Contract
THIS
INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBJECT TO THAT
CERTAIN INTERCREDITOR AGREEMENT DATED AS OF EVEN DATE HEREOF BETWEEN LENDER
(AS
DEFINED BELOW), AND MAPLERIDGE INSURANCE SERVICES.
ANY
SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR UNDER THE
PROVISIONS OF ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED
BY
THE REGISTERED HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON
STATUTORY EXEMPTIONS UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR
ASSIGNED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE
1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT.
SECURED
PROMISSORY NOTE
$500,000.00
Los
Angeles, California
January
29, 2007
FOR
VALUE
RECEIVED, AuraSound, Inc., a California corporation (“Borrower”),
hereby promises to pay to the order of Westrec Properties Inc. & Affiliated
Companies 401(k) Plan (“Lender”),
in
lawful money of the United States at the address of Lender set forth herein,
the
principal amount of Five Hundred Thousand Dollars ($500,000) (the “Loan”),
together with Interest (as defined below). This Promissory Note (“Note”)
has
been executed by Borrower on the date set forth above (the “Effective
Date”)
pursuant to the Loan Agreement entered into as of the date hereof between Lender
and Borrower (the “Loan
Agreement”).
1. Interest.
From
the Effective Date and continuing until payment in full of the Loan, the
outstanding principal amount of the Loan shall bear interest (“Interest”)
at
10.00% per annum compounded annually (the “Interest
Rate”),
calculated on the basis of the actual number of days elapsed over a year of
360
days. Interest is payable by Borrower on a monthly basis in arrears on the
first
Business Day of the month. “Business
Day”
shall
mean a day other than a Saturday, Sunday, or other day on which national banks
in the united States are authorized or required by law to close.
2. Maturity
Date.
All or
any portion of the Loan, all accrued Interest thereon and all other sums due
hereunder, shall be due and payable on demand by Lender on the earlier of (i)
the date that is one hundred twenty (120) days from December 29, 2006; and
(ii)
the date on which the Company has received an aggregate of $1,000,000 from
the
sale(s) of its Equity Securities (defined below), from and after the Effective
Date, in one or a series of transactions (the “Maturity
Date”).
“Equity
Securities”
means
the capital stock of a person or entity and/or any options, warrants, calls,
rights, commitments, convertible securities and other securities pursuant to
which the holder, directly or indirectly, has the right to acquire (with or
without additional consideration) capital stock or equity of such person or
entity.
3. Secured
Indebtedness.
The
indebtedness represented by this Note is secured pursuant to a Security
Agreement dated as of the Effective Date, by and between Lender and Borrower
(the “Security
Agreement”).
4. Application
of Payments.
4.1 Except
as
otherwise expressly provided herein, payments under this Note shall be applied
(i) first to the repayment of any sums incurred by Lender for the payment
of any expenses in enforcing the terms of this Note, (ii) then to the
payment of Interest, and (iii) then to the reduction of the
Loan.
4.2 Upon
payment in full of the Loan and applicable accrued and unpaid Interest thereon,
this Note shall be marked “Paid in Full” and returned to Borrower.
5. Waiver
of Notice.
Borrower hereby waives diligence, notice, presentment, protest and notice of
dishonor.
6. Transfer.
This
Note may be transferred by Lender at any time, provided that such transfer
complies with applicable securities laws.
7. Events
of Default.
The
occurrence of any of following events (each an “Event
of Default”),
not
cured in any applicable cure period, shall constitute an Event of Default of
Borrower:
7.1 The
failure to make when due any payment described in this Note, the Loan Agreement
or the Security Agreement, whether before, on or after the Maturity Date, by
acceleration or otherwise;
7.2 A
breach
of any representation, warranty, covenant or other provision of this Note,
the
Loan Agreement or the Security Agreement, which, if capable of being cured,
is
not cured within three days following notice thereof to Borrower or within
three
days of Borrower becoming aware of such breach; or
7.3 The
(i)
application for the appointment of a receiver or custodian for Borrower or
the
property of Borrower, (ii) entry of an order for relief or the filing of a
petition by or against Borrower under the provisions of any bankruptcy or
insolvency law, (iii) assignment for the benefit of creditors by or against
Borrower, or (iv) insolvency of Borrower.
Upon
the
occurrence of any Event of Default the Default Rate will be charged as set
forth
in Section 8.7 hereof. In addition, upon
the
occurrence of any Event of Default that is not cured within any applicable
cure
period, if any, Lender may elect, by written notice delivered to Borrower,
to
take at any time any or all of the following actions: (i) declare this Note
to be forthwith due and payable, whereupon the entire unpaid Loan, together
with
all accrued and unpaid Interest thereon, and all other cash obligations
hereunder, shall become forthwith due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived by Borrower, anything contained herein to the contrary notwithstanding,
(ii) exercise any and all remedies provided under the Security Agreement,
and (iii) exercise any and all other remedies provided hereunder or
available at law or in equity.
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8. Miscellaneous.
8.1 Successors
and Assigns.
Subject
to the exceptions specifically set forth in this Note, the terms and conditions
of this Note shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors and assigns of the
parties.
8.2 Loss
or Mutilation of Note.
Upon
receipt by Borrower of evidence satisfactory to Borrower of the loss, theft,
destruction or mutilation of this Note, together with indemnity reasonably
satisfactory to Borrower, in the case of loss, theft or destruction, or the
surrender and cancellation of this Note, in the case of mutilation, Borrower
shall execute and deliver to Lender a new promissory note of like tenor and
denomination as this Note.
8.3 Notices.
Any
notice, demand, offer, request or other communication required or permitted
to
be given pursuant to the terms of this Note shall be in writing and shall be
deemed effectively given the earlier of (i) when received, (ii) when
delivered personally, (iii) one Business Day after being delivered by
facsimile (with receipt of appropriate confirmation), (iv) one Business Day
after being deposited with an overnight courier service, or (v) four days
after being deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the recipient at the address set forth below unless another address
is provided to the other party in writing:
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if
to Borrower, to:
Xxxxxx
Xxx
AuraSound,
Inc.
00000
Xxxx Xxxxx Xxx
Xxxxx
Xx Xxxxxxx, XX 00000
Fax:
(000) 000-0000
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with
a copy to:
Xxxxx
Xxxxxxxxx
Xxxxxxxxxx
& Xxxxx, LLP
The
Chrysler Building
000
Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx
Xxxx, XX 00000
Fax:
(000) 000-0000
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if
to Lender, to:
Westrec
Properties Inc. & Affiliated Companies 401(k) Plan
Att:
Xxxxxxx Xxxxx
00000
Xxxxxxx Xxxx., 0xx Xxxxx
Xxxxxx,
XX 00000
Fax:
(000) 000-0000
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with
a copy to:
Xxxxxx
Xxxxxx LLP
000
Xxxx Xxxxxx, 00xx
Xxxxx
Xxx
Xxxxxxx, XX 00000
Att:
Xxxxxx X. Xxxxx, Esq.
Fax:
(000) 000-0000
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8.4 Governing
Law.
This
Note shall be governed in all respects by the laws of the State of California
as
applied to agreements entered into and performed entirely within the State
of
California by residents thereof, without regard to any provisions thereof
relating to conflicts of laws among different
jurisdictions.
8.5 Waiver
and Amendment.
Any
term of this Note may be amended, waived or modified only with the written
consent of Borrower and Lender.
8.6 Remedies;
Costs of Collection; Attorneys’ Fees.
No
delay or omission by Lender in exercising any of its rights, remedies, powers
or
privileges hereunder or at law or in equity and no course of dealing between
Lender and the undersigned or any other person shall be deemed a waiver by
Lender of any such rights, remedies, powers or privileges, even if such delay
or
omission is continuous or repeated, nor shall any single or partial exercise
of
any right, remedy, power or privilege preclude any other or further exercise
thereof by Lender or the exercise of any other right, remedy, power or privilege
by Lender. The rights and remedies of Lender described herein shall be
cumulative and not restrictive of any other rights or remedies available under
any other instrument, at law or in equity. If an Event of Default occurs,
Borrower agrees to pay, in addition to the Loan and Interest payable thereon,
reasonable attorneys’ fees and any other reasonable costs incurred by Lender in
connection with its pursuit of its remedies under this Note.
8.7 Default
Interest.
Borrower does hereby agree that whenever an Event of Default exists (including
upon the failure of Borrower to pay the Loan in full on the Maturity Date),
Lender shall be entitled to receive and Borrower shall pay interest on the
entire unpaid principal sum and any other amounts due Lender at a rate (the
“Default
Rate”)
equal
to the higher of (a) the highest prime rate of interest per annum published
in
the Money Rate Table of the Western Edition of The Wall Street Journal, as
adjusted on a daily basis, plus eleven and three-quarters percent (11.75%)
per
annum, or (b) twenty percent (20.00%) per annum, in each case compounded
annually. Upon
the
occurrence of an Event of Default, the Default Rate shall be computed
retroactively from the Effective Date and shall apply each day thereafter until
the date Borrower cures the Event of Default and such cure is accepted by
Lender; provided, however, that Borrower will only pay the incremental
difference between the Interest Rate and the Default Rate for Interest already
then paid by Borrower. Interest at the Default Rate shall be added to the Loan,
and shall be secured by the Security Agreement. Nothing in this Section 8.7
shall be construed as an agreement or privilege to extend the date of the
payment of the Loan, nor as a waiver of any other right or remedy accruing
to
Lender by reason of the occurrence of any Event of Default.
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9. Savings
Clause.
It is
expressly stipulated and agreed to be the intent of Borrower and Lender at
all
times to comply with applicable state law or applicable United States federal
law (to the extent that United States federal law permits Lender to contract
for, charge, take, reserve, or receive a greater amount of interest than under
state law) and that this paragraph shall control every other covenant and
agreement in this Note, the Loan Agreement and the Security Agreement. If the
applicable law (state or federal) is ever judicially interpreted so as to render
usurious any amount called for hereunder or thereunder, or contracted for,
charged, taken, reserved, or received with respect to the Loan, or if Lender’s
exercise of the option to accelerate the Maturity Date, or if any prepayment
by
Borrower results in Borrower having paid any interest in excess of that
permitted by applicable law, then it is Lender’s express intent that all excess
amounts theretofore collected by Lender shall be credited on the principal
balance of this Note and all other indebtedness evidenced hereby and the
provisions of this Note, the Loan Agreement and the Security Agreement
immediately be deemed reformed and the amounts thereafter collectible hereunder
and thereunder reduced, without the necessity of the execution of any new
documents, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder or thereunder.
All
sums paid or agreed to be paid to Lender for the use, forbearance, or detention
of the Loan shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full stated term of the Loan
until payment in full so that the rate or amount of interest on account of
the
Loan does not exceed the maximum lawful rate from time to time in effect and
applicable to the Loan for so long as the Loan is outstanding. Notwithstanding
anything to the contrary contained herein or in the Loan Agreement and the
Security Agreement, it is not the intention of Lender to accelerate the maturity
of any interest that has not accrued at the time of such acceleration or to
collect unearned interest at the time of such acceleration.
IN
WITNESS WHEREOF, Borrower has caused this Note to be signed on the Effective
Date.
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BORROWER:
AURASOUND,
INC.
By:/s/
Xxxxxx Liu_______________
Xxxxxx
Xxx, President
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