SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, For Use
of the Commission Only
(As Permitted by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AMERICAN CHAMPION ENTERTAINMENT, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
AMERICAN CHAMPION ENTERTAINMENT, INC.
1694 The Alameda, Suite 100, San Jose, CA 95126
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 1999
San Jose, California
March 24, 1999
The Annual Meeting of Stockholders of American Champion
Entertainment, Inc. (the "Company"), a Delaware corporation and holding
company for America's Best Karate, a California corporation, which wholly
owns American Champion Media, Inc., a Delaware corporation ("AC Media"),
will be held at the Fairmont Hotel, 170 South Market Street, San Jose,
California on Wednesday, May 5, 1999, at 7:00pm, for the following
purposes:
1. To elect eight directors to the Corporation's Board of
Directors, each to hold office until his successor is elected
and qualified or until his earlier resignation or removal
(Proposal No. 1); and
2. To approve the increase of the number of shares of the
Company's common stock, $.0001 par value per share (the "Common
Stock") issuable under the Company's 1997 Employee Stock Option
Plan to 4,800,000 (Proposal No. 2); and
3. To approve the increase of the number of shares of Common
Stock issuable under the Company's 1997 Non-Employee Stock Option
Plan to 550,000 (Proposal No. 3); and
4. To approve the Securities Purchase Agreement, dated January
19, 1999, and all transactions contemplated thereby, including the
issuance of an aggregate of $950,000 of convertible debentures,
issued in January 19, 1999 (Proposal No. 4); and
5. To approve the Placement Agent's Agreement between the Company and
JWGenesis Capital Markets, LLC and all transactions contemplated
thereby, including the issuance of a minimum of $700,000 and a
maximum of $4,500,000 of Units, each Unit consisting of 50 shares
of Series C Redeemable Convertible Preferred Stock, $.0001 par
value per share, 25,000 Class A Common Stock Purchase Warrants,
and 25,000 Class B Common Stock Warrants, at a price of $50,000
per Unit (Proposal No. 5); and
6. To amend the Company's Certificate of Incorporation to increase
the authorized amount of capital stock from 23,000,000 shares to
46,000,000 shares, of which 40,000,000 shall be Common Stock, and
6,000,000 shall be preferred stock (Proposal No. 6); and
7. To ratify the appointment of Moss Adams LLP as the Company's
independent certified public accountants for the 1999 fiscal year
(Proposal No. 7); and
8. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
The foregoing items of business, including the nominees for directors,
are more fully described in the Proxy Statement which is attached and made a
part of this Notice.
The Board of Directors has fixed the close of business on March 31, 1999
as the record date for determining the stockholders entitled to notice of and
to vote at the Annual Meeting and any adjournment or postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you expect to attend the Annual Meeting in
person, you are urged to mark, date, sign and return the enclosed proxy card
as promptly as possible in the postage-prepaid envelope provided to ensure
your representation and the presence of a quorum at the Annual Meeting. If you
send in your proxy card and then decide to attend the Annual Meeting to vote
your shares in person, you may still do so. Your proxy is revocable in
accordance with the procedures set forth in the Proxy Statement.
By Order of the Board of Directors,
/s/ ANTHONY K. CHAN, SECRETARY
Anthony K. Chan, Secretary
IMPORTANT
---------
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL
HAVE THE ADDED EXPENSE OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND
THE MEETING AND SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY
PROXY STATEMENT
OF
AMERICAN CHAMPION ENTERTAINMENT, INC.
1694 The Alameda
Suite 100
San Jose, CA 95126
GENERAL
This Proxy Statement is furnished in connection with the solicitation of the
enclosed proxy by, and on behalf of, the Board of Directors of American
Champion Entertainment, Inc. (the "Company"), a Delaware corporation and
holding company for America's Best Karate, a California corporation, which
wholly owns American Champion Media, Inc., a Delaware corporation ("AC
Media"), for use at the Annual Meeting of Stockholders of the Company to be
held at The Fairmont Hotel, 170 South Market Street, San Jose, California on
Wednesday, May 5, 1999, at 7:00 p.m. (the "Meeting"). Only stockholders of
record on March 31, 1999, (the "Record Date") will be entitled to vote at the
Meeting. At the close of business on the Record Date, the Company had
outstanding 7,269,050 shares of its $0.0001 par value common stock (the
"Common Stock").
Any person giving a proxy in the form accompanying this Proxy Statement has
the power to revoke it prior to its exercise. Any proxy given is revocable
prior to the Meeting by an instrument revoking it or by a duly executed proxy
bearing a later date delivered to the Secretary of the Company. Such proxy is
also revoked if the stockholder is present at the Meeting and elects to vote
in person.
The Company will bear the entire cost of preparing, assembling, printing and
mailing the proxy materials furnished by the Board of Directors to
stockholders. Copies of the proxy materials will be furnished to brokerage
houses, fiduciaries and custodians to be forwarded to the beneficial owners of
the Common Stock. In addition to the solicitation of proxies by use of the
mail, some of the officers, directors and regular employees of the Company may
(without additional compensation) solicit proxies by telephone or personal
interview, the costs of which the Company will bear.
This Proxy Statement and the accompanying form of proxy is being sent or given
to stockholders on or about April 5, 1999.
Stockholders of the Company's Common Stock are entitled to one vote for each
share held. Such shares may not be voted cumulatively.
Each validly returned proxy (including proxies for which no specific
instruction is given) which is not revoked will be voted "FOR" each of the
proposals as described in this Proxy Statement and, at the proxy holders'
discretion, on such other matters, if any, which may come before the Meeting
(including any proposal to adjourn the Meeting).
Determination of whether a matter specified in the Notice of Annual Meeting of
Stockholders has been approved will be determined as follows. Those persons
will be elected directors who receive a plurality of the votes cast at the
Meeting in person or by proxy and entitled to vote on the election.
Accordingly, abstentions or directions to withhold authority will have no
effect on the outcome of the vote. For each other matter specified in the
Notice of Annual Meeting of Stockholders, the affirmative vote of a majority
of the shares of Common Stock present at the Meeting in person or by proxy and
entitled to vote on such matter is required for approval. Abstentions will be
considered shares present in person or by proxy and entitled to vote and,
therefore, will have the effect of a vote against the matter. Broker
non-votes will be considered shares not present for this purpose and will have
no effect on the outcome of the vote. Directions to withhold authority to
vote for directors, abstentions and broker non-votes will be counted for
purposes of determining whether a quorum is present for the Meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees
At the Annual Meeting, the stockholders will elect eight (8)
directors to serve until the next Annual Meeting of Stockholders or until
their respective successors are elected and qualified. The Company
presently has seven (7) directors; however, as provided in the Company's
by-laws, the Company may increase the number of directors to a total of
nine (9) directors without amending its by-laws. In the event any nominee
is unable or unwilling to serve as a director at the time of the Annual
Meeting, the proxies may be voted for the balance of those nominees named
and for any substitute nominee designated by the present Board or the
proxy holders to fill such vacancy, or for the balance of the nominees
named without nomination of a substitute, or the size of the Board may be
reduced in accordance with the Bylaws of the Company. The Board has no
reason to believe that any of the persons named below will be unable or
unwilling to serve as a nominee or as a director if elected.
Assuming a quorum is present, the eight nominees receiving the
highest number of affirmative votes of shares entitled to be voted for
them will be elected as directors of the Company for the ensuing year.
Unless marked otherwise, proxies received will be voted "FOR" the election
of each of the eight nominees named below. In the event that additional
persons are nominated for election as directors, the proxy holders intend
to vote all proxies received by them in such a manner as will ensure the
election of as many of the nominees listed below as possible, and, in such
event, the specific nominees to be voted for will be determined by the
proxy holders.
<TABLE>
<CAPTION>
Director
Nominee Position with Company Age Since
- ------------------- ------------------------------------------ ----- --------
<S> <C> <C> <C>
Don Berryessa Vice President and Director 27 1997
Anthony K. Chan President, Chief Executive Officer, 43 1997
and Director
George Chung Chairman and Director 36 1997
William T. Duffy Director 42 1997
Alan Elkes Director 52 1997
Jan D. Hutchins Director 49 1997
Ronald M. Lott Director 38 1997
E. David Gable Nominee 49 N/A
</TABLE>
The following information with respect to the principal occupation
or employment of each nominee for director, the principal business of the
corporation or other organization in which such occupation or employment
is carried on, and such nominee's business experience during the past five
years, has been furnished to the Company by the respective director
nominees.
Anthony K. Chan. Mr. Chan has served as President, Chief Executive
Officer, Chief Financial Officer and a Director of the Company since
February 1997, and as Chief Executive Officer and Chief Financial Officer
of America's Best Karate since 1991. From 1985 to 1990, Mr. Chan served
as the Director of Chinese Affairs for the Eisenberg Company, a
diversified business enterprise, where Mr. Chan's principal duty was to
negotiate contracts in the People's Republic of China. Prior to 1985, Mr.
Chan was employed by the Bank of America NT & SA as an economic
forecaster. Mr. Chan received his MBA from the University of California
at Berkeley. Mr. Chan's martial arts training began in 1968 in Hong Kong.
He was the first American allowed to train as a professional in the
People's Republic of China. He is a published author and has been
featured in newspapers, magazine covers, television and motion pictures.
He was inducted into the Black Belt Hall of Fame in 1981.
George Chung. Mr. Chung has served as Chairman of the Board and a
Director of the Company since February 1997, and as President of
America's Best Karate since 1991. From 1981 to 1991, Mr. Chung owned and
operated a karate studio in Los Gatos, California. Mr. Chung was inducted
into the Black Belt Hall of Fame in 1983. He is regarded in the martial
arts industry as a pioneer in the modernization of what is known as
contemporary martial arts training, which includes the use of music in
both training and performance. He has been featured in magazines, books,
television and motion pictures. He is a published author and wrote
"Defend Yourself," a worldwide published self-defense system for
Sybervision Systems. In 1995, he was awarded a "Superbowl Ring" from the
San Francisco 49ers in recognition for his outstanding martial arts work
with their championship football team.
Don Berryessa. Mr. Berryessa has served as Vice President and Director of
the Company since February 1997, and as Vice President and General Manager
of America's Best Karate since July 1993. Mr. Berryessa received his
Bachelor's of Science degree in marketing and economics from San Jose
State University in 1992 while working as America's Best Karate's District
Manager. As America's Best Karate's District Manager, Mr. Berryessa was
in charge of marketing and sales and played an instrumental role in the
expansion of America's Best Karate from one location to 10. Prior to
working with America's Best Karate he served as a member of the United
States Army & Army Reserve as a combat military policeman.
William T. Duffy. Mr. Duffy has served as Vice-President of Business
Operations and Chief Financial Officer for the San Francisco 49ers since
June 1996. He is responsible for all non-football related business and
provides financial guidance and support for all the team's football
related activities. Mr. Duffy's previous experience has included serving
as Director of Compliance for the National Football League from October
1993 to May 1996, Treasurer of Robbie Stadium Corporation from June 1990
to September 1993 and Director of Finance of the Miami Dolphins from March
1988 to May 1990. Mr. Duffy, a CPA, is a graduate of Princeton University
and received his Masters of Accounting from New York University.
Alan Elkes. Mr. Elkes has served as Chief Executive Officer of Dalton
Kent Securities Group, Inc., an investment banking and brokerage firm,
since June 1996. From September 1994 to June 1996, Mr. Elkes served as
Financial and Operations Manager at a branch office of Corporate
Securities Group Inc., an investment banking and brokerage company. From
February 1991 to September 1994, Mr. Elkes owned and operated Minuteman
Press, a printing company. Mr. Elkes began his career in the stock
brokerage industry in 1968. He has an MBA in accounting from St. Johns
University in New York and is also a licensed CPA in the State of New
York.
Jan D. Hutchins. Mr. Hutchins has served as President of AC Media, since
February 1997. From July 1994 to November 1995, Mr. Hutchins was one of
a four person management team for GolfPro International, an emerging
company designing and marketing a terrain- based, personal service robot.
From 1993 to 1994, Mr. Hutchins was community services director for the
San Francisco Giants professional baseball team. From 1991 to 1993, Mr.
Hutchins developed, produced and hosted the HOOKED ON GOLF radio program
for KNBR 68 in San Francisco. From 1972 to 1991, Mr. Hutchins served in
various capacities in the television field, including news anchor, sports
director, sports anchor/reporter and television host.
Ronald M. Lott. Mr. Lott spent 15 seasons in the National Football
League, playing for the San Francisco 49ers (1981-1990), Los Angeles
Raiders (1991-1992), New York Jets (1993-1994) and the Kansas City Chiefs
(1995). Mr. Lott was selected to play in the Pro Bowl 10 times and won
four Superbowl Championships with the San Francisco 49ers. In 1996, Mr.
Lott joined FOX Sports as a studio analyst and, along with James Brown,
Howie Long and Terry Bradshaw, won an Emmy for their pregame show, FOX
NFL Sunday. Mr. Lott is also very active in civic and community
activities. He founded "All-Stars Helping Kids," a non-profit charity to
raise funds for youth organizations, is involved with the national "Stay
in School" program and hosts a number of events such as golf tournaments
and benefits to raise funds for worthwhile causes. Mr. Lott is also the
owner of Ronnie Lott's Club Fitness in San Jose and Dream Sports, a
sports marketing company.
E. David Gable. Mr. Gable, a veteran business leader and entrepreneur,
is Chairman, and a member of the Board of Directors of Carnegie
International Corporation (OTC BB:CAGI) since September 1996 and Chief
Operating Officer from May 1997 to March 1999. From 1988 to 1993 he
served as a principal and president of the All-Star Motor Group, where he
helped to grow the company to $400 million in sales and more than 600
employees. Carnegie is a holding company specializing in internet,
telephony and telecommunications products, services and distribution,
including electronic commerce and electronic digital interchange. Under
Mr. Gable's leadership, Carnegie reported total income of $8.9 million for
the first 6 months of fiscal 1998 ended June 30, 1998, versus $7 million
total income for the 12 months ended December 31, 1997.
No director or executive officer of the Company has any family
relationship with any other director or executive officer of the Company.
Directors serve until the next annual meeting of stockholders or
until their successors are elected and qualified. Officers serve at the
discretion of the Board of Directors.
Recommendation of the Board for Proposal No. 1:
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE.
PROPOSAL NO. 2
INCREASE THE NUMBER OF SHARES ISSUABLE UNDER THE
1997 EMPLOYEE STOCK OPTION PLAN
At the Annual Meeting, the Company's stockholders are being asked to
approve an increase in the number of shares issuable pursuant to the
Company's 1997 Employee Stock Option Plan (the "1997 Stock Plan") from
800,000 to 4,800,000. The following is a summary of principal features of
the 1997 Stock Plan. The summary, however, does not purport to be a
complete description of all the provisions of the 1997 Stock Plan. Any
stockholder of the Company who wishes to obtain a copy of the actual plan
document may do so upon written request to the Company's Secretary,
Anthony K. Chan, at the Company's principal offices at 1694 The Alameda,
Suite 100, San Jose California 95126.
The 1997 Stock Plan was adopted by the Board of Directors and
stockholders of the Company in March 1997 and became effective upon the
closing of the IPO. The total number of shares of Common Stock subject to
issuance under the 1997 Stock Plan was originally 350,000, subject to
adjustments as provided in the 1997 Stock Plan. However, the 1997 Stock
Plan was amended in May 1998 to provide that the total number of shares of
Common Stock subject to issuance under the 1997 Stock Plan is 800,000.
The 1997 Stock Plan provides for the grant of stock options
(including incentive stock options as defined in Section 422 of the Code
and non-qualified stock options), stock appreciation rights ("SARs") and
other stock awards (including restricted stock awards and stock bonuses)
to employees of the Company or its affiliates or any consultant or advisor
engaged by the Company who renders bona fide services to the Company or
the Company's affiliates in connection with its business; provided, that
such services are not in connection with the offer or sale of securities
in a capital raising transaction. Prior to the date when securities are
first registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the 1997 Stock Plan will be
administered by the Company's Board of Directors.
The Plan is administered by the Compensation Committee of the Board
of Directors (the "Committee") which will be comprised of "disinterested
persons" within the meaning of Rule 16b-3 of the Securities Exchange Act
of 1934, as amended. Stock options may be granted by the Committee on such
terms, including vesting and payment forms, as it deems appropriate in its
direction; provided, that no option may be exercised later than ten years
after its grant, and the purchase price for incentive stock options and
non-qualified stock options shall not be less than 100% and 85% of the
fair market value of the Common Stock at the time of grant, respectively.
SARs may be granted by the Committee on such terms, including
payment forms, as the Committee deems appropriate, provided that a SAR
granted in connection with a stock option shall become exercisable and
lapse according to the same vesting schedule and lapse rules established
for the stock option (which shall not exceed ten years from the date of
grant). A SAR shall not be exercisable during the first six months of its
term and only when the fair market value of the underlying Common Stock
exceeds the SAR's exercise price and is exercisable subject to any other
conditions on exercise imposed by the Committee. In the event of a change
in control of the Company, the Committee retains the discretion to
accelerate the vesting of stock options and SARs and to remove
restrictions on transfer of restricted stock awards. Unless terminated by
the Board of Directors, the 1997 Stock Plan continues until December 2007.
Upon the occurrence of an event constituting a Change of Control, in the
sole discretion of the Committee, all options and SARs will become
immediately exercisable in full for the remainder of their terms and
restrictions on stock granted pursuant to a Restricted Stock Award will
lapse.
Many employees of the Company and other persons contributed a
great deal to the Company's progress to date, including but not limited
to, the completion of the initial public offering, and the development,
production and promotion of 27 episodes of the Kanga Roddy series. The
Company has rewarded such employees and persons with the grant of stock
options.
The Committee and the Board of Directors of the Company believe it
is an important operating strategy to continue to provide incentives to
these employees, other individuals and to recruit competent persons to
join the Company. The Committee and the Board of Directors have concluded
that an increase to 4,800,000 shares reserved under the Plan provides
adequate flexibility to provide such incentives.
This amendment to the Plan is subject to approval of the Company's
stockholders. Unless marked otherwise, proxies received will be voted
"FOR" the approval of the increase of the number of shares of Common Stock
issuable under the Plan to 4,800,000. The affirmative vote of the
holders of a majority of the outstanding shares of Common Stock of the
Company is required to approve the Plan, as amended.
Recommendation of the Board for Proposal No. 2:
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE INCREASE OF SHARES
ISSUABLE UNDER THE 1997 EMPLOYEE STOCK OPTION PLAN FROM 800,000 TO
4,800,000.
PROPOSAL NO. 3
INCREASE THE NUMBER OF SHARES ISSUABLE UNDER THE
1997 NON-EMPLOYEE DIRECTORS EMPLOYEE STOCK OPTION PLAN
At the Annual Meeting, the Company's stockholders are being asked to
approve an increase in the number of shares issuable pursuant to the
Company's 1997 Non-Employee Stock Option Plan (the "Director Plan") from
50,000 to 550,000. The following is a summary of principal features of the
1997 Director Plan. The summary, however, does not purport to be a
complete description of all the provisions of the 1997 Director Plan. Any
stockholder of the Company who wishes to obtain a copy of the actual plan
document may do so upon written request to the Company's Secretary,
Anthony Chan, at the Company's principal offices at 1694 The Alameda,
Suite 100, San Jose California 95126.
The Company's 1997 Non-Employee Directors Stock Option Plan (the
"Directors Plan") was adopted by the Board of Directors and stockholders
of the Company in March 1997 and became effective upon the closing of the
Company's Initial Public Offering. The Directors Plan provides for the
automatic grant to each of the Company's non-employee directors of (i) an
option to purchase 5,000 shares of Common Stock on the date of such
director's initial election or appointment to the Board of Directors (the
"Initial Grant") and (ii) an option to purchase 2,000 shares of Common
Stock on each anniversary thereof on which the director remains on the
Board of Directors (the "Annual Grant"). The options will have an exercise
price of 100% of the fair market value of the Common Stock on the date of
grant and have a 10-year term. Initial Grants become exercisable in two
equal annual installments commencing on the first anniversary of date of
grant thereof and Annual Grants become fully exercisable beginning on the
first anniversary of the date of grant. Both Initial and Annual Grants are
subject to acceleration in the event of certain corporate transactions.
Any options which are vested at the time the optionee ceases to be a
director shall be exercisable for one year thereafter. Options which are
not vested automatically terminate in the event the optionee ceases to be
a director of the Company. Options which are vested on the date the
optionee ceased to be a director due to death or disability generally
remain exercisable for five years thereafter. If the Company is a party to
a transaction involving a sale of substantially all its assets, a merger
or consolidation, all then outstanding options under the Directors Plan
may be canceled. However, during the 30 day period preceding the effective
date of such transaction, all partly or wholly unexercised options will be
exercisable, including those not yet exercisable pursuant to the vesting
schedule. As of the date of this Memorandum, presently, a total of 49,500
options have been granted under the Directors Plan.
Many of the Company's non-employee directors have and other
persons contributed a great deal to the Company's progress to date,
including but not limited to, the completion of the initial public
offering, and the development, production and promotion of 27 episodes of
the Kanga Roddy series. The Company has rewarded such non-employees and
persons with the grant of stock options.
The Committee and the Board of Directors of the Company
believe it is an important operating strategy to continue to provide
incentives to these persons and to attract qualified nominees to the
Company's Board of Directors. The Committee and the Board of Directors
have concluded that an increase to 550,000 shares reserved under the
Directors Plan provides adequate flexibility to provide such incentives.
This amendment to the Directors Plan is subject to approval of
the Company's stockholders. Unless marked otherwise, proxies received
will be voted "FOR" the approval of the increase of the number of shares
of Common Stock issuable under the Directors Plan to 550,000. The
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of the Company is required to approve the Directors Plan, as
amended.
Recommendation of the Board for Proposal No. 3:
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE INCREASE OF SHARES
ISSUABLE UNDER THE 1997 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN FROM
50,000 TO 550,000.
PROPOSAL NO. 4
APPROVAL OF THE ISSUANCE OF AN AGGREGATE OF
$950,000 OF CONVERTIBLE DEBENTURES
At the Annual Meeting, the Company's stockholders are being asked to
ratify the Security Purchase Agreement, and the exhibits thereto, dated as of
January 19, 1999, by and among the Company and Amro International S.A., The
Endeavour Capital Fund S.A., Canadian Advantage L.P. and Olympia Partners LLC
(collectively as the "Investors") (collectively, the "Agreement"), and the
transactions contemplated thereby including the private offering (the
"Offering") of $950,000 of 7% Convertible Debentures and Common Stock purchase
warrants pursuant to.
The following summarizes the terms of the Offering and is qualified
in its entirety by the Agreement itself and the exhibits thereto, a copy
of which is attached hereto as Appendix A and incorporated by reference
herein. Stockholders are encouraged to review the attached Agreement and
its exhibits.
Pursuant to the authorization of the Board of Directors of the
Company, management of the Company negotiated and executed the Agreement
pursuant to which the Investors agreed under certain terms and conditions
to invest up to $950,000 into the Company in 7% Convertible Debentures due
January 1, 2002 (the "Debentures"). Additionally, the Company agreed,
among other things, to issue to the Investors warrants to purchase the
Company's Common Stock (the "Warrants"). Pursuant to the Agreement, the
Company issued to the Investors on January 19, 1999, $950,000 million in
Debentures and Warrants to purchase 26,125 shares of the Company's Common
Stock at an exercise price of $2.1406 per share. The Warrants expire on
January 31, 2002.
The terms and conditions of the Debentures are summarized as follows:
* The interest rate on the Debentures is 7% per annum, payable twice
annually in cash or in shares of the Company's Common Stock.
* Date of maturity is January 1, 2002.
* 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 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 (which equals $1.7125 per
share).
* 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.
(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.
* 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 its 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.
The Agreement also has the following additional terms:
* The Company was required to file not later than February 18, 1999
with the Securities and Exchange Commission a registration statement
to register the Common Stock issuable upon conversion of the
Debentures and exercise of the Warrants to allow the Investors to
resell such Common Stock to the public. Such registration statement
was filed on February 12, 1999.
In addition, JWGenesis Securities, Inc., the Company's placement
agent in connection with the forgoing transaction, received, among other
things, a warrant to purchase 35,000 shares of the Company's Common Stock,
subject to anti-dilution adjustments. The exercise price for such warrant
is $2.1406, and the warrant expires on January 31, 2002.
Nasdaq Rule Requiring Stockholder Approval
Because the Company's Common Stock is listed on The Nasdaq SmallCap,
the Company is subject to the Nasdaq's corporate governance rules,
including Rule 4310(c)(25)(H)(i)(d)(2) (the "Nasdaq Rule") which provides
that an issuer must obtain stockholder approval for the sale or issuance
of common stock (or securities convertible into common stock) equal to 20%
or more of the common stock outstanding before the issuance for less than
the greater of book or market value of the stock. The conversion of the
Debentures and/or the exercise of the Warrants may be made at a price less
than the greater of book or market value of the stock and it is also
possible that the Debentures may be convertible and/or the Warrants may be
exercisable into more than 20% of the currently outstanding shares of the
Company's Common Stock. Investors have recognized that the Company may be
limited in the number of shares of Common Stock it may issue, and that the
Common Stock issuable upon conversion of the Debentures and upon exercise
of the Warrants may result in the issuance of shares in excess of the
Nasdaq Rule. Such issuance will require the Company to obtain the consent
of its stockholders.
Under the Agreement, the Company has agreed to take all steps
necessary to have the vote of the Company's stockholders regarding
authorization of the Company's issuance to the holders of the Debentures
of shares of Common Stock in excess of 20% of the outstanding shares of
Common Stock. If the Company does not obtain stockholder approval as
proposed herein, the conversion rate of the Debentures will be adjusted to
90% of what it otherwise would have been. In addition, the Debenture
provides that if the Company cannot issue the shares of Common Stock upon
conversion of a Debenture without violating the Nasdaq Rule, the Investors
have the option, exercisable in the Investors' sole and absolute
discretion, to elect any one of the following remedies:
* Require the Company to issue shares of Common Stock pursuant to the
conversion of the Debentures at a conversion price equal to the
average of the lowest trade price per share of Common Stock for any
five consecutive trading days (subject to certain adjustments
provided in the Debenture) during the 60 trading days immediately
preceding the date of the notice of conversion; or
* Require the Company to redeem each unconverted portion of the
Debentures for an amount equal to (the "Cap Redemption Amount"):
V x M
---------
CP
where:
"V" means the outstanding principal plus accrued interest through the
date of redemption of an unconverted Debenture;
"CP" means the conversion rate in effect on the date of redemption; and
"M" means the highest Market Price during the period beginning on the
date of redemption and ending on the date of payment of the Cap
Redemption Amount.
Certain Relationships And Related Transactions
Pursuant to the Agreement, the officers and directors of the Company
who, directly or indirectly, hold shares of the Company's Common Stock and
their spouses who reside with such officer or director, have each granted
to the Investors an irrevocable proxy to vote in favor of this Proposal
No. 4.
Unless marked otherwise, proxies received will be voted "FOR" the
approval of this Proposal No. 4. The affirmative vote of the holders of
a majority of the outstanding shares of Common Stock of the Company is
required to approve the this Proposal No. 4.
Recommendation of the Board for Proposal No. 4:
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE ISSUANCE OF AN AGGREGATE
OF $950,000 OF CONVERTIBLE DEBENTURES.
PROPOSAL NO. 5
APPROVAL OF PLACEMENT AGENCY AGREEMENT AND PRIVATE OFFERING OF A MAXIMUM
OF $4,500,000 OF UNITS
At the Annual Meeting, the Company's stockholders are being asked to
ratify the Placement Agency Agreement, dated February 19, 1999 (the
"Placement Agreement"), between the Company and JWGenesis Capital Markets
LLC, and the private offering (the "Offering") of a minimum of $700,000
(the "Minimum Amount") and a maximum of $4,500,000 (the "Maximum Amount")
of Units, at a price of $50,000 per Unit, and all other transactions
contemplated thereby.
The following summarizes the terms of the Placement Agreement and
the Offering and is qualified in its entirety by the Placement Agreement
itself and the exhibits thereto, a copy of which is attached hereto as
Appendix B and incorporated by reference herein. Stockholders are
encouraged to review the attached Placement Agreement and its exhibits.
Summary of Private Placement Terms
Pursuant to the authorization of the Board of Directors of the
Company, management of the Company negotiated and executed the Placement
Agreement with JWGenesis Capital Markets LLC as Placement Agent (the
"Placement Agent"). The Company has engaged the Placement Agent as its
exclusive agent to sell the Minimum Amount, itself or through its selected
dealers, at $50,000 per Unit, on a "all-or-none" basis, and the Maximum
Amount, on a "best efforts" basis. Each Unit consists of (i) 50 shares of
Series C Redeemable Convertible Preferred Stock, par value $0.0001 per
share (the "Series C Preferred Stock"), (ii) 25,000 Class A Warrants (the
"Class A Warrants") to purchase shares of Common Stock of the Company at
an exercise price equal to the lower of (A) $2.75 or (B) 135% of the
Effective Price (as defined below) per share of Common Stock and (iii)
25,000 Class B Warrants (the "Class B Warrants," and collectively with the
Class A Warrants, the "Warrants") to purchase shares of Common Stock of
the Company at an exercise price equal to the lower of (A) $4.00 or (B)
185% of the Effective Price per share of Common Stock. In the event the
closing bid price of the Common Stock is below $1.00 per share for ten
consecutive days in the 12 month period following the closing of the
Offering, then the exercise price of the Class A Warrants shall be reset
at $1.00 per share of Common Stock. Commencing one year from the date of
the first closing of the Offering, the Series C Preferred Stock shall be
convertible into such number of shares of the Company's Common Stock equal
to the Liquidation Preference (as defined below) of the Series C Preferred
Stock divided by the Effective Price (the "Conversion Formula"). The
"Liquidation Preference" of the Series C Preferred Stock shall be $1,000
per share. The "Effective Price" is defined as the average closing bid
price of the Company's Common Stock as reported on the National
Association of Securities Dealers Automated Quotation system ("NASDAQ")
during the 20 days prior to the date set for the initial closing of the
Offering. In the event any closing is held after the date set by the
Company to hold its 1999 Annual Meeting of Stockholders (as defined
below), the Effective Price for such subsequent closing(s), if any, shall
be set at the lower of (a) the average closing bid price of the Common
Stock as reported on NASDAQ during the 20 days prior to the 1999 Annual
Meeting of Stockholders or (ii) the Effective Price. The Company has
agreed to use its best efforts to file a registration statement (the
"Registration Statement") for the purpose of registering the shares of
Common Stock underlying the Series C Preferred Stock and the Warrants (the
"Registerable Securities"). The Company may force conversion of the Series
C Preferred Stock, in whole or in part, at any time after the Registration
Statement covering the Registrable Securities is declared effective by the
Securities and Exchange Commission (the "Commission") provided that the
closing bid price of the Common Stock of the Company has equaled 250% of
the closing bid price of the Common Stock on the date of the first closing
of the Offering for a period of 20 consecutive days, and provided further
that the Company provides the holders of the Series C Preferred Stock with
30 days prior written notice of its intent to do so. Also, if not
converted prior to the third anniversary date of the final closing of the
Offering, the Series C Preferred Stock shall automatically convert into
shares of Common Stock of the Company pursuant to the terms of the
Conversion Formula. The Series C Preferred Stock shall be entitled to
receive a quarterly dividend of 9% which shall be payable either in Common
Stock (valued at the closing bid price on the day before the dividend is
due) of the Company or cash, at the Company's option. No dividend payment
shall be made on any converted Series C Preferred Stock.
The Units will be offered for a period of 90 continuous days from
March 1, 1999, which period may be extended by the Placement Agent for up
to an additional 90 days (the "Offering Period"). Until the Minimum Amount
has been sold, all funds received from subscribers will be held in escrow.
Unless subscriptions for the Minimum Amount are received during the
Offering Period, the Offering will be terminated, no Units will be sold
and the funds deposited in escrow will be promptly refunded to subscribers
without deduction therefrom or interest thereon. Any interest accruing on
funds held in the escrow account will be utilized first to cover the
escrow agent's fees and expenses and the balance, if any, will be
distributed equally between the Company and the Placement Agent.
The Company may hold the First Closing at any time after
subscriptions and checks for the Minimum Amount have been received and
accepted on or before the expiration of the Offering Period. However, the
Company reserves the right to close upon the sale of less than the Minimum
Amount so as not to contravene the NASDAQ continued listing requirements
which prohibit the issuance of certain designated securities prior to
obtaining shareholder approval. If the Minimum Amount is sold prior to the
expiration of the Offering Period, no additional Units may be sold until
the Company receives the requisite shareholder approval for the issuance
of such additional securities. The Company, in its sole discretion, may
opt to solicit subscriptions for additional Units which shall be held in
escrow subject to shareholder approval. Upon shareholder approval,
additional Units up to the Maximum Amount will continue to be sold, and
further closings may from time to time be conducted with respect to the
Units sold, until expiration of the Offering Period. Not later than ten
days after the termination of the Offering Period, a Final Closing will be
held with respect to any Units sold but not closed upon as of such date.
In the event stockholder approval is not obtained at the meeting, all
funds in excess of the Minimum Amount shall be promptly refunded to the
subscribers.
The offering price of the Units has been determined by negotiations
between the Placement Agent and the Company. The offering price of the
Units, the conversion price of the Series C Preferred Stock and the
exercise prices of the Warrant do not bear any relationship to any
recognized criteria of economic valuation.
The Company has agreed to indemnify the Placement Agent and its
selected dealers against certain liabilities that may be incurred in
connection with the Offering, including certain civil liabilities under
the Securities Act, and, where such indemnification is not available, to
contribute to the payments the Placement Agent may be required to make in
respect of such liabilities. Insofar as indemnification for liabilities
arising out of the Securities Act may be permitted to the Placement Agent
pursuant to the foregoing, and to directors, officers or persons
controlling the Company pursuant to the Certificate of Incorporation and
By-Laws of the Company, the Company has been informed that in the opinion
of the SEC such indemnification is against public policy and is therefore
unenforceable.
Subject to the sale of the Minimum Amount during the Offering
Period, the Company has agreed to pay to the Placement Agent a placement
fee (the "Agent's Fee") of 10% of the price paid per Unit. The Placement
Agent will also receive a non-accountable expense allowance equal to 3% of
the sales proceeds for each Unit (the "Agent's Expense Allowance"). The
Agent's Fee and the Agent's Expense Allowance will be paid at the time of
each Closing, and any expenses incurred by the Placement Agent on the
Company's behalf will be paid at the First Closing. The Company has also
agreed, upon each Closing of this Offering, to issue to the Placement
Agent a five (5) year Warrant to purchase Units at Offering Price in an
amount equal to ten percent (10%) of the Units sold in the Offering (the
"Agent's Warrants").
For a period of two (2) years following the First Closing, the
Placement Agent shall have the right to purchase for its account or to
sell for the account of the Company or any of its stockholders owning at
least five percent (5%) of the Company's securities (the "Principal
Stockholders"), any securities with respect to which the Company or any of
its Principal Stockholders may seek a private or public offering pursuant
to a registration statement or otherwise. In addition, the Placement
Agent shall have the right of first refusal for a two (2) year period to
act as the managing underwriter or, at the Placement Agent's sole
discretion, a member of the underwriting syndicate and/or selling group
with respect to any offering of the Company's securities.
In addition, the Placement Agent shall have a two (2) year right of
first refusal to act as the managing underwriter, or at the Placement
Agent's sole discretion, a member of the underwriting syndicate and/or
selling group with respect to any offering of the Company's securities.
The Company and its principal stockholders will consult with the
Placement Agent with regard to any such offering and will offer the
Placement Agent the opportunity to purchase or sell any such securities on
terms not more favorable to the Company or its principal stockholders than
they can secure elsewhere. Any breach of the Placement Agent's right of
first refusal by the Company or any of its principal stockholders shall be
enforceable through injunctive relief. or placement agent for any future
financing.
Further, the Company has also agreed to retain the Placement Agent
as it exclusive investment banker for a period of two (2) years from the
date of the closing of the Offering for a fee of 150,000 shares of Common
Stock which shall be payable at the Closing. The Company shall reimburse
the Placement Agent for all reasonable out-of-pocket expenses incurred in
carrying out any services provided to the Company.
Following the completion of the Offering, the Company shall enter
into a five (5) year mergers and acquisition agreement with the Placement
Agent. In the event an acquisition candidate is introduced to the Company
by the Placement Agent or contacted by the Placement Agent or the Company
from the signing date of the engagement letter or within 24 months after
the final closing, the Company will pay or cause to be paid to the
Placement Agent a transaction fee (the "Transaction Fee") equal to the sum
of (i) five percent (5%) of the first $15,000,000 of aggregate
consideration involved in any Transaction, plus (ii) three and one-half
(3-1/2%) of the next $10,000,000 of aggregate consideration, plus (iii)
two percent (2%) of the balance of the aggregate consideration involved in
any transaction (including mergers, acquisitions, sales, joint ventures,
and any other business or business combinations involving the Company);
and that any such Transaction Fee due to the Placement Agent will be paid
in cash at the closing of the particular transaction for which the
finder's fee is due. In the event the Placement Agent introduces a
candidate to the Company during the term of the agreement that acquires
any securities or assets of the Company, then the Company shall pay the
Placement Agent a fee equal to eight percent (8%) of the total
consideration paid by the purchaser.
For a period of two (2) years from the date of the First Closing,
the Placement Agent shall have the right, at its option, to nominate a
designee to the Company's Board of Directors.
Agent's Warrants
The Company has agreed, upon the Closing of the Offering, to sell to
the Placement Agent or its designees, for an aggregate of ten dollars
($10.00), a warrant or warrants to purchase additional Units at the
Offering Price in an amount equal to 10% of the Units sold by the
Placement Agent at that Closing (the "Agent's Warrants"). The Agent's
Warrants will be exercisable commencing on the date of the First Closing
for a period of five (5) years (the "Exercise Term"). The Company has
agreed to register on two separate occasions the Agent's Warrants and the
shares of Common Stock underlying the Agent's Warrants (issuable upon
conversion of the Series C Preferred Stock and exercise of the Warrants)
(collectively, the "Agent's Securities") at the request of the Placement
Agent. The Company will use file a registration statement covering the
Agent's Securities within 20 days after receipt of such request. Should
this registration be delayed by the Company, the exercise period for the
Purchase Option shall be extended for a period of time equal to the length
of the delay in registering these securities. Each of these two requests
may be made at any time during a period of seven (7) years beginning from
the First Closing. The Company has agreed to pay all expenses relating to
the filing of the registration statement. In addition, during this
period, the Placement Agent shall have unlimited "piggyback" registration
rights for the Agent's Warrants. In connection therewith, the Company
shall give the holders of the Agent's Warrants notice by registered mail
at least thirty (30) days prior to the filing of any registration
statement with the SEC.
Lock-Up Agreement
Anthony K. Chan, the Company's President and CEO, and George Chung,
the Company's Chairman of the Board, beneficial owners of an aggregate of
1,016,276 shares (19.3% of the shares outstanding prior to this Offering)
have agreed to enter into a lock-up agreement with the Placement Agent
which will prohibit them from selling or otherwise disposing of their
shares of Common Stock for twelve (12) months from the date of the Final
Closing of the Offering without the prior written consent of the Placement
Agent. Commencing six (6) months from the Final Closing, if the Common
Stock closes over $8.00 for ten (10) consecutive trading days, then the
lock-up restrictions on Messrs. Chan and Chung shall be released for so
long as the closing price of the Common Stock remains over $8.00.
Nasdaq Rule Requiring Stockholder Approval
Because the Company's Common Stock is listed on The Nasdaq SmallCap
Market, the Company is subject to the Nasdaq's corporate governance rules,
including Rule 4310(c)(25)(H)(i)(d)(2) (the "Nasdaq Rule"). The Nasdaq
Rule requires issuers to obtain stockholder approval for the sale or
issuance of common stock (or securities convertible into common stock)
equal to 20% or more of the common stock outstanding before the issuance
for less than the greater of book or market value of the stock. Because
the conversion of the Series C Preferred Stock and/or the exercise price
of the Class A or Class B Warrants underlying the Units may be made at a
price that could be less than the greater of book or market value of the
Company's Common Stock, it is possible that these securities may be
convertible into more than 20% of the currently outstanding shares of the
Company's Common Stock. As such, the Company will hold the First Closing
at any time after subscriptions and checks for the Minimum Amount have
been received and accepted on or before the expiration of the Offering
Period. However, the Company reserves the right to close upon the sale of
less than the Minimum Amount so as not to contravene the NASDAQ Rule. If
the Minimum Amount is sold prior to the expiration of the Offering Period,
no additional Units will be sold until the Company receives the requisite
shareholder approval for the issuance of such additional securities.
Unless marked otherwise, proxies received will be voted "FOR" the
approval of this Proposal No. 5. The affirmative vote of the holders of
a majority of the outstanding shares of Common Stock of the Company is
required to approve the this Proposal No. 5.
Recommendation of the Board for Proposal No. 5:
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE PLACEMENT AGENT AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
PROPOSAL NO. 6
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
The Board of Directors of the Company proposes amending the
Company's Certificate of Incorporation to increase the number of
authorized shares of Common Stock and Preferred Stock (the "Capital
Stock") as more fully described below. The Company currently has
authorized capital stock of 23,000,000, of which 20,000,000 is Common
Stock, $.0001 par value per share, and 3,000,000 shares of Preferred
Stock. Approximately 7,269,050 shares of Common Stock and no shares of
Preferred Stock are outstanding. The Board believes that the increase in
authorized shares would provide the Company greater flexibility with
respect to the Company's capital structure for such purposes as
additional equity financing. The Board of Directors of the Company
believes that the following amendment to the Certificate of Incorporation
is in the best interest of the Company and its shareholders.
Having a substantial number of authorized but unissued shares of
Common Stock and Preferred Stock that is not reserved for specific
purposes would allow the Company to take prompt action with respect to
corporate opportunities that develop, without the delay and expense of
convening a special meeting of shareholders for the purpose of approving
an increase in the Company's capitalization. The issuance of additional
shares of Common Stock and Preferred Stock may, depending upon the
circumstances under which such shares are issued, reduce shareholders'
equity per share and may reduce the percentage ownership of Common Stock
and Preferred Stock by existing shareholders. It is not the present
intention of the Board of Directors to seek shareholder approval prior to
any issuance of shares of Common Stock or Preferred Stock that would
become authorized by the amendment unless otherwise required by law or
regulation. Frequently, opportunities arise that require prompt action,
and it is the belief of the Board of Directors that the delay necessitated
for shareholder approval of a specific issuance could be to the detriment
of the Company and its shareholders.
The Board of Directors recommends the authorization of additional
shares of Common Stock and Preferred Stock to increase the Company's
financial flexibility. The Board of Directors believes that the complexity
of modern business financing and acquisition transactions requires greater
flexibility in the Company's capital structure than now exists. The
additional Capital Stock would be available for issuance from time to time
as determined by the Board of Directors for any proper corporate purpose.
Such purposes might include, without limitation, issuance in public or
private sales for cash as a means of obtaining additional capital for use
in the Company's business and operations, and issuance as part or all of
the consideration required to be paid by the Company for acquisitions of
other businesses or properties.
When issued, the additional shares of Common Stock and Preferred
Stock authorized by the amendment will have the same rights and privileges
as the shares of Common Stock and Preferred Stock currently authorized and
outstanding. Holders of Common Stock and Preferred Stock have no
preemptive rights and, accordingly, shareholders would not have any
preferential rights to purchase any of the additional shares of Common
Stock when such shares are issued.
If the proposed amendment is approved, the Board of Directors would
be empowered, without the necessity of further action or authorization by
the Company's shareholders, unless required in a specific case by
applicable laws or regulations, to authorize the issuance of the Preferred
Stock from time to time in one or more series, and to fix by resolution or
resolutions, designations, preferences, limitations and relative rights of
each such series. Each series of Preferred Stock could, as determined by
the Board of Directors at the time of issuance, rank, with respect to
dividends and redemption and liquidation rights, senior to the Company's
Common Stock. No preferred stock is presently authorized by the Company's
Certificate of Incorporation.
The amendment would authorize the Board of Directors to determine,
among other things, with respect to each series of Preferred Stock which
may be issued: (a) the distinctive designation and number of shares
constituting such series; (b) the dividend rates, if any, on the shares of
that series and whether dividends would be payable in cash, property,
rights or securities; (c) whether dividends would be non- cumulative,
cumulative to the extent earned, partially cumulative or cumulative and,
if cumulative, the date from which dividends on the series would
accumulate; (d) whether, and upon what terms and conditions, the shares of
that series would be convertible into or exchangeable for other securities
or cash or other property or rights; (e) whether, and upon what terms and
conditions, the shares of that series would be redeemable; (f) the rights
and preferences, if any, to which the shares of that series would be
entitled in the event of voluntary or involuntary dissolution or
liquidation of the Company; (g) whether a sinking fund would be provided
for the redemption of the series and, if so, the terms of and amounts
payable into such sinking fund; (h) whether the holders of such securities
would have voting rights and the extent of those voting rights; (i)
whether the issuance of any additional shares of such series, or of any
other series, shall be subject to restrictions as to issuance or as to the
powers, preferences or rights of any such other series; and (j) any other
preferences, privileges and relative rights of such series as the Board of
Directors may deem advisable. Holders of the Company's Common Stock have
no preemptive right to purchase or otherwise acquire any Preferred Stock
that may be issued in the future.
It is not possible to state the precise effect of the
authorization of the Preferred Stock upon the rights of holders of the
Company's Common Stock until the Board of Directors determines the
respective preferences, limitations and relative rights of the holders of
one or more series of the Preferred Stock. However, such effect might
include: (a) reduction of the amount otherwise available for payment of
dividends on Common Stock, to the extent dividends are payable on any
issued shares of Preferred Stock, and restrictions on dividends on Common
Stock if dividends on the Preferred Stock are in arrears; (b) dilution of
the voting power of the Common Stock to the extent the Preferred Stock has
voting rights; and (c) the holders of Common Stock not being entitled to
share in the Company's assets upon liquidation until satisfaction of any
liquidation preference granted to the Preferred Stock.
The adoption of the amendment may be viewed as having the effect
of discouraging an unsolicited attempt by another person or entity to
acquire control of the Company. The Board of Directors would have the
ability to issue a significant number of shares of Common and Preferred
Stock as a defense to an attempted takeover of the Company. Issuances of
authorized preferred shares can be implemented, and have been implemented
by some companies in recent years, with voting or conversion privileges
intended to make acquisition of the company more difficult or more costly.
Such an issuance could discourage or limit the shareholders' participation
in certain types of transactions that might be proposed (such as a tender
offer), whether or not such transactions were favored by the majority of
the shareholders, and could enhance the ability of officers and directors
to retain their positions.
Article 4 of the Company's Certificate of Incorporation currently
provides as follows:
4. A. Classes of Stock. This corporation is authorized
to issue two classes of shares of stock to be designated, respectively,
common stock ("Common Stock") and preferred stock ("Preferred Stock").
The number of shares of Common Stock authorized to be issued is Twenty
Million (20,000,000), par value $0.0001 per share, and the number of
shares of Preferred Stock authorized to be issued is Three Million
(3,000,000), par value $0.0001 per share; the total number of shares
which the corporation is authorized to issue is Twenty-Three Million
(23,000,000).
B. Rights, Preferences and Restrictions of Preferred
Stock. The Preferred Stock may be issued from time to time in one or
more series, without further stockholder approval. The Board of
Directors is hereby authorized, in the resolution or resolutions adopted
by the Board of Directors providing for the issue of any wholly unissued
series of Preferred Stock, within the limitations and restrictions
stated in this Amended and Restated Certificate of Incorporation, to fix
or alter the dividend rights, dividend rate, conversion rights, voting
rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation
preferences of any wholly unissued series of Preferred Stock, and the
number of shares constituting any such series and the designation
thereof, or any of them, and to increase or decrease the number of shares
of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding, and any other
preferences, privileges and relative rights of such series as the Board of
Directors may deem advisable. In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall
resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
The Company's Board of Directors has approved the following
amendment to Article 4, subject to approval of such amendment by the
holders of the Company's Common Stock as specified below:
4. A. Classes of Stock. This corporation is authorized
to issue two classes of shares of stock to be designated, respectively,
common stock ("Common Stock") and preferred stock ("Preferred Stock").
The number of shares of Common Stock authorized to be issued is Forty
Million (40,000,000), par value $.0001 per share, and the number of
shares of Preferred Stock authorized to be issued is Six Million
(6,000,000), par value $.0001 per share; the total number of shares which
the corporation is authorized to issue is Forty-Six Million
(46,000,000).
B. Rights, Preferences and Restrictions of Preferred
Stock. The Preferred Stock may be issued from time to time in one or
more series, without further stockholder approval. The Board of
Directors is hereby authorized, in the resolution or resolutions adopted
by the Board of Directors providing for the issue of any wholly unissued
series of Preferred Stock, within the limitations and restrictions
stated in this Amended and Restated Certificate of Incorporation, to fix
or alter the dividend rights, dividend rate, conversion rights, voting
rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation
preferences of any wholly unissued series of Preferred Stock, and the
number of shares constituting any such series and the designation
thereof, or any of them, and to increase or decrease the number of shares
of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding, and any other
preferences, privileges and relative rights of such series as the Board
of Directors may deem advisable. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall
resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
The proposed amendment increases the authorized amount of capital
stock of the Company to 46,000,000 shares of which 40,000,000 is Common
Stock and 6,000,000 is preferred stock. The proposed amendment
authorizes the Company's Board of Directors to issue preferred stock from
time to time in one or more series without further stockholder approval.
Under the proposed amendment, the Board may specify the rights,
preferences and restrictions of any series of preferred stock issued
which rights, preferences and restrictions may be superior to those of
the Common Stock. Such rights and preferences may provide, but is not
limited to, specific dividend rights, dividend rates, conversion rights,
voting rights, redemption rights and liquidation preferences. The rights
of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility, could also have the effect of making it more
difficult for a third party to acquire a majority of the outstanding
voting stock of the Company.
Unless marked otherwise, proxies received will be voted
"FOR" the approval of this Proposal No. 6. Amending the Certificate of
Incorporation of the Company requires the affirmative vote of the holders
of a majority of the outstanding shares of Common Stock of the Company.
Recommnedation of the Board for Proposal No. 6:
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT OF THE
CERTIFCATE OF INCORPORATION.
PROPOSAL NO. 7
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Moss Adams LLP has been selected by the Board of
Directors of the Company to be its independent certified public
accountants for the 1999 fiscal year. Moss Adams LLP has no interest,
financial or otherwise, in the Company. All proxies will be voted FOR
ratification of such selection unless authority to vote for the
ratification of such selection is withheld or an abstention is noted.
Representatives from the accounting firm of Moss Adams LLP will
be present at the Meeting will be afforded the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
The Board of Directors of the Company recommends a vote FOR Proposal No. 7.
Recommendation of the Board for Proposal No. 7:
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF MOSS
ADAMS LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR ENDED
DECEMBER 31, 1999.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of January 31,
1999 and as adjusted to reflect the issuance by the Company of shares of
Common Stock upon exercise of the Warrants, certain information with
respect to stock ownership of (i) all persons known by the Company to be
beneficial owners of 5% or more of its outstanding shares of Common Stock;
(ii) each director; and (iii) all directors and officers as a group,
together with their respective percentage ownership of such shares before
the Offering and as adjusted to reflect the sale of the shares of Common
Stock and Warrants offered hereby. Unless otherwise indicated, the
beneficial owners have sole voting and investment power over the shares of
Common Stock listed below.
<TABLE>
<CAPTION>
Number of Percentage of Common Stock Ownership*
Name and Address of Shares of
Beneficial Ownership(1) Common Stock As Adjusted **
Actual Minimum Maximum
<S> <C> <C> <C> <C>
George Chung 597,838(2) 10.4% 8.9% 7.5%
Anthony K. Chan 593,438(3) 10.3% 8.8% 7.4%
Don Berryessa 193,600(4) 3.4% 2.9% 2.4%
Montana Family Trust 258,456(5) 4.5% 3.8% 3.2%
William T. Duffy 5,000(6) *** *** ***
Alan Elkes 5,000(7) *** *** ***
Jan D. Hutchins 24,000(8) *** *** ***
Ronald M. Lott 36,131(9) *** *** ***
All officers and directors
as a group (7 persons).....1,455,007(10) 24.6% 21.1% 17.8%
</TABLE>
_______________________
* Does not give effect to the conversion of the outstanding Debentures
or, except as stated in the footnotes below, to the issuance of
shares of Common Stock upon exercise of any warrants.
** Assumes conversion of the Series C Preferred Stock at a conversion
price of $2.00 per share.
*** Represents less than one percent.
(1) The addresses for the directors and executive officers are the same
as that of the Company.
(2) Includes (i) 87,500 shares subject to presently exercisable options
granted under the Company's 1997 Stock Plan and (ii) 4,400 shares
owned by Mr. Chung's wife. Does not include 80,000 subject to
options which are not presently exercisable or exercisable within 60
days.
(3) Includes 87,500 shares subject to presently exercisable options
granted under the Company's 1997 Stock Plan. Does not include 80,000
subject to options which are not presently exercisable or
exercisable within 60 days.
(4) Includes (i) 25,000 shares subject to presently exercisable options
granted under the Company's 1997 Stock and (ii) 28,100 shares owned
by Mr. Berryessa's wife. Does not include 55,000 subject to options
which are not presently exercisable or exercisable within 60 days.
(5) Includes 100,000 shares subject to presently exercisable options
granted under the Company's 1997 Stock Plan.
(6) Includes 5,000 shares subject to presently exercisable options
granted under the Company's 1997 Stock Plan. Does not include 11,500
subject to options which are not presently exercisable or
exercisable withing 60 days.
(7) Includes 5,000 shares subject to presently exercisable options
granted under the Company's 1997 Stock Plan. Does not include 11,500
subject to options which are not presently exercisable or
exercisable withing 60 days.
(8) Includes 20,000 shares subject to presently exercisable options
granted under the Company's 1997 Stock Plan. Does not include 40,000
subject to options which are not presently exercisable or
exercisable withing 60 days.
(9) Includes 15,000 shares subject to presently exercisable options
granted under the Company's 1997 Stock Plan. Does not include 11,500
subject to options which are not presently exercisable or
exercisable withing 60 days.
(10) Includes an aggregate of 245,000 shares subject to presently
exercisable options granted under the Company's 1997 Stock Plan.
Does not include 289,500 subject to options which are not presently
exercisable or exercisable withing 60 days.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain summary information with
respect to the compensation paid to the Company's Chief Executive
Officer and President, and the Company's Chairman of the Board, for
services rendered in all capacities to the Company for the fiscal period
ended December 31, 1998. Other than as listed below, the Company had no
executive officers whose total annual salary and bonus exceeded $100,000
for that fiscal year:
<TABLE>
<CAPTION>
Name Position Year Salary
(1)
<S> <C> <C> <C>
Anthony K. Chan President, 1998 $ 130,828
Chief 1997 $ 101,704
Executive 1996 $ 57,600
Officer
Geroge Chung Chairman of 1998 $ 138,739
the Board 1997 $ 107,284
1996 $ 57,600
</TABLE>
<TABLE>
<CAPTION>
Long-Term Compensation
Awards Payouts
Restricted Securities LTIP All Other
Other Stock Underlying Payouts Compen
Compen- Award(s) Options/ ($) sation
Name sation Bonus ($) SARs ($)
(#)(1)(2)
<S> <C> <C> <C> <C> <C> <C>
Anthony K. Chan --- --- --- 80,000 --- ---
--- --- --- 87,500 --- ---
--- --- --- 0 --- ---
Geroge Chung --- --- --- 80,000 --- ---
--- --- --- 87,500 --- ---
--- --- --- 0 --- ---
</TABLE>
________________
(1) Information provided for 1996 represent compensation received by
Messrs. Chan and Chung, as President and Chief Executive Officer,
respectively, of America's Best Karate, the predecessor to the Company.
(2) Options were granted under the Company's 1997 Stock Plan.
STOCK OPTIONS GRANTS AND EXERCISES
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
Securities % of Total
Underlying Option to Employees in Exercise or Base
Name Granted (#) Fiscal Year Price ($/SH) Expiration Date
<S> <C> <C> <C> <C>
Anthony K. Chan 20,000 5.7% $6.5625 6/30/08
60,000 17.0% $1.25 12/29/08
80,000 22.7%
George Chung 20,000 5.7% $6.5625 6/30/08
60,000 17.0% $1.25 12/29/08
80,000 22.7%
</TABLE>
The following table shows the value at December 31, 1998 of
unexercised options held by the named executive officers:
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-end Option Values
<TABLE>
<CAPTION>
Number of securities Value of unexercised in-the-
underlying unexercised money options at fiscal
options at fiscal year-end year-end
(#) ($)
Name Shares acquired on Value Realized
exercise (#) ($) Exerciseable/unexercisable Exercisable/unexercisable*
<S> <C> <C> <C> <C>
Anthony K. Chan, 0 0 87,500/80,000 $0/$0
President and Chief
Executive Officer
George Chung, 0 0 87,500/80,000 $0/$0
Chairman of the
Board
</TABLE>
- ---------------------------
* Assumes a fair market value of $1.2188 per share at the close of
December 31, 1998.
The compensation for the Company's key management will be evaluated
from time to time by the Board. The Board may, in its discretion, award
these individuals cash bonuses, options to purchase shares of the Common
Stock under the Company's Equity Incentive Plan and such other
compensation, including equity-based compensation, as the Board, or a
committee thereof, shall approve from time to time.
EMPLOYMENT CONTRACTS
In March 1997, the Company entered into employment agreements,
effective as of August 5, 1997, the closing date of the Company's initial
public offering, with each of Mr. Chung, Mr. Chan and Mr. Berryessa
pursuant to which Mr. Chung continues to serve as the Company's Chairman
of the Board, Mr. Chan continues to serve as the Company's President,
Chief Executive Officer and Chief Financial Officer and Mr. Berryessa
continues to serve as the Company's Vice-President. Each agreement has a
term of five years. Pursuant to the agreements, in 1997 the Company paid
to Messrs. Chung, Chan and Berryessa a base salary of $100,000, $100,000
and $65,000 per year, respectively. Each agreement also provides for the
following bonuses: (i) options to purchase 87,500, 87,500 and 25,000
shares of Common Stock of the Company, respectively, exercisable at 120%
of the Company's initial public offering price of the Common Stock of the
Company which was $6.00, which options were granted on July 30, 1997, and
(ii) $200,000, $200,000 and $100,000, respectively, if all of the warrants
issued to the Company's initial public offering are exercised by the
holders thereof within the five-year exercise period of such warrants. In
addition, the executives are also entitled to certain fringe benefits. If
any of Messrs. Chung, Chan or Berryessa is terminated other than for
cause, death or disability, the Company is obligated to pay such executive
an amount equal to his base salary then in effect for the remaining term
of the agreement.
In March 1997, the Company and AC Media, entered into a two-year
employment agreement with Jan D. Hutchins effective as of August 5, 1997,
the closing date of the Company's initial public offering, pursuant to
which Mr. Hutchins serves as President of AC Media and is responsible for
supervising the production and marketing of the AC Media's media projects.
Pursuant to the agreement Mr. Hutchins received an annual base salary of
$39,600 in 1997. The employment agreement also provides for the following
bonuses: (i) 4,000 shares of Common Stock of the Company upon the public
offering, subject to compliance with applicable laws (these shares were
issued at no cost to Mr. Hutchins and were capitalized into the Company's
film costs, because of Mr. Hutchins contributions to the Company's film
production, at their fair market value at the time of issuance);
(ii) options to purchase 20,000 shares of Common Stock of the Company,
exercisable at 120% of the public offering price of the Common Stock of
the Company which was $6.00, which options were granted on July 30,1997;
and (iii) $100,000 in cash if all of the warrants issued to the public in
the Company's initial public offering are exercised by the holders thereof
within two years of the consummation of the offering. The employment
agreement also provides for certain fringe benefits. If Mr. Hutchins is
terminated for reasons other than for cause, death or disability, the
Company is obligated to pay Mr. Hutchins an amount equal to his base
salary then in effect for the remaining term of the agreement. None of
the above-referenced employment agreements contain non-competition
provisions.
In July 1998, the Company amended its employment agreements with
certain of its management as follows: The Employment Agreements with
Messrs. Anthony Chan and George Chung were amended to provide for annual
salaries of $150,000 and for the granting of 20,000 options per year
pursuant to the Company's 1997 Stock Option Plan; the Employment Agreement
with Don Berryessa was amended to provide for an annual salary of $105,000
and for the granting of 15,000 options per year pursuant to the Company's
1997 Stock Option Plan; the Employment Agreement with Jan D. Hutchins was
amended to provide for an annual salary of $75,000 and for the granting of
10,000 options per year pursuant to the Company's 1997 Stock Option Plan.
TRANSACTIONS WITH MANAGEMENT
Messrs. Chung and Chan are the guarantors of two loans from Karen
T.I. Shen and Thomas Jung Woo originally totaling $27,000 and bearing
interest at 14% per annum which are due and payable in 1999 and 2000, and
are the direct obligors on a loan in the original principal amount of
$100,000 from the Michael Triantos M.D. Inc. Money Purchase and Profit
Sharing Pension Plans Trust which is being treated as a debt of the
Company which loan bears interest at the rate of 12% per annum.
In a letter dated October 29, 1996, the Company agreed to pay Joe
and Jennifer Montana, significant stockholders of the Company, $50,000 in
cash, payable 30 days prior to the release of the Company's second Fitness
Product, entitled "MONTANA EXERCISE VIDEO." In such letter, the Company
also agreed to pay, and has paid, Joe and Jennifer Montana an additional
$50,000 from the proceeds of the Company's initial public offering and a
royalty payment of $1 per video tape sold. See "Business-Fitness
Products." Joe and Jennifer Montana have both been training in the
Company's karate schools for approximately three years. The "MONTANA
EXERCISE VIDEO" stars the former superstar quarterback and his wife
Jennifer in a kick-boxing video. Jennifer Montana also co-hosts the Kanga
Roddy Series.
In June 1997, Mr. George Chung, the Chairman of the Board, loaned at
no interest approximately $17,673 to the Company in order to allow the
Company to repay its loan with the Bank of Canton. On July 2, 1997, Mr.
Chung also loaned at no interest approximately $35,400 to the Company in
order to allow the Company to repay its loan from Silicon Valley Bank. The
Company repaid the outstanding principal balance of the June 1997 and July
1997 loans from the proceeds of the Company's initial public offering.
None of the transactions with officers or shareholders of the
Company and their affiliates were made on terms less favorable to the
Company than those available from unaffiliated parties. In future
transactions of this nature, the Company will ensure that more favorable
terms are not available to it from unaffiliated third parties before
engaging officers or shareholders of the Company or their affiliates.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of stockholders intended to be presented at next year's
Annual Meeting of Stockholders must be received by Anthony K. Chan, at the
Company's principal offices at 1894 The Alameda, Suite 100, San Jose
California 95126, no later than November 1, 1999.
OTHER PROPOSED ACTION
The Board of Directors is not aware of any other business which will
come before the Meeting, but if any such matters are properly presented,
the proxies solicited hereby will be voted in accordance with the best
judgment of the persons holding the proxies. All shares represented by
duly executed proxies will be voted at the Meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's
Common Stock (collectively, "Reporting Persons") to file with the
Securities and Exchange Commission ("SEC") initial reports of ownership
and changes in ownership of the Company's Common Stock. Reporting Persons
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) reports they file. To the Company's knowledge, based solely
on its review of the copies of such reports received or written
representations from certain Reporting Persons that no other reports were
required, the Company believes that during its fiscal year ended December
31, 1998, all Reporting Persons complied with all applicable filing
requirements.
AVAILABILITY OF CERTAIN DOCUMENTS REFERRED TO HEREIN
THIS PROXY STATEMENT REFERS TO CERTAIN DOCUMENTS OF THE COMPANY
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS ARE
AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
PROXY STATEMENT IS DELIVERED, UPON ORAL OR WRITTEN REQUEST, WITHOUT
CHARGE, DIRECTED TO ANTHONY K. CHAN, AMERICAN CHAMPION ENTERTAINMENT,
INC., 1894 THE ALAMEDA, SUITE 100, SAN JOSE CALIFORNIA 95126., TELEPHONE
NUMBER (408) 288-8199. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, SUCH REQUESTS SHOULD BE MADE BY APRIL 5, 1999.
OTHER MATTERS
The Board of Directors knows of no other business that will be
presented to the Annual Meeting. If any other business is properly brought
before the Annual Meeting, proxies in the enclosed form will be voted in
respect thereof as the proxy holders deem advisable.
It is important that the proxies be returned promptly and that your
shares be represented. Stockholders are urged to mark, date, execute and
promptly return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
/s/ ANTHONY K. CHAN, SECRETARY
Anthony K. Chan
Secretary
San Jose, California
March 24, 1999
PROXY PROXY
AMERICAN CHAMPION ENTERTAINMENT, INC.
PROXY FOR ANNUAL MEETING TO BE HELD ON MAY 5, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Anthony K. Chan or George Chung, or
either of them, as proxies, each with the power to appoint his substitute,
to represent and to vote all the shares of common stock of American
Champion Entertainment, Inc. (the "Company"), which the undersigned would
be entitled to vote, at the Company's Annual Meeting of Stockholders to be
held on May 5, 1999 and at any adjournments thereof, subject to the
directions indicated on the reverse side hereof.
In their discretion, the Proxies are authorized to vote upon any
other matter that may properly come before the meeting or any adjournments
thereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE,
BUT IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION
OF ALL NOMINEES AND FOR THE PROPOSALS LISTED ON THE REVERSE SIDE.
IMPORTANT--This Proxy must be signed and dated on the reverse side.
THIS IS YOUR PROXY CARD
YOUR VOTE IS IMPORTANT!
Dear Stockholder:
We cordially invite you to attend the Annual Meeting of Stockholders
of American Champion Entertainment, Inc. to be held at The Fairmont Hotel,
170 South Market Street, San Jose, California on Wednesday, May 5, 1999 at
7:00 p.m. (local time).
Please read the proxy statement which describes the proposals and
presents other important information, and complete, sign and return your
proxy promptly in the enclosed envelope.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1-7
1. ELECTION OF DIRECTORS --
Nominees: For Withhold
Anthony K. Chan [_] [_]
George Chung [_] [_]
Don Berryessa [_] [_]
William T. Duffy [_] [_]
Alan Elkes [_] [_]
Jan D. Hutchins [_] [_]
Ronald M. Lott [_] [_]
E. David Gable [_] [_]
2. Proposal to approve the increase of the For Against Abstain
number of shares Common Stock issuable under [_] [_] [_]
the Company's 1997 Employee Stock Option
Plan to 4,800,000.
3. Proposal to approve the increase of the For Against Abstain
number of shares of Common Stock issuable [_] [_] [_]
under the Company's 1997 Non-Employee Stock
Option Plan to 550,000.
4. Proposal to ratify the Securities Purchase
Agreement, dated January 19, 1999, and all For Against Abstain
transactions contemplated thereby, including [_] [_] [_]
the issuance of an aggregate of $950,000 of
convertible debentures, issued in January
1999.
5. Proposal to ratify the Placement Agent's
Agreement between the Company and JWGenesis
Capital Markets, LLC and all transactions
contemplated thereby, including the
issuance of a minimum of $700,000 and a For Against Abstain
maximum of $4,500,000 of Units, each Unit [_] [_] [_]
consisting of 50 shares of Series C
Redeemable Convertible Preferred Stock,
$.0001 par value per share, 25,000 Class A
Common Stock Purchase Warrants, and 25,000
Class B Common Stock Warrants at a price of
$50,000 per Unit.
6. Proposal to approve the amendment of the Company's
Certificate of Incorporation to increase the authorized
amount of capital stock from 23,000,000 For Against Abstain
shares to 46,000,000 shares, of which [_] [_] [_]
40,000,000 shall be common stock, $0.0001
par value per share, and 6,000,000 shall be
preferred stock, $0.0001 par value per
share.
7. Proposal to ratify Moss Adams LLP as For Against Abstain
independent auditors. [_] [_] [_]
If you plan to attend the Annual Meeting please mark this box [_]
Dated:________________, 1999
Signature
__________________________________________________________________________
Name (printed)
__________________________________________________________________________
Title
__________________________________________________________________________
Important: Please sign exactly as name appears on this proxy. When
signing as attorney, executor, trustee, guardian, corporate officer, etc.,
please indicate full title.
- ------------------------------------------------------------
APPENDIX A
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 1694 The Alameda, Suite 100, San Jose, CA 95126-2219 (the
"Company"), and each entity named on a signature page hereto (each, a
"Buyer") (each agreement with a Buyer being deemed a separate and
independent agreement between the Company and such Buyer, except that each
Buyer acknowledges and consents to the rights granted to each other Buyer
under such agreement and the Transaction Agreements, as defined below,
referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in accordance with and in reliance upon the
exemption from securities registration afforded, inter alia, by Rule 506
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "1933 Act"), and/or Section 4(2) of the 1933 Act;
and
WHEREAS, the Buyer wishes to purchase, upon the terms and
subject to the conditions of this Agreement, 7% Convertible Debentures of
the Company which will be convertible into shares of Common Stock, $.0001
par value per share of the Company (the "Common Stock"), upon the terms
and subject to the conditions of such Convertible Debentures, together
with the Warrants (as defined below) exercisable for the purchase of
shares of Common Stock (the "Warrant Shares"), and subject to acceptance
of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase; Certain Definitions. (i) The undersigned
hereby agrees to initially purchase from the Company 7% Convertible
Debentures in the principal amount set forth on the Buyer's signature page
of this Agreement (the "Debentures"), out of a total offering of $950,000
of such Debentures, and having the terms and conditions and being in the
form attached hereto as Annex I. The purchase price for the Debentures
shall be as set forth on the signature page hereto and shall be payable in
United States Dollars.
(ii) As used herein, the term "Securities" means the
Debentures, the Common Stock issuable upon conversion of the Debentures,
the Warrants and the Warrant Shares.
(iii) As used herein, the term "Purchase Price" means the
purchase price for the Debentures.
(iv) As used herein, the term "Closing Date" means the date
of the closing of the purchase and sale of the Debentures, as provided
herein.
(v) As used herein, the term "Effective Date" means the
effective date of the Registration Statement covering the Registrable
Securities (as those terms are defined in the Registration Rights
Agreement defined below).
(vi) As used herein, the term "Market Price of the Common
Stock" means (x) the average closing bid price of the Common Stock for the
five (5) trading days ending on the trading day immediately before the
date indicated in the relevant provision hereof (unless a different
relevant period is specified in the relevant provision), as reported by
Bloomberg, LP or, if not so reported, as reported on the over-the-counter
market or (y) if the Common Stock is listed on a stock exchange, the
lowest trade price on such exchange on the date indicated in the relevant
provision hereof, as reported in The Wall Street Journal.
b. Form of Payment; Delivery of Debentures.
(i) The Buyer shall pay the Purchase Price for the
Debentures by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint
Escrow Instructions attached hereto as Annex II (the "Joint Escrow
Instructions") on the date prior to the Closing Date.
(ii) No later than the Closing Date, but in any event
promptly following payment by the Buyer to the Escrow Agent of the
Purchase Price, the Company shall deliver the Debentures and the Warrants,
each duly executed on behalf of the Company, to the Escrow Agent.
(iii) By signing this Agreement, each of the Buyer and the
Company, subject to acceptance by the Escrow Agent, agrees to all of the
terms and conditions of, and becomes a party to, the Joint Escrow
Instructions, all of the provisions of which are incorporated herein by
this reference as if set forth in full.
c. Method of Payment. Payment into escrow of the Purchase
Price shall be made by wire transfer of funds to:
Bank of New York
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 Debentures in currently available funds. Time
is of the essence with respect to such payment, and failure by the Buyer
to make such payment, shall allow the Company to cancel this Agreement.
d. Escrow Property. The Purchase Price and the Debentures
and Warrants delivered to the Escrow Agent as contemplated by Sections
1(b) and (c) hereof are referred to as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock
pursuant to the Registration Statement (as that term is defined in the
Registration Rights Agreement defined below), the Buyer is purchasing the
Debentures and the Warrants and will be acquiring the shares of Common
Stock issuable upon conversion of the Debentures (the "Converted Shares")
and the Warrant Shares for its own account for investment only and not
with a view towards the public sale or distribution thereof and not with
a view to or for sale in connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term
is defined in Rule 501 of the General Rules and Regulations under the 1933
Act by reason of Rule 501(a)(3), (ii) experienced in making investments of
the kind described in this Agreement and the related documents, (iii)
able, by reason of the business and financial experience of its officers
(if an entity) and professional advisors (who are not affiliated with or
compensated in any way by the Company or any of its affiliates or selling
agents), to protect its own interests in connection with the transactions
described in this Agreement, and the related documents, and (iv) able to
afford the entire loss of its investment in the Securities.
c. All subsequent offers and sales of the Debentures and
the shares of Common Stock representing the Converted Shares and the
Warrant Shares (such Common Stock sometimes referred to as the "Shares")
by the Buyer shall be made pursuant to registration of the Shares under
the 1933 Act or pursuant to an exemption from registration.
d. The Buyer understands that the Debentures are being
offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and
the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order
to determine the availability of such exemptions and the eligibility of
the Buyer to acquire the Debentures. The Buyer represents and warrants
that the address of its principal place of business is as set forth on the
Buyer's signature page of this Agreement.
e. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of
the Company and materials relating to the offer and sale of the Debentures
and the offer of the Shares which have been requested by the Buyer,
including Annex V hereto. The Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries. Without limiting
the generality of the foregoing, the Buyer has also had the opportunity to
obtain and to review the Company's (1) Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997, (2) Quarterly Reports on Form 10-
QSB for the fiscal quarters ended March 31, 1998, June 30, 1998 and
September 30, 1998, (3) Proxy Statements for the Company's annual meeting
of shareholders held on May 29, 1998 and special meeting of shareholders
held September 23, 1998 and (4) Registration Statement on Form S-3/A filed
with the SEC on December 23, 1998 (the "Company's SEC Documents").
f. The Buyer understands that its investment in the
Securities involves a high degree of risk.
g. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on
or made any recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Buyer and is a valid and binding
agreement of the Buyer enforceable in accordance with its terms, subject
as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
i. Notwithstanding the provisions hereof or of the
Debentures, in no event (except (i) with respect to an automatic
conversion, if any, of a Debenture as provided in the Debentures, (ii) as
specifically provided in a Debenture as an exception to this provision, or
(iii) if the Company is in default under any Debenture or any of the
Transaction Agreements, as defined below and the Buyer has asserted such
default) shall the holder be entitled to convert any Debenture to the
extent that, after such conversion, the sum of (1) the number of shares of
Common Stock beneficially owned by the Buyer and its affiliates (other
than shares of Common Stock which may be deemed beneficially owned through
the ownership of the unconverted portion of the Debentures), and (2) the
number of shares of Common Stock issuable upon the conversion of the
Debentures with respect to which the determination of this proviso is
being made, would result in beneficial ownership by the Buyer and its
affiliates of more than 9.99% of the outstanding shares of Common Stock
(after taking into account the shares to be issued to the Buyer upon such
conversion). For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
except as otherwise provided in clause (1) of such sentence. The Buyer
further agrees that if the Buyer transfers or assigns any of the
Debentures to a party who or which would not be considered such an
affiliate, such transfer or assignment shall be made subject to the
transferee's or assignee's specific agreement to be bound by the
provisions of this Section 2(i) as if such transferee or assignee were a
signatory to this Agreement.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that, except
as provided in Annex V hereto:
a. Concerning the Debentures and the Shares. There are no
preemptive rights of any stockholder of the Company, as such, to acquire
the Debentures, the Warrants or the Shares.
b. Reporting Company Status. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Delaware and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The
Company is duly qualified as a foreign corporation to do business and is
in good standing in each jurisdiction where the nature of the business
conducted or property owned by it makes such qualification necessary,
other than those jurisdictions in which the failure to so qualify would
not have a material adverse effect on the business, operations or
condition (financial or otherwise) or results of operation of the Company
and its subsidiaries taken as a whole. The Company has registered its
Common Stock pursuant to Section 12 of the 1934 Act, and the Common Stock
is listed and traded on The NASDAQ/SmallCap Market. The Company has
received no notice, either oral or written, with respect to the continued
eligibility of the Common Stock for such listing, and the Company has
maintained all requirements for the continuation of such listing.
c. Authorized Shares. The Company has sufficient
authorized and unissued Shares as may be reasonably necessary to effect
the conversion of the Debentures and to issue the Warrant Shares. The
Converted Shares and the Warrant Shares have been duly authorized and,
when issued upon conversion of, or as interest on, the Debentures or upon
exercise of the Warrants, each in accordance with its respective terms,
will be duly and validly issued, fully paid and non-assessable and will
not subject the holder thereof to personal liability by reason of being
such holder.
d. Securities Purchase Agreement; Registration Rights
Agreement and Stock. This Agreement and the Registration Rights
Agreement, the form of which is attached hereto as Annex IV (the
"Registration Rights Agreement"), and the transactions contemplated
thereby, have been duly and validly authorized by the Company, this
Agreement has been duly executed and delivered by the Company and this
Agreement is, and the Debentures, the Warrants and the Registration Rights
Agreement, when executed and delivered by the Company, will be, valid and
binding agreements of the Company enforceable in accordance with their
respective terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights generally.
e. Non-contravention. The execution and delivery of this
Agreement and the Registration Rights Agreement by the Company, the
issuance of the Securities, and the consummation by the Company of the
other transactions contemplated by this Agreement, the Registration Rights
Agreement, and the Debentures do not and will not conflict with or result
in a breach by the Company of any of the terms or provisions of, or
constitute a default under (i) the articles of incorporation or by-laws of
the Company, each as currently in effect, (ii) any indenture, mortgage,
deed of trust, or other material agreement or instrument to which the
Company is a party or by which it or any of its properties or assets are
bound, including any listing agreement for the Common Stock except as
herein set forth, (iii) to its knowledge, any existing applicable law,
rule, or regulation or any applicable decree, judgment, or order of any
court, United States federal or state regulatory body, administrative
agency, or other governmental body having jurisdiction over the Company or
any of its properties or assets, or (iv) the Company's listing agreement
for its Common Stock, except such conflict, breach or default which would
not have a material adverse effect on the business, operations or
condition (financial or otherwise) or results of operations of the Company
and its subsidiaries, taken as a whole, or on the transactions
contemplated herein.
f. Approvals. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization,
or stock exchange or market or the stockholders of the Company is required
to be obtained by the Company for the issuance and sale of the Securities
to the Buyer as contemplated by this Agreement, except such
authorizations, approvals and consents that have been obtained or that are
contemplated by this Agreement to be obtained on a date after the date
hereof.
g. SEC Filings. None of the Company's SEC Documents
contained, at the time they were filed, any untrue statement of a material
fact or omitted to state any material fact required to be stated therein
or necessary to make the statements made therein in light of the
circumstances under which they were made, not misleading. Except for
certain filings required to be filed by persons subject and pursuant to
Section 16 of the 1934 Act, the Company has since August 1, 1997 timely
filed all requisite forms, reports and exhibits thereto with the SEC.
h. Absence of Certain Changes. Since January 1, 1998,
there has been no material adverse change and no material adverse
development in the business, properties, operations, condition (financial
or otherwise), or results of operations of the Company, except as
disclosed in the Company's SEC Documents. Since January 1, 1998, except as
provided in the Company's SEC Documents, the Company has not (i) incurred
or become subject to any material liabilities (absolute or contingent)
except liabilities incurred in the ordinary course of business consistent
with past practices; (ii) discharged or satisfied any material lien or
encumbrance or paid any material obligation or liability (absolute or
contingent), other than current liabilities paid in the ordinary course of
business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with
respect to its capital stock, or purchased or redeemed, or made any
agreements to purchase or redeem, any shares of its capital stock; (iv)
sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, except in the ordinary course of business consistent with
past practices; (v) suffered any substantial losses or waived any rights
of material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of existing business; (vi) made
any changes in employee compensation, except in the ordinary course of
business consistent with past practices; or (vii) experienced any material
problems with labor or management in connection with the terms and
conditions of their employment.
i. Full Disclosure. There is no fact known to the Company
(other than general economic conditions known to the public generally or
as disclosed in the Company's SEC Documents) that has not been disclosed
in writing to the Buyer that (i) would reasonably be expected to have a
material adverse effect on the business, operations or condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole, (ii) would reasonably be expected to
materially and adversely affect the ability of the Company to perform its
obligations pursuant to this Agreement or any of the agreements
contemplated hereby (collectively, including this Agreement, the
"Transaction Agreements"), or (iii) would reasonably be expected to
materially and adversely affect the value of the rights granted to the
Buyer in the Transaction Agreements.
j. Absence of Litigation. Except as set forth in the
Company's SEC Documents, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to
the knowledge of the Company, threatened against or affecting the Company,
wherein an unfavorable decision, ruling or finding would have a material
adverse effect on the properties, business or financial condition, or
results of operation of the Company and its subsidiaries taken as a whole
or the transactions contemplated by any of the Transaction Agreements or
which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, any
of the Transaction Agreements.
k. Absence of Events of Default. Except as set forth in
Section 3(e) hereof, no Event of Default (or its equivalent term), as
defined in the respective agreement to which the Company is a party, and
no event which, with the giving of notice or the passage of time or both,
would become an Event of Default (or its equivalent term) (as so defined
in such agreement), has occurred and is continuing, which would have a
material adverse effect on the business, operations or condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole.
l. Prior Issues. During the twelve (12) months preceding
the date hereof, the Company has not issued any convertible securities.
The presently outstanding unconverted principal amount of each such
issuance as at January , 1999 are set forth in Annex V.
m. No Undisclosed Liabilities or Events. The Company has
no liabilities or obligations other than those disclosed in the Company's
SEC Documents or those incurred in the ordinary course of the Company's
business since January 1, 1998, and which individually or in the
aggregate, do not or would not have a material adverse effect on the
properties, business, condition (financial or otherwise), or results of
operations of the Company and its subsidiaries, taken as a whole. Except
for the transactions contemplated by the Transaction Agreements, no event
or circumstances has occurred or exists with respect to the Company or its
properties, business, condition (financial or otherwise), or results of
operations, which, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company
but which has not been so publicly announced or disclosed. There are no
proposals currently under consideration or currently anticipated to be
under consideration by the Board of Directors or the executive officers of
the Company which proposal would (x) change the certificate of
incorporation or other charter document or by-laws of the Company, each as
currently in effect, with or without shareholder approval, which change
would reduce or otherwise adversely affect the rights and powers of the
shareholders of the Common Stock or (y) materially or substantially change
the business, assets or capital of the Company, including its interests in
subsidiaries.
n. No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust or other
material instrument or agreement to which it is a party or by which it or
its property is bound.
o. No Integrated Offering. Neither the Company nor any of
its affiliates nor any person acting on its or their behalf has, directly
or indirectly, at any time since July 1, 1998 made any offer or sales of
any security or solicited any offers to buy any security under
circumstances that would eliminate the availability of the exemption from
registration under Rule 506 of Regulation D in connection with the offer
and sale of the Securities as contemplated hereby.
p. Dilution. The number of Shares issuable upon conversion
of the Debentures and the exercise of the Warrants may increase
substantially in certain circumstances, including, but not necessarily
limited to, the circumstance wherein the trading price of the Common Stock
declines prior to the conversion of the Debentures. The Company's
executive officers and directors have studied and fully understand the
nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has
concluded, in its good faith business judgment, that such issuance is in
the best interests of the Company. The Company specifically acknowledges
that its obligation to issue the Shares upon conversion of the Debentures
and upon exercise of the Warrants is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1)
the Debentures have not been and are not being registered under the
provisions of the 1933 Act and, except as provided in the Registration
Rights Agreement, the Securities have not been and are not being
registered under the 1933 Act, and may not be transferred unless (A)
subsequently registered thereunder or (B) the Buyer shall have delivered
to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Securities to
be sold or transferred may be sold or transferred pursuant to an exemption
from such registration; (2) any sale of the Securities made in reliance on
Rule 144 promulgated under the 1933 Act may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable,
any resale of such Securities under circumstances in which the seller, or
the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance
with some other exemption under the 1933 Act or the rules and regulations
of the SEC thereunder; and (3) neither the Company nor any other person is
under any obligation to register the Securities (other than pursuant to
the Registration Rights Agreement) under the 1933 Act or to comply with
the terms and conditions of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees
that the Debentures and the Warrants, and, until such time as the Common
Stock has been registered under the 1933 Act as contemplated by the
Registration Rights Agreement and sold in accordance with an effective
Registration Statement, certificates and other instruments representing
any of the Securities shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer
of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION
OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
c. Registration Rights Agreement. The parties hereto agree
to enter into the Registration Rights Agreement on or before the Closing
Date.
d. Filings and Shareholder Consent. (i) The Company
undertakes and agrees to make all necessary filings in connection with the
sale of the Debentures to the Buyer under any United States laws and
regulations applicable to the Company, or by any domestic securities
exchange or trading market, and to provide a copy thereof to the Buyer
promptly after such filing.
(ii) The Company undertakes and agrees to take all steps
necessary to have a vote of the shareholders of the Company regarding
authorization of the Company's issuance to the holders of the Debentures
of shares of Common Stock in excess of twenty percent (20%) of the
outstanding shares of Common Stock on the Closing Date on or before the
Meeting Date (as defined below) in accordance with NASDAQ Rule
4310(c)(25)(H)(i)(d)(2). The term "Meeting Date" means the date of the
Company's Annual Meeting of Shareholders, currently anticipated to be held
on or about April 14, 1999. The Company will recommend to the
shareholders that such authorization be granted and will seek proxies from
shareholders not attending the meeting (if such meeting is required to
effectuate such authorization) naming a director or officer of the Company
as such shareholder's proxy and directing the proxy to vote, or giving the
proxy the authority to vote, in favor of such authorization. Upon
determination that the shareholders have voted in favor of such
authorization, the Company shall cause its counsel to issue to the Buyer
an unqualified opinion (the "Authorization Opinion") that such
authorization has been duly adopted by all necessary corporate action of
the Company and that the Company will be able to issue, without
restriction as to the number of such shares, all shares of Common Stock as
may be issuable upon conversion of the Debentures and without any limits
imposed by the Cap Regulations (as defined in the Debentures) adopted on
or before and in effect on the date of the Authorization Opinion. The
Authorization Opinion shall state that the Buyer may rely thereon in
connection with the transactions contemplated by this Agreement and the
other Transaction Agreements regarding its holdings of the Debentures.
If, for any reason, (x) the Authorization Opinion is not issued within
five (5) business days after such meeting, (y) the meeting is not held by
the Meeting Date or (z) the requisite shareholder approval is not obtained
at the meeting, the Conversion Rate shall be adjusted to ninety percent
(90%) of what the Conversion Rate would have been in the absence of this
provision.
(iii) In furtherance of the provisions of the immediately
preceding subparagraph (ii) hereof, the Company (a) commits to using its
best efforts to obtain any shareholder authorization contemplated by said
subparagraph (ii), and (b) represents to the Buyer that the Company has
obtained the binding irrevocable commitment or proxy (each, a "Principal
Voter Proxy") of each Principal Voter (as defined below) that such
Principal Voter will vote in favor of any shareholder authorization
contemplated by said subparagraph (ii). Each Principal Voter Proxy shall
be issued in favor of the Buyer or the Buyer's designee and shall state
that, among other things, as a result of the Principal Voter's direct or
indirect relationship to the Company on the date the Principal Voter Proxy
is given, such Principal Voter Proxy is deemed coupled with an interest in
favor of the Buyer. A "Principal Voter" is a person who meets any one or
more of the following criteria: (A) a person who is a director or
principal officer of the Company (each, a "Company Principal") and who,
directly or indirectly, holds any shares of Common Stock of the Company;
(B) a spouse of a Company Principal who resides in the household of the
Company Principal (a "Principal's Spouse") and who, directly or
indirectly, holds any shares of Common Stock of the Company, (C) a parent,
sibling or child of a Company Principal who resides in the household of a
Company Principal or of a Principal's Spouse (each, a "Principal's
Relative") and who, directly or indirectly, holds any shares of Common
Stock or (D) any other person or entity, including, without limitation,
for profit or non-profit corporations, partnerships and trusts, whose
voting rights regarding Common Stock of the Company is subject to the
direction, control or other influence of any Company Principal,
Principal's Spouse or Principal's Relative. The Company will deliver such
Principal Voter Proxies to the Buyer or the Buyer's designee within ten
(10) business days after the Closing Date.
e. Reporting Status. So long as the Buyer beneficially
owns any of the Debentures, the Company shall file all reports required to
be filed by the Company with the SEC pursuant to Section 13 or 15(d) of
the 1934 Act, and the Company shall not voluntarily terminate its status
as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would permit such termination.
The Company will take all reasonable action under its control to continue
the listing and trading of its Common Stock (including, without
limitation, all Registrable Securities) on The NASDAQ SmallCap Market and
will comply in all material respects with the Company's reporting, filing
and other obligations under the by-laws or rules of the National
Association of Securities Dealers, Inc. ("NASD") or The NASDAQ SmallCap
Market.
f. Use of Proceeds. The Company shall use the proceeds
from the sale of the Debentures (excluding amounts paid by the Company for
legal fees, finder's fees and escrow fees in connection with the sale of
the Debentures) for internal working capital purposes, and shall not,
directly or indirectly, use such proceeds for any loan to or investment in
any other corporation, partnership, enterprise or other person, including
any of its affiliates, or to repay any debt to any of its affiliates.
g. Certain Agreements. The Company covenants and agrees
that it will not, without the prior written consent of the Buyer, enter
into any subsequent or further offer or sale of Common Stock or securities
convertible into Common Stock with any third party on any date which is
prior to one hundred twenty (120) days after the Effective Date . The
foregoing provision shall not restrict the Company from issuing shares of
Common Stock upon the exercise of (x) certain warrants for the purchase of
up to approximately 1,755,000 outstanding as of the date hereof and (y)
certain options granted or be granted pursuant to the 1997 Stock Option
Plan or the 1997 Non-Employee Directors Stock Option Plan.
h. Available Shares. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares
of Common Stock sufficient to yield two hundred percent (200%) of the
number of shares of Common Stock issuable (i) at conversion as may be
required to satisfy the conversion rights of the Buyer pursuant to the
terms and conditions of the Debentures and (ii) upon exercise as may be
required to satisfy the exercise rights of the Buyer pursuant to the terms
and conditions of the Warrants.
i. Warrants. The Company agrees to issue to the Buyer on
the Closing Date transferable, divisible warrants (the "Warrants") for the
purchase of two thousand seven hundred fifty (2,750) shares of Common
Stock for every $100,000 principal of Debentures purchased by the Buyer.
The Warrants shall bear an exercise price equal to one hundred fifteen
percent (115%) of the Market Price of the Common Stock on the Closing
Date. The Warrants will expire on the third anniversary of the Closing
Date. The Warrants shall be in the form annexed hereto as Annex VI,
together with registration rights as provided in the Registration Rights
Agreement.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the
Purchase Price for the Debentures in accordance with Section 1(c) hereof,
the Company will irrevocably instruct its transfer agent to issue Common
Stock from time to time upon conversion of the Debentures in such amounts
as specified from time to time by the Company to the transfer agent,
bearing the restrictive legend specified in Section 4(b) of this Agreement
prior to registration of the Shares under the 1933 Act, registered in the
name of the Buyer or its nominee and in such denominations to be specified
by the Buyer in connection with each conversion of the Debentures. The
Company warrants that no instruction other than such instructions referred
to in this Section 5 and stop transfer instructions to give effect to
Section 4(a) hereof prior to registration and sale of the Shares under the
1933 Act will be given by the Company to the transfer agent and that the
Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement, the
Registration Rights Agreement, and applicable law. Nothing in this
Section shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities.
If the Buyer provides the Company with an opinion of counsel reasonably
satisfactory to the Company that registration of a resale by the Buyer of
any of the Securities in accordance with clause (1)(B) of Section 4(a) of
this Agreement is not required under the 1933 Act, the Company shall
(except as provided in clause (2) of Section 4(a) of this Agreement)
permit the transfer of the Securities and, in the case of the Converted
Shares or the Warrant Shares, as the case may be, promptly instruct the
Company's transfer agent to issue one or more certificates for Common
Stock without legend in such name and in such denominations as specified
by the Buyer.
b. Subject to the completeness and accuracy of the Buyer's
representations and warranties herein, upon the conversion of any
Debentures by a person who is a non-U.S. Person, and following the
expiration of any then applicable Restricted Period (as those terms are
defined in Regulation S), the Company, shall, at its expense, take all
necessary action (including the issuance of an opinion of counsel) to
assure that the Company's transfer agent shall issue stock certificates
without restrictive legend or stop orders in the name of Buyer (or its
nominee (being a non-U.S. Person) or such non-U.S. Persons as may be
designated by Buyer) and in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable upon
such conversion, as applicable. Nothing in this Section 5, however, shall
affect in any way Buyer's or such nominee's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities.
c. (i) Subject to the provisions of this Agreement and of
the Debentures, the Company will permit the Buyer to exercise its right to
convert the Debentures by telecopying or delivering an executed and
completed Notice of Conversion to the Company and delivering within five
(5) business days thereafter, the original Debentures being converted to
the Company by express courier, with a copy to the transfer agent.
(ii) The term "Conversion Date" means, with respect to
any conversion elected by the holder of the Debentures, the date specified
in the Notice of Conversion, provided the copy of the Notice of Conversion
is telecopied to or otherwise delivered to the Company in accordance with
the provisions hereof so that it is received by the Company on or before
such specified date.
(iii) The Company will transmit the certificates
representing the Converted Shares issuable upon conversion of any
Debentures (together with Debentures not being so converted) to the Buyer
at the address specified in the Notice of Conversion (which may be the
Buyer's address for notices as contemplated by Section 11 hereof or a
different address), via express courier, by electronic transfer or
otherwise, within five (5) business days if the address for delivery is in
the United States and within seven (7) business days if the address for
delivery is outside the United States (such fifth business day or seventh
business day, as the case may be, the "Delivery Date") after (A) the
business date on which the Company has received both of the Notice of
Conversion (by facsimile or other delivery) and the original Debentures
being converted (and if the same are not delivered to the Company on the
same date, the date of delivery of the second of such items) or (B) the
date an interest payment on the Debenture, which the Company has elected
to pay by the issuance of Common Stock, as contemplated by the Debentures,
was due.
d. The Company understands that a delay in the issuance of
the Shares of Common Stock beyond the Delivery Date could result in
economic loss to the Buyer. As compensation to the Buyer for such loss,
the Company agrees to pay late payments to the Buyer for late issuance of
Shares upon Conversion in accordance with the following schedule (where
"No. Business Days Late" is defined as the number of business days beyond
the Delivery Date):
Late Payment For Each $10,000
of Debenture Principal
No. Business Days Late Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit the
Buyer's right to pursue actual damages for the Company's failure to issue
and deliver the Common Stock to the Buyer. Furthermore, in addition to
any other remedies which may be available to the Buyer, in the event that
the Company fails for any reason to effect delivery of such shares of
Common Stock by close of business on the Delivery Date, the Buyer will be
entitled to revoke the relevant Notice of Conversion by delivering a
notice to such effect to the Company, whereupon the Company and the Buyer
shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion.
e. If, by the relevant Delivery Date, the Company fails for
any reason to deliver the Shares to be issued upon conversion of a
Debenture and after such Delivery Date, the holder of the Debentures being
converted (a "Converting Holder") purchases, in an open market
transaction or otherwise, shares of Common Stock (the "Covering Shares")
in order to make delivery in satisfaction of a sale of Common Stock by the
Converting Holder (the "Sold Shares"), which delivery such Converting
Holder anticipated to make using the Shares to be issued upon such
conversion (a "Buy-In"), the Company shall pay to the Converting Holder,
in addition to all other amounts contemplated in other provisions of the
Transaction Agreements, and not in lieu thereof, the Buy-In Adjustment
Amount (as defined below). The "Buy-In Adjustment Amount" is the amount
equal to the excess, if any, of (x) the Converting Holder's total purchase
price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received
by the Converting Holder from the sale of the Sold Shares. The Company
shall pay the Buy-In Adjustment Amount to the Company in immediately
available funds immediately upon demand by the Converting Holder. By way
of illustration and not in limitation of the foregoing, if the Converting
Holder purchases shares of Common Stock having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for net proceeds of $10,000, the
Buy-In Adjustment Amount which Company will be required to pay to the
Converting Holder will be $1,000.
f. In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of the Buyer and its
compliance with the provisions contained in this paragraph, so long as the
certificates therefor do not bear a legend and the Buyer thereof is not
obligated to return such certificate for the placement of a legend
thereon, the Company shall use its best efforts to cause its transfer
agent to electronically transmit the Common Stock issuable upon conversion
to the Buyer by crediting the account of Buyer's Prime Broker with DTC
through its Deposit Withdrawal Agent Commission system.
g. The Company will authorize its transfer agent to give
information relating to the Company directly to the Buyer or the Buyer's
representatives upon the request of the Buyer or any such representative.
The Company will provide the Buyer with a copy of the authorization so
given to the transfer agent.
6. DELIVERY INSTRUCTIONS.
The Debentures shall be delivered by the Company to the Escrow
Agent pursuant to Section 1(b) hereof, on a delivery against payment
basis, subject to the specific provisions hereof, no later than on the
Closing Date.
7. CLOSING DATE.
a. The Closing Date shall occur on the date which is the
first NYSE trading day after the fulfillment or waiver of all closing
conditions pursuant to Sections 8 and 9 hereof or such other date and time
as is mutually agreed upon by the Company and the Buyer.
b. The closing of the purchase and issuance of Debentures
shall occur on the Closing Date at the offices of the Escrow Agent and
shall take place no later than 12:00 Noon, New York time, on such day or
such other time as is mutually agreed upon by the Company and the Buyer.
c. Notwithstanding anything to the contrary contained
herein, the Escrow Agent will be authorized to release the Escrow Property
only upon satisfaction of the conditions set forth in Sections 8 and 9
hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell
the Debentures to the Buyer pursuant to this Agreement on the Closing Date
is conditioned upon:
a. The execution and delivery of this Agreement by the
Buyer;
b. Delivery by the Buyer to the Escrow Agent of good funds
as payment in full of an amount equal to the Purchase Price for the
Debentures in accordance with this Agreement;
c. The accuracy on such Closing Date of the representations
and warranties of the Buyer contained in this Agreement, each as if made
on such date, and the performance by the Buyer on or before such date of
all covenants and agreements of the Buyer required to be performed on or
before such date; and
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the Debentures on the Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company;
b. Delivery by the Company to the Escrow Agent of the
Debentures and Warrants in accordance with this Agreement;
c. The accuracy in all material respects on such Closing
Date of the representations and warranties of the Company contained in
this Agreement, each as if made on such date, and the performance by the
Company on or before such date of all covenants and agreements of the
Company required to be performed on or before such date;
d. On such Closing Date, the Registration Rights Agreement
shall be in full force and effect and the Company shall not be in default
thereunder;
e. On such Closing Date, the Buyer shall have received an
opinion of counsel for the Company, dated such Closing Date, in form,
scope and substance reasonably satisfactory to the Buyer, substantially to
the effect set forth in Annex III attached hereto;
f. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained; and
g. From and after the date hereof to and including the
Closing Date, the trading of the Common Stock shall not have been
suspended by the SEC or the NASD and trading in securities generally on
the New York Stock Exchange or The NASDAQ/SmallCap Market shall not have
been suspended or limited, nor shall there be any outbreak or escalation
of hostilities involving the United States or any material adverse change
in any financial market that in either case in the reasonable judgment of
the Buyer makes it impracticable or inadvisable to purchase the
Debentures.
10. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware for contracts to be
wholly performed in such state and without giving effect to the principles
thereof regarding the conflict of laws. Each of the parties consents to
the jurisdiction of the federal courts whose districts encompass any part
of the City of New York or the state courts of the State of New York
sitting in the City of New York in connection with any dispute arising
under this Agreement and hereby waives, to the maximum extent permitted by
law, any objection, including any objection based on forum non conveniens,
to the bringing of any such proceeding in such jurisdictions. To the
extent determined by such court, the Company shall reimburse the Buyer for
any reasonable legal fees and disbursements incurred by the Buyer in
enforcement of or protection of any of its rights under any of the
Transaction Agreements.
b. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
c. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may
require.
e. A facsimile transmission of this signed Agreement shall
be legal and binding on all parties hereto.
f. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original.
g. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of,
this Agreement.
h. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement or the validity or enforceability of this Agreement in any other
jurisdiction.
i. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement thereof.
j. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
11. NOTICES. Any notice required or permitted hereunder
shall be given in writing (unless otherwise specified herein) and shall be
deemed effectively given on the earliest of
(a) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile
transmission,
(b) the seventh business day after deposit, postage prepaid,
in the United States Postal Service by registered or certified
mail, or
(c) the third business day after mailing by international
express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at
the following addresses (or at such other addresses as such party may
designate by ten (10) days' advance written notice similarly given to each
of the other parties hereto):
COMPANY: AMERICAN CHAMPION ENTERTAINMENT, INC.
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.
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyer or one of its officers thereunto duly authorized as of the date
set forth below.
AMOUNT AND PURCHASE PRICE OF DEBENTURES: $
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities
Purchase Agreement to be duly executed on its behalf this ________ day of
___________________, 1999.
________________________ ____________________________
Address Printed Name of Subscriber
________________________________
By:___________________________
Telecopier No. _________________ (Signature of Authorized Person)
____________________________
Printed Name and Title
________________________________
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this
Agreement and represents that the foregoing statements are true and
correct and that it has caused this Securities Purchase Agreement to be
duly executed on its behalf.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:_____________________________
Title:__________________________
Date:___________________________
List of Purchasers: Amount
The Endeavour Capital Fund S.A. $250,000
Amro International, S.A. $200,000
Canadian Advantage L.P. $300,000
Olympia Partners, LLC $200,000
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. 99- US $
AMERICAN CHAMPION ENTERTAINMENT, INC.
7% CONVERTIBLE DEBENTURE DUE JANUARY 1, 2002
THIS DEBENTURE is one of a duly authorized issue of up to $950,000 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 registered holder hereof (the "Holder"), the
principal sum of _______________________________ and 00/100 Dollars (US
$ _____________ ) on January 1, 2002 (the "Maturity Date")
and to pay interest on the principal sum outstanding from time to time in
arrears (i) semi-annually, on the last day of June 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.
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 into shares of Common Stock of the Company at a
conversion price for each share of Common Stock ("Conversion Rate") equal
to 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
Closing Date (as defined in the Securities Purchase Agreement).
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 (408)
288-8098; 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 of more than one day 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.
D. Any principal amount of this Debenture not previously
converted or redeemed as of the Maturity Date, shall be deemed to be
automatically converted, without further action of any kind (including,
but not necessarily limited to, the giving of a Notice of Conversion) by
the Holder, as of the Maturity Date at the Conversion Rate applicable on
the Maturity Date ("Mandatory Conversion").
E. Notwithstanding any other provision of this Debenture or
of the other Transaction Agreements (as defined in the Securities Purchase
Agreement) to the contrary, in no event (except (i) with respect to a
Mandatory Conversion or other automatic conversion, if any, of the
Debenture as provided herein, (ii) as specifically provided in this
Debenture as an exception to this provision, or (iii) if the Company is in
default under this Debenture or any of the other Transaction Agreements
and the Holder has asserted such default) shall the Holder be entitled to
convert this Debenture to the extent that, after such conversion, the sum
of (1) the number of shares of Common Stock beneficially owned by the
Holder 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 Holder 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 Holder, by accepting this Debenture, further agrees
that if the Holder 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 4(d) as
if such transferee or assignee were the original Holder hereof.
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 without the consent
of the Issuer. 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.
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.
7. Subject to the terms of the Securities Purchase Agreement,
dated January , 1999 (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.
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.
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
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.
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: __________________, 1999
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:__________________________________
_____________________________________
(Print Name)
_____________________________________
(Title)
EXHIBIT A
NOTICE OF CONVERSION
OF
7% CONVERTIBLE DEBENTURE DUE JANUARY 1, 2002
(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.
List of debentures: Amount
The Endeavour Capital Fund S.A. $250,000
Amro International, S.A. $200,000
Canadian Advantage L.P. $300,000
Olympia Partners, LLC $200,000
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"),
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 January 31, 2002 (the "Expiration Date"),
Thousand ( )(2) fully paid and nonassessable shares of the
Company's Common Stock, par value $.0001 per share (the "Common Stock") at
an initial exercise price per share (the "Exercise Price") of $________ (3)
, subject to further adjustment as set forth herein.
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.
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.
(2) Two Thousand seven hundred fifty (2,750) for every $100,000 principal of
Debentures purchased
(3) Price to be filled in equal to 125% of average closing bid price of Common
Stock for 5 trading days ending on date before Closing Date.
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.
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 the Required Filing Date and to have the
registration of the Warrant Shares completed and effective by the Required
Effective Date (as those terms are defined in the Registration Rights
Agreement).
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) 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
(ii) if to the Holder, to:
ATTN:
Telephone No.: ( ) -
Telecopier No.: ( ) -
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
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 __ th day of _____________ 1999.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:_________________________________
Name:
Its:
Attest:
________________________
Name:
Title:
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of
, 1999, to purchase shares of the Common Stock, par value
$.0001 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: $ _______________________
Number of Exercise
List of warrant holders: Shares Price Expiration
The Endeavour Capital Fund S.A. 6,875 $2.1406 Jan 31, 2002
Amro International, S.A. 5,500 $2.1406 Jan 31, 2002
Canadian Advantage L.P. 8,250 $2.1406 Jan 31, 2002
Olympia Partners, LLC 5,500 $2.1406 Jan 31, 2002
JW Genesis Financial Corporation 35,000 $2.1406 Jan 31, 2002
APPENDIX B
February 19, 1999
American Champion Entertainment, Inc.
1694 The Alameda Suite 100
San Jose, CA 95126-2219
Attention: Mr. Anthony K. Chan
Chief Executive Officer and President
Gentlemen:
Reference is made to recent discussions between JWGenesis Capital
Markets, LLC ("JWGenesis") and American Champion Entertainment, Inc. and
its affiliates and related entities (collectively, the "Company")
relating to a proposed private placement offering (the "Private
Placement") of up to a maximum of $4.5 million of securities of the
Company which are described on the term sheet attached as Appendix B
(the "Securities"). Based upon discussions between JWGenesis and the
Company and other materials which the Company has submitted to JWGenesis
and representations which the Company has made to JWGenesis describing
the Company and its principals, operations and financial condition and
the present and proposed business activities of the Company, JWGenesis
hereby confirms in principle in this engagement agreement (the
"Agreement") its interest in serving as placement agent, on a "best
efforts" basis, for the Private Placement of the Company's Securities,
upon the following basic terms and conditions.
1. Subject to the completion of JWGenesis' due diligence
investigation of the Company to JWGenesis' satisfaction (as to which
JWGenesis shall be the sole judge), JWGenesis will serve as placement
agent, on a "best efforts" basis, for a Private Placement of $2.0 to
$4.5 million of securities of the Company.
2. The Private Placement will be offered only to "accredited
investors" as defined in Regulation D promulgated under the Securities
Act of 1.933, as amended (the "Act"). The Securities may be sold in
one or more closings.
3. Immediately prior to the Private Placement, there will be
issued and outstanding no more than 5,696,470 of shares of common stock
of the Company (the "Common Stock") as well as $950,000 of convertible
debentures and other securities of the Company as shall be acceptable to
JWGenesis. In addition, the Company will have authorized an employee and
director stock option plan (the "Stock Option Plan") under which 850,000
options shall be reserved for future issuance to employees and
directors. The Company has further advised JWGenesis that immediately
prior to the Private Placement contemplated herein there will be no
other capital stock issued and outstanding, nor will there be
outstanding any rights to acquire, commitments to issue or securities
convertible into capital stock, other than as permitted by JWGenesis.
The Company agrees that, for a period from the date hereof until twelve
months after the final closing of the Private Placement (the "Final
Closing"), the Company will not grant any options without the prior
written consent of JWGenesis, provided, however, that the Company may
grant options pursuant to its outstanding Stock Option Plan to purchase
shares of Common Stock at exercise prices not less than the fair market
value of the Common Stock on the date of grant, none of which options
may be granted prior to the Final Closing of the Private Placement.
During the term of the Private Placement and for a period of 1.2 months
thereafter, the Company shall incur no additional indebtedness other
than such as incurred in the ordinary course of business or as permitted
by JWGenesis, not to be unreasonably withheld. The Company is not a
party to or threatened by litigation that could have a material effect
on its business or prospects. The Company shall, at the time of the
Final Closing and at all times thereafter, have authorized and reserved
sufficlent shares of the Common Stock to accommodate the issuance of the
Common Stock issuable upon exercise of JWGenesis' Purchase Option (as
defined below).
4. The Company will expeditiously take all the steps necessary
to effectuate the Private Placement. Pending completion of the Private
Placement, the Company agrees that it will not negotiate with any other
investment banking firm or other person relating to a possible public or
private offering or placement of their securities. Furthermore, the
Company hereby represents and warrants that it is not a party to any
agreement with any such firm or person granting such firm or person any
right to undertake an offering of securities on behalf of the
Company.
5. JWGenesis will act as agent in selling the securities for
the Company on a "best efforts" basis (subject to the terms and
conditions set forth in an agency agreement to be entered into, if
appropriate, between the parties hereto (the "Agency Agreement")).
JWGenesis may, at its discretion, negotiate with other members ("Selling
Agents") in good standing of the National Association of Securities
Dealers, Inc. ("NASD"), who acting severally would contract to sell, as
selling agents, portions of the securities for the Company. Any fees
committed to by
JWGenesis on its own behalf due any Selling Agents selected and
introduced by JWGenesis will be paid by JWGenesis, though such fees, if
any, shall not exceed any private placement fee paid to JWGenesis by the
Company pursuant to the next succeeding paragraph.
6. The Company shall pay to JWGenesis in consideration for
JWGenesis' services as placement agent, a placement fee equal to ten
percent (10% ) of the gross proceeds of each closing of the Private
Placement ("Closing") payable in cash upon such Closing.
7. The Company shall, at the time of the first Closing, have at
least two non-affiliated (outside) directors on its Board of Directors
during the two years following the commencement of this Private
Placement. For a period of two (2) years from the Closing, JWGenesis
shall have the right, at its option, to attend all meetings of the Board
of Directors and to nominate a designee to the Board of Directors.
8. The Company shall be responsible for and shall bear all
expenses directly and necessarily incurred in connection with the
proposed Private Placement, including but not limited to the costs of
preparing, printing and delivering all selling documents, including but
not limited to the Agency Agreement, blue sky memorandum and stock
certificates; fees and disbursements of the transfer agent; blue sky
fees and filing fees (including legal fees); travel expenses for the
Company for any meetings or road show presentations; and all legal fees
(not to exceed $50,000 and disbursements of JWGenesis' counsel
(collectively, the "Company Expenses"). The Company agrees to use a
printer which is acceptable to JWGenesis. The Company shall pay
JWGenesis at each Closing a non-accountable expense allowance equal to
three percent (3%) of the total proceeds of such Closing, to cover the
cost of JWGenesis' due diligence investigation of the Company. If the
Private Placement is not completed because JWGenesis prevents its
completion (except if such prevention is based upon a material adverse
change in the Company's business, financial performance and condition or
prospects or breach by the Company of any covenant, representation or
warranty contained herein or made previously or hereafter or set forth
in the Agency Agreement), the Company shall not be liable for JWGenesis'
expense allowance set forth in the next proceeding sentence (but shall
remain liable for all of the Company Expenses). If the proposed
financing is not completed because the Company prevents it or because
of a breach by the Company of any such covenants, representations or
warranties, the Company shall upon demand by JWGenesis: (i) pay to
JWGenesis the amount of $50,000 (in addition to the Company Expenses for
which the Company shall in all events remain liable ); and (ii) issue
to JWGenesis the Purchase Option described in paragraph 1.0 below (based
upon the sale of the maximum Registrable Securities).
9. The Company shall include the Securities issued pursuant to
the Private Placement (the "Registrable Securities") in a Registration
Statement (the "Registration Statement") to be filed with the Securities
and Exchange Commission. The Company shall keep such Registration
Statement effective in order to permit a public: offering and sale of
the securities prior to and during a period of two (2) years from the
date on which the securities are permitted to be sold pursuant to the
Registration Statement as provided herein; provided, however, that the
Company shall not be required to maintain the effectiveness of the
Registration Statement after the earlier of (i) the date that all of the
Registrable Securities have been sold pursuant to the Registration
Statement or (ii) the date the holders thereof receive an opinion of
counsel that the Registrable Securities may be sold under the provisions
of Rule 144(k) of the Act.
The Company agrees to file a Registration Statement within 120
days from the first Closing covering the registration of the Securities
and the Purchase Option, as hereinafter defined.
The Company shall bear all fees and expenses incurred in the
preparation and filing of the Registration Statement. After the
effective date of the Registration Statement, the Company will, as
expeditiously as possible, prepare and file with the Securities and
Exchange Commission such amendments and supplements to the Registration
Statement (and to any prospectus included therein) as may be necessary
to keep the Registration Statement continuously effective for the period
of the earlier of eighteen months from the Closing or one (1) year from
the effective date of the registration statement provided hereinbefore.
The Company will furnish to the holders of Registrable Securities
such number of prospectuses, preliminary prospectuses and other
documents as they shall reasonably request in connection with the
public sale of the Registrable Securities. The Company shall take all
necessary action which may be required in qualifying or registering the
Registrable Securities for offering and sale under the securities or
blue sky laws of such states as may be reasonably requested by the
holders of Registrable Securities.
10. Upon each Closing of the Private Placement, the Company will
grant to JWGenesis, for an aggregate of ten dollars ($10), a warrant or
warrants (the "Purchase Option"), to purchase additional Registrable
Securities equal to 10% of the Registrable Securities sold at such
Closing. The Purchase Option shall be exercisable at an exercise price
of 100% of the purchase price paid for the Registrable Securities at
such Closing during the period commencing on the first Closing through
the fifth anniversary of the effectiveness of the first registration
statement relating to such Purchase Option. JWGenesis' Purchase Option
will in all other respects be identical to the securities being sold in
the Private Placement, except such Purchase Option may not be redeemed
by the Company without the consent of JWGenesis. The Purchase Option
will contain comprehensive antidilution provisions. The Company agrees
to register expeditiously on two separate occasions the Purchase Option
and the shares underlying such Purchase Option and its component
Purchase Option shares at the request of JWGenesis, and will file on
each occasion a registration statement under the Act covering such
securities within twenty (20) days after receipt of each such request.
Should this registration be delayed by the Company, the exercise period
for the Purchase Option shall be extended for a period of time equal to
the length of the delay in registering these securities. Each of these
two requests may be made at any time during a period of seven (7) years
beginning from the Closing (the "Registration Rights Period"). The
Company will bear all expenses attendant to registering the securities.
In addition, during JWGenesis' Registration Rights Period the holders of
the Purchase Option will also have unlimited "piggyback" registration
rights for such Purchase Option (including the registration contemplated
by paragraph 9 hereof). In connection with these piggyback registration
rights, the Company shall give the holders of the Purchase Option notice
by registered mail at least thirty (30) days prior to the filing of any
registration statement with the Securities and Exchange Commission.
11. The Company agrees to retain JWGenesis as its non-exclusive
investment banker for a period of two (2) years from the Closing for a
fee of 150,000 shares of Common Stock which shall be issued at the
Closing. JWGenesis will provide advisory services as requested by the
Company. The Company agrees to reimburse JWGenesis for all reasonable
out-of-pocket expenses incurred in carrying out any services provided to
the Company, including travel, telephone, facsimile, courier, computer
time charges, attorneys' fees and disbursements. These out-of-pocket
expenses will be payable from time to time promptly upon invoicing by
JWGenesis therefor.
12. Anthony K. Chan shall be the Chief Executive Officer of the
Company at the time of the initial Closing and Final Closing.
13. JWGenesis shall have a preferential right for a period of
two (2) years from the date of the first Closing of the Private
Placement to purchase for its account or to sell for the account of the
Company, or any subsidiary of or successor to the Company (collectively
referred to herein as the Company) or any of its stockholders owning at
least five percent (5%) of the Company's securities ("Principal
Stockholders"), any securities with respect to which the Company or any
of its Principal Stockholders may seek a private or public offering
pursuant to a registration under the Act or otherwise. In addition,
JWGenesis shall have the right of first refusal for two (2) years to act
as the managing underwriter or, at JWGenesis' sole discretion, a member
of the underwriting syndicate and/or selling group with respect to any
offering of the Company's securities. The Company and its Principal
Stockholders will consult with JWGenesis with regard to any such
offering and will offer JWGenesis the opportunity to purchase or sell
any such securities on terms not more favorable to the Company or its
Principal Stockholders than they can secure elsewhere. Any breach by
the Company or any of the Principal Stockholders of JWGenesis' rights
of first refusal shall be enforceable by JWGenesis through injunctive
relief. The Company represents and warrants that no other person or
entity has any rights to participate in any offer, sale or distribution
of securities with respect to which JWGenesis shall have preferential
right.
14. The Company represents and warrants that no person other
than JWGenesis is entitled, directly or indirectly, to compensation from
the Company for services as a finder in connection with the proposed
Private Placement or any other transaction contemplated by this letter.
15. Anthony K. Chan and George Chung shall agree that, for a
period of twelve (12) months from the Final Closing, they will not sell,
assign or transfer any of their shares of the Company's securities
without JWGenesis' prior written consent. After the period starting six
months from the Final Closing, if the Common Stock closes at over $8.00
for ten (10) consecutive trading days, then the lock-up restriction on
Messrs. Chan and Chung shall be released for as long as the closing
price of the Common Stock remains at over $8.00. The compensation of
the current executive officers of the Company shall be agreeable to
JWGenesis and shall not be increased for the period from the date
hereof until twelve (12) months after the Final Closing.
16. During a period ending five years from the Final Closing
(the "Term"), the Company shall enter into JWGenesis' standard mergers
and acquisition finder's agreement at JWGenesis' request. In the event
an acquisition candidate is introduced to the Company by JWGenesis or
contacted by JWGenesis from the signing date of the engagement letter or
within twenty-four (24) months after the Closing (the "Term"), the
Company will pay or cause to be paid to JWGenesis a transaction fee (the
"Transaction Fee") equal to the sum of: (i) five percent (5%) of the
first $15,000,000 of aggregate consideration involved in any
Transaction, plus (ii) three and one-half percent (3-1/2%) of the next
$10,000,000 of aggregate consideration, plus (iii) two percent (2%) of
the balance of the aggregate consideration involved in any transaction
(including mergers, acquisitions, sales, joint ventures and any other
business combinations involving the Company); and that any such
Transaction Fee due to JWGenesis will be paid in cash at the closing of
the particular transaction for which the finder's fee is due. In the
event JWGenesis introduces a candidate to the Company during the Term
that acquires any securities or assets of the Company, then the Company
shall pay JWGenesis a fee equal to eight percent (8%) of the total
consideration paid by the purchaser in lieu of the fee set forth in the
next preceding sentence for such transaction.
17. For a period of two (2) years from the Closing the Company
shall provide to JWGenesis, at the Company's expense, copies of the
Company's daily stock transfer sheets, if requested.
18. The Company shall not use any net proceeds from the Private
Placement to repay any indebtedness of the Company including but not
limited to any indebtedness to current executive officers or Principal
Stockholders of the Company other than as approved in writing by
JWGenesis.
19. The Company and JWGenesis hereby agree to the terms and
conditions of the Indemnification Agreement attached hereto as Appendix
A with the same force and effect as if such terms and conditions were
set forth at length herein.
20. In order to coordinate the efforts of both JWGenesis and the
Company, and to maximize the possibility of consummating a Private
Placement during the term of this Agreement, JWGenesis shall have the
sole and exclusive authority to initiate discussions with potential
purchasers of the Securities. In the event the Company or its directors,
officers, employees or shareholders receive any inquiries or conduct any
discussions concerning the availability of the Securities for purchase,
such inquiries and discussions shall be promptly referred to JWGenesis.
21. Any financial or other advice, descriptive memoranda or
other documentation rendered by JWGenesis pursuant to this Agreement may
not be disclosed, quoted or otherwise referred to publicly to any third
party or in any document in any manner without the prior written
approval of JWGenesis. All non-public information provided by the
Company to JWGenesis will be considered as confidential information and
shall be maintained as such by JWGenesis, except as required by law or
as required to enable JWGenesis to perform its services pursuant to this
Agreement, until the same becomes known to third parties or the public
without release thereofby JWGenesis.
The Company agrees to provide to JWGenesis, among other things,
all information reasonably requested or required by JWGenesis or a
potential investor, including, but not limited to, information
concerning historical and projected financial results and possible and
known litigious and other contingent liabilities of the Company. The
Company also agrees to make available to JWGenesis such representatives
of the Company, including, among others, directors, officers, employees,
outside counsel and independent certified public accountants, as
JWGenesis may reasonably request. The Company will promptly advise
JWGenesis of any material changes in its business or finances. The
Company represents that all information made available to JWGenesis by
the Company, including, without limiting the generality of the
foregoing, any Private Placement memorandum or other information
materials prepared by or approved by the Company, will be complete and
correct in all material respects and will not contain any untrue
statements of a material fact or omit to state a material fact necessary
in order to make the statement therein not misleading in light of the
circumstances under which such statements are made. In rendering its
services hereunder, JWGenesis will be using and relying primarily on
such information without independent verification thereof or independent
appraisal of any of the Company's assets. JWGenesis does not assume
responsibility for the accuracy or completeness of the information.
22. The services herein provided are to be rendered solely to
the Company. They are not being rendered by JWGenesis as an agent for
or as a fiduciary of the shareholders of the Company and JWGenesis shall
not have any liability or obligation with respect to its services
hereunder to such shareholders or to any other person, firm or
corporation.
23. This Agreement sets forth the entire understanding of the
parties relating to the subject matter hereof and supersedes and cancels
any prior communications, understandings and agreements between the
parties. This Agreement cannot be terminated or changed, nor can any of
its provisions be waived, except by written agreement signed by all
parties hereto. This Agreement shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives
of the Company and JWGenesis. A telecopy of a signed original of this
Agreement shall be sufficient to bind the parties whose signatures
appear hereon.
24. This Agreement shall be governed by and construed to be in
accordance with the laws of the State of New York applicable to
contracts made and to be performed solely in such state by citizens
thereof. Any dispute arising out of this Agreement shall be adjudicated
in the courts of the State of New York or in the federal courts sitting
in the Southern District of New York, and the Company hereby agrees that
service of process upon it by registered or certified mail at the
address shown in this Agreement shall be deemed adequate and lawful. The
parties hereto shall deliver notices to each other by personal delivery
or by registered mail (return receipt requested) at the address set
forth above.
Please confirm that the foregoing is in accordance with your
understanding by signing on behalf of the Company and returning an
executed copy of this Agreement, whereupon after execution by JWGenesis
it shall become a binding agreement between the Company and JWGenesis.
Very truly yours,
JWGENESIS CAPITAL MARKETS, LLC
By: /s/ Jeffrey H. Lehman
Jeffrey H. Lehman
Director of Corporate Finance
Accepted and agreed to
this 19th day of February 1999:
AMERICAN CHAMPION ENTERTAINMENT, INC.
AND ITS AFFILIATES AND RELATED ENTITIES
By: /s/ Anthony K. Chan
Mr. Anthony K. Chan
Chief Executive Officer and President
INDEMNIFICATION AGREEMENT
Appendix A to the letter engagement agreement (the "Agreement"),
dated February 19, 1999 by and between American Champion Entertainment,
Inc. and its affiliates and related entities (the "Company") and
JWGenesis Capital Markets, LLC (JWGenesis").
The Company agrees to indemnify and hold JWGenesis and its current
and future affiliates, control persons, directors, officers, employees
and agents (each an "Indemnified Person") harmless from and against all
losses, claims, damages, liabilities, costs or expenses, including those
resulting from any threatened or pending investigation, action,
proceeding or dispute whether or not JWGenesis or any such other
Indemnified Person is a party to such investigation, action, proceeding
or dispute, arising out of JWGenesis' entering into or performing
services under this Agreement, or arising out of any matter referred to
in this Agreement. This indemnity shall also include JWGenesis' and/or
any such other Indemnified Person's reasonable attorneys' and
accountants' fees and out-of-pocket expenses incurred in, and the cost
of JWGenesis' personnel whose time is spent in connection with, such
investigations, actions, proceedings or disputes which fees, expenses
and costs shall be periodically reimbursed to JWGenesis and/or to any
such other Indemnified Person by the Company as they are incurred;
provided, however, that the indemnity herein set forth shall not apply
to an Indemnified Person where a court of competent jurisdiction has
made a final determination that such Indemnified Person acted in a
grossly negligent manner or engaged in willful misconduct in the
performance of the services hereunder which gave rise to the loss,
claim, damage, liability, cost or expense sought to be recovered
hereunder (but pending any such final determination the indemnification
and reimbursement provisions hereinabove set forth shall apply and the
Company shall perform its obligations hereunder to reimburse JWGenesis
and/or each such other Indemnified Person periodically for its, his or
their fees, expenses and costs as they are incurred). The Company also
agrees that no Indemnified Person shall have any liability (whether
direct or indirect, in contract or tort or otherwise) to the Company for
or in connection with any act or omission to act as a result of its
engagement under this Agreement except for any such liability for
losses, claims, damages, liabilities or expenses incurred by the Company
that is found in a final determination by a court of competent
jurisdiction to have resulted from such Indemnified Person's gross
negligence or willful misconduct.
If for any reason, the foregoing indemnification is unavailable to
JWGenesis or any such other Indemnified Person or insufficient to hold
it harmless, then the Company shall contribute to the amount paid or
payable by JWGenesis or any such other Indemnified Person as a result of
such loss, claim, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by the
Company and its shareholders on the one hand and JWGenesis or any such
other Indemnified Person on the other hand, but also the relative fault
of the Company and JWGenesis or any such other Indemnified Person, as
well as any relevant equitable considerations; provided that in no event
will the aggregate contribution by JWGenesis and any such other
Indemnified Person hereunder exceed the amount of fees actually received
by JWGenesis pursuant to this Agreement. The reimbursement, indemnity
and contribution obligations of the Company hereinabove set forth shall
be in addition to any liability which the Company may otherwise have and
these obligations and the other provisions hereinabove set forth shall
be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of the Company, JWGenesis and any
other Indemnified Person.
The terms and conditions hereinabove set forth in this Appendix A
shall survive the termination and expiration of this Agreement and shall
continue indefinitely thereafter.
AMERICAN CHAMPION ENTERTAINMENT, INC. JWGENESIS CAPITAL MARKETS, LLC
AND ITS AFFILIATES AND RELATED ENTITIES
By: /s/ Anthony K. Chan By: /s/ Jeffrey H.Lehman
Mr. Anthony K. Chan Mr. Jeffrey H. Lehman
CEO and President Director of Corporate Finance
TERM SHEET FOR THE SECURITIES
Issuer: American Champion Entertainment, Inc. (the "Company").
Amount: 700,000 (minimum) (or such lesser amount so as not to violate
the Nasdaq rule relating to the issuance of 20% or more of the
Company's securities without shareholder approval) to
$4,500,000 (maximum).
Securities: Series C Convertible Preferred Stock, par value $11,000.00
(the "Preferred Stock") and Class A and Class B Common Stock
Purchase Warrants (collectively, the "Warrants"), exempt from
registration under Regulation D of the Securities Act of 1933
(the "Act").
Units: The Company shall issue up to 90, $50,000 units (the "Units")
to accredited investors, as defined under the Act.
Each Unit shall consist of the following:
(1) 50 shares of Preferred Stock; and
(2) 25,000, five (5) year Class A Warrants to purchase
common shares of the Registrant at a strike price equal to
the lower of $2.75 or 135% of the Effective Price, as
hereinafter defined, of the Company's common stock (the
"Common Stock") and 25,000 Class B Warrants which shall be
exercisable at the lower of $4.00 or 185% of the Effective
Price. The Effective Price is defined as the average closing
bid price of the Company's Common Stock as reported by
NASDAQ on the 20 trading days prior to the date set for the
closing of the placement (the "Closing") assuming such
closing shall occur prior to the Company's annual meeting
(the " Annual Meeting") which is scheduled for May 5, 1999.
At the Annual Meeting the Company shall uses its best
efforts to obtain shareholder approval to issue in excess of
20% of its outstanding securities so as to comply with
Nasdaq requirements, Prior to obtaining such shareholder
approval at the Annual Meeting the Company shall only be
able to close on the Minimum. If funds are in escrow in
excess of the Minimum prior to the date of obtaining
shareholder approval, the Effective Price for such excess
subscriptions shall be the lesser of the Effective Price as
defined above or the average closing bid price as reported
by Nasdaq on the 20 trading days prior to obtaining
shareholder approval at the Annual Meeting. However, in no
event shall the Company issue 20% or more of its Common
Stock below market price in contravention of NASDAQ
continued listing requirements without first obtaining
shareholder approval.
Dividend: The Preferred Stock shall pay a quarterly dividend of 9%
which shall be payable in Common Stock of the Company or cash,
at the Company's option. In addition, no such dividend payments
shall be made on any converted Preferred Stock.
Conversion
Feature: The Preferred Stock is convertible into Common Stock at the
Effective Price. The Preferred Stock shall not be convertible
until at least twelve (12) months from the Closing.
Term: The Preferred Stock shall have a three (3) year term. On the
36th month anniversary of the Closing, the Preferred Stock
shall automatically convert into Common Stock of the Company
unless the Company shall file for protection under Chapter XI
of the U.S. Bankruptcy Code in which case the Preferred Stock
can be converted for an additional three (3) years.
Registration: The Company will undertake to have the Common Stock
underlying the Units registered after the Closing and will
file a registration statement covering the Common Stock
underlying the Preferred Stock, the Warrants and the Placement
Agent Warrants, as herein after defined, no later than 120
days after the Closing.
Forced
Conversion: At any time after the registration statement referred to above
has been declared effective by the SEC, and after the Common
Stock of the Company has traded for 20 consecutive trading
days at 250% of the closing price of the Common Stock on the
Closing date, the Company may force the conversion of some or
all of the Preferred Stock by notifying the purchasers in
writing of their intent to do so.
Redemption: After one (1) year from the Closing, the Company has the
right to redeem some or all of the Preferred Stock at 120% of
par value provided it shall furnish at least 30 days written
notice during which time the holders may convert their
Preferred Stock.
Warrant
Reset: In the event the Common Stock trades below $1.00 for
ten (10) consecutive days in the twelve (12) month period
following the Closing, then the exercise price of the Class A
Warrants shall be reset to $1.00.
