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 $1,750,000 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 (x) the average closing bid price of the Common Stock for the
five (5) 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 or (y) if the Common Stock is listed on a stock exchange, the
lowest trade price on such exchange on the date indicated in the relevant
provision hereof, as reported in The Wall Street Journal.
b. Form of Payment; Delivery of Debentures.
(i) Except as specified below, 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.
(iv) By separate letter to the Escrow Agent, the Company is
acknowledging that it has received certain funds from or on behalf of one
or more of the Buyers on account of the Purchase Price obligation of each
such Buyer. Any such funds will not be deposited in escrow with the
Escrow Agent but shall nevertheless (i) be deemed paid on account of such
identified Buyer's Purchase Price and (ii) be deemed part of the Purchase
Price for determining amounts, if any, due to any party other than the
Company as contemplated by the Joint Escrow Instructions, but (iii) shall
not be deemed part of the Escrow Property for purposes of determining the
amount of the funds payable to the Company thereunder.
c. Method of Payment. Subject to the provisions of Section
1(b) hereof, 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, Esqs.
Account No.: [To be provided to the Buyer by Xxxxxxx &
Prager]
Re: American Champion Entertainment 6/99 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) Proxy Statements for the
Company's annual meeting of shareholders held on or about May 5, 1999 and
(3) Registration Statement on Form S-3/A filed with the SEC on February
12, 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 August 1, 1997 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 July 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 provision 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 2,372,626 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. 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. 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. Except as contemplated by Section 1 hereof, 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 & Prager, Esqs.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone No.: (000) 000-0000
Telecopier No. (000) 000-0000
ESCROW AGENT: Xxxxxxx & Prager, Esqs.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopier No. (000) 000-0000
Telephone 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
___________________, 1999.
________________________________ ____________________________________
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: ____________________________
Xxxxxxx X. Xxxx
Title: President & CEO
Date: _______________________
