EXECUTION COPY
SECURED NEGOTIABLE
PROMISSORY NOTE
$965,712.00 DATE: FEBRUARY 3, 2004
MATURES: FEBRUARY 3, 2006
FOR VALUE RECEIVED, American Vantage Media Corporation, a Nevada
corporation, as maker, having its principal offices at 4735 S. Durango Drive,
Suite 105, Las Vegas, Nevada 89147 (the "Payor"), hereby unconditionally
promises to pay to the order of Lee Miller, an individual whose address is 420
Round Hill Road, Greenwich, Connecticut 06831 as payee, (the "Payee") at 420
Round Hill Road, Greenwich, Connecticut 06831 or at such other place as the
holder hereof may from time to time designate in writing, the principal sum of
Nine Hundred Sixty-Five Thousand Seven Hundred Twelve Dollars ($965,712.00) in
lawful money of the United States of America with interest thereon to be
computed from the date of this note (the "Note") at the Interest Rate (defined
below) and in accordance with the terms of this Note. This Note is executed and
delivered pursuant to the terms of a Stock Purchase Agreement dated February 3,
2004 (the "Agreement") among the Payor, Wellspring Media, Inc., a Delaware
corporation (the "Guarantor"), Al Cattabiani ("Cattabiani"), Carl Seldin Koerner
("Koerner"), Lee Miller ("Miller") and Clara Spalter Miller ("Spalter Miller").
Capitalized terms used but not defined herein shall have the meanings set forth
in the Agreement.
1. INTEREST. Interest on the unpaid principal balance due hereunder shall
accrue at the rate of seven percent (7%) per annum. Interest shall be
calculated on the basis of a 365 day year.
2. PAYMENT TERMS. The Payor shall make to the Payee, at the address set forth
above or as the Payee shall otherwise direct, equal quarterly payments of
interest, each in the amount of $16,899.96 on May 3, 2004, August 3, 2004,
November 3, 2004, February 3, 2005, May 3, 2005, August 3, 2005, November
3, 2005 and February 3, 2006 (each, a "Payment Date"). The entire
principal balance and all accrued and unpaid interest thereon shall be due
and payable on February 3, 2006 (the "Maturity Date").
3. APPLICATION OF PAYMENTS. Payments under this Note shall be applied first
to the payment of late fees and other costs and charges due in connection
with this Note, as Payee determines in its sole discretion, then to the
payment of accrued but unpaid interest, and then to reduction of the
outstanding principal balance. All amounts due under this Note shall be
payable without setoff, counterclaim or any other deduction whatsoever.
4. GUARANTY AND SECURITY. The obligations of the Payor pursuant to this Note
have been guaranteed by the Guarantor pursuant to the terms of a Guaranty
Agreement of even date herewith (the "Guaranty"). The Note is secured
pursuant to the terms of a Security Agreement (the "Security Agreement")
given by the Guarantor to Miller, as agent for the Payee and other Sellers
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under the Agreement (the "Agent"), encumbering certain assets of the
Guarantor (the "Assets"), as more particularly described therein, and a
Pledge Agreement (the "Pledge") of even date herewith given by the Payor
to the Agent pursuant to which the Payor has pledged the stock of the
Guarantor (the "Stock").
5. PARI PASSU. The Note and each of the other Senior Secured Notes of even
date herewith from the Payor to the Sellers rank and will rank pari passu
in right of payment.
6. DEFAULT AND ACCELERATION. The occurrence of any of the following shall
constitute an event of default ("Event of Default") under this Note: (a)
if any payment required in this Note is not paid (i) prior to the tenth
(10th) day after a Payment Date; or (ii) on the Maturity Date; (b) on the
occurrence of any default by the Payor or the Guarantor, after the
expiration of any applicable notice and grace periods, hereunder or under
the terms of the Agreement, the Security Agreement, the Guaranty or the
Pledge; (c) any representation or warranty made or deemed made by the
Payor or the Guarantor shall prove to have been incorrect in any
substantial or material respect on or as of the date made or deemed made;
(d) if Guarantor or Payor shall: admit in writing its inability to pay its
debts generally as they become due; file a petition for relief under the
bankruptcy laws or a petition to take advantage of any insolvency act;
make an assignment for the benefit of creditors; commence a proceeding for
the appointment of a receiver, trustee, liquidator or conservator of
itself or the whole or any substantial part of its property; file a
petition or answer seeking reorganization or arrangement or similar relief
under the Federal Bankruptcy Laws or any other applicable law or statute
of the United States or any State; or if Guarantor or Payor shall be
adjudged bankrupt or insolvent, or a court of competent jurisdiction shall
enter any order, judgment or decree appointing a receiver, trustee,
liquidator or conservator of Guarantor or Payor or of the whole or any
substantial part of the property of Guarantor or Payor or approves a
petition filed against Guarantor or Payor seeking reorganization or
similar relief under the Federal Bankruptcy Laws or any other applicable
law or statute of the United States or any State; or; (e) if the Payor or
the Guarantor shall cease doing business; (f) upon the declared default of
any indebtedness of the Payor or the Guarantor by any lender; (g) if a
court of competent jurisdiction determines that the Security Agreement or
the Pledge ceases to create a valid first priority security interest,
perfected, to the extent such interest is perfected by a financing
statement, in and to the property subject to such agreement subject only
to the security interest of the Atlantic Bank of New York pursuant to the
Accounts Financing and Security Agreement and the Covenant Supplement to
Accounts Financing Security Agreement, each dated August 1, 2003 between
Atlantic Bank of New York and Payor (together, the "Atlantic Bank Security
Agreement"), or Permitted Liens thereunder, or shall cease to be in full
force and effect or are null and void, or the validity or enforceability
of any security agreement shall be contested by Payor or Guarantor such
party shall deny it has any further liability or obligation under such
agreement; (h) if the Payor or the Guarantor shall have a judgment entered
against it in excess of $20,000 which is not covered by insurance or
bonded within 90 days or the Payor or the Guarantor shall fail to pay or
remit any tax when due; (i) except as permitted pursuant to the Security
Agreement, the Payor or the Guarantor shall grant any security interest in
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any of its assets or stock; or (j) if all or any part of the Collateral
held pursuant to the Security Agreement or the Stock held pursuant to the
Pledge shall be sold, transferred or assigned, without the prior written
consent of Secured Parties in violation of the Security Agreement or the
Pledge; (k) if Guarantor or Payor shall merge or consolidate or agree to
merge or consolidate with or into any other entity (except for a merger in
which Payor or Guarantor, as the case may be, is the surviving entity and
provided however that in the event of any merger or consolidation by
Guarantor or Payor notice of such merger shall be provided to the Payees
no less than ten (10) days prior to any proposed merger) or shall sell,
lease or other dispose of all or substantially all of its assets; (l) the
loss, theft, substantial damage or destruction to or of the Collateral,
not otherwise fully insured or the making or granting of any levy,
seizure, attachment, execution or prejudgment remedy, upon the Collateral,
the Stock, or the property of the Guarantor or Payor, where such levy,
seizure, attachment, execution or prejudgment remedy is not discharged or
released within forty-five (45) days after being granted; (m) if all or
any part of the Stock shall be sold, transferred or assigned, or shall be
further encumbered, hypothecated, mortgaged, or made subject to any other
lien or security interest, without the prior written consent of Payee; (n)
if Guarantor shall increase the amount of the loan with Atlantic Bank of
New York.
Upon the occurrence and during the continuance of an Event of Default,
the Payee may declare: (i) the indebtedness of this Note, and
(ii) interest, default interest, late charges and other sums, as
provided in this Note, immediately due and payable.
7. DEFAULT INTEREST. Payor agrees that upon the occurrence of an Event of
Default, the Payee shall be entitled to receive and Payor shall pay
interest on the entire unpaid principal sum of this Note at a per annum
rate equal to the lower of twelve percent (12%) or the maximum interest
rate permitted by law, (the "Default Rate"). The Default Rate shall be
computed from the occurrence of the Event of Default until all Obligations
(as defined in the Security Agreement) are paid in full. Interest
calculated at the Default Rate shall be deemed secured by the Security
Agreement. This clause, however, shall not be construed as an agreement or
privilege to extend the date of the payment of the Obligations, nor as a
waiver of any other right or remedy accruing to Payee by reason of the
occurrence of any Event of Default.
8. LATE CHARGE. If any payment payable under this Note is not paid prior to
the tenth (10th) day after the applicable Payment Date, Payor shall pay to
Payee, upon demand, an amount equal to five percent (5%) of any sums due
or payable, and this amount shall be secured by the Security Agreement and
the Pledge Agreement. This clause, however, shall not be construed as an
agreement or privilege to extend the date of the payment of the
Obligations, nor as a waiver of any other right or remedy accruing to
Payee by reason of the occurrence of any Event of Default.
9. PREPAYMENT. The outstanding principal balance of this Note, together with
all accrued and unpaid interest, may be prepaid, in whole but not in part,
at any time during the term hereof, without penalty. The Payor shall
notify the Payee in writing prior to making a prepayment.
10. ASSIGNMENT. This Note is freely assignable by the Payee or subsequent
holder at any time.
11. LOAN CHARGES. This Note is subject to the express condition that at no
time shall the Payor be obligated or required to pay interest on the
principal balance due hereunder at a rate which could subject the Payee to
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either civil or criminal liability as a result of being in excess of the
maximum interest rate which the Payor is permitted by applicable law to
contract or agree to pay. If, by the terms of this Note, Payor is at any
time required or obligated to pay interest hereunder at a rate in excess
of such maximum rate, the Interest Rate or the Default Rate, as the case
may be, shall be deemed to be immediately reduced to such maximum rate and
all previous payments in excess of the maximum rate shall be deemed to
have been payments in reduction of principal and not on account of the
interest due hereunder, and any excess remaining shall be refunded to the
Payor or applied against unpaid principal at the option of the Payee. All
sums paid or agreed to be paid to the Payee for the use, forbearance, or
detention of the Obligations, shall, to the maximum extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout
the full stated period until payment in full of the principal (including
the period of any renewal or extension hereof) so that the rate or amount
of interest on account of the Obligations does not exceed the maximum
lawful rate of interest from time to time in effect and applicable to the
Obligations for so long as the Obligations are outstanding. In determining
whether or not the interest paid or payable hereunder exceeds the maximum
lawful rate, the Payee may utilize any law, rule or regulation in effect
from time to time and available to the Payee.
12. WAIVERS The Payor hereby waives presentment and demand for payment, notice
of dishonor, protest and notice of protest and non-payment and all other
notices of any kind, and consents to the extensions of the time of
payment, release, surrender or substitution of security or forbearance or
other indulgence without notice. No release of any security for the
Obligations or extension of time for payment of this Note or any
installment hereof, and no alteration, amendment or waiver of any
provision of this Note, the Agreement, the Pledge, the Guaranty or the
Security Agreement made by agreement between the Payee, Guarantor or any
other person or party shall release, modify, amend, waive, extend, change,
discharge, terminate or affect the liability of the Payor for the payment
of all or any part of the Obligations. No notice to or demand on the Payor
shall be deemed to be a waiver of the obligation of the Payor or of the
right of the Payee to take further action without further notice or demand
as provided for in this Note, the Agreement, the Pledge, the Guaranty or
the Security Agreement.
13. GOVERNING LAW. This Note shall be governed, construed, applied and
enforced in , accordance with the laws of the State New York and shall be
binding upon the Payor and its successor and assigns. This Note shall
inure to the benefit of the Payee and his successors and assigns.
14. CONSENT TO JURISDICTION. The Payor irrevocably consents to the exclusive
jurisdiction of the United States federal courts and the state courts
located in the State and County of New York with respect to any suit or
proceeding based on or arising under this Note and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts.
15. NOTICES. All notices required or permitted hereunder shall be given as
provided in the Agreement.
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16. MISCELLANEOUS.
(a) Wherever pursuant to this Note it is provided that the Payor pay any
costs and expenses, such costs and expenses shall include, but not
be limited to, reasonable legal fees and disbursements of the Payee,
whether with respect to retained firms, the reimbursement for the
expenses of in-house staff, or otherwise. The Payor shall pay to the
Payee on demand any and all expenses, including legal expenses and
reasonable attorneys' fees (at all levels including appeals),
incurred or paid by Payee in enforcing this Note, whether or not any
legal proceeding is commenced hereunder, together with interest
thereon at the Default Rate from the date paid or incurred by Payee
until such expenses are paid by the Payor.
(b) This Note may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on
the part of the Payor or the Payee, but only by an agreement in
writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or
termination is sought.
(c) Whenever used, the singular number shall include the plural, the
plural number shall include the singular, and the words "Payee" and
"Payor" shall include their respective successors, assigns, heirs,
executors and administrators.
(d) The headings of this Note are for convenience only and are not to
affect the construction of or to be taken into account in
interpreting the substance of this Note.
(e) Time is of the essence hereunder.
(f) A determination that any provision of this Note is unenforceable or
invalid shall not affect the enforceability or validity of any other
provision and a determination that the application of any provision
of this Note to any person or circumstance is illegal or
unenforceable shall not affect the enforceability or validity of
such provision as it may apply to other persons or circumstances.
The remaining provisions of this Note shall remain operative and in
full force and effect and shall in no way be affected, prejudiced or
disturbed thereby.
(g) The Payor waives any right it may have to assert a set-off of any
nature or counterclaim and cross claims of any nature.
17. WAIVER OF TRIAL BY JURY. PAYOR AND PAYEE, BY ITS ACCEPTANCE HEREOF, EACH
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT,
TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE OBLIGATIONS
EVIDENCED BY THIS NOTE, THE AGREEMENT, THE GUARANTY, THE PLEDGE OR THE
SECURITY AGREEMENT OR ANY ACTS OR OMISSIONS OF ANY PARTY OR ANY OF THEIR
RESPECTIVE OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION
THEREWITH. THIS WAIVER OF THE RIGHT TO TRIAL BY JURY IS A MATERIAL
INDUCEMENT TO THE PAYEE FOR THE PAYEE TO ENTER INTO THE TRANSACTION
EVIDENCED HEREBY.
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18. SUBORDINATION. THIS INSTRUMENT IS SUBJECT TO THE AGREEMENT OF
SUBORDINATION DATED AS OF FEBRUARY 3, 2004 AMONG ATLANTIC BANK OF NEW YORK
(THE "BANK"), LEE MILLER AND AMERICAN VANTAGE MEDIA CORPORATION, WHICH
AMONG OTHER THINGS SUBORDINATES THE PAYOR'S OBLIGATIONS HEREUNDER TO THE
PRIOR PAYMENT OF CERTAIN OBLIGATIONS OWING TO THE BANK.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, Payor has duly secured this Note as of the day and
date first above written.
SIGNED AND DELIVERED IN THE PRESENCE OF PAYOR
AMERICAN VANTAGE MEDIA CORPORATION
By:
- --------------------------------------- ---------------------------------
Print Name:---------------------------- Name:
---------------------------------
Title:
---------------------------------
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ACKNOWLEDGMENT IN NEW YORK STATE
STATE OF NEW YORK )
SS.:
COUNTY OF _________________ )
On February _____, 2004 before me, the undersigned, personally appeared
_________________________ personally known to me or proved to me on the basis
of satisfactory evidence to be the individual(s) whose name(s) is (are)
subscribed to the within Agreement and acknowledged to me that he/she/they
executed the same in his/her/their capacity(ies), and that by his/her/their
signature(s) on the Agreement, the individual(s), or the person upon behalf
of which the individual(s) acted, executed the Agreement.
-----------------------------------------
(signature and office of individual
taking acknowledgment)
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