<PAGE>
Registration No. ___________
================================================================================
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM S-1
Registration Statement Under the Securities Act of 1933
Ocean West Holding Corporation
(Exact name of registrant as specified in its charter)
Delaware 6162 applied for
(State of Incorporation) (Primary Standard (IRS Employer
Industrial Classification Identification
Code Number) Number)
---------------------------------
15991 Redhill Avenue, Suite 110
Tustin, California 92780
(714) 247-4220
(Address and telephone number of
Registrant's principal executive offices)
Daryl Meddings, Executive Vice President
Ocean West Holding Corporation
15991 Redhill Avenue, Suite 110
Tustin, California 92780
(714) 247-4220
(Name, address and telephone number of agent for service)
Copy to: Lynn H. Wangerin, Esq.
Ogden Newell & Welch
1700 Citizens Plaza
500 W. Jefferson Street
Louisville, Kentucky 40202
(502) 582-1601 / (502) 581-9564 (facsimile)
---------------------------------
Approximate date of commencement of proposed distribution to public: As soon
as practicable after the registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
Calculation of Registration Fee
- ----------------------------------------------------------------------------------------------
Title of each class Amount to be Proposed maximum Proposed maximum Amount of
of securities to be registered offering price aggregate offering registration fee
registered per unit price
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Common Shares (1) 2,271,000 $0.11 $ 249,810 $ 66
Common Shares (2) 1,000,000 $8.00 $8,000,000 $2,112
Common Stock
Purchase Warrants 1,000,000 $ (3) $ (3) $ (3)
Total Fee $2,178
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) These securities include 300,000 shares which were issued to Monogenesis
Corporation in contemplation of distribution at a price of $0.10 per share.
They will be distributed to holders of shares of Monogenesis Corporation as
a dividend at a rate of 125 shares for each share held. The remaining
shares are to be offered for sale at market price from time to time and are
currently held by former shareholders of Ocean West Enterprises, Inc.
There is no current offering price for these shares. The fee calculation
is based upon the book value of Ocean West Enterprises, Inc., the wholly
owned subsidiary of Ocean West Holding Corporation, as of September 30,
1999.
(2) These are the Common Shares which will be issued in the event the Common
Stock Purchase Warrants are exercised. The maximum offering price is based
upon the exercise price of the warrants.
(3) The warrants were issued to Monogenesis Corporation at a price of $0.01
each and will be distributed to holders of shares of Monogenesis
Corporation as a dividend at a rate of 450 warrants for each share held.
The warrants are registered in the same registration statement as the
Common Shares underlying the warrants and, therefore, no separate
registration fee is required pursuant to Rule 457(i).
<PAGE>
Ocean West Holding Corporation
Cross Reference Sheet
<TABLE>
<CAPTION>
Page
Item Number - Part I, Form S-1 Location Number
- ------------------------------------------------ -------------- --------------
<S> <C> <C>
1. Forepart of the Registration Statement Same 1
and Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Same 2, *
Pages of Prospectus
3. Summary Information, Risk Factors and Summary; Risk Factors 4,9
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds 20
5. Determination of Offering Price Risk Factors - There is no 18
trading market for the shares or
warrants and The exercise price
of the warrants is not based on
market prices
6. Dilution Not applicable
7. Selling Security Holders Risk Factors - Shares available 18, 40
for future sale by former OWE
shareholders may adversely
affect the price of shares; Plan
of Distribution; Principal and
Selling Shareholders
8. Plan of Distribution Plan of Distribution 18
9. Description of Securities to Be Registered Securities 42
10. Interests of Named Experts and Counsel Not applicable
11. Information With Respect to the Registrant
(a) Description of business Business 22
(b) Description of property Business - Properties 31
(c) Legal proceedings Legal Proceedings 32
</TABLE>
* Immediately after financial statements.
<PAGE>
<TABLE>
<CAPTION>
Page
Item Number - Part I, Form S-1 Location Number
- ------------------------------------------------ -------------- --------------
<S> <C> <C>
(d) Market price of and dividends Risk Factors - No payment of 17, 18, 42, 47
on the registrant's common dividends on Common Shares is
stock and related stockholder expected in the near future,
matters There is no trading market for
the shares or the warrants, and
Shares available for future sale
by former OWE shareholders may
adversely affect the price of
shares; Securities; Dividends
(e) Financial statements Financial Statements 50
(f) Selected financial data Summary - Selected Financial Data 7
(g) Supplementary financial Not applicable
information
(h) Management's discussion and Management's Discussion and 32
analysis of financial Analysis of Financial Condition
condition and results of and Results of Operations
operations
(i) Changes in and disagreements Not applicable
with accountants on accounting
and financial disclosure
(j) Quantitative and qualitive Not applicable
disclosures about market risk
(k) Directors and executive officers Management 37
(l) Executive compensation Management - Executive 39
Compensation
(m) Security ownership of certain Principal and Selling 40
beneficial owners and management Shareholders
(n) Certain relationships and Management - Certain Transactions 39
related transactions
12. Disclosure of Commission Position on Liability and Indemnification of 47
Indemnification for Securities Act Liabilities Directors and Officers
</TABLE>
<PAGE>
Prospectus
- ----------
Ocean West Holding Corporation [corporate logo]
15991 Redhill Avenue, Suite 110
Tustin, California 92780
(800) 500-6232
3,271,000 Common Shares
(par value, $0.01 per share)
1,000,000 Common Stock Purchase Warrants
Ocean West Holding Corporation ("Ocean West") is registering 254,000 Common
Shares and 914,400 Common Stock Purchase Warrants which will be distributed by
Monogenesis Corporation ("Monogenesis") to its shareholders. Monogenesis will
retain 46,000 Common Shares and 85,600 Warrants which it may sell from time to
time which Ocean West is also registering. Monogenesis is a closed-end
investment company and a statutory underwriter of the distribution. It is
distributing 125 shares and 450 Warrants for each share of stock held by its
shareholders. The distribution is further described in the section entitled
"Plan of Distribution." Currently, no public market exists for the shares or
the warrants.
Ocean West will not receive any proceeds from the distribution, but will
receive $40,000 (representing $0.10 for each share and $0.01 for each warrant)
from Monogenesis to purchase the shares and warrants. Each warrant entitles the
holder to purchase one Common Share for $8.00 for 18 months. Ocean West is
registering the 1,000,000 shares which may be issued upon exercise of the
warrants. Ocean West will only receive funds for warrants which are exercised.
It is uncertain whether or not any warrants will be exercised.
Ocean West is also registering 2,017,000 shares on behalf of certain
shareholders (including Monogenesis) for sale from time to time. The selling
shareholders and the registration of some of their shares are further described
in the section entitled "Principal and Selling Shareholders." Ocean West will
not receive any proceeds from the sale of shares by selling shareholders.
- --------------------------------------------------------------------------------
INVESTING IN THE COMMON SHARES OR WARRANTS INVOLVES RISKS WHICH ARE
DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
A Monogenesis Institutional Distribution
The date of this Prospectus is ________________, 2000.
<PAGE>
TABLE OF CONTENTS
PAGE
----
SUMMARY............................................................. 4
Plan of Distribution........................................ 4
Ocean West.................................................. 6
Selected Financial Data..................................... 7
RISK FACTORS........................................................ 9
PLAN OF DISTRIBUTION................................................ 18
USE OF PROCEEDS..................................................... 20
CAPITALIZATION...................................................... 20
BUSINESS............................................................ 22
General..................................................... 22
Business Strategy........................................... 24
Wholesale Division.......................................... 25
Product Types............................................... 26
Quality Control............................................. 27
Underwriting................................................ 27
Sale of Loans............................................... 29
Mortgage Loan Servicing Rights.............................. 29
Competition................................................. 29
Mortgage Loan Funding and Financing Arrangements............ 30
Employees................................................... 30
Properties.................................................. 31
Regulation.................................................. 31
Legal Proceedings........................................... 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS....................................... 32
Overview.................................................... 32
Results of Operations....................................... 33
Liquidity and Capital Resources............................. 35
Interest Rate Risks......................................... 36
Year 2000 Issues............................................ 37
MANAGEMENT.......................................................... 37
Executive Officers and Directors of Ocean West and OWE...... 37
Executive Compensation...................................... 39
2
<PAGE>
Compensation Committee Interlocks and Insider
Participation in Compensation Decisions......................39
Certain Transactions.........................................39
PRINCIPAL AND SELLING SHAREHOLDERS...................................40
Management and 5% or Greater Shareholders....................40
Other Selling Shareholders...................................41
SECURITIES...........................................................42
Description of Capital Stock.................................42
Transfer Agent, Registrar and Warrant Agent..................46
DIVIDENDS............................................................47
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS..............47
Elimination of Liability in Certain Circumstances............47
Indemnification..............................................48
AVAILABLE INFORMATION................................................48
LEGAL MATTERS........................................................49
EXPERTS..............................................................49
FINANCIAL STATEMENTS.................................................50
3
<PAGE>
SUMMARY
-------
This is a summary of certain information contained elsewhere in the
Prospectus and may not contain all of the information that is important to you.
Before making any investment decision, you should read the entire Prospectus
including the financial statements and related notes.
Plan of Distribution
- --------------------
The Issuer............................ Ocean West Holding Corporation, a
Delaware corporation, was
incorporated on __________, 2000 by
the management of Ocean West
Enterprises, Inc. ("OWE") and
Monogenesis Corporation. Ocean West
was formed to hold OWE stock and to
create a public company with a
substantial shareholder base without
having to sell shares in a
traditional initial public offering.
Ocean West acquired all of the issued
and outstanding stock of OWE in
exchange for 5,737,200 of its Common
Shares, 240,000 of its Class B Common
Shares and 4,929 of its Preferred
Shares (of various series) on the
date of this prospectus.
Distributing Company/ Monogenesis Corporation, a Delaware
Underwriter......................... corporation, is a statutory
underwriter of this distribution.
Pursuant to a resolution of its board
of directors, it is distributing
254,000 of the shares and 914,400 of
the warrants which it purchased from
Ocean West as a dividend to its
shareholders of record on
___________, 2000 to create a public
company as described above. The
remainder of the shares (46,000) and
warrants (85,600) issued to
Monogenesis may be sold by it from
time to time.
Distribution Ratio.................... Each Monogenesis shareholder will
receive 125 Common Shares, par value
$0.01 per share, and 450 warrants of
Ocean West for each share of
Monogenesis stock held. After the
distribution, Monogenesis will own
less than 1% of the outstanding
Common Shares of Ocean West.
Distribution Agent.................... Reliance Trust Company, Monogenesis'
transfer agent, will act as
distribution agent, transfer agent
and warrant agent.
4
<PAGE>
Shares to be Distributed.............. Monogenesis will distribute as soon
as possible after the date of this
prospectus 254,000 Common Shares of
Ocean West to its shareholders (125
Common Shares for each outstanding
share of Monogenesis) which
constitute approximately 4% of the
issued and outstanding Common Shares,
and approximately 4% of the total
issued and outstanding stock of all
classes of common stock of Ocean
West. Ocean West will not receive
any proceeds from the distribution of
these shares. Monogenesis will retain
the remaining 46,000 Common Shares
and expects to sell these shares from
time to time.
Warrants to be Distributed............ Monogenesis will distribute as soon
as possible after the date of this
prospectus 914,400 Common Stock
Purchase Warrants to its shareholders
(450 warrants for each outstanding
share of Monogenesis). The warrants
to be distributed constitute
approximately 91% of the issued and
outstanding warrants. Monogenesis
will retain the remaining 85,600
warrants which it may exercise or
sell from time to time. The shares
and the warrants are separately
transferable. The Common Shares
underlying the warrants will also be
registered. Ocean West will not
receive any proceeds from the
distribution of the warrants, but
will receive proceeds if any warrants
are exercised.
Exercise of Warrants.................. Each warrant entitles the holder to
purchase one Common Share of Ocean
West at an exercise price of $8.00
per share and may be exercised during
the 18 month period following
issuance of the warrant. The
exercise price was determined by
management of OWE and may not be
indicative of the market price of the
underlying shares. If all warrants
are exercised, the Common Shares
underlying the warrants will
constitute approximately 14% of the
issued and outstanding Common Shares.
Distribution Date..................... Certificates representing the shares
and the warrants will be mailed to
Monogenesis shareholders as soon as
practical after the date of this
prospectus.
5
<PAGE>
Sales of Shares By Selling 2,017,000 Common Shares held by
Shareholders......................... Monogenesis and the shareholders of
Ocean West ("Selling Shareholders")
will be registered and available for
resale by such shareholders from time
to time subject to certain
limitations. These shares constitute
approximately 33% of the issued and
outstanding Common Shares of Ocean
West, and approximately 32% of the
total issued and outstanding stock of
all classes of common stock of Ocean
West. Ocean West will not receive
any proceeds from the sale of shares
held by its shareholders.
Trading Market........................ There will be no immediate trading
market for the shares or the
warrants. Ocean West is registering
the shares and warrants to attempt to
establish a public trading market in
the shares and intends to apply for
quotation on the OTC Bulletin Board.
There can be no assurance that a
trading market will develop.
Ocean West
- ----------
Ocean West Holding Corporation ("Ocean West"), a Delaware corporation,
was formed to acquire and hold issued and outstanding shares of stock of Ocean
West Enterprises, Inc. ("OWE"), and to create a public company with a
substantial shareholder base without having to sell shares in a traditional
public offering. Management of OWE and Ocean West hope to acquire additional
businesses at some time in the future in order to expand Ocean West's operations
or diversify its holdings. Management has not yet identified any potential
targets or industries, although it expects that initial acquisitions would be in
the same or related industries. Currently, Ocean West owns only the OWE stock
and has no other operations. Ocean West acquired all of the issued and
outstanding common stock and a portion of the issued and outstanding preferred
stock of OWE, a California corporation, in exchange for its stock on the date of
this prospectus.
OWE was formed in 1988 as a real estate finance company that is
principally engaged in the mortgage banking business. It primarily originates,
packages, funds and sells on a whole loan basis conventional, government and
non-conforming residential mortgage loans secured by one-to-four family
residences. For purposes of this Prospectus, "non-conforming loans" are loans
made to borrowers who are unable or unwilling to obtain mortgage financing from
conventional mortgage sources whether for reasons of credit impairment, income
qualifications, or credit history or a desire to receive funding on an expedited
basis. It also sells more than 99% of the mortgage servicing rights on the
loans it sells.
OWE primarily makes loans to purchase existing or construct new
residences, refinance existing mortgages, consolidate other debt or finance home
improvements, education or other similar needs. OWE's core borrower base is
individuals who purchase homes using government financing. Substantially all
loans originated by OWE (98%) are secured by a first priority mortgage.
6
<PAGE>
OWE currently has two divisions:
. a wholesale division which has relationships with approximately 1,000
approved independent loan brokers and which has historically
accounted for substantially all of OWE's total loan originations.
. a retail branch division aimed at expanding OWE's loan originations
across the nation.
OWE is also in the process of developing new retail divisions to market loans
directly to builders and real estate agents.
Since it began operations in 1988, OWE has grown significantly in loan
originations. For the year ended March 31, 1999, OWE funded approximately
$300,645,000 in loans compared to approximately $258,514,000 in the year ended
March 31, 1998 and $5,700,000 for its first full year of operations ended
December 31, 1989.
Selected Financial Data
- -----------------------
The selected financial data is that of OWE. The pro forma figures of
net income per share and stockholders' equity per share reflect the
capitalization of Ocean West. The financial statements prior to fiscal year
1997 are on a cash basis while the statements for 1997, 1998, 1999 and the
interim periods are on an accrual basis. OWE changed from a cash to an accrual
basis for tax reporting for the fiscal year ended March 31, 1998 to comply with
IRS regulations which require companies with annual revenues of $5,000,000 or
more to file taxes in compliance with accrual accounting methods. Under the
accrual method, OWE recognizes any losses and gains from transactions in the
period in which they occur. Under the cash method, losses and gains are
reported in the period in which the cash is paid or received.
- --------------------------------------------------------------------------------
Statement of Earnings Data (1):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended September 30,
(Amounts in thousands except
per share amounts)
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Net Revenues $7,844 $11,168
Cost of Sales 6,202 8,394
------ -------
Gross Profit 1,642 2,774
General & Administrative Expenses 1,890 2,790
------ -------
Loss from Operations (248) (16)
Other (Expense) Income (6) 221
------ -------
Net (Loss) Income $ (254) $ 205
====== =======
Basic and Diluted Net (Loss) Income Available to
Common Shareholders per Proforma Common Share (2) $(0.05) $0.02
====== =======
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Years Ended March 31,
(Amounts in thousands except
per share amounts)
----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Revenue -- origination and sale of loans $17,904 $14,625 $12,591 $10,692 $1,430
Servicing fees, net 6 22 166 86 80
Gain -- origination of mortgage servicing
rights 17 49 225 -- --
Gain -- sale of mortgage servicing rights -- 155 281 34 --
------- ------- ------- ------- ------
Total revenues 17,927 14,851 13,263 10,812 1,510
Operating expenses:
Cost of loans:
Commissions and broker's fees 9,072 8,457 8,759 7,165 617
Interest on warehouse line 1,115 1,187 876 1,097 92
Fees and costs 2,966 1,529 495 461 105
Cost of loan repurchases 109 264 69 -- --
------- ------- ------- ------- ------
Total cost of loans 13,262 11,437 10,199 8,723 814
------- ------- ------- ------- ------
Total general & administrative 4,753 4,239 2,785 1,899 1,104
expense ------- ------- ------- ------- ------
Total operating expenses 18,015 15,676 12,984 10,622 1,918
------- ------- ------- ------- ------
Other income 188 17 - - --
------- ------- ------- ------- ------
Income (loss) before taxes 100 (808) 279 190 (408)
(Benefit) provision for income taxes (242) 1 142 (102) 2
------- ------- ------- ------- ------
Net income (loss) $ 342 $ (809) $ 137 $ 292 $ (410)
======= ======= ======= ======= ======
Basic and diluted net income (loss) available
to common shareholders per proforma
common share (2) $0.03 $(0.14) $0.02 $0.04 $(0.07)
======= ======= ======= ======= ======
</TABLE>
------------------------------------------------------------------------
Balance Sheet Data (1):
------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30,
(Amounts in thousands except
per share amounts)
----------------------------
1999
----
<S> <C>
Total assets $10,493
Total long-term obligations, net (3) $ 809
Total stockholders' equity $ 669
Stockholders' equity per proforma common share (2) $ 0.11
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
March 31,
(Amounts in thousands except
per share amounts)
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Total assets $21,522 $19,169 $10,925 $15,949 $4,978
Total long-term obligations, net $ 421 $ 877 $ 395 $ 310 $ 280
Total stockholders' equity $ 827 $ 239 $ 1,007 $ 593 $ 324
Stockholders' equity per
proforma common share (2) $ 0.13 $ 0.04 $ 0.16 $ 0.09 $ 0.05
</TABLE>
- --------------------------------------------------------------------------------
(1) The statement of earnings data for the years ended March 31, 1999, 1998 and
1997 and the balance sheet data at March 31, 1999 and 1998 were derived
from the audited financial statements of OWE which are included in their
entirety in the "Financial Statements" section. In addition, a pro forma
balance sheet and statement of operations based upon the , 2000
financial statements of Ocean West and OWE and assuming acquisition of OWE
by Ocean West are also included in that section. Financial information for
the six months ended September 30, 1999 and 1998 was derived from unaudited
financial statements prepared by management which are also included in
their entirety in the Financial Statements section.
(2) Pro forma basic and diluted net (loss) income available to Common
Shareholders per common share is calculated by dividing net income
applicable to Ocean West's common shareholders (including Class B Common
Shares) by the pro forma shares which are outstanding on the date of this
Prospectus (6,366,000 shares) (rather than the number of shares of OWE
actually outstanding) on the applicable dates. Stockholders' equity per pro
forma common share is calculated by dividing stockholders' equity by pro
forma common shares. The per share figures have been rounded to the nearest
cent and do not include Common Shares which may be issued upon exercise of
the warrants registered as part of this registration statement.
(3) Total long-term obligations include the long-term portion of capital lease
obligations.
RISK FACTORS
-------------
This Prospectus contains forward-looking statements that address, among
other things, general business strategy and expected trends, acquisition and
growth strategy, use of proceeds, effects of interest rate and legislation
changes, and possible future actions. The statements may be found specifically
in the sections entitled "Summary," "Risk Factors," "Use of Proceeds,"
"Business," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and in this prospectus generally. Actual results could
differ materially from those anticipated in forward-looking statements for
various reasons, including risks discussed in the "Risk Factors" section and
elsewhere in this prospectus.
9
<PAGE>
The securities described in this Prospectus involve a high degree of risk.
Prior to purchasing Shares or Warrants, you should consider the possible risks
of the business described below.
OWE has incurred losses in recent years. For its fiscal year ending March
---------------------------------------
31, 1999, OWE had an operating loss of $87,773. Although primarily due to a
gain on a sale of a single family residence in Anaheim Hills, California, it had
income before taxes of $100,201. OWE had a net loss of $808,767 during its 1998
fiscal year and a decrease in net income from $291,932 for fiscal year 1996 to
$136,985 for fiscal year 1997. Management attributes the decrease in income and
the increase in loss to (i) broker fraud resulting in a loss on two loans of
approximately $250,000 which was recognized in fiscal year 1998; (ii) a decrease
in the loan volume resulting from OWE's adoption of stricter prefunding quality
control measures; and (iii) costs of operating the retail telemarketing division
established approximately two years ago. To counter the reduction in volume,
OWE lowered its prices and volume levels increased. More favorable pricing
margins have been reestablished and volumes are holding up. For the first six
months of fiscal 2000, OWE had pre-tax loss of $254,198 compared to pre-tax
income of $204,632 (made up of other income as OWE had a net loss from
operations of $16,134) for the first six months of fiscal 1999. There can be no
assurance that OWE will not continue to incur losses.
General economic conditions may affect OWE's business. Economic conditions
-----------------------------------------------------
affect the overall level of activity in the mortgage business. The decision to
buy, sell or refinance a residence is affected by such economic conditions as
overall growth or decline of the economy, the level of consumer confidence, real
estate values, prevailing interest rates and investment returns expected by the
financial community. These conditions can affect the number and size of
mortgage loans of the types originated and purchased by OWE and make these
mortgage loans less attractive to borrowers or to investors in the mortgages.
In addition, a decline in real estate values will have an adverse effect on the
loan-to-value ratios for the related mortgage loans, weakening the collateral
coverage and resulting in greater exposure in the event of a default. This
greater exposure to default could make it more difficult for OWE to obtain
interim financing for mortgage loans it originates or purchases or decrease the
availability of purchasers of such mortgage loans or interest expected by the
purchasers.
OWE does not have significant servicing rights income. Mortgage companies
-----------------------------------------------------
often offset some of the effects of an economic downturn caused by high interest
rates by servicing mortgages. Currently, mortgage servicers receive a minimum of
one quarter of one per cent of the outstanding mortgage loan balance per annum
for services rendered and consequently have a continuing revenue stream during
periods when the volume of new originations slows. However, OWE sells the
servicing rights on more than 99% of the mortgage loans it originates or
purchases. Because it is not servicing a large portfolio of mortgage loans, OWE
must rely upon the generation or purchase of mortgage loans for revenues which
makes OWE more vulnerable to changes in the economic cycle and general economic
health in the geographic area or areas in which it operates than certain other
mortgage brokers or other businesses.
OWE depends on wholesale brokers to generate loans. During the year ended
--------------------------------------------------
March 31, 1999, approximately 72% of the mortgage loans closed or purchased by
OWE were originated by wholesale brokers, while OWE's retail division originated
the remainder. None of these brokers are
10
<PAGE>
contractually obligated to do business with OWE and, in fact, the brokers also
have relationships with OWE's competitors who actively compete with OWE in
efforts to expand broker relationships. Accordingly, there can be no assurance
that OWE will be successful in maintaining its existing relationships or
expanding its broker network. If OWE is not successful in maintaining or
expanding its broker network, its business, results of operations and financial
condition could be materially and adversely affected.
OWE depends on brokers to be accurate in their representations regarding
------------------------------------------------------------------------
compliance and loan quality. In addition to depending on brokers to generate
- ---------------------------
mortgage loans, OWE depends on brokers to be accurate in their representations
and warranties regarding compliance with regulations and the quality of the
loans to be funded. During 1997, OWE suffered substantial losses (approximately
$250,000) due to broker fraud primarily with respect to two loans. In order to
address this situation, OWE restructured its pre-funding quality control
procedures. Shortly after the change in procedures, OWE's loan volume generated
by the brokers decreased causing significant losses to OWE. Management believes
the volume loss was a result of two factors: the success of the quality control
program in preventing acceptance of many bad loans and the perception by
mortgage brokers that OWE had become difficult to deal with because of the
additional restrictions of the quality control program. OWE was forced to cut
its prices to rebuild volume, but has since been able to increase margins again
and maintain volume.
OWE depends on outside funding sources. OWE's ability to originate and
--------------------------------------
purchase mortgage loans depends to a large extent upon its ability to obtain the
capital for financing to fund and hold the mortgage loans until sold upon
acceptable terms. OWE currently funds substantially all of the mortgage loans it
purchases and originates through credit facilities with commercial banks and
financial institutions collateralized by loan purchase agreements. These
agreements are generally terminable at will by either party. OWE's borrowings
are in turn repaid with proceeds received when mortgage loans are sold. OWE
relies upon a few lenders to provide the primary credit facilities for its loan
originations and purchases. At March 31, 1999, OWE had drawn in excess of the
amount allowable on one of its warehouse lines of credit. In addition,
substantially all of the restrictive covenants on such line were not satisfied.
OWE has received a letter from the lender waiving such violations for the period
ending on March 31, 1999 and established new ratios with which OWE was required
to comply by June 30, 1999. Currently, OWE is out of compliance with such
covenants. It may not be able to get waivers for these or future violations.
Any failure to renew or obtain adequate funding under OWE's financing facilities
or other financing arrangements, or any substantial reduction in the size of or
increase in the cost of such facilities, could have a material adverse effect on
OWE's business, results of operations and financial condition. To the extent
OWE is not successful in maintaining or replacing existing financing, it may
have to curtail its mortgage loan origination and purchase activities, which
could have a material adverse effect on OWE's operations and financial
condition.
OWE depends on programs that purchase and guarantee loans. Generally, the
---------------------------------------------------------
institutional investors that purchase the mortgage loans originated by OWE
generate funds by selling mortgage-backed securities. This funding mechanism is
largely dependent upon the continuation of programs administered by national
government-sponsored mortgage entities, such as Freddie Mac, Fannie Mae and
Ginnie Mae, which provide the context for, and facilitate the issuance of, such
11
<PAGE>
securities. Although OWE is not aware of any proposed changes, the
discontinuation of, or a significant reduction in, the operations of such
programs could have a material adverse effect on OWE's operations. In addition,
the mortgage loan products eligible for these programs may be changed from time
to time by the sponsor. Changes could affect the profitability of specific
types of mortgage loan products by changing the administrative costs of
purchasing or originating the mortgage loans or other aspects of the programs.
There is significant competition in the mortgage banking industry. OWE
-----------------------------------------------------------------
faces strong competition in originating, purchasing and selling mortgage loans
and related mortgage servicing rights. OWE's competition is principally from
savings and loans associations, other mortgage companies, commercial banks and,
to a lesser degree, credit unions and insurance companies, depending upon the
type of mortgage loan product offered. OWE competes with these entities by
striving to provide timely service to mortgage brokers and borrowers and develop
competitive products. Many of these institutions have greater financial
resources than OWE and maintain a significant number of branch offices in the
area in which OWE conducts operations. Increased competition for mortgage loans
from other lenders may result in a decrease in the volume of mortgage loans
originated and purchased by OWE. If OWE is unable to compete effectively, its
operations and financial condition could be materially and adversely affected.
Real property with environmental problems securing OWE loans may create
-----------------------------------------------------------------------
liability. In the course of its business, OWE sometimes acquires real property
- ---------
(typically residential) which served as collateral for loans that are in
default. It is possible that hazardous substances or waste, contaminants or
pollutants could be present on such properties and not discovered until after
OWE has taken possession. In such event, OWE might be required to remove such
substances from the affected properties at its expense. The cost of such
removal could substantially exceed the value of the affected properties or the
loans secured by such properties. There can be no assurance that OWE would have
adequate remedies against the prior owners or other responsible parties, or that
OWE would not find it difficult or impossible to sell the affected real
properties either prior to or following such removal. These costs may have a
material adverse effect on OWE's operations and financial condition.
OWE does not have any current long-term borrowing arrangements. OWE does
--------------------------------------------------------------
not currently have long-term borrowing arrangements or commitments from any
lenders, although it does have warehouse line of credit financing which requires
annual renewals. If OWE does not raise enough capital or continue to obtain
short-term financing, it will not have access to sufficient capital to finance
its business strategy. Accordingly, the ability of OWE to achieve its
investment objectives depends on its ability to raise capital or borrow money in
sufficient amounts and on favorable terms and on its ability to renew or replace
on a continuous basis maturing short-term borrowings. In addition, OWE may be
dependent upon a few lenders to provide the primary credit facilities for its
mortgage purchases. Any failure to obtain or renew adequate funding under these
facilities or other financings on favorable terms could have a material adverse
effect on OWE's operations.
OWE is restricted in its ability to acquire or dispose of mortgage assets.
-------------------------------------------------------------------------
Due to its financing needs, substantially all of OWE's mortgage assets will be
used to secure purchase agreements, bank borrowings or other credit arrangements
for at least the near future. Therefore,
12
<PAGE>
such mortgage assets may not be available to the stockholders in the event of
the liquidation of OWE, except to the extent that the market value of the assets
exceeds amounts due OWE's creditors. The market value of the mortgage assets
will fluctuate as a result of numerous market factors (including interest rates
and prepayment rates) as well as the supply of, and demand for, such mortgage
assets. In the event of the bankruptcy of a counter-party with whom OWE has an
agreement, OWE might experience difficulty recovering its pledged mortgage
assets, which may adversely effect OWE's operations and financial condition.
OWE could be required to sell mortgage assets under adverse market
------------------------------------------------------------------
conditions. If OWE is not able to renew or replace expiring credit facilities,
- ----------
it could be required to sell mortgage assets under adverse market conditions
and, as a result, could incur permanent capital losses. A sharp rise in
interest rates or increasing market concern about the value or liquidity of
mortgage assets in which OWE has a significant investment will reduce the market
value of the mortgage assets, which would likely cause lenders to require
additional collateral. A number of such factors in combination may cause
difficulties for OWE including a possible liquidation of a major portion of its
mortgage assets at disadvantageous prices with consequent losses, which would
have a material adverse effect on OWE and could render it insolvent.
Additionally, although OWE intends generally to sell its mortgage assets within
ninety days or less of generation or purchase because such assets will be
pledged under reverse purchase agreements or other financing agreements, the
ability of OWE to sell mortgage assets to obtain cash will be greatly limited
due to the obligation to repay amounts outstanding under such agreements. OWE's
inability to sell such assets could have a material adverse effect on its
operations and financial condition.
OWE may need additional equity financing. OWE's primary operating cash
----------------------------------------
requirements include the funding or payment of (i) loan originations, (ii)
interest expense incurred on borrowings under warehouse lines of credit, (iii)
income taxes, (iv) capital expenditures and (v) general operating and
administrative expenses. OWE funds these cash requirements primarily through
warehouse lines of credit and whole loan sales. In addition, if OWE begins to
securitize loans as it would like to do, it would need sufficient liquidity to
fund its investments in "interest-only" and residual certificates and for fees
and expenses incurred in connection with securitizations. OWE's ability to
implement its business strategy will depend upon its ability to establish
alternative long-term financing arrangements and obtain sufficient financing
under warehouse facilities upon acceptable terms. There can be no assurance that
such financing will be available to OWE on favorable terms, if at all. OWE
cannot presently estimate the amount and timing of additional equity financing
requirements because such requirements are tied to, among other things, the
growth of OWE. If OWE were unable to raise such additional capital, its results
of operations and financial condition would be adversely affected.
Future acquisition may adversely affect OWE's business. OWE may, from time
------------------------------------------------------
to time, attempt to acquire other speciality finance companies or portfolios of
loan assets. Any acquisition made by OWE may result in potentially dilutive
issuances of equity securities, the incurrence of additional debt and the
amortization of expenses related to goodwill and other intangible assets, any of
which could have a material adverse effect on OWE's operations and financial
condition. OWE also may experience difficulties in the assimilation of the
operations, services, products and personnel related to acquired companies or
loan portfolios, an inability to sustain or improve the historical revenue
levels of acquired companies, the diversion of management's attention from
ongoing business
13
<PAGE>
operations and the potential loss of key employees of such acquired companies.
OWE currently has no agreements with regard to any specific acquisition and
there can be no assurance that future attempts to acquire any particular
business will be consummated.
Characteristics of underlying property may adversely affect volume of
---------------------------------------------------------------------
mortgages. A portion of OWE's assets will generally consist of mortgage loans.
- ---------
During the time it holds any mortgage loans, OWE will be subject to increased
credit risks, including risks of borrower defaults and bankruptcies and special
hazard losses that are not covered by standard hazard insurance (such as those
occurring from earthquakes or floods). In the event of a default on any
mortgage loan held by OWE, OWE will bear the risk of loss of principal to the
extent that the value of the secured property and any payments from an insurer
or guarantor, are less than the amount owing on the mortgage loan and the costs
of realizing on the collateral. Mortgage loans in default will also cease to be
eligible collateral for OWE's borrowings, and will have to be financed by OWE
out of other funds until ultimately liquidated. Although OWE intends to
establish reserves in amounts it believes are adequate to cover these risks,
there can be no assurance that reserves that are established will be sufficient
to offset losses on mortgage loans in the future. Even assuming that properties
securing mortgage loans held by OWE provide adequate security for such mortgage
loans, there will likely be delays, which could be substantial, in prosecuting
foreclosures to obtain the property securing any defaulted mortgage loans, with
corresponding delays in the receipt of proceeds of such foreclosures by OWE.
State and local statutes and rules may delay or prevent OWE's foreclosure on, or
sale of, the mortgaged property and may limit revenues preventing OWE from
receiving proceeds sufficient to repay all amounts due on the related mortgage
loan. Some properties that collateralize OWE's mortgage loans may have unique
characteristics or may be subject to seasonal factors that could materially
prolong the time period required to resell the property.
Real estate is illiquid and its value is dependent on conditions beyond
-----------------------------------------------------------------------
OWE's control. The fair market value of the real property underlying any
- -------------
mortgage acquired by OWE may decrease in the future and is largely dependent on
factors beyond OWE's control. Adverse changes in national or local economic
conditions, changes in interest rates and in the availability, cost and terms of
mortgage funds, the impact of present or future environmental legislation and
compliance with environmental laws, the ongoing need for capital improvements
(particularly in older structures), changes in real estate tax rates and other
operating expenses, adverse changes in governmental rules and fiscal policies,
civil unrest, acts of God, including earthquakes, hurricanes and other natural
disasters (which may result in uninsured losses), acts of war, adverse changes
in zoning laws, and other factors which are beyond the control of OWE may
adversely affect the value of real property securing mortgages and, as a result,
the revenues and operations of OWE.
OWE is liable for representations and warranties made to purchasers and
-----------------------------------------------------------------------
insurers. In the ordinary course of business, OWE makes representations and
- --------
warranties to the purchasers and insurers of mortgage loans and the related
mortgage servicing rights regarding compliance with laws, regulations and
program standards. OWE generally receives similar representations and warranties
from the brokers from whom it purchases mortgage loans. If any of these
representations and warranties are inaccurate, OWE may be required to repurchase
the corresponding mortgage loans and/or may be liable for damages. For the last
two years, OWE has been required to repurchase one loan each year. Prior to
that, OWE typically was required to repurchase two to three loans each year.
14
<PAGE>
These loans averaged approximately $165,000. In some cases, a portion of the
costs of a repurchase are covered by OWE's errors and omissions insurance. Some
or all of the costs are also often recovered upon the sale of the collateral for
the loan or by ultimate repayment. There can be no assurances that OWE will not
experience greater losses in the future.
Interest rate fluctuations can affect the profitability of OWE's mortgage
-------------------------------------------------------------------------
loans. Changes in interest rates can affect the volume of mortgage loans
- -----
originated and purchased by OWE as discussed above as well as net interest
income and sales of mortgage loans. When OWE purchases or originates a loan, it
usually has a commitment from a third party to purchase that loan. Generally,
OWE funds the loan using borrowings from its lines of credit at commercial banks
and thrifts known as warehouse lines of credit. The warehouse line of credit is
repaid upon the sale of the warehoused loans. Before OWE sells the mortgage
loan, it is entitled to receive interest income on the loan from the borrower
and simultaneously pays interest expense to the institution providing the
warehouse line of credit. The interest rate OWE receives during this period and
the interest rate it pays are usually different. The profitability of the loan
is affected by this difference and fluctuations in interest rates before the
mortgage loan is sold. Although OWE generally has a commitment to sell the
mortgage loan before it commits to fund the mortgage loan, there are situations
in which OWE bears a risk of changes in interest rates prior to the mortgage
loan being sold. In particular, if the interest rates increase during the time
before OWE sells the uncommitted mortgage loan but after it has funded the
mortgage loan, OWE could be required to sell the principal of the mortgage loan
for less than OWE funded, thereby decreasing the mortgage loan's profitability
or incurring a loss on the mortgage loan's sale.
OWE may not be able to sustain and to manage its recent rate of growth.
----------------------------------------------------------------------
Although OWE has experienced significant growth in total revenues recently,
there can be no assurance that OWE can sustain this rate of growth or that it
will be able to continue to recruit and retain sufficient personnel to keep pace
with a prolonged period of growth.
Prices OWE receives upon the sale of mortgage loan servicing rights may be
--------------------------------------------------------------------------
less in times of stable or declining interest rates. The prices obtained by OWE
- ---------------------------------------------------
upon the sale of mortgage loans and servicing rights depend upon a number of
factors, including the general supply of and demand for mortgage servicing
rights, as well as prepayment and delinquency rates on the portfolios of
mortgage servicing rights being sold. Interest rate changes can also affect the
profitability of the sale of mortgage loan servicing rights to a third party.
Purchasers of mortgage loan servicing rights analyze a variety of factors to
determine the purchase price they are willing to pay, including the prepayment
sensitivity of servicing rights. Because of the increased likelihood of
prepayment of loans in periods of declining interest rates, the price of
mortgage loan servicing rights related to higher rate mortgage loans may be less
than in times of stable or increasing interest rates, which could adversely
affect OWE's operations and financial condition.
Failure to comply with regulations could significantly reduce OWE's ability
---------------------------------------------------------------------------
to originate and sell loans. Federal, state and local authorities regulate and
- ---------------------------
examine the origination, processing, underwriting, selling and servicing of
mortgage loans. OWE is an approved seller/servicer of mortgage loans for Fannie
Mae. In addition, the United States Department of Housing and Urban Development
("HUD") has approved OWE as a mortgagee in HUD programs. HUD insured loans
15
<PAGE>
comprised 71%, 63% and 49% of total loans originated by OWE during the years
ended March 31, 1999, 1998 and 1997, respectively. Among other consequences,
the failure to comply with HUD or Fannie Mae regulations could prevent OWE from
reselling its mortgage loans or restrict its ability to service mortgage loans
should it choose to do so. Such failure could also result in demands for
indemnification or mortgage loan repurchase, certain rights of recission for
mortgage loans, class action lawsuits and administrative enforcement actions,
any of which could have a material adverse effect on OWE's operations and
financial condition. OWE failed to maintain the minimum adjusted net worth
required by HUD in fiscal years 1998 and 1999. It filed a capital restoration
plan and had satisfied the net worth requirement by September 15, 1998, but was
again out of compliance in fiscal year 1999. If OWE lost its HUD approval, its
ability to originate mortgages would be reduced significantly.
Mortgage loans are subject to significant government regulation. Federal,
---------------------------------------------------------------
state and local governmental authorities also regulate OWE's activities as a
lender. The Truth in Lending Act, and Regulation Z promulgated thereunder,
mandate that mortgage lenders meet certain requirements designed to provide
consumers with uniform, understandable information on the terms and conditions
of mortgage loans and credit transactions. The Equal Credit Opportunity Act
prohibits creditors from discriminating against applicants on the basis of race,
color, sex, age or marital status, among other restrictions and requirements.
In instances in which the applicant is denied credit, or the rate or charge for
a mortgage loan increases as a result of information obtained from a consumer
credit agency, the Fair Credit Reporting Act of 1970 requires the lender to
supply the applicant with a name and address of the reporting agency. The Real
Estate Settlement Procedures Act and the Debt Collection Practices Act subject
OWE to filing an annual report with HUD. There can be no assurance that OWE
will maintain compliance with these requirements in the future without
additional expenses, or that more restrictive local, state or federal laws,
rules and regulations will not be adopted or that existing laws and regulations
will not be interpreted in a more restrictive manner, which would make
compliance more difficult and more expensive for OWE.
OWE's business is concentrated in the Southern California area. Most (85%
--------------------------------------------------------------
to 90%) of OWE's mortgage loan originations and purchases for the year ended
March 31, 1999, were secured by property in the Southern California area.
Although OWE is working to diversify its holdings, there is no assurance that
OWE will be successful in entering any other markets. Even if OWE does expand
to new markets, there is no assurance that it will be able to generate revenues
exceeding the costs associated with activities in the new markets or that the
business activity in those new markets will match that achieved in the Southern
California area. Whether or not OWE enters into new geographic markets, OWE's
results of operations and financial condition will be significantly affected by
general trends in the economy and the real estate market in the Southern
California area for the foreseeable future.
OWE may not be able to find enough qualified employees. OWE's future
------------------------------------------------------
growth and success depends on its ability to attract or train and retain
qualified employees who understand compliance issues and are knowledgeable in
the residential mortgage industry. Management has found that the cost of
recruiting qualified employees is in many cases too high and, therefore often
must train employees. There are no assurances that once OWE has invested the
time and funds in training personnel that they will remain with OWE.
16
<PAGE>
OWE is dependent on key personnel. OWE's business is substantially
---------------------------------
dependent on the efforts of Marshall Stewart, its President, and Daryl Meddings,
its Chief Financial Officer. OWE has entered into employment agreements with
both of them which are described in the "Management" section of this prospectus.
Loss of either of their services could have a material adverse effect on the
operations of OWE.
The holders of Class B Common Shares control the company. Ocean West has
--------------------------------------------------------
two classes of voting stock which are issued and outstanding. Although each
holder of Common Shares and Class B Common Shares is entitled to one vote for
each share of stock held, the holders of Class B Common Shares are entitled to
elect 75% of the members of the board of directors of Ocean West (presently two
members). Holders of Common Shares (together with holders of Class D Common
Shares and any voting Preferred Shares) are only entitled to elect 25% of the
members of the board of directors (presently one member). Thus, holders of
Class B Common Shares will control the board of directors and, therefore, Ocean
West. Mark Stewart and Daryl Meddings, the founders of OWE, together own 90% of
the issued and outstanding Class B Common Shares and will, therefore, control
votes by holders of Class B Common Shares. In addition, they own 70% of the
issued and outstanding Common Shares and will therefore also control all other
votes so long as they continue to hold a significant number of Common Shares.
Holders of the warrants may not be able to exercise them in certain states
--------------------------------------------------------------------------
or at all times. Holders of the warrants will have the right to exercise the
- ---------------
warrants only if the underlying shares qualify for sale under applicable state
securities laws or are exempt from qualification under such laws and a current
prospectus is available. Ocean West intends to use reasonable efforts to keep
current a prospectus which will permit the sale of the Common Shares underlying
the warrants, but there can be no assurance that it will be able to do so. Ocean
West is not required to qualify the Common Shares for sale in any state. The
warrants may lose some or all of their value if a prospectus covering the
underlying shares is not kept effective or if the underlying shares are not, or
cannot be, qualified in an applicable state.
No payment of dividends on Common Shares is expected in the near future.
-----------------------------------------------------------------------
Ocean West is newly formed and has not paid dividends. Presently, its only
significant source of earnings out of which to pay dividends will be dividends
it receives from its subsidiary, OWE. OWE has not historically paid dividends
to its common shareholders; although it has paid dividends on outstanding
preferred stock and will be required to continue to do so on Preferred Shares
issued in exchange for the Preferred Stock of OWE. It has no present plans to
institute a policy of declaring dividends. In the foreseeable future, the
capital requirements of OWE will likely consume all applicable operating profits
and other available cash. There is no guarantee that OWE, and therefore Ocean
West, will pay dividends in the future or will pay dividends in excess of those
owed on the Preferred Shares.
Ocean West has issued and may issue Preferred Shares which have or may have
---------------------------------------------------------------------------
preferences over Common Shares. Ocean West's Certificate of Incorporation
- ------------------------------
authorizes the issuance of Preferred Shares with designations, rights and
preferences as determined from time to time by its Board of Directors.
Currently, Ocean West has 4,929 shares of six series of Preferred Shares
outstanding. The Board of Directors is empowered, without shareholder approval,
to issue additional series of Preferred Shares with dividends, liquidation,
conversion, voting or other rights that could adversely affect the dividends,
liquidation rights, voting rights or other rights of the holders
17
<PAGE>
of Common Shares. The voting rights of any Preferred Shares, however, are
limited by the Certificate of Incorporation and cannot exceed the voting rights
of any Common Shares. The issuance of Preferred Shares could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change of control of Ocean West.
There is no trading market for the shares or the warrants. No established
---------------------------------------------------------
public trading market exists for the Ocean West shares or the warrants. It is
uncertain at what prices the shares or the warrants will trade or whether such
prices will be below the book value. Until the shares and the warrants are
fully distributed and an orderly market develops (if at all), the prices at
which the shares or the warrants trade may fluctuate significantly. Prices for
the shares and the warrants will be determined in the marketplace and may be
influenced by many factors, including the depth and liquidity of the market,
investor perception of Ocean West and the industry in which it participates, and
general economic and market conditions.
The exercise price of the warrants is not based on market prices. The
----------------------------------------------------------------
exercise price of the warrants was determined by management of OWE based upon
management's assessment of business potential and earnings prospects of the
company. It reflects management's opinion relating to the future and may not be
indicative of future market prices of the warrants or the underlying shares,
revenues or profitability.
Shares available for future sale by former OWE shareholders may adversely
-------------------------------------------------------------------------
affect the price of shares. Approximately 63% of the issued and outstanding
- --------------------------
Common Shares of Ocean West (all shares except the Common Shares described in
this prospectus) are "restricted securities" as defined in Rule 144 promulgated
under the Securities Act of 1933 (the "1933 Act"). (Class B Common Shares may
be converted to Common Shares.) Sales of securities by affiliates of Ocean West
may also be subject to Rule 144 resale limitations. Rule 144 provides a safe
harbor from registration requirements for certain types of sales of restricted
securities or securities held by affiliates. Currently, all of the restricted
Common Shares are held by Mark Stewart, Daryl Meddings and Agape Foundation
Trust who are affiliates. In general, under Rule 144, if adequate public
information on Ocean West is available, beginning ninety days after the date of
this prospectus, a person who has satisfied a one year holding period may sell,
during any three month period, up to the greater of 1% of the then outstanding
Common Shares or the average weekly trading volume during the four calendar
weeks prior to such sale. Sales under Rule 144 are also subject to certain
restrictions relating to manner of sale and notice. Sales of restricted
securities by a person who is not an affiliate of Ocean West (as defined in the
1933 Act) and who has satisfied a two year holding period may be made without
regard to volume limitations, manner of sale, notice or other requirements of
Rule 144. Management is unable to predict the effect that sales made pursuant
to Rule 144 or other exemptions under the 1933 Act may have on the prevailing
market price of the registered Common Shares, or when such sales may begin under
Rule 144.
PLAN OF DISTRIBUTION
---------------------
Ocean West issued 300,000 Common Shares and 1,000,000 Common Stock Purchase
Warrants to Monogenesis, a closed-end registered investment company, and
Monogenesis distributed 254,000 of those shares and 914,400 of those warrants to
its shareholders as of the date of this prospectus at a rate of 125 Common
Shares and 450 warrants for each share of stock of Monogenesis
18
<PAGE>
held on ______________, 2000. Monogenesis is a statutory underwriter which is
distributing the shares and warrants on behalf of Ocean West to make it a public
company with a substantial shareholder base without having to sell shares in a
traditional initial public offering. Monogenesis will retain the 46,000 shares
and 85,600 warrants which were not distributed. It expects to sell the shares
from time to time and may also exercise or sell the warrants from time to time.
Monogenesis purchased the shares at a price of $0.10 each and the warrants
at a price of $0.01 each. In addition, Monogenesis agreed to distribute shares
and warrants to its approximately 1,000 primarily institutional shareholders as
described above. The price was determined by Monogenesis and OWE. Ocean West
recorded $285,000 in expense and in additional paid in capital based on the
estimated fair value of the 300,000 Common Shares issued to Monogenesis less the
$0.10 per share price Monogenesis paid for the shares on the date of this
prospectus. Monogenesis will retain the shares and warrants not distributed and
will own less than 1% of the outstanding Common Shares of Ocean West after the
distribution. Ocean West and OWE have agreed to pay the expenses of
registering the shares and warrants issued to Monogenesis which expenses include
legal, accounting, consulting, transfer agent and filing fees. Through the
distribution of the shares and warrants by Monogenesis (and the sale of shares
by the Selling Shareholders from time to time), Ocean West hopes to create a
public trading market in its Common Shares to facilitate access to public
markets and equity capital for future acquisitions, working capital and other
business purposes and to provide liquidity for employee stock incentive programs
and existing shareholders.
Since Monogenesis is purchasing shares and warrants with the intent to
distribute them, it is a statutory underwriter under the 1933 Act. Monogenesis
is not a broker-dealer and has not participated in any traditional
underwritings. It is registered as a closed-end investment company under the
Investment Company Act of 1940 and was formed to provide a mechanism for
companies to become reporting companies under the 1934 Act in transactions
similar to the distribution described in this prospectus. Monogenesis completed
one such distribution in 1992 and two in 1997. OWE and it shareholders have
agreed to indemnify Monogenesis against any liability arising out of any
representation, warranty or covenant made by OWE or its shareholders in the
agreement with Monogenesis.
Shareholders of Monogenesis that receive shares and warrants will receive
such securities as a dividend. No holder of Monogenesis stock will be required
to pay any cash or other consideration for the shares or the warrants received
in the distribution or surrender or exchange Monogenesis stock in order to
receive shares or warrants. Holders of the warrants will be required to pay the
exercise price to exercise the warrants.
Shareholders, including the recipients of Common Shares distributed by
Monogenesis, will be able to sell their shares and warrants which are
registered, at any time, although the sale of securities by affiliates is
limited and will generally be subject to Rule 144. Monogenesis does not believe
that any person who receives shares or warrants in the distribution will be an
affiliate. It is expected that registered shares or warrants will be sold
through the selling efforts of brokers or dealers from time to time. There is
no agreement with any specific brokers or dealers relating to the shares or the
warrants nor has any plan of distribution or sale of the shares or warrants been
developed, other than the distribution to Monogenesis shareholders described
above.
19
<PAGE>
The Shares which are held by Selling Shareholders and which are registered
hereunder may be disposed of from time to time by the Selling Shareholders, or
by permitted transferees: (i) to purchasers directly; (ii) in ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
(iii) through underwriters or dealers who may receive compensation in the form
of underwriting discounts, concessions or commissions from the Selling
Shareholders or permitted transferees or from the purchasers of the securities
for whom they may act as agent; (iv) by the pledge of the shares or warrants as
security for any loan or obligation, including pledges to brokers or dealers who
may, from time to time, effect distribution of the shares or warrants or
interests therein; (v) to purchasers by a broker or dealer as principal and
resale by such broker or dealer for its own account pursuant to this prospectus;
(vi) in a block trade in which the broker or dealer so engaged will attempt to
sell the securities as agent but may position and resell a portion of the block
as principal to facilitate a transaction; and (vii) through an exchange
distribution in accordance with the rules of the exchange or in transactions in
the over-the-counter market. Such sales may be made at then prevailing prices
and terms which may be related to the then current market price or at negotiated
prices and terms. In effecting sales, brokers or dealers may arrange for other
brokers or dealers to participate.
The Selling Shareholders or their successors in interest, and any
underwriters, brokers, dealers or agents that participate in the distribution of
the shares and warrants held by the Selling Shareholders, may be deemed to be
"underwriters" within the meaning of the 1933 Act, and any profit on the sale of
securities by them and any discounts, concessions or commissions received by any
of them may be deemed to be underwriting commissions or discounts under the 1933
Act. Ocean West and OWE will pay all expenses incident to the registration of
the Selling Shareholders' shares and warrants other than underwriting discounts
or commissions, brokerage fees and the fees and expenses of counsel to the
Selling Shareholders, if any. Ocean West will not receive any proceeds from the
sale of shares or warrants by the Selling Shareholders. In the event of a
material change in the information disclosed in this prospectus, the Selling
Shareholders will not be able to effect transactions in the shares and warrants
pursuant to this prospectus until such time as a post-effective amendment to the
registration statement is filed with, and declared effective by, the SEC.
Ocean West became subject to the reporting requirements of the 1934 Act on
the date of this prospectus. The first report will be due _______________,
2000. Ocean West intends to apply for quotation of the shares and warrants on
the OTC Bulletin Board.
USE OF PROCEEDS
----------------
The cash proceeds of $40,000 derived from the sale of the shares and
warrants to Monogenesis and any proceeds derived upon the exercise of any
warrants will be used to pay the expenses of registering shares and warrants or
as working capital. Ocean West will not receive any proceeds from the sale of
shares or warrants by the Selling Shareholders.
CAPITALIZATION
---------------
The capitalization of OWE (prior to its acquisition by Ocean West) and the
pro forma capitalization of Ocean West (giving effect to the acquisition of
shares of OWE) as of September 30, 1999 are as follows:
20
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Capitalization of OWE Prior to Acquisition:
- -------------------------------------------------------------------------------
<S> <C>
Stockholders' Equity:
Common stock no par value; 100,000 shares authorized;
30,000 shares issued and outstanding $ 73,348
Preferred Stock; no par value; 50,000 shares authorized:
Series C, 1,000 shares issued and outstanding 100,000
Series D, 1,500 shares issued and outstanding 600,000
Series E, 1,200 shares issued and outstanding 300,000
Series F, 1,250 shares issued and outstanding 125,000
Series G, 2,000 shares issued and outstanding 200,000
Series I, 550 shares issued and outstanding 55,000
Series K, 1,000 shares issued and outstanding 120,000
Series L, 183 shares issued and outstanding 183,000
Accumulated deficit (1,087,621)
-----------
Total stockholders' equity $ 668,727
===========
</TABLE>
- -------------------------------------------------------------------------------
Pro Forma Capitalization of Ocean West Assuming Acquisition of Shares of OWE(1):
- -------------------------------------------------------------------------------
Stockholders' Equity:
Common Shares
par value - $0.01 per share; 30,000,000 shares authorized ;
6,126,000 shares issued and outstanding (2) $ 61,260
Class B Common Shares
par value -$0.01 per share; convertible; 5,000,000 shares
authorized; 240,000 shares issued and outstanding 2,400
Class D Common Shares
par value -$0.01 per share; convertible; 600,000 shares
authorized; no shares issued and outstanding -0-
21
<PAGE>
Preferred Shares
par value -$0.01 per share; 10,000,000 shares authorized;
Series C, 1,000 shares issued and outstanding 100,000
Series E, 680 shares issued and outstanding 170,000
Series F, 1,050 shares issued and outstanding 105,000
Series G, 2,000 shares issued and outstanding 200,000
Series I, 125 shares issued and outstanding 12,500
Series L, 74 shares issued and outstanding 74,000
Additional paid-in capital 1,409,428
Accumulated deficit (1,417,861)
-----------
Total stockholders' equity $ 716,727
===========
- --------------------------------------------------------------------------------
(1) Pro forma balance sheets assuming acquisition of OWE by Ocean West and
showing pro forma adjustments are included in their entirety in the
Financial Statements section of this Prospectus.
(2) In addition to the Common Shares of Ocean West held by the former
shareholders of OWE, the issued and outstanding Common Shares include the
300,000 Common Shares issued to Monogenesis for $30,000. This number does
not include the 1,000,000 Common Shares which may be issued upon the
exercise of the warrants.
BUSINESS
---------
General
- -------
Ocean West was formed as a holding company to hold shares of OWE on
_____________, 2000 in connection with the registration of the shares and
warrants to create a public company with a substantial shareholder base without
having to sell shares in a traditional initial public offering (through the
shareholder base of Monogenesis). Management also believes that establishing
Ocean West as a public company may facilitate acquisitions at some point in the
future. No particular acquisition targets have been identified. Ocean West
received all of the issued and outstanding shares of stock of OWE from OWE's
shareholders in exchange for 5,737,200 Common Shares, 240,000 Class B Common
Shares, and 4,929 shares of six series of Preferred Shares on the date of this
prospectus. The number of shares exchanged was determined by OWE and
Monogenesis taking into consideration the proposed public float and ownership
interests. All of Ocean West's current business operations are conducted
through OWE.
OWE is a real estate finance company principally engaged in mortgage
banking. OWE originates, packages, funds and sells on a whole loan basis
conventional, government and non-conforming residential mortgage loans secured
by one-to-four family residences. OWE considers "non-conforming" loans to be
loans made to borrowers who are unable to obtain mortgage financing from
conventional mortgage sources whether for reasons of credit impairment, income
qualifications or credit history or have a desire or need to receive funding on
an expedited basis. OWE primarily
22
<PAGE>
makes loans to purchase existing or new residential properties, refinance
existing mortgages, consolidate other debt or finance home improvements,
education or similar items.
OWE currently has two divisions: (i) a wholesale division which has
relationships with approximately 1,000 approved independent loan brokers and
which has historically accounted for substantially all of OWE's loan
originations and (ii) a retail branch division which was created to expand OWE's
loan originations across the nation. Management is also working to develop a
retail division to market loans directly to builders and real estate agents.
Several years ago, OWE created a retail telemarketing division to market loans
directly to homeowners. As the interest rate increased and the refinancing
market decreased, OWE determined that this division was no longer profitable and
closed the division in the first quarter of fiscal 2000.
The following table sets forth the volume of mortgage loans originated
through the Wholesale Division versus the Telemarketing Division (retail loans):
<TABLE>
<CAPTION>
Year ended March 31,
1999 1998
---- ----
Volume Percent Volume Percent
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Wholesale $218,987,397 73% $221,947,299 86%
Retail (Telemarketing Division) 81,657,518 27% 36,566,531 14%
------------ --- ------------ ----
Total $300,644,915 100% $258,513,830 100%
============ === ============ ====
</TABLE>
Mortgage loans originated by OWE generally range in size from $80,000 to
$2,000,000 with most loans being in the $100,000 to $180,000 range. The
following table illustrates the breakdown by size of loans originated during the
last three fiscal years:
<TABLE>
<CAPTION>
Year ended March 31,
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
Less than $100,000 827 832 769
Between $100,000 and $180,000 1,292 1,161 1,161
More than $180,000 245 195 268
----- ----- -----
Total 2,364 2,188 2,198
===== ===== =====
</TABLE>
Most of the loans originated by OWE (85% to 90%) are secured by residential
real estate located in Southern California. Therefore until such time as OWE is
able to expand to other locations, its success is largely dependent on the
economy of Southern California.
Substantially all loans originated by OWE are secured by a first priority
real estate mortgage. Typically less than 2% of the principal balance of loans
originated by OWE are secured by second priority mortgages. OWE's core borrower
base is individuals who purchase homes using government financing. OWE's non-
conforming borrower base is individuals who do not qualify for traditional "A"
23
<PAGE>
credit because their credit history, income or some other factor does not
conform to standard agency lending criteria.
OWE is an approved mortgage lender for HUD (United States Housing and Urban
Development) programs under which eligible loans are insured. HUD insured loans
comprised 71% of the total loans originated by OWE during its most recent fiscal
year and 63% and 49% during the two previous fiscal years. In order to maintain
HUD certification, OWE must, among other things, maintain a minimum adjusted net
worth which it failed to maintain in fiscal years 1998 and 1999.
Since commencing operations in October 1988, OWE has experienced
significant growth in loan originations. For the year ended March 31, 1999, OWE
funded $300,644,915 in loans compared to $5,700,000 during its first full year
of business which ended on December 31, 1989 (prior to the change in fiscal year
end).
OWE believes that its primary strengths are (i) the experience of its
management, account executives and staff in the lending industry which enhances
its ability to establish and maintain long-term relationships with mortgage
brokers; (ii) its service oriented sales culture emphasizing quick and efficient
responses to customer needs and market demands; (iii) its operating philosophy
which is to use consistent and prudent underwriting guidelines designed to
produce mortgage products which are readily available in the secondary market to
create stable and deliberate loan origination growth; (iv) its ability to manage
and control operating costs in order to remain a low cost originator; and (v)
its use of automated underwriting and laptop computers to provide "point of
sale" loan approvals.
Business Strategy
- -----------------
OWE's operating strategy is based on the following key elements:
Whole Loan Sales for Cash: OWE sells substantially all of its originated
mortgage loans monthly for cash, historically at a premium over the principal
balance of the mortgage loans.
Continuing Growth of Wholesale Production: Management believes that it can
continue to grow its wholesale production of loans by increasing penetration in
existing markets and by selectively expanding into new geographic markets.
Expansion of Product Offerings: OWE uses long-term relationships with
mortgage loan brokers and real estate professionals to obtain the information
necessary to quickly and efficiently tailor existing products or introduce new
products to satisfy broker and consumer product needs. As part of this
expansion, OWE has set up a wholesale web site and begun to use the internet to
solicit new retail borrowers.
Securitization Flexibility: While management expects that the substantial
majority of OWE's mortgage loans will continue to be sold through whole loan
sales in cash transactions, management is exploring sales of loans through
securitizations.
Servicing: Currently, OWE sells more than 99% of the servicing rights to
loans originated.
24
<PAGE>
Warehouse Facility: Management of OWE intends to continue to work to lower
OWE's costs of originating loans by attempting to negotiate more favorable
warehouse facilities.
Wholesale Division
- -------------------
Historically, OWE's primary source of mortgage loans has been its Wholesale
Division which maintains relationships with approximately 1,000 independent
mortgage brokers. The mortgage loan brokers act as intermediaries between
property owners and OWE in arranging mortgage loans. OWE typically receives
loans from 128 brokers in a year with 10% to 15% of its loans (approximately $3
million to $4 million per month) originated through First Capital Mortgage.
OWE enters into a mortgage broker agreement with each of its independent
mortgage brokers requiring the brokers to meet certain licensing and other
criteria. Basically, OWE and the mortgage broker establish a non-exclusive
relationship; the brokers generally also act for other mortgage loan companies
as well as OWE. The mortgage broker, from time-to-time and at its option, will
submit completed mortgage loan application packages from the general public to
OWE for funding consideration and then will facilitate the closing of mortgage
loan applications approved for funding by OWE. The broker's role is to identify
applicants, assist in completing loan application forms, gather necessary
information and documents and serve as OWE's liaison with the borrower
throughout the lending process.
OWE reviews and underwrites the applications submitted by brokers, approves
or denies the applications and sets the interest rate and other terms of the
loans. Upon acceptance by the borrower and satisfaction of all of the
conditions imposed by OWE, OWE funds the loan. Because brokers conduct their
own marketing and use their own employees to obtain loan applications and
maintain contact with borrowers, originating loans through brokers allows OWE to
increase loan volume without incurring marketing, labor and other overhead costs
associated with retail originations. OWE has no obligation to pay a mortgage
broker any sums owed to the mortgage broker by a borrower or to pay a mortgage
broker any sum with respect to any mortgage loan application package which is
not closed and funded.
Generally, mortgage brokers submit loan applications to an account
executive in one of OWE's sales offices. The loan is logged-in for RESPA (see
discussion of government regulation of OWE) and other regulatory compliance
purposes, underwritten and, in most cases, conditionally approved or denied
within forty-eight hours of receipt. OWE attempts to respond to each application
as quickly as possible, since mortgage brokers generally submit individual loan
files to several perspective lenders simultaneously and the lender with the
quickest response has a better chance of obtaining the loan. If the application
meets OWE criteria, OWE will issue a "conditional approval" to the broker with a
list of specific conditions to be met and additional documents to be supplied
(for example, credit verifications and independent third party appraisals) prior
to funding the loan. In most cases, OWE funds loans within fifteen days of the
approval of the loan application.
OWE requires that all independent brokers submitting loans to OWE be
registered or licensed as required by the jurisdiction in which they operate and
be approved by OWE. OWE annually audits all brokers that submit loans to it in
order to confirm possession of current licenses or registrations and to update
the broker's financial statements and employees' names and addresses. OWE
believes that an important element in developing, maintaining and expanding its
relationships with independent
25
<PAGE>
mortgage loan brokers is to provide a high level of product knowledge and
customer service to the brokers.
Product Types
- --------------
OWE offers a broad range of mortgage loan products to provide flexibility
to mortgage loan brokers and retail divisions. These products vary as to loan-
to-value ratio and income requirements as well as other factors.
The following is a list of OWE's primary standard products:
. FHA/VA - Thirty-year fully amortizing adjustable or fixed rate program
------
-- adjustable rate program indexed to the one-year treasury featuring
a cap of annual interest rate increases of 1% and a life cap on
increases of 5%.
. 95% LTV (loan-to-value) First Mortgage Loan -- Thirty-year fully
-------------------------------------------
amortized adjustable or fixed rate program that meets guidelines
provided by purchasers of loans from OWE.
. Conforming Mortgage Products -- Adjustable and fixed rate loan
----------------------------
programs that meet the guidelines for purchase by (i) government-
sponsored entities such as FNMA and FHLMC, which guarantee mortgage
backed securities and (ii) permanent investors in mortgage backed
securities secured by or representing ownership in such mortgage
loans.
. Second Mortgage Program -- Fixed rate amortizing and fixed rate with a
-----------------------
balloon payment programs that are limited to borrowers identified as
A+ through B credit risks, with a maximum combined loan-to-value ratio
equal to 100%.
. JUMBO Loans -- Adjustable and fixed rate loan programs that meet the
-----------
guidelines provided by specific investors in the mortgages.
For non-conforming loans, OWE typically offers fixed-rate first mortgage
loans which are amortized over a fifteen- or thirty-year period as well as loans
with a balloon payment in fifteen years and payable during the fifteen year
period under a thirty-year amortization schedule.
The following table sets out OWE loan originations by product type for the
last three fiscal years:
<TABLE>
<CAPTION>
Year ended March 31,
1999 1998 1997
---- ---- ----
Volume Percent Volume Percent Volume Percent
-------------- -------- -------------- -------- -------------- --------
(in thousands) (in thousands) (in thousands)
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Loan Types:
- -----------
FHA/VA-Government $213,967 71% $162,804 63% $126,363 50%
Conforming - Conventional $ 62,585 21% $ 58,503 23% $ 82,538 32%
Jumbo Loans $ 21,311 7% $ 31,254 12% $ 39,284 15%
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Year ended March 31,
1999 1998 1997
---- ---- ----
Volume Percent Volume Percent Volume Percent
-------------- -------- -------------- -------- -------------- --------
(in thousands) (in thousands) (in thousands)
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Second Mortgages $ 2,782 1% $ 5,953 2% $ 7,609 3%
-------- --- -------- ---- -------- ---
Total $300,645 100% $258,514 100% $255,794 100%
======== ======== ========
Loan Products:
- --------------
15/30 Year Fixed - All $289,538 96% $187,002 72% $166,160 65%
Loan Types
Adjustable - All Loan $ 11,107 4% $ 71,512 28% $ 89,634 35%
Types -------- --- -------- ---- -------- ---
Total $300,645 100% $258,514 100% $255,794 100%
======== ======== ========
</TABLE>
Quality Control
- ----------------
OWE has implemented a loan quality control process to help enforce
sound lending practices and compliance with OWE's policies and procedures as
well as agency (HUD, Fannie Mae and other purchasers of mortgages) guidelines.
Prior to funding a loan, OWE performs a "pre-funding quality control audit" in
which OWE's staff re-verifies the borrower's credit history and employment,
using automated services as well as verbal verifications. In addition,
properties which will potentially secure the mortgage loans are appraised by an
independent appraiser. All appraisals must be conducted by a qualified licensed
independent appraiser and the appraisal must conform to the Uniform Standards of
Professional Appraisal Practice adopted by the Appraisal Standards Board of the
Appraisal Foundation. OWE personnel also review every appraisal to confirm the
adequacy of the property as collateral prior to funding.
In addition, OWE's quality assurance department audits a percentage of
all loans which are funded. The department reviews the documentation (including
appraisals and recertifications) for compliance with established underwriting
guidelines and lending procedures reexamining the funding documents for
accuracy, completeness and adherence to corporate, state and federal
requirements. As part of the audit process, any deficiencies discovered are
reported to OWE's senior management to determine trends and any need for
additional training of personnel.
Underwriting
- ------------
OWE has established certain underwriting criteria (the "Underwriting
Guidelines") under which OWE originates mortgage loans. The loans originated
under the Underwriting Guidelines generally also satisfy the underwriting
standards used by the Federal Housing Association ("FHA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). The Underwriting Guidelines are intended to aid in evaluating the
credit history of the potential borrower, the capacity of the borrower to repay
the mortgage loan, the value of the real property which will secure the loan and
the adequacy of such property as collateral for the proposed loan. The loan
terms, including interest rate and maximum loan-to-value ratio, are
27
<PAGE>
determined based upon the underwriter's review of the loan application and
related data and the application of the Underwriting Guidelines.
OWE employs experienced underwriters. OWE's Underwriting Manager must
approve the hiring of all underwriters including those who will be located in a
regional or branch office. OWE's underwriters must have had either substantial
underwriting experience or substantial experience with OWE in other aspects of
the mortgage finance industry before becoming part of OWE's underwriting
department. All underwriters are required to participate in ongoing training,
including regular supervisory critiques of each underwriter's work. OWE's
management believes that its underwriting personnel have the ability to analyze
the specific characteristics of each loan application and make appropriate
credit judgments.
The Underwriting Guidelines include three levels of documentation
requirements for applicants which are referred to as the "Full Documentation,"
"Lite Documentation" and "Stated Income Documentation" programs. Under all
three programs, OWE reviews the applicant's source of income, calculates the
amount of income from sources listed on the loan application or other
documentation, reviews the credit history of the applicant, calculates the debt
service-to-income ratio to determine the applicant's ability to repay the loan,
reviews the type and use of the property being financed and reviews the
property. In determining the ability of the applicant to repay the loan, OWE's
underwriters use: (i) a qualifying rate that is equal to the stated interest
rate on fixed-rate loans, (ii) the initial interest rate on loans which provide
for three years of fixed interest rate and payments before the initial interest
rate adjustment, or (iii) 2% above the initial interest rate on other
adjustable-rate loans. The Underwriting Guidelines require that mortgage loans
be underwritten following a standard procedure which complies with applicable
federal and state laws and regulations and requires OWE's underwriters to be
satisfied of the value of the property to be mortgaged based upon a review of
the appraisal. In general, the maximum principal amount of loans originated
under OWE's conventional program is $650,000; however, OWE may approve and make
larger loans on a case-by-case basis. Larger loans require approval by the
intended purchaser of the loan.
Under the Full Documentation program, applicants are generally
required to submit two written forms of verification of stable income for at
least twelve months. Under the Lite Documentation program, the applicant
submits twenty-four months of bank statements. Under the Stated Income
Documentation program, an application may be accepted based upon the monthly
income stated on the mortgage loan application if certain other criteria are
met. All of the programs require a telephone verification of the employment of
salaried employees. In the case of purchase money loans, under the Full
Documentation program guidelines and, on all purchase loans where the loan-to-
value ratio is greater than 80%, OWE also verifies source of funds to be
deposited by the applicant into escrow.
OWE evaluates its Underwriting Guidelines on an ongoing basis and
periodically modifies them to reflect management's current assessment of various
issues relating to underwriting analysis. In addition, as new loan products are
developed, OWE adopts Underwriting Guidelines which are appropriate for the new
products. Conventional mortgage loans and second mortgage loans, including 125%
loan-to-value loans, are underwritten to the standards of the intended
purchasers of the loans and use information, including credit scores, which OWE
does not generally consider under its standard Underwriting Guidelines.
28
<PAGE>
Sale of Loans
- -------------
OWE generally sells substantially all of the loans it originates.
Once OWE has funded a loan through a warehouse facility, the next objective is
to sell the loan as quickly as possible. A reconciliation package is prepared
for accounting. The file then moves on to the shipping department where it is
copied and stacked to specific investor guidelines. After OWE receives the
final HUD I (closing statement), usually two to three days after funding, the
file is sent to the appropriate investor for purchase. OWE typically makes
general representations and warranties to purchasers of the mortgages relating
to borrower disclosures, closing procedures, credit documentation, follow-up
documentation and accuracy of representations. In many cases, purchasers of the
mortgages will require premium recapture language in the documentation requiring
that OWE return all or a portion of the premium and SRP (servicing release
premium) for loans that are paid off early (typically prior to the end of the
first year). In most cases, OWE is only liable for premium recapture if the
loan is being prepaid as a result of a refinancing with OWE or one of its
affiliates.
Mortgage Loan Servicing Rights
- ------------------------------
OWE sells substantially all (greater than 99%) of the servicing rights
on the loans funded by OWE. At the time the loan is sold, the purchaser
typically pays OWE an SRP (servicing release premium). The premium is paid for
the right to collect the servicing fees for the period the loan remains on the
investor's books. A typical spread for an "A" grade loan is 0.25 of 1%
annually. On occasion, OWE will retain servicing rights. However, OWE is not
currently set up to service loans in-house and contracts with Dovenmuehle
Mortgage, Inc. to subservice such loans. The subservicer is responsible for
accepting and posting all payments, maintaining escrow accounts and reporting to
the end investors (Fannie Mae, Indy Mae, etc.). For this service, OWE typically
pays the subservicer a monthly fee averaging $6 to $7 per loan.
Competition
- -----------
The mortgage banking business is highly competitive. The market for
mortgage loans is influenced by interest rate levels as well as other general
economic and demographic factors. OWE competes with other wholesale and retail
mortgage banking entities and financial institutions, many of which have
substantially greater financial and other resources than OWE. OWE also competes
with mortgage brokers, including those that have agreements with OWE who usually
represent and submit applications to more than one mortgage provider. Mortgage
brokers compete on the basis of service, range of mortgage loan products and
pricing. OWE currently depends primarily on mortgage brokers for loan
originations, but is working to establish additional avenues for loan
originations. Competitors seek to and establish relationships with the same
mortgage brokers as OWE. The mortgage brokers are not obligated to continue to
provide loans to OWE.
Management of OWE believes that in order to compete it must continue
to maintain or increase the volume of loans it receives through mortgage
brokers. It recognizes that mortgage brokers are not obligated to fund loans
they originate through OWE. OWE continues to maintain volumes because of its
ability to provide exceptional service to the mortgage broker. OWE believes
that it underwrites and closes loans more quickly than most of its competition.
The quick turnaround time combined with a wide range of loan products makes OWE
very valuable to the broker when competing for business.
29
<PAGE>
Mortgage Loan Funding and Financing Arrangements
- ------------------------------------------------
OWE funds its mortgage loans primarily through warehouse facilities
provided by First Collateral Services and Provident Bank. First Collateral
provides OWE with up to $15,000,000 and Provident provides OWE with up to
$5,000,000 for a total of $20,000,000 in warehouse line capabilities. Both
facilities are secured by the mortgage loans financed through the line, related
mortgage servicing agreements and the personal guarantees of the two primary
shareholders.
The warehouse line provided through First Collateral bears interest at
the LIBOR rate plus 2.5% (7.909% on October 31, 1999) and expires on January 31,
2000. The lender has imposed restrictions on the types of loans and maximum
amounts per individual loans which may be funded through the line. Borrowing
pursuant to the line is limited to the lesser of the credit line ($15,000,000)
and the value (calculated as provided in the loan documents) of the loans
securing the line. The value of the loans for the purposes of calculating the
borrowing limits is typically limited to 98% of the purchase price of the loan;
OWE must fund the remaining 2% through other sources. Interest is payable
monthly and each advance is payable at the time of the loan sale. The
outstanding balance under this warehouse line of credit was $7,872,111 at
September 30, 1999, $17,493,914 at March 31, 1999 and $16,792,260 at March 31,
1998.
The loan agreement governing the terms of this warehouse line of
credit contains various restrictive covenants relating to tangible net worth and
various debt and other ratios. Payment of cash dividends by OWE (or redemption
of shares) is also restricted to net income of OWE after the date of the
applicable agreement computed on a cumulative basis. OWE has drawn on the line
in excess of its limits and has violated the restrictive covenants. The lender
waived the covenant violations through March 31, 1999 and established new ratios
to be met by June 30, 1999 which OWE did not meet.
OWE's second warehouse line of credit bears interest at the prime rate
as reflected in The Wall Street Journal plus 1.00% to 1.25% depending upon the
-----------------------
grade of the loan product and expires on July 29, 2000. Interest is payable
monthly and each advance must be repaid within 45 days. On March 31, 1999, the
outstanding balance under this line of credit was $1,267,330. There were no
outstanding balances on September 30, 1999 or on March 31, 1998.
Management of OWE hopes eventually to increase its capital and use
such capital to finance loans rather than financing them through credit
facilities. Management is also exploring the possibility of securitizing some
portion of its mortgage loans.
Employees
- ---------
OWE has approximately one hundred six employees of which a little over
one-half are primarily employed in sales. Approximately one-third of such
employees hold clerical positions. The remaining employees hold administrative
positions and include Marshall Stewart, the Chief Executive Officer, and Daryl
Meddings, the Chief Financial Officer.
30
<PAGE>
Properties
- ----------
OWE's headquarters are located at 15991 Redhill Avenue, #110 in
Tustin, California. OWE leases approximately 13,160 square feet of office space
under a lease the current term of which expires November 30, 2003. The two
founding shareholders of OWE personally guaranteed the lease. Rent is currently
$16,450 per month plus overrides and increases annually beginning December 1,
1999 to $18,555.64 for the last year of the term. OWE has the right to renew the
lease for one additional sixty month term. During the renewal term, the rent
will be adjusted to the then current market rate. OWE also has branch offices
in Honolulu, Hawaii and Moreno Valley, California.
Regulation
- ----------
The consumer finance industry is highly regulated making OWE subject
to extensive and complex rules and regulations of, and examinations by, various
federal, state and local government authorities. These rules impose obligations
and restrictions on OWE's loan origination, credit activities and secured
transactions. In addition, these rules limit the interest rates, finance
charges and other fees that OWE may assess, mandate extensive disclosure to
borrowers, prohibit discrimination, and impose multiple qualifications and
licensing obligations. Failure to comply with these requirements may result in,
among other things, loss of HUD approved status, demands by purchasers of
mortgages for indemnification or mortgage loan repurchases by OWE, certain
rights of recission of mortgage loans in borrowers, class action lawsuits by
borrowers, administrative enforcement actions, and civil and criminal liability.
Management uses its quality assurance program to monitor compliance and believes
that OWE is in compliance with applicable rules and regulations in all material
respects.
OWE's loan origination activities are subject to the laws and
regulations in each state in which it conducts lending activities. For example,
state usury laws limit the interest rates that OWE can charge on its loans.
OWE's lending activities are also subject to various federal laws, including the
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Real Estate Settlement Procedures Act and the Home Mortgage
Disclosure Act. OWE is not currently making loans subject to the Homeownership
and Equity Protection Act of 1994.
More specifically, OWE is subject to certain disclosure requirements
under the Truth-in-Lending Act ("TILA") and Regulation Z promulgated under the
TILA. The TILA is designed to provide consumers with uniform, understandable
information relating to certain terms and conditions of loan and credit
transactions and, by standardizing the form of information provided, facilitate
comparisons among available credit options. The TILA also gives consumers the
right to change their minds about a credit transaction by guaranteeing consumers
a three-day right to cancel certain types of credit transactions, which right
applies to loans of the type originated by OWE. In addition, the TILA gives
consumers the right to rescind the loan transaction if the lender fails to
provide the required disclosures to the consumer.
OWE is also required to comply with the Equal Credit Opportunity Act
of 1994 ("ECOA") and Regulation B promulgated thereunder, the Fair Credit
Reporting Act ("FCRA"), the Real Estate Settlement Procedures Act of 1975
("RESPA") and the Home Mortgage Disclosure Act of 1975 ("HMDA"). The ECOA
prohibits lenders from discriminating against an applicant for a loan on the
basis of race, color, sex, age, religion, national origin or marital status.
Regulation B prohibits lenders
31
<PAGE>
from requesting certain types of information from loan applicants. The FCRA
requires lenders to supply applicants with information relating to the denial of
any loan application. Beginning with loans originated in 1997, HMDA requires OWE
to file annual reports with HUD for collection and reporting of statistical data
in loan transactions. RESPA mandates certain disclosures concerning settlement
fees and charges and mortgage servicing transfer practices. It also prohibits
the payment or receipt of kickbacks or referral fees in connection with the
performance of settlement services.
OWE is highly regulated by government entities. The laws and
regulations under which OWE operates are subject to change at any time. In
addition, new laws or regulations may be added at any time. There can be no
assurance that any change or addition of laws will not make compliance by OWE
more difficult or more extensive, restrict its ability to originate, broker,
purchase or sell loans, further limit the amount of commissions, interest or
other charges which may be earned, or otherwise adversely affect OWE's business
or prospects.
Legal Proceedings
- -----------------
OWE is involved in litigation relating to a loan which it sold; the
house securing the loan slid off a hill. The amount claimed is approximately
$50,000 plus costs and fees which may be added. Discovery has only recently
begun. Management of OWE is not aware of any pending or threatened claims
against OWE which might materially affect its business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Overview
- --------
OWE is primarily engaged in the origination, packaging, funding and sale of
mortgage loans secured by one-to-four family residences. OWE's income mainly
consists of gains from sales of mortgage loans on the secondary market and to
private investors. It also generates revenues through certain fees such as
underwriting fees, processing fees and document drawing fees, in connection with
the funding of a loan.
OWE typically funds loans through its warehouse line of credit. The amount
drawn from the line for a particular loan is repaid when that loan is sold to an
investor. OWE receives revenue from loan fees charged and from the origination
and/or discount fees charged to the borrower. The revenue collected at the time
of funding is remitted to OWE and booked on the day of funding. When a loan is
purchased by an investor, the remaining fees as well as a servicing release fee
are remitted less any investor fees and any further servicing obligations on
that loan. Revenue generated from the sale is recognized at the time of sale.
OWE receives most of its revenues from the sale of loans to investors.
Once a loan is sold, the amount advanced through the warehouse line of credit is
repaid and the overage is deposited to OWE. Frequently, OWE will receive the
borrower's first monthly payment if the investor buys the loan one payment down.
Additional revenue is generated through the collection of servicing fees on
loans held for servicing. OWE also charges underwriting, funding,
administrative, document drawing and other miscellaneous fees in connection with
funding loans which also provide revenue to OWE.
32
<PAGE>
Results of Operations
- ---------------------
The uncertainty which potentially has the single largest effect on OWE's
results of operations is interest rate trends. Trends in interest rates are not
only important to the refinance business, but are also very important in the
purchase market as well. As interest rates rise, more individuals are
eliminated as potential borrowers. The reason for this is simple - as interest
rates get higher, so do the mortgage payments. Higher payments mean fewer
people have the ability to qualify for loans. Historically, a rising interest
rate market is more difficult for mortgage bankers (like OWE) to deal with than
for banks. The reason for this is that banks tend to have an advantage in an
adjustable rate market, because banks have the ability to hold loans and,
therefore, can be more creative in designing adjustable rate loans to fit the
borrower's needs. Mortgage bankers are limited to loan products which can be
sold in the secondary market and securitized on Wall Street. These programs
have become more competitive in recent years, but banks still retain a
competitive advantage.
Inflation has an impact on OWE because it typically has an impact on
interest rates. As the threat of inflation becomes more of a concern, interest
rates tend to rise. This is based upon the perception that the FED will revise
short-term interest rates to keep inflation in check. This concern ultimately
affects mortgage rates.
Six Months Ended September 30, 1999 Compared to Six Months Ended September 30,
1998
Total revenue for the six month period ending September 30, 1999 decreased
30% to $7.8 million from $11.2 million for the same period in the previous year.
The decrease in revenues resulted from the closing of the telemarketing division
in the first quarter of fiscal 2000. As discussed elsewhere, as the refinancing
market declined, the costs of operating the division outweighed the benefits.
Total operating expenses decreased to a lesser extent by 28% to $8.1
million from $11.2 million. The decrease was primarily due to the closure of
the telemarketing division. Cost of loan originations decreased 26% from $8.4
million to $6.2 million. General and administrative expenses decreased more
significantly by 32% from $2.8 million to $1.9 million. This decrease in
expenses was also primarily attributable to the closure of the telemarketing
division.
OWE had a net loss of $254,198 for the six month period ending September
30, 1999 as opposed to net income of $204,632 for the same six month period of
the previous year. The difference was partially a result of an increase in the
loss from operations as OWE had a net loss from operations of $16,134 for the
six month period ending September 30, 1998 and a net loss from operations of
$248,515 for the same six month period in the succeeding year. In addition,
during the six month period ending September 30, 1998, OWE had other income of
$220,766 resulting from a deferred income tax benefit as opposed to other
expenses of $5,683 during the same period of the 2000 fiscal year.
Year Ended March 31, 1999 Compared to the Year Ended March 31, 1998
Total revenue increased 21% to $17.9 million for fiscal year 1999 from
$14.9 million for fiscal year 1998. This increase resulted primarily from a 22%
increase in revenues from the origination and sale of mortgage loans. Net
servicing fees decreased by 73% from $21,615 for fiscal year 1998 to
33
<PAGE>
$5,924 for fiscal year 1999. Gains on the origination of mortgage servicing
rights also decreased by 65% from $49,283 for fiscal year 1998 to $17,105 for
fiscal year 1999. Gains on sale of mortgage servicing rights decreased to $0
from $155,440 for fiscal year 1998. OWE sold off most of its servicing rights
causing income relating to servicing rights to decrease significantly from
fiscal year 1998 to fiscal year 1999.
Total operating expenses increased by 15% to $18.0 million for fiscal year
1999 from $15.7 million for fiscal year 1998. This increase was due primarily
to increases in cost of loan originations.
Total cost of loan originations increased 16% to $13.3 million for fiscal
year 1999 from $11.4 million for fiscal year 1998. The interest expense of the
warehouse line of credit decreased slightly and the cost of loan repurchases
decreased significantly by 59% from $264,253 in fiscal year 1998 to $109,493 in
fiscal year 1999. The higher costs of loan repurchases for fiscal year 1998 was
primarily due to the purchase of two loans. On the other hand, commissions and
brokers' fees increased 7% primarily due to the increased amount of loans
originated to $9.1 million for fiscal year 1999 from $8.5 million for fiscal
year 1998. Fees and costs such as credit, appraisal, title and escrow fees
associated with the telemarketing division increased by 94% from $1.5 million
for fiscal year 1998 to $3.0 million for fiscal year 1999. This significant
increase was due to a higher loan volume from retail organizations through the
telemarketing division.
General and administrative expenses increased 12% from $4.2 million for
fiscal year 1998 to $4.8 million for fiscal year 1999. Most of the increase was
the result of a 21% increase in salaries, wages and payroll taxes from $2.4
million in fiscal year 1998 to $2.9 million in fiscal year 1999 and a 145%
increase in interest expense to $149,172 for fiscal year 1999 from $61,010 for
fiscal year 1998. Other general and administrative expenses decreased 4%.
OWE posted net income of $341,635 for fiscal year 1999 compared to a net
loss of $808,767 for fiscal year 1998. Approximately 21% of the increase in
income was due to a tax benefit of $241,434. Income before the income tax
benefit for fiscal year 1999 was $100,201 as opposed to a pre-tax loss of
$807,967 for fiscal year 1998. This difference arose from two sources. OWE's
loss from operations was reduced significantly from a loss of $825,392 for
fiscal year 1998 to a loss of $87,773 for fiscal year 1999. In addition, OWE
recognized a gain of $104,500 on the sale of a single family residence located
in Anaheim Hills, California in fiscal year 1999 for which there was not a
corresponding gain in fiscal year 1998 and had interest and other income of
$83,474 in fiscal year 1999 versus $17,425 in fiscal year 1998.
The decrease in operating loss from fiscal year 1998 to fiscal year 1999
was primarily due to a 22% increase in revenue from the origination and sale of
loans with only a 16% increase in the cost of originations and only a 12%
increase in general and administrative expenses.
Year Ended March 31, 1998 compared to Year Ended March 31, 1997
Total revenues increased 12% from $13.3 million for fiscal year 1997 to
$14.9 million for fiscal year 1998. This increase resulted entirely from an
increase in revenues from the origination and sale of mortgage loans which
increased 16% from $12.6 million for fiscal year 1997 to $14.6 million for
fiscal year 1998. Revenues relating to servicing fees and rights decreased 66%
to $226,338 for fiscal year 1998 from $672,758 for fiscal year 1997 due to the
sale of a portion of the servicing rights.
34
<PAGE>
Total cost of loans increased 12% also from $10.2 million for fiscal year
1997 to $11.4 million for fiscal year 1998. Commissions and brokers' fees
decreased slightly from $8.8 million in fiscal year 1997 to $8.5 million in
fiscal year 1998. Interest paid on the warehouse line of credit to fund
mortgage loans increased slightly from $0.9 million in fiscal year 1997 to $1.2
million in fiscal year 1998. The primary source of the increase in total cost
of loans were fees and costs such as title, escrow, credit and appraisal fees
which increased 209% from $0.5 million for fiscal year 1997 to $1.5 million for
fiscal year 1998. This increase was due to additional costs associated with the
retail telemarketing division. Cost of loan repurchases also increased
significantly by 280% from $69,455 for fiscal year 1997 to $264,253 for fiscal
year 1998. This increase was primarily due to the repurchase of two loans from
one of OWE's investors.
Total general and administrative expenses increased 52% from $2.8 million
for fiscal year 1997 to $4.2 million for fiscal year 1998. Salary, wages and
payroll taxes increased by 52% to $2.4 million for fiscal year 1998 from $1.6
million for fiscal year 1997 and other general and administrative expenses
increased 52% to $1.7 million for fiscal year 1998 from $1.1 million for fiscal
year 1997. Interest expense increased 57% from $38,888 for fiscal year 1997 to
$61,010 for fiscal year 1998.
Total operating expenses increased 21% from $13.0 million for fiscal year
1997 to $15.7 million for fiscal year 1998. This increase was primarily a
result in increases in general and administrative expenses which were
attributable to the additional expenses of operating the retail telemarketing
division.
OWE went from net income of $136,985 for fiscal year 1997 to a net loss of
$808,767 for fiscal year 1998. OWE had a net operating loss of $825,392 in
fiscal year 1998 which was slightly set off by interest and other income of
$17,425 compared to net operating income of $279,361 for fiscal year 1997. The
primary reasons for the loss for fiscal year 1998 were the increased expenses of
the telemarketing division and the repurchase of the two loans.
Liquidity and Capital Resources
--------------------------------
Liquidity is the ability of a company to generate funds to support asset
growth, satisfy disbursement needs, maintain reserve requirements and otherwise
operate on an ongoing basis. If OWE's loan volume increases too rapidly, the
increase could have a severe impact on OWE's liquidity. The warehouse
facilities limit the amount which may be advanced on each loan funded.
Therefore, OWE must use its own cash to fund the additional dollars needed to
close escrow. The cash is not recognized until the loan is sold. Thus, it is
crucial that OWE monitor loan volume closely.
Management has identified certain additional sources of liquidity.
External sources of liquidity lie with financial institutions. OWE currently
has a working line of credit of $100,000. Management believes that OWE has a
strong relationship with that bank and has been discussing increasing the line.
OWE also can sell more of its servicing rights. Management believes that the
current portfolio could generate between $60,000 and $100,000 in additional
funds.
OWE has funded operations through a combination of borrowings and issuance
of preferred stock. Since April 1, 1996, OWE has received proceeds of
$1,636,000 from the issuance of preferred stock, redeemed $595,000 of various
series of its preferred stock and paid dividends on its preferred
35
<PAGE>
stock of $236,060. On the effective date of this registration statement, 2,254
shares of the outstanding preferred stock of OWE were exchanged for 1,073,200
Common Shares of Ocean West.
OWE's primary need for operating capital is to fund mortgage loans upon
closing prior to their eventual delivery to purchasers in the secondary market.
OWE typically funds these loans through its warehouse line of credit. OWE has
two separate credit facilities that will typically fund up to 98% of the
acquisition price (price paid by the purchaser) to a maximum of 100% of the note
amount. The average time between funding a mortgage and the receipt of the
proceeds from the sale of the mortgage was approximately fourteen days during
fiscal 1999.
Net cash used for operating activities for the fiscal year ended March 31,
1999 totaled $2.3 million. OWE used this cash to finance loans held for sale
through the warehouse line of credit. For the six month period ended September
30, 1999, net cash provided by operating activities totaled $11.0 million which
was primarily made up of receivables from loans sold. As loans are purchased by
investors, the amounts advanced for such loans through the warehouse line of
credit are paid. At that time, the receivables are cleared and the cash
deposited in OWE's operating account.
Net cash used in investing activities during fiscal 1999 was $34,205 which
cash was primarily used to purchase property and equipment for $103,016 which
was offset by $61,279 in proceeds from the sale of real property. Cash flows
from investing activities were slight. Net cash provided by investing activities
for the first six months of fiscal 2000 was $8,097 which was attributable to the
collection of notes receivable.
Net cash provided by financing activities for the 1999 fiscal year was $2.3
million which was provided primarily through borrowings under the warehouse line
of credit ($2.0 million). Issuance of long-term debt ($480,500) and issuance of
preferred stock ($370,000) provided additional funds while funds were used to
make payments on long-term debt and capital lease obligations ($164,123), to
redeem preferred stock ($195,000) and pay dividends on preferred stock
($128,610). Net cash used in financing activities for the six months period
ending September 30, 1999 was $11.1 million consisting primarily of repayments
under the warehouse lines of credit ($10.9 million) offset by $183,000 in
proceeds from the issuance of preferred stock and $184,378 from the issuance of
long-term debt. OWE also paid $370,500 on short-term debt and $85,725 in
preferred stock dividends as well as made payments on capital lease obligations
($43,730) and on long-term debt ($64,027).
As of March 31, 1999, OWE had net operating loss carryforwards for Federal
income tax purposes of approximately $253,000 available to reduce future taxable
income, portions of which expire on various dates through 2013. Management
believes that it is more likely than not that OWE will be able to realize the
offsetting deductions prior to expiration.
Interest Rate Risks
- -------------------
The primary market risks that OWE faces are interest rate risks. Interest
rate movements affect the interest expense on OWE's warehouse lines of credit,
the interest income earned on loans held for sale, the value of mortgages held
for sale and the ultimate gain recognized on mortgage loans which are sold. In
a high interest rate environment, borrower demands for mortgage loans,
especially refinancing of existing mortgages, decline. Higher interest rates
may also adversely affect the volume of mortgage loans. In a low interest rate
market, typically one in which the interest rates have
36
<PAGE>
declined sufficiently to make refinancings for lower rates economical, OWE may
incur prepayment penalties when significant number of loans originated by OWE
are refinanced early on the life of the loan to take advantage of lower interest
rates.
OWE protects itself against interest rate risks by pre-selling most loans
to investors prior to funding, locking in rates and returns. The lock period
that OWE gives to the broker/borrower is typically a minimum of five days before
the loan package needs to be delivered to the investor. The loan must be in
"fundable" form when it is delivered to the investor. This means that both the
credit and the collateral packages must be complete. If this is not the case,
which happens rarely, the investor may reprice the loan. In such event, if the
market has deteriorated, OWE has some interest rate risk. In the past,
management has at times used hedging strategies to lessen the risks arising out
of rising and falling interest rates, but is not currently using hedging
strategies due to the complexities involved in hedging and personnel needed to
properly manage it.
Year 2000 Issues
- ----------------
Many currently installed computer systems and software products are coded
to accept only two-digit entries to represent years. For example, the year
"1998" would be represented by "98." When the year 2000 arrives, these systems
and products will need to be able to accept four-digit entries to distinguish
years. As a result, systems and products that do not accept four-digit year
entries will need to be upgraded or replaced. OWE has tested its primary
equipment and either found it to be compliant or upgraded or replaced it. The
cost of compliance was approximately $10,000.
MANAGEMENT
-----------
Executive Officers and Directors of Ocean West and OWE
-------------------------------------------------------
<TABLE>
<CAPTION>
Name Position with Ocean West(1) Position with OWE
- ---------------------- ------------------------------ -----------------------------------
<S> <C> <C>
Marshall L. Stewart President, Chief Executive President, Chief Executive Officer,
Officer, Director Director
Daryl S. Meddings Executive Vice President, Executive Vice President, Chief
Chief Financial Officer, Financial Officer,
Secretary/Treasurer, Director Secretary/Treasurer, Director
Thomas G. Melsheimer Vice President of Operations
Charles H. Finn, Jr. Director
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) All persons listed were appointed to such positions in 2000.
Officers serve at the discretion of the Board of Directors. Directors hold
office until the next annual meeting of shareholders and until their successors
have been elected and accept office.
Marshall J. Stewart, 43, has worked in the mortgage industry since 1982.
-------------------
He was founder of OWE and has been President, a director and an owner of OWE
since 1988. Prior to founding
37
<PAGE>
OWE, from 1986 to 1988, Mr. Stewart was a Vice President of Westport Savings
Bank in Laguna Beach, California. His responsibilities included overseeing the
mortgage banking department, secondary marketing and the Laguna Bank Savings
branch. Prior to joining Westport Savings Bank, from 1984 to 1986, he was
Production Manager of Irvine City Savings in Newport Beach, California and had
the responsibilities of staffing and training the loan origination department
and overseeing production, underwriting, funding, shipping and the sale of
funded loans to institutional investors (primarily FNMA and FHLMC). Mr. Stewart
received his B.A. in English with a minor in Business Administration from
California State University in Fullerton, California in 1980.
Daryl S. Meddings, 35, was also a founder of OWE and has been Executive
-----------------
Vice President, Chief Financial Officer, Secretary/Treasurer and a director and
an owner of OWE since 1988. As CFO at OWE, Mr. Meddings implemented and
monitors OWE's accounting and financial reporting system. Other duties include
budget planning, expense control, commercial banking relationships and oversight
of quality control, loan servicing and loss mitigation. From late 1987 to 1988,
Mr. Meddings was a production manager with Westport Savings Bank in Laguna
Beach, California. His duties included establishing both retail and wholesale
production departments and recruiting, hiring and training mortgage origination
personnel. Prior to that, he began his career in mortgage banking in 1986 as a
loan officer at Pro Mortgage Services in Diamond Bay, California and worked his
way up to top producer at Irvine City Savings in Irvine, California. Mr.
Meddings received his B.S. in Finance, Real Estate and Insurance with a
concentration in Real Estate from California Polytechnical State University-
Pomona in 1987.
Thomas G. Melsheimer, 41, has been with OWE for the past ten years. He is
--------------------
currently Vice President of Operations with the responsibility of supervising
underwriting, funding, shipping and data input and has held that position since
May of 1999. Prior to holding this position, Mr. Melsheimer has been Operations
Manager, Underwriting Manager and Underwriter Processor with OWE. Before
joining OWE, he held positions as senior loan processor and internal auditor
with Coastal Funding Corporation in Irvine, California and as an auditor with
Mission Hills Mortgage in Santa Ana, California. Mr. Melsheimer is currently
working on his broker's license.
Charles H. Finn, Jr., 45, was recently elected a director of Ocean West.
--------------------
He is currently Vice President - Marketing in connection with the origination
and sale of second trust deed loans with Linear Capital Inc. in Long Beach,
California and has held such position since June of 1998. Prior to taking that
position, he was Vice President at Clearview Capital / Argent Capital in
Huntington Beach, California for a little over eight months and managed the sale
of second trust deeds into the secondary market. For the seven months prior to
that, he was Vice President at Classical Financial in Tustin, California and
originated second trust deeds from correspondents nationwide. From 1994 to
1997, he was Senior Vice President at Pioneer Savings and Loan in Irvine,
California and supervised the loan department. From 1989 to 1994, Mr. Finn was
Senior Vice President of Renet Financial in Anaheim, California and managed the
Mortgage Banking Division. Mr. Finn received his B.A. in Economics from U.C.
Berkeley in 1976.
38
<PAGE>
Executive Compensation
- ----------------------
The following table sets forth the compensation of the President (the Chief
Executive Officer) and the Executive Vice President (the Chief Financial
Officer) for the fiscal years ending March 31, 1999, 1998 and 1997. Ocean West
has not paid any compensation.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Other Annual
Principal Position Year Salary ($) Bonus ($) Compensation ($) (1)
- ------------------------------------- ---- ---------- --------- --------------------
<S> <C> <C> <C> <C>
Marshall L. Stewart, President, 1999 171,250 0 0
Chief Executive Officer 1998 175,872 0 0
1997 186,010 0 0
Daryl Meddings, Executive Vice 1999 171,250 0 0
President, Chief Financial Officer 1998 181,000 0 0
1997 180,544 0 0
- ----------------------------------------------------------------------------------------
</TABLE>
OWE has entered into substantially identical employment agreements with
Marshall Stewart (with initial duties as President) and Daryl Meddings (with
initial duties as Executive Vice President, CFO), the primary shareholders of
Ocean West. The term of each agreement is five years beginning on October 1,
1999. OWE may terminate the agreement for "just cause" or if it ceases
operations; the employees may terminate the agreement on thirty days notice.
Each employee is entitled to a base annual salary of $300,000 with amounts not
paid to be considered deferred compensation.
In addition, OWE has agreed to create an Officers Deferred Compensation
Account for each of them. Each is entitled to receive an amount equal to 20% of
OWE net profit before taxes each year. The employee is entitled to such amounts
annually or within thirty days of termination of employment.
Compensation Committee Interlocks and Insider Participation in Compensation
- ---------------------------------------------------------------------------
Decisions
- ---------
For all years referenced in the Summary Compensation Table, the two
shareholders of OWE, Mark Stewart and Daryl Meddings, determined executive
compensation. Ocean West has not paid any compensation to date.
Certain Transactions
- --------------------
Management believes that all of the transactions listed below are at least
as fair as a similar transaction with an unaffiliated third party would have
been.
Douglas M. Sharp, an employee of OWE and an agent of Agape Foundation Trust
which benefits his children and which is a 5% or greater shareholder, purchased
real estate from OWE which OWE received as a result of a default on a loan in
March of 1998. The property was purchased with
39
<PAGE>
a note with original principal amount of $375,000 which matures in April 2005
and bears interest at 7.5% per annum. Interest is payable monthly and principal
at maturity of the note.
In November 1996, OWE redeemed the issued and outstanding shares of its
Series B Preferred Stock for $400,000 in cash, $200,000 in promissory notes and
a guaranteed two year consulting agreement under which the former shareholder
was entitled to receive consulting fees of $6,000 per month. A total of
$144,000 in consulting fees were paid over the two year term of the agreement
which ended in November 1998.
In connection with the issuance of 1,500 shares of Series D Preferred Stock
in 1997, OWE entered into a consulting agreement with the purchaser of the
shares. Under the agreement, the shareholder is entitled to consulting fees in
the amount of $6,000 per month. The agreement expires upon the redemption of
the shares by OWE. Consulting fees totaling $72,000 were paid under this
agreement in fiscal 1999.
PRINCIPAL AND SELLING SHAREHOLDERS
-----------------------------------
Management and 5% or Greater Shareholders
- ------------------------------------------
The following table sets forth information with respect to ownership of
issued and outstanding stock and warrants of Ocean West by management and 5% or
greater shareholders as of the date hereof:
<TABLE>
<CAPTION>
Total Number of Percent Number of Percent
Securities Owned of Registered After
Name and Address Title of Class Beneficially Class (1) Shares Sale (2)
- ---------------------------- --------------------- ------------ ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Daryl Meddings (3) Common Shares 2,264,000 36% 539,000 28%
21791 Via del Lago Class B Common Shares 108,000 45% (4) (4)
Trabuco, CA
Marshall L. Stewart (5) Common Shares 2,252,000 36% 536,000 28%
21372 Brookhurst St., #515 Class B Common Shares 108,000 45% (4) (4)
Huntington Beach, CA
Agape Foundation Common Shares 907,200 15% 253,200 11%
Trust (6) Class B Common Shares 24,000 10% (4) (4)
607 S. Pathfinder Trail
Anaheim, CA
Cheyenne Properties, Inc. Common Shares 480,000 8% 480,000 0%
219 N.E. 100/th/ Avenue
Portland, OR
Total number of shares Common Shares 4,516,000 71% 1,075,000 54%
owned by directors and Class B Common Shares 216,000 90% (4) (4)
executive officers as a
group (7)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
(1) The percentage calculation does not include Common Shares which may be
issued upon the exercise of the warrants or any outstanding employee stock
options.
(2) This is the percent of class of the shares held by Selling Shareholders
assuming all shares offered are sold and no warrants are exercised.
(3) The number of Common Shares listed as beneficially owned by Mr. Meddings
includes the 108,000 Common Shares which Mr. Meddings would receive if he
converted his Class B Common Shares to Common Shares.
(4) No Class B Common Shares will be registered or available for public sale by
Selling Shareholders.
(5) The number of Common Shares listed as beneficially owned by Mr. Stewart
includes the 108,000 Common Shares which Mr. Stewart would receive if he
converted his Class B Common Shares to Common Shares.
(6) The number of shares beneficially listed as owned by Agape Foundation Trust
includes the 24,000 Common Shares which the Trust would receive if it
converted its Class B Common Shares to Common Shares. Agape Foundation
Trust was established by Douglas M. Sharp, an employee of OWE, for the
benefit of his children.
(7) The number of Common Shares beneficially owned by officers and directors as
a group includes the 108,000 Common Shares which Mr. Meddings would receive
if he converted his Class B Common Shares to Common Shares and the 108,000
Common Shares which Mr. Stewart would receive if he converted his Class B
Common Shares to Common Shares.
Other Selling Shareholders
- --------------------------
The following table sets forth information with respect to ownership of
Ocean West by Selling Shareholders who are not part of management and hold less
than 5% of the issued and outstanding shares of any class as of the date hereof.
<TABLE>
<CAPTION>
Total Number of Percent Number of Percent
Securities Owned of Registered After
Name and Address Title of Class Beneficially Class (1) Securities Sale
- ------------------------- --------------------- ------------- --------- ---------- ----
<S> <C> <C> <C> <C> <C>
Joseph Walker & Sons Common Shares 88,800 2% 88,800 0%
88 Walker Creek Road
Walker, WV(2)
Monogenesis Corp. (3) Common Shares 131,600 2% 131,600 0%
88 Walker Creek Road Common Stock 85,600 9% 85,600 0%
Walker, WV Purchase
Warrants
Ronald C. and Judy M. Common Shares 40,000 * 40,000 0%
Meddings (4)
8271 Simerdale Lane
LaPalma, CA
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Total Number of Percent Number of Percent
Securities Owned of Registered After
Name and Address Title of Class Beneficially Class (1) Securities Sale
- ------------------------- --------------------- ------------- --------- ---------- ----
<S> <C> <C> <C> <C> <C>
Kingsley and Nancy Common Shares 24,000 * 24,000 0%
Cannon
1193 Mountainside Trace
Kennesaw, GA
Jennifer Ericson Common Shares 10,000 * 10,000 0%
601 Vista Bonita
Newport Beach, CA
- ------------------------------------------------------------------------------------------------------
</TABLE>
*less than 1%
(1) Except for the calculation relating to Common Shares beneficially owned by
Monogenesis, the percentage calculation does not include any Common Shares
which may be issued upon the exercise of the warrants or any outstanding
employee stock options.
(2) Joseph Walker and Sons, Inc. ("JWSI") began providing consulting services
to OWE in October of 1998. JWSI acted and acts as a business financial
development advisor to OWE in connection with the formation of Ocean West
and other matters. JWSI received its fee in warrants to purchase stock
equal to 2% of the stock of OWE outstanding. JWSI is entitled to exercise
the warrants at a price of $48,000 or approximately $0.54 per share of
Ocean West at any time before January 1, 2010. The value of the warrants
less the exercise price ($45,240) was recorded as an expense in fiscal year
____. JWSI exchanged the warrants for 88,800 Common Shares which
constitute approximately 1% of the total issued and outstanding Common
Shares. (By agreement with OWE, JWSI converted all Class B Common Shares
it was entitled to receive under its warrants to Common Shares.)
(3) The number of Common Shares listed as beneficially owned by Monogenesis
Corporation includes the 85,600 Common Shares which Monogenesis Corporation
would receive if it exercised its warrants.
(4) Ronald C. and Judy M. Meddings are the parents of Daryl Meddings, the Chief
Financial Officer of Ocean West.
SECURITIES
-----------
Description of Capital Stock
- ----------------------------
Common Shares. Ocean West is authorized to issue 30,000,000 Common
-------------
Shares, par value $.01 per share, of which 6,126,000 shares were issued and
outstanding as of the date of this prospectus. There will be approximately
________ holders of the issued and outstanding Common Shares after the
distribution. However, Mark Stewart and Daryl Meddings currently own 70% of the
issued and outstanding Common Shares and together with their ownership of 90% of
the Class B Common Shares control Ocean West.
42
<PAGE>
With respect to the election of directors, holders of Common Shares
(together with holders of Class D Common Shares and of any Preferred Shares with
voting rights) voting as a separate class are entitled to elect 25% of the
members of the Board of Directors of Ocean West. Holders of Class B Common
Shares are entitled to elect the remaining directors. If, on the record date
for any shareholders' meeting at which directors are to be elected, the number
of issued and outstanding Common Shares, Class D Common Shares and voting
Preferred Shares is less than 10% of the aggregate number of issued and
outstanding voting shares of all classes, all directors will be elected by the
holders of all voting shares voting together.
The holders of Common Shares are generally entitled to one vote per share
on all entitled matters including the election of directors. Except with
respect to certain exchange listed shares, California law generally requires
that corporations domiciled there allow holders of common shares to cumulate
votes for the election of directors and to give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of votes
to which the shares are normally entitled or to distribute such votes on the
same principle among as many candidates as the shareholder determines. However,
no shareholder may cumulate votes unless a candidate has been nominated prior to
voting and the shareholder has given notice at the meeting, prior to the voting,
of such shareholder's intention to cumulate votes. Under Ocean West's Bylaws,
Ocean West is only required to allow for cumulative voting as long as required
under California law.
The holders of Common Shares have a noncumulative $.05 per share annual
dividend preference over non-stock dividends paid on Class B Common Shares
(described below) from funds legally available for dividends when, as and if
declared by the Board of Directors. In addition, holders of Class B Common
Shares may not receive any dividends unless holders of Common Shares receive a
dividend per share at least equal to the dividend per share paid to holders of
Class B Common Shares. Stock dividends may only be paid to holders of Common
Shares in Common Shares and only if the same number of Class B Common Shares
will be paid with respect to each outstanding Class B Common Share. The payment
of dividends may also be subject to preferential or identical rights, if any, of
the holders of other outstanding securities, such as Preferred Shares and are
currently subject to the preferential dividend rights of the issued and
outstanding Preferred Shares. Common Shares or Class B Common Shares may not be
combined or subdivided without at the same time making a proportionate
combination or subdivision of the shares of the other of such classes.
Holders of Common Shares are also entitled to share ratably in all of the
assets of Ocean West available for distribution to holders of common shares
(including Class B Common Shares and Class D Common Shares) upon liquidation,
dissolution or winding up, subject to the preference of holders of Common
Shares, but only to the extent of the par value of the Common Shares ($0.01 per
share), and subject to any preferential rights of the holders of any other
outstanding securities, such as Preferred Shares and to the stated value of the
issued and outstanding Preferred Shares. Common Shares do not have preemptive,
subscription or conversion rights and are not subject to call or redemption
(there are no applicable sinking fund provisions). All Common Shares now
outstanding are fully paid and nonassessable.
Class B Common Shares. In addition to Common Shares, Ocean West is
---------------------
authorized to issue 5,000,000 Class B Common Shares, $.01 par value per share,
of which 240,000 shares were issued and outstanding as of the date hereof.
There are three holders of Class B Common Shares. Holders
43
<PAGE>
of Class B Common Shares have the right to one noncumulative vote per share on
all matters on which they are entitled to vote.
For the election of directors, the holders of a majority of Class B Common
Shares are entitled to elect 75% of the members of the Board of Directors. If,
on the record date for any shareholders' meeting at which directors are to be
elected, the number of issued and outstanding Common Shares, Class D Common
Shares and voting Preferred Shares is less than 10% of the aggregate number of
issued and outstanding voting shares of all classes, all directors will be
elected by the holders of all voting shares voting together. If more than 90%
of the aggregate number of issued and outstanding Common Shares, Class B Common
Shares, Class D Common Shares and voting Preferred Shares are Class B Common
Shares, the holders of a majority of Class B Common Shares will in practice be
able to elect all of the members of the Board of Directors. Holders of Class B
Common Shares have the same cumulative voting rights as holders of Common
Shares.
Holders of Class B Common Shares are entitled to receive dividends when, as
and if declared subject to a non-cumulative $.05 per share annual dividend
preference on each Common Share. In addition, holders of Class B Common Shares
may not receive any dividend unless holders of Common Shares receive a dividend
per share at least equal to the dividend per share paid to holders of Class B
Common Shares. Stock dividends may only be paid to holders of Class B Common
Shares in Class B Common Shares and may only be paid in shares at all if the
same number of Common Shares will be paid with respect to each outstanding
Common Share. The payment of dividends may also be subject to preferential or
identical rights, if any, of the holders of other outstanding securities, such
as Preferred Shares and are subject to the preferential dividend rights of the
issued and outstanding Preferred Shares.
Holders of Class B Common Shares are also entitled to share ratably in all
of the assets of Ocean West available for distribution to holders of its common
shares (including Common Shares and Class D Common Shares) upon liquidation,
dissolution or winding up, subject to the preference of holders of Common
Shares, but only to the extent of the par value of such Common Shares, and
subject to any preferential rights of other shareholders, such as holders of
Preferred Shares to the extent of stated value. Holders of Class B Common
Shares have preemptive rights only as to Class B Common Shares. Class B Common
Shares are not subject to call or redemption (there are no applicable sinking
fund provisions). All Class B Common Shares now outstanding are fully paid and
nonassessable.
In addition, the Board of Directors must seek the approval of a majority of
the holders of Class B Common Shares to grant rights to subscribe for, purchase
or issue shares of authorized and unissued Class B Common Shares. Common Shares
or Class B Common Shares may not be combined or subdivided without at the same
time making a proportionate combination or subdivision of the shares of the
other of such classes. Each share may also be converted into one Common Share
at any time at the option of the holder.
At this time, 90% of the issued and outstanding Class B Common Shares are
owned by Mark Stewart and Daryl Meddings. The holders of Class B Common Shares
elect 75% of the directors and therefore Mr. Stewart and Mr. Meddings control
Ocean West. In addition, Mr. Stewart and Mr. Meddings hold 70% of the issued
and outstanding Common Shares by which ownership they control decisions by
holders of Common Shares as well.
44
<PAGE>
Class D Common Shares. Class D Common Shares are a convertible security
---------------------
created in order to secure highly motivated executive personnel for Ocean West
and its subsidiaries and take the place of compensation stock options, although
Ocean West remains authorized to issue stock options and has established an
equity incentive plan. There are 600,000 Class D Common Shares authorized at
$.01 par value per share. Class D Common Shares are identical to Common Shares
and have equal rights and privileges with Common Shares except as described
below. Class D Common Shares are nontransferable. The Board of Directors, by
resolution, may authorize the issuance of Class D Common Shares; provided that,
each such resolution contains a formula under which the shares may be converted
to Common Shares. In no case may the Board of Directors set any conversion
rights which could result in the issuance of more than ten Common Shares for
each Class D Common Share. At the close of business on the fifth anniversary of
the date of a resolution authorizing the issuance of any Class D Common Shares,
such issued and outstanding but unconverted shares will be deemed to have been
converted at the rate of one Common Share for each such Class D Common Share.
There are no issued and outstanding Class D Common Shares as of the date of this
prospectus.
Preferred Shares. The Board of Directors of Ocean West, by resolution, has
----------------
the authority to issue, in one or more series, up to 10,000,000 Preferred
Shares. Such shares will have such preferences, rights and limitations as are
established by the Board of Directors except that the voting rights, if any, of
one Preferred Share may not exceed the voting rights of one Common Share. Six
Series of Preferred Shares have been created with a total of 4,929 Preferred
Shares issued and outstanding as of the date of this prospectus. So long as the
Preferred Shares are outstanding, Ocean West may not, without the approval of
the holders of two-thirds of the outstanding shares of each series, amend the
Certificate of Incorporation of Ocean West in such a way as to: (i) alter or
change any rights of, or adversely affect, the holders of a series; (ii)
increase the authorized number of shares of a series; or (iii) transfer, lease
or encumber all or substantially all of the assets of the company. The
outstanding Preferred Shares have the same voting rights as the Common Shares
(including cumulative voting rights).
There are 1,000 Series C Preferred Shares which are issued and outstanding
held by one person. The shares are redeemable by Ocean West at any time for the
investment amount ($100,000) plus an amount representing an annual rate of
return of 12% on the investment less any amounts paid as dividends on the
shares. The holder of the shares has a liquidation preference in the same
amount.
Ocean West has 680 Series E Preferred Shares held jointly in one account
which are issued and outstanding and which were sold for $250 per share. Each
of the shares is entitled to cumulative annual dividends of $45 (18% of $250)
payable in equal monthly installments. The holders have a liquidation
preference over holders of all shares except earlier series of Preferred Shares
in an amount equal to the purchase price of the shares plus any unpaid
dividends. Ocean West may redeem the shares at any time upon payment of the
original purchase price plus any unpaid dividends. The holder must give Ocean
West notice of any intent to transfer the shares and Ocean West has the right of
first refusal to purchase at the lesser of the offered price and terms or the
redemption price and terms.
Ocean West also has issued and outstanding 1,050 Series F Preferred Shares,
2,000 Series G Preferred Shares, 125 Series I Preferred Shares and 74 Series L
Preferred Shares. There is only one holder of each series. All of the listed
series have the same terms as Series E except for the purchase price and
dividend amounts which are as follows: Series F - purchase price $100 per share,
45
<PAGE>
cumulative annual dividend $14 (14% of $100); Series G - purchase price $100 per
share, cumulative annual dividend $24 (24% of $100); Series I - purchase price
$100 per share, annual cumulative dividend of $15 (15% of $100); and Series L -
purchase price $1,000 per share, cumulative annual dividend of $120 (12% of
$1,000).
Common Stock Purchase Warrants. Ocean West has issued and outstanding
------------------------------
1,000,000 Common Stock Purchase Warrants, each warrant entitling the holder to
purchase one Common Share. There are approximately ____ holders of the
warrants. The warrants may be exercised at any time during the 18 month period
beginning on the date of this prospectus at an exercise price of $8.00 per
share, subject to adjustment, by surrendering the warrant to the Warrant Agent
with the subscription properly completed and executed with payment of the
exercise price. No fractional Common Shares will be issued in connection with
the exercise of warrants. Ocean West has no right to call the warrants.
If a holder of warrants fails to exercise the warrants prior to their
expiration, the warrants will expire and the holder will have no further rights
with respect to the warrants. If a market for the warrants develops, the holder
may sell the warrants instead of exercising them. There can be no assurance
that a market for the warrants will develop or continue. If Ocean West is
unable to qualify the Common Shares underlying the warrants for sale (or the
shares are exempt from qualification) under the securities laws of the states in
which the various holders of the warrants then reside, holders of the warrants
may have no choice but to let the warrants expire.
A holder of warrants will not have any rights or privileges of a
shareholder prior to exercise of such warrants. Ocean West will keep available
a sufficient number of authorized Common Shares to permit exercise of the
warrants. The exercise price of the warrants and the number of shares issuable
upon exercise of the warrants will be subject to adjustment in the event of
stock dividends, stock splits, combinations, reorganizations, subdivisions and
reclassifications. No assurance can be given that the market price of Ocean
West's Common Shares will exceed the exercise price at any time during the term
of the warrants.
The warrants were issued pursuant to a Warrant Agreement between Ocean West
and Reliance Trust Company (the "Warrant Agent"). All descriptions of the
warrants are qualified in their entirety by reference to the Warrant Agreement
which is included as an exhibit to the Registration Statement of which this
Prospectus is a part.
Transfer Agent, Registrar and Warrant Agent
- -------------------------------------------
The transfer agent and registrar for the Common Shares and the Warrant
Agent is Reliance Trust Company, 3384 Peachtree Road NE, Suite 900, Atlanta,
Georgia 30326-1106.
46
<PAGE>
DIVIDENDS
----------
Ocean West has not paid any dividends and must receive funds from OWE in
order to pay dividends. In addition, OWE historically has only paid dividends
on preferred shares. In its warehouse line of credit OWE agreed not to pay any
dividends in excess of OWE's net income. There is no guarantee that OWE, and
therefore Ocean West, will pay dividends in the future and payment of dividends
on Common Shares will not occur, if at all, until the dividend preferences of
outstanding Preferred Shares are satisfied.
LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS
----------------------
Officers and directors of Ocean West are covered by certain provisions of
the Delaware General Corporation Law and the Certificate of Incorporation and
Bylaws of Ocean West, which serve to limit, and, in certain instances, to
indemnify them against, certain liabilities which they may incur in such
capacities.
Elimination of Liability in Certain Circumstances
- -------------------------------------------------
Both Delaware and California have enacted legislation which authorizes
corporations to limit or eliminate the personal liability of directors to
corporations and their shareholders for monetary damages for breach of a
director's fiduciary duty of care. The duty of care requires that, when acting
on behalf of the corporation, directors must exercise an informed business
judgment based on all material information reasonably available to them. Absent
the limitations authorized by the legislation, directors are accountable to
corporations and their shareholders for monetary damages for conduct
constituting negligence or gross negligence in the exercise of their duty of
care. Although the statute does not change directors' duty of care, it enables
corporations to limit available relief to equitable remedies such as injunction
or rescission by including certain provisions in its Certificate of
Incorporation.
Ocean West's Certificate of Incorporation limits the liability of its
directors to the corporation or its shareholders (in their capacity as
directors, but not in their capacity as officers) to the fullest extent
permitted by the legislation. Specifically, the directors of Ocean West will
not be personally liable for monetary damages for breach of director's fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to Ocean West or its shareholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing and
culpable violation of law, (iii) for acts or omissions that a director believes
to be contrary to the best interests of Ocean West or its shareholders or that
involve the absence of good faith on the part of the director, (iv) for unlawful
payments of dividends or making of a distribution or unlawful stock repurchases
or redemptions, (v) for any transaction from which the director derived an
improper personal benefit, (vi) for acts or omissions that show a reckless
disregard for the director's duty to Ocean West or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing his duties, of a risk of services injury to Ocean
West or its shareholders, or (vii) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to Ocean West or its shareholders.
47
<PAGE>
Indemnification
- ---------------
Ocean West's Certificate of Incorporation provides that Ocean West
indemnify any and all of its directors or officers or former directors or
officers or any person who may have served at its request as a director or
officer of another corporation in which it owns shares of capital stock or of
which it is a creditor against expenses actually and necessarily incurred by
them in connection with the defense of any action, suit or proceeding in which
they, or any of them, are made parties, or a party, by reason of being or having
been directors or officers of Ocean West, or of such other corporation, to the
fullest extent permitted under California or other law, except in relation to
matters as to which any such director or officer or former director or officer
or person shall be adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of duty or for which the exclusion
of personal liability of directors for monetary damage described above is not
available.
The indemnification and advancement of expenses provided by or granted
pursuant to Ocean West's Bylaws are not exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any Bylaw, agreement, contract, vote of shareholders or disinterested directors
or otherwise, both as to action in official capacity and as to action in another
capacity while holding such office, it being Ocean West's policy that
indemnification of the persons specified in the Bylaws shall be made to the
fullest extent permitted by law. The indemnification and advancement of
expenses provided by, or granted pursuant to Ocean West's Bylaws shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling Ocean West pursuant
to the foregoing provisions, Ocean West has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1933 Act and is therefore unenforceable.
AVAILABLE INFORMATION
----------------------
Ocean West will furnish annual reports containing audited financial
statements to its shareholders. Additional unaudited reports may be provided to
shareholders at such time as Ocean West may determine or as required by law.
Ocean West also expects to be subject to the reporting requirements of the
Securities Exchange Act of 1934.
Ocean West has filed a registration statement on Form S-1 under the 1933
Act with the Securities and Exchange Commission (the "SEC") in Washington, D.C.
The Prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement as filed
including the exhibits thereto. The registration statement may be reviewed and
copied at the Public Reference Room of the SEC located at 450 Fifth Street,
N.W., Washington, D.C. 20549. The public may obtain information about the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, Ocean West is an electronic filer. The SEC maintains an Internet site
which contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of that
site is http://www.sec.gov. Statements made in this Prospectus as to the
-------------------
contents of any contract or other
48
<PAGE>
document are not necessarily complete, and, where such contract or other
document has been filed as an exhibit to the registration statement, reference
is hereby made to such exhibit and each such statement is qualified in all
respects by such reference.
LEGAL MATTERS
--------------
Ocean West has been advised with respect to certain legal aspects of the
offering by Ogden Newell & Welch, 1700 Citizens Plaza, 500 West Jefferson,
Louisville, Kentucky 40202-2874.
EXPERTS
--------
The financial statements of OWE as of March 31, 1999 and 1998 and each of
the three years in the period ended March 31, 1999 and the financial statements
of Ocean West as of ________, 2000 and for the period from its inception
(___________, 2000) to ________, 2000, included in this Prospectus and elsewhere
in the Registration Statement, have been included herein in reliance on the
reports of Corbin & Wertz, certified public accountants, given on the authority
of that firm as experts in accounting and auditing.
The appraised value of the shares of stock of Ocean West based on the
September 30, 1999 financial statements and assuming the acquisition of OWE by
Ocean West Holding Corporation (as described herein), included in this
Prospectus and elsewhere in the Registration Statement, have been included in
reliance on the valuation prepared by Norman Jones Enlow & Co., Certified Public
Accountants & Management Consultants, given on the authority of that firm as
experts.
49
<PAGE>
FINANCIAL STATEMENTS
---------------------
TABLE OF CONTENTS
-----------------
Ocean West Enterprises, Inc.
Six Months Ended September 30, 1999 and 1998
Years Ended March 31, 1999, 1998 and 1997
Ocean West Holding Corporation
For the Period ____________, 2000 (inception) through ________, 2000
<TABLE>
<CAPTION>
Ocean West Enterprises, Inc. Page
- ---------------------------- ------
<S> <C>
Balance Sheet - September 30, 1999...........................................................F - 1
Statements of Operations - For the six months ended September 30, 1999 and 1998..............F - 3
Statements of Cash Flows - For the six months ended September 30, 1999 and 1998..............F - 4
Notes to Financial Statements................................................................F - 5
Independent Auditors' Report.................................................................F - 6
Balance Sheets - March 31, 1999 and 1998.....................................................F - 7
Statements of Operations - For each of the three years in the period ended March 31, 1999....F - 9
Statements of Stockholders' Equity - For each of the three years in the period ended
March 31, 1999..............................................................................F - 10
Statements of Cash Flows - For each of the three years in the period ended March 31, 1999....F - 14
Notes to Financial Statements................................................................F - 16
Ocean West Holding Corporation
- ------------------------------
Independent Auditors' Report.................................................................F - 39
Balance Sheet - ________, 2000...............................................................F - 40
Statement of Operations and Accumulated Deficit - For the period ___________, 2000
(inception) through ________, 2000..........................................................F - 41
Statement of Cash Flows - For the period _____________, 2000 (inception)
through ________, 2000......................................................................F - 42
Notes to Financial Statements................................................................F - 43
Pro Forma Balance Sheet and Statement of Operations..........................................F - __
</TABLE>
50
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
BALANCE SHEET (Unaudited)
As of September 30, 1999
- -------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 176,493
Restricted cash 159,154
Mortgage loans held for sale 8,359,128
Receivable from loans sold 66,484
Current portion of notes receivable 99,718
Other current assets 146,365
-----------
Total current assets 9,007,342
-----------
Property and equipment, net 473,721
-----------
Other assets:
Originated mortgage servicing rights 65,036
Property held for sale 410,144
Notes receivable, less current portion 185,598
Deferred income taxes 243,109
Deposits 107,595
-----------
Total other assets 1,011,482
-----------
$10,492,545
===========
Continued
F-1
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
BALANCE SHEET (Unaudited) - CONTINUED
As of September 30, 1999
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $1,001,248
Current portion of capital lease obligations 44,514
Borrowings under line of credit 97,067
Borrowings under warehouse lines of credit 7,872,111
----------
Total current liabilities 9,014,940
Long-term debt, net of current maturities 616,171
Capital lease obligations, net of current portion 192,707
----------
Total liabilities 9,823,818
----------
Stockholders' equity:
Preferred stock, no par value; 50,000 shares authorized:
Series C, 1,000 shares issued and outstanding 100,000
Series D, 1,500 shares issued and outstanding 600,000
Series E, 1,200 shares issued and outstanding 300,000
Series F, 1,250 shares issued and outstanding 125,000
Series G, 2,000 shares issued and outstanding 200,000
Series I, 550 shares issued and outstanding 55,000
Series K, 1,000 shares issued and outstanding 120,000
Series L, 183 shares issued and outstanding 183,000
Common stock, no par value; 100,000 shares
authorized; 30,000 shares issued and outstanding 73,348
Accumulated deficit (1,087,621)
-----------
Total stockholders' equity 668,727
-----------
$10,492,545
===========
See accompanying notes to financial statements
F-2
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
STATEMENTS OF OPERATIONS (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
September 30, 1999 September 30, 1998
------------------- -------------------
<S> <C> <C>
Net revenues $7,843,688 $11,167,599
Cost of loans 6,201,861 8,393,512
General and administrative expenses 1,890,342 2,790,221
---------- -----------
Net loss from operations (248,515) (16,134)
Other (expense) income (5,683) 220,766
---------- -----------
Net (loss) income $ (254,198) $ 204,632
========== ===========
Basic and diluted net (loss) income available $(11.33) $6.76
========== ===========
to common shareholders per common share
Basic and diluted weighted average common 30,000 30,000
========== ===========
shares outstanding
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
STATEMENTS OF CASH FLOWS (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
September 30, 1999 September 30, 1998
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (254,198) $ 204,632
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 23,191 36,358
Gain on the origination of mortgage servicing rights (1,035) (10,985)
Deferred income taxes 0 (256,831)
Gain on sale of property 117,468 0
Changes in operating assets and liabilities:
Restricted cash (117,544) 0
Mortgage loans held for sale (3,795,715) (1,230,001)
Receivable from loans sold 14,846,544 22,492
Other current assets 122,661 (82,590)
Deposits 0 (50,573)
Accounts payable and accrued expenses 95,518 95,817
------------ -----------
Net cash provided by (used in) operating activities 11,036,890 (1,271,681)
------------ -----------
Cash flows from investing activities:
Collection of notes receivable 13,851 5,080
Purchases of property and equipment (5,754) (28,041)
Purchases of property held for sale 0 (311,144)
------------ -----------
Net cash provided by (used in) investing activities 8,097 (334,105)
------------ -----------
Cash flows from financing activities:
Net borrowings under bank line of credit (99) (59)
Net (repayments) borrowings under warehouse lines of credit (10,889,183) 1,149,111
Issuance of long-term debt 184,378 196,360
Principal repayments on long-term debt (64,027) (309,689)
Principal repayments on short-term debt (370,500) 0
Payments on capital lease obligations (43,730) (11,421)
Proceeds from issuance of preferred stock 183,000 415,000
Preferred stock dividends (85,725) (51,917)
------------ -----------
Net cash (used in) provided by financing activities (11,085,886) 1,387,385
------------ -----------
Net decrease in cash and cash equivalents (40,899) (218,401)
Cash and cash equivalents at beginning of period 217,392 185,078
------------ -----------
Cash and cash equivalents at end of period $ 176,493 $ (33,323)
============ ===========
Supplemental disclosure of cash flow information --
Cash paid during the period for:
Interest $ 469,320 $ 650,912
Income taxes $ 800 $ 800
Supplemental schedule of non--cash investing activities:
During the period ending September 30, 1999, the Company incurred capital lease obligations in the amount of $219,439 for
the purchase of property and equipment.
See accompanying notes to financial statements
</TABLE>
F-4
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS (Unaudited)
September 30, 1999
- -------------------------------------------------------------------------------
NOTE 1 - MANAGEMENT'S REPRESENTATION
- ------------------------------------
The management of Ocean West Enterprises, Inc. (the "Company" or "OWE") without
audit has prepared the financial statements included herein. Certain
information and note disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. In the opinion of the management of the Company, all adjustments
considered necessary for fair presentation of the financial statements have been
included and were of a normal recurring nature, and the accompanying financial
statements present fairly the financial position as of September 30, 1999, the
results of operations for the six months ended September 30, 1999 and 1998, and
cash flows for the six months ended September 30, 1999 and 1998.
It is suggested that these financial statements be read in conjunction with the
OWE audited financial statements and notes for the period ending March 31, 1999.
The interim results are not necessarily indicative of the results for a full
year.
NOTE 2 - PREFERRED STOCK ISSUANCES
- ----------------------------------
During the period ended September 30, 1999, the Company issued 241 shares of
Series L preferred stock in exchange for $241,000 and redeemed 58 shares of
Series L preferred stock in exchange for $58,000.
During the period ended September 30, 1999, the Company paid preferred stock
dividends of $85,725 based on preferred stock agreements.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Board of Directors
Ocean West Enterprises, Inc.
dba Ocean West Funding
We have audited the accompanying balance sheets of Ocean West Enterprises, Inc.
dba Ocean West Funding (the "Company") as of March 31, 1999 and 1998, and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended March 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ocean West Enterprises, Inc.
dba Ocean West Funding as of March 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1999 in conformity with generally accepted accounting principles.
CORBIN & WERTZ
Irvine, California
June 11, 1999
F-6
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
BALANCE SHEETS
As of March 31, 1999 and 1998
- -------------------------------------------------------------------------------
ASSETS 1999 1998
---------- -----------
Current assets:
Cash and cash equivalents $ 217,392 $ 185,078
Restricted cash 41,610 -
Mortgage loans held for sale 4,563,413 17,172,652
Receivable from loans sold 14,913,028 -
Current portion of notes receivable 97,709 15,105
Other current assets 269,025 224,200
----------- -----------
Total current assets 20,102,177 17,597,035
----------- -----------
Property and equipment, net 414,317 336,873
----------- -----------
Other assets:
Originated mortgage servicing rights 70,571 67,304
Property held for sale 410,144 944,500
Notes receivable, less current portion 173,756 96,117
Deferred income taxes 242,234 -
Deposits 108,470 126,753
----------- -----------
Total other assets 1,005,175 1,234,674
----------- -----------
$21,521,669 $19,168,582
=========== ===========
Continued
F-7
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
BALANCE SHEETS - CONTINUED
As of March 31, 1999 and 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
----------- -----------
Current liabilities:
<S> <C> <C>
Accounts payable and accrued expenses $ 908,111 $ 838,853
Current maturities of long-term debt 458,042 301,934
Current portion of capital lease obligations 48,539 22,507
Borrowings under line of credit 97,165 96,758
Borrowings under warehouse lines of credit 18,761,294 16,792,260
----------- -----------
Total current liabilities 20,273,151 18,052,312
Long-term debt, net of current maturities 408,278 843,981
Capital lease obligations, net of current portion 13,141 33,215
----------- -----------
Total liabilities 20,694,570 18,929,508
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value; 50,000 shares authorized:
Series C, 1,000 shares issued and outstanding 100,000 100,000
Series D, 1,500 shares issued and outstanding 600,000 600,000
Series E, 1,200 shares issued and outstanding 300,000 300,000
Series F, 1,250 shares issued and outstanding 125,000 125,000
Series G, 2,000 shares issued and outstanding 200,000 -
Series I, 550 shares issued and outstanding 55,000 -
Series K, 1,000 shares issued and outstanding 120,000 -
Series L, no shares issued and outstanding - -
Common stock, no par value; 100,000 shares
authorized; 30,000 shares issued and outstanding 73,348 73,348
Accumulated deficit (746,249) (959,274)
----------- -----------
Total stockholders' equity 827,099 239,074
----------- -----------
$21,521,669 $19,168,582
=========== ===========
See independent auditors' report and accompanying notes to financial statements
</TABLE>
F-8
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
STATEMENTS OF OPERATIONS
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
Revenues:
<S> <C> <C> <C>
Revenue from origination and sale of mortgage loans $17,904,513 $14,625,209 $12,590,669
Servicing fees, net 5,924 21,615 166,469
Gain on origination of mortgage servicing rights 17,105 49,283 224,840
Gain on sale of mortgage servicing rights - 155,440 281,449
----------- ----------- -----------
Total revenues 17,927,542 14,851,547 13,263,427
----------- ----------- -----------
Operating expenses:
Cost of loans:
Commissions and broker's fees 9,072,042 8,456,971 8,758,604
Interest on warehouse line 1,115,304 1,187,087 875,553
Fees and costs 2,965,502 1,529,209 494,956
Cost of loan repurchases 109,493 264,253 69,455
----------- ----------- -----------
Total cost of loans 13,262,341 11,437,520 10,198,568
----------- ----------- -----------
General and administrative expenses:
Interest expense 149,172 61,010 38,888
Other general and administrative expenses 1,668,094 1,743,110 1,146,080
Salaries and wages 2,672,109 2,201,715 1,434,817
Payroll taxes 263,599 233,584 165,713
----------- ----------- -----------
Total general and administrative expenses 4,752,974 4,239,419 2,785,498
----------- ----------- -----------
Total operating expenses 18,015,315 15,676,939 12,984,066
----------- ----------- -----------
(Loss) income from operations (87,773) (825,392) 279,361
----------- ----------- -----------
Other income:
Gain on sale of property 104,500 - -
Interest and other 83,474 17,425 -
----------- ----------- -----------
Total other income 187,974 17,425 -
----------- ----------- -----------
Income (loss) before provision (benefit) for income taxes 100,201 (807,967) 279,361
Provision (benefit) for income taxes (241,434) 800 142,376
----------- ----------- -----------
Net income (loss) $ 341,635 $ (808,767) $ 136,985
=========== =========== ===========
Basic and diluted earnings (loss) available to common $7.10 $(29.76) $3.78
=========== =========== ===========
shareholders per common share
Weighted average common shares outstanding 30,000 30,000 30,000
=========== =========== ===========
See independent auditors' report and accompanying notes to financial statements
</TABLE>
F-9
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
STATEMENTS OF STOCKHOLDERS' EQUITY
For Each Of The Three Years In The Period Ended March 31, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock
------------------------------------------------------------
Series B Series C Series D
-------- -------- --------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1996 1,500 $ 600,000 1,000 $100,000 -- $ --
Redemption of Series B preferred stock (1,500) (600,000) -- -- -- --
Issuance of Series D preferred stock -- -- -- -- 1,500 600,000
Issuance of Series E preferred stock -- -- -- -- -- --
Dividends on preferred stock -- -- -- -- -- --
Net income -- -- -- -- -- --
---------- ---------- -------- --------- --------- ---------
Balances at March 31, 1997 -- -- 1,000 100,000 1,500 600,000
Issuance of Series F preferred stock -- -- -- -- -- --
Dividends on preferred stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ---------- -------- --------- --------- ---------
Balances at March 31, 1998 -- -- 1,000 100,000 1,500 600,000
Issuance of Series G preferred stock -- -- -- -- -- --
pursuant to conversion of notes payable
Issuance of Series H preferred stock -- -- -- -- -- --
Issuance of Series I preferred stock -- -- -- -- -- --
Issuance of Series J preferred stock -- -- -- -- -- --
Issuance of Series K preferred stock -- -- -- -- -- --
Redemption of Series H preferred stock -- -- -- -- -- --
Redemption of Series J preferred stock -- -- -- -- -- --
Dividends on preferred stock -- -- -- -- -- --
Net income -- -- -- -- -- --
---------- ---------- -------- --------- --------- ---------
Balances at March 31, 1999 -- $ -- 1,000 $100,000 1,500 $600,000
========== ========== ======== ========= ========= =========
Continued
</TABLE>
F-10
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
For Each Of The Three Years In The Period Ended March 31, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock
------------------------------------------------------------
Series E Series F Series G
-------- -------- --------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1996 -- $ -- -- $ -- -- $ --
Redemption of Series B preferred stock -- -- -- -- -- --
Issuance of Series D preferred stock -- -- -- -- -- --
Issuance of Series E preferred stock 1,200 300,000 -- -- -- --
Dividends on preferred stock -- -- -- -- -- --
Net income -- -- -- -- -- --
---------- ---------- -------- --------- --------- ---------
Balances at March 31, 1997 1,200 300,000 -- -- -- --
Issuance of Series F preferred stock -- -- 1,250 125,000 -- --
Dividends on preferred stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ---------- -------- --------- --------- ---------
Balances at March 31, 1998 1,200 300,000 1,250 125,000 -- --
Issuance of Series G preferred stock -- -- -- -- 2,000 200,000
pursuant to conversion of notes payable
Issuance of Series H preferred stock -- -- -- -- -- --
Issuance of Series I preferred stock -- -- -- -- -- --
Issuance of Series J preferred stock -- -- -- -- -- --
Issuance of Series K preferred stock -- -- -- -- -- --
Redemption of Series H preferred stock -- -- -- -- -- --
Redemption of Series J preferred stock -- -- -- -- -- --
Dividends on preferred stock -- -- -- -- -- --
Net income -- -- -- -- -- --
---------- ---------- -------- --------- --------- ---------
Balances at March 31, 1999 1,200 $300,000 1,250 $ 12,500 2,000 $ 200,000
========== =========== ======= ========= ========= =========
Continued
</TABLE>
F-11
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
For Each Of The Three Years In The Period Ended March 31, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock
------------------------------------------------------------
Series H Series I Series J
-------- -------- --------
Shares Amount Shares Amount Shares Amount
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1996 -- $ -- -- $ -- -- $ --
Redemption of Series B preferred stock -- -- -- -- -- --
Issuance of Series D preferred stock -- -- -- -- -- --
Issuance of Series E preferred stock -- -- -- -- -- --
Dividends on preferred stock -- -- -- -- -- --
Net income -- -- -- -- -- --
---------- ---------- -------- --------- --------- ---------
Balances at March 31, 1997 -- -- -- -- -- --
Issuance of Series F preferred stock -- -- -- -- -- --
Dividends on preferred stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ---------- -------- --------- --------- ---------
Balances at March 31, 1998 -- -- -- -- -- --
Issuance of Series G preferred stock -- -- -- -- -- --
pursuant to conversion of notes payable
Issuance of Series H preferred stock 1,000 35,000 -- -- -- --
Issuance of Series I preferred stock -- -- 550 55,000 -- --
Issuance of Series J preferred stock -- -- -- -- 1,000 160,000
Issuance of Series K preferred stock -- -- -- -- -- --
Redemption of Series H preferred stock (1,000) (35,000) -- -- -- --
Redemption of Series J preferred stock -- -- -- -- (1,000) (160,000)
Dividends on preferred stock -- -- -- -- -- --
Net income -- -- -- -- -- --
---------- ---------- -------- --------- --------- ---------
Balances at March 31, 1999 -- $ -- 550 $ 55,000 -- $ --
========== ========== ======== ========= ========= =========
</TABLE>
Continued
F-12
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
For Each Of The Three Years In The Period Ended March 31, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock
--------------------
Series K Common Stock Accumulated
------------------ ------------
Shares Amount Shares Amount Deficit
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balances at April 1, 1996 -- $ -- 30,000 $73,348 $(180,042)
Redemption of Series B preferred stock -- -- -- -- --
Issuance of Series D preferred stock -- -- -- -- --
Issuance of Series E preferred stock -- -- -- -- --
Dividends on preferred stock -- -- -- -- (23,450)
Net income -- -- -- -- 136,985
-------- --------- ------ ------- ----------
Balances at March 31, 1997 -- -- 30,000 73,348 (66,507)
Issuance of Series F preferred stock -- -- -- -- --
Dividends on preferred stock -- -- -- -- (84,000)
Net loss -- -- -- -- (808,767)
-------- --------- ------ ------- ----------
Balances at March 31, 1998 -- -- 30,000 73,348 (959,274)
Issuance of Series G preferred stock -- -- -- -- --
pursuant to conversion of notes payable
Issuance of Series H preferred stock -- -- -- -- --
Issuance of Series I preferred stock -- -- -- -- --
Issuance of Series J preferred stock -- -- -- -- --
Issuance of Series K preferred stock 1,000 120,000 -- -- --
Redemption of Series H preferred stock -- -- -- -- --
Redemption of Series J preferred stock -- -- -- -- --
Dividends on preferred stock -- -- -- -- (128,610)
Net income -- -- -- -- 341,635
-------- --------- ------ ------- ----------
Balances at March 31, 1999 1,000 $120,000 30,000 $73,348 $(746,249)
======== ========= ====== ======= ==========
See independent auditors' report and accompanying notes to financial statements
</TABLE>
F-13
<PAGE>
- --------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
STATEMENTS OF CASH FLOWS
For Each of the Three Years in the Period Ended March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 341,635 $ (808,767) $ 136,985
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Provision for doubtful receivables 33,055 - -
Depreciation and amortization 81,689 79,267 51,970
Gain on the origination of mortgage servicing rights (17,105) (49,283) (224,840)
Gain on sale of mortgage servicing rights - (155,440) (281,449)
Deferred income taxes (242,234) 3,978 141,576
Gain on sale of property (104,500) - -
Changes in operating assets and liabilities:
Restricted cash (41,610) - -
Accounts receivable - - 12,457
Mortgage loans held for sale 12,609,239 (8,184,327) 5,888,561
Receivable from loans sold (14,913,028) - -
Other current assets (77,880) 219,063 (259,336)
Deposits (4,208) (71,324) (9,299)
Accounts payable and accrued expenses 69,258 217,480 336,719
----------- ---------- ---------
Net cash (used in) provided by operating activities (2,265,689) (8,749,353) 5,793,34
----------- ---------- ---------
Cash flows from investing activities:
Collection of receivable from sale of mortgage
servicing rights - 102,454 -
Collection of notes receivable 6,185 4,519 2,242
Purchases of property and equipment (103,016) (105,396) (47,303)
Proceeds from sale of property 61,279 - -
Purchases of property held for sale (21,144) (64,500) -
Sale (purchase) of mortgage loan held for investment 22,491 (22,491) -
Issuance of notes receivable - (7,083) (35,900)
Proceeds from sale of mortgage servicing rights - 293,139 178,995
----------- ---------- ---------
Net cash (used in) provided by investing activities (34,205) 200,642 98,034
----------- ---------- ---------
Cash flows from financing activities:
Net borrowings under bank line of credit 407 - 1,370
Net borrowings (repayments) under warehouse lines
of credit 1,969,034 8,098,421 (5,962,880)
Issuance of long-term debt 480,500 215,430 -
Continued
</TABLE>
F-14
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
STATEMENTS OF CASH FLOWS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Principal repayments on long-term debt (127,802) (124,823) (5,288)
Payments on capital lease obligations (36,321) (15,862) (7,921)
Proceeds from issuance of preferred stock 370,000 125,000 900,000
Redemption of preferred stock (195,000) - (400,000)
Preferred stock dividends (128,610) (84,000) (23,450)
---------- ---------- -----------
Net cash provided by (used in) financing activities 2,332,208 8,214,166 (5,498,169)
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents 32,314 (334,545) 393,209
Cash and cash equivalents at beginning of year 185,078 519,623 126,414
---------- ---------- -----------
Cash and cash equivalents at end of year $ 217,392 $ 185,078 $ 519,623
========== ========== ===========
Supplemental disclosure of cash flow information -
Cash paid during the year for:
Interest $1,276,925 $1,227,842 $ 911,171
========== ========== ===========
Income taxes $ 800 $ 800 $ 800
========== ========== ===========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During fiscal 1999, the Company incurred long-term debt in the amount of
$44,000 for the purchase of property held for sale.
During fiscal 1999 and 1998, the Company incurred capital lease obligations in
the amount of $42,279 and $40,306, respectively, for the purchase of property
and equipment.
During fiscal 1999, the Company sold property with a cost of $599,500 for
$704,000 which is comprised of $61,279 in cash, a note receivable for $166,428
and the settlement of notes payable in the amount of $476,293.
During fiscal 1999, holders of notes payable totaling $200,000 exercised the
conversion feature which allowed them to convert the notes payable into 2,000
shares of Series G preferred stock.
During fiscal 1998, the Company sold servicing rights for total consideration
of $326,194, of which $33,055 was a note receivable.
During fiscal 1998, the Company purchased certain property to be held for sale
valued at $645,000 in exchange for cash down payments totaling $64,500 and
notes payable of $580,500.
During fiscal 1997, the Company redeemed its Series B preferred stock through
the issuance of two $100,000 promissory notes and a cash payment of $400,000.
During fiscal 1997, the Company sold servicing rights for total consideration
of $281,449, of which $102,454 was a note receivable.
See independent auditors' report and accompanying notes to financial statements
F-15
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Nature of Business
- -------------------
Ocean West Enterprises, Inc., dba Ocean West Funding (the "Company"), a C
corporation, was incorporated in November 1988 in the State of California for
the purpose of engaging in mortgage banking activities. The Company is involved
in the process of originating, packaging and funding of HUD and other government
insured loans and non-government insured loans in the Southern California
region. HUD insured loans comprised 71%, 63% and 49% of total loans originated
by the Company during the years ended March 31, 1999, 1998 and 1997,
respectively. Certain of the non-government insured loans are sold "servicing
retained" whereby the Company receives a fee for servicing the loans (see
Note 9).
Risks and Uncertainties
- -----------------------
As discussed above, the Company originates HUD and other government insured
loans primarily in the Southern California region. The Company generates
revenue from the origination, sale and servicing of these loans. Significant
changes in interest rates or the underlying economic condition of the Southern
California real estate market could have a materially adverse impact on the
Company's operations.
Concentration of Credit Risk
- ----------------------------
The Company maintains, at times, cash balances at certain financial institutions
in excess of amounts insured by Federal agencies.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reported periods.
Significant estimates made by the Company's management include, but are not
limited to, the realizability of mortgage loans held for sale, mortgage
servicing rights and property held for sale, the collectibility of notes
receivable, and the recoverability of property and equipment through future
operating profits. Actual results could materially differ from those estimates.
F-16
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Cash and Cash Equivalents
- -------------------------
For the purpose of the statement of cash flows, the Company considers all highly
liquid holdings with maturities of three months or less, at the time of
purchase, to be cash equivalents.
Restricted Cash
- ----------------
Restricted cash represents monies deposited in escrow for the benefit of a
borrower who advanced funds to the Company.
Mortgage Loans Held For Sale
- ----------------------------
Mortgage loans held for sale to investors are stated at the lower of cost or
market value, as determined by outstanding commitments from investors or current
investor yield requirements. As of March 31, 1999 and 1998, included in the
carrying value of mortgage loans held for sale are $430,312 and $368,003,
respectively, of net expenses incurred in the origination of such loans. A
substantial portion of such loans were sold to investors within 30 days
subsequent to March 31, 1999 and 1998.
Receivable from Loans Sold
- --------------------------
In fiscal 1999, the Company recognized revenues on loans sold (along with
corresponding costs) at the time the loan file with completed documentation was
shipped to the designated investors due to a change in the Company's records
retention policy on shipping documentation. In preceding years, the Company did
not retain loan shipping documentation; therefore, the Company recognized
revenues upon the funding of the loans by the designated investors. This change
resulted in an increase in income before provision for income taxes and net
income by $92,000.
Property and Equipment
- ----------------------
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful lives of the related assets, ranging from three to thirty years.
Depreciation expense related to property and equipment during the years ended
March 31, 1999, 1998 and 1997 totaled $67,851, $66,600 and $28,572,
respectively. Maintenance and repairs are charged to operations when incurred.
Major betterments and renewals are capitalized. Gains or losses are recognized
upon sale or disposition of assets.
F-17
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
During 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting For The
Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed Of,"
which requires that long-lived assets and certain identifiable intangibles be
held and used by any entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Pursuant to SFAS 121, management of the Company assesses the
recoverability of property and equipment by determining whether the depreciation
of such assets over their remaining lives can be recovered through projected
undiscounted cash flows. The amount of impairment, if any, is measured based on
fair value (projected discounted cash flows) and is charged to operations in the
period in which such impairment is determined by management. To date,
management has not identified any impairment of property and equipment.
Mortgage Servicing Rights
- -------------------------
The Company has adopted Statement of Financial Accounting Standards No. 122
("SFAS 122"), "Accounting for Mortgage Servicing Rights," which allows the
Company to allocate and capitalize the cost of purchasing or originating
mortgage loans, when servicing rights are retained, based on the relative fair
value of those servicing rights at the date of loan purchase or origination.
The Company estimates fair value by taking the present value of the expected net
future cash flows from loan servicing using a discount rate commensurate with
the risks involved. Costs allocated to mortgage servicing rights are amortized
in proportion to and over the period of estimated net servicing income and are
evaluated for impairment based on their fair value.
The Company capitalized $17,105, $49,283 and $224,840 of mortgage servicing
rights during the years ended March 31, 1999, 1998 and 1997, respectively. As
a result, the Company recorded a gain on the origination of mortgage servicing
rights in the amounts of $17,105, $49,283 and $224,840 which is reflected in the
accompanying statements of operations for the years ended March 31, 1999, 1998
and 1997, respectively. Amortization expense related to mortgage servicing
rights during the years ended March 31, 1999, 1998 and 1997 totaled $13,838,
$12,667 and $23,398, respectively.
Property Held For Sale
- ----------------------
Property held for sale at March 31, 1999 consists of two residential properties
which are recorded at the lower of cost or market value. Both properties are
subject to short-term leases. The Company intends to market such properties for
sale during the year ended March 31, 2000.
F-18
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Revenue and Cost Recognition
- ----------------------------
Revenue from the sale of loans is recognized at the time the loans are sold or
when the loan file has completed shipping documentation to independent
investors. The related commissions and other origination costs are also
recognized at the time the loans are sold. Revenue from the servicing of loans
is recognized as earned.
Accounting for Stock-Based Compensation
- ----------------------------------------
The Company accounts for stock-based compensation issued to employees, if any,
using the intrinsic value based method as prescribed by APB Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25"). Under the intrinsic
value based method, compensation is the excess, if any, of the fair value of the
stock at the grant date over the amount an employee must pay to acquire the
stock. Compensation, if any, is recognized over the applicable service period,
which is usually the vesting period.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS 123"). This standard, if fully adopted, changes the method of accounting
for employee stock-based compensation plans to the fair value based method. For
stock options and warrants, fair value is determined using an option pricing
model that takes into account the stock price at the grant date, the exercise
price, the expected life of the option or warrant and the annual rate of
quarterly dividends. Compensation expense, if any, is recognized over the
applicable service period, which is usually the vesting period.
The adoption of the accounting methodology of SFAS 123 is optional and the
Company has elected to continue accounting for stock-based compensation issued
to employees using APB 25; however, pro forma disclosures, as if the Company
adopted the cost recognition requirements under SFAS 123, are required to be
presented.
Basic and Diluted Earnings (Loss) Per Share
- -------------------------------------------
The Company has adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128"). SFAS 128 changes the methodology of
calculating earnings (loss) per share by eliminating any common stock
equivalents (such as stock options, warrants, etc.) from basic earnings per
share and changes certain calculations when computing diluted earnings per
share.
F-19
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Basic earnings (loss) per share is computed based on the weighted average number
of common shares outstanding for the period. Diluted earnings per share is
computed by dividing net income available to common shareholders by the weighted
average common shares outstanding, assuming all dilutive potential common shares
were issued (none for 1999, 1998 and 1997).
Advertising
- ------------
The Company expenses advertising costs as incurred. The advertising costs for
the years ended March 31, 1999, 1998 and 1997 totaled $40,121, $24,827 and
$12,211, respectively.
Income Taxes
- ------------
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under the asset
and liability method of SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under SFAS 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period the enactment occurs. A
valuation allowance is provided for certain deferred tax assets if it is more
likely than not that the Company will not realize tax assets through future
operations.
Fair Value of Financial Instruments
- -----------------------------------
The Company has adopted Statement of Financial Accounting Standards No. 107
("SFAS 107"), "Disclosures About Fair Value of Financial Instruments." SFAS 107
requires disclosure of fair value information about financial instruments when
it is practicable to estimate that value. The carrying amount of the Company's
cash, accounts payable and accrued expenses approximates their estimated fair
values due to the short-term maturities of those financial instruments. See
Note 14 for additional disclosure about the fair value of the Company's
financial instruments.
F-20
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Year 2000
- ---------
The Year 2000 issue relates to limitations in computer systems and applications
that may prevent proper recognition of the Year 2000. The potential effect of
the Year 2000 issue on the Company and its business partners will not be fully
determinable until the Year 2000 and thereafter. If Year 2000 modifications are
not properly completed either by the Company or entities with which the Company
conducts business, the Company's revenues and financial condition could be
adversely impacted.
Comprehensive Income
- ---------------------
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. The adoption of SFAS 130 has not
impacted the Company's financial statements as it has no comprehensive income
items.
Segment Information
- --------------------
The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 changes the way public companies report information
about segments of their business in their annual financial statements and
requires them to report selected segment information in their quarterly reports
issued to shareholders. It also requires entity-wide disclosures about the
products and services an entity provides, the material countries in which it
holds assets and reports revenues and its major customers. The Company has only
one business segment, so no additional disclosures are required.
New Accounting Pronouncements
- ------------------------------
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities on the balance sheet
at their fair value. This statement, as amended by SFAS 137, is effective for
financial statements for all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company does not expect the adoption of this standard to
have a material impact on its results of operations, financial position or cash
flows as it currently does not engage in any derivative or hedging activities.
F-21
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
In October 1998, the FASB issued Standards of Financial Accounting Standards No.
134 ("SFAS 134"), "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise." SFAS 134 is an amendment of SFAS No. 65 "Accounting for Certain
Mortgage Banking Activities." It requires that after the securitization of
mortgage loans held for sale, an entity engaged in mortgage banking activities
classify the resulting mortgage-backed securities and other retained interest
based on its ability and intent to sell or hold those instruments. The Company
does not expect the adoption of this standard to have a material impact on its
results of operations, financial position or cash flows as it currently does not
utilize or deal in mortgage-backed securities.
Reclassifications
- -----------------
Certain reclassifications have been made to the 1997 and 1998 financial
statements to conform to the 1999 presentation.
NOTE 2 - NOTES RECEIVABLE
- -------------------------
Notes receivable consist of the following at March 31:
1999 1998
-------- -------
Secured note receivable from an employee of the $ 166,428 $ -
Company, bearing interest at 7.50% per annum,
payable in monthly interest installments with all
principal and unpaid interest due and payable in
April 2005.
Note receivable from a third party, bearing interest at 75,000 75,000
8% per annum; interest payable monthly; due
September 1999; secured by a second trust deed on
the property to which it relates.
Note receivable from a third party, bearing interest at 20,660 22,037
0.001% per annum; payable in monthly installments
of $63, including interest, through November 2026;
secured by third trust deed on the property to which
it relates.
F-22
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 2 - NOTES RECEIVABLE, continued
- ------------------------------------
1999 1998
--------- --------
Other 9,377 14,185
--------- --------
271,465 111,222
Less current portion (97,709) (15,105)
--------- --------
$ 173,756 $ 96,117
========= ========
NOTE 3 - PROPERTY AND EQUIPMENT
- ----------------------------------
Property and equipment consist of the following at March 31:
1999 1998
--------- --------
Real estate $ 149,000 $ 149,000
Office equipment 321,666 222,529
Furniture and fixtures 97,801 93,922
Automobiles 12,000 12,000
Property under capital leases 130,636 88,357
--------- ---------
711,103 565,808
Less accumulated depreciation (296,786) (228,935)
and amortization --------- ---------
$ 414,317 $ 336,873
========= =========
NOTE 4 - LINE OF CREDIT
- ------------------------
The Company has an unsecured bank line of credit in the amount of $100,000.
This line is personally guaranteed by the Company's common stockholders.
Interest on the note is payable monthly at the bank's reference rate (bank's
reference rate at March 31, 1999 was 7.75%) plus 2.5%. The line of credit
expires November 18, 1999. At March 31, 1999 and 1998, the outstanding balance
under the line of credit was $97,165 and $96,758, respectively.
Interest expense incurred under the unsecured bank line of credit amounted to
$9,939, $10,639 and $10,305 for the years ended March 31, 1999, 1998 and 1997,
respectively.
F-23
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 5 - WAREHOUSE LINES OF CREDIT
- ----------------------------------
The Company has a $15,000,000 mortgage loan purchasing warehouse line of credit,
collateralized by the related mortgage loans receivable with a carrying value of
$17,625,281 and $16,827,140 at March 31, 1999 and 1998, respectively, mortgage
loan servicing agreements entered into by the Company (see Note 9) and
personally guaranteed by the common stockholders of the Company, with interest
due monthly at the bank reference rate plus an established percentage (7.69% at
March 31, 1999). The warehouse line of credit expires on July 31, 1999 and the
Company is currently in negotiations with the existing lender to renew the line
of credit. The warehouse line of credit has restrictions as to the types of
loans (and the maximum amounts per individual loans) for which said line can be
used to fund. Furthermore, the line can only be used to fund loans at a
percentage of par, as defined; the remainder must be funded by the Company
utilizing its own cash resources. At March 31, 1999 and 1998, the outstanding
balance under the warehouse line of credit was $17,493,914 and $16,792,260,
respectively.
The warehouse line of credit agreement contains restrictive covenants relating
to net worth, tangible net worth, and various ratios, as defined. Furthermore,
the warehouse line of credit permits dividends solely to the extent of net
income. Substantially all of such restrictive covenants were not satisfied at
March 31, 1999. In addition, the warehouse line of credit was drawn in excess
of the maximum amount allowable pursuant to the related agreement. Subsequent
to year end, the Company received a waiver from the line lender waiving such
covenant violations as of March 31, 1999.
The Company has another $15,000,000 mortgage loan purchasing warehouse line of
credit, collateralized by the related mortgage loans receivable with a carrying
value of $1,267,380 at March 31, 1999, mortgage loan servicing agreements
entered into by the Company (see Note 9) and personally guaranteed by the common
stockholders of the Company, with interest due monthly at the bank reference
rate plus an established percentage (8.75% at March 31, 1999). Each advance is
to be repaid within 45 days of the advance. At March 31, 1999 and 1998, the
outstanding balance under this warehouse line of credit was $1,267,380 and $0,
respectively.
Interest expense incurred under the warehouse lines of credit amounted to
$1,115,304, $1,187,087 and $875,553 for the years ended March 31, 1999, 1998 and
1997, respectively.
F-24
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE6 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
- -----------------------------------------------------
Long-Term Debt
- ---------------
Long-term debt consists of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Notes payable to a third party, bearing interest at $ 370,500 $ -
7.25% per annum; payable in monthly interest
installments only with all unpaid principal and interest
due March 2000.
Note payable to a third party, bearing interest at 308,134 310,326
8.875% per annum; payable in monthly installments
of $2,470, including interest, through February 2028;
secured by property held for sale.
Note payable to a third party, bearing interest at a 60,345 61,610
variable rate (6.875% per annum at March 31, 1999);
payable in monthly installments of $467, including
interest, through May 2020; secured by the property to
which it relates.
Note payable to a related party, bearing interest at 50,000 -
24% per annum; payable in monthly interest
installments with all unpaid principal and interest due
August 1999.
Note payable to a third party, bearing interest at 43,805 -
8.375% per annum; payable in monthly installments
of $334, including interest, through August 2028;
secured by deed of trust.
</TABLE>
F-25
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, continued
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Note payable to a related party, bearing interest at 30,000 -
50% per annum; payable in monthly interest
installments with all unpaid principal and interest due
August 1999.
Note payable to a third party, bearing interest at - 269,212
8.75% per annum; payable in monthly installments of
$2,124, including interest, through October 2027;
secured by property held for sale. Note was paid in
full during fiscal 1999.
Note payable to a third party, bearing interest at a - 210,247
variable rate (8.875% per annum at March 31, 1999);
payable in monthly installments of $1,715, including
interest, through January 2025; secured by property
held for sale. Note was paid in full during fiscal 1999.
Notes payable to a third party, bearing interest at 25% - 170,000
per annum; payable in monthly installments of
$4,167, plus interest, through October 1998; secured
by a second trust deed on property held for sale. Note
was converted to Series G preferred stock during
fiscal 1999 (see Note 8).
Non-interest bearing subordinated note payable to a - 100,000
former Series B preferred stockholder. Note was paid
in full during fiscal 1999.
Other 3,536 24,520
--------- ---------
866,320 1,145,915
Less current portion (458,042) (301,934)
--------- ---------
$ 408,278 $ 843,981
========= =========
</TABLE>
F-26
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, continued
- ----------------------------------------------------------------
Aggregate long-term debt matures as follows:
Years Ending
March 31,
---------
2000 $ 458,042
2001 4,351
2002 4,728
2003 5,137
2004 5,583
Thereafter 388,479
---------
$ 866,320
=========
Interest expense incurred under long-term debt obligations amounted to $129,384,
$51,854 and $23,371 for the years ended March 31, 1999, 1998 and 1997,
respectively.
Capital Leases
- --------------
The Company leases certain equipment under capital leases which expire through
2001, with effective interest rates ranging from 14% to 17.884%. The assets and
related liabilities under the capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair value of the related
assets. The assets are depreciated over their estimated useful lives.
Depreciation of the assets of $16,770 and $11,000, respectively, was included in
other general and administrative expenses for the years ended March 31, 1999 and
1998.
Future minimum lease payments, by year and in the aggregate, under capital
leases with initial or remaining terms of one year or more, consist of the
following at March 31, 1999:
2000 $ 55,327
2001 15,857
--------
71,184
Less amount representing interest (9,504)
--------
Present value of net minimum lease payments 61,680
Less current portion (48,539)
--------
$ 13,141
========
F-27
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, continued
- ----------------------------------------------------------------
Interest expense incurred under capital lease obligations amounted to $9,849,
$9,156 and $5,212 for the years ended March 31, 1999, 1998 and 1997,
respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Operating Leases
- ----------------
The Company leases its facilities and certain equipment under non-cancelable
operating leases that expire through the year 2004. These agreements generally
provide that the Company pay operating costs such as taxes, insurance and
maintenance.
Future annual minimum payments under operating leases at March 31, 1999 are as
follows:
Years Ending
March 31,
---------
2000 $ 238,498
2001 225,766
2002 218,426
2003 220,266
2004 148,445
---------
$1,051,401
=========
Rental expense under operating leases for the years ended March 31, 1999, 1998
and 1997 was $172,455, $78,180 and $44,549, respectively.
Consulting Agreements
- ---------------------
The Company entered into a financial consulting agreement whereby the former
Series B preferred stockholder was entitled to consulting fees of $6,000 per
month through November 25, 1998. Consulting fees charged to operations totaled
$48,000, $72,000 and $24,000 for the years ended March 31, 1999, 1998 and 1997,
respectively.
As part of the Series D preferred stock purchase agreement (see Notes 8 and 12),
the Company entered into a financial consulting agreement whereby the Series D
preferred stockholder is entitled to consulting fees of $6,000 per month. The
agreement expires upon the redemption of the Series D preferred stock.
Consulting fees charged to operations totaled $72,000 for each of the years
ended March 31, 1999, 1998 and 1997.
F-28
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 7 - COMMITMENTS AND CONTINGENCIES, continued
- -------------------------------------------------
Litigation
- ----------
The Company is involved in certain legal matters which arise in the normal
course of business. Management believes that the disputes will be resolved
without material adverse effect on the financial position or results of
operations of the Company.
NOTE 8 - PREFERRED STOCK
- ------------------------
In 1991, the Board of Directors authorized the issuance of up to 50,000 shares
of non-voting preferred stock. The Company may divide the preferred stock into
any number of series, and the Board of Directors shall fix the designation and
number of shares of each series. See Note 15 for informal stock transactions
after March 31, 1999.
Currently, the Company has established twelve series of preferred stock
designated "Series A, B, C, D, E, F, G, H, I, J, K and L" preferred stock as
follows:
Preferred Stock, Series A
- --------------------------
The Company redeemed all shares of Series A preferred stock prior to fiscal
1997.
Preferred Stock, Series B
- --------------------------
In 1993, the Board of Directors authorized the issuance of up to 1,500 shares of
Series B preferred stock at $400 per share. The Series B preferred stock was
non-voting and entitled the holder to receive, on a cumulative basis, dividends
at an annual rate of 2%, payable on a monthly basis. The Series B preferred
stock was redeemable by the Company after one year from the date of issuance. On
November 26, 1996, the Company redeemed the Series B preferred stock for
$400,000 in cash, $200,000 in notes payable, and a guaranteed two (2) year
financial consulting agreement at $6,000 per month (see Note 7). Dividends of
$8,000 were declared and paid for the year ended March 31, 1997.
Preferred Stock, Series C
- -------------------------
In 1993, the Board of Directors authorized the issuance of up to 1,000 shares of
Series C preferred stock at $100 per share. At March 31, 1999 and 1998, 1,000
shares of the Series C preferred stock were outstanding. The Series C preferred
stock is non-voting and is redeemable by the Company commencing one year from
the date of issuance. The redemption price will include an annual rate of
return of 12% on the original issuance price. The Series C preferred stock
shall have a preference over the common stock of the Company. The Company has
been paying a monthly dividend at an
F-29
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 8 - PREFERRED STOCK, continued
- -----------------------------------
annual rate of 12% in lieu of the increased redemption price. Dividends of
$12,000 were declared and paid for the years ended March 31, 1999, 1998 and
1997, respectively.
Preferred Stock, Series D
- -------------------------
In 1997, the Board of Directors authorized the issuance of up to 1,500 shares of
Series D preferred stock at $400 per share. At March 31, 1999 and 1998, 1,500
shares of Series D preferred stock were outstanding. The Series D preferred
stock is non-voting and is redeemable by the Company commencing five years from
the date of issuance. The Company is limited, in each calendar year, to
repurchasing 20% of the number of shares originally issued. Subject to the laws
of the state of California, if the Company's common stockholders sell all of
their common stock of the Company, the Series D preferred stockholder may elect
to have the Company redeem all issued and outstanding Series D preferred stock.
The redemption price shall equal the issuance price. If the Company conducts an
initial public offering ("IPO"), the Series D preferred stockholder may elect to
convert the preferred stock to common stock at the conversion rate of $400 per
share. The Series D preferred stock shall have a preference in liquidation over
the common stock of the Company but shall be subject to the preference in
liquidation of the Series C preferred stock. The Series D preferred stock
entitles the holder to receive, on a cumulative basis, dividends at an annual
rate of 3%, payable on a monthly basis. Dividends of $18,000, $18,000 and
$3,450 were declared and paid for the years ended March 31, 1999, 1998 and 1997,
respectively.
In connection with the purchase of the Series D preferred stock, the Company
entered into a financial consulting agreement whereby the Series D preferred
stockholder is entitled to $6,000 per month until such time that the Series D
preferred stock is redeemed by the Company (see Notes 7 and 12).
Preferred Stock, Series E
- -------------------------
In 1997, the Board of Directors authorized the issuance of up to 1,200 shares of
Series E preferred stock at $250 per share. At March 31, 1999 and 1998, 1,200
shares of Series E preferred stock were outstanding. The Series E preferred
stock is non-voting and is redeemable at the Company's option. The redemption
price shall equal the issuance price. The Series E preferred stock shall have a
preference in liquidation over the common stock of the Company but shall be
subject to the preference in liquidation of the Series C and D preferred stock.
The Series E preferred stock entitles the holder to receive, on a cumulative
basis, dividends at an annual rate of 18%, payable on a monthly basis.
Dividends of $54,000 were declared and paid for the years ended March 31, 1999
and 1998. The Company was not obligated to pay dividends for Series E preferred
stock in 1997.
F-30
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 8 - PREFERRED STOCK, continued
- -----------------------------------
Preferred Stock, Series F
- --------------------------
In 1998, the Board of Directors authorized the issuance of up to 1,250 shares of
Series F preferred stock at $100 per share. At March 31, 1999 and 1998, 1,250
shares of Series F preferred stock were outstanding. The Series F preferred
stock is non-voting and is redeemable at the Company's option. The redemption
price shall equal the issuance price. The Series F preferred stock shall have a
preference in liquidation over the common stock of the Company but shall be
subject to the preference in liquidation of the Series C, D and E preferred
stock. The Series F preferred stock entitles the holder to receive, on a
cumulative basis, dividends at an annual rate of 14%, payable on a monthly
basis. Dividends of $17,500 were declared and paid for the year ended March 31,
1999. The Company was not obligated to pay dividends for Series F preferred
stock in 1998.
Preferred Stock, Series G
- -------------------------
In 1999, the Board of Directors authorized the issuance of up to 2,000 shares of
Series G preferred stock at $100 per share. At March 31, 1999, 2,000 shares of
Series G preferred stock were outstanding. The Series E preferred stock is non-
voting and is redeemable at the Company's option. The redemption price shall
equal the issuance price plus any unpaid dividends. The Series G preferred
stock shall have a preference in liquidation over the common stock of the
Company but shall be subject to the preference in liquidation of the Series C,
D, E and F preferred stock. The Series G preferred stock entitles the holder to
receive, on a cumulative basis, dividends at an annual rate of 24%, payable on a
monthly basis. Dividends of $20,833 were declared and paid for the year ended
March 31, 1999.
Preferred Stock, Series H
- --------------------------
In 1999, the Board of Directors authorized the issuance of up to 1,000 shares of
Series H preferred stock at $35 per share. Subsequent to their issuance, the
Company redeemed all 1,000 shares issued for $35 per share and at March 31,
1999, no shares of Series H preferred stock were outstanding.
F-31
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 8 - PREFERRED STOCK, continued
- -----------------------------------
Preferred Stock, Series I
- -------------------------
In 1999, the Board of Directors authorized the issuance of up to 550 shares of
Series I preferred stock at $100 per share. At March 31, 1999, 550 shares of
Series I preferred stock were outstanding. The Series I preferred stock is non-
voting and is redeemable at the Company's option. The redemption price shall
equal the issuance price plus any unpaid dividends. The Series I preferred
stock shall have a preference in liquidation over the common stock of the
Company but shall be subject to the preference in liquidation of the Series C,
D, E, F and G preferred stock. The Series I preferred stock entitles the holder
to receive, on a cumulative basis, dividends at an annual rate of 15%, payable
on a monthly basis. Dividends of $4,950 were declared and paid for the year
ended March 31, 1999. If the Company conducts an IPO, the Series I preferred
stockholder may elect to convert the preferred stock, plus unpaid dividends, to
common stock at 50% of the Company's IPO price.
Preferred Stock, Series J
- --------------------------
In 1999, the Board of Directors authorized the issuance of up to 1,000 shares of
Series J preferred stock at $160 per share. Subsequent to their issuance, the
Company redeemed all 1,000 shares issued for $160 per share and at March 31,
1999, no shares of Series J preferred stock were outstanding.
Preferred Stock, Series K
- -------------------------
In 1999, the Board of Directors authorized the issuance of up to 1,000 shares of
Series K preferred stock at $120 per share. At March 31, 1999, 1,000 shares of
Series K preferred stock were outstanding. The Series K preferred stock is non-
voting and is redeemable at the Company's option. The redemption price shall
equal the issuance price plus any unpaid dividends. The Series K preferred
stock shall have a preference in liquidation over the common stock of the
Company but shall be subject to the preference in liquidation of the Series C,
D, E, F, G and I preferred stock. The Series K preferred stock entitles the
holder to receive, on a cumulative basis, dividends at an annual rate of 5%,
payable on a monthly basis. The Company was not obligated to pay dividends for
Series K preferred stock in 1999.
F-32
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 8 - PREFERRED STOCK, continued
- -----------------------------------
Preferred Stock, Series L
- -------------------------
In 1999, the Board of Directors authorized the issuance of up to 1,000 shares of
Series L preferred stock at $1,000 per share. At March 31, 1999, no shares of
Series L preferred stock were outstanding. The Series L preferred stock is non-
voting and is redeemable at the Company's option. The redemption price shall
equal the issuance price plus any unpaid dividends. The Series L preferred
stock shall have a preference in liquidation over the common stock of the
Company but shall be subject to the preference in liquidation of the Series C,
D, E, F, G, I and K preferred stock. The Series L preferred stock entitles the
holder to receive, on a cumulative basis, dividends at an annual rate of 12%,
payable on a monthly basis. The Company was not obligated to pay dividends for
Series L preferred stock in 1999. Subsequent to March 31, 1999, the Company
sold 241 shares of Series L preferred stock (see Note 13).
NOTE 9 - MORTGAGE LOAN SERVICING
- --------------------------------
Mortgage loans serviced by the Company amounting to approximately $9.7 million
and $9.4 million at March 31, 1999 and 1998, respectively, are not included in
the accompanying balance sheets. Funds held in trust on behalf of the owners of
such serviced loans are also not reflected in the accompanying balance sheets.
The Company subcontracts its servicing through a third party sub-servicer. The
contract may be canceled by either party with 120 days written notice. Loan
sub-servicing fees are based on a fixed monthly fee per outstanding loan being
serviced.
NOTE 10 - GAIN ON SALE OF SERVICING RIGHTS
- ------------------------------------------
In fiscal 1998, the Company sold servicing rights in connection with $26,443,993
of loans which the Company had previously sold with "servicing retained," for
$326,194. The net carrying value of the servicing rights at the time of sale
was $170,754. As a result of the transaction, the Company recognized a gain of
$155,440 in the fiscal 1998 statement of operations.
In fiscal 1997, the Company sold servicing rights in connection with $35,626,514
of loans which the Company had previously sold with "servicing retained" for
$281,449. The servicing rights sold were originated in fiscal years occurring
prior to 1997 (prior to the adoption of SFAS 122). As a result, the servicing
rights sold had no carrying value at the time of sale. Accordingly, the Company
recorded the entire transaction as a gain on sale of servicing rights.
F-33
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 11 - PROVISION FOR INCOME TAXES
- ------------------------------------
The provision (benefit) for income taxes consists of the following for the years
ended March 31:
1999 1998 1997
-------- -------- -------
Current:
Federal $ - $ - $ -
State 800 800 800
-------- -------- -------
800 800 800
-------- -------- -------
Deferred:
Federal (229,544) - 107,659
State (12,690) - 33,917
-------- -------- -------
(242,234) - 141,576
-------- -------- --------
$ (241,434) 800 142,376
======== ======== =======
The income tax provision (benefit) for the years ended March 31, 1999, 1998 and
1997 differed from the amounts computed by applying the U.S. Federal tax rate of
34 percent to the income (loss) from operations before provision (benefit) for
income taxes as a result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Computed "expected" tax provision (benefit) $ 24,682 $(274,709) $ 94,983
Increase (decrease) in income taxes resulting from:
Non-deductible expenses 14,903 11,513 2,774
State taxes, net of Federal benefit 4,151 (47,140) 11,804
(Decrease) increase in valuation allowance (297,408) 297,408 -
Other 12,238 13,728 32,815
--------- --------- --------
$(241,434) $ 800 $142,376
========= ========= ========
</TABLE>
F-34
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 11 - PROVISION FOR INCOME TAXES, continued
- -----------------------------------------------
The tax effect of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at March 31, are presented below:
1999 1998
-------- --------
Deferred tax assets:
Net operating loss carryforwards $270,424 $ 327,576
Other 9,443 -
-------- ---------
279,867 327,576
Less valuation allowance - (297,408)
-------- ---------
Deferred tax assets 279,867 30,168
Deferred tax liabilities:
Other (37,633) (30,168)
-------- ---------
Net deferred tax asset $242,234 $ -
======== =========
The net change in the total valuation allowance for the years ended March 31,
1999 and 1998 was a decrease of $297,408 and an increase of $297,408,
respectively.
At March 31, 1999, the Company has net operating loss carryforwards ("NOLs") of
approximately $253,000 for Federal income tax reporting purposes and
approximately $18,000 for state reporting purposes, expiring through 2013.
Management believes, based in part on historical performance, that the Company
will generate sufficient future taxable income to realize the entire deferred
tax asset prior to expiration of any NOLs and that the realization of the
$279,867 deferred tax asset is more likely than not. There can be no assurance,
however, that the Company will generate enough taxable income to realize the
deferred tax asset prior to the expiration of the NOLs.
NOTE 12 - RELATED PARTY TRANSACTIONS
- ------------------------------------
The Company paid consulting fees to stockholders of its Series B and D preferred
stock. Total consulting fees paid were $120,000, $144,000 and $96,000 during
the years ended March 31, 1999, 1998 and 1997, respectively (see Notes 7 and 8).
F-35
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 13 - EARNINGS (LOSS) PER SHARE
- -----------------------------------
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings (loss) per share computations:
1999 1998 1997
--------- --------- --------
Numerator for basic and diluted earnings (loss)
per common share:
Net income (loss) $ 341,635 $(808,767) $136,985
Dividends on preferred shares (128,610) (84,000) (23,450)
--------- --------- --------
Net income (loss) applicable to common
shareholders $ 213,025 $(892,767) $113,535
========= ========= ========
Denominator for basic and diluted earnings (loss)
per common share:
Weighted average shares 30,000 30,000 30,000
========= ========= ========
Basic and diluted earnings (loss) available
to common shareholders per common share $ 7.10 $ (29.76) $ 3.78
========= ========= ========
F-36
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
----------------------------------------------
The following disclosure of the estimated fair value of financial instruments as
of March 31, 1999 and 1998 is made by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value.
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
------------------------ -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ----------- -----------------------
<S> <C> <C> <C> <C>
Assets:
Mortgage loans and receivable from loans
sold $19,476,441 $19,473,441 $17,172,652 $17,172,652
Items included in other assets:
Advances to escrow 28,282 28,282 52,167 52,167
Principal and interest on advances
on loans sold 189,687 189,687 104,297 104,297
Employee advances
Receivable from sale of loans services - - 33,055 33,055
Principal and interest advances on loans
serviced 27,094 27,094 10,079 10,079
Liabilities:
Notes payable $ 866,320 $ 873,032 $ 1,145,915 $ 1,152,920
</TABLE>
The fair value estimates as of March 31, 1999 and 1998 are based on pertinent
information that was available to management as of the respective dates.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since those dates and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
The following describes the methods and assumptions used by the Company in
estimating fair values.
Mortgage Loans and Receivable From Loans Sold
- ---------------------------------------------
Fair value is estimated using the quoted market prices for similar loans and
dealer commitments to purchase loans.
F-37
<PAGE>
- -------------------------------------------------------------------------------
OCEAN WEST ENTERPRISES, INC.
dba OCEAN WEST FUNDING
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of the Three Years in the Period Ended March 31, 1999
- -------------------------------------------------------------------------------
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS, continued
---------------------------------------------------------
Notes Payable
- -------------
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of existing debt.
Related party debt was not revalued due to the non-arms-length origin of these
instruments.
NOTE 15 - SUBSEQUENT EVENTS
- ---------------------------
In 1999, the Board of Directors authorized the issuance of up to 1,000 shares of
Series L preferred stock at $1,000 per share. At June 30, 1999, 241 shares of
Series L preferred stock had been issued and are outstanding in exchange for
$241,000.
Subsequent to year end, the shareholders of the Company are contemplating the
establishment of a holding company by contributing all of their outstanding
shares to the holding company in exchange for certain shares. Management of the
holding company is then planning to register certain of its shares in the public
market as a means of increasing ownership liquidity and capital-raising
capabilities.
F-38
<PAGE>
Ocean West Holding Corporation
Financial Statements
[to be supplied with
a balance sheet closer to
effective date and when
organization further along]
<PAGE>
<TABLE>
<S> <C>
No dealer, salesman or other
person has been authorized to 3,271,000 Common Shares
give any information or to make
any representations other than and
those contained in this
Prospectus. Any information or 1,000,000 Common Stock
representation which is not Purchase Warrants
included in the Prospectus should
not be relied upon and is not of
authorized by the issuer. The
delivery of this Prospectus at Ocean West Holding Corporation
any time does not imply that the
information in the Prospectus is
correct at any time subsequent to
its date of issue. This
Prospectus does not constitute an
offer to sell or a solicitation
of an offer to buy any of these
securities.
_________________________ ______________________________
TABLE OF CONTENTS PROSPECTUS
_________________________ ______________________________
Page
----
<S> <C>
Summary 4
Risk Factors 9
Plan of Distribution 18
Use of Proceeds 20
Capitalization 20
Business 22
Management's Discussion
and Analysis of Financial
Condition 32 ______________, 2000
Management 37
Principal and Selling 40 Dealer Prospectus Delivery Obligation
Shareholders
Securities 42 Until ________________, all dealers
Dividends 47 that effect transactions in these
Liability and Indemnification 47 securities, whether or not participating
of Directors in this offering, may be required to
Available Information 48 deliver a prospectus. This in addition
Legal Matters 49 to the dealers' obligation to deliver a
Experts 49 prospectus when acting as underwriters
Financial Statements 50 and with respect to their unsold
allotments or subscriptions.
_________________________
</TABLE>
<PAGE>
Part II - Information Not Required In Prospectus
- ------- --------------------------------------
Item 13. Other Expenses of Issuance and Distribution
-------------------------------------------
Expenses of the offering are estimated to be approximately $_______ which
amount includes the following items:
Registration fee - federal $ 2,178
Registration fees - state $
Transfer Agent Fees* $
Printing and EDGAR Filing Costs* $
Legal Fees (including fees relating
to the reorganization)* $
Accounting Fees $10,000
- ------------------------------------------------------------------------------
* estimates
The Selling Shareholders are not paying any expenses of the registration.
Item 14. Indemnification of Directors and Officers
-----------------------------------------
Ocean West Holding Corporation has provisions in its Certificate of
Incorporation which limit its directors' monetary liability to it or its
shareholders except: (a) for any breach of the director's duty of loyalty to
the corporation or its shareholders; (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing and culpable violation of
law; (c) for acts or omissions that a director believes to be contrary to the
best interests of the corporation or its shareholders or that involve the
absence of good faith on the part of the director; (d) for unlawful payment of
dividends or making of a distribution or unlawful repurchase or redemption of
its own stock; (e) for any transaction from which the director derived an
improper personal benefit; (f) for acts or omissions that show a reckless
disregard for the director's duty to the corporation or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing his duties of a risk of serious injury to the
corporation or its shareholders; or (g) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its shareholders.
Ocean West is required to indemnify its officers and directors for any
liability incurred by them in their capacity as such except in relation to
matters as to which any such director or officer or former director or officer
or person shall be adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of duty or for which the exclusive
of personal liability of directors for monetary damages described above is not
available.
Item 15. Recent Sales of Unregistered Securities
---------------------------------------
On the effective date of this Registration Statement, Ocean West Holding
Corporation issued 5,826,000 Common Shares, 240,000 Class B Common Shares and
4,929 Preferred Shares to the shareholders of Ocean West Enterprises, Inc. in
exchange for all of OWE's issued and outstanding
<PAGE>
stock. Ocean West claims exemption from registration under Section 4(2) of the
Securities Act of 1933.
Of the Common Shares issued to OWE shareholders, 2,017,000 shares (in
addition to the Common Shares sold to Monogenesis) will be registered under this
Registration Statement. The remaining securities issued will bear a restrictive
legend.
Item 16. Exhibits and Financial Statement Schedules
------------------------------------------
<TABLE>
<CAPTION>
Exhibit Page
Table Number Number
------------ ------
- -----------------------------------------------------------------------------------------
<S> <C> <C>
I. Plan of Acquisition, Reorganization, Arrangement, Liquidation 2
or Succession
- -----------------------------------------------------------------------------------------
(i) Stock Purchase Agreement and Plan of Reorganization
(including all schedules) 95
- -----------------------------------------------------------------------------------------
II. Articles of Incorporation and Bylaws 3
- -----------------------------------------------------------------------------------------
(i) Certificate of Incorporation of Ocean West Holding
Corporation 126
- -----------------------------------------------------------------------------------------
(ii) Bylaws of Ocean West Holding Corporation 141
- -----------------------------------------------------------------------------------------
III. Instruments Defining the Rights of Security Holders 4
- -----------------------------------------------------------------------------------------
(i) Common Stock Purchase Warrant Agreement Between
Ocean West Holding Corporation and Reliance Trust
Company 164
- -----------------------------------------------------------------------------------------
IV. Opinion of Counsel - Legality of Securities Being Registered 5 174
- -----------------------------------------------------------------------------------------
V. Material Contracts 10
- -----------------------------------------------------------------------------------------
(i) Transfer Agent and Registrar Agreement Between Ocean
West Holding Corporation and Reliance Trust Company 176
- -----------------------------------------------------------------------------------------
(ii) Employment Agreement - Marshall Stewart 183
- -----------------------------------------------------------------------------------------
(iii) Employment Agreement - Daryl Meddings 187
- -----------------------------------------------------------------------------------------
VI. Subsidiaries of the Registrant 21 191
- -----------------------------------------------------------------------------------------
VII. Consent of Experts 23
- -----------------------------------------------------------------------------------------
(i) Consent of Corbin & Wertz, Certified Public Accountants 192
- -----------------------------------------------------------------------------------------
(ii) Consent of Norman Jones Enlow & Co., Certified Public
Accountants & Management Consultants 193
- -----------------------------------------------------------------------------------------
(iii) Consent of Counsel - See Exhibit 5
- -----------------------------------------------------------------------------------------
VIII. Financial Data Schedule 27 194
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Item 17. Undertakings
------------
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Tustin, State of
California, on January 31, 2000.
Ocean West Holding Corporation
By: /s/ Marshall L. Stewart
---------------------------------------------------------
Marshall L. Stewart, President, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Marshall L. Stewart on January 31, 2000
- -----------------------------------------------------------
Marshall L. Stewart, President, Chief (principal) Executive Officer
/s/ Daryl Meddings on January 31, 2000
- -----------------------------------------------------------
Daryl Meddings, Chief (principal) Financial Officer, Secretary/Treasurer
The following are at least a majority of the directors of Ocean West Holding
Corporation:
/s/ Marshall L. Stewart on January 31, 2000
- -----------------------------------------------------------
Marshall L. Stewart, Director
/s/ Daryl Meddings on January 31, 2000
- -----------------------------------------------------------
Daryl Meddings, Director
<PAGE>
Exhibit 2
STOCK PURCHASE AGREEMENT
AND
PLAN OF REORGANIZATION
among
Ocean West Enterprises, Inc.,
dba Ocean West Funding,
Monogenesis Corporation,
Joseph Walker & Sons, Inc.
and
Shareholders of Ocean West Enterprises, Inc.
Dated: ___________, 2000
<PAGE>
STOCK PURCHASE AGREEMENT
AND
PLAN OF REORGANIZATION
Table of Contents
ARTICLE I
SECURITIES
1.1 Exchange of Securities..........................................2
----------------------
1.2 JWSI Warrants...................................................3
-------------
1.3 Issuance of Securities to Monogenesis...........................3
-------------------------------------
1.4 Registration Statement..........................................3
----------------------
1.5 Dispositions of Shares By the Shareholders......................3
------------------------------------------
ARTICLE II
CLOSING
2.1 Time and Place..................................................3
--------------
2.2 Actions at the Closing..........................................3
----------------------
2.3 Holding Company Directors.......................................4
-------------------------
2.4 Simultaneous Actions............................................4
--------------------
ARTICLE III
REPRESENTATIONS AND WARRANTS OF OWE
3.1 Organization....................................................4
------------
3.2 Capitalization..................................................4
--------------
3.3 Subsidiaries....................................................5
------------
3.4 Authority.......................................................5
---------
3.5 Financial Statements............................................5
--------------------
3.6 Absence of Undisclosed Liabilities..............................5
----------------------------------
3.7 Absence of Changes..............................................6
------------------
3.8 Title to Assets.................................................6
---------------
3.9 Litigation......................................................6
----------
3.10 Compliance; Governmental Authorization..........................6
--------------------------------------
3.11 Labor Relations; Employees......................................7
--------------------------
3.12 Employee Benefit Plans..........................................7
----------------------
3.13 Intellectual Property...........................................8
---------------------
3.14 Accounts and Notes Receivable...................................8
-----------------------------
3.15 Loan Inventories................................................8
----------------
3.16 Tax Matters.....................................................8
-----------
3.17 Books and Records...............................................9
-----------------
3.18 Disclosure......................................................9
----------
i
<PAGE>
3.19 Best Knowledge of OWE...........................................9
---------------------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
4.1 Authority.......................................................9
---------
4.2 Stock Ownership.................................................9
---------------
4.3 Investment Representations.....................................10
--------------------------
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MONOGENESIS
5.1 Organization...................................................11
------------
5.2 Authority......................................................11
---------
5.3 Shareholders...................................................11
------------
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF JWSI
6.1 Organization...................................................11
------------
6.2 Authority......................................................11
---------
6.3 Ownership of Warrants..........................................12
---------------------
ARTICLE VII
COVENANTS OF OWE
7.1 Conduct of Business Until Closing Date.........................12
--------------------------------------
7.2 Access to Properties and Records...............................12
--------------------------------
7.3 Advice of Changes..............................................13
-----------------
7.4 Conduct........................................................13
-------
7.5 Approvals, Consents............................................13
-------------------
ARTICLE VIII
COVENANTS OF MONOGENESIS
8.1 Confidentiality; Return of Documents...........................13
------------------------------------
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF MONOGENESIS
9.1 Accuracy of Representations and Warranties.....................14
------------------------------------------
9.2 Performance of Agreements......................................14
-------------------------
9.3 Officer's Certificate..........................................14
---------------------
9.4 Secretary's Certificate........................................14
-----------------------
9.5 Consents, Authorizations.......................................14
------------------------
9.6 Legislation....................................................14
-----------
9.7 JWSI Warrants..................................................15
-------------
9.8 Issuance, Registration and Distribution of
------------------------------------------
Shares and Warrants............................................15
-------------------
9.9 Good Standing Certificates.....................................15
--------------------------
ii
<PAGE>
9.10 Financial Statements...........................................15
--------------------
9.11 Casualty.......................................................15
--------
ARTICLE X
CONDITIONS TO OBLIGATIONS OF OWE, THE SHAREHOLDERS AND JWSI
10.1 Accuracy of Representations and Warranties.....................16
------------------------------------------
10.2 Performance of Agreements......................................16
-------------------------
10.3 Officer's Certificate..........................................16
---------------------
10.4 Secretary's Certificate........................................16
-----------------------
10.5 Consents, Authorizations.......................................16
------------------------
10.6 Legislation....................................................16
-----------
10.7 JWSI Warrants..................................................16
-------------
10.8 Issuance, Registration and Distribution of
------------------------------------------
Shares and Warrants............................................16
-------------------
ARTICLE XI
TERMINATION
11.1 Termination....................................................17
-----------
ARTICLE XII
INDEMNIFICATION
12.1 Indemnification................................................17
---------------
12.2 Third Party Claims.............................................18
------------------
12.3 Remedies Cumulative............................................19
-------------------
12.4 Recoveries.....................................................19
----------
ARTICLE XIII
MISCELLANEOUS
13.1 Expenses; Transfer Taxes.......................................19
------------------------
13.2 Binding Effect.................................................19
--------------
13.3 Entire Agreement; Amendments...................................19
----------------------------
13.4 Headings.......................................................20
--------
13.5 Notices........................................................20
-------
13.6 Publicity......................................................20
---------
13.7 Governing Law..................................................21
-------------
13.8 Waivers........................................................21
-------
13.9 Defined Terms..................................................21
-------------
13.10 Fees...........................................................21
----
13.11 Counterparts...................................................21
------------
SCHEDULE 1.1
Holding Company Stock To Be
---------------------------
Issued to the Shareholders and JWSI......................23
-----------------------------------
iii
<PAGE>
SCHEDULE 3.1
Jurisdictions in Which OWE is Qualified to Do Business..............23
------------------------------------------------------
Officers and Directors of OWE.......................................24
-----------------------------
SCHEDULE 3.2
Shareholders of Ocean West Enterprises, Inc.........................25
--------------------------------------------
Convertible Securities, Options,
--------------------------------
Warrants, Agreements Relating to Stock of OWE.................26
---------------------------------------------
SCHEDULE 3.12
Employee Benefit Plans..............................................26
----------------------
SCHEDULE 3.13
Intellectual Property...............................................26
---------------------
EXHIBIT 1.3
Form of Common Stock Purchase Warrants..............................26
--------------------------------------
EXHIBIT 3.5
Certificate Relating to Financial Statements........................27
--------------------------------------------
iv
<PAGE>
STOCK PURCHASE AGREEMENT
AND
PLAN OF REORGANIZATION
----------------------
This Stock Purchase Agreement and Plan of Reorganization (the "Agreement")
is entered into as of this ____ day of ________, 2000 by and among Ocean West
Enterprises, Inc., dba Ocean West Funding, a California corporation ("OWE");
Monogenesis Corporation, a Delaware corporation ("Monogenesis"); Joseph Walker &
Sons, Inc., a Delaware corporation ("JWSI"); and the holders of the voting
common stock of OWE listed on Schedule 3.2, attached hereto and made a part
------------
hereof (collectively, the "Common Shareholders"). The holders of preferred
stock of OWE (collectively, the "Preferred Shareholders") listed on Schedule 3.2
------------
will evidence their acceptance of the terms of this Agreement by exchanging
their preferred stock of OWE for Common Shares or Preferred Shares of the
holding company to be created as provided herein. The Common Shareholders and
the Preferred Shareholders are collectively referred to as the "Shareholders."
WHEREAS, Monogenesis is a closed-end investment company with in excess of
1,000 shareholders which was formed to provide a mechanism for companies to
become reporting companies under the Securities Act of 1934 through
distributions to its shareholders;
WHEREAS, OWE desires to form a holding company which will have a class of
shares which may be traded publicly to facilitate access to equity capital and
future acquisitions and to provide liquidity for its shareholders and value to
employee stock incentive programs;
WHEREAS, a Delaware corporation (the "Holding Company") will be created
which will acquire all of the issued and outstanding shares of stock of OWE in a
stock for stock exchange;
WHEREAS, the Holding Company will have four classes of stock authorized:
Common Shares, Class B Common Shares, Class D Common Shares and Preferred Shares
as well as the common stock purchase warrants described below;
WHEREAS, as of September 30, 1999, OWE had authorized 100,000 shares of
Common Stock, 30,000 of which were issued and outstanding, and 50,000 shares of
Preferred Stock, of which 1,000 shares of Series C, 1,500 shares of Series D,
1,200 shares of Series E, 1,250 of Series F, 2,000 of Series G, 550 of Series I,
1,000 of Series K and 183 of Series L were issued and outstanding;
WHEREAS, OWE has outstanding warrants to purchase 600 shares of common
stock of OWE;
WHEREAS, the Common Shareholders own all of the issued and outstanding
common stock of OWE and desire to exchange their stock in OWE for stock in the
Holding Company, in the ratio of 8 Class B Common Shares and 140 Common Shares
of the Holding Company for each share of common stock of OWE;
<PAGE>
WHEREAS, the Preferred Shareholders own all of the issued and outstanding
preferred stock of OWE and desire to exchange such preferred stock for 1,537,200
Common Shares, 1,000 Preferred Shares - Series C, 680 Preferred Shares - Series
E, 1,050 Preferred Shares - Series F, 2,000 Preferred Shares - Series G, 125
Preferred Shares - Series I, and 74 Preferred Shares - Series L;
WHEREAS, JWSI has received warrants to purchase 600 shares of common stock
of OWE for which JWSI will receive warrants to purchase 88,800 Common Shares of
the Holding Company;
WHEREAS, the Holding Company will authorize Common Stock Purchase Warrants
(the "Warrants") to purchase Common Shares of the Holding Company (which
Warrants will be exercisable for 18 months and have an exercise price of $8.00
per share);
WHEREAS, prior to the Closing Date (as hereinafter defined), Monogenesis
will purchase, and the Holding Company will issue to Monogenesis, 300,000 of its
Common Shares at a purchase price of $0.10 per share together with 1,000,000
Warrants at a purchase price of $0.01 per Warrant;
WHEREAS, prior to the stock for stock exchange, the Holding Company (and
OWE) will file a registration statement (the "Registration Statement")
registering 1,882,200 of the Common Shares to be issued to the Shareholders, all
of the Common Shares and all of the Warrants to be issued to Monogenesis, all of
the Common Shares which may be issued to JWSI upon the exercise of its warrants
(including Common Shares received upon conversion of Class B Common Shares) and
all of the Common Shares underlying the Warrants pursuant to the Securities Act
of 1933, as amended (the "1933 Act"); and
WHEREAS, on the Closing Date, Monogenesis will authorize its transfer agent
to distribute to Monogenesis shareholders 125 Common Shares of the Holding
Company and 450 Warrants of the Holding Company for each share of stock of
Monogenesis held;
NOW THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth, the parties agree as follows:
ARTICLE I
SECURITIES
1.1 Exchange of Securities. Subject to the terms and conditions
----------------------
hereinafter set forth, on the Closing Date (as defined below), the Holding
Company shall cause to be issued and delivered to the Shareholders the class and
the number of shares of stock of the Holding Company (the "Shares") set forth
opposite their names on Schedule 1.1, which is attached hereto and made a part
------------
hereof, in exchange for which the Shareholders shall deliver to the Holding
Company all of the issued and outstanding stock of OWE.
2
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1.2 JWSI Warrants. OWE has issued to JWSI warrants to purchase 600 of
-------------
its shares of common stock which will be exchanged for warrants to purchase
88,800 Common Shares of the Holding Company upon the terms and conditions
described in such warrants.
1.3 Issuance of Securities to Monogenesis. Prior to the exchange of
-------------------------------------
securities described in Section 1.1 above, the Holding Company shall issue to
Monogenesis 300,000 Common Shares upon receipt of the purchase price of $0.10
per share and 1,000,000 Warrants (in substantially the form attached hereto as
Exhibit 1.3) upon receipt of the purchase price of $0.01 per Warrant.
- -----------
1.4 Registration Statement. The Holding Company and OWE shall prepare
----------------------
and file the Registration Statement pursuant to the 1933 Act registering a total
of 3,271,000 Common Shares and 1,000,000 Warrants, which constitute 1,882,200 of
the 5,737,200 Common Shares to be issued to the Shareholders, the 300,000 Common
Shares and 1,000,000 Warrants to be issued to Monogenesis, the 88,800 Common
Shares underlying the JWSI warrants (including Common Shares to be received upon
conversion of the Class B Common Shares) and the 1,000,000 Common Shares
underlying the Warrants. The Shareholders shall receive the registered shares
as indicated on Schedule 1.1.
------------
1.5 Dispositions of Shares By the Shareholders. The parties desire that
------------------------------------------
this transaction qualify as a tax free reorganization under the Internal Revenue
Code of 1986, as amended. In furtherance thereof, the Shareholders shall not
dispose of any shares of the Holding Company stock received in the exchange if
such disposition would affect the tax-exempt nature of the transaction.
ARTICLE II
CLOSING
2.1 Time and Place. The closing of the transactions contemplated by this
--------------
Agreement (the "Closing") shall take place at the place and on such date and at
such time within ten business days after the date on which all of the conditions
set forth in Articles IX and X to each party's obligations hereunder have been
satisfied or waived, as set forth in a written notice from Monogenesis at least
five business days prior thereto; or on such other date and at such other time
and place as OWE and Monogenesis may mutually agree. The date on which the
Closing actually occurs is herein referred to as the "Closing Date."
2.2 Actions at the Closing. (a) At the Closing, the Shareholders shall
----------------------
deliver to the Holding Company and the Holding Company shall deliver to the
Shareholders the shares to be exchanged in accordance with Section 1.1 of this
Agreement. The Shareholders shall deliver the certificates representing all of
the issued and outstanding shares of stock of OWE to the Holding Company in
negotiable form or together with completed and executed stock powers
transferring such shares to the Holding Company. Upon receipt of such shares,
the Holding Company shall instruct the transfer agent to prepare and deliver
certificates representing the Shares.
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(b) At the Closing, JWSI shall deliver to the Holding Company and the
Holding Company shall deliver to JWSI, the warrants to be exchanged in
accordance with Section 1.2 of this Agreement. JWSI shall deliver the
certificates representing all of the issued and outstanding warrants of OWE held
by it to the Holding Company in negotiable form or together with completed and
executed assignments transferring such warrants to the Holding Company. Upon
receipt of such warrants, the Holding Company shall prepare and deliver
certificates representing the new warrants.
2.3 Holding Company Directors. The Board of Directors of the Holding
-------------------------
Company shall have the number of directors designated by OWE and shall consist
of the individuals designated by OWE.
2.4 Simultaneous Actions. All proceedings to be taken and all documents
--------------------
to be executed and delivered by the parties at the Closing shall be deemed to
have been taken and executed simultaneously and no proceedings shall be deemed
taken nor any documents executed or delivered until all have been taken,
executed and delivered.
ARTICLE III
REPRESENTATIONS AND WARRANTS OF OWE
OWE represents and warrants to Monogenesis, all of which representations
and warranties shall be true on the Closing Date and shall survive the Closing,
that:
3.1 Organization. OWE is a corporation duly organized, validly existing
------------
and in good standing under the laws of the State of California and has the power
to own its property and carry on its business as it is now being conducted. OWE
is duly qualified and in good standing to do business in every jurisdiction in
which such qualification is necessary and each of such jurisdictions is listed
on Schedule 3.1 attached hereto. Copies of the Articles of Incorporation and
------------
the Bylaws of OWE, which have been furnished by OWE to Monogenesis, are true and
correct copies of said documents including all amendments to the date hereof.
The offices and directors of OWE are listed on Schedule 3.1.
------------
3.2 Capitalization. OWE has authorized 100,000 shares of Common Stock
--------------
which have no par value and 50,000 shares of Preferred Stock which have no par
value. Of such shares, 30,000 shares of Common Stock, 1,000 shares of Series C
Preferred Stock, 1,500 shares of Series D Preferred Stock, 1,200 shares of
Series E Preferred Stock, 1,250 shares of Series F Preferred Stock, 2,000 shares
of Series G Preferred Stock, 550 shares of Series I Preferred Stock, 1,000
shares of Series K Preferred Stock and 183 shares of Series L Preferred Stock
are issued and outstanding and have been and will be duly authorized, validly
issued, fully paid and nonassessable. A list of all shareholders of OWE and the
number and class of shares held by each such shareholder is included on Schedule
--------
3.2. Except for the warrants issued to JWSI and as set forth on Schedule 3.2
- --- ------------
hereto and described herein, there is no: (i) outstanding security convertible
into or exchangeable for the Common Stock of OWE; (ii) option, warrant, put,
call or other right to purchase or subscribe to Common Stock of OWE; or (iii)
contract, commitment, agreement, understanding or arrangement
4
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of any kind relating to the issuance or disposition of Common Stock of OWE or
the issuance or disposition of any security convertible into Common Stock of
OWE. OWE's records reflect the ownership of all issued and outstanding shares of
its stock by the Shareholders.
3.3 Subsidiaries. OWE has no subsidiaries and owns no stock, partnership
------------
or other equity interest in any other entity.
3.4 Authority. OWE has full power to execute and perform this Agreement.
---------
The execution and delivery of this Agreement has been duly authorized by all
necessary corporate and other actions. Neither the execution nor delivery of
this Agreement nor the performance, observation or compliance with its terms and
conditions will violate any provision of law, any order of court or other
governmental agency, the Articles of Incorporation or Bylaws of OWE, or any
indenture, agreement or other instrument to which OWE is a party, or by which it
is bound or by which any of its property is bound. No consent to the
performance, observation or compliance with the terms and conditions of this
Agreement by OWE is required from any third party.
3.5 Financial Statements. OWE has provided Monogenesis with true and
--------------------
complete copies of the following (collectively, the "Financial Statements"):
(a) the audited balance sheets of OWE as of March 31, 1999, 1998 and
1997, and the related audited statements of earnings and retained earnings and
cash flow for the fiscal years then ended, and notes related thereto; and
(b) the unaudited balance sheet (the "Balance Sheet") of OWE as of
September 30, 1999 (the "Balance Sheet Date") and the related unaudited
statement of earnings for the three months then ended, prepared by OWE and
accompanied by a certificate in the form of Exhibit 3.5 hereto executed by the
-----------
persons indicated on said Exhibit.
The Financial Statements either eliminate or clearly disclose all transactions
between OWE, the Shareholders and their affiliates. Except as otherwise noted
in the Financial Statements, the Financial Statements are complete and present
fairly the financial position of OWE and the results of its operations as of the
dates thereof and for the periods covered thereby in conformity with generally
accepted accounting principles applied on a consistent basis.
3.6 Absence of Undisclosed Liabilities. To the Best Knowledge (as defined
----------------------------------
in Section 3.20 below) of OWE, at the Balance Sheet Date (i) OWE had no
liabilities or obligations of any nature (matured or unmatured, fixed or
contingent) which were not provided for or disclosed on the Balance Sheet, (ii)
all reserves and allowances provided on the Balance Sheet were adequate for the
purposes indicated therein and (iii) there were no loss contingencies (as such
term is used in Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board (FASB)) which were not adequately provided
for in the Balance Sheet.
5
<PAGE>
3.7 Absence of Changes. Since the Balance Sheet Date, OWE's business has
------------------
operated in the ordinary course and there has not been (i) any adverse change in
its condition (financial or otherwise), assets, liabilities, earnings or
business; (ii) any obligation or liability (whether absolute, accrued,
contingent or otherwise and whether due or to become due) incurred, or any
transaction, contract or commitment entered into, other than items incurred or
entered into (as the case may be) in the ordinary course of the business; (iii)
any amendment or termination of a material contract, license, lease, commitment
or other agreement to which OWE is a party, except in the ordinary course of
business and consistent with past practice; (iv) any license, sale, transfer,
pledge, mortgage or other disposition of any tangible or intangible asset or
Intellectual Property (as defined in Section 3.13 below) except sales of
mortgages or other property in the ordinary course of business and consistent
with past practice; (v) any failure to operate its business in the ordinary
course consistent with past practice, including, but not limited to, any failure
to make capital expenditures or investments necessary to continue business in
the ordinary course or any failure to pay trade accounts payable when due; or
(vi) any dividend or other distribution declared or paid or any change in its
outstanding capital stock except as disclosed to Monogenesis.
3.8 Title to Assets. OWE has good and marketable title to all of its
---------------
assets, free and clear of all mortgages, liens, pledges, charges, security
interests, rights of way, options, rights of first refusal, conditions,
restrictions or encumbrances of any kind or character, whether or not relating
to the extension of credit or the borrowing of money (collectively,
"Encumbrances"), except for (i) the Encumbrances disclosed in the Financial
Statements and (ii) liens for taxes and governmental charges not yet payable
without penalty. There is no asset used or required by OWE in the conduct of
its business which is not either owned by it or licensed or leased to it.
3.9 Litigation. Except as disclosed in the Registration Statement, there
----------
are no (i) audits, inspections, actions, suits, claims, investigations or legal,
administrative or arbitration proceedings pending or threatened against OWE,
whether at law or in equity, whether civil or criminal in nature or whether
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, nor,
to the Best Knowledge of OWE, does any basis exist therefor or (ii) judgments,
decrees, injunctions or orders of any court, governmental department,
commission, agency, instrumentality or arbitrator against OWE.
3.10 Compliance; Governmental Authorization. (a) OWE has complied with
--------------------------------------
all federal, state, territorial, local or foreign laws, ordinances, regulations
or orders applicable to its business or assets, including, by way of
description, and not limitation, matters relating to the environment, anti-
competitive practices, discrimination, employment, health and safety, taxes,
issuance of securities, customs duties and requirements and foreign practices.
OWE has all federal, state, territorial, local and foreign governmental licenses
and permits necessary in the conduct of its business as presently conducted,
which licenses and permits are in full force and effect, and no violations are
outstanding or uncured with respect to any such licenses or permits and no
proceeding is pending or threatened to revoke or limit any of them. Such
licenses, consents and permits shall not be affected in any respect by the
transactions contemplated hereby.
6
<PAGE>
(b) As used in this Agreement, "Hazardous Substance" shall mean and
include all hazardous or toxic substances, wastes or materials, any pollutants
or contaminants (including, without limitation, all oil and petroleum of any
kind and in any form, asbestos and raw materials which include hazardous
constituents), or any other similar substances, or materials which are included
under or regulated by any applicable local, state, federal or foreign law, rule
or regulation pertaining to environmental regulation, contamination, clean-up or
disclosure, including, without limitation, the Clean Air Act, the Federal Water
Pollution Control Act, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of
1986, the Resource Conservation and Recovery Act of 1976, the Toxic Substances
Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the
Occupational Safety and Health Act, the Emergency Planning and Community Right-
to-Know Act of 1986, and all comparable applicable state or local laws, orders
and regulations, as any of the foregoing has heretofore been amended.
(c) OWE hereby warrants to Monogenesis that OWE and the supervisory
employees, officers and directors of OWE have no knowledge of the presence,
storage, disposition, generation, treatment, release or discharge of any
Hazardous Substance on, under or about the assets owned by OWE or the land and
buildings on and in which OWE currently conducts or previously conducted its
operations except in accordance with applicable laws.
3.11 Labor Relations; Employees. OWE is in compliance with all applicable
--------------------------
federal, state, territorial, local and foreign laws and regulations respecting
labor, employment and employment practices, terms and conditions of employment
and wages and hours. There is no unfair labor practice complaint against OWE
pending before any state, local or foreign agency. There is no labor strike,
dispute, slowdown, stoppage or organizational effort or similar activity
actually pending or, to the Best Knowledge of OWE, threatened involving OWE; no
representation question exists respecting the employees of OWE; and no
collective bargaining agreement presently covers any employees of OWE, nor is
any currently being negotiated.
3.12 Employee Benefit Plans. Schedule 3.12 attached hereto lists all
---------------------- -------------
"employee pension benefit" plans (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), all "employee
welfare benefit" plans (as defined in Section 3(1) of ERISA) and any other
qualified or non-qualified plans, programs or letters of commitment promising
current or future benefits or deferred compensation (individually, a "Plan" and,
collectively, the "Plans") maintained by OWE. All Plans which are "employee
pension benefit" plans are so indicated on Schedule 3.12. All reports,
-------------
statements, returns and other information required to be furnished or filed with
respect to the Plans have been furnished or filed, or both, and all required
records have been maintained. There are no actions, suits or claims pending, or
to the Best Knowledge of OWE, threatened against, involving or affecting any
Plan. OWE has no material liability, civil or criminal, under any provision of
ERISA or any other applicable statute or rule of law with respect to the Plans.
There are no violations of the health care continuation coverage requirements of
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA")
with respect to employees of OWE or any qualified beneficiaries of such
employees.
7
<PAGE>
3.13 Intellectual Property. Set forth on Schedule 3.13 is a list and a
--------------------- -------------
brief description or identification of all material intellectual property rights
owned, leased or licensed by OWE or used in connection with its business,
including without limitation all patents, patent applications, trade names,
fictitious or assumed names, trademarks, trademark applications, service marks,
service mark applications, copyrights, copyright applications, patterns,
inventions, trade secrets, proprietary processes and formulae, license
agreements, and all other similar proprietary rights, whether patentable or
unpatentable (collectively, the "Intellectual Property"). Except only as set
forth on Schedule 3.13, OWE is not a licensor or licensee in respect of any
-------------
Intellectual Property which is material to its business. OWE owns or possesses
adequate licenses or other rights to use all Intellectual Property necessary to
conduct its business as now operated and all of such Intellectual Property is
owned outright by OWE except as is otherwise specifically noted on Schedule
--------
3.13. To the Best Knowledge of OWE, there is no infringement, misappropriation
- -----
or other misuse being made by any other party of the Intellectual Property. No
claim is pending or threatened to the effect that the present or past operations
of OWE infringe or conflict with the asserted rights of others in respect of any
Intellectual Property, and no claim is pending or threatened to the effect that
any of such Intellectual Property is invalid or unenforceable.
3.14 Accounts and Notes Receivable. Except as otherwise reflected in the
-----------------------------
Financial Statements, all unpaid accounts and notes receivable outstanding at
the date hereof constitute, and those outstanding at the Closing Date will
constitute, valid and enforceable claims arising in bona fide transactions in
---- ----
the ordinary course of business, except as enforceability is limited by
applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent
conveyance or similar laws affecting the enforcement of creditors rights
generally. Except as described in the Financial Statements, there is (i) no
account or note debtor who has refused or threatened to refuse to pay its
obligations or who has or threatened to set-off such obligations for any reason,
(ii) no account or note debtor who is to OWE's Best Knowledge insolvent or
bankrupt and (iii) no account or note receivable pledged to any third party.
The reserves and allowances provided for on the Balance Sheet have been
established on the basis of historical experience in accordance with generally
accepted accounting principles. To the Best Knowledge of OWE, no material
customer of OWE is currently a debtor in any proceeding under the Federal
Bankruptcy Code, a state insolvency law or other similar law.
3.15 Loan Inventories. The loan inventories of OWE are, and at the
----------------
Closing Date will be, (i) of a quantity which is reasonable in the circumstances
of OWE; and (ii) of a quality which is substantially similar to the historical
quality of OWE's inventory.
3.16 Tax Matters. For purposes of this Agreement, the term "Taxes" means
-----------
all taxes of any kind or nature, including but not limited to federal, state,
local and foreign income taxes, withholding taxes, branch profit taxes, gross
receipts taxes, franchise taxes, sales and use taxes, business and occupation
taxes, property taxes, VAT, custom duties or imposts, stamp taxes, excise taxes,
payroll taxes, intangible taxes and capital taxes and any penalties or interest
thereon. OWE has filed within the time and in the manner prescribed by law all
tax returns and reports required to be filed by it under the laws of the United
States and each state or other jurisdiction in which it conducts business
activities requiring the filing of tax returns or reports. OWE has paid or set
up adequate
8
<PAGE>
reserves in the Balance Sheet in respect of all Taxes. There are no tax liens,
whether imposed by the United States, any state, local, foreign or other taxing
authority, outstanding against OWE or its assets. All Taxes and assessments that
OWE is required to withhold or to collect have been duly withheld or collected
and all withholdings and collections have either been duly and timely paid over
to the appropriate governmental authorities or are, together with the payments
due or to become due in connection therewith, duly reflected on the Balance
Sheet in accordance with generally accepted accounting principles.
3.17 Books and Records. The books of account and other corporate
-----------------
financial records of OWE are in all material respects complete and correct, have
been maintained in accordance with good business practices and matters contained
therein are appropriately and accurately reflected in the Financial Statements.
The corporate record book of OWE contains true and complete copies of all
meetings of its shareholders and directors.
3.18 Disclosure. Neither this Agreement (including the Schedules and
----------
Exhibits attached hereto) nor any other document, certificate or statement
furnished to Monogenesis by or on behalf of OWE in connection with the
transactions contemplated hereby, when considered in the aggregate with all
other such documents, certificates or statements, contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein not misleading.
3.19 Best Knowledge of OWE. OWE represents and warrants that each time a
---------------------
representation and warranty is based on "Best Knowledge" that the officers of
OWE have made a duly diligent investigation and inquiry.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders, jointly and severely, represent and warrant, all of
which representations and warranties shall be true on the Closing Date and shall
survive the Closing, that:
4.1 Authority. The Shareholders have full power and authority to execute
---------
and perform this Agreement and to exchange the shares of stock of OWE upon the
terms provided in this Agreement. The execution and delivery of this Agreement
has been duly authorized by the Shareholders. Neither the execution nor
delivery of this Agreement nor the performance, observation or compliance with
its terms and provisions will violate any provision of law, any order of court
or other governmental agency, or any indenture, agreement or other instrument to
which any Shareholder is a party, or by which such Shareholder or such
Shareholder's property is bound. No consent to the performance, observation or
compliance with the terms and conditions of this Agreement by the Shareholders
is required from any third party.
4.2 Stock Ownership. All of the issued and outstanding stock of OWE is
---------------
directly owned by the Shareholders, as indicated herein, free and clear of all
liens, encumbrances, security
9
<PAGE>
interests, charges, pledges, options, restrictions on transfer, rights of
refusal or other adverse claims of any kind. No person owns or has any
beneficial interest in any stock except the Shareholders. The Shareholders have
good and marketable title to the shares of stock of OWE being transferred. The
Shareholders have not transferred or assigned, or entered into any agreement or
understanding to transfer or assign, any of the stock of OWE or any of the
voting rights pertaining to such shares except as described herein.
4.3 Investment Representations. (a) The Shareholders have received such
--------------------------
material information as has been requested for purposes of becoming fully
familiar with the financial condition of OWE and the expected condition of the
Holding Company, the administration of their business affairs, and their
prospects for future business.
(b) The Shareholders are fully aware and have been advised that the
securities received pursuant to this Agreement are speculative in nature and
that neither OWE nor the Holding Company make any assurance whatever concerning
the present or prospective value of the securities.
(c) The Shareholders understand that, with the exception of the
1,882,200 Common Shares which will be registered pursuant to the 1933 Act, the
Common Shares, the Class B Common Shares and the Preferred Shares to be received
by the Shareholders pursuant to this Agreement will not be registered under the
1933 Act, on the ground that the securities are being issued and sold in a
transaction not involving any public offering and that, consequently, the
transaction is exempt from registration under the 1933 Act by virtue of the
provisions of Section 4(2) thereof; nor are the securities to be registered
under the securities laws of any state on the ground that the transaction is
exempt, or registration of securities is not required.
(d) The Shareholders understand that the issuance of the Holding
Company stock has not been qualified with the Commissioner of Corporations of
the State of California and the issuance of such securities, or the payment or
receipt of any part of the consideration therefor, prior to such qualification
is unlawful, unless the sale of securities is exempt from qualification by
(S)(S) 25200, 25102 or 25105 of the California Corporation Code and that the
rights of all parties to this Agreement are expressly conditioned upon such
qualification being obtained, unless the issuance is so exempt.
(e) The Shareholders understand that the reliance of OWE and the
Holding Company upon the above exemptions is predicated in part on the
representation of the Shareholders that such unregistered securities are being
acquired for the account of the Shareholders with no present intention of
reselling or otherwise distributing the same.
(f) The Shareholders understand that they will not be able to dispose
of any shares acquired pursuant to this Agreement, except such shares as are
registered as described in Article I, or any interest therein unless and until
such shares or interests have been registered under the 1933 Act and applicable
state securities laws or the disposition is exempt from registration or
qualification under applicable securities laws and, if requested by the Holding
Company, the Holding Company
10
<PAGE>
has received an opinion from counsel satisfactory to it that registration or
qualification is not required in connection with such disposition. The
Shareholders understand that the Holding Company will prohibit transfers of the
shares which are not registered as described in Article I in the absence of
registration or the mentioned exemptions and a restrictive legend will be placed
on the Class B Common Shares, the Preferred Shares and on the Common Shares
received by the Shareholders which are not registered as described in Article I
reflecting these restrictions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MONOGENESIS
Monogenesis represents and warrants, all of which representations and
warranties shall be true on the Closing Date and shall survive the Closing,
that:
5.1 Organization. Monogenesis is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware and has
the corporate power to carry on its business as it is now being conducted.
5.2 Authority. Monogenesis has the full power to execute and perform
---------
this Agreement. The execution and delivery of this Agreement has been duly
authorized by all necessary corporate and other actions. Neither the execution
nor delivery of this Agreement nor the performance, observance or compliance
with its terms and conditions will violate any provision of law, any order of
court or other governmental agency, the Certificate of Incorporation or Bylaws
of Monogenesis or any indenture, agreement or other instrument to which
Monogenesis is a party, or by which it is bound. No consent to the performance,
observation or compliance with the terms and conditions of this Agreement by
Monogenesis is required from any third party.
5.3 Shareholders. Monogenesis has in excess of 1,000 shareholders.
------------
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF JWSI
JWSI represents and warrants, all of which representations and warranties
shall be true on the Closing Date and shall survive the Closing, that:
6.1 Organization. JWSI is a corporation duly organized, validly existing
------------
and in good standing under the laws of the State of Delaware and has the
corporate power to carry on its business as it is now being conducted.
6.2 Authority. JWSI has the full power to execute and perform this
---------
Agreement. The execution and delivery of this Agreement has been duly
authorized by all necessary corporate and other actions. Neither the execution
nor delivery of this Agreement nor the performance, observance or compliance
with its terms and conditions will violate any provision of law, any order of
court or other governmental agency, the Certificate of Incorporation or Bylaws
of JWSI or any indenture,
11
<PAGE>
agreement or other instrument to which JWSI is a party, or by which it is bound.
No consent to the performance, observation or compliance with the terms and
conditions of this Agreement by JWSI is required from any third party.
6.3 Ownership of Warrants. JWSI will own the warrants of OWE to be
---------------------
exchanged hereunder free and clear of all liens, encumbrances, security
interests, charges, pledges, options, restrictions on transfer, rights of
refusal or other adverse claims of any kind. JWSI has good and marketable title
to the warrants being transferred. JWSI has not transferred or assigned, or
entered into any agreement or understanding to transfer or assign, any of the
warrants.
ARTICLE VII
COVENANTS OF OWE
OWE hereby covenants and agrees with Monogenesis as follows:
7.1 Conduct of Business Until Closing Date. Except as permitted or
--------------------------------------
required hereby or as Monogenesis may otherwise consent in writing, between the
date hereof and the Closing Date, OWE shall:
(a) operate its business only in the usual, regular and ordinary
manner as such business was conducted prior to the Balance Sheet Date and, to
the extent consistent with such operation, use its best efforts to (i) preserve
the present business organization intact, (ii) keep available the services of
the present employees, and (iii) preserve the present business relationship with
customers, suppliers and others having business dealings with it;
(b) maintain all properties necessary for the conduct of the
business, whether owned or leased, in substantially the same condition as they
now are (reasonable wear and tear which are not such as to materially adversely
affect operations and damage due to unavoidable casualty excepted);
(c) neither (i) encumber, mortgage or voluntarily subject to lien,
except for liens created pursuant to existing loan agreements or made in the
ordinary course of business, any of the properties or assets, (ii) convey,
transfer or acquire any material asset or property other than in the ordinary
course of business, nor (iii) except in the ordinary course of business, incur
any material fixed or contingent obligation or enter into any material
agreement, commitment or other transaction or arrangement; and
(d) neither declare, set aside, pay or make any dividend or other
distribution or payment on or in respect of shares of its stock, nor directly or
indirectly redeem, retire, purchase or otherwise acquire any of its stock.
7.2 Access to Properties and Records. OWE shall give to Monogenesis and
--------------------------------
its representatives reasonable access during normal business hours to OWE's
properties, personnel,
12
<PAGE>
books, tax returns, contracts, commitments and records and the right to make
copies thereof. OWE shall furnish to Monogenesis and such representatives all
such additional documents and financial and other information as Monogenesis or
its representatives may from time to time reasonably request and permit
Monogenesis and such representatives to examine all records and working papers
relating to the preparation, review and audits of OWE's financial statements and
tax returns.
7.3 Advice of Changes. Between the date hereof and the Closing Date, OWE
-----------------
shall advise Monogenesis promptly in writing of any fact of which any OWE
becomes aware, which, if known at the date hereof, would have been required to
be set forth or disclosed in or pursuant to this Agreement.
7.4 Conduct. Except as permitted or required hereby or as OWE may notify
-------
Monogenesis in writing, OWE shall not enter into any transaction, take any
action, or fail to take any action, which would result in any of the
representations and warranties of OWE contained in this Agreement or in any
Schedule or Exhibit hereto not being true and correct at and as of the time
immediately after such transaction has been entered into or such event has
occurred and on the Closing Date.
7.5 Approvals, Consents. OWE shall obtain in writing prior to the
--------------------
Closing Date all approvals, consents and waivers, required to be obtained by OWE
in order to effectuate the transactions contemplated hereby, and shall deliver
to Monogenesis copies thereof, reasonably satisfactory in form and substance to
Monogenesis.
ARTICLE VIII
COVENANTS OF MONOGENESIS
Monogenesis hereby covenants and agrees with OWE as follows:
8.1 Confidentiality; Return of Documents. Unless and until the
------------------------------------
transactions contemplated by this Agreement are consummated, Monogenesis shall
keep in confidence all proprietary and financial information of OWE, and shall
not, except to the extent required by law or to the extent any such information
is otherwise publicly available, without the prior written consent of OWE,
reveal any such financial or proprietary information to any third party other
than securities regulatory authorities in connection with the Registration
Statement or counsel, accountants or experts retained by Monogenesis who shall
be bound by the same restrictions. If the transactions contemplated by this
Agreement are not consummated, at OWE's request, Monogenesis shall return to OWE
all documents supplied to Monogenesis by OWE pursuant to the provisions of this
Agreement.
13
<PAGE>
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF MONOGENESIS
The obligation of Monogenesis to perform as provided in this Agreement is
subject to the satisfaction at or prior to the Closing Date of the following
conditions unless waived by Monogenesis in its sole discretion:
9.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of OWE and the Shareholders contained in this Agreement and in any
Schedule or Exhibit hereto shall be true and accurate in all material respects
on and as of the Closing Date, with the same force and effect as if made on the
Closing Date, except as affected by transactions required or permitted hereby,
and except that any such representation or warranty made as of a specified date
(other than the date of this Agreement) shall have been true and accurate in all
material respects on and as of such date.
9.2 Performance of Agreements. OWE and the Shareholders shall have
-------------------------
performed and complied with all covenants, obligations and agreements to be
performed or complied with, on or before the Closing Date pursuant to this
Agreement or any Schedule or Exhibit hereto, including, but not limited to, the
transfer of the Shares to the Holding Company.
9.3 Officer's Certificate. Monogenesis shall have received an accurate
---------------------
certificate of a duly authorized officer of OWE, dated the Closing Date,
satisfactory in form and substance to Monogenesis, certifying the fulfillment of
the matters specified in Sections 9.1 and 9.2.
9.4 Secretary's Certificate. Monogenesis shall have received an accurate
-----------------------
certificate of the Secretary of OWE, dated the Closing Date, satisfactory in
form and substance to Monogenesis, with respect to the resolutions adopted by
the Board of Directors of OWE approving this Agreement and the transactions
contemplated hereby.
9.5 Consents, Authorizations. All consents, authorizations, orders or
------------------------
approvals of, and filings or registrations with and the expiration of all
waiting periods imposed by, any third party, including, without limitation, any
federal, state or local commission, board or other regulatory body, lender,
lessor, licensor or supplier which are required for or in connection with the
execution and delivery of this Agreement by OWE and the Shareholders and the
consummation of the transactions contemplated hereby shall have been duly
obtained or made and shall be in full force and effect.
9.6 Legislation. No federal, state or local statute, rule or regulation
-----------
shall have been enacted after the date of this Agreement which prohibits,
restricts, delays or materially adversely affects the business of OWE or the
consummation of the transactions contemplated by this Agreement or any of the
conditions to the consummation of such transactions. No temporary restraining
order or injunction shall be in effect, or threatened by a governmental agency,
restraining the consummation of the transactions contemplated hereby.
14
<PAGE>
9.7 JWSI Warrants. OWE shall have sold to JWSI warrants to purchase 600
-------------
of its shares of common stock.
9.8 Issuance, Registration and Distribution of Shares and Warrants. The
--------------------------------------------------------------
Holding Company shall have been formed and shall have taken all steps necessary
to issue the Shares and Warrants in accordance with this Agreement. Monogenesis
shall have resolved to distribute to each of its shareholders 125 Common Shares
and 450 Warrants of the Holding Company to be issued to Monogenesis for each
share of stock of Monogenesis held by such shareholder. The Registration
Statement shall have been filed registering 1,882,200 of the Common Shares to be
issued to the Shareholders, all of the Common Shares to be issued to Monogenesis
and JWSI, all of the Warrants and all of the Common Shares underlying the
Warrants, and such Registration Statement shall have become effective.
9.9 Good Standing Certificates. Monogenesis shall have received
--------------------------
certificates acceptable to it from the Secretary of State of (i) the
jurisdiction in which OWE is incorporated, certifying that OWE is in good
standing under the laws of such jurisdiction and a certified copy of the
Articles of Incorporation of OWE and all amendments, and (ii) each jurisdiction
in which OWE is qualified to do business as a foreign corporation, certifying
that OWE is so qualified and in good standing.
9.10 Financial Statements. Monogenesis shall have received: (i) the
--------------------
audited balance sheet of OWE of March 31, 1999 and the related audited
statements of earnings, retained earnings and cash flows for the fiscal year
then ended; and (ii) the unaudited balance sheet of OWE as of the quarter-end
immediately preceding the Closing Date (or the prior quarter-end if the Closing
occurs within 35 days of the end of a quarter), and the related unaudited
statements of earnings, retained earnings and cash flows for the portion then
ended of the fiscal year commencing April 1, 1999, presented on a comparative
basis with financial statements of the same portion of the preceding fiscal
year, prepared by OWE and accompanied by a certificate in the form of Exhibit
-------
3.5 attached hereto executed by the persons indicated on said Exhibit. Such
- ---
statements for the fiscal year commencing April 1, 1999 shall not differ from
those for the comparable period of the preceding fiscal year in any materially
adverse respect.
9.11 Casualty. There shall have not occurred any fire, flood, earthquake
--------
or other casualty to assets of OWE resulting in a cost of repair or replacement
of more than $25,000 in excess of applicable insurance coverage.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF OWE, THE SHAREHOLDERS AND JWSI
The obligation of OWE, the Shareholders and JWSI to perform their
obligations under this Agreement is subject to the satisfaction at or prior to
the Closing Date of the following conditions unless waived by OWE, the
Shareholders and JWSI in their sole discretion:
15
<PAGE>
10.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of Monogenesis contained in this Agreement or in any Schedule or
Exhibit hereto shall be true and accurate in all material respects on and as of
the Closing Date, with the same force and effect as if made on the Closing Date,
except as affected by transactions required or permitted hereby, and except that
any such representation or warranty made as of a specified date (other than the
date of this Agreement), shall have been true and accurate in all material
respects on and as of such date.
10.2 Performance of Agreements. Monogenesis shall have performed and
-------------------------
complied in all material respects with all covenants, obligations and agreements
to be performed or complied with by it on or before the Closing Date pursuant to
this Agreement or any Schedule or Exhibit hereto.
10.3 Officer's Certificate. OWE and the Shareholders shall have received
---------------------
an accurate certificate, dated the Closing Date, of a duly authorized officer of
Monogenesis, satisfactory in form and substance to OWE and the Shareholders,
certifying as to the fulfillment of the matters specified in Sections 10.1 and
10.2.
10.4 Secretary's Certificate. OWE and the Shareholders shall have
-----------------------
received an accurate certificate, dated the Closing Date, of the Secretary of
Monogenesis, satisfactory in form and substance to OWE and the Shareholders,
with respect to the resolutions adopted by the Board of Directors of Monogenesis
approving this Agreement and the transactions contemplated hereby.
10.5 Consents, Authorizations. All consents, authorizations, orders or
------------------------
approvals of, and filings or registrations with, and the expiration of all
waiting periods imposed by any third party, including without limitation, any
federal, state or local commission, board or other regulatory body which are
required for or in connection with the execution and delivery by Monogenesis of
this Agreement and the consummation by Monogenesis of the transactions
contemplated hereby shall have been obtained or made and shall be in full force
and effect.
10.6 Legislation. No federal, state or local statute, rule or regulation
-----------
shall have been enacted after the date of this Agreement which prohibits,
restricts, delays or materially adversely affects the consummation of the
transactions contemplated by this Agreement or any of the conditions to the
consummation of such transactions. No temporary restraining order or injunction
shall be in effect, or threatened by a governmental agency, restraining the
consummation of the transactions contemplated hereby.
10.7 JWSI Warrants. OWE shall have sold to JWSI warrants to purchase 600
-------------
of its shares of common stock.
10.8 Issuance, Registration and Distribution of Shares and Warrants. The
--------------------------------------------------------------
Holding Company shall have been formed and shall have taken all steps necessary
to issue the Shares in accordance with this Agreement. Monogenesis shall have
resolved to distribute to each of its shareholders 125 Common Shares and 450
Warrants of the Holding Company to be issued to Monogenesis for each share of
stock of Monogenesis held by such shareholder. The Registration
16
<PAGE>
Statement shall have been filed registering 1,882,200 of the Common Shares to be
issued to the Shareholders, all of the Common Shares to be issued to Monogenesis
and JWSI, all of the Warrants and all of the Common Shares underlying the
Warrants, and such Registration Statement shall have be become effective.
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
(a) by OWE or Monogenesis at any time after ___________, 2000;
provided, however, that if the Registration Statement has not become effective
and Monogenesis is diligently pursuing the registration of the Shares then
Monogenesis may extend such date beyond _________, 2000 to a date within ten
business days of the effective date, but not later than ___________, 2000;
(b) by Monogenesis, if the after tax earnings of OWE do not equal an
average of $________ per month for the period beginning immediately after the
end of the last fiscal year and ending on the day prior to the effective date of
the Registration Statement;
(c) by Monogenesis, if there has been a violation or breach by OWE
or the Shareholders of any material agreement, representation or warranty of any
of them contained in this Agreement and such violation or breach has not been
waived by Monogenesis, or, with respect to a violation or breach of an
agreement, cured within ten business days after the receipt of written notice
thereof; or
(d) by OWE, if there has been a violation or breach by Monogenesis
of any material agreement, representation or warranty of Monogenesis contained
in this Agreement and such violation or breach has not been waived by OWE or,
with respect to a violation or breach of an agreement, cured within ten business
days after the receipt of written notice thereof.
In the event of termination of this Agreement and abandonment of the
transactions contemplated hereby pursuant to this Section 11.1, written notice
thereof shall immediately be given to the other party and this Agreement shall
terminate and the transactions contemplated hereby shall be abandoned, without
further action by any of the parties hereto. The provisions of Sections 8.1,
13.1 and 13.2 shall survive any such termination.
ARTICLE XII
INDEMNIFICATION
12.1 Indemnification. (a) OWE and the Common Shareholders shall, jointly
---------------
and severally, indemnify, defend and save Monogenesis harmless from, against,
for and in respect of the following: (i) any damages, losses, obligations,
liabilities, claims, actions or causes of action sustained
17
<PAGE>
or suffered by Monogenesis and arising from a breach of any representation,
warranty, covenant or agreement of OWE or the Shareholders contained in or made
pursuant to this Agreement (including the Schedules and Exhibits attached
hereto), or in any certificate, instrument or agreement delivered by OWE or the
Shareholders pursuant hereto or in connection with the transactions contemplated
hereby; and (ii) all reasonable costs and expenses (including, without
limitation, reasonable fees and expenses of attorneys, accountants and other
professionals) incurred by Monogenesis in connection with any action, suit,
proceeding, demand, investigation, assessment or judgment incident to any of the
matters indemnified against under this Section 12.1(a). Monogenesis shall not
bring a claim, demand, suit or cause of action against OWE under or pursuant to
this Section 12.1(a) with respect to the representations and warranties set
forth in Articles III and IV hereof unless Monogenesis has first given OWE and
the Common Shareholders written notice, with reasonable specificity, of the
existence of any such claim, demand, suit or cause of action under this
Agreement. Upon the giving of such written notice as aforesaid, Monogenesis
shall have the right, in addition to all other remedies available to it, to
commence legal proceedings for the enforcement of its rights under this
Agreement. Monogenesis, at its option and with at least two days advance notice
to the affected party, may recover any such liability by set off against
payments otherwise required to be made by Monogenesis to such party pursuant to
any agreement between Monogenesis and such party.
(b) Monogenesis shall indemnify, defend and save OWE and the
Shareholders harmless from, against, for and in respect of the following: (i)
any damages, losses, obligations, liabilities, claims, actions or causes of
action sustained or suffered by OWE or the Shareholders and arising from a
breach of any representation, warranty, covenant or agreement of Monogenesis
contained in or made pursuant to this Agreement or in any certificate,
instrument or agreement delivered by it pursuant hereto or in connection with
the transactions contemplated hereby; and (ii) all reasonable costs and expenses
(including, without limitation, reasonable fees and expenses of attorneys,
accountants and other professionals) incurred by OWE or the Shareholders in
connection with any action, suit, proceeding, demand, investigation, assessment
or judgment incident to any of the matters indemnified against under this
Section 12.1(b). Neither OWE nor the Shareholders shall bring a claim, demand,
suit or cause of action against Monogenesis under or pursuant to this Section
12.1(b) unless such party has first given Monogenesis written notice, with
reasonable specificity, of the existence of any such claim, demand, suit or
cause of action under this Agreement. Upon the giving of such written notice as
aforesaid, such party shall have the right, in addition to all other remedies
available to it, to commence legal proceedings for the enforcement of its rights
under this Agreement.
12.2 Third Party Claims. With respect to claims resulting from the
------------------
assertion of liability by third parties, the obligations and liabilities of the
party responsible for indemnification (the "Indemnifying Party") hereunder with
respect to indemnification claims by the party entitled to indemnity (the
"Indemnified Party") shall be subject to the following terms and conditions: (i)
the Indemnified Party shall give prompt written notice to the Indemnifying Party
of any assertion of liability by a third party which might give rise to a claim
by the Indemnified Party against the Indemnifying Party based on the indemnity
agreements contained in Section 11.1 hereof, stating the nature and basis of
said assertion and the amount thereof, to the extent known; and (ii) the
18
<PAGE>
Indemnifying Party shall not make any settlement of any claims without the
written consent of the Indemnified Party; provided, however, that if an
Indemnified Party does not consent to a settlement proposed by the Indemnifying
Party and accepted by the adverse third party, the liability of the Indemnifying
Party shall be limited to the amount that would have been paid in such
settlement.
12.3 Remedies Cumulative. The remedies provided for in this Article XII
-------------------
shall be cumulative and shall not preclude assertion by the Indemnified Party of
any other rights or the seeking of any other remedies against the Indemnifying
Party.
12.4 Recoveries. In the event an Indemnified Party subsequently receives
----------
payment (including without limitation proceeds of insurance and payments on
accounts receivable) with respect to a matter for which it has been fully
indemnified by the Indemnifying Party, the Indemnified Party shall promptly pay
the amount of such payment up to the indemnification received, to the
Indemnifying Party.
ARTICLE XIII
MISCELLANEOUS
13.1 Expenses; Transfer Taxes. All fees, costs and expenses incurred by
------------------------
OWE, the Shareholders or Monogenesis in connection with, relating to or arising
out of the preparation, execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby, including, without
limitation, organizational costs of the Holding Company, fees of the transfer
agent and legal and accounting fees and expenses relating to the formation of
the Holding Company and the preparation and filing of the Registration
Statement, shall be borne by OWE.
13.2 Binding Effect. This Agreement shall become binding and effective
--------------
when executed by the parties hereto. This Agreement shall not be assignable by
any party without the prior written consent of the other parties, except that
without relieving Monogenesis of any of its obligations under this Agreement,
Monogenesis may assign this Agreement to any of its affiliates. Subject to the
foregoing, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors, heirs, legal representatives and
assigns of the parties hereto. This Agreement constitutes an agreement among
the parties hereto and none of the agreements, covenants, representations or
warranties contained herein shall be for the benefit of any third party not a
party to this Agreement.
13.3 Entire Agreement; Amendments. This Agreement (including the
----------------------------
Schedules and Exhibits attached hereto) contains the entire understanding of the
parties with respect to its subject matter. This Agreement supersedes all prior
agreements and understandings between the parties with respect to the subject
matter hereof. This Agreement may be amended only by a written instrument duly
executed by the parties, and any condition to a party's obligations hereunder
may only be waived in writing by such party.
19
<PAGE>
13.4 Headings. The article and section headings contained in this
--------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.5 Notices. All notices, claims, certificates, requests, demands and
-------
other communications hereunder shall be in writing and shall be deemed given if
delivered personally, if mailed (by registered or certified mail, return receipt
requested and postage prepaid), if sent by reputable overnight courier service
for next business day delivery, or if sent by facsimile transmission, as
follows:
if to OWE, to: Marshall L. Stewart, Chief Executive Officer
Daryl Meddings, Chief Financial Officer
Ocean West Enterprises, Inc..
15991 Redhill Avenue, Suite 110
Tustin, California 92780
Telephone: (800) 500-6232
Facsimile: (714) 566-29201
if to Monogenesis Scot D. Walker, President
or JWSI, to: Monogenesis Corporation
Drawer 88, Walker Creek Road
Walker, West Virginia 26180-9948
Telephone: (800) 543-8620
Facsimile: (800) 543-8619
with a copy to: Lynn H. Wangerin, Esq.
Ogden Newell & Welch
1700 Citizens Plaza
500 West Jefferson Street
Louisville, Kentucky 40202-2874
Telephone: (502) 582-1601
Facsimile: (502) 581-9564
if to the such Shareholder's address set forth on the
Shareholders, to: books of OWE
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any such
communication shall be effective on the date of receipt (or, if received on a
non-business day, on the first business day after the date of receipt).
13.6 Publicity. The parties agree that, except as otherwise required by
---------
law, the issuance of any reports, statements or releases pertaining to this
Agreement or the transactions contemplated hereby is subject to mutual consent.
20
<PAGE>
13.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of Delaware (without giving
effect to its laws regarding conflicts of law).
13.8 Waivers. Any provision of this Agreement may be waived only by a
-------
written instrument executed by the party to be charged with such waiver. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
13.9 Defined Terms. Throughout this Agreement various terms have been
-------------
defined by being enclosed in quotation marks, usually in parentheses, and used
with their initial letters capitalized. Unless the context otherwise requires,
such defined terms shall have their designated meaning whenever used in this
Agreement or any attached schedules.
13.10 Fees. If there is any litigation between the parties related to
----
this Agreement or the transactions contemplated by this Agreement, the
prevailing party shall be entitled to recover all reasonable costs and expenses
(including, without limitation, reasonable fees and expenses of attorneys,
accountants and other professionals).
13.11 Counterparts. This Agreement may be signed by each party upon a
------------
separate copy or separate signature page, and any combination of separate copies
signed by all parties or including signature pages so signed will constitute a
single counterpart of this Agreement. This Agreement may be signed in any
number of counterparts, each of which will be deemed to be an original, but all
of which together will constitute one and the same agreement. It will not be
necessary, in proving this Agreement in any proceeding, to produce or account
for more than one counterpart of this Agreement. This Agreement will become
effective when one or more counterparts have been signed by each party, and
delivered to the other parties, respectively. Any party may deliver an executed
copy of this Agreement (and an executed copy of any documents contemplated by
this Agreement) by facsimile transmission to another party, and such delivery
will have the same force and effect as any other delivery of a manually signed
copy of this Agreement (or such other document).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first above written.
Ocean West Enterprises, Inc.
By:
----------------------------------
Title:
-------------------------------
Monogenesis Corporation
By:
----------------------------------
21
<PAGE>
Scot D. Walker, President
Joseph Walker and Sons, Inc.
By:
----------------------------------
Title:
-------------------------------
The Common Shareholders:
-------------------------------------
Marshall L. Stewart
-------------------------------------
Daryl S. Meddings
Agape Foundation Trust
By:
----------------------------------
Title:
-------------------------------
22
<PAGE>
SCHEDULE 1.1
------------
Holding Company Stock To Be
---------------------------
Issued to the Shareholders and JWSI
-----------------------------------
- -----------------------------------------------------------------------------
|Restricted | Registered| Class B| |
Name | Common | Common | Common | Preferred |
| Shares | Shares | Shares | Shares |
| | | | |
- -----------------------------------------------------------------------------
Daryl S. Meddings | 1,617,000 | 539,000 |108,000 | -0- |
- -----------------------------------------------------------------------------
Marshall L. Stewart | 1,608,000 | 536,000 |108,000 | -0- |
- -----------------------------------------------------------------------------
Agape Foundation Trust | 630,000 | 253,200 | 24,000 | -0- |
- -----------------------------------------------------------------------------
Cheyenne Properties, Inc. | -0- | 480,000 | -0- | -0- |
- -----------------------------------------------------------------------------
Joseph Walker & Sons | -0- | 88,800 | -0- | -0- |
- -----------------------------------------------------------------------------
Ronald C. and Judy M. | | | |Series E- 680 |
Meddings | -0- | 40,000 | -0- |Series F-1,050 |
- -----------------------------------------------------------------------------
Kingsley and Nancy Cannon | -0- | 24,000 | -0- | -0- |
- -----------------------------------------------------------------------------
Jennifer Ericson | | | |Series I-125 |
| -0- | 10,000 | -0- |Series L-74 |
- -----------------------------------------------------------------------------
Nestor H. and Mary | | | | |
Carmichael Stewart | -0- | -0- | -0- |Series C-1,000 |
| | | | |
- -----------------------------------------------------------------------------
Barum Ashem Unlimited | -0- | -0- | -0- |Series G-2,000 |
- -----------------------------------------------------------------------------
TOTAL | 3,855,000 | 1,971,000 |240,000 | 4,929 |
- -----------------------------------------------------------------------------
SCHEDULE 3.1
Jurisdictions in Which OWE is Qualified to Do Business
------------------------------------------------------
California
Officers and Directors of OWE
-----------------------------
Name Office
---- ------
Marshall L. Stewart President, Chief Executive Officer,
Director
Daryl Meddings Vice President, Chief Financial
Officer, Secretary, Treasurer,
Director
<PAGE>
SCHEDULE 3.2
Shareholders of Ocean West Enterprises, Inc.
--------------------------------------------
Number of Shares
Name of OWE Held
- ---- -----------
Common Stock
------------
Daryl S. Meddings 12,000
Marshall L. Stewart 12,000
Agape Foundation Trust 6,000
Series C Preferred Stock
------------------------
Nestor H. and Mary Carmichael Stewart 1,000
Series D Preferred Stock
------------------------
Cheyenne Properties, Inc. 1,500
Series E Preferred Stock
------------------------
Ronald C. and Judy M. Meddings 800
Daryl Meddings 200
Marshall Stewart 200
Series F Preferred Stock
------------------------
Ronald C. and Judy M. Meddings 1,250
Series G Preferred Stock
------------------------
Barum Ashem Unlimited 2,000
Series I Preferred Stock
------------------------
Kingsley and Nancy Cannon 300
Jennifer Ericson 250
Series K Preferred Stock
------------------------
Daryl S. Meddings 500
Marshall L. Stewart 500
Series L Preferred Stock
------------------------
Agape Foundation Trust 54
Jennifer Ericson 74
Daryl S. Meddings 35
Marshall L. Stewart 20
<PAGE>
Convertible Securities, Options,
--------------------------------
Warrants, Agreements Relating to Stock of OWE
---------------------------------------------
1. Joseph Walker & Sons, Inc. warrants to purchase 600 shares of Common
Stock.
SCHEDULE 3.12
Employee Benefit Plans
----------------------
1. Premium Reduction Option Cafeteria Plan adopted in 1993.
2. Ocean West Enterprises, Inc. 401(k) Profit Sharing Plan and Trust
adopted in 1997.
SCHEDULE 3.13
Intellectual Property
---------------------
1. Fannie Mae DESKTOP UNDERWRITER(R) - software designed to facilitate the
electronic underwriting of mortgage loan applications.
2. Fannie Mae GUIDE EXPRESS(R) by ADFINET - software containing the
electronic Fannie Mae Selling & Servicing Guides.
3. PowerPak - Origin Software Systems, Inc. processing software.
4. MAS90 - accounting software.
5. ADP PR software.
6. Fax Utility software.
EXHIBIT 1.3
Form of Common Stock Purchase Warrants
--------------------------------------
See exhibit to Registration Statement.
<PAGE>
EXHIBIT 3.5
Certificate Relating to Financial Statements
--------------------------------------------
FINANCIAL STATEMENTS CERTIFICATE
--------------------------------
The undersigned, President of Ocean West Enterprises, Inc. (the
"Corporation"), certifies that:
1. The balance sheet of the Corporation as of _________________ and the
income statement of the Corporation for the period beginning on April 1, 1999
and ending on ________________ (collectively, the "Financial Statements"), all
as attached hereto and provided in connection with the Stock Purchase Agreement
and Plan of Reorganization among the Corporation, its shareholders, Joseph
Walker & Sons, Inc. and Monogenesis Corporation dated _____________, 2000, are
complete and present fairly the financial position of the Corporation.
2. The undersigned is not aware of any matters which are not reflected on
such Financial Statements or which would make such Financial Statements
misleading in any manner.
Witness the signature of the undersigned as of this ____ day of
______________, 2000.
By:
------------------------------
Title:
---------------------------
<PAGE>
Exhibit 3(i)
CERTIFICATE OF INCORPORATION
OF
OCEAN WEST HOLDING CORPORATION
The undersigned, acting as incorporator of a corporation under the General
Corporation Law of the State of Delaware, adopts the following certificate of
incorporation for such corporation (the "Corporation"):
1. Name. The name of the Corporation is "Ocean West Holding
----
Corporation."
2. Purposes. The purpose of the Corporation is to engage in any lawful
--------
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
3. Classes of Stock. The total number of shares which the Corporation is
----------------
authorized to issue is 45,600,000 shares of which 30,000,000 shares shall be
designated "Common Shares;" 5,000,000 shall be designated "Class B Common
Shares;" 600,000 shall be designated "Class D Common Shares;" and 10,000,000
shall be designated "Preferred Shares," which shall initially have six series
and for which the Board of Directors may designate additional series. The
number of Class D Common Shares authorized shall not exceed 2% of the number of
Common Shares authorized. All shares of stock of the Corporation shall have a
par value of $0.01 per share. No holder of shares of any class of stock of the
Corporation now or hereafter authorized shall have any preferential or
preemptive right to subscribe for, purchase or receive any shares of the
Corporation of any class now or hereafter authorized, or any portions or
warrants for such shares, or any securities convertible into or exchangeable for
such shares, which may at any time be issued, sold or offered for sale by the
Corporation; except that, holders of Class B Common Shares shall have preemptive
rights with respect to the issuance of Class B Common Shares only. In addition,
the Corporation shall not sell or offer to sell any Class B Common Shares
without the prior approval of the holders of a majority of the issued and
outstanding Class B Common Shares.
4. Cumulative Voting. So long as required under California law and the
-----------------
Corporation is subject to such law, with respect to the election of directors
only, every shareholder entitled to vote at any election of directors may
cumulate such shareholder's votes and give one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of votes to
which such shares are normally entitled or distribute the votes on the same
principle among as many candidates as the shareholder determines; provided,
however, that no shareholder shall be entitled to cumulate votes as described in
this paragraph unless each such candidate's name has been placed in nomination
prior to the voting and the shareholder has given notice at the meeting prior to
the voting of such shareholder's intention to cumulate votes. If any
shareholder has given notice of the intention to cumulate votes, all
shareholders may cumulate their votes for candidates in nomination. The
candidates receiving the highest number of affirmative votes of shares entitled
to vote up the number of directors to be elected by such shares are elected. To
the extent or at such time as not required by
<PAGE>
California law, no holder of shares of any class of stock of the Corporation
shall be entitled to cumulative voting.
5. Common and Class B Common Shares. The Common Shares and the Class B
--------------------------------
Common Shares shall be identical in all respects and have equal rights and
privileges, except as otherwise provided in this certificate. The relative
rights, preferences and limitations of the shares of each class are as follows:
(a) Dividends. Except as provided in subparagraph 5(b), the
---------
Corporation shall not pay any dividends during any fiscal year to the holders of
Class B Common Shares, unless and until the Corporation shall have paid the
holders of Common Shares a dividend of not less than $0.05 per share during such
year, and in addition, unless the Corporation shall also pay the holders of
Common Shares a dividend per share at least equal to the dividend per share paid
to the holders of the Class B Common Shares during such year. The Corporation
may pay dividends to holders of Common Shares in excess of dividends paid, or
without paying dividends, to holders of Class B Common Shares. The dividend
preference for Common Shares shall not be cumulative.
(b) Share Distribution. The Corporation shall make a share
------------------
distribution of Class B Common Shares or Common Shares only as follows: (i)
Common Shares may only be distributed as a stock dividend on Common Shares and
Class B Common Shares may only be distributed as a stock dividend on Class B
Common Shares; except that, prior to the issuance of any Common Shares, Common
Shares may be distributed as a stock dividend on Class B Common Shares; and (ii)
if a stock dividend is declared with respect to either Common Shares or Class B
Common Shares, a stock dividend of the same number of shares shall be declared
with respect to the other of such classes.
(c) Stock Combinations or Splits. The Corporation shall not combine
----------------------------
or subdivide either Common Shares or Class B Common Shares without at the same
time making a proportionate combination or subdivision of shares of the other of
such classes.
(d) Voting. Each holder of Common Shares and Class B Common Shares
------
shall be entitled to one vote for each share of stock registered in such
shareholder's name, except that, (i) the holders shall have the cumulative
voting rights with respect to the election of directors described in paragraph 4
and (ii) the holders of Class B Common Shares shall have exclusive voting power
if no Common Shares, Class D Common Shares or voting Preferred Shares are issued
and outstanding and holders of Common Shares, Class D Common Shares and voting
Preferred Shares shall have exclusive voting power if no shares of Class B
Common Shares are issued and outstanding. In all other cases, voting power
shall be divided between such classes as follows:
(i) With respect to the election of directors, holders of
Common Shares together with the holders of Class D Common Shares and voting
Preferred Shares voting together as a separate class shall be entitled to elect
that number of directors which constitutes 25% of the authorized number of
members of the board of directors and, if such 25% is not a whole number, then
the holders of Common Shares, Class D Common Shares and voting Preferred Shares
shall be entitled to elect the nearest higher whole number of directors that is
at least 25% of such membership.
2
<PAGE>
Holders of Class B Common Shares voting as a separate class shall be entitled to
elect the remaining directors.
(ii) The holders of Common Shares, Class D Common Shares and
voting Preferred Shares shall be entitled to vote together as a separate class
on the removal, with or without cause, of any director elected by such holders
and the holders of Class B Common Shares shall be entitled to vote as a separate
class on the removal, with or without cause, of any director elected by the
holders of Class B Common Shares. However, so long as required by California
law, no director may be removed (unless the entire board is removed) when the
number of votes cast against removal, or not consenting in writing to the
removal, would be sufficient to elect the director if voted cumulatively at an
election at which the same total number of votes are cast (or, if the action is
taken by written consent, all shares entitled to vote were voted) and the entire
number of directors authorized at the time of the director's most recent
election were then being elected.
(iii) Any vacancy in the office of a director elected by the
holders of the Common Shares, Class D Common Shares and voting Preferred Shares
may be filled by a vote of such holders voting together as a separate class and
any vacancy in the office of a director elected by the holders of the Class B
Common Shares may be filled by a vote of such holders voting as a separate
class. In the absence of a stockholder vote, in the case of a vacancy in the
office of a director elected by either class, such vacancy may be filled by the
remaining directors as provided in the bylaws of the Corporation. If permitted
by the bylaws, the board of directors may increase the number of directors and
any vacancy so created may be filled by the board of directors; provided that,
so long as the holders of Common Shares, Class D Common Shares and voting
Preferred Shares have the rights provided in subparagraph 5(d) of this
certificate in respect of the last preceding annual meeting of stockholders, the
board of directors may be so enlarged by the board of directors only to the
extent that at least 25% of the enlarged board consists of directors elected by
the holders of the Common Shares, Class D Common Shares and voting Preferred
Shares or by persons appointed to fill vacancies created by the death,
resignation or removal of persons elected by the holders of the Common Shares,
Class D Common Shares and voting Preferred Shares.
(iv) Notwithstanding the foregoing, holders of Common Shares,
Class D Common Shares and voting Preferred Shares shall not have the right to
elect directors as set forth above if, on the record date for any stockholders'
meeting at which directors are to be elected, the number of issued and
outstanding Common Shares, Class D Common Shares and voting Preferred Shares is
less than 10% of the aggregate number of issued and outstanding voting shares of
all classes. In such case, all directors to be elected at such meeting shall be
elected by the holders of all voting shares voting together as a single class.
(v) The holders of the Common Shares and the holders of the
Class B Common Shares shall be entitled to vote as separate classes only when
required by law to do so irrespective of the limitations placed herein on the
voting rights of such stockholders, or when a separate class vote is required by
specific provision therefor in this certificate of incorporation or in the
bylaws of the Corporation. Holders of all voting shares shall vote as a single
class, in all other matters including, but not limited to, any amendment to this
certificate in order to increase or decrease
3
<PAGE>
the aggregate number of authorized shares of Common Stock, Class D Common Stock
or Preferred Stock.
(e) Conversion. Each holder of record of Class B Common Shares, in
----------
such holder's sole discretion and at such holder's option, may convert any whole
number or all of such holder's Class B Common Shares into fully paid and non-
assessable Common Shares at the rate (subject to adjustment as hereinafter
provided) of one Common Share for each Class B Common Share surrendered for
conversion. Any such conversion may be effected by surrendering the certificate
or certificates for the Class B Common Shares to be converted, duly endorsed, at
the office of the Corporation, or the transfer agent, if any, together with a
written notice to the Corporation that such holder elects to convert all or a
specified number of Class B Common Shares and stating the name or names in which
the certificate or certificates for such Common Shares are to be issued. The
conversion shall be deemed to have been made at the close of business on the
date of surrender and the person or persons entitled to receive the Common
Shares issuable on conversion shall be treated for all purposes as the record
holder or holders of such Common Shares on that date. No fraction of a Common
Share shall be issued on conversion of any Class B Common Share. In lieu
thereof, the Corporation shall pay the holder the fair market value of any such
fraction in cash. The fair market value shall be based, in the case of publicly
traded securities, on the last sale price for such securities on the business
day next prior to the date such fair market value is to be determined (or, in
the event no sale is made on that day, the average of the closing bid and asked
prices for that day on the principal stock exchange on which Common Shares are
traded or, if the Common Shares are not then listed on any national securities
exchange, the average of the closing bid and asked prices for the day quoted by
any electronic bulletin board), or, in the case of non-publicly traded
securities, the fair market value on such day determined by a qualified
independent appraiser appointed by the board of directors of the Corporation.
Any such determination of fair market value shall be conclusive and binding on
the Corporation and on each holder of Class B Common Shares and Common Shares.
(f) Liquidation. Holders of issued and outstanding Common Shares
-----------
shall have preference over the Class B Common Shares upon the voluntary or
involuntary liquidation of the Corporation, but only to the extent that the
holders of Common Shares be paid the par value of such shares prior to any
distribution being made to the holders of Class B Common Shares. In such case,
after receiving the par value of their shares, the holders of Common Shares
shall receive no further distribution unless and until each holder of Class B
Common Shares has received the par value of each share held and a sum equal to
the distribution made on each Common Share for which the holders of Class B
Common Shares have not received a like amount.
6. Class D Common Shares. Class D Common Shares shall be identical to
---------------------
Common Shares and have equal rights and privileges, except as otherwise set
forth below:
(a) Issuance. The board of directors, by resolution, may authorize
--------
the issuance of Class D Common Shares; provided that, each resolution
authorizing the issuance of Class D Common Shares shall provide a formula under
which the shares issued may be converted into Common Shares. In no case shall
the board of directors set any conversion rights which could result in the
issuance of more than ten Common Shares for each Class D Common Share.
4
<PAGE>
(b) Transfer. Class D Common Shares shall be non-transferable.
--------
(c) Conversion. The board of directors shall decide, in its sole
----------
discretion, if a holder of record of Class D Common Shares is deemed to have met
any conditions placed upon the conversion of the holder's Class D Common Shares
into Common Shares. Any such conversions may be effected by surrendering the
certificate or certificates for the Class D Common Shares to be converted, duly
endorsed, at the office of the Corporation, or the transfer agent, if any,
together with a written notice to the Corporation that such holder elects to
convert such Class D Common Shares and stating the name or names in which the
certificate or certificates for Common Shares are to be issued. The conversion
shall be deemed to have been made at the close of business on the date of
surrender and the person or persons entitled to receive the Common Shares
issuable on conversion shall be treated for all purposes as the record holder or
holders of such Common Shares on that date. At the close of business on the
fifth anniversary of the date of the resolution authorizing the issuance of any
Class D Common Shares, issued and outstanding but unconverted Class D Common
Shares which are eligible for conversion shall be deemed to have been converted
at the rate of one fully paid and non-assessable Common Share for one Class D
Common Share and, commencing at the close of business on such anniversary, the
record holder of such Class D Common Shares shall be treated for all purposes as
the record holder of the Common Shares issuable on such conversion.
7. Preferred Shares. The board of directors, by resolution, shall have
----------------
the authority to issue, in one or more series, Preferred Shares, having such
preferences, rights and limitations as are established by the board of
directors. However, the voting rights, if any, of one Preferred Share shall not
exceed the voting rights of one Common Share. The Corporation shall initially
have six series of Preferred Shares which shall have the number of authorized
shares and the preferences, rights and limitations described below:
(a) Preferred Shares - Series C. The Corporation shall be authorized
---------------------------
to issue 1,000 Preferred Shares - Series C which shares shall have the following
preferences, rights and limitations:
(i) Each Series C Preferred Share shall have a stated value
of $100 per share. The holders of the shares shall be entitled to receive in
liquidation $100 per share plus an amount equal to an annual rate of return of
12% on the stated value calculated from the date of issuance of Preferred Stock-
Series C by Ocean West Enterprises, Inc in 1993 which shares were exchanged for
the Preferred Shares - Series C less any dividends paid on such shares or on the
shares of Ocean West Enterprises, Inc. which were exchanged for the shares and
the Series C Preferred Shares shall have a liquidation preference to the extent
of such amount over Common Shares, Class B Common Shares, Class D Common Shares,
Preferred Shares - Series E, Preferred Shares - Series F, Preferred Shares -
Series G, Preferred Shares - Series I and Preferred Shares - Series L.
(ii) Holders of Preferred Shares - Series C shall be
entitled to the same voting rights as holders of Common Shares.
5
<PAGE>
(iii) The Corporation may redeem all or a portion of the
Preferred Shares -Series C at any time upon written notice for a redemption
price equal to the stated value of such shares plus an amount equal to an annual
rate of return of 12% on the stated value calculated from the date of the
issuance of Preferred Stock - Series C by Ocean West Enterprises, Inc. in 1993
which shares were exchanged for the Preferred Shares - Series C less any
dividends paid on such shares or on the shares of Ocean West Enterprises, Inc.
which were exchanged for the shares.
(iv) As long as any Preferred Shares - Series C are
outstanding, the Corporation shall not take any of the following actions without
the approval of the holders of two-thirds of the outstanding Preferred Shares -
Series C: (1) amend the Corporation's Certificate of Incorporation if such
amendment would alter or change the rights, preferences, privileges or powers
of, or restrictions provided for the benefit of, any Preferred Shares - Series C
and adversely affect such shares; (2) increase the number of authorized
Preferred Shares - Series C; or (3) sell, lease, convey, exchange, transfer or
otherwise dispose of, or create or incur any mortgage, lien, charge or
encumbrance on or security interest in or pledge of, or sell and leaseback, all
or substantially all of the assets of the Corporation.
(b) Preferred Shares - Series E. The Corporation shall be authorized
---------------------------
to issue 680 Preferred Shares - Series E which shares shall have the following
preferences, rights and limitations:
(i) Such Series E Preferred Share shall have a stated value
of $250 per share. The holders of the shares shall be entitled to receive in
liquidations $250 plus accumulated, but unpaid, dividends (including the amount
of accumulated, but unpaid, dividends on the shares of stock of Ocean West
Enterprises, Inc. which are exchanged for the Preferred Shares - Series E) and
the Series E Preferred Shares shall have a liquidation preference over Common
Shares, Class B Common Shares, Class D Common Shares, Preferred Shares - Series
F, Preferred Shares - Series G, Preferred Shares - Series I and Preferred
Shares - Series L, but shall be subject to the preference in liquidation of
Preferred Shares - Series C.
(ii) Holders of Preferred Shares - Series E shall be
entitled to annual cumulative dividends of $45.00 per share (18% of $250)
payable in equal monthly installments on or before the fifth day of each month.
(iii) Holders of Preferred Shares - Series E shall be
entitled to the same voting rights as holders of Common Shares.
(iv) The Corporation may redeem all or a portion of the
Preferred Shares -Series E at any time upon written notice with payment for such
shares to be made in immediately available funds within thirty days of notice.
The redemption price shall be the stated value plus accumulated, but unpaid,
dividends (including the amount of accumulated, but unpaid, dividends on the
shares of stock of Ocean West Enterprises, Inc. which were exchanged for the
Preferred Shares -Series E).
6
<PAGE>
(v) Prior to transfer of any Preferred Shares - Series E,
holders of such shares must first give written notice to the Corporation stating
the name and address of the proposed transferee, the number of shares to be
transferred, the price per share and the proposed terms of payment. During the
thirty day period following the Corporation's receipt of the notice, the
Corporation shall have the option, but not the obligation, to purchase all of
the offered shares at the price and upon the terms stated in the notice, except
that the price shall not exceed an amount equal to the redemption price
described in paragraph 7(b)(iv) and the terms shall not require payment of the
redemption price in immediately available funds in less than thirty days after
delivery of the Corporation's notice of exercise. The Corporation may exercise
the option by giving written notice of exercise to the holder of the offered
shares. If the Corporation does not purchase all offered shares, then the
offered shares may be transferred to the proposed transferee on the terms
specified in the notice for thirty days after the expiration of the
Corporation's option. The transferee shall hold the shares subject to the
provisions of this paragraph. No transfer of shares may be made after the above-
described thirty day period or upon different terms than are described in the
notice without the holder giving a new notice of intention to transfer and
complying with the terms of this paragraph. Any transfer of shares by a holder
in violation of this paragraph shall be null and void and of no effect.
(vi) As long as any Preferred Shares - Series E are
outstanding, the Corporation shall not take any of the following actions without
the approval of the holders of two-thirds of the outstanding Preferred Shares -
Series E: (1) amend the Corporation's Certificate of Incorporation if such
amendment would alter or change the rights, preferences, privileges or powers
of, or restrictions provided for the benefit of, any Preferred Shares - Series E
and adversely affect such shares; (2) increase the number of authorized
Preferred Shares - Series E to a number greater than 1,200; (3) authorize or
create shares of stock of any class having preference or priority as to
dividends or assets which are superior to any such preference or priority of the
Preferred Shares -Series E, or authorize or create shares of any class or bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having optional rights to purchase, any shares of the Corporation having any
preference or priority over Preferred Shares - Series E; or (4) sell, lease,
convey, exchange, transfer or otherwise dispose of, or create or incur any
mortgage, lien, charge or encumbrance on or security interest in or pledge of,
or sell and leaseback, all or substantially all of the assets of the
Corporation.
(c) Preferred Shares - Series F. The Corporation shall be authorized
---------------------------
to issue 1,250 Preferred Shares - Series F which shares shall have the following
preferences, rights and limitations:
(i) Such Series F Preferred Share shall have a stated value
of $100 per share. The holders of the shares shall be entitled to receive in
liquidations $100 plus accumulated, but unpaid, dividends (including the amount
of accumulated, but unpaid, dividends on the shares of stock of Ocean West
Enterprises, Inc. which are exchanged for the Preferred Shares - Series F) and
the Series F Preferred Shares shall have a liquidation preference over Common
Shares, Class B Common Shares, Class D Common Shares, Preferred Shares - Series
G, Preferred Shares - Series I and Preferred Shares - Series L, but shall be
subject to the preference in liquidation of Preferred Shares - Series C and
Preferred Shares - Series E.
7
<PAGE>
(ii) Holders of Preferred Shares - Series F shall be
entitled to annual cumulative dividends of $14.00 per share (14% of $100)
payable in equal monthly installments on or before the fifth day of each month.
(iii) Holders of Preferred Shares - Series F shall be
entitled to the same voting rights as holders of Common Shares.
(iv) The Corporation may redeem all or a portion of the
Preferred Shares -Series F at any time upon written notice with payment for such
shares to be made in immediately available funds within thirty days of notice.
The redemption price shall be the stated value plus accumulated, but unpaid,
dividends (including the amount of accumulated, but unpaid, dividends on the
shares of stock of Ocean West Enterprises, Inc. which were exchanged for the
Preferred Shares -Series F) .
(v) Prior to transfer of any Preferred Shares - Series F,
holders of such shares must first give written notice to the Corporation stating
the name and address of the proposed transferee, the number of shares to be
transferred, the price per share and the proposed terms of payment. During the
thirty day period following the Corporation's receipt of the notice, the
Corporation shall have the option, but not the obligation, to purchase all of
the offered shares at the price and upon the terms stated in the notice, except
that the price shall not exceed an amount equal to the redemption price
described in paragraph 7(c)(iv) and the terms shall not require payment of the
redemption price in immediately available funds in less than thirty days after
delivery of the Corporation's notice of exercise. The Corporation may exercise
the option by giving written notice of exercise to the holder of the offered
shares. If the Corporation does not purchase all offered shares, then the
offered shares may be transferred to the proposed transferee on the terms
specified in the notice for thirty days after the expiration of the
Corporation's option. The transferee shall hold the shares subject to the
provisions of this paragraph. No transfer of shares may be made after the above-
described thirty day period or upon different terms than are described in the
notice without the holder giving a new notice of intention to transfer and
complying with the terms of this paragraph. Any transfer of shares by a holder
in violation of this paragraph shall be null and void and of no effect .
(vi) As long as any Preferred Shares - Series F are
outstanding, the Corporation shall not take any of the following actions without
the approval of the holders of two-thirds of the outstanding Preferred Shares -
Series F: (1) amend the Corporation's Certificate of Incorporation if such
amendment would alter or change the rights, preferences, privileges or powers
of, or restrictions provided for the benefit of, any Preferred Shares - Series F
and adversely affect such shares; (2) increase the number of authorized
Preferred Shares - Series F to a number greater than 1,250; (3) authorize or
create shares of stock of any class having preference or priority as to
dividends or assets which are superior to any such preference or priority of the
Preferred Shares -Series F, or authorize or create shares of any class or bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having optional rights to purchase, any shares of the Corporation having any
preference or priority over Preferred Shares - Series F; or (4) sell, lease,
convey, exchange, transfer or otherwise dispose of, or create or incur any
mortgage, lien, charge or encumbrance on or
8
<PAGE>
security interest in or pledge of, or sell and leaseback, all or substantially
all of the assets of the Corporation.
(d) Preferred Shares - Series G. The Corporation shall be authorized
---------------------------
to issue 2,000 Preferred Shares - Series G which shares shall have the following
preferences, rights and limitations:
(i) Such Series G Preferred Share shall have a stated value
of $100 per share. The holders of the shares shall be entitled to receive in
liquidations $100 plus accumulated, but unpaid, dividends (including the amount
of accumulated, but unpaid, dividends on the shares of stock of Ocean West
Enterprises, Inc. which are exchanged for the Preferred Shares - Series G) and
the Series G Preferred Shares shall have a liquidation preference over Common
Shares, Class B Common Shares, Class D Common Shares, Preferred Shares - Series
I and Preferred Shares - Series L, but shall be subject to the preference in
liquidation of Preferred Shares - Series C, Preferred Shares - Series E and
Preferred Shares - Series F.
(ii) Holders of Preferred Shares - Series G shall be
entitled to annual cumulative dividends of $24.00 per share (24% of $100)
payable in equal monthly installments on or before the fifth day of each month.
(iii) Holders of Preferred Shares - Series G shall be
entitled to the same voting rights as holders of Common Shares.
(iv) The Corporation may redeem all or a portion of the
Preferred Shares -Series G at any time upon written notice with payment for such
shares to be made in immediately available funds within thirty days of notice.
The redemption price shall be the stated value plus accumulated, but unpaid,
dividends (including the amount of accumulated, but unpaid, dividends on the
shares of stock of Ocean West Enterprises, Inc. which were exchanged for the
Preferred Shares -Series G).
(v) Prior to transfer of any Preferred Shares - Series G,
holders of such shares must first give written notice to the Corporation stating
the name and address of the proposed transferee, the number of shares to be
transferred, the price per share and the proposed terms of payment. During the
thirty day period following the Corporation's receipt of the notice, the
Corporation shall have the option, but not the obligation, to purchase all of
the offered shares at the price and upon the terms stated in the notice, except
that the price shall not exceed an amount equal to the redemption price
described in paragraph 7(d)(iv) and the terms shall not require payment of the
redemption price in immediately available funds in less than thirty days after
delivery of the Corporation's notice of exercise. The Corporation may exercise
the option by giving written notice of exercise to the holder of the offered
shares. If the Corporation does not purchase all offered shares, then the
offered shares may be transferred to the proposed transferee on the terms
specified in the notice for thirty days after the expiration of the
Corporation's option. The transferee shall hold the shares subject to the
provisions of this paragraph. No transfer of shares may be made after the above-
described thirty day period or upon different terms than are described in the
notice without the holder
9
<PAGE>
giving a new notice of intention to transfer and complying with the terms of
this paragraph. Any transfer of shares by a holder in violation of this
paragraph shall be null and void and of no effect.
(vi) As long as any Preferred Shares - Series G are
outstanding, the Corporation shall not take any of the following actions without
the approval of the holders of two-thirds of the outstanding Preferred Shares -
Series G: (1) amend the Corporation's Certificate of Incorporation if such
amendment would alter or change the rights, preferences, privileges or powers
of, or restrictions provided for the benefit of, any Preferred Shares - Series G
and adversely affect such shares; (2) increase the number of authorized
Preferred Shares - Series G to a number greater than 2,000; (3) authorize or
create shares of stock of any class having preference or priority as to
dividends or assets which are superior to any such preference or priority of the
Preferred Shares -Series G, or authorize or create shares of any class or bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having optional rights to purchase, any shares of the Corporation having any
preference or priority over Preferred Shares - Series G; or (4) sell, lease,
convey, exchange, transfer or otherwise dispose of, or create or incur any
mortgage, lien, charge or encumbrance on or security interest in or pledge of,
or sell and leaseback, all or substantially all of the assets of the
Corporation.
(e) Preferred Shares - Series I. The Corporation shall be authorized
---------------------------
to issue 550 Preferred Shares - Series I which shares shall have the following
preferences, rights and limitations:
(i) Such Series I Preferred Share shall have a stated value
of $100 per share. The holders of the shares shall be entitled to receive in
liquidations $100 plus accumulated, but unpaid, dividends (including the amount
of accumulated, but unpaid, dividends on the shares of stock of Ocean West
Enterprises, Inc. which are exchanged for the Preferred Shares - Series I) and
the Series I Preferred Shares shall have a liquidation preference over Common
Shares, Class B Common Shares, Class D Common Shares and Preferred Shares -
Series L, but shall be subject to the preference in liquidation of Preferred
Shares - Series C, Preferred Shares - Series E, Preferred Shares - Series F and
Preferred Shares - Series G.
(ii) Holders of Preferred Shares - Series I shall be
entitled to annual cumulative dividends of $15.00 per share (15% of $100)
payable in equal monthly installments on or before the fifth day of each month.
(iii) Holders of Preferred Shares - Series I shall be
entitled to the same voting rights as holders of Common Shares.
(iv) The Corporation may redeem all or a portion of the
Preferred Shares -Series I at any time upon written notice with payment for such
shares to be made in immediately available funds within thirty days of notice.
The redemption price shall be the stated value plus accumulated, but unpaid,
dividends (including the amount of accumulated, but unpaid, dividends on the
shares of stock of Ocean West Enterprises, Inc. which were exchanged for the
Preferred Shares -Series I).
10
<PAGE>
(v) Prior to transfer of any Preferred Shares - Series I,
holders of such shares must first give written notice to the Corporation stating
the name and address of the proposed transferee, the number of shares to be
transferred, the price per share and the proposed terms of payment. During the
thirty day period following the Corporation's receipt of the notice, the
Corporation shall have the option, but not the obligation, to purchase all of
the offered shares at the price and upon the terms stated in the notice, except
that the price shall not exceed an amount equal to the redemption price
described in paragraph 7(e)(iv) and the terms shall not require payment of the
redemption price in immediately available funds in less than thirty days after
delivery of the Corporation's notice of exercise. The Corporation may exercise
the option by giving written notice of exercise to the holder of the offered
shares. If the Corporation does not purchase all offered shares, then the
offered shares may be transferred to the proposed transferee on the terms
specified in the notice for thirty days after the expiration of the
Corporation's option. The transferee shall hold the shares subject to the
provisions of this paragraph. No transfer of shares may be made after the above-
described thirty day period or upon different terms than are described in the
notice without the holder giving a new notice of intention to transfer and
complying with the terms of this paragraph. Any transfer of shares by a holder
in violation of this paragraph shall be null and void and of no effect.
(vi) As long as any Preferred Shares - Series I are
outstanding, the Corporation shall not take any of the following actions without
the approval of the holders of two-thirds of the outstanding Preferred Shares -
Series I: (1) amend the Corporation's Certificate of Incorporation if such
amendment would alter or change the rights, preferences, privileges or powers
of, or restrictions provided for the benefit of, any Preferred Shares - Series I
and adversely affect such shares; (2) increase the number of authorized
Preferred Shares - Series I to a number greater than 550; (3) authorize or
create shares of stock of any class having preference or priority as to
dividends or assets which are superior to any such preference or priority of the
Preferred Shares -Series I, or authorize or create shares of any class or bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having optional rights to purchase, any shares of the Corporation having any
preference or priority over Preferred Shares - Series I; or (4) sell, lease,
convey, exchange, transfer or otherwise dispose of, or create or incur any
mortgage, lien, charge or encumbrance on or security interest in or pledge of,
or sell and leaseback, all or substantially all of the assets of the
Corporation.
(f) Preferred Shares - Series L. The Corporation shall be authorized
---------------------------
to issue 1,000 Preferred Shares - Series L which shares shall have the following
preferences, rights and limitations:
(i) Such Series L Preferred Share shall have a stated value
of $1,000 per share. The holders of the shares shall be entitled to receive in
liquidations $1,000 plus accumulated, but unpaid, dividends (including the
amount of accumulated, but unpaid, dividends on the shares of stock of Ocean
West Enterprises, Inc. which are exchanged for the Preferred Shares - Series L)
and the Series L Preferred Shares shall have a liquidation preference over
Common Shares, Class B Common Shares and Class D Common Shares, but shall be
subject to the preference in liquidation of Preferred Shares - Series C,
Preferred Shares - Series E, Preferred Shares - Series F, Preferred Shares -
Series G and Preferred Shares - Series I.
11
<PAGE>
(ii) Holders of Preferred Shares - Series L shall be
entitled to annual cumulative dividends of $120.00 per share (12% of $100)
payable in equal monthly installments on or before the fifth day of each month.
(iii) Holders of Preferred Shares - Series L shall be
entitled to the same voting rights as holders of Common Shares.
(iv) The Corporation may redeem all or a portion of the
Preferred Shares -Series L at any time upon written notice with payment for such
shares to be made in immediately available funds within thirty days of notice.
The redemption price shall be the stated value plus accumulated, but unpaid,
dividends (including the amount of accumulated, but unpaid, dividends on the
shares of stock of Ocean West Enterprises, Inc. which were exchanged for the
Preferred Shares - Series L).
(v) Prior to transfer of any Preferred Shares - Series L,
holders of such shares must first give written notice to the Corporation stating
the name and address of the proposed transferee, the number of shares to be
transferred, the price per share and the proposed terms of payment. During the
thirty day period following the Corporation's receipt of the notice, the
Corporation shall have the option, but not the obligation, to purchase all of
the offered shares at the price and upon the terms stated in the notice, except
that the price shall not exceed an amount equal to the redemption price
described in paragraph 7(f)(iv) and the terms shall not require payment of the
redemption price in immediately available funds in less than thirty days after
delivery of the Corporation's notice of exercise. The Corporation may exercise
the option by giving written notice of exercise to the holder of the offered
shares. If the Corporation does not purchase all offered shares, then the
offered shares may be transferred to the proposed transferee on the terms
specified in the notice for thirty days after the expiration of the
Corporation's option. The transferee shall hold the shares subject to the
provisions of this paragraph. No transfer of shares may be made after the above-
described thirty day period or upon different terms than are described in the
notice without the holder giving a new notice of intention to transfer and
complying with the terms of this paragraph. Any transfer of shares by a holder
in violation of this paragraph shall be null and void and of no effect.
(vi) As long as any Preferred Shares - Series L are
outstanding, the Corporation shall not take any of the following actions without
the approval of the holders of two-thirds of the outstanding Preferred Shares -
Series L: (1) amend the Corporation's Certificate of Incorporation if such
amendment would alter or change the rights, preferences, privileges or powers
of, or restrictions provided for the benefit of, any Preferred Shares - Series L
and adversely affect such shares; (2) increase the number of authorized
Preferred Shares - Series L to a number greater than 1,000; (3) authorize or
create shares of stock of any class having preference or priority as to
dividends or assets which are superior to any such preference or priority of the
Preferred Shares -Series L, or authorize or create shares of any class or bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having optional rights to purchase, any shares of the Corporation having any
preference or priority over Preferred Shares - Series L; or (4) sell, lease,
convey, exchange, transfer or otherwise dispose of, or create or incur any
mortgage, lien, charge or encumbrance on or
12
<PAGE>
security interest in or pledge of, or sell and leaseback, all or substantially
all of the assets of the Corporation.
8. Duration. The period of duration of the Corporation shall be
--------
perpetual.
9. Powers of Board of Directors. The affairs of the Corporation shall be
----------------------------
managed and conducted by a board of directors. The board of directors shall
have the authority, without first obtaining the approval of the stockholders of
the Corporation, unless otherwise provided herein, upon such terms and
conditions as the board deems appropriate: (a) to grant rights or options to
subscribe for or purchase, and issue, shares of authorized and unissued stock of
the Corporation of any class now or hereafter authorized, to any persons,
including officers and directors of the Corporation; (b) to make distributions
to its stockholders out of its capital surplus, and to purchase its own shares
out of its unreserved and unrestricted capital surplus; (c) to the extent
permitted by applicable laws, to guarantee or assume liability for the payment
of the principal of, or dividends or interest on, or sinking fund payments in
respect to, stocks, bonds, debentures, warrants, rights, scrip, notes, evidences
of indebtedness or other securities or obligations of any kind; and liability
for the performance of any other contract or obligation, made or issued by any
domestic or foreign corporation, partnership, association, trustee, group,
individual or entity; and (d) to make, alter and repeal the bylaws of the
Corporation.
10. Number of and Initial Board of Directors. The number of directors
----------------------------------------
shall be fixed by, or in the manner provided in, the bylaws.
11. Election of Directors. Elections of directors need not be by written
---------------------
ballot unless otherwise provided by the bylaws of the Corporation.
12. Stockholders' Meetings. Meetings of stockholders may be held at the
----------------------
Corporation's principal offices, or as the bylaws may provide.
13. Books. The books of the Corporation may be kept (subject to any
-----
provision contained in the statutes) outside the State of Delaware at such place
or places as may be designated from time to time by the board of directors or in
the bylaws of the Corporation.
14. Creditors. Whenever a compromise or arrangement is proposed between
---------
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this
13
<PAGE>
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or if the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
15. Director's Liability. A director of the Corporation shall not be
--------------------
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director; provided that a director's liability
shall not be limited: (a) for any breach of the director's duty of loyalty to
the Corporation or its stockholders; (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing and culpable violation of
law; (c) for acts or omissions that a director believes to be contrary to the
best interests of the Corporation or its shareholders or that involve the
absence of good faith on the part of the director; (d) for unlawful payment of
dividends or making of a distribution or unlawful repurchase or redemption of
its own stock; (e) for any transaction from which the director derived an
improper personal benefit; (f) for acts or omissions that show a reckless
disregard for the director's duty to the Corporation or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Corporation or its shareholders; or (g) for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the Corporation or its shareholders.
16. Indemnification. The Corporation shall indemnify any and all of its
---------------
directors or officers or former directors or officers or any person who may have
served at its request as a director or officer of another corporation in which
it owns shares of capital stock or of which it is a creditor against expenses
actually and necessarily incurred by them in connection with the defense of any
action, suit or proceeding in which they, or any of them, are made parties, or a
party, by reason of being or having been directors or officers or a director or
officer of the Corporation, or of such other corporation to the fullest extent
permissible under California or other law, except in relation to matters as to
which any such director or officer or former director or officer or person shall
be adjudged in such action, suit or proceeding to be liable for negligence or
misconduct in the performance of duty or for which the exclusion of personal
liability of directors for monetary damages under paragraph 15 is not available.
Such indemnification shall not be deemed exclusive of any other rights to which
those indemnified may be entitled, under any bylaw, agreement, vote of
stockholders, or otherwise.
17. Amendments. The Corporation reserves the right to amend, alter,
----------
change or repeal any provision contained in this certificate of incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
18. Registered Office and Agent. The address of the Corporation's
---------------------------
registered office in the State of Delaware is 222 Delaware Avenue, 9/th/ Floor,
Wilmington, New Castle County, Delaware 19801 and the name of its registered
agent is The Delaware Corporation Agency.
19. Incorporator. The name and mailing address of the incorporator is:
------------
Ocean West Enterprises, Inc., 15991 Redhill Avenue, Suite 110, Tustin,
California, 92780.
14
<PAGE>
The undersigned, being the incorporator of Ocean West Holding Corporation,
for the purpose of forming a corporation under the General Corporation Law of
the State of Delaware hereby acknowledges the foregoing to be its act and deed
and that the facts stated herein are true this _____ day of ____________, 2000.
Ocean West Enterprises, Inc.
By:
------------------------------------------------
Title:
------------------------------------------------
State of _____________________ )
County of ____________________ ) SS
I, ________________________________ a notary of said state and county do
certify that ______________________________, as _________________ of Ocean West
Enterprises, Inc., the incorporator, whose name is signed to the writing above
bearing date the _____ day of _____________, 2000 has this day acknowledged the
same before me. Given under my hand this ____ day of _____________, 2000.
My commission expires: __________________________________________________.
___________________________________________
[seal] Notary Public
15
<PAGE>
Exhibit 3(ii)
-------------
BYLAWS
OF
OCEAN WEST HOLDING CORPORATION
__________, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
Offices.............................................................. 1
1.1 Principal Office............................................... 1
1.2 Registered Office.............................................. 1
ARTICLE II
Shareholders......................................................... 1
2.1 Annual Meetings................................................ 1
2.2 Special Meetings............................................... 1
2.3 Place of Special Meetings...................................... 1
2.4 Notice of Annual or Special Meetings........................... 2
2.5 Meetings by Consent of All Shareholders........................ 2
2.6 Waiver and Consent to Meetings of Less Than All Shareholders... 2
2.7 Exception to Notice Requirements............................... 2
2.8 Fixing of a Record Date........................................ 3
2.9 Voting Record.................................................. 3
2.10 Quorum......................................................... 4
2.11 Proxies........................................................ 4
2.12 Voting of Shares............................................... 4
2.13 Voting of Shares by Certain Holders............................ 5
2.14 Voting Procedures and Inspectors of Elections.................. 5
2.15 Consent of Shareholders In Lieu of Meeting..................... 6
2.16 Shareholder Inspection of Books and Records.................... 7
ARTICLE III
Directors............................................................ 7
3.1 General Powers................................................. 7
3.2 Number, Tenure and Qualifications.............................. 7
3.3 Resignation and Removal........................................ 8
3.4 Regular Meetings............................................... 8
3.5 Special Meetings............................................... 8
3.6 Telephonic Meetings............................................ 8
3.7 Notice of Directors' Meetings.................................. 8
3.8 Quorum......................................................... 9
3.9 Manner of Acting............................................... 9
3.10 Vacancies...................................................... 9
3.11 Compensation................................................... 10
3.12 Action by Written Consent...................................... 10
i
<PAGE>
3.13 Chairman and Vice Chairman of the Board........................ 11
3.14 Conflicts of Interest.......................................... 11
3.15 Director Inspection of Books and Records....................... 11
3.16 Committees..................................................... 11
ARTICLE IV
Officers............................................................. 12
4.1 Classes........................................................ 12
4.2 Election and Term of Office.................................... 12
4.3 Removal and Resignations....................................... 12
4.4 Vacancies...................................................... 13
4.5 Chairman of the Board of Directors............................. 13
4.6 President...................................................... 13
4.7 Vice President................................................. 13
4.8 Chief Financial Officer........................................ 14
4.9 Secretary...................................................... 14
ARTICLE V
Contracts, Loans,Checks and Deposits................................. 14
5.1 Contracts...................................................... 14
5.2 Checks, Drafts................................................. 14
5.3 Deposits....................................................... 14
ARTICLE VI
Certificates for Sharesand Their Transfer............................ 14
6.1 Certificates for Shares........................................ 14
6.2 Lost, Stolen or Destroyed Stock Certificates................... 15
6.3 Transfer of Shares............................................. 15
ARTICLE VII
Indemnification...................................................... 16
7.1 Indemnification................................................ 16
ARTICLE VIII
Miscellaneous........................................................ 18
8.1 Amendments..................................................... 18
8.2 Fiscal Year.................................................... 18
8.3 Dividends...................................................... 18
8.4 Seal........................................................... 18
8.5 Waiver of Notice............................................... 18
ii
<PAGE>
BYLAWS
OF
OCEAN WEST HOLDING CORPORATION
(the "Corporation")
ARTICLE I
Offices
-------
1.1 Principal Office. The principal office of the Corporation shall be in
----------------
as designated by the Board of Directors. The Corporation may have such offices,
either within or without the State of Delaware or the State of California, as
the business of the Corporation may require.
1.2 Registered Office. The registered agent and office of the Corporation
-----------------
at the date of adoption of these Bylaws are The Delaware Corporation Agency, 222
Delaware Avenue, 9th Floor, Wilmington, New Castle County, Delaware 19801. The
registered agent and the address of the registered office may be changed from
time to time by the Board of Directors.
ARTICLE II
Shareholders
------------
2.1 Annual Meetings. The annual meeting of the shareholders shall be held
---------------
at such time, place and on such date as the Board of Directors may designate and
state in the notice of the meeting within a period of thirteen (13) months of
the last annual meeting. If no place is designated, the meeting shall be held
at the principal executive office of the Corporation. The purpose of such
meeting shall be the election of directors and such other business as may
properly come before it. If the election of directors shall not be held on the
day designated for an annual meeting, or at any adjournment thereof, the Board
of Directors shall cause the election to be held at a special meeting of the
shareholders to be held as soon thereafter as may be practicable. The failure
to hold an annual meeting does not invalidate the Corporation's existence or
affect any otherwise valid corporate act.
2.2 Special Meetings. Special meetings of the shareholders may be called
----------------
by the Chairman of the Board, the President, the Board of Directors, or the
holders of shares entitling such holders to not less than twenty-five percent
(25%) of the possible votes of any class at such meeting; provided, however,
that so long as the Corporation is subject to California law and such law so
requires, if, after the filling of any vacancy by the directors, the directors
in office who have been elected by the shareholders constitute less than a
majority then in office, any holder or holders of an aggregate of five percent
(5%) or more of the total number of issued and outstanding shares having the
right to vote for such directors may call a special meeting of shareholders.
2.3 Place of Special Meetings. The Board of Directors may designate any
-------------------------
place within or without the State of Delaware or the State of California as the
place for any special meeting called by the Board of Directors. A waiver of
notice signed by all shareholders may include a designation
<PAGE>
of any place as the place for the holding of such meeting. If no designation is
properly made, or if a special meeting be otherwise called, the place of the
meeting shall be at the principal executive office of the Corporation.
2.4 Notice of Annual or Special Meetings. Written or printed notice
------------------------------------
stating the place, day and hour of the meeting and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten (10) days (unless a longer notice period is required
by applicable law) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the President or the
Secretary, or the officer or persons calling the meeting, to each shareholder
entitled to vote at such meeting as of the record date established under Section
2.8 of these Bylaws. Only business within the purpose or purposes described in
the meeting notice may be conducted at the special meeting unless all
shareholders entitled to vote thereon waive notice of such additional business.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, postage prepaid, in a sealed envelope addressed to the
shareholder at such shareholder's address as it appears in the records of the
Corporation. When a meeting is adjourned to another time or place, notice of
the adjourned meeting need not be given if the time and place are announced at
the meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which could have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days or, if
after adjournment a new record date is fixed, a notice of the adjourned meeting
must be given to every shareholder entitled to vote at the meeting.
2.5 Meetings by Consent of All Shareholders. If all the shareholders
---------------------------------------
shall meet at any time and place and consent in writing to the holding of a
meeting, such meeting shall be valid without call or notice, and at such meeting
any corporate action may be taken.
2.6 Waiver and Consent to Meetings of Less Than All Shareholders. If a
------------------------------------------------------------
shareholder meeting shall occur without all shareholders in attendance, a prior
or subsequent written waiver of notice or consent to the holding of such meeting
signed by the absent shareholders shall be equivalent to the call and giving of
any requisite notice, and such meeting shall be valid without call or notice,
and corporate action may be taken at such meeting. Neither the business to be
transacted at, nor the purpose of, any meeting need be specified in the written
waiver. Attendance of a person at a meeting constitutes waiver of notice except
when the person attends the meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of business because the meeting is
not lawfully called or convened. The execution of a written consent shall
constitute a waiver of notice with respect to the actions taken in the consent
even if the consent does not expressly contain a waiver clause.
2.7 Exception to Notice Requirements. Whenever notice is required to be
--------------------------------
given to any person with whom communication is unlawful, the giving of such
notice is not required and the Corporation has no duty to apply to any
governmental authority or agency for a license or permit to give such notice.
In addition, whenever notice is required to be given to any shareholder to whom
(a) notice of two (2) consecutive annual meetings, and all notices of meetings
or the taking action by
2
<PAGE>
written consent during the period between such two (2) consecutive annual
meetings, or (b) all, and at least two (2) payments (if sent by first class
mail) of dividends or interest on securities during a twelve (12) month period,
have been mailed addressed to such person at the address shown on the records of
the Corporation and have been returned undeliverable, the giving of notice to
such persons is not required. Any action or meeting which shall be taken or held
without notice to such persons shall have the same force and effect as if such
notice had been duly given. If any such person thereafter delivers to the
Corporation a written notice setting forth such person's then current address,
the requirement that notice be given to such person shall be reinstated.
2.8 Fixing of a Record Date.
-----------------------
(a) The Board of Directors of the Corporation may fix a date which
shall not precede the date of the resolution fixing the record date and which
record date is not less than ten (10) days nor more than sixty (60) days prior
to the date of any meeting of shareholders as the record date for the
determination of shareholders entitled to notice of, or to vote at, such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining shareholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day which next precedes the day on which the meeting is
held. When a determination of shareholders has been made as provided in this
section, such determination shall apply to any adjournment thereof; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting. The Board of Directors may fix a record date to determine the
shareholders entitled to consent to corporate action in writing without a
meeting on a date which shall not precede and is not more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed, the record date for
shareholders entitled to consent to corporate action in writing is (i) when no
prior action by the Board of Directors is required, the first date on which a
signed written consent setting forth the actions taken or proposed to be taken
is delivered, by hand or certified or registered mail, to the Corporation to its
registered office, to its principal place of business, or to an officer or agent
of the Corporation having custody of the Corporation's minute book; or (ii) when
prior action by the Board of Directors is required, at the close of business on
the day on which the Board of Directors adopts the resolution taking such prior
action.
(b) The Board of Directors may fix a record date to determine the
shareholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the shareholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action which shall not precede the date upon which the
resolution fixing the record date is adopted and which shall not be more than
sixty (60) days prior to such action. If no record date is fixed, the record
date shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
2.9 Voting Record. The officer or agent having charge of the transfer
-------------
book for shares of the Corporation shall make a complete list of the
shareholders entitled to vote at such meeting, arranged in alphabetical order,
with the address of, and the number of shares held by, each
3
<PAGE>
shareholder. Such list shall be available for inspection by any shareholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to such meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list must also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
who is present during the whole course of the meeting.
2.10 Quorum. A majority of the outstanding shares of the Corporation
------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any meeting of shareholders, unless otherwise required by Delaware or other
applicable law. If a quorum of shareholders is present, the affirmative vote of
a majority of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the shareholders, unless the vote of a
greater number or voting by classes is required by Delaware or other applicable
law, or by the Certificate of Incorporation or Bylaws of the Corporation.
2.11 Proxies. At all meetings of shareholders, a shareholder may vote
-------
shares in person or by proxy. A shareholder may execute a writing authorizing
another person or persons to act as proxy or such shareholder. The shareholder
or the shareholder's authorized officer, director, employee or agent may sign or
cause a signature to be affixed by any reasonable means to the proxy. A
telegram, cablegram or other means of electronic transmission including
information from which it can be determined that the transmission was authorized
by the shareholder, or a photographic, photostatic, facsimile or other reliable
reproduction of a writing appointing a proxy shall be deemed to be a sufficient,
signed appointment form assuming that it is a complete reproduction of the
entire original writing or transmission. Such proxy shall be filed with the
Secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after three (3) years from the date of its execution, unless
otherwise provided in the proxy. An appointment of a proxy is revocable unless
the proxy is coupled with an interest and the appointment form conspicuously
states that the proxy is irrevocable and that the appointment is coupled with an
interest. A proxy may be made irrevocable regardless of whether the interest is
an interest in the stock itself or in the Corporation generally. Upon
extinguishment of the interest the proxy becomes revocable.
2.12 Voting of Shares. Each outstanding share of stock authorized by
----------------
the Corporation's Certificate of Incorporation to have voting power shall be
entitled to the number of votes set forth in the Certificate of Incorporation
upon each matter submitted to a vote at a meeting of shareholders. With respect
to the election of directors, so long as required by California law, every
shareholder entitled to vote at any election of directors may cumulate such
shareholder's votes and give one (1) candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
such shares are normally entitled or distribute the votes on the same principle
among as many candidates as the shareholder determines; provided, however, that
no shareholder shall be entitled to cumulate votes as described in this sentence
unless such candidate or candidates names have been placed in nomination prior
to the voting and the shareholder has given notice at the meeting prior to the
voting of such shareholder's intention to cumulate votes. If any shareholder
has given notice of the intention to cumulate votes, all shareholders may
cumulate their votes for
4
<PAGE>
candidates in nomination. In any election of directors, the candidates receiving
the highest number of affirmative votes of shares entitled to vote up to the
number of directors to be elected by such shares are elected.
2.13 Voting of Shares by Certain Holders.
-----------------------------------
(a) Shares standing in the name of another corporation may be voted
by either that corporation's president or by proxy appointed by the president
unless another person appointed to vote the stock under a bylaw or a resolution
of the board of directors of that corporation presents a certified copy of the
bylaw or resolution, in which case such person may vote the stock.
(b) A fiduciary may vote, either in person or by proxy, stock
registered in such person's name as fiduciary. If the stock is not registered
in the fiduciary's name, the fiduciary may vote the stock, either in person or
by proxy, upon providing proof of the fact that such fiduciary has legal title
to the stock in a fiduciary capacity and is qualified to act in that capacity.
(c) Where shares stand of record in the names of two (2) or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety or otherwise, or if two (2) or more persons
have the same fiduciary relationship respecting the same shares, unless the
Secretary of the Corporation is given written notice to the contrary, and is
furnished with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting have
the following effect: (i) if only one (1) votes, such act binds all; (ii) if
more than one (1) vote, the act of the majority so voting binds all; or (iii) if
more than one (1) vote, but the vote is evenly split on any particular matter
each faction may vote the securities in question proportionately, or any person
voting the shares or a beneficiary, if any, may apply to any court of competent
jurisdiction to appoint an additional person to act with the persons so voting
the shares which shall then be voted as determined by a majority of such persons
and the person appointed by the court (if the instrument so filed shows that any
such tenancy is held in unequal interests, a majority or even split shall be a
majority or even split in interest).
(d) A shareholder whose shares are pledged shall be entitled to vote
such shares unless the transfer by the pledgor on the books of the Corporation
expressly empowered the pledgee to vote thereon, in which case only the pledgee
shall be entitled to vote the shares so transferred.
(e) The Corporation shall be entitled to reject a vote, consent,
waiver or proxy appointment if the Secretary or other officer or agent
authorized to tabulate votes, acting in good faith has reasonable basis for
doubt about the validity of the signature on it or about the signatory's
authority to sign for the shareholder.
2.14 Voting Procedures and Inspectors of Elections. At any time at
---------------------------------------------
which the Corporation has a class of voting securities listed on a national
securities exchange, authorized for quotation on an inter-dealer quotation
system thereof, or held of record by more than two thousand (2,000)
shareholders, in advance of any meeting of shareholders, the Corporation must
appoint one (1) or
5
<PAGE>
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one (1) or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able to
act at a meeting of shareholders, the person presiding at the meeting shall
appoint one (1) or more inspectors to act at the meeting. Each inspector, before
beginning, must take and sign an oath to execute the duties of inspector
faithfully and with strict impartiality and according to the best of such
inspector's ability. The inspectors must: (a) ascertain the number of shares
outstanding and the voting power of each; (b) determine the shares represented
at a meeting and the validity of proxies and ballots; (c) count all votes and
ballots; (d) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors; and
(e) certify the determination of the number of shares represented at the meeting
and the count of all votes and ballots. The inspectors may appoint or retain
other persons or entities to assist in the performance of such duties. The date
and time of the opening and the closing of the polls for each matter upon which
the shareholders will vote at a meeting shall be announced at the meeting. No
ballot, proxies or votes, nor any revocations thereof or changes thereto, shall
be accepted by the inspectors after the closing of the polls unless a court of
competent jurisdiction upon application by a shareholder shall determine
otherwise. In determining the validity and counting of proxies and ballots, the
inspectors are limited to an examination of the proxies, any envelopes submitted
with those proxies, any other information provided in accordance with Section
2.11 hereof, ballots and the regular books and records of the Corporation,
except that the inspectors may consider other reliable information for the
limited purpose of reconciling proxies and ballots submitted by or on behalf of
banks, brokers, their nominees or similar persons which represent more votes
than the holder of a proxy is authorized by the record owner to cast or more
votes than the shareholder holds of record. If the inspectors consider other
reliable information for the limited purpose permitted herein, the inspectors,
at the time they make the certification, must specify the precise information
considered including, the person or persons from whom the inspectors obtained
the information, when the information was obtained, the means by which the
information was obtained, and the basis for the inspectors' belief that such
information is accurate and reliable.
2.15 Consent of Shareholders In Lieu of Meeting. Any action required
------------------------------------------
to be taken, or which may be taken, at a meeting of the shareholders may be
taken without a meeting, without prior notice and without a vote, if one (1) or
more consents in writing, setting forth the action so taken, are (a) signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shareholders entitled to vote thereon were present and voted and (b)
delivered to the Corporation by delivery to the Corporation's registered office,
its principal place of business, or an officer or agent having custody of its
minute book. Delivery made to the Corporation's registered office must be made
by hand or by certified or registered mail, return receipt requested. A written
consent must bear the date of signature of each shareholder who signs the
consent. No written consent is effective, unless within sixty (60) days of the
earliest date a consent is delivered, written consents signed by a sufficient
number of holders are delivered as required. Prompt notice of the taking of the
actions without a meeting by less than unanimous written consent must be given
to those shareholders who have not consented in writing and who, if the action
had been taken at a meeting, would have been entitled to notice of the meeting
if the record date had been the date that a sufficient number of consents to
take
6
<PAGE>
action were delivered to the Corporation. If any written consent in lieu of a
meeting to elect is less than unanimous, then such action may be taken by
written consent in lieu of holding an annual meeting only if all of the
directorships to which directors could be elected are vacant at such time and
are filled by such action.
2.16 Shareholder Inspection of Books and Records.
-------------------------------------------
(a) As used in this section, "shareholder" means a shareholder of
record or holder of a voting trust certificate. Any shareholder, in person or
by attorney or other agent, upon written demand under oath stating the purpose
thereof, has the right during the usual hours for business to inspect for any
proper purpose the Corporation's stock ledger, a list of its shareholders and
its other books and records, and to make copies of extracts therefrom. A proper
purpose shall mean a purpose reasonably related to such person's interest as a
shareholder or holder of a voting trust certificate. In every instance where an
attorney or other agent shall be the person who seeks the right to inspection,
the demand under oath must be accompanied by a power of attorney or such other
writing which authorizes the attorney or other agent to so act on behalf of the
shareholder. The demand under oath shall be directed to the Corporation at its
registered office in Delaware or at its principal place of business. The right
of inspection extends to the records of each subsidiary of the Corporation.
(b) A shareholder or shareholders holding at least five percent (5%)
in the aggregate of the outstanding voting shares of the Corporation or who hold
at least one percent (1%) of such voting shares and have filed a Schedule 14B
with the United States Securities and Exchange Commission relating to the
election of directors of the Corporation have the right to do either or both of
the following: (i) inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business hours upon five (5) business
days' prior written demand, or (ii) obtain from the transfer agent for the
Corporation, upon written demand and upon the tender of the transfer agent's
usual charges for such a list, a list of the shareholders' names and addresses
who are entitled to vote for the election of directors and their shareholdings,
as of the most recent record date for which it has been compiled or as of a date
specified by the shareholder subsequent to the date of demand. The list shall
be made available on or before the later of five (5) business days after the
demand is received or the date specified as the date of which the list is to be
compiled.
ARTICLE III
Directors
---------
3.1 General Powers. The business and affairs of the Corporation shall be
--------------
managed by its Board of Directors, except as otherwise provided by the
Certificate of Incorporation of the Corporation or by law.
3.2 Number, Tenure and Qualifications. The number of directors on the
---------------------------------
date of adoption of these Bylaws shall be three (3). The number of directors of
the Corporation may be increased or decreased by resolution of the Board of
Directors. All directors shall hold office for the term for
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which they are elected or until their successors shall have been elected and
qualified, whichever period is longer. The directors need not be residents of
the State of Delaware or the State of California, nor need they hold any shares
of stock of the Corporation.
3.3 Resignation and Removal. Any directors may resign from the Board of
-----------------------
Directors at any time by giving written notice to the President or Secretary of
the Corporation, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Holders of Common
Stock, Class D Common Stock and voting Preferred Stock may remove, with or
without cause, any or all directors elected by them by a majority of shares
voting together as a separate class. Holders of Class B Common Stock may
remove, with or without cause, any or all directors elected by them by a
majority of shares voting together as a separate class. So long as required by
California law, no director may be removed (unless the entire board is removed)
when the number of votes cast against removal, or not consenting in writing to
the removal, would be sufficient to elect the director if voted cumulatively at
an election at which the same total number of votes cast (or, if the action is
taken by written consent, all shares entitled to vote were voted) and the entire
number of directors authorized at the time of the director's most recent
election were then being elected. Any reduction of the authorized number of
directors does not remove any director prior to the expiration of that
director's term of office.
3.4 Regular Meetings. A regular meeting of the Board of Directors shall
----------------
be held without other notice than this Bylaw immediately after, and at the same
place as, the annual meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place, either within or without the State
of Delaware or the State of California, for the holding of additional regular
meetings without other notice than such resolution.
3.5 Special Meetings. Special meetings of the Board of Directors may be
----------------
called by, or at the request of, the Chairman of the Board, the President or any
two (2) directors of the Corporation and shall be preceded by at least two (2)
days notice of the date, time and place of the meeting.
3.6 Telephonic Meetings. Members of the Board of Directors or a
-------------------
committee of the board may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Participation in a meeting by
these means constitutes presence in person at the meeting.
3.7 Notice of Directors' Meetings. No notice need be given of any
-----------------------------
regular meeting of the Board of Directors. Notice of a special meeting of the
Board of Directors shall contain the date, time and place of the meeting and may
be communicated in person; by telephone, telegraph, facsimile or other form of
wire or wireless communication; or by mail or private carrier. Oral or
telephonic notice shall be effective when communicated, provided that it is
promptly confirmed in writing. Written notice is effective at the earliest of
the following: (a) when received; (b) four (4) days after deposit in the United
States mail as evidenced by the postmark, if mailed postpaid first class and
correctly addressed; or (c) on the date shown on the return receipt, if sent by
registered or certified mail, return
8
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receipt requested, and the receipt is signed by, or on behalf of, the addressee.
Any director may waive notice of any meeting before or after the meeting. The
waiver shall be in writing and signed by the director entitled to the notice and
filed with the minutes of the meeting. The attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, except when a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. The execution of a written consent shall constitute a waiver of notice
with respect to the actions taken in the consent even if the consent does not
expressly contain a waiver clause. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
3.8 Quorum. A majority of the number of directors fixed by, or
------
determined in accordance with, Section 3.2 hereof shall constitute a quorum for
the transaction of business at any meeting of the Board of Directors; provided
that, if less than a majority of the directors are present at said meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice.
3.9 Manner of Acting.
----------------
(a) The act of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors, unless
otherwise required by the Certificate of Incorporation of the Corporation or
these Bylaws. A director who is present at a meeting of the Board of Directors,
or a committee of the Board of Directors, when corporate action is taken, shall
be deemed to have assented to the action taken unless the director: (i) objects
at the beginning of the meeting (or promptly upon arrival) to holding it or
transacting business at the meeting; (ii) dissents or abstains from the action
taken and such dissent or abstention is entered in the minutes of the meeting;
or (iii) delivers written notice of dissent or abstention to the presiding
officer of the meeting before its adjournment or to the Corporation immediately
after adjournment of the meeting. The right of dissent or abstention shall not
be available to a director who votes in favor of the action taken.
(b) A member of the Board of Directors, or of any committee
designated by the Board of Directors, shall, in the performance of such member's
duties, be entitled to rely in good faith after reasonable inquiry without
knowledge that would cause such reliance to be unwarranted, upon the records of
the Corporation (including financial statements and other financial data) and
upon such information, opinions, reports or statements presented to the
Corporation: (i) by any of the Corporation's officers or employees whom the
director believes to be reliable and competent in the matters presented, (ii) by
any other person as to matters the member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, or (iii) by a committee of
the board upon which the director does not serve, as to matters within its
designated authority, which committee the directors believes to merit
confidence.
3.10 Vacancies.
---------
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(a) Vacancies (other than those created by the removal of a
director) and newly created directorships resulting from an increase in the
number of directors elected may be filled by a majority of directors then in
office, although less than a quorum; provided that, vacancies occurring as a
result of the death or resignation of a director elected by the holders of Class
B Common Shares shall be filled by the remaining directors elected by such class
if at least one (1) such director remains and vacancies as a result of the death
or resignation of a director elected by the holders of Common Shares, Class D
Common Shares and voting Preferred Shares shall be filled by the remaining
directors elected by such class if at least one (1) such director remains.
(b) In addition, shareholders may elect a director at any time to
fill any vacancy not filled by the directors as follows: a vacancy occurring in
the office of a director elected by the holders of the Common Stock, Class D
Common Stock and voting Preferred Stock may be filled by the affirmative vote as
provided in Section 2.12 of a majority of the holders of such classes of stock
and a vacancy occurring in the office of a director elected by the holders of
Class B Common Stock may be filled by the affirmative vote as provided in
Section 2.12 of a majority of the holders of such class of stock. A director
elected to fill a vacancy shall be elected for the unexpired term of the
predecessor in office. If at any time, by reason of death, resignation or other
cause, the Corporation has no directors in office, then any officer,
shareholder, personal representative of a shareholder or other like fiduciary,
may call a special meeting of shareholders or may apply to a court of competent
jurisdiction for a decree ordering an election. Subject to the restrictions
described above relating to directors elected by holders of certain classes of
stock, if one (1) or more directors resign from the board effective at a future
date, a majority of the directors then in office, including those who have so
resigned, have the power to fill such vacancy or vacancies, the vote thereon to
take effect when the resignations become effective.
(c) If, after the filling of any vacancy by the directors, the
directors then in office who have been elected by the shareholders constitute
less than a majority of the directors then in office, then any holder or holders
of an aggregate of five percent (5%) or more of the total number of outstanding
shares having the right to vote for directors may call a special meeting of
shareholders or, upon application of such shareholder or shareholders, a count
of competent jurisdiction shall order that a special meeting of shareholders be
held, to elect the entire board. The term of office of any director shall
terminate upon the election of a successor.
3.11 Compensation. By resolution of the Board of Directors, each
------------
director may be paid expenses, if any, of attendance at each meeting of the
Board of Directors, and may be paid a stated stipend as director or a fixed sum
for attendance at each meeting of the Board of Directors, or both. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
3.12 Action by Written Consent. Any action required or permitted to
-------------------------
be taken at any meeting of the Board of Directors of any committee thereof may
be taken without a meeting if all members of the board or the committee, as the
case may be, consent to such action in writing, and the writing or writings are
filed with the minutes of the proceedings of the board or committee.
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<PAGE>
3.13 Chairman and Vice Chairman of the Board. The Board of Directors
---------------------------------------
may appoint one (1) of its members Chairman of the Board of Directors. The
Board of Directors may also appoint one (1) of its members as Vice Chairman of
the Board of Directors, and such individual shall serve in the absence of the
Chairman and perform such additional duties as may be assigned by the Board of
Directors.
3.14 Conflicts of Interest. No contract or transaction between the
---------------------
Corporation and one (1) or more of its directors or officers, or between the
Corporation and any other corporation, partnership, trust, firm, association or
organization in which one (1) or more of the directors or officers of the
Corporation are directors or officers or have a financial interest, shall be
void or voidable solely for this reason, or solely because the director or
officer is present at, or participants in, the meeting of the Board of Directors
or a committee thereof which authorizes, approves or ratifies such contract or
transaction or solely because their votes are counted for such purposes, if:
(a) the material facts of the contract or transaction and the
director's interest or relationship are disclosed or known to the Board of
Directors or committee of the Board of Directors and the Board of Directors or
the committee in good faith authorizes the contract or transaction by the
affirmative vote (or consent) of a majority of the disinterested directors even
though the number of disinterested directors may be less than a quorum;
(b) the material facts of the contract or transaction and the
director's interest or relationship are disclosed or known to the shareholders
entitled to vote thereon and they specifically approve in good faith such
contract or transaction by vote or written consent; or
(c) the contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified by the Board of Directors, a
committee thereof or the shareholders.
Such interested directors may be counted in determining the presence of a quorum
at a meeting of the Board of Directors or a committee thereof which authorizes
the contract or transaction.
3.15 Director Inspection of Books and Records. Any director shall
----------------------------------------
have the right to examine the Corporation's stock ledger, a list of its
shareholders and its other books and records for a purpose reasonably related to
such person's position as a director.
3.16 Committees.
----------
(a) The Board of Directors may appoint an Executive Committee,
which shall consist of two (2) or more members of the Board of Directors and
shall serve at the pleasure of the Board of Directors. The Chairman of any
Executive Committee shall be designated by the Board of Directors. Meetings of
the Executive Committee shall be held from time to time as called by the
Chairman of the Executive Committee or any member thereof by notice to the other
members of the committee. Notice of any such meeting shall be given by oral,
telegraphic or written notice not less than twenty-four (24) hours prior to such
meeting as provided in Section 3.7 of these Bylaws. In
11
<PAGE>
order to take action, a majority of the members of such committee must be
present and shall constitute a quorum. During the intervals between meetings of
the Board of Directors, the Executive Committee, if such committee is
established, shall possess and may exercise all of the powers of the Board of
Directors of the Corporation in the management of the business, affairs and
properties of the Corporation, that are not prohibited by law, the Certificate
of Incorporation of the Corporation or these Bylaws. All action taken the
Executive Committee shall be deemed to be action of the Board of Directors of
the Corporation.
(b) The Board of Director may also designate one (1) or more other
committees, each committee to consist of one (1) or more members of the Board of
Directors of the Corporation. The Board of Directors may designate one (1) or
more directors as alternate members of any committee who may replace any absent
or disqualified member at a committee meeting. Unless prohibited by the Board
of Directors, in the event of the absence or disqualification of a member of a
committee, the member or members present at any meeting and not disqualified
from voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Such committees
shall have and may exercise the powers of the Board of Directors of the
Corporation which are delegated to the committee by resolution of the Board of
Directors; but no committee shall have the power or authority to approve, adopt
or recommend to the shareholders any action or matter expressly required by
Delaware law to be submitted to shareholders for approval or to adopt, amend or
repeal any bylaw of the Corporation.
(c) Each committee shall keep regular minutes of its meetings and
report same to the Board of Directors of the Corporation when required.
ARTICLE IV
Officers
--------
4.1 Classes. The officers of the Corporation shall be a Chairman of the
-------
Board or a President or both, a Secretary and a Chief Financial Officer, each of
whom shall be elected by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed by the
Board of Directors. Any two (2) or more offices may be held by the same person.
4.2 Election and Term of Office. The officers of the Corporation shall
---------------------------
be elected by the Board of Directors at the first and, thereafter, at each
annual meeting of the Board of Directors. If the election of officers shall not
be held at any such meeting, such election shall be held as soon thereafter as
is convenient. Vacancies may be filled or new offices created and filled at any
meeting of the Board of Directors. Officers shall hold office until their
successors shall have been duly elected and shall have qualified or until their
death, resignation or removal.
4.3 Removal and Resignations. Any officer or agent elected or appointed
------------------------
by the Board of Directors may be removed by the Board of Directors with or
without cause. Election or
12
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appointment of an officer or agent shall not of itself create contract rights.
Any officer of the Corporation may resign at any time by giving written notice
to the President or Secretary of the Corporation, and unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
4.4 Vacancies. A vacancy in any office because of death, resignation,
---------
removal, disqualification or otherwise may be filled by the Board of Directors
for the unexpired portion of the term.
4.5 Chairman of the Board of Directors. The Chairman of the Board of
----------------------------------
Directors, if that office be created and filled, may, at the discretion of the
Board of Directors, be the Chief Executive Officer of the Corporation and, if
such, shall, in general, supervise and control the affairs and business of the
Corporation, subject to control by the Board of Directors. The Chairman of the
Board, if present, shall preside at all meetings of the shareholders and Board
of Directors; and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
4.6 President. The President, unless a chairman is appointed and
---------
designated Chief Executive Officer pursuant to Section 4.5 hereof, shall be the
Chief Executive Officer of the Corporation. If no chairman has been appointed
or, in the absence of the chairman, the President, if present, shall preside at
all meetings of the shareholders and of the Board of Directors. The President
may sign, with the Secretary or any other officer of the Corporation authorized
to do so by the Board of Directors, certificates for shares of the Corporation,
any deeds, mortgages, bonds, contracts or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed; and, in general, shall
perform all duties incident to the office of President and such other duties as
may be prescribed by the Board of Directors from time to time. Unless otherwise
ordered by the Board of Directors, the President shall have full power and
authority on behalf of the Corporation to attend, act and vote at any meetings
of shareholders of any corporation in which the Corporation may hold stock, and
at such meeting, shall hold and may exercise all rights incident to the
ownership of such stock which the Corporation, as owner, might have had and
exercised if present. The Board of Directors may confer like powers on any
other person or persons.
4.7 Vice President. In the absence of the President, or in the event of
--------------
the President's absence or inability to act, the Vice President (or, in the
event there be more than one Vice President, the Vice Presidents in order
designated at the time of their election, or in the absence of any designation,
then, in the order of their election), if that office be created and filled,
shall perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. Any
Vice President may sign, with the Secretary or an assistant secretary,
certificates for shares of the Corporation; and shall perform such other duties
as from time to time may be assigned by the Chairman of the Board, President or
the Board of Directors.
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4.8 Chief Financial Officer. The Chief Financial Officer shall keep and
-----------------------
maintain the books and accounts of the Corporation and shall have charge and
custody of and be responsible for all funds and securities of the Corporation;
receive and give receipts for monies due and payable to the Corporation from any
source whatsoever, and deposit all such monies in the name of the Corporation in
such banks, trust companies and other depositories as shall be selected in
accordance with the provisions of Article V of these Bylaws; and, in general,
perform all the duties incident to the office of Chief Financial Officer and
such other duties as from time to time may be assigned by the Chairman of the
Board, the President or the Board of Directors.
4.9 Secretary. The Secretary shall keep the minutes of the shareholders'
---------
meetings, Board of Directors' meetings and meetings of committees of the Board
of Directors in one (1) or more books provided for that purpose; see that all
notices are duly given in accordance with the provisions of these Bylaws or as
required by law; be custodian of the corporate records and of the seal, if any,
of the Corporation; keep a register of the post office address of each
shareholder; sign with the President or Vice President certificates for shares
of stock of the Corporation; have general charge of the stock transfer books of
the Corporation; and, in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned by the
Chairman of the Board, the President or the Board of Directors.
ARTICLE V
Contracts, Loans,
Checks and Deposits
-------------------
5.1 Contracts. The Board of Directors may authorize any officer or
---------
officers, agent or agents, to enter into any contract and execute and deliver
any instruments in the name of and on behalf of the Corporation. Such authority
may be general or confined to specific instances.
5.2 Checks, Drafts. All checks, drafts or other orders for the payment
--------------
of money, notes or other evidences of indebtedness issued in the name of the
Corporation shall be signed by such officer or officers, or agent or agents, of
the Corporation and in such manner as shall, from time to time, be determined by
resolution of the Board of Directors.
5.3 Deposits. All funds of the Corporation not otherwise employed shall
--------
be deposited, from time to time, to the credit of the Corporation in such banks,
trust companies and other depositories as the Board of Directors may select.
ARTICLE VI
Certificates for Shares
and Their Transfer
------------------
6.1 Certificates for Shares. Certificates representing shares of the
-----------------------
Corporation shall be in such form as may be determined by the Board of Directors
and by the laws of the State of Delaware. Each certificate shall have noted
conspicuously thereon any applicable restrictions on sale
14
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or transfer. Such certificates shall be signed by the President and by the
Secretary or such other officers as may be designated by the Board of Directors.
All certificates for shares shall be consecutively numbered within each class of
stock in the order in which they are issued. The name of the person owning the
shares represented thereby, with the number of shares and date of issue, shall
be entered on the books of the Corporation. All certificates surrendered to the
Corporation or its agent for transfer shall be canceled and no new certificates
shall be issued until the former certificates for a like number of shares shall
have been surrendered and canceled, except that, in case of a lost, destroyed or
mutilated certificate, a new one may be issued therefor upon such terms and
indemnity to the Corporation as the Board of Directors may prescribe.
6.2 Lost, Stolen or Destroyed Stock Certificates. The Corporation may
--------------------------------------------
issue a new certificate of stock in place of any certificate issued by it and
alleged to have been lost, stolen or destroyed, if the person claiming the
certificate to be lost, stolen or destroyed shall make an affidavit of that
fact. In addition, the Corporation may require the owner of the lost, stolen or
destroyed certificate, or such person's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction.
6.3 Transfer of Shares. Transfer of shares of the Corporation shall be
------------------
made only on the books of the Corporation by the registered holders thereof, or
by their legal representatives who shall furnish proper evidence of authority to
transfer, or by their attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary or the transfer agent of the Corporation,
and on surrender for cancellation of the certificate for such shares. The
person in whose name shares stand on the books of the Corporation shall be
deemed the owner of the shares for all purposes as regards the Corporation.
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ARTICLE VII
Indemnification
---------------
7.1 Indemnification.
---------------
(a) For purposes of this Article:
"Agent" means any person who is or was a director, officer, employee
or other agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a director, officer, employee or agent of a foreign or domestic corporation
which was a predecessor corporation of the Corporation or of another enterprise
at the request of the predecessor corporation.
"Proceeding" means any threatened, pending or completed action or
proceeding whether civil, criminal, administrative or investigative.
"Expenses" includes, without limitation, attorneys' fees and any
expenses of establishing a right to indemnification under (d) or (e)(4) of this
Section.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any proceeding (other than an action by
or in the right of the Corporation to procure a judgment in its favor) by reason
of the fact that such person is or was an agent of the Corporation, against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with the proceeding if such person acted in
good faith and in a manner reasonably believed to be in the best interests of
the Corporation, and, with respect to any criminal proceeding, had no reasonable
cause to believe the conduct was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner reasonably believed to be in the best
interests of the Corporation, or that the person had reasonable cause to believe
that the person's conduct was unlawful.
(c) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any proceeding by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that such
person is or was an agent of the Corporation, against expenses actually and
reasonably incurred by that person in connection with the defense or settlement
of the proceeding if such person acted in good faith, in a manner the person
believed to be in the best interests of the Corporation and its shareholders.
No indemnification shall be made under this provision for any of the following:
(i) in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Corporation in the
performance of such person's duty to the Corporation and its shareholders,
unless and only to the extent that the Delaware Court of Chancery,
16
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or the court in which such action or suit was brought, shall determine upon
application that, in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine;
(ii) amounts paid in settling or otherwise disposing of a
pending action without court approval; or
(iii) expenses incurred in defending a pending action which
is settled or otherwise disposed of without court approval.
(d) To the extent that an agent of the Corporation has been
successful on the merits or otherwise in defense of any proceeding referred to
in subsections (b) and (c) of this Article, or in defense of any claim, issue or
matter therein, the agent shall be indemnified against expenses actually and
reasonably incurred by the agent in connection therewith.
(e) Any indemnification under subsections (b) and (c) of this Article
shall be made by the Corporation only if authorized in the specific case upon a
determination that indemnification of the agent is proper in the circumstances
because the agent has met the applicable standard of conduct set forth in
subsections (b) or (c) of this Article. Such determination shall be made: (i)
by the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such proceeding; (ii) if such a quorum is not
obtainable, by independent legal counsel in a written opinion; (iii) by the
shareholders, with the shares owned by the person to be indemnified not being
entitled to vote therein; or (iv) by the court in which the proceeding is or was
pending upon application made by the Corporation, the agent or the attorney or
other person rendering services in connection with the defense, whether or not
such application is opposed by the Corporation.
(f) Expenses incurred in defending any proceeding may be advanced by
the Corporation prior to the final disposition of the proceeding upon receipt of
an undertaking by or on behalf of the agent to repay such amount if it shall
ultimately be determined that the agent is not entitled to be indemnified by the
corporation as authorized in this Article.
(g) The indemnification authorized by this Article shall not be
deemed exclusive of any additional rights to indemnification for breach of duty
to the Corporation and its shareholders while acting in the capacity as director
or officer of the Corporation to the extent additional indemnification rights
are authorized in the Corporation's Certificate of Incorporation and allowed
under applicable law. The indemnification provided by this Article for acts,
omissions or transactions while acting in the capacity of, or while serving as,
a director or officer of the Corporation but not involving breach of duty to the
Corporation and its shareholders shall not be deemed exclusive of any other
rights to which those seeking indemnification may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise, to the
extent the additional rights are authorized in the Certificate of Incorporation.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this section shall, unless otherwise provided when authorized
17
<PAGE>
or ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(h) No indemnification or advance shall be made under this Article
(except as provided in paragraphs (d) or (e)(4)) in any circumstance where it
appears that it would be inconsistent with: (i) a provision of the Certificate
of Incorporation, Bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification, or (ii) any condition expressly
imposed by a court in approving a settlement.
(i) The Corporation may purchase and maintain insurance on behalf of
any agent of the Corporation against any liability asserted against or incurred
by the agent in that capacity, or arising out of the agent's status as such,
whether or not the Corporation would have the power to indemnify the agent
against such liability under this Article.
(j) The Corporation shall also have the power to indemnify and
purchase and maintain insurance on behalf of any fiduciary of any pension,
profit-sharing, share bonus, share purchase, share option, savings, thrift and
other retirement, incentive and benefit plans, trusts and provisions for
directors, officers and employees of the Corporation.
ARTICLE VIII
Miscellaneous
-------------
8.1 Amendments. The Board of Directors shall have the power and
----------
authority to alter, amend or repeal Bylaws of the Corporation at any regular or
special meeting at which a quorum is present by the vote of a majority of the
entire Board of Directors, subject always to the power of the shareholders under
Delaware law to adopt, alter or repeal such Bylaws.
8.2 Fiscal Year. The Board of Directors shall have the power to fix, and
-----------
from time to time change, the fiscal year of the Corporation. Unless otherwise
fixed by the Board, the fiscal year of the Corporation shall end on March 31.
8.3 Dividends. The Board of Directors may, from time to time, declare,
---------
and the Corporation may pay, dividends on its outstanding shares in the manner
and upon the terms and conditions provided by law and its Certificate of
Incorporation.
8.4 Seal. The Board of Directors of the Corporation may adopt a seal on
----
behalf of the Corporation.
8.5 Waiver of Notice. Whenever any notice is required to be given under
----------------
the provisions of these Bylaws, or under the provisions of the Corporation's
Certificate of Incorporation, or under the provisions of any applicable laws, a
waiver thereof in writing, signed by the person or persons
18
<PAGE>
entitled to such notice, whether before or after the time stated therein, shall
be equivalent to the giving of such notice.
The above Bylaws were adopted by the Board of Directors
of Ocean West Holding Corporation on _________________,
2000.
-------------------------------------------------------
Secretary
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HISTORICAL TABLE
BYLAWS OF
OCEAN WEST HOLDING CORPORATION
Bylaws initially adopted on ____________, 2000.
AMENDMENTS
----------
Date Article/Section No.
---- -------------------
20
<PAGE>
Exhibit 4
COMMON STOCK PURCHASE WARRANT AGREEMENT
---------------------------------------
This Common Stock Purchase Warrant Agreement is made as of
______________________, 2000, by and between Ocean West Holding Corporation and
Reliance Trust Company (the "Warrant Agent").
WHEREAS, the Company has determined to issue and deliver Common Stock
Purchase Warrants (the "Warrants") entitling the holders of the Warrants to
purchase an aggregate of 1,000,000 Common Shares of the Company;
WHEREAS, the Company desires to provide for the form and provisions of the
Warrants, the terms upon which they will be issued and may be exercised, and the
respective rights, limitations and immunities of the Company, the Warrant Agent
and the holders of the Warrants; and
WHEREAS, all acts and things necessary have been done and performed to make
the Warrant, when executed on behalf of the Company and countersigned by or on
behalf of the Warrant Agent, as provided in this Agreement, the valid, binding
and legal obligation of the Company, and to authorize the execution and
delivery of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
Article I
Execution and Countersignature of Warrants
1.01. Execution and Countersignature of Warrants.
------------------------------------------
(a) Each Warrant, whenever issued, shall be dated
________________________, shall be substantially in the form of Exhibit A
---------
attached hereto and incorporated hereby, and shall be signed by, or bear the
facsimile signature of, the President or a Vice President and of the Secretary
or an Assistant Secretary of the Company. If any officer whose facsimile
signature has been placed upon any Warrant ceases to be that officer before the
Warrant is issued, the Warrant may be issued with the same effect as if the
officer had not ceased to be that officer on the date of issuance.
(b) No Warrant may be exercised until it has been countersigned
by the Warrant Agent. The Warrant Agent shall countersign a Warrant only if:
(i) the Warrant is to be issued in exchange or
substitution for one or more previously countersigned Warrants, as
provided in this Agreement, or
(ii) the Company instructs the Warrant Agent to do so.
<PAGE>
(c) Unless and until countersigned by the Warrant Agent pursuant
to this Agreement, a Warrant is invalid and of no effect.
Article II
Warrant Price, Duration and Exercise of Warrants
2.01. Warrant Price. Each Warrant, when countersigned by the Warrant
-------------
Agent, shall entitle the holder of the Warrant, subject to the provisions of
this Agreement, to purchase from the Company the number of Common Shares stated
in the Warrant at the price of eight dollars ($8.00) per share, subject to the
adjustments provided in Article III of this Agreement. The Warrant Price as
used herein shall refer to the price per share at which Common Shares may be
purchased at the time a Warrant is exercised.
2.02. Duration of Warrants. Warrants may be exercised only on or
--------------------
before a date that is eighteen (18) months after the date of the Warrants (the
"Expiration Date"). Notwithstanding the foregoing, if notice has been given as
provided in Article III hereof in connection with the liquidation, dissolution
or winding up of the Company, the Warrants shall expire at the close of business
on the third full business day before the date specified in the notice as the
record date for determining holders of stock entitled to receive any
distribution upon the liquidation, dissolution or winding up; provided, however,
that such date is at least five (5) business days after the date of the notice.
2.03. Exercise of Warrants.
--------------------
(a) A Warrant, when countersigned by the Warrant Agent, may be
exercised by surrendering it at the office of the Warrant Agent in Atlanta,
Georgia, or at the office of its successor as warrant agent, prior to the close
of business of the Warrant Agent on the Expiration Date or such earlier date as
may be applicable with the exercise form set forth in the Warrant duly completed
and executed, and by paying in full, in lawful money of the United States, the
Warrant Price for each full Common Share as to which the Warrant is exercised,
and any applicable taxes. Notwithstanding the foregoing, the Company is only
required to use reasonable efforts which will permit the purchase and sale of
the Common Shares underlying the Warrants and is not required to qualify the
Warrants or the Common Shares underlying the Warrants in any state.
(b) As soon as practicable after the exercise of any Warrant, the
Company shall issue to, or upon the order of, the holder or holders of the
Warrant, in whatever name or names the Warrant holder may direct, a certificate
or certificates for the number of full Common Shares to which the holder or
holders are entitled, registered in the name or names specified by the holder or
holders, and, if the Warrant is not exercised in full (except with respect to a
remaining fraction of a share), a new countersigned Warrant for the number of
shares (including fractional shares) as to which the Warrant has not been
exercised. All Warrants surrendered shall be canceled by the Company.
2
<PAGE>
(c) If the same holder of one or more Warrants exercises the
purchase rights under the Warrants in the same transaction in a manner that
leaves the right to purchase a fraction of a share unexercised, the Company
shall pay a cash adjustment with respect to that final fraction in an amount
equal to the same fraction of the current market price of one Common Share on
the business day that next precedes the day of exercise reduced by the same
fraction of the Warrant Price of one Common Share on that day. For this purpose,
the current market price shall be the price of one Common Share on the principal
stock exchange on which the Common Shares is traded on the next preceding
business day, or, if no sales take place on that day or if the Common Shares are
not then listed on a stock exchange, the average of the reported bid and asked
prices on that day in the over-the-counter market.
(d) All Common Shares issued upon the exercise of a Warrant shall
be duly and validly issued, fully paid and nonassessable, and the Company shall
pay all taxes in connection with the issuance of such shares. The Company shall
not be required to pay any tax imposed in connection with any transfer involved
in the issuance of a certificate for Common Shares in any name other than that
of the holder or holders of the Warrant surrendered in connection with the
purchase of the shares. In this case the Company shall not be required to issue
or deliver any stock certificate until the tax has been paid.
(e) Each person in whose name any certificate for Common Shares
is issued shall be deemed to have become the holder of record of the shares on
the date on which the Warrant was surrendered and payment of the Warrant Price
and any applicable taxes was made, irrespective of the date of delivery of the
certificate, except that, if the date of surrender and payment is a date when
the stock transfer books of the Company are closed, a person shall be deemed to
have become the holder of shares at the close of business on the next succeeding
date on which the stock transfer books are open. Except as otherwise provided in
Article III, each person holding any shares received upon exercise of Warrants
shall be entitled to receive only dividends or distributions which are payable
to holders of record on or after the date on which the person is deemed to
become the holder of record of such shares.
Article III
Adjustments
3.01. Stock Dividends - Split-Ups. If after the date of this
---------------------------
Agreement, and subject to the provisions of Section 3.07 hereof, the number of
outstanding Common Shares of the Company is increased by a stock dividend
payable in Common Shares or by a split-up of Common Shares, then, on the day
following the date fixed for the determination of holders of Common Shares
entitled to receive the stock dividend or split-up, the number of shares
issuable on exercise of each Warrant shall be increased in proportion to the
increase in outstanding shares and the then applicable Warrant Price shall be
correspondingly decreased.
3.02. Aggregation of Shares. If after the date of this Agreement, and
---------------------
subject to the provisions of Section 3.07 hereof, the number of outstanding
Common Shares of the Company is
3
<PAGE>
decreased by a combination or reclassification of Common Shares, then, after the
effective date of the combination or reclassification, the number of Common
Shares issuable on exercise of each Warrant shall be decreased in proportion to
the decrease in outstanding Common Shares and the then applicable Warrant Price
shall be correspondingly increased.
3.03. Special Stock Dividends. If after the date of this Agreement,
-----------------------
and subject to the provisions of Section 3.07 hereof, shares of any class of
stock of the Company (other than Common Shares) are issued by way of a stock
dividend on outstanding Common Shares, then, commencing with the day following
the date fixed for the determination of holders of Common Shares entitled to
receive the stock dividend, in addition to any Common Share receivable upon
exercise of the Warrants, the Warrant holders upon exercise of the Warrants
shall be entitled to receive, as nearly as practicable, the same number of
shares of dividend stock, plus any shares issued upon any subsequent change,
replacement, subdivision or combination of the stock dividend, to which the
holders would have been entitled if their Warrants would have been exercised
immediately prior to the stock dividend. No adjustment in the Warrant Price
shall be made merely by virtue of the happening of any event specified in this
Section 3.03.
3.04. Reorganization, Etc. If after the date of this Agreement any
--------------------
capital reorganization or reclassification of the Common Shares of the Company,
or consolidation or merger of the Company with another corporation, or sale of
all or substantially all of its assets to another corporation is effective,
then, as a condition of the reorganization, reclassification, consolidation,
merger or sale, lawful and fair provision shall be made whereby the Warrant
holders after the transaction shall have the right to purchase and receive, upon
the basis and upon the terms and conditions specified in the Warrants and in
lieu of the Common Shares of the Company purchasable and receivable immediately
prior to the transaction upon the exercise of the rights represented by the
Warrants, the shares of stock, securities or assets that may be issued or
payable with respect to or in exchange for a number of outstanding Common Shares
equal to the number of Common Shares purchasable and receivable immediately
prior to the transaction upon the exercise of the rights represented by the
Warrants if the reorganization, reclassification, consolidation, merger or sale
had not taken place. Appropriate provisions shall be made in connection with a
reorganization, reclassification, consolidation, merger or sale with respect to
the rights and interests of the Warrant holders to the end that the provision of
this Agreement (including, without limitation, provisions for adjustments of the
Warrant Price and of the number of shares purchasable upon exercise of the
Warrants) shall immediately after the transaction be applicable as nearly as
possible to any shares of stock, securities or assets deliverable immediately
after the transaction upon the exercise of the Warrants. The Company shall not
effect any consolidation, merger or sale unless, prior to the consummation of
the transaction, the successor corporation (if other than the Company) resulting
from the consolidation or merger, or the corporation purchasing the assets,
assumes by written instrument executed and delivered to the Warrant Agent the
obligation to deliver to the Warrant holders the shares of stock, securities or
assets in accordance with the foregoing provisions that the holders may be
entitled to purchase.
4
<PAGE>
3.05. Notice of Change in Warrant. Upon any adjustment of the Warrant
---------------------------
Price or the number of shares issuable on exercise of a Warrant, then and in
each case the Company shall give written notice of the adjustment to the Warrant
Agent. The notice shall state the Warrant Price resulting from the adjustment
and the increase or decrease, if any, in the number of shares purchasable at
that price upon exercise of a Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which the calculation is based. The
Company shall mail or cause to be mailed to each holder of Warrants at the
address registered with the Company, a notice setting forth such change or
adjustment. Failure to file a statement or to give notice, or any defect in a
statement or notice, shall not affect the legality or validity of the changes or
adjustments.
3.06. Other Notices. In case at any time:
-------------
(a) the Company pays any dividends payable in stock upon its
Common Shares or makes any distributions (other than regular cash dividends) to
the holders of its Common Shares;
(b) the Company offers for subscription pro rata to the holders
of its Common Shares any additional shares of stock of any class or any other
rights;
(c) there is a capital reorganization, a classification of the
capital stock of the Company or a consolidation or merger of the Company with,
or a sale of all or substantially all of its assets to, another corporation; or
(d) there is a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of these cases, the Company shall give written notice
in the manner set forth in Section 3.05 of this Agreement of the date on which
(i) the books of the Company close or a record is taken for the dividend,
distribution or subscription rights, or (ii) the reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up takes place. The notice also shall specify the date as of which the
holders of record of Common Shares shall participate in dividend, distribution
or subscription rights, or shall be entitled to exchange their Common Shares for
securities or other property deliverable upon the reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up. The notice shall be given and published at least twenty (20) days
prior to the transaction in question and not less than 20 days prior to the
record date or the date on which the Company's transfer books are closed with
respect to the transaction. Failure to give or publish the notice, or any
defect in the notice, shall not affect the legality or validity of any
transaction covered or to be covered in the notice.
3.07. Limitation on Fractions. Notwithstanding anything in Sections
-----------------------
3.01 or 3.02 hereof to the contrary, cumulative adjustments in the number of
shares issuable upon exercise of Warrants shall be made only to the nearest
multiple of one-tenth (1/10) of a share, i.e., fractions of less than five-
hundredths (5/100) of a share shall be disregarded and fractions of five-
hundredths (5/100) of a share or more shall be treated as being one-tenth (1/10)
of a share.
5
<PAGE>
3.08. Form of Warrant. The form of Warrant need not be changed due to
---------------
any change pursuant to this article, and Warrants issued after a change may
state the same Warrant Price and the same number of shares as is stated in the
Warrants initially issued pursuant hereto. However, at any time in its sole
discretion, the Company may make any change in the form of Warrant that it may
deem appropriate and that does not affect the substance of the Warrants. Any
Warrant subsequently issued and countersigned, whether in exchange or
substitution for an outstanding Warrant or otherwise, may be in the form as so
changed.
Article IV
Other Provisions Relating to Rights of Holders of Warrants
4.01. No Rights as Stockholder Conferred by Warrants. A Warrant does
----------------------------------------------
not entitle its holder to any of the rights of a stockholder of the Company.
4.02. Lost, Stolen, Mutilated or Destroyed Warrants. If any Warrant is
---------------------------------------------
lost, stolen, mutilated or destroyed, the Company and the Warrant Agent may
issue a new Warrant of like denomination, tenor and date as the Warrant so lost,
stolen, mutilated or destroyed. Any such issuance of a new Warrant shall be on
whatever terms and conditions with respect to indemnity or otherwise that the
Company and Warrant Agent may in their sole discretion impose (which shall, in
the case of a mutilated Warrant, include the surrender of the Warrant). Any new
Warrant shall constitute an original contractual obligation of the Company,
regardless of whether the allegedly lost, stolen, mutilated or destroyed Warrant
is at any time enforceable by anyone.
4.03. Reservation of Common Shares. The Company shall at all times
----------------------------
reserve and keep available the number of its authorized but unissued Common
Shares which is sufficient to permit the exercise in full of all outstanding
Warrants. If at any time the number of authorized but unissued Common Shares is
not sufficient for these purposes, the Company shall take such corporate action
as, in the opinion of counsel, may be necessary to increase its authorized but
unissued shares to the number of shares sufficient for these purposes. The
Warrants, and the Common Shares issuable upon exercise of the Warrants, have
been registered under the Securities Act of 1933, as amended.
Article V
Ownership and Transfer of Warrants
5.01. Ownership of Warrants. Warrants issued pursuant to this
---------------------
Agreement shall be treated as owned only by the holder of record as determined
by the Warrant Agent.
5.02. Transfer of Warrants. After countersignature by the Warrant
--------------------
Agent in accordance with the provisions of this Agreement, one or more Warrants
may be surrendered to the Warrant Agent for transfer and, upon their
cancellation, the Warrant Agent shall countersign and deliver in exchange one or
more new Warrants, as requested by the holder of the canceled Warrant or
Warrants, for purchase of the same aggregate number of shares as were evidenced
by or applicable
6
<PAGE>
to the Warrant or Warrants so canceled. The Company shall give notice to the
registered holders of the Warrants of any change in the address, or in the
designation, of the Warrant Agent.
Article VI
Warrant Agent
6.01. Resignation, Consolidation or Merger of Warrant Agent.
-----------------------------------------------------
(a) The Warrant Agent, or any successor, may resign its duties
and be discharged from all further duties and liabilities hereunder after giving
sixty (60) days notice in writing to the Company, except that shorter notice may
be given if the Company, in writing, accepts such shorter notice as sufficient.
If the office of Warrant Agent becomes vacant by resignation or incapacity to
act or otherwise, the Company shall appoint in writing a successor Warrant Agent
in place of the Warrant Agent.
(b) If the Company fails to make an appointment within sixty (60)
days after it has been notified in writing of a resignation or an incapacity by
the resigning or incapacitated Warrant Agent or by the holder of a Warrant (who
must, with any notice, submit the Warrant for inspection by the Company), then
the holder of any Warrant may apply to any court of competent jurisdiction for
the appointment of a successor Warrant Agent. Any successor Warrant Agent,
whether appointed by the Company or by a court, must be a corporation organized,
doing business and in good standing under the laws of the United States of
America or of any State, authorized under the laws under which it is governed to
exercise corporate trust powers, be subject to supervision or examination by
federal or state authorities, and have a combined capital and surplus of not
less than $5,000,000. The combined capital and surplus of any successor Warrant
Agent shall be deemed to be the combined capital and surplus set forth in the
most recent report of its condition published prior to its appointment, provided
that these reports are published at least annually pursuant to law or to the
requirements of a federal or state supervision or examining authority.
(c) After appointment, any successor Warrant Agent shall be
vested with all the authorities, powers, rights, immunities, duties and
obligations of its predecessor Warrant Agent with like effect as if originally
named as Warrant Agent under this Agreement without any further act or deed.
However, if for any reason it becomes necessary or appropriate, the predecessor
Warrant Agent shall execute and deliver, at the Company's expense, an instrument
transferring to a successor Warrant Agent all the authority, powers, rights,
immunities, duties and obligations of a Warrant Agent hereunder. Not later than
the effective date of any appointment the Company shall give notice of the
appointment to the predecessor Warrant Agent to each transfer agent for its
Common Shares and to the registered holders of the Warrants. Failure to give
notice, or any defect in a notice, shall not affect the validity of the
appointment of a successor Warrant Agent.
(d) Any corporation into which the Warrant Agent may be merged or
with which it may be consolidated or any corporation resulting from any merger
or consolidation to which the
7
<PAGE>
Warrant Agent is a party shall be the successor Warrant Agent under this
Agreement without any further act.
6.02. Fees and Expenses of Warrant Agent. The Company shall (a) pay
----------------------------------
the Warrant Agent reasonable remuneration for its services as Warrant Agent
hereunder and reimburse the Warrant Agent upon demand for all expenditures that
it may reasonably incur in the execution of its duties hereunder, for example
and not by way of limitation, including the cost of legal counsel utilized by
Warrant Agent pursuant to Section 6.03(a) hereof; and (b) perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all further and other acts, instruments and assurances that reasonably
may be required by the Warrant Agent to carry out or perform this Agreement.
6.03. Additional Provisions.
---------------------
(a) The Warrant Agent may consult with legal counsel (who may be
legal counsel for the Company) and the opinion of legal counsel shall be full
and complete authorization and protection to the Warrant Agent with respect to
any action taken or omitted by it in good faith and in accordance with the
opinion.
(b) Whenever in the performance of its duties under this
Agreement the Warrant Agent deems it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, the fact or matter (unless other evidence with respect thereto
is specifically prescribed in this Agreement) may be deemed to be conclusively
proved and established by a statement signed by the President or a Vice
President or the Treasurer or an Assistant Treasurer or the Controller or the
Secretary of the Company and delivered to the Warrant Agent. However, in its
discretion, the Warrant Agent may in lieu of a signed statement accept other
evidence of a fact or matter or may require further or additional evidence that
to it may seem reasonable.
(c) The Warrant Agent shall be liable hereunder only for its own
negligence or willful misconduct.
(d) The Warrant Agent shall not be liable for or by reason of any
of the statements of fact or recital contained in this Agreement or in the
Warrants (except its countersignature of the Warrants) or be required to verify
the statements or recitals, and all of these statements and recitals are and
shall be deemed to have been made only by the Company.
(e) The Warrant Agent shall not be responsible for (i) the
validity of this Agreement, (ii) the execution and delivery of this Agreement or
the validity and execution of any Warrants (except its countersignature or
execution of the Warrants), (iii) any breach by the Company of any covenant or
condition contained herein or in any Warrant, (iv) the making of any adjustment
required by Article III of this Agreement or (v) the manner, method or amount of
any adjustment or the ascertaining of the existence of facts that would require
any adjustment. The Warrant Agent also,
8
<PAGE>
by any act under or pursuant hereto, shall not be deemed to make any
representation or warranty as to the authorization or reservation of any Common
Shares to be issued pursuant hereto, as to any Warrant or as to whether, when
issued, Common Shares shall be duly and validly issued, fully paid and
nonassessable.
6.04. Acceptance of Agency. The Warrant Agent hereby accepts the
--------------------
agency established by this Agreement and agrees to perform this Agreement upon
the terms and conditions set forth herein. Among other things, the Warrant
Agent shall account promptly to the Company with respect to Warrants exercised
and concurrently pay to the Company all moneys received by it for the purchase
of Common Shares through the exercise of Warrants.
Article VII
Other Matters
7.01. Payment of Taxes. The Company shall from time to time promptly
----------------
pay all taxes and charges that may be imposed upon the Company or the Warrant
Agent in connection with the issuance or delivery of Common Shares upon the
exercise of Warrants, but the Company shall not be required to pay any transfer
taxes or income taxes in connection with the Warrants or shares.
7.02. Modification of Agreement. Without the consent or concurrence of
-------------------------
the holders of the Warrants, the Warrant Agent may by supplemental agreement or
otherwise concur with the Company in making any changes or corrections in this
Agreement that it is advised by counsel (who may be counsel for the Company) are
required to cure any ambiguity or to correct any defective or inconsistent
provision or clerical omission or mistake or manifest error contained herein.
7.03. Successors. All the covenants and provisions of this Agreement
----------
by or for the benefit of the Company or the Warrant Agent shall bind and inure
to the benefit of their respective successors and assigns hereunder.
7.04. Notices and Demands to Company and Warrant Agent. Any notice or
------------------------------------------------
demand authorized by this Agreement to be given or made by the Company, the
Warrant Agent or by the holder of any Warrant shall be sufficiently given or
made if sent by certified or registered mail, postage prepaid, addressed (until
another address is filed in writing), as follows:
To the Company: Ocean West Holding Corporation
15991 Redhill Avenue, Suite 110
Tustin, California 92780
Attn: Daryl S. Meddings
To the Warrant Agent: Reliance Trust Company
3384 Peachtree Road, NE
Atlanta, Georgia 30326
Attn: _______________________
9
<PAGE>
7.05. Applicable Law. The validity, interpretation and performance of
--------------
this Agreement and of the Warrants shall be governed by the laws of the State of
Delaware.
7.06. Persons Having Rights Under This Agreement. Nothing expressed in
------------------------------------------
this Agreement and nothing that may be implied from any of the provisions hereof
is intended, or shall be construed, to confer upon, or give to, any person or
corporation other than the parties to this Agreement and the holders of the
Warrants any right, remedy or claim under or by reason of this Agreement or of
any covenant, conditions, stipulation, promise or agreement contained herein,
and all covenants, conditions, stipulations, promises and agreements contained
herein shall be for the sole and exclusive benefit of the parties hereto and
their respective successors and assigns and of the holders of the Warrants.
7.07. Examination of Agreement. A copy of this Agreement shall be
------------------------
available at all reasonable times at the office of the Warrant Agent for
inspection by the holder of any Warrant. The Warrant Agent may require the
holder seeking inspection to submit the Warrant for inspection by it.
7.08. Effect of Headings. The article and section headings in this
------------------
Agreement are for convenience only and are not part of this Agreement and shall
not affect the interpretation hereof.
WITNESS the signatures of the parties to this Agreement as of the day first
above written.
Ocean West Holding Corporation
By:
-----------------------------------------
Title:
--------------------------------------
Reliance Trust Company
By:
------------------------------------------
Title:
---------------------------------------
10
<PAGE>
Exhibit 5
Ogden Newell & Welch
1700 Citizens Plaza
500 West Jefferson Street
Louisville, Kentucky 40202
____________, 2000
Ocean West Holding Corporation
15991 Redhill Avenue, Suite 110
Tustin, California 92780
RE: Registration Statement on Form S-1
Members of the Board of Directors:
This letter is in response to your request for our opinion in connection
with the Registration Statement on Form S-1 under the Securities Act of 1933, as
amended, of Ocean West Holding Corporation (the "Corporation"). We have
examined the following documents of the Corporation:
1. Certificate of Incorporation of the Corporation filed __________, 2000;
2. Bylaws of the Corporation;
3. Resolutions of the Corporation reflecting various actions by the Board
of Directors and Shareholders thereof; and
4. Such other documents, papers, statutes and authorities as we deem
necessary to form the basis of the opinion hereinafter expressed.
We have assumed the genuineness of the signatures on all documents renewed
and the authenticity of such documents and that the documents submitted to us as
copies conform to the originals. We have relied on certificates of public
officials and upon certificates of the officers and directors of the
Corporation.
Based on the foregoing, we are of the opinion that the Common Shares of the
Corporation to be registered under the registration statement described above,
if issued in accordance therewith and the documents listed herein, will be
legally issued, fully paid and non-assessable under Delaware law.
<PAGE>
Ocean West Holding Corporation
- -----------, 2000
Page 2
We give you our permission to file this opinion with the Securities and
Exchange Commission as an exhibit to the registration statement referred to
above.
Sincerely yours,
Ogden Newell & Welch
<PAGE>
- -------------------------------------------------------------------------------
Transfer Agent and Registrar Agreement
[LETTERHEAD OF RELIANCE APPEARS HERE]
This Agency Agreement is made and entered into as of the _____ day of
____________, ______, by and between Ocean West Holding Corporation, hereinafter
called "Corporation" and Reliance Trust Company hereinafter called "Reliance."
The Corporation hereby appoints Reliance and Reliance hereby accepts the
appointment as Transfer Agent and Registrar for the Corporation's Common stock
and warrants on the terms and conditions provided herein:
1. The Corporation agrees to file the following documents with Reliance.
a. A copy of the Articles of Incorporation of the Corporation with all
amendments thereto, certified by the Secretary of State of the state
of incorporation.
b. If the voting powers, designations, preferences and other rights of
the shareholders are not fully set forth in the document delivered
pursuant to paragraph 1(a), then a copy of the resolution adopted by
the Board of Directors of the Corporation setting forth such terms of
the stock, certified by the Secretary under the Corporate Seal.
c. A copy of the By-Laws and all amendments thereto, certified by the
Secretary or an Assistant Secretary of the Corporation under the
Corporate Seal.
d. A copy of the Resolution of the Board of Directors of the Corporation
appointing Reliance as Transfer Agent and Registrar, certified by the
Secretary or an Assistant Secretary under the Corporate Seal.
e. Specimens of each form of outstanding stock certificate in the forms
approved by the Board of Directors of the Corporation and certified by
the Secretary.
f. A certificate of the Secretary of the Corporation as to the authorized
and outstanding stock, the address of the Corporation, the name and
address of legal counsel for the Corporation, the names and specimen
signatures of the officers of the Corporation authorized to give and
receive notices, the names and addresses of any other Transfer Agents
and Registrars of the stock of the Corporation.
g. Opinion of counsel to the Corporation stating:
(1) that the Corporation was duly incorporated and exists in good
standing under the laws of the state of its incorporation;
(2) that the shares of the Stock outstanding were validly issued and
are fully paid and non-assessable;
(3) the status of such shares of Stock under the Securities Act of
1933, (the "Act"), any other applicable Federal or state statute,
and any other restrictions on the transferability of such shares
of the Stock, including liens created by the Corporation;
(4) such other matters as Reliance may reasonably request after
examination of the information furnished hereunder.
(NOTE: If such opinion indicates Federal or state regulatory
jurisdiction over the issue of the shares - as exempt from
registration or similar requirements under the Securities Act of
1933, or state Blue Sky laws, a copy of the relevant order or
consent of the regulatory authority, certified by an appropriate
official of such authority and under its proper seal, should be
delivered to Reliance.)
h. Printer's Certificates or copies of receipts documenting amounts of
unissued certificates placed in Reliance's possession.
i. In the event that any of the information furnished pursuant to
paragraph (1) is amended or changed, prompt written notification of
such change, together with copies of all relevant resolutions,
instruments or other documents, specimen signatures, certificates,
opinions or the like as Reliance may deem necessary or appropriate.
j. Specimen signature of all officers of the Corporation who are
authorized to sign stock certificates or issue other instructions to
the Transfer Agent and Registrar.
2. The Corporation shall furnish Reliance, as Transfer Agent and Registrar, a
sufficient supply of blank stock
- -------------------------------------------------------------------------------
<PAGE>
certificates, and from time to time will renew such supply upon request.
Such blank stock certificates shall be signed manually or be facsimile
signatures of officers of the Corporation authorized to sign certificates
and, if required, shall bear the Corporate Seal or facsimile thereof.
3. The Corporation shall file promptly with Reliance written notice of any
change in the officers authorized to sign stock certificates, written
instructions or requests, together with specimen signature of each newly
authorized officer. In case of any officer of the Corporation who shall
have signed manually or whose facsimile signature shall have been affixed
to unissued share certificates shall die, resign or be removed prior to the
issuance of such certificates, Reliance, as Transfer Agent and Registrar,
may issue and register such certificates as the share certificates of the
Corporation notwithstanding such death, resignation or removal; and the
Corporation shall file promptly with Reliance such approval; adoption or
ratification of such certificates and the actions of Reliance as may be
required by law or required by Reliance.
4. Reliance, as Transfer Agent and Registrar, shall make original issues of
stock upon the written request of an officer of the Corporation and upon
being furnished with:
a. a certified copy of a resolution of the Board of Directors authorizing
such issues;
b. an opinion of counsel as outlined in paragraph 1(g) above;
c. necessary funds for the payment of any original issue tax, or an
opinion of counsel that no tax is payable;
d. evidence of compliance with the applicable requirements of such
exchange if the shares are listed on any securities exchange;
e. such other information as Reliance may reasonably request.
5. Reliance will transfer shares of stock and issue new certificates upon
surrender of the old certificates in form deemed by Reliance properly
endorsed for transfer, accompanied by such documents as Reliance deems
necessary or appropriate to evidence the genuineness and authority of the
person making the transfer, and bearing satisfactory evidence that any
applicable law relating to the collection of taxes has been complied with.
In the case of smaller estates, where no administration is contemplated,
Reliance will, under a Surety Company Bond of Indemnity acceptable to it
and its counsel, and, without further approval of the Corporation, transfer
shares of stock registered in the name of a decedent.
6. In effecting transfers, Reliance may rely upon the Uniform Commercial Code
and Simplification Acts or any other statute, regulation or legal authority
which in the opinion of counsel protect Reliance and the Corporation in not
requiring complete fiduciary documentation, in registering transfer without
inquiry into adverse claims, in delaying registration for purposes of such
inquiry or in refusing registration where in its judgment an adverse claim
requires such refusal.
7. When mail is used for delivery of stock certificates, Reliance will forward
such certificates in "non-negotiable" form by first class mail and such
certificates in negotiable form by registered or certified mail, U.S. or
foreign postage pre-paid, and insured while in transit by insurance
arranged for by Reliance as Transfer Agent and Registrar.
8. Reliance may issue new certificates in place of certificates claimed to
have been lost, destroyed or wrongfully taken, upon receiving indemnity
satisfactory to Reliance, which shall be in favor of both Reliance and the
Corporation, and upon compliance with any other reasonable requirements
imposed by Reliance, and may issue new certificates in exchange for, and
upon surrender of identifiable mutilated certificates.
9. Reliance will, upon receipt of a Corporate Resolution from an officer of
the Corporation and other requested documentation, issue and mail
subscription warrants, certificates representing stock dividends, splits
and exchanges, or act as agent for the conversion of stock. The Corporation
or its counsel will provide a written list of any shares to be restricted
and instructions as to the disposition of fractional shares.
10. Reliance will distribute cash dividends, when declared by the Corporation,
to recordholders on checks furnished by the Corporation in a format
acceptable to Reliance. The Corporation will furnish a resolution declaring
the dividend and will provide sufficient funds to cover the payment no
later than mail date.
11. Reliance will address, enclose and mail annual reports, financial
statements, notice of meetings, proxies or other printed material to the
Corporation's stockholders. The Corporation must confer with Reliance as to
form of such material, in relation to Reliance's data processing or other
mechanical equipment and the minimum time required
- -------------------------------------------------------------------------------
<PAGE>
between the record date and the mailing or payment date, so that proper
scheduling may be made.
12. Reliance will maintain customary records in connection with its agency
hereunder, including without limitation the Corporation's stock ledger and
shareholders' list, and shall send all books, documents and records no
longer deemed needed for current purposes and all share certificates which
have been canceled in transfer or in exchange, to the Secretary of the
Corporation or to such person as so directed in writing, who shall safely
store such books, documents, records and share certificates for future
reference.
13. In case of any request or demand for the inspection of the share records of
the Corporation, Reliance will endeavor to notify the Corporation and to
secure instructions with respect to permitting or refusing such inspection.
However, Reliance without incurring any liability to the Corporation, may
exhibit such records to any person in any case where it is advised by its
counsel that it may be held liable for failure to so exhibit such records.
14. Reliance may apply to a designated officer in paragraph 1(f) of the
Corporation for instructions and may consult counsel for the Corporation or
its own counsel, in respect of any matter arising in connection with this
agency, and it shall not be liable or accountable for any action taken or
omitted by it in good faith in accordance with such instructions or with
the opinion of such counsel. The Corporation shall reimburse Reliance for
counsel fees reasonably incurred by Reliance hereunder.
15. The Corporation agrees to indemnify and to hold Reliance harmless for
acting upon any paper or document believed by it to be genuine and to have
been signed by the authorized persons and for acting upon verbal
instructions from the authorized persons designated in Paragraph 1(f).
Reliance shall not be held to have notice of any change of authority of any
person, until receipt of written notice thereof from the Corporation.
16. Reliance shall also be protected in recognizing share certificates which it
reasonably believes to bear the proper manual or facsimile signatures of
the officers of the Corporation and the proper counter-signature of a Co-
Transfer Agent or Co-Registrar, if any.
17. The Corporation assumes full responsibility and agrees to indemnify and to
hold Reliance harmless from and against any and all claims, demands,
actions, causes of action and suits, whether groundless or otherwise, and
from and against any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liabilities of whatsoever nature arising directly or
indirectly out of its agency relationship to the Corporation, so long as
Reliance has acted in good faith and with due diligence and without gross
negligence. Reliance shall not be under any obligation to prosecute or
defend any action or suit in respect of such agency relationship which, in
the opinion of its counsel, may involve it in expense or liability, unless
the Corporation shall, as reasonably requested, furnish Reliance with
reasonable satisfactory indemnity against such expense or liability.
Reliance agrees to indemnify and hold the Corporation harmless from and
against any and all claims, demands, actions, causes of action and suits,
whether groundless or otherwise, and from and against any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liabilities
of whatsoever nature arising directly or indirectly out of its or its
agents' failure to act: (i) in good faith, (ii) with due diligence, or
(iii) without gross negligence.
18. In the event that Reliance shall be unable to perform its obligations under
the terms of this Agreement or shall incur additional costs and expenses in
its performance hereunder due to any modification, amendment or change in
any statute, law, decree, regulation, ordinance or governmental order not
in existence or effect on the date of execution of this Agreement or any
strike, work stoppage, equipment failure, Act of God or other cause beyond
Reliance's control, the failure of Reliance to fulfill its obligations
hereunder shall not constitute a default by Reliance and the Corporation
shall have no claims or rights of action against Reliance as a result
thereof.
19. The acceptance by Reliance of its appointment as Transfer Agent and
Registrar and all documents filed in connection with such appointment and
thereafter in connection with its agency, shall be subject to the approval
of counsel for Reliance.
20. Reliance may resign as Transfer Agent and Registrar at any time upon giving
ninety (90) days written notice of such resignation to the Corporation in
the manner specified in Paragraph 22 hereof, and thereupon its duties as
Agent or Registrar or both shall cease. Reliance may be removed as Transfer
Agent or Registrar at any time by resolution of the Board of Directors of
the Corporation, a certified copy of which shall be furnished to Reliance
in the manner specified in Paragraph 22 hereof. Upon resignation or
removal, Reliance, to the extent permitted by law, shall deliver to its
successor or to the Corporation
- -------------------------------------------------------------------------------
<PAGE>
its records as such Transfer Agent and Registrar. This act shall not
constitute a waiver of any rights of Reliance in reference to
indemnification for acts or with respect to services performed hereunder or
the right of Reliance's fees or out-of-pocket expenses incurred, including
attorney's fees, prior to termination of this Agreement.
21. Reliance shall be entitled to compensation for all services rendered in
performance of its duties, which compensation the Corporation agrees to
promptly pay upon receipt of a statement therefore, in accordance with a
Fee Schedule which may be in the form of a letter attached hereto and
incorporated by reference herein as Exhibit A. The Fee Schedule may be
amended by Reliance from time to time. Such changes in the Fee Schedule
shall be effective immediately upon giving sixty (60) days written notice
thereof to the Corporation.
22. Any written notice required or permitted to be given by the parties of this
Agreement shall be deemed sufficient if sent by registered or certified
mail, United States postage prepaid, addressed as follows:
(i) if to Reliance:
Reliance Trust Company
Shareholder Relations Division
P. O. Box 48449
Atlanta, GA 30340-4099
(ii) If to the Corporation, to the address set forth following the
signature of the Corporation at the end of this Agreement. Or to such
other addresses as the parties shall state in a notice given in the
manner specified herein, making specific reference to this Agreement.
23. This Agency Agreement shall be binding upon and shall inure to the benefit
of the successors and assigns of the parties and the rights, duties and
liabilities of the parties hereunder shall be governed by and construed in
accordance with the laws of Georgia.
24. This appointment of Reliance as Transfer Agent and Registrar shall become
effective upon receipt by Reliance of the information and documents
required to be furnished pursuant to paragraph (1) and approval of the same
by counsel to Reliance.
In witness whereof, the undersigned acting by and through their duly authorized
officers have hereunto set their hands and seals of the day and year first above
written.
Reliance Trust Company
Attest: By:
------------------------------- ----------------------------------
By: Authorized Signature
(SEAL)
Ocean West Holding Corporation
Attest: By:
------------------------------- ----------------------------------
By: Authorized Signature
Address:
(SEAL) 15991 Redhill Avenue, Suite 110
Tustin, California 92780
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT A
Reliance Trust Company's
SCHEDULE OF
Stock Transfer Agent and Registrar Fees
For
Ocean West Holding Corporation
_____________, 2000
Records Transfer Fee..................................To be determined after
Assessment
For services and expenses in establishing
records on our accounting system,including
review and discussion of existing records,
preparation for creation and/or conversion
of files, and procedures for on-going
administration. Maximum charge $500.
Annual Administration Fee.............................$3,000.00
Reliance Trust will assign a Senior Trust
Account Officer to consult with each
relationship regarding all administrative
and consultative matters related to corporate
security issues. Examples of this service
include assistance with securities regulations,
transfer requirements, annual meetings, options,
dividend reinvestment, etc. The Senior Trust
Account Officer will be backed-up by additional
knowledgeable officers familiar with accounts.
Maintenance of Accounts and Transfer Activity
For the first 1,000 Shareholder Accounts.........$3.00 Per Account Annually
In excess of 1,000 Shareholder Accounts..........$2.50 Per Account Annually
Dividend Reinvestment Services...................By Appraisal Based on Plan
Features
The annual maintenance fee includes the following:
. Maintaining Account History
. Examination and approval of regular transfers
. Issuing certificates.
. Cancelling of certificates.
. Registering certificates.
. Posting debits and credits.
. Filing and storage of canceled certificates for a period of three (3)
years.
. Maintaining and controlling the inventory of unissued certificates.
. Correspondence with investors.
. Account maintenance - includes address changes, social security
number/TIN maintenance and opening new accounts.
. Supplying Transfer Journals and Dividend Payment Journals.
. Mailing Labels for four quarterly or annual reports.
. Maintaining toll-free Investor Services Assistance telephone line.
- -------------------------------------------------------------------------------
<PAGE>
Supplemental Charges
Issuance of Certificates resulting from
regular transfer activity in excess of
the number of active accounts maintained
annually...........................................$1.00 each certificate
Irregular Transactions - restricted transfers,
original issues, and replacement of lost or
destroyed certificates includes the placing or
removing of legends and the maintenance of
stop notices.......................................$7.50
Dividend Disbursements
Cash Dividend/ACH................................$1.00 each
Stock Dividend...................................Certificate issue
charges plus $1.50 for
fractional share
checks (subject to
$250.00 minimum).
Preparation & Filing Federal Forms 1099............$.55 each
Preparation & Filing State Forms 1099..............$.55 each
(Federal & State Filings subject to $50 Minimum)
Allen Tax Report...(Form 1042).....................$5.00 each
W-9 Solicitation...................................$1.00 each
Handling and Processing B or C Notices from IRS....$25.00 each
Check Reconcilement................................Included in check
processing fee.
Incoming/Outgoing Wire Charges.....................$4.00
Proxy Services
Base fee for tabulation............................$300.00
Examination and tabulation each proxy voted
First Proposition..................................$.30 per shareholder
Each additional proposition........................$.15 per shareholder
Broker Search/Solicitation - Reliance Trust will
employ a professional service......................By Appraisal
Inspector of Election/Voting Judge.................Billed at Cost
Shareholder Listings...............................$.05 per shareholder
(Min. $50.00)
Addressing Cards, Labels or Envelopes..............$.06 per shareholder
(Min. $50.00)
Folding, Inserting and Mailing.....................By Appraisal
On-Line Access to Shareholder Records...................Based on Appraisal of
Needs, Software and
Hardware Requirements
Redemption Agent, issuance of rights, proxy
solicitations, state and federal regulatory
compliance and other requests not identified
herein will be determined by analysis and
appraisal with Company before services are performed.
- -------------------------------------------------------------------------------
<PAGE>
Out of Pocket Expenses
Actual cost of forms, special stationery,
postage, insurance, courier expenses,
certificate and check printing, proxy
solicitations, mailing services, advances
and other out-of-pocket expenses will be
billed each month in addition to those
listed herein.
Termination Fee
Upon transfer or termination of the account
relationships at the election of the Company
or resignation of Reliance Trust Company, a
reasonable compensation appropriate to the
services performed and responsibilities
assumed, not to exceed $350, will be payable
by the Company.
Miscellaneous Services
Services not anticipated, but deemed necessary
or desirable by the Company, will be subject to
additional charges based upon time and expenses
incurred by Reliance Trust Company.
- -------------------------------------------------------------------------------
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is entered into as of October 1, 1999 (the
---------
"Effective Date") by and between Ocean West Enterprises, Inc., a California
corporation (the "Employer"), which has offices at 15991 Redhill Ave.,#110
Tustin, CA 92780, and Marshall Stewart, an individual (the "Employee"), whose
----------------
address is 21372 Brookhurst St., #515 Huntington Beach, CA 92646
--------------------------------------------------------------------
IN CONSIDERATION OF the mutual covenants herein contained, and other good
and valuable consideration, the parties hereto agree as follows:
1. Employment. As of the Effective Date, Employer hereby agrees to employ
----------
Employee in such executive and managerial capacity as from time to time
designated by Employer. Employee hereby accepts such employment upon the
terms and conditions hereinafter set forth and agrees during the term of
employment hereunder to devote his full working time and best efforts to
the business and affairs of Employer and to the performance of his duties
hereunder. Employee's initial duties will be as President
---------
2. Period of Employment. The term of this Agreement will be five years
--------------------
commencing with the Effective Date, except that Employee's employment may
be terminated:
(a) by Employer for "Just Cause", as defined in Paragraph 8(b) below; or
(b) by Employer, if Employer ceases operations, terminates all other
employees and proceeds to liquidate its business and assets; or
(c) by Employee, by giving Employer 30 days' prior written notice of
resignation.
3. Base Salary. For the services to be rendered hereunder, Employer shall pay
-----------
to Employee a "Base Annual Salary" at an annual rate of not less than
$300,000.00, to be paid in installments in accordance with Employer's
----------
normal payroll cycle. Any amount not paid will be considered deferred
salary and will be treated the same as deferred compensation and will be
handled in accordance with clause 5 (Deferred Compensation) Employee may
elect at any time to collect on the deferred salary. Employee, upon his own
<PAGE>
discretion, may elect to release Ocean West Enterprises, Inc. from this
obligation.
4. Expenses. During the term of employment, Employer shall reimburse Employee
--------
promptly for reasonable business expenses, including, but not limited to,
travel, parking, and business meetings, made and substantiated in
accordance with the policies and procedures established from time to time
by Employer.
5. Deferred Compensation.
---------------------
(a) Employer will create an account on its books to be known as the
Officers Deferred Compensation Account (the "Account"). With respect
--------
to each year of Employee's employment under this Agreement, Employer will
credit to the Account an amount equal to 20% of Employer's net profit
before taxes for such year, as determined by Employer's accounting firm.
For any period of employment which includes only a portion of a fiscal
year of Employer, the amount to be credited will be prorated based on the
number of days of employment. The Account will not accrue interest. The
Employee may take a cash or stock bonus. If taken in stock, the amount of
stock will be equal to two times the amount of the cash not taken.
(b) The amount credited to the Account will become due and payable to
Employee, in a lump sum:
(1) on an annual basis; or
(2) within 30 days after termination of employment.
provided that if the amount to be credited for any period is not determined
as of such payment date, the payment for such final period(s) will be made
within 30 days after the amount is determined.
(c) If Employee agrees to extend the term of employment for one or more
additional one year terms, then on the day following each extension the
Employee can elect to receive a portion of or all of the amounts previously
credited to Account.
(d) If Employee dies before all payments due under this Paragraph 5 are
paid, any such remaining payments will be made to such beneficiary as
Employee has designated in writing to Employer. The beneficiary designation
may be revoked or changed by Employee by written notice to Employer at any
time or times before Employee's death, without the consent of any prior
2
<PAGE>
beneficiary. If no such beneficiary designation is in effect at Employee's
death, then any benefits payable under this Paragraph 5 will be paid to
Employee's estate.
(e) Nothing contained in this Agreement and no action taken pursuant to
the provisions of this Agreement shall create or be construed to create a
trust of any kind, or a fiduciary relationship between Employer and
Employee, his designated beneficiary or any other person. Amounts payable
under this Paragraph 5 are not funded for tax purposes or for purposes of
Title I of ERISA, and will be paid exclusively from the general assets of
Employer. Employee, his beneficiary, estate and any other person claiming a
right to payment or to any interest in the Account must rely solely on the
unsecured promise of Employer set forth herein, and nothing in this
Agreement shall be construed to give Employee, his beneficiary, estate or
any other person any claim, right, security interest or other interest in
any fund, trust, bank or investment account, insurance contract, or asset
of Employer. The benefits under this Agreement constitute liabilities of
Employer, payable when due, and Employee shall have the right to enforce
his claim against Employer in the same manner as any unsecured creditor.
6. Employee Benefits. Employee shall be entitled to participate in the benefit
-----------------
plans, as presently constituted or as may be changed from time to time, of
Employer, as may be applicable to Employee in accordance with the
provisions of such plans. In addition, Employer will lease a vehicle for
Employee (lease payment not to exceed $1,000) and all applicable expenses
associated with vehicle.
7. Termination.
-----------
(a) Termination by Employer for Just Cause. If Employer terminates
--------------------------------------
Employee's employment hereunder for Just Cause, as herein defined, Employer
shall pay to Employee his Base Annual Salary as provided in Paragraph 3 and
the amount of the Account as provided in Paragraph 5 and continue his
employee benefits through the date on which Employee's employment hereunder
is terminated in full settlement of all compensation Employee is entitled
to hereunder, provided that such termination shall not affect Employee's
then vested rights under any benefit plans.
(b) Just Cause. "Just Cause" shall mean willful misconduct in following
----------
the legitimate directions of Employer; breach of this Agreement by
Employee; conviction of a felony; habitual drunkenness; excessive
absenteeism not related to illness, sick leave or vacations, but only after
notice from Employer followed by a repetition of such excessive
absenteeism; or dishonesty.
3
<PAGE>
8. Notices. All notices under this Agreement shall be in writing and shall be
-------
deemed effective when delivered in person to the President of Employer or
on the third business day after deposit thereof in the U.S. mails, postage
prepaid, for delivery as registered or certified mail - addressed, in the
case of Employee, to him at his residential address then shown in
Employer's files, and in the case of Employer, to its business
headquarters, attention of the President, or to such other address as
Employee or Employer may designate in writing at any time or from time to
time to the other party.
9. Severability. Any portion of this Agreement which is held to be invalid or
------------
unenforceable, or invalid or unenforceable for some point or period of time
or with respect to any location, shall be severable and be deemed to be
written in such manner as to provide for Buyer the maximum protection
sought hereunder, and the remaining covenants and restrictions or portions
thereof shall remain in full force and effect.
10. Miscellaneous. This Agreement constitutes the entire understanding between
-------------
Employer and Employee relating to employment of Employee by Employer and
supersedes and cancels all prior written and oral agreements and
understandings with respect to the subject matter of this Agreement. The
rights and obligations of Employee under this Agreement cannot be assigned,
transferred, pledged or encumbered. This Agreement shall be binding upon
and shall inure to the benefit of Employer and its successors and assigns.
This Agreement shall be governed by the laws of the State of California
without regard to conflicts of laws principles. If any action is brought to
enforce or interpret the provisions of this Agreement, the prevailing party
will be entitled to reasonable attorney's fees in addition to any other
relief to which that party may be entitled.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
year and date first above written.
/s/ Marshall Stewart
----------------------------------
Ocean West Enterprises Inc.
By: /s/ Daryl Meddings
-------------------------------
Daryl Meddings, Director
------------------
4
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is entered into as of October 1, 1999 (the
---------
"Effective Date") by and between Ocean West Enterprises, Inc., a California
corporation (the "Employer"), which has offices at 15991 Redhill Ave.,#110
Tustin, CA 92780, and Daryl Meddings, an individual (the "Employee"), whose
--------------
address is 21791 Via del Lago Trabuco Canyon, CA 92679
---------------------------------------------
IN CONSIDERATION OF the mutual covenants herein contained, and other good
and valuable consideration, the parties hereto agree as follows:
1. Employment. As of the Effective Date, Employer hereby agrees to employ
----------
Employee in such executive and managerial capacity as from time to time
designated by Employer. Employee hereby accepts such employment upon the
terms and conditions hereinafter set forth and agrees during the term of
employment hereunder to devote his full working time and best efforts to
the business and affairs of Employer and to the performance of his duties
hereunder. Employee's initial duties will be as Executive Vice
--------------
President/ CFO.
--------------
2. Period of Employment. The term of this Agreement will be five years
--------------------
commencing with the Effective Date, except that Employee's employment may
be terminated:
(a) by Employer for "Just Cause", as defined in Paragraph 8(b) below; or
(b) by Employer, if Employer ceases operations, terminates all other
employees and proceeds to liquidate its business and assets; or
(c) by Employee, by giving Employer 30 days' prior written notice of
resignation.
3. Base Salary. For the services to be rendered hereunder, Employer shall pay
-----------
to Employee a "Base Annual Salary" at an annual rate of not less than
$300,000.00, to be paid in installments in accordance with Employer's
-----------
normal payroll cycle. Any amount not paid will be considered deferred
salary and will be treated the same as deferred compensation and will be
handled in accordance with clause 5 (Deferred Compensation) Employee may
elect at any time to collect on the deferred salary. Employee, upon his own
<PAGE>
discretion, may elect to release Ocean West Enterprises, Inc. from this
obligation.
4. Expenses. During the term of employment, Employer shall reimburse Employee
--------
promptly for reasonable business expenses, including, but not limited to,
travel, parking, and business meetings, made and substantiated in
accordance with the policies and procedures established from time to time
by Employer.
5. Deferred Compensation.
---------------------
(a) Employer will create an account on its books to be known as the
Officers Deferred Compensation Account (the "Account"). With respect to
--------
each year of Employee's employment under this Agreement, Employer will
credit to the Account an amount equal to 20% of Employer's net profit
before taxes for such year, as determined by Employer's accounting firm.
For any period of employment which includes only a portion of a fiscal year
of Employer, the amount to be credited will be prorated based on the number
of days of employment. The Account will not accrue interest. The Employee
may take a cash or stock bonus. If taken in stock, the amount of stock will
be equal to two times the amount of the cash not taken.
(b) The amount credited to the Account will become due and payable to
Employee, in a lump sum:
(1) on an annual basis; or
(2) within 30 days after termination of employment.
provided that if the amount to be credited for any period is not determined
as of such payment date, the payment for such final period(s) will be made
within 30 days after the amount is determined.
(c) If Employee agrees to extend the term of employment for one or more
additional one year terms, then on the day following each extension the
Employee can elect to receive a portion of or all of the amounts previously
credited to Account.
(d) If Employee dies before all payments due under this Paragraph 5 are
paid, any such remaining payments will be made to such beneficiary as
Employee has designated in writing to Employer. The beneficiary designation
may be revoked or changed by Employee by written notice to Employer at any
time or times before Employee's death, without the consent of any prior
2
<PAGE>
beneficiary. If no such beneficiary designation is in effect at Employee's
death, then any benefits payable under this Paragraph 5 will be paid to
Employee's estate.
(e) Nothing contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to create a trust
of any kind, or a fiduciary relationship between Employer and Employee, his
designated beneficiary or any other person. Amounts payable under this
Paragraph 5 are not funded for tax purposes or for purposes of Title I of
ERISA, and will be paid exclusively from the general assets of Employer.
Employee, his beneficiary, estate and any other person claiming a right to
payment or to any interest in the Account must rely solely on the unsecured
promise of Employer set forth herein, and nothing in this Agreement shall
be construed to give Employee, his beneficiary, estate or any other person
any claim, right, security interest or other interest in any fund, trust,
bank or investment account, insurance contract, or asset of Employer. The
benefits under this Agreement constitute liabilities of Employer, payable
when due, and Employee shall have the right to enforce his claim against
Employer in the same manner as any unsecured creditor.
6. Employee Benefits. Employee shall be entitled to participate in the benefit
-----------------
plans, as presently constituted or as may be changed from time to time, of
Employer, as may be applicable to Employee in accordance with the
provisions of such plans. In addition, Employer will lease a vehicle for
Employee (lease payment not to exceed $1,000) and all applicable expenses
associated with vehicle.
7. Termination.
-----------
(a) Termination by Employer for Just Cause. If Employer terminates
--------------------------------------
Employee's employment hereunder for Just Cause, as herein defined, Employer
shall pay to Employee his Base Annual Salary as provided in Paragraph 3 and
the amount of the Account as provided in Paragraph 5 and continue his
employee benefits through the date on which Employee's employment hereunder
is terminated in full settlement of all compensation Employee is entitled
to hereunder, provided that such termination shall not affect Employee's
then vested rights under any benefit plans.
(b) Just Cause. "Just Cause" shall mean willful misconduct in following
----------
the legitimate directions of Employer; breach of this Agreement by
Employee; conviction of a felony; habitual drunkenness; excessive
absenteeism not related to illness, sick leave or vacations, but only after
notice from Employer followed by a repetition of such excessive
absenteeism; or dishonesty.
3
<PAGE>
8. Notices. All notices under this Agreement shall be in writing and shall be
-------
deemed effective when delivered in person to the President of Employer or
on the third business day after deposit thereof in the U.S. mails, postage
prepaid, for delivery as registered or certified mail - addressed, in the
case of Employee, to him at his residential address then shown in
Employer's files, and in the case of Employer, to its business
headquarters, attention of the President, or to such other address as
Employee or Employer may designate in writing at any time or from time to
time to the other party.
9. Severability. Any portion of this Agreement which is held to be invalid or
------------
unenforceable, or invalid or unenforceable for some point or period of time
or with respect to any location, shall be severable and be deemed to be
written in such manner as to provide for Buyer the maximum protection
sought hereunder, and the remaining covenants and restrictions or portions
thereof shall remain in full force and effect.
10. Miscellaneous. This Agreement constitutes the entire understanding between
-------------
Employer and Employee relating to employment of Employee by Employer and
supersedes and cancels all prior written and oral agreements and
understandings with respect to the subject matter of this Agreement. The
rights and obligations of Employee under this Agreement cannot be assigned,
transferred, pledged or encumbered. This Agreement shall be binding upon
and shall inure to the benefit of Employer and its successors and assigns.
This Agreement shall be governed by the laws of the State of California
without regard to conflicts of laws principles. If any action is brought to
enforce or interpret the provisions of this Agreement, the prevailing party
will be entitled to reasonable attorney's fees in addition to any other
relief to which that party may be entitled.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
year and date first above written.
/s/ Daryl Medding
--------------------------
Ocean West Enterprises Inc.
By: /s/ Marshall Stewart
--------------------------------
Marshall Stewart, Director
--------------------------------
4
<PAGE>
Exhibit 21
Ocean West Holding Corporation
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21 to Form S-1
Ocean West Enterprises, Inc.
<PAGE>
Exhibit 23(i)
-------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Ocean West Holding Corporation
Registration Statement on Form S-1 of our report dated June 11, 1999
accompanying the financial statements of Ocean West Enterprises, Inc. We also
consent to the use of our name as it appears under the caption "Experts."
Irvine, California Corbin & Wertz
January 31, 2000
<PAGE>
Exhibit 23(ii)
--------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference of our firm under the caption "Experts" in the
Ocean West Holding Corporation registration statement on Form S-1.
Zanesville, Ohio Norman Jones Enlow & Co.
January 18, 2000 Certified Public Accountants
By: /s/ Gerald L. Tucker
---------------------------
Title: Partner
---------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the financial statement of Ocean West Enterprises, Inc. and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> SEP-30-1999 MAR-31-1999
<CASH> 336 259
<SECURITIES> 0 0
<RECEIVABLES> 166 15,011
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,007 20,102
<PP&E> 474 414
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 10,493 21,522
<CURRENT-LIABILITIES> 9,015 20,273
<BONDS> 809 421
0 0
1,683 1,500
<COMMON> 73 73
<OTHER-SE> (1,088) (746)
<TOTAL-LIABILITY-AND-EQUITY> 10,493 21,522
<SALES> 0 0
<TOTAL-REVENUES> 7,844 17,928
<CGS> 0 0
<TOTAL-COSTS> 6,202 13,262
<OTHER-EXPENSES> 6 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (254) 100
<INCOME-TAX> 0 (241)
<INCOME-CONTINUING> (249) (88)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (254) 342
<EPS-BASIC> (11.33) 7.10
<EPS-DILUTED> (11.33) 7.10
</TABLE>
