THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). NO INTEREST IN THIS NOTE MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO
(i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT
APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE
ACT), OR (iii) AN EXEMPTION FROM REGISTRATION UNDER THE ACT WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF ITS COUNSEL THAT AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE.
OCEAN WEST HOLDING CORPORATION
10% SUBORDINATED PROMISSORY NOTE
$250,000.00 January 17, 2006
FOR VALUE RECEIVED, the undersigned, Ocean West Holding Corporation, a Delaware
corporation ("Payor"), having its executive office and principal place of
business at 00 Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxx, XX 00000, hereby promises to
pay to [ ] ("Payee"), having an address at [ ] at Xxxxx's address set forth
above (or at such other place as Payee may from time to time hereafter direct by
notice in writing to Payor), the principal sum of Two Hundred Fifty Thousand
Dollars ($250,000), in such coin or currency of the United States of America as
at the time shall be legal tender for the payment of public and private debts,
on the first to occur of the following dates: (i): March 18, 2006 (60 days after
the date of issuance) (the "Maturity Date"); (ii) the date on which the
outstanding principal amount of this Note is prepaid in full as hereinafter
permitted (the "Prepayment Date"); and (iv) any other date on which any
principal amount of, or accrued unpaid interest on, this Note is declared to be,
or becomes, due and payable pursuant to its terms prior to the Maturity Date
(the "Acceleration Date").
This Note is being issued in connection with a bridge financing (the
"Bridge Offering") by the Company of a minimum of $250,000 and a maximum of
$500,000 of Bridge Offering units (each a "Bridge Unit"). Each Bridge Unit
consists of $250,000 principal amount of 10% Promissory Notes and Warrants to
purchase 25,000 shares of Common Stock, to be offered on a "best efforts" basis.
The Bridge Offering is being made only to Investors who qualify as "accredited
investors" as such term is defined in Rule 501 of Regulation D under the
Securities Act of 1933, as amended (the "Securities Act"). Partial Bridge Units
may be sold.
All of the proceeds of the Bridge Offering will be used by the Company for
general corporate purposes, including working capital.
1. Interest And Payment.
1.1. The principal amount of this Note outstanding from time to time shall
bear simple interest at the annual rate (the "Note Rate") of ten percent (10%)
from the date hereof through the earliest to occur of (i) the Maturity Date;
(ii) the Prepayment Date; and (iii) the Acceleration Date.
1.2. Interest accrued on this Note shall be payable not later than, on the
earliest to occur of (i) the Maturity Date; (ii) the Prepayment Date; and (iii)
the Acceleration Date.
1.3. All payments made by the Payor on this Note shall be applied first to
the payment of accrued unpaid interest on this Note and then to the reduction of
the unpaid principal balance of this Note.
1.4. In the event that the date for the payment of any amount payable
under this Note falls due on a Saturday, Sunday or public holiday under the laws
of the State of New York, the time for payment of such amount shall be extended
to the next succeeding business day and interest at the Note Rate shall continue
to accrue on any principal amount so effected until the payment thereof on such
extended due date.
2. Replacement Of Note.
2.1. In the event that this Note is mutilated, destroyed, lost or stolen,
Payor shall, at its sole expense, execute, register and deliver a new Note, in
exchange and substitution for this Note, if mutilated, or in lieu of and
substitution for this Note, if destroyed, lost or stolen. In the case of
destruction, loss or theft, Payee shall furnish to Payor indemnity reasonably
satisfactory to Payor, and in any such case, and in the case of mutilation,
Payee shall also furnish to Payor evidence to its reasonable satisfaction of the
mutilation, destruction, loss or theft of this Note and of the ownership
thereof. Any replacement Note so issued shall be in the same outstanding
principal amount as this Note and dated the date to which interest shall have
been paid on this Note or, if no interest shall have yet been paid, dated the
date of this Note.
2.2. Every Note issued pursuant to the provisions of Section 2.1 above in
substitution for this Note shall constitute an additional contractual obligation
of the Payor, whether or not this Note shall be found at any time or be
enforceable by anyone.
3. Prepayment. The principal amount of this Note may be prepaid in whole
at any time, or in part from time to time, without penalty or premium, together
with unpaid interest thereon accrued through the Maturity Date. Each partial
prepayment of this Note shall first be applied to interest accrued through the
Maturity Date and then to principal.
4. Covenants of Payor.
Payor covenants and agrees that, so long as this Note remains outstanding
and unpaid, in whole or in part:
4.1. Payor will not sell, transfer or dispose of a material part of its
assets;
4.2. Payor will not make any loan to any person who is or becomes a
shareholder or executive employee of Payor, other than for reasonable advances
for expenses in the ordinary course of business;
4.3. Payor will promptly pay and discharge all lawful taxes, assessments
and governmental charges or levies imposed upon it, its income and profits, or
any of its property, before the same shall become in default, as well as all
lawful claims for labor, materials and supplies which, if unpaid, might become a
lien or charge upon such properties or any part thereof; provided, however, that
Payor or such subsidiary shall not be required to pay and discharge any such
tax, assessment, charge, levy or claim so long as the validity thereof shall be
contested in good faith by appropriate proceedings and Payor or such subsidiary,
as the case may be, shall set aside on its books adequate reserves with respect
to any such tax, assessment, charge, levy or claim so contested;
-2-
4.4. Payor will do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence, rights and franchises
and substantially comply with all laws applicable to Payor as its counsel may
advise;
4.5. Payor will at all times maintain, preserve, protect and keep its
property used or useful in the conduct of its business in good repair, working
order and condition (except for the effects of reasonable wear and tear in the
ordinary course of business) and will, from time to time, make all necessary and
proper repairs, renewals, replacements, betterments and improvements thereto;
4.6. Payor will keep adequately insured, by financially sound reputable
insurers, all property of a character usually insured by similar corporations
and carry such other insurance as is usually carried by similar corporations;
4.7. Payor will, promptly following the occurrence of an Event of Default
or of any condition or event which, with the giving of notice or the lapse of
time or both, would constitute an Event of Default, furnish a statement of
Xxxxx's Chief Executive Officer or Chief Financial Officer to Payee setting
forth the details of such Event of Default or condition or event and the action
which Payor intends to take with respect thereto; and
4.8. Payor will, and will cause each of its subsidiaries to, at all times
maintain books of account in which all of its financial transactions are duly
recorded in conformance with generally accepted accounting principles.
5. Events of Default. If any of the following events (each an "Event of
Default") occurs:
5.1. The dissolution of Payor or any vote in favor thereof by the board of
directors and shareholders of Payor; or
5.2. Payor makes an assignment for the benefit of creditors, or files with
a court of competent jurisdiction an application for appointment of a receiver
or similar official with respect to it or any substantial part of its assets, or
Payor files a petition seeking relief under any provision of the Federal
Bankruptcy Code or any other federal or state statute now or hereafter in effect
affording relief to debtors, or any such application or petition is filed
against Payor, which application or petition is not dismissed or withdrawn
within sixty (60) days from the date of its filing; or
5.3. Payor fails to pay the principal amount, or interest on, or any other
amount payable under, this Note as and when the same becomes due and payable; or
-3-
5.4. Xxxxx admits in writing its inability to pay its debts as they
mature; or
5.5. Payor sells all or substantially all of its assets or merges or is
consolidated with or into another corporation; other than a merger with or into
a publicly traded corporation, or
5.6. A proceeding is commenced to foreclose a security interest or lien in
any property or assets of Payor as a result of a default in the payment or
performance of any debt (in excess of $50,000 and secured by such property or
assets) of Payor or of any subsidiary of Payor; or
5.7. A final judgment for the payment of money in excess of $50,000 is
entered against Payor by a court of competent jurisdiction, and such judgment is
not discharged (nor the discharge thereof duly provided for) in accordance with
its terms, nor a stay of execution thereof procured, within sixty (60) days
after the date such judgment is entered, and, within such period (or such longer
period during which execution of such judgment is effectively stayed), an appeal
therefrom has not been prosecuted and the execution thereof caused to be stayed
during such appeal; or
5.8. An attachment or garnishment is levied against the assets or
properties of Payor or any subsidiary of Payor involving an amount in excess of
$50,000 and such levy is not vacated, bonded or otherwise terminated within
sixty (60) days after the date of its effectiveness; or
5.9. Payor defaults in the due observance or performance of any covenant,
condition or agreement on the part of Payor to be observed or performed pursuant
to the terms of this Note (other than the default specified in Section 5.3
above) and such default continues uncured for a period of sixty (60) days then,
upon the occurrence of any such Event of Default and at any time thereafter, the
holder of this Note shall have the right (at such holder's option) to declare
the principal of, accrued unpaid interest on, and all other amounts payable
under this Note to be forthwith due and payable, whereupon all such amounts
shall be immediately due and payable to the holder of this Note, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived; provided, however, that in case of the occurrence of an
Event of Default under any of the sections above, such amounts shall become
immediately due and payable without any such declaration by the holder of this
Note; and in addition;
5.10 If Payor fails to pay the principal amount, or interest on, or any
other amount payable under, this Note as and when the same becomes due and
payable, (as specified in Section 5.3 above), the Company will pay the Payee a
default interest rate of two (2%) per month on all amounts due and owing under
the Note for each month or part thereof beyond the Maturity Date, which default
interest shall be payable on demand.
6. Suits for Enforcement and Remedies. If any one or more Events of
Default shall occur and be continuing, the Payee may proceed to (i) protect and
enforce Payee's rights either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant, condition or agreement
contained in this Note or in any agreement or document referred to herein or in
aid of the exercise of any power granted in this Note or in any agreement or
document referred to herein, (ii) enforce the payment of this Note, or (iii)
enforce any other legal or equitable right of the holder of this Note. No right
or remedy herein or in any other agreement or instrument conferred upon the
holder of this Note is intended to be exclusive of any other right or remedy,
and each and every such right or remedy shall be cumulative and shall be in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise.
-4-
7. Unconditional Obligation; Fees, Waivers, Other.
7.1. The obligations to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever.
7.2. If, following the occurrence of an Event of Default, Payee shall seek
to enforce the collection of any amount of principal of and/or interest on this
Note, there shall be immediately due and payable from Payor, in addition to the
then unpaid principal of, and accrued unpaid interest on, this Note, all costs
and expenses incurred by Payee in connection therewith, including, without
limitation, reasonable attorneys' fees and disbursements.
7.3. No forbearance, indulgence, delay or failure to exercise any right or
remedy with respect to this Note shall operate as a waiver or as an acquiescence
in any default, nor shall any single or partial exercise of any right or remedy
preclude any other or further exercise thereof or the exercise of any other
right or remedy.
7.4. This Note may not be modified or discharged (other than by payment or
exchange) except by a writing duly executed by Xxxxx and Xxxxx.
7.5. Payor hereby expressly waives demand and presentment for payment,
notice of nonpayment, notice of dishonor, protest, notice of protest, bringing
of suit, and diligence in taking any action to collect amounts called for
hereunder, and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission with respect to the collection of any amount called
for hereunder or in connection with any right, lien, interest or property at any
and all times which Payee had or is existing as security for any amount called
for hereunder.
8. Subordination. This Note is subordinated in right of payment to
Indebtedness (hereinafter defined), which includes any principal of, premium, if
any, or interest on indebtedness of Payor except Indebtedness which by its terms
is not superior in right of payment to the Notes. For the purposes of this Note,
the term "Indebtedness" shall mean all existing and future indebtedness incurred
in the ordinary course of business, including, but not limited to (1) bank and
or other institutional debt of Payor, (2) any lease, chattel mortgage, and
conditional sales financing secured by Xxxxx's property and equipment; and (3)
any amendment, renewal, extension or refunding of any such debt. Each Noteholder
by accepting a Note agrees to the subordination and authorizes Payor to give it
effect.
-5-
9. Restriction on Transfer. This Note has been acquired for investment,
and this Note has not been registered under the securities laws of the United
States of America or any state thereof. Accordingly, no interest in this Note
may be offered for sale, sold or transferred in the absence of registration and
qualification of this Note, under applicable federal and state securities laws
or an opinion of counsel of Payee reasonably satisfactory to Payor that such
registration and qualification are not required.
10. Miscellaneous.
10.1. The headings of the various paragraphs of this Note are for
convenience of reference only and shall in no way modify any of the terms or
provisions of this Note.
10.2. All notices required or permitted to be given hereunder shall be in
writing and shall be deemed to have been duly given when personally delivered or
sent by registered or certified mail (return receipt requested, postage
prepaid), facsimile transmission or overnight courier to the address of the
intended recipient as set forth in the preamble to this Note or at such other
address as the intended recipient shall have hereafter given to the other party
hereto pursuant to the provisions of this Note.
10.3. This Note and the obligations of Payor and the rights of Payee shall
be governed by and construed in accordance with the substantive laws of the
State of California without giving effect to the choice of laws rules thereof.
10.4. This Note shall bind Payor and its successors and assigns.
OCEAN WEST HOLDING CORPORATION
By: /s/ Xxxxxx Xxxxx
--------------------------
Name: Xxxxxx Xxxxx
Title: CEO
-6-
