EXHIBIT 4.1
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ASSOCIATED AUTOMOTIVE GROUP INCORPORATED, THAT SUCH REGISTRATION
IS NOT REQUIRED.
CONVERTIBLE NOTE
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FOR VALUE RECEIVED, ASSOCIATED AUTOMOTIVE GROUP INCORPORATED,
a Florida corporation (hereinafter called the "Borrower"), hereby promises to
pay to LAURUS MASTER FUND, LTD., c/o Ironshore Corporate Services Ltd., P.O. Box
1234 G.T., Queensgate House, South Church Street, Grand Cayman, Cayman Islands,
Fax: 000-000-0000 (the "Holder") on order, without demand, the sum of Five
Hundred Thousand Dollars ($500,000), with any accrued and unpaid interest on
April ___, 2003 (the "Maturity Date").
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a seven (7)
day grace period to pay any monetary amounts due under this Note, after which
grace period a default interest rate of five percent (5%) per annum above the
then applicable interest rate hereunder shall apply to the amounts owed
hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth
in Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.
1.3 Interest Rate. Interest payable on this Note shall accrue
at the annual rate of nine percent (9%) and be payable in arrears commencing one
month from the date hereof and on the successive one month anniversary dates of
the date hereof thereafter, and on the Maturity Date, accelerated or otherwise,
due and payable as described below.
ARTICLE II
PAYMENTS OF PRINCIPAL AND INTEREST
2.1 Monthly Payments. Subject to the terms of this Article II,
the Borrower shall repay one-tenth of the original principal amount of this Note
(to the extent such amount has not been converted pursuant to Article III
below), together with interest accrued to date on such portion of the original
principal amount plus any and all default payments owing under the Purchase
Agreement but not previously paid (collectively the "Monthly Amount"), in
accordance with Section 2.2 below, on the first business day of each consecutive
calendar month (each, a "Repayment Date"), beginning on the first such day which
occurs following sixty (60) days from the date hereof.
2.2 Cash or Common Stock. Subject to the terms hereof, the
Borrower shall have the right to satisfy payment of the Monthly Amount in full
on each Repayment Date either in cash or in shares of Common Stock (but not
both) at the Borrower's option. The Borrower shall deliver to the Holder a
written irrevocable notice in the form of Exhibit B attached hereto electing to
pay such Monthly Amount in full on such Repayment Date in either cash or Common
Stock ("Repayment Election Notice"). Such Repayment Election Notice shall be
delivered at least three (3) days prior to the applicable Repayment Date (the
date of such notice being hereinafter referred to as the "Notice Date"). The
Holder shall have the right to defer for any period of time the payment of the
Monthly Amount in shares of Common Stock in its sole discretion. If such
Repayment Election Notice is not delivered within the prescribed period set
forth in the preceding sentence, then the repayment shall be made in either cash
or shares of Common Stock on the same terms hereunder at the Holder's sole
option. If the Borrower elects or is required to repay any Monthly Amount in
cash on a Repayment Date, then on such Repayment Date the Borrower shall pay to
the Holder an amount equal to the Monthly Amount in satisfaction of such
obligation. If the Borrower elects or is required to repay any Monthly Amount in
shares of Common Stock, the number of such shares to be issued for such
Repayment Date shall be the number determined by dividing (x) the Monthly
Amount, by (y) the applicable Conversion Price as of such Repayment Date.
2.3 No Effective Registration. Notwithstanding anything to the
contrary herein, the Borrower shall be prohibited from exercising its right to
repay the Monthly Amount in shares of Common Stock (and must deliver cash in
respect thereof) on the applicable Repayment Date if at any time from the Notice
Date until the time at which the Holder receives such shares there fails to
exist an effective registration statement or an Event of Default hereunder
exists or occurs, unless otherwise waived in writing by the Holder in whole or
in part at the Holder's option.
2.4 Share Price/Issuance Limitations. Notwithstanding anything
to the contrary herein, the Borrower shall be prohibited from exercising its
right to repay the Monthly Amount in shares of Common Stock (and must deliver
cash in respect thereof) on the applicable Repayment Date if, as of the Notice
Date, the closing bid price of the Common Stock as reported by Bloomberg, L.P.
on the Principal Market for any of the ten previous trading days was less than
125% of the Maximum Base Price. The Holder may waive this provision at any time
in its sole discretion.
2.5 Deemed Conversions. Any repayment of the Monthly Amount in
shares of Common Stock pursuant to the terms hereof shall constitute and be
deemed a conversion of such portion of the applicable principal amount of this
Note for all purposes under this Note and the Purchase Agreement (except as
otherwise provided herein).
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ARTICLE III
CONVERSION RIGHTS
3.1. Conversion into the Borrower's Common Stock.
(a) Subject to the provisions set forth above, the Holder
shall have the right, but not the obligation, from and after the date hereof,
and then at any time until this Note is fully paid, to convert the principal
portion of this Note and/or interest or fees due and payable into fully paid and
nonassessable shares of common stock of the Borrower as such stock exists on the
date of issuance of this Note, or any shares of capital stock of the Borrower
into which such stock shall hereafter be changed or reclassified (the "Common
Stock") at the conversion price as defined in Section 3.1(b) hereof (the
"Conversion Price"), determined as provided herein. Upon delivery to the
Borrower of a Notice of Conversion as described in Section 8 of the Securities
Purchase Agreement entered into between the Borrower and certain persons who are
signatories thereto, including the Holder, relating to this Note (the "Purchase
Agreement") of the Holder's written request for conversion (the date of giving
such notice of conversion being a "Conversion Date"), the Borrower shall issue
and deliver to the Holder within three business days from the Conversion Date
that number of shares of Common Stock for the portion of the Note converted in
accordance with the foregoing. At the election of the Holder, the Borrower will
deliver accrued but unpaid interest on the Note through the Conversion Date
directly to the Holder on or before the Delivery Date (as defined in the
Purchase Agreement). The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
principal of the Note to be converted and interest, if any, by the Conversion
Price. In the event of any conversions of outstanding principal amount under
this Note in part pursuant to this Article III, such conversions shall be deemed
to constitute conversions of outstanding principal amount applying to Monthly
Amounts for the Repayment Dates in chronological order. For example, if the
original principal amount of this Note is $500,000 and the Holder converted
$100,000 of such original principal amount prior to the first Repayment Date,
then (1) the principal amount of the Monthly Amount due on the first Repayment
Date would equal $0, (2) the principal amount of the Monthly Amount due on the
second Repayment Date would equal $0 and (3) the principal amount of the Monthly
Amount due on each of the remaining Repayment Dates would be $50,000.
(b) Subject to adjustment as provided in Section 3.1(c)
hereof, the Conversion Price per share shall be $3.00 (the "Maximum Base
Price"). If an Event of Default has occurred and be continuing hereunder then
the Conversion Price shall be equal to the lower of (i) the Maximum Base Price;
or (ii) seventy percent (70%) of the average of the three lowest closing prices
for the Common Stock on NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ
National Market System, American Stock Exchange, or New York Stock Exchange
(whichever of the foregoing is at the time the principal trading exchange or
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market for the Common Stock, the "Principal Market"), or on any securities
exchange or other securities market on which the Common Stock is then being
listed or traded, for the thirty (30) trading days prior to but not including
the Conversion Date. Notwithstanding the foregoing, subject to the provisions of
Section 8.7 of the Purchase Agreement, the Holder may not receive upon
conversion of the Note more than the number of shares of Common Stock greater
than 19.99% of the shares of Company's common stock outstanding on the date
hereof.
(c) The Maximum Base Price and number and kind of shares or
other securities to be issued upon conversion determined pursuant to Section
3.1(a) and 3.1(b), shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding, as
follows:
X. Xxxxxx, Sale of Assets, etc. If the Borrower at
any time shall consolidate with or merge into or sell or convey all or
substantially all its assets to any other corporation, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of shares or
other securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with respect
to the securities subject to the conversion or purchase right immediately prior
to such consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time
shall, by reclassification or otherwise, change the Common Stock into the same
or a different number of securities of any class or classes, this Note, as to
the unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted number of
such securities and kind of securities as would have been issuable as the result
of such change with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the Common Stock
in shares of Common Stock, the Conversion Price shall be proportionately reduced
in case of subdivision of shares or stock dividend or proportionately increased
in the case of combination of shares, in each such case by the ratio which the
total number of shares of Common Stock outstanding immediately after such event
bears to the total number of shares of Common Stock outstanding immediately
prior to such event.
D. Share Issuance. Subject to the provisions of this
Section, if the Borrower at any time shall issue any shares of Common Stock
prior to the conversion of the entire principal amount of the Note in connection
with a financing transaction for a consideration less than the Conversion Price
that would be in effect at the time of such issue, then, and thereafter
successively upon each such issue, the Conversion Price shall be reduced to the
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per share purchase price of such issue of additional shares of Common Stock.
Notwithstanding the foregoing, subject to the provisions of Section 8.7 of the
Purchase Agreement, the Holder may not receive upon conversion of the Note more
than the number of shares of Common Stock greater than 19.99% of the shares of
Company's common stock outstanding on the date hereof. The issuance of any
security of the Borrower 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 Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists, the
Borrower will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of Common Stock upon the full
conversion of this Note. The Borrower represents that upon issuance, such shares
will be duly and validly issued, fully paid and non-assessable. The Borrower
agrees that its issuance of this Note shall constitute full authority to its
officers, agents, and transfer agents who are charged with the duty of executing
and issuing stock certificates to execute and issue the necessary certificates
for shares of Common Stock upon the conversion of this Note.
3.2 Method of Conversion. This Note may be converted by the
Holder in whole or in part as described in Section 3.1(a) hereof and the
Purchase Agreement. Upon partial conversion of this Note, a new Note containing
the same date and provisions of this Note shall, at the request of the Holder,
be issued by the Borrower to the Holder for the principal balance of this Note
and interest which shall not have been converted or paid.
ARTICLE IV
EVENT OF DEFAULT
The occurrence of any of the following events of default
("Event of Default") shall, at the option of the Holder hereof, make all sums of
principal, interest and other fees then remaining unpaid hereon and all other
amounts payable hereunder immediately due and payable, all without demand,
presentment or notice, or grace period, all of which hereby are expressly
waived, except as set forth below:
4.1 Failure to Pay Principal, Interest or other Fees. The
Borrower fails to pay any installment of principal, interest or other fees
hereon or on any other promissory note issued pursuant to the Purchase
Agreement, when due and such failure continues for a period of five (5) days
after the due date.
4.2 Breach of Covenant. The Borrower breaches any material
covenant or other term or condition of this Note or the Purchase Agreement in
any material respect and such breach, if subject to cure, continues for a period
of seven (7) days after written notice to the Borrower from the Holder.
4.3 Breach of Representations and Warranties. Any material
representation or warranty of the Borrower made herein, in the Purchase
Agreement, or in any agreement, statement or certificate given in writing
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pursuant hereto or in connection therewith shall be false or misleading and
shall not be cured for a period of five (5) business days after written notice
thereof is received by Borrower from Holder.
4.4 Receiver or Trustee. The Borrower 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.
4.5 Judgments. Any final money judgment, writ or similar final
process shall be entered or filed against the Borrower or any of its property or
other assets for more than $150,000, and shall remain unvacated, unbonded or
unstayed for a period of forty-five (45) days.
4.6 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
Borrower; if against, the Borrower shall not have been vacated for sixty days
after such filing.
4.7 Delisting. Delisting of the Common Stock, the result of
which the Common Stock does not tradeon a Principal Market.
4.8 Stop Trade. An SEC stop trade order or Principal Market
trading suspension for a period of 30 days.
4.9 Failure to Deliver Common Stock or Replacement Note. The
Borrower's failure to timely deliver Common Stock to the Holder pursuant to and
in the form required by this Note and Section 8 of the Purchase Agreement, or to
deliver a replacement Note within a reasonable time.
4.10 Registration Default. The occurrence of a
Non-Registration Event as described in Section 9.4 of the Purchase Agreement
except that with respect to a Non-Registration Event in connection with the
required declared effectiveness of the Registration Statement (as defined in the
Purchase Agreement) on or before the Effective Date (as defined in the Purchase
Agreement) such Non-Registration Event must be continuing on or occur after a
date which is one-hundred and twenty (120) days after the Closing Date (as
defined in the Purchase Agreement).
4.11 Non-Compliance with Financial Projections. The Borrower
has greater than $50,000 operating cash flow deficit per month, as defined core
operations, excluding non-recurring charges on the financial statements filed
with the SEC, for at least two fiscal quarters.
If an Event of Default occurs and is continuing, the Holder
may make all sums of principal, interest and other fees then remaining unpaid
hereon and all other amounts payable hereunder immediately due and payable, all
without demand, presentment or notice, or grace period, all of which hereby are
expressly waived. In the event of an acceleration, the amount due and owing to
the Holder shall be 130% of the outstanding principal amount of the Note (plus
accrued and unpaid interest and fees, if any).
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ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on
the part of the Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
5.2 Notices. Any notice herein required or permitted to be
given shall be in writing and shall be deemed effectively given: (a) upon
personal delivery to the party 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 Borrower at the address as set forth on the signature page to the
Purchase Agreement with a copy to Xxxx X. Xxxxxxxxx, Esq., Atlas Xxxxxxxx, P.A.,
Suite 1700, 000 Xxxx Xxx Xxxx Xxxxxxxxx, Xxxx Xxxxxxxxxx, Xxxxxxx 00000,
facsimile number (000) 000-0000 executed in connection herewith and to the
Holder at the address set forth on the signature page to the Purchase Agreement
for such Holder, with a copy to Xxxxxx X. Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx,
0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, facsimile number (000) 000-0000, or at such
other address as the Borrower or the Holder may designate by ten days advance
written notice to the other parties hereto. A Notice of Conversion shall be
deemed given when made to the Borrower pursuant to the Purchase Agreement.
5.3 Amendment Provision. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.
5.4 Assignability. This Note shall be binding upon the
Borrower and its successors and assigns, and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the Holder with
Xxxxxxxx's consent which shall not be unreasonably withheld.
5.5 Cost of Collection. If default is made in the payment of
this Note, the Borrower shall pay the Holder hereof reasonable costs of
collection, including reasonable attorneys' fees.
5.6 Governing Law. This Note 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. Both parties and the individual signing this Note on
behalf of the Borrower agree to submit to the jurisdiction of such courts. 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
Note is invalid or unenforceable under any applicable statute or rule of law,
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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 unenforceability of any other provision
of this Note.
5.7 Maximum Payments. Nothing contained herein shall be deemed
to establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
5.8 Construction. Each party acknowledges that its legal
counsel participated in the preparation of this Note 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 Note to favor
any party against the other.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in
its name effective as of this ___ day of April, 2002.
ASSOCIATED AUTOMOTIVE GROUP INCORPORATED
By:________________________________
WITNESS:
_______________________________
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EXHIBIT A
NOTICE OF CONVERSION
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(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by ASSOCIATED AUTOMOTIVE
GROUP INCORPORATED on April ___, 2002 into Shares of Common Stock of ASSOCIATED
AUTOMOTIVE GROUP INCORPORATED (the "Company") according to the conditions set
forth in such Note, as of the date written below.
Date of Conversion:_____________________________________________________________
Conversion Price:_______________________________________________________________
Shares To Be Delivered:_________________________________________________________
Signature:______________________________________________________________________
Print Name:_____________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
EXHIBIT B
FORM OF REPAYMENT ELECTION NOTICE
To: [HOLDER AT HOLDER'S ADDRESS]
Pursuant to Section 2.2 the Note of Associated Automotive Group
Incorporated issued on April __, 2002, we hereby notify you that we are
irrevocably electing to repay the outstanding Monthly Amount (as defined in the
Note) due on the Repayment Date (as defined in the Note) which occurs on ______,
20__ (CHECK ONE):
_____ In full in cash on such Repayment Date.
_____ In full in shares of the Company's Common Stock within three (3)
trading days following such Repayment Date.
Associated Automotive Group Incorporated
By:
_____________________________________
Name:___________________________________
Title:__________________________________
