Good bye and good riddance
ITEM 5. Other Events.
On December 26, 2001, Aura Systems, Inc. (the "Company") entered into
agreements with Zvi "Harry" Kurtzman, the Chairman of the Board and Chief
Executive Officer of the Company, and five other members of senior management,
to terminate their existing employment contracts and restructure their current
severance benefits. Pursuant to the new agreements, Mr. Kurtzman and the others
have become at will employees and are expected to continue in their current
positions until February 28, 2002. The original separation proposal was first
described in the Company's proxy statement filed with the Securities and
Exchange Commission ("SEC") on December 15, 2000. The terms of the separation
agreements were subsequently described in the Company's Form 10-K for the year
ended February 28, 2001 and the Company's proxy statement filed with the SEC on
August 27, 2001. This separation process will provide the Company with the
opportunity to make an orderly transition to a new management team. The other
members of the current management team who will be entering into new agreements
and leaving the Company with Mr. Kurtzman are Gerald Papazian, President and
COO, Arthur Schwartz, Executive Vice President, Cipora Kurtzman-Lavut, Senior
Vice President, Corporate Communications, Neal Kaufman, Senior Vice President,
Management Information Systems and Steven Veen, Senior Vice President, Chief
Financial Officer. Under the terms of the new agreements, the departing officers
will relinquish their right to any multi-year cash severance benefits in
exchange for a one time grant of stock options (or warrants to the extent no
additional shares are available for grant of options under any shareholder
approved Company option plan), which will be exercisable at a price of $.55 per
share and will vest over a period of eighteen months from the termination of
employment. The number of stock options for each person will be determined based
on the underlying total compensation due to the employee upon termination under
each person's existing employment agreement, multiplied by two and divided by
$0.32 per share. The terms of the existing employment agreements were described
in the Company's Form 10-Q filed with the SEC on July 15, 1998. Each of the
officers has agreed to continue as a consultant to the Company for a period of
one year at 85% of their current compensation. In addition, each executive will
receive continued medical benefits for three years following termination of
employment. A form of the Agreement Regarding Termination of Employment Contract
is filed as an exhibit to this filing.
Mr. Kurtzman co-founded Aura in 1987 and has served as its Chief Executive
Officer since then. He also served as the Company's President from 1987 to 1997.
In his remarks at the Company's annual shareholders meeting held on October 2,
2001, he stated that "[Aura] is at a point ready to move up to the next stage.
This new stage is in charted territory, building AuraGens, improving AuraGens,
adding applications, developing sales channels and sales techniques, controlling
costs and generating profits for the Company and its shareholders. These
challenges are different from the ones we faced in the past and require
different types of thinking and abilities." Mr. Kurtzman will work together with
the Board to recruit a new Chief Executive Officer and other senior management
to achieve the Company's business goals.
The Company's Board of Directors has formed a Search Committee, chaired by
Carl Albert, and also including directors Stephen Talesnick and Harvey Cohen,
for this purpose. Mr. Albert, who has been a director since July 10, 2001, is
presently a member of the Board of Directors of Fairchild Dornier Corporation, a
privately held company in the business of manufacturing aircraft. From 1996
through 1999, following Fairchild Aircraft's purchase of Daimler-Benz's 80%
interest in Dornier, he was the Chairman of the Board of Directors and Chief
Executive Officer of Fairchild Aerospace Corporation, now known as Fairchild
Dornier Corporation. From 1990 through 1996 Mr. Albert was the Chairman of the
Board and CEO of Fairchild Aircraft. Mr. Albert's business experience includes
18 years as an attorney, specializing in business and corporate law in Los
Angeles, California. He also serves and has served as a Member of the Board of
Directors of a number of privately and publicly held corporations, including
Wings West Airlines, Dr. Pepper Bottling Company of Southern California, K & K
Properties, Ozark Airlines and Tulip Corporation. Mr. Talesnick is presently
Vice Chairman of the Company's Board of Directors and Mr. Cohen is a member of
the Board's Audit Committee. The Search Committee is in the process of
considering several resumes of potential candidates.
The Company has been informed by the Staff of the SEC that it intends to
recommend that the Commission bring a civil action against Aura, NewCom (a
former subsidiary of Aura), Mr. Kurtzman, Steven Veen and Gerald Papazian for
violations of the antifraud and books and records provisions of the securities
laws. This grew out of an investigation into the Company's financial statements
for various transactions during fiscal years 1996 through 1999. The Company
originally disclosed the investigation by press release in January 1999. The
Staff advised the Company that it would recommend that the SEC seek civil
penalties and enjoin the companies and the individuals from future violations.
In addition, the SEC staff would recommend that the SEC impose director and
officer bars against Messrs. Kurtzman and Veen and a bar against Mr. Veen to
prohibit his practicing as an accountant before the SEC. The Company is informed
that in order to avoid potential lengthy and costly litigation the individuals
have agreed to propose to settle with the SEC without admitting or denying any
of the staff's allegations. The Company has engaged in conversations with the
Staff of the SEC regarding settlement of the matter, but no agreements have yet
been reached. Although Aura believes that it will reach a settlement in a manner
that will not have a material adverse effect on the Company's business, it
cannot predict with certainty when or if such a settlement will occur or what
the actual effects of such a settlement would be. The Audit Committee of the
Board will conduct a full review of the Company's accounting controls and
procedures. |
