This Note has not been registered under the Securities Act of 1933, as
amended (the "1933 Act"), or under the provisions of any applicable state
securities laws, but has been acquired by the registered holder hereof for
purposes of investment and in reliance on statutory exemptions under the 1933
Act, and under any applicable state securities laws. Note may not be sold,
pledged, transferred or assigned except in a transaction which is exempt under
provisions of the 1933 Act and any applicable state securities laws or pursuant
provisions to an effective registration statement; and in the case of an
exemption, only if the Company (as defined) has received an opinion of counsel
reasonably acceptable to the Company that such transaction does not require
registration of this Note.
AMERICAN QUANTUM CYCLES, INC.
December __, 1998 $755,000
10% SECURED PROMISSORY NOTE
FOR VALUE RECEIVED, AMERICAN QUANTUM CYCLES, INC., a Florida corporation
(the "Company") hereby promises to pay to the order of SKIPPACK CAPITAL CORP.,
or registered assigns (the "Holder"), on a date which shall be 30 days after
DEMAND for payment shall have been given by Holder to the Company, at the
offices of the Holder, the principal sum equal to the lesser of Seven Hundred
Fifty-Five Thousand ($755,000) Dollars, or the then aggregate unpaid principal
amount of advances made hereunder by Holder to the Company. The Company further
promises to pay interest on the outstanding amount of all advances made under
this Note at the rate of ten percent (10%) per annum, commencing from the date
of the initial advance hereunder and until all amounts of principal and interest
accrued thereon are paid in full, subject to increase in the rate of interest as
provided in Section 3(c). The Company acknowledges having received an advance of
$68,200 in respect of this Note on December 18, 1998. Interest hereunder shall
be payable quarterly in arrears, commencing March 31, 1999.
1. Prepayment. Outstanding principal under this Note may be prepaid by the
Company, in whole or in part, without premium or penalty, at any time, together
with all accrued but unpaid interest on the amount of such prepayment.
2. Covenants of Company. The Company covenants and agrees with the Holder
that, so long as any amounts of principal or interest remain unpaid under this
Note, it will:
(i) not incur any indebtedness for borrowed money, except for such
indebtedness as is outstanding on the date of this Note and indebtedness
incurred by the Company after the date hereof in connection with the
financing
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of inventory, or permit any lien, security interest or encumbrance to be
created in or with respect to any asset of the Company, whenever acquired,
except for any such as are in effect on the date of this Note and except
for purchase money security interests in assets acquired by the Company
after the date of this Note;
(ii) promptly pay and discharge all amounts as and when due and to
become due on all indebtedness of the Company and all taxes, assessments
and governmental charges or levies imposed upon the Company or upon its
income and profits, or upon any of its property, before the same shall
become a lien upon the Company's assets or property, as well as all
lawful claims for labor, materials and supplies which, if unpaid, would
become a lien or charge upon such properties or any part thereof; provided,
however, that the Company shall not be required to pay and discharge any
such tax, assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings and the Company
shall have set aside on its books adequate reserves with respect to any
such tax, assessment, charge, levy or claim so contested;
(iii) not issue any shares of its Common Stock, or any securities
convertible into or exercisable with respect to its Common Stock, except
for securities sold in an underwritten public offering or securities
insured to the underwriter with respect to any such offering;
(iv) not merge with or into any other corporation or dispose of its
assets other than in the ordinary course of business;
(v) maintain insurance for its assets and business operations in
amounts of coverage not less than the amounts in effect on the date of this
Note;
(vi) use its best efforts to conform to the Company's Business
Plan/Cash Flow Projections delivered by the Company to the Holder
contemporaneously with the execution and delivery of this Note; and
(vii) comply fully with its obligations under that certain Purchase
Agreement of even date herewith between the Company and the Holder
("Purchase Agreement").
3. Events of Default
(a) This Note shall become due and payable, without notice or demand
by Xxxxxx, immediatel upon the occurrence of any of the following events,
herein called "Events of Default":
(i) Company's failure to pay any principal or accrued interest on
this Note, when and as the same shall become due and payable, whether
by acceleration or otherwise;
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(ii) Company's failure to observe or perform any covenant or
agreement set forth herein to be observed or performed by the Company;
(iii) the occurrence of an Event of Default by the Company under
the Purchase Agreement;
(iv) the entry of a final judgment, arbitration award or order
not subject to further appeal against the Company in an amount
exceeding $100,000 which shall remain unsatisfied for thirty (30)
days after the date of such entry;
(v) Company's admission in writing of its inability to pay its
debts as they mature, or the Company's making a general assignment for
the benefit of creditors, or the filing by or against the Company of a
petition seeking relief under the Bankruptcy Code or a petition or an
answer seeking reorganization, or an arrangement with creditors.
(b) The Company shall give notice to the Holder by certified mail, of
the occurrence of any Event of Default within five (5) days after such
Event of Default shall have occurred.
(c) Upon the occurrence of an Event of Default, interest shall accrue
under this Note on all unpaid amounts of principal at the rate of 18
percent per annum until all such amounts of principal, and all interest
accrued thereon, shall have been paid in full. After the occurrence of an
Event of Default, all payments made in respect to this Note shall be
applied, first, in respect of the Origination Fee, as defined in the
Purchase Agreement, to the extent that the same shall not have been paid in
full, and second, to reimburse Holder for all of its expenses of
collection; any payment in excess of such amounts shall first be applied to
accrued but unpaid interest to the date of any such payment until all such
interest shall have been paid in full.
4. Subordination. Payment of the principal of and accrued interest on this
Note is hereby made expressly subject and subordinated to the payment in full of
all principal of and accrued interest on all indebtedness of the Company,
whenever created, which shall have been incurred by the Company, on regular
commercial terms to banks and other institutional lenders ("Senior
Indebtedness"). The Company shall not remit any payments of principal to the
Holder of this Note in respect of the obligations hereunder unless and until all
obligations to the holders of Senior Indebtedness have been paid in full or such
holders of Senior Indebtedness shall otherwise have consented in writing. The
provisions of this subordination shall not, however, affect or limit the
Company's obligations to pay, when due, all principal of and accrued interest on
this Note, nor shall such subordination be deemed to limit or otherwise affect
any rights and remedies which the Holder of this Note shall be entitled to
receive or assert
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upon the occurrence of any Event of Default hereunder, other than to set forth
the priority of payments as between the indebtedness created hereunder and any
Senior Indebtedness.
5. Miscellaneous
(a) The performance by the Company of its obligations under this Note
shall be secured by, and the Holder of this Note shall have the benefit of,
that certain Security Agreement of even date herewith between the Holder
and the Company.
(b) The Holder of this Note shall have the right to transfer this Note
by assignment, and the transferee thereof shall become vested with all the
powers and rights of the transferor. Registration of any new owners shall
take place upon presentation of this Note to the Company at its principal
offices, together with a duly authenticated instrument of assignment.
(c) Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Note, and (in the
case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Note, if
mutilated, the Company shall execute and deliver a new Note of like tenor
and date.
(d) This Note shall be construed and enforced in accordance with the
laws of the Commonwealth of Pennsylvania.
(e) Upon the occurrence of an Event of Default or a threatened Event
of Default, the Company shall pay all costs and expenses incurred by the
Holder to enforce any of the provisions of this Note, including attorneys'
fees and other expenses of collection.
IN WITNESS WHEREOF, AMERICAN QUANTUM CYCLES, INC. has caused this Note
to be signed in its name by its President.
AMERICAN QUANTUM CYCLES, INC.
By /s/ Illegible
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