American Motorcycle Company
23 Harnish Crescent
Toronto, Ontario
M2M 2C2
August 15, 2000
DELIVERED
Mr. Richard K. Hagen
Chairman and Chief Executive Officer
American Quantum Cycles, Inc.
731 Washburn Road
Melbourne, Florida
U.S.A. 32934
Dear Mr. Hagen:
Re: Binding Merger Agreement of American Motorcycle Company into a wholly-owned
subsidiary of American Quantum Cycles, Inc.
This letter will serve as a formal contract for the merger between a
wholly-owned subsidiary (the "Subsidiary") of American Quantum Cycles, Inc. (the
"Purchaser") and American Motorcycle Company (the "Company") by agreement of all
the shareholders of the Company (the "Vendors"), the Purchaser and the Company,
to be effective on the date hereof (the "Closing Date") by execution by all
parties to this letter agreement and receipt by Mr. Murray Smith of 500,000
preferred shares of the Purchaser, having the attributes attached hereto as
Schedule "A" (the "Preferred Stock"). Each Preferred Stock will have 38.39 votes
and be convertible into 38.39 common shares of the Purchaser.
The Preferred Stock is received on the basis that in all cases the 500,000
Preferred Stock will be convertible into 50% of the aggregate issued and
outstanding common shares of the Purchaser on a fully diluted basis, subject
only to Section 2 herein. In addition, the Preferred Stock prior to conversion
will, in all cases, have at least 50% of the aggregate votes attributable to the
preferred stock and the common shares of the Purchaser, with an anti-dilution
provision in effect until such time as all necessary shareholder and regulatory
approvals have been obtained to increase the authorized capital to, among other
things, permit the conversion of the Preferred Stock into common shares as
contemplated herein. Such anti-dilution provision shall have the effect of
ensuring that the Preferred Stock shall maintain at least 50% of the aggregate
votes attributable to all of the preferred stock and common shares issued and
outstanding or to be issued and outstanding until such time as the said
approvals have been obtained. It is intended that these provisions will apply
until such time as the merger of the Subsidiary and the Company has been
completed and all necessary shareholder and regulatory approvals have been
obtained to increase the authorized capital to, among other things, permit the
conversion of the Preferred Stock into common shares as contemplated pursuant to
the terms of this letter.
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However, in order to continue to have the Purchaser's common stock listed on the
American Stock Exchange, it is a condition of the American Stock Exchange that,
until the shareholders of the Purchaser have approved the issuance of the
Preferred Stock, the Vendors may not collectively vote in excess of 19.99% of
the Preferred Stock in any matter submitted to the shareholders of the
Purchaser.
It is intended by the parties hereto that this letter is a legal and binding
agreement.
1. Purchase. The Purchaser hereby agrees to acquire from the Vendors and the
Vendors hereby agree to sell to the Purchaser 100% of the issued and
outstanding shares in the capital stock of the Company (the "Purchased
Shares") for the 500,000 Preferred Stock of the Purchaser (the "Purchase
Price"). The Purchase Price, subject to the Adjustments (as defined in
Section 2 below), shall be paid to the Vendors through the payment at the
Closing Date to each Vendor of the following Preferred Stock set out beside
such Vendor's name:
Name Number of Preferred Stock
---- -------------------------
Merchant Banking Services Inc. 200,000
Andrew C. Smith 42,500
Praxis International Inc. 15,000
Jeff and Dominique Mathers Eisen 5,000
Hugh D. Turner 15,000
Robert Klienschmidt 5,000
Life Success Ventures Inc. 2,500
Transam Holdings Inc. 15,000
Lionel and Janice Mercier 75,000
Richard A. and Andrea A. Block, JT 75,000
Dan Almagor 5,000
Robert Kramer 2,500
Murray Smith, in trust 42,500
all of which shall be issued at the Closing Date as fully paid and
non-assessable Preferred Stock of the Purchaser on the Closing Date
and delivered to Murray Smith, as representative of the Vendors and
the Company.
2. Adjustments to the Purchase Price. To allow for a complete due diligence
review of the Company and of the Purchaser, and the respective financial
positions as represented in Section 7, adjustments will be made to the
Purchase Price within six (6) months of the Closing Date as follows:
(a) The Purchaser has represented and warranted its value in terms of
assets, liabilities, contracts and obligations according to such
information attached hereto on Exhibit 1 (the "Purchaser Value"), and
its capital structure according to the capital structure of the
Purchaser attached hereto on Exhibit 1 (the "Purchaser Capital"). In
the event that the Purchaser Value is determined to be adversely
incorrect for an amount (the "Purchaser Amount") of at least
$100,000.00, in the aggregate, then additional Preferred Stock equal
to the Purchaser Amount will be issued to the Vendors. For these
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purposes, the Preferred Stock will be issued at the rate of $42.16 per
share of Preferred Stock, with the same provisions as the Preferred
Stock issued for the Purchase Price. In the event the number of
outstanding shares of the Purchaser is higher than disclosed as the
Purchaser Capital, the number of Preferred Stock issued to the Vendors
will be increased on a 1 for 1 basis, with the same provisions as the
Preferred Stock issued for the Purchase Price; and
(b) The Company has represented and warranted its value and structure
according to the obligations and capital structure of the Company
attached hereto as Exhibit 2 (the "Company Value"). In the event that
the Company Value is determined to be adversely incorrect for an
amount (the "Company Amount") of at least $100,000.00, in the
aggregate, then the Preferred Stock equal to the Company Amount will
be returned to the treasury of the Purchaser for cancellation. For
these purposes, the Preferred Stock will be cancelled at the rate of
$42.16 per share of Preferred Stock.
3. Merger. The parties acknowledge that the 500,000 Preferred Stock are to be
delivered to the custody of Mr. Murray Smith on Closing, on behalf of the
shareholders of the Company in exchange for all of the stock of the
Company, following which, on Closing, the Company shall be merged into the
Subsidiary of the Purchaser in a transaction intended to qualify as a
tax-free reorganization to the shareholders of the Company under Section
368 of the Internal Revenue Code of 1986 as amended. The resulting merged
company will be named "American Motorcycle Company", and will own all of
the assets of the Company as described below. For the purposes of this
letter agreement, the post-merger American Motorcycle Company will be
referred to as the "Merged Company".
4. Business Plan. The Purchaser and Vendors each acknowledge that a number of
operational and procedural issues will be mutually agreed to and will form
the basis of a business plan (the "Business Plan") for the Purchaser and
the Merged Company. The essence of the Business Plan is for the Purchaser
and the Merged Company to acquire companies currently involved in the
worldwide motorcycle industry. These target companies have various holdings
in the areas of trademarks, engines, motorcycle sales and some combinations
thereof. The Business Plan shall be designed to capitalize on the Company's
unique expertise in corporate management, corporate finance and trademarks
to form a strategic alliance available only by the inclusion of the Company
in the Purchaser's family of companies. It is intended initially, until
shareholder approval is received to increase the authorized capital of the
Purchaser and subject to the anti-dilution provision attaching to the
Preferred Stock, to use the unissued preferred shares of the Purchaser to
facilitate such transactions, with conversion rates on a 1:1 basis into
common shares or such other basis as agreed to by the board of directors at
that time.
5. Capital Restructuring of the Purchaser or Merged Company. The Purchaser and
the Company agree that the Purchaser will take all steps necessary to
obtain shareholder approval forthwith for an amendment of the Purchaser's
Articles of Incorporation to increase its authorized common shares to
permit conversion of the Preferred Stock, to allow conversion of any other
preferred shares of the Purchaser used to accommodate the acquisitions
contemplated in the Business Plan, and to permit exercise of the options
and warrants issued by the Purchaser. The board of directors will use its
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best efforts to support the said amendment, implementation of the Business
Plan and all matters contemplated by this letter agreement. The Purchaser
shall cause an annual or special meeting of the shareholders to deal with
foregoing amendment and, to the extent necessary or desirable, the
implementation of the Business Plan and matters contemplated by this letter
agreement on or before December 1, 2000.
6. Attorney. The Vendors collectively hereby irrevocably appoint Murray Smith
as their proxy and authorized attorney to vote all of the Vendors Preferred
Stock at any meeting of the shareholders to approve any matters whatsoever
contemplated by or arising out of this Agreement including, without
limitation, this transaction, any changes to the authorized or issued
capital or shares and any transaction contemplated by or arising out of the
Business Plan, as same may be amended or modified from time to time, and
any financings related thereto. Each Vendor agrees to provide such further
documents or materials as are required to implement the foregoing.
7. Representations and Warranties.
(a) The Purchaser represents and warrants to the Vendors as follows, and
acknowledges that the Vendors are relying upon such representations
and warranties in connection with entering into this agreement and
completing the transactions contemplated thereby:
(i) Each of the Purchaser and the Subsidiary is a corporation
incorporated and subsisting under the laws of Florida, has all
legal capacity to own its properties and conduct its business as
presently being conducted by it, and is duly registered or
otherwise qualified to carry on business in all jurisdictions in
which the nature of its assets or business makes such
registration or qualification necessary or advisable.
(ii) This agreement has been duly executed and delivered by the
Purchaser and constitutes, and the agreements contemplated herein
when executed will constitute, valid and binding obligations of
the Purchaser enforceable against it in accordance with the terms
hereof and thereof.
(iii) The entering into and performance of this agreement and the
agreements contemplated herein will not violate, contravene,
breach or offend against or result in any default under any
security agreement, indenture, mortgage, lease, order,
undertaking, licence, permit, agreement, instrument, charter or
by-law provision, resolution of shareholders or directors,
statute, regulation, judgment, decree or law to which either the
Purchaser or the Subsidiary is a party or by which it may be
bound or affected. No licenses, agreements or other instruments
or documents will terminate or require assignment as a result of
the entering into of this Agreement or the consummation of the
transactions contemplated hereby.
(iv) The authorized capital of the Purchaser is now, and on the
Closing Date will be, 12,500,000 common shares and 2,500,000
preferred shares of which 19,194,031 common shares of the Company
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are presently outstanding on a fully diluted basis, and on the
Closing Date 19,194,031 common shares on a fully diluted basis
and the 500,000 Preferred Stock will be issued and outstanding.
All of the Preferred Stock have been validly authorized, allotted
and issued and are outstanding as fully-paid and non-assessable
preferred shares and on the Closing Date will be the only issued
and outstanding preferred shares of the Purchaser. The
aforementioned shares are or would be, as the case may be,
entitled to only 1 vote per common share.
(v) The Purchaser's audited financial statements (the "Financial
Statements"), which are attached hereto as a schedule and include
a balance sheet, a statement of income, retained earnings and
source and application of funds, and the notes thereto are true
and correct and have been prepared in accordance with GAAP
applied on a basis consistent with those of preceding periods and
present fairly on a consolidated basis:
(A) all of the assets, liabilities (whether accrued,
determinable, absolute, contingent or otherwise) and the
financial condition of the Purchaser as at the Purchaser's
fiscal 2000 year end; and
(B) the sales, earnings and results of operations of the
Purchaser during the period(s) covered by such financial
statements.
(vi) There are no material liabilities of the Purchaser or the
Subsidiary of any kind whatsoever, whether or not accrued and
whether or not determined or determinable, in respect of which
the Purchaser or the Merged Company may become liable on or after
the transaction contemplated by this Agreement other than
liabilities incurred in the ordinary course of business and
reflected in the Purchaser's Financial Statements.
(vii) The Purchaser has no subsidiaries and is not bound by any
agreements of any nature to acquire any subsidiary, save and
except for the Subsidiary which was recently incorporated, has
carried on no business and has no assets or liabilities
whatsoever.
(viii) No options, warrants, convertible obligations or other rights
to purchase or otherwise acquire shares or other securities of
the Purchaser or the Subsidiary are issued or outstanding, except
as disclosed in the Purchaser Value. The Purchaser shall not
issue or enter into any agreements to issue any securities of the
Purchaser other than the Preferred Stock.
(ix) The Purchaser has not given or agreed to give, nor is it a party
to or bound by, any indemnity, or any guarantee of indebtedness
or other obligations of third parties or any other commitment by
which the Purchaser or the Subsidiary is or is contingently
responsible for such indebtedness or other obligations, except as
disclosed in the Purchaser Value.
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(x) The Purchaser is duly registered as a public company with the
Securities and Exchange Commission (the "SEC") and is in
compliance in all material respects with all regulations,
policies and rules of the SEC and all applicable securities laws
of the United States. The Purchaser is up to date on all filings
required by the SEC and applicable securities laws of the United
States in order to be a public company in good standing. The
issue of the Preferred Stock to the Vendors under the terms of
this letter agreement is in compliance with all requirements of
the SEC and all policies and regulations related thereto. The
Preferred Stock is subject to American Stock Exchange approval,
but if such approval is not given, although the Purchaser may be
de-listed from the American Stock Exchange, the Preferred Stock
shall nonetheless be validly authorized, allotted, issued,
outstanding, fully paid and non-assessable with all rights and
attributes previously described herein and on any schedule
attached. The issuance of the Preferred Stock may be done without
registration with the SEC, pursuant to one ore more exemptions
from registration available pursuant to the Securities Act of
1933 or regulations promulgated thereunder. Subject to obtaining
necessary shareholder and regulatory approval to increase the
authorized capital, the Preferred Stock may be converted by the
holders thereof into shares of common stock of the Purchaser
without registration. In the event that the common shares
issuable on the conversion of the Preferred Stock are not
registered, then such common shares may be resold provided they
have been held for a period of one (1) year, compliance with rule
144 procedures are accomplished and all required filings and
opinions pursuant to the aforementioned exemptions from
registration, are completed and complied with as required.
Subject to obtaining necessary shareholder and regulatory
approval to increase the authorized capital, upon the filing of
an effective Registration Statement qualifying the distribution
of the common shares issued to the Vendors on the conversion of
the Preferred Stock provided for in Section 11, there will be no
restrictions preventing the Vendors from freely trading the
common shares on the American Stock Exchange or on such other
exchange as the shares of the Merged Company may be listed from
time to time.
(xi) The Purchaser shall use its best efforts to ensure that the
merger shall qualify as a tax-free re-organization.
(xii) A quorum for directors' meetings shall not be less than the
minimum number of directors required by the Florida Business
Corporations Act and, on, from and after Closing, until validly
changed, one (1) of which must be Murray Smith or one (1) of his
nominees.
(b) Each Vendor severally and the Company hereby represent and warrant to
the Purchaser as follows, and acknowledge that the Purchaser is
relying upon such representations and warranties in connection with
entering into this agreement and completing the transactions
contemplated thereby:
(i) The Company is a corporation incorporated and subsisting under
the laws of Delaware, has all legal capacity to own its
properties and conduct its business as presently being conducted
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by it, and is duly registered or otherwise qualified to carry on
business in all jurisdictions in which the nature of its assets
or business makes such registration or qualification necessary or
advisable.
(ii) This agreement has been duly executed and delivered by the
Company and on behalf of such Vendor, and constitutes, and the
agreements contemplated herein when executed will constitute,
valid and binding obligations of the Company and such Vendor
enforceable against each in accordance with the terms hereof and
thereof.
(iii) The entering into and performance of this agreement and the
agreements contemplated herein will not violate, contravene,
breach or offend against or result in any default under any
security agreement, indenture, mortgage, lease, order,
undertaking, licence, permit, agreement, instrument, charter or
by-law provision, resolution of shareholders or directors,
statute, regulation, judgment, decree or law to which the Company
or such Vendor is a party or by which it may be bound or
affected. No licenses, agreements or other instruments or
documents to which the Company or such Vendor is a party will
terminate or require assignment as a result of the entering into
of this Agreement or the consummation of the transactions
contemplated hereby.
(iv) The authorized capital of the Company is now, and on the Closing
Date will be, 1,000 common shares of which only 1,000 common
shares of the Company are presently outstanding, and on the
Closing Date 1,000 common shares will be issued and outstanding.
(v) The Company holds full title and interest in pending trademark
applications (the potential for success of which is not
represented or warranted) in the United States with the United
States Patent and Trademark Office for the "American Motorcycle"
and "American Motorcycle Company" trademarks and designs, in the
form attached.
(vi) Each of the Vendors is an "accredited" (as defined in Regulation
D of the SEC) or a sophisticated investor with the ability to
bear the risks of an investment in the securities of the
Purchaser; each Vendor is acquiring the securities for
investment, for his, her or its own account without a view to the
distribution or resale thereof; and each Vendor has engaged
heretofore in transactions similar to that contemplated herein
and has such knowledge and experience in financial and business
matters that he, she or it is capable of evaluating the merits
and risks of an investment in the securities. Each of the Vendors
has been provided through its representatives with access to
information pertaining to the Purchaser in order to make an
informed judgment with regard to the investment merit of the
Preferred Stock being issued to each of them.
Although Murray Smith is signing this Agreement on behalf of all of
the Vendors, he shall have no personal liability whatsoever for any
covenant, representation or warranty made by any such Vendor herein
(other than himself) and each Vendor, by accepting its respective
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Preferred Stock on Closing shall be conclusively deemed to have made
its covenants, representations and warranties herein severally on its
own behalf and with respect to only itself and the Corporation and not
any of the other Vendors.
8. Reliance. The Purchaser hereby expressly acknowledges that the Company and
the Vendors are relying upon the covenants, representations and warranties
of the Purchaser contained in this agreement and in any agreement,
certificate or other document delivered pursuant hereto in connection with
the completion of the transactions contemplated hereunder. The Company and
each Vendor hereby expressly acknowledge that the Purchaser is relying upon
the covenants, representations and warranties of the Company and severally
of each such Vendor contained in this agreement and in any agreement,
certificate or other document delivered pursuant hereto in connection with
the completion of the transactions contemplated hereunder.
9. Survival. The covenants, representations and warranties of the parties
contained in this agreement and in any document or certificate given
pursuant hereto shall survive the Closing Date for a period of two (2)
years thereafter and, with respect to tax matters only, two (2) years after
the period during which assessments or re-assessments could be issued.
10. Conditions to Closing. Notwithstanding any other provision of this
agreement, the completion of the transactions contemplated hereby is
subject to the following conditions which are inserted for the sole benefit
of the Vendors (any of which may be waived in writing at any time prior to
the Closing Date by Mr. Murray Smith on behalf of all of the Vendors):
(i) delivery of the 500,000 Preferred Stock to Mr. Murray Smith on
Closing in accordance with the terms of this agreement;
(ii) approval by banks, lessors or similar creditors of the Purchaser,
if necessary;
(iii)receipt of opinions of counsel to the Purchaser concerning the
representations and warranties of the Purchaser contained herein
relating to corporate, share and securities matters; and
(iv) all other such approvals as are required in order to consummate
the transactions contemplated by this letter agreement.
11. Registration Rights. At any time and from time to time for a period of two
(2) years after the effective date of the conversion of the Preferred
Stock, the holders of 15% of the then outstanding shares of common stock
which were originally issued upon the conversion of the Preferred Stock may
request registration under the Securities Act of 1933 or all or part of
their common stock, but in no case less than 100,000 of such shares. Within
ten (10) business days after receipt of any such request, the Purchaser
will give written notice of such requested registration to all other
holders of the then unregistered shares of common stock which were
originally issued upon the conversion of the Preferred Stock and will
include in such registration all shares of such common stock with respect
to which the Purchaser has received written request for inclusion therein
within fifteen (15) business days after receipt of the Purchaser's notice.
The Purchaser will then use reasonable efforts to effect as soon as
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practicable the registration and sale of such shares, completely at its own
expense, and the Purchaser shall indemnify, to the extent permitted by law,
each person selling common stock pursuant to any registration statement,
against all losses, claims, damages, liabilities and expenses caused by any
failure to comply with the Securities Act or other applicable laws,
including any untrue or alleged untrue statement or material fact or
omission or alleged omission of a material fact required to be made or
necessary under the Securities Act or the Securities Exchange Act of 1934
other than a failure by the selling person. The holders of such common
stock are entitled to request an aggregate of three (3) registrations on
Form S-1 or any similar long form registration statement and unlimited
registrations on Form S-3 or any similar short form registration statement;
a registration on Form S-1 shall not be deemed to have been requested if
such registration shall not have become effective.
12. Covenants. The parties hereto hereby agree to implement the following
covenants to each party, as applicable:
(a) on Closing, two (2) of the current six (6) directors shall resign,
such that the remaining four (4) current directors shall be Richard
Hagen, Barbara Connors, Jeff Starke and A.J. Foyt. On Closing, the
board shall be increased to eight (8) directors and the following four
(4) persons shall each be appointed directors: Murray Smith, Rick
Block, Hugh Turner and Dan Almagor;
(b) the new board of directors of the Merged Company shall appoint a
Compensation Committee comprised of Messrs. Hagen and Smith and two
(2) of the independent directors to determine management compensation
packages;
(c) the Purchaser or the Merged Company, as the case may be, shall assume
the master license agreement attached hereto as Exhibit 2;
(d) each party agrees not to enter into any transaction (or to cause such
a transaction to occur), that would significantly and materially
preclude the consummation of this letter agreement, the merger forming
the Merged Company, or any long form agreement replacing this letter
agreement; and
(e) each party hereto agrees that it will not issue any press release or
other disclosure concerning this letter agreement or of the
transaction to form the Merged Company without the prior approval of
the other, which shall not be unreasonably withheld, unless, in the
good faith opinion of counsel to such party, such disclosure is
required by law and time does not permit the obtaining of such
consent, or such consent is withheld.
13. Expenses. Subject to paragraph 14, each party to this letter agreement
shall bear its own expenses relating thereto, except those expenses
incurred in the preparation of this letter agreement and the confidential
memorandum of information which shall be paid or be reimbursed by the
Purchaser following the merger forming the Merged Company.
14. Payment. The Purchaser acknowledges and agrees that the Company and the
Vendors have already fully demonstrated to the Purchaser the expertise of
the principals of the Company in the motorcycle industry generally, the
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recapitalization of motorcycle companies specifically, and with respect to
trademarks and other intellectual properties related thereto. In the event
that: (i) the Preferred Stock is or is deemed not to be validly authorized,
allotted, issued, outstanding, fully paid and non-assessable with all
rights and attributes previously described herein and on any schedule
attached for any reason whatsoever or the shareholders do not approve of
the transaction contemplated by this Agreement for any reason whatsoever;
or (ii) without limiting the rights of the Vendors and the Company under
subsection (i), the merger transaction contemplated herein cannot be
completed or the shareholder's meeting described in Section 5 of this
letter agreement does not take place within the time frame stipulated for
any reason attributable to the conduct or lack of conduct of the Purchaser
which it has the capacity to prevent, or through its good faith efforts
should have the ability to satisfy, then the Vendors shall be relieved of
all obligations herein and the Purchaser agrees to pay to the Vendors all
fees, costs and expenses actually incurred by the Company and Vendors in:
(a) the preparation of this letter agreement;
(b) in connection with its due diligence review of the Purchaser;
(c) in connection with the preparation of the confidential memorandum of
information;
(d) in the preparation of any long form agreement replacing this letter
agreement; and
(e) in connection with all other activities associated with this
transaction.
In addition, in such circumstances the Purchaser agrees:
(a) to pay $500,000 to the Vendors, to be divided pro-rata among them in
proportion to the shareholdings discussed previously herein; and
(b) to validly issue and deliver all of the Preferred Stock to the
Vendors, being 500,000 shares of the said Preferred Stock with the
attributes described herein and on any schedules attached, to be
divided pro-rata among them in proportion to the shareholdings
discussed previously herein; and
(c) that Murray Smith shall be irrevocably assigned the exclusive right to
acquire any of the companies or rights acquired or contracts to be
acquired pursuant to the Business Plan.
The aforementioned provisions of this Section 14 supercede the break-up fee
provision in Section 6 of the Confidentiality Agreement between the Purchaser
and the Company dated July 5, 2000.
15. Entire Agreement. This agreement, including any Schedules attached hereto,
together with the agreements and other documents to be delivered pursuant
hereto, constitute the entire agreement between the parties pertaining to
the subject matter hereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of
the parties and there are no warranties, representations or other
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agreements between the parties in connection with the subject matter
hereof except as specifically set forth herein and therein. This
agreement may not be amended or modified in any respect except by
written instrument signed by all parties.
16. Time of the Essence. Time shall be of the essence of this agreement and
each and every part hereof.
17. Further Assurances. The parties hereto shall with reasonable diligence do
all such things and provide all such reasonable assurances as may be
required to consummate the transactions contemplated hereby, and each party
shall execute and deliver such other documents, instruments, papers and
information as may be reasonably requested by the other party hereto in
order to carry out the purpose and intent of this agreement. The Purchaser
agrees not to solicit, seek and provide information to or respond
favourably to any solicitation from, or otherwise enter into any
negotiations or reach any agreement with, any person or entity regarding
the sale, merger, consolidation or transfer of any of the assets, stock or
rights of the Purchaser.
18. Law and Jurisdiction. This agreement shall be governed by and construed in
accordance with the laws of the State of Florida and the laws of the United
States of America applicable therein. The parties hereby attorn to the
exclusive jurisdiction of the Courts of Brevard County in the State of
Florida in any dispute that may arise hereunder.
19. Enurement. This Agreement shall be binding upon and shall inure to the
benefit of and be enforceable by the heirs, administrators, executors,
estate, successors and permitted assigns of the parties hereto.
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Please sign and date this letter agreement in the spaces provided below to
confirm our mutual agreement to the terms set out above and return a fully
signed copy to the undersigned along with the 500,000 Preferred Stock.
Yours truly,
AMERICAN MOTORCYCLE COMPANY
Per: /s/ Murray Smith
------------------------------------------
MURRAY SMITH, PRESIDENT
/s/ Murray Smith
------------------------------------------
MURRAY SMITH, ON BEHALF OF ALL THE VENDORS
ACKNOWLEDGED AND AGREED TO this 18th day of August, 2000.
AMERICAN QUANTUM CYCLES, INC.
Per: /s/ Richard K. Hagen
------------------------------------------
RICHARD K. HAGEN, PRESIDENT
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STATE OF FLORIDA
Department of State
I certify the attached is a true and correct copy of the Articles of Amendment,
filed on August 16, 2000, to Articles of Incorporation for AMERICAN QUANTUM
CYCLES, INC., a Florida corporation, as shown by the records of this office.
I further certify the document was electronically received under FAX audit
number H00000043132. This certificate is issued in accordance with section
15.16, Florida Statutes, and authenticated by the code noted below.
The document number of this corporation is J05073.
Given under my hand and the
Great Seal of the State of Florida,
at Tallahassee, the Capital, this the
Seventeenth day of August, 2000
Authentication Code: 600A00044211-081700-J05073 -1/1
/s/ Katherine Harris
--------------------
[SEAL] Katherine Harris
Secretary of State
<PAGE>
FLORIDA DEPARTMENT OF STATE
Katherine Harris
Secretary of State
August 17, 2000
AMERICAN QUANTUM CYCLES, INC.
711-731 WASHBURN RD.
MELBOURNE, FL 32934
Re: Document Number J05073
The Articles of Amendment to the Articles of Incorporation for AMERICAN QUANTUM
CYCLES, INC., a Florida corporation, were filed on August 16, 2000.
The certification requested is enclosed. To be official, the certification for a
certified copy must be attached to the original document that was electronically
submitted and filed under FAX audit number H00000043132.
Should you have any question regarding this matter, please telephone (850)
487-6050, the Amendment Filing Section.
Darlene Connell
Corporate Specialist
Division of Corporation Letter Number: 600A00044211
Division of Corporations - P.O. Box 6327 - Tallahassee, Florida 32314
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ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
AMERICAN QUANTUM CYCLES, INC.
AMERICAN QUANTUM CYCLES, INC., a corporation organized and existing under
the laws of the State of Florida (the "Company "), hereby certifies that the
following resolutions were adopted by the Board of Directors of the Company
pursuant to the authority of the Board of Directors as required by Section
602.0602 of the Florida Business Corporation Act.
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Company (the "Board of Directors" or the "Board") in
accordance with the provisions of its Articles of Incorporation and Bylaws, each
as amended through the date hereof, the Board of Directors hereby authorizes a
series of the Company's previously authorized Preferred Stock, par value $.001
per share (the "Preferred Stock"), and hereby states the designation and number
of shares, and fixes the relative rights, preferences, privileges, powers and
restrictions thereof as follows:
ARTICLE I
DESIGNATION AND STATED AMOUNT; DIVIDENDS
The designation of this series, which consists of 600,000 shares of
Preferred Stock, is the Series B Convertible Preferred Stock (the "Series B
Preferred Stock") and the stated value shall be $42.16 per share (the "Stated
Value"). The Series B Preferred Stock will bear no dividends, and the holders of
the Series B Preferred Stock will not be entitled to receive dividends on the
Series B Preferred Stock.
ARTICLE II
DISTRIBUTIONS UPON LIQUIDATION,
DISSOLUTION OR WINDING UP
In the event of any voluntary or involuntary liquidation, dissolution or
other winding up of the affairs of the Company, but before any distribution or
payment shall be made to the holders of Junior Securities (as hereinafter
defined), the holders of the Series B Preferred Stock shall be entitled to be
JAMES M. SCHNEIDER, ESQ., FLA BAR # 214338
Atlas, Pearlman, Trop & Borkson, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301
Phone No.: (954) 763-1200
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paid the Stated Value per share of all outstanding shares of Series B Preferred
Stock as of the date of such liquidation or dissolution or such other winding up
of the affairs of the Company either in cash or in property taken at its fair
value as determined by the Board of Directors, or both, at the election of the
Board of Directors. If such payment shall have been made in full to the holders
of the Series B Preferred Stock, the remaining assets and funds of the Company
shall be distributed among the holders of Junior Securities, according to their
respective shares and priorities. If, upon any such liquidation, dissolution or
other winding up of the affairs of the Company, the net assets of the Company
distributable among the holders of all outstanding shares of the Series B
Preferred Stock shall be insufficient to permit the payment in full to such
holders of the preferential amounts to which they are entitled, then the entire
net assets of the Company shall be distributed among the holders of the Series B
Preferred Stock ratably in proportion to the full amounts to which they would
otherwise be respectively entitled.
ARTICLE III
CONVERSION RIGHTS
Each outstanding share of Series B Preferred Stock shall automatically be
converted, without any further act of the Company or any of its shareholders,
into fully paid and non-assessable shares of Common Stock of the Company
immediately ipso facto upon the filing by the Company of its Articles of
Amendment to its Articles of Incorporation increasing the number of authorized
Common Stock to the minimum amount necessary and sufficient to permit the full
conversion of the Series B Preferred Stock. Immediately upon the filing of this
Amendment, the Company shall proceed as expeditiously as possible to perform all
acts necessary to effect Articles of Amendment to its Articles of Incorporation
in order to increase its authorized Common Stock in order to permit this
conversion of the Series B Preferred Stock. The Company will effectuate the
Articles of Amendment pursuant to general authorization by the shareholders of
the Company at a duly called meeting of the shareholders. The holders of the
Series B Preferred Stock, upon conversion, will receive 38.39 shares of Common
Stock of the Company for each share of Series B Preferred Stock of the Company.
No fractional share or scrip representing a fractional share will be issued
upon conversion of the Series B Preferred Stock, which shall be rounded to the
nearest whole share of Common Stock. In the event of any reclassification,
merger, consolidation or change of shares of the Series B Preferred Stock and/or
the Common Stock of the Company, the Company shall make adjustments to the
conversion ratio which shall be nearly as equivalent to that stated above as may
be practical.
Upon the filing of Articles of Amendment increasing the number of
authorized Common Stock to the minimum sufficient to effect the conversion
described in paragraph one of this Article III, the outstanding shares of Series
B Preferred Stock shall be converted automatically without any further action by
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the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Company or its transfer agent; provided that the
Company shall not be obligated to issue to any such holder certificates
evidencing the shares of Common Stock issuable upon such conversion unless
certificates evidencing the ownership by such holder of shares of Series B
Preferred Stock are either delivered to the Company or any transfer agent of the
Company. Conversion shall be deemed to have been effected on the date of filing
of the Articles of Amendment and such date is referred to herein as the
"Conversion Date." As promptly as practicable thereafter (and after surrender of
the certificate or certificates representing shares of Series B Preferred Stock
to the transfer agent of the Company), the Company shall issue and deliver to or
upon the written order of such holder a certificate or certificates for the
number of full shares of Common Stock to which such holder is entitled. The
person in whose name the certificate or certificates for Common Stock are to be
issued shall be deemed to have become a holder of record of such Common Stock on
the Conversion Date. The issuance of certificate for shares of Common Stock upon
conversion shall be made without charge to the holders of such Series B
Preferred Stock for any issuance in respect of the shares of Common Stock or
other costs incurred by the Company in connection with such conversion and the
related issuances of shares of Common Stock.
The number of shares of Common Stock subject to conversion of each share of
Series B Preferred Stock shall be subject to proportionate adjustments in
certain events, including (i) the issuances of capital stock as a dividend or
distribution on Common Stock, and (ii) subdivisions, combinations, forward and
reverse stock splits and reclassifications of the Common Stock. The holders of
Series B Preferred Stock shall receive written notice at least ten (10) days
prior to the fixing of a record date for the issuance to all holders of Common
Stock of rights or warrants entitling them (for a period expiring within 30 days
of such record date) to subscribe for Common Stock, and (ii) the fixing of a
record date for the distribution to all holders of Common Stock of evidence of
indebtedness or assets (other than cash dividends) of the Company or
subscription rights or warrants (other than those referred to above).
Immediately upon any adjustment in the number of shares subject to conversion,
the Company shall give written notice of such adjustment to all holders of
Series B Preferred Stock setting forth in reasonable detail the calculation of
such adjustment.
The Company shall not close its books against the transfer of Series B
Preferred or of Common Stock issued or issuable upon conversion of Series B
Preferred in any manner which interferes with the timely conversion of Series B
Preferred.
Following the amendment to its Articles of Incorporation to increase its
authorized Common Stock to permit conversion of the Series B Preferred Stock,
the Company shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of issuance upon the
conversion of the Series B Preferred, such number of shares of Common Stock as
are issuable upon the conversion of all outstanding Series B Preferred.
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All shares of Common Stock which are so issuable shall, when issued be duly
and validly issued, outstanding, fully paid and nonassessable and free from all
taxes, liens and charges.
ARTICLE IV
VOTING RIGHTS
The holders of Series B Preferred Stock will be entitled to vote on matters
submitted generally to the shareholders of the Company on the basis of 38.39
votes for each share of Series B Preferred Stock held by such holder. Unless the
vote or consent of the holders of a greater number of shares is required by law,
the consent of the holders of at least a majority in interest of Series B
Preferred Stock at the time outstanding shall be necessary to change, alter or
revoke the rights and preferences conferred upon the Series B Preferred Stock by
the Articles of Incorporation or this Amendment, as amended from time to time,
or for issuance of further shares of this series or another class of preferred
stock which shall be senior to the Series B Preferred Stock.
To the extent that under the Florida Business Corporation Act the vote of
the holders of the Series B Preferred Stock, voting separately as a class or
series, as applicable, is required to authorize a given action of the Company,
the affirmative vote or consent of the holders of at least a majority of the
then outstanding shares of the Series B Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of the holders
of at least a majority of the then outstanding shares of Series B Preferred
Stock (except as otherwise may be required under the Florida Business
Corporation Act) shall constitute the approval of such action by the class.
ARTICLE V
PROTECTION PROVISIONS
So long as any shares of Series B Preferred Stock are outstanding, the
Company shall not, without first obtaining the approval of a majority in
interest of the Holders of the then outstanding shares of Series B Preferred
Stock:
1. alter or change the rights, preferences or privileges of the Series
B Preferred Stock or issue more than 500,000 shares of Series B Preferred Stock;
2. alter or change the rights, preferences or privileges of any
previously issued shares of capital stock of the Company so as to affect
adversely the Series B Preferred Stock;
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3. create any new class or series of capital stock having a preference
over the Series B Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Company;
4. create any new class or series of capital stock ranking pari passu
with the Series B Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Company;
5. increase the authorized number of shares of Series B Preferred
Stock;
6. issue any shares of Series A Preferred Stock other than pursuant to
the Letter Agreement dated March 27, 2000;
7. redeem, or declare or pay any cash dividend or distribution on, any
junior securities; or
8. issue any additional shares of capital stock, common or preferred,
for any purpose other than as employee benefits or for acquisitions of companies
or assets.
ARTICLE VI
RANK
The Series B Preferred Stock shall rank (i) prior to the Company's Common
Stock; (ii) prior to any class or series of capital stock of the Company
hereafter created that, by its terms, ranks junior to the Series B Preferred
Stock ("Junior Securities"); (iii) junior to the Company's Series A Convertible
Preferred Stock; (iv) junior to any class or series of capital stock of the
Company hereafter created with the consent of the holders of Series B Preferred
Stock specifically ranking, by its terms, senior to the Series B Preferred
Stock; and (v) pari passu with any class or series of capital stock of the
Company hereafter created with the consent of the Holders of Series B Preferred
Stock specifically ranking by its terms on parity with the Series B Preferred
Stock, in each case as to distribution of assets upon liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary.
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IN WITNESS WHEREOF, the Company has caused this Amendment of Designations,
Preferences and Rights to be executed by its duly authorized officer.
AMERICAN QUANTUM CYCLES, INC.
By: /s/ Richard K. Hagen
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Name: R.K. Hagen
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Its: CEO
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DATED: August 16, 2000
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