EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below, is entered into by and between AMERICAN CHAMPION ENTERTAINMENT,
INC., a Delaware corporation, with headquarters located at 0000 Xxx Xxxxxxx,
Xxxxx 000, Xxx Xxxx, XX 00000-0000 (the "Company"), and each entity named on a
signature page hereto (each, a "Buyer")(each agreement with a Buyer being
deemed a separate and independent agreement between the Company and such Buyer,
except that each Buyer acknowledges and consents to the rights granted to
each other Buyer under such agreement and the Transaction Agreements, as
defined below, referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this Agreement
in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"),
and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, 7% Convertible Debentures of the Company which
will be convertible into shares of Common Stock, $.0001 par value per share of
the Company (the "Common Stock"), upon the terms and subject to the conditions
of such Convertible Debentures, together with the Warrants (as defined below)
exercisable for the purchase of shares of Common Stock (the "Warrant Shares"),
and subject to acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase; Certain Definitions.
(i) The undersigned hereby agrees to purchase from the Company 7%
Convertible Debentures in the principal amount set forth on the Buyer's
signature page of this Agreement (the "Debentures"), out of a total offering
of $1,250,000 of such Debentures, and having the terms and conditions and
being in the form attached hereto as Annex I. The purchase price for the
Debentures shall be as set forth on the signature page hereto and shall be
payable in United States Dollars.
(ii) As used herein, the term "Securities" means the Debentures, the Common
Stock issuable upon conversion of the Debentures, the Warrants and the
Warrant Shares.
(iii) As used herein, the term "Purchase Price" means the purchase price for
the Debentures.
(iv) As used herein, the term "Closing Date" means the date of the closing
of the purchase and sale of the Debentures, as provided herein.
(v) As used herein, the term "Effective Date" means the effective date of
the Registration Statement covering the Registrable Securities (as those terms
are defined in the Registration Rights Agreement defined below).
(vi) As used herein, the term "Market Price of the Common Stock" means the
average closing bid price of the Common Stock for the lowest three (3)
trading days (which need not be consecutive) during the ten (10) trading days
ending on the trading day immediately before the date indicated in the
relevant provision hereof (unless a different relevant period is specified in
the relevant provision), as reported by Bloomberg, LP or, if not so reported,
as reported on the over-the-counter market.
b. Form of Payment; Delivery of Debentures.
(i) The Buyer shall pay the Purchase Price for the Debentures by delivering
immediately available good funds in United States Dollars to the escrow agent
(the "Escrow Agent") identified in the Joint Escrow Instructions attached
hereto as Annex II (the "Joint Escrow Instructions") on the date prior to the
Closing Date.
(ii) No later than the Closing Date, but in any event promptly following
payment by the Buyer to the Escrow Agent of the Purchase Price, the Company
shall deliver the Debentures and the Warrants, each duly executed on behalf of
the Company, to the Escrow Agent.
(iii) By signing this Agreement, each of the Buyer and the Company, subject
to acceptance by the Escrow Agent, agrees to all of the terms and conditions
of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth
in full.
c. Method of Payment. Payment into escrow of the Purchase Price shall be
made by wire transfer of funds to:
Bank of New York
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
ABA# 000000000
For credit to the account of Xxxxxxx & Xxxxxx LLP, Esqs.
Account No.: [To be provided to the Buyer by Xxxxxxx & Prager LLP]
RE: American Champion Entertainment 12/99 Transaction
Not later than 5:00 p.m., New York time, on the date which is two (2) New York
Stock Exchange trading days after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Escrow
Agent by facsimile, the Buyer shall deposit with the Escrow Agent the Purchase
Price for the Debentures in currently available funds. Time is of the essence
with respect to such payment, and failure by the Buyer to make such payment,
shall allow the Company to cancel this Agreement.
d. Escrow Property. The Purchase Price and the Debentures and Warrants
delivered to the Escrow Agent as contemplated by Sections 1(b) and (c) hereof
are referred to as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
a. Without limiting Buyer's right to sell the Common Stock pursuant to
the Registration Statement (as that term is defined in the Registration Rights
Agreement defined below), the Buyer is purchasing the Debentures and the
Warrants and will be acquiring the shares of Common Stock issuable upon
conversion of the Debentures (the "Converted Shares") and the Warrant Shares
for its own account for investment only and not with a view towards the public
sale or distribution thereof and not with a view to or for sale in connection
with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described
in this Agreement and the related documents, (iii) able, by reason of the
business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way
by the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its
investment in the Securities.
c. All subsequent offers and sales of the Debentures and the shares of
Common Stock representing the Converted Shares and the Warrant Shares (such
Common Stock sometimes referred to as the "Shares") by the Buyer shall be made
pursuant to registration of the Shares under the 1933 Act or pursuant to an
exemption from registration.
d. The Buyer understands that the Debentures are being offered and sold
to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Debentures. The
Buyer represents and warrants that the address of its principal place of
business is as set forth on the Buyer's signature page of this Agreement.
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Debentures and the offer of
the Shares which have been requested by the Buyer, including Annex V hereto.
The Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers
to any such inquiries. Without limiting the generality of the foregoing, the
Buyer has also had the opportunity to obtain and to review the Company's (1)
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998, (2)
Quarterly Reports on Form 10- QSB for the fiscal quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999, (3) Proxy Statement for the Company's
annual meeting of shareholders held on May 5, 1999 and Proxy Statement for the
Company's special meeting of shareholders held on December 10, 1999, and (4)
Registration Statement on Form S-3 filed with the SEC on December 13, 1999
(the "Company's SEC Documents").
f. The Buyer understands that its investment in the Securities involves a
high degree of risk.
g. The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability
to general principles of equity and to bankruptcy, insolvency, moratorium and
other similar laws affecting the enforcement of creditors' rights generally.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that, except as provided in
Annex V hereto:
a. Concerning the Debentures and the Shares. There are no preemptive
rights of any stockholder of the Company, as such, to acquire the Debentures,
the Warrants or the Shares.
b. Reporting Company Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power to own its properties and to carry on
its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure
to so qualify would not have a material adverse effect on the business,
operations or condition (financial or otherwise) or results of operation of the
Company and its subsidiaries taken as a whole. The Company has registered its
Common Stock pursuant to Section 12 of the 1934 Act, and the Common Stock is
listed and traded on The NASDAQ/SmallCap Market. The Company has received no
notice, either oral or written, with respect to the continued eligibility of
the Common Stock for such listing, and the Company has maintained all
requirements for the continuation of such listing.
c. Authorized Shares. The Company has sufficient authorized and unissued
Shares as may be reasonably necessary to effect the conversion of the
Debentures and to issue the Warrant Shares. The Converted Shares and the
Warrant Shares have been duly authorized and, when issued upon conversion of,
or as interest on, the Debentures or upon exercise of the Warrants, each in
accordance with its respective terms, will be duly and validly issued, fully
paid and non-assessable and will not subject the holder thereof to personal
liability by reason of being such holder.
d. Securities Purchase Agreement; Registration Rights Agreement and Stock.
This Agreement and the Registration Rights Agreement, the form of which is
attached hereto as Annex IV (the "Registration Rights Agreement"), and the
transactions contemplated thereby, have been duly and validly authorized by the
Company, this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the Debentures, the Warrants and the Registration Rights
Agreement, when executed and delivered by the Company, will be, valid and
binding agreements of the Company enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting
the enforcement of creditors' rights generally.
e. Non-contravention. The execution and delivery of this Agreement and
the Registration Rights Agreement by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Debentures do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under (i)
the articles of incorporation or by-laws of the Company, each as currently in
effect, (ii) any indenture, mortgage, deed of trust, or other material
agreement or instrument to which the Company is a party or by which it or any
of its properties or assets are bound, including any listing agreement for the
Common Stock except as herein set forth, (iii) to its knowledge, any existing
applicable law, rule, or regulation or any applicable decree, judgment, or
order of any court, United States federal or state regulatory body,
administrative agency, or other governmental body having jurisdiction over the
Company or any of its properties or assets, or (iv) the Company's listing
agreement for its Common Stock, except such conflict, breach or default which
would not have a material adverse effect on the business, operations or
condition (financial or otherwise) or results of operations of the Company and
its subsidiaries, taken as a whole, or on the transactions contemplated herein.
f. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the
Buyer as contemplated by this Agreement, except such authorizations, approvals
and consents that have been obtained or that are contemplated by this
Agreement to be obtained on a date after the date hereof.
g. SEC Filings. None of the Company's SEC Documents contained, at the
time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were
made, not misleading. Except for certain filings required to be filed by
persons subject and pursuant to Section 16 of the 1934 Act, the Company has
since November 1, 1998 timely filed all requisite forms, reports and exhibits
thereto with the SEC.
h. Absence of Certain Changes. Since December 31, 1998, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, except as disclosed in the Company's SEC Documents.
Since December 31, 1998, except as provided in the Company's SEC Documents, the
Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent) except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses or waived any rights of material value, whether or not
in the ordinary course of business, or suffered the loss of any material amount
of existing business; (vi) made any changes in employee compensation, except in
the ordinary course of business consistent with past practices; or (vii)
experienced any material problems with labor or management in connection with
the terms and conditions of their employment.
i. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in
the Company's SEC Documents) that has not been disclosed in writing to the
Buyer that (i) would reasonably be expected to have a material adverse effect
on the business, operations or condition (financial or otherwise) or results
of operations of the Company and its subsidiaries, taken as a whole, (ii)
would reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement or any of
the agreements contemplated hereby (collectively, including this Agreement,
the "Transaction Agreements"), or (iii) would reasonably be expected to
materially and adversely affect the value of the rights granted to the Buyer
in the Transaction Agreements.
j. Absence of Litigation. Except as set forth in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of
the Company, threatened against or affecting the Company, wherein an
unfavorable decision, ruling or finding would have a material adverse effect
on the properties, business or financial condition, or results of operation of
the Company and its subsidiaries taken as a whole or the transactions
contemplated by any of the Transaction Agreements or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, any of the Transaction Agreements.
k. Absence of Events of Default. Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has
occurred and is continuing, which would have a material adverse effect on the
business, operations or condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole.
l. Prior Issues. During the twelve (12) months preceding the date
hereof, the Company has not issued any convertible securities. The presently
outstanding unconverted principal amount of each such issuance as of the date
of this Agreement is set forth in Annex V.
m. No Undisclosed Liabilities or Events. The Company has no liabilities
or obligations other than those disclosed in the Company's SEC Documents or
those incurred in the ordinary course of the Company's business since December
31, 1998, and which individually or in the aggregate, do not or would not have
a material adverse effect on the properties, business, condition (financial or
otherwise), or results of operations of the Company and its subsidiaries,
taken as a whole. Except for the transactions contemplated by the Transaction
Agreements, no event or circumstances has occurred or exists with respect to
the Company or its properties, business, condition (financial or otherwise),
or results of operations, which, under applicable law, rule or regulation,
requires public disclosure or announcement prior to the date hereof by the
Company but which has not been so publicly announced or disclosed. There are
no proposals currently under consideration or currently anticipated to be
under consideration by the Board of Directors or the executive officers of the
Company which proposal would (x) change the certificate of incorporation or
other charter document or by-laws of the Company, each as currently in effect,
with or without shareholder approval, which change would reduce or otherwise
adversely affect the rights and powers of the shareholders of the Common Stock
or (y) materially or substantially change the business, assets or capital of
the Company, including its interests in subsidiaries.
n. No Default. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property
is bound.
o. No Integrated Offering. Neither the Company nor any of its affiliates
nor any person acting on its or their behalf has, directly or indirectly, at
any time since November 1, 1998 made any offer or sales of any security or
solicited any offers to buy any security under circumstances that would
eliminate the availability of the exemption from registration under Rule 506
of Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
p. Dilution. The number of Shares issuable upon conversion of the
Debentures and the exercise of the Warrants may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to
the conversion of the Debentures. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The
board of directors of the Company has concluded, in its good faith business
judgment, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Debentures and upon exercise of the Warrants 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, and the
Company will honor every Notice of Conversion (as defined in the Debentures)
relating to the conversion of the Debentures and every Notice of Exercise Form
(as contemplated by the Warrants) relating to the exercise of the Warrants
unless the Company is subject to an injunction (which injunction was not
sought by the Company) prohibiting the Company from doing so.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the Debentures
have not been and are not being registered under the provisions of the 1933
Act and, except as provided in the Registration Rights Agreement, the
Securities have not been and are not being registered under the 1933 Act, and
may not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant
to an exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the
Debentures and the Warrants, and, until such time as the Common Stock has been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective Registration Statement,
certificates and other instruments representing any of the Securities shall
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
c. Registration Rights Agreement. The parties hereto agree to enter into
the Registration Rights Agreement on or before the Closing Date.
d. Filings and Shareholder Consent. (i) The Company undertakes and
agrees to make all necessary filings in connection with the sale of the
Debentures to the Buyer under any United States laws and regulations applicable
to the Company, or by any domestic securities exchange or trading market, and
to provide a copy thereof to the Buyer promptly after such filing.
(ii) Subject to the conditions of the immediately following sentence, the
Company undertakes and agrees to take all steps necessary to have a meeting
and vote of the shareholders of the Company no later than the Meeting Date
(as defined below) regarding authorization of the Company's issuance to the
holders of the Debentures and Warrants of shares of Common Stock in excess of
twenty percent (20%) of the outstanding shares of Common Stock on the date of
this Agreement in accordance with NASDAQ Rule 4310(c)(25)(H). The terms of
the immediately preceding sentence shall apply only once the Company has
issued, after the date of this Agreement, either (x) to the Holder Class
Members of any specific Holder Class, shares of Common Stock which, in the
aggregate equal or exceed seventy-five percent of the Conversion Limit of that
Holder Class (as such terms are defined below), or (y) to any one or more
holders of all Debentures contemplated by this Agreement shares of Common
Stock which, in the aggregate, equal or exceed ten percent (10%) of the
outstanding shares of Common Stock on the date hereof. The earliest date on
which the issuance of such shares contemplated by the immediately preceding
sentence occurs shall constitute, with further notice from a Buyer, a "Meeting
Requirement Date." The term "Meeting Date" means the date which is seventy-five
(75) days after the Meeting Requirement Date. The Company will recommend to
the shareholders that such authorization be granted and will seek proxies from
shareholders not attending the meeting (if such meeting is required to
effectuate such authorization) naming a director or officer of the Company as
such shareholder's proxy and directing the proxy to vote, or giving the proxy
the authority to vote, in favor of such authorization. Upon determination
that the shareholders have voted in favor of such authorization, the Company
shall cause its counsel to issue to the Buyer an unqualified opinion (the
"Authorization Opinion") that such authorization has been duly adopted by all
necessary corporate action of the Company and that the Company will be able to
issue, without restriction as to the number of such shares, all shares of
Common Stock as may be issuable upon conversion of the Debentures and without
any limits imposed by the Cap Regulations (as defined in the Debentures)
adopted on or before and in effect on the date of the Authorization Opinion.
The Authorization Opinion shall state that the Buyer may rely thereon in
connection with the transactions contemplated by this Agreement and the other
Transaction Agreements regarding its holdings of the Debentures. If, for any
reason, (x) the Authorization Opinion is not issued within five (5) business
days after such meeting, (y) the meeting is not held by the Meeting Date or
(z) the requisite shareholder approval is not obtained at the meeting, then in
lieu of issuing any shares in violation of NASDAQ Rule 4310(c)(25)(H) or any
of the other Cap Regulations, the Company shall redeem the outstanding
Unconverted Debentures (as defined in the Debentures) as set forth in Section
6 of the Debenture within thirty (30) days after the Meeting Date.
(iii) In furtherance of the provisions of the immediately preceding
subparagraph (ii) hereof, the Company (a) commits to using its best efforts to
obtain any shareholder authorization contemplated by said subparagraph (ii),
and (b) represents to the Buyer that the Company has obtained the binding
irrevocable commitment or proxy (each, a "Principal Voter Proxy") of each
Principal Voter (as defined below) that such Principal Voter will vote in
favor of any shareholder authorization contemplated by said subparagraph (ii).
Each Principal Voter Proxy shall be issued in favor of the Buyer or the
Buyer's designee and shall state that, among other things, as a result of the
Principal Voter's direct or indirect relationship to the Company on the date
the Principal Voter Proxy is given, such Principal Voter Proxy is deemed
coupled with an interest in favor of the Buyer. A "Principal Voter" is a person
who meets any one or more of the following criteria: (A) a person who is a
director or principal officer of the Company (each, a "Company Principal") and
who, directly or indirectly, holds any shares of Common Stock of the Company;
(B) a spouse of a Company Principal who resides in the household of the
Company Principal (a "Principal's Spouse") and who, directly or indirectly,
holds any shares of Common Stock of the Company, (C) a parent, sibling or
child of a Company Principal who resides in the household of a Company
Principal or of a Principal's Spouse (each, a "Principal's Relative") and who,
directly or indirectly, holds any shares of Common Stock or (D) any other
person or entity, including, without limitation, for profit or non-profit
corporations, partnerships and trusts, whose voting rights regarding Common
Stock of the Company is subject to the direction, control or other influence
of any Company Principal, Principal's Spouse or Principal's Relative. The
Company will deliver such Principal Voter Proxies to the Buyer or the Buyer's
designee within ten (10) business days after the Closing Date.
e. Reporting Status. So long as the Buyer beneficially owns any of the
Debentures, the Company shall file all reports required to be filed by the
Company with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the
Company shall not voluntarily terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company will take
all reasonable action under its control to continue the listing and trading of
its Common Stock (including, without limitation, all Registrable Securities)
on The NASDAQ SmallCap Market and will comply in all material respects with
the Company's reporting, filing and other obligations under the by-laws or
rules of the National Association of Securities Dealers, Inc. ("NASD") or The
NASDAQ SmallCap Market.
f. Use of Proceeds. Unless otherwise consented by the Buyer, the
Company shall use the proceeds from the sale of the Debentures (excluding
amounts paid by the Company for legal fees, finder's fees and escrow fees in
connection with the sale of the Debentures) for internal working capital
purposes, and, except as expressly provided herein, shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person, including any of its
affiliates, or to repay any debt to any of its affiliates.
g. Certain Agreements. The Company covenants and agrees that it will
not, without the prior written consent of the Buyer, enter into any subsequent
or further offer or sale of Common Stock or securities convertible into Common
Stock with any third party on any date which is prior to one hundred twenty
(120) days after the Effective Date. The foregoing provisions shall not
restrict the Company from issuing shares of Common Stock upon the exercise of
(x) certain warrants for the purchase of up to approximately 3,168,875 shares
outstanding as of the date hereof and (y) certain options granted or be
granted pursuant to the 1997 Stock Option Plan or the 1997 Non-Employee
Directors Stock Option Plan.
h. Available Shares. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield two hundred percent (200%) of the number of shares of
Common Stock issuable (i) at conversion as may be required to satisfy the
conversion rights of the Buyer pursuant to the terms and conditions of the
Debentures and (ii) upon exercise as may be required to satisfy the exercise
rights of the Buyer pursuant to the terms and conditions of the Warrants.
i. Warrants. The Company agrees to issue to the Buyer on the Closing
Date transferable, divisible warrants (the "Warrants") for the purchase of ten
thousand (10,000) shares of Common Stock for every $100,000 principal of
Debentures purchased by the Buyer. The Warrants shall bear an exercise price
equal to one hundred twenty-five percent (125%) of the Market Price of the
Common Stock on the Closing Date (the "Warrant Exercise Price"). The Warrants
will expire on the third anniversary of the Closing Date. The Warrants shall
be in the form annexed hereto as Annex VI, together with registration rights
as provided in the Registration Rights Agreement.
j. Limitation on Conversions. Anything in the other provisions of this
Agreement or any of the other Transaction Agreements to the contrary
notwithstanding, the following provisions are applicable to conversion
effected under the Debentures:
(i) Attached to this Agreement as Annex VIII is a schedule of all of the
Buyers who were the original signatories to this Agreement (each, an "Original
Holder") and the original principal amount (the "Original Debenture Amount")
of the Debenture issued to each such Original Holder as contemplated by this
Agreement (each, an "Original Debenture"). For identification purposes and
for the purposes of this Section only, Annex VIII also identifies the "Holder
Class" for each Original Debenture. Each Original Debenture will include an
identification of its relevant Holder Class. Any reissue of an Original
Debenture to the Original Holder or to any direct or indirect assignee or
transferee of all or part of such Original Debenture shall include an
identification of the same Holder Class. The Original Holder of each Holder
Class and any other party at any time holding a Debenture of the same Holder
Class are referred to collectively as the "Holder Class Members."
(ii) If and for so long as the Cap Regulations are applicable to limit the
issuance of shares on conversion of the Debentures (but not thereafter), the
number of shares that the Company will issue to all Holder Class Members of a
specific Holder Class on conversion of the Debentures of that Holder Class
shall not, in the aggregate, exceed the Conversion Limit (as defined below).
(iii) As of the Closing Date, the term "Conversion Limit" means the number
of shares equal to (A) 19.99% of the number of outstanding shares of Common
Stock of the Company as of the Closing Date, which number is specified on
Annex V annexed hereto; provided, however, that such number is subject to
adjustment for subsequent stock splits, stock dividends and other similar
actions or transactions affecting the capital formation of the Company),
multiplied by (B) the relevant Holder Class Allocable Share (as defined below).
(iv) If, for any reason whatsoever, there are no Debentures of a specific
Holder Class outstanding (a "Closed Class"), the Company shall promptly give
written notice (the "Closed Class Notice") of such fact to the then holders of
outstanding Debentures of all other Holder Classes. The Closed Class Notice
shall (A) identify the date on which the Holder Class became a Closed Class,
and (B) specify both the number of shares issued, in the aggregate to all
Holder Class Members of the Closed Class (the "Closed Class Issued Shares")
and the most recent Conversion Limit that was applicable to the Closed Class
(the "Closed Class Conversion Limit"). The term "Remaining Shares" means the
excess, if any, of the Closed Class Conversion Limit over the Closed Class
Issued Shares.
(v) The Conversion Limit in effect on the Closing Date or as subsequently
adjusted as provided below shall be adjusted or further adjusted, as the case
may be, on the next date on which there is a new Closed Class which results in
Remaining Shares (a "Closed Class Date"). As of the Closed Class Date, the
Conversion Limit then in effect will be adjusted for each Holder Class as to
which there are still outstanding Debentures to be equal to the sum of (A) the
Conversion Limit in effect immediately prior to the Closed Date, plus (B) the
Remaining Share Conversion Limit (as defined below). The Conversion Limit, as
so adjusted, shall then be deemed to be the Conversion Limit for all Holder
Classes as to which Debentures are still outstanding on the relevant Closed
Class Date, subject to further adjustment, as provided in this subparagraph
(v) in the event there is a subsequent Closed Class Date.
(vi) The "Remaining Share Conversion Limit" means the number of shares
equal to (C) the Remaining Shares, multiplied by (D) the relevant Adjusted
Holder Class Allocable Share (as defined below).
(vii) The term "Holder Class Allocable Share" means the fraction of which
the numerator is the Original Debenture Amount of the relevant Holder Class
and the denominator is the aggregate Original Debenture Amount of all Holder
Classes.
(viii) The term "Adjusted Holder Class Allocable Share" means, with respect
to each Holder Class as to which there are outstanding Debentures on the
Closed Class Date, the fraction of which the numerator is the Original
Debenture Amount of the relevant Holder Class and the denominator is the
aggregate Original Debenture Amount of all Holder Classes as to which there
are there are outstanding Debentures on the Closed Class Date.
(ix) Nothing in this Section 4(j) shall be deemed to (A) permit a transfer
or assignment of the Debenture unless otherwise permitted by other provisions
of this Agreement or the Debenture or (B) limit or otherwise modify the
obligations of the Company to take certain actions or to make certain payments
to the Buyer or other parties (such as but not necessarily limited to, actions
with respect to the meeting contemplated by Section 4(d)(ii) hereof or
payments on redemption of the Debentures), or adversely affect the rights of
the Buyer or such other parties with respect thereto, as provided elsewhere in
this Agreement, the Debentures or any of the other Transaction Agreements.
x. Xxxxx of Security Interest to Buyers.
(i) To secure its obligations to the Buyers and to all direct and indirect
permitted transferees and assignees of their interests in this Agreement and
the other Transaction Agreements, including, but not necessarily limited to,
the Debentures (any one or more of the Buyers and such transferees and
assignees individually and collectively referred to as the "Secured Party"),
the Company (sometimes referred to as the "Debtor") hereby grants, conveys,
transfers and assigns to the Secured Party a security interest in and to the
Collateral (as defined in Annex VII hereto) to the fullest extent permissible
under the Uniform Commercial Code or other governing security interests granted
by debtors or obligors to creditors or obligees as in effect in each
jurisdiction in which the Debtor's property may be found or deemed situate.
(ii) Solely for administrative convenience and not for any other purpose,
each Secured Party has designated Xxxxxxx & Prager LLP as agent for the
Secured Party for purposes of execution of and identification on any financing
statement or similar instrument referring to or describing the Collateral.
Such designation shall remain in effect until canceled by such Secured Party;
provided, however, that such cancellation shall not affect the validity of any
action theretofore taken by such agent pursuant to this provision. The Debtor
acknowledges and agrees to honor such designation.
(iii) Additional terms relating to the grant of this security interest are
specified in Annex VII annexed hereto, the terms of which are incorporated
herein by reference as if set forth herein in full.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the Purchase Price for
the Debentures in accordance with Section 1(c) hereof, the Company will
irrevocably instruct its transfer agent to issue Common Stock from time to
time upon conversion of the Debentures in such amounts as specified from time
to time by the Company to the transfer agent, bearing the restrictive legend
specified in Section 4(b) of this Agreement prior to registration of the
Shares under the 1933 Act, registered in the name of the Buyer or its nominee
and in such denominations to be specified by the Buyer in connection with each
conversion of the Debentures. The Company warrants that no instruction other
than such instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 4(a) hereof prior to registration and
sale of the Shares under the 1933 Act will be given by the Company to the
transfer agent and that the Shares shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement, and applicable law. Nothing in
this Section shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities. If
the Buyer provides the Company with an opinion of counsel reasonably
satisfactory to the Company that registration of a resale by the Buyer of any
of the Securities in accordance with clause (1)(B) of Section 4(a) of this
Agreement is not required under the 1933 Act, the Company shall (except as
provided in clause (2) of Section 4(a) of this Agreement) permit the transfer
of the Securities and, in the case of the Converted Shares or the Warrant
Shares, as the case may be, promptly instruct the Company's transfer agent to
issue one or more certificates for Common Stock without legend in such name
and in such denominations as specified by the Buyer.
b. Subject to the completeness and accuracy of the Buyer's
representations and warranties herein, upon the conversion of any Debentures
by a person who is a non-U.S. Person, and following the expiration of any then
applicable Restricted Period (as those terms are defined in Regulation S), the
Company, shall, at its expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue stock certificates without restrictive legend or stop orders in
the name of Buyer (or its nominee (being a non-U.S. Person) or such non-U.S.
Persons as may be designated by Buyer) and in such denominations to be
specified at conversion representing the number of shares of Common Stock
issuable upon such conversion, as applicable. Nothing in this Section 5,
however, shall affect in any way Buyer's or such nominee's obligations and
agreement to comply with all applicable securities laws upon resale of the
Securities.
c. Subject to the provisions of this Agreement, the Company will permit
the Buyer to exercise its right to convert the Debentures in the manner
contemplated by the Debentures.
d. The Company understands that a delay in the issuance of the Shares of
Common Stock beyond the Delivery Date (as defined in the Debentures) could
result in economic loss to the Buyer. As compensation to the Buyer for such
loss, the Company agrees to pay late payments to the Buyer for late issuance
of Shares upon Conversion in accordance with the following schedule (where
"No. Business Days Late" is defined as the number of business days beyond the
Delivery Date):
Late Payment For Each
$10,000 of Debenture Principal
No. Business Days Late Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Buyer's right to
pursue actual damages for the Company's failure to issue and deliver the
Common Stock to the Buyer. Furthermore, in addition to any other remedies
which may be available to the Buyer, in the event that the Company fails for
any reason to effect delivery of such shares of Common Stock by close of
business on the Delivery Date, the Buyer will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company, whereupon the Company and the Buyer shall each be restored to their
respective positions immediately prior to delivery of such Notice of
Conversion.
e. If, by the relevant Delivery Date, the Company fails for any reason to
deliver the Shares to be issued upon conversion of a Debenture and after such
Delivery Date, the holder of the Debentures being converted (a "Converting
Holder") purchases, in an open market transaction or otherwise, shares of
Common Stock (the "Covering Shares") in order to make delivery in satisfaction
of a sale of Common Stock by the Converting Holder (the "Sold Shares"), which
delivery such Converting Holder anticipated to make using the Shares to be
issued upon such conversion (a "Buy-In"), the Company shall pay to the
Converting Holder, in addition to all other amounts contemplated in other
provisions of the Transaction Agreements, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering
Shares over (y) the net proceeds (after brokerage commissions, if any)
received by the Converting Holder from the sale of the Sold Shares. The
Company shall pay the Buy-In Adjustment Amount to the Company in immediately
available funds immediately upon demand by the Converting Holder. By way of
illustration and not in limitation of the foregoing, if the Converting Holder
purchases shares of Common Stock having a total purchase price (including
brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of
Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount
which Company will be required to pay to the Converting Holder will be $1,000.
f. In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the Buyer and its compliance with
the provisions contained in this paragraph, so long as the certificates
therefor do not bear a legend and the Buyer thereof is not obligated to return
such certificate for the placement of a legend thereon, the Company shall use
its best efforts to cause its transfer agent to electronically transmit the
Common Stock issuable upon conversion to the Buyer by crediting the account of
Buyer's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
system.
g. The Company will authorize its transfer agent to give information
relating to the Company directly to the Buyer or the Buyer's representatives
upon the request of the Buyer or any such representative. The Company will
provide the Buyer with a copy of the authorization so given to the transfer
agent.
6. DELIVERY INSTRUCTIONS.
The Debentures shall be delivered by the Company to the Escrow Agent pursuant
to Section 1(b) hereof, on a delivery against payment basis, subject to the
specific provisions hereof, no later than on the Closing Date.
7. CLOSING DATE.
a. The Closing Date shall occur on the date which is the first NYSE
trading day after the fulfillment or waiver of all closing conditions pursuant
to Sections 8 and 9 hereof or such other date and time as is mutually agreed
upon by the Company and the Buyer.
b. The closing of the purchase and issuance of Debentures shall occur on
the Closing Date at the offices of the Escrow Agent and shall take place no
later than 12:00 Noon, New York time, on such day or such other time as is
mutually agreed upon by the Company and the Buyer.
c. Notwithstanding anything to the contrary contained herein, the Escrow
Agent will be authorized to release the Escrow Property only upon satisfaction
of the conditions set forth in Sections 8 and 9 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Debentures to
the Buyer pursuant to this Agreement on the Closing Date is conditioned upon:
a. The execution and delivery of this Agreement by the Buyer;
b. Delivery by the Buyer to the Escrow Agent of good funds as payment in
full of an amount equal to the Purchase Price for the Debentures in accordance
with this Agreement;
c. The accuracy on such Closing Date of the representations and
warranties of the Buyer contained in this Agreement, each as if made on such
date, and the performance by the Buyer on or before such date of all covenants
and agreements of the Buyer required to be performed on or before such date;
and
d. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent
or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the Debentures
on the Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the Registration
Rights Agreement by the Company;
b. Delivery by the Company to the Escrow Agent of the Debentures and
Warrants in accordance with this Agreement;
c. The accuracy in all material respects on such Closing Date of the
representations and warranties of the Company contained in this Agreement,
each as if made on such date, and the performance by the Company on or before
such date of all covenants and agreements of the Company required to be
performed on or before such date;
d. On such Closing Date, the Registration Rights Agreement shall be in
full force and effect and the Company shall not be in default thereunder;
e. On such Closing Date, the Buyer shall have received an opinion of
counsel for the Company, dated such Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, substantially to the effect set forth in
Annex III attached hereto;
f. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent
or approval which shall not have been obtained; and
g. From and after the date hereof to and including the Closing Date, the
trading of the Common Stock shall not have been suspended by the SEC or the
NASD and trading in securities generally on the New York Stock Exchange or The
NASDAQ/SmallCap Market shall not have been suspended or limited, nor shall
there be any outbreak or escalation of hostilities involving the United States
or any material adverse change in any financial market that in either case in
the reasonable judgment of the Buyer makes it impracticable or inadvisable to
purchase the Debentures.
10. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Delaware for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or
the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Buyer for any reasonable legal fees and disbursements incurred
by the Buyer in enforcement of or protection of any of its rights under any of
the Transaction Agreements.
b. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
c. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
e. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
f. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.
g. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
h. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity
or enforceability of this Agreement in any other jurisdiction.
i. This Agreement may be amended only by an instrument in writing signed
by the party to be charged with enforcement thereof.
j. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
11. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of
(a) the date delivered, if delivered by personal delivery as against written
receipt therefor or by confirmed facsimile transmission,
(b) the seventh business day after deposit, postage prepaid, in the United
States Postal Service by registered or certified mail, or
(c) the third business day after mailing by international express courier,
with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: AMERICAN CHAMPION ENTERTAINMENT, INC.
0000 Xxx Xxxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000-0000
Attn: Xxxxxxx X. Xxxx, President
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxxxxxx Xxxx & Xxxxxxxx
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxxx Xxxxxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
BUYER: At the address set forth on the signature page of this Agreement.
with a copy to:
Xxxxxxx & Xxxxxx LLP, Esqs.
00 Xxxxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxxx, Xxx.
Xxx Xxxx, Xxx Xxxx 00000
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
ESCROW AGENT: Xxxxxxx & Xxxxxx LLP, Esqs.
00 Xxxxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxxx, Xxx.
Xxx Xxxx, Xxx Xxxx 00000
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Buyer's representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Debentures and payment of
the Purchase Price, and shall inure to the benefit of the Buyer and the
Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer or one
of its officers thereunto duly authorized as of the date set forth below.
AMOUNT AND PURCHASE PRICE OF DEBENTURES: $_______________
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing statements
are true and correct and that it has caused this Securities Purchase Agreement
to be duly executed on its behalf this ____day of January, 2000.
________________________________ ______________________________
Address Printed Name of Subscriber
________________________________
By: __________________________
________________________________ (Signature of Authorized Person)
Telecopier No. _________________ ______________________________
________________________________ Printed Name and Title
________________________________
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its
behalf.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: ____________________________
Title: President & CEO
Date: ____________________
Investors:
Amro International S.A. $500,000.00
The Endeavour Capital Fund S.A. $500,000.00
Esquire Trade and Finance $125,000.00
Austinvest Anstalt Balzers $125,000.00
______________
Total Original Debentures $1,250,000.00
