Merger Agreement

American Motorcycle Company
23 Harnish Crescent
Toronto, Ontario
M2M 2C2


August 15, 2000


DELIVERED


Mr. Richard K. Hagen Chairman and Chief Executive Officer American Quantum Cycles, Inc. 731 Washburn Road Melbourne, Florida U.S.A. 32934


Dear Mr. Hagen:


Re: Binding Merger Agreement of American Motorcycle Company into a wholly-owned
subsidiary of American Quantum Cycles, Inc.


This letter will serve as a formal contract for the merger between a wholly-owned subsidiary (the "Subsidiary") of American Quantum Cycles, Inc. (the "Purchaser") and American Motorcycle Company (the "Company") by agreement of all the shareholders of the Company (the "Vendors"), the Purchaser and the Company, to be effective on the date hereof (the "Closing Date") by execution by all parties to this letter agreement and receipt by Mr. Murray Smith of 500,000 preferred shares of the Purchaser, having the attributes attached hereto as Schedule "A" (the "Preferred Stock"). Each Preferred Stock will have 38.39 votes and be convertible into 38.39 common shares of the Purchaser.


The Preferred Stock is received on the basis that in all cases the 500,000 Preferred Stock will be convertible into 50% of the aggregate issued and outstanding common shares of the Purchaser on a fully diluted basis, subject only to Section 2 herein. In addition, the Preferred Stock prior to conversion will, in all cases, have at least 50% of the aggregate votes attributable to the preferred stock and the common shares of the Purchaser, with an anti-dilution provision in effect until such time as all necessary shareholder and regulatory approvals have been obtained to increase the authorized capital to, among other things, permit the conversion of the Preferred Stock into common shares as contemplated herein. Such anti-dilution provision shall have the effect of ensuring that the Preferred Stock shall maintain at least 50% of the aggregate votes attributable to all of the preferred stock and common shares issued and outstanding or to be issued and outstanding until such time as the said approvals have been obtained. It is intended that these provisions will apply until such time as the merger of the Subsidiary and the Company has been completed and all necessary shareholder and regulatory approvals have been obtained to increase the authorized capital to, among other things, permit the conversion of the Preferred Stock into common shares as contemplated pursuant to the terms of this letter.


However, in order to continue to have the Purchaser's common stock listed on the American Stock Exchange, it is a condition of the American Stock Exchange that, until the shareholders of the Purchaser have approved the issuance of the Preferred Stock, the Vendors may not collectively vote in excess of 19.99% of the Preferred Stock in any matter submitted to the shareholders of the Purchaser.


It is intended by the parties hereto that this letter is a legal and binding agreement.


1. Purchase. The Purchaser hereby agrees to acquire from the Vendors and the
Vendors hereby agree to sell to the Purchaser 100% of the issued and
outstanding shares in the capital stock of the Company (the "Purchased
Shares") for the 500,000 Preferred Stock of the Purchaser (the "Purchase
Price"). The Purchase Price, subject to the Adjustments (as defined in
Section 2 below), shall be paid to the Vendors through the payment at the
Closing Date to each Vendor of the following Preferred Stock set out beside
such Vendor's name:


Name Number of Preferred Stock
---- -------------------------


Merchant Banking Services Inc. 200,000
Andrew C. Smith 42,500
Praxis International Inc. 15,000
Jeff and Dominique Mathers Eisen 5,000
Hugh D. Turner 15,000
Robert Klienschmidt 5,000
Life Success Ventures Inc. 2,500
Transam Holdings Inc. 15,000
Lionel and Janice Mercier 75,000
Richard A. and Andrea A. Block, JT 75,000
Dan Almagor 5,000
Robert Kramer 2,500
Murray Smith, in trust 42,500


all of which shall be issued at the Closing Date as fully paid and
non-assessable Preferred Stock of the Purchaser on the Closing Date
and delivered to Murray Smith, as representative of the Vendors and
the Company.


2. Adjustments to the Purchase Price. To allow for a complete due diligence
review of the Company and of the Purchaser, and the respective financial
positions as represented in Section 7, adjustments will be made to the
Purchase Price within six (6) months of the Closing Date as follows:


(a) The Purchaser has represented and warranted its value in terms of
assets, liabilities, contracts and obligations according to such
information attached hereto on Exhibit 1 (the "Purchaser Value"), and
its capital structure according to the capital structure of the
Purchaser attached hereto on Exhibit 1 (the "Purchaser Capital"). In
the event that the Purchaser Value is determined to be adversely
incorrect for an amount (the "Purchaser Amount") of at least
$100,000.00, in the aggregate, then additional Preferred Stock equal
to the Purchaser Amount will be issued to the Vendors. For these


2


purposes, the Preferred Stock will be issued at the rate of $42.16 per
share of Preferred Stock, with the same provisions as the Preferred
Stock issued for the Purchase Price. In the event the number of
outstanding shares of the Purchaser is higher than disclosed as the
Purchaser Capital, the number of Preferred Stock issued to the Vendors
will be increased on a 1 for 1 basis, with the same provisions as the
Preferred Stock issued for the Purchase Price; and


(b) The Company has represented and warranted its value and structure
according to the obligations and capital structure of the Company
attached hereto as Exhibit 2 (the "Company Value"). In the event that
the Company Value is determined to be adversely incorrect for an
amount (the "Company Amount") of at least $100,000.00, in the
aggregate, then the Preferred Stock equal to the Company Amount will
be returned to the treasury of the Purchaser for cancellation. For
these purposes, the Preferred Stock will be cancelled at the rate of
$42.16 per share of Preferred Stock.


3. Merger. The parties acknowledge that the 500,000 Preferred Stock are to be
delivered to the custody of Mr. Murray Smith on Closing, on behalf of the
shareholders of the Company in exchange for all of the stock of the
Company, following which, on Closing, the Company shall be merged into the
Subsidiary of the Purchaser in a transaction intended to qualify as a
tax-free reorganization to the shareholders of the Company under Section
368 of the Internal Revenue Code of 1986 as amended. The resulting merged
company will be named "American Motorcycle Company", and will own all of
the assets of the Company as described below. For the purposes of this
letter agreement, the post-merger American Motorcycle Company will be
referred to as the "Merged Company".


4. Business Plan. The Purchaser and Vendors each acknowledge that a number of
operational and procedural issues will be mutually agreed to and will form
the basis of a business plan (the "Business Plan") for the Purchaser and
the Merged Company. The essence of the Business Plan is for the Purchaser
and the Merged Company to acquire companies currently involved in the
worldwide motorcycle industry. These target companies have various holdings
in the areas of trademarks, engines, motorcycle sales and some combinations
thereof. The Business Plan shall be designed to capitalize on the Company's
unique expertise in corporate management, corporate finance and trademarks
to form a strategic alliance available only by the inclusion of the Company
in the Purchaser's family of companies. It is intended initially, until
shareholder approval is received to increase the authorized capital of the
Purchaser and subject to the anti-dilution provision attaching to the
Preferred Stock, to use the unissued preferred shares of the Purchaser to
facilitate such transactions, with conversion rates on a 1:1 basis into
common shares or such other basis as agreed to by the board of directors at
that time.


5. Capital Restructuring of the Purchaser or Merged Company. The Purchaser and
the Company agree that the Purchaser will take all steps necessary to
obtain shareholder approval forthwith for an amendment of the Purchaser's
Articles of Incorporation to increase its authorized common shares to
permit conversion of the Preferred Stock, to allow conversion of any other
preferred shares of the Purchaser used to accommodate the acquisitions
contemplated in the Business Plan, and to permit exercise of the options
and warrants issued by the Purchaser. The board of directors will use its


3


best efforts to support the said amendment, implementation of the Business
Plan and all matters contemplated by this letter agreement. The Purchaser
shall cause an annual or special meeting of the shareholders to deal with
foregoing amendment and, to the extent necessary or desirable, the
implementation of the Business Plan and matters contemplated by this letter
agreement on or before December 1, 2000.


6. Attorney. The Vendors collectively hereby irrevocably appoint Murray Smith
as their proxy and authorized attorney to vote all of the Vendors Preferred
Stock at any meeting of the shareholders to approve any matters whatsoever
contemplated by or arising out of this Agreement including, without
limitation, this transaction, any changes to the authorized or issued
capital or shares and any transaction contemplated by or arising out of the
Business Plan, as same may be amended or modified from time to time, and
any financings related thereto. Each Vendor agrees to provide such further
documents or materials as are required to implement the foregoing.


7. Representations and Warranties.


(a) The Purchaser represents and warrants to the Vendors as follows, and
acknowledges that the Vendors are relying upon such representations
and warranties in connection with entering into this agreement and
completing the transactions contemplated thereby:


(i) Each of the Purchaser and the Subsidiary is a corporation
incorporated and subsisting under the laws of Florida, has all
legal capacity to own its properties and conduct its business as
presently being conducted by it, and is duly registered or
otherwise qualified to carry on business in all jurisdictions in
which the nature of its assets or business makes such
registration or qualification necessary or advisable.


(ii) This agreement has been duly executed and delivered by the
Purchaser and constitutes, and the agreements contemplated herein
when executed will constitute, valid and binding obligations of
the Purchaser enforceable against it in accordance with the terms
hereof and thereof.


(iii) The entering into and performance of this agreement and the
agreements contemplated herein will not violate, contravene,
breach or offend against or result in any default under any
security agreement, indenture, mortgage, lease, order,
undertaking, licence, permit, agreement, instrument, charter or
by-law provision, resolution of shareholders or directors,
statute, regulation, judgment, decree or law to which either the
Purchaser or the Subsidiary is a party or by which it may be
bound or affected. No licenses, agreements or other instruments
or documents will terminate or require assignment as a result of
the entering into of this Agreement or the consummation of the
transactions contemplated hereby.


(iv) The authorized capital of the Purchaser is now, and on the
Closing Date will be, 12,500,000 common shares and 2,500,000
preferred shares of which 19,194,031 common shares of the Company


4


are presently outstanding on a fully diluted basis, and on the
Closing Date 19,194,031 common shares on a fully diluted basis
and the 500,000 Preferred Stock will be issued and outstanding.
All of the Preferred Stock have been validly authorized, allotted
and issued and are outstanding as fully-paid and non-assessable
preferred shares and on the Closing Date will be the only issued
and outstanding preferred shares of the Purchaser. The
aforementioned shares are or would be, as the case may be,
entitled to only 1 vote per common share.


(v) The Purchaser's audited financial statements (the "Financial
Statements"), which are attached hereto as a schedule and include
a balance sheet, a statement of income, retained earnings and
source and application of funds, and the notes thereto are true
and correct and have been prepared in accordance with GAAP
applied on a basis consistent with those of preceding periods and
present fairly on a consolidated basis:


(A) all of the assets, liabilities (whether accrued,
determinable, absolute, contingent or otherwise) and the
financial condition of the Purchaser as at the Purchaser's
fiscal 2000 year end; and


(B) the sales, earnings and results of operations of the
Purchaser during the period(s) covered by such financial
statements.


(vi) There are no material liabilities of the Purchaser or the
Subsidiary of any kind whatsoever, whether or not accrued and
whether or not determined or determinable, in respect of which
the Purchaser or the Merged Company may become liable on or after
the transaction contemplated by this Agreement other than
liabilities incurred in the ordinary course of business and
reflected in the Purchaser's Financial Statements.


(vii) The Purchaser has no subsidiaries and is not bound by any
agreements of any nature to acquire any subsidiary, save and
except for the Subsidiary which was recently incorporated, has
carried on no business and has no assets or liabilities
whatsoever.


(viii) No options, warrants, convertible obligations or other rights
to purchase or otherwise acquire shares or other securities of
the Purchaser or the Subsidiary are issued or outstanding, except
as disclosed in the Purchaser Value. The Purchaser shall not
issue or enter into any agreements to issue any securities of the
Purchaser other than the Preferred Stock.


(ix) The Purchaser has not given or agreed to give, nor is it a party
to or bound by, any indemnity, or any guarantee of indebtedness
or other obligations of third parties or any other commitment by
which the Purchaser or the Subsidiary is or is contingently
responsible for such indebtedness or other obligations, except as
disclosed in the Purchaser Value.


5


(x) The Purchaser is duly registered as a public company with the
Securities and Exchange Commission (the "SEC") and is in
compliance in all material respects with all regulations,
policies and rules of the SEC and all applicable securities laws
of the United States. The Purchaser is up to date on all filings
required by the SEC and applicable securities laws of the United
States in order to be a public company in good standing. The
issue of the Preferred Stock to the Vendors under the terms of
this letter agreement is in compliance with all requirements of
the SEC and all policies and regulations related thereto. The
Preferred Stock is subject to American Stock Exchange approval,
but if such approval is not given, although the Purchaser may be
de-listed from the American Stock Exchange, the Preferred Stock
shall nonetheless be validly authorized, allotted, issued,
outstanding, fully paid and non-assessable with all rights and
attributes previously described herein and on any schedule
...