Unassociated Document


    SERVICES,
      OPERATIONS AND MANAGEMENT AGREEMENT

    


    This
      Agreement, effective as of October 8, 2008 (this “Agreement”),
      is
      made and entered into by and between Aura Sound, Inc., a Nevada corporation
      (“Aura
      Sound”),
      and
      its wholly owned subsidiary Aura Sound, Inc., a California corporation, having
      their principal place of business at 11839 E. Smith Ave., Santa Fe Springs,
      CA
      90670 (“Subsidiary”), and GGEC America Inc., a California company (“GGEC”)
      having
      its principle place of business at 1801 E. Edingar Ave. #255, Santa Ana, CA
      92705 (each, a “Party”,
      collectively the “Parties”).

    


    RECITALS

    


    WHEREAS,
      Aura
      Sound and Subsidiary (collectively “Company”) are in the business of developing,
      manufacturing and marketing premium audio products;

    


    WHEREAS,
      GGEC
      and its parent company GGEC China is currently the sole manufacturer of the
      products sold by AuraSound and/or Subsidiary;

    


    WHEREAS,
      GGEC’s
      principal place of business is located in California;

    


    WHEREAS,
      Company
      is in need of capital and immediate financial assistance and has a continuing
      need for operational assistance and desires to obtain such assistance from
      GGEC
      and whereas GGEC has expressed a desire to provide this assistance to Aura
      Sound
      and/or Subsidiary; 

    


    WHEREAS,
      in
      furtherance of this desire, GGEC has entered into a non-binding October 6,
      2008
      Letter of Intent (“LOI”) with Aura Sound to explore and pursue the acquisition
      of a controlling percentage of the common stock of Aura Sound (“Acquisition”),
      which LOI is incorporated into this Agreement by this reference; and


    


    WHEREAS,
      the
      board of directors of Aura Sound and Subsidiary, respectively, have adopted
      resolutions approving the assumption by GGEC of the operational control of
      Aura
      Sound and Subsidiary, respectively, upon the terms and conditions set forth
      in
      this Agreement.

    


    NOW,
      THEREFORE,
      the
      Parties hereto, intending to be legally bound, agree as follows:

    


    ARTICLE
      1

    SERVICES
      & FINANCING

    


    1.1 Services
      to be Provided.
      In view
      of the contemplated Acquisition, GGEC, directly or indirectly as provided in
      Section 1.2, agrees to provide Company during the term of this Agreement, the
      following services (the “Services”)
      as it
      deems appropriate for Company:

    


    (a)
      general management services, including (i) the services of executive, operations
      and financial personnel of GGEC; (ii) advice concerning the preparation of
      budgets, forecasts, capital expenditures, financing, and long range strategic
      planning; (iii) managing accounts receivables; (iv) managing accounts payables;
      and (iv) such other management services as GGEC may deem reasonably necessary
      to
      further the contemplated Acquisition or Subsidiary’s performance of its duties
      and responsibilities on the Bridge Loans; and 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    (b)
      general administrative and technical services, advice and direction, including
      (i) accounting, including cost accounting and inventory control; (ii) PRC legal,
      trademark and patent advice, including advice with respect to compliance with
      applicable legal regulations, patent applications and prosecutions outside
      the
      United States; (iii) market servicing, product pricing and costs controls and
      evaluations; (iv) preparation of advertising and publicity literature and other
      materials; (v) providing, training, supervision, guidelines and policies to
      staff and consultants; (vi) compensation planning and human resources services;
      (vii) purchasing services; (viii) importing and exporting; (ix) preparation
      of
      reporting forms; and (x) such other general administrative and technical
      services as Company may reasonably request from time to time.

    


    1.2 Services
      Providers.
      It is
      understood that GGEC may provide any, all or some of the Services directly
      or
      through any of its affiliates, professional advisors or other representatives.
      (The entity providing the Services is hereinafter referred to as the
“Services
      Provider”).
      The
      Services Provider shall, in its supervision of the Services hereunder, utilize
      a
      standard of duty and care equal to that of a reasonably prudent person acting
      on
      its own behalf in similar circumstances.

    


    1.3 Property
      and Equipment.
      All
      properties and equipment owned by Company shall remain the properties and
      equipment of Company.

    


    1.4 Management.
      The
      Company shall use commercially reasonable efforts to convince all directors,
      officers, employees and consultants of Company to remain with Company in their
      current capacities and to continue to perform their day-to-day duties in
      accordance with the normal operations of the Company, as may be managed by
      GGEC
      from time to time, until such time as the Company shall determine to replace
      any
      such directors, officers, employees or consultants. 

    


    1.5 Loans.
      GGEC
      agrees to make monthly loans of up to $150,000 to Subsidiary, during the term
      of
      this Agreement, to fund Subsidiary’s operating expenses and working capital
      requirements (“Bridge Loans”), provided that Company has not breached this
      Agreement or defaulted on a Bridge Loan. Each Bridge Loan shall be evidenced
      by
      a promissory note which shall provide: (a) for simple interest at a rate of
      six
      percent (6%) per annum; (b) that the entire loan amount, principal and interest,
      be due and payable upon the earlier of the termination or breach of this
      Agreement, or completion (closing) of the Acquisition; and (c) GGEC may elect,
      in its sole discretion, to apply any or all of the principal and interest owed
      on any or all of the Bridge Loans towards the purchase price of the Aura Sound
      equity it will acquire in the contemplated Acquisition. 

     

    
      
        
        

      

      
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    ARTICLE
      2

    CONSIDERATION;
      CONFIDENTIALITY

    


    2.1 Consideration
      for the Services.
      In
      further consideration of the Services and Bridge Loans, 

    


    (a) Company
      shall cooperate with GGEC and its agents and consultants in a commercially
      reasonable due diligence review of the Company by GGEC in connection with its
      contemplated purchase of a controlling equity interest in Aura Sound.


    


    (b) Notwithstanding
      Article 1.4, during the term of this Agreement, Company and its directors,
      officers, employees and consultants shall not,
      without
      the written consent of GGEC, make any decisions; take any actions which are
      outside the ordinary course of business; enter into any material agreements;
      dispose of, transfer, assign, sell, lien, lease, license, pledge, encumber,
      alienate, hypothecate, depreciate or deplete any property, real or personal,
      tangible or intangible, owned by Company in whole or in part or in which Company
      has an ownership interest, regardless of the nature or extent of Company’s
      interest or the manner in which Company obtained such ownership interest; OR
      incur material liabilities, debts, loans or obligations of any kind in excess
      of
      $5,000 on behalf of the Company outside the ordinary course of
      business.

    


    (c) GGEC
      shall have absolute authority and discretion on the payment of any accounts
      payables or monies owed by Company to any third parties, including but not
      limited to the order, amount and timing of such payments. Subsidiary shall
      open
      a separate bank account where the Bridge Loans will be deposited (the “Bridge
      Loan Account”), in order that such Bridge Loans are segregated from other funds
      of Subsidiary or Company.

    


    (d)
      Upon
      Subsidiary’s default on the payment of interest or principal due on any
Bridge
      Loan, GGEC and Company shall each instruct Company’s customers and any other
      third parties owing monies to Company to forward such monies directly to GGEC
      until the principal and interest due on any defaulted Bridge Loan(s) has been
      paid. Upon receipt of full payment of the principal and interest due on any
      defaulted Bridge Loan(s), GGEC and Company shall so inform Company’s customers
      and other third parties owing monies to Company. 

    


    (e) It
      is the
      intent of the Parties that all existing and future loans, credit, factoring
      or
      other financing agreements and liens of the Company shall be subordinated to
      the
      Bridge Loans, and the Company shall take all reasonable steps to accomplish
      this
      subordination 

    


    (f) The
      Company shall grant in favor of GGEC a security interest in Company’s property,
      real or personal, tangible or intangible, to secure Company’s performance under
      this Agreement and payment of the principal and interest due on the Bridge
      Loans, as more specifically set forth in the accompanying Security Agreement,
      Exhibit
      “A”.
      Company shall also enter into a Deposit Account Control agreement in the form
      of
Exhibit
      “B”
for
      the
      Bridge Loan Account.

     

    
      
        
        

      

      
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    (g) During
      the period this Agreement is operative, Company shall not, without the consent
      of GGEC, solicit or engage in discussions with another to sell or exchange
      Company’s stocks or assets, merge with or into another entity, or dissolve or
      re-organize Company.

    


    (h) During
      the term of this Agreement, Company shall keep GGEC reasonably informed of
      its
      financial and operational condition, including but not limited to providing
      GGEC
      with reports, summaries and/or statements of sales, expenses, costs, purchases,
      accounts receivables, accounts payables, gross receipts, payments, debts,
      liabilities, balance sheets, profit and loss statements and agreements entered
      into; daily reports of Company’s deposit account balances, withdrawals,
      deposits, charges and fees; monthly bank statements, financial statements and
      records, minutes of meetings of Company’s directors and shareholders, corporate
      books, documents and records. 

    


    (i) During
      the term of this Agreement, so long as any Bridge Loan or interest thereon
      is
      outstanding, Company shall not, without the written approval of GGEC, issue
      dividends or make cash or earnings distributions to any Company shareholder,
      redeem the stock shares of any Company shareholder, or pay or award any
      compensation of any kind to any employee, officer or director of Company other
      than the salary and wages, none of which includes bonuses, and commissions
      they
      currently earn.

    


    (j)
      Attached
      as Exhibit “C” is a true and correct list of Company’s key assets. 

     

    (k)
      Attached
      as Exhibit “D” is a complete list of all key or senior management employees,
      officers and directors of Company. 

     

    2.2
      Confidentiality
      Agreement.
      GGEC’s
      due diligence review of Aura Sound, and GGEC’s provision of the Services
      hereunder, shall be subject to a Mutual Confidentiality Agreement in the form
      of
Exhibit
      “E”
      attached
      hereto.

    


    2.3
      Non-Solicitation.
      GGEC,
      on the one hand, and Aura Sound and Subsidiary, on the other hand, agree that
      during the term of this Agreement and for a period of two (2) years thereafter,
      GGEC shall not solicit, hire or employ any officers, employees or consultants
      of
      Aura Sound or Subsidiary, and neither Aura Sound nor Subsidiary shall solicit,
      hire or employ any officers, employees or consultants of GGEC, in either case
      without the express written consent of the non-hiring/soliciting/employing
      Party.

    


    ARTICLE
      3

    TERM
      AND TERMINATION

    


    3.1
       Term
      and Termination.
      The
      term of this Agreement shall begin on October 6, 2008 and shall continue for
      a
      period of six (6) months or until the completion (closing) of the Acquisition,
      whichever occurs earlier.
      Any
      funds loaned to the Company or Subsidiary by GGEC prior to the date hereof
      shall
      be deemed Bridge Loans within the meaning set forth herein and shall be governed
      by this Agreement and its attachments. This Agreement may be renewed in writing
      upon the mutual agreement of the Parties.

     

    
      
        
        

      

      
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    ARTICLE
      4

    GENERAL
      PROVISIONS

    


    4.1
       Notices.
      All
      notices and other communications hereunder shall be in writing and shall be
      deemed to have been duly given if delivered personally, sent by overnight
      courier or mailed by registered or certified mail (postage prepaid and return
      receipt requested) to the Party to whom the same is so delivered, sent or mailed
      at the addresses set forth on the signature page hereof (or at such other
      address for a Party as shall be specified by like notice).

    


    4.2
       Interpretation.
      The
      headings contained in this Agreement are for reference purposes only and shall
      not affect in any way the meaning or interpretation of this Agreement.
      References to Sections and Articles refer to sections and articles of this
      Agreement unless otherwise stated.

    


    4.3
       Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, void or unenforceable, the remainder
      of
      the terms, provisions, covenants and restrictions of this Agreement shall remain
      in full force and effect and shall in no way be affected, impaired or
      invalidated and the Parties shall negotiate in good faith to modify this
      Agreement to preserve each Party's anticipated benefits under this
      Agreement.

    


    4.4
       Miscellaneous.
      This
      Agreement (a) constitutes the entire agreement and supersedes all other prior
      agreements and undertakings, both written and oral, among the Parties with
      respect to the subject matter hereof; (b) except as expressly set forth herein,
      is not intended to confer upon any other person any rights or remedies hereunder
      and (c) shall not be assigned by operation of law or otherwise, except as may
      be
      mutually agreed upon by the Parties hereto.

    


    4.5
       Governing
      Law; Venue.
      This
      Agreement shall be governed by, and construed and enforced in accordance with,
      the laws of the State of California without giving effect to any choice or
      conflict of law provision or rule. Any and all actions brought under this
      Agreement shall be brought in the California state or federal court of the
      United States sitting in the County of Orange, California and each Party hereby
      waives any right to object to the convenience of such venue.

    


    4.6
       Counterparts
      and Facsimile Signatures.
      This
      Agreement may be executed in two or more counterparts, which together shall
      constitute a single agreement. This Agreement and any documents relating to
      it
      may be executed and transmitted to any other Party by facsimile or email of
      a
“pdf” file, which facsimile or “pdf” file shall be deemed to be, and utilized in
      all respects as, an original, wet-inked document. 

    


    4.7 Amendment.
      This
      Agreement may be amended, modified or supplemented only by an instrument in
      writing executed by the Parties.

    


    4.8 Waiver.
      No
      waiver by any Party of any default or breach by the other Party of any provision
      contained in this Agreement shall be deemed to be a waiver of any subsequent
      default or breach by such Party of the same. No act, delay, omission or course
      of dealing on the part of any Party in exercising any right, power or remedy
      under this Agreement or at law or in equity shall operate as a waiver thereof
      or
      otherwise prejudice any of such Party's rights, powers and remedies. All
      remedies, whether at law or in equity, shall be cumulative and the election
      of
      any one or more shall not constitute a waiver of the right to pursue other
      available remedies.

    


    4.9
      Recitals
      Incorporated.
      The
      recitals of this Agreement are incorporated herein.

    


    [SIGNATURES
      FOLLOW]

     

    
      
        
        

      

      
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     IN
      WITNESS WHEREOF,
      the
      Parties have executed this Agreement as of the date first written
      above.

     

    
      	 Aura Sound, Inc., a
              California corporation 	 	 Aura Sound, Inc., a Nevada
              corporation
	 	 	 	 	 
	 By:	 /S/
              Arthur Liu	 	 By:	 /S/
              Arthur Liu
	 Name:	 Arthur Liu	 	 Name: 	 Arthur Liu
	 Title:	 CEO & Chairman of the Board
              	 	 Title: 	 CEO & Chairman of the
              Board
	 	 	 	 	 
	 Address: 	 	 Address:
	 AuraSound, Inc. 	 	 AuraSound, Inc.
	 11839 East Smith Avenue
              	 	 11839 East Smith
              Avenue
	 Santa Fe Springs, CA 90670
              	 	 Santa Fe Springs, CA
              90670
	 	 	 	 	 


    

     

     

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


      

    

     Address:
      

     1801
      E. Edingar Ave. #255.

     Santa
      Ana, CA 92705

     

    
      
        
        

      

      
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