1
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 initially 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
$950,000 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) The Buyer shall pay the Purchase Price for the
Debentures by delivering immediately available good funds in United
States Dollars to the escrow agent (the "Escrow Agent") identified in
the Joint Escrow Instructions attached hereto as Annex II (the "Joint
Escrow Instructions") on the date prior to the Closing Date.
(ii) No later than the Closing Date, but in any event
promptly following payment by the Buyer to the Escrow Agent of the
Purchase Price, the Company shall deliver the Debentures and the
Warrants, each duly executed on behalf of the Company, to the Escrow
Agent.
(iii) By signing this Agreement, each of the Buyer and the
Company, subject to acceptance by the Escrow Agent, agrees to all of the
terms and conditions of, and becomes a party to, the Joint Escrow
Instructions, all of the provisions of which are incorporated herein by
this reference as if set forth in full.
c. Method of Payment. Payment into escrow of the
Purchase Price shall be made by wire transfer of funds to:
Bank of New York
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
ABA# 000000000
For credit to the account of Xxxxxxx & Xxxxxx, Esqs.
Account No.: [To be provided to the Buyer by Xxxxxxx & Prager]
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,
1997, (2) Quarterly Reports on Form 10-QSB for the fiscal quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998, (3) Proxy
Statements for the Company's annual meeting of shareholders held on May
29, 1998 and special meeting of shareholders held September 23, 1998 and
(4) Registration Statement on Form S-3/A filed with the SEC on December
23, 1998 (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.
i. Notwithstanding the provisions hereof or of the
Debentures, in no event (except (i) with respect to an automatic
conversion, if any, of a Debenture as provided in the Debentures, (ii)
as specifically provided in a Debenture as an exception to this
provision, or (iii) if the Company is in default under any Debenture or
any of the Transaction Agreements, as defined below and the Buyer has
asserted such default) shall the holder be entitled to convert any
Debenture to the extent that, after such conversion, the sum of (1) the
number of shares of Common Stock beneficially owned by the Buyer and its
affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of
the Debentures), and (2) the number of shares of Common Stock issuable
upon the conversion of the Debentures with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Buyer and its affiliates of more than 9.99% of the
outstanding shares of Common Stock (after taking into account the shares
to be issued to the Buyer upon such conversion). For purposes of the
immediately preceding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), except as otherwise provided in clause (1)
of such sentence. The Buyer further agrees that if the Buyer transfers
or assigns any of the Debentures to a party who or which would not be
considered such an affiliate, such transfer or assignment shall be made
subject to the transferee's or assignee's specific agreement to be bound
by the provisions of this Section 2(i) as if such transferee or assignee
were a signatory to this Agreement.
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 January 1, 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 January 1,
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 at January , 1999 are 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 January 1, 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.
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) The Company undertakes and agrees to take all steps
necessary to have a vote of the shareholders of the Company regarding
authorization of the Company's issuance to the holders of the Debentures
of shares of Common Stock in excess of twenty percent (20%) of the
outstanding shares of Common Stock on the Closing Date on or before the
Meeting Date (as defined below) in accordance with NASDAQ Rule
4310(c)(25)(H)(i)(d)(2). The term "Meeting Date" means the date of the
Company's Annual Meeting of Shareholders, currently anticipated to be
held on or about April 14, 1999. 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, the Conversion Rate shall be
adjusted to ninety percent (90%) of what the Conversion Rate would have
been in the absence of this provision.
(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. 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 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 1,755,000 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 two thousand seven hundred fifty (2,750) 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
fifteen percent (115%) of the Market Price of the Common Stock on the
Closing Date. 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.
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. (i) Subject to the provisions of this Agreement and of
the Debentures, the Company will permit the Buyer to exercise its right
to convert the Debentures by telecopying or delivering an executed and
completed Notice of Conversion to the Company and delivering within
five (5) business days thereafter, the original Debentures being
converted to the Company by express courier, with a copy to the transfer
agent.
(ii) The term "Conversion Date" means, with respect
to any conversion elected by the holder of the Debentures, the date
specified in the Notice of Conversion, provided the copy of the Notice
of Conversion is telecopied to or otherwise delivered to the Company in
accordance with the provisions hereof so that it is received by the
Company on or before such specified date.
(iii) The Company will transmit the certificates
representing the Converted Shares issuable upon conversion of any
Debentures (together with Debentures not being so converted) to the
Buyer at the address specified in the Notice of Conversion (which may be
the Buyer's address for notices as contemplated by Section 11 hereof or
a different address), via express courier, by electronic transfer or
otherwise, within five (5) business days if the address for delivery is
in the United States and within seven (7) business days if the address
for delivery is outside the United States (such fifth business day or
seventh business day, as the case may be, the "Delivery Date") after (A)
the business date on which the Company has received both of the Notice
of Conversion (by facsimile or other delivery) and the original
Debentures being converted (and if the same are not delivered to the
Company on the same date, the date of delivery of the second of such
items) or (B) the date an interest payment on the Debenture, which the
Company has elected to pay by the issuance of Common Stock, as
contemplated by the Debentures, was due.
d. The Company understands that a delay in the issuance
of the Shares of Common Stock beyond the Delivery Date could result in
economic loss to the Buyer. As compensation to the Buyer for such loss,
the Company agrees to pay late payments to the Buyer for late issuance
of Shares upon Conversion in accordance with the following schedule
(where "No. Business Days Late" is defined as the number of business
days beyond the Delivery Date):
Late Payment For Each
$10,000
of Debenture Principal
No. Business Days Late Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for
each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit the
Buyer's right to pursue actual damages for the Company's failure to
issue and deliver the Common Stock to the Buyer. Furthermore, in
addition to any other remedies which may be available to the Buyer, in
the event that the Company fails for any reason to effect delivery of
such shares of Common Stock by close of business on the Delivery Date,
the Buyer will be entitled to revoke the relevant Notice of Conversion
by delivering a notice to such effect to the Company, whereupon the
Company and the Buyer shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion.
e. If, by the relevant Delivery Date, the Company fails
for any reason to deliver the Shares to be issued upon conversion of a
Debenture and after such Delivery Date, the holder of the Debentures
being converted (a "Converting Holder") purchases, in an open market
transaction or otherwise, shares of Common Stock (the "Covering Shares")
in order to make delivery in satisfaction of a sale of Common Stock by
the Converting Holder (the "Sold Shares"), which delivery such
Converting Holder anticipated to make using the Shares to be issued upon
such conversion (a "Buy-In"), the Company shall pay to the Converting
Holder, in addition to all other amounts contemplated in other
provisions of the Transaction Agreements, and not in lieu thereof, the
Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment
Amount" is the amount equal to the excess, if any, of (x) the Converting
Holder's total purchase price (including brokerage commissions, if any)
for the Covering Shares over (y) the net proceeds (after brokerage
commissions, if any) received by the Converting Holder from the sale of
the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to
the Company in immediately available funds immediately upon demand by
the Converting Holder. By way of illustration and not in limitation of
the foregoing, if the Converting Holder purchases shares of Common Stock
having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold
for net proceeds of $10,000, the Buy-In Adjustment Amount which Company
will be required to pay to the Converting Holder will be $1,000.
f. In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, provided the
Company's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program, upon request
of the Buyer and its compliance with the provisions contained in this
paragraph, so long as the certificates therefor do not bear a legend and
the Buyer thereof is not obligated to return such certificate for the
placement of a legend thereon, the Company shall use its best efforts to
cause its transfer agent to electronically transmit the Common Stock
issuable upon conversion to the Buyer by crediting the account of
Buyer's Prime Broker with DTC through its Deposit Withdrawal Agent
Commission system.
g. The Company will authorize its transfer agent to give
information relating to the Company directly to the Buyer or the Buyer's
representatives upon the request of the Buyer or any such
representative. The Company will provide the Buyer with a copy of the
authorization so given to the transfer agent.
6. DELIVERY INSTRUCTIONS.
The Debentures shall be delivered by the Company to the
Escrow Agent pursuant to Section 1(b) hereof, on a delivery against
payment basis, subject to the specific provisions hereof, no later than
on the Closing Date.
7. CLOSING DATE.
a. The Closing Date shall occur on the date which is the
first NYSE trading day after the fulfillment or waiver of all closing
conditions pursuant to Sections 8 and 9 hereof or such other date and
time as is mutually agreed upon by the Company and the Buyer.
b. The closing of the purchase and issuance of Debentures
shall occur on the Closing Date at the offices of the Escrow Agent and
shall take place no later than 12:00 Noon, New York time, on such day or
such other time as is mutually agreed upon by the Company and the Buyer.
c. Notwithstanding anything to the contrary contained
herein, the Escrow Agent will be authorized to release the Escrow
Property only upon satisfaction of the conditions set forth in Sections
8 and 9 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell
the Debentures to the Buyer pursuant to this Agreement on the Closing
Date is conditioned upon:
a. The execution and delivery of this Agreement by the
Buyer;
b. Delivery by the Buyer to the Escrow Agent of good
funds as payment in full of an amount equal to the Purchase Price for
the Debentures in accordance with this Agreement;
c. The accuracy on such Closing Date of the
representations and warranties of the Buyer contained in this Agreement,
each as if made on such date, and the performance by the Buyer on or
before such date of all covenants and agreements of the Buyer required
to be performed on or before such date; and
d. There shall not be in effect any law, rule or
regulation prohibiting or restricting the transactions contemplated
hereby, or requiring any consent or approval which shall not have been
obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the Debentures on the Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company;
b. Delivery by the Company to the Escrow Agent of the
Debentures and Warrants in accordance with this Agreement;
c. The accuracy in all material respects on such Closing
Date of the representations and warranties of the Company contained in
this Agreement, each as if made on such date, and the performance by the
Company on or before such date of all covenants and agreements of the
Company required to be performed on or before such date;
d. On such Closing Date, the Registration Rights
Agreement shall be in full force and effect and the Company shall not be
in default thereunder;
e. On such Closing Date, the Buyer shall have received an
opinion of counsel for the Company, dated such Closing Date, in form,
scope and substance reasonably satisfactory to the Buyer, substantially
to the effect set forth in Annex III attached hereto;
f. There shall not be in effect any law, rule or
regulation prohibiting or restricting the transactions contemplated
hereby, or requiring any consent or approval which shall not have been
obtained; and
g. From and after the date hereof to and including the
Closing Date, the trading of the Common Stock shall not have been
suspended by the SEC or the NASD and trading in securities generally on
the New York Stock Exchange or The NASDAQ/SmallCap Market shall not have
been suspended or limited, nor shall there be any outbreak or escalation
of hostilities involving the United States or any material adverse
change in any financial market that in either case in the reasonable
judgment of the Buyer makes it impracticable or inadvisable to purchase
the Debentures.
10. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware for contracts to be
wholly performed in such state and without giving effect to the
principles thereof regarding the conflict of laws. Each of the parties
consents to the jurisdiction of the federal courts whose districts
encompass any part of the City of New York or the state courts of the
State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company
shall reimburse the Buyer for any reasonable legal fees and
disbursements incurred by the Buyer in enforcement of or protection of
any of its rights under any of the Transaction Agreements.
b. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising
such right or remedy, shall not operate as a waiver thereof.
c. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may
require.
e. A facsimile transmission of this signed Agreement
shall be legal and binding on all parties hereto.
f. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original.
g. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of,
this Agreement.
h. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement or the validity or enforceability of this Agreement in any
other jurisdiction.
i. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement thereof.
j. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject
matter hereof.
11. NOTICES. Any notice required or permitted hereunder
shall be given in writing (unless otherwise specified herein) and shall
be deemed effectively given on the earliest of
(a) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile
transmission,
(b) the seventh business day after deposit, postage prepaid,
in the United States Postal Service by registered or
certified mail, or
(c) the third business day after mailing by international
express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled
at the following addresses (or at such other addresses as such party may
designate by ten (10) days' advance written notice similarly given to
each of the other parties hereto):
COMPANY: AMERICAN CHAMPION ENTERTAINMENT, INC.
0000 Xxx Xxxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000-0000
Attn: Xxxxxxx X. Xxxx, President
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxxxx Xxxxx & Xxxxx LLP
Xxx Xxxxxxxx Xxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxxxxx X. Low, 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.
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: _________________________________
Telecopier No. _________________ (Signature of Authorized Person)
________________________________
Printed Name and Title
_______________________________
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this
Agreement and represents that the foregoing statements are true and
correct and that it has caused this Securities Purchase Agreement to be
duly executed on its behalf.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: ____________________________
Title: _________________________
Date: __________________________
List of Purchasers: Amount
The Endeavour Capital Fund S.A. $250,000
Amro International, S.A. $200,000
Canadian Advantage L.P. $300,000
Olympia Partners, LLC $200,000
