<PAGE> 1
As filed with the Securities and Exchange Commission on November 24, 1998
Registration No. 333-60511
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN CHAMPION ENTERTAINMENT, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
7812
(Primary Standard Industrial
Classification Code Number)
94-3261987
(I.R.S. Employer
Identification Number)
1694 THE ALAMEDA, SUITE 100
SAN JOSE, CALIFORNIA 95126-2219
(408) 288-8199
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ANTHONY K. CHAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1694 THE ALAMEDA, SUITE 100
SAN JOSE, CALIFORNIA 95126-2219
(408) 288-8199
(Name and address and telephone number of agent for service)
------------------------
COPIES TO:
LAWRENCE B. LOW, ESQ.
JAMES Y.M. WU, ESQ.
PRESTON GATES & ELLIS LLP
ONE MARITIME PLAZA, SUITE 2400
SAN FRANCISCO, CALIFORNIA 94111
(415) 788-8822
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement. If the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. __
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. _X_
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. __
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. __
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. __
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Proposed Proposed Amount of
Class of Maximum Maximum Registration
Securities to Amount to be Offering Price Aggregate Fee
be Registered Registered (1)(2) Per Share Offering Price
- -------------- ------------ ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Common Stock, $0.0001 par value 1,187,774(3) $4.7906 $5,690,179.82 $1,724.30(4)
Common Stock, $0.0001 par value 3,629,500 $1.3125 $4,763,718.75 $1,443.56
</TABLE>
- -----------------
<PAGE> 2
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 429 under the Securities Act, the Prospectus included as part
of this Registration Statement shall be deemed to be a combined prospectus
which shall also relate to the Registrant's Registration Statement (File Number
333-60511) and Amendment No. 1 to such prior Registration Statement and the
Registration Statement being amended hereby are collectively referred to herein
as the "Registration Statement."
<PAGE> 3
(1) Includes: (i) shares of Common Stock that have been issued or are
reserved for issuance upon the conversion of 7% Convertible Debentures Due
July 1, 2000 issued and to be issued by the Company (the "Debentures"); (ii)
shares of Common Stock that have been issued or are reserved for issuance on
the exercise of Common Stock Purchase Warrants issued in connection with the
issuance of the Debentures (the "Debenture Warrants"); (iii) 255,000 shares of
Common Stock pursuant to registration rights held by existing stockholders;
and (iv) 75,000 shares of Common Stock that have been issued or are reserved
for issuance on the exercise of Common Stock Purchase Warrants issued to JW
Charles Securities, Inc. in connection with the sale of the Debentures (the
"JW Warrants").
(2) In the event of a stock split, stock dividend or similar transaction
involving the Common Stock, in order to prevent dilution, the number of shares
registered shall be automatically increased to cover additional shares in an
indeterminate amount in accordance with rule 416(a) under the Securities Act.
(3) Registered pursuant to the Registrant's Registration Statement, File
Number 333-60511, as amended by Admendment No. 1 thereto.
(4) This amount was paid when 1,187,774 shares of common stock of the
Registrant were first registered pursuant to Registration Statement, File
Number 333-60511.
<PAGE> 4
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an order to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED __________, 1998
PROSPECTUS
AMERICAN CHAMPION ENTERTAINMENT, INC.
4,817,274 Shares of Common Stock
This Prospectus relates to the sale of up to approximately 4,817,274 shares of
common stock, par value $.0001 per share (the common stock are generally
referred to hereafter as the "Common Stock"), of American Champion
Entertainment, Inc. (the "Company") offered for the account of certain
stockholders of the Company (the "Selling Stockholders"). These 4,817,274
shares of Common Stock (the "Shares") include (i) shares of Common Stock that
are reserved for issuance upon the conversion of 7% Convertible Debentures Due
July 1, 2000 issued by the Company (the "Debentures") (ii) 49,500 shares of
Common Stock that are reserved for issuance on the exercise of Common Stock
Purchase Warrants issued in connection with the Debentures (the "Debenture
Warrants"); (iii) 255,000 shares of Common Stock pursuant to registration
rights held by existing stockholders; and (iv) 75,000 shares of Common Stock
that have been issued or are reserved for issuance on the exercise of Common
Stock Purchase Warrants issued to JW Charles Securities, Inc. in connection
with the Debentures (the "JW Warrants"). The actual number of shares of
Common Stock issued or issuable upon conversion of the Debentures is subject
to adjustment depending upon factors that cannot be predicted by the Company
at this time, including, among others, the future market price of the Common
Stock. See "Risk Factors-Potential Volatility of Stock Price."
The Shares may be offered by the Selling Stockholders from time to time in
transactions (which may include block transactions) on the Nasdaq SmallCap
Market, in negotiated transactions, through a combination of such methods of
sale, or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. The Selling
Stockholders may effect such transactions by selling the Shares to or through
broker-dealers, who may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agents or to whom they
may sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Company will
not receive any of the proceeds from the sale of the Shares by the Selling
Stockholders. The Company has agreed to bear all expenses of registration of
the Shares, but all selling and other expenses incurred by the Selling
Stockholders will be borne by the Selling Stockholders.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions paid or any discounts or
concessions allowed to any such persons, and any profits received on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Selling Stockholders"
and "Plan of Distribution."
On July 31, 1997, the Common Stock and the Company's redeemable Common Stock
purchase warrants (the "Warrants") began trading on the Nasdaq SmallCap Market
("NASDAQ") under the symbols "ACEI" and "ACEIW," respectively. On July 31,
1998 the closing sale price of the Common Stock and the Warrants on NASDAQ was
$1.3125 and $0.4375, respectively. See "Certain Market Information."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK AND SUBSTANTIAL DILUTION. ONLY INVESTORS WHO CAN BEAR THE RISK
OF LOSS OF THEIR ENTIRE INVESTMENT SHOULD INVEST. SEE "RISK FACTORS"
BEGINNING ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY, THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT OT THAT DATE HEREOF.
The date of this Prospectus is _______________, 1998.
<PAGE> 5
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, AS DEFINED
IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "PSLRA"),
THAT INVOLVE KNOWN AND UNKNOWN RISKS, INCLUDING, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES,"
"ESTIMATES," EXPECTS," "MAY" AND WORDS OF SIMILAR IMPORT FOR
STATEMENTS OF MANAGEMENT'S OPINION. SEE "RISK FACTORS-FORWARD
LOOKING STATEMENTS AND ASSOCIATED RISKS" CONTAINED HEREIN.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MADE HEREBY MAY
ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE
PRICE OF THE COMMON STOCK, INCLUDING PURCHASES OF THE COMMON STOCK TO
STABILIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK TO COVER SOME
OR ALL OF A SHORT POSITION IN THE COMMON STOCK MAINTAINED BY SUCH
PERSONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
<PAGE> 6
TABLE OF CONTENTS
Page
Incorporation of Certain Documents by Reference 6
Available Information 6
Company 7
Risk Factors 11
Use of Proceeds 14
Certain Market Information 14
Dividend Policy 14
Selling Stockholders 15
Plan of Distribution 16
Legal Matters 16
Experts 16
Additional Information 17
<PAGE> 7
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Securities and Exchange
Commission (the "Commission") are incorporated herein by reference:
1. The Company's Registration Statement on Form SB-2 for its
initial public offering that became effective on July 30,
1997;
2. The description of the Company's Common Stock contained in
the Company's Form SB-2;
3. Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form SB-2, as filed with the Commission on
July 2, 1998 and declared effective on July 17, 1998;
4. The Company's Proxy Statements for the 1998 Annual Meeting of Stockholders
held on May 29, 1998 and the Special Meeting of Stockholders held on September
23, 1998;
5. The Company's Annual Report on Form 10-KSB for its fiscal
year ended December 31, 1997; and
6. The Company's Quarterly Report on Form 10-QSB for the
quarter period ended September 30, 1998, June 30, 1998 and March 31, 1998.
All documents subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), prior to the termination of this
offering shall be deemed incorporated herein by reference.
Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a
copy of this Prospectus has been delivered, on the written or oral
request of such person, a copy of any or all of the foregoing documents
incorporated by reference in this Prospectus. Written or oral requests
for such copies should be directed to Anthony K. Chan, American Champion
Entertainment, Inc., 1694 The Alameda, Suite 100, San Jose, California
95126-2219 (telephone: (408) 288-8199).
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration
Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the
securities offered by this Prospectus. This Prospectus, filed as part
of such Registration Statement, does not contain all of the information
set forth in, or annexed as exhibits to, the Registration Statement,
certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with
respect to the Company and this offering, reference is made to the
Registration Statement including the exhibits filed therewith. The
Registration Statement may be inspected and copies may be obtained from
the Public Reference Section at the Commission's principal office, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the
New York Regional Office, 7 World Trade Center, New York, New York
10048, upon payment of the fees prescribed by the Commission.
Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and where the
contract or other document has been filed as an exhibit to the
Registration Statement, each such statement is qualified in all
respects by such reference to the applicable document filed with the
Commission.
The Company is subject to the reporting requirements of the Exchange Act and
in accordance therewith is required to file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549; at its New York Regional Office, 7 World Trade Center, New York, New
York 10048; and at its Pacific Regional Office, 5670 Wilshire Boulevard, 11th
Floor, Los Angeles, California 90036-3648, and copies of such material can be
obtained from the Commission's Public Reference Section at the prescribed
rates. The Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically. The Company furnishes its stockholders
with annual reports containing audited financial statements and such other
periodic reports as the Company deems appropriate or as may be required by
law.
<PAGE> 8
COMPANY
The following discussion is qualified in its entirety by the more
detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Unless the context
otherwise requires, references in this Prospectus to the Company are
references to the Company and its subsidiaries, American Champion
Media, Inc. and America's Best Karate. Except as otherwise noted, all
information in the Prospectus assumes no exercise of outstanding
options to purchase shares of the Company's Common Stock or the
Warrants.
General
American Champion Entertainment, Inc. (the "Company") is a
Delaware corporation headquartered in San Jose, California and
incorporated on February 5, 1997. The Company was formed as a holding
company for its wholly-owned subsidiary, America's Best Karate, a
California corporation ("ABK"), formed in June 1991, and ABK's wholly-
owned subsidiary, American Champion Media, Inc., a Delaware corporation
("AC Media"), formed in February 1997.
ABK owns, manages and operates two karate studios in the San Francisco Bay
Area. ABK's schools provide karate instruction to students of all ages and
skill levels. AC Media is a media production and marketing company. Through
AC Media, the Company is involved in (i) the development, production and
marketing of "ADVENTURES WITH KANGA RODDY," a television program aimed at pre-
school and primary school children (the "Kanga Roddy Series"), (ii) the
licensing of merchandising rights related to the Kanga Roddy Series, and (iii)
the development, production and marketing of various audio tapes, video tapes
and workbooks that specialize in fitness information.
The Kanga Roddy Series
The Company has developed and produced twenty half-hour
episodes of the Kanga Roddy Series. The Kanga Roddy Series uses
martial arts values such as humility, discipline and respect, with the
added elements of song, contemporary music, dance, vibrant colors and
exciting movements designed to capture its targeted pre-school and
primary school children audience's attention. The Kanga Roddy Series
features a six-foot tall kangaroo character named Kanga Roddy who is a
martial arts expert. Unlike other martial arts programs which feature
violence, Kanga Roddy never fights because he understands that conflict
can always be resolved with knowledge, compassion, humility, respect
and an open mind.
Each episode of the Kanga Roddy Series focuses on a group of
children at a community center and their teachers (played by Jennifer
Montana and Karen Lott, wives of former San Francisco 49ers football
players, Joe Montana and Ronnie Lott) working on activities such as
reading, physical fitness and arts and crafts. During these
activities, the children encounter an ethical or social problem which
causes uneasiness or unhappiness among some of the children. The
teachers sense the problem and suggest that the children seek help from
their friend, Uncle Pat, the proprietor of a rare bookstore played by
Pat Morita. Uncle Pat, with the assistance of his pet bookworm,
Shakespeare, magically transports the children to the land of Hi-Yah
where Kanga Roddy lives.
Once in the land of Hi-Yah, Kanga Roddy and his friend Bantu, a
female African snake, help the children solve their problem by giving
examples presented through songs. Kanga Roddy gets inspiration for the
proper solution to the problem through flashbacks to lessons learned
from his martial arts teacher, Zatochi, a wise old snow monkey. The
children also learn a physical activity each time they visit Kanga
Roddy such as balance, jumping or kicking. When the children return to
the community center, they review what they have learned with their
teachers.
In May 1997, the Company and KTEH, the public broadcasting
station serving the San Jose, California area, entered into a
Distribution Agreement (the "Distribution Agreement") which grants
KTEH the exclusive right to distribute, advertise, market or otherwise
exploit the Kanga Roddy Series on public broadcast affiliated stations
throughout the United States for a two-year period. KTEH has cleared
the broadcast of the Kanga Roddy Series with 47 other public broadcast
stations which the Company believes broadcast to approximately 56% of
the households in the United States (approximately 47 million
households). Under the terms of the Distribution Agreement, KTEH is
entitled to 15% of monies collected by KTEH (plus distribution
expenses) from its exploitation of the distribution rights granted to
it with the balance to be paid to the Company. KTEH has paid the
Company an advance of $430,000. The $430,000 advance will be deducted
from all royalties payable to the Company by KTEH. Under the
Distribution Agreement, the Company has also committed to sharing with
KTEH (i) 8% of revenues from the sale (less fees and commissions) and
licensing of non-broadcast ancillary rights of educational products
such as video tapes, books and music tapes and (ii) 5% of gross profits
(less fees and commissions) of the Company from the sale and licensing
of toys and clothing. Pursuant to the Distribution Agreement, thirteen
half-hour episodes of the Kanag Roddy Series were produced. The Company has
also granted KTEH a right of first refusal with respect to broadcast rights to
the Kanga Roddy Series not granted to KTEH in the Distribution Agreement.
On April 20, 1998, the Company entered into a Continuing Distribution
Agreement with KTEH for the distribution of twenty-six additional half- hour
Kanga Roddy shows and two one-hour specials. Under the Continuing
Distribution Agreement, KTEH receives the exclusive domestic broadcast rights
to the new episodes for two years and agrees to pay the Company $30,000 for
each half-hour program and $60,000 for each of the two one- hour shows.
<PAGE> 9
On April 29, 1998, the Company executed a sponsorship agreement
with Sara Lee Corporation, the parent company of Hanes, which provides
for Hanes' corporate sponsorship of the Adventures With Kanga Roddy
show. Basketball legend Michael Jordon stars in the Hanes campaigns.
The Company's strategy includes pursuing licensing and
merchandising opportunities related to the Kanga Roddy Series.
Characters developed in a popular series, and often the series itself,
achieve a high level of recognition and popularity, making them
valuable licensing and merchandising assets. Among the most popular
licensed items are toys, clothing, food, dinnerware/lunch boxes,
watches and soft vinyl goods such as boots, backpacks and raincoats.
The Company plans to retain worldwide rights to the characters and
images developed in the Kanga Roddy Series, to protect its rights to
such characters and images through appropriate registration, and to
license their use to manufacturers for specific products. There is no
assurance, however, that the Company will be able to successfully
retain or protect its rights through registration, or to license its
properties. The Company also hopes to realize revenues through the
distribution of the Kanga Roddy Series in the home video market,
although there is no assurance that the Company will be able to do so.
If the Kanga Roddy Series does not attain and maintain widespread
television distribution, or widespread popularity, it is unlikely that
any significant licensing or merchandising opportunities or revenue
will arise or be maintained.
In August 1998, the Company signed a non-exclusive contract with Kreative Video
Products, Inc. of Chatsworth, California, for the domestic distribution of
video tapes of the Kanga Roddy series. The video tapes of the Kanga Roddy
series will be released in the fourth quarter 1998.
In August 1998, the Company signed an exclusive contract with Portfolio
Entertainment of Toronto, Ontario, for the international TV distribution of the
Kanga Roddy series.
Fitness Products
The Company develops, produces and markets various video tapes,
audio tapes and workbooks that specialize in fitness information and
education ("Fitness Products"). The Company's first Fitness Product,
entitled "STRONG MIND FIT BODY," consists of video tapes, audio tapes
and a workbook, intended to teach motivational techniques to start and
stay with an exercise program in order to lose weight. In June 1996,
the Company entered into a Distribution Agreement with InteliQuest, a
Utah general partnership. In 1997, the Company's revenue were offset
by a write off of film cost of $105,000 resulting from the Company's
determination that it is unlikely that it will generate significant
revenue from sales of "STRONG MIND FIT BODY" program.
The Company's second Fitness Product, entitled the "MONTANA
EXERCISE VIDEO," is a cardio kick-boxing video starring former
superstar quarterback Joe Montana and his wife Jennifer, both of whom
have trained at the Company's karate schools. The Company will be releasing
this video through Kreative Video Products, Inc. in early 1999.
Karate Studios
The Company manages and operates two karate studios in the San Francisco Bay
Area under the name "ABK." Each of the Company's instructors, all of whom are
black belts, have undergone a rigorous training program conducted by Messrs.
Chung and Chan (both members of the Karate Black Belt Hall of Fame) and/or
other instructors of ABK. Each karate studio conducts approximately 40
forty-five minute classes each week. The classes are generally comprised of
10 to 15 students and taught by one to three instructors. The Company's black
belt course requires approximately 36 months of study and its second degree
black belt program requires approximately 48 months of study. Classes are
organized by skill level and age group. Students may take as many classes as
are available each week without additional charge. Fees, if paid in advance,
are generally $1,800 and $2,400 for the black belt and second degree black
belt programs, respectively. At each karate studio, the Company also sells
martial arts related products, such as uniforms, other clothing and safety
equipment.
<PAGE> 10
During 1997, the Company closed five studios, which were not operating
profitably and on March 31, 1998, the Company sold a karate studio to its
general manager. In the quarter ended September 10, 1998, the Company sold two
studios to their managers.
The Company's executive offices are located at 1694 the Alameda,
Suite 100, San Jose, California 95126-2219, and its telephone number is
(408) 288-8199.
Recent Developments
On July 2, 1998, the Company entered into the Securities Purchase Agreement for
the sale of the Debentures and Debenture Warrants (the "Agreement"). Pursuant
to the Agreement, the Endeavour Capital Fund S.A. and Amro International S.A.
(the "Investors") agreed under certain terms and conditions to purchase up to
$1.8 million of the Company's Debentures, and the Company agreed, among other
things, to issue to the Investors the Debenture Warrants. Pursuant to the
Agreement, the Company issued to the Investors on July 6, 1998 $1.0 million in
Debentures and Debenture Warrants to purchase 27,500 shares of the Company's
Common Stock.
On September 23, 1998 Amro International purchased $250,000 in Debentures and
Debenture Warrants to purchase 6,875 shares of the Company's Common Stock. On
November 3, 1998 the Investors assigned their rights under the Agreement to
Advantage (Bermuda) Fund S.A. and Canadian Advantage L.P. who purchased
$550,000 in Debentures and Debenture Warrants to purchase 15,126 shares of the
Company's common stock.
The terms and conditions pursuant to which the Debentures and Debenture
Warrants were issued are summarized as follows:
* The interest rate on the Debentures is 7% per annum, payable in cash or in
shares of the Company's Common Stock.
* Date of maturity is July 1, 2000.
* The Debentures are convertible into the number of shares of the Company's
Common Stock equal to the principal amount and accrued and unpaid interest
outstanding under the Debentures on the conversion date divided by the greater
of: (I) the lower of: (a) 75% of the Market Price(1) on the conversion date
or (b) 117.5% of the Market Price on the date the Debenture is issued ; or
(II) 50% of the Market Price of the Company's stock on the date the Debenture
is issued, subject to adjustments (the "Floor Price") ; since September 25,
1998, the Company had elected not to pay the Low Market Amount and the
conversion rate for the debentures had been 75% of the Market Price.
* If the Company's Common Stock is trading at a Market Price, for ten
consecutive trading days, at a level such that 75% of such Market Price is
less than the Floor Price, then the Company is required to pay to the
Investors an amount equal to 2.5% of the outstanding principal of the
Debentures for every 30-day period that the Market Price of the Company's
Common Stock is at such level (the "Low Market Amount"). The Low Market Amount
is calculated on a pro rata basis (i.e. approximately 0.083% per day) for the
first 30-day period only that 75% of the Market Price is less than the Floor
Price. Thereafter, the Company must pay the full Low Market Amount (2.5% of
the outstanding principal amount) for each subsequent 30-day part thereof.
* If the Company does not timely pay the Low Market Amount, then the Investors
have the right to convert the Debentures, until the Low Market Amount is paid
in full, except that the conversion rate discussed above is determined as if
there is no Floor Price.
* In no event (subject to certain exceptions, including a Company default under
any Debenture or the Agreement) shall an Investor 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 Investor and it's
affiliates, and (2) the number of shares of Common Stock issuable upon the
conversion of the Debenture would result in beneficial ownership by the
Investor and its affiliates of more than 9.99% of the outstanding shares of
Common Stock.
(1) Market Price is defined in the Agreement as (x) the average closing bid
price of the Common Stock as reported by Bloomberg, LP or the average closing
bid price on the over-the-counter market, (i) if a period of time is specified
in the relevant provision of the Debenture, for such period, and (ii) if no
period of time is specified in the relevant provision of the Debenture, then
for the 5 days ending on the trading day immediately preceding the relevant
date, 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 Debenture as
reported in the Wall Street Journal.
<PAGE> 11
* At its option, the Company may redeem the Debentures at any
time prior to conversion for an amount equal to the accrued
and unpaid interest under the Debentures plus 122.5% of the
outstanding principal under the Debentures.
The Debentures may not be converted after the Company gives notice of its
intent to redeem pursuant to the Agreement.
* Debenture Warrants to purchase 49,500 shares of the Company's Common Stock
have been granted to the Investors and their assignees. The Debenture Warrants
expire on July 6, 2003 and provide for an exercise price of $7.56125 per share.
The Agreement also has the following additional term:
* The Company is required to file with the Commission this registration
statement to register the Common Stock issuable upon conversion of the
Debentures and upon exercise of the Debenture Warrants to allow
the Investors to resell such Common Stock to the public.
The terms and conditions pursuant to which the JW Warrants were issued are
summarized as follows:
* JW Charles Securities, Inc. received a warrant to purchase 75,000 shares of
the Company's Common Stock, subject to certain anti-dilution adjustments. The
exercise price for the JW Warrants is $7.56125, and the JW Warrant expires on
July 1, 2001.
Since the issuance of the Debentures, the Investors have converted $886,442 of
Debentures into 1,044,087 shares of Common Stock at conversion prices ranging
from $4.519 to $0.769. Since September 25, 1998, the Company had elected not
to pay the Low Market Amount and the conversion rate for the debentures had
been 75% of the Market Price.
<PAGE> 12
RISK FACTORS
The securities offered hereby are highly speculative and should
be purchased only by persons who can afford to lose their entire
investment in the Company. Each prospective investor should carefully
consider the following risk factors, as well as all other information
set forth elsewhere in this Prospectus.
History of Losses and Deficits; Uncertainty of Attaining Profitability.
The Company sustained operating losses of $641,583, $801,416 and
$786,074 in 1996, 1997 and the nine months ended September 30, 1998,
respectively. The Company expects to incur significant additional
operating losses for the foreseeable future as it continues to develop,
produce and market its media projects, including the Kanga Roddy
Series. There can be no assurance that the Company will ever achieve
profitability.
Liquidity and Financing Requirements; Dependence on Offering Proceeds. The
Company's venture into media projects, including the development and
production of the Kanga Roddy Series, requires substantial amounts of capital.
Although the Company was able to finance the production of the pilot and the
first 13 episodes of the Kanga Roddy Series with its own funds and the
proceeds of the IPO, the Company is dependent upon the proceeds of additional
financing to produce the remainder of the 28 episodes of the Kanga Roddy
Series it is obligated to deliver pursuant to the Continuing Distribution
Agreement between KTEH and the Company. On July 2, 1998, the Company entered
into the Agreement for the sale of the Debentures, the Debenture Warrants and
the JW Warrants. The Company believes that the net proceeds of the sale of
the Debentures, together with funds generated from operations, if any, will be
sufficient to produce the next 7 episodes of the Kanag Roddy Series. In the
event that production costs are higher than expected, or the Company is forced
to use funds earmarked for production for other purposes, the Company could
be required to modify its operations or to seek additional financing sooner
than currently anticipated. The Company has no current arrangements with
respect to such additional financing and there can be no assurance that such
additional financing will be available at all or on terms acceptable to the
Company. The Company's failure to obtain such additional financing will
materially adversely affect its ability to produce further episodes of the
Kanga Roddy Series.
Dependence on the Success of the Kanga Roddy Series. The Company is
dependent on the success of the Kanga Roddy Series, which in turn is
dependent upon unpredictable and volatile factors beyond the Company's
control, such as children's preferences, competing programming and the
availability of other entertainment activities for children. The
failure of the Company to attract a significant television audience for
the Kanga Roddy Series over a long period of time would have a material
adverse effect on the Company's financial condition and results of
operations, and in all likelihood on the market price of the Company's
securities. There is no assurance that the Kanga Roddy Series will be
successful or that, if successful initially, that television viewership
of the Kanga Roddy Series will be maintained.
Licensing and Merchandising. The Company's strategy in producing the
Kanga Roddy Series includes the licensing of its characters to others
for the merchandising of a variety of products ranging from toys to
apparel. The ability of the Company to successfully exploit the
merchandising opportunities afforded by the Kanga Roddy Series is
dependent on the popularity of the Kanga Roddy Series and the ability
of the Company's characters to provide attractive merchandising
features to its customers. If the Company is unable to attract a
significant television audience for the Kanga Roddy Series, it is
doubtful that any significant licensing or merchandising opportunities
will arise. Even if the Kanga Roddy Series is popular with television
audiences, there is no assurance that licensing opportunities will
materialize as the Company must compete with hundreds of owners of
creative content who seek to license their characters and properties to
a limited number of manufacturers and distributors.
Absence of Significant Experience with Television Programming or
Licensing and Merchandising. Prior to its involvement with the Kanga
Roddy Series, the Company has had no significant experience with the
development and production of television programming or with the
licensing and merchandising of products. As a result, the Company
could enter into contracts or make other agreements that are on less
than optimal terms. The television and licensing and merchandising
businesses are complicated and the absence of experience in such
businesses could materially and adversely affect the financial
condition and results of operations of the Company.
Dependence on Key Personnel. The Company is dependent on the efforts
and abilities of Anthony Chan and George Chung, the Company's founders
and principal executive officers, and Don Berryessa, Vice President and
Jan D. Hutchins, President of AC Media. The Company has entered into
employment agreements, effective as of August 5, 1997, with each of
such individuals. None of such employment agreements contains non-
competition provisions. See "Management--Employment Agreements" of
the Company's Post-Effective Amendment No. 1 to its Form SB-2
Registration Statement. The loss of the services of any of the above
individuals, or of other key personnel, could have a material adverse
effect on the business of the Company. The Company has obtained "key-
man" life insurance with $1,000,000 coverage for each of Messrs. Chung
and Chan.
<PAGE> 13
Dependence on Association with Joe Montana, Ronnie Lott and the San
Francisco 49ers. The success of the Kanga Roddy Series depends in part
on the Company's continued association with former 49ers Joe Montana
and Ronnie Lott, and their wives, and the San Francisco 49ers. The
failure of Joe Montana, Ronnie Lott, or their wives, or the San
Francisco 49ers, to continue to actively support the Kanga Roddy Series
could have a material adverse impact on the ability to market the Kanga
Roddy Series. None of Joe Montana, Ronnie Lott, or their wives, or the
San Francisco 49ers are obligated to engage in any business
transactions or jointly participate in any opportunities with the
Company, and the possibility exists that the current relationships
between the parties could materially change in the future.
Competition. Each of the industries in which the Company competes is
highly competitive and most of the companies with which the Company
competes have greater financial and other resources than the Company.
With respect to the Company's television production activities, the
Company competes on the basis of relationships and pricing for access
to a limited supply of facilities and talented creative personnel to
produce its programs. The Company's Kanga Roddy Series competes for
time slots, ratings and related advertising revenues and for the
licensing and merchandising of products related to the Kanga Roddy
Series. The Company's Fitness Products compete with many other
products aimed at the fitness and weight loss markets, including other
video tapes, audio tapes and workbooks, and various types of exercise
machinery. Many of these competing products are sponsored or endorsed
by celebrities and sports figures, and are marketed by companies having
significantly greater resources than the Company. The martial arts
industry is also highly competitive. The Company's competitors include
a variety of small to medium sized martial arts instructional centers,
many of which may be better established and better financed than the
Company.
Potential Return of Membership Fees. Pursuant to the terms of its standard
contract with its students, ABK is required to refund (i) all funds received
if a student cancels within three (3) days of signing a membership contract
and (ii) all "unearned" funds received in the event the student dies, becomes
permanently disabled, moves more than twenty-five (25) miles away from ABK or
ABK closes for more than thirty (30) consecutive days. The Company does not
currently maintain nor does it anticipate maintaining a reserve account for
return of membership fees. As a consequence, the Company may be unable to
refund membership fees which could have a material adverse effect on the
Company's business and its prospects.
Control by Messrs. Chan and Chung. As of the date of this Prospectus,
Anthony Chan and George Chung, the Company's founders and principal
executive officers, collectively beneficially own 1,016,276 shares of
the Company's outstanding Common Stock, representing approximately
19.3% of the outstanding shares prior to this Offering and
approximately 11.4% of the outstanding shares of Common Stock after
this offering (assuming no exercise of any outstanding options or
Warrants). Since holders of Common Stock do not have any cumulative
voting rights and directors are elected by a majority vote,
Messrs. Chan and Chung are in a position to strongly influence the
election of directors as well as the affairs of the Company.
Anti-takeover Effects of Delaware Law. Section 203 of the General
Corporation Law of Delaware prohibits the Company from engaging in
certain business combinations with interested stockholders, as defined
by statute. These provisions may have the effect of delaying or
preventing a change of control of the Company without action by the
stockholders, and therefore could adversely affect the price of the
Company's Common Stock. See "Description of Securities" of the
Company's Post-Effective Amendment No. 1 to its Form SB-2 Registration
Statement.
Liability Insurance. The Company has purchased liability insurance for
each of its karate studios in the amount of $1,000,000 per occurrence
and $2,000,000 in the aggregate which the Company believes is
sufficient for its current level of business operations. There is no
assurance, however, that the present coverage will continue to be
available in the future or that the Company will be able to retain such
coverage at a reasonable cost. Further, there can be no assurance that
such insurance will be sufficient to cover potential claims, including
without limitation, claims brought by students or instructors injured
during karate classes, or that adequate, affordable insurance coverage
will be available to the Company in the future as the Company expands
its operations. A successful claim against the Company in excess of
the liability limits or relating to an injury excluded under the policy
could have a material adverse effect on the Company.
No Intention to Pay Dividends. The Company has not and has no present
intention to declare or pay cash dividends. Any earnings which the
Company may realize in the foreseeable future will be retained to
finance the growth of the Company.
Nasdaq Maintenance Requirements; Possible Delisting of Securities from
Nasdaq Market; Risks of Low priced Stocks. The Company's Common Stock
are listed on NASDAQ. The Commission has approved rules imposing
criteria for listing of securities on NASDAQ, including standards for
maintenance of such listing. For continued listing, a company, among
other things, must have $2,000,000 in net tangible assets, $1,000,000
in market value of securities in the public float and a minimum bid
price of $1.00 per share. If the Company is unable to satisfy NASDAQ's
maintenance criteria in the future, its securities may be delisted from
NASDAQ. In such event, trading, if any, in the Company's securities
would thereafter be conducted in the over counter market in the so
called "pink sheets" or the NASD's "Electronic Bulletin Board." As a
consequence of such delisting, an investor would likely find it more
difficult to dispose of, or to obtain quotations as to, the price of
the Company's securities.
<PAGE> 14
Penny Stock Regulation. In the event that the Company is unable to
satisfy the maintenance requirements for NASDAQ and its Common Stock
falls below the minimum bid price of $1.00 per share for the continued
quotation, trading would be conducted on the "pink sheets" or the
NASD's Electronic Bulletin Board. In the absence of the Common Stock
being quoted on NASDAQ, or the Company's having $2,000,000 in
stockholders' equity, trading in the Common Stock would be covered by
Rule-15g 9 promulgated under the Exchange Act, for non NASDAQ and non
exchange listed securities. Under such rule, broker dealers who
recommend such securities to persons other than established customers
and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from
this rule if the market price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny
stock to be any equity security that has a market price of less than
$5.00 per share, subject to certain exceptions. Such exceptions
include an equity security listed on NASDAQ, and an equity security
issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three
years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or
(iii) average revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining the penny stock market and the risks
associated therewith.
If the Company's securities were to become subject to the
regulations applicable to penny stocks, the market liquidity for the
securities would be severely affected, limiting the ability of broker
dealers to sell the securities and the ability of purchasers of the
securities offered hereby to sell their securities in the secondary
market. There is no assurance that trading in the Company's securities
will not be subject to these or other regulations that would adversely
affect the market for such securities.
Potential Volatility of Stock Price. The trading price of the Common stock is
subject to wide fluctuations in response to variations in operating results of
the Company and other companies that operate in the Company's markets, general
economic conditions in the industries in which the Company competes and the
strength of the domestic and international economy, to name a few. Since the
begining of 1998 to November 18, 1998, the Company's stock has traded from a
high of $9.625 to a low of $0.969. Some fluctuations, particularly those
affecting the market prices for many small companies, have often been
unrelated to the operating performance of the specific companies.
Forward Looking Statements and Associated Risks. This Prospectus
contains certain forward-looking statements, including among others
(i) anticipated trends in the Company's financial condition and results
of operations and (ii) the Company's business strategy for developing,
producing, distributing, licensing and merchandising the Kanga Roddy
Series. These forward-looking statements are based largely on the
Company's current expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from these
forward-looking statements. In addition to the other risks described
elsewhere in this "Risk Factors" discussion, important factors to
consider in evaluating such forward-looking statements include
(i) changes in external competitive market factors or in the Company's
internal budgeting process which might impact trends in the Company's
results of operations; (ii) unanticipated working capital or other cash
requirements; (iii) changes in the Company's business strategy or an
inability to execute its strategy due to unanticipated change in the
industries in which it operates; and (iv) various competitive factors
that may prevent the Company from competing successfully in the
marketplace. In light of these risks and uncertainties, many of which
are described in greater detail elsewhere in this "Risk Factors"
discussion, there can be no assurance that the events predicted in
forward-looking statements contained in this Prospectus will in fact
transpire.
<PAGE> 15
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of
the Shares offered hereunder by the Selling Stockholders. The offering
is made to fulfill the Company's contractual obligations to the Selling
Stockholders to register the Shares held by the Selling Stockholders.
CERTAIN MARKET INFORMATION
The Company's Common Stock commenced trading on the NASDAQ
SmallCap Market under the symbol "ACEI" on August 1, 1997. The range
of high and low reported closing sales prices for the Common Stock as
reported by NASDAQ since the commencement of trading were as follows:
ACEI High Low
1997
Third Quarter $5.50 $4.125
Fourth Quarter $8.00 $4.813
1998
First Quarter $9.625 $7.75
Second Quarter $9.563 $6.563
Third Quarter $7.00 $3.438
Fourth Quarter $2.031 $0.969
(through November 18, 1998)
The prices set forth above reflect inter dealer prices, without
retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
On November 18, 1998, as reported by the Company's transfer agent,
shares of Common Stock were held by approximately 700 (?) shareholders of
record.
DIVIDEND POLICY
The Company intends to retain future earnings, if any, that may
be generated from the Company's operations to finance the operations
and expansion of the Company and, accordingly, does not plan, for the
reasonably foreseeable future, to pay dividends to holders of the
Common Stock. Any decision as to the future payment of dividends will
depend on the results of operations and financial position of the
Company and such other factors as the Company's Board of Directors, in
its discretion, deems relevant.
<PAGE> 16
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of November 18, 1998 by each of the Selling
Stockholders assuming the conversion of the Debentures of $622,558 principal
amount (the amount outstanding as of November 18, 1998) and a conversion rate
of $1.03125 per share, based on application of the formula for computing the
conversion rate (assuming, for the purpose of the following table, that the
conversion date is November 18, 1998) as provided in the Debenture (see "Recent
Developments"), the exercise of the Debenture Warrants to purchase 49,500
shares of Common Stock and the exercise of the JW Warrants to purchase 75,000
shares of Common Stock. Unless otherwise indicated below, to the knowledge of
the Company, all persons listed below have sole voting and investment power
with respect to the shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.
The information included below is based upon information provided
by the Selling Stockholders. Because the Selling Stockholders may
offer all, some or none of their Shares, no definitive estimate as to
the number of Shares that will be held by the Selling Stockholders
after such offering can be provided and the following table has been
prepared on the assumption that all Shares offered under this
Prospectus will be sold.
<TABLE>
<CAPTION>
Common Stock to be
Beneficially Owned
Common Stock Beneficially if All Shares Offered
Owned on November 18,1998(1) Hereunder Are Sold(1)
-------------------------------- -------------------------------
Shares That
May be Offered
Name Shares Percent Hereunder Shares Percent
- ------------------ -------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
David Braver 4,000 * 4,000 -- --
Sarine Chaki 20,000 * 20,000 -- --
Susan Cohen 5,000 * 5,000 -- --
William Edwin Gay, Jr. 6,000 * 6,000 -- --
Scott Gerard 60,000 1.14 60,000 -- --
Albert Levine 31,000 * 31,000 -- --
Keith E. Loisell 19,000 * 19,000 -- --
Peter Marsh 60,000 1.14 60,000 -- --
Rory Nichols 25,000 * 25,000 -- --
Brian Schuster 25,000 * 25,000 -- --
The Endeavour Capital Fund S.A. 113.515 2.16 113,515 -- --
Amro International S.A. 302,491 5.76 302,491 -- --
Advantage (Bermuda) Fund S.A. 264,532 5.03 264,532 -- --
Canadian Advantage L.P. 254,835 4.85 254,835 -- --
JW Charles Securities, Inc. 75,000 1.43 75,000 -- --
-------- -------- --------- ---------- ---------
1,265,373 24.08% 1,265,373 -- --
- -----------------------
* Less than one percent (1%)
</TABLE>
(1) As required by regulations of the Commission, the number of Shares
shown as beneficially owned include Shares which can be purchased within 60
days after November 18, 1998. The actual number of shares of Common Stock
beneficially owned is subject to adjustment and could be materially more or
less than the estimated amount indicated depending upon factors which cannot
be predicated by the Company at this time, including, among others, the
market price of the Common Stock.
<PAGE> 18
PLAN OF DISTRIBUTION
Sales of the Shares may be effected by or for the account of the Selling
Stockholders from time to time in transactions (which may include block
transactions) on the Nasdaq, in negotiated transactions, through a combination
of such methods of sale, or otherwise, at fixed prices that may be changed, at
market prices prevailing at the time of sale or at negotiated prices. The
Selling Stockholders may effect such transactions by selling the Shares
directly to purchasers, through broker-dealers acting as agents of the Selling
Stockholders, or to broker-dealers acting as agents for the Selling
Stockholders, or to broker-dealers who may purchase Shares as principals and
thereafter sell the Shares from time to time in transactions (which may
include block transactions) on the Nasdaq , in negotiated transactions,
through a combination of such methods of sale, or otherwise. In effecting
sales, broker-dealers engaged by a Selling Stockholder may arrange for other
broker-dealers to participate. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders and/or the purchasers of the Shares for whom such broker-
dealers may act as agents or to whom they may sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in the distribution of the
Shares may be deemed to be "underwriters" within the meaning of the
Securities Act. Any commissions paid or any discounts or concessions
allowed to any such persons, and any profits received on the resale of
the Shares purchased by them may be deemed to be underwriting
commission or discounts under the Securities Act.
The Company has agreed to bear all expenses of registration of
the Shares other than legal fees and expenses, if any, of counsel or
other advisors of the Selling Stockholders. Any commissions,
discounts, concessions or other fees, if any, payable to broker-dealers
in connection with any sale of the Shares will be borne by the Selling
Stockholders selling such Shares.
The Company has agreed to indemnify the Selling Stockholders, or
their transferees or assignees, against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments the
Selling Stockholders or their respective pledgees, donees, transferees
or other successors in interest, may be required to make in respect
thereof.
LEGAL MATTERS
The valid issuance of the shares of Common Stock offered hereby
has been passed upon for the Company by Preston Gates & Ellis LLP, San
Francisco, California.
EXPERTS
The balance sheet of American Champion Entertainment, Inc. as of February 5,
1997, and the financial statements of ABK as of December 31, 1996, and for the
year then ended have been incorporated by reference herein and in the
registration statement in reliance upon the reports of Moore Stephens P.C.,
independent certified public accountants, also incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing.
The financial statements of the Company as of December 31, 1997,
and for the year then ended have been included herein and in the
registration statement in reliance upon the reports of Moss Adams LLP,
independent certified public accountants, appearing elsewhere herein,
and upon the authority of such firm as experts in accounting and
auditing.
Effective October 8, 1997, the Board of Directors (the "Board"
of American Champion Entertainment, Inc. (the "Registrant"), dismissed
Moore Stephens, P.C. ("Moore Stephens"), and such firm will no longer
be acting as the Registrant's principal accountant. Moore Stephens'
report on the Registrant's financial statements dated February 5, 1997,
the date of the Registrant's incorporation, did not contain an adverse
opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles. Moore Stephens'
report on the financial statements for the past two years relating to
America's Best Karate, predecessor to the Registrant ("ABK"), dated
January 31, 1997, did not contain an adverse opinion or a disclaimer of
opinion and was not qualified or modified as to audit scope or
accounting principles; however, such report did include a modification
of the auditor's standard report, noting that certain factors raised
substantial doubt about ABK's ability to continue as a going concern.
During Registrant's and its predecessor's two most recent fiscal years
and the interim period through October 8, 1997, there were no
disagreements between Registrant or its predecessor and Moore Stephens
on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which, if not
resolved to the satisfaction of Moore Stephens, would have caused it to
make reference to the subject matter of the disagreements in connection
with its report.
Effective October 8, 1997, Registrant engaged Moss Adams LLP as
its principal accountant. Such engagement was approved by the
Registrant's Board of Directors. During Registrant's two most recent
fiscal years and any subsequent interim period through October 8, 1997,
Registrant did not consult Moss Adams LLP regarding the application of
accounting principals to a specified transaction, the type of audit
opinion that might be rendered on Registrant's financial statements or
any matter that was the subject of disagreement or a reportable event.
<PAGE> 19
ADDITIONAL INFORMATION
This Prospectus does not contain all information set forth in this
registration statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission.
Statements contained herein concerning the provisions of any documents
are not necessarily complete and in each instance, reference is made to
the copy of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such
reference. A copy of the Registration Statement may be inspected by
anyone without charge at the Commission's principal office located at
450 Fifth Street, N.W., Washington, D.C. 20549, the Pacific Regional
Office located at 5670 Wilshire Boulevard, 11th Floor, Los Angeles,
California 90036-3648, the New York Regional Office located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and the Chicago
Regional Office located at Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661-2511, and copies of all or any part
thereof may be obtained from the Public Reference Branch of the
Commission upon the payment of certain fees prescribed by the
Commission. The Commission maintains an Internet Web Site that
contains reports, proxy and information statements and other
information statements and other information regarding registrants that
file electronically with the Commission, including the Company, and
that address is http://www.sec.gov.
<PAGE> 20
No dealer, salesperson or other person is authorized to give any
information or to make any representations other than those contained
in this Prospectus, and, if given or made, such information or
representations must not be relied upon as having been authorized by
the Company. This Prospectus does not constitute an offer to buy any
security other than the securities offered by this Prospectus, or an
offer to sell or a solicitation of an offer to buy any securities by
any person in any jurisdiction where such offer or solicitation is not
authorized or is unlawful. Neither delivery of this Prospectus nor any
sale hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the
date hereof.
TABLE OF CONTENTS
Page
Incorporation of Certain Documents by Reference 6
Available Information 6
Company 7
Risk Factors 11
Use of Proceeds 14
Certain Market Information 14
Dividend Policy 14
Selling Stockholders 15
Plan of Distribution 16
Legal Matters 16
Experts 16
Additional Information 17
AMERICAN CHAMPION ENTERTAINMENT, INC.
4,817,274 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
_______________
_________, 1998
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the estimated expenses of the issuance
and distribution of the securities offered hereby (all such expenses will
be borne by the Company):
Registration fee $ 1,443.56
Legal fees and expenses 50,000.00
Accounting fees and expenses 3,000.00
Miscellaneous, including Nasdaq listing fees 20,000.00
-----------
Total $ 74,443.56
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits, to the maximum
extent permitted by Delaware law, the personal liability of directors for
monetary damages for breach of their fiduciary duties as a director. The
Company's Bylaws provided that the Company shall indemnify its officers
and directors and may indemnify its employees and other agents to the
fullest extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made a
party to an action by reason of that fact that he or she was a director,
officer, employee or agent of the corporation or was serving at the
request of the corporation against expenses actually and reasonably
incurred by him or her in connection with such action if he or she acted
in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the corporation and with respect to
any criminal action, had no reasonable cause to believe his or her
conduct was unlawful.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company
has been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
<PAGE> 22
ITEM 16. EXHIBITS
The exhibits filed as part of the Registration Statement
are as follows:
Number Description
4.1 Securities Purchase Agreement, dated July 2, 1998, by and
among the Company and the Buyers as defined therein.
4.2 7% Convertible Debentures due July 1, 2000.
4.3 Joint Escrow Instructions.
4.4 Registration Rights Agreements in connection with the
issuance of the Debentures.
4.5 Common Stock Purchase Warrant.
4.6 Registration Rights Agreements for certain existing
Stockholders regarding 255,000 shares of Common Stock.
4.7 Assignment Agreement dated October 30, 1998 between The Endeavor
Capital Fund S.A., Amro International S.A, Advantage (Bermuda) Fund
S.A. and Canadian Advantage L.P.
5.1* Opinion of Preston Gates & Ellis LLP regarding legality of
securities being registered.
23.1* Consent of Preston Gates & Ellis LLP (included in its
opinion filed as Exhibit 5.1).
23.2 Consent of Moss Adams LLP.
23.3 Consent of Moore Stephens P.C.
(* To be Filed)
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to its Certificate of
Incorporation, its Bylaws, or otherwise, the Registrant has been advised
that in the opinion of the Securities Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment of
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against a
public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
<PAGE> 23
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraph (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is incorporated by reference from periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post- effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Jose, California on the 19th day of November,
1998.
By /s/ Anthony K. Chan
Anthony K. Chan
Chief Executive Officer
Each person whose signature appears below constitutes and appoints Anthony K.
Chan with full power of substitution and resubstitution and each with full
power to act without the other, his true and lawful attorney-in-fact and agent,
for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) and all other
documents in connection therewith, with the Securities and Exchange Commission
or any state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and preform each and premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their, his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Capacities Date
- --------------------------- ------------------------------------ -------------
<S> <C> <C>
/s/ Anthony K. Chan President, Chief Executive Officer, November 24, 1998
- ------------------------- and Director (principal executive
Anthony K. Chan officer)
/s/ George Chung Chairman of the Board and Director November 24, 1998
- -------------------------
George Chung
/s/ Don Berryessa Vice President and Director November 24, 1998
- -------------------------
Don Berryessa
/s/ Mae Lyn Woo Vice President and Chief November 24, 1998
- ------------------------- Financial Officer (principal
Mae Lyn Woo financial officer)
/s/ William T. Duffy Director November 24, 1998
- -------------------------
William T. Duffy
/s/ Alan Elkes Director November 24, 1998
- -------------------------
Alan Elkes
/s/ Jan D. Hutchins Director November 24, 1998
- -------------------------
Jan D. Hutchins
/s/ Ronald M. Lott Director November 24, 1998
- -------------------------
Ronald M. Lott
</TABLE>
<PAGE> 25
EXHIBITS INDEX
The exhibits filed as part of the Registration Statement
are as follows:
Number Description
4.1 Securities Purchase Agreement, dated July 2, 1998, by and
among the Company and the Buyers as defined therein.
4.2 7% Convertible Debentures due July 1, 2000.
4.3 Joint Escrow Instructions.
4.4 Registration Rights Agreements in connection with the
issuance of the Debentures.
4.5 Common Stock Purchase Warrant.
4.6 Registration Rights Agreements for certain existing
Stockholders regarding 255,000 shares of Common Stock.
4.7 Assignment Agreement dated October 30, 1998 between The Endeavor
Capital Fund S.A., Amro International S.A, Advantage (Bermuda) Fund
S.A. and Canadian Advantage L.P.
5.1* Opinion of Preston Gates & Ellis LLP regarding legality of
securities being registered.
23.1* Consent of Preston Gates & Ellis LLP (included in its
opinion filed as Exhibit 5.1).
23.2 Consent of Moss Adams LLP.
23.3 Consent of Moore Stephens P.C.
(* To be Filed)
<PAGE> 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 26203 Production Avenue, Suite 5, Hayward, California 94545
(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 "Initial Debentures"), out of a total offering of
$1,800,000 of such Debentures, and having the terms and conditions and
being in the form attached hereto as Annex I. The purchase price for the
Initial Debentures shall be as set forth on the signature page hereto and
shall be payable in United States Dollars.
<PAGE> 2
(ii) As used herein, the term "Debentures" means the
Initial Debentures and the Additional Debentures (as defined below),
unless the context otherwise requires.
(iii) As used herein, the term "Securities" means the
Debentures, the Common Stock issuable upon conversion of the Debentures,
the Warrants and the Warrant Shares.
(iv) As used herein, the term "Purchase Price" means the
purchase price for the Initial Debentures or the Additional Debentures,
as the case may be.
(v) As used herein, the term "Initial Closing Date" means
the date of the closing of the purchase and sale of the Initial
Debentures, as provided herein.
(vi) As used herein, the term "Additional Closing Date"
means the date of the closing of the purchase and sale of the relevant
Additional Debentures, as provided herein.
(vii) As used herein, the term "Closing Date" means the
relevant Initial Closing Date or Additional Closing Date, as the case may
be.
(viii) 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).
(ix) 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 relevant
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 relevant Closing Date.
(ii) No later than the relevant Closing Date, but in any
event promptly following payment by the Buyer to the Escrow Agent of the
relevant Purchase Price, the Company shall deliver the relevant Debentures
and the Warrants, each duly executed on behalf of the Company, to the
Escrow Agent.
<PAGE> 3
(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
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No.: [To be provided to the Buyer by Krieger &
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 Initial 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 installments 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.
<PAGE> 4
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 Report on Form 10-
QSB for the fiscal quarter ended March 31, 1998, and (3) Proxy Statement
for the Company's annual meeting of shareholders held on May 29, 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.
<PAGE> 5
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
(ii) 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.
<PAGE> 6
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.
<PAGE> 7
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.
<PAGE> 8
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 June 29, 1998 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 December 1, 1997, 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.
<PAGE> 9
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.
<PAGE> 10
c. Registration Rights Agreement. The parties hereto agree
to enter into the Registration Rights Agreement on or before the Initial
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 which
is the earlier of (x) the First Additional Closing Date or (y) forty (40)
days after the first date on which the Conversion Rate is determined as if
there were no Floor Price (as those terms are defined in the Debenture)
pursuant to the provisions of Section 4(E)(v) or (vi) of the Debenture.
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 Initial Closing Date.
<PAGE> 11
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 the later of (A) one hundred twenty (120) days after the
Effective Date or (B) sixty (60) days after the last Additional Closing
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. Future Purchases. (i) The Buyer hereby unconditionally
and irrevocably agrees to purchase from the Company, and the Company
hereby unconditionally and irrevocably agrees to issue to the Buyer,
additional Debentures (collectively, the "Additional Debentures") in the
principal amount of the relevant Additional Tranche identified in
subparagraph (h)(ii) below multiplied by a fraction, of which the
numerator is the principal amount of the Initial Debentures and the
denominator is $1,000,000. The Additional Debentures shall be issued and
acquired in two tranches (each, an "Additional Tranche"), on the terms and
subject to the conditions hereinafter provided.
<PAGE> 12
(ii) The first Additional Tranche (the "First Additional
Tranche") shall be for Additional Debentures in the principal amount of
$500,000 and the second Additional Tranche (the "Second Additional
Tranche") shall be for Additional Debentures in the principal amount of
$300,000.
(iii) The closing for the First Additional Tranche shall occur
on the date (the "First Additional Closing Date") which is thirty (30)
days after the Effective Date, unless otherwise agreed to by the Company
and the Buyer. The closing for the Second Additional Tranche shall occur
on the date (the "Second Additional Closing Date") which is thirty (30)
days after the First Additional Closing Date, unless otherwise agreed to
by the Company and the Buyer. The closing of each Additional Tranche shall
be conducted upon the same terms and conditions as those applicable to the
Initial Debentures. Each of the First Additional Closing Date and the
Second Additional Closing Date is referred to as an "Additional Closing
Date."
(iv) If, for any reason, a Buyer does not purchase the
Additional Debentures allocable to such Buyer on the Additional Closing
Date, the other Buyer shall have the option to purchase the Additional
Debentures not then being purchased by such Buyer. The Buyer not
purchasing the Additional Debentures shall not have the right to purchase
any other Additional Debentures.
(v) It shall be a condition to the Buyer's obligation to
purchase the Additional Debentures that, as of the Additional Closing
Date, (A) the Market Price of the Common Stock, as adjusted to reflect
any stock splits, reverse stock splits or stock dividends effected or
declared after the Initial Closing Date, be Four Dollars and no Cents
($4.00) or more and (B) the average daily trading volume for the thirty
(30) consecutive trading days ending the day before the Additional Closing
Date be twenty-two thousand five hundred (22,500) or more shares.
(vi) On the relevant Additional Closing Date, (A) the
Registration Statement required to be filed under the Registration Rights
Agreement shall continue to be effective and shall cover at least all
Registrable Securities for Debentures issued prior to or on such
Additional Closing Date, (B) the representations and warranties of the
Company contained in Section 3 hereof shall be true and correct in all
material respects (and the Company's issuance of the relevant Additional
Debentures shall constitute the Company's making each such representation
and warranty as of such date) and there shall have been no material
adverse changes (financial or otherwise) in the business, operations or
conditions (financial or otherwise) or results of operations of the
Company and its subsidiaries taken as a whole from the Initial Closing
Date through and including the relevant Additional Closing Date (and the
Company's issuance of the relevant Additional Debentures shall constitute
the Company's making such representation and warranty as of such date),
and at all times (C) either the aggregate of the Common Stock issuable (i)
upon conversion of the relevant Additional Debentures as a group or
together with the Common Stock issuable upon conversion of the then
previously issued Debentures (assuming for such computation a conversion
price computed based on a Market Price equal to 50% of the Market Price on
the relevant Additional Closing Date) and (ii) upon exercise of the
Warrants, will not result in the issuance of shares in excess of the Cap
Regulations or the Company shall have obtained the consent of its
shareholders, as contemplated by the Cap Regulations, to such issuance.
<PAGE> 13
(vii) In addition to the delivery of Principal Voter Proxies
contemplated by Section 4(d)(iii) hereof, if, as of the relevant
Additional Closing Date, there are any additional Principal Voters, the
Company shall have obtained the Principal Voter Proxy of each such
additional Principal Voter and shall deliver each such additional
Principal Voter Proxy to the Buyer or the Buyer's designee, together with
an opinion of the Company's counsel that each such additional Principal
Voter Proxy is binding and irrevocable and is enforceable or exercisable
by the Buyer or the Buyer's designee, no later than the relevant
Additional Closing Date. Compliance with the provisions of Section
4(d)(iii) and the foregoing provisions of this subsection (vii) shall be
a condition to the Buyer's obligation to purchase Additional Debentures on
the relevant Additional Closing Date.
i. 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.
j. Warrants. The Company agrees to issue to the Buyer on
each 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 Initial
Closing Date. The Warrants will expire on the fifth anniversary of the
Initial 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 Initial 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.
<PAGE> 14
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.
<PAGE> 15
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.
<PAGE> 16
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 Initial Debentures or the Additional Debentures, as the
case may be, 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 relevant
Closing Date.
7. CLOSING DATE.
a. The Initial 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. The
date of each Additional Closing Date shall be the date determined as
provided in Section 4(h) hereof; provided, however, that it shall be a
condition of any Additional Closing Date that , on or before such date,
each of the conditions contemplated by Section 4(h) and by Sections 8 and
9 hereof shall have either been satisfied or been waived by the party in
whose favor such conditions run.
<PAGE> 17
b. Each closing of the purchase and issuance of Debentures
shall occur on the relevant 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. The relevant Debentures shall be delivered by the Company to the
Escrow Agent pursuant to Section 1(b) hereof no later than on the relevant
Closing Date.
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 relevant
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
relevant 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 relevant Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company;
<PAGE> 18
b. Delivery by the Company to the Escrow Agent of the
relevant 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;
g. From and after the date hereof to and including the
relevant 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 relevant
Debentures; and
h. With respect to the Additional Closing Date, each of the
conditions set forth in Section 4(h) hereof shall have either been
satisfied or waived by the Buyer and there shall be an effective
Registration Statement covering the Registrable Securities issuable upon
conversion of the Debentures previously issued and to be issued on such
Additional Closing Date and upon exercise of all Warrants previously
issued and to be issued on such Additional Closing Date.
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.
<PAGE> 19
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,
<PAGE> 20
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.
1694 The Alameda, Suite 100
San Jose, CA 95126-2219
Attn: Anthony K. Chan, President
Telephone No.: (408) 288-8199
Telecopier No.: (408) 288-8098
with a copy to:
Preston Gates & Ellis LLP
One Maritime Plaza, Suite 2400
San Francisco, CA 94111
Attn: Lawrence B. Low, Esq.
Telephone No.: (415) 788-8822
Telecopier No.: (415) 788-8819
BUYER: At the address set forth on the signature page of this
Agreement.
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telephone No.: (212) 689-3322
Telecopier No. (212) 213-2077
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
Telephone No.: (212) 689-3322
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
Company's and the Buyer's representations and warranties herein shall
survive the execution and delivery of this Agreement and the delivery of
the Debentures and payment of the Purchase Price, and shall inure to the
benefit of the Buyer and the Company and their respective successors and
assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 21
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 INITIAL 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 30th day of
June, 1998.
14/14 Divrei Chaim St., The Endeavour Capital Fund S.A.
Address Printed Name of Subscriber
Jerusalem 94479 Israel /s/ Shmuli Margulies
Telecopier No. 972-2582-4443 (Signature of Authorized Person)
Shmuli Margulies, Director
B.V.I. 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: /s/ Anthony K. Chan
Title: President and Chief Executive Officer
Date: July 2, 1998
<PAGE> 22
ANNEX I FORM OF DEBENTURE
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI FORM OF WARRANT
<PAGE> 23
A second Securities Purchase Agreement was executed:
Amount: $500,000
Name of Subscriber: AMRO International S.A.
<PAGE> 1
Exhibit 4.2
ANNEX I
TO
SECURITIES PURCHASE AGREEMENT
<PROTOTYPE FOR EACH ISSUANCE>
FORM OF DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY NOT BE
OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED
UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE
HARBOR THEREFROM.
NNo. 98-1 US $ 500,000
AMERICAN CHAMPION ENTERTAINMENT, INC.
7% CONVERTIBLE DEBENTURE DUE JULY 1, 2000
THIS DEBENTURE is one of a duly authorized issue of up to $1,800,000
in Debentures of AMERICAN CHAMPION ENTERTAINMENT, INC., a corporation
organized and existing under the laws of the State of Delaware (the
"Company") designated as its 7% Convertible Debentures. Such Debentures
may be issued in series, each of which may have a different maturity date,
but which otherwise have substantially similar terms.
FOR VALUE RECEIVED, the Company promises to pay to The Endeavour
Capital Fund S.A. , the registered holder hereof (the "Holder"), the
principal sum of Five Hundred Thousand and 00/100 Dollars (US $
500,000 ) on July 1, 2000 (the "Maturity Date") and to pay interest on
the principal sum outstanding from time to time in arrears (i) quarterly,
on the last day of March, June, September and December of each year prior
to the Maturity Date, (ii) upon conversion as provided herein or (iii) on
the Maturity Date, at the rate of 7% per annum accruing from the date of
initial issuance of this Debenture. Accrual of interest shall commence on
the first such business day to occur after the date hereof and shall
continue to accrue on a daily basis until payment in full of the principal
sum has been made or duly provided for. Subject to the provisions of
Section 4 below (the terms of which shall govern as if this sentence were
not included in this Debenture), prior to the Maturity Date, interest on
this Debenture is payable, at the option of the Company, in shares of
Common Stock of the Company, $.0001 par value ("Common Stock") at the
Conversion Rate (as defined below) in effect on the date of payment, or 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 from time to time. On the Maturity
Date, the Company will pay the principal of and accrued but unpaid
interest upon this Debenture as of such date, less any amounts required by
law to be deducted, to the registered holder of this Debenture as of the
tenth day prior to the Maturity Date and addressed to such holder at the
last address appearing on the Debenture Register. The forwarding of such
check for immediately available funds shall constitute a payment of
principal and interest hereunder and shall satisfy and discharge the
liability for principal and interest on this Debenture to the extent of
the sum represented by such check plus any amounts so deducted.
<PAGE> 2
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 Holder
surrendering the same. No service charge will be made for such
registration or transfer or exchange.
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
laws or other applicable laws at the time of such payments, and Holder
shall execute and deliver all required documentation in connection
therewith.
3. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended
(the "Act"), and other applicable state and foreign securities laws and
the terms of the Securities Purchase Agreement (defined below). In the
event of any proposed transfer of this Debenture, the Company may require,
prior to issuance of a new Debenture in the name of such other person,
that it receive reasonable transfer documentation including legal opinions
that the issuance of the Debenture in such other name does not and will
not cause a violation of the Act or any applicable state or foreign
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 by
notice to the contrary.
4. A. The Holder of this Debenture is entitled, at its option,
subject to the following provisions of this Section 4, to convert this
Debenture at any time commencing the earlier of (a) one hundred twenty
(120) days after the original date of issuance (the "Issue Date") of the
Initial Debenture (as that term is defined in Securities Purchase
Agreement; such date being the same as the Initial Closing Date, as that
term is defined in the Securities Purchase Agreement), or (b) the
Effective Date of the Registration Statement filed pursuant to (and as
those terms are defined in) the Registration Rights Agreement between the
Company and the Holder (or the Holder's predecessor in interest) (the
"Registration Rights Agreement") into shares of Common Stock of the
Company at a conversion price for each share of Common Stock ("Conversion
Rate") equal to the greater of:
(x) the lower of (i) seventy-five percent (75%) of the Market
Price (as defined below) on the Conversion Date (as defined
below) or (ii) one hundred seventeen and one-half percent
(117.5%) of the Market Price on the Issue Date, or
(y) the Floor Price (as defined below).
<PAGE> 3
B. Conversion shall be effectuated by surrendering the
Debentures to be converted to the Company's transfer agent, Continental
Stock Transfer & Trust Company, 2 Broadway, New York, NY 10004, telephone
(212) 509-4000, facsimile (212) 509-5150, accompanied by or preceded by
facsimile or other delivery of the form of conversion notice attached
hereto as Exhibit A, executed by the Holder of this Debenture evidencing
such Holder's intention to convert this Debenture or a specified portion
hereof, and accompanied, if required by the Company, by proper assignment
hereof in blank. Interest accrued or accruing from the date of issuance
to the date of conversion or to the date contemplated by clause (i) of the
second paragraph of this Debenture shall, at the option of the Holder, be
paid in cash or Common Stock at the Conversion Rate then applicable as of
the Conversion Date or the periodic interest payment date, as the case may
be. No fractional shares of Common Stock 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 date on which notice of
conversion is given (the "Conversion Date") shall be deemed to be the date
on which the Holder faxes or otherwise delivers the conversion notice
("Notice of Conversion"), substantially in the form annexed hereto as
Exhibit A, duly executed, to the Company so that it is received by the
Company on or before such specified date, provided that the Holder shall
deliver to the Company's transfer agent or the Company the original
Debentures being converted within five (5) business days thereafter (and
if not so delivered within such time, the Conversion Date shall be the
date on which the Notice of Conversion and the original Debentures being
converted are received by the Company). Facsimile delivery of the Notice
of Conversion shall be accepted by the Company at facsimile number (510)
782-8123; Attn: Anthony K. Chan, President. Certificates representing
Common Stock upon conversion will be delivered to the Holder at the
address specified in the Notice of Conversion (which may be the Buyer's
address for notices as contemplated by Section 11of the Securities
Purchase Agreement 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 from the
date which is the later of the date the Notice of Conversion is delivered
to the Company as contemplated in the first sentence of this paragraph B
or the date the original Debenture is delivered to the Company's transfer
agent or the Company.
C. For purposes of this Debenture, the term "Market
Price" shall mean (x) the average closing bid price of the Common Stock
as reported by Bloomberg, LP or the average closing bid price on the over-
the-counter market, (i) if a period of time is specified in the relevant
provision of this Debenture, for such period, and (ii) if no period of
time is specified in the relevant provision of this Debenture, then for
the five (5) trading days ending on the trading day immediately preceding
the relevant date, 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.
<PAGE> 4
D. For purposes of this Agreement, the "Floor Price"
shall initially mean fifty per cent of the Market Price as of the Issue
Date; provided, however, that such amount shall be subject to adjustment
as provided herein.
E. (i) Any of the foregoing provisions of this Section 4
or any other provision of this Debenture to the contrary notwithstanding,
if, at any time (but at least one hundred twenty (120) days after the
Initial Closing Date) this Debenture is outstanding, the Market Price for
the Common Stock for ten (10) consecutive trading days is at a level (the
"Low Market Price") such that seventy-five percent (75%) of such Market
Price on each such day is less than the Floor Price, the Company shall pay
to the Holder the Low Market Amount (as defined below).
(ii) The obligation to pay the Low Market Amount shall
commence on the eleventh consecutive trading day (the "Low Market
Commencement Date") at which the Market Price is the Low Market Price and
shall continue until such time as the Market Price for five (5)
consecutive trading days is at a level (the "Anticipated Market Price")
such that seventy-five percent (75%) of such Market Price on each such
day is at or above the Floor Price. The last of such five (5)
consecutive trading days at which the Market Price is the Anticipated
Market Price is referred to as the "Low Market Termination Date."
(iii) The "Low Market Amount" is an amount equal to
two and one-half percent (2.5%) of the outstanding principal of this
Debenture. Subject to the provisions of subparagraph (vii) of this
Section 4(E), the Low Market Amount shall be payable for (x) the first
thirty (30) days commencing on the Low Market Commencement Date and ending
on the Low Market Termination Date (if sooner than thirty (30) days after
the Low Market Commencement Date), pro rata for each day, and (y)
thereafter for each thirty (30) day period (or part thereof).
(iv) The Low Market Amount shall be payable by the
Company to the Holder in cash within three (3) business days after the
Holder's written demand therefor to the Company. For purposes of receipt
of the Low Market Amount, the Holder shall be deemed to be a creditor of
the Company.
(v) If for any reason whatsoever, the Company does not
timely pay the Low Market Amount, the Holder will have the right to
convert this Debenture, until such Low Market Amount is paid in full, on
the terms provided herein, except that the Conversion Rate shall be
determined as if there were no Floor Price.
(vi) In addition to, and not in lieu of the provisions
of the immediately preceding subparagraph (v), the Company, in its sole
and discretion, may at any time give written notice to the Holder that the
Conversion Rate will be computed as if there were no Floor Price (x) for
all or a specified part of the then outstanding Debenture and (y) either
permanently or for a specified period of time.
<PAGE> 5
(vii) For purposes of computing the Low Market Amount,
the following guidelines shall apply. When, after a Low Market
Termination Date occurs,
(w) another Low Market Commencement Date (a "New Low Market
Commencement Date") occurs three (3) months or less after the
immediately preceding Low Market Termination Date, the
computation of the Low Market Amount shall be made based on
the provisions of subparagraph (iii) of this Section 4(E) as
if the Low Market Termination Date had not occurred (except
that no Low Market Amount shall accrue with respect to the
period from the Low Market Termination Date until the New Low
Market Commencement Date), or
(x) a New Low Market Commencement Date occurs more than three
(3) months after the immediately preceding Low Market
Termination Date, the computation of the Low Market Amount for
the period or periods commencing on the New Low Market
Commencement Date shall be made based on the provisions of
said subparagraph (iii) as if no previous Low Market
Commencement Date had occurred (provided, however, that if any
previously accrued Low Market Amounts shall not have been paid
in full by the New Low Market Commencement Date, the
provisions of clause (w) above shall apply without regard to
the timing of when the New Low Market Commencement Date
occurs).
By way of illustration and not in limitation of the foregoing, assuming in
all such cases that any Low Market Amounts with respect to prior periods
have been timely paid to the Holder, (1) if a Low Market Termination Date
occurs twenty (20) days after the first Low Market Commencement Date, and
(y) a New Low Market Commencement Date occurs within three (3)
months of such Low Market Termination Date, the Low Market
Amount for the period or periods after such New Low Market
Commencement Date shall be computed in accordance with the
provisions of clause (x) of subparagraph (iii) of Section 4(E)
for the first ten (10) days after the New Low Market
Commencement Date (when added with the first 20 days referred
to above in this example, for a total of 30 days applying such
clause (x)) and thereafter in accordance with the provisions
of clause (y) of said subparagraph (iii), or
(z) a New Low Market Commencement Date occurs three (3) months
or more after such Low Market Termination Date, the Low Market
Amount for the period or periods after such New Low Market
Commencement Date shall be computed in accordance with the
provisions of clause (x) of said subparagraph (iii) for the
first thirty (30) days after the New Low Market Commencement
Date and thereafter in accordance with the provisions of
clause (y) of said subparagraph (iii), subject to the
provisions of the immediately preceding sentence; and.
<PAGE> 6
(2) if a Low Market Termination Date occurs more than thirty (30) days
after the first Low Market Commencement Date,
(yy) a New Low Market Commencement Date occurs within three
(3) months of such Low Market Termination Date, the Low Market
Amount for the period or periods after such New Low Market
Commencement Date shall be computed in accordance with the
provisions of clause (y) of subparagraph (iii) of Section
4(E), or
(zz) a New Low Market Commencement Date occurs three (3)
months or more after such Low Market Termination Date, the Low
Market Amount for the period or periods after such New Low
Market Commencement Date shall be computed in accordance with
the provisions of clause (x) of said subparagraph (iii) for
the first thirty (30) days after the New Low Market
Commencement Date and thereafter in accordance with the
provisions of clause (y) of said subparagraph (iii), subject
to the provisions of the immediately preceding sentence.
5. A. Notwithstanding any other provision hereof to the
contrary, at any time prior to the Conversion Date, the Company shall have
the right to redeem all or any portion of the then outstanding principal
amount of the Debentures then held by the Holder in cash for an amount
(the "Redemption Amount") equal to (a) one hundred twenty-twenty-two and
one-half percent (122.5%) of such outstanding principal of the Debentures
plus (b) all accrued but unpaid interest thereon through the date the
Redemption Amount is paid to the Holder (the "Redemption Payment Date").
B. The Company shall give written notice of such redemption
to the Holder (the "Notice of Redemption"). Anything in the preceding
provisions of this Section 5 to the contrary notwithstanding, the
Redemption Amount shall, unless otherwise agreed to in writing by the
Holder after receiving the Notice of Redemption, be paid to the Holder in
good funds within three (3) business days from the date of the Notice of
Redemption. After receiving a Notice of Redemption, the Holder shall no
longer have the right to issue a Notice of Conversion. If prior to
receiving a Notice of Redemption, the Holder had issued a Notice of
Conversion, the Holder will have the right to cancel such Notice of
Conversion by written notice to the Company. If such previously given
Notice of Conversion is not so canceled, the Company shall honor such
Notice of Conversion and the Notice of Redemption shall not apply to the
principal portion of the Debenture thereby being converted.
C. In the event payment of the Redemption Amount is not
timely made, any rights of the Company to redeem outstanding Debentures
shall terminate, and the Notice of Redemption shall be null and void.
D. Any redemption contemplated by this Debenture shall be
made only in cash by the payment of immediately available good funds to
the Holder.
<PAGE> 7
6. The Holder recognizes that the Company may be limited in the
number of shares of Common Stock it may issue by virtue of (i) the number
of authorized shares or (ii) the applicable rules and regulations of the
principal securities market on which the Common Stock is listed or traded,
including, but not necessarily limited to, NASDAQ Rule
4310(c)(25)(H)(i)(d)(2) (collectively, the "Cap Regulations"). Without
limiting the other provisions hereof, (i) the Company will take all steps
reasonably necessary to be in a position to issue shares of Common Stock
on conversion of the Debentures without violating the Cap Regulations and
(ii) if, despite taking such steps, the Company still can not issue such
shares of Common Stock without violating the Cap Regulations, the Holder
of this Debenture (to the extent the same can not be converted in
compliance with the Cap Regulations (an "Unconverted Debenture"), shall
have the option, exercisable in the Holder's sole and absolute discretion,
to elect any one of the following remedies:
(x) require the Company to issue shares of Common Stock
in accordance with such Holder's Notice of Conversion relating
to the Unconverted Debenture at a conversion purchase price
equal to the average of the lowest trade price per share of
Common Stock for any five (5) consecutive trading days
(subject to the equitable adjustments for certain events
occurring during such period as provided in this Debenture)
during the sixty (60) trading days immediately preceding the
date of the Notice of Conversion; or
(y) require the Company to redeem each Unconverted
Debenture for an amount (the "Cap Redemption Amount") equal
to:
V x M
CP
where:
"V" means the outstanding principal plus accrued
interest through the Cap Redemption Date (as defined below) of
an Unconverted Debenture;
"CP" means the Conversion Rate in effect on the date of
redemption (the "Cap Redemption Date") specified in the notice
from the Holder electing this remedy; and
"M" means the highest Market Price during the period
beginning on the Cap Redemption Date and ending on the date of
payment of the Cap Redemption Amount.
The holder of an Unconverted Debenture may elect one of the above remedies
with respect to a portion of such Unconverted Debenture and the other
remedy with respect to other portions of the Unconverted Debenture.
<PAGE> 8
7. Subject to the terms of the Securities Purchase Agreement,
dated July 2 , 1998 (the "Securities Purchase Agreement"), between the
Company and the Holder (or the Holder's predecessor in interest), 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
or currency, herein prescribed. This Debenture and all other Debentures
now or hereafter issued of similar terms are direct obligations of the
Company.
8. 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.
9. The Company agrees that for as long as this Debenture remains
outstanding, the Company will not, without the consent of the Holder,
enter into a merger or consolidation with another corporation or other
entity (other than by or through a wholly-owned subsidiary of the
Company), or a sale or sale or transfer of all or substantially all of the
assets of the Company to another person (collectively, a "Sale"). If,
with such consent, the Company enters into a Sale and the holders of the
Common Stock are entitled to receive stock, securities or property in
respect of or in exchange for Common Stock, then as a condition of such
Sale, the Company and any such successor, purchaser or transferee agree
that the Debenture may thereafter be converted on the terms and subject to
the conditions set forth above into the kind and amount of stock,
securities or property receivable upon such merger, consolidation, sale or
transfer by a holder of the number of shares of Common Stock into which
this Debenture might have been converted immediately before such merger,
consolidation, sale or transfer, subject to adjustments which shall be as
nearly equivalent as may be practicable. In the event of any such
proposed Sale, (i) the Holder hereof shall have the right to convert by
delivering a Notice of Conversion to the Company within fifteen (15) days
of receipt of notice of such Sale from the Company, but (ii) in the event
the Holder hereof shall elect not to convert, the Company may prepay all
outstanding principal and accrued interest on this Debenture by paying the
Redemption Amount contemplated by Section 5 hereof, less all amounts
required by law to be deducted, upon which tender of payment following
such notice (which payment shall be made in the manner contemplated by
Section 5 hereof), the right of conversion shall terminate.
10. The Company agrees that for as long as this Debenture
remains outstanding, the Company will not, without the consent of the
Holder, spin off or otherwise divest itself of a part of its business or
operations or dispose all or of a part of its assets in a transaction (the
"Spin Off") in which the Company does not receive compensation for such
business, operations or assets, but causes securities of another entity
(the "Spin Off Securities") to be issued to security holders of the
Company. If, for any reason, prior to the Conversion Date or the
Redemption Payment Date, the Company, with the consent of the Holder,
consummates a Spin Off, then the Company shall cause (i) to be reserved
Spin Off Securities equal to the number thereof which would have been
issued to the Holder had all of the Holder's Debentures outstanding on the
record date (the "Record Date") for determining the amount and number of
Spin Off Securities to be issued to security holders of the Company (the
"Outstanding Debentures") been converted as of the close of business on
the trading day immediately before the Record Date (the "Reserved Spin Off
Shares"), and (ii) to be issued to the Holder on the conversion of all or
any of the Outstanding Debentures, such amount of the Reserved Spin Off
Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a
fraction, of which (I) the numerator is the principal amount of the
Outstanding Debentures then being converted, and (II) the denominator is
the principal amount of the Outstanding Debentures. In addition, the
Floor Price shall be revised to be an amount equal to (q) the Floor Price
immediately prior to the Record Date, multiplied by (r) a fraction, the
numerator of which is the Market Price on the eleventh trading day after
the Record Date and the denominator of which is the Market Price on the
Record Date.
<PAGE> 9
11. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split
of its Common Stock or issues a dividend on its Common Stock consisting of
shares of Common Stock, the Market Price as of the Issue Date and the
Floor Price shall be equitably adjusted to reflect such action. By way of
illustration, and not in limitation, of the foregoing (i) if the Company
effectuates a 2:1 split of its Common Stock, thereafter, with respect to
any conversion for which the Company issues the shares after the record
date of such split, the Market Price as of the Issue Date shall be deemed
to be one-half of what it had been calculated to be immediately prior to
such split and the Floor Price shall be deemed to be one-half of what it
had been immediately prior to such split; (ii) if the Company effectuates
a 1:10 reverse split of its Common Stock, thereafter, with respect to any
conversion for which the Company issues the shares after the record date
of such reverse split, the Market Price as of the Issue Date shall be
deemed to be ten times what it had been calculated to be immediately prior
to such split and the Floor Price shall be deemed to be ten times what it
had been immediately prior to such split; and (iii) if the Company
declares a stock dividend of one share of Common Stock for every 10 shares
outstanding, thereafter, with respect to any conversion for which the
Company issues the shares after the record date of such dividend, the
Market Price as of the Issue Date shall be deemed to be the amount of such
Market Price calculated immediately prior to such record date multiplied
by a fraction, of which the numerator is the number of shares (10) for
which a dividend share will be issued and the denominator is such number
of shares plus the dividend share(s) issuable or issued thereon (11) and
the Floor Price shall be deemed to be the Floor Price immediately prior to
such record date multiplied by the same fraction.
12. The Holder of the 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 conversion thereof except under circumstances
which will not result in a violation of the Act or any applicable state
Blue Sky or foreign laws or similar laws relating to the sale of
securities.
13. This Debenture shall be governed by and construed in
accordance with the laws of the State of Delaware. 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 coveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Holder for any reasonable legal fees and disbursements
incurred by the Holder in enforcement of or protection of any of its
rights under any of this Debenture.
<PAGE> 10
14. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or
interest on this Debenture and same shall continue for
a period of five (5) business days; or
b. Any of the representations or warranties made by the Company herein,
in the Securities Purchase Agreement, the Registration Rights Agreement or in
any certificate or financial or other written statements heretofore or
hereafter furnished by the Company in connection with the execution and
delivery of this Debenture or the Securities Purchase Agreement shall be false
or misleading in any material respect at the time made; or
c: Subject to the terms of the Securities Purchase Agreement, the Company
fails to authorize or to cause its Transfer Agent to issue shares of Common
Stock upon exercise by the Holder of the conversion rights of the Holder in
accordance with the terms of this Debenture, fails to transfer or to cause its
Transfer Agent to transfer any certificate for shares of Common Stock issued
to the Holder upon conversion of this Debenture and when required by this
Debenture or the Registration Rights Agreement, and such transfer is otherwise
lawful, or fails to remove any restrictive legend on any certificate or fails
to cause its Transfer Agent to remove such restricted legend, in each case
where such removal is lawful, as and when required by this Debenture, the
Agreement or the Registration Rights, and any such failure shall continue
uncured for five (5) business days; or
d. The Company shall fail to perform or observe, in any material respect,
any other covenant, term, provision, condition, agreement or obligation of any
Debenture in this series and such failure shall continue uncured for a period
of thirty (30) days after written notice from the Holder of such failure; or
e. The Company shall fail to perform or observe, in any material respect,
any covenant, term, provision, condition, agreement or obligation of the
Company under the Securities Purchase Agreement or the Registration Rights
Agreement and such failure shall continue uncured for a period of thirty (30)
days after written notice from the Holder of such failure (other than a
failure to cause the Registration Statement to become effective no later than
the Required Effective Date, as defined and provided in the Registration
Rights Agreement, as to which no such cure period shall apply); or
<PAGE> 11
f. The Company shall (1) admit in writing its inability to pay its debts
generally as they mature; (2) make an assignment for the benefit of creditors
or commence proceedings for its dissolution; or (3) 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
g. 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 sixty (60) days after such appointment; or
h. 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 sixty (60) days thereafter; or
i. Any money judgment, writ or warrant of attachment, or similar process
in excess of Two Hundred Thousand ($200,000) 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 sixty
(60) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
j. 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
after such institution or the Company shall by any action or answer approve
of, consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such
proceeding; or
k. The Company shall have its Common Stock suspended or delisted from an
exchange or over-the-counter market from trading for in excess of ten (10)
trading days.
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
notice of any kinds, 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 enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
<PAGE> 12
15. Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect of any meeting of shareholders or
any rights whatsoever as a shareholder of the Company, unless and to the
extent converted in accordance with the terms hereof.
16. In the event for any reason, any payment by or act of the Company or
the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, then ipso facto the obligation of the Company to pay interest
or perform such act or requirement shall be reduced to the limit authorized
under such law, so that in no event shall the Company be obligated to pay any
such interest, perform any such act or be bound by any requirement which would
result in the payment of interest in excess of the limit so authorized. In
the event any payment by or act of the Company shall result in the extraction
of a rate of interest in excess of a sum which is lawfully collectible as
interest, then such amount (to the extent of such excess not returned to the
Company) shall, without further agreement or notice between or by the Company
or the Holder, be deemed applied to the payment of principal, if any,
hereunder immediately upon receipt of such excess funds by the Holder, with
the same force and effect as though the Company had specifically designated
such sums to be so applied to principal and the Holder had agreed to accept
such sums as an interest-free prepayment of this Debenture. If any part of
such excess remains after the principal has been paid in full, whether by the
provisions of the preceding sentences of this Section 16 or otherwise, such
excess shall be deemed to be an interest-free loan from the Company to the
Holder, which loan shall be payable immediately upon demand by the Company.
The provisions of this Section 16 shall control every other provision of this
Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by an officer thereunto duly authorized.
Dated: July 2 , 1998
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ Anthony K. Chan
Anthony K. Chan
(Print Name)
President and Chief Executive Officer
(Title)
EXHIBIT A
NOTICE OF CONVERSION
OF
7% CONVERTIBLE DEBENTURE DUE JULY 1, 2000
<PAGE> 13
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $
________________ of the principal
amount of the above Debenture No. ___ into Shares of Common Stock of
AMERICAN CHAMPION ENTERTAINMENT, INC. (the "Company") according to the
conditions thereof, as of the date written below.
Conversion Date*
___________________________________________________________________
Applicable Conversion Price
__________________________________________________________
Signature
__________________________________________________________________________
[Name]
Address:
__________________________________________________________________________
__________________________________________________________________________
* This original Debenture must be received by the Company or its transfer
agent by the fifth business date following the Conversion Date.
<PAGE> 14
A second "Form of Debenture" was executed:
Number: 98-2
Amount: $500,000
Register Holder: AMRO International S.A.
<PAGE> 1
Exhibit 4.3
ANNEX II
TO
SECURITIES PURCHASE AGREEMENT
JOINT ESCROW INSTRUCTIONS
Dated as of the date of the
Securities Purchase Agreement to
Which These Joint Escrow
Instructions Are Attached
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Attention: Samuel M. Krieger, Esq.
Dear Mr. Krieger:
As escrow agent for both American Champion Entertainment, Inc., a
Delaware corporation (the "Company"), and the Buyer (the "Buyer") of 7%
Convertible Debentures (the "Debentures") of the Company, who is named in
the Securities Purchase Agreement between the Company and the Buyer to
which a copy of these Joint Escrow Instructions is attached as Annex II
(the "Agreement"), you (hereafter, the "Escrow Agent") are hereby
authorized and directed to hold the documents and funds (together with any
interest thereon, the "Escrow Funds") delivered to the Escrow Agent
pursuant to the terms of the Agreement in accordance with the following
instructions:
1. The Escrow Agent shall, as promptly as feasible, notify the
Company of receipt of the Purchase Price with respect to the Initial
Debentures and of the Purchase Price of the Additional Debentures from or
on behalf of the Buyer and notify the Buyer of receipt of the relevant
Debentures for each tranche contemplated by the Agreement. As promptly as
feasible upon receipt of notice (whether oral or in written form) from the
Company and the Buyer that the respective conditions precedent to the
relevant purchase and sale have been satisfied (which notice shall not be
unreasonably withheld), the Escrow Agent shall, after reduction by the
amounts referred to in the next succeeding sentence of this paragraph,
release the relevant Escrow Funds to or upon the order of the Company, and
shall release the relevant Debentures to the Buyer. After receipt of such
notice, an amount equal to (i) seven percent (7 %) of the Purchase Price
of each tranche of the Debentures as the aggregate cash fees due to JW
Charles Securities, Inc. (the "Placement Agent") shall be released to or
upon the order of the Placement Agent and (ii) $10,000 out of the Purchase
Price for the Initial Debenture and $5,000 out of the Purchase Price for
the First Additional Tranche in legal and escrow fees to the Escrow Agent
shall be released to or upon the order of the Escrow Agent. If the
relevant Debentures are not deposited with the Escrow Agent within ten
(10) days after receipt by the Company of notice of receipt by the Escrow
Agent of the relevant Purchase Price funds from the Buyer, the Escrow
Agent shall notify the Buyer and the Buyer shall be entitled to cancel the
purchase and demand repayment of the funds. If such funds are not
deposited with the Escrow Agent within ten (10) days after receipt by the
Buyer of notice of receipt by the Escrow Agent of the relevant Debentures
from the Company, the Escrow Agent shall notify the Company and the
Company shall be entitled to cancel the purchase and demand return of such
Debentures. If the Company or the Buyer notifies the Escrow Agent that on
any Closing Date the conditions precedent to the obligations of the
Company or the Buyer, as the case may be, under the Agreement were not
satisfied or waived, then the Escrow Agent shall return the relevant
Escrow Funds to the Buyer and shall return the relevant Debentures to the
Company. Prior to return of any Escrow Funds to the Buyer, the Buyer
shall furnish such tax reporting or other information as shall be
appropriate for the Escrow Agent to comply with applicable United States
laws. The Escrow Agent shall deposit all funds received hereunder in the
Escrow Agent's attorney escrow account at The Bank of New York.
<PAGE> 2
2. The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, the Buyer and
the Escrow Agent.
3. The Escrow Agent shall be obligated only for the performance
of such duties as are specifically set forth herein and may rely and shall
be protected in relying or refraining from acting on any instrument
reasonably believed by the Escrow Agent to be genuine and to have been
signed or presented by the proper party or parties. The Escrow Agent
shall not be personally liable for any act the Escrow Agent may do or omit
to do hereunder as the Escrow Agent while acting in good faith, and any
act done or omitted by the Escrow Agent pursuant to the advice of the
Escrow Agent's attorneys-at-law shall be conclusive evidence of such good
faith.
4. The Escrow Agent is hereby expressly authorized to disregard
any and all warnings given by any of the parties hereto or by any other
person or corporation, excepting only orders or process of courts of law
and is hereby expressly authorized to comply with and obey orders,
judgments or decrees of any court. In case the Escrow Agent obeys or
complies with any such order, judgment or decree, the Escrow Agent shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered
without jurisdiction.
5. The Escrow Agent shall not be liable in any respect on account
of the identity, authorities or rights of the parties executing or
delivering or purporting to execute or deliver the Agreement or any
documents or papers deposited or called for hereunder.
6. The Escrow Agent shall be entitled to employ such legal
counsel and other experts as the Escrow Agent may deem necessary properly
to advise the Escrow Agent in connection with the Escrow Agent's duties
hereunder, may rely upon the advice of such counsel, and may pay such
counsel reasonable compensation therefor. The Escrow Agent has acted as
legal counsel for the Buyer, and may continue to act as legal counsel for
such party, from time to time, notwithstanding its duties as the Escrow
Agent hereunder. The Company consents to the Escrow Agent acting in such
capacity as legal counsel for the Buyer and waives any claim that such
representation represents a conflict of interest on the part of the Escrow
Agent. The Company understands that the Buyer and the Escrow Agent are
relying explicitly on the foregoing provision in entering into these Joint
Escrow Instructions.
<PAGE> 3
7. The Escrow Agent's responsibilities as escrow agent hereunder
shall terminate if the Escrow Agent shall resign by written notice to the
Company and the Buyer at least ten (10) days prior to the effective date
of such resignation. In the event of any such resignation, the Buyer and
the Company shall appoint a successor Escrow Agent.
8. If the Escrow Agent reasonably requires other or further
instruments in connection with these Joint Escrow Instructions or
obligations in respect hereto, the necessary parties hereto shall join in
furnishing such instruments.
9. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
documents or the Escrow Funds held by the Escrow Agent hereunder, the
Escrow Agent is authorized and directed in the Escrow Agent's sole
discretion (1) to retain in the Escrow Agent's possession without
liability to anyone all or any part of said documents or the Escrow Funds
until such disputes shall have been settled either by mutual written
agreement of the parties concerned or by a final order, decree or judgment
of a court of competent jurisdiction after the time for appeal has expired
and no appeal has been perfected, but the Escrow Agent shall be under no
duty whatsoever to institute or defend any such proceedings or (2) to
deliver the Escrow Funds and any other property and documents held by the
Escrow Agent hereunder to a state or federal court having competent
subject matter jurisdiction and located in the State and City of New York
in accordance with the applicable procedure therefor.
10. The Company and the Buyer agree jointly and severally to
indemnify and hold harmless the Escrow Agent from any and all claims,
liabilities, costs or expenses in any way arising from or relating to the
duties or performance of the Escrow Agent hereunder other than any such
claim, liability, cost or expense to the extent the same shall (a) have
been tax obligations in connection with Escrow Agent's fee hereunder, or
(b) have been determined by final, unappealable judgment of a court of
competent jurisdiction to have resulted from the gross negligence or
willful misconduct of the Escrow Agent, or (c) be a liability, or arise
from liability, to either the Company or the Buyer.
11. Any notice required or permitted hereunder shall be given in
manner provided in the Section headed "NOTICES" in the Agreement, the
terms of which are incorporated herein by reference.
12. By signing these Joint Escrow Instructions, the Escrow Agent
becomes a party hereto only for the purpose of these Joint Escrow
Instructions; the Escrow Agent does not become a party to the Agreement.
The Company and the Buyer have become parties hereto by their execution
and delivery of the Agreement, as provided therein.
<PAGE> 4
13. This instrument shall be binding upon and inure to the benefit
of the parties hereto, and their respective successors and permitted
assigns and shall be governed by the laws of the State of New York without
giving effect to principles governing the conflicts of laws. A facsimile
transmission of these instructions signed by the Escrow Agent shall be
legal and binding on all parties hereto.
14. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Agreement.
15. The rights and obligations of any party hereto are not
assignable without the written consent of the other parties hereto. These
Joint Escrow Instructions constitute the entire agreement amongst the
parties with respect to the subject matter hereof.
16. The Company agrees that the Placement Agent is a third party
beneficiary of the provisions of clause (i) in Section 1 hereof and that
such clause can not be amended or revoked without the prior written
consent of the Placement Agent.
ACCEPTED BY ESCROW AGENT:
KRIEGER & PRAGER
By: _______________________________________
Date: _____________________________________
<PAGE> 1
Exhibit 4.4
ANNEX IV
TO
SECURITIES PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of July 2 ,
1998 (this "Agreement"), is made by and between AMERICAN CHAMPION
ENTERTAINMENT, INC., a Delaware corporation (the "Company"), and each
entity named on a signature page hereto (each, an "Initial Investor")
(each agreement with an Initial Investor being deemed a separate and
independent agreement between the Company and such Initial Investor,
except that each Initial Investor acknowledges and consents to the rights
granted to each other Initial Investor under such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of July 2 , 1998, between the
Initial Investor and the Company (the "Securities Purchase Agreement";
terms not otherwise defined herein shall have the meanings ascribed to
them in the Securities Purchase Agreement), the Company has agreed to
issue and sell to the Initial Investor one or more 7% Convertible
Debentures of the Company, in an aggregate principal amount not exceeding
$1,800,000 (the "Debentures"), together with the Warrants issued to the
Initial Investors; and
WHEREAS, the Debentures are convertible into shares of Common
Stock (the "Conversion Shares") upon the terms and subject to the
conditions contained in the Debentures and the Warrants may be exercised
for the purchase of shares of Common Stock (the "Warrant Shares") upon
the terms and conditions of the Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide
certain registration rights under the Securities Act of 1933, as amended,
and the rules and regulations thereunder, or any similar successor statute
(collectively, the "Securities Act"), with respect to the Conversion
Shares and the Warrant Shares;
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 Company and the Initial Investor hereby agree as
follows:
<PAGE> 2
1. Definitions.
(a) As used in this Agreement, the following terms shall
have the following meanings:
(i) "Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of
this Agreement in accordance with Section 9 hereof.
(ii) "Potential Material Event" means any of the following:
(a) the possession by the Company of material information not ripe for
disclosure in a registration statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company that
disclosure of such information in the registration statement would be
detrimental to the business and affairs of the Company; or (b) any
material engagement or activity by the Company which would, in the good
faith determination of the Board of Directors of the Company, be adversely
affected by disclosure in a registration statement at such time, which
determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
(iii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415
under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement by the United
States Securities and Exchange Commission (the "SEC").
(iv) "Registrable Securities" means the Conversion Shares and
the Warrant Shares.
(v) "Registration Statement" means a registration statement
of the Company under the Securities Act covering the Registrable
Securities.
(b) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and
file with the SEC, no later than August 1, 1998 either a Registration
Statement on Form S-3 or an amendment to an existing Registration
Statement, in either event registering for resale by the Investor a
sufficient number of shares of Common Stock for the Initial Investors to
sell the Registrable Securities (or such lesser number as may be required
by the SEC, but in no event less than two hundred percent (200%) of the
aggregate number of shares (i) into which the Initial Debentures and the
Additional Debentures would be convertible at the time of filing of such
Registration Statement (assuming for such purposes that the maximum
Additional Debentures had been issued at such date and that all Debentures
had been eligible to be converted, and had been converted, into Conversion
Shares in accordance with their terms, whether or not such issuance,
eligibility or conversion had in fact occurred as of such date) and (ii)
which would be issued upon exercise of all of the Warrants at the time of
filing of the amendment to Form S-3 (assuming for such purposes that the
Warrants issued in connection with the purchase and sale of the maximum
amount of Debentures had been issued and that all Warrants had been
eligible to be exercised for the maximum number of shares contemplated
thereby and had been exercised in accordance with their terms, whether or
not such issuance, eligibility or exercise had in fact occurred as of such
date). The Registration Statement (i) shall include only the Registrable
Securities and (ii) shall also state that, in accordance with Rules 416
and 457 under the Securities Act, it also covers such indeterminate number
of additional shares of Common Stock as may become issuable upon
conversion of the Debentures and the exercise of the Warrants resulting
from adjustment in the Conversion Price or the Warrant exercise price, as
the case may be, or to prevent dilution resulting from stock splits, or
stock dividends. The Company will use its reasonable best efforts to
cause such Registration Statement to be declared effective no later than
the earlier of (x) five (5) days after notice by the SEC that it may be
declared effective or (y) one hundred twenty (120) days after the Initial
Closing Date. If at any time the number of shares of Common Stock into
which the Debentures may be converted and which would be issued upon
exercise of the Warrants exceeds the aggregate number of shares of Common
Stock then registered, the Company shall either (i) amend the Registration
Statement filed by the Company pursuant to the preceding provisions of
this Section 2, if such Registration Statement has not been declared
effective by the SEC at that time, to register all shares of Common Stock
into which the Debentures may currently or in the future be converted and
which would be issued currently or in the future upon exercise of the
Warrants, or (ii) if such Registration Statement has been declared
effective by the SEC at that time, file with the SEC an additional
Registration Statement on Form S-3 to register the shares of Common Stock
into which the Debentures may currently or in the future be converted and
which would be issued currently or in the future upon exercise of the
Warrants that exceed the aggregate number of shares of Common Stock
already registered.
<PAGE> 3
(b) Payments by the Company.
(i) If the Registration Statement covering the
Registrable Securities is not filed in proper form with the SEC no later
than August 1, 1998 (the "Required Filing Date"), the Company will make
payment to the Initial Investor in such amounts and at such times as shall
be determined pursuant to this Section 2(b).
(ii) If the Registration Statement covering the
Registrable Securities is not effective (a) within the earlier of (1) five
(5) days after notice by the SEC that it may be declared effective or (2)
one hundred twenty (120) days following the Initial Closing Date (the
"Required Effective Date"), or (b) after a Suspension Period (as defined
below), then the Company will make payments to the Initial Investor in
such amounts and at such times as shall be determined pursuant to this
Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid by
the Company to the Initial Investor shall be determined as of each
Computation Date (as defined below) and such amount shall be equal to (A)
two and one-half percent (2.5%) of the purchase price paid by the Initial
Investor (the "Purchase Price") for all Debentures purchased pursuant to
the Securities Purchase Agreement for the period from the date following
the Required Filing Date or the Required Effective Date, as the case may
be, to the first relevant Computation Date, and (B) two and one-half
percent (2.5%) to each Computation Date thereafter. By way of
illustration and not in limitation of the foregoing, if the Registration
Statement is timely filed but is not declared effective until one hundred
ninety-five (195) days after the Closing Date, the Periodic Amount will
aggregate seven and one-half percent (7.5%) of the Purchase Price of the
Debentures (2.5% for days 121-150, plus 2.5% for days 151-180 and 2.5% for
days 181-195).
<PAGE> 4
(iv) Each Periodic Amount will be payable by the
Company in cash or other immediately available funds to the Investor on
the day after the Required Filing Date or the Required Effective Date, as
the case may be, and each thirtieth day thereafter, without requiring
demand therefor by the Investor.
(v) The parties acknowledge that the damages which may
be incurred by the Investor if the Registration Statement is not filed by
the Required Filing Date or if the Registration Statement has not been
declared effective by the Required Effective Date may be difficult to
ascertain. The parties agree that the Periodic Amount represent a
reasonable estimate on the part of the parties, as of the date of this
Agreement, of the amount of such damages.
(vi) Notwithstanding the foregoing, the amounts payable
by the Company pursuant to this provision shall not be payable to the
extent any delay in the effectiveness of the Registration Statement occurs
because of an act of, or a failure to act or to act timely by the Initial
Investor or its counsel, or in the event all of the Registrable Securities
may be sold pursuant to Rule 144 or another available exemption under the
Act.
(vii) "Computation Date" means (i) the date which is the
earlier of (A) thirty (30) days after the Required Filing Date and the
Required Effective Date, as the case may be, or (B) the date after the
Required Filing Date or the Required Effective Date on which the
Registration Statement is filed (with respect to payments due as
contemplated by Section 2(b)(i) hereof) or declared effective (with
respect to payments due as contemplated by Section 2(b)(ii) hereof), as
the case may be, and (ii) each date which is the earlier of (A) thirty
(30) days after the previous Computation Date or (B) the date after the
previous Computation Date on which the Registration Statement is filed
(with respect to payments due as contemplated by Section 2(b)(i) hereof)
or declared effective (with respect to payments due as contemplated by
Section 2(b)(ii) hereof), as the case may be.
3. Obligations of the Company. In connection with the
registration of the Registrable Securities, the Company shall do each of
the following:
(a) Prepare promptly, and file with the SEC by the Required
Filing Date, a Registration Statement with respect to not less than the
number of Registrable Securities provided in Section 2(a) above, and
thereafter use its reasonable best efforts to cause such Registration
Statement relating to Registrable Securities to become effective by the
Required Effective Date and keep the Registration Statement effective at
all times until the earliest (the "Registration Period") of (i) the date
that is two (2) years after the Initial Closing Date, (ii) the date when
the Investors may sell all Registrable Securities under Rule 144 or (iii)
the date the Investors no longer own any of the Registrable Securities,
which Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading;
<PAGE> 5
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement
and the prospectus used in connection with the Registration Statement as
may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during the Registration Period,
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities of the Company covered by the
Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in the
Registration Statement;
(c) The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration Statement
and all amendments and supplements thereto a reasonable period of time
(but not less than three (3) business days) prior to their filing with the
SEC, and not file any document in a form to which such counsel reasonably
objects.
(d) Furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel identified to
the Company, (i) promptly after the same is prepared and publicly
distributed, filed with the SEC, or received by the Company, one (1) copy
of the Registration Statement, each preliminary prospectus and prospectus,
and each amendment or supplement thereto, and (ii) such number of copies
of a prospectus, and all amendments and supplements thereto and such other
documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(e) As promptly as practicable after becoming aware thereof,
notify each Investor of the happening of any event of which the Company
has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement or other appropriate filing with the SEC to correct such untrue
statement or omission, and deliver a number of copies of such supplement
or amendment to each Investor as such Investor may reasonably request;
(f) As promptly as practicable after becoming aware thereof,
notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of a Notice of Effectiveness or any notice of
effectiveness or any stop order or other suspension of the effectiveness
of the Registration Statement at the earliest possible time;
<PAGE> 6
(g) Notwithstanding the foregoing, if at any time or from
time to time after the date of effectiveness of the Registration
Statement, the Company notifies the Investors in writing of the existence
of a Potential Material Event, the Investors shall not offer or sell any
Registrable Securities, or engage in any other transaction involving or
relating to the Registrable Securities, from the time of the giving of
notice with respect to a Potential Material Event until such Investor
receives written notice from the Company that such Potential Material
Event either has been disclosed to the public or no longer constitutes a
Potential Material Event; provided, however, that the Company may not so
suspend the right to such holders of Registrable Securities for more than
two twenty (20) day periods in the aggregate during any 12-month period
("Suspension Period") with at least a ten (10) business day interval
between such periods, during the periods the Registration Statement is
required to be in effect;
(h) Use its reasonable efforts to secure and maintain
designation of all the Registrable Securities covered by the Registration
Statement on the "Small Capitalization Market" of the National Association
of Securities Dealers Automated Quotations System ("NASDAQ") within the
meaning of Rule 11Aa2-1 of the SEC under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the quotation of the
Registrable Securities on The NASDAQ SmallCap Market; or if, despite the
Company's reasonable efforts to satisfy the preceding clause, the Company
is unsuccessful in doing so, to secure NASDAQ/OTC Bulletin Board
authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two
market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities;
(i) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective
date of the Registration Statement;
(j) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery
of certificates for the Registrable Securities to be offered pursuant to
the Registration Statement and enable such certificates for the
Registrable Securities to be in such denominations or amounts as the case
may be, as the Investors may reasonably request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and
shall cause legal counsel selected by the Company to deliver, to the
transfer agent for the Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel; and
(k) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. Obligations of the Investors. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
<PAGE> 7
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with
respect to the Registrable Securities of a particular Investor that such
Investor shall furnish to the Company such information regarding itself,
the Registrable Securities held by it, and the intended method of
disposition of the Registrable Securities held by it, as shall be
reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least ten (10)
days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the
Company requires from each such Investor (the "Requested Information") if
such Investor elects to have any of such Investor's Registrable Securities
included in the Registration Statement. If at least five (5) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor;
(b) Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of
the Registration Statement hereunder, unless such Investor has notified
the Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in
Section 3(e) or 3(f), above, such Investor will immediately discontinue
disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until such Investor's
receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(e) or 3(f) and, if so directed by the Company,
such Investor shall deliver to the Company (at the expense of the Company)
or destroy (and deliver to the Company a certificate of destruction) all
copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
(d) Each Investor agrees to comply with the provisions of
Section 3(g) above.
5. Expenses of Registration. All reasonable expenses
(other than underwriting discounts and commissions of the Investor)
incurred in connection with registrations, filings or qualifications
pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printers and accounting
fees, the fees and disbursements of counsel for the Company and a fee for
a single counsel for the Investor not exceeding $3,500, shall be borne by
the Company.
6. Indemnification. In the event any Registrable
Securities are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Investor who holds such Registrable
Securities, the directors, if any, of such Investor, the officers, if any,
of such Investor, each person, if any, who controls any Investor within
the meaning of the Securities Act or the Exchange Act (each, an
"Indemnified Person" or "Indemnified Party"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations in the Registration Statement, or any post-
effective amendment thereof, or any prospectus included therein: (i) any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any post-effective amendment thereof or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein
any material fact necessary to make the statements made therein, in light
of the circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state securities law or any rule
or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). Subject to clause (b) of this Section
6, the Company shall reimburse the Investors, promptly as such expenses
are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary
<PAGE> 8
contained herein, the indemnification agreement contained in this Section
6(a) shall not (I) apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Indemnified
Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement
thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (II) be available to the extent such
Claim is based on a failure of the Investor to deliver or cause to be
delivered the prospectus or the amendment or supplement thereto made
available by the Company; (III) be available to the extent such Claim is
based on the delivery of a prospectus by the Investor after receiving
notice from the Company under Section 3(e), (f) or (g) hereof (other than
a notice regarding the effectiveness of the Registration Statement or any
amendment or supplement thereto), or (IV) apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Each Investor will indemnify the Company and its officers,
directors and agents (each, an "Indemnified Person" or "Indemnified
Party") against any claims arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in
writing to the Company, by or on behalf of such Investor, expressly for
use in connection with the preparation of the Registration Statement or
any amendment or supplement thereto, subject to such limitations and
conditions as are applicable to the Indemnification provided by the
Company to this Section 6. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of
any action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made
against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be. In
case any such action is brought against any Indemnified Person or
Indemnified Party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the
indemnifying party to such Indemnified Person or Indemnified Party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such Indemnified Person or Indemnified Party under this
<PAGE> 9
Section 6 for any legal or other reasonable out-of-pocket expenses
subsequently incurred by such Indemnified Person or Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action
of its final conclusion. The Indemnified Person or Indemnified Party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and reasonable out-of-
pocket expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the Indemnified Person
or Indemnified Party. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to
the Indemnified Person or Indemnified Party under this Section 6, except
to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall
be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability
is incurred and is due and payable.
7. Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for
which it would otherwise be liable under Section 6 to the fullest extent
permitted by law; provided, however, that (a) no contribution shall be
made under circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6; (b) no
seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any seller of Registrable Securities who was
not guilty of such fraudulent misrepresentation; and (c) except where the
seller has committed fraud (other than a fraud by reason of the
information included or omitted from the Registration Statement as to
which the Company has not given notice as contemplated under Section 3
hereof) or intentional misconduct, contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable
Securities.
<PAGE> 10
8. Reports under Exchange Act. With a view to making
available to the Investors the benefits of Rule 144 promulgated under the
Securities Act or any other similar rule or regulation of the SEC that may
at any time permit the Investors to sell securities of the Company to the
public without registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of Rule
144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company and (iii) such other information as
may be reasonably requested to permit the Investors to sell such
securities pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to
have the Company register Registrable Securities pursuant to this
Agreement shall be automatically assigned by the Investors to any
transferee of the Registrable Securities (or all or any portion of any
Debenture of the Company which is convertible into such securities) only
if: (a) the Investor agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (b) the Company
is, within a reasonable time after such transfer or assignment, furnished
with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration
rights are being transferred or assigned, (c) immediately following such
transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and
applicable state securities laws, (d) at or before the time the Company
received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound
by all of the provisions contained herein, and (e) the transferee, at the
time of the transfer, held not less than either (i) $100,000 in principal
amount of the Debentures or such number of Registrable Securities issued
on conversion of such amount of Debentures or any combination thereof or
(ii) Warrants to purchase 2,750 Warrant Shares or such number of Warrant
Shares or any combination thereof. . In the event of any delay in filing
or effectiveness of the Registration Statement as a result of such
assignment, the Company shall not be liable for any damages or the
payments set forth in Section 2(b)(ii) hereof arising from such delay.
10. Amendment of Registration Rights. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors
who hold an eighty (80%) percent interest of the Registrable Securities.
Any amendment or waiver effected in accordance with this Section 10 shall
be binding upon each Investor and the Company.
<PAGE> 11
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to
the same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of
such Registrable Securities and shall be indemnified and held harmless by
such registered owner for doing so.
(b) Notices required or permitted to be given hereunder
shall be in writing and shall be deemed to be sufficiently given when
personally delivered (by hand, by courier, by telephone line facsimile
transmission, receipt confirmed, or other means) or sent by certified
mail, return receipt requested, properly addressed and with proper postage
pre-paid (i) if to the Company, AMERICAN CHAMPION ENTERTAINMENT, INC.,
26203 Production Avenue, Suite 5, Hayward, CA 94545, Attn: Anthony K.
Chan, President, Telecopier No.: (510) 782-8123; with a copy to Preston
Gates & Ellis LLP, One Maritime Plaza, Suite 2400, San Francisco, CA
94111, Attn: Lawrence B. Low, Esq., Telecopier No.: (415) 788-8819; (ii)
if to the Initial Investor, at the address set forth under its name in the
Securities Purchase Agreement, with a copy to Samuel Krieger, Esq.,
Krieger & Prager, 319 Fifth Avenue, Third Floor, New York, NY 10016,
Telecopier No.: (212) 213-2077; and (iii) if to any other Investor, at
such address as such Investor shall have provided in writing to the
Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 11(b), and shall be effective, when
personally delivered, upon receipt and, when so sent by registered or
certified mail, four (4) calendar days after deposit with the United
States Postal Service.
(c) 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.
(d) 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 coveniens,
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 this Agreement.
(e) 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.
<PAGE> 12
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may
require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
thereof.
(i) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement. This Agreement, once
executed by a party, may be delivered to the other party hereto by
telephone line facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.
(j) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees
that, in addition to any other liability the Company may have by reason of
such failure or delay, the Company shall be liable for all direct damages
caused by any such failure or delay, unless the same is the result of
force majeure. Neither party shall be liable for consequential damages.
(k) This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof. There are
no restrictions, promises, warranties or undertakings, other than those
set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as
of the day and year first above written.
COMPANY:
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ Anthony K. Chan
Name: Anthony K. Chan
Title: President and Chief Executive Officer
INITIAL INVESTOR:
The Endeavor Capital Fund S.A
[Print Name]
By: /s/ Shmuli Margulis
Name: Shmuli Margulis
Title: Director
<PAGE> 14
A second "Registration Rights Agreement" was executed:
Initial Investor: AMRO International S.A.
<PAGE> 1
Exhibit 4.5
ANNEX VI
TO
SECURITIES PURCHASE AGREEMENT
<PROTOTYPE FOR EACH ISSUANCE>
FORM OF WARRANT
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER
SAID ACT, A "NO ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION
WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE
144 OF THE SECURITIES AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT
FROM SUCH REGISTRATION.
AMERICAN CHAMPION ENTERTAINMENT, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions.
In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by AMERICAN CHAMPION
ENTERTAINMENT, INC. a Delaware corporation (the "Company"), The
Endeavour Capital Fund S.A. or registered assigns (the "Holder") is
hereby granted the right to purchase at any time until 5:00 P.M., New York
City time, on July 1, 2003 (the "Expiration Date"), Thirteen Thousand
Seven Hundred Fifty ( 13,750 )(1) fully paid and nonassessable shares of the
Company's Common Stock, par value $.001 per share (the "Common Stock")
at an initial exercise price per share (the "Exercise Price") of $ 7.56125 (2)
, subject to further adjustment as set forth herein.
(1) Two Thousand seven hundred fifty (2,750) for every $100,000 principal of
Debentures purchased.
(2) Price to be filled in equal to 115% of average closing bid price of Common
Stock for 5 trading days ending on date before Initial Closing Date.
2. Exercise of Warrants. This Warrant is exercisable in
whole or in part at any time and from time to time at the Exercise Price
per share of Common Stock payable hereunder, payable in cash or by
certified or official bank check. Upon surrender of this Warrant
Certificate with the annexed Notice of Exercise Form duly executed (which
Notice of Exercise Form may be submitted either by delivery to the Company
or by facsimile transmission as provided in Section 8 hereof), together
with payment of the Exercise Price for the shares of Common Stock
purchased, the Holder shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased.
<PAGE> 2
3. Reservation of Shares. The Company hereby agrees that
at all times during the term of this Warrant there shall be reserved for
issuance upon exercise of this Warrant such number of shares of its Common
Stock as shall be required for issuance upon exercise of this Warrant (the
"Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or
destruction) receipt of reasonably satisfactory indemnification, and (in
the case of mutilation) upon surrender and cancellation of this Warrant,
the Company will execute and deliver a new Warrant of like tenor and date
and any such lost, stolen, destroyed or mutilated Warrant shall thereupon
become void.
5. Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either
at law or equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against the Company
except to the extent set forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6, the Holder shall be
entitled to purchase such number of additional shares of Common Stock as
will cause (i) the total number of shares of Common Stock Holder is
entitled to purchase pursuant to this Warrant, multiplied by (ii) the
adjusted Exercise Price per share, to equal (iii) the dollar amount of the
total number of shares of Common Stock Holder is entitled to purchase
before adjustment multiplied by the total Exercise Price before
adjustment.
6.2 Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend, reclassification of the Common
Stock, recapitalization, merger or consolidation, or like capital
adjustment affecting the Common Stock of the Company, the provisions of
this Section 6 shall be applied as if such capital adjustment event had
occurred immediately prior to the date of this Warrant and the original
Exercise Price had been fairly allocated to the stock resulting from such
capital adjustment; and in other respects the provisions of this Section
shall be applied in a fair, equitable and reasonable manner so as to give
effect, as nearly as may be, to the purposes hereof. A rights offering to
stockholders shall be deemed a stock dividend to the extent of the bargain
purchase element of the rights.
<PAGE> 3
6.3 Adjustment for Spin Off. If, for any reason,
prior to the exercise of this Warrant in full, the Company spins off or
otherwise divests itself of a part of its business or operations or
disposes all or of a part of its assets in a transaction (the "Spin Off")
in which the Company does not receive compensation for such business,
operations or assets, but causes securities of another entity (the "Spin
Off Securities") to be issued to security holders of the Company, then
(a) the Company shall cause (i) to be reserved Spin Off
Securities equal to the number thereof which would have been issued
to the Holder had all of the Holder's unexercised Warrants
outstanding on the record date (the "Record Date") for determining
the amount and number of Spin Off Securities to be issued to
security holders of the Company (the "Outstanding Warrants") been
exercised as of the close of business on the trading day immediately
before the Record Date (the "Reserved Spin Off Shares"), and (ii)
to be issued to the Holder on the exercise of all or any of the
Outstanding Warrants, such amount of the Reserved Spin Off Shares
equal to (x) the Reserved Spin Off Shares multiplied by (y) a
fraction, of which (I) the numerator is the amount of the
Outstanding Warrants then being exercised, and (II) the denominator
is the amount of the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be
adjusted immediately after consummation of the Spin Off by
multiplying the Exercise Price by a fraction (if, but only if, such
fraction is less than 1.0), the numerator of which is the Average
Market Price of the Common Stock (as defined below) for the five (5)
trading days immediately following the fifth trading day after the
Record Date, and the denominator of which is the Average Market
Price of the Common Stock on the five (5) trading days immediately
preceding the Record Date; and such adjusted Exercise Price shall be
deemed to be the Exercise Price with respect to the Outstanding
Warrants after the Record Date. As used herein, the term "Average
Market Price of the Common Stock" means the average closing bid
price of a share of Common Stock, as reported by Bloomberg, LP or,
if not so reported, as reported on the over-the-counter market for
the relevant period.
7. Transfer to Comply with the Securities Act; Registration
Rights.
(a) This Warrant has not been registered under the Securities
Act of 1933, as amended, (the "Act") and has been issued to the Holder for
investment and not with a view to the distribution of either the Warrant
or the Warrant Shares. Neither this Warrant nor any of the Warrant Shares
or any other security issued or issuable upon exercise of this Warrant may
be sold, transferred, pledged or hypothecated in the absence of an
effective registration statement under the Act relating to such security
or an opinion of counsel satisfactory to the Company that registration is
not required under the Act. Each certificate for the Warrant, the Warrant
Shares and any other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form and substance
satisfactory to counsel for the Company, setting forth the restrictions on
transfer contained in this Section.
(b) Reference is made to the Registration Rights Agreement of
even date herewith, to which the Company and the Holder (or Holder's
direct or indirect assignor, if any) are parties (the "Registration Rights
Agreement"). The Warrant Shares are Registrable Securities, as that term
is used in the Registration Rights Agreement. Subject to the provisions
of the Registration Rights Agreement, the Company agrees to file an
amendment, which shall include the Warrant Shares, to its registration
statement on Form S-3 (as so amended, the "Registration Statement"),
pursuant to the Act, by August 1, 1998 and to have the registration of the
Warrant Shares completed and effective by the 120th calendar day after the
date this Warrant was issued (the "Effective Date").
<PAGE> 4
8. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be
deemed given when so delivered personally, telegraphed, telexed or sent by
facsimile transmission, or, if mailed, two days after the date of deposit
in the United States mails, as follows:
(i) if to the Company, to:
AMERICAN CHAMPION ENTERTAINMENT, INC.
1694 The Alameda, Suite 100
San Jose, CA 95126-2219
Attn: Anthony K. Chan, President
Telephone No.: (408) 228-8199
Telecopier No.: (408) 228-8098
with a copy to:
Preston Gates & Ellis LLP
One Maritime Plaza, Suite 2400
San Francisco, CA 94111
Attn: Lawrence B. Low, Esq.
Telephone No.: (415) 788-8822
Telecopier No.: (415) 788-8819
(ii) if to the Holder, to:
THE ENDEAVOUR CAPITAL FUND S.A.
14/14 Divrei Chaim St.
Jerusalem 94479 Israel
ATTN: Shmuli Margulies
Telephone No.: (011 972 2) 582-4442
Telecopier No.: (011 972 2) 582-4443
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telephone No.: (212) 689-3322
Telecopier No. (212) 213-2077
<PAGE> 5
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices
hereunder.
9. Supplements and Amendments; Whole Agreement. This
Warrant may be amended or supplemented only by an instrument in writing
signed by the parties hereto. This Warrant contains the full
understanding of the parties hereto with respect to the subject matter
hereof and thereof and there are no representations, warranties,
agreements or understandings other than expressly contained herein and
therein.
10. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes
shall be governed by and construed in accordance with the laws of such
State applicable to contracts to be made and performed entirely within
such State.
11. Counterparts. This Warrant may be executed in any
number of counterparts and each of such counterparts shall for all
purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
12. Descriptive Headings. Descriptive headings of the
several Sections of this Warrant are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as
of the 2nd day of July 1998.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ Anthony K. Chan
Name: Anthony K. Chan
Its: President and Chief Executive Officer
Attest:
/s/ George Chung
Name: George Chung
Title: Chairman of the Board
<PAGE> 6
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of
, 1998, to purchase shares of the Common Stock, par value
$.001 per share, of AMERICAN CHAMPION ENTERTAINMENT, INC. and tenders
herewith payment in accordance with Section 1 of said Common Stock
Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
By:__________________________________
___ CASH: $ _______________________
<PAGE> 7
Two additional "Common Stock Purchase Warrants" have been executed:
For Number Exercise
Granted To: of shares Price Expiration
AMRO International S.A. 13,750 $7.56125 July 1, 2003
JW Charles Securities 75,000 $7.56125 July 1, 2001
(REFERRED TO AS "JW WARRANTS")
<PAGE> 1
Exhibit 4.6
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made by and between
America's Best Karate, a California corporation (the "Company"), and the
person whose name appears on the signature page attached hereto
(individually, a "Holder" and collectively, with other shareholders, the
"Holders") who purchased shares of Common Stock of the Company in a
private sale of 10,854 shares of Common Stock, no par value per share,
at a price of $22.50 per share (the "Shares").
WHEREAS, pursuant to the terms of and in order to induce the
Holders to enter into a certain subscription agreement dated the date
hereof between the Company and the Holders (the "Subscription
Agreement") to purchase the Shares, the Company and the Holders have
agreed to enter into this Agreement; and
WHEREAS, it is intended by the Company and the Holders that
this Agreement shall become effective immediately upon the acquisition
by the Holders of the Shares;
NOW, THEREFORE, in consideration of the promises and the
mutual covenants contained herein, the Company hereby agrees as follows:
1. Piggyback Registration. If the Company proposes to
register any of its securities under the Securities Act of 1933, as
amended (the "1933 Act") (other than in connection with its initial
public offering ("IPO"), a merger or pursuant to Form S-8 or other
comparable form), the Company shall include the Shares, (referred to as
the "Registrable Securities") in such registration statement. The
Company shall at such time give prompt written notice to all Holders of
its intention to file such registration statement and of such Holders'
rights under such proposed registration, and upon the request of any
Holder delivered to the Company within fifteen (15) days after giving of
such notice (which request shall specify the Registrable Securities
intended to be disposed of by such Holder and the intended method of
disposition thereof), the Company shall include such Registrable
Securities held by each such Holder requested to be included in such
registration; provided, however, that if at any time after giving such
written notice of the Company's intention to register any of the
Holder's Registrable Securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay the
registration of such Registrable Securities, the Company may give
written notice of such determination to each Holder and thereupon shall
be relieved of its obligation to register any Registrable Securities
issued or issuable in connection with such registration (but not from
its obligation to pay registration expenses in connection therewith or
to register the Registrable Securities in a subsequent registration);
and in the case of a determination to delay a registration shall
thereupon be permitted to delay registering any Registrable Securities
for the same period as the delay in respect of securities being
registered for the Company's own account.
<PAGE> 2
2. Obligation to Include Registrable Securities in
Offering. Notwithstanding anything contained in Section 1 of this
Agreement, the Company shall not be required to include any of the
Holders' Registrable Securities in an underwritten offering of the
Company's securities unless such Holders accept the terms of the
underwriting as agreed upon between the Company and the underwriters
selected by it (provided such terms are usual and customary for selling
stockholders) and the Holders agree to execute and/or deliver such
documents in connection with such registration as the Company or the
managing underwriter may reasonably request.
3. Mandatory Registration. In the event the Holders have
not sold all of their Registrable Securities in connection with a
registration statement pursuant to Sections 1 and 2 hereof the Company
shall, upon the demand of the Holders of at least a majority of the
Registrable Securities (which demand may be made at any time after the
Effective Date of the Company's initial registration statement), file a
registration statement covering the sale of all remaining Registrable
Securities as soon as practicable no later than 45 days after such
demand. The Company is hereby required to exercise its best efforts to
cause such registration statement to become effective.
4. Cooperation with Company. Holders will cooperate with
the Company in all respects in connection with this Agreement,
including, timely supplying all information reasonably requested by the
Company and executing and returning all documents reasonably requested
in connection with the registration and sale of the Registrable
Securities.
5. Registration Procedures. If and whenever the Company
is required by any of the provisions of this Agreement to use its best
efforts to effect the registration of or file a registration statement
covering any of the Registrable Securities under the 1933 Act, the
Company shall (except as otherwise provided in this Agreement), as
expeditiously as possible:
a. prepare and file with the Securities and
Exchange Commission (the "Commission") a registration statement and
shall use its best efforts to cause such registration statement to
become effective and remain effective until all the Registrable
Securities are sold or become capable of being publicly sold without
registration under the 1933 Act.
b. prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of
the 1933 Act with respect to the sale or other disposition of all
securities covered by such registration statement whenever the Holder or
Holders of such securities shall desire to sell or otherwise dispose of
the same (including prospectus supplements with respect to the sales of
securities from time to time in connection with a registration statement
pursuant to Rule 415 of the Commission);
c. furnish to each Holder such numbers of copies
of a summary prospectus or other prospectus, including a preliminary
prospectus or any amendment or supplement to any prospectus, in
conformity with the requirements of the 1933 Act, and such other
documents, as such Holder may reasonably request in order to facilitate
the public sale or other disposition of the securities owned by such
Holder;
<PAGE> 3
d. use its best efforts to register and quality
the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each Holder shall
reasonably request, and do any and all other acts and things which may
be necessary or advisable to enable such Holder to consummate the public
sale or other disposition in such jurisdiction of the securities owned
by such Holder, except that the Company shall not for any such purpose
be required to quality to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any
general consent to service of process;
e. use its best efforts to list such securities on
any securities exchange on which any securities of the Company are then
listed, if the listing of such securities is then permitted under the
rules of such exchange;
f. enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in
usual and customary form, with the managing underwriter or underwriters
of such underwritten offering;
g. notify each Holder of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto covered by such registration statement is required to
be delivered under the 1933 Act, of the happening of any event of which
it has knowledge as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
h. furnish, at the request of any Holder on the
date such Registrable Securities are delivered to the underwriters for
sale pursuant to such registration or, if such Registrable Securities
are not being sold through underwriters, on the date the registration
statement with respect to such Registrable Securities becomes effective,
(i) an opinion, dated such date, of the counsel representing the Company
for the purpose of such registration, addressed to the underwriters, if
any, covering such legal matters with respect to the registration in
respect of which such opinion is being given as the underwriter of such
Registrable Securities may reasonably request and are customarily
included in such an opinion and (ii) letters, dated, respectively, (1)
the effective date of the registration statement and (2) the date such
Registrable Securities are delivered to the underwriters, if any, for
sale pursuant to such registration from a firm of independent certified
public accountants of recognized standing selected by the Company,
addressed to the underwriters, if any, covering such financial,
statistical and accounting matters with respect to the registration in
respect of which such letters are being given as the underwriter of such
Registrable Securities may reasonably request and are customarily
included in such letters; and
<PAGE> 4
i. take such other actions as shall be reasonably
requested by any Holder to facilitate the registration and sale of the
Registrable Securities.
6. Restrictions on Transfer of Registrable Securities.
The Holder agrees that he will not sell or transfer any of the
Registrable Securities for a period of two years from the Effective Date
of any registration statement in which such Registrable Securities are
included without the prior written consent of Dalton Kent Securities
Group, Inc.
7. Expenses. All expenses incurred in any registration
of the Holders' Registrable Securities under this Agreement shall be
paid by the Company if such registration is pursuant to Section 1 of
this Agreement and by the Holders if such registration is pursuant 3 of
this Agreement, including, without limitation, printing expenses, fees
and disbursements of counsel for the Company, expenses of any audits to
which the Company shall agree or which shall be necessary to comply with
governmental requirements in connection with any such registration, all
registration and filing fees for the Holders' Registrable Securities
under federal and State securities laws, and expenses of complying with
the securities or blue sky laws of any jurisdictions pursuant to Section
2(h)(i); provided, however, that in no event shall the Company be liable
for (a) any discounts or commissions to any underwriter; (b) any stock
transfer taxes incurred with respect to Registrable Securities sold in
the Offering or (c) the fees and expenses of counsel for any Holder.
8. Indemnification. In the event any Registrable
Securities are included in a registration statement pursuant to this
Agreement:
a. Company Indemnity. Without limitation of any
other indemnity provided to any Holder, either in connection with the
Offering or otherwise, to the extent permitted by law, the Company shall
indemnity and hold harmless each Holder, the affiliates, officers,
directors and partners of each Holder, any underwriter (as defined in
the 1933 Act) for such Holder, and each person, if any, who controls
such Holder or underwriter (within the meaning of the 1933 Act or the
Securities Exchange Act of 1934 (the "Exchange Act"), against any
losses, claims, damages or liabilities ()joint or several) to which they
may become subject under the 1933 Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the 1933 Act, the
Exchange Act, or any state securities law or any rule or regulation
promulgated under the 1933 Act, the Exchange Act or any state securities
law, and the Company shall reimburse each such Holder, affiliate,
officer or director or partner, underwriter or controlling person for
any legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable to any
Holder in any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with information
furnished expressly for use in connection with such registration by any
such Holder or any other officer, director or controlling person
thereof.
<PAGE> 5
b. Holder Indemnity. Each Holder shall indemnity
and hold harmless the Company, its affiliates, and their counsel,
officers, directors, shareholders and representatives, any underwriter
(as defined in the 1933 Act) and each person, if any, who controls the
Company or the underwriter (within the meaning of the 1933 Act or
liabilities joint or several) to which they may become subject under the
1933 Act, the Exchange Act or any state securities law, and the Holder
shall reimburse the Company, affiliate, counsel, officer or director or
partner, underwriter or controlling person for any legal or other
expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any statements or information provided by
such Holder to the Company in connection with the offer or sale of
Registrable Securities.
c. Notice: Right to Defend. Promptly after receipt
by an indemnified party under this Section 8 of notice of the
commencement of any action (including any governmental action), such
indemnified party shall, if a claim in respect thereof is to be made
against any indemnifying party under this Section 8 deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in and to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. It is understood that
the Company shall not in respect of the legal expenses of any
Indemnified Party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm (in addition to any local
counsel) for all such Indemnified Parties, and that all such fees and
expenses shall be reimbursed as they are incurred. The failure to
deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall relieve such
indemnifying party of any liability to the indemnified party under this
Agreement only if and to the extent that such failure is prejudicial to
its ability to defend such action, and the omission so to deliver
written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under
this Agreement.
d. Contribution. If the indemnification provided
for in this Agreement is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, liability,
claim, damage or expense referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the
other hand in connection with the statements or omissions which resulted
in such loss, liability, claim, damage or expense as well as any other
relevant equitable considerations. The relevant fault of the
indemnifying party and the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. Notwithstanding the foregoing, the amount any Holder shall be
obligated to contribute pursuant to the Agreement shall be limited to an
amount equal to the proceeds to such Holder of the Registrable
Securities sold pursuant to the registration statement which gives rise
to such obligation to contribute (less the aggregate amount of any
damages which the Holder has otherwise been required to pay in respect
of such loss, claim, damage, liability or action or any substantially
similar loss, claim, damage, liability or action arising from the sale
of such Registrable Securities).
<PAGE> 6
e. Survival of Indemnitv. The indemnification
provided by this Agreement shall be a continuing right to
indemnification and shall survive the registration and sale of any
Registrable Securities by any person entitled to indemnification
hereunder and the expiration or termination of this Agreement.
9. Limitation on Other Registration Rights. Except as
otherwise set forth in this Agreement, the Company shall not, without
the prior written consent of the Holders of Registrable Securities
representing a majority thereof held by all the Holders, file any
registration statement filed on be half of any person (including the
Company) other than a Holder to become effective during any period when
the Company is not in compliance with this agreement.
10. Remedies.
a. Time is of Essence. The Company agrees that
time is of the essence of each of the covenants contained herein and
that, in the event of a dispute hereunder, this Agreement is to be
interpreted and construed in a manner that will enable the Holders to
sell their Registrable Securities as quickly as possible after such
Holders have indicated to the Company that they desire their Registrable
Securities to be registered. Any delay on the part of the Company not
expressly permitted under this Agreement, whether material or not, shall
be deemed a material breach of this Agreement.
b. Remedies Upon Default or Delay. The Company
acknowledges the breach of any part of this Agreement may cause
irreparable harm to a Holder and that monetary damages alone may be
inadequate. The Company therefore agrees that the Holder shall be
entitled to injunctive relief or such other applicable remedy as a court
of competent jurisdiction may provide. Nothing contained herein will be
construed to limit a Holder's right to any remedies at law, including
recovery of damages for breach of any part of this Agreement.
<PAGE> 7
11. Notices.
a. All communications under this Agreement shall
be in writing and shall be mailed by first class mail, postage prepaid,
or telegraphed or telexed with confirmation of receipt or delivered by
hand or by overnight delivery service,
b. If to the Company, at:
CIO America's Best Karate
26203 Production Avenue, Suite 5
Hayward, California 94545
Attention: Anthony Chan, Chief Executive
Officer
or at such other address as it may have furnished in
writing to the Holders of Registrable Securities at the time
outstanding, or
c. if to any Holder of any Registrable Securities,
to the address of such Holder as it appears in the stock or warrant
ledger of the Company.
d. Any notice so addressed, when mailed by
registered or certified mail shall be deemed to be given three days
after so mailed, when telegraphed or telexed shall be deemed to be given
when transmitted, or when delivered by hand or overnight shall be deemed
to be given when delivered.
12. Successors and Assigns. Except as otherwise expressly
provided herein, this Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of the Company and
each of the Holders.
13. Amendment and Waiver. This Agreement may be amended,
and the observance of any term of this Agreement may be waived, but only
with the written consent of the Company and the Holders of securities
representing a majority of the Registrable Securities; provided,
however, that no such amendment or waiver shall take away any
registration right of any Holder of Registrable Securities or reduce the
amount of reimbursable costs to any Holder of Registrable Securities in
connection with any registration hereunder without the consent of such
Holder; further provided, however, that without the consent of any other
Holder of Registrable Securities, any Holder may from time to time enter
into one or more agreements amending, modifying or waiving the
provisions of this Agreement if such action does not adversely affect
the rights or interest of any other Holder of Registrable Securities. No
delay on the part of any party in the exercise of any right, power or
remedy shall operate as a waiver thereof, nor shall any single or
partial exercise by any party of any right, power or remedy preclude any
other or further exercise thereof, or the exercise of any other right,
power or remedy.
<PAGE> 8
14. Counterparts. One or more counterparts of this
Agreement may be signed by the parties, each of which shall be an
original but all of which together shall constitute one and same
instrument.
15. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of New
York, without giving effect to conflicts of law principles.
16. Invalidity of Provisions. If any provision of this
Agreement is or becomes invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby.
17. Headings. The headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect
the meaning or interpretation of any provisions hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Agreement as
of the ____ day of___________,199__
America's Best Karate
By:_________________ __________________
Anthony Chan Print Name of Holder
Chief Executive Officer
__________________
Signature of Holder
<PAGE> 9
The following persons, and their respective number of shares of common
stock, have been granted registration rights per Registration Rights
Agreement herewith, executed within the month of March 1997.
Name Shares
David Braver 4,000
Sarine Chaki 20,000
Susan Cohen 5,000
William Edwin Gay, Jr. 6,000
Scott Gerard 60,000
Albert Levine 31,000
Keith E. Loiselle 19,000
Peter Marsh 60,000
Rory Nichols 25,000
Brian Schuster 25,000
_______
255,000
<PAGE> 1
Exhibit 4.7
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT, dated October 30, 1998 (the "Agreement"), by and
among THE ENDEAVOUR CAPITAL FUND S.A. ("Endeavour" or an "Initial Subscriber")
and AMRO INTERNATIONAL S.A. ("Amro" or an "Initial Subscriber"), on the one
hand, and ADVANTAGE (BERMUDA) FUND, LTD., a Bermuda corporation ("Bermuda" or
an "Assignee"), and CANADIAN ADVANTAGE L.P., an Ontario limited partnership
("Canadian" or an "Assignee"), on the other hand.
W I T N E S S E T H:
WHEREAS, American Champion Entertainment, Inc. (the "Company") and the Initial
Subscribers are parties to that certain Securities Purchase Agreement, dated
as of July 2, 1998 (the "Securities Purchase Agreement"; all capitalized terms
not otherwise defined herein shall have the meanings ascribed to them in the
Securities Purchase Agreement); providing, among other things, for the sale
and purchase of the Additional Debentures in the aggregate principal amount of
$800,000, on the terms and conditions therein stated; and
WHEREAS, pursuant to the terms of that certain First Additional Tranche
Agreement, dated September 23, 1998 (the "First Additional Agreement"),
between the Company and Amro, Amro has purchased $250,000 of the First
Additional Tranche, so that there remains a balance of $550,000 of Additional
Debentures to be sold and purchased pursuant to the terms of the Securities
Purchase Agreement (the "Remaining Additional Debentures"); and
WHEREAS, each of the Initial Subscribers is willing to assign to the
Assignees, in the aggregate, such Initial Subscriber's rights to purchase the
Remaining Additional Debentures, to the extent applicable to such Initial
Subscriber, and each of the Assignees is willing to assume a portion of the
Initial Subscribers' obligations with respect to the Remaining Additional
Debentures, all on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of this Agreement and intended to
be legally bound hereby, the parties hereto agree as follows:
1. Assignment. (i) Each of the Initial Subscribers hereby
assigns to the Assignees (allocated among them as provided below) such
Initial Subscriber's rights to acquire the Remaining Additional Debentures
as indicated below. In connection therewith, each Initial Subscriber
assigns to each Assignee such Initial Subscriber's rights under the
Securities Purchase Agreement to the extent relevant to the Remaining
Additional Debentures, but not otherwise.
(ii) Endeavour is assigning its rights to purchase Additional Debentures in
the aggregate principal amount of $400,000, including $250,000 of Additional
Debentures in the First Additional Tranche and $150,000 of Additional
Debentures in the Second Additional Tranche. Amro is assigning its rights to
purchase $150,000 of Additional Debentures in the Second Additional Tranche.
<PAGE> 2
(iii) In consideration of the aforesaid assignments by the Initial
Subscribers, (x) Bermuda is assuming the obligations to purchase $275,000 of
the Remaining Additional Debentures, and (y) PPartners is assuming the
obligations to purchase $275,000 of the Remaining Additional Debentures.
2. Each of the Assignees represents and warrants to and covenants and
agrees with the Initial Subscribers and the Company (which, upon its consent to
the transactions contemplated by this Agreement, as evidenced by its signature
at the foot of this Agreement, shall be a third party beneficiary of this
Agreement), each of the representations, warranties, covenants and agreements
set forth in Section 2 of the Securities Purchase Agreement, as if such
representation were set forth herein in full and as if it such Assignee were a
Buyer named therein. In addition, and not in lieu thereof, each Assignee
hereby further represents and warrants that such Assignee (x) has reviewed the
First Additional Agreement and such additional documents as have been filed by
the Company with the SEC since the Initial Closing Date, (y) is not relying on
any oral or written representations of either or both of the Initial
Subscribers in connection with the transactions contemplated by the Securities
Purchase Agreement or this Agreement and (y) will look solely to the Company
for the performance of the terms of the Securities Purchase Agreement.
3. (i) To induce the Initial Investors and the Assignees to enter into
this Assignment Agreement, the Company, by its execution in the space provided
at the foot of this Agreement,
(a) hereby notifies each of the Initial Investors and each of the Assignees,
that, as contemplated by the provisions of Section 4(E)(vi) of the Debentures
issued to the Initial Investors and to be issued to the Assignees, the
Conversion Rate will be permanently computed as if there were no Floor Price
(as those terms are defined in the Debentures) for all of such Debentures;
(b) hereby consents to the assignment of the rights of the Initial Subscribers
to the Assignees and the assumption by the Assignees of the obligations of the
Initial Subscribers with respect to the Remaining Additional Debentures;
(c) hereby agrees that (i) within two (2) business days after the closing of
the Remaining Additional Debentures, the Company will give its transfer agent
irrevocable written instructions that the transfer agent shall rely on the
opinion of counsel of a Holder (as defined in a Debenture) regarding the
issuance of shares of Common Stock without a restrictive legend of any kind to
such Holder upon conversion of all or a part of a Debenture, and (ii) the
Company will pay the legal fees for such opinion of counsel of Holder if, if
upon conversion of a Debenture by a Holder, the Company's transfer agent
requires an opinion regarding the issuance of shares of Common Stock without a
legend and the Company's counsel for any reason does not issue such an opinion
within five (5) business days after the relevant Delivery Date; provided,
however, that nothing in this subparagraph (c) shall limit or otherwise amend
the Company's obligations to a Holder on conversion as provided in any of the
Transaction Agreements; and
<PAGE> 3
(d) hereby agrees that it will cause its counsel to issue a letter indicating
that each of the Assignees may rely on the Authorization Opinion, dated
October 19, 1998, issued by such counsel to the Initial Subscribers, as if it
were addressed to such Assignee. (ii) In furtherance of the provisions of the
(ii) In furtherance of the provisions of the subparagraph (i)(b) of this
Section 3, and not in limitation thereof, the Company acknowledges and agrees
that (x) the Company will not look to either of the Initial Subscribers with
respect to any obligations to purchase the Remaining Additional Debentures; (y)
all terms of the Securities Purchase Agreement as may be relevant to the
Remaining Additional Debentures, including, but not necessarily limited to, the
provisions of Sections 5, 9, 10, 11 and 12 thereof, shall be enforceable by
each of the Assignees, to extent of the interests assigned to and assumed by
such Assignee, as if it were a Buyer named therein; and (z) for purposes of
Section 11 thereof, the address for notices to each Assignee shall be such
Assignee's address opposite its signature at the foot of this Agreement.
4. Except to the extent specifically contemplated herein, all rights and
other obligations of Endeavour and Amro with respect to the Company remain in
full force and effect. Nothing herein shall be deemed to limit or reduce the
Company's obligations to either or both of the Initial Subscribers with respect
to any of the Transaction Agreements or any existing Debenture or Warrant.
5. The provisions of Section 10 of the Securities Purchase Agreement are
incorporated herein by reference as if set forth herein in full.
[Balance of page intentionally left blank]
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
THE INITIAL SUBSCRIBERS:
THE ENDEAVOUR CAPITAL FUND S.A.
By: /s/ Shmuli Margulies
Name: Shmuli Margulies
Title: Director
AMRO INTERNATIONAL S.A.
By: /s/ H. U. Bachofen
Name: H. U. Bachofen
Title: Director
THE ASSIGNEES:
ADVANTAGE (BERMUDA) FUND, LTD.
c/o Thomson Kernaghan & Co.
365 Bay Street, 10th Floor
Toronto, Ontario M5H 2V2 By: /s/ Mark Valentine
Canada Name: Mark Valentine
Tel: (416) 860-6130 Title: General Partner
Fax: (416) 860-6140
CANADIAN ADVANTAGE L.P.
c/o Thomson Kernaghan & Co.
365 Bay Street, 10th Floor
Toronto, Ontario M5H 2V2 By: /s/ Mark Valentine
Canada Name: Mark Valentine
Tel: (416) 860-6130 Title: General Partner
Fax: (416) 860-6140
CONSENTED AND AGREED TO BY:
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ Anthony K. Chan
Name: Anthony K. Chan
Title: President & CEO
<PAGE> 1
EXHIBIT 23.2
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement No. 333-60511 of American Champion Entertainment, Inc. on Form
S-3, our report dated February 11, 1998, appearing in the Annual Report on Form
10-KSB of American Champion Entertainment, Inc. for the year ended December 31,
1997. We also consent to the reference to our firm under the caption "Experts"
in the Prospectus forming part of such Registration Statement.
/s/ Moss Adams LLP
Moss Adams LLP
San Francisco, California
November 24, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement of American Champion Entertainment, Inc. on Form S-3 of our report
dated February 5, 1997, on our audit of the balance sheet of American Champion
Entertainment, Inc. and of our report dated January 31, 1997, on our audits of
the financial statements of America's Best Karate, all appearing on form SB-2
related to the Company's initial public offering, which was declared effective
July 30, 1997. We also consent to the reference of our firm under the caption
"Experts" in the Prospectus forming part of such Registration Statement.
/s/ Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
November 24, 1998
