Exhibit 10.39.1

 

AMENDMENT TO SECURITIES PURCHASE AGREEMENT

 

This Amendment to Securities Purchase Agreement (the “Amendment”), dated as of
August 11, 2004 is made by and among PROLONG INTERNATIONAL CORPORATION, a Nevada
corporation (“Parent”), PROLONG SUPER LUBRICANTS, INC., a Nevada corporation
(“Borrower”), PROLONG INTERNATIONAL HOLDINGS LTD., a Cayman Islands company
(“Cayman Sub I”), PROLONG INTERNATIONAL LTD., a Cayman Islands company (“Cayman
Sub II”, and together with Cayman Sub I, the “Cayman Subsidiaries”), ST. CLOUD
CAPITAL PARTNERS, LP, a Delaware limited partnership, and its affiliates (“St.
Cloud”), BEDFORD OAK CAPITAL, L.P., a Delaware limited partnership (“Bedford
I”), BEDFORD OAK OFFSHORE, LTD., a Cayman Islands company (“Bedford II”), and
ASPEN VENTURES LLC, a New York limited liability company ((“Aspen”), and
collectively with Bedford I and Bedford II, the “Other Purchasers”).

 

Recitals

 

WHEREAS, on November 24, 2003, Parent, Borrower, the Cayman Subsidiaries, St.
Cloud and the Other Purchasers entered into a Securities Purchase Agreement (the
“Purchase Agreement”);

 

WHEREAS, pursuant to the Purchase Agreement, the Borrower issued the Notes and
the Warrants to St. Cloud and the Other Purchasers;

 

WHEREAS, the Purchasers desire to lend an aggregate of an additional $250,000 to
Borrower pursuant to Secured Promissory Notes; and

 

WHEREAS, in connection with the additional loan to Borrower, Parent, Borrower,
the Cayman Subsidiaries, St. Cloud and the Other Purchasers now desire to amend
certain provisions of the Purchase Agreement, the Notes and the Warrants.

 

Agreement

 

NOW THEREFORE, the parties agree as follows:

 

1. Capitalized Terms. All capitalized terms used herein and not otherwise
defined herein shall have the respective meanings assigned thereto in the
Purchase Agreement.

 

2. Subject to the terms and conditions set forth in the Purchase Agreement and
this Amendment, St. Cloud and the other Purchasers agree to lend an aggregate of
$250,000 to Borrower in exchange for Borrower’s delivery to St. Cloud and the
Other Purchasers of Secured Promissory Notes in the form of Exhibit A hereto
(the “New Notes”). The amount to be advanced by each Purchaser is set forth in
the New Notes attached as Exhibits A-1 through A-4. St. Cloud shall be entitled
to deduct up to $10,000 from the amount of its loan to cover legal fees and
expenses incurred by it in connection with this Amendment and the Loan
Documents.

 

1

--------------------------------------------------------------------------------

Borrower, Parent and the Cayman Subsidiaries expressly agree that the New Notes
shall be considered Notes for all purposes under the Purchase Agreement and the
other Loan Documents and shall be entitled to the benefit of all of the
provisions of the Purchase Agreement and the other Loan Documents applicable to
the Notes. Without limiting the generality of the foregoing, Borrower and Parent
agree that the Pledge and Security Agreement shall apply to the New Notes to the
same extent that it applies to the other Notes and that the New Notes shall be
secured by the Collateral under the Pledge and Security Agreement in accordance
with the terms of the Pledge and Security Agreement. Each Purchaser hereby
agrees and acknowledges that the indebtedness incurred by Borrower under the New
Notes shall be deemed to be “Permitted Indebtedness” under the Purchase
Agreement.

 

3. Borrower agrees that it will use not less than $100,000 of the proceeds from
the New Notes for marketing purposes, primarily media time, and that the
remainder of the proceeds shall be used as the Board of Directors of Parent
shall determine from time to time.

 

4. The covenants in Section 7.4.12 of the Purchase Agreement shall not apply
until the applicable period ending after December 31, 2005 (and each quarterly
period thereafter). The parties will negotiate in good faith to determine as
soon as practicable after the date hereof (and in any event prior to June 30,
2005) mutually acceptable benchmarks with respect to Tangible Net Worth and the
ratio of EBTIDA of the Credit Parties (excluding the Cayman Subsidiaries) to
Debt Service Payments that will apply with respect to each such period ending
after December 31, 2005 for purposes of Section 7.4.12 of the Purchase
Agreement. Such benchmarks shall be on terms that are commercially reasonable
for transactions of this nature. In the event the Credit Parties have not agreed
in writing to commercially reasonable benchmarks proposed by St. Cloud on or
prior to June 30, 2005 an Event of Default shall be deemed to exist under the
Notes beginning on such date.

 

5. The Notes (other than the New Notes) are hereby amended such that (i) the
reference to November 30, 2004 in clause (2) of the first page of each Note
shall be changed to December 31, 2004, (ii) the reference to December 31, 2004
in clause (3) of the first page of each Note shall be changed to January 31,
2005 and (iii) the amount of the monthly payment under clause (2) on the first
page of each Note (other than the New Notes) shall be as follows:

 

(a) $18,791.67 (in the case of the St. Cloud Note)

 

(b) $1,489.58 (in the case of the Bedford I Note)

 

(c) $1,489.58 (in the case of the Bedford II Note); and

 

(d) $1,145.83 (in the case of the Aspen Note).

 

For the avoidance of doubt, the Notes (other than the New Notes) shall continue
to accrue interest at a rate of 14% per annum (subject to adjustment as set
forth in the Notes under certain circumstances), and any additional interest
that accrues as a result of the reduction of the monthly payments contemplated
by (a) through (d) above shall be due and payable (together with all other
amounts due under the Notes) on November 24, 2008.

 

2

--------------------------------------------------------------------------------

6. Section 6.1 of the Purchase Agreement is amended and restated in its entirety
to read as follows:

 

“In consideration for Purchasers’ agreement to acquire the Securities, Borrower
agrees to make quarterly royalty payments (“Royalty Payments”) to Purchasers in
an aggregate amount (pro rated to each Purchaser based on the original principal
amounts of the Notes) equal to (A) the lesser of (i) fifteen percent (15%) of
the Incremental Revenue for such quarter and (ii) (a) with respect to the period
from November 24, 2003 through December 31, 2003, sixty three one hundredth
percent (0.63%) of all principal and accrued interest on the Notes outstanding
as of December 31, 2003, or (b) with respect to any calendar quarter thereafter,
one and one half percent (1.5%) of all principal and accrued interest on the
Notes outstanding as of the midpoint of such calendar quarter (the amount
contemplated by this clause (ii) is referred to as the “Maximum Quarterly
Royalty Payment”) plus (B) the Royalty Catch-Up Amount; provided, however, that
any payments required to be made prior to the quarter ended March 31, 2005 shall
accrue and instead be paid in four equal installments (the “Installment
Payments”) on each Royalty Payment Date (in addition to any other Royalty
Payments required to be paid on each such Royalty Payment Date) beginning with
the Royalty Payment Date for the quarter ended March 31, 2005 (except that if an
Event of Default occurs under the Notes, then any accrued but unpaid Royalty
Payments shall become due and payable immediately); further provided that no
Royalty Payment with respect to a calendar quarter (excluding, for this purpose,
Installment Payments) shall exceed twenty five percent (25%) of Incremental
Revenue for such calendar quarter, and any unpaid Royalty Catch-Up Amount
resulting from this limitation shall be carried forward to the following
calendar quarter.”

 

7. The Warrants are hereby amended as follows:

 

(a) the phrase in the first paragraph of the St. Cloud Warrant that reads
“provided that if an Event of Default occurs under the St. Cloud Note (as
defined in the Securities Purchase Agreement (as defined below)) that involves
in excess of Twenty Five Thousand Dollars ($25,000) or may result in losses or
damages to the Company or Holder in excess of Twenty Five Thousand Dollars
($25,000) and is not cured or waived by Holder within thirty (30) days
thereafter,” shall be deleted and replaced with the following phrase:

 

“provided that if an Event of Default occurs under Section 4.1.1 of the St.
Cloud Note (as defined in the Securities Purchase Agreement (as defined below))
or as a result of a breach of Section 6.1 or Section 6.2 of the Securities
Purchase Agreement and is not cured by the Company or waived by Holder within
thirty (30) days thereafter,”

 

(b) the phrase in the first paragraph of the Bedford I Warrant that reads
“provided that if an Event of Default occurs under the Bedford I Note (as
defined in the Securities Purchase Agreement (as defined below)) that involves
in excess of Twenty Five Thousand Dollars

 

3

--------------------------------------------------------------------------------

($25,000) or may result in losses or damages to the Company or Holder in excess
of Twenty Five Thousand Dollars ($25,000) and is not cured or waived by Holder
within thirty (30) days thereafter,” shall be deleted and replaced with the
following phrase:

 

“provided that if an Event of Default occurs under Section 4.1.1 of the Bedford
I Note (as defined in the Securities Purchase Agreement (as defined below)) or
as a result of a breach of Section 6.1 or Section 6.2 of the Securities Purchase
Agreement and is not cured by the Company or waived by Holder within thirty (30)
days thereafter,”

 

(c) the phrase in the first paragraph of the Bedford II Warrant that reads
“provided that if an Event of Default occurs under the Bedford II Note (as
defined in the Securities Purchase Agreement (as defined below)) that involves
in excess of Twenty Five Thousand Dollars ($25,000) or may result in losses or
damages to the Company or Holder in excess of Twenty Five Thousand Dollars
($25,000) and is not cured or waived by Holder within thirty (30) days
thereafter,” shall be deleted and replaced with the following phrase:

 

“provided that if an Event of Default occurs under Section 4.1.1 of the Bedford
II Note (as defined in the Securities Purchase Agreement (as defined below)) or
as a result of a breach of Section 6.1 or Section 6.2 of the Securities Purchase
Agreement and is not cured by the Company or waived by Holder within thirty (30)
days thereafter,”

 

(d) the phrase in the first paragraph of the Aspen Warrant that reads “provided
that if an Event of Default occurs under the Aspen Note (as defined in the
Securities Purchase Agreement (as defined below)) that involves in excess of
Twenty Five Thousand Dollars ($25,000) or may result in losses or damages to the
Company or Holder in excess of Twenty Five Thousand Dollars ($25,000) and is not
cured or waived by Holder within thirty (30) days thereafter,” shall be deleted
and replaced with the following phrase:

 

“provided that if an Event of Default occurs under Section 4.1.1 of the Aspen
Note (as defined in the Securities Purchase Agreement (as defined below)) or as
a result of a breach of Section 6.1 or Section 6.2 of the Securities Purchase
Agreement and is not cured by the Company or waived by Holder within thirty (30)
days thereafter,”

 

8. Oryxe Shares. In consideration for the Purchasers’ agreement to enter into
the Amendment, the following Section 6.2 is hereby added to the Purchase
Agreement:

 

6.2 (a) Parent hereby confirms that it is the record and beneficial owner of
2,219,536 shares of common stock of Oryxe Energy International, Inc., a Delaware
Corporation and warrants to purchase 437,568 shares of common stock of Oryxe
(collectively, the “Oryxe Securities”). The Credit Parties agree that the
Purchasers shall be entitled to 50% of all cash and non-cash proceeds in excess
of Parent’s cost basis, solely with respect to the Oryxe Securities, (“Oryxe
Proceeds”) which are paid to or received by any Credit Party with respect to the
Oryxe Securities or to which any Credit Party becomes entitled under the Oryxe
Securities (in each case, whether as a result of a dividend, transfer, sale,
merger, dissolution, liquidation or any other event relating to Orxye, the Oryxe
Securities or the Oryxe Development Agreement). Any Oryxe Proceeds shall be paid
and assigned

 

4

--------------------------------------------------------------------------------

to the Purchasers (and their transferees) by the Credit Parties immediately upon
receipt thereof on a pro rata basis in accordance with the original principal
amount of the Notes (other than the New Notes) held by the Purchasers (or such
transferees). In addition to the foregoing, the Credit Parties agree that the
Oryxe Securities shall continue to constitute Collateral under the Pledge and
Security Agreement (and nothing in this Section 6.2 of this Amendment shall
affect the rights of the Purchasers and St. Cloud, as Collateral Agent, in and
to such Collateral), and the Credit Parties agree to immediately deliver
certificates representing the Oryxe Securities to St. Cloud to be held by St.
Cloud as Collateral Agent under the terms of the Pledge and Security Agreement.
The parties hereto also agree that nothing in this Section 6.2 shall be deemed
to constitute a sale or transfer of the Oryxe Securities themselves to St. Cloud
or any Other Purchaser and that Parent shall remain the record owner of the
Oryxe Securities and shall be entitled to exercise all voting and other rights
with respect thereto, except, in each case, as otherwise provided in the Pledge
and Security Agreement upon the occurrence of an Event of Default. Without
limiting the obligations of Parent and Borrower under the Pledge and Security
Agreement, the Credit Parties agree not to sell, transfer, assign or otherwise
dispose the Oryxe Securities without the prior approval of St. Cloud.

 

  (b) The Credit Parties agree that Purchasers shall be entitled to the
following amounts with respect to revenues of any Credit Party arising from any
license or similar arrangement between Oryxe and any Credit Party (each such
license or other arrangement, an “Oryxe License”):

 

  (i) If an Oryxe License or the rights thereunder is (are) sold to, transferred
to, assigned to or otherwise acquired by any third party (including a buy-out by
Oryxe of an Oryxe License), Purchasers shall be entitled to 50% of all cash and
non-cash proceeds from such event;

 

  (ii) If any Credit Party sublicenses any Oryxe License to a third party (or
enters into a similar arrangement with respect to an Oryxe License), Purchasers
shall be entitled to 50% of all net revenues derived from such sublicense or
similar arrangement; and

 

  (iii) If any Credit Party manufactures, distributes or sells any products that
incorporate technology or other rights covered by an Oryxe License (“Covered
Products”), Purchasers shall be entitled to 3% of net revenues derived from such
Covered Products for a period of four years from the date that distribution of
such Covered Products commences (it being understood that such net revenues
shall not be included in Incremental Revenue for purposes of Section 6.1 of this
Agreement).

 

All payments to Purchasers under this Section 6.2(b) shall be paid to Purchasers
(and their transferees) on a pro rata basis in accordance with the original
principal amount of the Notes held by such Purchasers (or transferees) promptly
following receipt of the applicable proceeds or revenues by any Credit Party. In
the event a sale, transfer, assignment or other

 

5

--------------------------------------------------------------------------------

disposition of one or more Oryxe Licenses (or rights thereunder) under clause
(i) above is part of a larger sale or transfer of assets, the Credit Parties
shall mutually agree on the portion of the consideration received in such
transaction that is allocable to the Oryxe License(s) (or rights thereunder)
based on the fair market value of such rights and, if the parties cannot agree
on such allocation, such dispute shall be resolved by an independent appraiser
selected by St. Cloud and reasonably acceptable to the Credit Parties.

 

  (c) Purchasers’ rights under this Section 6.2 shall survive in perpetuity
(irrespective of whether the Notes have been repaid), except that Purchasers’
right to receive a percentage of net revenues under Section 6.2(b)(iii) for
specific Covered Products shall expire on the earlier of (i) the date specified
in Section 6.2(b)(iii) or (ii) November 24, 2013.

 

9. Section 7.5 of the Notes (other than the New Notes) is hereby amended and
restated in its entirety to read as follows:

 

“The terms of this Note may be amended, modified or waived only by (i) the
written agreement of the Maker and the Payee or (ii) the written agreement of
the Maker and the holders of a majority in aggregate principal amount of Notes
issued pursuant to the Agreement.”

 

10. No Other Changes. Except as explicitly amended by this Amendment, all of the
terms and conditions of the Purchase Agreement and the Loan Documents shall
remain in full force and effect.

 

11. Representations and Warranties of Credit Parties. Each Credit Party hereby
represents and warrants to the Purchasers as follows:

 

(a) Each Credit Party has all requisite power and authority to execute this
Amendment and to perform all of its obligations hereunder, and this Amendment
has been duly executed and delivered by each Credit Party and constitutes the
legal, valid and binding obligation of each Credit Party, enforceable in
accordance with its terms subject to bankruptcy and other laws of general
application affecting the rights and remedies of creditors and the availability
of equitable remedies.

 

(b) The execution, delivery and performance by each Credit Party of this
Amendment have been duly authorized by all necessary corporate action and do not
(i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect, having applicability to
any Credit Party, or the articles of incorporation or by-laws or other
organizational documents of any Credit Party, or (iii) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which any Credit Party is a party or by
which it or its properties may be bound or affected.

 

(c) All of the representations and warranties contained in Section 5 of the
Purchase Agreement are correct on and as of the date hereof as though made on
and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date or to the transactions contemplated
by this Amendment.

 

6

--------------------------------------------------------------------------------

12. Representations and Warranties of Purchasers. Each Purchaser, severally
represents and warrants to the Credit Parties that all of the representation and
warranties in Section 4.2 of the Purchase Agreement are correct on and as of the
date hereof with respect to the New Notes as though made on and as of such date.

 

13. References. All references in the Purchase Agreement and the Loan Documents
to “this Agreement” shall be deemed to refer to the Purchase Agreement as
amended hereby; and any and all references in the Loan Documents to the Purchase
Agreement shall be deemed to refer to the Purchase Agreement as amended hereby.

 

14. No Other Waiver. The execution of this Amendment and acceptance of any
documents related hereto shall not be deemed to be a waiver of any Default or
Event of Default under the Purchase Agreement or breach, default or event of
default under any Loan Document or other document held by the Purchasers,
whether or not known to the Purchasers and whether or not existing on the date
of this Amendment. Notwithstanding the foregoing, the Purchasers hereby agree
and acknowledge that no Default or Event of Default shall have been deemed to
have occurred as a result of a breach of Section 7.4.12 of the Purchase
Agreement for any period prior to the date hereof.

 

15. Release. The Credit Parties hereby absolutely and unconditionally release
and forever discharge the Purchasers, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which any Credit Party has had, now has
or has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.

 

16. Costs and Expenses. The Borrower hereby reaffirms its agreement under the
Purchase Agreement to pay or reimburse the Purchaser on demand for all costs and
expenses incurred by the Purchasers in connection with the Loan Documents,
including without limitation all reasonable fees and disbursements of legal
counsel. Without limiting the generality of the foregoing, the Borrower
specifically agrees to pay up to $10,000 in fees and disbursements of counsel to
the Purchasers for the services performed by such counsel in connection with the
preparation of this Amendment and the documents and instruments incidental
hereto (which amounts may, at the option of St. Cloud, be withheld from its loan
under Section 2 of this Amendment).

 

17. Miscellaneous. This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and all
of which counterparts, taken together, shall constitute one and the same
instrument.

 

7

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first written above.

 

PARENT:   ST. CLOUD: PROLONG INTERNATIONAL CORPORATION   ST. CLOUD CAPITAL
PARTNERS, L.P. By:  

/s/ Elton Alderman

--------------------------------------------------------------------------------

  By:   SCGP, LLC Name:   Elton Alderman   Its:   General Partner Title:  
President and Chief Executive Officer      

 

By:

 

 

/s/ Marshall S. Geller

--------------------------------------------------------------------------------

            Name:   Marshall S. Geller             Its:   Senior Managing Member
BORROWER:             PROLONG SUPER LUBRICANTS, INC.             By:  

/s/ Elton Alderman

--------------------------------------------------------------------------------

            Name:   Elton Alderman             Title:   President and Chief
Executive Officer             CAYMAN SUB I:             PROLONG INTERNATIONAL
HOLDINGS LTD.             By:  

/s/ Elton Alderman

--------------------------------------------------------------------------------

            Name:   Elton Alderman             Title:   President and Chief
Executive Officer             CAYMAN SUB II:             PROLONG INTERNATIONAL
LTD.             By:  

/s/ Elton Alderman

--------------------------------------------------------------------------------

            Name:   Elton Alderman             Title:   President and Chief
Executive Officer            

 

8

--------------------------------------------------------------------------------

BEDFORD OAK CAPITAL, L.P. By:  

/s/ Harvey P. Eisen

--------------------------------------------------------------------------------

Name:   Harvey P. Eisen Title:   Chairman and Managing Partner BEDFORD OAK
OFFSHORE, LTD. By:  

/s/ Harvey P. Eisen

--------------------------------------------------------------------------------

Name:   Harvey P. Eisen Title:   Chairman and Managing Partner ASPEN VENTURES
LLC By:  

/s/ Fred B. Tarter

--------------------------------------------------------------------------------

Name:   Fred B. Tarter Title:   President

 

9

--------------------------------------------------------------------------------

EXHIBIT A-1

 

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND THUS
MAY NOT BE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER THAT ACT OR SUCH
LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION OR QUALIFICATION IS AVAILABLE.

 

SECURED PROMISSORY NOTE

 

$205,000

  Due November 24, 2008            

 

FOR VALUE RECEIVED, PROLONG SUPER LUBRICANTS, INC., a Nevada corporation (the
“Maker”), promises to pay to the order of ST. CLOUD CAPITAL PARTNERS, LP, a
Delaware limited partnership (“Payee”), or its registered assigns, the sum of
Two Hundred Five Thousand Dollars ($205,000) and to pay interest thereon at the
rate of eight percent (8.0%) per annum until this Secured Promissory Note (as
amended, modified or supplemented from time to time, this “Note”) is fully paid.
All principal and accrued interest under this Note shall be paid by the Maker to
Payee in a lump sum payment November 24, 2008 (the “Due Date”).

 

Any payment of principal or interest not paid within five (5) business days
after its due date shall be subject to a five percent (5%) charge on the unpaid
payment.

 

During the occurrence and continuation of an Event of Default (defined below)
the Initial Interest Rate or Second Interest Rate, as applicable, shall be
increased five percent (5%) per annum. In no event shall Payee be entitled to
interest exceeding the maximum rate permitted by law or under the applicable
regulations promulgated by the United States Small Business Administration (the
“SBA”). If any excess interest is provided for or shall be adjudicated to be so
provided for in this Note, or if any payment or other consideration under this
Note or the Agreement (as defined below) is determined by the SBA to exceed the
amount permitted under applicable regulations promulgated by the SBA, then in
such event: (i) the provisions of this paragraph shall govern and control; (ii)
the Maker shall not be obligated to pay the amount of such interest or other
payment or consideration to the extent that it is in excess of the maximum
amount permitted by law or under applicable regulations promulgated by the SBA,
and the same shall be construed as a mutual mistake of the parties; and (iii)
any such excess which may have been collected or attributed shall, at the option
of Holder, be subtracted from the then unpaid principal amount hereof, or
refunded to the Maker.

 

Both principal hereof and interest thereon are payable at such place as Payee
may from time to time designate in writing, in lawful money of the United States
of America and in immediately available funds by wire transfer. Interest
hereunder shall be computed on the basis of a year of three hundred sixty (360)
days for the actual number of days elapsed.

 

A-1

--------------------------------------------------------------------------------

This Note is secured by that certain Pledge and Security Agreement dated as of
November 24, 2003, by and among the Maker, Payee and Parent, as amended,
restated, amended and restated, supplemented or otherwise modified from time to
time (the “Pledge and Security Agreement”).

 

This Note is subject to the terms and conditions set forth below:

 

I. DEFINITIONS.

 

As used in this Note, the following terms shall mean:

 

“Agreement” shall mean that certain Securities Purchase Agreement dated as of
November 24, 2003, by and among the Maker, Payee, Parent, Prolong International
Holdings Ltd., a Cayman Islands company, Prolong International Ltd., a Cayman
Islands company, Bedford Oak Capital, L.P., a Delaware limited partnership,
Bedford Oak Offshore, Ltd., a Cayman Islands company, and Aspen Ventures LLC, a
New York limited liability company, as amended by the Amendment to Securities
Purchase Agreement dated as of the date hereof and as may be further, modified
or supplemented from time to time.

 

“Board” shall mean the board of directors of Parent.

 

“Continuing Members” shall mean a member of the Board who either (a) was a
member of the Board on the day before the Closing or (b) became a member of the
Board after the day before the Closing and whose election or nomination for
election was approved by a vote of the majority of the Continuing Members then
members of the Board.

 

“Event of Default” shall have the meaning given such term in Section 4 below.

 

“Note” shall mean this Note and any note delivered in substitution or exchange
therefor as provided herein.

 

“Note Percentage” shall mean a fraction, the numerator of which is the original
principal amount of this Note and the denominator of which is Two Hundred Fifty
Thousand Dollars ($250,000).

 

“Parent” shall mean Prolong International Corporation, a Nevada corporation.

 

“Triggering Event” shall mean any sale, transfer or issuance or series of sales
or issuances of Parent’s capital stock, or any merger, consolidation or other
transaction involving Parent where the shareholders of Parent immediately prior
to such event do not retain more than a fifty percent (50%) voting power or
interest in Parent or the successor corporation or other entity, as the case may
be, (ii) any transfer of capital stock of Maker or other transaction which
results in the Maker ceasing to be a wholly-owned subsidiary of Parent; (iii)
any sale of all or a substantial portion of the assets of Maker, (iv) after the
Closing, any Person or group of Persons (within the meaning of Section 13 or 14
of the Securities Exchange Act of 1934) other than Payee or its affiliates
(including any other Purchaser), shall acquire beneficial ownership (within the
meaning of Rule 13d-3 promulgated under such Act) of more than twenty-five
percent (25%) of the outstanding securities (on a fully diluted basis and taking
into account any securities or contract rights

 

A-1-2

--------------------------------------------------------------------------------

exercisable, exchangeable or convertible into equity securities) of Parent
having voting rights in the election of directors under normal circumstances, or
(v) a majority of the members of the Board shall cease to be Continuing Members.

 

Any capitalized terms used herein without definition shall have the meaning set
forth in the Agreement.

 

II. PREPAYMENT OF NOTE.

 

2.1 Mandatory Prepayments. Except as set forth below, all principal and accrued
but unpaid interest on this Note shall immediately become due and payable upon
the occurrence of a Triggering Event.

 

2.2 Optional Prepayment. At any time, the Maker shall have the right to prepay
all or part of the outstanding principal amount of this Note in installments not
less than the lesser of (i) One Hundred Thousand Dollars ($100,000) and (ii) the
remaining outstanding principal balance of this Note; provided that (i) the
Maker gives not less than thirty (30) days’ prior written notice to Payee of the
Maker’s election to prepay this Note.

 

III. REPLACEMENT OF NOTE.

 

Upon receipt of evidence reasonably satisfactory to the Maker of the ownership
of and the loss, theft, destruction or mutilation of this Note and (in the case
of loss, theft or destruction) upon delivery of an indemnity agreement in an
amount reasonably satisfactory to the Maker, or (in the case of mutilation) upon
surrender and cancellation of the mutilated Note, the Maker will execute and
deliver, in lieu thereof, a new Note of like tenor.

 

IV. EVENTS OF DEFAULT.

 

The occurrence and continuation of any of the events or conditions described in
Section 4.1 or Section 4.2 shall be an “Event of Default.”

 

4.1 Payee Action. The occurrence of any of the following Events of Default
shall, at the option of Payee, entitle Payee to declare all sums of principal
and interest then remaining unpaid, and all other amounts payable hereon, due
and payable, all without demand, presentment, notice or protest, all of which
hereby are expressly waived, and permit Payee to exercise any other right
available to it under the Loan Documents or otherwise available to it at law or
in equity, all of which rights and powers may be exercised cumulatively.

 

4.1.1 Failure to Pay Principal or Interest. Failure to pay any installment of
principal when due or interest hereon within five (5) business days of the date
when due.

 

4.1.2 Breach of Covenants. The breach by any Credit Party of any covenant in the
Agreement or any other Loan Document that is not cured within thirty (30) days
after written notice thereof to the Maker.

 

A-1-3

--------------------------------------------------------------------------------

4.1.3 Breach of Representations and Warranties. The representations or
warranties of the Credit Parties made in the Loan Documents or in any statement
or certificate at any time given in writing to Payee pursuant to the Agreement
or this Note or in connection therewith or herewith, shall prove to have been
false or misleading in any material respect as of the date such representations
and warranties were made.

 

4.1.4 Judgments. The making or filing of any money judgment, writ or similar
process in excess of One Hundred Thousand Dollars ($100,000) against any Credit
Party or any of the property or other assets of any Credit Party which shall
remain unsatisfied, unvacated, unhanded or unstayed until the date that is the
earlier to occur of thirty (30) days after such judgment, writ or similar
process is entered and five (5) days prior to the date of any proposed sale
thereunder.

 

4.1.5 Default in Other Agreements. The occurrence of any event of default or
other event triggering acceleration of any indebtedness by any Credit Party
under any note, agreement or other instrument involving the issuance of
indebtedness (but not including any trade payables incurred in the ordinary
course of business), whether such indebtedness now exists or may hereafter be
created, if, as a result of such event of default or other event, the maturity
of such indebtedness has been accelerated or has otherwise become or been
declared to be due prior to its stated maturity and the principal amount of such
indebtedness which has been accelerated or has otherwise become or been declared
to be due exceeds, individually or in the aggregate, One Hundred Thousand
Dollars ($100,000).

 

4.1.6 Attachments. The levying of any writ of attachment against any property or
other assets of any Credit Party not fully covered by insurance in force valued
individually or in the aggregate at an amount equal to or greater than One
Hundred Thousand Dollars ($100,000) unless a Credit Party posts a bond or
obtains other relief for the release of such attachment within thirty (30) days.

 

4.1.7 Suspension of Business. The suspension of the usual business activities of
the Credit Parties or the winding up or liquidation of the Maker’s business.

 

4.1.8 Challenges by the Maker. The Maker shall challenge, or institute or join
in any proceedings to challenge the validity, binding effect or enforceability
of this Note or any endorsement of this Note or any other obligation to Payee
under the Loan Documents.

 

4.1.9 Certain Agreements. The Pledge and Security Agreement or the Parent
Guaranty or any provision thereof shall cease to be in full force or effect or
shall be declared to be null or void or otherwise unenforceable in whole or in
part; or Payee shall not have or shall cease to have a valid and perfected
security interest in the collateral described in the Pledge and Security
Agreement; provided that the failure of Payee to have a valid and perfected
security interest in the shares of capital stock of the Cayman Subsidiaries
shall not be deemed an Event of Default

 

A-1-4

--------------------------------------------------------------------------------

hereunder so long as the Credit Parties deliver to St. Cloud stock certificates
representing sixty-five percent (65%) of the capital stock of Cayman Sub I in
accordance with Section 7.13 of the Agreement.

 

4.1.10 Change in Management. The termination of the employment of Elton Alderman
for any reason (including, without limitation, as a result of resignation);
provided, however, that if such termination is as a result of his death or
disability and Parent hires a replacement reasonably acceptable to Payee within
six months thereafter, then such termination shall not be deemed an Event of
Default hereunder.

 

4.1.11 Other. The failure of the Maker to perform or observe any other material
term, covenant or agreement to be performed or observed by it pursuant to this
Note and the continuance thereof for a period of thirty (30) days after written
notice thereof to the Maker.

 

4.2 Acceleration Without Specific Action. The occurrence of any of the following
Events of Default shall make all sums of principal and interest then remaining
unpaid and all other amounts payable hereon due and payable, all without demand,
presentment, notice or protest, all of which hereby are expressly waived, and
permit Payee to exercise any other right available to it at law or in equity,
all of which rights and powers may be exercised cumulatively.

 

4.2.1 Bankruptcy. The voluntary institution of bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors by any Credit Party; or
the institution of any such proceedings against any Credit Party, which
involuntary proceedings shall not have been vacated by appropriate court order
within sixty (60) days of such institution.

 

4.2.2 Dissolution. Any order, judgment or decree shall have been entered against
any Credit Party decreeing the dissolution or liquidation of such Credit Party
and such order shall remain undischarged or unstayed for a period of thirty (30)
days.

 

4.2.3 Insolvency, Receiver or Trustee. The making by any Credit Party of an
assignment for the benefit of creditors; or the making by any Credit Party of an
offer of settlement, composition or extension to the claims of all or
substantially all of a Credit Party’s creditors or the application for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or the appointment otherwise of such a
receiver or trustee or a committee of the Maker’s creditors.

 

V. TRANSFER OF SECURITIES.

 

Subject to the restrictions on transfer contained in the Agreement, this Note
and all rights hereunder are transferable in whole or in part on the books of
the Maker maintained for such purpose at its principal office referred to above
by Payee in person or by a duly authorized

 

A-1-5

--------------------------------------------------------------------------------

attorney, upon surrender of this Note properly endorsed and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer.
Each taker and holder of this Note, by taking or holding the same, consents and
agrees that this Note when endorsed in blank shall be deemed negotiable and
agrees that when this Note shall have been so endorsed, Payee hereof may be
treated by the Maker and all other persons dealing with this Note, as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented hereby, or to the transfer hereof on the books of the Maker,
any notice to the contrary notwithstanding; but until such transfer on such
books, the Maker may treat Payee hereof as the owner for all purposes.

 

VI. METHODS; ADDRESSES.

 

Any notice, demand or other communication required or permitted under the terms
of this Note shall be in writing and shall be made by telegram, telex or
electronic transmitter (including, without limitation, facsimile) or certified
or registered mail, return receipt requested, and shall be deemed to be received
by the addressee on the date delivery is confirmed, if sent by Fed Ex, Express
Mail, or other similar overnight delivery service, the date of electronic
confirmation of receipt, if sent by telegram, telex, telecopy or electronic
transmitter, and three (3) business days after mailing, if sent by certified or
registered mail, with postage prepaid, and properly addressed. Notices shall be
addressed as provided below:

 

(a)   If to Payee:   St. Cloud Capital Partners, LP         10866 Wilshire
Blvd., Suite 1450         Los Angeles, California 90024         Facsimile: (310)
475-0550         Attention: Robert Lautz     With copy to:   Latham & Watkins
LLP         633 West Fifth Street, Suite 4000         Los Angeles, California
90071         Facsimile: (213) 891-8763         Attention: W. Alex Voxman, Esq.
(b)   If to the Maker:   Prolong Super Lubricants, Inc.         6 Thomas        
Irvine, California 92618         Facsimile: (949) 587-2707         Attention:
Chief Executive Officer     With a copy to:   Stradling Yocca Carlson & Rauth  
      660 Newport Center Drive, Suite 1600         Newport Beach, California
92660         Facsimile: (949) 725-4100         Attention: Michael E. Flynn,
Esq.

 

A-1-6

--------------------------------------------------------------------------------

Any party may change its address for this purpose by giving a written notice
thereof as herein provided.

 

VII. MISCELLANEOUS.

 

7.1 Survival of Covenants. All agreements and covenants made herein shall
survive the execution and delivery hereof.

 

7.2 Failure or Indulgence Not Waiver. No failure or delay on the part of Payee
or any other holder of this Note to exercise any right, power or privilege under
this Note and no course of dealing between the Maker and Payee shall impair such
right, power or privilege or operate as a waiver of any default or an
acquiescence therein, nor shall any single or partial exercise of any such
right, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
expressly provided in this Note are cumulative to, and not exclusive of, any
rights or remedies that Payee would otherwise have. No notice to or demand on
the Maker in any case shall entitle the Maker to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the right of
Payee to any other or further action in any circumstances without notice or
demand.

 

7.3 Cost of Collection. The Maker agrees to indemnify Payee against any losses,
claims, damages and liabilities and related expenses, including counsel fees and
expenses, incurred by Payee in connection with the collection and enforcement of
this Note (including, without limitation, in connection with any bankruptcy,
insolvency, reorganization or workout). In addition, the Maker agrees to pay,
and to save Payee harmless from all liability for, any stamp or other
documentary taxes which may be payable in connection with the Maker’s execution
or delivery of this Note.

 

All payments made by the Maker under this Note shall be made free and clear of,
and without deduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions
or withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any governmental authority, excluding net income taxes and franchise
taxes (imposed in lieu of net income taxes) imposed on Payee as a result of a
present or former connection between Payee and the jurisdiction of the
governmental authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
Payee having executed, delivered or performed its obligations or received a
payment under, or enforced, this Note). If any such non-excluded taxes, levies,
imposts, duties, charges, fees deductions or withholdings (“Non-Excluded Taxes”)
are required to be withheld from any amounts payable to Payee under this Note,
the amounts so payable to Payee shall be increased to the extent necessary to
yield to Payee (after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts specified in this
Note. Whenever any Non-Excluded Taxes are payable by the Maker, as promptly as
possible thereafter (and, in any event, within five (5) business days) the Maker
shall send to Payee for its own account a certified copy of an original official
receipt received by the Maker showing payment thereof. If the Maker fails to pay
any Non-Excluded Taxes when due to the appropriate taxing authority or fails to
remit to Payee the required receipts or other required documentary evidence, the
Maker shall indemnify, defend and hold Payee harmless for any incremental taxes,
interest or penalties that may become payable by Payee as a result of any such
failure.

 

A-1-7

--------------------------------------------------------------------------------

The agreements in this Section 7.3 shall survive the termination of this Note
and the payment of the loan and all other amounts payable hereunder.

 

7.4 Governing Law. This Note has been executed in and shall be governed by the
laws of the State of California. As part of the consideration for Payee’s
investment herein, the Maker and Payee hereby agree that all actions or
proceedings arising directly or indirectly hereunder, whether instituted by
Payee or the Maker, may, at the option of Payee, be litigated in courts having
situs within the State of California, County of Los Angeles and the Maker hereby
expressly consents to the jurisdiction of any local, state or federal court
located within said state and county, and consents that any service of process
in such action or proceeding may be made by personal service upon the Maker
wherever the Maker may be located, or by certified or registered mail directed
to the Maker at its last known address. The Maker and Payee waive trial by jury,
any objection based on forum non conveniens, and any objection to venue of any
action instituted hereunder in such County.

 

7.5 Modification. The terms of this Note may be amended, modified or waived only
by (i) the written agreement of the Maker and the Payee or (ii) the written
agreement of the Maker and the holders of a majority in aggregate principal
amount of Notes issued pursuant to the Agreement.

 

7.6 Severability. Whenever possible, each provision of this Note will be
interpreted in such manner as to be effective and valid under applicable law,
but, if any provision of this Note is held to be prohibited by or invalid under
applicable law, such provision will be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this Note.

 

7.7 Further Assurance. At any time or from time to time upon the request of
Payee, the Maker will execute and deliver such further documents and do such
other acts and things as Payee may reasonably request in order fully to
effectuate the purposes of this Note, and to provide for the payment of the
principal and interest due hereunder.

 

7.8 Successors. The Maker may not pledge, assign or transfer any of its rights
or obligations under this Note without the prior written consent of Payee. Any
purported assignment or transfer in breach of this Note shall be of no force and
effect. Subject to the transfer restrictions contained in the Agreement, Payee
may assign and participate any of its interests in this Note and this Note to
any Person. Each reference herein to powers or rights of Payee shall also be
deemed a reference to the same power or right of such assignees, to the extent
of the interest assigned to them. All the covenants, agreements, representations
and warranties contained in this Note shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns, including any Person to whom Payee has granted a participation interest
in this Note.

 

A-1-8

--------------------------------------------------------------------------------

7.9 Headings. The section headings in this Note are inserted for purposes of
convenience only and shall have no substantive effect.

 

7.10 No Strict Construction. The Maker hereby waives the benefit of any statute
or rule of law or judicial decision, including without limitation California
Civil Code § 1654, which would otherwise require that the provisions of this
Note be construed or interpreted most strongly against the party responsible for
the drafting thereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

A-1-9

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Maker has caused this Note to be signed and delivered by
its duly authorized officer and to be dated August     , 2004.

 

MAKER:

PROLONG SUPER LUBRICANTS, INC., a

Nevada corporation

By:  

 

--------------------------------------------------------------------------------

Name:   Elton Alderman Title:   President and Chief Executive Officer

 

A-1-10

--------------------------------------------------------------------------------

EXHIBIT A-2

 

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND THUS
MAY NOT BE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER THAT ACT OR SUCH
LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION OR QUALIFICATION IS AVAILABLE.

 

SECURED PROMISSORY NOTE

 

$16,250

  Due November 24, 2008            

 

FOR VALUE RECEIVED, PROLONG SUPER LUBRICANTS, INC., a Nevada corporation (the
“Maker”), promises to pay to the order of BEDFORD OAK CAPITAL, L.P., a Delaware
limited partnership (“Payee”), or its registered assigns, the sum of Sixteen
Thousand Two Hundred Fifty Dollars ($16,250) and to pay interest thereon at the
rate of eight percent (8.0%) per annum until this Secured Promissory Note (as
amended, modified or supplemented from time to time, this “Note”) is fully paid.
All principal and accrued interest under this Note shall be paid by the Maker to
Payee in a lump sum payment November 24, 2008 (the “Due Date”).

 

Any payment of principal or interest not paid within five (5) business days
after its due date shall be subject to a five percent (5%) charge on the unpaid
payment.

 

During the occurrence and continuation of an Event of Default (defined below)
the Initial Interest Rate or Second Interest Rate, as applicable, shall be
increased five percent (5%) per annum. In no event shall Payee be entitled to
interest exceeding the maximum rate permitted by law or under the applicable
regulations promulgated by the United States Small Business Administration (the
“SBA”). If any excess interest is provided for or shall be adjudicated to be so
provided for in this Note, or if any payment or other consideration under this
Note or the Agreement (as defined below) is determined by the SBA to exceed the
amount permitted under applicable regulations promulgated by the SBA, then in
such event: (i) the provisions of this paragraph shall govern and control; (ii)
the Maker shall not be obligated to pay the amount of such interest or other
payment or consideration to the extent that it is in excess of the maximum
amount permitted by law or under applicable regulations promulgated by the SBA,
and the same shall be construed as a mutual mistake of the parties; and (iii)
any such excess which may have been collected or attributed shall, at the option
of Holder, be subtracted from the then unpaid principal amount hereof, or
refunded to the Maker.

 

Both principal hereof and interest thereon are payable at such place as Payee
may from time to time designate in writing, in lawful money of the United States
of America and in immediately available funds by wire transfer. Interest
hereunder shall be computed on the basis of a year of three hundred sixty (360)
days for the actual number of days elapsed.

 

A-2-1

--------------------------------------------------------------------------------

This Note is secured by that certain Pledge and Security Agreement dated as of
November 24, 2003, by and among the Maker, Payee and Parent, as amended,
restated, amended and restated, supplemented or otherwise modified from time to
time (the “Pledge and Security Agreement”).

 

This Note is subject to the terms and conditions set forth below:

 

VIII. DEFINITIONS.

 

As used in this Note, the following terms shall mean:

 

“Agreement” shall mean that certain Securities Purchase Agreement dated as of
November 24, 2003, by and among the Maker, Payee, Parent, Prolong International
Holdings Ltd., a Cayman Islands company, Prolong International Ltd., a Cayman
Islands company, Bedford Oak Capital, L.P., a Delaware limited partnership,
Bedford Oak Offshore, Ltd., a Cayman Islands company, and Aspen Ventures LLC, a
New York limited liability company, as amended by the Amendment to Securities
Purchase Agreement dated as of the date hereof and as may be further, modified
or supplemented from time to time.

 

“Board” shall mean the board of directors of Parent.

 

“Continuing Members” shall mean a member of the Board who either (a) was a
member of the Board on the day before the Closing or (b) became a member of the
Board after the day before the Closing and whose election or nomination for
election was approved by a vote of the majority of the Continuing Members then
members of the Board.

 

“Event of Default” shall have the meaning given such term in Section 4 below.

 

“Note” shall mean this Note and any note delivered in substitution or exchange
therefor as provided herein.

 

“Note Percentage” shall mean a fraction, the numerator of which is the original
principal amount of this Note and the denominator of which is Two Hundred Fifty
Thousand Dollars ($250,000).

 

“Parent” shall mean Prolong International Corporation, a Nevada corporation.

 

“Triggering Event” shall mean any sale, transfer or issuance or series of sales
or issuances of Parent’s capital stock, or any merger, consolidation or other
transaction involving Parent where the shareholders of Parent immediately prior
to such event do not retain more than a fifty percent (50%) voting power or
interest in Parent or the successor corporation or other entity, as the case may
be, (ii) any transfer of capital stock of Maker or other transaction which
results in the Maker ceasing to be a wholly-owned subsidiary of Parent; (iii)
any sale of all or a substantial portion of the assets of Maker, (iv) after the
Closing, any Person or group of Persons (within the meaning of Section 13 or 14
of the Securities Exchange Act of 1934) other than Payee or its affiliates
(including any other Purchaser), shall acquire beneficial ownership (within the
meaning of Rule 13d-3 promulgated under such Act) of more than twenty-five
percent (25%) of the outstanding securities (on a fully diluted basis and taking
into account any securities or contract rights

 

A-2-2

--------------------------------------------------------------------------------

exercisable, exchangeable or convertible into equity securities) of Parent
having voting rights in the election of directors under normal circumstances, or
(v) a majority of the members of the Board shall cease to be Continuing Members.

 

Any capitalized terms used herein without definition shall have the meaning set
forth in the Agreement.

 

IX. PREPAYMENT OF NOTE.

 

2.1 Mandatory Prepayments. Except as set forth below, all principal and accrued
but unpaid interest on this Note shall immediately become due and payable upon
the occurrence of a Triggering Event.

 

2.2 Optional Prepayment. At any time, the Maker shall have the right to prepay
all or part of the outstanding principal amount of this Note in installments not
less than the lesser of (i) One Hundred Thousand Dollars ($100,000) and (ii) the
remaining outstanding principal balance of this Note; provided that (i) the
Maker gives not less than thirty (30) days’ prior written notice to Payee of the
Maker’s election to prepay this Note.

 

X. REPLACEMENT OF NOTE.

 

Upon receipt of evidence reasonably satisfactory to the Maker of the ownership
of and the loss, theft, destruction or mutilation of this Note and (in the case
of loss, theft or destruction) upon delivery of an indemnity agreement in an
amount reasonably satisfactory to the Maker, or (in the case of mutilation) upon
surrender and cancellation of the mutilated Note, the Maker will execute and
deliver, in lieu thereof, a new Note of like tenor.

 

XI. EVENTS OF DEFAULT.

 

The occurrence and continuation of any of the events or conditions described in
Section 4.1 or Section 4.2 shall be an “Event of Default.”

 

4.1 Payee Action. The occurrence of any of the following Events of Default
shall, at the option of Payee, entitle Payee to declare all sums of principal
and interest then remaining unpaid, and all other amounts payable hereon, due
and payable, all without demand, presentment, notice or protest, all of which
hereby are expressly waived, and permit Payee to exercise any other right
available to it under the Loan Documents or otherwise available to it at law or
in equity, all of which rights and powers may be exercised cumulatively.

 

4.1.1 Failure to Pay Principal or Interest. Failure to pay any installment of
principal when due or interest hereon within five (5) business days of the date
when due.

 

4.1.2 Breach of Covenants. The breach by any Credit Party of any covenant in the
Agreement or any other Loan Document that is not cured within thirty (30) days
after written notice thereof to the Maker.

 

A-2-3

--------------------------------------------------------------------------------

4.1.3 Breach of Representations and Warranties. The representations or
warranties of the Credit Parties made in the Loan Documents or in any statement
or certificate at any time given in writing to Payee pursuant to the Agreement
or this Note or in connection therewith or herewith, shall prove to have been
false or misleading in any material respect as of the date such representations
and warranties were made.

 

4.1.4 Judgments. The making or filing of any money judgment, writ or similar
process in excess of One Hundred Thousand Dollars ($100,000) against any Credit
Party or any of the property or other assets of any Credit Party which shall
remain unsatisfied, unvacated, unhanded or unstayed until the date that is the
earlier to occur of thirty (30) days after such judgment, writ or similar
process is entered and five (5) days prior to the date of any proposed sale
thereunder.

 

4.1.5 Default in Other Agreements. The occurrence of any event of default or
other event triggering acceleration of any indebtedness by any Credit Party
under any note, agreement or other instrument involving the issuance of
indebtedness (but not including any trade payables incurred in the ordinary
course of business), whether such indebtedness now exists or may hereafter be
created, if, as a result of such event of default or other event, the maturity
of such indebtedness has been accelerated or has otherwise become or been
declared to be due prior to its stated maturity and the principal amount of such
indebtedness which has been accelerated or has otherwise become or been declared
to be due exceeds, individually or in the aggregate, One Hundred Thousand
Dollars ($100,000).

 

4.1.6 Attachments. The levying of any writ of attachment against any property or
other assets of any Credit Party not fully covered by insurance in force valued
individually or in the aggregate at an amount equal to or greater than One
Hundred Thousand Dollars ($100,000) unless a Credit Party posts a bond or
obtains other relief for the release of such attachment within thirty (30) days.

 

4.1.7 Suspension of Business. The suspension of the usual business activities of
the Credit Parties or the winding up or liquidation of the Maker’s business.

 

4.1.8 Challenges by the Maker. The Maker shall challenge, or institute or join
in any proceedings to challenge the validity, binding effect or enforceability
of this Note or any endorsement of this Note or any other obligation to Payee
under the Loan Documents.

 

4.1.9 Certain Agreements. The Pledge and Security Agreement or the Parent
Guaranty or any provision thereof shall cease to be in full force or effect or
shall be declared to be null or void or otherwise unenforceable in whole or in
part; or Payee shall not have or shall cease to have a valid and perfected
security interest in the collateral described in the Pledge and Security
Agreement; provided that the failure of Payee to have a valid and perfected
security interest in the shares of capital stock of the Cayman Subsidiaries
shall not be deemed an Event of Default

 

A-2-4

--------------------------------------------------------------------------------

hereunder so long as the Credit Parties deliver to St. Cloud stock certificates
representing sixty-five percent (65%) of the capital stock of Cayman Sub I in
accordance with Section 7.13 of the Agreement.

 

4.1.10 Change in Management. The termination of the employment of Elton Alderman
for any reason (including, without limitation, as a result of resignation);
provided, however, that if such termination is as a result of his death or
disability and Parent hires a replacement reasonably acceptable to Payee within
six months thereafter, then such termination shall not be deemed an Event of
Default hereunder.

 

4.1.11 Other. The failure of the Maker to perform or observe any other material
term, covenant or agreement to be performed or observed by it pursuant to this
Note and the continuance thereof for a period of thirty (30) days after written
notice thereof to the Maker.

 

4.2 Acceleration Without Specific Action. The occurrence of any of the following
Events of Default shall make all sums of principal and interest then remaining
unpaid and all other amounts payable hereon due and payable, all without demand,
presentment, notice or protest, all of which hereby are expressly waived, and
permit Payee to exercise any other right available to it at law or in equity,
all of which rights and powers may be exercised cumulatively.

 

4.2.1 Bankruptcy. The voluntary institution of bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors by any Credit Party; or
the institution of any such proceedings against any Credit Party, which
involuntary proceedings shall not have been vacated by appropriate court order
within sixty (60) days of such institution.

 

4.2.2 Dissolution. Any order, judgment or decree shall have been entered against
any Credit Party decreeing the dissolution or liquidation of such Credit Party
and such order shall remain undischarged or unstayed for a period of thirty (30)
days.

 

4.2.4 Insolvency, Receiver or Trustee. The making by any Credit Party of an
assignment for the benefit of creditors; or the making by any Credit Party of an
offer of settlement, composition or extension to the claims of all or
substantially all of a Credit Party’s creditors or the application for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or the appointment otherwise of such a
receiver or trustee or a committee of the Maker’s creditors.

 

XII. TRANSFER OF SECURITIES.

 

Subject to the restrictions on transfer contained in the Agreement, this Note
and all rights hereunder are transferable in whole or in part on the books of
the Maker maintained for such purpose at its principal office referred to above
by Payee in person or by a duly authorized

 

A-2-5

--------------------------------------------------------------------------------

attorney, upon surrender of this Note properly endorsed and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer.
Each taker and holder of this Note, by taking or holding the same, consents and
agrees that this Note when endorsed in blank shall be deemed negotiable and
agrees that when this Note shall have been so endorsed, Payee hereof may be
treated by the Maker and all other persons dealing with this Note, as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented hereby, or to the transfer hereof on the books of the Maker,
any notice to the contrary notwithstanding; but until such transfer on such
books, the Maker may treat Payee hereof as the owner for all purposes.

 

XIII. METHODS; ADDRESSES.

 

Any notice, demand or other communication required or permitted under the terms
of this Note shall be in writing and shall be made by telegram, telex or
electronic transmitter (including, without limitation, facsimile) or certified
or registered mail, return receipt requested, and shall be deemed to be received
by the addressee on the date delivery is confirmed, if sent by Fed Ex, Express
Mail, or other similar overnight delivery service, the date of electronic
confirmation of receipt, if sent by telegram, telex, telecopy or electronic
transmitter, and three (3) business days after mailing, if sent by certified or
registered mail, with postage prepaid, and properly addressed. Notices shall be
addressed as provided below:

 

(a)

  If to Payee:   St. Cloud Capital Partners, LP        
10866 Wilshire Blvd., Suite 1450         Los Angeles, California 90024        
Facsimile: (310) 475-0550         Attention: Robert Lautz    

With copy to:

  Latham & Watkins LLP         633 West Fifth Street, Suite 4000         Los
Angeles, California 90071         Facsimile: (213) 891-8763         Attention:
W. Alex Voxman, Esq.

(b)

  If to the Maker:   Prolong Super Lubricants, Inc.         6 Thomas        
Irvine, California 92618         Facsimile: (949) 587-2707         Attention:
Chief Executive Officer    

With a copy to:

  Stradling Yocca Carlson & Rauth         660 Newport Center Drive, Suite 1600  
      Newport Beach, California 92660         Facsimile: (949) 725-4100        
Attention: Michael E. Flynn, Esq.

 

A-2-6

--------------------------------------------------------------------------------

Any party may change its address for this purpose by giving a written notice
thereof as herein provided.

 

XIV. MISCELLANEOUS.

 

7.1 Survival of Covenants. All agreements and covenants made herein shall
survive the execution and delivery hereof.

 

7.2 Failure or Indulgence Not Waiver. No failure or delay on the part of Payee
or any other holder of this Note to exercise any right, power or privilege under
this Note and no course of dealing between the Maker and Payee shall impair such
right, power or privilege or operate as a waiver of any default or an
acquiescence therein, nor shall any single or partial exercise of any such
right, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
expressly provided in this Note are cumulative to, and not exclusive of, any
rights or remedies that Payee would otherwise have. No notice to or demand on
the Maker in any case shall entitle the Maker to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the right of
Payee to any other or further action in any circumstances without notice or
demand.

 

7.3 Cost of Collection. The Maker agrees to indemnify Payee against any losses,
claims, damages and liabilities and related expenses, including counsel fees and
expenses, incurred by Payee in connection with the collection and enforcement of
this Note (including, without limitation, in connection with any bankruptcy,
insolvency, reorganization or workout). In addition, the Maker agrees to pay,
and to save Payee harmless from all liability for, any stamp or other
documentary taxes which may be payable in connection with the Maker’s execution
or delivery of this Note.

 

All payments made by the Maker under this Note shall be made free and clear of,
and without deduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions
or withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any governmental authority, excluding net income taxes and franchise
taxes (imposed in lieu of net income taxes) imposed on Payee as a result of a
present or former connection between Payee and the jurisdiction of the
governmental authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
Payee having executed, delivered or performed its obligations or received a
payment under, or enforced, this Note). If any such non-excluded taxes, levies,
imposts, duties, charges, fees deductions or withholdings (“Non-Excluded Taxes”)
are required to be withheld from any amounts payable to Payee under this Note,
the amounts so payable to Payee shall be increased to the extent necessary to
yield to Payee (after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts specified in this
Note. Whenever any Non-Excluded Taxes are payable by the Maker, as promptly as
possible thereafter (and, in any event, within five (5) business days) the Maker
shall send to Payee for its own account a certified copy of an original official
receipt received by the Maker showing payment thereof. If the Maker fails to pay
any Non-Excluded Taxes when due to the appropriate taxing authority or fails to
remit to Payee the required receipts or other required documentary evidence, the
Maker shall indemnify, defend and hold Payee harmless for any incremental taxes,
interest or penalties that may become payable by Payee as a result of any such
failure.

 

A-2-7

--------------------------------------------------------------------------------

The agreements in this Section 7.3 shall survive the termination of this Note
and the payment of the loan and all other amounts payable hereunder.

 

7.4 Governing Law. This Note has been executed in and shall be governed by the
laws of the State of California. As part of the consideration for Payee’s
investment herein, the Maker and Payee hereby agree that all actions or
proceedings arising directly or indirectly hereunder, whether instituted by
Payee or the Maker, may, at the option of Payee, be litigated in courts having
situs within the State of California, County of Los Angeles and the Maker hereby
expressly consents to the jurisdiction of any local, state or federal court
located within said state and county, and consents that any service of process
in such action or proceeding may be made by personal service upon the Maker
wherever the Maker may be located, or by certified or registered mail directed
to the Maker at its last known address. The Maker and Payee waive trial by jury,
any objection based on forum non conveniens, and any objection to venue of any
action instituted hereunder in such County.

 

7.5 Modification. The terms of this Note may be amended, modified or waived only
by (i) the written agreement of the Maker and the Payee or (ii) the written
agreement of the Maker and the holders of a majority in aggregate principal
amount of Notes issued pursuant to the Agreement.

 

7.6 Severability. Whenever possible, each provision of this Note will be
interpreted in such manner as to be effective and valid under applicable law,
but, if any provision of this Note is held to be prohibited by or invalid under
applicable law, such provision will be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this Note.

 

7.7 Further Assurance. At any time or from time to time upon the request of
Payee, the Maker will execute and deliver such further documents and do such
other acts and things as Payee may reasonably request in order fully to
effectuate the purposes of this Note, and to provide for the payment of the
principal and interest due hereunder.

 

7.8 Successors. The Maker may not pledge, assign or transfer any of its rights
or obligations under this Note without the prior written consent of Payee. Any
purported assignment or transfer in breach of this Note shall be of no force and
effect. Subject to the transfer restrictions contained in the Agreement, Payee
may assign and participate any of its interests in this Note and this Note to
any Person. Each reference herein to powers or rights of Payee shall also be
deemed a reference to the same power or right of such assignees, to the extent
of the interest assigned to them. All the covenants, agreements, representations
and warranties contained in this Note shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns, including any Person to whom Payee has granted a participation interest
in this Note.

 

A-2-8

--------------------------------------------------------------------------------

7.9 Headings. The section headings in this Note are inserted for purposes of
convenience only and shall have no substantive effect.

 

7.10 No Strict Construction. The Maker hereby waives the benefit of any statute
or rule of law or judicial decision, including without limitation California
Civil Code § 1654, which would otherwise require that the provisions of this
Note be construed or interpreted most strongly against the party responsible for
the drafting thereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

A-2-9

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Maker has caused this Note to be signed and delivered by
its duly authorized officer and to be dated August     , 2004.

 

MAKER:

PROLONG SUPER LUBRICANTS, INC., a

Nevada corporation

By:

 

 

--------------------------------------------------------------------------------

Name:

 

Elton Alderman

Title:

 

President and Chief Executive Officer

 

A-2-10

--------------------------------------------------------------------------------

EXHIBIT A-3

 

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND THUS
MAY NOT BE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER THAT ACT OR SUCH
LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION OR QUALIFICATION IS AVAILABLE.

 

SECURED PROMISSORY NOTE

 

$16,250

   Due November 24, 2008

 

FOR VALUE RECEIVED, PROLONG SUPER LUBRICANTS, INC., a Nevada corporation (the
“Maker”), promises to pay to the order of BEDFORD OAK OFFSHORE, LTD, a Cayman
Islands Company (“Payee”), or its registered assigns, the sum of Sixteen
Thousand Two Hundred Fifty Dollars ($16,250) and to pay interest thereon at the
rate of eight percent (8.0%) per annum until this Secured Promissory Note (as
amended, modified or supplemented from time to time, this “Note”) is fully paid.
All principal and accrued interest under this Note shall be paid by the Maker to
Payee in a lump sum payment November 24, 2008 (the “Due Date”).

 

Any payment of principal or interest not paid within five (5) business days
after its due date shall be subject to a five percent (5%) charge on the unpaid
payment.

 

During the occurrence and continuation of an Event of Default (defined below)
the Initial Interest Rate or Second Interest Rate, as applicable, shall be
increased five percent (5%) per annum. In no event shall Payee be entitled to
interest exceeding the maximum rate permitted by law or under the applicable
regulations promulgated by the United States Small Business Administration (the
“SBA”). If any excess interest is provided for or shall be adjudicated to be so
provided for in this Note, or if any payment or other consideration under this
Note or the Agreement (as defined below) is determined by the SBA to exceed the
amount permitted under applicable regulations promulgated by the SBA, then in
such event: (i) the provisions of this paragraph shall govern and control; (ii)
the Maker shall not be obligated to pay the amount of such interest or other
payment or consideration to the extent that it is in excess of the maximum
amount permitted by law or under applicable regulations promulgated by the SBA,
and the same shall be construed as a mutual mistake of the parties; and (iii)
any such excess which may have been collected or attributed shall, at the option
of Holder, be subtracted from the then unpaid principal amount hereof, or
refunded to the Maker.

 

Both principal hereof and interest thereon are payable at such place as Payee
may from time to time designate in writing, in lawful money of the United States
of America and in immediately available funds by wire transfer. Interest
hereunder shall be computed on the basis of a year of three hundred sixty (360)
days for the actual number of days elapsed.

 

A-3-1

--------------------------------------------------------------------------------

This Note is secured by that certain Pledge and Security Agreement dated as of
November 24, 2003, by and among the Maker, Payee and Parent, as amended,
restated, amended and restated, supplemented or otherwise modified from time to
time (the “Pledge and Security Agreement”).

 

This Note is subject to the terms and conditions set forth below:

 

XV. DEFINITIONS.

 

As used in this Note, the following terms shall mean:

 

“Agreement” shall mean that certain Securities Purchase Agreement dated as of
November 24, 2003, by and among the Maker, Payee, Parent, Prolong International
Holdings Ltd., a Cayman Islands company, Prolong International Ltd., a Cayman
Islands company, Bedford Oak Capital, L.P., a Delaware limited partnership,
Bedford Oak Offshore, Ltd., a Cayman Islands company, and Aspen Ventures LLC, a
New York limited liability company, as amended by the Amendment to Securities
Purchase Agreement dated as of the date hereof and as may be further, modified
or supplemented from time to time.

 

“Board” shall mean the board of directors of Parent.

 

“Continuing Members” shall mean a member of the Board who either (a) was a
member of the Board on the day before the Closing or (b) became a member of the
Board after the day before the Closing and whose election or nomination for
election was approved by a vote of the majority of the Continuing Members then
members of the Board.

 

“Event of Default” shall have the meaning given such term in Section 4 below.

 

“Note” shall mean this Note and any note delivered in substitution or exchange
therefor as provided herein.

 

“Note Percentage” shall mean a fraction, the numerator of which is the original
principal amount of this Note and the denominator of which is Two Hundred Fifty
Thousand Dollars ($250,000).

 

“Parent” shall mean Prolong International Corporation, a Nevada corporation.

 

“Triggering Event” shall mean any sale, transfer or issuance or series of sales
or issuances of Parent’s capital stock, or any merger, consolidation or other
transaction involving Parent where the shareholders of Parent immediately prior
to such event do not retain more than a fifty percent (50%) voting power or
interest in Parent or the successor corporation or other entity, as the case may
be, (ii) any transfer of capital stock of Maker or other transaction which
results in the Maker ceasing to be a wholly-owned subsidiary of Parent; (iii)
any sale of all or a substantial portion of the assets of Maker, (iv) after the
Closing, any Person or group of Persons (within the meaning of Section 13 or 14
of the Securities Exchange Act of 1934) other than Payee or its affiliates
(including any other Purchaser), shall acquire beneficial ownership (within the
meaning of Rule 13d-3 promulgated under such Act) of more than twenty-five
percent (25%) of the outstanding securities (on a fully diluted basis and taking
into account any securities or contract rights

 

A-3-2

--------------------------------------------------------------------------------

exercisable, exchangeable or convertible into equity securities) of Parent
having voting rights in the election of directors under normal circumstances, or
(v) a majority of the members of the Board shall cease to be Continuing Members.

 

Any capitalized terms used herein without definition shall have the meaning set
forth in the Agreement.

 

XVI. PREPAYMENT OF NOTE.

 

2.1 Mandatory Prepayments. Except as set forth below, all principal and accrued
but unpaid interest on this Note shall immediately become due and payable upon
the occurrence of a Triggering Event.

 

2.2 Optional Prepayment. At any time, the Maker shall have the right to prepay
all or part of the outstanding principal amount of this Note in installments not
less than the lesser of (i) One Hundred Thousand Dollars ($100,000) and (ii) the
remaining outstanding principal balance of this Note; provided that (i) the
Maker gives not less than thirty (30) days’ prior written notice to Payee of the
Maker’s election to prepay this Note.

 

XVII. REPLACEMENT OF NOTE.

 

Upon receipt of evidence reasonably satisfactory to the Maker of the ownership
of and the loss, theft, destruction or mutilation of this Note and (in the case
of loss, theft or destruction) upon delivery of an indemnity agreement in an
amount reasonably satisfactory to the Maker, or (in the case of mutilation) upon
surrender and cancellation of the mutilated Note, the Maker will execute and
deliver, in lieu thereof, a new Note of like tenor.

 

XVIII. EVENTS OF DEFAULT.

 

The occurrence and continuation of any of the events or conditions described in
Section 4.1 or Section 4.2 shall be an “Event of Default.”

 

4.1 Payee Action. The occurrence of any of the following Events of Default
shall, at the option of Payee, entitle Payee to declare all sums of principal
and interest then remaining unpaid, and all other amounts payable hereon, due
and payable, all without demand, presentment, notice or protest, all of which
hereby are expressly waived, and permit Payee to exercise any other right
available to it under the Loan Documents or otherwise available to it at law or
in equity, all of which rights and powers may be exercised cumulatively.

 

4.1.1 Failure to Pay Principal or Interest. Failure to pay any installment of
principal when due or interest hereon within five (5) business days of the date
when due.

 

4.1.2 Breach of Covenants. The breach by any Credit Party of any covenant in the
Agreement or any other Loan Document that is not cured within thirty (30) days
after written notice thereof to the Maker.

 

A-3-3

--------------------------------------------------------------------------------

4.1.3 Breach of Representations and Warranties. The representations or
warranties of the Credit Parties made in the Loan Documents or in any statement
or certificate at any time given in writing to Payee pursuant to the Agreement
or this Note or in connection therewith or herewith, shall prove to have been
false or misleading in any material respect as of the date such representations
and warranties were made.

 

4.1.4 Judgments. The making or filing of any money judgment, writ or similar
process in excess of One Hundred Thousand Dollars ($100,000) against any Credit
Party or any of the property or other assets of any Credit Party which shall
remain unsatisfied, unvacated, unhanded or unstayed until the date that is the
earlier to occur of thirty (30) days after such judgment, writ or similar
process is entered and five (5) days prior to the date of any proposed sale
thereunder.

 

4.1.5 Default in Other Agreements. The occurrence of any event of default or
other event triggering acceleration of any indebtedness by any Credit Party
under any note, agreement or other instrument involving the issuance of
indebtedness (but not including any trade payables incurred in the ordinary
course of business), whether such indebtedness now exists or may hereafter be
created, if, as a result of such event of default or other event, the maturity
of such indebtedness has been accelerated or has otherwise become or been
declared to be due prior to its stated maturity and the principal amount of such
indebtedness which has been accelerated or has otherwise become or been declared
to be due exceeds, individually or in the aggregate, One Hundred Thousand
Dollars ($100,000).

 

4.1.6 Attachments. The levying of any writ of attachment against any property or
other assets of any Credit Party not fully covered by insurance in force valued
individually or in the aggregate at an amount equal to or greater than One
Hundred Thousand Dollars ($100,000) unless a Credit Party posts a bond or
obtains other relief for the release of such attachment within thirty (30) days.

 

4.1.7 Suspension of Business. The suspension of the usual business activities of
the Credit Parties or the winding up or liquidation of the Maker’s business.

 

4.1.8 Challenges by the Maker. The Maker shall challenge, or institute or join
in any proceedings to challenge the validity, binding effect or enforceability
of this Note or any endorsement of this Note or any other obligation to Payee
under the Loan Documents.

 

4.1.9 Certain Agreements. The Pledge and Security Agreement or the Parent
Guaranty or any provision thereof shall cease to be in full force or effect or
shall be declared to be null or void or otherwise unenforceable in whole or in
part; or Payee shall not have or shall cease to have a valid and perfected
security interest in the collateral described in the Pledge and Security
Agreement; provided that the failure of Payee to have a valid and perfected
security interest in the shares of capital stock of the Cayman Subsidiaries
shall not be deemed an Event of Default

 

A-3-4

--------------------------------------------------------------------------------

hereunder so long as the Credit Parties deliver to St. Cloud stock certificates
representing sixty-five percent (65%) of the capital stock of Cayman Sub I in
accordance with Section 7.13 of the Agreement.

 

4.1.10 Change in Management. The termination of the employment of Elton Alderman
for any reason (including, without limitation, as a result of resignation);
provided, however, that if such termination is as a result of his death or
disability and Parent hires a replacement reasonably acceptable to Payee within
six months thereafter, then such termination shall not be deemed an Event of
Default hereunder.

 

4.1.11 Other. The failure of the Maker to perform or observe any other material
term, covenant or agreement to be performed or observed by it pursuant to this
Note and the continuance thereof for a period of thirty (30) days after written
notice thereof to the Maker.

 

4.2 Acceleration Without Specific Action. The occurrence of any of the following
Events of Default shall make all sums of principal and interest then remaining
unpaid and all other amounts payable hereon due and payable, all without demand,
presentment, notice or protest, all of which hereby are expressly waived, and
permit Payee to exercise any other right available to it at law or in equity,
all of which rights and powers may be exercised cumulatively.

 

4.2.1 Bankruptcy. The voluntary institution of bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors by any Credit Party; or
the institution of any such proceedings against any Credit Party, which
involuntary proceedings shall not have been vacated by appropriate court order
within sixty (60) days of such institution.

 

4.2.2 Dissolution. Any order, judgment or decree shall have been entered against
any Credit Party decreeing the dissolution or liquidation of such Credit Party
and such order shall remain undischarged or unstayed for a period of thirty (30)
days.

 

4.2.5 Insolvency, Receiver or Trustee. The making by any Credit Party of an
assignment for the benefit of creditors; or the making by any Credit Party of an
offer of settlement, composition or extension to the claims of all or
substantially all of a Credit Party’s creditors or the application for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or the appointment otherwise of such a
receiver or trustee or a committee of the Maker’s creditors.

 

XIX. TRANSFER OF SECURITIES.

 

Subject to the restrictions on transfer contained in the Agreement, this Note
and all rights hereunder are transferable in whole or in part on the books of
the Maker maintained for such purpose at its principal office referred to above
by Payee in person or by a duly authorized

 

A-3-5

--------------------------------------------------------------------------------

attorney, upon surrender of this Note properly endorsed and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer.
Each taker and holder of this Note, by taking or holding the same, consents and
agrees that this Note when endorsed in blank shall be deemed negotiable and
agrees that when this Note shall have been so endorsed, Payee hereof may be
treated by the Maker and all other persons dealing with this Note, as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented hereby, or to the transfer hereof on the books of the Maker,
any notice to the contrary notwithstanding; but until such transfer on such
books, the Maker may treat Payee hereof as the owner for all purposes.

 

XX. METHODS; ADDRESSES.

 

Any notice, demand or other communication required or permitted under the terms
of this Note shall be in writing and shall be made by telegram, telex or
electronic transmitter (including, without limitation, facsimile) or certified
or registered mail, return receipt requested, and shall be deemed to be received
by the addressee on the date delivery is confirmed, if sent by Fed Ex, Express
Mail, or other similar overnight delivery service, the date of electronic
confirmation of receipt, if sent by telegram, telex, telecopy or electronic
transmitter, and three (3) business days after mailing, if sent by certified or
registered mail, with postage prepaid, and properly addressed. Notices shall be
addressed as provided below:

 

(a)

 

If to Payee:

 

St. Cloud Capital Partners, LP

       

10866 Wilshire Blvd., Suite 1450

       

Los Angeles, California 90024

       

Facsimile: (310) 475-0550

       

Attention: Robert Lautz

   

With copy to:

 

Latham & Watkins LLP

       

633 West Fifth Street, Suite 4000

       

Los Angeles, California 90071

       

Facsimile: (213) 891-8763

       

Attention: W. Alex Voxman, Esq.

(b)

 

If to the Maker:

 

Prolong Super Lubricants, Inc.

       

6 Thomas

       

Irvine, California 92618

       

Facsimile: (949) 587-2707

       

Attention: Chief Executive Officer

   

With a copy to:

 

Stradling Yocca Carlson & Rauth

       

660 Newport Center Drive, Suite 1600

       

Newport Beach, California 92660

       

Facsimile: (949) 725-4100

       

Attention: Michael E. Flynn, Esq.

 

A-3-6

--------------------------------------------------------------------------------

Any party may change its address for this purpose by giving a written notice
thereof as herein provided.

 

XXI. MISCELLANEOUS.

 

7.1 Survival of Covenants. All agreements and covenants made herein shall
survive the execution and delivery hereof.

 

7.2 Failure or Indulgence Not Waiver. No failure or delay on the part of Payee
or any other holder of this Note to exercise any right, power or privilege under
this Note and no course of dealing between the Maker and Payee shall impair such
right, power or privilege or operate as a waiver of any default or an
acquiescence therein, nor shall any single or partial exercise of any such
right, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
expressly provided in this Note are cumulative to, and not exclusive of, any
rights or remedies that Payee would otherwise have. No notice to or demand on
the Maker in any case shall entitle the Maker to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the right of
Payee to any other or further action in any circumstances without notice or
demand.

 

7.3 Cost of Collection. The Maker agrees to indemnify Payee against any losses,
claims, damages and liabilities and related expenses, including counsel fees and
expenses, incurred by Payee in connection with the collection and enforcement of
this Note (including, without limitation, in connection with any bankruptcy,
insolvency, reorganization or workout). In addition, the Maker agrees to pay,
and to save Payee harmless from all liability for, any stamp or other
documentary taxes which may be payable in connection with the Maker’s execution
or delivery of this Note.

 

All payments made by the Maker under this Note shall be made free and clear of,
and without deduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions
or withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any governmental authority, excluding net income taxes and franchise
taxes (imposed in lieu of net income taxes) imposed on Payee as a result of a
present or former connection between Payee and the jurisdiction of the
governmental authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
Payee having executed, delivered or performed its obligations or received a
payment under, or enforced, this Note). If any such non-excluded taxes, levies,
imposts, duties, charges, fees deductions or withholdings (“Non-Excluded Taxes”)
are required to be withheld from any amounts payable to Payee under this Note,
the amounts so payable to Payee shall be increased to the extent necessary to
yield to Payee (after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts specified in this
Note. Whenever any Non-Excluded Taxes are payable by the Maker, as promptly as
possible thereafter (and, in any event, within five (5) business days) the Maker
shall send to Payee for its own account a certified copy of an original official
receipt received by the Maker showing payment thereof. If the Maker fails to pay
any Non-Excluded Taxes when due to the appropriate taxing authority or fails to
remit to Payee the required receipts or other required documentary evidence, the
Maker shall indemnify, defend and hold Payee harmless for any incremental taxes,
interest or penalties that may become payable by Payee as a result of any such
failure.

 

A-3-7

--------------------------------------------------------------------------------

The agreements in this Section 7.3 shall survive the termination of this Note
and the payment of the loan and all other amounts payable hereunder.

 

7.4 Governing Law. This Note has been executed in and shall be governed by the
laws of the State of California. As part of the consideration for Payee’s
investment herein, the Maker and Payee hereby agree that all actions or
proceedings arising directly or indirectly hereunder, whether instituted by
Payee or the Maker, may, at the option of Payee, be litigated in courts having
situs within the State of California, County of Los Angeles and the Maker hereby
expressly consents to the jurisdiction of any local, state or federal court
located within said state and county, and consents that any service of process
in such action or proceeding may be made by personal service upon the Maker
wherever the Maker may be located, or by certified or registered mail directed
to the Maker at its last known address. The Maker and Payee waive trial by jury,
any objection based on forum non conveniens, and any objection to venue of any
action instituted hereunder in such County.

 

7.5 Modification. The terms of this Note may be amended, modified or waived only
by (i) the written agreement of the Maker and the Payee or (ii) the written
agreement of the Maker and the holders of a majority in aggregate principal
amount of Notes issued pursuant to the Agreement.

 

7.6 Severability. Whenever possible, each provision of this Note will be
interpreted in such manner as to be effective and valid under applicable law,
but, if any provision of this Note is held to be prohibited by or invalid under
applicable law, such provision will be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this Note.

 

7.7 Further Assurance. At any time or from time to time upon the request of
Payee, the Maker will execute and deliver such further documents and do such
other acts and things as Payee may reasonably request in order fully to
effectuate the purposes of this Note, and to provide for the payment of the
principal and interest due hereunder.

 

7.8 Successors. The Maker may not pledge, assign or transfer any of its rights
or obligations under this Note without the prior written consent of Payee. Any
purported assignment or transfer in breach of this Note shall be of no force and
effect. Subject to the transfer restrictions contained in the Agreement, Payee
may assign and participate any of its interests in this Note and this Note to
any Person. Each reference herein to powers or rights of Payee shall also be
deemed a reference to the same power or right of such assignees, to the extent
of the interest assigned to them. All the covenants, agreements, representations
and warranties contained in this Note shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns, including any Person to whom Payee has granted a participation interest
in this Note.

 

A-3-8

--------------------------------------------------------------------------------

7.9 Headings. The section headings in this Note are inserted for purposes of
convenience only and shall have no substantive effect.

 

7.10 No Strict Construction. The Maker hereby waives the benefit of any statute
or rule of law or judicial decision, including without limitation California
Civil Code § 1654, which would otherwise require that the provisions of this
Note be construed or interpreted most strongly against the party responsible for
the drafting thereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

A-3-9

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Maker has caused this Note to be signed and delivered by
its duly authorized officer and to be dated August     , 2004.

 

MAKER:

PROLONG SUPER LUBRICANTS, INC., a

Nevada corporation

By:  

 

--------------------------------------------------------------------------------

Name:   Elton Alderman Title:   President and Chief Executive Officer

 

A-3-10

--------------------------------------------------------------------------------

EXHIBIT A-4

 

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND THUS
MAY NOT BE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER THAT ACT OR SUCH
LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION OR QUALIFICATION IS AVAILABLE.

 

SECURED PROMISSORY NOTE

 

 

$12,500

  Due November 24, 2008            

 

FOR VALUE RECEIVED, PROLONG SUPER LUBRICANTS, INC., a Nevada corporation (the
“Maker”), promises to pay to the order of ASPEN VENTURES, LLC, a New York
limited liability company (“Payee”), or its registered assigns, the sum of
Twelve Thousand Five Hundred Dollars ($12,500) and to pay interest thereon at
the rate of eight percent (8.0%) per annum until this Secured Promissory Note
(as amended, modified or supplemented from time to time, this “Note”) is fully
paid. All principal and accrued interest under this Note shall be paid by the
Maker to Payee in a lump sum payment November 24, 2008 (the “Due Date”).

 

Any payment of principal or interest not paid within five (5) business days
after its due date shall be subject to a five percent (5%) charge on the unpaid
payment.

 

During the occurrence and continuation of an Event of Default (defined below)
the Initial Interest Rate or Second Interest Rate, as applicable, shall be
increased five percent (5%) per annum. In no event shall Payee be entitled to
interest exceeding the maximum rate permitted by law or under the applicable
regulations promulgated by the United States Small Business Administration (the
“SBA”). If any excess interest is provided for or shall be adjudicated to be so
provided for in this Note, or if any payment or other consideration under this
Note or the Agreement (as defined below) is determined by the SBA to exceed the
amount permitted under applicable regulations promulgated by the SBA, then in
such event: (i) the provisions of this paragraph shall govern and control; (ii)
the Maker shall not be obligated to pay the amount of such interest or other
payment or consideration to the extent that it is in excess of the maximum
amount permitted by law or under applicable regulations promulgated by the SBA,
and the same shall be construed as a mutual mistake of the parties; and (iii)
any such excess which may have been collected or attributed shall, at the option
of Holder, be subtracted from the then unpaid principal amount hereof, or
refunded to the Maker.

 

Both principal hereof and interest thereon are payable at such place as Payee
may from time to time designate in writing, in lawful money of the United States
of America and in immediately available funds by wire transfer. Interest
hereunder shall be computed on the basis of a year of three hundred sixty (360)
days for the actual number of days elapsed.

 

A-4-1

--------------------------------------------------------------------------------

This Note is secured by that certain Pledge and Security Agreement dated as of
November 24, 2003, by and among the Maker, Payee and Parent, as amended,
restated, amended and restated, supplemented or otherwise modified from time to
time (the “Pledge and Security Agreement”).

 

This Note is subject to the terms and conditions set forth below:

 

XXII. DEFINITIONS.

 

As used in this Note, the following terms shall mean:

 

“Agreement” shall mean that certain Securities Purchase Agreement dated as of
November 24, 2003, by and among the Maker, Payee, Parent, Prolong International
Holdings Ltd., a Cayman Islands company, Prolong International Ltd., a Cayman
Islands company, Bedford Oak Capital, L.P., a Delaware limited partnership,
Bedford Oak Offshore, Ltd., a Cayman Islands company, and Aspen Ventures LLC, a
New York limited liability company, as amended by the Amendment to Securities
Purchase Agreement dated as of the date hereof and as may be further, modified
or supplemented from time to time.

 

“Board” shall mean the board of directors of Parent.

 

“Continuing Members” shall mean a member of the Board who either (a) was a
member of the Board on the day before the Closing or (b) became a member of the
Board after the day before the Closing and whose election or nomination for
election was approved by a vote of the majority of the Continuing Members then
members of the Board.

 

“Event of Default” shall have the meaning given such term in Section 4 below.

 

“Note” shall mean this Note and any note delivered in substitution or exchange
therefor as provided herein.

 

“Note Percentage” shall mean a fraction, the numerator of which is the original
principal amount of this Note and the denominator of which is Two Hundred Fifty
Thousand Dollars ($250,000).

 

“Parent” shall mean Prolong International Corporation, a Nevada corporation.

 

“Triggering Event” shall mean any sale, transfer or issuance or series of sales
or issuances of Parent’s capital stock, or any merger, consolidation or other
transaction involving Parent where the shareholders of Parent immediately prior
to such event do not retain more than a fifty percent (50%) voting power or
interest in Parent or the successor corporation or other entity, as the case may
be, (ii) any transfer of capital stock of Maker or other transaction which
results in the Maker ceasing to be a wholly-owned subsidiary of Parent; (iii)
any sale of all or a substantial portion of the assets of Maker, (iv) after the
Closing, any Person or group of Persons (within the meaning of Section 13 or 14
of the Securities Exchange Act of 1934) other than Payee or its affiliates
(including any other Purchaser), shall acquire beneficial ownership (within the
meaning of Rule 13d-3 promulgated under such Act) of more than twenty-five
percent (25%) of the outstanding securities (on a fully diluted basis and taking
into account any securities or contract rights

 

A-4-2

--------------------------------------------------------------------------------

exercisable, exchangeable or convertible into equity securities) of Parent
having voting rights in the election of directors under normal circumstances, or
(v) a majority of the members of the Board shall cease to be Continuing Members.

 

Any capitalized terms used herein without definition shall have the meaning set
forth in the Agreement.

 

XXIII. PREPAYMENT OF NOTE.

 

2.1 Mandatory Prepayments. Except as set forth below, all principal and accrued
but unpaid interest on this Note shall immediately become due and payable upon
the occurrence of a Triggering Event.

 

2.2 Optional Prepayment. At any time, the Maker shall have the right to prepay
all or part of the outstanding principal amount of this Note in installments not
less than the lesser of (i) One Hundred Thousand Dollars ($100,000) and (ii) the
remaining outstanding principal balance of this Note; provided that (i) the
Maker gives not less than thirty (30) days’ prior written notice to Payee of the
Maker’s election to prepay this Note.

 

XXIV. REPLACEMENT OF NOTE.

 

Upon receipt of evidence reasonably satisfactory to the Maker of the ownership
of and the loss, theft, destruction or mutilation of this Note and (in the case
of loss, theft or destruction) upon delivery of an indemnity agreement in an
amount reasonably satisfactory to the Maker, or (in the case of mutilation) upon
surrender and cancellation of the mutilated Note, the Maker will execute and
deliver, in lieu thereof, a new Note of like tenor.

 

XXV. EVENTS OF DEFAULT.

 

The occurrence and continuation of any of the events or conditions described in
Section 4.1 or Section 4.2 shall be an “Event of Default.”

 

4.1 Payee Action. The occurrence of any of the following Events of Default
shall, at the option of Payee, entitle Payee to declare all sums of principal
and interest then remaining unpaid, and all other amounts payable hereon, due
and payable, all without demand, presentment, notice or protest, all of which
hereby are expressly waived, and permit Payee to exercise any other right
available to it under the Loan Documents or otherwise available to it at law or
in equity, all of which rights and powers may be exercised cumulatively.

 

4.1.1 Failure to Pay Principal or Interest. Failure to pay any installment of
principal when due or interest hereon within five (5) business days of the date
when due.

 

4.1.2 Breach of Covenants. The breach by any Credit Party of any covenant in the
Agreement or any other Loan Document that is not cured within thirty (30) days
after written notice thereof to the Maker.

 

A-4-3

--------------------------------------------------------------------------------

4.1.3 Breach of Representations and Warranties. The representations or
warranties of the Credit Parties made in the Loan Documents or in any statement
or certificate at any time given in writing to Payee pursuant to the Agreement
or this Note or in connection therewith or herewith, shall prove to have been
false or misleading in any material respect as of the date such representations
and warranties were made.

 

4.1.4 Judgments. The making or filing of any money judgment, writ or similar
process in excess of One Hundred Thousand Dollars ($100,000) against any Credit
Party or any of the property or other assets of any Credit Party which shall
remain unsatisfied, unvacated, unhanded or unstayed until the date that is the
earlier to occur of thirty (30) days after such judgment, writ or similar
process is entered and five (5) days prior to the date of any proposed sale
thereunder.

 

4.1.5 Default in Other Agreements. The occurrence of any event of default or
other event triggering acceleration of any indebtedness by any Credit Party
under any note, agreement or other instrument involving the issuance of
indebtedness (but not including any trade payables incurred in the ordinary
course of business), whether such indebtedness now exists or may hereafter be
created, if, as a result of such event of default or other event, the maturity
of such indebtedness has been accelerated or has otherwise become or been
declared to be due prior to its stated maturity and the principal amount of such
indebtedness which has been accelerated or has otherwise become or been declared
to be due exceeds, individually or in the aggregate, One Hundred Thousand
Dollars ($100,000).

 

4.1.6 Attachments. The levying of any writ of attachment against any property or
other assets of any Credit Party not fully covered by insurance in force valued
individually or in the aggregate at an amount equal to or greater than One
Hundred Thousand Dollars ($100,000) unless a Credit Party posts a bond or
obtains other relief for the release of such attachment within thirty (30) days.

 

4.1.7 Suspension of Business. The suspension of the usual business activities of
the Credit Parties or the winding up or liquidation of the Maker’s business.

 

4.1.8 Challenges by the Maker. The Maker shall challenge, or institute or join
in any proceedings to challenge the validity, binding effect or enforceability
of this Note or any endorsement of this Note or any other obligation to Payee
under the Loan Documents.

 

4.1.9 Certain Agreements. The Pledge and Security Agreement or the Parent
Guaranty or any provision thereof shall cease to be in full force or effect or
shall be declared to be null or void or otherwise unenforceable in whole or in
part; or Payee shall not have or shall cease to have a valid and perfected
security interest in the collateral described in the Pledge and Security
Agreement; provided that the failure of Payee to have a valid and perfected
security interest in the shares of capital stock of the Cayman Subsidiaries
shall not be deemed an Event of Default

 

A-4-4

--------------------------------------------------------------------------------

hereunder so long as the Credit Parties deliver to St. Cloud stock certificates
representing sixty-five percent (65%) of the capital stock of Cayman Sub I in
accordance with Section 7.13 of the Agreement.

 

4.1.10 Change in Management. The termination of the employment of Elton Alderman
for any reason (including, without limitation, as a result of resignation);
provided, however, that if such termination is as a result of his death or
disability and Parent hires a replacement reasonably acceptable to Payee within
six months thereafter, then such termination shall not be deemed an Event of
Default hereunder.

 

4.1.11 Other. The failure of the Maker to perform or observe any other material
term, covenant or agreement to be performed or observed by it pursuant to this
Note and the continuance thereof for a period of thirty (30) days after written
notice thereof to the Maker.

 

4.2 Acceleration Without Specific Action. The occurrence of any of the following
Events of Default shall make all sums of principal and interest then remaining
unpaid and all other amounts payable hereon due and payable, all without demand,
presentment, notice or protest, all of which hereby are expressly waived, and
permit Payee to exercise any other right available to it at law or in equity,
all of which rights and powers may be exercised cumulatively.

 

4.2.1 Bankruptcy. The voluntary institution of bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors by any Credit Party; or
the institution of any such proceedings against any Credit Party, which
involuntary proceedings shall not have been vacated by appropriate court order
within sixty (60) days of such institution.

 

4.2.2 Dissolution. Any order, judgment or decree shall have been entered against
any Credit Party decreeing the dissolution or liquidation of such Credit Party
and such order shall remain undischarged or unstayed for a period of thirty (30)
days.

 

4.2.6 Insolvency, Receiver or Trustee. The making by any Credit Party of an
assignment for the benefit of creditors; or the making by any Credit Party of an
offer of settlement, composition or extension to the claims of all or
substantially all of a Credit Party’s creditors or the application for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or the appointment otherwise of such a
receiver or trustee or a committee of the Maker’s creditors.

 

XXVI. TRANSFER OF SECURITIES.

 

Subject to the restrictions on transfer contained in the Agreement, this Note
and all rights hereunder are transferable in whole or in part on the books of
the Maker maintained for such purpose at its principal office referred to above
by Payee in person or by a duly authorized

 

A-4-5

--------------------------------------------------------------------------------

attorney, upon surrender of this Note properly endorsed and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer.
Each taker and holder of this Note, by taking or holding the same, consents and
agrees that this Note when endorsed in blank shall be deemed negotiable and
agrees that when this Note shall have been so endorsed, Payee hereof may be
treated by the Maker and all other persons dealing with this Note, as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented hereby, or to the transfer hereof on the books of the Maker,
any notice to the contrary notwithstanding; but until such transfer on such
books, the Maker may treat Payee hereof as the owner for all purposes.

 

XXVII. METHODS; ADDRESSES.

 

Any notice, demand or other communication required or permitted under the terms
of this Note shall be in writing and shall be made by telegram, telex or
electronic transmitter (including, without limitation, facsimile) or certified
or registered mail, return receipt requested, and shall be deemed to be received
by the addressee on the date delivery is confirmed, if sent by Fed Ex, Express
Mail, or other similar overnight delivery service, the date of electronic
confirmation of receipt, if sent by telegram, telex, telecopy or electronic
transmitter, and three (3) business days after mailing, if sent by certified or
registered mail, with postage prepaid, and properly addressed. Notices shall be
addressed as provided below:

 

(a)   If to Payee:   St. Cloud Capital Partners, LP         10866 Wilshire
Blvd., Suite 1450         Los Angeles, California 90024         Facsimile: (310)
475-0550         Attention: Robert Lautz     With copy to:   Latham & Watkins
LLP         633 West Fifth Street, Suite 4000         Los Angeles, California
90071         Facsimile: (213) 891-8763         Attention: W. Alex Voxman, Esq.
(b)   If to the Maker:   Prolong Super Lubricants, Inc.         6 Thomas        
Irvine, California 92618         Facsimile: (949) 587-2707         Attention:
Chief Executive Officer     With a copy to:   Stradling Yocca Carlson & Rauth  
      660 Newport Center Drive, Suite 1600         Newport Beach, California
92660         Facsimile: (949) 725-4100         Attention: Michael E. Flynn,
Esq.

 

A-4-6

--------------------------------------------------------------------------------

Any party may change its address for this purpose by giving a written notice
thereof as herein provided.

 

XXVIII. MISCELLANEOUS.

 

7.1 Survival of Covenants. All agreements and covenants made herein shall
survive the execution and delivery hereof.

 

7.2 Failure or Indulgence Not Waiver. No failure or delay on the part of Payee
or any other holder of this Note to exercise any right, power or privilege under
this Note and no course of dealing between the Maker and Payee shall impair such
right, power or privilege or operate as a waiver of any default or an
acquiescence therein, nor shall any single or partial exercise of any such
right, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
expressly provided in this Note are cumulative to, and not exclusive of, any
rights or remedies that Payee would otherwise have. No notice to or demand on
the Maker in any case shall entitle the Maker to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the right of
Payee to any other or further action in any circumstances without notice or
demand.

 

7.3 Cost of Collection. The Maker agrees to indemnify Payee against any losses,
claims, damages and liabilities and related expenses, including counsel fees and
expenses, incurred by Payee in connection with the collection and enforcement of
this Note (including, without limitation, in connection with any bankruptcy,
insolvency, reorganization or workout). In addition, the Maker agrees to pay,
and to save Payee harmless from all liability for, any stamp or other
documentary taxes which may be payable in connection with the Maker’s execution
or delivery of this Note.

 

All payments made by the Maker under this Note shall be made free and clear of,
and without deduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions
or withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any governmental authority, excluding net income taxes and franchise
taxes (imposed in lieu of net income taxes) imposed on Payee as a result of a
present or former connection between Payee and the jurisdiction of the
governmental authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
Payee having executed, delivered or performed its obligations or received a
payment under, or enforced, this Note). If any such non-excluded taxes, levies,
imposts, duties, charges, fees deductions or withholdings (“Non-Excluded Taxes”)
are required to be withheld from any amounts payable to Payee under this Note,
the amounts so payable to Payee shall be increased to the extent necessary to
yield to Payee (after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts specified in this
Note. Whenever any Non-Excluded Taxes are payable by the Maker, as promptly as
possible thereafter (and, in any event, within five (5) business days) the Maker
shall send to Payee for its own account a certified copy of an original official
receipt received by the Maker showing payment thereof. If the Maker fails to pay
any Non-Excluded Taxes when due to the appropriate taxing authority or fails to
remit to Payee the required receipts or other required documentary evidence, the
Maker shall indemnify, defend and hold Payee harmless for any incremental taxes,
interest or penalties that may become payable by Payee as a result of any such
failure.

 

A-4-7

--------------------------------------------------------------------------------

The agreements in this Section 7.3 shall survive the termination of this Note
and the payment of the loan and all other amounts payable hereunder.

 

7.4 Governing Law. This Note has been executed in and shall be governed by the
laws of the State of California. As part of the consideration for Payee’s
investment herein, the Maker and Payee hereby agree that all actions or
proceedings arising directly or indirectly hereunder, whether instituted by
Payee or the Maker, may, at the option of Payee, be litigated in courts having
situs within the State of California, County of Los Angeles and the Maker hereby
expressly consents to the jurisdiction of any local, state or federal court
located within said state and county, and consents that any service of process
in such action or proceeding may be made by personal service upon the Maker
wherever the Maker may be located, or by certified or registered mail directed
to the Maker at its last known address. The Maker and Payee waive trial by jury,
any objection based on forum non conveniens, and any objection to venue of any
action instituted hereunder in such County.

 

7.5 Modification. The terms of this Note may be amended, modified or waived only
by (i) the written agreement of the Maker and the Payee or (ii) the written
agreement of the Maker and the holders of a majority in aggregate principal
amount of Notes issued pursuant to the Agreement.

 

7.6 Severability. Whenever possible, each provision of this Note will be
interpreted in such manner as to be effective and valid under applicable law,
but, if any provision of this Note is held to be prohibited by or invalid under
applicable law, such provision will be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this Note.

 

7.7 Further Assurance. At any time or from time to time upon the request of
Payee, the Maker will execute and deliver such further documents and do such
other acts and things as Payee may reasonably request in order fully to
effectuate the purposes of this Note, and to provide for the payment of the
principal and interest due hereunder.

 

7.8 Successors. The Maker may not pledge, assign or transfer any of its rights
or obligations under this Note without the prior written consent of Payee. Any
purported assignment or transfer in breach of this Note shall be of no force and
effect. Subject to the transfer restrictions contained in the Agreement, Payee
may assign and participate any of its interests in this Note and this Note to
any Person. Each reference herein to powers or rights of Payee shall also be
deemed a reference to the same power or right of such assignees, to the extent
of the interest assigned to them. All the covenants, agreements, representations
and warranties contained in this Note shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns, including any Person to whom Payee has granted a participation interest
in this Note.

 

A-4-8

--------------------------------------------------------------------------------

7.9 Headings. The section headings in this Note are inserted for purposes of
convenience only and shall have no substantive effect.

 

7.10 No Strict Construction. The Maker hereby waives the benefit of any statute
or rule of law or judicial decision, including without limitation California
Civil Code § 1654, which would otherwise require that the provisions of this
Note be construed or interpreted most strongly against the party responsible for
the drafting thereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

A-4-9

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Maker has caused this Note to be signed and delivered by
its duly authorized officer and to be dated August     , 2004.

 

MAKER:

PROLONG SUPER LUBRICANTS, INC., a

Nevada corporation

By:  

 

--------------------------------------------------------------------------------

Name:   Elton Alderman Title:   President and Chief Executive Officer

 

A-4-10