parties
have canceled and forgiven all accrued interest through the date of
the Breslow Refinancing Agreement, have waived all existing events
of default relating to the outstanding indebtedness, and have
agreed that all instruments or other agreements evidencing or
pertaining to the outstanding indebtedness shall be cancelled and
shall be superseded and replaced in their entirety by a new
promissory note (the “New Breslow Note”) issued by the
Company concurrently with, and as a condition of, the Breslow
Refinancing Agreement. The New Breslow Note was issued in the
principal amount of approximately $14,982,040 (the
“Restructured Principal”), bears interest on the
Restructured Principal at a rate equal to 0% through the sooner of
(i) January 15, 2018 or (ii) the fifth business day following a
shareholder meeting, and 5% per annum thereafter. However, in the
event of an event of default (as defined in the New Breslow) Note,
the interest rate shall become 18% per annum. The entire unpaid
balance of the Note is due on the 60
th
month anniversary of the date of issuance, and may be prepaid or
redeemed in whole or in part without premium or penalty. With
certain exceptions, if an event of default occurs and is
continuing, the holder of the New Breslow Note may, without notice,
declare the outstanding Restructured Principal and accrued and
unpaid interest thereon to be immediately due and payable.
If stockholder approval of the Reverse Split is not obtained within
eighteen months after the date of the Breslow Refinancing
Agreement, the Breslow Refinancing Agreement and the New Breslow
Note shall be rescinded and shall be of no further force or effect;
provided however, that if the Breslow Parties fail to vote all of
the voting securities of the Company beneficially owned by them in
favor of such proposals such rescission will not apply.
Immediately upon the Reverse Split becoming effective, $11,982,041
of the Restructured Principal shall automatically be converted into
7,403,705 shares of the Company’s common stock. In addition,
at any time after the effective date of the Reverse Split, and so
long as any portion of the New Breslow Note remains outstanding,
the holder thereof shall be entitled to convert any portion thereof
then outstanding (together with accrued and unpaid interest) into
shares of our common stock, at a conversion price of $1.40 per
share, subject to adjustment from time to time in the event of any
stock split, reverse stock split or similar subdivision or
combination, other than the Reverse Split (which is proposal 2 to
this Proxy Statement).
13
Kopple
Debt
—
Robert Kopple, who has been a director of the Company since
September 2013, claims that the Company owes him and certain
affiliated parties an aggregate of approximately $3.46 million in
principal and interest, in excess of $1.57 million in accrued
interest, and warrants to purchase 21,721,648 shares of our common
stock at a price of $0.10 per share, as a result of various loans
made by Mr. Kopple and his affiliates (collectively, the
“Kopple Parties”) to the Company between 2013 and 2016.
Mr. Kopple has served as Vice Chairman of the Board since his
appointment in 2013.
On or about March 23, 2013, the Kopple Parties made various cash
advances to the Company in the aggregate original principal amount
of $2,500,000, evidenced by an unsecured convertible note (the
“2013 Kopple Note”) with the right to convert
outstanding principal and accrued and unpaid interest at $0.50 per
share. On or around June 20, 2014, $500,000 of the 2013 Kopple Note
was reclassified as a short-term note, the principal amount of the
2013 Kopple Note was reduced from $2.5 million to $2.0 million and
the 2013 Kopple Note was amended to provide that an event of
default under the June 2014 Agreement (as described and defined
below) would also constitute an event of default under the 2013
Kopple Note.
Also in June 2014, the Company entered into a Financing Letter of
Agreement (the “June 2014 Agreement”) with two
affiliate entities of Mr. Kopple, KF Business Ventures and the
Kopple Family Partnership (the “Additional Kopple
Parties”), pursuant to which the Additional Kopple Parties
loaned us an additional $1,000,000 (the “June 2014
Loan”). In connection with the June 2014 Loan, Mr. Kopple
also added $202,205 in penalties and accrued interest, credited the
Company with $200,000 for amounts previously repaid by the Company
and consolidated several earlier advances into a single new note
(the “June 2014 Kopple Note”) in the principal amount
of $2,715,206 and bearing simple interest at a rate of 10% per
annum. The Company was also required to obtain a subordination
agreement from the Breslow Parties in favor of the Kopple Parties
with respect to the June 2014 Kopple Note.
Pursuant to the June 2014 Agreement, the Kopple Parties also placed
various restrictions on our ability to raise additional capital,
hire qualified personnel and pay certain expenses without his prior
approval for so long as the principal amount of his note remained
outstanding. The June 2014 Kopple Note also required us to issue
Mr. Kopple a stock purchase warrant (the “June 2014 Kopple
Warrant”) to purchase approximately 5.43 million shares of
our common stock at an exercise price of $0.10 per share, to be
exercisable for seven years. Additionally, if we borrowed funds,
issued capital stock or rights to acquire or convert into capital
stock, or granted rights in respect to territories to any person
for cash consideration of more than $5 million in the aggregate
after the date of the June 2014 Kopple Note, we would be required
to pay the entire amount of such cash consideration in excess of $5
million as a mandatory prepayment of the June 2014 Kopple Note.
Additionally, Mr. Kopple required a default provision providing
that in the event that the entire outstanding balance of the June
2014 Kopple Note was not paid in full prior to October 1, 2014,
then for each consecutive calendar month during the period
beginning October 1, 2014 and ending March 31, 2015, the Company
would issue to Mr. Kopple additional stock purchase warrants, each
to purchase 2,715,206 shares of our common stock, up to a maximum
aggregate of approximately 16.3 million shares of our common stock,
at $0.10 per share (the “Kopple Penalty Warrants”), the
Kopple Penalty Warranties to be exercisable for seven years from
the time of their respective issuances. In addition to the Kopple
Penalty Warrants, the default provision under the June 2014 Kopple
Note provides for a 5% late charge on the total amount due plus 15%
per year interest. The Company did not repay the Kopple Parties the
amounts loaned to the Company, and the Company has not yet done so.
Additionally, the Company has not issued any of the Kopple Penalty
Warrants and management believes that Mr. Kopple is not entitled to
receive them. The Company has also cancelled the June 2014 Kopple
Warrant.
See “Item 3. Legal Proceedings” included in the
Company’s Annual Report on Form 10-K for the fiscal year
ended February 28, 2017 for information regarding the dispute with
Mr. Kopple regarding these transactions.
Unsecured Creditor
Agreements
— During the period from 2013
through 2015, a number of investors made various temporary advances
to the Company in the aggregate amount of $3,837,206 (the
“Investor Advances”). Interest on the Investor Advances
was at a rate of 10% per annum. As of February 28, 2017, there was
an outstanding balance of $4,504,593 which represents outstanding
principal in the amount of $3,837206 together with accrued and
unpaid interest in the amount of $667,387. Subsequent to fiscal
year end, the Company entered into several Debt Refinancing
Agreements (collectively, the “2017 Refinancing
Agreements”) with debt holders holding $3,375,669 outstanding
principal, plus accrued interest in the amount of $612,888, or a
total outstanding obligation in the amount of $3,987,557. The 2017
Refinancing Agreements waive all events of default, cancel and
forgive all accrued interest and provide for new five-year 5%
convertible notes (the “2017 Refinancing Notes”) in the
aggregate
14
principal amount of $3,375,669, with no interest for first six
months and 5% per year thereafter. Upon the approval of the Reverse
Split by the stockholders the 2017 Refinancing Notes will be
converted into 2,435,583 shares of our common stock. The 2017
Refinancing Notes also contain various default provisions related
to the timely payment of the principal and interest when due, and
in case of the Company filing for bankruptcy protection. The
default provisions call for default interest rate of 18% per annum
and acceleration of the 2017 Refinancing Notes.
Review and Approval of
Related Party Transactions
Our Audit Committee is responsible for the review and approval of
all related party transactions required to be disclosed to the
public under SEC rules. This procedure, which is contained in the
written charter of our Audit Committee, has been established by our
Board of Directors in order to serve the interests of our
stockholders. Related party transactions are reviewed and approved
by the Audit 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 is otherwise in our best interest.
15
PROPOSAL NO.
1
ELECTION OF
DIRECTORS
The Board has nominated Messrs. Bopp, Buschur, Paritee, Wells and
Sloane to be elected to serve until the next annual meeting of
stockholders and until their successors are duly 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, if no direction is made, for the election of the
Board’s five nominees. If any nominee is unable or declines
to serve as a director at the time of the Annual Meeting, the proxy
holders will vote for a nominee designated by the present Board to
fill the vacancy.
Vote Required
Directors are elected by a plurality of votes, meaning that the
five nominees receiving the highest number of affirmative votes of
the shares entitled to be voted will be elected as directors to
serve until the next annual meeting of stockholders and until their
successors are duly elected and qualified.
Recommendation of the
Board
The Board recommends
that stockholders vote “FOR” the election of Messrs.
Bopp, Buschur, Paritee, Wells and Sloane.
16
PROPOSAL NO.
2
PROPOSED AMENDMENT TO
THE COMPANY’S
AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION
TO effect a reverse stock split
The Board of Directors adopted resolutions approving and
recommending to the stockholders for their approval a proposed
amendment to the Company’s Amended and Restated Certificate
of Incorporation that would, at the discretion of the Board of
Directors, effect a reverse stock split of all of the outstanding
shares of the Company’s common stock and those shares held by
the Company in treasury stock, whereby each seven (7) shares would
be combined, converted and changed into one share of the
Company’s common stock.
We refer to this proposal as the “Reverse Split
proposal.” Under the proposed amendment, each seven (7)
shares of the Company’s common stock currently outstanding,
reserved for issuance or held by the Company in treasury stock
would be combined, converted and changed into one (1) share of
common stock. The par value per share of the Company’s common
stock would remain unchanged at $0.0001 per share after the Reverse
Split. Please see the table below under the section heading
“Principal Effects of the Reverse Split” for an
illustration of the effects of the proposed amendment to the
Company’s Amended and Restated Certificate.
The text of the proposed form of Certificate of Amendment to the
Amended and Restated Certificate to effect the Reverse Split and
reduce the total number of authorized shares of common stock is
attached to this Proxy Statement as
Appendix A
. However,
such text is subject to amendment to include such changes as may be
required by the office of the Secretary of State of the State of
Delaware or as the Board deems necessary and advisable to effect
the Reverse Split. Whether to proceed with the effectiveness or
abandonment of such amendment will be determined by the Board in
its sole discretion.
The Board has recommended that the proposed amendment be presented
to the Company’s stockholders for approval. Upon receiving
stockholder approval of the proposed amendment, the Board will have
the sole discretion, until the 2018 Annual Meeting, to elect, as it
determines to be in the best interests of the Company and its
stockholders, whether to effect the Reverse Split. As described in
greater detail below, the Reverse Split is proposed to be effected
to remain in compliance with the Amended Agreement, the Breslow
Refinancing Agreement, the Refinancing Agreements and the JV
Agreement, as further discussed in “Purpose of the
Amendment” below.
If the Board determines to effect the Reverse Split by causing the
amendment to the Amended and Restated Certificate to be filed with
the Secretary of State of the State of Delaware, the Amended and
Restated Certificate would be amended accordingly. Approval of the
Reverse Split proposal will authorize the Board in its discretion
to effectuate the Reverse Split as described above, or not to
effect the Reverse Split. As noted, the Board will have the
discretion to abandon the Reverse Split if it no longer believes it
to be in the best interests of the Company and its stockholders,
including for any reason in the business judgment and discretion of
the Board. The Company currently expects that the Board will cause
the Company to effect the Reverse Split as soon as practicable
after the receipt of the requisite stockholder approval.
If the Board elects to effect the Reverse Split following
stockholder approval, the number of issued and outstanding shares
of the Company’s common stock and those shares held by the
Company in treasury stock would be reduced in accordance with the
Reverse Split ratio. Except for adjustments that may result from
the treatment of fractional share interests, each stockholder will
hold the same percentage of the outstanding common stock
immediately following the Reverse Split as such stockholder held
immediately prior to the Reverse Split. As described in greater
detail below, as a result of the Reverse Split, stockholders who
hold less than seven (7) shares of the Company’s common stock
will no longer be stockholders of the Company on a post-split
basis.
The Board, with input from senior management, regularly reviews and
evaluates the Company’s business, strategic plans and
prospects, including the performance of the Company’s common
stock, with the goal of maximizing stockholder value. Therefore,
the Board has determined that the proposed Reverse Split is
necessary for execution of the Company’s business plan. In
addition, the Board believes the Reverse Split will provide a
number of other benefits to the Company and its stockholders,
including enhancing the desirability and marketability of the
Company’s common stock to the financial community and the
investing public.
17
The Board does not intend for this transaction to be the first step
in a series of plans or proposals of a “going private
transaction” within the meaning of Rule 13e-3 of the Exchange
Act.
Purpose of the
Amendment
Amendment to 2013 Securities Purchase Agreement
— See
“Related Party Transactions — Amendment to 2013
Securities Purchase Agreement” for a discussion regarding the
Amended Agreement. Pursuant to the Amended Agreement, the Company
is obligated to file with the SEC a preliminary proxy statement for
a stockholders meeting at which the Company will seek stockholder
approval of resolutions to (i) elect a new board of at least five
directors, and (ii) approve the Reverse Split. The Company is
obligated to use its best efforts to solicit stockholder approval
of these resolutions.
Breslow Debt Refinancing
— See “Related Party
Transactions — Breslow Debt Refinancing Agreement” for
a discussion regarding the Breslow Refinancing Agreement. If
stockholder approval of the Reverse Split is not obtained within
eighteen months after the date of the Breslow Refinancing
Agreement, the Breslow Refinancing Agreement and the New Breslow
Note shall be rescinded and shall be of no further force or effect;
provided however, that if the Breslow Parties fail to vote all of
the voting securities of the Company beneficially owned by them in
favor of such proposals such rescission will not apply. Immediately
upon the Reverse Split becoming effective, $11,930,041 of the
Restructured Principal shall automatically be converted into
7,403,705 shares of the Company’s common stock. In addition,
at any time after the effective date of the Reverse Split, and so
long as any portion of the New Breslow Note remains outstanding,
the holder thereof shall be entitled to convert any portion thereof
then outstanding (together with accrued and unpaid interest) into
shares of our common stock, at a conversion price of $1.40 per
share, subject to adjustment from time to time in the event of any
stock split, reverse stock split or similar subdivision or
combination, other than the Reverse Split.
Unsecured Creditor Agreements
— See “Related
Party Transactions – Unsecured Creditor Agreements” for
a discussion regarding the 2017 Refinancing Agreements. Upon the
approval of the Reverse Split by the stockholders the Refinancing
Notes will be converted into 1,940,415 shares of our common
stock.
China Joint Venture
— As previously disclosed, on
January 27, 2017, we entered into a Sino-Foreign Cooperative Joint
Venture Agreement (the “JV Agreement”) with Jiangsu
AoLunTe Electrical Machinery Industrial Co., Ltd.
(“AoLunTe”) pursuant to which the parties will
establish a joint venture company (the “JV”) for the
purposes of manufacturing and distributing our patented mobile
power solution in the Peoples Republic of China
(“PRC”). The business of the JV is limited to the
manufacturing, marketing and sale, repair and maintenance of
selected mobile power products for commercial and military use in
the PRC only.
Pursuant to the JV Agreement, AoLunTe will own 51% of the JV and we
will own 49%, and profits will be distributed based on the
ownership interest of each party. AoLunTe will contribute the RMB
equivalent of $500,000 in cash within 30 days after the
Establishment Date (as defined), as well as tangible and intangible
assets (including but not limited to equipment, land and facilities
of the site for the JV) not later than 180 days after the
Establishment Date (as defined below) valued at $9.25 million. The
“Establishment Date” is the first business day after
the JV’s receipt of the certificate of approval issued by the
PRC governmental authority responsible for approving the JV
Agreement and the Articles of Association of the JV. Such approval
was granted in March 2017. Pursuant to the JV Agreement, we are
required to contribute the RMB equivalent of $250,000 within 45
days after the Establishment Date, as well as an exclusive,
non-assignable, and royalty-free license in the PRC to use our
intellectual property. We have made the required payment.
The JV shall be governed by a Board of Directors, consisting of
three directors nominated by AoLunTe and three directors nominated
by us. All “Major Decisions” of the Board, which are
specified in a schedule to the JV Agreement, require the vote of
two-thirds of the directors, including at least one director
nominated by us and one director nominated by AoLunTe. All other
decisions of the Board require the approval of a simple majority of
directors. A general manager appointed by the Board upon the
nomination by AoLunTe shall be responsible for the day-to-day
operation and management of the JV, while quality control as well
as the financial controller are to managed by individuals to be
appointed by the Board upon our nomination, under the supervision
of the Board.
18
The term of the JV Agreement is 30 years from the Establishment
Date, subject to extension by mutual written agreement of the
parties. The JV Agreement may be terminated sooner by the written
agreement of the parties or in the event of certain specified
events, including without limitation a material breach of the JV
Agreement which is not remedied (if capable of remedy) within 30
days after written notice of such breach is provided to the other
party.
Pursuant to the JV Agreement, AoLunTe will purchase from us
$1,250,000 of product, payable in four payments after the
Establishment Date in the amounts of $500,000, $250,000, $250,000,
and $250,000. The fourth payment will be offset against a prior
advance for products paid by AoLunTe to us.
AoLunTe is required by the JV Agreement to purchase 10 million
shares of our Common Stock (such number being prior to the
contemplated Reverse Split) for an aggregate of $2,000,000 pursuant
to a Securities Purchase Agreement, the form of which is attached
to the JV Agreement. Pursuant to the terms of the Securities
Purchase Agreement, the first installment of $1,000,000 was paid
into a mutually-agreed escrow account and subsequently released
from escrow in March 2017. The second installment of $1,000,000 was
also paid into a mutually-agreed escrow account and is scheduled to
be released to us following approval by our stockholders of
resolutions electing a new board of directors and approving an
amendment to our Certificate of Incorporation to effect the
above-referenced 1-for-7 reverse stock split of our Common Stock.
The shares of Common Stock to be sold to AoLunTe are being sold
pursuant to Regulation S under the Securities Act of 1933, as
amended, and will not be offered or sold to any U.S. person or for
the account or benefit of any U.S. person prior to the end of the
restricted period provided by Regulation S and any other applicable
law.
Effective
Time
Assuming the Board exercises
its discretion to effect the Reverse Split, the reverse stock will
become effective as of the date and time (the “Effective
Time”) upon which the certificate of amendment to the Amended
and Restated Certificate to effect the Reverse Split is filed with
the Secretary of State of the State of Delaware in accordance with
the Delaware General Corporation Law (the “DGCL”),
without any further action on the part of the Company’s
stockholders and without regard to the date that any stockholder
physically surrenders the stockholder’s certificates
representing pre-split shares of common stock for certificates
representing post-split shares. The Board, in its discretion, may
delay or decide against effecting the Reverse Split and the filing
of the certificate of amendment to the Amended and Restated
Certificate to effect the Reverse Split without resoliciting
stockholder approval. It is currently anticipated that if
stockholder approval is obtained for the Reverse Split described in
this proposal, the Board would cause the Company to effect the
foregoing as soon as practicable after obtaining such stockholder
approval.
Principal Effects of the
Reverse Split
After the Effective Time, each stockholder will own a reduced
number of shares of the Company’s common stock. However, the
Company expects that the market price of the Company’s common
stock immediately after the Reverse Split will increase
substantially above the market price of the Company’s common
stock immediately prior to the Reverse Split. The proposed Reverse
Split will be effected simultaneously for all of the
Company’s common stock and shares held in treasury stock, and
the ratio for the Reverse Split will be the same for all of the
Company’s common stock and shares held in treasury stock. The
Reverse Split will affect all of the Company’s stockholders
uniformly and will not affect any stockholder’s percentage
ownership interest in the Company (except to the extent that the
Reverse Split would result in any of the stockholders owning a
fractional share interest as described below). Likewise, the
Reverse Split will affect all holders of outstanding equity awards
under the Company’s 2006 Stock Option Plan and 2011 Directors
and Executive Officer Stock Option Plan (including stock options)
substantially the same (except to the extent that the Reverse Split
would result in a fractional interest as described below).
Proportionate voting rights and other rights and preferences of the
holders of common stock will not be affected by the proposed
Reverse Split (except to the extent that the Reverse Split would
result in any stockholders owning a fractional share interest as
described below). For example, a holder of 2% of the voting power
of the outstanding shares of common stock immediately prior to the
Reverse Split would continue to hold approximately 2% of the voting
power of the outstanding shares of common stock immediately after
the Reverse Split. The number of stockholders of record also will
not be affected by the proposed Reverse Split (except to the extent
that the Reverse Split would result in any stockholders owning only
a fractional share interest as described below).
19
The par value per share of the Company’s common stock would
remain unchanged at $0.0001 per share after the Reverse Split.
Based on the number of shares of the Company’s common stock
issued or reserved for issuance under the Company’s 2006
Stock Option Plan and 2011 Directors and Executive Officer Stock
Option Plan as of December 13, 2017, approximately 3,181,400 shares
of common stock will be issued or reserved for issuance following
the Reverse Split, leaving approximately 1,340,328 shares unissued
and unreserved for issuance.
For information on the treatment of any fractional share interest
that may arise as a result of the reverse stock split relating to
equity awards under the Company’s 2006 Stock Option Plan and
2011 Directors and Executive Officer Stock Option Plan, please see
the section below under the heading “Effect of the Reverse
Split on Equity Awards.”
The proposed Reverse Split will reduce the number of shares of
common stock available for issuance under the Company’s 2006
Stock Option Plan and 2011 Directors and Executive Officer Stock
Option Plan. All shares of the Company’s common stock subject
to outstanding equity awards (including stock options) under
Company’s 2006 Stock Option Plan and 2011 Directors and
Executive Officer Stock Option Plan and the number of shares of
common stock which have been authorized for issuance under those
plans but as to which no equity awards have yet been granted or
which have been returned to the Company upon cancellation or
expiration of such equity awards will be converted at the Effective
Time into one-seventh (1/7) of the number of such shares
immediately preceding the Reverse Split (subject to adjustment for
fractional interests). In addition, the exercise price of
outstanding stock options will be adjusted to seven (7) times the
exercise price specified before the Reverse Split. This will result
in approximately the same aggregate price being required to be paid
as immediately preceding the Reverse Split. No fractional shares
with respect to the shares subject to the outstanding equity awards
will be issued following the Reverse Split. Therefore, if the
number of shares subject to any outstanding equity award
immediately before the Reverse Split is not evenly divisible (in
other words, it would result in a fractional interest following the
Reverse Split), the number of shares of common stock subject to
such equity award will be rounded down to the nearest whole number,
with the fractional share disregarded. For additional information
on the treatment of any fractional interest that may arise as a
result of the Reverse Split relating to equity awards, please see
the section below under the heading Effect of the Reverse Split on
Equity Awards.
If the Reverse Split is approved by stockholders, as of the date of
this Proxy Statement, holders of the Company’s various Notes
will have the right to convert unpaid principal and interest
(collectively referred to below as the “Note Amount”)
into 27,515,960 shares of the Company’s common stock at the
conversion prices reflected below:
|
|
|
|
|
|
No. of Shares of Common Stock into Which Notes
are Convertible
|
|
Pro forma Impact of Potential Conversion on
Fully Diluted Basis
|
Secured Notes
(1)
|
|
$
|
5,705,131
|
|
$
|
1.38
|
|
4,116,316
|
|
7.55
|
%
|
Unsecured Notes
(2)
|
|
$
|
3,837,206
|
|
$
|
1.38
|
|
2,768,587
|
|
5.04
|
%
|
Warren Breslow
|
|
$
|
11,982,041
|
|
$
|
1.61
|
|
7,403,705
|
|
13.57
|
%
|
New
Investor Notes
|
|
$
|
4,991,582
|
|
$
|
0.49
|
|
10,186,902
|
|
18.68
|
%
|
Chinese JV Investor
|
|
$
|
1,000,000
|
|
$
|
1.40
|
|
714,286
|
|
1.31
|
%
|
Additionally, pursuant to an agreement entered into with BetterSea
LLC, an independent contractor (“BetterSea Agreement”),
upon the effective date of the Reverse Split, the Company has
agreed to issue BetterSea LLC such number of shares of Company
common stock equal to 4.0% of the Company’s common stock
calculated on a post-Reverse Split, fully diluted basis. The number
of shares to be issued under the BetterSea Agreement is expected to
range from 1,810,580 shares to 2,181,922, depending on the number
of shares into which the various
20
Notes are converted. At the high and low end of this range, the
issuance of shares to BetterSea would dilute shareholders’
interests by 4.0%. The effects of the proposed amendment to the
Amended and Restated Certificate are illustrated in the below table
as of December 13, 2017:
|
|
|
|
|
|
After
Reverse-Split, Minimum Note Conversion Shares and BetterSea
Shares
|
|
After Reverse Split, Maximum Note Conversion
Share and BetterSea Shares
|
Reverse Stock Split Ratio
|
|
0
|
|
1:7
|
|
|
|
|
Authorized Shares of Common Stock
|
|
150,000,000
|
|
150,000,000
|
|
|
|
|
Common Stock Outstanding
|
|
126,602,875
|
|
18,086,125
|
|
45,265,072
|
|
45,636,414
|
Shares Subject to Outstanding Equity Awards
(stock options)
|
|
33,654,021
|
|
4,807,717
|
|
9,282.983
|
|
9,282,983
|
If the proposed Reverse Split is implemented, it may increase the
number of stockholders of the Company who own odd lots of less than
100 shares of common stock. Brokerage commissions and other costs
of transactions in odd lots may be higher than the costs of
transactions of more than 100 shares of common stock.
The Company’s common stock is currently registered under
Section 12(g) of the Exchange Act, and the Company is subject to
the periodic reporting and other requirements of the Exchange Act.
The proposed Reverse Split will not affect the registration of the
Company’s common stock under the Exchange Act.
The proposed amendment to the
Company’s Amended and Restated Certificate will not change
the terms of the Company’s common stock. After the Reverse
Split, the shares of the Company’s common stock will have the
same voting rights and rights to dividends and distributions and
will be identical in all other respects to the common stock now
authorized. Each stockholder’s percentage ownership of the
new common stock will not be altered by the Reverse Split except
for the effect of eliminating fractional shares (which is discussed
in more detail below). The Company’s common stock issued
pursuant to the Reverse Split will remain fully paid and
non-assessable. Following the Reverse Split, the Company will
continue to be subject to the periodic reporting requirements of
the Exchange Act.
Treatment of Fractional
Shares
No scrip or fractional shares would be issued if, as a result of
the Reverse Split, a registered stockholder would otherwise become
entitled to a fractional share. Instead, the Company would pay to
the registered stockholder, in cash, the value of any fractional
share interest arising from the Reverse Split. The cash payment
would equal the fraction to which the stockholder would otherwise
be entitled multiplied by the closing sales price of the
Company’s common stock as quoted on the OTC Bulletin Board,
as of the effective date. No transaction costs would be assessed to
stockholders for the cash payment. Stockholders would not be
entitled to receive interest for the period of time between the
Effective Time and the date payment is made for their fractional
shares. The ownership of a fractional interest will not give the
holder thereof any voting, dividend or other rights except to
receive payment as described herein. This cash payment merely
represents a mechanical rounding off of the fractions in the
exchange. For a discussion of the treatment of any fractional
interest that may arise as a result of the Reverse Split relating
to equity awards under the Company’s 2006 Stock Option Plan
and 2011 Directors and Executive Officer Stock Option Plan, please
see the section below under the heading Effect of the Reverse Split
on Equity Awards.
As a result of the Reverse Split, stockholders who hold less than
seven (7) shares of the Company’s common stock will no longer
be stockholders of the Company on a post-split basis. In other
words, any holder of six (6) or fewer shares of the Company’s
common stock prior to the effectiveness of the Reverse Split would
only be entitled to receive cash for the fractional share of common
stock such stockholder would hold on a post-split basis. The actual
number of stockholders that will be eliminated will be dependent
upon the actual number of stockholders holding less than seven (7)
shares of the Company’s common stock on the Effective Time.
Reducing the number of post-split stockholders, however, is not the
purpose of this proposal or the Reverse Split. If you do not hold
sufficient shares of pre-split common stock to receive at least one
post-split share of common stock and you want to hold common stock
after the Reverse Split, you may do so by taking either of the
following actions far enough in advance so that it is completed
before the Reverse Split is effected: purchase a sufficient number
of shares of the Company’s common
21
stock so that you would hold at least seven (7) shares of common
stock in your account prior to the implementation of the Reverse
Split that would entitle you to receive at least one (1) share of
common stock on a post-split basis; or if applicable, consolidate
your accounts so that you hold at least seven (7) shares of the
Company’s common stock in one account prior to the Reverse
Split that would entitle you to at least one (1) share of common
stock on a post-split basis. The Company’s common stock held
in registered form (that is, shares held by you in your own name on
the Company’s share register maintained by its transfer
agent) and common stock held in street name (that is, shares held
by you through a bank, broker or other nominee) for the same
investor would be considered held in separate accounts and would
not be aggregated when implementing the Reverse Split. Also, shares
of common stock held in registered form but in separate accounts by
the same investor would not be aggregated when implementing the
Reverse Split.
Stockholders should be aware that, under the escheat laws of the
various jurisdictions where stockholders reside, where the Company
is domiciled and where the funds for fractional shares would be
deposited, sums due to stockholders in payment for fractional
shares that are not timely claimed after the effective time may be
required to be paid to the designated agent for each such
jurisdiction. Thereafter, stockholders otherwise entitled to
receive such funds may have to seek to obtain them directly from
the state to which they were paid.
Effect of the Reverse
Split on Equity Awards
At the Effective Time, the proposed Reverse Split will reduce the
number of shares of common stock available for issuance under the
Company’s equity incentive plans. All shares of the
Company’s common stock subject to outstanding equity awards
(including stock options) under the Company’s 2006 Stock
Option Plan and 2011 Directors and Executive Officer Stock Option
Plan and the number of shares of common stock which have been
authorized for issuance under these plans but as to which no equity
awards have yet been granted or which have been returned to the
Company’s upon cancellation or expiration of such equity
awards will be converted at the Effective Time into one-seventh
(1/7) of the number of such shares immediately preceding the
Reverse Split (subject to adjustment for fractional interests). In
addition, the exercise price of outstanding equity awards will be
adjusted to seven (7) times the exercise price specified before the
Reverse Split. This will result in approximately the same aggregate
price being required to be paid as immediately preceding the
Reverse Split. No fractional shares with respect to the shares
subject to the outstanding equity awards will be issued following
the Reverse Split. Therefore, if the number of shares subject to
any outstanding equity award immediately before the Reverse Split
is not evenly divisible (in other words, it would result in a
fractional interest following the Reverse Split), the number of
shares of common stock subject to such equity award will be rounded
down to the nearest whole number, with the fractional interest
disregarded.
Board Discretion to
Implement the Reverse Split
If the Reverse Split is approved by the Company’s
stockholders at the Annual Meeting, the actual Reverse Split will
be effected, if at all, only upon a subsequent determination by the
Board that the Reverse Split is in the best interests of the
Company and its stockholders at the time. Notwithstanding approval
of the Reverse Split by the stockholders, the Board may, in its
sole discretion, abandon the proposed amendment and determine prior
to the effectiveness of any filing with the Secretary of State of
the State of Delaware not to effect the Reverse Split, as permitted
under Section 242(c) of the DGCL.
Exchange of Stock
Certificates
As soon as practicable after the Effective Time, stockholders will
be notified that the Reverse Split has been effected. The
Company’s transfer agent will act as exchange agent for
purposes of implementing the exchange of stock certificates. If any
of your shares are held in certificated form (that is, you do not
hold all of your shares electronically in book-entry form), you
will receive a letter of transmittal from the Company’s
transfer agent as soon as practicable after the Effective Time,
which will contain instructions on how to obtain post-split shares.
You must complete, execute and submit to the exchange agent the
letter of transmittal in accordance with its instructions and
surrender your stock certificate(s) formerly representing shares of
stock prior to the Reverse Split (or an affidavit of lost stock
certificate containing an indemnification of the Company for claims
related to such lost stock certificate). Upon receipt of your
properly completed and executed letter of transmittal and your
stock certificate(s), you will be issued the appropriate number of
shares of the Company’s common stock certificates (including
legends, if
22
appropriate). If you are entitled to payment in lieu of any
fractional share interest, payment will be made as described above
under Treatment of Fractional Shares. No new stock certificates or
payments in lieu of fractional shares will be issued to a
stockholder until such stockholder has properly completed and
executed a letter of transmittal and surrendered such
stockholder’s outstanding certificate(s) to the exchange
agent.
STOCKHOLDERS SHOULD NOT
DESTROY ANY PRE-SPLIT STOCK CERTIFICATE AND SHOULD NOT SUBMIT ANY
CERTIFICATES UNTIL THEY ARE REQUESTED TO DO SO.
In connection with the Reverse Split, the Company’s common
stock will change its current Committee on Uniform Securities
Identification Procedures (“CUSIP”) number. This new
CUSIP number will appear on any new stock certificates issued
representing shares of the Company’s post-split common
stock.
Effect on Beneficial
Owners
Stockholders holding common stock through a bank, broker or other
nominee should note that such banks, brokers or other nominees may
have different procedures for processing the Reverse Split than
those that would be put in place by the Company for registered
stockholders that hold such shares directly, and their procedures
may result, for example, in differences in the precise cash amounts
being paid by such nominees in lieu of a fractional share. If you
hold your shares with such a bank, broker or other nominee and if
you have questions in this regard, you are encouraged to contact
your bank, broker or nominee.
Accounting
Consequences
The par value per share of the Company’s common stock would
remain unchanged at $0.0001 per share after the Reverse Split. As a
result, at the Effective Time, the stated capital on the
Company’s balance sheet attributable to the Company’s
common stock will be reduced proportionally from its present
amount, and the additional paid in capital account shall be
credited with the amount by which the stated capital is reduced.
The per share common stock net income or loss and net book value
will be increased because there will be fewer shares of common
stock outstanding or held by the Company in treasury stock. The
Company does not anticipate that any other accounting consequences
would arise as a result of the Reverse Split.
No Appraisal
Rights
The Company’s stockholders are not entitled to appraisal
rights under Delaware law with respect to the proposed amendment to
the Amended and Restated Certificate to effect the Reverse Split,
and the Company will not independently provide the stockholders
with any such right.
Material U.S. Federal
Income Tax Consequences of the Reverse Split
The following is a discussion of certain material U.S. federal
income tax consequences of the Reverse Split. This discussion is
included for general information purposes only and does not purport
to address all aspects of U.S. federal income tax law that may be
relevant to stockholders in light of their particular
circumstances. This discussion is based on the Internal Revenue
Code of 1986, as amended (the Code), and current Treasury
Regulations, administrative rulings and court decisions, all of
which are subject to change, possibly on a retroactive basis, and
any such change could affect the continuing validity of this
discussion.
All stockholders are urged to consult with their own tax advisors
with respect to the tax consequences of the Reverse Split. This
discussion does not address the tax consequences to stockholders
who are subject to special tax rules, such as banks, insurance
companies, regulated investment companies, personal holding
companies, foreign entities, partnerships, nonresident alien
individuals, broker-dealers and tax-exempt entities. This summary
also assumes that the pre-Reverse Split shares were, and the
post-Reverse Split shares will be, held as a capital asset, as
defined in Section 1221 of the Code.
As used herein, the term U.S. holder means a holder that is, for
U.S. federal income tax purposes:
•
an individual who is a citizen or resident of the United
States;
•
a corporation or other entity taxed as a corporation created or
organized in or under the laws of the United States or any
political subdivision thereof;
23
•
an estate the income of which is subject to U.S. federal income tax
regardless of its source; or
•
a trust (A) if a U.S. court is able to exercise primary supervision
over the administration of the trust and one or more U.S. persons
(as defined in the Code) have the authority to control all
substantial decisions of the trust or (B) that has a valid election
in effect to be treated as a U.S. person.
Other than the cash payments for fractional shares of common stock
discussed above, no gain or loss should be recognized by a
stockholder upon the exchange of pre-Reverse Split shares for
post-Reverse Split shares. The aggregate tax basis of the
post-Reverse Split shares will be the same as the aggregate tax
basis of the pre-Reverse Split shares exchanged in the Reverse
Split, reduced by any amount allocable to a fractional share for
which cash is received. A stockholder’s holding period in the
post-Reverse Split shares will include the period during which the
stockholder held the pre-Reverse Split shares exchanged in the
Reverse Split.
In general, the receipt of cash by a U.S. holder instead of a
fractional share will result in a taxable gain or loss to such
holder for U.S. federal income tax purposes. The amount of the
taxable gain or loss to the U.S. holder will be determined based
upon the difference between the amount of cash received by such
holder and the portion of the basis of the pre-Reverse Split shares
allocable to such fractional interest. The gain or loss recognized
will constitute capital gain or loss and will constitute long-term
capital gain or loss if the holder’s holding period is
greater than one year as of the Effective Time.
The tax treatment of a stockholder may vary depending upon the
particular facts and circumstances of such stockholder. Each
stockholder is urged to consult with such stockholder’s own
tax advisor with respect to the tax consequences of the Reverse
Split.
Interests of Directors
and Executive Officers
The Company’s directors and executive officers have no
substantial interests, directly or indirectly, in the matters set
forth in the Reverse Split proposal except to the extent of their
ownership of shares of the Company’s common stock or as
otherwise disclosed above.
Vote Required
The affirmative vote, voting in person or represented by proxy, of
a majority of the outstanding shares of common stock on the record
date is required for approval of the Authorized Shares Amendment.
As a result, abstentions and broker non-votes will have the effect
of a vote against the proposal.
Director Objection to
Reverse Split
Robert Kopple, one of the Company’s current directors, has
informed the Company that he intends to oppose the Reverse Split
proposal in the Proxy Statement.
Recommendation of the
Board
The Board of Directors of the Company recommends that the
stockholders vote “FOR” the proposed amendment to the
Company’s Amended and Restated Certificate of Incorporation
to effect, at the discretion of the Board of Directors, a reverse
STOCK split of all of the outstanding shares of the Company’s
common stock whereby each SEVEN (7) shares would be combined,
converted and changed into one (1) share of common
stock.
24
PROPOSAL NO.
3
APPROVAL, by non-binding advisory vote, the compensation of the
Company’s
named executive officers
The Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, or the Dodd-Frank Act, enables our stockholders to vote to
approve, on an advisory (non-binding), basis, the compensation of
our named executive officers as disclosed in this Proxy Statement
in accordance with the SEC’s rules.
As described in detail under the heading “Executive
Compensation,” the primary objectives of our executive
compensation program are to attract and retain highly qualified
personnel, and provide meaningful incentives to promote
profitability and growth and reward superior performance.
We are asking our stockholders to indicate their support for our
named executive officer compensation as described in this Proxy
Statement. This proposal, commonly known as a
“say-on-pay” proposal, gives our stockholders the
opportunity to express their views on our named executive
officers’ compensation. This vote is not intended to address
any specific item of compensation, but rather the overall
compensation of our named executive officers. Accordingly, we are
asking our stockholders to vote “FOR” the following
resolution at the Annual Meeting:
“
RESOLVED, that the
compensation paid to the Company’s named executive officers,
as disclosed in the Company’s Proxy Statement for its 2017
Annual Meeting, is hereby APPROVED
.”
The say-on-pay vote is advisory, and therefore not binding on the
Company, the Compensation Committee or the Board of Directors.
However, the Compensation Committee and the Board of Directors
currently intends to take into account the outcome of the most
recent advisory vote on named executive officer compensation when
considering future executive compensation arrangements for the
named executive officers, although it is under no obligation to do
so. This proposal will be approved if the number of votes cast in
favor of approving the non-binding resolution exceeds those cast
against it.
Recommendation of the
Board
THE BOARD OF DIRECTORS
RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE
APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, AS
DISCLOSED IN THIS PROXY STATEMENT.
25
PROPOSAL NO.
4
recommendation, by non-binding advisory vote, the frequency of
future non-binding advisory votes to approve the compensation of
the Company’s named executive officers
The Dodd-Frank Act also enables our stockholders to vote, on an
advisory (non-binding) basis, at least once every six years on how
frequently they would like to cast an advisory vote on the
compensation of our named executive officers. By voting on this
proposal, stockholders may indicate whether they would prefer an
advisory vote on named executive officer compensation once every
one, two, or three years. stockholders may also abstain from voting
on this matter. This is commonly known as a
“say-on-frequency” proposal.
We are asking our stockholders to indicate their support for the
option of holding an advisory vote on the compensation of our named
executive officers at each annual meeting. Our Board of Directors
recognizes that executive compensation is an important matter of
stockholder concern and believes that providing stockholders with
the opportunity to review our compensation programs annually is a
matter of good corporate practice. Further, we believe this
frequency should provide the Board of Directors and the
Compensation Committee of the Company with more immediate
stockholder input on the Company’s executive compensation
programs. Accordingly, we are asking our stockholders to vote for a
frequency of once every “ONE YEAR” for the following
resolution at the Annual Meeting:
“
RESOLVED, that the
Company hold a stockholder advisory vote to approve the
compensation of the Company’s named executive officers, with
a frequency of once every one year, two years or three years,
whichever receives the highest number of votes cast with respect to
this resolution
.”
The say-on-frequency vote is advisory, and therefore not binding on
the Company, the Compensation Committee or the Board of Directors.
However, the Compensation Committee and the Board of Directors
currently intends to take into account the outcome of the
say-on-frequency vote, although it is under no obligation to do so.
The decision of the Company on how frequently it intends to hold
future say-on-pay votes will be disclosed in a Form 8-K that will
be filed with the SEC following the Annual Meeting. The frequency
(every one, two, or three years) receiving the highest number of
votes will be deemed to be the choice of our stockholders with
respect to the advisory (non-binding) vote on the frequency of
voting on the compensation of our named executive officers.
Recommendation of the
Board
THE BOARD OF DIRECTORS
RECOMMENDS THAT THE STOCKHOLDERS VOTE TO HOLD AN ADVISORY VOTE ON
THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS EVERY “ONE
YEAR.”
26
PROPOSAL NO.
5
RATIFICATION OF the appointment of KSP Group, Inc. as the
Company’s
independent registered public accounting firm
The Audit Committee of our Board has appointed KSP Group, Inc. to
serve as the Company’s independent registered public
accounting firm for the fiscal year ending February 28, 2018. If
stockholders do not ratify the appointment of KSP Group, Inc. as
our independent registered public accounting firm for 2018, the
Audit Committee will review its future selection of the independent
registered public accounting firm. In addition, the Audit
Committee, at its discretion, may direct the appointment of a
different independent registered public accounting firm at any time
during the year if the Audit Committee believes that a change would
be in our best interests and the best interests of our
shareholders. A proposal to ratify the appointment will be
presented at the Annual Meeting. Representatives of KSP Group, Inc.
are expected to be present at the Annual Meeting. They will have an
opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions from
stockholders.
Principal Accounting
Fees
The following table sets forth the aggregate fees billed to us by
KSP Group, Inc. for the years ended February 28, 2017, and February
29, 2016:
|
|
|
|
|
|
|
|
Audit Fees
|
|
$
|
32,000
|
|
$
|
47,500
|
Audit-related fees
|
|
|
—
|
|
|
—
|
Tax fees
|
|
|
—
|
|
|
—
|
All other fees
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,000
|
|
$
|
47,500
|
As defined by the SEC, (i) “audit fees” are fees for
professional services rendered by our principal accountant for the
audit of our annual financial statements and review of financial
statements included in our Form 10-K for the fiscal year ended
February 28, 2017, or for services that are normally provided by
the accountant in connection with statutory and regulatory filings
or engagements for those fiscal years; (ii) “audit-related
fees” are fees for assurance and related services by our
principal accountant that are reasonably related to the performance
of the audit or review of our financial statements and are not
reported under “audit fees;” (iii) “tax
fees” are fees for professional services rendered by our
principal accountant for tax compliance, tax advice, and tax
planning; and (iv) “all other fees” are fees for
products and services provided by our principal accountant, other
than the services reported under “audit fees,”
“audit-related fees,” and “tax fees.”
Audit Fees
Services provided to us by KSP Group, Inc. with respect to the
audit of our annual financial statements and review of our annual
reports on Form 10-K for the fiscal year ended February 28, 2017
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, 2017 and February 29, 2016.
Audit Related
Fees
KSP Group, Inc. did not provide any professional services to us
during fiscal 2017 or fiscal 2016 which would constitute
“audit related fees”.
Tax Fees
KSP Group, Inc. did not provide any professional services to us
during fiscal 2017 or fiscal 2016 which would constitute “tax
fees”.
27
All Other
Fees
KSP Group, Inc. did not provide any professional services to us
during fiscal 2017 or fiscal 2016 which would constitute
“other fees”.
On February 8, 2017, Kabani & Company, Inc.
(“Kabani”) resigned as the Company’s independent
registered public accounting firm, effective as of February 8,
2017.
Kabani served as the Company’s independent registered public
accounting firm for the Company’s fiscal years ended February
28, 2014, and February 28, 2013. The reports of Kabani on the
Company’s financial statements for the years ended February
28, 2014, and February 28, 2013 did not contain an adverse opinion
or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
During the fiscal years ended February 28, 2014, and February 28,
2013 and through September 18, 2017, there were no disagreements
with Kabani on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of Kabani
would have caused it to make reference to the subject matter of the
disagreements in connection with its reports. During the fiscal
years ended February 28, 2014, and February 28, 2013 and through
September 18, 2017, there have been no reportable events (as
defined in Item 304(a)(1)(v) of Regulation S-K).
In February 2017, the Company engaged KSP Group, Inc. as the
Company’s independent registered public accounting firm for
the fiscal years ending February 28, 2015, February 29, 2016 and
February 28, 2017. The decision to appoint KSP Group, Inc. was
approved by the Audit Committee of the Board of Directors.
During the two most recent
fiscal years and during the subsequent interim period from March 1,
2017 through September 18, 2017, neither the Company nor anyone on
its behalf consulted KSP Group, Inc. regarding either (i) the
application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that
might be rendered on the Company’s financial statements, and
neither a written report nor oral advice was provided to the
Company that KSP Group, Inc. concluded was an important factor
considered by the Company in reaching a decision as to any
accounting, auditing or financial reporting issue, or (ii) any
matter that was either the subject of a “disagreement”
or a “reportable event,” each as defined in Regulation
S-K Item 304(a)(1)(v), respectively.
Policy on Audit Committee Pre-Approval of
Audit and Permissible Non-Audit Services of Independent
Auditors
Under the SEC’s rules, the Audit Committee is required to
pre-approve the audit and permissible non-audit services performed
by the independent registered public accounting firm in order to
ensure that they do not impair the auditors’ independence.
The SEC’s rules specify the types of non-audit services that
an independent auditor may not provide to its audit client and
establish the Audit Committee’s responsibility for
administration of the engagement of the independent registered
public accounting firm.
Consistent with the SEC’s rules, the Audit Committee
pre-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 particular service or category
of services and is 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 auditors in accordance with this
pre-approval, and the fees for the services performed to date. The
Audit Committee may also pre-approve particular services on a
case-by-case basis. During fiscal 2017 and 2016 all services
provided by KSP Group, Inc. were pre-approved by the Audit
Committee in accordance with this policy.
There were no hours expended on the principal accountant’s
engagement to audit the registrant’s financial statements for
the most recent fiscal year that were attributed to work performed
by persons other than the principal accountant’s full-time,
permanent employees.
Vote Required
The affirmative vote of the holders of a majority of the shares
present or represented by proxy and entitled to vote is required to
ratify the appointment of KSP Group, Inc. as our independent
registered public accounting firm for the fiscal year ending
February 28, 2018. As a result, abstentions will have the effect of
a vote “against” the proposal; however, broker
non-votes will have no effect on this proposal.
28
If our stockholders fail to ratify the selection, the Audit
Committee may, but is not required to, reconsider whether to retain
that firm. Even if the selection is ratified, the Audit Committee,
in its discretion, may direct the appointment of a different
independent auditing firm at any time during the fiscal year if it
determines that such a change would be in our best interests and
that of our stockholders.
Recommendation of the
Board
THE BOARD OF DIRECTORS
RECOMMENDS THAT THE STOCKHOLDERS VOTE
to ratify the appointment of KSP Group, Inc. as the Company’s
independent registered public accounting firm for the fiscal year
ending February 28, 2018
.
29
MISCELLANEOUS
Stockholder
Proposals
Stockholder proposals complying with the applicable rules under the
Exchange Act intended to be presented at the 2018 Annual Meeting of
stockholders must be received at the offices of the Company by
August 24, 2018, to be considered for inclusion in the
Company’s proxy statement and form of proxy relating to that
meeting. Such proposals should be directed to the attention of the
Corporate Secretary, Aura Systems, Inc., 10541 Ashdale St.,
Stanton, CA 90680. SEC rules provide that if the date of our 2018
Annual Meeting is advanced or delayed more than 30 days from the
date of the 2017 Annual Meeting, stockholder proposals intended to
be included in the proxy materials for the 2018 Annual Meeting must
be received by us within a reasonable time before we begin to print
and mail the proxy materials for the 2018 Annual Meeting. Upon
determination by the Company that the date of the 2018 Annual
Meeting will be advanced or delayed by more than 30 days from the
date of the 2017 Annual Meeting, we will disclose that change in
the earliest possible Quarterly Report on Form 10-Q or as otherwise
permitted by SEC rules.
Additional
Information
A copy of our Annual Report on Form 10-K for the fiscal year ended
February 28, 2017, 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.,
10541 Ashdale St., Stanton, CA 90680, 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
stockholders 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., 10541 Ashdale St., Stanton, CA
90680. If you want to receive separate copies of the annual report
and proxy statement in the future or if you are receiving multiple
copies and would like to receive only one copy for your household,
you should contact your bank, broker or other nominee record
holders, or you may contact us.
Other Matters
We know of no other matters to be submitted to the stockholders at
the Annual Meeting. If any other matters properly come before the
stockholders at the Annual Meeting, it is the intention of the
persons named on the proxy to vote the shares represented thereby
on such matters in accordance with their best judgment, subject to
direction by the Board of Directors.
30
APPENDIX
“A”
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:
FIRST: Article Fourth of the Corporation’s Amended and
Restated Certificate of Incorporation is hereby amended by adding
the following:
Upon the filing and effectiveness (the “Effective
Time”) pursuant to the General Corporation Law of the State
of Delaware (the “DGCL”) of this Certificate of
Amendment to the Amended and Restated Certificate of Incorporation
of the Corporation, as amended, each seven (7) shares of the
Corporation’s Common Stock, par value $0.0001 per share,
issued and outstanding immediately prior to the Effective Time
shall automatically be combined into one (1) validly issued, fully
paid and non-assessable share of Common Stock without any further
action by the Corporation or the holder thereof, subject to the
treatment of fractional share interests as described below (the
“Reverse Split”). No certificates representing
fractional shares of Common Stock shall be issued in connection
with the Reverse Split. Stockholders who otherwise would be
entitled to receive fractional shares of Common Stock shall be
entitled to receive cash (without interest or deduction) from the
Corporation’s transfer agent in lieu of such fractional share
interests, upon receipt by the Corporation’s transfer agent
of the stockholder’s properly completed and duly executed
transmittal letter and, where shares are held in certificated form,
the surrender of the stockholder’s Old Certificates (as
defined below), in an amount equal to the fair market value of such
fractional share interests based on the closing price per share of
Common Stock on the principal market on which the Common Stock
trades on the trading day immediately preceding the date on which
the Effective Time occurs. Each certificate that immediately prior
to the Effective Time represented shares of Common Stock
(“Old Certificates”), shall thereafter represent that
number of shares of Common Stock into which the shares of Common
Stock represented by the Old Certificate shall have been combined,
subject to the elimination of fractional share interests as
described above.
SECOND: This Certificate of Amendment shall become effective as of
[ ], 201[ ] at [ ] [a.m./p.m.].
THIRD: This Certificate of Amendment was duly adopted in accordance
with Section 242 of the DGCL. The Board of Directors duly adopted
resolutions setting forth and declaring advisable this Certificate
of Amendment and directed that the proposed amendment be considered
by the stockholders of the Corporation. A meeting of stockholders
was duly called upon notice in accordance with Section 222 of the
DGCL and held on January 11, 2018, at which meeting the necessary
number of shares were voted in favor of the proposed amendment. The
stockholders of the Corporation duly adopted this Certificate of
Amendment.
IN WITNESS WHEREOF, I have signed this Certificate this _____ day
of [__], 2017.
AURA SYSTEMS, INC.
|
|
|
|
By:
|
|
|
Name:
|
|
|
Title:
|
|
|
A-1