PRIVATE EQUITY LINE OF CREDIT AGREEMENT
Between
Sibson Holdings, Ltd.
And
American Champion Entertainment, Inc.
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of April 12, 2000
(the "Agreement"), between Sibson Holdings, Ltd., a British Virgin
Islands corporation (the "Investor") and American Champion Entertainment,
Inc., a corporation organized and existing under the laws of the State of
Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor
from time to time as provided herein, and Investor shall purchase, up to
$5,000,000 (the "Aggregate Purchase Price") of the Common Stock (as
defined below); and
WHEREAS, such investments will be made by the Investor as statutory
underwriter of a registered indirect primary offering of such Common Stock
by the Company.
NOW, THEREFORE, the parties hereto agree as follows:
Certain Definitions
* "Bid Price"
shall mean the closing bid price (as reported by Bloomberg L.P.) of the
Common Stock on the Principal Market on the date in question.
* "Capital Shares"
shall mean the Common Stock and any shares of any other class of common
stock whether now or hereafter authorized, having the right to
participate in the distribution of earnings and assets of the Company.
* "Capital Shares Equivalents"
shall mean any securities, rights, or obligations that are convertible
into or exchangeable for or give any right to subscribe for any Capital
Shares of the Company or any warrants, options or other rights to
subscribe for or purchase Capital Shares or any such convertible or
exchangeable securities.
* "Closing"
shall mean one of the closings of a purchase and sale of the Common
Stock pursuant to Section 2.1.
* "Closing Date"
shall mean, with respect to a Closing, the fifth Trading Day following
the end of the Valuation Period related to such Closing, provided all
conditions to such Closing have been satisfied on or before such Trading
Day.
* "Commitment Amount"
shall mean the up to $5,000,000 which the Investor has agreed to provide
to the Company in order to purchase the Put Shares pursuant to the terms
and conditions of this Agreement.
* "Commitment Period"
shall mean the period commencing on the Effective Date and expiring on
the earliest to occur of (x) the date on which the Investor shall have
purchased Put Shares pursuant to this Agreement for an aggregate
Purchase Price of $5,000,000, (y) the date this Agreement is terminated
pursuant to Section 2.4, or (z) the date occurring thirty months (30)
from the date of commencement of the Commitment Period.
* "Common Stock"
shall mean the Company's common stock, par value $.0001 per share.
* "Condition Satisfaction Date"
shall have the meaning set forth in Section 7.2.
* "Effective Date"
shall mean the date on which the SEC first declares effective a
Registration Statement registering the sale by the Company and resale by
the Investor of the Registrable Securities as set forth in Section
7.2(f).
* "Escrow Agent" shall mean the escrow agent designated in the Escrow
Agreement.
* "Escrow Agreement" shall mean the escrow agreement in the form
attached hereto as Exhibit A.
* "Exchange Act"
shall mean the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
* "Investment Amount"
shall mean the dollar amount to be invested by the Investor to purchase
Put Shares with respect to any Put Date as notified by the Company to
the Investor, all in accordance with Section 2.2 hereof.
* "Market Price"
on any given date shall mean the average of the three (3) lowest Bid
Prices (as reported by Bloomberg L.P.) of the Common Stock on any
Trading Day during the Valuation Period relating to such date.
* "Material Adverse Effect"
shall mean any effect on the business, Bid Price, operations,
properties, prospects, or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates,
taken as a whole, and/or any condition, circumstance, or situation that
would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement or the Escrow Agreement in any material
respect.
* "Maximum Put Amount"
shall mean, as of the Put Date, four and one eighth percent (4.125%) of
the weighted average price for the three (3) month period prior to the
Put Date multiplied by total trading volume for the three (3) month
period prior to the Put Date.
* "NASD"
shall mean the National Association of Securities Dealers, Inc.
* "Outstanding"
when used with reference to shares of Common Stock or Capital Shares
(collectively the "Shares"), shall mean, at any date as of which the
number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests
in such Shares; provided, however, that "Outstanding" shall not mean
any such Shares then directly or indirectly owned or held by or for the
account of the Company.
* "Person"
shall mean an individual, a corporation, a partnership, a limited
liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an
agency or instrumentality thereof.
* "Principal Market"
shall mean the NASDAQ National Market, the NASDAQ SmallCap Market, the
American Stock Exchange or the New York Stock Exchange, whichever is at
the time the principal trading exchange or market for the Common Stock.
Principal Market shall not include the OTC Bulletin Board without the
express written consent of the Investor.
* "Purchase Price"
shall mean with respect to Put Shares, eighty-five percent (85%) (the
"Purchase Price Percentage") of the Market Price during the Valuation
Period related to a Put (or such other date on which the Purchase Price
is calculated in accordance with the terms and conditions of this
Agreement).
* "Put" shall mean each occasion the Company elects to exercise its
right to tender a Put Notice requiring the Investor to purchase shares
of the Company's Common Stock, subject to the terms of this Agreement.
* "Put Date"
shall mean the Trading Day during the Commitment Period that a Put
Notice to sell Common Stock to the Investor is deemed delivered pursuant
to Section 2.2(b) hereof.
* "Put Notice"
shall mean a written notice to the Investor setting forth the Investment
Amount that the Company intends to sell to the Investor in the form
attached hereto as Exhibit B.
* "Put Shares"
shall mean all shares of Common Stock or other securities issued or
issuable pursuant to a Put that has occurred or may occur in accordance
with the terms and conditions of this Agreement.
* "Registrable Securities"
shall mean the Put Shares and the Warrant Shares until (i) all Put
Shares and Warrant Shares have been disposed of pursuant to the
Registration Statement, (ii) all Put Shares and Warrant Shares have been
sold under circumstances under which all of the applicable conditions of
Rule 144 (or any similar provision then in force) under the Securities
Act ("Rule 144") are met, (iii) all Put Shares and Warrant Shares have
been otherwise transferred to persons who may trade such shares without
restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not
bearing a restrictive legend or (iv) such time as, in the opinion of
counsel to the Company, all Put Shares and Warrant Shares may be sold
without any time, volume or manner limitations pursuant to Rule 144(k)
(or any similar provision then in effect) under the Securities Act.
* "Registration Rights Agreement"
shall mean the agreement regarding the filing of the Registration
Statement for the sale and resale of the Registrable Securities annexed
hereto as Exhibit C.
* "Registration Statement"
shall mean a registration statement on Form S-3 (if use of such form is
then available to the Company pursuant to the rules of the SEC and, if
not, on such other form promulgated by the SEC, such as Form S-1 or SB-
2, for which the Company then qualifies and which counsel for the
Company shall deem appropriate, and which form shall be available for
the resale by the Investor of the Registrable Securities to be
registered thereunder in accordance with the provisions of this
Agreement, the Registration Rights Agreement, and in accordance with the
intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities
under the Securities Act.
* "SEC"
shall mean the Securities and Exchange Commission.
* "Securities Act"
shall mean the Securities Act of 1933, as amended.
* "SEC Documents"
shall mean the Company's latest Form 10-K or 10-KSB as of the time in
question, all Forms 10-Q or 10-QSB and 8-K filed thereafter, and the
Proxy Statement for its latest fiscal year as of the time in question
until such time as the Company no longer has an obligation to maintain
the effectiveness of a Registration Statement as set forth in the
Registration Rights Agreement.
* "Trading Cushion"
shall mean the mandatory twenty (20) Trading Days between Put Dates,
unless waived by the Investor.
* "Trading Day"
shall mean any day during which the Principal Market shall be open for
business.
* "Valuation Event"
shall mean an event in which the Company at any time prior to the end
of the Commitment Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend on its Capital Shares or makes
any other distribution of its Capital Shares;
(c) issues any additional Capital Shares
("Additional Capital Shares"), otherwise than as provided in the
foregoing Subsections (a) and (b) above or (d) and (e) below, at a price
per share less, or for other consideration lower, than the Bid Price in
effect immediately prior to such issuance, or without consideration
(other than pursuant to this Agreement);
(d) issues any warrants, options or other rights
to subscribe for or purchase any Additional Capital Shares and the price
per share for which Additional Capital Shares may at any time thereafter
be issuable pursuant to such warrants, options or other rights shall be
less than the Bid Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or
exchangeable for Capital Shares and the consideration per share for
which Additional Capital Shares may at any time thereafter be issuable
pursuant to the terms of such convertible or exchangeable securities
shall be less than the Bid Price in effect immediately prior to such
issuance;
(f) makes a distribution of its assets or evidences
of indebtedness to the holders of its Capital Shares as a dividend in
liquidation or by way of return of capital or other than as a dividend
payable out of earnings or surplus legally available for dividends under
applicable law or any distribution to such holders made in respect of
the sale of all or substantially all of the Company's assets (other than
under the circumstances provided for in the foregoing subsections (a)
through (e); or
(g) takes any action affecting the number of
Outstanding Capital Shares, other than an action described in any of the
foregoing Subsections (a) through (f) hereof, inclusive, which in the
opinion of the Company's Board of Directors, determined in good faith,
would have a Material Adverse Effect upon the rights of the Investor at
the time of a Put.
* "Valuation Period"
shall mean the period of twenty-one (21) Trading Days beginning fifteen
(15) Trading Days before the Trading Day on which a Put Notice is deemed
to be delivered and ending five (5) Trading Days after such date;
provided, however, that if a Valuation Event occurs during a Valuation
Period, a new Valuation Period shall begin on the Trading Day
immediately after the occurrence of such Valuation Event and end on the
twenty first (21st) Trading Day thereafter.
* "Warrants" shall mean the 175,000 Common Stock Purchase Warrants in
the form of Exhibit D hereto to be delivered to the Investor at the
initial Closing and up to 325,000 Common Stock Purchase Warrants to be
delivered to the Investor pro-rata determined according to the
Investment Amount in proportion to the Commitment Amount (the "Pro-Rata
Warrants"). "Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.
Purchase and Sale of Common Stock
* Investments.
(a) Puts. Upon the terms and conditions set forth
herein (including, without limitation, the provisions of Article VII
hereof), on any Put Date the Company may make a Put by the delivery of a
Put Notice. The number of Put Shares that the Investor shall receive
pursuant to such Put shall be determined by dividing the Investment
Amount specified in the Put Notice by the Purchase Price for such
Valuation Period; provided, however, the Investor may, at its sole
discretion, purchase up to an additional fifty percent (50%) of the
Maximum Put Amount during any Put Period. The Investment Amount shall
not exceed the Maximum Put Amount on the date of the Put Notice by
notice to the Company prior to the end of the Valuation Period.
(b) Maximum Aggregate Amount of Puts. Anything in this Agreement to the
contrary notwithstanding, unless the Company obtains shareholder approval of
this Agreement pursuant to the applicable corporate governance rules of The
Nasdaq Stock Market, the Company may not make a Put (or issue any additional
shares under Section 2.5) which results in the issuance of more than 19.9% of
the number of shares of Common Stock issued and outstanding on the initial
Closing Date hereof pursuant to all Puts made under the terms of this
Agreement and the exercise of the Warrants.
* Mechanics.
(a) Put Notice. At any time during the Commitment
Period, the Company may deliver a Put Notice to the Investor, subject to
the conditions set forth in Section 7.2; provided, however, that the
Investment Amount for each Put as designated by the Company in the
applicable Put Notice shall be neither less than $100,000 nor more than
the Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put Notice
shall be deemed delivered on (i) the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is received prior
to 12:00 noon Eastern Time, or (ii) the immediately succeeding Trading
Day if it is received by facsimile or otherwise after 12:00 noon Eastern
Time on a Trading Day or at any time on a day which is not a Trading
Day. No Put Notice may be deemed delivered on a day that is not a
Trading Day.
* Closings.
On or before each Closing Date for a Put the Investor shall deliver the
Investment Amount specified in the Put Notice by wire transfer of
immediately available funds to the Escrow Agent. In addition, on or
prior to the Closing Date, each of the Company and the Investor shall
deliver to the Escrow Agent all documents, instruments and writings
required to be delivered or reasonably requested by either of them
pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. Upon receipt of notice from the Escrow
Agent that the Escrow Agent has possession of the Investment Amount, the
Company shall, if possible, deliver the Put Shares to the Investor's
account through the Depository Trust Company DWAC system, per written
account instructions delivered by the Investor to the Company, and if
the Company is not eligible to participate in the DWAC system, to
deliver to the Escrow Agent one or more certificates, as requested by
the Investor, representing the Put Shares to be purchased by the
Investor pursuant to Section 2.1 herein, registered in the name of the
Investor or, at the Investor's option, registered in the name of such
account or accounts as may be designated by the Investor. Payment of
funds to the Company and delivery of the certificates to the Investor
(unless delivered by DWAC) shall occur out of escrow in accordance with
the Escrow Agreement, provided, however, that to the extent the Company
has not paid the fees, expenses, and disbursements of the Investor's
counsel in accordance with Section 13.7, the amount of such fees,
expenses, and disbursements shall be paid in immediately available
funds, at the direction of the Investor, to Investor's counsel with no
reduction in the number of Put Shares issuable to the Investor on such
Closing Date.
* Termination of Investment Obligation.
(a) The obligation of the Investor to purchase
shares of Common Stock shall terminate permanently (including with
respect to a Closing Date that has not yet occurred) in the event that
(i) there shall occur any stop order or suspension of the effectiveness
of the Registration Statement for an aggregate of thirty (30) Trading
Days during the Commitment Period, for any reason other than deferrals
or suspensions in accordance with the Registration Rights Agreement as a
result of corporate developments subsequent to the Effective Date that
would require such Registration Statement to be amended to reflect such
event in order to maintain its compliance with the disclosure
requirements of the Securities Act or (ii) the Company shall at any time
fail to comply with the requirements of Section 6.2, 6.3 or 6.5 or (iii)
the Registration Statement shall not have become effective by July 31,
2000.
(b) The obligation of the Company to sell Put Shares
to the Investor shall terminate if the Investor fails to honor any Put
Notice within two (2) Trading of the Closing Date scheduled for such
Put, and the Company notifies Investor of such termination. Upon such
termination, the Company shall maintain the Registration Statement in
effect for such reasonable period, not to exceed fifteen (15) Trading
Days, as the Investor may request in order to dispose of any remaining
Put Shares. Such termination shall be the Company's sole remedy for the
Investor's failure to honor a Put.
Section 2.5 Additional Shares.
In the event that (a) within five Trading Days of any Closing Date, the
Company gives notice to the Investor of an impending "blackout period"
in accordance with Section 3(f) of the Registration Rights Agreement and
(b) the Bid Price on the Trading Day immediately preceding such
"blackout period" (the "Old Bid Price") is greater than the Bid Price
on the first Trading Day following such "blackout period" (the "New
Bid Price") the Company shall issue to the Investor a number of
additional shares (the "Blackout Shares") equal to the difference
between (y) the product of the number of Registrable Securities
purchased by the Investor on such most recent Closing Date and still
held by the Investor during such "blackout period" that are not
otherwise freely tradable during such "blackout period" and the Old
Bid Price, divided by the New Bid Price and (z) the number of
Registrable Securities purchased by the Investor on such most recent
Closing Date and still held by the Investor during such "blackout
period" that are not otherwise freely tradable during such "blackout
period". If any such issuance would result in the issuance of a number
of shares which exceeds the number set forth in Section 2.1(b), then in
lieu of such issuance, the Company shall pay Investor the closing ask
price of the Blackout Shares on the first Trading Day following the end
of the blackout period in cash within five Trading Days.
* Liquidated Damages.
The parties hereto acknowledge and agree that the obligation to issue
Registrable Securities under Section 2.5 above shall constitute
liquidated damages and not penalties. The parties further acknowledge
that (a) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (b) the amounts
specified in such Sections bear a reasonable proportion and are not
plainly or grossly disproportionate to the probable loss likely to be
incurred by the Investor in connection with the failure by the Company
to timely cause the registration of the Registrable Securities or in
connection with a "blackout period" under the Registration Rights
Agreement, and (c) the parties are sophisticated business parties and
have been represented by legal and financial counsel and negotiated this
Agreement at arm's length.
Representations and Warranties of Investor
Investor represents and warrants to the Company that:
* Intent.
The Investor is entering into this Agreement for its own account and the
Investor has no present arrangement (whether or not legally binding) at
any time to sell the Common Stock to or through any person or entity;
provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or
other specific term and reserves the right to dispose of the Common
Stock at any time in accordance with federal and state securities laws
applicable to such disposition.
* Sophisticated Investor.
The Investor is a sophisticated investor (as described in Rule
506(b)(2)(ii) of Regulation D) and an accredited investor (as defined in
Rule 501 of Regulation D), and Investor has such experience in business
and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of
evaluating the merits and risks of an investment in Common Stock. The
Investor acknowledges that an investment in the Common Stock is
speculative and involves a high degree of risk.
* Authority.
This Agreement has been duly authorized and validly executed and
delivered by the Investor and is a valid and binding agreement of the
Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies
or by other equitable principles of general application.
* Not an Affiliate.
Investor is not an officer, director or "affiliate" (as that term is
defined in Rule 405 of the Securities Act) of the Company.
* Organization and Standing.
Investor is a corporation duly organized, validly existing, and in good
standing under the laws of the British Virgin Islands.
* Absence of Conflicts.
The execution and delivery of this Agreement and any other document or
instrument executed in connection herewith, and the consummation of the
transactions contemplated thereby, and compliance with the requirements
thereof, will not violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on Investor, or, to the
Investor's knowledge, (a) violate any provision of any indenture,
instrument or agreement to which Investor is a party or is subject, or
by which Investor or any of its assets is bound; (b) conflict with or
constitute a material default thereunder; (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty
owed by Investor to any third party; or (d) require the approval of any
third-party (which has not been obtained) pursuant to any material
contract, agreement, instrument, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
* Disclosure; Access to Information.
Investor has received and reviewed all documents, records, books and
other publicly available information pertaining to Investor's investment
in the Company that have been requested by Investor. The Company is
subject to the periodic reporting requirements of the Exchange Act, and
Investor has reviewed copies of any such reports that have been
requested by it.
* Manner of Sale.
At no time was Investor presented with or solicited by or through any
leaflet, public promotional meeting, television advertisement or any
other form of general solicitation or advertising.
* Financial Capacity.
Investor currently has the financial capacity to meet its obligations to
the Company hereunder, and the Investor has no present knowledge of any
circumstances which could cause it to become unable to meet such
obligations in the future.
* Underwriter Liability.
Investor understands that it is the position of the SEC that the
Investor is an underwriter within the meaning of Section 2(11) of the
Securities Act and that the Investor will be identified as an
underwriter of the Put Shares in the Registration Statement.
Representations and Warranties of the Company
The Company represents and Warrants to the Investor that, except as set
forth on the Disclosure Schedule prepared by the Company and attached
hereto:
* Organization of the Company.
The Company is a corporation duly incorporated and existing in good
standing under the laws of the State of Delaware and has all requisite
corporate authority to own its properties and to carry on its business
as now being conducted. The Company does not have any subsidiaries and
does not own more that fifty percent (50%) of or control any other
business entity except as set forth in the SEC Documents. The Company
is duly qualified and is in good standing as a foreign corporation to do
business in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary,
other than those in which the failure so to qualify would not have a
Material Adverse Effect.
* Authority.
(i) The Company has the requisite corporate power and corporate
authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and
the Warrants and to issue the Put Shares, the Warrants and the Warrant
Shares pursuant to their respective terms, (ii) the execution, issuance
and delivery of this Agreement, the Registration Rights Agreement, the
Escrow Agreement and the Warrants by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by
all necessary corporate action and no further consent or authorization
of the Company or its Board of Directors or stockholders is required,
and (iii) this Agreement, the Registration Rights Agreement, the Escrow
Agreement and the Warrants have been duly executed and delivered by the
Company and at the initial Closing (and as to the pro-rata issuance of
Warrants, all applicable Closings), shall constitute valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies
or by other equitable principles of general application. The Company
has duly and validly authorized and reserved for issuance shares of
Common Stock sufficient in number for the issuance of the Put Shares and
for the exercise of the Warrants
* Capitalization.
The authorized capital stock of the Company consists of 40,000,000
shares of Common Stock, $0.0001 par value per share, of which 6,368,647
shares are issued and outstanding as of April 3, 2000 and 6,000,000
shares of preferred stock, par value $0.0001 per share, of which none
have been designated as Series A Preferred Stock, none of which shares
are issued and outstanding. Except for (i) outstanding options and
warrants as set forth in the SEC Documents and (ii) as set forth in the
Disclosure Schedule, there are no outstanding Capital Share Equivalents
nor any agreements or understandings pursuant to which any Capital
Shares Equivalents may become outstanding. The Company is not a party to
any agreement granting registration or anti-dilution rights to any
person with respect to any of its equity or debt securities. All of
the outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable.
* Common Stock.
The Company has registered its Common Stock pursuant to Section 12(b)
or (g) of the Exchange Act and is in full compliance with all reporting
requirements of the Exchange Act, and the Company is in compliance with
all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, the
Principal Market. As of the date hereof, the Principal Market is the
Nasdaq SmallCap Market and the Company has not received any notice
regarding, and to its knowledge there is no threat, of the termination
or discontinuance of the eligibility of the Common Stock for such
listing.
* SEC Documents.
The Company has made available to the Investor true and complete
copies of the SEC Documents. The Company has not provided to the
Investor any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof
by the Company, but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects
with the requirements of the Exchange Act, and rules and regulations of
the SEC promulgated thereunder and the SEC Documents did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included
in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the
SEC or other applicable rules and regulations with respect thereto at
the time of such inclusion. Such financial statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or
(ii) in the case of unaudited interim statements, to the extent they
exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company
as of the dates thereof and the results of operations and cash flows for
the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company
nor any of its subsidiaries has any material indebtedness, obligations
or liabilities of any kind (whether accrued, absolute, contingent or
otherwise, and whether due or to become due) that would have been
required to be reflected in, reserved against or otherwise described in
the financial statements or in the notes thereto in accordance with
GAAP, which was not fully reflected in, reserved against or otherwise
described in the financial statements or the notes thereto included in
the SEC Documents or was not incurred in the ordinary course of business
consistent with the Company's past practices since the last date of such
financial statements.
* Valid Issuances.
When issued and paid for in accordance with the terms hereof or of the
Warrants, the Put Shares and the Warrant Shares will be duly and validly
issued, fully paid, and non-assessable. Neither the sales of the Put
Shares, the Warrants or the Warrant Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the
Registration Rights Agreement, the Escrow Agreement or the Warrants will
(i) result in the creation or imposition by the Company of any liens,
charges, claims or other encumbrances upon the Put Shares, the Warrants
or the Warrant Shares or, except as contemplated herein, any of the
assets of the Company, or (ii) entitle the holders of Outstanding
Capital Shares to preemptive or other rights to subscribe for or acquire
the Capital Shares or other securities of the Company. The Put Shares,
the Warrants and the Warrant Shares shall not subject the Investor to
personal liability to the Company or its creditors by reason of the
possession thereof.
* No Conflicts.
The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the
Put Shares, the Warrants and the Warrant Shares, do not and will not (i)
result in a violation of the Company's Certificate of Incorporation or
By-Laws or (ii) conflict with, or constitute a material default (or an
event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting
or similar agreement to which the Company is a party, or (iii) result in
a violation of any federal, state or local law, rule, regulation, order,
judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any material property
or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or default under any of the
foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as
would not have, individually or in the aggregate, a Material Adverse
Effect). The business of the Company is not being conducted in violation
of any law, ordinance or regulation of any governmental entity, except
for possible violations that either singly or in the aggregate would not
have a Material Adverse Effect. The Company is not required under any
Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or
perform any of its obligations under this Agreement or issue and sell
the Put Shares or the Warrants in accordance with the terms hereof
(other than any SEC, Principal Market or state securities filings that
may be required to be made by the Company subsequent to the initial
Closing, any registration statement that may be filed pursuant hereto,
and any shareholder approval required by the rules applicable to
companies whose common stock trades on the Principal Market); provided
that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
* No Material Adverse Change.
Since September 30, 1999, no Material Adverse Effect has occurred or
exists with respect to the Company, except as disclosed in the SEC
Documents.
* No Undisclosed Events or Circumstances.
Since September 30, 1999, no event or circumstance has occurred or
exists with respect to the Company or its businesses, properties,
prospects, operations or financial condition, that, 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 in the SEC Documents.
* Litigation and Other Proceedings.
Except as disclosed in the SEC Documents, there are no lawsuits or
proceedings pending or, to the knowledge of the Company, threatened,
against the Company or any subsidiary, nor has the Company received any
written or oral notice of any such action, suit, proceeding or
investigation, which could reasonably be expected to have a Material
Adverse Effect. Except as set forth in the SEC Documents, no judgment,
order, writ, injunction or decree or award has been issued by or, to the
knowledge of the Company, requested of any court, arbitrator or
governmental agency which could result in a Material Adverse Effect.
* No Misleading or Untrue Communication.
The Company and, to the knowledge of the Company, any person
representing the Company, or any other person selling or offering to
sell the Put Shares or the Warrants in connection with the transaction
contemplated by this Agreement, have not made, at any time, any oral
communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements, in the
light of the circumstances under which they were made, not misleading.
* Material Non-Public Information.
The Company has not disclosed to the Investor any material non-public
information that (i) if disclosed publicly, would reasonably be expected
to have a material effect on the price of the Common Stock or (ii)
according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has
not been so disclosed.
* Insurance.
The Company and each subsidiary maintains property and casualty,
general liability, workers' compensation, environmental hazard, personal
injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards
and the Company's historical claims experience. The Company has not
received notice from, and has no knowledge of any threat by, any insurer
(that has issued any insurance policy to the Company) that such insurer
intends to deny coverage under or cancel, discontinue or not renew any
insurance policy presently in force.
* Tax Matters.
The Company and each subsidiary has filed all Tax
Returns which it is required to file under applicable laws; all such Tax
Returns are true and accurate and has been prepared in compliance with all
applicable laws; the Company has paid all Taxes due and owing by it or any
subsidiary (whether or not such Taxes are required to be shown on a Tax
Return) and have withheld and paid over to the appropriate taxing
authorities all Taxes which it is required to withhold from amounts paid
or owing to any employee, stockholder, creditor or other third parties;
and since December 31, 1998, the charges, accruals and reserves for Taxes
with respect to the Company (including any provisions for deferred income
taxes) reflected on the books of the Company are adequate to cover any Tax
liabilities of the Company if its current tax year were treated as ending
on the date hereof.
No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that the Company
or any subsidiary is or may be subject to taxation by that jurisdiction.
There are no foreign, federal, state or local tax audits or
administrative or judicial proceedings pending or being conducted with
respect to the Company or any subsidiary; no information related to Tax
matters has been requested by any foreign, federal, state or local taxing
authority; and, except as disclosed above, no written notice indicating an
intent to open an audit or other review has been received by the Company
or any subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed
or entered into a closing agreement pursuant to 7121 of the Internal
Revenue Code or any predecessor provision thereof or any similar provision
of state, local or foreign law; or (B) has not agreed to or is required to
make any adjustments pursuant to 481 (a) of the Internal Revenue Code or
any similar provision of state, local or foreign law by reason of a change
in accounting method initiated by the Company or any of its subsidiaries
or has any knowledge that the IRS has proposed any such adjustment or
change in accounting method, or has any application pending with any
taxing authority requesting permission for any changes in accounting
methods that relate to the business or operations of the Company. The
Company has not been a United States real property holding corporation
within the meaning of 897(c)(2) of the Internal Revenue Code during the
applicable period specified in 897(c)(1)(A)(ii) of the Internal Revenue
Code.
The Company has not made an election under 341(f) of
the Internal Revenue Code. The Company is not liable for the Taxes of
another person that is not a subsidiary of the Company under (A) Treas.
Reg. 1.1502-6 (or comparable provisions of state, local or foreign law),
(B) as a transferee or successor, (C) by contract or indemnity or (D)
otherwise. The Company is not a party to any tax sharing agreement. The
Company has not made any payments, is obligated to make payments or is a
party to an agreement that could obligate it to make any payments that
would not be deductible under 280G of the Internal Revenue Code.
For purposes of this Section 4.14:
"IRS" means the United States Internal Revenue
Service.
Tax" or "Taxes" means federal, state, county, local,
foreign, or other income, gross receipts, ad valorem,
franchise, profits, sales or use, transfer, registration,
excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or
other withholding, employment, social security, severance,
stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and
interest attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or
filing with respect to Taxes, including any schedules
attached thereto and including any amendment thereof.
* Property.
Neither the Company nor any of its subsidiaries owns any real
property. Each of the Company and its subsidiaries has good and
marketable title to all personal property owned by it, free and clear of
all liens, encumbrances and defects except such as do not materially
affect the value of such property and do not materially interfere with
the use made and proposed to be made of such property by the Company;
and to the Company's knowledge any real property and buildings held
under lease by the Company as tenant are held by it under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and intended to be made
of such property and buildings by the Company.
* Intellectual Property.
Each of the Company and its subsidiaries owns or possesses adequate
and enforceable rights to use all patents, patent applications,
trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar
rights and proprietary knowledge (collectively, "Intangibles")
necessary for the conduct of its business as now being conducted. To
the Company's knowledge, except as disclosed in the SEC Documents
neither the Company nor any of its subsidiaries is infringing upon or in
conflict with any right of any other person with respect to any
Intangibles. Except as disclosed in the SEC Documents, no adverse
claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such
claim.
* Internal Controls and Procedures.
The Company maintains books and records and internal accounting
controls which provide reasonable assurance that (i) all transactions to
which the Company or any subsidiary is a party or by which its
properties are bound are executed with management's authorization; (ii)
the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any
subsidiary is a party or by which its properties are bound are recorded
as necessary to permit preparation of the financial statements of the
Company in accordance with U.S. generally accepted accounting
principles.
* Payments and Contributions.
Neither the Company, any subsidiary, nor any of its directors,
officers or, to its knowledge, other employees has (i) used any Company
funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any
direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977,
as amended; or (iv) made any bribe, rebate, payoff, influence payment,
kickback or other similar payment to any person with respect to Company
matters.
* No Misrepresentation.
The representations and warranties of the Company contained in this
Agreement, any schedule, annex or exhibit hereto and any agreement,
instrument or certificate furnished by the Company to the Investor
pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Covenants of the Investor
Investor covenants with the Company that:
* Compliance with Law.
The Investor's trading activities with respect to shares of the
Company's Common Stock will be in compliance with all applicable state
and federal securities laws, rules and regulations and rules and
regulations of the Principal Market on which the Company's Common Stock
is listed. Without limiting the generality of the foregoing, the
Investor agrees that it will, whenever required by federal securities
laws, deliver the prospectus included in the Registration Statement to
any purchaser of Put Shares from the Investor.
Covenants of the Company
* Registration Rights.
The Company shall cause the Registration Rights Agreement to remain in
full force and effect and the Company shall comply in all material
respects with the terms thereof.
* Listing of Common Stock.
The Company hereby agrees to maintain the listing of the Common Stock on
a Principal Market, and as soon as practicable (but in any event prior
to the commencement of the Commitment Period) to list the Put Shares and
the Warrant Shares. The Company further agrees, if the Company applies
to have the Common Stock traded on any other Principal Market, it will
include in such application the Put Shares and the Warrant Shares and
will take such other action as is necessary or desirable in the opinion
of the investor to cause the Common Stock to be listed on such other
Principal Market as promptly as possible. The Company will take all
action to continue the listing and trading of its Common Stock on the
Principal Market (including, without limitation, maintaining sufficient
net tangible assets) and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market and shall provide Investor with copies of any
correspondence to or from such Principal Market which questions or
threatens delisting of the Common Stock, within one Trading Day of the
Company's receipt thereof.
* Exchange Act Registration.
The Company will cause its Common Stock to continue to be registered
under Section 12(g) or 12(b) of the Exchange Act, will use its best
efforts to comply in all respects with its reporting and filing
obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act.
* Legends.
The certificates evidencing the Common Stock to be sold to the Investor
shall be free of restrictive legends.
* Corporate Existence.
The Company will take all steps necessary to preserve and continue the
corporate existence of the Company.
* Additional SEC Documents.
During the Commitment Period, the Company will deliver to the Investor,
as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC, or
else notify the Investor that such documents are available on the XXXXX
system.
* Notice of Certain Events Affecting Registration; Suspension of Right
to Make a Put.
The Company will immediately notify the Investor upon the occurrence of
any of the following events in respect of a registration statement or
related prospectus in respect of an offering of Registrable Securities;
(i) receipt of any request for additional information from the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement the response to which would
require any amendments or supplements to the registration statement or
related prospectus; (ii) the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made
in the Registration Statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in
any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the
case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, and that in the case of the related prospectus, it will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make
available to the Investor any such supplement or amendment to the
related prospectus. The Company shall not deliver to the Investor any
Put Notice during the continuation of any of the foregoing events.
* Expectations Regarding Put Notices.
Within ten (10) days after the commencement of each calendar quarter
occurring subsequent to the commencement of the Commitment Period, the
Company must notify the Investor, in writing, as to its reasonable
expectations as to the dollar amount it intends to raise during such
calendar quarter, if any, through the issuance of Put Notices. Such
notification shall constitute only the Company's good faith estimate and
shall in no way obligate the Company to raise such amount, or any
amount, or otherwise limit its ability to deliver Put Notices. The
failure by the Company to comply with this provision can be cured by the
Company's notifying the Investor, in writing, at any time as to its
reasonable expectations with respect to the current calendar quarter.
* Consolidation; Merger.
The Company shall not, at any time after the date hereof, effect any
merger or consolidation of the Company with or into, or a transfer of
all or substantially all of the assets of the Company to, another entity
(a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Investor such shares
of stock and/or securities as the Investor is entitled to receive
pursuant to this Agreement.
* Non-Usage Fee.
Unless the Company shall issue Put Notices in the minimum amount of
$250,000 during each six months of the Commitment Period, the Company
shall pay the Investor at the end of each such six-month period a non-
usage fee equal to Twenty-Five Thousand Dollars ($25,000) minus ten
percent (10%) of the dollar amount of Puts actually issued during such
period.
Conditions to Delivery of Puts
and Conditions to Closing
* Conditions Precedent to the Obligation of the Company to Issue and
Sell Common Stock.
The obligation hereunder of the Company to issue and sell the Put Shares
to the Investor incident to each Closing is subject to the satisfaction,
at or before each such Closing, of each of the conditions set forth
below.
(a) Accuracy of the Investor's Representation and
Warranties. The representations and warranties of the Investor shall be
true and correct in all material respects as of the date of this
Agreement and as of the date of each such Closing as though made at each
such time.
(b) Performance by the Investor. The Investor shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Investor at or prior to
such Closing, and Investor shall provide a certificate to the Company,
substantially in the form of that delivered by the Investor at the
Closing of the sale of the Initial Shares, to such effect.
* Conditions Precedent to the Right of the Company to Deliver a Put
Notice and the Obligation of the Investor to Purchase Put Shares.
The right of the Company to deliver a Put Notice and the obligation of
Investor hereunder to acquire and pay for the Put Shares incident to a
Closing is subject to the satisfaction, on both (i) the date of delivery
of such Put Notice and (ii) the applicable Closing Date (each a
"Condition Satisfaction Date"), of each of the following conditions:
(a) Closing Certificate. All representations and
warranties of the Company contained herein shall remain true and correct
as of the Closing Date as though made as of such date and the Company
shall have delivered into escrow an Officer's Certificate signed by its
Chief Executive Officer certifying that all of the Company's
representations and warranties herein remain true and correct as of the
Closing Date and that the Company has performed all covenants and
satisfied all conditions to be performed or satisfied by the Company
prior to such Closing;
(b) Blue Sky. The Company shall have obtained all
permits and qualifications required by any state for the offer and sale
of the Common Stock to the Investor and by the Investor as set forth in
the Registration Rights Agreement or shall have the availability of
exemptions therefrom;
(c) Delivery of Put Shares. Delivery into escrow or
to DTC of the Put Shares;
(d) Opinion of Counsel. Receipt by the Investor of
an opinion of counsel to the Company, in the form of Exhibit D hereto;
and
(e) Transfer Agent. Delivery to the Company's
transfer agent of instructions to such transfer agent in form and
substance reasonably satisfactory to the Investor.
(f) Registration of the Common Stock with the SEC.
The Registration Statement shall have previously become effective and
shall remain effective and available for making resales of the Put
Shares and Warrant Shares by the Investor on each Condition Satisfaction
Date and (i) neither the Company nor the Investor shall have received
notice that the SEC has issued or intends to issue a stop order with
respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement,
either temporarily or permanently, or intends or has threatened to do so
(unless the SEC's concerns have been addressed and the Investor is
reasonably satisfied that the SEC no longer is considering or intends to
take such action), and (ii) no other suspension of the use or withdrawal
of the effectiveness of the Registration Statement or related prospectus
shall exist.
(g) Authority. The Company will satisfy all laws and
regulations pertaining to the sale and issuance of the Put Shares.
(h) Performance by the Company. The Company shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement, the
Registration Rights Agreement and the Escrow Agreement to be performed,
satisfied or complied with by the Company at or prior to each Condition
Satisfaction Date.
(i) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority
of competent jurisdiction that prohibits or directly and adversely
affects any of the transactions contemplated by this Agreement, and no
proceeding shall have been commenced that may have the effect of
prohibiting or adversely affecting any of the transactions contemplated
by this Agreement.
(j) Adverse Changes. Since the date of filing of
the Company's most recent SEC Document, no event that had or is
reasonably likely to have a Material Adverse Effect has occurred.
(k) No Suspension of Trading In or Delisting of
Common Stock. The trading of the Common Stock (including, without
limitation, the Put Shares) is not suspended by the SEC or the Principal
Market, and the Common Stock (including, without limitation, the Put
Shares) shall have been approved for listing or quotation on and shall
not have been delisted from the Principal Market. The issuance of shares
of Common Stock with respect to the applicable Closing, if any, shall
not violate the shareholder approval requirements of the Principal
Market. The Company shall not have received any notice threatening to
delist the Common Stock from the Principal Market.
(l) No Knowledge. The Company has no knowledge of
any event more likely than not to have the effect of causing such
Registration Statement to be suspended or otherwise ineffective (which
event is reasonably likely to occur within the thirty (30) Trading Days
following the Trading Day on which such Notice is deemed delivered).
(m) Trading Cushion. The Trading Cushion shall have
elapsed since the next preceding Put Date.
(n) Other. On each Condition Satisfaction Date, the
Investor shall have received and been reasonably satisfied with such
other certificates and documents as shall have been reasonably requested
by the Investor in order for the Investor to confirm the Company's
satisfaction of the conditions set forth in this Section 7.2.
Due Diligence Review; Non-Disclosure of Non-Public Information.
* Due Diligence Review.
The Company shall make available for inspection and review by the
Investor, advisors to and representatives of the Investor (who may or
may not be affiliated with the Investor and who are reasonably
acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor
pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, NASD or other
filing, all SEC Documents and other filings with the SEC, and all other
publicly available corporate documents and properties of the Company as
may be reasonably necessary for the purpose of such review, and cause
the Company's officers, directors and employees to supply all such
publicly available information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to
all questions and other inquiries reasonably made or submitted by any of
them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the
Investor and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the
Registration Statement.
* Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public
information to the Investor, advisors to or representatives of the
Investor unless prior to disclosure of such information the Company
identifies such information as being non-public information and provides
the Investor, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review. The
Company may, as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives to enter
into a confidentiality agreement in form reasonably satisfactory to the
Company and the Investor.
(b) The Company represents that it does not
disseminate non-public information to any investors who purchase stock
in the Company in a public offering, to money managers or to securities
analysts, provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately notify
the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which
it becomes aware, constituting non-public information (whether or not
requested of the Company specifically or generally during the course of
due diligence by such persons or entities), which, if not disclosed in
the prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein
in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 8.2 shall be construed to mean that
such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not
obtain non-public information in the course of conducting due diligence
in accordance with the terms of this Agreement and nothing herein shall
prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities,
that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the
Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not
misleading.
Transfer Agent Instructions
* Transfer Agent Instructions.
Upon each Closing, the Company will issue to the transfer agent for its
Common Stock (and to any substitute or replacement transfer agent for
its Common Stock upon the Company's appointment of any such substitute
or replacement transfer agent) instructions to deliver the Put Shares
without restrictive legends to the Escrow Agent.
* No Legend or Stock Transfer Restrictions.
No legend shall be placed on the share certificates representing the Put
Shares and no instructions or "stop transfer orders," so called,
"stock transfer restrictions," or other restrictions have been or
shall be given to the Company's transfer agent with respect thereto.
* Investor's Compliance.
Nothing in this Article shall affect in any way the Investor's
obligations under any agreement to comply with all applicable securities
laws upon resale of the Put Shares.
Choice of Law
* Governing Law/Arbitration.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made in New York
by persons domiciled in New York City and without regard to its
principles of conflicts of laws. Any dispute under this Agreement or
any Exhibit attached hereto shall be submitted to arbitration under the
American Arbitration Association (the "AAA") in New York City, New
York, and shall be finally and conclusively determined by the decision
of a board of arbitration consisting of three (3) members (hereinafter
referred to as the "Board of Arbitration") selected as according to
the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach
and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any,
which the losing party is required to pay to the other party in respect
of a claim filed. In connection with rendering its decisions, the Board
of Arbitration shall adopt and follow the laws of the State of New York.
To the extent practical, decisions of the Board of Arbitration shall be
rendered no more than thirty (30) calendar days following commencement
of proceedings with respect thereto. The Board of Arbitration shall
cause its written decision to be delivered to all parties involved in
the dispute. The Board of Arbitration shall be authorized and is
directed to enter a default judgment against any party refusing to
participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of
Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the
parties to the dispute, and entitled to be enforced to the fullest
extent permitted by law and entered in any court of competent
jurisdiction. The prevailing party shall be awarded its costs,
including attorneys' fees, from the non-prevailing party as part of the
arbitration award. Any party shall have the right to seek injunctive
relief from any court of competent jurisdiction in any case where such
relief is available. The prevailing party in such injuctive action
shall be awarded its costs, including attorney's fees, from the non-
prevailing party.
Assignment
* Assignment.
Neither this Agreement nor any rights of the Investor or the Company
hereunder may be assigned by either party to any other person except by
operation of law. Notwithstanding the foregoing, upon the prior written
consent of the Company, which consent shall not unreasonably be withheld
or delayed in the case of an assignment to an affiliate of the Investor,
the Investor's interest in this Agreement may be assigned at any time,
in whole or in part, to any other person or entity (including any
affiliate of the Investor) who agrees to make the representations and
warranties contained in Article III and who agrees to be bound hereby.
Notices
* Notices.
All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery,
telegram, or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or
delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated
below (if delivered on a business day during normal business hours where
such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by reputable courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such
communications shall be:
If to American Champion 0000 Xxx Xxxxxxx, Xxxxx 000
Entertainment Inc.: Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
if to the Investor: Sibson Holdings, Ltd.
c/o Xx. Xxxxxxxx & Partners
Xxxxxxxxxxxx 00
XX-0000, Xxxxx, Xxxxxxxxxxxxx
Attention: Xxxx Xxxxxxx
Telephone: 011-
Facsimile: 011-
with a copy to: Xxxxxx X. Xxxxx, Esq.
(shall not constitute notice) Xxxxxxx Xxxxxx & Green, P.C.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 12.1 by giving at least
ten (10) days' prior written notice of such changed address or facsimile
number to the other party hereto.
Miscellaneous
* Counterparts/ Facsimile/ Amendments.
This Agreement may be executed in multiple counterparts, each of which
may be executed by less than all of the parties and shall be deemed to
be an original instrument which shall be enforceable against the parties
actually executing such counterparts and all of which together shall
constitute one and the same instrument. Except as otherwise stated
herein, in lieu of the original documents, a facsimile transmission or
copy of the original documents shall be as effective and enforceable as
the original. This Agreement may be amended only by a writing executed
by all parties.
* Entire Agreement.
This Agreement, the Exhibits hereto, which include, but are not limited
to the Escrow Agreement, the Registration Rights Agreement and the
Warrants, set forth the entire agreement and understanding of the
parties relating to the subject matter hereof and supersedes all prior
and contemporaneous agreements, negotiations and understandings between
the parties, both oral and written relating to the subject matter
hereof. The terms and conditions of all Exhibits to this Agreement are
incorporated herein by this reference and shall constitute part of this
Agreement as is fully set forth herein.
* Survival; Severability.
The representations, warranties, covenants and agreements of the parties
hereto shall survive each Closing hereunder. In the event that any
provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it
materially changes the economic benefit of this Agreement to any party.
* Title and Subtitles.
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this
Agreement.
* Reporting Entity for the Common Stock.
The reporting entity relied upon for the determination of the trading
price or trading volume of the Common Stock on any given Trading Day for
the purposes of this Agreement shall be Bloomberg, L.P. or any successor
thereto. The written mutual consent of the Investor and the Company
shall be required to employ any other reporting entity.
* Replacement of Certificates.
Upon (i) receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of a certificate representing
the Put Shares and (ii) in the case of any such loss, theft or
destruction of such certificate, upon delivery of an indemnity agreement
or security reasonably satisfactory in form and amount to the Company
(which shall not exceed that required by the Company's transfer agent in
the ordinary course) or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its
expense will execute and deliver, in lieu thereof, a new certificate of
like tenor.
* Fees and Expenses.
Each of the Company and the Investors agrees to pay its own expenses
incident to the performance of its obligations hereunder, except that
the Company shall pay the fees, expenses and disbursements of Investors'
counsel in the amount of $15,000 plus $1,500 per Closing of a Put.
* Brokerage.
Each of the parties hereto represents that it has had no dealings in
connection with this transaction with any finder or broker who will
demand payment of any fee or commission from the other party except
Union Atlantic, L.C. whose fee shall be paid by the Company. The Company
on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's
fees on account of services purported to have been rendered on behalf of
the indemnifying party in connection with this Agreement or the
transactions contemplated hereby.
Section 13.9 Publicity. The Company agrees that it will not
issue any press release or other public announcement of the transactions
contemplated by this Agreement without the prior consent of the
Investor, which shall not be unreasonably withheld nor delayed by more
than two (2) Trading Days from its receipt of such proposed release;
provided, however, that if the Company is advised by its outside counsel
that it is required by law or the applicable rules of any Principal
Market to issue any such press release or public announcement, then, it
may do so without the prior consent of the Investor, although it shall
be required to provide prior notice (which may be by telephone) to the
Investor that it intends to issue such press release or public
announcement. No release shall name the Investor without its express
consent.
Section 13.10 Effectiveness of Agreement.
This Agreement shall become effective only upon satisfaction of the
conditions precedent to the Initial Closing set forth in Article I of
the Escrow Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Private
Equity Line of Credit Agreement to be executed by the undersigned,
thereunto duly authorized, as of the date first set forth above.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:
______________________________________
Xxxxxxx Xxxx, President and CEO
SIBSON HOLDINGS, LTD.
By:_______________________________________
Xxxx Xxxxxxx, Director
