As filed with the Securities and Exchange Commission on July 16, 1999
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN CHAMPION ENTERTAINMENT, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
7812
(Primary Standard Industrial
Classification Code Number)
94-3261987
(I.R.S. Employer Identification Number)
1694 THE ALAMEDA, SUITE 100
SAN JOSE, CALIFORNIA 95126
(408) 288-8199
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ANTHONY K. CHAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1694 THE ALAMEDA, SUITE 100
SAN JOSE, CALIFORNIA 95126
(408) 288-8199
(Name and address and telephone number of agent for service)
------------------------
COPIES TO:
GREGORY SICHENZIA, ESQ.
SICHENZIA ROSS & FRIEDMAN LLP
135 WEST 50TH STREET, FLOOR 20
NEW YORK, NY 10020
(212) 664-1200
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Proposed Proposed Amount of
Class of Maximum Maximum Registration
Securities to Amount to be Offering Price Aggregate Fee
be Registered Registered (1)(2Per Unit Offering Price
- ---------------------------- --------------- ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
Common Stock, $0.0001 par value 4,260,190 $1.50 $6,390,285.00 $1,936.46
</TABLE>
(1) Includes: (i) shares of common stock that have been issued or are
reserved for issuance upon the conversion of 7% Convertible Debentures due
June 17, 2002 issued and to be issued by American Champion; (ii) shares of
common stock that have been issued or are reserved for issuance on the
exercise of common stock Purchase Warrants issued in connection with the
issuance of the debentures; (iii) shares of common stock that have been issued
or are reserved for issuance upon the exercise of common stock Purchase
Warrants issued in connection with the redemption of debentures; (iv) shares
of common stock that have been issued or are reserved for issuance on the
exercise of common stock Purchase Warrants issued as payment for legal
services, and (v) shares of common stock that have been reserved for issuance
upon the conversion of a convertible loan.
(2) In the event of a stock split, stock dividend or similar transaction
involving the common stock, in order to prevent dilution, the number of shares
registered shall be automatically increased to cover additional shares in an
indeterminate amount in accordance with Rule 416(a) under the Securities Act
of 1933, as amended.
<PAGE>
PROSPECTUS
AMERICAN CHAMPION ENTERTAINMENT, INC.
4,260,190 Shares of common stock
This prospectus relates to the sale of up to 4,260,190 shares of common stock
of American Champion Entertainment, Inc. offered by certain holders of
American Champion securities. The shares may be offered by the selling
stockholders from time to time in regular brokerage transactions in
transactions directly with market makers or in certain privately negotiated
transactions. For additional information on the methods of sale, you should
refer to the section entitled "Plan of Distribution." We will not receive any
of the proceeds from the sale of the shares by the selling stockholders.
Each of the selling stockholders may be deemed to be an "underwriter," as such
term is defined in the Securities Act of 1933.
On July 31, 1997, the common stock and our redeemable common stock purchase
warrants began trading on the Nasdaq SmallCap Market under the symbols "ACEI"
and "ACEIW," respectively. On June 30, 1999 the closing sale price of the
common stock and the common stock purchase warrants on Nasdaq SmallCap Market
was $1.78125 and $0.28, respectively. See "Certain Market Information."
The securities offered hereby are speculative and involve a high degree of
risk and substantial dilution. Only investors who can bear the risk of loss
of their entire investment should invest. See "Risk Factors" beginning on
page 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
The date of this prospectus is July __,1999.
<PAGE>
TABLE OF CONTENTS
Page
Company 5
Risk Factors 6
Material Changes 9
Incorporation of Certain Documents by Reference 9
Available Information 9
Use of Proceeds 10
Certain Market Information 10
Dividend Policy 10
Issuance of Common Stock to Selling Stockholders 11
Selling Stockholders 12
Plan of Distribution 14
Legal Matters 14
Experts 14
<PAGE>
COMPANY
American Champion Entertainment, Inc. is a holding company, for our
wholly-owned subsidiary, America's Best Karate and its wholly-owned
subsidiary, American Champion Media, Inc.
America's Best Karate owns, manages and operates one karate studio in the San
Francisco Bay Area under the name "ABK," that provide karate instruction to
students of all ages and skill levels. American Champion Media is a media
production and marketing company. Through American Champion Media, American
Champion:
* develops, produces and markets "Adventures with Kanga Roddy," a television
program for pre-school and primary school children (the "Kanga Roddy Series");
and
* licenses merchandising rights related to the Kanga Roddy Series; and
* develops, produces and markets various audio tapes, video tapes and
workbooks that specialize in fitness information.
American Champion was incorporated on February 5, 1997 under the laws of
Delaware. American Champion's executive offices are located at 1694 the
Alameda, Suite 100, San Jose, California 95126, and its telephone number is
(408) 288-8199.
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing American Champion. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations. The actual occurrence of the following risks could
adversely affect our business. In such case, the trading price of our common
stock could decline, and you may lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including the risks described below and elsewhere in this prospectus.
We have a history of losses and expect to incur future losses. We sustained
operating losses of $801,416 in the year ended December 31, 1997, $1,323,561
in the year ended December 31, 1998 and $262,198 in the three months ended
March 31, 1999. We expect to incur significant additional operating losses
for the foreseeable future as we continue to develop, produce and market our
media projects, including the Kanga Roddy Series. The development and
production costs (exclusive of marketing costs) for the remaining 14 episodes
of the Kanga Roddy Series we are obligated to deliver is estimated to be $3.1
million.
If we are unable to obtain financing, we will be unable to continue with
future production of the Kanga Roddy Series. Our development and production
of the Kanga Roddy Series requires substantial amounts of capital. We have
entered into a distribution agreement and a continuing distribution agreement
with KTEH, the public broadcasting station serving the San Jose, California
area, which obligate us to deliver a total of 41 episodes of the Kanga Roddy
Series. To date, we have completed 27 episodes of the Kanga Roddy Series.
Based on production of 27 episodes completed to date, we now estimate that the
average cost of developing and producing each episode of the Kanga Roddy
Series is $220,000 and that it will require an additional $3.1 million of
additional financing to complete the remaining 14 episodes of the Kanga Roddy
Series. On June 17, 1999, we sold 7% convertible debentures in the principal
amount of $1,750,000.
We are dependent on the success of the Kanga Roddy Series, and we cannot be
certain that the initial television viewership of the Kanga Roddy Series will
be maintained. We are dependent on the success of the Kanga Roddy Series,
which in turn is dependent upon unpredictable and volatile factors beyond our
control, such as children's preferences. The Kanga Roddy Series is currently
shown on public television stations which reach approximately 40 million
households. Although the Kanga Roddy Series has received positive acclaim and
positive Nielsen ratings on its estimated audience, the show must attract a
significant television audience over a long period of time before we realize
significant revenue and profitability. We cannot be certain that the initial
television viewership of the Kanga Roddy Series will be maintained.
Furthermore, to attract a significant television audience for the Kanga Roddy
Series over a long period of time, we need to complete additional episodes of
the Kanga Roddy Series.
If we are unable to attract a significant television audience for the Kanga
Roddy Series, it is doubtful that any significant licensing or merchandising
opportunities will arise. Our strategy in producing the Kanga Roddy Series
includes the licensing of its characters to others for the merchandising of a
variety of products ranging from toys to apparel. Our ability to successfully
exploit the merchandising opportunities afforded by the Kanga Roddy Series is
dependent on the popularity of the Kanga Roddy Series and the ability of our
characters to provide attractive merchandising features to its customers. If
we are unable to attract a significant television audience for the Kanga Roddy
Series, it is doubtful that any significant licensing or merchandising
opportunities will arise. Even if the Kanga Roddy Series is popular with
television audiences, we cannot be certain that licensing opportunities will
materialize as we must compete with hundreds of owners of creative content who
seek to license their characters and properties to a limited number of
manufacturers and distributors.
Our lack of significant experience with television programming or licensing
and merchandising could adversely affect our business. Prior to American
Champion's involvement with the Kanga Roddy Series, our business was primarily
the operation of its karate studios and the production of fitness video tapes
and we had no experience with the development and production of television
programming or with the licensing and merchandising of products. To date, we
have completed 27 half-hour episodes. However, the television and licensing
and merchandising businesses are complicated and the absence of experience in
such businesses could adversely affect our business.
The loss of the services of any of the above individuals, or of other key
personnel, could adversely affect our business. We are dependent on the
efforts and abilities of Anthony Chan and George Chung, our founders and
principal executive officers, and Jan D. Hutchins, President of American
Champion Media. We have entered into employment agreements, effective as of
August 5, 1997, with such individuals. We are also dependent on the efforts
and abilities of Joy Tashjian, President and CEO of American Champion
Marketing Group, a newly formed and wholly owned subsidiary; with whom we have
entered into an employment agreement effective on June 3, 1999. None of such
employment agreements contains non-competition provisions. See "Management--
Employment Agreements" of American Champion's Post-Effective Amendment No. 1
to its Form SB-2 Registration Statement. The loss of the services of any of
the above individuals, or of other key personnel, could adversely affect our
business. We have obtained "key-man" life insurance with $1,000,000 coverage
for each of Messrs. Chung and Chan.
<PAGE>
The failure of Joe Montana, Ronnie Lott, or their wives, or the San Francisco
49ers, to continue to actively support the Kanga Roddy Series could have an
adverse impact on our ability to market the Kanga Roddy Series. The success
of the Kanga Roddy Series depends in part on American Champion's continued
association with former 49ers Joe Montana and Ronnie Lott, and their wives,
and the San Francisco 49ers. Messrs. Montana and Lott have endorsed the Kanga
Roddy Series in news and television interviews and their wives are principal
actors in the Kanga Roddy Series. The failure of Joe Montana, Ronnie Lott, or
their wives, or the San Francisco 49ers, to continue to actively support the
Kanga Roddy Series could have an adverse impact on our ability to market the
Kanga Roddy Series. None of Joe Montana, Ronnie Lott, or their wives, or the
San Francisco 49ers are obligated to engage in any business transactions or
jointly participate in any opportunities with American Champion, and the
possibility exists that the current relationships between the parties could
materially change in the future.
Each of the industries in which we compete is highly competitive and most of
the companies with which we compete have greater financial and other resources
than us. With respect to our television production activities, we compete on
the basis of relationships and pricing for access to a limited supply of
facilities and talented creative personnel to produce its programs. Our Kanga
Roddy Series competes for time slots, ratings and related advertising revenues
and for the licensing and merchandising of products related to the Kanga Roddy
Series. Our fitness products compete with many other products aimed at the
fitness and weight loss markets, including other video tapes, audio tapes and
workbooks, and various types of exercise machinery. Many of these competing
products are sponsored or endorsed by celebrities and sports figures, and are
marketed by companies having significantly greater resources than ours. The
martial arts industry is also highly competitive. American Champion's
competitors include a variety of small to medium sized martial arts
instructional centers, many of which may be better established and better
financed than ours.
We may have to return America's Best Karate membership fees pursuant to the
terms of our standard contract with our students. Pursuant to the terms of its
standard contract with its students, ABK is required to refund:
(1) all funds received if a student cancels within three (3) days of signing a
membership contract,
(2) all "unearned" funds received in the event the student dies, becomes
permanently disabled, moves more than twenty-five (25) miles away from ABK or
ABK closes for more than thirty (30) consecutive days, and
(3) the outstanding amount of fees set forth in (1) and (2) above prior and up
to the time of sale of our ABK studios.
We do not currently maintain nor does it anticipate maintaining a reserve
account for return of membership fees. As a consequence, we may be unable to
refund membership fees which could adversely affect on our business and
prospects.
Messrs. Chan and Chung are in a position to strongly influence the election of
directors as well as affairs of American Champion. As of the date of this
prospectus, Anthony Chan and George Chung, American Champion's founders and
principal executive officers, collectively beneficially own 1,016,276 shares
of American Champion's outstanding common stock, representing approximately
11.40% of the outstanding shares prior to this offering and approximately
7.7% of the outstanding shares of common stock after this offering (assuming
no exercise of any outstanding options or any warrants). Since holders of
common stock do not have any cumulative voting rights and directors are
elected by a majority vote, Messrs. Chan and Chung are in a position to
strongly influence the election of directors as well as the affairs of
American Champion.
We have purchased liability insurance for our karate studios. In the event of
a claim brought by students or instructors injured during karate classes, we
have purchased liability insurance for each of our karate studios in the
amount of $1,000,000 per occurrence and $2,000,000 in the aggregate which we
believe is sufficient for current level of business operations. We cannot be
certain, however, that the present coverage will continue to be available in
the future or that we will be able to retain such coverage at a reasonable
cost. Further, we cannot be certain that such insurance will be sufficient to
cover potential claims, or that adequate, affordable insurance coverage will
be available to us in the future as we expand our operations. A successful
claim against us in excess of the liability limits or relating to an injury
excluded under the policy could adversely affect us.
If we do not continue to fulfill Nasdaq maintenance requirements, our
securities may be delisted from Nasdaq market. American Champion's common
stock is listed on Nasdaq SmallCap Market. The Securities and Exchange
Commission has approved rules imposing criteria for listing of securities on
Nasdaq SmallCap Market, including standards for maintenance of such listing.
For continued listing, a company, among other things, must have $2,000,000 in
net tangible assets, $1,000,000 in market value of securities in the public
float and a minimum bid price of $1.00 per share. We currently have
approximately $4,000,000 in net tangible assets and approximately $4,200,000
in market value of securities in the public float, with a bid price over $1.00
per share. If we are unable to satisfy Nasdaq SmallCap Market's maintenance
criteria in the future, our securities may be delisted from Nasdaq SmallCap
Market. In such event, trading, if any, in our securities would thereafter be
conducted in the over counter market in the so called "pink sheets" or the
NASD's "Electronic Bulletin Board." As a consequence of such delisting, an
investor would likely find it more difficult to dispose of, or to obtain
quotations as to, the price of our securities. During the second quarter of
1999 American Champion's common stock fell below $1.00 per share for ten
consecutive days.
<PAGE>
If we are unable to satisfy the maintenance requirements for Nasdaq SmallCap
Market and our common stock falls below the minimum bid price of $1.00 per
share for the continued quotation, trading would be conducted on the "pink
sheets" or the NASD's Electronic Bulletin Board. If the common stock is not
quoted on Nasdaq SmallCap Market, or we do not have $2,000,000 in
stockholders' equity, trading in the common stock would be covered by Rule-15g
9 promulgated under the Securities Exchange Act of 1934 for non-Nasdaq
SmallCap Market and non-exchange listed securities. Under such rule, broker
dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement
to a transaction prior to sale. Securities are exempt from this rule if the
market price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security
listed on Nasdaq SmallCap Market, and an equity security issued by an issuer
that has:
(1) net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three years,
(2) net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or
(3) average revenue of at least $6,000,000 for the preceding three years.
Unless an exception is available, the regulations require the delivery, prior
to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated therewith.
If American Champion's securities were to become subject to the regulations
applicable to penny stocks, the market liquidity for its securities would be
severely affected, limiting the ability of broker dealers to sell the
securities and the ability of purchasers of the securities offered hereby to
sell their securities in the secondary market. There is no assurance that
trading in American Champion's securities will not be subject to these or
other regulations that would adversely affect the market for such securities.
This prospectus contains forward looking statements and their associated
risks. This prospectus contains certain forward-looking statements, including
among others:
(1) anticipated trends in our financial condition and results of operations;
and
(2) our business strategy for developing, producing, distributing, licensing
and merchandising the Kanga Roddy Series.
These forward-looking statements are based largely on our current expectations
and are subject to a number of risks and uncertainties. Actual results could
differ materially from these forward-looking statements. In addition to the
other risks described elsewhere in this "Risk Factors" discussion, important
factors to consider in evaluating such forward-looking statements include:
(1) changes in external competitive market factors or in American Champion's
internal budgeting process which might impact trends in our results of
operations;
(2) unanticipated working capital or other cash requirements;
(3) changes in our business strategy or an inability to execute our strategy
due to unanticipated change in the industries in which we operate; and
(4) various competitive factors that may prevent us from competing
successfully in the marketplace.
In light of these risks and uncertainties, many of which are described in
greater detail elsewhere in this "Risk Factors" discussion, we cannot be
certain that the events predicted in forward-looking statements contained in
this prospectus will in fact occur.
<PAGE>
MATERIAL CHANGES
Between May 19, 1999 and June 7, 1999, American Champion issued to its
management an aggregate of 3.71 million options pursuant to its 1997 Stock Plan
and the Non-Employee Directors Stock Option Plan. Of such options, 3.36
million were issued to the officers and directors of American Champion as a
group. The following table sets forth the options issued to certain of American
Champion's directors and officers:
Name Position Number of Options Date of Grant
George Chung Chairman of the Board 100,000 May 19, 1999
1,000,000 June 7, 1999
Anthony K. Chan President & CEO 100,000 May 19, 1999
1,000,000 June 7, 1999
INFORMATION INCORPORATION BY REFERENCE
The Securities and Exchange Commission (the "Commission") allows us to
"incorporate by reference" certain of our publicly-filed documents into this
prospectus, which means that information is considered part of this prospectus.
Information that we file with the Commission subsequent to the date of this
prospectus will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the Commission under all documents subsequently filed by us pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
the selling stockholders have sold all the shares.
The following documents filed with the Commission are incorporated herein by
reference:
1. American Champion's Registration Statement on Form SB-2 for its initial
public offering that became effective on July 30, 1997;
2. The description of American Champion's common stock contained in American
Champion's Registration Statement on Form SB-2;
3. Post-Effective Amendment No. 1 to American Champion's Registration
Statement on Form SB-2, as filed with the Commission on July 2, 1998 and
declared effective on July 17, 1998;
4. American Champion's Proxy Statements for the 1999 Annual Meeting of
Stockholders held on May 5, 1999;
5. American Champion's Annual Report on Form 10-KSB for its fiscal year ended
December 31, 1998; and
6. American Champion's Quarterly Reports on Form 10-QSB for the quarter period
ended March 31, 1999.
The Company will provide without charge to each person to whom a copy of this
prospectus has been delivered, on written or oral request a copy of any or all
of the documents incorporated by reference in this prospectus, other than
exhibits to such documents. Written or oral requests for such copies should be
directed to Anthony K. Chan, American Champion Entertainment, Inc., 1694 The
Alameda, Suite 100, San Jose, California 95126-2219 (telephone: (408)
288-8199).
ADDITIONAL INFORMATION AVAILABLE TO YOU
This prospectus is part of a Registration Statement on Form S-3 that we filed
with the Commission. Certain information in the Registration Statement has
been omitted from this prospectus in accordance with the rules of the
Commission. We file the annual, quarterly and special reports, proxy
statements and other information with the Commission. You can inspect and
copy the Registration Statement as well as reports, proxy statements and other
information we have filed with the Commission at the public reference room
maintained by the Commission at 450 Fifth Street, NW, Washington, D.C. 20549,
and at the following Regional Offices of the Commission: Seven World Trade
Center, New York, New York 10048, and Northwest Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. You can obtain copies from the
public reference room of the Commission at 450 Fifth Street, NW, Washington,
D.C. 20549, upon payment of certain fees. You can call the Commission at
1-800-732-0330 for further information about the public reference room. We
are also required to file electronic versions of these documents with the
Commission, which may be accessed through the Commission's World Wide Web site
at http://www.sec.gov. Our common stock is quoted on The Nasdaq National
Market Reports, proxy and information statements and other information
concerning American Champion may be inspected at The Nasdaq Stock Market at
1735 K Street, NW, Washington, D.C. 20006.
<PAGE>
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares offered
hereunder by the selling stockholders. The offering is made to fulfill our
contractual obligations to the selling stockholders to register the common
stock held by or which are issuable to the selling stockholders.
CERTAIN MARKET INFORMATION
American Champion's common stock commenced trading on the Nasdaq SmallCap
Market under the symbol "ACEI" on August 1, 1997. The range of high and low
reported closing sales prices for the common stock as reported by Nasdaq
SmallCap Market since the commencement of trading were as follows:
High Low
1997
Third Quarter $5.500 $4.125
Fourth Quarter $8.000 $4.813
1998
First Quarter $9.625 $7.750
Second Quarter $9.563 $6.563
Third Quarter $7.000 $3.500
Fourth Quarter $3.625 $0.969
1999
First Quarter $3.000 $1.063
Second Quarter $2.438 $0.781
The prices set forth above reflect inter dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
On March 31, 1999, as reported by our transfer agent, shares of common stock
were held by approximately 1700 stockholders of record.
DIVIDEND POLICY
We intend to retain future earnings, if any, that may be generated from our
operations to finance the operations and expansion of American Champion. We
do not plan to pay dividends to holders of the common stock for the reasonably
foreseeable future. Any decision as to the future payment of dividends will
depend on the results of our operations and financial position and such other
factors as our Board of Directors, in its discretion, deems relevant.
<PAGE>
ISSUANCE OF COMMON STOCK TO SELLING STOCKHOLDERS
The shares covered by this prospectus include:
(1) Up to 3,500,000 shares of common stock that have been issued or are
issuable, assuming the conversion rate of $0.50 per share to allow for
fluctuation in market price, upon the conversion of 7% Convertible Debentures
due June 17, 2002 issued by American Champion;
(2) 175,000 shares of common stock that are issuable upon the exercise of
Common Stock Purchase Warrants issued in connection with the debentures; and
(3) 267,930 shares of Common Stock issued by American Champion pursuant to
the redemption of debentures the company sold in May 1999;
(4) 192,360 shares of Common Stock issuable upon the exercise of Common
Stock Purchase Warrants that were issued by American Champion pursuant to the
redemption of debentures the company sold in May 1999;
(5) 114,500 shares of Common Stock issuable upon the exercise of Common
Stock Purchase Warrants that were issued by American Champion in connection
with debentures sold in May 1999, such debentures were redeemed by American
Champion in June 1999:
(6) 5,000 shares of Common Stock Purchase Warrants issued by American
Champion in connection to the debentures for related legal fees.
(7) 5,400 shares of Common Stock issuable upon the conversion of a
convertible loan, at the rate of $2.50 per share that was incurred in 1995 by
America's Best Karate, a wholly owned subsidiary of American Champion;
Debentures and Debenture Warrants. On June 17, 1999, we entered into a
Securities Purchase Agreement for the sale of the debentures and debenture
warrants. Pursuant to the agreement, the purchasers agreed under certain
terms and conditions to purchase up to $1,750,000 of American Champion's
debentures, and American Champion agreed to issue to the purchasers warrants to
purchase up to 175,000 shares of common stock.
The debentures are convertible into a number of shares of American Champion's
common stock based on lower of $1.7771875 or 77.50% of the market price of the
common stock at the time of conversion. The market price for purposes of
conversion of the debentures is the average closing bid price of the common
stock as reported by Bloomberg, LP for the five (5) trading days ending on the
trading day immediately preceding the date that the debentures are converted.
The actual number of shares of common stock issued or issuable upon conversion
of the debentures is subject to adjustment, depending upon the future market
price of the common stock and other factors.
The agreement also requires that we file with the Commission this registration
statement to register the common stock issuable upon conversion of the
debentures and upon exercise of the debenture warrants to allow the purchasers
to resell such common stock to the public.
On May 27, 1999, American Champion issued an aggregate of $1,145,000 of
convertible debentures and an aggregate of 114,500 warrants to purchase common
stock. American Champion had the right to redeem those debentures during the
first 90 days after their issuance. American Champion exercised that right in
June 1999. In connection with the redemption, American Champion issued 267,930
shares and additional warrants to purchase 192,360 shares to the holders of
those debentures. The May 1999 warrants are still in effect.
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of June 30, 1999 by each of the selling
stockholders assuming the conversion of the debentures of $1,750,000 principal
amount and a conversion rate of $0.50 per share (in order to provide a cushion
for any fluctuations in the market price of the common stock, we have agreed
with certain of the selling stockholders to include in this prospectus the
number of shares of common stock which could be issuable upon conversion of
the debentures at an assumed conversion price of $0.50 per share plus the
number of shares issuable upon exercise of the debenture warrants) as
provided in the debenture; the exercise of the warrants to purchase 289,500
shares of common stock which warrants were issued in connection with the May
and June 1999 debenture transactions; 267,930 shares of Common Stock issued by
American Champion pursuant to the redemption of debentures the company sold in
May 1999; 192,360 shares of Common Stock issuable upon the exercise of
Common Stock Purchase Warrants that were issued by American Champion pursuant
to the redemption of debentures the company sold in May 1999; 5,000 shares
of Common Stock issuable upon the exercise of Common Stock Purchase Warrants
that were issued by American Champion in connection to the debentures for
legal fees; and 5,400 shares of Common Stock issuable upon the conversion of a
convertible loan incurred by a subsidiary of American Champion in 1995.
Unless otherwise indicated below, to the knowledge of American Champion, all
persons listed below have sole voting and investment power with respect to the
shares of common stock, except to the extent authority is shared by spouses
under applicable law.
The information included below is based upon information provided by the
selling stockholders. Because the selling stockholders may offer all, some or
none of their shares, no definitive estimate as to the number of shares that
will be held by the selling stockholders after the offering can be provided
and the following table has been prepared on the assumption that all shares
offered under this prospectus will be sold.
<TABLE>
<CAPTION>
Common Stock to be
Beneficially Owned
Common Stock Beneficially if All Shares Offered
Owned on June 30, 1999 (1) Hereunder Are Sold(1)(2)
Shares That
May be Offered
Name Shares Percent(2) Hereunder Shares Percent
- ---------------------------- ------------ ------------ ---------------------------------------
<S> <C> <C> <C> <C> <C>
Olympia Partners LLC 945,000 9.57% 945,000 -- --
LCBS Corp 525,000 5.55% 525,000 -- --
Amro International S.A. 776,000 8.09% 776,000 -- --
The Endeavour Capital Fund S.A.1,001,895 10.17% 1,001,895 -- --
Canadian Advantage L.P. 161,895 1.80% 161,895 -- --
Scott Rosen 168,000 1.85% 168,000 -- --
Eva Rosen 168,000 1.85% 168,000 -- --
Peter T. Roselle 105,000 1.16% 105,000 -- --
David Reimer 52,500 * 52,500 -- --
David Mugrabi 52,500 * 52,500 -- --
Justyn Feldman 52,500 * 52,500 -- --
Steve Chananya 136,500 1.51% 136,500 -- --
David Avidon 105,000 1.16% 105,000 -- --
Samuel M. Krieger 3,333 * 3,333 -- --
Ronald J. Nussbaum 1,667 * 1,667 -- --
David Y. Lei 5,400 * 5,400 -- --
- ------------------------------
* Less than one percent (1%).
</TABLE>
(1) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rule, beneficial ownership includes any shares as
to which the selling stockholder has sole or shared voting power or investment
power and also any shares which the selling stockholder has the right to
acquire within 60 days of June 30, 1999 through the conversion of debentures
and the exercise of any debenture warrant, or other right. Pursuant to the
terms of the Securities Purchase Agreement for the sale of the debentures and
debenture warrants, except under certain circumstances, no holder of the
debentures may convert its debentures into common stock, if such conversion
would result in the holder beneficially owning more than 9.99% of the
outstanding common stock. All shares which may be issued on conversion of the
debentures are included in the table notwithstanding such limitation.
Accordingly, the number of shares indicated above as beneficially owned by
certain selling stockholders exceeds the actual number of shares such selling
stockholder may be entitled to on conversion. The actual number of shares of
common stock issuable upon the conversion of the debentures and exercise of
the debenture warrants is subject to adjustment depending on, among other
factors, the future market price of the common stock, and could be materially
less or more than the number estimated in the table.
(2) The percentage interest of each selling stockholder is based on the
number of shares of common stock beneficially owned by such stockholder
divided by the sum of the outstanding shares of common stock (as of June 30,
1999), plus the shares, if any, which would be issued to such stockholder upon
conversion of debentures held or exercise of any warrants. On June 30, 1999,
American Champion had 8,928,952 shares outstanding.
(3) The shares hereunder do not include shares which we anticipate to be
sold under a separate registration statement and prospectus.
<PAGE>
PLAN OF DISTRIBUTION
Sales of the shares may be effected by or for the account of the selling
stockholders from time to time in transactions (which may include block
transactions) on the Nasdaq SmallCap Market, in negotiated transactions,
through a combination of such methods of sale, or otherwise, at fixed prices
that may be changed, at market prices prevailing at the time of sale or at
negotiated prices. The selling stockholders may effect such transactions by
selling the shares directly to purchasers, through broker-dealers acting as
agents of the selling stockholders, or to broker-dealers acting as agents for
the selling stockholders, or to broker-dealers who may purchase shares as
principals and thereafter sell the shares from time to time in transactions
(which may include block transactions) on the Nasdaq SmallCap Market, in
negotiated transactions, through a combination of such methods of sale, or
otherwise. In effecting sales, broker-dealers engaged by a selling
stockholder may arrange for other broker-dealers to participate. Such broker-
dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchasers
of the shares for whom such broker-dealers may act as agents or to whom they
may sell as principals, or both (which compensation as to a particular broker-
dealer might be in excess of customary commissions).
The selling stockholders and any broker-dealers or agents that participate
with the selling stockholders in the distribution of the shares may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933. Any
commissions paid or any discounts or concessions allowed to any such persons,
and any profits received on the resale of the shares purchased by them may be
deemed to be underwriting commission or discounts under the Securities Act of
1933.
We have agreed to bear all expenses of registration of the shares other than
legal fees and expenses, if any, of counsel or other advisors of the selling
stockholders. The selling stockholders will bear any commissions, discounts,
concessions or other fees, if any, payable to broker-dealers in connection
with any sale of their shares.
We have agreed to indemnify the selling stockholders, or their transferees or
assignees, against certain liabilities, including liabilities under the
Securities Act of 1933 or to contribute to payments the selling stockholders
or their respective pledgees, donees, transferees or other successors in
interest, may be required to make in respect thereof.
LEGAL MATTERS
The valid issuance of the shares of common stock offered hereby has been
passed upon for American Champion by Sichenzia Ross & Friedman LLP, New York,
New York.
EXPERTS
The balance sheet and financial statements of American Champion Entertainment,
Inc. for the years ended December 31, 1997 and December 31, 1998 have been
incorporated by reference herein and in the registration statement in reliance
upon the reports of Moss Adams LLP, independent certified public accountants,
also incorporated by reference herein, and upon the authority of such firm as
experts in accounting and auditing.
<PAGE>
No dealer, salesperson or other person is authorized to give any information
or to make any representations other than those contained in this prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by American Champion. This prospectus does not
constitute an offer to buy any security other than the securities offered by
this prospectus, or an offer to sell or a solicitation of an offer to buy any
securities by any person in any jurisdiction where such offer or solicitation
is not authorized or is unlawful. Neither delivery of this prospectus nor any
sale hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of American Champion since the date
hereof.
------------------------
TABLE OF CONTENTS
Page
Company 5
Risk Factors 6
Material Changes 9
Incorporation of Certain Documents by Reference 9
Available Information 9
Use of Proceeds 10
Certain Market Information 10
Dividend Policy 10
Issuance of Common Stock to Selling Stockholders 11
Selling Stockholders 12
Plan of Distribution 14
Legal Matters 14
Experts 14
AMERICAN CHAMPION ENTERTAINMENT, INC.
4,260,190 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
_______________
July __, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the estimated expenses of the issuance and
distribution of the securities offered hereby (all such expenses will be borne
by American Champion):
Registration fee $ 1,936.46
Legal fees and expenses 8,000.00
Accounting fees and expenses 2,000.00
Miscellaneous, including Nasdaq listing fees 5,000.00
Total........................................................$ 16,936.46
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
American Champion's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. American
Champion's Bylaws provided that American Champion shall indemnify its officers
and directors and may indemnify its employees and other agents to the fullest
extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made a party
to an action by reason of that fact that he or she was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred by him or her in
connection with such action if he or she acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation and with respect to any criminal action, had no reasonable
cause to believe his or her conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling American
Champion pursuant to the foregoing provisions, American Champion has been
advised that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
<PAGE>
ITEM 16. EXHIBITS
The exhibits filed as part of this Registration Statement are as follows:
Number Description
4.1 Securities Purchase Agreement, dated June 17, 1999, by and
among American Champion and the Buyers as defined therein.
4.2 7% Convertible Debentures due June 17, 2002.
4.3 Common Stock Purchase Warrant.
5.1 Opinion of Sichenzia Ross & Friedman LLP regarding legality of
securities being registered.
23.1 Consent of Sichenzia Ross & Friedman LLP (included in its
opinion filed as Exhibit 5.1).
23.2 Consent of Moss Adams LLP.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Certificate of Incorporation, its Bylaws, or
otherwise, the Registrant has been advised that in the opinion of the
Securities Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
If a claim for indemnification against such liabilities (other than the
payment of the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against a
public policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement
to:
(i) Include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement;
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraph (1)(i) and (1)(ii) do not apply if the registration
statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is incorporated by
reference from periodic reports filed by the registrant pursuant to section 13
or section 15(d) of the Securities Exchange Act of 1934.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Jose, California on the 16th day of July, 1999.
By: /s/ Anthony K. Chan
Anthony K. Chan
Chief Executive Officer
Each person whose signature appears below constitutes and appoints Anthony K.
Chan, with full power of substitution and resubstitution and each with full
power to act without the other, his true and lawful attorney-in-fact and agent,
for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) and all other
documents in connection therewith, with the Securities and Exchange Commission
or any state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and premises, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their, his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Capacities Date
- --------------------------- ------------------------------------ -------------
<S> <C> <C>
/s/ ANTHONY K. CHAN President, Chief Executive Officer July 16, 1998
- ------------------------- (principal executive officer)
Anthony K. Chan and Director
/s/ GEORGE CHUNG Chairman of the Board and Director July 16, 1998
- -------------------------
George Chung
/s/ WILLIAM T. DUFFY Director July 16, 1998
- -------------------------
William T. Duffy
/s/ ALAN ELKES Director July 16, 1998
- -------------------------
Alan Elkes
/s/ E. DAVID GABLE Director July 16, 1998
- -------------------------
E. David Gable
/s/ JAN D. HUTCHINS Director July 16, 1998
- -------------------------
Jan D. Hutchins
/s/ RONALD M. LOTT Director July 16, 1998
- -------------------------
Ronald M. Lott
/s/ MAE LYN WOO Vice President and Chief Financial July 16, 1998
- ------------------------- Officer (principal financial officer)
Mae Lyn Woo
</TABLE>
<PAGE>
EXHIBIT INDEX
The exhibits filed as part of this Registration Statement are as follows:
Number Description
4.1 Securities Purchase Agreement, dated June 17, 1999, by and
among American Champion and the Buyers as defined therein.
4.2 7% Convertible Debentures due June 17, 2002.
4.3 Common Stock Purchase Warrant.
5.1 Opinion of Sichenzia Ross & Friedman LLP regarding legality of
securities being registered.
23.1 Consent of Sichenzia Ross & Friedman LLP (included in its
opinion filed as Exhibit 5.1).
23.2 Consent of Moss Adams LLP.
Exhibit 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of
acceptance set forth below, is entered into by and between AMERICAN
CHAMPION ENTERTAINMENT, INC., a Delaware corporation, with headquarters
located at 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 purchase from the Company 7% Convertible Debentures in
the principal amount set forth on the Buyer's signature page of this
Agreement (the "Debentures"), out of a total offering of $1,750,000 of
such Debentures, and having the terms and conditions and being in the form
attached hereto as Annex I. The purchase price for the Debentures shall
be as set forth on the signature page hereto and shall be payable in
United States Dollars.
(ii) As used herein, the term "Securities" means the
Debentures, the Common Stock issuable upon conversion of the Debentures,
the Warrants and the Warrant Shares.
<PAGE>
(iii) As used herein, the term "Purchase Price" means the
purchase price for the Debentures.
(iv) As used herein, the term "Closing Date" means the date
of the closing of the purchase and sale of the Debentures, as provided
herein.
(v) As used herein, the term "Effective Date" means the
effective date of the Registration Statement covering the Registrable
Securities (as those terms are defined in the Registration Rights
Agreement defined below).
(vi) As used herein, the term "Market Price of the Common
Stock" means (x) the average closing bid price of the Common Stock for the
five (5) trading days ending on the trading day immediately before the
date indicated in the relevant provision hereof (unless a different
relevant period is specified in the relevant provision), as reported by
Bloomberg, LP or, if not so reported, as reported on the over-the-counter
market or (y) if the Common Stock is listed on a stock exchange, the
lowest trade price on such exchange on the date indicated in the relevant
provision hereof, as reported in The Wall Street Journal.
b. Form of Payment; Delivery of Debentures.
(i) Except as specified below, the Buyer shall pay the
Purchase Price for the Debentures by delivering immediately available good
funds in United States Dollars to the escrow agent (the "Escrow Agent")
identified in the Joint Escrow Instructions attached hereto as Annex II
(the "Joint Escrow Instructions") on the date prior to the Closing Date.
(ii) No later than the Closing Date, but in any event
promptly following payment by the Buyer to the Escrow Agent of the
Purchase Price, the Company shall deliver the Debentures and the Warrants,
each duly executed on behalf of the Company, to the Escrow Agent.
(iii) By signing this Agreement, each of the Buyer and the
Company, subject to acceptance by the Escrow Agent, agrees to all of the
terms and conditions of, and becomes a party to, the Joint Escrow
Instructions, all of the provisions of which are incorporated herein by
this reference as if set forth in full.
(iv) By separate letter to the Escrow Agent, the Company is
acknowledging that it has received certain funds from or on behalf of one
or more of the Buyers on account of the Purchase Price obligation of each
such Buyer. Any such funds will not be deposited in escrow with the
Escrow Agent but shall nevertheless (i) be deemed paid on account of such
identified Buyer's Purchase Price and (ii) be deemed part of the Purchase
Price for determining amounts, if any, due to any party other than the
Company as contemplated by the Joint Escrow Instructions, but (iii) shall
not be deemed part of the Escrow Property for purposes of determining the
amount of the funds payable to the Company thereunder.
<PAGE>
c. Method of Payment. Subject to the provisions of Section
1(b) hereof, payment into escrow of the Purchase Price shall be made by
wire transfer of funds to:
Bank of New York
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]
Re: American Champion Entertainment 6/99 Transaction
Not later than 5:00 p.m., New York time, on the date which is two (2) New
York Stock Exchange trading days after the Company shall have accepted
this Agreement and returned a signed counterpart of this Agreement to the
Escrow Agent by facsimile, the Buyer shall deposit with the Escrow Agent
the Purchase Price for the Debentures in currently available funds. Time
is of the essence with respect to such payment, and failure by the Buyer
to make such payment, shall allow the Company to cancel this Agreement.
d. Escrow Property. The Purchase Price and the Debentures
and Warrants delivered to the Escrow Agent as contemplated by Sections
1(b) and (c) hereof are referred to as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock
pursuant to the Registration Statement (as that term is defined in the
Registration Rights Agreement defined below), the Buyer is purchasing the
Debentures and the Warrants and will be acquiring the shares of Common
Stock issuable upon conversion of the Debentures (the "Converted Shares")
and the Warrant Shares for its own account for investment only and not
with a view towards the public sale or distribution thereof and not with
a view to or for sale in connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term
is defined in Rule 501 of the General Rules and Regulations under the 1933
Act by reason of Rule 501(a)(3), (ii) experienced in making investments of
the kind described in this Agreement and the related documents, (iii)
able, by reason of the business and financial experience of its officers
(if an entity) and professional advisors (who are not affiliated with or
compensated in any way by the Company or any of its affiliates or selling
agents), to protect its own interests in connection with the transactions
described in this Agreement, and the related documents, and (iv) able to
afford the entire loss of its investment in the Securities.
<PAGE>
c. All subsequent offers and sales of the Debentures and
the shares of Common Stock representing the Converted Shares and the
Warrant Shares (such Common Stock sometimes referred to as the "Shares")
by the Buyer shall be made pursuant to registration of the Shares under
the 1933 Act or pursuant to an exemption from registration.
d. The Buyer understands that the Debentures are being
offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and
the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order
to determine the availability of such exemptions and the eligibility of
the Buyer to acquire the Debentures. The Buyer represents and warrants
that the address of its principal place of business is as set forth on the
Buyer's signature page of this Agreement.
e. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of
the Company and materials relating to the offer and sale of the Debentures
and the offer of the Shares which have been requested by the Buyer,
including Annex V hereto. The Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries. Without limiting
the generality of the foregoing, the Buyer has also had the opportunity to
obtain and to review the Company's (1) Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1998, (2) Proxy Statements for the
Company's annual meeting of shareholders held on or about May 5, 19989 and
(3) Registration Statement on Form S-3/A filed with the SEC on February
12, 1999 (the "Company's SEC Documents").
f. The Buyer understands that its investment in the
Securities involves a high degree of risk.
g. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on
or made any recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Buyer and is a valid and binding
agreement of the Buyer enforceable in accordance with its terms, subject
as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
<PAGE>
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.
<PAGE>
f. Approvals. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization,
or stock exchange or market or the stockholders of the Company is required
to be obtained by the Company for the issuance and sale of the Securities
to the Buyer as contemplated by this Agreement, except such
authorizations, approvals and consents that have been obtained or that are
contemplated by this Agreement to be obtained on a date after the date
hereof.
g. SEC Filings. None of the Company's SEC Documents
contained, at the time they were filed, any untrue statement of a material
fact or omitted to state any material fact required to be stated therein
or necessary to make the statements made therein in light of the
circumstances under which they were made, not misleading. Except for
certain filings required to be filed by persons subject and pursuant to
Section 16 of the 1934 Act, the Company has since August 1, 1997 timely
filed all requisite forms, reports and exhibits thereto with the SEC.
h. Absence of Certain Changes. Since December 31, 1998,
there has been no material adverse change and no material adverse
development in the business, properties, operations, condition (financial
or otherwise), or results of operations of the Company, except as
disclosed in the Company's SEC Documents. Since December 31, 1998, except
as provided in the Company's SEC Documents, the Company has not (i)
incurred or become subject to any material liabilities (absolute or
contingent) except liabilities incurred in the ordinary course of business
consistent with past practices; (ii) discharged or satisfied any material
lien or encumbrance or paid any material obligation or liability (absolute
or contingent), other than current liabilities paid in the ordinary course
of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with
respect to its capital stock, or purchased or redeemed, or made any
agreements to purchase or redeem, any shares of its capital stock; (iv)
sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, except in the ordinary course of business consistent with
past practices; (v) suffered any substantial losses or waived any rights
of material value, whether or not in the ordinary course of business, or
suffered the loss of any material amount of existing business; (vi) made
any changes in employee compensation, except in the ordinary course of
business consistent with past practices; or (vii) experienced any material
problems with labor or management in connection with the terms and
conditions of their employment.
<PAGE>
i. Full Disclosure. There is no fact known to the Company
(other than general economic conditions known to the public generally or
as disclosed in the Company's SEC Documents) that has not been disclosed
in writing to the Buyer that (i) would reasonably be expected to have a
material adverse effect on the business, operations or condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole, (ii) would reasonably be expected to
materially and adversely affect the ability of the Company to perform its
obligations pursuant to this Agreement or any of the agreements
contemplated hereby (collectively, including this Agreement, the
"Transaction Agreements"), or (iii) would reasonably be expected to
materially and adversely affect the value of the rights granted to the
Buyer in the Transaction Agreements.
j. Absence of Litigation. Except as set forth in the
Company's SEC Documents, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to
the knowledge of the Company, threatened against or affecting the Company,
wherein an unfavorable decision, ruling or finding would have a material
adverse effect on the properties, business or financial condition, or
results of operation of the Company and its subsidiaries taken as a whole
or the transactions contemplated by any of the Transaction Agreements or
which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, any
of the Transaction Agreements.
k. Absence of Events of Default. Except as set forth in
Section 3(e) hereof, no Event of Default (or its equivalent term), as
defined in the respective agreement to which the Company is a party, and
no event which, with the giving of notice or the passage of time or both,
would become an Event of Default (or its equivalent term) (as so defined
in such agreement), has occurred and is continuing, which would have a
material adverse effect on the business, operations or condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole.
l. Prior Issues. During the twelve (12) months preceding
the date hereof, the Company has not issued any convertible securities.
The presently outstanding unconverted principal amount of each such
issuance as of the date of this Agreement is set forth in Annex V.
m. No Undisclosed Liabilities or Events. The Company has
no liabilities or obligations other than those disclosed in the Company's
SEC Documents or those incurred in the ordinary course of the Company's
business since December 31, 1998, and which individually or in the
aggregate, do not or would not have a material adverse effect on the
properties, business, condition (financial or otherwise), or results of
operations of the Company and its subsidiaries, taken as a whole. Except
for the transactions contemplated by the Transaction Agreements, no event
or circumstances has occurred or exists with respect to the Company or its
properties, business, condition (financial or otherwise), or results of
operations, which, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company
but which has not been so publicly announced or disclosed. There are no
proposals currently under consideration or currently anticipated to be
under consideration by the Board of Directors or the executive officers of
the Company which proposal would (x) change the certificate of
incorporation or other charter document or by-laws of the Company, each as
currently in effect, with or without shareholder approval, which change
would reduce or otherwise adversely affect the rights and powers of the
shareholders of the Common Stock or (y) materially or substantially change
the business, assets or capital of the Company, including its interests in
subsidiaries.
n. No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust or other
material instrument or agreement to which it is a party or by which it or
its property is bound.
<PAGE>
o. No Integrated Offering. Neither the Company nor any of
its affiliates nor any person acting on its or their behalf has, directly
or indirectly, at any time since July 1, 1998 made any offer or sales of
any security or solicited any offers to buy any security under
circumstances that would eliminate the availability of the exemption from
registration under Rule 506 of Regulation D in connection with the offer
and sale of the Securities as contemplated hereby.
p. Dilution. The number of Shares issuable upon conversion
of the Debentures and the exercise of the Warrants may increase
substantially in certain circumstances, including, but not necessarily
limited to, the circumstance wherein the trading price of the Common Stock
declines prior to the conversion of the Debentures. The Company's
executive officers and directors have studied and fully understand the
nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has
concluded, in its good faith business judgment, that such issuance is in
the best interests of the Company. The Company specifically acknowledges
that its obligation to issue the Shares upon conversion of the Debentures
and upon exercise of the Warrants is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company, and the Company
will honor every Notice of Conversion (as defined in the Debentures)
relating to the conversion of the Debentures and every Notice of Exercise
Form (as contemplated by the Warrants) relating to the exercise of the
Warrants unless the Company is subject to an injunction (which injunction
was not sought by the Company) prohibiting the Company from doing so.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1)
the Debentures have not been and are not being registered under the
provisions of the 1933 Act and, except as provided in the Registration
Rights Agreement, the Securities have not been and are not being
registered under the 1933 Act, and may not be transferred unless (A)
subsequently registered thereunder or (B) the Buyer shall have delivered
to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Securities to
be sold or transferred may be sold or transferred pursuant to an exemption
from such registration; (2) any sale of the Securities made in reliance on
Rule 144 promulgated under the 1933 Act may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable,
any resale of such Securities under circumstances in which the seller, or
the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance
with some other exemption under the 1933 Act or the rules and regulations
of the SEC thereunder; and (3) neither the Company nor any other person is
under any obligation to register the Securities (other than pursuant to
the Registration Rights Agreement) under the 1933 Act or to comply with
the terms and conditions of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees
that the Debentures and the Warrants, and, until such time as the Common
Stock has been registered under the 1933 Act as contemplated by the
Registration Rights Agreement and sold in accordance with an effective
Registration Statement, certificates and other instruments representing
any of the Securities shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer
of any such Securities):
<PAGE>
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION
OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
c. Registration Rights Agreement. The parties hereto agree
to enter into the Registration Rights Agreement on or before the Closing
Date.
d. Filings and Shareholder Consent. (i) The Company
undertakes and agrees to make all necessary filings in connection with the
sale of the Debentures to the Buyer under any United States laws and
regulations applicable to the Company, or by any domestic securities
exchange or trading market, and to provide a copy thereof to the Buyer
promptly after such filing.
(ii) Subject to the conditions of the immediately following
sentence, the Company undertakes and agrees to take all steps necessary to
have a meeting and vote of the shareholders of the Company no later than
the Meeting Date (as defined below) regarding authorization of the
Company's issuance to the holders of the Debentures and Warrants of shares
of Common Stock in excess of twenty percent (20%) of the outstanding
shares of Common Stock on the date of this Agreement in accordance with
NASDAQ Rule 4310(c)(25)(H). The terms of the immediately preceding
sentence shall apply only once the Company has issued, after the date of
this Agreement, either (x) to the Holder Class Members of any specific
Holder Class, shares of Common Stock which, in the aggregate equal or
exceed seventy-five percent of the Conversion Limit of that Holder Class
(as such terms are defined below), or (y) to any one or more holders of
all Debentures contemplated by this Agreement shares of Common Stock
which, in the aggregate, equal or exceed ten percent (10%) of the
outstanding shares of Common Stock on the date hereof. The earliest date
on which the issuance of such shares contemplated by the immediately
preceding sentence occurs shall constitute, with further notice from a
Buyer, a "Meeting Requirement Date." The term "Meeting Date" means the
date which is seventy-five (75) days after the Meeting Requirement Date.
The Company will recommend to the shareholders that such authorization be
granted and will seek proxies from shareholders not attending the meeting
(if such meeting is required to effectuate such authorization) naming a
director or officer of the Company as such shareholder's proxy and
directing the proxy to vote, or giving the proxy the authority to vote, in
favor of such authorization. Upon determination that the shareholders
have voted in favor of such authorization, the Company shall cause its
counsel to issue to the Buyer an unqualified opinion (the "Authorization
Opinion") that such authorization has been duly adopted by all necessary
corporate action of the Company and that the Company will be able to
issue, without restriction as to the number of such shares, all shares of
Common Stock as may be issuable upon conversion of the Debentures and
without any limits imposed by the Cap Regulations (as defined in the
Debentures) adopted on or before and in effect on the date of the
Authorization Opinion. The Authorization Opinion shall state that the
Buyer may rely thereon in connection with the transactions contemplated by
this Agreement and the other Transaction Agreements regarding its holdings
of the Debentures. If, for any reason, (x) the Authorization Opinion is
not issued within five (5) business days after such meeting, (y) the
meeting is not held by the Meeting Date or (z) the requisite shareholder
approval is not obtained at the meeting, then in lieu of issuing any
shares in violation of NASDAQ Rule 4310(c)(25)(H) or any of the other Cap
Regulations, the Company shall redeem the outstanding Unconverted
Debentures (as defined in the Debentures) as set forth in Section 6 of the
Debenture within thirty (30) days after the Meeting Date.
<PAGE>
(iii) In furtherance of the provisions of the immediately
preceding subparagraph (ii) hereof, the Company (a) commits to using its
best efforts to obtain any shareholder authorization contemplated by said
subparagraph (ii), and (b) represents to the Buyer that the Company has
obtained the binding irrevocable commitment or proxy (each, a "Principal
Voter Proxy") of each Principal Voter (as defined below) that such
Principal Voter will vote in favor of any shareholder authorization
contemplated by said subparagraph (ii). Each Principal Voter Proxy shall
be issued in favor of the Buyer or the Buyer's designee and shall state
that, among other things, as a result of the Principal Voter's direct or
indirect relationship to the Company on the date the Principal Voter Proxy
is given, such Principal Voter Proxy is deemed coupled with an interest in
favor of the Buyer. A "Principal Voter" is a person who meets any one or
more of the following criteria: (A) a person who is a director or
principal officer of the Company (each, a "Company Principal") and who,
directly or indirectly, holds any shares of Common Stock of the Company;
(B) a spouse of a Company Principal who resides in the household of the
Company Principal (a "Principal's Spouse") and who, directly or
indirectly, holds any shares of Common Stock of the Company, (C) a parent,
sibling or child of a Company Principal who resides in the household of a
Company Principal or of a Principal's Spouse (each, a "Principal's
Relative") and who, directly or indirectly, holds any shares of Common
Stock or (D) any other person or entity, including, without limitation,
for profit or non-profit corporations, partnerships and trusts, whose
voting rights regarding Common Stock of the Company is subject to the
direction, control or other influence of any Company Principal,
Principal's Spouse or Principal's Relative. The Company will deliver such
Principal Voter Proxies to the Buyer or the Buyer's designee within ten
(10) business days after the Closing Date.
e. Reporting Status. So long as the Buyer beneficially
owns any of the Debentures, the Company shall file all reports required to
be filed by the Company with the SEC pursuant to Section 13 or 15(d) of
the 1934 Act, and the Company shall not voluntarily terminate its status
as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would permit such termination.
The Company will take all reasonable action under its control to continue
the listing and trading of its Common Stock (including, without
limitation, all Registrable Securities) on The NASDAQ SmallCap Market and
will comply in all material respects with the Company's reporting, filing
and other obligations under the by-laws or rules of the National
Association of Securities Dealers, Inc. ("NASD") or The NASDAQ SmallCap
Market.
f. Use of Proceeds. Unless otherwise consented by the
Buyer, the Company shall use the proceeds from the sale of the Debentures
(excluding amounts paid by the Company for legal fees, finder's fees and
escrow fees in connection with the sale of the Debentures) for internal
working capital purposes, and, except as expressly provided herein, shall
not, directly or indirectly, use such proceeds for any loan to or
investment in any other corporation, partnership, enterprise or other
person, including any of its affiliates, or to repay any debt to any of
its affiliates.
<PAGE>
g. Certain Agreements. The Company covenants and agrees
that it will not, without the prior written consent of the Buyer, enter
into any subsequent or further offer or sale of Common Stock or securities
convertible into Common Stock with any third party on any date which is
prior to one hundred twenty (120) days after the Effective Date . The
foregoing provision shall not restrict the Company from issuing shares of
Common Stock upon the exercise of (x) certain warrants for the purchase of
up to approximately 2,372,626 shares outstanding as of the date hereof and
(y) certain options granted or be granted pursuant to the 1997 Stock
Option Plan or the 1997 Non-Employee Directors Stock Option Plan.
h. Available Shares. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares
of Common Stock sufficient to yield two hundred percent (200%) of the
number of shares of Common Stock issuable (i) at conversion as may be
required to satisfy the conversion rights of the Buyer pursuant to the
terms and conditions of the Debentures and (ii) upon exercise as may be
required to satisfy the exercise rights of the Buyer pursuant to the terms
and conditions of the Warrants.
i. Warrants. The Company agrees to issue to the Buyer on
the Closing Date transferable, divisible warrants (the "Warrants") for the
purchase of ten thousand (10,000) shares of Common Stock for every
$100,000 principal of Debentures purchased by the Buyer. The Warrants
shall bear an exercise price equal to one hundred twenty-five percent
(125%) of the Market Price of the Common Stock on the Closing Date (the
"Warrant Exercise Price"). The Warrants will expire on the third
anniversary of the Closing Date. The Warrants shall be in the form annexed
hereto as Annex VI, together with registration rights as provided in the
Registration Rights Agreement.
j. Limitation on Conversions. Anything in the other
provisions of this Agreement or any of the other Transaction Agreements to
the contrary notwithstanding, the following provisions are applicable to
conversion effected under the Debentures:
(i) Attached to this Agreement as Annex VIII is a schedule
of all of the Buyers who were the original signatories to this Agreement
(each, an "Original Holder") and the original principal amount (the
"Original Debenture Amount") of the Debenture issued to each such Original
Holder as contemplated by this Agreement (each, an "Original Debenture").
For identification purposes and for the purposes of this Section only,
Annex VIII also identifies the "Holder Class" for each Original Debenture.
Each Original Debenture will include an identification of its relevant
Holder Class. Any reissue of an Original Debenture to the Original Holder
or to any direct or indirect assignee or transferee of all or part of such
Original Debenture shall include an identification of the same Holder
Class. The Original Holder of each Holder Class and any other party at
any time holding a Debenture of the same Holder Class are referred to
collectively as the "Holder Class Members."
<PAGE>
(ii) If and for so long as the Cap Regulations are applicable
to limit the issuance of shares on conversion of the Debentures (but not
thereafter), the number of shares that the Company will issue to all
Holder Class Members of a specific Holder Class on conversion of the
Debentures of that Holder Class shall not, in the aggregate, exceed the
Conversion Limit (as defined below).
(iii) As of the Closing Date, the term "Conversion Limit"
means the number of shares equal to (A) 19.99% of the number of
outstanding shares of Common Stock of the Company as of the Closing Date,
which number is specified on Annex V annexed hereto; provided, however,
that such number is subject to adjustment for subsequent stock splits,
stock dividends and other similar actions or transactions affecting the
capital formation of the Company), multiplied by (B) the relevant Holder
Class Allocable Share (as defined below).
(iv) If, for any reason whatsoever, there are no Debentures
of a specific Holder Class outstanding (a "Closed Class"), the Company
shall promptly give written notice (the "Closed Class Notice") of such
fact to the then holders of outstanding Debentures of all other Holder
Classes. The Closed Class Notice shall (A) identify the date on which the
Holder Class became a Closed Class, and (B) specify both the number of
shares issued, in the aggregate to all Holder Class Members of the Closed
Class (the "Closed Class Issued Shares") and the most recent Conversion
Limit that was applicable to the Closed Class (the "Closed Class
Conversion Limit"). The term "Remaining Shares" means the excess, if any,
of the Closed Class Conversion Limit over the Closed Class Issued
Shares.
(v) The Conversion Limit in effect on the Closing Date or as
subsequently adjusted as provided below shall be adjusted or further
adjusted, as the case may be, on the next date on which there is a new
Closed Class which results in Remaining Shares (a "Closed Class Date").
As of the Closed Class Date, the Conversion Limit then in effect will be
adjusted for each Holder Class as to which there are still outstanding
Debentures to be equal to the sum of (A) the Conversion Limit in effect
immediately prior to the Closed Date, plus (B) the Remaining Share
Conversion Limit (as defined below). The Conversion Limit, as so
adjusted, shall then be deemed to be the Conversion Limit for all Holder
Classes as to which Debentures are still outstanding on the relevant
Closed Class Date, subject to further adjustment, as provided in this
subparagraph (v) in the event there is a subsequent Closed Class Date.
(vi) The "Remaining Share Conversion Limit" means the number
of shares equal to (C) the Remaining Shares, multiplied by (D) the
relevant Adjusted Holder Class Allocable Share (as defined below).
(vii) The term "Holder Class Allocable Share" means the
fraction of which the numerator is the Original Debenture Amount of the
relevant Holder Class and the denominator is the aggregate Original
Debenture Amount of all Holder Classes.
(viii) The term "Adjusted Holder Class Allocable Share"
means, with respect to each Holder Class as to which there are outstanding
Debentures on the Closed Class Date, the fraction of which the numerator
is the Original Debenture Amount of the relevant Holder Class and the
denominator is the aggregate Original Debenture Amount of all Holder
Classes as to which there are there are outstanding Debentures on the
Closed Class Date.
<PAGE>
(ix) Nothing in this Section 4(j) shall be deemed to (A)
permit a transfer or assignment of the Debenture unless otherwise
permitted by other provisions of this Agreement or the Debenture or (B)
limit or otherwise modify the obligations of the Company to take certain
actions or to make certain payments to the Buyer or other parties (such as
but not necessarily limited to, actions with respect to the meeting
contemplated by Section 4(d)(ii) hereof or payments on redemption of the
Debentures), or adversely affect the rights of the Buyer or such other
parties with respect thereto, as provided elsewhere in this Agreement, the
Debentures or any of the other Transaction Agreements.
k. Grant of Security Interest to Buyers. To secure its
obligations to the Buyers and to all direct and indirect permitted
transferees and assignees of their interests in this Agreement and the
other Transaction Agreements, including, but not necessarily limited to,
the Debentures (any one or more of the Buyers and such transferees and
assignees individually and collectively referred to as the "Secured
Party"), the Company (sometimes referred to as the "Debtor") hereby
grants, conveys, transfers and assigns to the Secured Party a security
interest in and to the Collateral (as defined in Annex VII hereto) to the
fullest extent permissible under the Uniform Commercial Code or other
governing security interests granted by debtors or obligors to creditors
or obligees as in effect in each jurisdiction in which the Debtor's
property may be found or deemed situate. Additional terms relating to the
grant of this security interest are specified in Annex VII annexed hereto,
the terms of which are incorporated herein by reference as if set forth
herein in full.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the
Purchase Price for the Debentures in accordance with Section 1(c) hereof,
the Company will irrevocably instruct its transfer agent to issue Common
Stock from time to time upon conversion of the Debentures in such amounts
as specified from time to time by the Company to the transfer agent,
bearing the restrictive legend specified in Section 4(b) of this Agreement
prior to registration of the Shares under the 1933 Act, registered in the
name of the Buyer or its nominee and in such denominations to be specified
by the Buyer in connection with each conversion of the Debentures. The
Company warrants that no instruction other than such instructions referred
to in this Section 5 and stop transfer instructions to give effect to
Section 4(a) hereof prior to registration and sale of the Shares under the
1933 Act will be given by the Company to the transfer agent and that the
Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement, the
Registration Rights Agreement, and applicable law. Nothing in this
Section shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities.
If the Buyer provides the Company with an opinion of counsel reasonably
satisfactory to the Company that registration of a resale by the Buyer of
any of the Securities in accordance with clause (1)(B) of Section 4(a) of
this Agreement is not required under the 1933 Act, the Company shall
(except as provided in clause (2) of Section 4(a) of this Agreement)
permit the transfer of the Securities and, in the case of the Converted
Shares or the Warrant Shares, as the case may be, promptly instruct the
Company's transfer agent to issue one or more certificates for Common
Stock without legend in such name and in such denominations as specified
by the Buyer.
<PAGE>
b. Subject to the completeness and accuracy of the Buyer's
representations and warranties herein, upon the conversion of any
Debentures by a person who is a non-U.S. Person, and following the
expiration of any then applicable Restricted Period (as those terms are
defined in Regulation S), the Company, shall, at its expense, take all
necessary action (including the issuance of an opinion of counsel) to
assure that the Company's transfer agent shall issue stock certificates
without restrictive legend or stop orders in the name of Buyer (or its
nominee (being a non-U.S. Person) or such non-U.S. Persons as may be
designated by Buyer) and in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable upon
such conversion, as applicable. Nothing in this Section 5, however, shall
affect in any way Buyer's or such nominee's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities.
c. Subject to the provisions of this Agreement, the Company
will permit the Buyer to exercise its right to convert the Debentures in
the manner contemplated by the Debentures.
d. The Company understands that a delay in the issuance of
the Shares of Common Stock beyond the Delivery Date (as defined in the
Debentures) could result in economic loss to the Buyer. As compensation
to the Buyer for such loss, the Company agrees to pay late payments to the
Buyer for late issuance of Shares upon Conversion in accordance with the
following schedule (where "No. Business Days Late" is defined as the
number of business days beyond the Delivery Date):
Late Payment For Each $10,000
of Debenture Principal
No. Business Days Late Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit the
Buyer's right to pursue actual damages for the Company's failure to issue
and deliver the Common Stock to the Buyer. Furthermore, in addition to
any other remedies which may be available to the Buyer, in the event that
the Company fails for any reason to effect delivery of such shares of
Common Stock by close of business on the Delivery Date, the Buyer will be
entitled to revoke the relevant Notice of Conversion by delivering a
notice to such effect to the Company, whereupon the Company and the Buyer
shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion.
<PAGE>
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.
<PAGE>
7. CLOSING DATE.
a. The Closing Date shall occur on the date which is the
first NYSE trading day after the fulfillment or waiver of all closing
conditions pursuant to Sections 8 and 9 hereof or such other date and time
as is mutually agreed upon by the Company and the Buyer.
b. The closing of the purchase and issuance of Debentures
shall occur on the Closing Date at the offices of the Escrow Agent and
shall take place no later than 12:00 Noon, New York time, on such day or
such other time as is mutually agreed upon by the Company and the Buyer.
c. Notwithstanding anything to the contrary contained
herein, the Escrow Agent will be authorized to release the Escrow Property
only upon satisfaction of the conditions set forth in Sections 8 and 9
hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell
the Debentures to the Buyer pursuant to this Agreement on the Closing Date
is conditioned upon:
a. The execution and delivery of this Agreement by the
Buyer;
b. Except as contemplated by Section 1 hereof, delivery by
the Buyer to the Escrow Agent of good funds as payment in full of an
amount equal to the Purchase Price for the Debentures in accordance with
this Agreement;
c. The accuracy on such Closing Date of the representations
and warranties of the Buyer contained in this Agreement, each as if made
on such date, and the performance by the Buyer on or before such date of
all covenants and agreements of the Buyer required to be performed on or
before such date; and
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the Debentures on the Closing Date is conditioned upon:
<PAGE>
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.
<PAGE>
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):
<PAGE>
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:
Sichenzia Ross & Friedman
135 West 50th Street, 20th Floor
New York, NY 10020
Attn: Gregory Sichenzia, Esq.
Telephone No.: (212) 664-1200
Telecopier No.: (212) 664-7329
BUYER: At the address set forth on the signature page of this
Agreement.
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telephone No.: (212) 689-3322
Telecopier No. (212) 213-2077
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
Telephone No.: (212) 689-3322
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
Company's and the Buyer's representations and warranties herein shall
survive the execution and delivery of this Agreement and the delivery of
the Debentures and payment of the Purchase Price, and shall inure to the
benefit of the Buyer and the Company and their respective successors and
assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyer or one of its officers thereunto duly authorized as of the date
set forth below.
AMOUNT AND PURCHASE PRICE OF DEBENTURES: $
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities
Purchase Agreement to be duly executed on its behalf this ________ day of
___________________, 1999.
________________________________ ___________________________
Address Printed Name of Subscriber
________________________________
By:________________________________
________________________________ (Signature of Authorized Person)
Telecopier No.___________________ __________________________________
Printed Name and Title
_________________________________
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this
Agreement and represents that the foregoing statements are true and
correct and that it has caused this Securities Purchase Agreement to be
duly executed on its behalf.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:
Anthony K. Chan
Title: President & CEO
Date: June 17, 1999
<PAGE>
Buyers:
Olympia Partners LLC $450,000.00
LCBS Corp $250,000.00
Amro International S.A. $250,000.00
The Endeavour Capital Fund S.A. $400,000.00
Scott Rosen $ 80,000.00
Eva Rosen $ 80,000.00
Peter T. Roselle $ 50,000.00
David Reimer $ 25,000.00
David Mugrabi $ 25,000.00
Justyn Feldman $ 25,000.00
Steve Chananya $ 65,000.00
David Avidon $ 50,000.00
----------------
Total $1,750,000.00
Exhibit 4.2
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. 99C- US $
Holder Class:
AMERICAN CHAMPION ENTERTAINMENT, INC.
7% CONVERTIBLE DEBENTURE DUE JUNE 17, 2002
THIS DEBENTURE is one of a duly authorized issue of up to $1,750,000
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 Thousand and
00/100 Dollars (US $ ) on June 17, 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-seven and one-half percent (77.5%) of the
Market Price (as defined below) on the Conversion Date (as defined below)
or (ii) one hundred seventeen and one-half percent of the Market Price on
the Closing Date (as defined in the Securities Purchase Agreement).
B. Conversion shall be effectuated by faxing a Notice of
Conversion (as defined below) to the Company and the Company's transfer
agent, Continental Stock Transfer & Trust Company, 2 Broadway, New York,
NY 10004, telephone (212) 509-4000, facsimile (212) 509-5150, executed by
the Holder of this Debenture evidencing such Holder's intention to convert
this Debenture or a specified portion hereof in the form annexed hereto as
Exhibit A. 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") to the Company so that it is received by the
Company on or before such specified date, provided that, if such
conversion would convert the entire remaining principal of this Debenture,
the Holder shall deliver to the Company the original Debentures being
converted no later than five (5) business days thereafter. 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 11 of
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
(such fifth business day or seventh business day, as the case may be, the
"Delivery Date") after (i) the date on which the Notice of Conversion is
delivered to the Company as contemplated in this paragraph B or (ii) the
date an interest payment on this Debenture, which the Company has elected
to pay by the issuance of Common Stock, as contemplated herein, was due.
C. For purposes of this Debenture, the term "Market Price"
means (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 hereof, of the
Warrants or of any of the other Transaction Agreements (as those terms are
defined in the Securities Purchase Agreement), 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 this
Debenture as an exception to this provision, or (iii) while there is
outstanding a tender offer for any or all of the shares of the Company's
Common Stock) shall the Holder be entitled to convert any Debenture, or
shall the Company have the obligation to convert all or any portion of
this Debenture (and the Company shall not have the right to pay interest
on 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 or unexercised portion of the Warrants), 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 Holder upon such conversion). For
purposes of the proviso to 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 its
acceptance of 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 assignment shall be made subject to the
transferee's or assignee's specific agreement to be bound by the
provisions of this Section 4(E) as if such transferee or assignee were the
original Holder hereof. Nothing herein shall preclude the Holder from
disposing of a sufficient number of other shares of Common Stock
beneficially owned by the Holder so as to thereafter permit the continued
conversion of this Debenture.
5. A. Notwithstanding any other provision hereof to the
contrary, after the Closing Date, if the Market Price of the Common Stock
is below the Trading Price (as defined below) for a period of twenty (20)
consecutive trading days, then, for as long as the Market Price of the
Common Stock remains below the Trading Price, the Company shall have the
right to redeem all or any portion of this Debenture in cash for an amount
(the "Redemption Amount") equal to (a) one hundred twenty two and one-half
percent (122.5%) of such outstanding principal plus (b) all accrued but
unpaid interest thereon through the date the Redemption Amount is paid to
the Holder (the "Redemption Payment Date"). The term "Trading Price" means
a Market Price of the Common Stock of less than $1 (which amount is
subject to equitable adjustment as contemplated by Sections 9 through 11,
inclusive, hereof).
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 (a) 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) (collectively, the "Cap Regulations") or (b) the provisions
of Section 4(j) of the Securities Purchase Agreement (collectively, with
the Cap Regulations, the "Issuance Limitations"). Without limiting the
other provisions hereof, (w) 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 (x)
if, despite taking such steps, the Company still can not issue such shares
of Common Stock without violating the Issuance Regulations, the Holder of
this Debenture (to the extent the same can not be converted in compliance
with the Issuance Regulations (an "Unconverted Debenture"), shall have the
right to require the Company to redeem each Unconverted Debenture for an
amount (the "Cap Redemption Amount"), payable in cash, equal to (y) one
hundred thirty percent (130%) of the principal of the Unconverted
Debenture, plus (z) all accrued but unpaid interest on the Debenture
through the date of redemption (the "Cap Redemption Date") specified in
the notice from the Holder electing this remedy.
7. Subject to the terms of the Securities Purchase Agreement,
dated June 17 , 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. A. The obligations of the Company under this Debenture are
secured under the terms of the Securities Purchase Agreement.
B. 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 (other than where the Company is the surviving entity)
or consolidation with another corporation or other entity or a 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 will 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.
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 Closing Date 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 Closing Date shall be deemed to be one-half of
what it had been calculated to be 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 Closing Date shall be deemed to be ten times what it had been
calculated to be 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 Closing 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).
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 Wilmington or the state courts of the
State of Delaware sitting in the City of Wilmington 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 (as defined in the
Securities Purchase 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
Agreement, 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: June 17 , 1999
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:__________________________________
Anthony K. Chan
----------------------
(Print Name)
President & CEO
----------------------
(Title)
EXHIBIT A
NOTICE OF CONVERSION
OF
7% CONVERTIBLE DEBENTURE DUE JUNE 17, 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:
__________________________________________________________________________
__________________________________________________________________________
* If this Notice of Conversion represents conversion of the outstanding
principal balance of the Debenture, the original Debenture must be
received by the Company or its transfer agent by the fifth business date
following the Conversion Date.
Buyers:
Olympia Partners LLC $450,000.00
LCBS Corp $250,000.00
Amro International S.A. $250,000.00
The Endeavour Capital Fund S.A. $400,000.00
Scott Rosen $ 80,000.00
Eva Rosen $ 80,000.00
Peter T. Roselle $ 50,000.00
David Reimer $ 25,000.00
David Mugrabi $ 25,000.00
Justyn Feldman $ 25,000.00
Steve Chananya $ 65,000.00
David Avidon $ 50,000.00
----------------
Total $1,750,000.00
Exhibit 4.3
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 June 17, 2002 (the "Expiration Date"),
Thousand ( ) 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 $
, subject to further adjustment as set forth herein.
2. Exercise of Warrants.
2.1 General. 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.
2.2 Limitation on Exercise. Notwithstanding the
provisions of this Warrant, Securities Purchase Agreement, dated June
17 , 1999 (the "Securities Purchase Agreement"), between the Company
and the Holder (or the Holder's predecessor in interest) or of the other
Transaction Agreements (as defined in the Securities Purchase Agreement),
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 this Warrant as an exception to this provision, or (iii) while
there is outstanding a tender offer for any or all of the shares of the
Company's Common Stock) shall the Holder be entitled to exercise this
Warrant, or shall the Company have the obligation to issue shares upon
such exercise of all or any portion of this Warrant, to the extent that,
after such exercise 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 or unexercised portion of the
Warrants), and (2) the number of shares of Common Stock issuable upon the
exercise of the Warrants 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 Holder
upon such exercise). For purposes of the proviso to 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 its acceptance of this Warrant, further agrees that if the
Holder transfers or assigns any of the Warrants to a party who or which
would not be considered such an affiliate, such assignment shall be made
subject to the transferee's or assignee's specific agreement to be bound
by the provisions of this Section 2.2 as if such transferee or assignee
were the original Holder hereof.
3. Reservation of Shares. The Company hereby agrees that
at all times during the term of this Warrant there shall be reserved for
issuance upon exercise of this Warrant such number of shares of its Common
Stock as shall be required for issuance upon exercise of this Warrant (the
"Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or
destruction) receipt of reasonably satisfactory indemnification, and (in
the case of mutilation) upon surrender and cancellation of this Warrant,
the Company will execute and deliver a new Warrant of like tenor and date
and any such lost, stolen, destroyed or mutilated Warrant shall thereupon
become void.
5. Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either
at law or equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against the Company
except to the extent set forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the
Exercise Price is required pursuant to this Section 6, the Holder shall be
entitled to purchase such number of additional shares of Common Stock as
will cause (i) the total number of shares of Common Stock Holder is
entitled to purchase pursuant to this Warrant, multiplied by (ii) the
adjusted Exercise Price per share, to equal (iii) the dollar amount of the
total number of shares of Common Stock Holder is entitled to purchase
before adjustment multiplied by the total Exercise Price before
adjustment.
6.2 Capital Adjustments. In case of any stock split
or reverse stock split, stock dividend, reclassification of the Common
Stock, recapitalization, merger or consolidation, or like capital
adjustment affecting the Common Stock of the Company, the provisions of
this Section 6 shall be applied as if such capital adjustment event had
occurred immediately prior to the date of this Warrant and the original
Exercise Price had been fairly allocated to the stock resulting from such
capital adjustment; and in other respects the provisions of this Section
shall be applied in a fair, equitable and reasonable manner so as to give
effect, as nearly as may be, to the purposes hereof. A rights offering to
stockholders shall be deemed a stock dividend to the extent of the bargain
purchase element of the rights.
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:
Sichenzia Ross & Friedman
135 West 50th Street, 20th Floor
New York, NY 10020
Attn: Gregory Sichenzia, Esq.
Telephone No.: (212) 664-1200
Telecopier No.: (212) 664-7329
(ii) if to the Holder, to:
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 17 th day of June 1999.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:_________________________________
Name: Anthony K. Chan
Its: President & CEO
Attest:
________________________
Name: George Chung
Title: Chairman of the Board
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: $__________________
Exhibit 5.1
SICHENZIA, ROSS & FRIEDMAN LLP
Attorneys At Law
135 West 50th Street, 20th Floor
New York, New York 10020
_____________________
Telephone: (212) 664-1200
Facsimile: (212) 664-7329
E-Mail: [email protected]
July 15, 1999
VIA ELECTRONIC TRANSMISSION
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: American Champion Entertainment, Inc.
Form S-3 Registration Statement
SEC File No. 333-
Ladies and Gentlemen:
We refer to the above-captioned registration statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933, as
amended (the "Act"), filed by American Champion Entertainment, Inc., a
Delaware corporation (the "Company"), with the Securities and Exchange
Commission.
We have examined the originals, photocopies, certified copies or
other evidence of such records of the Company, certificates of officers of
the Company and public officials, and other documents as we have deemed
relevant and necessary as a basis for the opinion hereinafter expressed.
In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as certified copies or
photocopies and the authenticity of the originals of such latter
documents.
Based on our examination mentioned above, we are of the opinion that
the securities being registered to be sold pursuant to the Registration
Statement are duly authorized and will be, when sold in the manner
described in the Registration Statement, legally and validly issued, and
fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to
the Registration Statement and to the reference to our firm in the section
"Legal Matters" in the Registration Statement. In giving the foregoing
consent, we do not hereby admit that we are in the category of persons
whose consent is required under Section 7 of the Act, or the rules and
regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ Sichenzia, Ross & Friedman, LLP
Sichenzia, Ross & Friedman, LLP
Exhibit 23.2
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement of
American Champion Entertainment, Inc. on Form S-3, our report dated March 11,
1999, appearing in the Annual Report on Form 10-KSB of American Champion
Entertainment, Inc. for the year ended December 31, 1998. We also consent to
the reference to our firm under the caption "Experts" in the Prospectus
forming part of such Registration Statement.
/s/ Moss Adams LLP
San Francisco, California
July 14, 1999
