SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date
of report (Date of earliest event reported): July 10, 2010
AURASOUND,
INC.
(Exact
name of registrant as specified in Charter)
Nevada
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000-51543
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20-5573204
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||
(State
or other jurisdiction of
incorporation
or organization)
|
(Commission
File No.)
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(IRS
Employee Identification No.)
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11839
East Smith Avenue
Santa
Fe Springs, California 90670
(Address
of Principal Executive Offices)
(562)
447-1780
(Issuer
Telephone number)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the Registrant under any of the following
provisions (see General Instruction A.2 below).
¨ Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b)).
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13(e)-4(c))
Item
1.01
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Entry
into a Material Definitive
Agreement
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Asset Purchase Agreement and
Ancillary Agreements
On July 10, 2010, AuraSound, Inc.
(“AuraSound”) entered
into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with ASI
Holdings Limited, a Hong Kong corporation (“ASI Holdings”), and its wholly-owned
subsidiary ASI Audio Technologies, LLC, an Arizona limited liability company
(“ASI Arizona”), pursuant to which AuraSound agreed to acquire substantially all
of the business assets and certain liabilities of ASI Holdings and ASI Arizona
(the “ASI Transaction”), in consideration of the issuance to the shareholders of
ASI Holdings of an aggregate of 5,988,005 shares (the “ASI Transaction Shares”)
of unregistered common stock of AuraSound (“Common Stock”), and five (5) year
warrants to purchase an aggregate of 3,000,000 shares of Common Stock (“Warrant
Shares”) at an exercise price of $1.00 per share (collectively, the “ASI
Warrant”). Pursuant to the Asset Purchase Agreement, AuraSound has
agreed to assume approximately $10,154,745 in liabilities of ASI Holdings and
ASI Arizona, primarily consisting of trade payables.
The
information in Item 3.02 below is included by reference herein, as GGEC China is
currently the sole supplier of manufactured products for both AuraSound and ASI
Holdings.
The
obligations of the parties under the Asset Purchase Agreement are subject to
certain customary closing conditions, including, without limitation, that their
respective representations and warranties be true on the closing date of the
Asset Purchase Agreement (the “Closing Date”), except representations and
warranties that are made as of a particular date, which shall be true as of such
date. AuraSound’s obligations under the Asset Purchase Agreement are
subject to the following additional closing conditions which have not yet been
satisfied: (i) AuraSound shall have completed its business, financial
and legal due diligence review of ASI Holdings and ASI Arizona and AuraSound
shall be satisfied with the results of such review in AuraSound’s sole and
absolute discretion, (ii) ASI Holdings and ASI Arizona shall have obtained third
party consents to the assignment of certain contracts of ASI Holdings and ASI
Arizona to AuraSound, and (iii) AuraSound shall enter into an Employee
Transition Agreement with ASI Holdings, pursuant to which ASI Holdings will
continue to employ certain employees in Hong Kong and the People’s Republic of
China until AuraSound is in a position to legally do so in those jurisdictions,
and AuraSound will make payments to ASI Holdings in the amount of such
employees’ salaries until the employee transition is completed after the Closing
Date. ASI Holdings’ and ASI Arizona’s obligations under the Asset
Purchase Agreement are subject to the following additional closing conditions
which have not yet been satisfied: (a) that certain Manufacturing
Agreement, dated as of December 12, 2007, by and between GGEC China (as defined
under Item 3.02 below) and AuraSound shall be terminated without any liability
to AuraSound and GGEC China shall enter into a new manufacturing agreement in a
form mutually acceptable to ASI Holdings and AuraSound, which agreement shall
provide that all of AuraSound’s existing and new products are to be manufactured
by GGEC China at the same cost as currently charged by GGEC China to ASI
Holdings, (b) GGEC America (as defined under Item 3.02 below) shall have
executed a voting agreement, in form and substance acceptable to ASI Holdings,
agreeing to vote its shares of Common Stock in favor of, or otherwise consent in
writing to, the increase in AuraSound’s authorized common stock which is needed
to enable the full exercise of all of AuraSound’s outstanding convertible
securities, and (c) AuraSound shall have no more than $4,545,623 in current and
long term liabilities as of the Closing Date.
2
The parties to the Asset Purchase
Agreement have agreed to indemnify each other against damages resulting from
breaches of their respective representations and warranties and covenants in the
Asset Purchase Agreement, and ASI Holdings and ASI Arizona have agreed to
indemnify AuraSound against damages resulting from any liabilities that were not
specifically assumed by AuraSound pursuant to the Asset Purchase Agreement,
provided that no party shall be liable for any indemnification payments until
such damages exceed $100,000, and then only damages in excess of that amount
will be indemnified. AuraSound will not be liable for indemnification
payments in excess of 50% of the value of the ASI Transaction Shares on the
Closing Date, to be calculated by multiplying the number of ASI Transaction
Shares by the closing price of the Common Stock reported by Bloomberg LP on the
Closing Date. Any indemnification payments to be made by ASI Holdings
or ASI Arizona will be made by delivery of ASI Transaction Shares, valued at an
amount equal to the closing price of the Common Stock as reported by Bloomberg
LP on the date that such indemnification obligation is finally
determined. ASI Holdings and ASI Arizona will not be liable for
damages in excess of, in the aggregate, 2,994,002 ASI Transaction Shares;
provided, however, if the holders of the ASI Transaction Shares hold
less than that number of ASI Transaction Shares at the time the indemnification
obligation is finally determined, the cap shall be such lesser
amount. If an indemnification claim is properly asserted prior to the
expiration of eighteen (18) months from the Closing Date, the holders of the ASI
Transaction Shares will not sell any shares that will reduce their total number
of shares held below 2,994,002 shares until such claim has been finally
adjudicated or settled.
Any party may terminate the Asset
Purchase Agreement if the Closing Date does not occur on or before July 31,
2010.
The ASI
Warrant is exercisable for cash only and shall not become exercisable until
AuraSound has duly increased its authorized Common Stock, following the Closing
Date, to a number sufficient to enable the full exercise of all outstanding
warrants and options of AuraSound. The ASI Warrant is also subject to
the following vesting conditions:
(i) 500,000
Warrant Shares will vest upon the one (1) year anniversary of the Closing Date,
provided that during the period commencing January 1, 2011 and ending December
31, 2011 the total revenue minus all expenses, less taxes, dividends and
appreciation (the “Net Profit”) of AuraSound and its consolidated subsidiaries,
measured in accordance with U.S. GAAP, equals or exceeds US$3.3
million;
3
(ii) 500,000
Warrant Shares will vest upon the two (2) year anniversary of the Closing Date,
provided that during the period commencing January 1, 2012 and ending December
31, 2012 the total Net Profit of the Company and its consolidated subsidiaries,
measured in accordance with U.S. GAAP, equals or exceeds US$4.3
million;
(iii) 2,000,000
Warrant Shares will vest upon the three (3) year anniversary of the Closing
Date, provided that during the period commencing January 1, 2013 and ending
December 31, 2013 the total Net Profit of the Company and its consolidated
subsidiaries, measured in accordance with U.S. GAAP, equals or exceeds US$5.4
million; and
(iv) All
remaining Warrant Shares will vest upon the three (3) year anniversary of the
Closing Date, provided that during the period commencing January 1, 2011 and
ending December 31, 2013, the total Net Profit of the Company and its
consolidated subsidiaries, measured in accordance with U.S. GAAP, equals or
exceeds US$13.0 million, notwithstanding the failure to achieve one or more
milestones set forth in (i)-(iii) above.
On the
Closing Date, the shareholders of ASI Holdings will enter into a Lock-Up
Agreement restricting them from selling any of their respective ASI Transaction
Shares for a period of six months from the Closing Date, and during the period
from six (6) months after the Closing Date until the one (1) year anniversary of
the Closing Date, the shareholders of ASI Holdings may sell no more than 25% of
their respective ASI Transaction Shares, and in the period from one (1) year
after the Closing Date until the two (2) year anniversary of the Closing Date,
the shareholders may not sell more than 50% of their ASI Transaction Shares, and
the lock-up restriction shall cease as to all of the ASI Transaction Shares
following the second anniversary of the Closing Date.
4
On the
Closing Date, AuraSound will enter into an employment agreement with Harald
Weisshaupt, pursuant to which Mr. Weisshaupt will serve as AuraSound’s Chief
Executive Officer. The employment agreement provides for a base
salary of $120,000 per year and will renew for successive one year terms until
terminated by either party. Aside from the base salary, Mr.
Weisshaupt will be entitled to participate in benefit plans (such as medical and
dental plans) or receive other benefits (such as life or disability insurance)
provided to other executive officers of AuraSound. AuraSound will
also reimburse Mr. Weisshaupt for the cost of his housing in Hong Kong, which is
currently $2,500 per month. AuraSound may terminate the employment
agreement for “cause” or without cause, upon written notice to Mr.
Weisshaupt. “Cause” is defined in the agreement to include (i) a conviction
or a plea of guilty or nolo
contendere to any felony whatsoever or any misdemeanor involving moral
turpitude, deceit, dishonesty, or fraud; (ii) the deliberate and repeated
failure to perform assigned duties and responsibilities or deliberately engaging
in gross misconduct in the course of his employment, which in either case is not
cured within thirty (30) days after AuraSound serves Mr. Weisshaupt with written
notice detailing the unacceptable conduct and specifying the cure expected;
(iii) without approval by the board of directors, executing on behalf of
AuraSound or its subsidiaries any loan agreement or promissory note or otherwise
making any commitment whatsoever on behalf of AuraSound or its subsidiaries to
borrow money; (iv) a material breach by Mr. Weisshaupt of any of the covenants,
terms or provisions of the employment agreement or any agreement between
AuraSound and Mr. Weisshaupt regarding confidentiality, non-competition or
assignment of inventions; or (v) Mr. Weisshaupt’s failure to act, or cease from
acting, as requested in writing by the board of directors in connection with his
duties under the employment agreement within thirty (30) days of receipt of such
written request. Mr. Weisshaupt may terminate the employment
agreement by resigning for “good reason” or by providing sixty (60) days notice
of his intent to resign. “Good reason” as defined in the employment
agreement includes the material reduction of Mr. Weisshaupt’s duties and
responsibilities without his consent, the reduction of his base salary without
his consent, or the requirement that he relocate his personal residence more
than fifty (50) miles from Hong Kong or fifty (50) miles from Santa Ana,
California. If the employment agreement is terminated by AuraSound
without cause or by Mr. Weisshaupt for good reason, AuraSound will continue to
pay or provide to Mr. Weisshaupt, for a period of twelve (12) months, his then
current base salary and the premiums necessary to keep Mr. Weisshaupt, his
spouse and his dependents on AuraSound’s group medical coverage. Mr.
Weisshaupt will agree to keep AuraSound’s confidential and proprietary
information confidential and, following his termination, not to solicit
AuraSound’s employees for a period of two (2) years. Any dispute
related to the employment agreement must be settled through
arbitration. AuraSound will be responsible for payment of the
arbitrator’s fees in any such action.
Pursuant
to a Noncompetition Agreement to be entered into by Harald Weisshaupt and
AuraSound on the Closing Date, Mr. Weisshaupt will be prohibited from engaging
in any business activity that is competitive with AuraSound’s business, and from
soliciting AuraSound’s employees and independent contractors, for a period of
two (2) years from the termination of Mr. Weisshaupt’s employment with
AuraSound.
Item
3.02 Unregistered Sales of
Equity Securities
Securities Purchase
Agreement
On July
10, 2010, AuraSound entered into and consummated a Securities Purchase Agreement
(the “SPA”) with GGEC America, Inc., a California corporation (“GGEC America”),
and its parent Guoguang Electric Company Limited, a Chinese corporation (“GGEC
China”). Pursuant to the SPA, AuraSound sold and issued to GGEC
America (i) 6,000,000 shares of unregistered Common Stock, which, following the
consummation of the SPA, constitutes approximately 55% of AuraSound’s issued and
outstanding shares of Common Stock, (ii) a three (3) year warrant to
purchase 6,000,000 shares of Common Stock at an exercise price of
$1.00 per share, and (iii) a three (3) year warrant to purchase 2,317,265 shares of Common Stock
at an exercise price of $0.75 per share; for an aggregate purchase price of US
$3,000,000 (the “GGEC Transaction”). GGEC America paid the purchase
price for the shares and warrants by cancelling $3,000,000 of indebtedness owed
by AuraSound to GGEC America and GGEC China. In addition, pursuant to
the SPA, AuraSound issued three (3) year warrants to a total of five (5)
officers, employees and consultants of AuraSound and GGEC America to purchase a
total of 380,000 shares of Common Stock at an exercise price of $0.75 per share
(the “Service Warrants”). Arthur Liu, AuraSound’s Chief Executive
Officer and former Chairman of the Board, received 200,000 of the Service
Warrants and Donald North, AuraSound’s Vice President – Engineering, received
100,000 of the Service Warrants. The warrants to be issued to GGEC
and the five (5) officers, employees and consultants of AuraSound and GGEC
America are exercisable for cash only and will not be exercisable until
AuraSound has increased its authorized Common Stock to a number sufficient to
allow their full exercise.
5
AuraSound
paid no commissions in connection with the SPA. The issuance of the
Common Stock and warrants to GGEC America were exempt from registration under
the Securities Act of 1933, as amended, pursuant to Section 4(2) promulgated
thereunder, as a transaction by an issuer not involving a public
offering.
Debt Conversion
Agreement
On July 10, 2010, AuraSound entered
into and consummated an Agreement to Convert Debt (the “Debt Conversion
Agreement”) with Inseat Solutions, LLC (“Inseat”), a California limited
liability company controlled by Arthur Liu, AuraSound’s Chief Executive Officer
and Chief Financial Officer. Pursuant to the Debt Conversion
Agreement, AuraSound issued 326,173 shares of unregistered Common Stock and a
five (5) year warrant to purchase 2,243,724 shares of Common Stock at an
exercise price of $0.50 per share (the “Inseat Warrant”), in consideration of
the cancellation of $1,957,040 of indebtedness owed by AuraSound to
Inseat. The Inseat Warrant is exercisable for cash only and will not
become exercisable until AuraSound has increased its authorized Common Stock to
a number sufficient to enable the full exercise of all of AuraSound’s
outstanding convertible securities, including the Inseat Warrant.
AuraSound
paid no commissions in connection with the Debt Conversion
Agreement. The issuance of the Common Stock and warrants to Inseat
were exempt from registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) promulgated thereunder, as a transaction by an issuer
not involving a public offering.
Item
5.01 Changes in Control of
Registrant
The
information included under the heading “Securities Purchase Agreement” in Item
3.02 above is incorporated herein by this reference. As a result of
the sale of Common Stock to GGEC America, GGEC America owns 55% of AuraSound’s
voting securities, before giving effect to the Asset Purchase
Agreement. Prior to the sale of Common Stock to GGEC America, Arthur
Liu and Inseat, an entity controlled by Mr. Liu, owned approximately 47% of
AuraSound’s outstanding voting securities. In conjunction with the
SPA, Mr. Liu and Ms. Amy Liu resigned from the board of directors and Mr. Robert
Tetzlaff and Mr. Kobe Zhang were appointed as directors to fill these
vacancies.
6
In
addition, in connection with the Asset Purchase Agreement, on the later of the
Closing Date and the tenth (10th) day
following AuraSound’s distribution of an Information Statement on Schedule 14f-1
to its shareholders, Ms. Judie Rothenberger and Mr. Kobe Zhang will resign from
the board of directors of AuraSound, and Mr. Danny Tsui, the Chief Executive
Officer of GGEC Hong Kong, a subsidiary of GGEC China, Ms. Vivian
Tran, the Financial Manager of GGEC America, and Mr. Harald Weisshaupt, the CEO
and founder of ASI Holdings, will be appointed to the board of directors of
AuraSound, and Mr. Danny Tsui will be appointed as Chairman of the
Board. Upon the effectiveness of the foregoing appointments, the
entire board of directors is expected to be comprised as follows:
Danny
Tsui (Chairman of the Board)
Harald
Weisshaupt
Robert
Tetzlaff
Vivian
Tran
Robert
Pearson
Item
5.02 Departure of Directors
or Certain Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers.
Effective
July 10, 2010, upon the closing of the SPA and in connection with the Asset
Purchase Agreement, Mr. Arthur Liu and Ms. Amy Liu resigned from AuraSound’s
board of directors and the remaining directors, namely Mr. Robert Pearson
and Ms. Judie Rothenberger, appointed Mr. Robert Tetzlaff and Mr. Kobe Zhang to
the board of directors. Robert Tetzlaff is the Chief Executive
Officer of GGEC America, and Kobe Zhang is the Secretary and a director of GGEC
America. Neither Mr. Tetzlaff nor Mr. Zhang has been named to any
committee of the board of directors.
Neither
Mr. Tetzlaff nor Mr. Zhang is a party to any transactions required to be
disclosed under Item 404(a) of Regulation S-K. Neither Mr. Tetzlaff
nor Mr. Zhang is a party to a material plan, contract or arrangement with
AuraSound resulting from his appointment to the board of directors nor has
either received any grant or award resulting from his appointment to the board
of directors under a plan, contract or arrangement.
7
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this Current Report to be signed on its behalf by the undersigned
hereunto duly authorized.
Dated: July
15, 2010
AuraSound,
Inc.
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By:
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/s/ Arthur Liu
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Arthur
Liu, Chief Executive
Officer
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8