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EXHIBIT 10.4.1
LIMITED RECOURSE SUBORDINATED PROMISSORY NOTE
$5,000,000 September 23, 1998
FOR VALUE RECEIVED, Easyriders, Inc., a Delaware corporation ("Maker"),
promises to pay to Joseph Teresi ("Payee"), at the place and in the manner
specified below, the principal sum of Five Million Dollars ($5,000,000),
together with interest on the unpaid principal balance hereof at the rate per
annum set forth below.
SECTION 1. Definitions.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banks are required or authorized to be closed in the State of California.
"Events of Default" is defined in Section 4 of this Note.
"Interest Payment Date" is defined in Section 2.2(b) of this Note.
"Martin Mirror Note" means that certain Promissory Note of John Martin,
dated the date hereof, in the original principal amount of $5,000,000, payable
to Maker.
"Newco #1 Pledge Agreement" means the pledge agreement, dated as of the
date hereof, between Maker and Payee.
"Note" means this Limited Recourse Promissory Note, as the same may be
amended from time to time.
"Obligations" means all of Maker's liabilities, obligations and
indebtedness to Payee under this Note (including, without limitation, Maker's
obligation to make payments of principal and interest to Payee hereunder),
whether now existing or hereafter arising.
"Payment Default" is defined in Section 4 of this Note.
"Person" means any person or entity (including, without limitation, a
corporation, limited liability corporation, partnership, trust or joint
venture).
"Pledged Assets" shall mean the Martin Mirror Note, all principal and
interest paid or distributed and other property which Maker is or may be
entitled to receive in respect of or in exchange for the Martin Mirror Note and
the proceeds, increase and products of any of the foregoing.
"Rate" is defined in Section 2.2 of this Note.
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"Stock Contribution and Sale Agreement" means the Stock Contribution and
Sale Agreement dated June 30, 1998, by and among Maker, Payee, Newriders, Inc.,
Easyriders Sub II, Inc. and the Paisano Companies (as defined therein), as
amended from time to time.
Unless otherwise defined herein, terms used in the Stock Contribution
and Sale Agreement shall have the same meanings when used in this Note.
SECTION 2. Terms.
SECTION 2.1 Repayment of Principal. The principal balance of this Note
shall be payable by Maker in lawful money of the United States of America and in
immediately payable funds on September 23, 2003, unless the date for payment of
the Martin Mirror Note is extended, in which case, the date for payment of the
principal balance of this Note shall be similarly extended (as such date may be
so extended, the "Maturity Date").
SECTION 2.2 Interest; Payments.
(a) Maker shall pay interest on the unpaid principal amount of
this Note at a rate per annum as follows (the "Rate"):
(i) From the date hereof until September 23, 1999,
the Rate shall be six percent (6%);
(ii) From September 23, 1999 until September 23, 2000,
the Rate shall be seven percent (7%);
(iii) From September 23, 2000 until September 23, 2001,
the Rate shall be eight percent (8%);
(iv) From September 23, 2001 until September 23, 2002,
the Rate shall be nine percent (9%); and
(v) From September 23, 2002 until such time as the
principal balance of this Note shall be paid, the Rate shall be ten percent
(10%).
(b) Accrued interest on the outstanding principal amount of this Note
shall be paid in arrears on the 23rd day of each September, December, March and
June, commencing with the first such date to occur after the date hereof and at
maturity (each an "Interest Payment Date"), until the Obligations are paid in
full, except that Maker shall have the right to defer up to one-half of the
interest payable on any Interest Payment Date during the first two years of this
Note if and to the extent that the analogous right is exercised by John Martin
under the Martin Mirror Note. The amount of interest deferred pursuant to this
Section will be added to the principal balance of this Note on the Interest
Payment Date as of which it is deferred. If the Maturity Date is extended
pursuant to Section 2.1 hereof, then Maker shall pay to Payee on the
date such extension period commences, an amount of principal equal to the amount
of deferred
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interest which was added to the principal balance of this Note in accordance
with the immediately preceding sentence. Interest hereunder shall be computed on
the basis of a year of 365 days for the actual number of days elapsed. If any
payment of principal or interest hereunder shall become due on a day which is
not a Business Day, such payment shall be due on the next succeeding Business
Day and such extension of time shall be included in computing interest in
connection with such payment. Both principal and interest hereunder are payable
to Payee by wire transfer to such account as Payee may, from time to time,
designate to Maker in writing. If the maker under the Martin Mirror Note makes a
payment thereunder, Maker shall immediately make (or if the payment under the
Martin Mirror Note is paid directly to Payee, Maker shall be deemed to have
made) an identical payment under this Note.
(c) Notwithstanding anything to the contrary contained herein, Maker may
elect to prepay the outstanding principal amount of this Note at any time either
in whole or in part, without penalty. Any such prepayment shall be accompanied
by the amount of accrued interest on the amount prepaid. Maker shall deliver
written notice of such prepayment to Payee at least ten (10) days prior to
prepayment. Each notice of prepayment delivered pursuant to this subsection (c)
shall set forth the amount of such prepayment and the proposed date of such
prepayment. If the Maker under the Martin Mirror Note makes a prepayment
thereunder, Maker shall immediately make (or if the prepayment under the Martin
Mirror Note is paid directly to Payee, Maker shall be deemed to have made) an
identical prepayment under this Note. Upon payment in full of this Note, Payee
shall surrender this Note to Maker for cancellation. Upon prepayment in part of
principal, Payee shall make a notation of such prepayment on the Schedule of
Payments attached as Exhibit A hereto and deliver a copy of such schedule to
Maker. The aggregate unpaid principal amount set forth on such schedule shall be
rebuttably presumptive evidence of the principal amount owing and unpaid
hereunder, but the failure to record any such amount on such schedule shall not
limit or otherwise affect the obligation of the Maker hereunder to make payments
on this Note when due. All payments to be made by the Maker under this Note
shall be made only from the income and the proceeds from the Pledged Assets and
only to the extent that the Maker or the Payee shall have received sufficient
income or proceeds from the Pledged Assets to make such payments. The Payee, by
its acceptance hereof, agrees that all income or proceeds of the Pledged Assets
shall be applied to the payment of the Obligations.
SECTION 3. Non-Recourse; Security Interest
SECTION 3.1 Non-Recourse. Anything in this Note or any other agreement
to the contrary notwithstanding, the Obligations shall be non-recourse to the
Maker and neither the Payee nor its successors or assigns shall have any claim,
remedy or right to proceed (at law or in equity) against the Maker for the
payment of any deficiency or any other sum owing on account of the Obligations;
and the Payee by acceptance of this Note waives and releases any personal
liability of the Maker for and on account of the Obligations and agrees to look
solely to the Pledged Assets for the payment and performance of the Obligations.
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SECTION 3.2 Security Interest. Payment of all amounts due to Payee
hereunder shall be secured by a security interest in the Pledged Assets, upon
the terms and conditions specified in the Newco #1 Pledge Agreement.
SECTION 4. Events of Default; Acceleration. If any of the following
events ("Events of Default") shall occur:
(a) Maker shall fail to make any payment of interest on this Note
when the same shall become due and payable, and such failure shall continue for
a period of five (5) days after written notice thereof has been given to Maker
by Payee (a "Payment Default"); provided, however, that Maker shall have the
right to cure any such Payment Default for an additional period of twenty-five
(25) days on two occasions during the term of this Note;
(b) Maker shall fail to pay the principal amount of this Note on
the Maturity Date;
(c) Maker makes an assignment for the benefit of creditors, or
admits in writing its inability to pay or generally fails to pay its debts as
they mature or become due, or petitions or applies for the appointment of a
trustee or other custodian, liquidator or receiver of Maker or of any
substantial part of the assets of Maker or commences any case or other
proceeding relating to Maker under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law of
any jurisdiction, now or hereafter in effect, or takes any action to authorize
or in furtherance of any of the foregoing, or if any such petition or
application is filed or any such case or other proceeding is commenced against
Maker and Maker indicates its approval thereof, consent thereto or acquiescence
therein; or
(d) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating Maker bankrupt or insolvent,
or approving a petition in any such case or other proceeding, or a decree or
order for relief is entered in respect of Maker in an involuntary case under
Federal bankruptcy laws as now or hereafter constituted, and such decree or
order remains in effect for more than sixty (60) days, whether or not
consecutive.
then Payee may by notice in writing to Maker declare all amounts owing with
respect to this Note to be, and they shall thereupon forthwith mature and
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by Maker.
Payee's failure at any time or times hereafter to require strict
performance by Maker of any of the terms, conditions and provisions contained in
this Note shall not waive, affect or diminish any right of Payee at any time or
times hereafter to demand strict performance thereof and such right shall not be
deemed to have been waived or modified by any act or knowledge of Payee, its
agents, officers or employees, unless such waiver or modification is contained
in an instrument in writing signed by an officer of Payee and directed to Maker
specifying such waiver or modification. No waiver by Payee of any Event of
Default shall operate as a waiver of any
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other Event of Default or the same Event of Default on a future occasion. No
delay on the part of Payee in the exercise of any right or remedy shall operate
as a waiver thereof, and no single or partial exercise by Payee of any right or
remedy shall preclude other or further exercise thereof or the exercise of any
other rights or remedy.
If any Event of Default occurs, Maker shall pay on demand all reasonable
out-of-pocket expenses incurred or sustained by Payee in connection with the
enforcement or protection of the rights of Payee under this Note, including
costs of collection and the fees and disbursements of counsel.
SECTION 5. Miscellaneous.
(a) This Note may not be assigned by Maker or Payee without the
express written consent of the other party.
(b) This Note may not be amended except by a writing signed by
Maker and Payee, provided, however, that no amendment shall be effective without
the written consent of the maker under the Martin Mirror Note. If the Martin
Mirror Note is amended, and such amendment is agreed to in writing by Payee,
this Note shall simultaneously be automatically amended, mutatis mutandis, such
that it remains substantially identical to the Martin Mirror Note.
(c) Whenever in this Note there is reference made to either Payee
or Maker, such reference shall be deemed to include a reference to the
successors and permitted assigns of such party and the provisions of this Note
shall be binding upon and inure to the benefit of said successors and permitted
assigns.
(d) Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, two (2) days after the date of deposit in the United States mails as
follows:
To Maker:
Easyriders, Inc.
567 San Nicolas Drive, Suite 400
Newport Beach, California 92660
Attention: Bill Prather
Fax No.: (714) 719-4999
To Payee:
Joseph Teresi
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2400 Laguna Drive
Fort Lauderdale, FL 33316
Fax No.: (954) 462-0223
Any party may by notice given in accordance with this Section to the
other parties designate another address or person for receipt of notices
hereunder.
(e) THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO THE CONFLICTS OF
LAW PRINCIPLES THEREOF. THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY
CONSENT TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
CALIFORNIA AND OF THE UNITED STATES OF AMERICA LOCATED IN THE STATE OF
CALIFORNIA (THE "CALIFORNIA COURTS") FOR ANY LITIGATION ARISING OUT OF OR
RELATING TO THIS NOTE (AND AGREE NOT TO COMMENCE ANY LITIGATION RELATING THERETO
EXCEPT IN SUCH COURTS), WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION IN THE CALIFORNIA COURTS AND AGREE NOT TO PLEAD OR CLAIM IN ANY
CALIFORNIA COURT THAT SUCH LITIGATION BROUGHT THEREIN HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(f) The Section and subsection titles contained herein are for
convenience only and shall not control or affect the meaning or construction of
any provision hereof.
(g) The invalidity or unenforceability of any provision of this
Note in any jurisdiction shall not affect the validity or enforceability of the
remainder of this Note in that jurisdiction or the validity or enforceability of
this Note, including that provision, in any other jurisdiction. If any
restriction or provision of this Note is held unreasonable, unlawful or
unenforceable in any respect, such restriction or provision shall be
interpreted, revised or applied in a manner that renders it lawful and
enforceable to the fullest extent possible under law.
(h) Nothing in this Note is intended or shall be construed to
give any Person other than the parties hereto any legal or equitable right,
remedy or claim under or in respect of this Note or any provision contained
herein.
(i) Upon receipt by Maker of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Note, Maker will make
and deliver a new Note of like tenor in lieu of this Note against receipt of
Payee's undertaking to indemnify Maker against and hold it harmless from all
reasonable costs arising as a result of its making and delivery of the new Note.
This Note has been executed and delivered at Los Angeles, California, on
the date first above written.
EASYRIDERS, INC.
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By: /s/ William E. Prather
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Name: William E. Prather
Title: President and Chief Executive
Officer
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