THE
ISSUANCE AND SALE OF THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS PROMISSORY
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
PROMISSORY NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO LKA INTERNATIONAL, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED.
Issue
Date: July 2, 2009
PROMISSORY
NOTE
FOR
VALUE RECEIVED, LKA International, Inc., a Delaware corporation
(hereinafter called “Borrower”), hereby promises
to pay to PanAmerica Capital Group, Inc., a Panama corporation (the
“Holder”), or its registered assigns or successors in
interest or order, without demand, the sum of Five Hundred
Forty Five Thousand Ninety Dollars ( $545,090.00
) (“Principal Amount”), with simple and unpaid
interest thereon, in accordance with the provisions of Article II
hereof, if not sooner paid. The Principal Amount is equal to
the value of 700 troy ounces of gold as determined by the closing
spot price of gold on COMEX on the date hereof (i.e.,
$928.70 per ounce), less $150 per troy
ounce.
This
Promissory Note has been entered into pursuant to the terms of a
Subscription Agreement between the Borrower and the Holder, dated
of even date herewith (the “Subscription Agreement”),
and shall be governed by the terms of such Subscription Agreement.
Unless otherwise separately defined herein, all capitalized
terms used in this Promissory Note shall have the same meaning as
is set forth in the Subscription Agreement.
ARTICLE
I
INTEREST
; AMORTIZATION
1.1.
Interest
Rate. Subject to Sections 2.1(i) and 5.7 hereof,
interest payable on this Promissory Note shall accrue on the
outstanding principal balance from time to time until paid in full
at a rate per annum (the “Interest Rate”) of ten (10)
percent .
ARTICLE
II
PAYMENT
TERMS
2.1.
Payment
in Five Installments. The Borrower shall pay the
Principal Amount and all outstanding interest on this Promissory
Note in five equal installments, as follows:
(i)
The
first installment shall be due on the first business day of
January, 2010. The amount of such payment shall be determined
by either of the following methods, at the Holder’s election:
(a)
the
value of one hundred forty (140) troy ounces of gold as determined
by the closing spot price of gold on COMEX on the business day
immediately preceding the first installment due date; or
(b)
one-fifth
(1/5) of the total Principal Amount, together with accrued interest
thereon.
Provided
that, for the purposes of subsequent calculations of interest
payable on this Promissory Note, installments satisfied by method
(a) above shall be deemed to represent a payment of one-fifth of
the total Principal Amount, together with accrued interest
thereon.
The
Holder shall give the Borrower written notice of the method that it
has elected to use no less than five (5) days prior to the
applicable payment due date provided that it is acknowledged that
the Holder may elect to receive partial payment by one method and
the balance by the other method and in such instance the written
notice shall also specify the amount of the payment to be made by
each method.
(ii)
Each
of the second through fifth installments shall be due on the date
that is three months after the due date of the immediately
preceding installment. Thus, the second installment shall be
due on the date that is three months after the first business day
of January, 2010, and so on. The method of determining the
amount of each of the second through fifth payments shall be as set
forth in Section 2.1(i) above.
2.2
Form
of Payment. All payments to the Holder pursuant to this
Article II shall be made by certified cheque or money order payable to
PanAmerica Capital Group, Inc., or by wire transfer in accordance
with the instructions set forth in Schedule “B” hereto.
ARTICLE
III
SECURITY
3.1
Security
Interest. This Promissory Note is secured by a first charge
over the Borrower’s property that is set forth in Schedule
“A” hereto (the “Property”) and in this
regard the Borrower agrees that, for so long as any of the
Principal Amount remains unpaid, the Borrower shall not sell,
transfer, license or otherwise encumber its interest in the
Property or any minerals derived therefrom without the written
consent of the Borrower.
ARTICLE
IV
EVENTS
OF DEFAULT
4.1
The
occurrence of any of the following events of default (“Event
of Default”) shall, at the option of the Holder hereof, make
all sums of principal and interest then remaining unpaid hereon and
all other amounts payable hereunder immediately due and payable,
upon demand, without presentment, or grace period, all of which
hereby are expressly waived, except as set forth below:
(a)
Failure
to Pay Principal or Interest. The Borrower fails to pay any
installment of Principal Amount, interest or other sum due under
this Promissory Note when due and such failure continues for a
period of 30 days after the due date.
(b)
Default
under Other Obligation. The Borrower defaults under any other
material obligation to repay borrowed monies.
(c)
Breach
of Covenant. The Borrower breaches any material covenant or
other term or condition of the Subscription Agreement or this
Promissory Note in any material respect
2
and
such breach, if subject to cure, continues for a period
