CYCLE COUNTRY ACCESSORIES CORP.
CYCLE COUNTRY ACCESSORIES SUBSIDIARY CORP.
LAURUS MASTER FUND, LTD.
SECURITIES PURCHASE AGREEMENT
June 9 , 2003
TABLE OF CONTENTS
Page
1. AGREEMENT TO SELL AND PURCHASE 1
2. FEES AND WARRANTS 1
3. CLOSING, DELIVERY AND PAYMENT 2
3.1 Closing 2
3.2 Delivery 2
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 2
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS 5
5.1 Requisite Power and Authority 6
6. COVENANTS OF THE COMPANY 6
6.1 Stop-Orders 6
6.2 Listing 6
6.3 Market Regulations 6
6.4 Reporting Requirements 6
6.5 Use of Funds 6
6.6 Access to Facilities 6
6.7 Taxes 7
6.8 Insurance 7
6.9 Intellectual Property 7
6.10 Confidentiality 7
6.11 Corporate Existence 7
6.12 Reissuance of Securities. 8
6.13 Opinion 8
7. COVENANTS OF THE COMPANY AND PURCHASERS
REGARDING INDEMNIFICATION 8
7.1 Company Indemnification 8
7.2 Purchaser's Indemnification 8
7.3 Procedures 8
8. RESTRICTIONS ON TRANSFER 9
9. REGISTRATION RIGHTS 9
9.1 Registration Rights Granted 9
9.2 Non-Registration Events 9
9.3 Expenses 9
9.4 Indemnification and Contribution 10
10. OFFERING RESTRICTIONS 12
11. SECURITY INTEREST 12
12. MISCELLANEOUS 12
12.1 Governing Law 12
12.2 Survival 12
12.3 Successors and Assigns 12
12.4 Entire Agreement 13
12.5 Severability 13
12.6 Amendment and Waiver 13
12.7 Delays or Omissions 13
12.8 Notices 13
12.9 Attorneys' Fees 14
12.10 Titles and Subtitles 14
12.11 Counterparts 14
12.12 Broker's Fees 14
12.13 Indemnification 14
12.14 Construction 14
CYCLE COUNTRY ACCESSORIES CORP.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of June 9, 2003, by and among Cycle Country
Accessories Corp. a Nevada corporation ("Parent") Cycle Country
Accessories Corp. Subsidiary, a Nevada corporation and wholly owned
subsidiary of Parent (the "Company"), and Laurus Master Fund, Ltd., a
Cayman Islands company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale of (i) Series A
Convertible Preferred Stock, $0.01 par value (the "Preferred Stock")
for the aggregate purchase price of TWO MILLION DOLLARS ($2,000,000)
convertible into shares of the Parent's common stock, $0.01 par value
per share (the "Common Stock") .
WHEREAS, the Parent wishes to issues a warrant (the "Warrant") to
the Purchaser to purchase shares of the Parent's 's Common Stock in
connection with Purchaser's purchase of the Preferred Stock;
WHEREAS, Purchaser desires to purchase the Preferred Stock and
Warrant on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Preferred Stock
and Warrant to the Purchaser on the terms and conditions set forth
herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter
set forth and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and
conditions set forth in this Agreement, on the Closing Date (as
defined in Section 3), the Company agrees to sell to the Purchaser,
and the Purchaser hereby agrees to purchase from the Company Preferred
Stock in the amount of $2,000,000, convertible in accordance with the
terms thereof into shares of the Parent's Common Stock. The Preferred
Stock purchased on the Closing Date shall be known as the "Offering."
The Certificate of Designations for the Preferred Stock (the
"Certificate of Designations") is annexed hereto as Exhibit A.
Collectively, the Preferred Stock and Warrant (as defined in Section
2) and Common Stock issuable upon conversion of the Preferred Stock
and exercise of the Warrant are referred to as the "Securities."
2. FEES AND WARRANT.
(a) The Parent will issue and deliver to the
Purchaser a Warrant to purchase 40,000 shares of its Common Stock in
connection with the Offering (the "Warrant") pursuant to Section 1
hereof. The Warrant must be delivered on the Closing Date. A form of
Warrant is annexed hereto as Exhibit B. All the representations,
covenants, warranties, undertakings, and indemnification, and other
rights made or granted to or for the benefit of the Purchaser by the
Parent and the Company are hereby also made and granted in respect of
the Warrant and shares of the Parent's Common Stock issuable upon
exercise of the Warrant (the "Warrant Shares").
(b) The Parent shall reimburse the Purchaser for its
reasonable legal fees for services rendered to the Purchaser in
preparation of this Agreement and the Related Agreements.
(c) The Company will pay a cash fee in the amount of
four and one quarter percent (4.25%) of the aggregate gross purchase
price to be paid to the Company from the sale of the Preferred Stock
in the Offering (the "Fund Management Fee") to Laurus Capital
Management, L.L.C., a Delaware limited liability company. The Fund
Management Fee must be paid on the Closing Date. The aforementioned
Fund Management Fee and legal fees will be payable at the Closing out
of funds held pursuant to a Funds Escrow Agreement to be entered into
by the Company, Purchaser and an Escrow Agent.
(d) For as long as the Purchaser holds the Preferred
Stock, on each anniversary of the date hereof, the Parent shall pay an
additional fee to the Purchaser equal to one percent (1%) of the
aggregate gross purchase price to be paid to the Company from the sale
of the Preferred Stock in the Offering.
3. CLOSING, DELIVERY AND PAYMENT.
3.1 Closing. Subject to the terms and conditions herein,
the closing of the transactions contemplated hereby (the "Closing"),
which closing is comprised of Purchaser's purchase of the Preferred
Stock in the aggregate principal amount of $2,000,000, shall take
place on the date hereof or at such other time or place as the Company
and Purchaser may mutually agree (such date is hereinafter referred to
as the "Closing Date").
3.2 Delivery. At the Closing, subject to the terms and
conditions hereof, the Company will deliver to the Purchaser the
Certificate of Designations in the form attached as Exhibit A
representing the principal amount of $2,000,000 and a Common Stock
Purchase Warrant in the form attached as Exhibit B in the Purchaser's
name representing Warrant Shares and the Purchaser will deliver to the
Company $2,000,000, less fees and expenses by certified funds or wire
transfer made payable to the order of the Company, cancellation of
indebtedness or any combination of the foregoing.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Each of the Parent and the Company hereby jointly and
severally represents and warrants, as applicable, to the Purchaser as
of the date of this Agreement as set forth below except as disclosed
in the Parent's filings under the Securities Exchange Act of 1934
(collectively, the "Exchange Act Filings"), or the Schedules hereto.
4.1 Each of the Parent and the Company is a corporation
duly incorporated and validly existing under the laws of the
jurisdiction of its incorporation and duly qualified and in good
standing in every other state or jurisdiction in which the nature of
the Parent's or the Company's business requires such qualification.
4.2 The execution, delivery and performance of this
Agreement, the Fund Escrow Agreement, the Stock Pledge Agreement and
the Pledge and Security Agreement (the "Related Agreements") (i) have
been duly authorized, (ii) are not in contravention of such either the
Parent's or the Company's certificate of incorporation, by-laws or of
any indenture, agreement or undertaking to which such Parent or
Company is a party or by which such Parent or Company is bound and
(iii) are within such Parent or Company's corporate powers.
4.3 This Agreement and the Related Agreements executed and
delivered by each of the Parent and the Company constitute their
legal, valid and binding obligations, enforceable in accordance with
their terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, and (b) as
limited by general principles of equity that restrict the availability
of equitable and legal remedies.
4.4 Based upon the Employee Retirement Income Security Act
of 1974 ("ERISA"), and the regulations and published interpretations
thereunder each of the the Parent and the Company: (i) have not
engaged in any Prohibited Transactions as defined in Section 406 of
ERISA and Section 4975 of the Internal Revenue Code, as amended; (ii)
have met all applicable minimum funding requirements under Section 302
of ERISA in respect of its plans; (iii do not have any knowledge of
any event or occurrence which would cause the Pension Benefit Guaranty
Corporation to institute proceedings under Title IV of ERISA to
terminate any employee benefit plan(s); (iv) do not have any fiduciary
responsibility for investments with respect to any plan existing for
the benefit of persons other than Companies' employees; and (v) have
not withdrawn, completely or partially, from any multi-employer
pension plan so as to incur liability under the Multiemployer Pension
Plan Amendments Act of 1980.
4.5 Except as set forth on Schedule 4.5, each of the
Parent and the Company is solvent, able to pay its debts as they
mature, has capital sufficient to carry on its business and all
businesses in which such Parent or the Company is about to engage and
the fair saleable value of its assets (calculated on a going concern
basis) is in excess of the amount of its liabilities.
4.6 There is no pending or threatened litigation, action
or proceeding which is probable of having a Material Adverse Effect.
4.7 All balance sheets and income statements which have
been delivered to Laurus fairly, accurately and properly state each of
the Parent and the Company's financial condition on a basis consistent
with that of previous financial statements and there has been no
material adverse change in the either the Parent's or Company's
financial condition as reflected in such statements since the date
thereof and such statements do not fail to disclose any fact or facts
which might have a Material Adverse Effect on the Parent's or the
Company's financial condition.
4.8 Each of the Parent and the Company possesses all of
the Intellectual Property necessary to conduct its respective
business. There has been no assertion or claim of violation or
infringement with respect to any Intellectual Property.
4.9 Neither this Agreement, the exhibits and schedules
hereto, the Related Agreements nor any other document delivered by the
Parent and the Company to Laurus or its attorneys or agents in
connection herewith or therewith or with the transactions contemplated
hereby or thereby, contain any untrue statement of a material fact nor
omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances
in which they are made, not misleading. Any financial projections and
other estimates provided to Laurus by the Parent or the Company were
based on the such Parent's or Company's experience in the industry and
on assumptions of fact and opinion as to future events which the
Parent or the Company, at the date of the issuance of such projections
or estimates, believed to be reasonable. As of the date hereof no
facts have come to the attention of the Company that would, in its
opinion, require the Parent or the Company to revise or amplify in any
material respect the assumptions underlying such projections and other
estimates or the conclusions derived therefrom.
4.10 The offer, sale and issuance of the shares of the
Parent's Common Stock issuable upon the conversion of the Preferred
Stock and the Warrant will be registered under the Company's
Registration Statement on Form SB-2 and filed with the Securities and
Exchange Commission. As such, the Preferred Stock, the Warrant and
the shares of Common Stock issuable upon conversion of the Preferred
Stock will be freely tradeable and the certificates evidencing those
securities will not have restrictive legends when such registration
statement is declared effective by the SEC..
4.11 The Common Stock of the Parent is registered pursuant
to Section 12(b) or 12(g) of the Exchange Act and the Company has
timely filed all proxy statements, reports, schedules, forms,
statements and other documents required to be filed by it under the
Exchange Act. The Parent has furnished Laurus with copies of (i) its
Annual Report on Form 10-K for the fiscal year ended December 31, 2002
and (ii) its Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 2003 (collectively, the "SEC Reports"). Each SEC
Report was, at the time of its filing, in substantial compliance with
the requirements of its respective form and none of the SEC Reports,
nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Parent included in the
SEC Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance
with GAAP applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be
condensed) and fairly present in all material respects the financial
position of the Parent as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
4.12 The Parent's Common Stock is listed for trading on the
Over-the-Counter Bulletin Board("OTCBB"). Upon completion of the
several transactions with Laurus, the Company's Common Stock will
satisfy all requirements for initial listing on the American Stock
Exchange . The Company has determined that as of June __, 2003 the
Common Stock does not meet all requirements for such listing.
4.13 Upon the SEC declaring the Parent's registration
statement registering the Securities on Form SB-2 effective, the
Securities will be freely tradeable and the shares evidencing the
Common Stock issuable under the Securities will be free of restrictive
legends. The Parent will not issue any stop transfer order or other
order impeding the sale and delivery of any of the Securities.
4.14 Each of the Parent and the Company understands the
nature of the Securities being sold hereby and recognizes that they
may have a potential dilutive effect. The Parent specifically
acknowledges that its obligation to issue the shares of Common Stock
upon conversion of the Preferred Stock and exercise of the Warrant is
binding upon the Parent and enforceable regardless of the dilution
such issuance may have on the ownership interests of other
shareholders of the Parent.
4.15 There is no agreement that has not been filed with the
SEC as an exhibit to a registration statement or other applicable form
the breach of which could have a material and adverse effect as to the
Parent and its subsidiaries, or would prohibit or otherwise interfere
with the ability of the Parent or the Company to enter into and
perform any of their obligations under this Agreement in any material
respect.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to each of the
Parent and the Company with respect to itself or himself as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Parent or the Company set forth
in this Agreement):
5.1 Requisite Power and Authority. Purchaser has all
necessary power and authority under all applicable provisions of law
to execute and deliver this Agreement and the Related Agreements and
to carry out their provisions. All action on Purchaser's part
required for the lawful execution and delivery of this Agreement and
the Related Agreements have been or will be effectively taken prior to
the Closing. Upon their execution and delivery, this Agreement and
the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement
of creditors' rights, and (b) as limited by general principles of
equity that restrict the availability of equitable remedies.
5.2 Purchaser Bears Economic Risk. Purchaser has
substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to the
Company so that it is capable of evaluating the merits and risks of
its investment in the Company and has the capacity to protect its own
interests.
5.3 Purchaser Can Protect Its Interest. Purchaser
represents that by reason of its, or of its management's, business or
financial experience, Purchaser has the capacity to protect its own
interests in connection with the transactions contemplated in this
Agreement, and the Related Agreements. Further, Purchaser is aware of
no publication of any advertisement in connection with the
transactions contemplated in the Agreement.
6. ADDITIONAL COVENANTS. Each of the Parent and the Company
jointly and severally covenants and agrees, as applicable, with the
Purchaser as follows:
6.1 Stop-Orders. The Parent will advise the Purchaser,
promptly after it receives notice of issuance by the Securities and
Exchange Commission (the "SEC"), any state securities commission or
any other regulatory authority of any stop order or of any order
preventing or suspending any offering of any securities of the Parent,
or of the suspension of the qualification of the Common Stock of the
Parent for offering or sale in any jurisdiction, or the initiation of
any proceeding for any such purpose.
6.2 Listing. The Parent will maintain the listing of its
Common Stock on theOTCBB or the American Stock Exchange (the
"Principal Market"), and will comply in all material respects with the
Parent's reporting, filing and other obligations under the bylaws or
rules of the Principal Market. The Parent will provide the Purchaser
copies of all notices it receives notifying the Parent of the
threatened and actual delisting of the Common Stock from any Principal
Market.
6.3 Market Regulations. The Parent shall notify the SEC,
and any Principal Market and applicable state authorities, in
accordance with their requirements, of the transactions contemplated
by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to
Purchaser and promptly provide copies thereof to Purchaser.
6.4 Reporting Requirements. The Parent will timely file
with the SEC all reports required to be filed pursuant to the Exchange
Act and refrain from terminating its status as an issuer required by the
Exchange Act to file reports thereunder even if the Exchange Act or the
rules or regulations thereunder would permit such termination.
6.5 Use of Funds. Each of the Parent and the Company
agrees that it will use the proceeds of the sale of the Preferred Stock
and Warrant for general corporate purposes only, in the ordinary course
of its business and consistent with past practice.
6.6 Access to Facilities. Each of the Parent and the
Company will permit any representatives designated by the Purchaser
(or any transferee of the Purchaser), so long as such person holds any
Securities upon reasonable notice and during normal business hours, at
such person's expense and accompanied by a representative of the
Parent or the Company, to (a) visit and inspect any of the properties
of the Parent or the Company, (b) examine the corporate and financial
records of the Parent or the Company (unless such examination is not
permitted by federal, state or local law or by contract) and make
copies thereof or extracts therefrom and (c) discuss the affairs,
finances and accounts of any such corporations with the directors,
officers and independent accountants of the Parent or the Company.
6.7 Taxes. Each of the Parent and the Company will
promptly pay and discharge, or cause to be paid and discharged, when
due and payable, all lawful taxes, assessments and governmental
charges or levies imposed upon the income, profits, property or
business of the Parent and the Company; provided, however, that any
such tax, assessment, charge or levy need not be paid if the validity
thereof shall currently be contested in good faith by appropriate
proceedings and if the Parent or the Company shall have set aside on
its books adequate reserves with respect thereto, and provided,
further, that the Parent and the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefor.
6.8 Insurance. Each of the Parent and the Company will
keep its assets which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by
fire, explosion and other risks customarily insured against by
companies in the Parent's or the Company's line of business, in
amounts sufficient to prevent the Parent or the Company from becoming
a co-insurer and not in any event less than 100% of the insurable
value of the property insured; and each of the Parent and the Company
will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and
property to the extent and in the manner customary for companies in
similar businesses similarly situated and to the extent available on
commercially reasonable terms.
6.9 Intellectual Property. Each of the Parent and the
Company shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights to
use Intellectual Property owned or possessed by it and reasonably
deemed to be necessary to the conduct of its business.
6.10 Confidentiality. Each of the Parent and the Company
agrees that it will not disclose, and will not include in any public
announcement, the name of the Purchaser, unless expressly agreed to by
the Purchaser or unless and until such disclosure is required by law
or applicable regulation, including the federal and state securities
laws and then only to the extent of such requirement.
6.11 Corporate Existence. Each of the Parent and the
Company shall maintain its corporate existence, and will not
liquidate, dissolve or effect a recapitalization, reclassification or
reorganization in any form of transaction. In addition, the each of
the Parent and the Company shall not sell all or substantially all of
the Parent's or the Company's assets, except in the event of a merger
or consolidation or sale or transfer of all or substantially all of
the Parent's or the Company's assets, where the surviving or successor
entity in such transaction (i) assumes the Parent's or the Company's
obligations hereunder and the Related Agreements and (ii) is a
publicly traded company whose common stock is quoted or listed on a
Principal Market.
6.12 Reissuance of Securities. At the Closing and upon the
issuance of shares of Common Stock following conversion of the
Preferred Stock and exercise of the Warrants, each of the Parent and
the Company, as applicable agrees to issue certificates representing
the Securities without any restrictive legends. The Parent agrees to
cooperate with the Purchaser in connection with all resales of the
Securities and provide legal opinions necessary to allow such resales.
6.13 Opinion. On the Closing Date, the Parent will deliver
to the Purchaser an legal opinion acceptable to the Purchaser from the
Parent's legal counsel in the form annexed hereto as Exhibit C. The
Parent will provide, at the Parent's expense, such other legal
opinions in the future as are reasonably necessary for the conversion
of the Preferred Stock and exercise of the Warrants.
7. COVENANTS OF THE PARENT, COMPANY AND PURCHASER REGARDING
INDEMNIFICATION.
7.1 Parent and Company Indemnification. Each of the
Parent and the Company jointly and severally agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser's
officers, directors, agents, affiliates, control persons, and
principal shareholders, against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Purchaser which results,
arises out of or is based upon (i) any misrepresentation by Parent or
the Company or breach of any warranty by the Parent or the Company in
this Agreement or in any exhibits or schedules attached hereto or any
Related Agreement, or (ii) any breach or default in performance by
Parent or the Company of any covenant or undertaking to be performed
by the Parent or the Company hereunder, or any other agreement entered
into by the Parent, the Company and Purchaser, as applicable, relating
hereto.
7.2 Purchaser's Indemnification. Purchaser agrees to
indemnify, hold harmless, reimburse and defend each of the Parent and
the Company and each of their officers, directors, agents,
affiliates, control persons and principal shareholders, at all times
against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or
imposed upon the Parent or the Company which results, arises out of or
is based upon (i) any misrepresentation by Purchaser or breach of any
warranty by Purchaser in this Agreement or in any exhibits or
schedules attached hereto or any Related Agreement; or (ii) any breach
or default in performance by Purchaser of any covenant or undertaking
to be performed by Purchaser hereunder, or any other agreement entered
into by the Parent, the Company and Purchaser, as applicable, relating
hereto.
7.3 Procedures. The procedures and limitations set forth
in Section 9.6 shall apply to the indemnifications set forth in
Sections 7.1 and 7.2 above.
8. INTENTIONALLY OMITTED..
9. OFFERING RESTRICTIONS. Except as previously disclosed in the
SEC Reports or stock or stock options granted to employees or
directors of the Company; or equity or debt issued in connection with
an acquisition of a business or assets by the Parent or the Company;
or the issuance by the Parent or the Company of stock in connection
with the establishment of a joint venture partnership or licensing
arrangement (these exceptions hereinafter referred to as the "Excepted
Issuances"), the neither the Parent nor the Company will issue any
securities with a variable/floating conversion feature which are or
could be (by conversion or registration) free-trading securities prior
to the repayment in full or conversion in full of the Preferred Stock.
10. RESTRICTED CASH ACCOUNT. As a condition of Closing, the
Company will place $2,000,000 in a restricted account at a bank
reasonably acceptable to the Purchaser, and maintain such amount in
the restricted account for as long as the Purchaser shall hold any
Preferred Shares. The account shall be pledged to Purchaser as
security for the performance of the Parent's obligations hereunder.
11. MISCELLANEOUS.
11.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York,
without regard to principles of conflicts of laws. Any action brought
by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state
courts of New York or in the federal courts located in the state of
New York; provided, however that the Purchaser may choose to waive
this provision and bring an action outside the state of New York.
Both parties and the individuals executing this Agreement and other
agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with
such statute or rule of law. Any such provision which may prove
invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
11.2 Survival. The representations, warranties, covenants
and agreements made herein shall survive any investigation made by the
Purchaser and the closing of the transactions contemplated hereby. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed
to be representations and warranties by the Company hereunder solely
as of the date of such certificate or instrument.
11.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto and shall inure to the benefit of
and be enforceable by each person who shall be a holder of the
Securities from time to time.
11.4 Entire Agreement. This Agreement, the exhibits and
schedules hereto, the Related Agreements and the other documents
delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof
and no party shall be liable or bound to any other in any manner by
any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
11.5 Severability. In case any provision of the Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only
upon the written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of
the holders of the Securities under the Agreement may be waived only
with the written consent of such holders of Securities. The rights of
the holder of Preferred Stock may be waived only with the written
consent of such holder.
11.7 Delays or Omissions. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to any party,
upon any breach, default or noncompliance by another party under this
Agreement or the Related Agreements, shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such
breach, default or noncompliance, or any acquiescence therein, or of
or in any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the Purchaser's part of any
breach, default or noncompliance under this Agreement, the Preferred
Stock or the Related Agreements or any waiver on such party's part of
any provisions or conditions of the Agreement, the Certificate of
Designations or the Related Agreements must be in writing and shall be
effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement, the Preferred Stock or the
Related Agreements, by law or otherwise afforded to any party, shall
be cumulative and not alternative.
11.8 Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (a) upon
personal delivery to the party to be notified, (b) when sent by
confirmed telex or facsimile if sent during normal business hours of
the recipient, if not, then on the next business day, (c) five days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be
sent to the Company at the address as set forth on the signature page
hereof and to the Purchaser at the address set forth on the signature
page hereto for such Purchaser, with a copy in the case of the
Purchaser to ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, or at such other
address as the Company or the Purchaser may designate by ten days
advance written notice to the other parties hereto.
11.9 Attorneys' Fees. In the event that any suit or action
is instituted to enforce any provision in this Agreement, the
prevailing party in such dispute shall be entitled to recover from the
losing party all fees, costs and expenses of enforcing any right of
such prevailing party under or with respect to this Agreement,
including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
11.10 Titles and Subtitles. The titles of the sections and
subsections of the Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
11.11 Counterparts. This Agreement may be executed by
facsimile signatures and in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one
instrument.
11.12 Broker's Fees. Each party hereto represents and
warrants that no agent, broker, investment banker, person or firm
acting on behalf of or under the authority of such party hereto is or
will be entitled to any broker's or finder's fee or any other
commission directly or indirectly in connection with the transactions
contemplated herein, except as specified herein with respect to the
Purchaser. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party
as a result of the representation in this Section 12.12 being untrue.
11.13 Indemnification. The Company shall indemnify the
Purchaser for any losses or expenses incurred by the Purchaser in
connection with any claims brought against the Purchaser by any third
party (including any other stockholder of the Company) as a result of
the transactions contemplated by this Agreement, other than for a
breach of representation or warranty made by the Purchaser herein.
11.14 Construction. Each party acknowledges that its legal
counsel participated in the preparation of this Agreement and,
therefore, stipulates that the rule of construction that ambiguities
are to be resolved against the drafting party shall not be applied in
the interpretation of this Agreement to favor any party against the
other.
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph
hereof.
COMPANY:
CYCLE COUNTRY ACCESSORIES CORP.
By:
Name:
Title:
Address:
PURCHASER:
LAURUS MASTER FUND, LTD.
By:
Name:
Address: LAURUS MASTER FUND, LTD.
c/o Ironshore Corporate
Services Ltd.
▇.▇. ▇▇▇ ▇▇▇▇ G.T.,
Queensgate House, South
Church Street
Grand Cayman, Cayman
Islands
SUBSIDIARY
By:
Name:
Title:
Address:
LIST OF EXHIBITS
Form of Offering Certificate of Designations Exhibit A
Form of Warrant Exhibit B
Form of Opinion Exhibit C
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
CYCLE COUNTRY ACCESSORIES SUBSIDIARY CORP.
CERTIFICATE TO SET FORTH DESIGNATIONS, VOTING POWERS,
PREFERENCES, LIMITATIONS, RESTRICTIONS, AND RELATIVE
RIGHTS OF SERIES A CONVERTIBLE
PREFERRED STOCK, $.0001 PAR VALUE PER SHARE
It is hereby certified that:
I. The name of the corporation is Cycle Country Accessories
Subsidiary (the "Corporation"), a Nevada corporation and wholly owned
subsidiary of Cycle Country Accessories Corp. (the "Parent")
II. The certificate of incorporation of the Corporation,
authorizes the issuance of 2,000,000 shares of Preferred ▇▇▇▇▇, ▇.▇▇▇▇
par value per share, and expressly vests in the Board of Directors of the
Corporation the authority provided therein to issue all of said shares in
one or more Series by resolution or resolutions to establish the
designation and number and to fix the relative rights and preferences of
each series to be issued.
III. The Board of Directors of the Corporation, pursuant to the
authority expressly vested in it, has adopted the following resolution
creating a class of Series A Convertible Preferred Stock:
RESOLVED, that a portion of the authorized shares of Preferred Stock
of the Corporation shall be designated as a separate series possessing
the rights and preferences set forth below:
1. Designation: Number of Shares. The designation of said series
of Preferred Stock shall be Series A Cumulative Convertible Preferred
Stock (the "Series A Preferred Stock"). The number of shares of Series A
Preferred Stock shall be 2,000,000. Each share of Series A Preferred
Stock shall have a stated value equal to $1 (as adjusted for any stock
dividends, combinations or splits with respect to such shares) (the
"Stated Value"), and $.0001 par value.
2. Ranking. The Series A Preferred Stock shall rank (i) prior to
the Corporation's common stock, par value $.0001 per share ("Common
Stock"); (ii) prior to any class or series of capital stock of the
Corporation hereafter created (unless wheresuch class or series of
capital stock specifically, by its terms, ranks senior to or Pari Passu
with the Series A Preferred Stock); (iii) on a parity with any class or
series of capital stock of the Corporation hereafter created specifically
ranking, by its terms, on parity with the Series A Preferred Stock ("Pari
Passu Securities"); and (iv) junior to any class or series of capital
stock of the Corporation hereafter created specifically ranking, by its
terms, senior to the Series A Preferred Stock ("Senior Securities"), in
each case as to distribution of assets upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary.
3. Dividends.
(a) The Holders of outstanding shares of Series A Preferred
Stock shall be entitled to receive preferential dividends in cash out of
any funds of the Parent before any dividend or other distribution will be
paid or declared and set apart for payment on any shares of any Common
Stock, or other class of stock presently authorized or to be authorized
(the Common Stock, and such other stock being hereinafter collectively
the "Junior Stock") at the "base rate" or the "prime rate" published in
the Wall Street Journal from time to time (the "Prime Rate") plus one
and a half percent (0.5%) simple interest per annum on the Stated Value
per share of Series A Preferred Stock then outstanding (as adjusted
pursuant to Section 4 below) (the "Monthly Dividend Amount"). The Parent
shall make such payments of the Monthly Dividend Amount commencing July
1, 2003 and on the first business day of each consecutive calendar month
thereafter. Dividend payments may be made in cash at the rate of 102%
Monthly Dividend Amount, or in fully paid and non assessable registered
shares of the Parent's Common Stock at the Conversion Price (as defined
herein) then in effect, and as long as the Conversion Price is below the
Market Price the issuance of such shares shall constitute full payment of
such dividend. The Prime Rate shall be increased or decreased, as the
case may be, as such Prime Rate shall fluctuate; each change to be
effective on the date of such fluctuation.
(b) The dividends on the Series A Preferred Stock at the
rates provided above shall be cumulative whether or not earned so that,
if at any time full cumulative dividends at the rate aforesaid on all
shares of the Series A Preferred Stock then outstanding from the date
from and after which dividends thereon are cumulative to the end of the
monthly dividend period next preceding such time shall not have been paid
or declared and set apart for payment, or if the full dividend on all
such outstanding Series A Preferred Stock for the then current dividend
period shall not have been paid or declared and set apart for payment,
the amount of the deficiency shall be paid or declared and set apart for
payment (but without interest thereon) before any sum shall be set apart
for or applied by the Parent, the Corporation or a subsidiary of the
Corporation to the purchase, redemption or other acquisition of the
Series A Preferred Stock or Parri Passu Securities and before any
dividend or other distribution shall be paid or declared and set apart
for payment on any Junior Stock and before any sum shall be set aside for
or applied to the purchase, redemption or other acquisition of Junior
Stock.
(c) Dividends on all shares of the Series A Preferred Stock
shall begin to accrue and be cumulative from and after the date of
issuance thereof. A dividend period shall be deemed to commence on the
day following a monthly dividend payment date herein specified and to end
on the next succeeding monthly dividend payment date herein specified.
4. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding-up of the
Corporation, whether voluntary or involuntary, the Holders of the Series
A Preferred Stock shall be entitled to receive before any payment or
distribution shall be made on the Junior Stock, out of the assets of the
Corporation available for distribution to stockholders, the Stated Value
per share of Series A Preferred Stock then outstanding and all accrued
and unpaid dividends to and including the date of payment thereof. Upon
the payment in full of all amounts due to Holders of the Series A
Preferred Stock, the holders of the Common Stock of the Corporation and
any other class of Junior Stock shall receive all remaining assets of the
Corporation legally available for distribution. If the assets of the
Corporation available for distribution to the holders of the Series A
Preferred Stock shall be insufficient to permit payment in full of the
amounts payable as aforesaid to the holders of Series A Preferred Stock
upon such liquidation, dissolution or winding-up, whether voluntary or
involuntary, then all such assets of the Corporation shall be distributed
ratably among the holders of the Series A Preferred Stock.
(b) Neither the purchase nor the redemption by the
Corporation of shares of any class of stock nor the merger or
consolidation of the Corporation with or into any other corporation or
corporations nor the sale or transfer by the Corporation of all or any
part of its assets shall be deemed to be a liquidation, dissolution or
winding-up of the Corporation for the purposes of this Section 4.
5. Conversion into Common Stock. Shares of Series A Preferred
Stock shall have the following conversion rights and obligations:
(a) Subject to the further provisions of this Section 5, each
holder of shares of Series A Preferred Stock shall have the right at any
time commencing after the issuance of the Series A Preferred Stock to
such holder to convert such shares into fully paid and non-assessable
shares of the Parent's Common Stock (as defined in Section 5(i) below) at
the Conversion Price provided in Section 5(b) below. All issued or
accrued but unpaid dividends may be converted at the election of the
holder simultaneously with the conversion of the Series A Preferred Stock
being converted.
Subject to the last sentence of this Section 5(a), no holder of
Series A Preferred Stock shall be entitled to convert, nor shall the
Corporation require any Holder to accept, pursuant to the terms of this
Section 5(a) that amount of the Preferred Stock convertible into that
number of shares of Common Stock which would result in the Holder's
beneficial ownership (as defined below) of Parent's Common Stock being in
excess of 4.99% of the outstanding shares of Parent's Common Stock. For
the purposes of the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Exchange Act
and Regulation 13d-3 thereunder. A Holder of Series A Preferred Stock
may void the conversion limitation described in this Section 5(a): (i)
upon 75 days prior notice to the Corporation or (ii) upon an Event of
Default hereunder.
(b) The number of shares of Common Stock issuable upon
conversion of each share of Series A Preferred Stock shall equal (i) the
sum of (A) the Stated Value per share, as amended pursuant to Section 5
hereof, and (B) at the holder's election, accrued and unpaid dividends on
such share, divided by (ii) $3.93 (the "Conversion Price").On each
anniversary of the date hereof, the Conversion Price then in effect shall
be reset at a price calculated by using the average of the five (5)
lowest closing prices of the Parent's Common Stock for the twenty two
(22) trading days prior to such anniversary date. Notwithstanding the
immediately foregoing, in no event shall the Conversion Price ever be
less than three dollars and fifty cents ($3.50).
If after the Default Notice Period (as defined below) the
Parent has not paid in full the amounts then due hereunder or cured the
Event of Default, then the Conversion Price shall be reduced and shall be
equal to the lower of (i) the Conversion Price; or (ii) eighty percent
(80%) of the average of the three (3) lowest closing prices for the
Parent's Common Stock on a whichever Principal Market at the time the
principal trading exchange or market for the Parent's Common Stock, or on
any securities exchange or other securities market on which the Parent's
Common Stock is then being listed or traded, for the thirty (30) trading
days prior to but not including the Conversion Date.
(c) The holder of any certificate for shares of Series A
Preferred Stock desiring to convert any of such shares may give notice of
its decision to convert the shares into common stock by delivering, along
with the certificate(s) representing the shares of Series A Preferred
Stock to be converted if requested by the Corporation, an executed and
completed notice of conversion ("Notice of Conversion") to the
Corporation or the Corporation's Transfer Agent (the "Conversion Date").
Each date on which a notice of conversion is delivered or telecopied to
the Corporation or the Corporation's Transfer Agent in accordance with
the provisions hereof shall be deemed a Conversion Date. A form of
Notice of Conversion that may be employed by a holder is annexed hereto
as Exhibit A. The Corporation will cause the transfer agent to transmit
the certificates representing the shares of the Parent's Common Stock
issuable upon conversion of the Series A Preferred Stock (and a
certificate representing the balance of the Preferred Stock not so
converted, if requested by Purchaser) to the holder by crediting the
account of the Holder's prime broker with the Depository Trust
Corporation ("DTC") through its Deposit Withdrawal Agent Commission
("DWAC") system within three (3) business days after receipt by the
Corporation of the Notice of Conversion and the certificate(s)
representing the shares of Series A Preferred Stock to be converted (the
"Delivery Date"). The Parent is obligated to deliver to the holder
simultaneously with the aforedescribed Common Stock, at the election of
the Holder, additional shares of the Parent's Common Stock representing
the conversion at the Conversion Price, of dividends accrued on the
Series A Preferred Stock being converted.
The Corporation understands that a delay in the delivery of
the Parent's Common Stock in the form required pursuant to this Section
beyond the Delivery Date could result in economic loss to the Holder. In
the event that the Corporation fails to direct its transfer agent to
deliver the Parent's Common Stock to the Holder within the time frame set
forth in Section 5 and the Common Stock is not delivered to the Holder by
the Delivery Date, as compensation to the Holder for such loss, the
Corporation agrees to pay late payments to the Holder for late issuance
of the Parent's Common Stock in the form required pursuant to this
Section 5 in the amount equal to the greater of (i) $400 per business
day after the Delivery Date and (ii) the holder's actual damages from
such delayed delivery. The Parent shall pay any payments incurred under
this Section in immediately available funds upon demand and, in the case
of actual damages, accompanied by reasonable documentation of the amount
of such damages.
In the case of the exercise of the conversion rights set
forth in Section 5(a) the conversion privilege shall be deemed to have
been exercised and the shares of Parent's Common Stock issuable upon such
conversion shall be deemed to have been issued upon the date of receipt
by the Corporation or Transfer Agent of the Notice of Conversion. The
person or entity entitled to receive Parent's Common Stock issuable upon
such conversion shall, on the date such conversion privilege is deemed to
have been exercised and thereafter, be treated for all purposes as the
record holder of such Parent's Common Stock and shall on the same date
cease to be treated for any purpose as the record holder of such shares
of Series A Preferred Stock so converted.
Upon the conversion of any shares of Series A Preferred
Stock no adjustment or payment shall be made with respect to such
converted shares on account of any dividend on the Common Stock, except
that the holder of such converted shares shall be entitled to be paid any
dividends declared on shares of Common Stock after conversion thereof.
The Parent shall not be required, in connection with any
conversion of Series A Preferred Stock, and payment of dividends on
Series A Preferred Stock to issue a fraction of a share of its Series A
Preferred Stock and shall instead deliver a stock certificate
representing the next whole number.
(d) The Conversion Price determined pursuant to Section 5(b)
shall be subject to adjustment from time to time as follows:
(i) In case the Corporation shall at any time (A)
declare any dividend or distribution on its Common Stock or other
securities of the Corporation other than the Series A Preferred Stock,
(B) split or subdivide the outstanding Common Stock, (C) combine the
outstanding Common Stock into a smaller number of shares, or (D) issue by
reclassification of its Common Stock any shares or other securities of
the Corporation, then in each such event the Conversion Price shall be
adjusted proportionately so that the holders of Series A Preferred Stock
shall be entitled to receive the kind and number of shares or other
securities of the Corporation which such holders would have owned or have
been entitled to receive after the happening of any of the events
described above had such shares of Series A Preferred Stock been
converted immediately prior to the happening of such event (or any record
date with respect thereto). Such adjustment shall be made whenever any
of the events listed above shall occur. An adjustment made to the
Conversion Price pursuant to this Section 5(d)(i) shall become effective
immediately after the effective date of the event for the event.
(e) (i) In case of any merger of the Corporation with or
into any other corporation (other than a merger in which the Corporation
is the surviving or continuing corporation and which does not result in
any reclassification, conversion, or change of the outstanding shares of
Common Stock) then unless the right to convert shares of Series A
Preferred Stock shall have terminated, as part of such merger lawful
provision shall be made so that holders of Series A Preferred Stock shall
thereafter have the right to convert each share of Series A Preferred
Stock into the kind and amount of shares of stock and/or other securities
or property receivable upon such merger by a holder of the number of
shares of Common Stock into which such shares of Series A Preferred Stock
might have been convertible by the holder immediately prior to such
consolidation or merger. Such provision shall also provide for
adjustments that shall be as nearly equivalent as may be practicable to
the adjustments provided for in Section (d) of this Section 5. The
foregoing provisions of this Section 5(e) shall similarly apply to
successive mergers.
(ii) In case of any sale or conveyance to another person
or entity of the property of the Corporation as an entirety, or
substantially as an entirety, in connection with which shares or other
securities or cash or other property shall be issuable, distributable,
payable, or deliverable for outstanding shares of Common Stock, then,
unless the right to convert such shares shall have terminated, lawful
provision shall be made so that the holders of Series A Preferred Stock
shall thereafter have the right to convert each share of the Series A
Preferred Stock into the kind and amount of shares of stock or other
securities or property that shall be issuable, distributable, payable, or
deliverable upon such sale or conveyance with respect to each share of
Common Stock immediately prior to such conveyance.
(f) Whenever the number of shares to be issued upon
conversion of the Series A Preferred Stock is required to be adjusted as
provided in this Section 5, the Corporation shall forthwith compute the
adjusted number of shares to be so issued and prepare a certificate
setting forth such adjusted conversion amount and the facts upon which
such adjustment is based, and such certificate shall forthwith be filed
with the Transfer Agent for the Series A Preferred Stock and the Common
Stock; and the Corporation shall mail to each holder of record of Series
A Preferred Stock notice of such adjusted conversion price.
(g) So long as any shares of Series A Preferred Stock shall
remain outstanding and the holders thereof shall have the right to
convert the same in accordance with provisions of this Section 6 the
Corporation shall at all times reserve from the authorized and unissued
shares of its Common Stock a sufficient number of shares to provide for
such conversions.
(h) Overall Limit on Common Stock Issuable. For so long as
the Parent Corporation is subject to the rules of the OTCBB/ American
Stock Exchange, the number of shares of Common Stock issuable by the
Parent Corporation and acquirable by the Holder under all securities
issued by the Company to the Holder, shall not exceed 19.99% of the
number of shares of the Parent's Common Stock issued and outstanding on
the date hereof , subject to appropriate adjustment for stock splits,
stock dividends, or other similar recapitalizations affecting the
Parent's Common Stock (the "Maximum Common Stock Issuance"), unless the
issuance of shares hereunder in excess of the Maximum Common Stock
Issuance shall first be approved by the Corporation's shareholders. If
at any point in time and from time to time the number of shares of
Parent's Common Stock issued pursuant to conversion of the Preferred
Stock, together with the number of shares of Parent's Common Stock that
would then be issuable by the Corporation in the event of the conversion
or exercise of all other securities issued by the Company of the entire
Stated Value of the Preferred Stock, would exceed the Maximum Common
Stock Issuance but for this Section, then upon written notice provided by
the Holder, which such notice shall not be provided until the Holder has
been issued in the aggregate not less than 19.99% of the number of shares
of the Parent's Common Stock issued and outstanding on the date hereof ,
the Corporation shall promptly call a shareholders meeting to obtain
shareholder approval for the issuance of the shares of Common Stock
hereunder in excess of the Maximum Common Stock Issuance.
(j) The Corporation shall pay the amount of any and all issue
taxes (but not income taxes) which may be imposed in respect of any issue
or delivery of stock upon the conversion of any shares of Series A
Preferred Stock, but all transfer taxes and income taxes that may be
payable in respect of any change of ownership of Series A Preferred Stock
or any rights represented thereby or of stock receivable upon conversion
thereof shall be paid by the person or persons surrendering such stock
for conversion.
6. Voting Rights. The shares of Series A Preferred Stock shall
not have voting rights.
7. Events of Default.
The occurrence of any of the following events of default (each, an
"Event of Default") shall, after the applicable period to cure the Event
of Default, cause the dividend rate described in Section 3 hereof to
become twenty percent (20%) from and after the occurrence of such event
until the Holder shall no longer hold the any Preferred Stock, and the
Holder shall have the option to require the Corporation to redeem the
Series A Preferred Stock held by such Holder by the immediate payment to
the Holder by the Corporation of a sum of money equal to 120% of the
outstanding Stated Value, plus accrued and unpaid dividends:
7.1 Failure to Make Payment. The Corporation fails to pay
any payment required to be paid pursuant to the terms of hereof or the
failure to timely pay any other sum of money due to the Holder from the
Corporation and such failure continues for a period of five (5)
business days after written notice to the Corporation from the Holder.
7.2 Breach of Covenant. The Corporation breaches any
material covenant or other term or condition of this Certificate of
Designations or the Purchase Agreement in any material respect and such
breach, if subject to cure, continues for a period of five (5) days after
written notice to the Corporation from the Holder.
7.3 Breach of Representations and Warranties. Any material
representation or warranty of the Corporation made herein, in the
Purchase Agreement, or in any agreement, statement or certificate given
in writing pursuant hereto or in connection therewith shall be false or
misleading.
7.4 Receiver or Trustee. The Corporation shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of
its property or business; or such a receiver or trustee shall otherwise
be appointed.
7.5 Judgments. Except for judgments related to obligations
of the Parent ., which are reflected on the Corporation's balance sheet,
any money judgment, writ or similar final process shall be entered or
filed against Corporation or any of its property or other assets for more
than $100,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.
7.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any
bankruptcy law or any law for the relief of debtors shall be instituted
by or against the Corporation.
7.7 Stop Trade. An SEC stop trade order or Principal Market
trading suspension for a period in excess of five (5) business days.
7.8 Default Under Related Agreement. An Event of Default
occurs under and as defined in any one or more of the following
agreements which is not cured during any applicable cure or grace period:
(i) Securities Purchase Agreement between the Corporation and Laurus
Master Fund, Ltd., (iii) Pledge Agreement between the Corporation and
Laurus Master Fund, Ltd. and (iv) Pledge and Security Agreement between
the Corporation and Laurus Master Fund, Ltd., as each such agreement may
be amended, modified and supplemented from time to time.
8.0. Status of Converted or Redeemed Stock. In case any
shares of Series A Preferred Stock shall be redeemed or otherwise
repurchased or reacquired, the shares so redeemed, converted, or
reacquired shall resume the status of authorized but unissued shares of
Preferred Stock and shall no longer be designated as Series A Preferred
Stock.
In witness whereof, Cycle Country Accessories Corp. Subsidiary. has
caused this Certificate to be executed
by________________________________________, this __ day of June, 2003.
CYCLE COUNTRY ACCESSORIES SUBSIDIARY CORP.
By:______________________________________
EXHIBIT A
NOTICE OF CONVERSION
(To Be Executed By the Registered Holder in Order to Convert the Series A
Convertible Preferred Stock of Cycle Country Accessories Corp. Subsidiary
The undersigned hereby irrevocably elects to convert ______________
shares of Series A Convertible Preferred Stock and $_____________ of the
dividend due, into shares of Parent's Common Stock of Cycle Country
Accessories Corp. Subsidiary (the "Corporation") according to the
conditions hereof, as of the date written below.
Date of
Conversion:______________________________________________________________
Applicable Conversion Price Per Share:___________________________________
Number of Parent's Common Shares Issuable Upon This Conversion:__________
Signature:_______________________________________________________________
Print
Name:___________________________________________________________________
Address:_________________________________________________________________
_________________________________________________________________________
Deliveries Pursuant to this Notice of Conversion Should Be Made to:
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
EXHIBIT B
FORM OF WARRANT
Right to Purchase 40,000 Shares of Common Stock
of Cycle Country Accessories Corp. (subject to
adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. [2003-2] Issue Date: June 9, 2003
Cycle Country Accessories Corp., a corporation organized under
the laws of the State of Delaware (the "Company"), hereby certifies
that, for value received, LAURUS MASTER FUND, LTD., or assigns (the
"Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company from and after the Issue Date of this
Warrant and at any time or from time to time before 5:00 p.m., New
York time, through seven (7) years after such date (the "Expiration
Date"), up to 40,000 fully paid and nonassessable shares of Common
Stock (as hereinafter defined), $.01 par value per share, of the
Company, at the Exercise Price (as defined below). The number and
character of such shares of Common Stock and the Exercise Price are
subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include Cycle Country Accessories
Corp. and any corporation which shall succeed or assume the
obligations of Cycle Country Accessories Corp. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common
Stock, $.01 par value per share, and (b) any other securities into
which or for which any of the securities described in (a) may be
converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holder of the Warrant at any time
shall be entitled to receive, or shall have received, on the exercise
of the Warrant, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for
or in replacement of Common Stock or Other Securities pursuant to
Section 4 or otherwise.
(d) The term "Exercise Price" shall be $4.00 per share;
1. Exercise of Warrant.
1.1 Number of Shares Issuable upon Exercise. From and
after the date hereof through and including the Expiration Date, the
Holder shall be entitled to receive, upon exercise of this Warrant in
whole or in part, by delivery of an original or fax copy of the
exercise notice attached hereto as Exhibit A (the "Exercise Notice"),
shares of Common Stock of the Company, subject to adjustment pursuant
to Section 4.
1.2 Fair Market Value. Fair Market Value of a share of
Common Stock as of a particular date (the "Determination Date") shall
mean:
(a) If the Company's Common Stock is traded on an
exchange or is quoted on the NASD OTC Bulletin Board ("OTCBB") or the
American Stock Exchange Smallcap ("AMEX"), then the closing or last
sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an
exchange or on the OTCBB or AMEX, then the mean of the average of the
closing bid and asked prices reported for the last business day
immediately preceding the Determination Date.
(c) Except as provided in clause (d) below, if the
Company's Common Stock is not publicly traded, then as the Holder and
the Company agree or in the absence of agreement by arbitration in
accordance with the rules then in effect of the American Arbitration
Association, before a single arbitrator to be chosen from a panel of
persons qualified by education and training to pass on the matter to
be decided.
(d) If the Determination Date is the date of a
liquidation, dissolution or winding up, or any event deemed to be a
liquidation, dissolution or winding up pursuant to the Company's
charter, then all amounts to be payable per share to holders of the
Common Stock pursuant to the charter in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per
share in respect of the Common Stock in liquidation under the charter,
assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of the Warrant are
outstanding at the Determination Date.
2. Procedure for Exercise.
2.1 Delivery of Stock Certificates, etc. on Exercise. The
Company agrees that the shares of Common Stock purchased upon exercise
of this Warrant shall be deemed to be issued to the Holder as the
record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered and payment made for
such shares as aforesaid. As soon as practicable after the exercise of
this Warrant in full or in part, and in any event within 3 business
days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the Holder, or as such Holder (upon payment by
such holder of any applicable transfer taxes) may direct in compliance
with applicable securities laws, a certificate or certificates for the
number of duly and validly issued, fully paid and nonassessable shares
of Common Stock (or Other Securities) to which such Holder shall be
entitled on such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such
fraction multiplied by the then Fair Market Value of one full share,
together with any other stock or other securities and property
(including cash, where applicable) to which such Holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
2.2 Exercise.
(a) Payment may be made by delivery of the Warrant,
and/or Common Stock receivable upon exercise of the Warrant in
accordance with Section (b) below, for the number of Common Shares
specified in such form (as such exercise number shall be adjusted to
reflect any adjustment in the total number of shares of Common Stock
issuable to the holder per the terms of this Warrant) and the Holder
shall thereupon be entitled to receive the number of duly authorized,
validly issued, fully-paid and non-assessable shares of Common Stock
(or Other Securities) determined as provided herein.
(b) Notwithstanding any provisions herein to the
contrary, if the Fair Market Value of one share of Common Stock is
greater than the Exercise Price (at the date of calculation as set
forth below), the Holder may elect to receive shares equal to the
value (as determined below) of this Warrant (or the portion thereof
being exercised) by surrender of this Warrant at the principal office
of the Company together with the properly endorsed Exercise Notice in
which event the Company shall issue to the Holder a number of shares
of Common Stock computed using the following formula:
X=Y (A-B)
A
Where X= the number of shares of Common Stock to be issued to the Holder
Y= the number of shares of Common Stock purchasable under
the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being
exercised (at the date of such calculation)
A= the Fair Market Value of one share of the Company's
Common Stock (at the date of such calculation)
B= Exercise Price (as adjusted to the date of such calculation)
3. Effect of Reorganization, etc.; Adjustment of Exercise Price.
3.1 Reorganization, Consolidation, Merger, etc. In case
at any time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person,
or (c) transfer all or substantially all of its properties or assets
to any other person under any plan or arrangement contemplating the
dissolution of the Company, then, in each such case, as a condition to
the consummation of such a transaction, proper and adequate provision
shall be made by the Company whereby the Holder of this Warrant, on
the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the
effective date of such dissolution, as the case may be, shall receive,
in lieu of the Common Stock (or Other Securities) issuable on such
exercise prior to such consummation or such effective date, the stock
and other securities and property (including cash) to which such
Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such Holder
had so exercised this Warrant, immediately prior thereto, all subject
to further adjustment thereafter as provided in Section 4.
3.2 Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its
properties or assets, the Company, prior to such dissolution, shall at
its expense deliver or cause to be delivered the stock and other
securities and property (including cash, where applicable) receivable
by the Holder of the Warrant after the effective date of such
dissolution pursuant to Section 3.1 to a bank or trust company having
its principal office in New York, NY, as trustee for the Holder of the
Warrant.
3.3 Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any
transfer) referred to in this Section 3, this Warrant shall continue
in full force and effect and the terms hereof shall be applicable to
the shares of stock and other securities and property receivable on
the exercise of this Warrant after the consummation of such
reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities,
including, in the case of any such transfer, the person acquiring all
or substantially all of the properties or assets of the Company,
whether or not such person shall have expressly assumed the terms of
this Warrant as provided in Section 4. In the event this Warrant does
not continue in full force and effect after the consummation of the
transactions described in this Section 3, then only in such event will
the Company's securities and property (including cash, where
applicable) receivable by the holders of the Warrant be delivered to
the Trustee as contemplated by Section 3.2.
3.4 Adjustment of Warrant Exercise Price and Number of
Shares upon Issuance of Common Stock. Other than (i) pursuant to
warrants or options that are outstanding as of the date hereof and
warrants and options that may be granted in the future under any
option plan of the Company, or any employment agreement, joint
venture, credit, leasing or other financing agreement or any joint
venture or other strategic arrangement, in each case now or
hereinafter entered into by the Company, (ii) pursuant to any
securities issued by the Company to the Holder, (iii) pursuant to any
agreement entered into by the Company or any of its subsidiaries for
the acquisition of another business (whether by stock purchase or
asset purchase, merger or otherwise; ((i), (ii) and (iii) above, are
hereinafter referred to as the "Excluded Issuances")), if the Company
at any time shall issue any shares of Common Stock prior to the
complete exercise of this Warrant for a consideration less than the
Exercise Price that would be in effect at the time of such issue,
then, and thereafter successively upon each such issue, the Exercise
Price shall be reduced as follows: (i) the number of shares of Common
Stock outstanding immediately prior to such issue shall be multiplied
by the Exercise Price in effect at the time of such issue and the
product shall be added to the aggregate consideration, if any,
received by the Company upon such issue of additional shares of Common
Stock; and (ii) the sum so obtained shall be divided by the number of
shares of Common Stock outstanding immediately after such issue. The
resulting quotient shall be the adjusted Exercise Price. For purposes
of this adjustment, the issuance of any security of the Company
carrying the right to convert such security into shares of Common
Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Exercise Price upon the issuance
of shares of Common Stock upon exercise of such conversion or purchase
rights..
4. Extraordinary Events Regarding Common Stock. In the event
that the Company shall (a) issue additional shares of the Common Stock
as a dividend or other distribution on outstanding Common Stock, (b)
subdivide its outstanding shares of Common Stock, or (c) combine its
outstanding shares of the Common Stock into a smaller number of shares
of the Common Stock, then, in each such event, the Exercise Price
shall, simultaneously with the happening of such event, be adjusted by
multiplying the then Exercise Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be
the number of shares of Common Stock outstanding immediately after
such event, and the product so obtained shall thereafter be the
Exercise Price then in effect. The Exercise Price, as so adjusted,
shall be readjusted in the same manner upon the happening of any
successive event or events described herein in this Section 4. The
number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be
entitled to receive shall be increased to a number determined by
multiplying the number of shares of Common Stock that would otherwise
(but for the provisions of this Section 4) be issuable on such
exercise by a fraction of which (a) the numerator is the Exercise
Price that would otherwise (but for the provisions of this Section 4)
be in effect, and (b) the denominator is the Exercise Price in effect
on the date of such exercise.
5. Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of the Warrant, the Company at
its expense will promptly cause its Chief Financial Officer or other
appropriate designee to compute such adjustment or readjustment in
accordance with the terms of the Warrant and prepare a certificate
setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based,
including a statement of (a) the consideration received or receivable
by the Company for any additional shares of Common Stock (or Other
Securities) issued or sold or deemed to have been issued or sold, (b)
the number of shares of Common Stock (or Other Securities) outstanding
or deemed to be outstanding, and (c) the Exercise Price and the number
of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or
readjustment and as adjusted or readjusted as provided in this
Warrant. The Company will forthwith mail a copy of each such
certificate to the holder of the Warrant and any Warrant agent of the
Company (appointed pursuant to Section 11 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant.
The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrant, shares of Common
Stock (or Other Securities) from time to time issuable on the exercise
of the Warrant.
7. Assignment; Exchange of Warrant. Subject to compliance
with applicable securities laws, this Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof
(a "Transferor") with respect to any or all of the Shares. On the
surrender for exchange of this Warrant, with the Transferor's
endorsement in the form of Exhibit B attached hereto (the "Transferor
Endorsement Form") and together with evidence reasonably satisfactory
to the Company demonstrating compliance with applicable securities
laws, which shall include, without limitation, a legal opinion from
the Transferor's counsel that such transfer is exempt from the
registration requirements of applicable securities laws, the Company
at its expense (but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the
Transferor thereof a new Warrant of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor
Endorsement Form (each a "Transferee"), calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock
called for on the face or faces of the Warrant so surrendered by the
Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Company or,
in the case of any such mutilation, on surrender and cancellation of
this Warrant, the Company at its expense will execute and deliver, in
lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The Holder of this Warrant has been
granted certain registration rights by the Company. These
registration rights are set forth in a Securities Purchase Agreement
entered into by the Company and Purchaser of the Company's Preferred
Stock (the "Preferred Stock") at or prior to the issue date of this
Warrant.
10. Maximum Exercise. The Holder shall not be entitled to
exercise this Warrant on an exercise date, in connection with that
number of shares of Common Stock which would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the
shares of Common Stock of the Company on such date. For the purposes
of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited
to aggregate exercises which would result in the issuance of more than
4.99%. The restriction described in this paragraph may be revoked
upon 75 days prior notice from the Holder to the Company and is
automatically null and void upon an Event of Default under the
Preferred Stock.
11. Warrant Agent. The Company may, by written notice to the
each holder of the Warrant, appoint an agent for the purpose of
issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to
Section 7, and replacing this Warrant pursuant to Section 8, or any of
the foregoing, and thereafter any such issuance, exchange or
replacement, as the case may be, shall be made at such office by such
agent.
12. Transfer on the Company's Books. Until this Warrant is
transferred on the books of the Company, the Company may treat the
registered holder hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
13. Notices, etc. All notices and other communications from
the Company to the Holder of this Warrant shall be mailed by first
class registered or certified mail, postage prepaid, at such address
as may have been furnished to the Company in writing by such holder
or, until any such Holder furnishes to the Company an address, then
to, and at the address of, the last Holder of this Warrant who has so
furnished an address to the Company.
14. Voluntary Adjustment by the Company. The Company may at
any time during the term of this Warrant reduce the then current
Exercise Price to any amount and for any period of time deemed
appropriate by the Board of Directors of the Company.
15. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of such change,
waiver, discharge or termination is sought. This Warrant shall be
governed by and construed in accordance with the laws of State of New
York without regard to principles of conflicts of laws. Any action
brought concerning the transactions contemplated by this Warrant shall
be brought only in the state courts of New York or in the federal
courts located in the state of New York; provided, however, that the
Holder may choose to waive this provision and bring an action outside
the state of New York. The individuals executing this Warrant on
behalf of the Company agree to submit to the jurisdiction of such
courts and waive trial by jury. The prevailing party shall be
entitled to recover from the other party its reasonable attorney's
fees and costs. In the event that any provision of this Warrant is
invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with
such statute or rule of law. Any such provision which may prove
invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of this Warrant. The headings
in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the
validity or enforceability of any other provision. The Company
acknowledges that legal counsel participated in the preparation of
this Warrant and, therefore, stipulates that the rule of construction
that ambiguities are to be resolved against the drafting party shall
not be applied in the interpretation of this Warrant to favor any
party against the other party.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company has executed this Warrant under
seal as of the date first written above.
CYCLE COUNTRY ACCESSORIES CORP.
By:_____________________________
Witness:
______________________________
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Cycle Country Accessories Corp.
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.____), hereby irrevocably elects to purchase (check
applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such
Warrant pursuant to the cashless exercise procedure set forth in
Section 2.
The undersigned herewith makes payment of the full Exercise Price for
such shares at the price per share provided for in such Warrant, which
is $___________. Such payment takes the form of (check applicable box
or boxes):
___ the cancellation of such portion of the attached Warrant as is
exercisable for a total of _______ shares of Common Stock (using a
Fair Market Value of $_______ per share for purposes of this
calculation); and/or
___ the cancellation of such number of shares of Common Stock as is
necessary, in accordance with the formula set forth in Section 2, to
exercise this Warrant with respect to the maximum number of shares of
Common Stock purchaseable pursuant to the cashless exercise procedure
set forth in Section 2.
The undersigned requests that the certificates for such shares be
issued in the name of, and delivered to ____________________ whose
address is ___________________________________________________________.
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable upon exercise of the within
Warrant shall be made pursuant to registration of the Common Stock
under the Securities Act of 1933, as amended (the "Securities Act") or
pursuant to an exemption from registration under the Securities Act.
Dated:___________________
___________________
(Signature must conform to name of
holder as specified on the face of the
Warrant)
_____________________________________
(Address)
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns,
and transfers unto the person(s) named below under the heading
"Transferees" the right represented by the within Warrant to purchase
the percentage and number of shares of Common Stock of Cycle Country
Accessories Corp. to which the within Warrant relates specified under
the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints each
such person Attorney to transfer its respective right on the books of
Cycle Country Accessories Corp. with full power of substitution in the
premises.
Transferees
Percentage
Transferred
Number
Transferrred
Dated:___________________
___________________
(Signature must conform to name of
holder as specified on the face of the
Warrant)
Signed in the presence of:
_________________________________
_________________________________
(Name) (address)
ACCEPTED AND AGREED: ________________________________________
[TRANSFEREE] (address)
_____________________________
(Name)
(continued from previous page)
EXHIBIT C
FORM OF OPINION
1. Each of the Parent and the Company is a corporation
validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its business as it is
now being conducted.
2. Each of the Parent and the Company has the requisite
corporate power and authority to execute, deliver and perform its
obligations under the Agreement and Related Agreements. All corporate
action on the part of each of the Parent and the Company, their
officers, directors and stockholders necessary for (i) the
authorization of the Agreement and Related Agreements, and the
performance of all obligations of each of the Parent and the Company
thereunder at each Closing, and (ii) the authorization, sale, issuance
and delivery of the Securities pursuant to the Agreement and the
Related Agreements has been taken. The Preferred Stock, the Parent's
Common Stock and the Parent's Common Stock underlying the Warrant,
when issued pursuant to and in accordance with the terms of the
Agreement and upon delivery, shall be validly issued and outstanding,
fully paid and non assessable.
3. The execution, delivery and performance of the
Agreement, the Preferred Stock or the Related Agreements by the
Company and the consummation of the transactions contemplated by any
thereof, will not, with or without the giving of notice or the passage
of time or both:
(a) Violate the provisions of the Articles or
bylaws of the Parentor the Company; or
(b) To the best of such counsel's knowledge,
violate any judgment, decree, order or award of any
court binding upon the Parent or the Company.
4. The Agreement and Related Agreements constitute and
the Preferred Stock, upon their issuance will constitute, valid and
legally binding obligations of the Parent and the Company, and are
enforceable against each of the Parent and the Company in accordance
with their respective terms.
5. The sale of the Preferred Stock and the subsequent
conversion of the Preferred Stock into share s of the Parent's common
Stock are not and will not be subject to any preemptive rights or, to
such counsel's knowledge, rights of first refusal that have not been
properly waived or complied with. The sale of the Warrants and the
subsequent exercise of the Warrants for shares of the Parent's Common
Stock are not and will not be subject to any preemptive rights or, to
such counsel's knowledge, rights of first refusal that have not been
properly waived or complied with.
6. Assuming the accuracy of the representations and
warranties of the Purchasers contained in the Agreement, the offer,
sale and issuance of the Securities will be exempt from the
registration requirements of the Securities Act, and will have been
registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification
requirements of all applicable state securities laws. To the best of
such counsel's knowledge, neither the Parent nor the Company, nor any
of their affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or
solicited any offers to buy and security under circumstances that
would cause the offering of the Securities pursuant to this Agreement
to be integrated with prior offerings by the Parent or the Company for
purposes of the Securities Act which would prevent the Parent or the
Company from selling the Securities pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder
approval provisions.
7. There is no action, suit, proceeding or investigation
pending or, to the best of such counsel's knowledge, currently
threatened against the Parent or the Company that questions the
validity of the Agreement or the Related Agreements or the right of
the Parent or the Company to enter into any of such agreements, or to
consummate the transactions contemplated thereby, or which might
result, either individually or in the aggregate, in any material
adverse change in the assets, condition, affairs or prospects of the
Parent or the Company, financially or otherwise, or any change in the
current equity ownership of the Parent or the Company. To the best of
such counsel's knowledge, neither the Parent nor the Company is a
party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or
instrumentality; nor is there any action, suit, proceeding or
investigation by the Parent or the Company currently pending or which
the Parent or the Company intends to initiate.