-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ajd3ITRfsY3vtEeOrVsWPI5VAPqJT70qvJEg6oqWlyqwq7tFZAsErWW2DGAjj7dR kAVlzc87JJtQEPkK+YuRrA== 0000950147-97-000867.txt : 19971216 0000950147-97-000867.hdr.sgml : 19971216 ACCESSION NUMBER: 0000950147-97-000867 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971201 ITEM INFORMATION: FILED AS OF DATE: 19971212 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAMPION FINANCIAL CORP /MD/ CENTRAL INDEX KEY: 0000877050 STANDARD INDUSTRIAL CLASSIFICATION: PERIODICALS: PUBLISHING OR PUBLISHING AND PRINTING [2721] IRS NUMBER: 521949024 STATE OF INCORPORATION: UT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-19499 FILM NUMBER: 97736702 BUSINESS ADDRESS: STREET 1: 9495 EAST SAN SALVADOR DRIVE CITY: SCOTTSDALE STATE: AZ ZIP: 85258 BUSINESS PHONE: 6026144260 MAIL ADDRESS: STREET 1: 19 HILLSYDE COURT CITY: COCKEYSVILLE STATE: MD ZIP: 21030 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) December 1, 1997 Champion Financial Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) UTAH 0-19499 88-0169547 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 9495 East San Salvador Drive, Scottsdale, Arizona 85258 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (602) 614-4270 ------------------------------ 19 Hillsyde Court, Cockeysville, Maryland 21030 - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) Item 9. Sales Of Equity Securities Pursuant To Regulation S. On December 4, 1997, Champion Financial Corporation, a Utah corporation (the "Company"), sold U.S. $4,000,000 aggregate principal amount of its 8% Series A Senior Subordinated Convertible Redeemable Debentures due December 31, 1999 (the "Debt"). The Debt was sold in reliance upon Regulation S under the United States Securities Act of 1933, as amended (the "Securities Act"). The Notes were sold through London Select Enterprises, Ltd. ("Broker") to Non-U.S. persons pursuant to a Letter Agreement between the Company and Broker dated December 1, 1997 (the "Letter Agreement"). The Company has also granted the Broker warrants to purchase 1 share of Common Stock for each $10.00 of face amount of Debt placed (i.e., warrants to purchase an aggregate of 400,000 shares), at an exercise price per share of 110% of the closing bid price on the date of the closing of the offering. The warrants are excercisable at any time for a period of 5 years. Under the terms of the Letter Agreement, the Company paid the Broker ten percent (10%) plus a non-accountive expense of two percent (2%) of the gross proceeds paid pursuant to any individual subscription Agreement. The Debt is convertible into Common Stock, $.001 par value, of the Company at any time after 45 days following the closing of the offering, unless previously redeemed or repurchased, and is convertible at maturity (December 31, 1999) at the Company's option at a conversion price for each share of Common Stock equal to the lower of (a) 75% of the closing bid price of the Common Stock for the trading day immediately preceding the date of receipt by the Company of notice of conversion or (b) 75% of the closing bid price of the Common Stock for the five (5) days immediately preceding the date of subscription by the Holder, as reported by the National Association of Securities Dealers Electronic Bulletin Board. The payment of principal, premium, if any, interest, and any other amounts payable on or in respect of the Debt by the Company is on a subordinated basis in accordance with the terms of the Debenture. The Debt and the Common Stock issuable upon conversion of the Debt have not been registered under the Securities Act, in reliance upon the exemption afforded by Regulation S under the Securities Act. Accordingly, the Debt and the Common Stock issuable upon conversion of the Debt was offered and sold only outside the United States to non-United States investors in reliance upon Regulation S under the Securities Act. The foregoing summary of the Letter Agreement, the Debt, the Debenture and the Offshore Securities Subscription Agreement does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Letter Agreement, the Debenture and the Offshore Securities Subscription Agreement, forms of which are filed as Exhibits to this Current Report on Form 8-K. 2 EXHIBITS Exhibit No. 1.1 Form of Letter Agreement between Champion Financial Corporation and London Select Enterprises, Ltd. Dated December 1, 1997. 4.1 Form of Offshore Securities Subscription Agreement 4.2 Form of Debenture 4.3 Form of Warrant Certificate SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CHAMPION FINANCIAL CORPORATION Date December 10, 1997 By /s/ Paul F. Caliendo -------------------------------------- Paul F. Caliendo Its President and Chief Executive Officer EX-1.1 2 LETTER AGREEMENT Exhibit 1.1 LONDON SELECT ENTERPRISES, LTD. c/o Zenith Management Corp. Ltd. P.O. Box 64 Market Place No. C12 Provodincials Turks & Caicos Islands December 1, 1997 Champion Financial Corporation 9495 East San Salvador Drive Scottsdale, Arizona 85258 Gentlemen: This letter is to confirm our understanding and agreement regarding compensation to be paid by Champion Financial Corporation (the "Company") to London Select Enterprises, Ltd. (the "Broker"). Broker shall have the exclusive right through December 8, 1997 to act as the Company's agent for the sole purpose of placing up to $4,000,000 face amount of 8% two year convertible debentures (together with the common stock that the debt is convertible into) (the "Debt" or the "Securities"), of Company on a "best efforts" basis, in an offering conducted in compliance with Regulation S promulgated under the Securities Act of 1933 ("1933 Act"). The Debt shall be convertible at any time after 45 days into common stock of the Company at the lower of (a) 25% below the average of the closing bid prices of the common stock for the 5 trading days immediately preceding the execution by the subscriber of each individual subscription or (b) 25% below the closing bid price of the common stock for the trading day immediately preceding the date of conversion (the "conversion price"). Company and Broker agree to make appropriate arrangements for escrow with Barry Globerman, Esq., New York, New York, of all monies received in consideration of such Debt. In consideration for Broker's and escrow services hereunder, at the time of closing with respect to each individual subscription, Company will pay Broker ten percent (10%) plus a non-accountive expense of 2% of the gross proceeds paid pursuant to each individual subscription agreement. There may be multiple closings of this offering and the 10% plus 2% will be paid upon each closing. Mr. Globerman is authorized and is hereby directed to deduct from the gross proceeds the amounts to be paid to Broker hereunder. If a purchaser shall make payment directly to the Company of the gross proceeds, then Company agrees to remit to Mr. Globerman from such gross proceeds the amounts to be paid to Broker with respect thereto. In either event, Mr. Globerman shall thereupon make appropriate payment hereunder to the Broker. In addition, Broker shall receive warrants to purchase 1 share of Common Stock for each $10 of face amount of Debt placed at a price per share of 110% of the closing bid price on the date of closing of the offering. The Warrants shall be exercisable at any time for a period of 5 years. It is agreed that no person shall become a purchaser in the offering except upon Company's acceptance of an executed agreed upon subscription agreement. Company reserves the right to accept or reject any prospective subscriber in its sole discretion. Company is familiar with Regulation S and will not take any action or omit to take any action which has the effect of causing the offering not to comply with Regulation S or any other applicable securities laws, rules or regulations. Broker is familiar with Regulation S and will not take any action which has the effect of causing the offering not to comply with Regulation S or any other applicable securities laws, rules or regulations or the laws, rules or regulations of any jurisdiction in which these securities are offered or sold, in particular Broker and Company confirm their agreement to comply with Rule 903(c)(2) of Regulation S. Broker, its affiliates and any person acting at Broker's or any of its affiliates' direction, shall not directly or indirectly engage in "short" selling of the Company's securities at any time for a period of 6 months from the date of the last closing of sale of Debt. Broker will provide to each prospective subscriber all disclosure materials designated by Company and Broker to be made available to all prospective investors. Such materials include the Company's latest Annual Report on Form 10-K and latest Quarterly Report on Form 10-Q. Broker acknowledges that it is not authorized to and will not give any information or make any representations other than as contained in the disclosure materials approved in advance by Company. Broker agrees that it is not authorized to and will not incur any obligation or enter into any agreement on behalf of Company or otherwise bind Company in any manner. Broker is acting at a broker's capacity and this Agreement shall not create any relationship of agency, partnership or joint venture. Broker agrees that all offers and sales by Broker will be made only to persons outside the United States who are not "U.S. Persons" as defined in Regulation S and all such offers and sales shall be in compliance with the applicable laws of the jurisdictions in which such offers and sales are made. Broker agrees that it and its affiliates and persons acting on behalf of Broker and its affiliates will not engage in any "directed selling efforts" as defined in Regulation S. Broker agrees that, if prior to the expiration of the 40-day restricted period referred to in Rule 903(c)(2) of Regulation S, Broker shall sell the Debt to (i) a "distributor" (as 2 defined in Regulation S), (ii) a "dealer" (as defined in Section 2(12) of the 1933 Act), or (iii) any person receiving a selling concession, fee or other remuneration in respect of the Debt, Broker shall send a confirmation or other notice to such purchaser stating that the purchase is subject to the same restrictions on offers and sales that apply to "distributor" under Regulation S. Broker agrees that all offers and sales prior to the expiration of the 40-day restricted period referred to in Rule 903(c)(2) of Regulation S shall be made only in accordance with the provisions of Section 903 and 904 of Regulation S as applicable; pursuant to registration of the Securities under the 1933 Act, or pursuant to an available exemption from registration under the 1933 Act. Broker agrees that any offering materials or documents distributed by it (except press releases) used in connection with offers and sales prior to the expiration of the 40-day restricted period referred to in Rule 903(c)(2) of Regulation S shall include statements to the effect that the Securities have not been registered under the 1933 Act and may not be offered or sold in the United States or to U.S. persons (other than "distributors" as defined in Regulation S) unless the Securities are registered or an exemption from the requirements of the 1933 Act is available. Such statements shall appear on all materials as provided under Section 902(h)(2)(i), (ii) and (iii) of Regulation S. Company agrees that it will not engage in any offering of its securities pursuant to Regulation S for a period of 90 days from the date of the final closing of the offering contemplated hereby unless mutually agreed. In addition, Broker shall have the right of first refusal for a 360-day period to participate in any future financings on the same terms as any other brokers, such right to be exercised within 10 days of written notice to Broker by Company of its intent to engage in a financing. Company agrees to maintain the confidentiality of Broker's clients except to the extent disclosure thereof may be required by law. Such clients are defined as individuals or institutions who invest in this private placement. For two years from the date hereof, Company will not solicit such clients directly for the sale of securities without the written permission of Broker, which consent will not unreasonably be withheld. Broker and Company each agree to indemnify and hold harmless the others, their officers, directors, shareholders, representatives and affiliates to the full extent lawful from and against any losses, claims, expenses, damages or liabilities, including reasonable legal fees, related to or arising out of any breach of or failure by the indemnifying party to comply with its representations, warranties and agreements set forth in this letter. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof, and no waiver, alteration or modification of any of the provisions hereof shall be binding unless it is in writing and signed by each of the parties hereto. 3 All representations, warranties, and agreements of the parties hereto herein, and any indemnification agreements contained herein shall survive the consummation of a sale or the termination of this Agreement. Any controversy or claim relating to this Agreement ("Arbitrable Dispute") shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA") as such rules may be modified herein or as otherwise agreed by the parties in controversy. The forum for arbitration shall be New York, New York. Broker agrees to submit to the jurisdiction of the New York Courts for purposes of confirming any award. This Agreement may be executed in multiple counterparts each of which shall be deemed one and the same instrument. This Agreement shall not be assignable by either party without the prior written consent of the other party hereto. This Agreement shall be governed by the laws of the State of New York (without regard to conflicts of law principles). A copy has been provided for your records. LONDON SELECT ENTERPRISES, LTD. By: ------------------------------------- Approved and Agreed To: CHAMPION FINANCIAL CORPORATION By: --------------------------- Date: ------------------------- 4 EX-4.1 3 OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT Exhibit 4.1 OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT ------------------------------------------ THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT dated as of ___________, 1997 (the "Agreement"), is executed in reliance upon the exemption from registration afforded by Regulation S ("Regulation S") as promulgated by the Securities and Exchange Commission ("SEC"), under the Securities Act of 1933, as amended. Capitalized terms used herein and not defined shall have the meanings given to them in Regulation S. This Agreement has been executed by the undersigned "Buyer" in connection with the private placement of 8% Series A Senior Subordinated Convertible Redeemable Debentures of Champion Financial Corporation, a corporation organized under the laws of Utah, with its principal executive offices located at 9495 East San Salvador Drive, Scottsdale, AZ 85258 (hereinafter referred to as "Seller"). Buyer hereby represents and warrants to, and agrees with Seller: THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN REGULATION S OF THE 1933 ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S OF THE 1933 ACT) EXCEPT PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT. 1. Agreement To Subscribe; Purchase Price. (a) Subscription. The undersigned Buyer hereby subscribes for and agrees to purchase a portion of the Seller's 8% Series A Senior Subordinated Convertible Redeemable Debentures substantially in the form of the Debentures attached as Exhibit A hereto and having an aggregate original principal face amount of up to U.S. $4,000,000 (singly, a "Debenture," and collectively, the "Debentures"), at an aggregate purchase price as set forth in subsection (b) herein. (b) Payment. The aggregate Purchase Price for the portion of the Debentures purchased by the Buyer shall be __________________________ United States Dollars (U.S. $___________) (the "Purchase Price"), which shall be payable pursuant to paragraph C herein by delivering immediately available funds in United States Dollars by wire transfer to the designated depository Barry B. Globerman, Esq., as Escrow Agent ("Escrow Agent") for closing by delivery of securities versus payment. (c) Closing. Subject to the satisfaction of the conditions set forth in Sections 7 and 8 hereof, payments of the Purchase Price may be made from time to time in denominations of not less than $10,000 but all payments hereunder in any event must be completed on or before December 8, 1997, or such earlier or later date as is mutually agreed to in writing by Buyer and Seller. 2. Buyer Representations and Covenants; Access to Information. Offshore Transaction. In connection with the purchase and sale of the Debentures, Buyer represents and warrants to, and covenants and agrees with Seller as follows: (i) Buyer is not a natural person and is not organized under the laws of any jurisdiction within the United States, was not formed by a U.S. Person (as defined in Rule 902(o) of Regulation S) for the purpose of investing in Regulation S securities and is not otherwise a U.S. Person. Buyer is not, and on the closing date will not be, an affiliate of Seller; (ii) At the time the buy order was originated, Buyer was outside the United States and is outside of the United States as of the date of the execution and delivery of this Agreement; (iii) No offer to purchase the Debentures or the common stock of Seller issuable upon conversion of the Debentures (collectively, the "Securities"), was made by Buyer in the United States; (iv) Buyer is purchasing the Securities for its own account and Buyer is qualified to purchase the Securities under the laws of its jurisdiction of residence, and the offer and sale of the Securities will not violate the securities or other laws of such jurisdiction; (v) All offers and sales of any of the Securities by Buyer prior to the end of the Restricted Period (as hereinafter defined) shall be made in compliance with any applicable securities laws of any applicable jurisdiction and in accordance with Rule 903 and 904, as applicable, of Regulation S or pursuant to registration of securities under the 1933 Act or pursuant to an exemption from registration. In any case, none of the Securities have been or will be encumbered, offered, sold or otherwise transferred by Buyer to, or for the account or benefit of, a U.S. Person or within the United States until after the end of the forty (40) day period commencing on the later of (x) the date of closing of the offering of the Securities or (y) the date of the first offer of the Securities to persons other than distributors (the "Restricted Period"), as calculated pursuant to Regulation S and certified by Buyer to Seller and thereafter only pursuant to a Registration Statement or an applicable exemption from the registration provisions of the 1933 Act; -2- (vi) The transactions contemplated by this Agreement (a) have not been and will not be pre-arranged by Buyer with a purchaser located in the United States or a purchaser which is a U.S. Person, and (b) are not and will not be part of a plan or scheme by Buyer, to evade the registration provisions of the 1933 Act; (vii) Buyer understands that the Securities are not registered under the 1933 Act and are being offered and sold to it in reliance on specific exclusions from the registration requirements of Federal and State securities laws, and that Seller is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of Buyer set forth herein in order to determine the applicability of such exclusions and the suitability of Buyer and any purchaser from Buyer to acquire the Securities; (viii) Buyer shall take all reasonable steps to ensure its compliance with Regulation S and shall promptly send to each purchaser who acts as a distributor, dealer or a person receiving a selling concession, fee or other remuneration in respect of any of the Securities, who purchases prior to the expiration of the Restricted Period referred to in subparagraph (v) above, a confirmation or other notice to the purchaser stating that the purchaser is subject to the same restrictions on offers and sales as Buyer pursuant to Rule 903(c)(2)(iv) of Regulation S; (ix) Buyer has not conducted or permitted and shall not conduct or permit on its behalf any "directed selling efforts" as that term is defined in Rule 902(b) of Regulation S; nor has Buyer conducted any general solicitation relating to the offer and sale of any of the Securities in the United States or elsewhere; (x) Buyer has the full right, power and authority to enter into this Agreement and to consummate the transaction contemplated herein. This Agreement has been duly authorized, validly executed and delivered on behalf of Buyer and is a valid and binding agreement in accordance with its terms, subject to general principles of equity and to bankruptcy or other laws affecting the enforcement of creditors' rights generally; (xi) The execution and delivery of this Agreement and the consummation of the purchase of the Securities, and the transactions contemplated by this Agreement do not and will not conflict with or result in a breach by Buyer of any of the terms of provisions of, or constitute a default under, the articles of incorporation or by-laws (or similar constitutive documents) of Buyer or any indenture, mortgage, deed of trust, or other material agreement or instrument to which Buyer is a party or by which it or any of its properties or assets are bound, or any existing applicable law, rule or regulation of the United States or any State thereof or any applicable decree, judgment or order of any Federal or State court, -3- Federal or State regulatory body, administrative agency or other United States governmental body having jurisdiction over Buyer or any of its properties or assets; (xii) All invitation, offers and sales of or in respect of, any of the Securities, by Buyer and any distribution by Buyer of any documents relating to any offer by it of any of the Securities will be in compliance with applicable laws and regulations and will be made in such a manner that no prospectus need be filed and no other filing need be made by Seller with any regulatory authority or stock exchange in any country or any political sub-division of any country; (xiii) Buyer will not make any offer or sale of the Securities by any means which would not comply with the laws and regulations of the territory in which such offer or sale takes place or to which such offer or sale is subject or which would in connection with any such offer or sale impose upon Seller any obligation to satisfy any public filing or registration requirement or provide or publish any information of any kind whatsoever or otherwise undertake or become obligated to do any act; and (xiv) Neither the Buyer nor any of its affiliates has entered, has the intention of entering, or will during the Restricted Period enter into any put option, short position or other similar instrument or position with respect to any of the Securities or securities of the same class as the Securities. (xv) Buyer (or others for whom it is contracting hereunder) has been advised to consult its own legal and tax advisors with respect to applicable resale restrictions and applicable tax considerations and it (or others for whom it is contracting hereunder) is solely responsible (and Seller is not in any way responsible) for compliance with applicable resale restrictions and applicable tax legislation. (xvi) No Government Recommendation or Approval. Buyer understands that no Federal or State or foreign government agency has passed on or made any recommendation or endorsement of the Securities. (xvii) Current Public Information. Buyer acknowledges that it and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of Seller and all materials relating to the offer and sale of the Securities which have been requested by Buyer, all of which contain a legend as required under Section 10 hereof. Buyer further acknowledges that it and its advisors, if any, have received complete and satisfactory answers to such inquiries. (xviii) Buyer's Sophistication. Buyer acknowledges that the purchase of the Securities involves a high degree of risk, including the total loss of Buyer's -4- investment. Buyer has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of purchasing the Securities. Buyer understands that the Securities are not being registered under the 1933 Act, and therefore Buyer must bear the economic risk of this investment for an indefinite period of time. (xix) Tax Status. Buyer is not a "10-percent Shareholder" (as defined in Section 871(h)(3)(B) of the U.S. Internal Revenue Code of 1986, as amended) of Seller. 3. Seller Representations and Covenants. (a) Reporting Company Status. Seller is a "Reporting Issuer" as defined by Rule 902 of Regulation S. Seller's Common Stock $0.001 par value per share (the "Common Stock"), is listed and trades on the NASDAQ Electronic Bulletin Board. (b) Current Public Information. Seller has furnished Buyer with copies of its most recent reports, as amended, filed under the Exchange Act referred to in Section 2(xvii) above, and other publicly available documents requested by Buyer. (c) Offshore Transaction. Seller has not offered any of the Securities to any person in the United States, any identifiable groups of U.S. citizens abroad, or to any U.S. Person, as such terms are used in Regulation S. (i) At the time the buy order was originated, Seller and/or its agents reasonably believe the Buyer was outside of the United States and was not a U.S. Person, based on the representations of Buyer. (ii) Seller and/or its agents reasonably believe that the transaction has not been pre-arranged with a buyer in the United States, based on the representations of Buyer. (iii) No offer to buy or sell the Securities was or will be made by Seller to any person in the United States. (iv) The sale of the Securities by Seller pursuant to this Agreement will be made in accordance with the provisions and requirements of Regulation S provided that the representations and warranties of Buyer in Section 2 hereof are true and correct. (v) The transactions contemplated by this Agreement (a) have not been and will not be pre-arranged by Seller with a purchaser located in the United States or a purchaser which is a U.S. Person, and (b) are not and will not be part of a plan -5- or scheme by Seller to evade the registration provisions of the 1933 Act. (d) No Directed Selling Efforts. In regard to this transaction, Seller has not conducted any "directed selling efforts" as that term is defined in Rule 902 of Regulation S nor has Seller conducted any general solicitation relating to the offer and sale of any of the Securities in the United States or elsewhere. (e) Concerning the Securities. The issuance, sale and delivery of the Debentures have been duly authorized by all required corporate action on the part of Seller, and when issued, sold and delivered in accordance with the terms hereof and thereof for the consideration expressed herein and therein, will be duly and validly issued, fully paid and non-assessable. The Common Stock issuable upon conversion of the Debenture has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Debentures, shall be duly and validly issued, fully paid, and non-assessable and will not subject the holders thereof, if such persons are non-U.S. persons, to personal liability by reason of being such holders. There are no pre-emptive rights of any shareholder of Seller. (f) Subscription Agreement. This Agreement has been duly authorized, validly executed and delivered on behalf of Seller and is a valid and binding agreement in accordance with its terms, subject to general principles of equity and to bankruptcy or other laws affecting the enforcement of creditors' rights generally. (g) Non-contravention. The execution and delivery of this Agreement and the consummation of the issuance of the Securities and the transactions contemplated by this Agreement do not and will not conflict with or result in a breach by Seller of any of the terms or provisions of, or constitute a default under, the articles of incorporation or by-laws of Seller, or any indenture, mortgage, deed of trust, or other material agreement or instrument to which Seller is a party or by which it or any of its properties or assets are bound, or any existing applicable law, rule or regulation of the United States or any State thereof or any applicable decree, judgment or order of any Federal or State court, Federal or State regulatory body, administrative agency or other United States governmental body having jurisdiction over Seller or any of its properties or assets. (h) Approvals. Seller is not aware of any authorization, approval or consent of any U.S. governmental body which is legally required for the issuance and sale of the Debentures and the Common Stock issuable upon conversion thereof to persons who are non-U.S. Persons, as contemplated by this Agreement. Seller is relying entirely upon Buyer and Distributor with respect to foreign consents and approvals. (i) Filings. Seller undertakes and agrees pursuant to the sale of its securities under Regulation S to make all necessary filings in connection with the sale of its securities as required by the laws and regulations of the United States, including Form 8-K. Seller further agrees, with respect to the filing of Form 8-K, that it will only identify Purchaser as an "accredited -6- investor" as that term is defined in Regulation D and will not disclose Purchaser's name in Form 8-K or otherwise unless such disclosure is required by law. 4. Exemption; Reliance on Representations. Buyer understands that the offer and sale of the Securities are not being registered under the 1933 Act. Seller and Buyer are relying on the rules governing offers and sales made outside the United States pursuant to Regulation S. 5. Transfer Agent Instructions. (a) Debentures. Upon the conversion of the Debentures, the holder thereof shall submit such Debenture together with a notice of conversion to the Seller and the Seller shall instruct its transfer agent to issue one or more Certificates representing that number of shares of Common Stock into which the Debenture or Debentures are convertible in accordance with the provisions regarding conversion set forth in Exhibit A hereto. The Seller shall act as Debenture Registrar and shall maintain an appropriate ledger containing the necessary information with respect to each Debenture. (b) Common Stock to be Issued Without Restrictive Legend. Upon the conversion of any Debenture up to the total of the "Conversion Amount" (as defined in the Debenture) and 40 days after the issuance of any "Interest Shares" (as defined in the Debenture) by a person who is a non-U.S. Person, Seller shall instruct Seller's transfer agent to issue Stock Certificates up to the total of the "Conversion Amount" (as defined in the Debenture) and 40 days after the "Interest Shares " (as defined in the Debenture) without restrictive legend 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 prior to the closing) and in such denominations to be specified at conversion representing the number of shares of Common Stock issuable upon such conversion, as applicable, provided, however, that Buyer acknowledges that no transfers in the United States or to United States persons may be made during the restricted period. Seller warrants that no instructions other than these instructions and instructions to impose a "stop transfer" instruction with respect to the certificates until the end of the respective Restricted Period of the Conversion Shares and Interest Shares, if any, have been given or will be given to the transfer agent and that the Common Stock shall otherwise be freely transferable on the books and records of Seller. Nothing in this Section 5, however, shall affect in any way Buyer's or such nominee's obligations and agreements to comply with all applicable securities laws upon resale of the Securities and the restrictions on resale set forth in Section 12. (c) It shall be the Seller's responsibility to take all necessary actions and to bear all such costs to issue the Certificate of Common Stock as provided herein, including the responsibility and cost for delivery of an opinion letter to the transfer agent, if so required, provided Buyer provides such certificates and information as may be reasonably required to support that opinion. The person in whose name the certificate of Common Stock is to be registered shall be treated as a shareholder of record on and after the conversion date. The Seller shall only be required to convert the debenture in minimum amounts of $10,000. Upon surrender -7- of any Debentures that are to be converted in part, the Company shall issue to the Purchaser a new Debenture equal to the unconverted amount, if so requested by Purchaser. 6. Registration. If upon conversion of the Debentures effected by the Buyer pursuant to the terms of this Agreement or payment of interest pursuant to the Debenture the Company fails to issue certificates for shares of Common Stock issuable upon such conversion (the Underlying Shares or the Interest Shares to the Buyer bearing no restrictive legend (after the applicable Restrictive Period of the Conversion Shares or Interest Shares) for any reason other than the Company's reasonable good faith belief that the representations and warranties made by the Buyer in this Agreement or the Notice of Conversion were untrue when made, or if the restricted period under Regulation S is extended, then the Seller shall be required, at the request of the Buyer and at the Seller's expense, to effect the registration of the Underlying Shares and/or Interest Shares issuable upon conversion of the Debentures and payment of interest under the Act and relevant Blue Sky laws as promptly as is practicable. The Seller and the Buyer shall cooperate in good faith in connection with the furnishing of information required for such registration and the taking of such other actions as may be legally or commercially necessary in order to effect such registration. Following such conversion, the Seller shall file such a registration statement within 60 days of Buyer's demand therefor and shall use its diligent efforts to cause such registration statement to become effective as soon as practicable thereafter. Such diligent efforts shall include, but not be limited to, promptly responding to all comments received from the staff of the Securities and Exchange Commission, providing Buyer's counsel with a contemporaneous copy of all written communications from and to the staff of the Securities and Exchange Commission with respect to such registration statement and promptly preparing and filing amendments to such registration statement which are responsive to the comments received from the staff of the Securities and Exchange Commission. Once declared effective by the Securities and Exchange Commission, the Seller shall cause such registration statement to remain effective until the earlier of (i) the sale by the Buyer of all Underlying Shares registered or (ii) 120 days after the effective date of such registration statement. In the event the Seller undertakes to file a Registration Statement, except insofar as the right to sell may be suspended (for a period of not more than 90 days) at the Seller's option based on material non public events or business emergencies, in which case, the 120 days will be lengthened by the number of days of suspension. The Seller shall include on the applicable registration form the Buyer as a selling shareholder in connection with the Common Stock and upon the effectiveness of such Registration, Buyer shall have the option to sell the Common Stock pursuant thereto. The foregoing shall not in any way limit Buyer's rights in connection with the Common Stock pursuant to Regulation S. 7. Authorized and Issued Shares. The Seller shall at all times reserve and have available all Common Stock necessary to meet conversion of the Debentures by all purchasers of the entire amount of Debentures then outstanding. If, at any time Buyer submits a Notice of Conversion and the Seller does not have sufficient authorized but unissued shares of Common Stock available to effect, in full, a conversion of the Debentures (a Conversion Default, the date of such default being referred to herein as the Conversion Default Date), the Company shall issue to the purchasers of the Debentures all of the shares of Common Stock which are available, and the -8- Notice of Conversion as to any Debentures requested to be converted (the Unconverted Debentures), upon Buyer's sole option, may be deemed null and void. The Seller shall provide notice of such Conversion Default (Notice of Conversion Default) to all existing purchasers of outstanding Debentures, by facsimile, within one (1) business day of such default (with the original delivered by overnight or two day courier), and each such purchaser shall give notice to the Seller by facsimile within five business days of receipt of the original Notice of Conversion Default (with the original delivered by overnight or two day courier) of its election to either nullify or confirm the Notice of Conversion. The Seller agrees to pay to all purchasers of outstanding Debentures payments for a Conversion Default (Conversion Default Payments) in the amount of (N/365) x (.24) x the initial issuance price of the outstanding and/or tendered but not converted Debentures held by each Purchaser where N = the number of days from the Conversion Default Date to the date (the Authorization Date) that the Seller authorizes a sufficient number of shares of Common Stock to effect conversion of all remaining Debentures. The Seller shall send notice (Authorization Notice) to each Purchaser of outstanding Debentures that additional shares of Common Stock have been authorized, the Authorization Date and the amount of Purchaser's accrued Conversion Default Payments. The accrued Conversion Default shall be paid in cash or shall be convertible into Common Stock at the Conversion Rate, at the Buyer's option, payable as follows: (i) in the event Buyer elects to take such payment in cash, cash payments shall be made to such Buyer of outstanding Debentures by the fifth day of the following calendar month, or (ii) in the event Buyer elects to take such payment in stock, the Buyer may convert such payment amount into Common Stock at the conversion rate set forth in section 5(d) at anytime after the 5th day of the calendar month following the month in which the Authorization Notice was received, until the maturity date. 8. Delivery Instructions. The Debentures being purchased hereunder shall be delivered to the Escrow Agent at such time and place as shall be mutually agreed by Seller and Buyer. 9. Conditions To Seller's Obligation To Sell. Seller's obligation to sell the Debentures is conditioned upon: (a) The receipt and acceptance by Seller of this Agreement executed by Buyer. (b) Delivery into the closing depository of good funds by Buyer as payment in full of the purchase price of the Debentures. (c) All of the representations and warranties of the Buyer contained in this Agreement shall be true and correct on the Payment Date with the same force and effect as if made on and as of the Payment Date. The Buyer shall have performed or complied with all agreements and satisfied all conditions on its part to be performed, complied with or satisfied at or prior to the Payment Date. -9- (d) No order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Act shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. No stop order suspending the sale of the Debentures shall have been issued, and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. (e) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency that would prevent the issuance of the Debentures. No injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction shall have been issued that would prevent the issuance of the Debentures. 10. Conditions To Buyer's Obligation To Purchase. Buyer's obligation to purchase the Debentures is conditioned upon: (a) The confirmation of receipt and acceptance by Seller of this Agreement as evidenced by execution of this Agreement by the duly authorized officer of Seller. (b) Delivery of the Debentures to the Escrow Agent. 11. Offering Materials. All offering materials and documents used in connection with offers and sales of the Securities prior to the expiration of the Restricted Period referred to in Section 2(a)(v) hereof shall include statements to the effect that the Securities have not been registered under the 1933 Act or applicable state securities laws, and that neither Buyer, nor any direct or indirect purchaser of the Securities from Buyer, may directly or indirectly offer or sell the Securities in the United States or to U.S. Persons (other than distributors) unless that Securities are registered under the 1933 Act any applicable state securities laws, or any exemption from the registration requirements of the 1933 Act or such state securities laws is available. Such statements shall appear (1) on the cover of any prospectus or offering circular used in connection with the offer or sale of the Securities, (2) in the underwriting section of any prospectus or offering circular used in connection with the offer or sale of the Securities, and (3) in any advertisement made or issued by Seller, Buyer, any other distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing. 12. No Shareholder Approval. Seller hereby agrees that from the Closing Date until the issuance of Common Stock upon the conversion of the Debentures, Seller will not take any action which would require Seller to seek shareholder approval of such issuance unless such shareholder approval is required by law or regulatory body (including but not limited to the Nasdaq Stock Market, Inc.) as a result of the issuance of the Securities hereunder. -10- 13. Miscellaneous. (a) Except as specifically referenced herein or in the Distribution Agreement, this Agreement constitutes the entire contract between the parties, and neither party shall be liable or bound to the other in any manner by any warranties, representations or covenants except as specifically set forth herein. Any previous agreement among the parties related to the transactions described herein is superseded hereby. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties hereto. Nothing in this Agreement, express or impled, is intended to confer upon any party, other than the parties hereto, and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein. (b) Buyer is an independent contractor, and is not the agent of Seller. Buyer is not authorized to bind Seller, or to make any representations or warranties on behalf of Seller. (c) Seller makes no representations or warranty with respect to Seller, its finances, assets, business prospects or otherwise. Buyer will advise each purchaser, if any, and potential purchaser of the Securities, of the foregoing sentence, and that such purchaser is relying on its own investigation with respect to all such matters, and that such purchaser will be given access to any and all documents and Seller personnel as it may reasonably request for such investigation. (d) All representations and warranties contained in this Agreement by Seller and Buyer shall survive the closing of the transactions contemplated by this Agreement. (e) This Agreement shall be construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. Buyer hereby waives trial by jury and consents to exclusive jurisdiction and venue in the State of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original. (f) Any controversy or claim relating to this Agreement ("Arbitrable Dispute") shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA") as such rules may be modified herein or as otherwise agreed by the parties in controversy. The forum for arbitration shall be New York, New York. Broker agrees to submit to the jurisdiction of the New York Courts for purposes of confirming any award. (g) Buyer agrees to indemnify and hold Seller harmless from any and all claims, damages and liabilities arising from Buyer's breach of its representations and/or covenants set forth herein. -11- AMOUNT SUBSCRIBED FOR $ -------------------- [The remainder of this page is intentionally left blank.] -12- IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date first set forth above. Official Signatory of Seller: ----------------------------- Champion Financial Corporation By: -------------------------------- Accepted this ____ day of ________, 1997 Title: ----------------------------- Official Signatory of Buyer: ---------------------------- ----------------------------------- By: -------------------------------- Title: ----------------------------- Address of Buyer: ----------------------------------- ----------------------------------- ----------------------------------- Fax No.: --------------------------- Tel No.: --------------------------- -13- EX-4.2 4 DEBENTURE Exhibit 4.2 DEBENTURE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE ACT) EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS. No. _______ US $__________ CHAMPION FINANCIAL CORPORATION 8% SERIES A SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE DEBENTURE DUE DECEMBER 31, 1999 THIS DEBENTURE is one of a duly authorized issue of Debentures of Champion Financial Corporation, a corporation duly organized and existing under the laws of Utah (the "Company") designated as its 8% Series A Senior Subordinated Convertible Redeemable Debentures Due December 31, 1999, in an aggregate principal face amount not exceeding Four Million Dollars (U.S. $4,000,000). FOR VALUE RECEIVED, the Company promises to pay to ______________________ the registered holder hereof and its successors and assigns (the "Holder"), the principal face sum of ______________________ Dollars (US $_________) on December 31, 1999 (the "Maturity Date"), and to pay interest on the principal sum outstanding, at the rate of 8% per annum due and payable quarterly commencing April 1, 1998 pursuant to paragraph 4(b) herein. Accrual of interest shall commence on the date hereof and shall continue until payment in full of the outstanding principal sum has been made or duly provided for. The interest so payable will be paid to the person in whose name this Debenture (or one or more predecessor Debentures) is registered on the records of the Company regarding registration and transfers of the Debentures (the "Debenture Register"); provided, however, that the Company's obligation to a transferee of this Debenture arises only if such transfer, sale or other disposition is made in accordance with the terms and conditions of the Offshore Securities Subscription Agreement dated as of __________________ between the Company and ________________________________ (the "Subscription Agreement"). The principal of, and interest (with the exception of the prepaid interest set forth in Section 4(b) herein) on, this Debenture are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at the address last appearing on the Debenture Register of the Company as designated in writing by the Holder hereof from time to time. The Company will pay the outstanding principal due upon this Debenture before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Debenture no later than the tenth (10th) day prior to the Maturity Date by check or on the Maturity Date by wire transfer and addressed to such Holder at the last address appearing on the Debenture Register. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Debenture to the extent of the sum represented by such check or wire transfer plus any amounts so deducted. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein. This Debenture is subject to the following additional provisions: 1. The Debentures are issuable in denominations of Ten Thousand Dollars (US$10,000) and integral multiples thereof. The Debentures are exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holders surrendering the same but not less than U.S. $10,000. No service charge will be made for such registration or transfer or exchange, except that transferee shall pay any tax or other governmental charges payable in connection therewith. 2. The Company shall be entitled to withhold from all payments of principal of, and interest on, this Debenture any amounts required to be withheld under the applicable provisions of the United States income tax or other applicable laws at the time of such payments. 3. This Debenture has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged in the U.S. only in compliance with the Securities Act of 1933, as amended (the "Act") and applicable state securities laws. Prior to due presentment for transfer of this Debenture, the Company and any agent of the Company may treat the person in whose name this Debenture is duly registered on the Company's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any holder of this Debenture, electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Debenture, is also required to give the Company (i) written confirmation that it is not a U.S. Person and the Debenture is not being converted on behalf of a U.S. Person ("Notice of Conversion") or (ii) an opinion of U.S. counsel to the effect that the Debenture and shares of common stock issuable upon conversion or transfer thereof have been registered under the 1933 Act or are exempt from such registration. In the event a Notice of Conversion or opinion of counsel is not provided the Holder hereof will not be entitled to exercise the right to convert or transfer the Debentures. 4. (a) The Holder of this Debenture is entitled, at its option, at any time commencing 45 days after closing of the Offering hereof to convert all or any amount over $10,000 of the principal face amount of this Debenture then outstanding into shares of common stock, $0.001 par value per share, of the Company (the "Common Stock"), at a conversion price for each share of Common Stock equal to the lower of (a) 75% of the closing bid price of the Common Stock for the trading day immediately preceding the date of receipt by the Company of notice of conversion ("Conversion Shares") or (b) 75% of the closing bid price of the Common Stock for the five (5) days immediately preceding the date of subscription by the Holder as reported by the -2- National Association of Securities Dealers Electronic Bulletin Board ("NASDAQ") (the "Conversion Price"). If the number of resultant Conversion Shares would as a matter of law or pursuant to regulatory authority require the Company to seek shareholder approval of such issuance, the Company shall, as soon as practicable, take the necessary steps to seek such approval. If such approval is not received within 30 days then Company shall be required to redeem the Debenture pursuant to paragraph 4(c) herein. Such conversion shall be effectuated by surrendering the Debentures to be converted (with a copy, by facsimile or courier, to the Company) to the Company with the form of conversion notice attached hereto as Exhibit I, executed by the Holder of this Debenture evidencing such Holder's intention to convert this Debenture or a specified portion (as above provided) hereof, and accompanied by proper assignment hereof in blank. Accrued but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. The transferee or issuee shall execute such investment representations or other documents as are respectively required by counsel in order to ascertain the available registration exemption. The date on which notice of conversion is given shall be deemed to be the date on which the Holder has delivered this Debenture, with the assignment and conversion notice duly executed, to the Company or, if earlier, the date set forth in such notice of conversion if the Debenture is received by the Company within five (5) business days thereafter. The transferee or issuee shall execute such investment representations or other documents as are reasonably required by counsel in order to ascertain the available registration exemption. (b) Interest at the rate of 8% per annum shall be payable in arrears, quarterly commencing April 1, 1998. The Company shall have the option of paying interest in cash or by issuing Common Stock of the Company as follows: Based on the closing bid prices of the Common Stock for the last 5 consecutive trading days prior to issuance of this Debenture ("Market Price") the Company shall issue to the Holder shares of Common Stock in an amount equal to the total monthly interest accrued and due divided by 75% of the Market Price (the "Interest Shares"). Common Stock issued pursuant hereto shall be issued pursuant to Regulation S in accordance with the terms of the Subscription Agreement. (c) Upon maturity, in the event this Debenture has not been converted in full, to the extent it is unconverted, any outstanding principal balance and accrued but unpaid interest thereon shall automatically convert as if Notice of Conversion had been received on December 31, 1999 in accordance with paragraph 4(a) herein. 5. No provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Debenture at the time, place, and rate, and in the coin currency, herein prescribed. 6. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. -3- 7. The Company agrees to pay all costs and expenses, including reasonable attorneys' fees, which may be incurred by the Holder in collecting any amount due under this Debenture. 8. If one or more of the following described "Events of Default" shall occur and continue for 30 days unless a different time frame is noted below: (a) The Company shall default in the payment of principal or interest on this Debenture; or (b) Any of the representations or warranties made by the Company herein, in the Subscription Agreement, or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Debenture or the Subscription Agreement shall be false or misleading in any material respect at the time made; or (c) The Company shall fail to perform or observe, in any material respect, any other covenant, term, provision, condition, agreement or obligation of the Company under this Debenture and such failure shall continue uncured for a period of thirty (30) days after notice from the Holder of such failure; or (d) The Company shall (1) become insolvent; (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; or (e) A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within thirty (30) days after such appointment; or (f) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company and shall not be dismissed within thirty (30) days thereafter; or (g) Any money judgment, writ or warrant of attachment, or similar process, in excess of One Hundred Thousand ($100,000) Dollars in the aggregate shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or -4- (h) Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company and, if instituted against the Company, shall not be dismissed within sixty (60) days; or (i) The Company shall have its Common Stock delisted from the over-the-counter market; or (j) The Company shall not deliver the Common Stock pursuant to paragraph 4(a) herein without restrictive legend within 3 business days of the date delivery is required hereunder. Then, or at any time thereafter, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Debenture immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law. 9. This Debenture represents an unsecured obligation of the Company. No recourse shall be had for the payment of the principal of, or the interest on, this Debenture, or for any claim based hereon, or otherwise in respect hereof, against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. 10. The Holder of this Debenture, by acceptance hereof, agrees that this Debenture is being acquired for investment and that such Holder will not offer, sell or otherwise dispose of this Debenture or the Shares of Common Stock issuable upon exercise thereof except under circumstances which will not result in a violation of the Act or any applicable state Blue Sky law or similar laws relating to the sale of securities. 11. In case any provision of this Debenture is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Debenture will not in any way be affected or impaired thereby. 12. This Debenture and the agreements referred to in this Debenture constitute the full and entire understanding and agreement between the Company and the Holder with respect to the -5- subject hereof. Neither this Debenture nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder. 13. This Debenture shall be governed by and construed in accordance with the laws of New York. Holder hereby waives trial by jury and consents to exclusive jurisdiction and venue in the State of New York. 14. As set forth herein, the Company shall use all reasonable efforts to issue and deliver, within three business days after the Holder has fulfilled all conditions and submitted all necessary documents duly executed and in proper form required for conversion (the "Deadline"), to the Holder or any part receiving a Debenture by transfer from the Holder (together, a "Holder"), at the address of the Holder on the books of the Company, a certificate or certificates for the number of Shares of Common Stock to which the Holder shall be entitled. The Company understands that a delay in the issuance of the Shares of Common Stock beyond the Deadline could result in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay liquidated damages to the Holder 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 seven (7) business days from the date of receipt by the Company of a Notice of Conversion and the transfer agent of all necessary documentation duly executed and in proper form required for conversion, including the original Debenture to be converted, all in accordance with the Debenture, Subscription Agreement and the requirements of the transfer agent): Liquidated Damages per No. Business Days Late $100,000 of Debenture ---------------------- --------------------- 1 $500 2 $1,000 3 $1,500 4 $2,000 5 $2,500 6 $3,000 7 $3,500 8 $4,000 9 $4,500 10 $5,000 10 $5,000 + $1,000 each Business Day Late beyond 10 days The Company shall pay the Holder any liquidated damages incurred under this Section by check upon the earlier to occur of (i) issuance of the Shares to the Holder or (ii) each monthly anniversary of the receipt of the Company of such Holder's Notice of Conversion. Nothing herein shall limit the Holder's right to pursue actual damages for the Company's failure to issue and deliver shares of Common Stock to the Subscriber in accordance with the terms of the Debenture. -6- IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized. Dated: ------------------------ CHAMPION FINANCIAL CORP. By: ------------------------------------- Title: ---------------------------------- -7- EXHIBIT I NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Debenture) The undersigned hereby irrevocably elects to convert $______________ of the above Debenture No. ___ into Shares of Common Stock of Champion Financial Corporation (the "Company") according to the conditions set forth in such Debenture, as of the date written below. The undersigned represents that it is not a U.S. Person as defined in Regulation S promulgated under the Securities Act of 1933, as amended, and is not converting the Debenture on behalf of any U.S. Person and the representations contained in the Subscription Agreement are true. If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Date of Conversion* ------------------------------------------------------------- Applicable Conversion Price ----------------------------------------------------- Signature ----------------------------------------------------------------------- [Print Name of Holder and Title of Signer] Address: ------------------------------------------------------------------------ ------------------------------------------------------------------------ * This original Debenture and Notice of Conversion must be received by the Company by the fifth business date following the Date of Conversion. -8- EX-4.3 5 FORM OF WARRANT CERTIFICATE Exhibit 4.3 THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY, HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE 1933 ACT), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN REGULATION S OF THE 1933 ACT) EXCEPT PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT. THIS LEGEND SHALL BE ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT. Warrant No.: Right to Purchase 300,000 --- Shares of Common Stock of December __,1997 Champion Financial Corp. VOID UNLESS EXERCISED BEFORE 5:00 P.M., EASTERN STANDARD TIME ON DECEMBER 31, 2002. CHAMPION FINANCIAL CORP. Series 1 Common Stock Purchase Warrant Champion Financial Corp., a corporation (the "Company"), hereby certifies that, for value received, London Select Enterprises, Ltd. or assigns, is entitled, subject to the terms set forth below, to purchase from the Company, commencing January 1, 1997, at any time or from time to time before 5:00 p.m., Eastern Standard Time, on or before December 31, 2002, 300,000 fully paid and nonassessable shares of Common Stock $.001 par value, of the Company, at an exercise price per share equal to $11.50. Such exercise price per share as adjusted from time to time as herein provided is referred to herein as the Exercise Price. The number and character of such shares of Common Stock and the Exercise Price are subject to adjustment as provided herein. As used herein, the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Champion Financial Corp., a corporation duly organized and existing under the laws of _________ , and any corporation which shall succeed or assume the obligations of the Company hereunder. (b) The term "Common Stock" includes (a) the Company's Common Stock, $.001 par value per share, as authorized, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency), (c) any other securities into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise, or the conversion of promissory notes or other obligations of the Company. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of this Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Other Securities pursuant to Sections 3 or 4 or otherwise. 1. Exercise of Warrant. 1.1. Full Exercise. This Warrant may be exercised in full by the holder hereof by surrender of this Warrant, with the form of subscription at the end hereof duly executed by such holder, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Exercise Price then in effect. 1.2. Partial Exercise. This Warrant may be exercised in part by surrender of this Warrant in the manner and at the place provided in Section 1.1 except that the amount payable by the holder on such partial exercise shall be the amount obtained by multiplying (a) the number of shares of Common Stock designated by the holder in the subscription at the end hereof by {b) the Exercise Price then in effect. On any such partial exercise, the Company at its expense will forthwith issue and deliver to or upon the order of the holder hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof or as such holder (upon payment by such holder of any applicable transfer taxes) may request, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock for which such Warrant or Warrants may still be exercised. 2. Delivery of Stock Certificates of Exercise. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within sixty (60) days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which -2- such holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then current market value of one full share, together with any other Stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise pursuant to Section 1 or otherwise. 3. Adjustment for Reorganization Consolidation or Merger. 3.1. Reorganization, Consolidation or Merger. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person or entity, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, the holder of the Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable an such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Sections 4 and 5. 3.2. Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and Other Securities and property receivable on the exercise of the Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant. 4. Adjustments for Stock Dividends and Stock Splits. In the event that the Company shall (i) issue additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock, or (iii) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stack, then, in each such event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then prevailing Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event (calculated assuming the conversion or exchange of all outstanding shares of convertible or exchangeable securities of the Company which are convertible or exchangeable into, or exercisable for, shares of Common Stock) and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event (calculated assuming the conversion or exchange of all outstanding shares of -3- convertible or exchangeable securities of the Company which are convertible or exchangeable into, or exercisable for, shares of Common Stock), and the product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4. The holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive that number of shares of Common Stock determined by multiplying the number of shares of Common Stock which would otherwise (but for the provisions of this Section 4) be issuable on such exercise, by a fraction of which (i) the numerator is the Exercise Price which would otherwise (but for the provisions of this Section 4) be in effect, and (ii) the denominator is the Exercise Price in effect on the date of such exercise. 5. Adjustment for Dividends in Other Stock, Property and Reclassifications. In case at any time or from time to time, the holders of Common Stock (or Other Securities) shall have received, or (on or after the record date fixed for the determination of stockholders eligible to receive) shall have become entitled to receive without payment therefor, (a) other or additional stock or other securities or property (other than cash) by way of dividend, or (b) other or additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, recapitalization, combination of shares or similar corporate rearrangement, other than additional shares of Common Stock (or Other Securities) issued as a stock dividend or in a stock-split (adjustments in respect of which, in the case of Common Stock, are provided for in Section 4), then and in each such case the holder of this Warrant, on the exercise hereof as provided in Section 1, shall be entitled to receive the amount of other or additional stock and other securities and property (including cash in the cases referred to in subdivision (b) of this Section 5) which such holder would hold on the date of such exercise if on the date of distribution of such other or additional stock or other securities and property, or on the record date fixed for determining the shareholders entitled to receive such other or additional stock or other securities and property, such holder had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant and had thereafter, during the period from the date thereof to and including the date of such exercise, retained such shares and all such other or additional stock and other securities and property (including cash in the cases referred to in subdivision (b) of this Section 5) receivable by such holder as aforesaid during such period, giving effect to all adjustments called for during such period by Sections 3 and 4. 6. Notices of Record Date. In the event of (a) any taking by the Company of a record of the holders of any class or securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares -4- of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, then and in each such event the Company will mail or cause to be mailed to the holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up. Such notice shall be mailed at least twenty (20) days prior to the date specified in such notice an which any such action is to be taken. 7. Reservation of Stock Issuable on Exercise on Warrant. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrant, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant; the shares of Common Stock which the holder of this Warrant shall receive upon exercise of the Warrant will be duly authorized, validly issued, fully paid and non-assessable. 8. Exchange of Warrant. On surrender for exchange of this Warrant, properly endorsed, to the Company, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (on payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 9. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 10. Warrantholder Not Deemed Stockholder; Restrictions on Transfer. This Warrant is issued upon the following terms, to all of which each holder or owner hereof by the taking hereof consents and agrees: -5- (a) No holder of this Warrant shall, as such, be deemed the holder of Common Stock that may at any time be issuable upon exercise of this Warrant for any purpose whatsoever, nor shall anything contained herein be construed to confer upon such holder, as such, any of the rights of a stockholder of the Company until such holder shall have exercised the Warrant and been issued shares of Common Stock in accordance with the provisions hereof. (b) Neither this Warrant nor any shares of Common Stock purchased pursuant to this Warrant shall be registered under the Securities Act of 1933 (the "Securities Act") and applicable state securities laws, Therefore, the Company may require, as a condition of allowing the transfer or exchange of this Warrant or such shares, that the holder or transferee of this Warrant or such shares, as the case may be, furnish to the Company an opinion of counsel acceptable to the Company to the effect that such transfer or exchange may be made without registration under the Securities Act and applicable state securities laws. The certificates evidencing the shares of Common Stock issued on the exercise of the Warrant shall bear a legend to the effect that the shares evidenced by such certificates have not been registered under the Securities Act and applicable state securities laws. (c) This Warrant is not transferable or assignable to any party without the prior written consent of the Company and an opinion of counsel satisfactory to the Company that such transfer is permissible under applicable law. 11. Notices. All notices and other communications from the Company to the holder of this Warrant shall be mailed by (i) first class mail, postage prepaid, (ii) electronic facsimile transmission, or (iii) express overnight courier service, at such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the Company. 12. Lock-Up Agreement for Public Offering. In connection with any public offering of equity securities of the Company, the Warrantholder agrees not to sell, pledge, transfer or otherwise dispose of, or grant any option or purchase right with respect to, any shares of capital stock then owned by him and not otherwise offered in the public offering, or engage in any short sale, hedging transaction or other derivative security transaction involving the Common Stock, or other shares of Common Stock of the Company held by him, for such period of time commencing 30 days prior to the proposed effective date of such public offering until such period of time following the offering as the Company and the managing underwriter of such public offering deem necessary in order to ensure a stable and orderly trading market. 13. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant and the shares of Common Stock underlying this Warrant shall be construed and enforced in accordance -6- with and governed by the laws of the State of Delaware. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. 14. Right To Call By Company. At any time after the date that the 5 day average of the closing bid prices of the Common Stock is in excess of $3.60 and the Warrant holder fails to exercise his rights under this Warrant within 3 days of receipt of notice from Company, then any unexercised portion of this Warrant shall be cancelled and of no further force and effect. 15. Expiration. The right to exercise this Warrant shall expire at 5:00 p.m., Eastern Standard Time, on December 31, 2002. Dated: December __, 1997 ATTEST: CHAMPION FINANCIAL CORP. By: By: -------------------------------- -------------------------------- Title: Title: ----------------------------- ----------------------------- -7- FORM OF SUBSCRIPTION (To be signed only on exercise of Warrant) To Champion Financial Corp. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise this Warrant for, and to purchase thereunder, shares of Common Stock of Champion Financial Corp., a corporation duly organized and existing under the laws of _________, and herewith makes payment of $___________ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to ___________, whose address is ________________. The undersigned represents that it is not a U.S. Person as defined in Regulation S promulgated under the Securities Act of 1933, as amended, and is not converting the Debenture on behalf of any U.S. Person and the representations contained in the Subscription Agreement are true as of the date hereof. Dated: ---------------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) ---------------------------------------- ---------------------------------------- (Address) -8- FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto ____________ the right represented by the within Warrant to purchase ____________ shares of Common Stock of Champion Financial Corp., a corporation duly organized and existing under the laws of _________, to which the within Warrant relates, and appoints _________________ Attorney to transfer such right on the books of __________________ , a _________________ corporation, with full power of substitution in the premises. Dated: ---------------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) ---------------------------------------- ---------------------------------------- (Address) Signed in the presence of: - ------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----