Exhibit 5.1
August 12, 1998
VIA FACSIMILE
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Xxxxxxx X. Xxxxxx, President
and Chief Executive Officer
Champion Financial Corporation
0000 Xxxx Xxx Xxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Re: Champion Financial Corporation
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Dear Xx. Xxxxxx:
I am writing to confirm the terms of our agreement with respect to
certain matters relating to Champion Financial Corporation.
1) Within three days of the execution of this agreement, Champion shall
make payment to Thomson Kernaghan & Co. Ltd. ("Thomson Kernaghan") and Xxxxxx
Gmbh ("Xxxxxx") (Thomson Kernaghan and Xxxxxx are referred to collectively
herein as "Thomson") of $7,111.11 in consideration for all interest agreed to be
due and owing pursuant to the terms of the $4 million of 8% Series A Senior
Subordinated Convertible Redeemable Debentures issued by Champion to Thomson
(the "Debentures").
2) At a closing to be held as soon as practicable after execution of
this agreement and in any event no later than August 31, 1998 at Xxxx Xxxxxxx &
Xxxxxx, LLP or at a mutually agreeable location (the "Closing"), Thomson will
deliver the Debentures to Champion and Champion will issue and deliver to
Thomson:
(a) 809,101 shares of freely tradeable and unrestricted
Champion common stock (including the 750,000 shares issued by Champion in
connection with Thomson's purchase of the Debentures), which are being delivered
as conversion shares. In this regard, Thomson represents that (i) it is not a
U.S. person
Xxxxxxx X. Xxxxxx
August 13, 1998
Page 2
as defined in Regulation S promulgated under the Securities Act of 1933 and is
not converting the Debentures on behalf of any U.S. person and (ii) the
representations, contained in the Subscription Agreements are true.
(b) A $1 million Note in exchange for the unconverted portion
of the Debentures (the "Note"). The Note will be payable to Thomson in three
equal payments of $333,333.33 on September 30, 1998, December 31, 1998 and March
31, 1999. If payments are not timely made by Champion under the Note on
September 30, 1998 or December 31, 1998, the Note will begin to accrue interest
pursuant to the terms set forth in Paragraph 4(b) of the Debenture. If Champion
fails to make timely payment on March 31, 1999 of the entire outstanding
principal amount and interest, Thomson will be entitled to immediately convert
the Note into common stock (subject to the 40 day restricted period in
Regulation S, promulgated under the Securities Act of 1933) pursuant to the
conversion formula set forth in paragraph 4(a) of the Debentures, which right to
convert shall be extinguished if and when Champion pays or causes payment to be
made of the entire outstanding principal amount and interest. Thomson shall
retain the right to sell the Note, but following such sale, the right to convert
the Note into common stock may be extinguished at Champion's election. Thomson
agrees to provide Champion written notice of the sale of such Note.
(c) A copy of the opinion letter of Champion's legal counsel
to Champion's transfer agent providing that the stock to be acquired pursuant to
subparagraph 2(a) is freely tradeable and unrestricted.
(d) A payment of $25,000 (Canadian) in the name of Xxxx
Xxxxxxxxx to the Children's Wish Foundation in Canada.
3) At the Closing, Thomson, Xxxx Xxxxxxxxx, InfoPlan Partners, L.L.C.
and Champion shall exchange releases with respect to all claims between them
that were raised or that could have been raised, in connection with or arising
from the Litigations (as that term is defined in paragraph 4 hereto).
4) On the business day following the Closing, the parties shall submit
to the United States District Court for the District of Arizona a stipulation of
dismissal dismissing with prejudice and without costs all claims against Thomson
in the litigation styled InfoPlan Partners, L.L.C. x. Xxxxxxx Xxxxxxxxx & Co.,
Limited, CIV 98-U497 PHXRCB (D. Az.) (the "Arizona
Xxxxxxx X. Xxxxxx
August 13, 1998
Page 3
Litigation"), and to the American Arbitration Association a stipulation
dismissing with prejudice and without costs the arbitration styled Thomson
Kernaghan & Co., Limited v. Champion Financial Corporation, 13 T 181 000312 98
(collectively, the "Litigations").
5) Thomson agrees that Thomson (including officers, representatives and
employees of Thomson, as appropriate) will voluntarily respond to requests by
Champion for discovery and for testimony at trial in the Arizona Litigation,
upon a request or requests by Champion, provided that reasonable notice (as
provided under the Federal Rules of Civil Procedure) of such request or requests
is provided. Champion agrees to reimburse Thomson for costs (including
attorneys' fees and travel and accomodation expenses) actually incurred by
Thomson in the course of cooperating with and responding to requests by
Champion, as provided for in the immediately preceding sentence. Thomson may in
its sole discretion select legal counsel for purposes of cooperating with and
responding to these requests. Champion agrees to make the reimbursement provided
for herein within 30 days following the receipt of an invoice from legal counsel
identifying the legal services provided to Thomson. Champion will have no
obligation to provide any indemnification to Thomson with respect to legal fees,
costs, settlements or judgments or any other such item, arising from any
cross-claims or third party claims brought against Thomson or Xxxx Xxxxxxxxx or
otherwise arising in connection with the Arizona Litigation.
6) Promptly following execution of this letter agreement, Champion will
disseminate, by PR Newswire, a press release which states as follows:
Champion Financial Corporation ("Champion") announced today that
Champion has settled and resolved its disputes and misunderstandings
with Thomson, Kernaghan & Co., Ltd., Xxxxxx GMBH and Xxxx Xxxxxxxxx
(collectively, "Thomson"). Champion also announced that Champion has
agreed to the dismissal of the lawsuit filed against Thomson in Federal
District Court in Arizona, and that Thomson has agreed to the dismissal
of the arbitration proceeding commenced against Champion in New York.
Champion's Chief Executive Officer Xxxxxxx X. Xxxxxx stated that "We
are
Xxxxxxx X. Xxxxxx
August 13, 1998
Page 4
extremely pleased that a business resolution has been reached with
Thomson, and that the parties may turn their full attention to
conducting their respective business."
Except as provided for above, no party hereto shall issue any press release with
respect to this agreement or the subject matters hereof. The foregoing
limitation does not, however, affect or circumscribe any party's disclosure
obligations under the federal securities laws.
7) Thomson agrees to provide a proxy and execute a voting agreement
governing the voting of shares referenced in paragraph 2.
8) This agreement shall be treated as "confidential" by the parties
hereto and shall only be disclosed to third parties (other than the parties'
attorneys and accountants) as required by the terms of this agreement and as
provided for by federal and state law, including in accordance with the parties'
respective disclosure obligations under the federal securities laws, or in
response to any duly issued subpoena.
(a) With respect to the parties' disclosure obligations under
the federal securities laws, the parties understand and acknowledge that it is
likely that one or more of the parties hereto may be required to disclose the
number of shares Thomson will receive as provided for in this agreement, and the
Note (and the terms thereof), among other things (including possibly this
agreement). In this regard, the parties acknowledge that Thomson, in its initial
Schedule 13D or 13G filing with the Securities and Exchange Commission, may
disclose that "in connection with the settlement, Champion agreed, as a
reciprocal gesture of good faith, to make a payment to the Children's Wish
Foundation in Canada in the name of Xxxx Xxxxxxxxx." Xxxxxxx agrees not to
describe the payment made by Champion to the Children's Wish Foundation as
demonstrating or indicating any wrongdoing or bad faith by Champion or its
counsel in the Litigations, including with respect to the commencement and
prosecution of the Arizona Litigation and agrees not to describe the foregoing
payment as indicating a retraction of any claims made by Champion or its counsel
in the Litigations.
Xxxxxxx X. Xxxxxx
August 13, 1998
Page 5
(b) With respect to any duly issued subpoena, the parties
agree to provide notice to the other party of any requests for this agreement or
the terms in this agreement.
9) This agreement is entered into for the sole purpose of resolving
contested claims and disputes and avoiding the substantial costs, expenses and
uncertainties associated with disputes arising from the Litigations. Neither
this agreement, the performance of any of its terms, nor any of its contents,
shall constitute or be construed or offered as evidence in any proceeding as an
admission of any liability or of any fact or any indication that any of the
claims, charges, allegations or conditions made in the Litigations have any
merit, the parties thereto denying any liability or wrongful conduct.
10) This agreement shall be construed in accordance with and governed
by the law of the State of New York. The foregoing choice of law provision is
not intended by the parties to be and shall not be argued or construed as a
venue or forum selection provision. The parties agree and consent that this
agreement may be enforced by way of action in any state or federal court of
competent jurisdiction.
11) Thomson agrees that it will not engage in any short sales of any
Champion security, including in particular Champion common stock, either
directly or indirectly, whether for Thomson's own account or the account of
another, for a period of three (3) years from the date of this agreement. This
provision shall in no way limit Thomson's right to sell the shares of Champion
common stock to be obtained pursuant to this agreement.
12) Any shares of common stock or Note to be issued and delivered, or
payments to be made, pursuant to this agreement shall be split pro rata between
Thomson Kernaghan and Xxxxxx based on the amount paid by them for the Debenture
(75% for Thomson Kernaghan and 25% for Xxxxxx).
13) The parties hereto each agree that they will take such further
actions and execute such additional documents as shall be reasonably necessary
to carry out this agreement and the provisions hereof.
14) This agreement constitutes the entire agreement among the parties
hereto. This agreement may only be amended or modified by a written instrument
signed by all of the parties.
Xxxxxxx X. Xxxxxx
August 13, 1998
Page 6
15) This agreement may be signed in any number of counterparts, and
delivered by means of telecopy, each of which shall be an original, with the
same effect as if the signature thereto were upon the same instrument.
If the above agreement is acceptable to you please sign and return a
copy to me by telecopy at the following number: 000-000-0000.
Sincerely,
/s/ Xxxx Xxxxxxxxx
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Xxxx Xxxxxxxxx
/s/ Xxxxxxx X. Xxxxxx /s/ Xxxxxxx Xxxxxxx
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Xxxxxxx X. Xxxxxx Xxxxxxx Xxxxxxx
Agreed to on behalf of Agreed to on behalf of
Champion Financial Corporation Xxxxxx Gmbh
/s/ Zirk Xxxxxxxxxxx
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Zirk Xxxxxxxxxxx
Agreed to on behalf of
InfoPlan Partner, L.L.C.
cc: Xxxx X. Xxxx
