Unassociated Document


    GGEC
      America Inc.

    1801
      E.
      Edingar Ave. #255

    Santa
      Ana, CA 92705

    


    


    Oct.
      6,
      2008

     

    CONFIDENTIAL

     

    


    Dr.
      Arthur Liu

    Chief
      Executive Officer

    AuraSound
      Inc.

    11839
      East Smith Avenue

    Santa
      Fe
      Springs, CA 90670

    Attn:
      Arthur Liu, President.

     

    RE:
        Letter
      of Intent

    


    Dear
      Dr.
      Liu: 

     

    This
      letter expresses the non-binding proposal of GGEC America Inc., a California
      company (“GGEC” or the “Company”) to pursue a controlling investment (about 55%)
      in AuraSound, Inc., a publicly traded Nevada corporation (“Issuer”), as set
      forth below:

     

    1. The
      Transaction.
      Subject
      to the terms and conditions of a definitive, binding, written agreement (the
      “Definitive Agreement”) to be negotiated and entered into by Issuer and the
      Company, the Company will purchase at the closing (the “Closing”) specified in
      the Definitive Agreement newly issued shares of common stock of Issuer
      constituting, immediately after the Closing, approximately fifty-five percent
      (55%) of the issued and outstanding shares of common stock of Issuer, for a
      purchase price of approximately $3.0 million. Related to the transaction, it
      is
      anticipated that the Issuer will take certain steps to achieve the objectives
      of
      the transaction, including a recapitalization involving a reverse split of
      the
      Issuer’s issued and outstanding and authorized common stock anticipated to be
      the ratio of 1 for 6, and the filing of all necessary notifications and the
      obtaining of all necessary approvals. Also in relation to the transaction,
      the
      debt owed by Issuer to InSeat Solutions LLC in the amount of about $1.4 million
      will be cancelled by converting the amount owed into shares of Issuer’s stock
      prior to the reverse split on the basis of one dollar of debt in exchange for
      one share of stock. It is anticipated that GGEC will appoint a controlling
      number of members to the board of directors and elect a new Chairman and that
      the new board will appoint new officers as it deems appropriate. It is expected
      that due to regulations and approval requirements in China, it may take three
      months or more to actually consummate this transaction. Both Issuer and GGEC
      shall agree that GGEC shall have the right to supervise the regular operations
      of the Issuer, effective October 6, 2008, pursuant to a services, operations
      and
      management agreement (“Services Agreement”) to be entered into between Issuer
      and GGEC. Pursuant to this Services Agreement and separate promissory notes,
      GGEC would make cash loans to Issuer’s California subsidiary beginning October
      6, 2008 to fund Issuer’s current operating expenses, all of which loans, at
      GGEC’s sole discretion, may be offset against the approximate $3.0 million
      purchase price of the stock to be acquired by Company at the Closing. All such
      loans shall be documented by promissory notes and each shall bear interest
      at
      six percent per annum. Attached as Exhibit “A” is the capital structure
      conditionally agreed to by all parties hereto after giving effect to: conversion
      of debt owed to InSeat Solutions LLC into pre-reverse split shares of the Issuer
      including accrued interest thereon; a 1 for 6 reverse split; a purchase of
      about
      55% of Issuer’s common stock for approximately $3.0 million by GGEC; and, waiver
      of price protection provisions in both the subscription documents and warrant
      agreements by individual investors and/or warrant holders of Issuer. Attached
      as
      Exhibit “B” is a list of Issuer’s and its California subsidiary’s key assets.
      Attached as Exhibit “C” is a list of all key or senior management employees,
      officers and directors of Issuer and its California subsidiary. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Page
      2

     

    2. Definitive
      Agreement.
      The
      Definitive Agreement shall contain terms, conditions, representations,
      warranties, covenants, indemnification and other provisions customary and
      appropriate for transactions of this type.

     

    3. Conditions.
      The
      Closing is anticipated to occur within 180 days from the date of this letter,
      and is dependent on GGEC obtaining regulatory approval from the relevant Chinese
      government agencies and/or bodies as well as subject to other mutually
      satisfactory conditions, including but not limited to obtaining all applicable
      consents or approvals of government bodies, lessors and other third parties,
      as
      appropriate, compliance by the parties with any and all legal or contractual
      requirements for or preconditions to the execution and consummation of the
      transactions contemplated by the Definitive Agreement.

     

    4. Non-liability.
      In the
      event the Closing of the stock acquisition transaction contemplated in this
      letter does not occur, neither Issuer, Issuer’s California subsidiary nor
      Company shall be liable to the other solely because of this non-occurrence.
      

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      Page
        3

       

    

    5. Repayment
      of Loans
      In the
      event the Closing does not occur, all cash loans made by Company to Issuer’s
      California subsidiary shall be repaid, pursuant to the terms of the Services
      Agreement and the relevant promissory notes. 

     

    6. Confidentiality.
      The
      existence and contents of this Letter of Intent may not be disclosed to any
      third party not affiliated with Issuer without prior written consent of the
      Company and Issuer or used in any manner other than for review of the proposal
      by the Issuer’s board of directors and its affiliates and advisors, except to
      the extent required by applicable securities or other laws, for a period of
      180
      days from the date of this letter.

     

    7. Expenses.
      The
      parties agree that all fees and expenses (including all fees and expenses of
      counsel, accountants and any financial advisors) incurred in connection with
      this letter, the Definitive Agreement and the transactions contemplated hereby
      shall be treated as current operating expenses of the party incurring such
      expenses.

     

    8. Exclusivity
      For a
      period of 180 days from the date of this letter, Issuer and its shareholders,
      officers, directors, employees, agents and representatives shall not, without
      Company’s prior written consent: (i) solicit any offers or indications of
      interest for an investment in Issuer or its California subsidiary, a sale of
      Issuer’s or its subsidiary’s assets, a merger or any other similar transaction
      involving Issuer or its California subsidiary or (ii) enter into or continue
      any
      discussions or negotiations with respect to any such potential transaction;
      or
      (iii) furnish any confidential information of Company, Issuer or its subsidiary
      with respect to any such potential transaction; provided, however, this
      Paragraph 8 shall be null and void if Company breaches its lending obligations
      under Section 1.5 of the Services Agreement.

     

    9. Nonbinding
      Letter.
      Except
      as provided in Paragraph 10 below, any and all agreements made verbally or
      in
      writing involving the sale of shares or any part of Issuer in any form, method
      or context is subject to review and approval by the Board of Directors of Issuer
      who may accept or reject any proposed transaction for any reason or for no
      reason at all in their sole discretion. This letter is not intended to be a
      comprehensive definitive agreement and only identifies key points that may
      or
      may not become part of a final definitive agreement. While indicating the intent
      of the parties hereto, this letter of intent does not represent a binding
      agreement between the parties and (except as provided in this Section) is not
      intended to impose any obligation whatsoever on either party, including but
      not
      limited to any obligation to bargain in good faith or in any way other than
      at
      arms’ length. Each party covenants not to institute or participate in any
      proceeding seeking to establish a contrary position. Neither party may
      reasonably rely on any promises inconsistent with this Section. This Section
      supersedes any and all other conflicting or ambiguous language in this letter
      or
      any contemporaneous or other communication preceding this letter. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      Page
        4

       

    

    10. Binding
      Paragraphs By
      signing this letter, Issuer and its California subsidiary and their respective
      directors, shareholders and officers and Company agree to be bound only by
      Paragraphs 4, 5, 6, 7, 8 of this letter. 

     

    11. The
      September 3, 2008 Letter of Intent signed by Issuer and Company pertaining
      to
      the transaction(s) set forth in Paragraph 1 of this letter is hereby superseded,
      replaced and rendered null and void by this letter.

     

    If
      this
      letter is consistent with your understanding, please indicate your assent by
      signing and returning to the undersigned the enclosed copy of this letter.
      This
      letter agreement shall be governed and construed in accordance with the laws
      of
      the State of California, USA.

     

    
      	GGEC America Inc. 
	 
	By:	 /S/
              Jiaxi Huang
	 	
              Name:
                Jiaxi Huang 

              Title:
                President 

            


    

    


     

    
      
        	
                ACCEPTED
                  AND AGREED TO

                this
                  7th day of October 2008

              
	 
	AuraSound, Inc., a Nevada
                corporation
	 
	 By:	 /S/
                Arthur Liu
	 	
                
                  Name: Arthur
                    Liu

                  Title: CEO
                    & Chairman of the Board

                

              


      

       

       

    

    
      
        	AuraSound, Inc., a California
                corporation
	 
	By:	 /S/
                Arthur Liu
	 	
                
                  Name: Arthur
                    Liu

                  Title: CEO
                    & Chairman of the Board

                

              


      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    
      Page
        5

    

    
      Exhibit
        A

    

     

    
      AuraSound,
        Inc.

      Financial
        Analysis

       

      
        	
                 

              	
                 

              	
                  

              	
                 

              	
                  

              	
                 

              	
                  

              	
                 

              	
                  

              	
                 

              	
                  

              	
                 

              	
                  

              	
                 

              
	
                
                  Agreed upon Capital
                    Structure

                

              	
                 

              	
                  

              	
                 

              	
                  

              	
                 

              	
                  

              	
                 

              	
                  

              	
                 

              	
                Total
                  of

              	
                 

              	
                  

              	
                 

              
	
                 

              	
                 

              	
                  

              	
                 

              	
                  

              	
                 

              	
                Warrants
                  (1)    

              	
                 

              	
                Shares
                  plus 

              	
                 

              	
                  

              	
                 

              
	 	
                 

              	
                Shares

              	
                 

              	
                
                  %

                

              	 	
                #  

              	 	
                 $

              	 	
                Warrant 

              	 	
                %

              	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                 GGEC

              	 	 	
                6,000,000

              	 	 	
                55

              	
                %

              	 	
                6,000,000

              	 	
                $

              	
                1.00

              	 	 	
                12,000,000

              	 	 	
                54

              	
                %

              
	
                 Arthur
                  Liu

              	 	 	
                1,917,551

              	 	 	
                18

              	
                %

              	 	
                1,917,551

              	 	
                $

              	
                0.50

              	 	 	
                3,835,102

              	 	 	
                17

              	
                %

              
	
                 Converted
                  Shares

              	 	 	
                253,074

              	 	 	
                2

              	
                %

              	 	
                253,074

              	 	
                $

              	
                0.50

              	 	 	
                506,148

              	 	 	
                2

              	
                %

              
	
                 Inseat
                  Solutions LLC

              	 	 	
                277,778

              	 	 	
                3

              	
                %

              	 	
                277,778

              	 	
                $

              	
                0.50

              	 	 	
                555,556

              	 	 	
                2

              	
                %

              
	
                 RENN

              	 	 	
                750,000

              	 	 	
                7

              	
                %

              	 	
                750,000

              	 	
                $

              	
                0.50

              	 	 	
                1,500,000

              	 	 	
                7

              	
                %

              
	
                 Vision

              	 	 	
                1,250,000

              	 	 	
                11

              	
                %

              	 	
                1,250,000

              	 	
                $

              	
                0.50

              	 	 	
                2,500,000

              	 	 	
                11

              	
                %

              
	
                 Others
                  from IPO

              	 	 	
                150,000

              	 	 	
                1

              	
                %

              	 	
                150,000

              	 	
                $

              	
                0.50

              	 	 	
                300,000

              	 	 	
                1

              	
                %

              
	
                 Gemini

              	 	 	
                204,913

              	 	 	
                2

              	
                %

              	 	
                204,913

              	 	
                $

              	
                0.50

              	 	 	
                409,826

              	 	 	
                2

              	
                %

              
	
                 Shell
                  holders

              	 	 	
                128,421

              	 	 	
                1

              	
                %

              	 	
                128,421

              	 	
                $

              	
                0.50

              	 	 	
                256,842

              	 	 	
                1

              	
                %

              
	
                 Bridge
                  Lenders

              	 	 	
                -

              	 	 	
                0

              	
                %

              	 	
                533,333

              	 	
                $

              	
                0.50

              	 	 	
                533,333

              	 	 	
                2

              	
                %

              
	
                  Total

              	 	 	
                10,931,737

              	 	 	
                100

              	
                %

              	 	
                11,465,070

              	 	 	 	 	 	
                22,396,807

              	 	 	
                100

              	
                %

              


      

       

      
        	
                (1

              	
                )

              	
                Need
                  individual agreements from each warrant holder.