-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OTOrvG03b6jxlU4pwaVOCe7LNiCoAc+a9QqbZR5a2zs0D5lm2DLs9e38Hk12m5X/ onH7Kotfm7lNCQ5CyraKkw== 0001144204-04-009356.txt : 20040630 0001144204-04-009356.hdr.sgml : 20040630 20040630171226 ACCESSION NUMBER: 0001144204-04-009356 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20040630 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CYCLE COUNTRY ACCESSORIES CORP CENTRAL INDEX KEY: 0001157758 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 421523809 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-79923 FILM NUMBER: 04892056 BUSINESS ADDRESS: STREET 1: 2188 HWY 86 CITY: MILFORD STATE: IA ZIP: 51351 MAIL ADDRESS: STREET 1: 2188 HWY 86 CITY: MILFORD STATE: IA ZIP: 51351 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: LAURUS MASTER FUND LTD CENTRAL INDEX KEY: 0001189294 IRS NUMBER: 980337673 STATE OF INCORPORATION: E9 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 152 W 57TH ST CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125415800 SC 13D 1 v04281_sc13d.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE 13D (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (Amendment No. __) Cycle Country Accessories Corp. - -------------------------------------------------------------------------------- (Name of Issuer) COMMON STOCK - -------------------------------------------------------------------------------- (Title of Class of Securities) 232984104 - -------------------------------------------------------------------------------- (CUSIP Number) David Grin Director Laurus Master Fund, Ltd. 825 Third Avenue, 14th Floor New York, NY 10022 Telephone: (212) 541-5800 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) June 22, 2004 - ------------------------------------------------------------------------------ (Date of Event Which Requires Filing of This Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box |_|. Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. (Continued on following pages) - ------------------------------------------------------------------------------ Page 2 CUSIP No. 232984104 13D 1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS 98-0337673 Laurus Master Fund, Ltd. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |_| (b) |_| 3 SEC USE ONLY 4 SOURCE OF FUNDS* WC 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) 6 CITIZENSHIP OR PLACE OF ORGANIZATION Cayman Islands 7 SOLE VOTING POWER: 518,906 NUMBER OF SHARES BENEFICIALLY 8 SHARED VOTING POWER: OWNED BY EACH 9 SOLE DISPOSITIVE POWER: 518,906 REPORTING PERSON WITH 10 SHARED DISPOSITIVE POWER 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 518,906 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_| 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 12.44% 14 TYPE OF REPORTING PERSON:* CO Page 3 Item 1. Security and Issuer. (a) Name and Address of Principal Executive Offices of Issuer: Cycle Country Accessories Corp. P.O. Box 239 2188 Highway 86 Milford, Iowa 51351 (b) Title and Class of Equity Securities: Common Stock Item 2. Identity and Background (a) Name of Person Filing: Laurus Master Fund, Ltd. Laurus Capital Management, L.L.C. controls Laurus Master Fund, Ltd. Eugene Grin and David Grin are the sole members of Laurus Capital Management, L.L.C. Information related to each of Laurus Capital Management, L.L.C., David Grin and Eugene Grin is set forth on Appendix A hereto. (b) Jurisdiction of Incorporation: Cayman Islands (c) Principal Business: Investments in public companies (d) Address of Principal Business and Principal Office: 825 Third Avenue, 14th Floor New York, NY 10022 (e) Criminal Proceedings: During the last five years neither the Reporting Person nor Laurus Capital Management, L.L.C, Eugene Grin or David Grin has been convicted in any criminal proceeding. (f) Civil Proceedings: During the last five years neither the Reporting Person nor Laurus Capital Management, L.L.C., Eugene Grin or David Grin has been party to any civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person would have been subject to any judgment, decree or final order enjoining future violations of or prohibiting or mandating activities subject to Federal or State securities laws or finding any violation with respect to such laws. Page 4 Item 3. Source and Amount of Funds or Other Consideration. Funds for the purchase of the Common Stock of the Issuer are derived from the Reporting Person's working capital. $1,879,350 was paid to acquire 478,906 shares of Common Stock of the Issuer. Additional amounts may be paid should the Reporting Person exercise the Warrant (as defined in Item 4). Item 4. Purpose of the Transaction The Reporting Person acquired the Common Stock and the Warrant as an investment (such transaction described in Item 5(c), below). The Reporting Person plans from time to time to dispose of the Common Stock of the Issuer that it owns. In addition to the 478,906 shares of Common Stock of the Issuer acquired by the Reporting Person, the Reporting Person also holds a warrant (the "Warrant") to purchase up to 40,000 shares of Common Stock of the Issuer. A copy of the Warrant is attached hereto as Exhibit 2. The shares of Common Stock subject to the Warrant are exercisable from the date hereof. The exercise price for the shares of Common Stock that can be acquired under the Warrant is $4.00. The Warrant expires on June 9, 2010. Item 5. Interests in Securities of the Issuer. (a) Number of Shares Beneficially Owned: 518,906 shares Right to Acquire: 40,000 shares (included in amount beneficially owned set forth above) Percent of Class: 12.44% (based upon 4,171,000 shares of common stock outstanding). (b) Sole Power to Vote, Direct the Vote of, or Dispose of Shares: 518,906 shares Shared Power to Vote, Direct the Vote of, or Dispose of Shares: None (c) Recent Transactions: The Reporting Person sold on the American Stock Exchange the following shares of Common Stock of the Issuer on the following dates in the following amounts and received the following proceeds from such sale: Date Sold Amount of Proceeds received shares sold from sale of shares 6/8/2004 1,801 $ 9,394.84 6/9/2004 10,600 $54,204.44 6/10/2004 6,900 $36,429.44 6/16/2004 10,600 $55,777.44 6/17/2004 1,900 $ 9,977.09 6/22/2004 5,400 $28,485.44 Page 5 On June 22, 2004, the Reporting Person agreed with the Issuer (notwithstanding the terms of prior agreements limiting the Reporting Person's right to own no more than 4.99% of the issued and outstanding Common Stock of the Issuer) to convert into Common Stock of the Issuer $1,879,350 of its preferred stock investment in a subsidiary of the Issuer made pursuant to a Securities Purchase Agreement, dated as of June 9, 2003, between the Issuer and the Reporting Person (as amended, modified or supplemented from time to time, the "Securities Purchase Agreement"), and certain related agreements referred to, or entered into in connection with, the Securities Purchase Agreement (such related agreements, as amended, modified or supplemented from time to time, the "Related Agreements"). Each of the Securities Purchase Agreement and the Related Agreements are included as Exhibits hereto. (d) Rights with Respect to Dividends or Sales Proceeds: N/A (e) Date of Cessation of Five Percent Beneficial Ownership: N/A Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer. Pursuant to the Securities Purchase Agreement and the Related Agreements (each referred to above), the Reporting Person holds various rights related to its ownership of the Common Stock of the Issuer and the exercise of the Warrant. See the Securities Purchase Agreement and certain of the Related Agreements which are, in each case attached as an Exhibit hereto, together with the related Certificate of Designation (which is incorporated by reference to the Issuer's 8-K filed on June 12, 2003) for a further description of these provisions. Item 7. Material to Be Filed as Exhibits. Exhibit 1. Securities Purchase Agreement, dated as of June 9, 2003, between the Reporting Person and the Issuer. Exhibit 2. Warrant to Purchase Shares of Common Stock of the Issuer, dated June 9, 2003. Exhibit 3. Registration Rights Agreement, dated as of June 9, 2003, between the Reporting Person and the Issuer. Exhibit 4. Issuer Certificate of Designation SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated as of June 30, 2004. Laurus Master Fund, Ltd. By: /s/ David Grin David Grin Director Page 6 APPENDIX A A. Name of business, principal business and address of corporation or other organization on which employment business and is conducted: Laurus Capital Management, L.L.C., controls Laurus Master Fund, Ltd. 825 Third Avenue, 14th Floor New York, New York 10022 B. Name: Eugene Grin Business 825 Third Avenue, 14th Floor Address: New York, New York 10022 Principal Partner of Laurus Master Fund, Ltd. Occupation: Member of Laurus Capital Management, L.L.C. Name of business, principal business and address of corporation or other organization on which employment business and is conducted: Laurus Master Fund, Ltd., investments in public companies 825 Third Avenue, 14th Floor New York, New York 10022 B. Name: David Grin Business 825 Third Avenue, 14th Floor Address: New York, New York 10022 Principal Partner of Laurus Master Fund, Ltd. Occupation: Member of Laurus Capital Management, L.L.C. Name of business, principal business and address of corporation or other organization on which employment business and is conducted: Laurus Master Fund, Ltd., investments in public companies 825 Third Avenue, 14th Floor New York, New York 10022 Page 7 EXHIBIT INDEX Exhibit No. Document 1 Securities Purchase Agreement, dated as of June 9, 2003, between the Reporting Person and the Issuer. 2 Warrant to Purchase Shares of Common Stock of the Issuer, dated June 9, 2003. 3 Registration Rights Agreement, dated as of June 9, 2003, between the Reporting Person and the Issuer. 4 Issuer Certificate of Designation, incorporated by reference from Cycle Country Accessories Corp. Current Report on Form 8-K, filed June 12, 2003 EX-1 2 v04281_ex1.txt Exhibit 1 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...............................ERROR! BOOKMARK NOT DEFINED. 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...................................................................7 6.7 Taxes..................................................................................7 6.8 Insurance..............................................................................7 6.9 Intellectual Property..................................................................7 6.10 Confidentiality........................................................................7 6.11 Corporate Existence.........................................ERROR! BOOKMARK NOT DEFINED. 6.12 Reissuance of Securities...............................................................8 6.13 Opinion................................................................................8 7. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION...............................8 7.1 Company Indemnification.....................................ERROR! BOOKMARK NOT DEFINED. 7.2 Purchaser's Indemnification.................................ERROR! BOOKMARK NOT DEFINED. 7.3 Procedures.............................................................................8 8. RESTRICTIONS ON TRANSFER........................................................................8 9. REGISTRATION RIGHTS..................................................ERROR! BOOKMARK NOT DEFINED. 9.1 Registration Rights Granted.................................ERROR! BOOKMARK NOT DEFINED.
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9.2 Non-Registration Events.....................................ERROR! BOOKMARK NOT DEFINED. 9.3 Expenses....................................................ERROR! BOOKMARK NOT DEFINED. 9.4 Indemnification and Contribution............................ERROR! BOOKMARK NOT DEFINED. 10. OFFERING RESTRICTIONS...........................................................................8 11. SECURITY INTEREST...............................................................................9 12. MISCELLANEOUS...................................................................................9 12.1 Governing Law..........................................................................9 12.2 Survival...............................................................................9 12.3 Successors and Assigns.................................................................9 12.4 Entire Agreement.......................................................................9 12.5 Severability..........................................................................10 12.6 Amendment and Waiver..................................................................10 12.7 Delays or Omissions...................................................................10 12.8 Notices...............................................................................10 12.9 Attorneys' Fees.......................................................................10 12.10 Titles and Subtitles..................................................................11 12.11 Counterparts..........................................................................11 12.12 Broker's Fees.........................................................................11 12.13 Indemnification.......................................................................11 12.14 Construction..........................................................................11
-ii- 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. -2- 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. -3- 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 there from. 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- 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 9, 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- 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 the OTCBB 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 there under even if the Exchange Act or the rules or regulations there under 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- 6.6 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 there from 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 there for. 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 -7- 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 -8- 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 -9- 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 John E. Tucker, Esq., 152 West 57th Street, 4th Floor, New York, NY 10019, facsimile number (212) 541-4434, 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 -10- 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. -11- IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof. COMPANY: PURCHASER: CYCLE COUNTRY ACCESSORIES CORP. LAURUS MASTER FUND, LTD. By: /s/ David J. Davis By: /s/ David Grin --------------------------- ----------------------------- Name: David J. Davis Name: Title: Vice President / CFO Address: LAURUS MASTER FUND, LTD. Address: P.O. Box 239 c/o Ironshore Corporate Services Ltd. 2188 Highway 86 P.O. Box 1234 G.T., Queensgate House, Milford, IA 51351 South Church Street Grand Cayman, Cayman Islands CYCLE COUNTRY ACCESSORIES CORP. SUBSIDIARY By: /s/ David J. Davis --------------------------- Name: David J. Davis Title: Vice President / CFO Address: P.O. Box 239 2188 Highway 86 Milford, IA 51351 [SECURITIES PURCHASE AGREEMENT SIGNATURE PAGE] C-1 EX-2 3 v04281_ex2.txt Exhibit 2 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 2 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 3 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 4 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 5 "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 6 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] 7 IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of the date first written above. CYCLE COUNTRY ACCESSORIES CORP. By: /s/ David J. Davis ------------------------------ Witness: /s/ Robyn Mitchell - ------------------------------- 8 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. - -------------------------------------------------------------------------------- Percentage Number Transferees Transferred 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) EX-3 4 v04281_ex3.txt Exhibit 3 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of June 9, 2003, by and between Cycle Country Accessories Corp., a Nevada corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman Islands company (the "Purchaser"). This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, by and among the Purchaser, the Company and Cycle Country Accessories Corp. subsidiary ("Subsidiary") (the "Purchase Agreement"), and pursuant to the Preferred Stock and Warrant. The Company and the Purchaser hereby agree as follows: 1. DEFINITIONS. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Effectiveness Date" means the 120th day following the Closing Date. "Effectiveness Period" shall have the meaning set forth in Section 2(a). "Filing Date" means, with respect to the Registration Statement required to be filed hereunder, the 90th day following the Closing Date. "Holder" or "Holders" means the Purchaser or any of its affiliates or transferees to the extent any of them hold Registrable Securities. "Indemnified Party" shall have the meaning set forth in Section 5(c). "Indemnifying Party" shall have the meaning set forth in Section 5(c). "Losses" shall have the meaning set forth in Section 5(a). "Preferred Stock" means preferred stock of the Subsidiary issued on the date hereof. "Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. "Prospectus" means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "Registrable Securities" means the shares of Common Stock issued upon the conversion of to the Preferred Stock and issuable upon exercise of the Warrant. "Registration Statement" means the registration statement required to be filed hereunder, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Rule 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Rule 424" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Warrant" means the Common Stock purchase warrant issued pursuant to the Purchase Agreement. 2. REGISTRATION. (a) On or prior to the Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form SB-2 (except if the Company is not then eligible to register for resale the Registrable Securities on Form SB-2, in which case such registration shall be on another appropriate form in accordance herewith). The Company shall cause the Registration Statement to become effective and remain effective as provided herein. The Company shall use its reasonable commercial efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the Effectiveness Date, and shall keep the Registration Statement continuously effective under the Securities Act until the date which is the earlier date of when (i) all Registrable Securities have been sold or (ii) all Registrable Securities may be sold immediately without registration under the Securities Act and without volume restrictions pursuant to Rule 144(k), as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Holders (the "Effectiveness Period"). (b) If: (i) any Registration Statement is not filed on or prior to the Filing Date; (ii) a Registration Statement filed hereunder is not declared effective by the Commission by the Effectiveness Date; (iii) after a Registration Statement is filed with and declared effective by the Commission, 2 such Registration Statement ceases to be effective (by suspension or otherwise) as to all Registrable Securities to which it is required to relate at any time prior to the expiration of the Effectiveness Period (without being succeeded immediately by an additional registration statement filed and declared effective) for a period of time which shall exceed 30 days in the aggregate per year or more than 20 consecutive calendar days (defined as a period of 365 days commencing on the date the Registration Statement is declared effective); or (iv) the Common Stock is not listed or quoted, or is suspended from trading on any Trading Market for a period of three (3) consecutive Trading Days (provided the Company shall not have been able to cure such trading suspension within 30 days of the notice thereof or list the Common Stock on any of the NASDAQ SmallCap Market, the Nasdaq National Market, or the American Stock Exchange (the "Trading Market"))(any such failure or breach being referred to as an "Event," and for purposes of clause (i), (ii) or (v) the date on which such Event occurs, or for purposes of clause (iii) the date which such 30 day or 20 consecutive day period (as the case may be) is exceeded, or for purposes of clause (iv) the date on which such three (3) Trading Day period is exceeded, being referred to as "Event Date"), then until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 2.0% for each thirty (30) day period (prorated for partial periods) on a daily basis of the issued and outstanding Preferred Stock. Such liquidation damages shall be paid not less than each thirty (30) days during an Event and within three (3) days following the date on which such Event has been cured by the Company. 3. REGISTRATION PROCEDURES. If and whenever the Company is required by the provisions hereof to effect the registration of the Registrable Securities under the Act, the Company will, as expeditiously as possible: (a) prepare and file with the SEC a registration statement with respect to such securities, promptly as possible respond to any comments received from the SEC and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as herein provided), and promptly provide to the Purchaser copies of all filings and SEC letters of comment; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by the registration statement and to keep such registration statement effective until the earlier of: (i) six months after the latest exercise period of the Warrant; (ii) four years after the Closing Date, or (iii) the date on which the Purchaser has disposed of all of the Registrable Securities covered by such registration statement in accordance with the Purchaser's intended method of disposition set forth in such registration statement for such period; (c) furnish to the Purchaser such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as the Purchaser reasonably may request to facilitate the public sale or disposition of the securities covered by such registration statement; (d) use its commercially reasonable efforts to register or qualify the Purchaser's Registrable Securities covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the 3 Purchaser, provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) list the Registrable Securities covered by such registration statement with any securities exchange on which the Common Stock of the Company is then listed; (f) immediately notify the Purchaser at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and (g) make available for inspection by the Purchaser and any attorney, accountant or other agent retained by the Purchaser, all publicly available, non-confidential financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all publicly available, non-confidential information reasonably requested by the attorney, accountant or agent of the Purchaser. 4. REGISTRATION EXPENSES. All expenses relating to the Company's compliance with Sections 2 and 3 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars, fees of, and disbursements incurred by, one counsel for the Holders, and costs of insurance are called "Registration Expenses". All selling commissions applicable to the sale of Registrable Securities, including any fees and disbursements of any special counsel to the Holders beyond those included in Registration Expenses, are called "Selling Expenses." The Company shall be responsible for all Registration Expenses. 5. INDEMNIFICATION. (a) In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless the Purchaser, and its officers, directors and each other person, if any, who controls the Purchaser within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Purchaser, or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Purchaser, and 4 each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by the Purchaser or any such person in writing specifically for use in any such document. (b) In the event of a registration of the Registrable Securities under the Securities Act pursuant to this Agreement, the Purchaser will indemnify and hold harmless the Company, and its officers, directors and each other person, if any, who controls the Company within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact which was furnished in writing by the Purchaser to the Company expressly for use in (and such information is contained in) the registration statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the Purchaser will be liable in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing to the Company by the Purchaser specifically for use in any such document. Notwithstanding the provisions of this paragraph, the Purchaser shall not be required to indemnify any person or entity in excess of the amount of the aggregate net proceeds received by the Purchaser of Registrable Securities in connection with any such registration under the Securities Act. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section 5(c) and shall only relieve it from any liability which it may have to such indemnified party under this Section 5(c) if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 5(c) for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof; if the indemnified party retains its own counsel, then the indemnified party shall pay all fees, costs and expenses of such counsel, provided, however, that, if the 5 defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified parties shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. (d) In order to provide for just and equitable contribution in the event of joint liability under the Securities Act in any case in which either (i) the Purchaser, or any controlling person of the Purchaser, makes a claim for indemnification pursuant to this Section 5(c) but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5(c) provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of the Purchaser or controlling person of the Purchaser in circumstances for which indemnification is provided under this Section 5(c); then, and in each such case, the Company and the Purchaser will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that the Purchaser is responsible only for the portion represented by the percentage that the public offering price of its securities offered by the registration statement bears to the public offering price of all securities offered by such registration statement, provided, however, that, in any such case, (A) the Purchaser will not be required to contribute any amount in excess of the public offering price of all such securities offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. 6. REPRESENTATIONS AND WARRANTIES. (a) The Common Stock of the Company 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 Company has filed (i) its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and (ii) its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2003 (collectively, the "SEC Reports"). The Company is eligible to file with the Commission a registration statement on Form SB-2 pursuant to Instruction I.B.3 thereof. 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 Company 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 6 in accordance with generally accepted accounting principles ("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 condition, the results of operations and the cash flows of the Company and its subsidiaries, on a consolidated basis, as of, and for, the periods presented in each such SEC Report. (b) The Company Common Stock is listed for trading on the Nasdaq National Market and satisfies all requirements for the continuation of such listing. The Company has not received any notice that its Common Stock will be delisted from the Nasdaq National Market or that the Common Stock does not meet all requirements for the continuation of such listing. (c) Neither the Company, nor any of its 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 any security under circumstances that would cause the offering of the Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Common Stock pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions. Nor will the Company or any of its affiliates or subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings. (d) The Registrable Securities are restricted securities under the Securities Act as of the date of this Agreement. The Company will not issue any stop transfer order or other order impeding the sale and delivery of any of the Registrable Securities at such time as the Registrable Securities are registered for public sale or an exemption from registration is available, except as required by federal or state securities laws. (e) The Company understands the nature of the Registrable Securities issuable upon the conversion of the Preferred Stock and the exercise of the Warrant and recognizes that the Registrable Securities may have a potential dilutive effect. The Company specifically acknowledges that its obligation to issue the Registrable Securities is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company. (f) Except for agreements made in the ordinary course of business, there is no agreement that has not been filed with the SEC as an exhibit to a registration statement or to a form required to be filed by the Company under the Securities Exchange Act the breach of which could have a material and adverse effect on the Company and its subsidiaries, or would prohibit or otherwise interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement in any material respect. (g) The Company will at all times have authorized and reserved a sufficient number of shares of Common Stock for the full conversion of the Preferred Stock and exercise of the Warrant. 7 7. MISCELLANEOUS. (a) REMEDIES. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. (b) NO PIGGYBACK ON REGISTRATIONS. Except as and to the extent specified in Schedule 6(b) hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in the Registration Statement other than the Registrable Securities, and the Company shall not after the date hereof enter into any agreement providing any such right for inclusion of shares in the Registration Statement to any of its security holders. Except as and to the extent specified in Schedule 6(b) hereto, the Company has not previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that has not been fully satisfied. (c) COMPLIANCE. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement. (d) DISCONTINUED DISPOSITION. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of a Discontinuation Event, such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph. For purposes of this Section 7(d), a "Discontinuation Event" shall mean when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders); (iii) any request by the Commission or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iv) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (v) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (vi) the occurrence of any event or passage of time that makes the financial statements included in the Registration Statement ineligible for inclusion therein or any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not 8 contain any untrue statement of a material fact or omit to state any 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. (e) PIGGY-BACK REGISTRATIONS. If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to each Holder written notice of such determination and, if within fifteen days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered, subject to customary underwriter cutbacks applicable to all holders of registration rights and subject to the consent of any selling stockholder(s) under such registration statement. (f) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of certain Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (g) NOTICES. Any notice or request hereunder may be given to the Company or Purchaser at the respective addresses set forth below or as may hereafter be specified in a notice designated as a change of address under this Section 7(g). Any notice or request hereunder shall be given by registered or certified mail, return receipt requested, hand delivery, overnight mail or telecopy (confirmed by mail). Notices and requests shall be, in the case of those by hand delivery, deemed to have been given when delivered to any officer of the party to whom it is addressed, in the case of those by mail or overnight mail, deemed to have been given when deposited in the mail or with the overnight mail carrier, and, in the case of a telecopy, when confirmed. The address for such notices and communications shall be as follows: If to the Company: Cycle Country Accessories Corp. Attention: L. Bob Hancher Facsimile: 9 With a copy to: Van Stillman Esq. Facsimile: If to a Purchaser: To the address set forth under such Purchaser name on the signature pages hereto. If to any other Person who is then the registered Holder: To the address of such Holder as it appears in the stock transfer books of the Company or such other address as may be designated in writing hereafter, in the same manner, by such Person. (h) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Each Holder may assign their respective rights hereunder. (i) EXECUTION AND COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. (j) GOVERNING LAW. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right 10 to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of a Transaction Document, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding. (k) CUMULATIVE REMEDIES. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. (l) SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (m) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. CYCLE COUNTRY ACCESSORIES CORP. By: /s/ David J. Davis -------------------------- Name: David J. Davis Title: Vice President/CFO [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES OF PURCHASER TO FOLLOW] 11 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. LAURUS MASTER FUND, LTD. By: /s/ David Grin -------------------------- Name: David Grin Title: Director Address for Notice: c/o Laurus Capital Management, LLC 152 West 57th Street, 4th Floor New York, New York 10019 Attention: David Grin 12 -----END PRIVACY-ENHANCED MESSAGE-----