AFFINITY TECHNOLOGY GROUP, INC. CONVERTIBLE NOTE PURCHASE AGREEMENT

 

Exhibit 4.3

 

                         AFFINITY TECHNOLOGY GROUP, INC.

                       CONVERTIBLE NOTE PURCHASE AGREEMENT

 

 

         THIS CONVERTIBLE NOTE PURCHASE AGREEMENT (this "Agreement") is made and

entered into this 3rd day of June, 2002, by and among Affinity Technology Group,

Inc., a Delaware corporation (the "Company"), and each of the investors

identified on Schedule 1 attached hereto (collectively, the "Purchasers").

 

         WHEREAS, the Company desires to enter into this Agreement with the

Purchasers to sell and issue up to $1,500,000 principal amount of its 8%

convertible secured notes (the "Notes") in substantially the form attached

hereto as Exhibit A; and

 

         WHEREAS, the obligations under the Notes issued from time to time under

this Agreement shall be secured by a security interest in the Company's equity

interest in decisioning.com, Inc., a Delaware corporation and wholly-owned

subsidiary of the Company ("decisioning.com"), pursuant to the Security

Agreement, in substantially the form attached hereto as Exhibit B (the "Security

Agreement"), to be entered into between the Company and the Purchasers at

Closing; and

 

         WHEREAS, the Purchasers desire to enter into this Agreement to acquire

the Notes in the respective amounts set forth on Schedule 1 attached hereto on

the terms and conditions set forth herein;

 

         NOW, THEREFORE, in consideration of the mutual promises,

representations, warranties, covenants and conditions set forth in this

Agreement, the Notes and the Security Agreement, the parties to this Agreement

mutually agree as follows:

 

         1.        AUTHORIZATION AND SALE.

 

                  1.1 Authorization. The Company has authorized the issuance and

sale of the Notes to the Purchasers. The Purchasers acknowledge and agree that

the maturity date of any Note issued under this Agreement shall be no earlier

than the first anniversary and no later than the second anniversary of the date

of issuance of such Notes, as such maturity dates shall be set forth on Schedule

1.

 

                  1.2 Sale. Subject to the terms and conditions hereof, each

Purchaser agrees separately (and not jointly) to purchase from the Company, and

the Company agrees to sell and issue to each Purchaser, a Note in the principal

amount and with the maturity date as set forth next to each Purchaser's name on

Schedule 1 hereto at the respective purchase price set forth opposite such

Purchaser's name on Schedule 1. Each Purchaser shall pay such purchase price by

check or wire transfer of immediately available funds to an account designated

in writing by the Company.

 

         2.        CLOSING; DELIVERY.

 

                  2.1 Initial Closing. The initial closing of the purchase and

sale of the Notes under this Agreement shall take place at the offices of the

Company, 1122 Lady Street, Suite 1145, Columbia, South Carolina 29201, on June

3, 2002 (the "Initial Closing"), or at such other time and date as the parties

may agree in writing.

 

                  2.2 Subsequent Closings. Following the Initial Closing, the

Company may issue and sell additional Notes under this Agreement, on the terms

set forth in this Agreement, provided that the aggregate principal amount of all

Notes issued by the Company at the Initial Closing and each subsequent closing

(a "Subsequent Closing" and, together with the Initial Closing, the "Closing")

shall not exceed $1,500,000. Schedule 1 to this Agreement and the Security

Agreement shall be amended and restated at each Subsequent Closing to reflect

the Notes issued to each Purchaser under this Agreement. Any Notes issued by the

Company at a Subsequent Closing shall be considered "Notes" for all purposes of

this Agreement, and each additional Purchaser shall be a "Purchaser" for all

purposes of this Agreement. Notwithstanding the foregoing, the Company shall not

issue any Notes if an Event of Default shall have occurred and be continuing

under any Note. For purposes of the immediately preceding sentence, an "Event of

Default" shall have the meaning given to such term in each respective Note.

 

 

<PAGE>

 

                  2.3 Delivery. At the Closing, subject to the terms and

conditions hereof, the Company will deliver to the Purchasers the Notes (as set

forth on Schedule 1 hereto) and the Security Agreement, each duly executed by

the Company and dated the date of the Closing, and such other certificates,

consents, waivers and agreements as are reasonably requested by any Purchaser

(together with this Agreement and the Security Agreement, collectively the

"Transaction Documents"), against payment of the purchase price therefor payable

as of the date of such Closing by check or wire transfer. At the Closing, each

Purchaser shall deliver to the Company the Security Agreement, duly executed by

such Purchaser and dated as of the date of Closing.

 

                  2.4 Conditions to Closing. Each Purchaser's obligation to

purchase, and the Company's obligation to sell, the Notes at the Closing is

subject to the Purchasers having received a certificate, dated as of the Closing

Date, of the President of the Company certifying that the board of directors of

the Company has authorized the transactions contemplated by this Agreement and

that the Certificate of Incorporation and Bylaws of the Company attached thereto

are true, complete and correct.

 

 

         3.        REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

         The Company represents and warrants to the Purchasers as follows:

 

                  3.1 Organization and Good Standing. Each of the Company and

its subsidiaries is a corporation duly organized and validly existing under the

laws of Delaware. Each of the Company and its subsidiaries has all requisite

corporate power and authority necessary to conduct its business as it is now

being conducted and as proposed to be conducted and to own or lease the

properties and assets it now owns or holds under lease, and is duly qualified

and in good standing as a foreign corporation in each jurisdiction where the

failure to qualify would have a material adverse effect upon its operations or

financial condition. The Company owns all the issued and outstanding capital

stock of decisioning.com, and no other person, firm or entity has an equity

interest in decisioning.com.

 

                  3.2 Capital Stock. The authorized capital stock of the Company

consists of 60,000,000 shares of common stock, par value $.0001 per share

("Common Stock"), and 5,000,000 shares of preferred stock, par value $.0001 per

share ("Preferred Stock"). As of the close of business on May 1, 2002, (i)

40,731,355 shares of Common Stock were issued and outstanding, (ii) 2,856,690

shares of Common Stock were reserved for issuance upon exercise of options

granted by the Company under the Company's stock option plans, (iii) 1,439,848

shares of Common Stock were reserved for issuance upon exercise of warrants

issued by the Company to certain investors and (iv) no shares of Preferred Stock

were issued and outstanding. Except as set forth in the immediately preceding

sentence or in the SEC Reports (as defined below), as of May 1, 2002, there was

outstanding (i) no shares of capital stock or other voting securities of the

Company, (ii) no securities of the Company convertible into or exchangeable for

shares of capital stock or voting securities of the Company, and (iii) no

options, warrants or other rights to acquire from the Company, and no

subscriptions or other rights, convertible securities, agreements, arrangements

or commitments of any character, obligating the Company to issue, transfer or

sell any capital stock, voting securities or securities convertible into or

exchangeable for capital stock or voting securities of the Company or obligating

the Company to grant, extend or enter into any such option, warrant,

subscription or other right, convertible security, agreement, arrangement or

commitment, other than under this Agreement and the Notes issued hereunder. All

of the Company's outstanding securities have been duly and validly authorized

and issued and are fully paid and nonassessable. The shares of Common Stock that

may be issued upon conversion of the Notes are duly authorized and, when issued

in accordance with the terms of the Notes, will be validly issued, fully paid

and nonassessable.

 

                  3.3 Authorization. The Company has the full corporate power

and authority to enter into this Agreement and each of the Transaction Documents

and to perform all of its obligations contemplated hereunder and thereunder. The

execution, delivery and performance of this Agreement and each of the

Transaction Documents to which the Company is a party have been duly authorized

by all necessary corporate action, and this Agreement and each of the

Transaction Documents constitutes (or will constitute, upon execution thereof) a

legal, valid and binding obligation of the Company, enforceable against the

Company in accordance with its terms, subject to laws of general application

relating to bankruptcy, insolvency and the relief of debtors and rules and laws

governing specific performance, injunctive relief and other equitable remedies.

No further authorization on the part of the Company, its board of directors or

its stockholders is necessary to consummate the transactions contemplated by

this Agreement or any of the Transaction Documents. Except for any filings

required by federal or state securities laws that have been or will be made by

the Company, no consent, approval, authorization or order of, or declaration by,

filing or registration with, any court or governmental or regulatory agency or

board is or will be required in connection with the execution and delivery of

this Agreement and the Transaction Documents and the consummation of the

transactions contemplated hereby or thereby.

 

<PAGE>

 

 

                  3.4 SEC Reports; Financial Statements. The Company has

furnished to the Purchasers the Company's proxy statement, dated as of April 30,

2002, with respect to its 2002 annual meeting of stockholders (the "Proxy

Statement"), annual report on Form 10-K for the year ended December 31, 2001

(the "Form 10-K"), and quarterly report on Form 10-Q for the quarter ended March

31, 2002 (together with the Proxy Statement and the Form 10-K, the "SEC

Reports"), which contain, among other things, the Company's 2001 audited

consolidated financial statements and interim unaudited consolidated condensed

financial statements for the quarter ended March 31, 2002 (collectively, the

"Financial Statements"). The Financial Statements consist of the consolidated

statements of operations, stockholders' equity and cash flows of the Company for

each of the three years in the period ended December 31, 2001, the consolidated

balance sheet of the Company as of December 31, 2001, the condensed consolidated

statements of operations and cash flows for the three months ended March 31,

2002 and March 31, 2001, and the condensed consolidated balance sheet as of

March 31, 2002 (the "Balance Sheet"). As of its filing date, each SEC Document

complied in all material respects with the requirements of the Securities

Exchange Act of 1934, as amended, and did not contain any untrue statement of a

material fact or omit to state any material fact necessary in order to make the

statements therein, in light of the circumstances under which they were made,

not misleading. The Financial Statements (a) are in accordance with the books

and records of the Company, (b) have been prepared in accordance with generally

accepted accounting principles ("GAAP") consistently applied (subject, in the

case of interim financial statements, to normal recurring year-end adjustments

and the absence of notes), and (c) fairly present the financial position of the

Company as of the respective dates thereof, and the results of operations and

cash flows for each of the periods presented.

 

                  3.5 Absence of Undisclosed Liabilities. Except as disclosed in

the SEC Reports, neither the Company nor any of its subsidiaries has any

liabilities or obligations (whether accrued, absolute, contingent, unliquidated

or otherwise, whether due or to become due) other than (a) liabilities or

obligations reserved against or otherwise disclosed in the Balance Sheet, or (b)

other liabilities or obligations (including accounts payable, accrued expenses,

wages and salaries) that were incurred after the date of the Balance Sheet in

the ordinary course of business consistent with past practice.

 

                  3.6. Absence of Material Changes. Except as disclosed in the

SEC Reports, since the date of the Balance Sheet, the Company and its

subsidiaries have conducted their business in the ordinary course, consistent

with past practice, and there has not been (a) any material adverse change in

the condition (financial or otherwise), results of operations, business, assets,

or liabilities of the Company or any subsidiary, individually or taken together

as a whole, or any event or condition which would have such a material adverse

change, (b) any waiver or cancellation of any right of the Company or any

subsidiary to the extent such waiver or cancellation has had or would have a

material adverse effect on the condition (financial or otherwise) results of

operations, business or assets of the Company or any subsidiary, or the

cancellation of any material debt or claim held by the Company or any

subsidiary, (c) any encumbrances upon the assets of the Company or any

subsidiary, other than a Permitted Lien (as defined in Section 5(c)(ii) hereof),

(d) any sale, assignment or transfer of any tangible or intangible assets of the

Company or any subsidiary, except in the ordinary course of business, (e) any

loan by the Company or any subsidiary to any officer, director, employee,

consultant or shareholder of the Company or any subsidiary (other than advances

to such persons in the ordinary course of business in connection with bona fide

business expenses), (f) any damage, destruction or loss (whether or not covered

by insurance) materially and adversely affecting the assets, property, financial

condition or results of operations of the Company or any subsidiary,

individually and taken as a whole, (g) any change in the accounting methods,

practices or policies of the Company or any subsidiary, (h) any indebtedness

incurred for borrowed money by the Company or any subsidiary, other than under

this Agreement, (i) any default that has not been waived or material adverse

amendment or premature termination of any material contract of the Company or

any subsidiary or (j) any agreement or commitment (contingent or otherwise) by

the Company or any subsidiary to do any of the foregoing.

 

<PAGE>

 

         3.7 Title to Properties and Assets; Liens, Etc. The Company and each of

its subsidiaries has good and marketable title to its properties and assets,

including the properties and assets reflected in the Balance Sheet, and good

title to its leasehold estates, in each case subject to no mortgage, pledge,

lien, lease, encumbrance or charge, other than Permitted Liens. All facilities,

equipment, fixtures, and other properties owned, leased or used by the Company

and its subsidiaries are in reasonable operating condition and repair and are

reasonably fit and usable for the purposes for which they are being used. The

Company and each of its subsidiaries are in substantial compliance with all

material terms of each lease to which they are parties or otherwise bound.

 

         3.8 Tax Matters. The Company and its subsidiaries have filed all tax

returns that they are required to file pursuant to any applicable law, and all

such returns are complete and correct in all material respects. The Company and

its subsidiaries have paid all taxes due and owing by them and have withheld and

paid over all taxes which they are obligated to withhold from amounts paid or

owing to any employee, partner, creditor or other third party. Neither the

Company nor any subsidiary has waived any statute of limitations with respect to

taxes or agreed to any extension of time with respect to a tax assessment or

deficiency. The federal income tax returns of the Company and its subsidiaries

have never been audited, no federal, state or local tax audits are pending or

being conducted with respect to the Company or any of its subsidiaries, no

information related to tax matters has been requested by any federal, state or

local taxing authority, and no notice indicating an intent to open an audit or

other review has been received by the Company or any of its subsidiaries from

any federal, state or local taxing authority.

 

         3.9 Compliance with Law and Other Instruments. To the Company's

knowledge, the Company and its subsidiaries have complied in all material

respects with, and are not in material violation of, any and all statutes, laws,

regulations, decrees and orders of the United States and of all states,

municipalities and agencies applicable to the Company, its subsidiaries or the

conduct of their respective businesses. Upon consummation of this Agreement,

neither the Company nor any of its subsidiaries will be in default in any

material respect in the performance of any obligation, agreement or condition

contained in any bond, debenture, promissory note, indenture, loan agreement or

other material contract to which it is a party or by which its properties are

bound. Neither the issuance of the Notes, or the execution and delivery of this

Agreement and the Transaction Documents nor the consummation of the transactions

contemplated herein or therein, will (i) conflict with, constitute a breach of,

constitute a default under, or an event which, with notice or lapse of time or

both, would be a breach of or default under, the respective certificates of

incorporation or bylaws of the Company or any of its subsidiaries, (ii) conflict

with or constitute a breach of, constitute a default under, or an event which,

with notice or lapse of time or both would be a breach of or default under, any

agreement, indenture, mortgage, deed of trust or other instrument or undertaking

to which the Company or any of its subsidiaries is a party or by which any of

its properties are bound which would have a material adverse effect on the

Company's business, (iii) constitute a violation of any law, regulation,

judgment, order or decree applicable to the Company or any of its subsidiaries,

(iv) result in the creation or imposition of any lien or material charge or

encumbrance upon any property of the Company or any of its subsidiaries, other

than under the Security Agreement, or (v) permit any party to terminate any

agreement to which the Company or any of its subsidiaries is a party or

beneficiary thereto which would have a material adverse effect on the Company's

business.

 

                  3.10 Litigation. Except as disclosed in the SEC Reports, there

is no litigation or governmental proceeding or investigation pending or, to the

Company's knowledge, threatened against or affecting the Company or any of its

subsidiaries, which would reasonably be expected to result in any judgment or

liability which would materially and adversely affect any of the property and

assets of the Company or any of its subsidiaries, or the right of the Company or

any of its subsidiaries to conduct its or their businesses as now conducted or

as proposed to be conducted.

 

                  3.11 Intellectual Property. Except as disclosed in the SEC

Reports, the Company and its subsidiaries own or possess sufficient legal rights

to all patents, trademarks, service marks, trade names, copyrights, trade

secrets, licenses, information and other intellectual property and proprietary

rights and processes (collectively, "Intellectual Property") used in their

business as now conducted and as presently proposed to be conducted, without any

known infringement of the rights of others. The Company has not received any

communications alleging that the Company has violated or, by conducting its

business as presently proposed, would violate any of the patents, trademarks,

service marks, trade names, copyrights, trade secrets or other proprietary

rights of any other person or entity. The Company has transferred and assigned

all of its rights under the following patents to decisioning.com: U.S. Patent

No. 5870721 ("System and Method for Real Time Loan Approval"); U.S. Patent No.

5940811 ("Closed Loop Financial Transaction Method and Apparatus"); and U.S.

Patent No. 6105007 ("Automatic Financial Account Processing System")

(collectively, the "Patents").

 

<PAGE>

 

 

                  3.12 Disclosure. Neither this Agreement nor any of the

Transaction Documents contains any untrue statement of any material fact, or

omits to state any material fact that is necessary in order to make the

statements contained herein or therein, in light of the circumstances under

which they were made, complete and not misleading.

 

         4.        REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

 

         Each Purchaser hereby severally represents and warrants to the Company

as follows:

 

                  4.1 Purchase for Own Account. Such Purchaser is acquiring the

Notes and the securities into which they may be converted for its own account,

for investment and not with a view to or in connection with any distribution or

resale thereof. Such Purchaser does not have any contract, understanding,

agreement or arrangement with any person to sell or transfer the Notes or the

securities into which they may be converted.

 

                  4.2 Restrictions on Transfer. Such Purchaser understands that

(a) neither the Notes nor any securities issuable upon conversion thereof has

been registered under the Securities Act of 1933, as amended (the "Securities

Act"), or the securities laws of any jurisdiction and (b) the economic risk of

an investment in the Notes must be borne for an indefinite period of time

because neither the Notes nor the securities into which they may be converted

may be sold or otherwise transferred unless subsequently registered under the

Securities Act or an exemption from registration under the Securities Act is or

becomes available.

 

                  4.3 Knowledge of the Purchaser. Such Purchaser (a) is

knowledgeable with respect to the financial, tax and business aspects of

ownership of the Notes and the securities into which they may be converted and

of the business of the Company and (b) can bear the economic risk of an

investment in the Notes including the complete loss thereof. By virtue of his or

its own knowledge and experience in financial and business matters, such

Purchaser is capable of evaluating the merits and risks of making this

investment. Such Purchaser is an "accredited investor" within the meaning of

Rule 501(a) of Regulation D promulgated under the Securities Act.

 

                  4.4 Power and Authority. Such Purchaser has the requisite

power and authority to enter into this Agreement, to purchase the Notes and to

carry out and perform his or its obligations under the terms of this Agreement.

The execution, delivery and performance by such Purchaser of this Agreement and

the other Transaction Documents to which such Purchaser is a party do not

contravene the terms of such Purchaser's organizational documents and do not

violate, conflict with or result in any breach or contravention of any contract

or agreement of such Purchaser or constitute a violation of any law, regulation,

judgment, order or decree applicable to such Purchaser

 

                  4.5 Due Execution. This Agreement has been duly authorized,

executed and delivered by such Purchaser and, upon due execution and delivery by

the Company, will be a valid and binding agreement of such Purchaser, subject to

laws of general application relating to bankruptcy, insolvency and the relief of

debtors and rules and laws governing specific performance, injunctive relief and

other equitable remedies.

 

          5. COVENANTS. Until the date that any amounts due under the Notes are

         no longer outstanding:

 

          (a) The Company and each of its subsidiaries will maintain true books

     and records of account in which full and correct entries will be made of

     all its business transactions pursuant to a system of accounting

     established and administered in accordance with GAAP consistently applied,

     and will set aside on its books all such proper accruals and reserves as

     shall be required under GAAP consistently applied.

          (b) The Company will furnish the Purchasers, promptly upon request,

     such information about the business, condition (financial or otherwise) or

     operations of the Company and its subsidiaries as the Purchasers may from

     time to time reasonably request, provided that the requested information is

     reasonably available to the Company or can be easily obtained and provided

     further that each requesting Purchaser shall have entered into a

     confidentiality agreement with the Company in form and substance reasonably

     satisfactory to the Company.

 

<PAGE>

 

          (c) The Company shall not, and shall not permit any of its

     subsidiaries to, directly or indirectly, take any of the following actions

     without first obtaining the approval of Purchasers holding at least a

     majority of the aggregate principal balance of all Notes then outstanding:

 

                           (i) create, incur, or assume any indebtedness for

                   money borrowed in excess of $500,000 in the aggregate by the

                  Company or any of its subsidiaries other than indebtedness

                  pursuant to this Agreement;

 

                           (ii) mortgage, encumber, create, or incur liens on

                  the assets of the Company or any of its subsidiaries, other

                  than (A) under this Agreement and the Security Agreement, (B)

                  liens incurred in the ordinary course of business, (C) liens

                   in favor of carriers, warehousemen, mechanics, landlords and

                  materialmen and other similar persons that are incurred in the

                  ordinary course of business for sums not yet due and payable;

                  (D) liens for current taxes incurred in the ordinary course of

                  business that are not delinquent or remain payable without any

                  penalty or are being contested in good faith by appropriate

                  proceedings; (E) statutory liens of banks and statutory rights

                  of set-off; (F) as to any leased assets or properties, rights

                  of the lessors thereof, including liens evidenced by the

                  filing, for notice purposes only, of financing statements in

                  respect of true leases; (G) liens incurred in the ordinary

                  course of business in connection with workers' compensation,

                  unemployment insurance or other forms of governmental

                   insurance or benefits, or to secure the performance of letters

                  of credit, bids, tenders, statutory obligations, surety and

                  appeal bonds, leases, government contracts and other similar

                  obligations (other than obligations for borrowed money)

                  entered into in the ordinary course of business; and (H) liens

                  and encumbrances that do not materially detract from the value

                  of the property subject thereto or materially impair the

                  operations of the Company and its subsidiaries (collectively,

                  "Permitted Liens");

 

                           (iii) pay, or set aside any sums for the payment of,

                  any distributions or dividends on the equity securities of the

                  Company, or repurchase or otherwise acquire any of the

                  Company's outstanding equity securities, other than in

                  connection with the termination of an employee's employment

                  with the Company or any of its subsidiaries;

 

                           (iv) cause decisioning.com to convey, distribute,

                  assign or transfer the Patents to the Company or any affiliate

                   thereof; or

 

                           (v) agree or otherwise commit to take any of the

                  actions set forth in the foregoing clauses (i) through (iv).

 

                  (d) In case any one or more of the covenants and/or agreements

         set forth in this Agreement or the Transaction Documents shall have

         been breached by any party hereto, the Purchasers, with respect to a

         breach by the Company, and the Company, with respect to a breach by the

         Purchasers, may proceed to protect and enforce his or its rights either

         by suit in equity or by action at law or by both, including but not

         limited to an action for damages as a result of any such breach or an

         action for specific performance of any such covenant or agreement

         contained in the