As filed with the Securities and Exchange Commission on February 12, 1999
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMERICAN CHAMPION ENTERTAINMENT, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
7812
(Primary Standard Industrial
Classification Code Number)
94-3261987
(I.R.S. Employer
Identification Number)
1694 THE ALAMEDA, SUITE 100
SAN JOSE, CALIFORNIA 95126-2219
(408) 288-8199
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ANTHONY K. CHAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1694 THE ALAMEDA, SUITE 100
SAN JOSE, CALIFORNIA 95126-2219
(408) 288-8199
(Name and address and telephone number of agent for service)
------------------------
COPIES TO:
LAWRENCE B. LOW, ESQ.
PRESTON GATES & ELLIS LLP
ONE MARITIME PLAZA, SUITE 2400
SAN FRANCISCO, CALIFORNIA 94111
(415) 788-8822
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. __
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. _X_
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. __
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. __
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. __
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Proposed Proposed Amount of
Class of Maximum Maximum Registration
Securities to Amount to be Offering Price Aggregate Fee
be Registered Registered (1)(2) Per Share Offering Price
- -------------- ------------ ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Common Stock, $0.0001 par value 2,500,000 $1.84375 $4,609,375 $1,281.41
</TABLE>
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The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act or until this
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
(1) Includes: (i) shares of common stock that have been issued or are
reserved for issuance upon the conversion of 7% Convertible
Debentures due January 1, 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;
and (iii) shares of common stock that have been reserved for issuance
on the exercise of common stock purchase warrants issued to
consultants of AmericanChampion.
(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.
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities and it
is not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED __________, 1999
PROSPECTUS
AMERICAN CHAMPION ENTERTAINMENT, INC.
2,500,000 Shares of common stock
This prospectus relates to the sale of up to 2,500,000 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 February 2, 1999 the
closing sale price of the common stock and the common stock purchase
warrants on Nasdaq SmallCap Market was $1.969 and $0.500, 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 _______________,1999.
TABLE OF CONTENTS
Page
Company 5
Risk Factors 6
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
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 95126-2219, and its
telephone number is (408) 288-8199.
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 $641,583, $801,416 and $786,074 in 1996,
1997 and the nine months ended September 30, 1998, respectively. 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 21
episodes of the Kanga Roddy Series we are obligated to deliver is
estimated to be $5.04 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 20 episodes of the Kanga Roddy Series. Based on production of
20 episodes completed to date, we now estimate that the average cost of
developing and producing each episode of the Kanga Roddy Series is
$240,000 and that it will require an additional $5.04 million of
additional financing to complete the remaining 21 episodes of the Kanga
Roddy Series. On January 19, 1999, we sold 7% convertible debentures in
the principal amount of $950,000. We have no other current arrangements
with respect to such additional financing, except that on January 22,
1999, we signed a term sheet with JW Genesis Capital Markets, LLC, as
the placement agent, to raise up to $4,500,000 by issuing Series C
Preferred Stock of American Champion, which preferred stock would be
convertible into common stock of American Champion. There can be no
assurances that any additional financing will be available at all or on
terms acceptable.
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 20
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 Don Berryessa, Vice President and
Jan D. Hutchins, President of American Champion Media. We have entered
into employment agreements, effective as of August 5, 1997, with such
individuals. 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.
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 ABK 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 17.96% of the outstanding
shares prior to this offering and approximately 14.10% 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. 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, including
without limitation, claims brought by students or instructors injured
during karate classes, 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.
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.
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 1998 Annual
Meeting of Stockholders held on May 29, 1998 and the Special
Meeting of Stockholders held on September 23, 1998;
5. American Champion's Annual Report on Form 10-KSB for its
fiscal year ended December 31, 1997; and
6. American Champion's Quarterly Reports on Form 10-QSB for the
quarter periods ended September 30, 1998, June 30, 1998 and
March 31, 1998.
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.
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 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:
ACEI High Low
1997
Third Quarter $5.50 $4.125
Fourth Quarter $8.00 $4.813
1998
First Quarter $9.625 $7.75
Second Quarter $9.563 $6.563
Third Quarter $7.00 $3.500
Fourth Quarter $3.625 $0.969
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 February 2, 1999, as reported by our transfer agent, shares of
common stock were held by approximately 750 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.
ISSUANCE OF COMMON STOCK
TO SELLING STOCKHOLDERS
The shares covered by this prospectus include:
(1) Up to 1,838,875 shares of common stock that have been issued
or are issuable upon the conversion of 7% Convertible Debentures due
January 1, 2002 issued by American Champion;
(2) 61,125 shares of common stock that are issuable on the
exercise of Common Stock Purchase Warrants issued in connection with the
debentures; and
(3) 600,000 shares of common stock that are issuable on the
exercise of Common Stock Purchase Warrants issued to our consultants;
Debentures and Debenture Warrants. On January 19, 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
$950,000 of American Champion's debentures, and American Champion agreed
to issue to the purchasers and placement agent warrants to purchase up
to 61,125 shares of common stock.
The debentures are convertible into a number of shares of American
Champion's common stock based on lower of $2.01 or 75% 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.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the common stock as of February 2, 1999 by each
of the selling stockholders assuming the conversion of the debentures of
$950,000 principal amount and a conversion rate of $0.5166 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 $0.5166 per share plus the number of
shares issuable upon exercise of the debenture warrants) as provided in
the debenture, the exercise of the debenture warrants to purchase 26,125
shares of common stock, the exercise of the common stock purchase
warrants to purchase 600,000 shares of common stock, and the exercise of
the warrants held by JW Genesis Financial Corporation to purchase 35,000
shares of common stock. 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 February 2, 1999(1) Hereunder Are Sold(1)(3)
-------------------------------- -------------------------------
Shares That
May be Offered
Name Shares Percent(2) Hereunder Shares Percent
- ------------------ -------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
The Endeavour Capital Fund S.A. 664,997 10.52 490,808 174,189 2.99
Amro International S.A. 413,271 6.81 392,646 20,625 *
Canadian Advantage L.P. 596,533 9.54 588,970 7,563 *
JW Genesis Financial Corporation 110,000 1.91 35,000 75,000 1.31
Dalton Kent Securities Group, Inc. 430,000 7.06 300,000 130,000 2.25
Olympia Partners, LLC 662,646 10.48 662,646 -- --
Josh Berkowitz 30,000 * 30,000 -- --
- -----------------------
* 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 February 2, 1999 through the conversion of debentures, the
exercise of any debenture warrant or warrants held by JW Genesis
Financial Corporation 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 February 2, 1999), plus the shares, if any, which would
be issued to such stockholder upon conversion of debentures held or
exercise of any warrants. On February 2, 1999, American Champion had
5,658,720 shares outstanding.
(3) The shares hereunder do not include shares which we anticipate to
be sold under a separate registration statement and prospectus.
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 Preston Gates & Ellis LLP,
San Francisco, California.
EXPERTS
The balance sheet of American Champion Entertainment, Inc. as of
February 5, 1997, and the financial statements of America's Best Karate
as of December 31, 1996, and for the year then ended have been
incorporated by reference herein and in the registration statement in
reliance upon the reports of Moore Stephens P.C., independent certified
public accountants, also incorporated by reference herein, and upon the
authority of such firm as experts in accounting and auditing.
The financial statements of American Champion as of December 31,
1997, and for the year then ended 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.
Effective October 8, 1997, the Board of Directors of American
Champion, dismissed Moore Stephens, P.C., and such firm no longer acts
as American Champion's principal accountant. Moore Stephens' report on
the American Champion's financial statements dated February 5, 1997, the
date of the American Champion's incorporation, did not contain an
adverse opinion or a disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles. Moore
Stephens' report on the financial statements for the past two years
relating to America's Best Karate, predecessor to American Champion,
dated January 31, 1997, did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to audit
scope or accounting principles; however, such report did include a
modification of the auditor's standard report, noting that certain
factors raised substantial doubt about America's Best Karate's ability
to continue as a going concern. During American Champion's and its
predecessor's two most recent fiscal years and the interim period
through October 8, 1997, there were no disagreements between American
Champion or its predecessor and Moore Stephens on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which, if not resolved to the satisfaction
of Moore Stephens, would have caused it to make reference to the subject
matter of the disagreements in connection with its report.
Effective October 8, 1997, American Champion engaged Moss Adams
LLP as its principal accountant. Such engagement was approved by the
American Champion's Board of Directors. During American Champion's two
most recent fiscal years and any subsequent interim period through
October 8, 1997, American Champion did not consult Moss Adams LLP
regarding the application of accounting principals to a specified
transaction, the type of audit opinion that might be rendered on
American Champion's financial statements or any matter that was the
subject of disagreement or a reportable event.
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
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.
2,500,000 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
_______________
_________, 1999
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 $ 1,281.41
Legal fees and expenses 15,000.00
Accounting fees and expenses 3,000.00
Miscellaneous, including Nasdaq listing fees 10,000.00
Total............ ...........................$ 29,281.41
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.
ITEM 16. EXHIBITS
The exhibits filed as part of this Registration Statement are as
follows:
Number Description
4.1 Securities Purchase Agreement, dated January 19, 1999, by
and among American Champion and the Buyers as defined
therein.
4.2 7% Convertible Debentures due January 1, 2002.
4.3 Common Stock Purchase Warrant.
5.1* Opinion of Preston Gates & Ellis LLP regarding legality of
securities being registered.
23.1* Consent of Preston Gates & Ellis LLP (included in its
opinion filed as Exhibit 5.1).
23.2 Consent of Moss Adams LLP.
23.3 Consent of Moore Stephens P.C.
(*To be filed)
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to its Certificate of
Incorporation, its Bylaws, or otherwise, the Registrant has been advised
that in the opinion of the Securities Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. 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.
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 12th day of February, 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, February 12, 1999
- ------------------------ and Director (principal executive
Anthony K. Chan officer)
/s/ GEORGE CHUNG Chairman of the Board and Director February 12, 1999
- ------------------------
George Chung
/s/ DON BERRYESSA Senior Vice President and Director February 12, 1999
- -------------------------
Don Berryessa
/s/ MAE LYN WOO Vice President and Chief Financial February 12, 1999
- ----------------------- Officer (principal financial
Mae Lyn Woo officer)
/s/ WILLIAM T. DUFFY Director February 12, 1999
- -------------------------
William T. Duffy
/s/ ALAN ELKES Director February 12, 1999
- -------------------------
Alan Elkes
/s/ JAN D. HUTCHINS Director February 12, 1999
- -------------------------
Jan D. Hutchins
/s/ RONALD M. LOTT Director February 12, 1999
- -------------------------
Ronald M. Lott
</TABLE>
EXHIBITS INDEX
The exhibits filed as part of this Registration Statement are as
follows:
Number Description
4.1 Securities Purchase Agreement, dated January 19, 1999, by
and among American Champion and the Buyers as defined
therein.
4.2 7% Convertible Debentures due January 1, 2002.
4.3 Common Stock Purchase Warrant.
5.1* Opinion of Preston Gates & Ellis LLP regarding legality of
securities being registered.
23.1* Consent of Preston Gates & Ellis LLP (included in its
opinion filed as Exhibit 5.1).
23.2 Consent of Moss Adams LLP.
23.3 Consent of Moore Stephens P.C.
(*To be filed)
<PAGE> 1
EXHIBIT 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, of our
report dated February 11, 1998, appearing in the Annual Report on Form
10-KSB of American Champion Entertainment, Inc. for the year ended
December 31, 1997. We also consent to the reference to our firm under
the caption "Experts" in the Prospectus forming part of such Registration
Statement.
/s/ Moss Adams LLP
San Francisco, California
February 11, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement of American Champion Entertainment, Inc. on Form S-3 of our
report dated February 5, 1997, on our audit of the balance sheet of
American Champion Entertainment, Inc. and of our report dated January 31,
1997, on our audits of the financial statements of America's Best Karate,
all appearing on Form SB-2 related to the Company's initial public
offering, which was declared effective July 30, 1997. We also consent to
the reference of our firm under the caption "Experts" in the Prospectus
forming part of such Registration Statement.
/s/ Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
February 11, 1999
<PAGE> 1
EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of
acceptance set forth below, is entered into by and between AMERICAN
CHAMPION ENTERTAINMENT, INC., a Delaware corporation, with headquarters
located at 1694 The Alameda, Suite 100, San Jose, CA 95126-2219 (the
"Company"), and each entity named on a signature page hereto (each, a
"Buyer") (each agreement with a Buyer being deemed a separate and
independent agreement between the Company and such Buyer, except that
each Buyer acknowledges and consents to the rights granted to each other
Buyer under such agreement and the Transaction Agreements, as defined
below, referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in accordance with and in reliance upon the
exemption from securities registration afforded, inter alia, by Rule 506
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the 1933
Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and
subject to the conditions of this Agreement, 7% Convertible Debentures
of the Company which will be convertible into shares of Common Stock,
$.0001 par value per share of the Company (the "Common Stock"), upon the
terms and subject to the conditions of such Convertible Debentures,
together with the Warrants (as defined below) exercisable for the
purchase of shares of Common Stock (the "Warrant Shares"), and subject
to acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase; Certain Definitions. (i) The undersigned
hereby agrees to initially purchase from the Company 7% Convertible
Debentures in the principal amount set forth on the Buyer's signature
page of this Agreement (the "Debentures"), out of a total offering of
$950,000 of such Debentures, and having the terms and conditions and
being in the form attached hereto as Annex I. The purchase price for
the Debentures shall be as set forth on the signature page hereto and
shall be payable in United States Dollars.
(ii) As used herein, the term "Securities" means the
Debentures, the Common Stock issuable upon conversion of the Debentures,
the Warrants and the Warrant Shares.
(iii) As used herein, the term "Purchase Price" means the
purchase price for the Debentures.
(iv) As used herein, the term "Closing Date" means the date
of the closing of the purchase and sale of the Debentures, as provided
herein.
(v) As used herein, the term "Effective Date" means the
effective date of the Registration Statement covering the Registrable
Securities (as those terms are defined in the Registration Rights
Agreement defined below).
(vi) As used herein, the term "Market Price of the Common
Stock" means (x) the average closing bid price of the Common Stock for
the five (5) trading days ending on the trading day immediately before
the date indicated in the relevant provision hereof (unless a different
relevant period is specified in the relevant provision), as reported by
Bloomberg, LP or, if not so reported, as reported on the over-the-
counter market or (y) if the Common Stock is listed on a stock exchange,
the lowest trade price on such exchange on the date indicated in the
relevant provision hereof, as reported in The Wall Street Journal.
b. Form of Payment; Delivery of Debentures.
(i) The Buyer shall pay the Purchase Price for the
Debentures by delivering immediately available good funds in United
States Dollars to the escrow agent (the "Escrow Agent") identified in
the Joint Escrow Instructions attached hereto as Annex II (the "Joint
Escrow Instructions") on the date prior to the Closing Date.
(ii) No later than the Closing Date, but in any event
promptly following payment by the Buyer to the Escrow Agent of the
Purchase Price, the Company shall deliver the Debentures and the
Warrants, each duly executed on behalf of the Company, to the Escrow
Agent.
(iii) By signing this Agreement, each of the Buyer and the
Company, subject to acceptance by the Escrow Agent, agrees to all of the
terms and conditions of, and becomes a party to, the Joint Escrow
Instructions, all of the provisions of which are incorporated herein by
this reference as if set forth in full.
c. Method of Payment. Payment into escrow of the
Purchase Price shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No.: [To be provided to the Buyer by Krieger & Prager]
Not later than 5:00 p.m., New York time, on the date which is two (2)
New York Stock Exchange trading days after the Company shall have
accepted this Agreement and returned a signed counterpart of this
Agreement to the Escrow Agent by facsimile, the Buyer shall deposit with
the Escrow Agent the Purchase Price for the Debentures in currently
available funds. Time is of the essence with respect to such payment,
and failure by the Buyer to make such payment, shall allow the Company
to cancel this Agreement.
d. Escrow Property. The Purchase Price and the
Debentures and Warrants delivered to the Escrow Agent as contemplated by
Sections 1(b) and (c) hereof are referred to as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and
agrees with, the Company as follows:
a. Without limiting Buyer's right to sell the Common
Stock pursuant to the Registration Statement (as that term is defined in
the Registration Rights Agreement defined below), the Buyer is
purchasing the Debentures and the Warrants and will be acquiring the
shares of Common Stock issuable upon conversion of the Debentures (the
"Converted Shares") and the Warrant Shares for its own account for
investment only and not with a view towards the public sale or
distribution thereof and not with a view to or for sale in connection
with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term
is defined in Rule 501 of the General Rules and Regulations under the
1933 Act by reason of Rule 501(a)(3), (ii) experienced in making
investments of the kind described in this Agreement and the related
documents, (iii) able, by reason of the business and financial
experience of its officers (if an entity) and professional advisors (who
are not affiliated with or compensated in any way by the Company or any
of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the
related documents, and (iv) able to afford the entire loss of its
investment in the Securities.
c. All subsequent offers and sales of the Debentures and
the shares of Common Stock representing the Converted Shares and the
Warrant Shares (such Common Stock sometimes referred to as the "Shares")
by the Buyer shall be made pursuant to registration of the Shares under
the 1933 Act or pursuant to an exemption from registration.
d. The Buyer understands that the Debentures are being
offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and
the Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Buyer set forth
herein in order to determine the availability of such exemptions and the
eligibility of the Buyer to acquire the Debentures. The Buyer
represents and warrants that the address of its principal place of
business is as set forth on the Buyer's signature page of this
Agreement.
e. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale
of the Debentures and the offer of the Shares which have been requested
by the Buyer, including Annex V hereto. The Buyer and its advisors, if
any, have been afforded the opportunity to ask questions of the Company
and have received complete and satisfactory answers to any such
inquiries. Without limiting the generality of the foregoing, the Buyer
has also had the opportunity to obtain and to review the Company's (1)
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997, (2) Quarterly Reports on Form 10-QSB for the fiscal quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998, (3) Proxy
Statements for the Company's annual meeting of shareholders held on May
29, 1998 and special meeting of shareholders held September 23, 1998 and
(4) Registration Statement on Form S-3/A filed with the SEC on December
23, 1998 (the "Company's SEC Documents").
f. The Buyer understands that its investment in the
Securities involves a high degree of risk.
g. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed
on or made any recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Buyer and is a valid and binding
agreement of the Buyer enforceable in accordance with its terms, subject
as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement
of creditors' rights generally.
i. Notwithstanding the provisions hereof or of the
Debentures, in no event (except (i) with respect to an automatic
conversion, if any, of a Debenture as provided in the Debentures, (ii)
as specifically provided in a Debenture as an exception to this
provision, or (iii) if the Company is in default under any Debenture or
any of the Transaction Agreements, as defined below and the Buyer has
asserted such default) shall the holder be entitled to convert any
Debenture to the extent that, after such conversion, the sum of (1) the
number of shares of Common Stock beneficially owned by the Buyer and its
affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of
the Debentures), and (2) the number of shares of Common Stock issuable
upon the conversion of the Debentures with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Buyer and its affiliates of more than 9.99% of the
outstanding shares of Common Stock (after taking into account the shares
to be issued to the Buyer upon such conversion). For purposes of the
immediately preceding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), except as otherwise provided in clause (1)
of such sentence. The Buyer further agrees that if the Buyer transfers
or assigns any of the Debentures to a party who or which would not be
considered such an affiliate, such transfer or assignment shall be made
subject to the transferee's or assignee's specific agreement to be bound
by the provisions of this Section 2(i) as if such transferee or assignee
were a signatory to this Agreement.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that,
except as provided in Annex V hereto:
a. Concerning the Debentures and the Shares. There are
no preemptive rights of any stockholder of the Company, as such, to
acquire the Debentures, the Warrants or the Shares.
b. Reporting Company Status. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the requisite corporate power
to own its properties and to carry on its business as now being
conducted. The Company is duly qualified as a foreign corporation to do
business and is in good standing in each jurisdiction where the nature
of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the
failure to so qualify would not have a material adverse effect on the
business, operations or condition (financial or otherwise) or results of
operation of the Company and its subsidiaries taken as a whole. The
Company has registered its Common Stock pursuant to Section 12 of the
1934 Act, and the Common Stock is listed and traded on The
NASDAQ/SmallCap Market. The Company has received no notice, either oral
or written, with respect to the continued eligibility of the Common
Stock for such listing, and the Company has maintained all requirements
for the continuation of such listing.
c. Authorized Shares. The Company has sufficient
authorized and unissued Shares as may be reasonably necessary to effect
the conversion of the Debentures and to issue the Warrant Shares. The
Converted Shares and the Warrant Shares have been duly authorized and,
when issued upon conversion of, or as interest on, the Debentures or
upon exercise of the Warrants, each in accordance with its respective
terms, will be duly and validly issued, fully paid and non-assessable
and will not subject the holder thereof to personal liability by reason
of being such holder.
d. Securities Purchase Agreement; Registration Rights
Agreement and Stock. This Agreement and the Registration Rights
Agreement, the form of which is attached hereto as Annex IV (the
"Registration Rights Agreement"), and the transactions contemplated
thereby, have been duly and validly authorized by the Company, this
Agreement has been duly executed and delivered by the Company and this
Agreement is, and the Debentures, the Warrants and the Registration
Rights Agreement, when executed and delivered by the Company, will be,
valid and binding agreements of the Company enforceable in accordance
with their respective terms, subject as to enforceability to general
principles of equity and to bankruptcy, insolvency, moratorium, and
other similar laws affecting the enforcement of creditors' rights
generally.
e. Non-contravention. The execution and delivery of this
Agreement and the Registration Rights Agreement by the Company, the
issuance of the Securities, and the consummation by the Company of the
other transactions contemplated by this Agreement, the Registration
Rights Agreement, and the Debentures do not and will not conflict with
or result in a breach by the Company of any of the terms or provisions
of, or constitute a default under (i) the articles of incorporation or
by-laws of the Company, each as currently in effect, (ii) any indenture,
mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or
assets are bound, including any listing agreement for the Common Stock
except as herein set forth, (iii) to its knowledge, any existing
applicable law, rule, or regulation or any applicable decree, judgment,
or order of any court, United States federal or state regulatory body,
administrative agency, or other governmental body having jurisdiction
over the Company or any of its properties or assets, or (iv) the
Company's listing agreement for its Common Stock, except such conflict,
breach or default which would not have a material adverse effect on the
business, operations or condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole, or on
the transactions contemplated herein.
f. Approvals. No authorization, approval or consent of
any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the
Company is required to be obtained by the Company for the issuance and
sale of the Securities to the Buyer as contemplated by this Agreement,
except such authorizations, approvals and consents that have been
obtained or that are contemplated by this Agreement to be obtained on a
date after the date hereof.
g. SEC Filings. None of the Company's SEC Documents
contained, at the time they were filed, any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements made therein in light
of the circumstances under which they were made, not misleading. Except
for certain filings required to be filed by persons subject and pursuant
to Section 16 of the 1934 Act, the Company has since August 1, 1997
timely filed all requisite forms, reports and exhibits thereto with the
SEC.
h. Absence of Certain Changes. Since January 1, 1998,
there has been no material adverse change and no material adverse
development in the business, properties, operations, condition
(financial or otherwise), or results of operations of the Company,
except as disclosed in the Company's SEC Documents. Since January 1,
1998, except as provided in the Company's SEC Documents, the Company has
not (i) incurred or become subject to any material liabilities (absolute
or contingent) except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied
any material lien or encumbrance or paid any material obligation or
liability (absolute or contingent), other than current liabilities paid
in the ordinary course of business consistent with past practices; (iii)
declared or made any payment or distribution of cash or other property
to stockholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of
its capital stock; (iv) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course
of business consistent with past practices; (v) suffered any substantial
losses or waived any rights of material value, whether or not in the
ordinary course of business, or suffered the loss of any material amount
of existing business; (vi) made any changes in employee compensation,
except in the ordinary course of business consistent with past
practices; or (vii) experienced any material problems with labor or
management in connection with the terms and conditions of their
employment.
i. Full Disclosure. There is no fact known to the
Company (other than general economic conditions known to the public
generally or as disclosed in the Company's SEC Documents) that has not
been disclosed in writing to the Buyer that (i) would reasonably be
expected to have a material adverse effect on the business, operations
or condition (financial or otherwise) or results of operations of the
Company and its subsidiaries, taken as a whole, (ii) would reasonably be
expected to materially and adversely affect the ability of the Company
to perform its obligations pursuant to this Agreement or any of the
agreements contemplated hereby (collectively, including this Agreement,
the "Transaction Agreements"), or (iii) would reasonably be expected to
materially and adversely affect the value of the rights granted to the
Buyer in the Transaction Agreements.
j. Absence of Litigation. Except as set forth in the
Company's SEC Documents, there is no action, suit, proceeding, inquiry
or investigation before or by any court, public board or body pending
or, to the knowledge of the Company, threatened against or affecting the
Company, wherein an unfavorable decision, ruling or finding would have a
material adverse effect on the properties, business or financial
condition, or results of operation of the Company and its subsidiaries
taken as a whole or the transactions contemplated by any of the
Transaction Agreements or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform
its obligations under, any of the Transaction Agreements.
k. Absence of Events of Default. Except as set forth in
Section 3(e) hereof, no Event of Default (or its equivalent term), as
defined in the respective agreement to which the Company is a party, and
no event which, with the giving of notice or the passage of time or
both, would become an Event of Default (or its equivalent term) (as so
defined in such agreement), has occurred and is continuing, which would
have a material adverse effect on the business, operations or condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole.
l. Prior Issues. During the twelve (12) months preceding
the date hereof, the Company has not issued any convertible securities.
The presently outstanding unconverted principal amount of each such
issuance as at January , 1999 are set forth in Annex V.
m. No Undisclosed Liabilities or Events. The Company has
no liabilities or obligations other than those disclosed in the
Company's SEC Documents or those incurred in the ordinary course of the
Company's business since January 1, 1998, and which individually or in
the aggregate, do not or would not have a material adverse effect on the
properties, business, condition (financial or otherwise), or results of
operations of the Company and its subsidiaries, taken as a whole.
Except for the transactions contemplated by the Transaction Agreements,
no event or circumstances has occurred or exists with respect to the
Company or its properties, business, condition (financial or otherwise),
or results of operations, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or
disclosed. There are no proposals currently under consideration or
currently anticipated to be under consideration by the Board of
Directors or the executive officers of the Company which proposal would
(x) change the certificate of incorporation or other charter document or
by-laws of the Company, each as currently in effect, with or without
shareholder approval, which change would reduce or otherwise adversely
affect the rights and powers of the shareholders of the Common Stock or
(y) materially or substantially change the business, assets or capital
of the Company, including its interests in subsidiaries.
n. No Default. The Company is not in default in the
performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of
trust or other material instrument or agreement to which it is a party
or by which it or its property is bound.
o. No Integrated Offering. Neither the Company nor any
of its affiliates nor any person acting on its or their behalf has,
directly or indirectly, at any time since July 1, 1998 made any offer or
sales of any security or solicited any offers to buy any security under
circumstances that would eliminate the availability of the exemption
from registration under Rule 506 of Regulation D in connection with the
offer and sale of the Securities as contemplated hereby.
p. Dilution. The number of Shares issuable upon
conversion of the Debentures and the exercise of the Warrants may
increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of
the Common Stock declines prior to the conversion of the Debentures.
The Company's executive officers and directors have studied and fully
understand the nature of the Securities being sold hereby and recognize
that they have a potential dilutive effect. The board of directors of
the Company has concluded, in its good faith business judgment, that
such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Shares upon
conversion of the Debentures and upon exercise of the Warrants is
binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of
the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that
(1) the Debentures have not been and are not being registered under the
provisions of the 1933 Act and, except as provided in the Registration
Rights Agreement, the Securities have not been and are not being
registered under the 1933 Act, and may not be transferred unless (A)
subsequently registered thereunder or (B) the Buyer shall have delivered
to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Securities to
be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which
the seller, or the person through whom the sale is made, may be deemed
to be an underwriter, as that term is used in the 1933 Act, may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (3) neither the Company nor any
other person is under any obligation to register the Securities (other
than pursuant to the Registration Rights Agreement) under the 1933 Act
or to comply with the terms and conditions of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees
that the Debentures and the Warrants, and, until such time as the Common
Stock has been registered under the 1933 Act as contemplated by the
Registration Rights Agreement and sold in accordance with an effective
Registration Statement, certificates and other instruments representing
any of the Securities shall bear a restrictive legend in substantially
the following form (and a stop-transfer order may be placed against
transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO
THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
c. Registration Rights Agreement. The parties hereto
agree to enter into the Registration Rights Agreement on or before the
Closing Date.
d. Filings and Shareholder Consent. (i) The Company
undertakes and agrees to make all necessary filings in connection with
the sale of the Debentures to the Buyer under any United States laws and
regulations applicable to the Company, or by any domestic securities
exchange or trading market, and to provide a copy thereof to the Buyer
promptly after such filing.
(ii) The Company undertakes and agrees to take all steps
necessary to have a vote of the shareholders of the Company regarding
authorization of the Company's issuance to the holders of the Debentures
of shares of Common Stock in excess of twenty percent (20%) of the
outstanding shares of Common Stock on the Closing Date on or before the
Meeting Date (as defined below) in accordance with NASDAQ Rule
4310(c)(25)(H)(i)(d)(2). The term "Meeting Date" means the date of the
Company's Annual Meeting of Shareholders, currently anticipated to be
held on or about April 14, 1999. The Company will recommend to the
shareholders that such authorization be granted and will seek proxies
from shareholders not attending the meeting (if such meeting is required
to effectuate such authorization) naming a director or officer of the
Company as such shareholder's proxy and directing the proxy to vote, or
giving the proxy the authority to vote, in favor of such authorization.
Upon determination that the shareholders have voted in favor of such
authorization, the Company shall cause its counsel to issue to the Buyer
an unqualified opinion (the "Authorization Opinion") that such
authorization has been duly adopted by all necessary corporate action of
the Company and that the Company will be able to issue, without
restriction as to the number of such shares, all shares of Common Stock
as may be issuable upon conversion of the Debentures and without any
limits imposed by the Cap Regulations (as defined in the Debentures)
adopted on or before and in effect on the date of the Authorization
Opinion. The Authorization Opinion shall state that the Buyer may rely
thereon in connection with the transactions contemplated by this
Agreement and the other Transaction Agreements regarding its holdings of
the Debentures. If, for any reason, (x) the Authorization Opinion is
not issued within five (5) business days after such meeting, (y) the
meeting is not held by the Meeting Date or (z) the requisite shareholder
approval is not obtained at the meeting, the Conversion Rate shall be
adjusted to ninety percent (90%) of what the Conversion Rate would have
been in the absence of this provision.
(iii) In furtherance of the provisions of the immediately
preceding subparagraph (ii) hereof, the Company (a) commits to using its
best efforts to obtain any shareholder authorization contemplated by
said subparagraph (ii), and (b) represents to the Buyer that the Company
has obtained the binding irrevocable commitment or proxy (each, a
"Principal Voter Proxy") of each Principal Voter (as defined below) that
such Principal Voter will vote in favor of any shareholder authorization
contemplated by said subparagraph (ii). Each Principal Voter Proxy
shall be issued in favor of the Buyer or the Buyer's designee and shall
state that, among other things, as a result of the Principal Voter's
direct or indirect relationship to the Company on the date the Principal
Voter Proxy is given, such Principal Voter Proxy is deemed coupled with
an interest in favor of the Buyer. A "Principal Voter" is a person who
meets any one or more of the following criteria: (A) a person who is a
director or principal officer of the Company (each, a "Company
Principal") and who, directly or indirectly, holds any shares of Common
Stock of the Company; (B) a spouse of a Company Principal who resides in
the household of the Company Principal (a "Principal's Spouse") and who,
directly or indirectly, holds any shares of Common Stock of the Company,
(C) a parent, sibling or child of a Company Principal who resides in the
household of a Company Principal or of a Principal's Spouse (each, a
"Principal's Relative") and who, directly or indirectly, holds any
shares of Common Stock or (D) any other person or entity, including,
without limitation, for profit or non-profit corporations, partnerships
and trusts, whose voting rights regarding Common Stock of the Company is
subject to the direction, control or other influence of any Company
Principal, Principal's Spouse or Principal's Relative. The Company will
deliver such Principal Voter Proxies to the Buyer or the Buyer's
designee within ten (10) business days after the Closing Date.
e. Reporting Status. So long as the Buyer beneficially
owns any of the Debentures, the Company shall file all reports required
to be filed by the Company with the SEC pursuant to Section 13 or 15(d)
of the 1934 Act, and the Company shall not voluntarily terminate its
status as an issuer required to file reports under the 1934 Act even if
the 1934 Act or the rules and regulations thereunder would permit such
termination. The Company will take all reasonable action under its
control to continue the listing and trading of its Common Stock
(including, without limitation, all Registrable Securities) on The
NASDAQ SmallCap Market and will comply in all material respects with the
Company's reporting, filing and other obligations under the by-laws or
rules of the National Association of Securities Dealers, Inc. ("NASD")
or The NASDAQ SmallCap Market.
f. Use of Proceeds. The Company shall use the proceeds
from the sale of the Debentures (excluding amounts paid by the Company
for legal fees, finder's fees and escrow fees in connection with the
sale of the Debentures) for internal working capital purposes, and shall
not, directly or indirectly, use such proceeds for any loan to or
investment in any other corporation, partnership, enterprise or other
person, including any of its affiliates, or to repay any debt to any of
its affiliates.
g. Certain Agreements. The Company covenants and agrees
that it will not, without the prior written consent of the Buyer, enter
into any subsequent or further offer or sale of Common Stock or
securities convertible into Common Stock with any third party on any
date which is prior to one hundred twenty (120) days after the Effective
Date . The foregoing provision shall not restrict the Company from
issuing shares of Common Stock upon the exercise of (x) certain warrants
for the purchase of up to approximately 1,755,000 outstanding as of the
date hereof and (y) certain options granted or be granted pursuant to
the 1997 Stock Option Plan or the 1997 Non-Employee Directors Stock
Option Plan.
h. Available Shares. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights,
shares of Common Stock sufficient to yield two hundred percent (200%) of
the number of shares of Common Stock issuable (i) at conversion as may
be required to satisfy the conversion rights of the Buyer pursuant to
the terms and conditions of the Debentures and (ii) upon exercise as may
be required to satisfy the exercise rights of the Buyer pursuant to the
terms and conditions of the Warrants.
i. Warrants. The Company agrees to issue to the Buyer on
the Closing Date transferable, divisible warrants (the "Warrants") for
the purchase of two thousand seven hundred fifty (2,750) shares of
Common Stock for every $100,000 principal of Debentures purchased by the
Buyer. The Warrants shall bear an exercise price equal to one hundred
fifteen percent (115%) of the Market Price of the Common Stock on the
Closing Date. The Warrants will expire on the third anniversary of the
Closing Date. The Warrants shall be in the form annexed hereto as Annex
VI, together with registration rights as provided in the Registration
Rights Agreement.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the
Purchase Price for the Debentures in accordance with Section 1(c)
hereof, the Company will irrevocably instruct its transfer agent to
issue Common Stock from time to time upon conversion of the Debentures
in such amounts as specified from time to time by the Company to the
transfer agent, bearing the restrictive legend specified in Section 4(b)
of this Agreement prior to registration of the Shares under the 1933
Act, registered in the name of the Buyer or its nominee and in such
denominations to be specified by the Buyer in connection with each
conversion of the Debentures. The Company warrants that no instruction
other than such instructions referred to in this Section 5 and stop
transfer instructions to give effect to Section 4(a) hereof prior to
registration and sale of the Shares under the 1933 Act will be given by
the Company to the transfer agent and that the Shares shall otherwise be
freely transferable on the books and records of the Company as and to
the extent provided in this Agreement, the Registration Rights
Agreement, and applicable law. Nothing in this Section shall affect in
any way the Buyer's obligations and agreement to comply with all
applicable securities laws upon resale of the Securities. If the Buyer
provides the Company with an opinion of counsel reasonably satisfactory
to the Company that registration of a resale by the Buyer of any of the
Securities in accordance with clause (1)(B) of Section 4(a) of this
Agreement is not required under the 1933 Act, the Company shall (except
as provided in clause (2) of Section 4(a) of this Agreement) permit the
transfer of the Securities and, in the case of the Converted Shares or
the Warrant Shares, as the case may be, promptly instruct the Company's
transfer agent to issue one or more certificates for Common Stock
without legend in such name and in such denominations as specified by
the Buyer.
b. Subject to the completeness and accuracy of the
Buyer's representations and warranties herein, upon the conversion of
any Debentures by a person who is a non-U.S. Person, and following the
expiration of any then applicable Restricted Period (as those terms are
defined in Regulation S), the Company, shall, at its expense, take all
necessary action (including the issuance of an opinion of counsel) to
assure that the Company's transfer agent shall issue stock certificates
without restrictive legend or stop orders in the name of Buyer (or its
nominee (being a non-U.S. Person) or such non-U.S. Persons as may be
designated by Buyer) and in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable
upon such conversion, as applicable. Nothing in this Section 5,
however, shall affect in any way Buyer's or such nominee's obligations
and agreement to comply with all applicable securities laws upon resale
of the Securities.
c. (i) Subject to the provisions of this Agreement and of
the Debentures, the Company will permit the Buyer to exercise its right
to convert the Debentures by telecopying or delivering an executed and
completed Notice of Conversion to the Company and delivering within
five (5) business days thereafter, the original Debentures being
converted to the Company by express courier, with a copy to the transfer
agent.
(ii) The term "Conversion Date" means, with respect
to any conversion elected by the holder of the Debentures, the date
specified in the Notice of Conversion, provided the copy of the Notice
of Conversion is telecopied to or otherwise delivered to the Company in
accordance with the provisions hereof so that it is received by the
Company on or before such specified date.
(iii) The Company will transmit the certificates
representing the Converted Shares issuable upon conversion of any
Debentures (together with Debentures not being so converted) to the
Buyer at the address specified in the Notice of Conversion (which may be
the Buyer's address for notices as contemplated by Section 11 hereof or
a different address), via express courier, by electronic transfer or
otherwise, within five (5) business days if the address for delivery is
in the United States and within seven (7) business days if the address
for delivery is outside the United States (such fifth business day or
seventh business day, as the case may be, the "Delivery Date") after (A)
the business date on which the Company has received both of the Notice
of Conversion (by facsimile or other delivery) and the original
Debentures being converted (and if the same are not delivered to the
Company on the same date, the date of delivery of the second of such
items) or (B) the date an interest payment on the Debenture, which the
Company has elected to pay by the issuance of Common Stock, as
contemplated by the Debentures, was due.
d. The Company understands that a delay in the issuance
of the Shares of Common Stock beyond the Delivery Date could result in
economic loss to the Buyer. As compensation to the Buyer for such loss,
the Company agrees to pay late payments to the Buyer for late issuance
of Shares upon Conversion in accordance with the following schedule
(where "No. Business Days Late" is defined as the number of business
days beyond the Delivery Date):
Late Payment For Each
$10,000
of Debenture Principal
No. Business Days Late Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for
each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit the
Buyer's right to pursue actual damages for the Company's failure to
issue and deliver the Common Stock to the Buyer. Furthermore, in
addition to any other remedies which may be available to the Buyer, in
the event that the Company fails for any reason to effect delivery of
such shares of Common Stock by close of business on the Delivery Date,
the Buyer will be entitled to revoke the relevant Notice of Conversion
by delivering a notice to such effect to the Company, whereupon the
Company and the Buyer shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion.
e. If, by the relevant Delivery Date, the Company fails
for any reason to deliver the Shares to be issued upon conversion of a
Debenture and after such Delivery Date, the holder of the Debentures
being converted (a "Converting Holder") purchases, in an open market
transaction or otherwise, shares of Common Stock (the "Covering Shares")
in order to make delivery in satisfaction of a sale of Common Stock by
the Converting Holder (the "Sold Shares"), which delivery such
Converting Holder anticipated to make using the Shares to be issued upon
such conversion (a "Buy-In"), the Company shall pay to the Converting
Holder, in addition to all other amounts contemplated in other
provisions of the Transaction Agreements, and not in lieu thereof, the
Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment
Amount" is the amount equal to the excess, if any, of (x) the Converting
Holder's total purchase price (including brokerage commissions, if any)
for the Covering Shares over (y) the net proceeds (after brokerage
commissions, if any) received by the Converting Holder from the sale of
the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to
the Company in immediately available funds immediately upon demand by
the Converting Holder. By way of illustration and not in limitation of
the foregoing, if the Converting Holder purchases shares of Common Stock
having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold
for net proceeds of $10,000, the Buy-In Adjustment Amount which Company
will be required to pay to the Converting Holder will be $1,000.
f. In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, provided the
Company's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program, upon request
of the Buyer and its compliance with the provisions contained in this
paragraph, so long as the certificates therefor do not bear a legend and
the Buyer thereof is not obligated to return such certificate for the
placement of a legend thereon, the Company shall use its best efforts to
cause its transfer agent to electronically transmit the Common Stock
issuable upon conversion to the Buyer by crediting the account of
Buyer's Prime Broker with DTC through its Deposit Withdrawal Agent
Commission system.
g. The Company will authorize its transfer agent to give
information relating to the Company directly to the Buyer or the Buyer's
representatives upon the request of the Buyer or any such
representative. The Company will provide the Buyer with a copy of the
authorization so given to the transfer agent.
6. DELIVERY INSTRUCTIONS.
The Debentures shall be delivered by the Company to the
Escrow Agent pursuant to Section 1(b) hereof, on a delivery against
payment basis, subject to the specific provisions hereof, no later than
on the Closing Date.
7. CLOSING DATE.
a. The Closing Date shall occur on the date which is the
first NYSE trading day after the fulfillment or waiver of all closing
conditions pursuant to Sections 8 and 9 hereof or such other date and
time as is mutually agreed upon by the Company and the Buyer.
b. The closing of the purchase and issuance of Debentures
shall occur on the Closing Date at the offices of the Escrow Agent and
shall take place no later than 12:00 Noon, New York time, on such day or
such other time as is mutually agreed upon by the Company and the Buyer.
c. Notwithstanding anything to the contrary contained
herein, the Escrow Agent will be authorized to release the Escrow
Property only upon satisfaction of the conditions set forth in Sections
8 and 9 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell
the Debentures to the Buyer pursuant to this Agreement on the Closing
Date is conditioned upon:
a. The execution and delivery of this Agreement by the
Buyer;
b. Delivery by the Buyer to the Escrow Agent of good
funds as payment in full of an amount equal to the Purchase Price for
the Debentures in accordance with this Agreement;
c. The accuracy on such Closing Date of the
representations and warranties of the Buyer contained in this Agreement,
each as if made on such date, and the performance by the Buyer on or
before such date of all covenants and agreements of the Buyer required
to be performed on or before such date; and
d. There shall not be in effect any law, rule or
regulation prohibiting or restricting the transactions contemplated
hereby, or requiring any consent or approval which shall not have been
obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the Debentures on the Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company;
b. Delivery by the Company to the Escrow Agent of the
Debentures and Warrants in accordance with this Agreement;
c. The accuracy in all material respects on such Closing
Date of the representations and warranties of the Company contained in
this Agreement, each as if made on such date, and the performance by the
Company on or before such date of all covenants and agreements of the
Company required to be performed on or before such date;
d. On such Closing Date, the Registration Rights
Agreement shall be in full force and effect and the Company shall not be
in default thereunder;
e. On such Closing Date, the Buyer shall have received an
opinion of counsel for the Company, dated such Closing Date, in form,
scope and substance reasonably satisfactory to the Buyer, substantially
to the effect set forth in Annex III attached hereto;
f. There shall not be in effect any law, rule or
regulation prohibiting or restricting the transactions contemplated
hereby, or requiring any consent or approval which shall not have been
obtained; and
g. From and after the date hereof to and including the
Closing Date, the trading of the Common Stock shall not have been
suspended by the SEC or the NASD and trading in securities generally on
the New York Stock Exchange or The NASDAQ/SmallCap Market shall not have
been suspended or limited, nor shall there be any outbreak or escalation
of hostilities involving the United States or any material adverse
change in any financial market that in either case in the reasonable
judgment of the Buyer makes it impracticable or inadvisable to purchase
the Debentures.
10. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware for contracts to be
wholly performed in such state and without giving effect to the
principles thereof regarding the conflict of laws. Each of the parties
consents to the jurisdiction of the federal courts whose districts
encompass any part of the City of New York or the state courts of the
State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company
shall reimburse the Buyer for any reasonable legal fees and
disbursements incurred by the Buyer in enforcement of or protection of
any of its rights under any of the Transaction Agreements.
b. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising
such right or remedy, shall not operate as a waiver thereof.
c. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may
require.
e. A facsimile transmission of this signed Agreement
shall be legal and binding on all parties hereto.
f. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original.
g. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of,
this Agreement.
h. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement or the validity or enforceability of this Agreement in any
other jurisdiction.
i. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement thereof.
j. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject
matter hereof.
11. NOTICES. Any notice required or permitted hereunder
shall be given in writing (unless otherwise specified herein) and shall
be deemed effectively given on the earliest of
(a) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile
transmission,
(b) the seventh business day after deposit, postage prepaid,
in the United States Postal Service by registered or
certified mail, or
(c) the third business day after mailing by international
express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled
at the following addresses (or at such other addresses as such party may
designate by ten (10) days' advance written notice similarly given to
each of the other parties hereto):
COMPANY: AMERICAN CHAMPION ENTERTAINMENT, INC.
1694 The Alameda, Suite 100
San Jose, CA 95126-2219
Attn: Anthony K. Chan, President
Telephone No.: (408) 288-8199
Telecopier No.: (408) 288-8098
with a copy to:
Preston Gates & Ellis LLP
One Maritime Plaza, Suite 2400
San Francisco, CA 94111
Attn: Lawrence B. Low, Esq.
Telephone No.: (415) 788-8822
Telecopier No.: (415) 788-8819
BUYER: At the address set forth on the signature page of this
Agreement.
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telephone No.: (212) 689-3322
Telecopier No. (212) 213-2077
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
Telephone No.: (212) 689-3322
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
Company's and the Buyer's representations and warranties herein shall
survive the execution and delivery of this Agreement and the delivery of
the Debentures and payment of the Purchase Price, and shall inure to the
benefit of the Buyer and the Company and their respective successors and
assigns.
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyer or one of its officers thereunto duly authorized as of the
date set forth below.
AMOUNT AND PURCHASE PRICE OF DEBENTURES: $
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities
Purchase Agreement to be duly executed on its behalf this ________ day
of ___________________, 1999.
________________________________
Address Printed Name of Subscriber
________________________________
By: _________________________________
Telecopier No. _________________ (Signature of Authorized Person)
________________________________
Printed Name and Title
_______________________________
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this
Agreement and represents that the foregoing statements are true and
correct and that it has caused this Securities Purchase Agreement to be
duly executed on its behalf.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: ____________________________
Title: _________________________
Date: __________________________
List of Purchasers: Amount
The Endeavour Capital Fund S.A. $250,000
Amro International, S.A. $200,000
Canadian Advantage L.P. $300,000
Olympia Partners, LLC $200,000
<PAGE> 1
EXHIBIT 4.2
FORM OF DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY NOT BE
OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED
UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE
HARBOR THEREFROM.
NNo. 99- US $
AMERICAN CHAMPION ENTERTAINMENT, INC.
7% CONVERTIBLE DEBENTURE DUE JANUARY 1, 2002
THIS DEBENTURE is one of a duly authorized issue of up to $950,000
in Debentures of AMERICAN CHAMPION ENTERTAINMENT, INC., a corporation
organized and existing under the laws of the State of Delaware (the
"Company") designated as its 7% Convertible Debentures. Such Debentures
may be issued in series, each of which may have a different maturity
date, but which otherwise have substantially similar terms.
FOR VALUE RECEIVED, the Company promises to pay to _______________, the
registered holder hereof (the "Holder"), the principal sum of
__________________ and 00/100 Dollars (US $ ) on January 1, 2002
(the "Maturity Date") and to pay interest on the principal sum of outstanding
from time to time in arrears (i) semi-annually, on the last day of June and
December of each year prior to the Maturity Date, (ii) upon conversion as
provided herein or (iii) on the Maturity Date, at the rate of 7% per annum
accruing from the date of initial issuance of this Debenture. Accrual of
interest shall commence on the first such business day to occur after the date
hereof and shall continue to accrue on a daily basis until payment in full of
the principal sum has been made or duly provided for. Subject to the
provisions of Section 4 below (the terms of which shall govern as if this
sentence were not included in this Debenture), prior to the Maturity Date,
interest on this Debenture is payable, at the option of the Company, in shares
of Common Stock of the Company, $.0001 par value ("Common Stock") at the
Conversion Rate (as defined below) in effect on the date of payment, or in
such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts, at the
address last appearing on the Debenture Register of the Company as designated
in writing by the Holder from time to time.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten Thousand
Dollars (US$10,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of
different authorized denominations, as requested by the Holder
surrendering the same. No service charge will be made for such
registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments
of principal of, and interest on, this Debenture any amounts required to
be withheld under the applicable provisions of the United States income
tax laws or other applicable laws at the time of such payments, and
Holder shall execute and deliver all required documentation in
connection therewith.
3. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred
or exchanged only in compliance with the Securities Act of 1933, as
amended (the "Act"), and other applicable state and foreign securities
laws and the terms of the Securities Purchase Agreement (defined below).
In the event of any proposed transfer of this Debenture, the Company may
require, prior to issuance of a new Debenture in the name of such other
person, that it receive reasonable transfer documentation including
legal opinions that the issuance of the Debenture in such other name
does not and will not cause a violation of the Act or any applicable
state or foreign securities laws. Prior to due presentment for transfer
of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the
Company's Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether
or not this Debenture be overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary.
4. A. The Holder of this Debenture is entitled, at its
option, subject to the following provisions of this Section 4, to
convert this Debenture at any time into shares of Common Stock of the
Company at a conversion price for each share of Common Stock
("Conversion Rate") equal to the lower of (i) seventy-five percent (75%)
of the Market Price (as defined below) on the Conversion Date (as
defined below) or (ii) one hundred seventeen and one-half percent
(117.5%) of the Market Price on the Closing Date (as defined in the
Securities Purchase Agreement).
B. Conversion shall be effectuated by surrendering the
Debentures to be converted to the Company's transfer agent, Continental
Stock Transfer & Trust Company, 2 Broadway, New York, NY 10004,
telephone (212) 509-4000, facsimile (212) 509-5150, accompanied by or
preceded by facsimile or other delivery of the form of conversion notice
attached hereto as Exhibit A, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a
specified portion hereof, and accompanied, if required by the Company,
by proper assignment hereof in blank. Interest accrued or accruing from
the date of issuance to the date of conversion or to the date
contemplated by clause (i) of the second paragraph of this Debenture
shall, at the option of the Holder, be paid in cash or Common Stock at
the Conversion Rate then applicable as of the Conversion Date or the
periodic interest payment date, as the case may be. No fractional
shares of Common Stock or scrip representing fractions of shares will be
issued on conversion, but the number of shares issuable shall be rounded
to the nearest whole share. The date on which notice of conversion is
given (the "Conversion Date") shall be deemed to be the date on which
the Holder faxes or otherwise delivers the conversion notice ("Notice of
Conversion"), substantially in the form annexed hereto as Exhibit A,
duly executed, to the Company so that it is received by the Company on
or before such specified date, provided that the Holder shall deliver to
the Company's transfer agent or the Company the original Debentures
being converted within five (5) business days thereafter (and if not so
delivered within such time, the Conversion Date shall be the date on
which the Notice of Conversion and the original Debentures being
converted are received by the Company). Facsimile delivery of the Notice
of Conversion shall be accepted by the Company at facsimile number (408)
288-8098; Attn: Anthony K. Chan, President. Certificates representing
Common Stock upon conversion will be delivered to the Holder at the
address specified in the Notice of Conversion (which may be the Buyer's
address for notices as contemplated by Section 11of the Securities
Purchase Agreement or a different address), via express courier, by
electronic transfer or otherwise, within five (5) business days if the
address for delivery is in the United States and within seven (7)
business days if the address for delivery is outside the United States
from the date which is the later of the date the Notice of Conversion is
delivered to the Company as contemplated in the first sentence of this
paragraph B or the date the original Debenture is delivered to the
Company's transfer agent or the Company.
C. For purposes of this Debenture, the term "Market
Price" shall mean (x) the average closing bid price of the Common Stock
as reported by Bloomberg, LP or the average closing bid price on the
over-the-counter market, (i) if a period of time of more than one day is
specified in the relevant provision of this Debenture, for such period,
and (ii) if no period of time is specified in the relevant provision of
this Debenture, then for the five (5) trading days ending on the trading
day immediately preceding the relevant date, or (y) if the Common Stock
is listed on a stock exchange, the lowest trade price on such exchange
on the date indicated in the relevant provision hereof, as reported in
The Wall Street Journal.
D. Any principal amount of this Debenture not previously
converted or redeemed as of the Maturity Date, shall be deemed to be
automatically converted, without further action of any kind (including,
but not necessarily limited to, the giving of a Notice of Conversion) by
the Holder, as of the Maturity Date at the Conversion Rate applicable on
the Maturity Date ("Mandatory Conversion").
E. Notwithstanding any other provision of this Debenture
or of the other Transaction Agreements (as defined in the Securities
Purchase Agreement) to the contrary, in no event (except (i) with
respect to a Mandatory Conversion or other automatic conversion, if any,
of the Debenture as provided herein, (ii) as specifically provided in
this Debenture as an exception to this provision, or (iii) if the
Company is in default under this Debenture or any of the other
Transaction Agreements and the Holder has asserted such default) shall
the Holder be entitled to convert this Debenture to the extent that,
after such conversion, the sum of (1) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through
the ownership of the unconverted portion of the Debentures), and (2) the
number of shares of Common Stock issuable upon the conversion of the
Debentures with respect to which the determination of this proviso is
being made, would result in beneficial ownership by the Holder and its
affiliates of more than 9.99% of the outstanding shares of Common Stock
(after taking into account the shares to be issued to the Buyer upon
such conversion). For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), except as otherwise provided in clause (1) of such sentence. The
Holder, by accepting this Debenture, further agrees that if the Holder
transfers or assigns any of the Debentures to a party who or which would
not be considered such an affiliate, such transfer or assignment shall
be made subject to the transferee's or assignee's specific agreement to
be bound by the provisions of this Section 4(d) as if such transferee or
assignee were the original Holder hereof.
5. A. Notwithstanding any other provision hereof to the
contrary, at any time prior to the Conversion Date, the Company shall
have the right to redeem all or any portion of the then outstanding
principal amount of the Debentures then held by the Holder in cash for
an amount (the "Redemption Amount") equal to (a) one hundred twenty-
twenty-two and one-half percent (122.5%) of such outstanding principal
of the Debentures plus (b) all accrued but unpaid interest thereon
through the date the Redemption Amount is paid to the Holder (the
"Redemption Payment Date").
B. The Company shall give written notice of such
redemption to the Holder (the "Notice of Redemption"). Anything in the
preceding provisions of this Section 5 to the contrary notwithstanding,
the Redemption Amount shall, unless otherwise agreed to in writing by
the Holder after receiving the Notice of Redemption, be paid to the
Holder in good funds within three (3) business days from the date of the
Notice of Redemption. After receiving a Notice of Redemption, the
Holder shall no longer have the right to issue a Notice of Conversion
without the consent of the Issuer. If prior to receiving a Notice of
Redemption, the Holder had issued a Notice of Conversion, the Holder
will have the right to cancel such Notice of Conversion by written
notice to the Company. If such previously given Notice of Conversion is
not so canceled, the Company shall honor such Notice of Conversion and
the Notice of Redemption shall not apply to the principal portion of the
Debenture thereby being converted.
C. In the event payment of the Redemption Amount is not
timely made, any rights of the Company to redeem outstanding Debentures
shall terminate, and the Notice of Redemption shall be null and void.
D. Any redemption contemplated by this Debenture shall be
made only in cash by the payment of immediately available good funds to
the Holder.
6. The Holder recognizes that the Company may be limited in the
number of shares of Common Stock it may issue by virtue of (i) the
number of authorized shares or (ii) the applicable rules and regulations
of the principal securities market on which the Common Stock is listed
or traded, including, but not necessarily limited to, NASDAQ Rule
4310(c)(25)(H)(i)(d)(2) (collectively, the "Cap Regulations"). Without
limiting the other provisions hereof, (i) the Company will take all
steps reasonably necessary to be in a position to issue shares of Common
Stock on conversion of the Debentures without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still
can not issue such shares of Common Stock without violating the Cap
Regulations, the Holder of this Debenture (to the extent the same can
not be converted in compliance with the Cap Regulations (an "Unconverted
Debenture"), shall have the option, exercisable in the Holder's sole and
absolute discretion, to elect any one of the following remedies:
(x) require the Company to issue shares of Common
Stock in accordance with such Holder's Notice of Conversion
relating to the Unconverted Debenture at a conversion
purchase price equal to the average of the lowest trade
price per share of Common Stock for any five (5) consecutive
trading days (subject to the equitable adjustments for
certain events occurring during such period as provided in
this Debenture) during the sixty (60) trading days
immediately preceding the date of the Notice of Conversion;
or
(y) require the Company to redeem each Unconverted
Debenture for an amount (the "Cap Redemption Amount") equal
to:
V x M
------------
CP
where:
"V" means the outstanding principal plus accrued
interest through the Cap Redemption Date (as defined below)
of an Unconverted Debenture;
"CP" means the Conversion Rate in effect on the date
of redemption (the "Cap Redemption Date") specified in the
notice from the Holder electing this remedy; and
"M" means the highest Market Price during the period
beginning on the Cap Redemption Date and ending on the date
of payment of the Cap Redemption Amount.
The holder of an Unconverted Debenture may elect one of the above
remedies with respect to a portion of such Unconverted Debenture and the
other remedy with respect to other portions of the Unconverted
Debenture.
7. Subject to the terms of the Securities Purchase Agreement,
dated January , 1999 (the "Securities Purchase Agreement"),
between the Company and the Holder (or the Holder's predecessor in
interest), no provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay
the principal of, and interest on, this Debenture at the time, place,
and rate, and in the coin or currency, herein prescribed. This
Debenture and all other Debentures now or hereafter issued of similar
terms are direct obligations of the Company.
8. No recourse shall be had for the payment of the principal
of, or the interest on, this Debenture, or for any claim based hereon,
or otherwise in respect hereof, against any incorporator, shareholder,
officer or director, as such, past, present or future, of the Company or
any successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof
and as part of the consideration for the issue hereof, expressly waived
and released.
9. The Company agrees that for as long as this Debenture
remains outstanding, the Company will not, without the consent of the
Holder, enter into a merger or consolidation with another corporation
or other entity (other than by or through a wholly-owned subsidiary of
the Company), or a sale or sale or transfer of all or substantially all
of the assets of the Company to another person (collectively, a "Sale").
If, with such consent, the Company enters into a Sale and the holders
of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a
condition of such Sale, the Company and any such successor, purchaser or
transferee agree that the Debenture may thereafter be converted on the
terms and subject to the conditions set forth above into the kind and
amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of
Common Stock into which this Debenture might have been converted
immediately before such merger, consolidation, sale or transfer, subject
to adjustments which shall be as nearly equivalent as may be
practicable. In the event of any such proposed Sale, (i) the Holder
hereof shall have the right to convert by delivering a Notice of
Conversion to the Company within fifteen (15) days of receipt of notice
of such Sale from the Company, but (ii) in the event the Holder hereof
shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture by paying the
Redemption Amount contemplated by Section 5 hereof, less all amounts
required by law to be deducted, upon which tender of payment following
such notice (which payment shall be made in the manner contemplated by
Section 5 hereof), the right of conversion shall terminate.
10. The Company agrees that for as long as this Debenture
remains outstanding, the Company will not, without the consent of the
Holder, spin off or otherwise divest itself of a part of its business or
operations or dispose all or of a part of its assets in a transaction
(the "Spin Off") in which the Company does not receive compensation for
such business, operations or assets, but causes securities of another
entity (the "Spin Off Securities") to be issued to security holders of
the Company. If, for any reason, prior to the Conversion Date or the
Redemption Payment Date, the Company, with the consent of the Holder,
consummates a Spin Off, then the Company shall cause (i) to be reserved
Spin Off Securities equal to the number thereof which would have been
issued to the Holder had all of the Holder's Debentures outstanding on
the record date (the "Record Date") for determining the amount and
number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Debentures") been converted as of the close of
business on the trading day immediately before the Record Date (the
"Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
conversion of all or any of the Outstanding Debentures, such amount of
the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (I) the numerator is the
principal amount of the Outstanding Debentures then being converted, and
(II) the denominator is the principal amount of the Outstanding
Debentures. In addition, the Floor Price shall be revised to be an
amount equal to (q) the Floor Price immediately prior to the Record
Date, multiplied by (r) a fraction, the numerator of which is the Market
Price on the eleventh trading day after the Record Date and the
denominator of which is the Market Price on the Record Date.
11. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock
split of its Common Stock or issues a dividend on its Common Stock
consisting of shares of Common Stock, the Market Price as of the Issue
Date and the Floor Price shall be equitably adjusted to reflect such
action. By way of illustration, and not in limitation, of the foregoing
(i) if the Company effectuates a 2:1 split of its Common Stock,
thereafter, with respect to any conversion for which the Company issues
the shares after the record date of such split, the Market Price as of
the Issue Date shall be deemed to be one-half of what it had been
calculated to be immediately prior to such split and the Floor Price
shall be deemed to be one-half of what it had been immediately prior to
such split; (ii) if the Company effectuates a 1:10 reverse split of its
Common Stock, thereafter, with respect to any conversion for which the
Company issues the shares after the record date of such reverse split,
the Market Price as of the Issue Date shall be deemed to be ten times
what it had been calculated to be immediately prior to such split and
the Floor Price shall be deemed to be ten times what it had been
immediately prior to such split; and (iii) if the Company declares a
stock dividend of one share of Common Stock for every 10 shares
outstanding, thereafter, with respect to any conversion for which the
Company issues the shares after the record date of such dividend, the
Market Price as of the Issue Date shall be deemed to be the amount of
such Market Price calculated immediately prior to such record date
multiplied by a fraction, of which the numerator is the number of shares
(10) for which a dividend share will be issued and the denominator is
such number of shares plus the dividend share(s) issuable or issued
thereon (11) and the Floor Price shall be deemed to be the Floor Price
immediately prior to such record date multiplied by the same fraction.
12. The Holder of the Debenture, by acceptance hereof, agrees
that this Debenture is being acquired for investment and that such
Holder will not offer, sell or otherwise dispose of this Debenture or
the Shares of Common Stock issuable upon conversion thereof except under
circumstances which will not result in a violation of the Act or any
applicable state Blue Sky or foreign laws or similar laws relating to
the sale of securities.
13. This Debenture shall be governed by and construed in
accordance with the laws of the State of Delaware. Each of the parties
consents to the jurisdiction of the federal courts whose districts
encompass any part of the City of New York or the state courts of the
State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on
forum non coveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Holder for any reasonable legal fees and disbursements
incurred by the Holder in enforcement of or protection of any of its
rights under any of this Debenture.
14. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal
or interest on this Debenture and same shall continue
for a period of five (5) business days; or
b. Any of the representations or warranties made by the
Company herein, in the Securities Purchase Agreement,
the Registration Rights Agreement or in any
certificate or financial or other written statements
heretofore or hereafter furnished by the Company in
connection with the execution and delivery of this
Debenture or the Securities Purchase Agreement shall
be false or misleading in any material respect at the
time made; or
c: Subject to the terms of the Securities Purchase
Agreement, the Company fails to authorize or to cause
its Transfer Agent to issue shares of Common Stock
upon exercise by the Holder of the conversion rights
of the Holder in accordance with the terms of this
Debenture, fails to transfer or to cause its Transfer
Agent to transfer any certificate for shares of Common
Stock issued to the Holder upon conversion of this
Debenture and when required by this Debenture or the
Registration Rights Agreement, and such transfer is
otherwise lawful, or fails to remove any restrictive
legend on any certificate or fails to cause its
Transfer Agent to remove such restricted legend, in
each case where such removal is lawful, as and when
required by this Debenture, the Agreement or the
Registration Rights, and any such failure shall
continue uncured for five (5) business days; or
d. The Company shall fail to perform or observe, in any
material respect, any other covenant, term, provision,
condition, agreement or obligation of any Debenture in
this series and such failure shall continue uncured
for a period of thirty (30) days after written notice
from the Holder of such failure; or
e. The Company shall fail to perform or observe, in any
material respect, any covenant, term, provision,
condition, agreement or obligation of the Company
under the Securities Purchase Agreement or the
Registration Rights Agreement and such failure shall
continue uncured for a period of thirty (30) days
after written notice from the Holder of such failure
(other than a failure to cause the Registration
Statement to become effective no later than the
Required Effective Date, as defined and provided in
the Registration Rights Agreement, as to which no such
cure period shall apply); or
f. The Company shall (1) admit in writing its inability
to pay its debts generally as they mature; (2) make an
assignment for the benefit of creditors or commence
proceedings for its dissolution; or (3) apply for or
consent to the appointment of a trustee, liquidator or
receiver for its or for a substantial part of its
property or business; or
g. A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall not
be discharged within sixty (60) days after such
appointment; or
h. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole or
any substantial portion of the properties or assets of
the Company and shall not be dismissed within sixty
(60) days thereafter; or
i. Any money judgment, writ or warrant of attachment, or
similar process in excess of Two Hundred Thousand
($200,000) Dollars in the aggregate shall be entered
or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of sixty (60) days
or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or
j. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed
within sixty (60) days after such institution or the
Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or
admit the material allegations of, or default in
answering a petition filed in any such proceeding; or
k. The Company shall have its Common Stock suspended or
delisted from an exchange or over-the-counter market
from trading for in excess of ten (10) trading days.
Then, or at any time thereafter, and in each and every such case, unless
such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent
default) at the option of the Holder and in the Holder's sole
discretion, the Holder may consider this Debenture immediately due and
payable, without presentment, demand, protest or notice of any kinds,
all of which are hereby expressly waived, anything herein or in any note
or other instruments contained to the contrary notwithstanding, and the
Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by
law.
15. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or
to consent or receive notice as a shareholder in respect of any meeting
of shareholders or any rights whatsoever as a shareholder of the
Company, unless and to the extent converted in accordance with the
terms hereof.
16. In the event for any reason, any payment by or act of the
Company or the Holder shall result in payment of interest which would
exceed the limit authorized by or be in violation of the law of the
jurisdiction applicable to this Debenture, then ipso facto the
obligation of the Company to pay interest or perform such act or
requirement shall be reduced to the limit authorized under such law, so
that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which
would result in the payment of interest in excess of the limit so
authorized. In the event any payment by or act of the Company shall
result in the extraction of a rate of interest in excess of a sum which
is lawfully collectible as interest, then such amount (to the extent of
such excess not returned to the Company) shall, without further
agreement or notice between or by the Company or the Holder, be deemed
applied to the payment of principal, if any, hereunder immediately upon
receipt of such excess funds by the Holder, with the same force and
effect as though the Company had specifically designated such sums to be
so applied to principal and the Holder had agreed to accept such sums as
an interest-free prepayment of this Debenture. If any part of such
excess remains after the principal has been paid in full, whether by the
provisions of the preceding sentences of this Section 16 or otherwise,
such excess shall be deemed to be an interest-free loan from the Company
to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section 16 shall control every
other provision of this Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by an officer thereunto duly authorized.
Dated: __________________, 1999
AMERICAN CHAMPION ENTERTAINMENT,
INC.
By:_________________________________
____________________________________
(Print Name)
____________________________________
(Title)
EXHIBIT A
NOTICE OF CONVERSION
OF
7% CONVERTIBLE DEBENTURE DUE JANUARY 1, 2002
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $
________________ of the principal
amount of the above Debenture No. ___ into Shares of Common Stock of
AMERICAN CHAMPION ENTERTAINMENT, INC. (the "Company") according to the
conditions thereof, as of the date written below.
Conversion Date*
___________________________________________________________________
Applicable Conversion Price
__________________________________________________________
Signature
________________________________________________________________________
[Name]
Address:
________________________________________________________________________
________________________________________________________________________
* This original Debenture must be received by the Company or its
transfer agent by the fifth business date following the Conversion Date.
List of debentures: Amount
The Endeavour Capital Fund S.A. $250,000
Amro International, S.A. $200,000
Canadian Advantage L.P. $300,000
Olympia Partners, LLC $200,000
<PAGE> 1
EXHIBIT 4.3
FORM OF WARRANT
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT, A "NO ACTION" LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING
THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
AMERICAN CHAMPION ENTERTAINMENT, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions.
In consideration of good and valuable consideration, the receipt of which is
hereby acknowledged by AMERICAN CHAMPION ENTERTAINMENT, INC. a Delaware
corporation (the "Company"), or registered assigns (the
"Holder") is hereby granted the right to purchase at any time until 5:00 P.M.,
New York City time, on January 31, 2002 (the "Expiration Date"),
Thousand(1)( ) 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 $ ,(2)
subject to further adjustment as set forth herein.
(1) Two thousand seven hundred fifty (2,750) for every $100,000 principal of
Debentures purchased.
(2) Price to be filled in equal to 125% of average closing bid price of Common
Stock for 5 trading days ending on date before Closing Date.
2. Exercise of Warrants. This Warrant is exercisable in
whole or in part at any time and from time to time at the Exercise Price
per share of Common Stock payable hereunder, payable in cash or by
certified or official bank check. Upon surrender of this Warrant
Certificate with the annexed Notice of Exercise Form duly executed
(which Notice of Exercise Form may be submitted either by delivery to
the Company or by facsimile transmission as provided in Section 8
hereof), together with payment of the Exercise Price for the shares of
Common Stock purchased, the Holder shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased.
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:
Preston Gates & Ellis LLP
One Maritime Plaza, Suite 2400
San Francisco, CA 94111
Attn: Lawrence B. Low, Esq.
Telephone No.: (415) 788-8822
Telecopier No.: (415) 788-8819
(ii) if to the Holder, to:
ATTN:
Telephone No.: ( ) -
Telecopier No.: ( ) -
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telephone No.: (212) 689-3322
Telecopier No. (212) 213-2077
Any party may by notice given in accordance with this Section to the
other parties designate another address or person for receipt of notices
hereunder.
9. Supplements and Amendments; Whole Agreement. This
Warrant may be amended or supplemented only by an instrument in writing
signed by the parties hereto. This Warrant contains the full
understanding of the parties hereto with respect to the subject matter
hereof and thereof and there are no representations, warranties,
agreements or understandings other than expressly contained herein and
therein.
10. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of Delaware and for all
purposes shall be governed by and construed in accordance with the laws
of such State applicable to contracts to be made and performed entirely
within such State.
11. Counterparts. This Warrant may be executed in any
number of counterparts and each of such counterparts shall for all
purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
12. Descriptive Headings. Descriptive headings of the
several Sections of this Warrant are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant
as of the __ th day of _____________ 1999.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:_________________________________
Name:
Its:
Attest:
________________________
Name:
Title:
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of
, 1999, to purchase shares of the Common Stock, par value
$.0001 per share, of AMERICAN CHAMPION ENTERTAINMENT, INC. and tenders
herewith payment in accordance with Section 1 of said Common Stock
Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
By:__________________________________
CASH: $ _______________________
Number of Exercise
List of warrant holders: Shares Price Expiration
The Endeavour Capital Fund S.A. 6,875 $2.1406 Jan 31, 2002
Amro International, S.A. 5,500 $2.1406 Jan 31, 2002
Canadian Advantage L.P. 8,250 $2.1406 Jan 31, 2002
Olympia Partners, LLC 5,500 $2.1406 Jan 31, 2002
JW Genesis Financial Corporation 35,000 $2.1406 Jan 31, 2002
