UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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
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Definitive
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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AURA
SYSTEMS, INC.
(Name
of Registrant as Specified in its Charter)
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Applicable
(Name
of Person(s) Filing Proxy Statement, if Other Than the 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 , 2017
____________________________________
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 , 2017, at a.m., Pacific Time, at , for the following purposes, as more fully described in the accompanying
proxy statement (the “Proxy Statement”):
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1.
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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;
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2.
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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;
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3.
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to
approve, by non-binding advisory vote, the compensation of the Company’s named
executive officers;
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4.
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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;
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5.
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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
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6.
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to
transact such other business as may properly come before the Annual Meeting.
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Only
stockholders of record at the close of business on , 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
,
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 , 2017 (the “Annual Meeting”) at , 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:
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1.
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“FOR”
the five Directors nominated by the Board of Directors;
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2.
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“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”);
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3.
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“FOR”
the approval on an advisory basis of the compensation of the Company’s named executive
officers;
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4.
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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;
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5.
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“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
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6.
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at
the discretion of the proxy holders, with regard to any other matter that is property
presented at the Annual Meeting.
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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 (the “record date”), are entitled to receive notice of and to vote at the Annual Meeting. On
that date, we had outstanding 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 nonvotes” (i.e. proxies from brokers or nominees indicating
that such persons have not received instructions from the beneficial owners or other persons entitled to vote shares as to a matter
with respect to which brokers or nominees do not have discretionary power to vote) will be treated as present for purposes of
determining the presence of a quorum. 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 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 , 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.
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.
Name
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Age
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Title
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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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53
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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, 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.”
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 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.
Executive
Officers
The
following sets forth certain information regarding the executive officers of the Company:
Name
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Age
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Title
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Melvin
Gagerman
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75
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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.
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:
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attract
and retain highly qualified personnel, and
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provide
meaningful incentives to promote profitability and growth and reward superior performance.
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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:
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base
salary,
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eligibility
to receive annual cash bonuses, and
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stock-based
compensation in the form of stock options.
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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
$360,000 for Mr. Gagerman’s base salary, however due to the Company’s financial constraints Mr. Gagerman has not been
paid any base salary for fiscal year 2016. It is expected that the Company will pay Mr. Gagerman his fiscal year 2016 base salary
when and if the Company generates sufficient revenue to do so. In the fiscal year ended February 28, 2017, Mr. Gagerman waived
his right to any salary for services performed during fiscal years 2017 and 2018. Currently, Mr. Gagerman is eligible to earn
a discretionary bonus in connection with services performed during the 2017 calendar year.
The
following table summarizes all compensation earned for the fiscal years ended February 28, 2017 and February 29, 2016, to the
individual who served as our chief executive officer during fiscal 2017. We had no other officers who would qualify as “named
executive officers” as such term is defined in Item 402 of Regulation S-K and serving in such capacity at any time during
the year ended February 28, 2017 (the “Named Executive Officer”).
Summary
Compensation Table
Name and Principal Position
|
|
Fiscal Year
|
|
|
Salary
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity Incentive Plan Compensation
|
|
|
All Other
Compensation ($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melvin Gagerman (1)
|
|
|
2017
|
|
|
|
-
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
(3)
|
|
|
-
|
|
Chief Executive Officer,
Acting Chief Financial Officer
|
|
|
2016
|
|
|
$
|
360,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
44,961
|
(4)
|
|
$
|
404,961
|
(5)
|
|
(1)
|
Mr. Gagerman was elected Chairman and Chief
Financial Officer effective February 1, 2006 and was elected President and Chief Executive Officer effective May 25, 2006.
|
|
(2)
|
For additional information, see “--Employment
Contracts, Termination of Employment Contracts and Change in Control Arrangements” below.
|
|
(3)
|
No bonuses or stock awards were granted to Mr.
Gagerman for fiscal 2017. No amounts are indicated for perquisites and other personal benefits for fiscal 2017, as the value
provided did not exceed $10,000.
|
|
(4)
|
Represents $24,000 in automobile allowance,
$13,022 for the cost of life and long-term care insurance premiums, and $7,939 in medical expense reimbursements.
|
|
(5)
|
Mr. Gagerman’s salary of $360,000 for
fiscal 2016 was not paid but was accrued.
|
Outstanding
Equity Awards at 2017 Fiscal Year-End
The
following table summarizes certain information regarding the number and value of all options to purchase our common stock held
by our Named Executive Officer for the year ended February 28, 2017. No stock awards or equity incentive plan awards were issued
or outstanding during fiscal 2017.
2017
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
|
|
Option Awards
|
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
|
|
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
|
|
|
Option
Exercise
Price
|
|
|
Option
Expiration
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
(#)
|
|
|
($)
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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 October
31, 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
Beneficial Owner
|
|
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
|
%
|
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)(5)
|
|
|
33,503,307
|
|
|
|
26.46
|
%
|
|
|
|
|
|
|
|
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
None other than the Directors named above
|
|
|
|
|
|
|
|
|
*
Less than 1% of outstanding shares.
(1)
|
Beneficial ownership is determined in accordance
with rules of the SEC. The calculation of the percentage of beneficial ownership is based upon 126,602,875 shares of common
stock outstanding on October 31, 2017. In computing the number of shares beneficially owned by any stockholder and the percentage
ownership of such stockholder, shares of common stock which may be acquired by a such stockholder upon exercise or conversion
of warrants or options which are currently exercisable or exercisable within 60 days of October 31, 2017, are deemed to be
exercised and outstanding. Such shares, however, are not deemed outstanding for purposes of computing the beneficial ownership
percentage of any other person. Shares issuable upon exercise of warrants and options which are subject to stockholder approval
are not deemed outstanding for purposes of determining beneficial ownership. Except as indicated by footnote, to our knowledge,
the persons named in the table above have the sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them.
|
(2)
|
Includes 5,675,258 warrants and options exercisable
within 60 days of October 31, 2017.
|
(3)
|
Includes 650,000 warrants and options exercisable
within 60 days of October 31, 2017.
|
(4)
|
Based on a Schedule 13D filed by Mr. Kopple
with the SEC on September 11, 2013. The business address of Mr. Kopple is 10866 Wilshire Blvd., Suite 1500, Los Angeles, California
90024. The Company is also presently engaged in a dispute with Mr. Kopple that includes a claim regarding approximately 22.9
million warrants which Mr. Kopple claims to be owed to him and his affiliates by the Company. The Company believes that it
has valid defenses against Mr. Kopple’s claims and that no warrants are issuable to Mr. Kopple. Accordingly, the amount
reflected herein does not include the warrants in dispute. See Item 3. “Legal Proceedings”, “Liquidity and
Capital Resources” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2017 for
additional information regarding the transactions under dispute.
|
(5)
|
Excludes the five director nominees who are
not yet board members.
|
The
mailing address for each of the officers and directors is c/o Aura Systems, Inc., 10541 Ashdale St., Stanton, CA 90680.
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.
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 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).
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 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.
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.
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.
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.
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).
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 October 31, 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:
|
|
Note Amount
|
|
|
Conversion Price
|
|
|
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
|
%
|
(1) These
include secured notes that were issued to various parties in separate transactions.
(2) These
include unsecured notes that were issued to various parties in separate transactions.
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 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 October 31, 2017:
|
|
Prior to Reverse Split
|
|
|
After Reverse-Split
|
|
|
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 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 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;
|
|
●
|
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.
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.
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”.
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:
|
|
Year Ended
|
|
|
|
February 28,
2017
|
|
|
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”.
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.
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
.
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 , 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.
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 [ ], 201[ ], 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:
|
|
|
AURA
SYSTEMS, INC.
10541
Ashdale St.,
Stanton,
CA 90680
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned stockholder of Aura Systems, Inc. (the “Company”) hereby appoints Melvin Gagerman as the attorney and
proxy of the undersigned, with the powers the undersigned would possess if personally present, and with full power of substitution,
to vote all shares of common stock of the Company at the Annual Meeting of stockholders of the Company to be held on ,
, 2017 at
a.m. Pacific Time at ,
and at any adjournment or postponement thereof, upon all subjects that may properly come before the meeting, including the matters
described in the Proxy Statement furnished herewith, subject to any directions indicated below.
PROPOSAL
1
– Election of Directors: (
CHECK ONE ONLY
)
|
FOR
all five nominees listed below.
|
|
WITHHOLD
AUTHORITY to vote for all five nominees for director listed below.
|
FOR
all five nominees for director listed below, except WITHHOLD AUTHORITY to vote for the nominee(s) whose
name(s) is (are) lined through.
Nominees
for election to the Board of Directors are
Roland J. Bopp, Ronald J. Buschur, Michael
Paritee, Jonathon Sloane
and
Gary Wells
.
PROPOSAL
2
– To approve 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 and changed into one (1) share of common stock.
FOR
AGAINST
ABSTAIN
PROPOSAL
3
– To approve, by non-binding advisory vote, the compensation of the Company’s named executive officers.
FOR
AGAINST
ABSTAIN
PROPOSAL
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.
ONE
YEARS
TWO YEARS
THREE YEARS
ABSTAIN
PROPOSAL
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.
FOR
AGAINST
ABSTAIN
This
proxy when properly executed will be voted in the manner directed herein by the undersigned stockholders(s). If no
direction is made, this proxy will be voted “FOR” the nominees of the Board of Directors in the election of directors
and “FOR” proposals 2, 3 and 5 and “ONE YEAR” for proposal 4. This proxy also delegates discretionary
authority to vote with respect to any other business that may properly come before the meeting or any adjournment or postponement
thereof.
THE
UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT FURNISHED IN CONNECTION THEREWITH
AND HEREBY RATIFIES ALL THAT THE SAID ATTORNEYS AND PROXIES MAY DO BY VIRTUE HEREOF.
Dated: ,
2017
stockholder
Signature
stockholder
Signature
Note:
Please mark, date and sign this proxy card and return it in the enclosed envelope. Please sign as your name appears hereon.
If shares are registered in more than one name, all owners should sign. If signing in a fiduciary or representative capacity,
please give full title and attach evidence of authority. Corporations please sign with full corporate name by a
duly authorized officer and affix corporate seal.
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