As filed with the Securities and Exchange Commission on February 17, 2000
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN CHAMPION ENTERTAINMENT, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
7812
(Primary Standard Industrial
Classification Code Number)
94-3261987
(I.R.S. Employer Identification Number)
1694 THE ALAMEDA, SUITE 100
SAN JOSE, CALIFORNIA 95126
(408) 288-8199
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ANTHONY K. CHAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1694 THE ALAMEDA, SUITE 100
SAN JOSE, CALIFORNIA 95126
(408) 288-8199
(Name and address and telephone number of agent for service)
------------------------
COPIES TO:
GREGORY SICHENZIA, ESQ.
SICHENZIA ROSS & FRIEDMAN LLP
135 WEST 50TH STREET, FLOOR 20
NEW YORK, NY 10020
(212) 664-1200
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended ("Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The registrant hereby amends this Registration Statement on such due 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 of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Proposed Proposed Amount of
Class of Maximum Maximum Registration
Securities to Amount to be Offering Price Aggregate Fee
be Registered Registered (1)(2Per Unit Offering Price
- ---------------------------- --------------- ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
Common Stock, $0.0001 par val 1,347,658 $4.25 $5,727,547.00 $1,512.07
</TABLE>
(1) Includes: (i) shares of common stock that have been issued or are
reserved for issuance upon the conversion of 7% Convertible Debentures due
December 31, 2002 issued and to be issued by American Champion; (ii) shares
of common stock that have been issued or are reserved for issuance on the
exercise of common stock Purchase Warrants issued in connection with the
issuance of the debentures; (iii) shares of common stock that have been issued
or are reserved for issuance on the exercise of common stock Purchase Warrants
issued as payment for legal services, (iv) shares of common stock that have
been issued or are reserved for issuance upon the exercise of common stock
Purchase Warrants issued to financial consultants of American Champion.
(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.
(3) Calculated solely for purposes of this offering under Rule 457(h) of
the Securities Act of 1933, as amended, on the basis of the average of the
high and low selling prices per share of Common Stock of American Champion
Entertainment, Inc. on February 14, 2000, was $4.25 as reported on the Nasdaq
SmallCap Market.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS
AMERICAN CHAMPION ENTERTAINMENT, INC.
1,347,658 Shares of common stock
This prospectus relates to the sale of up to 1,347,658 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 14, 2000 the closing sale price of the
common stock and the common stock purchase warrants on Nasdaq SmallCap Market
was $4.375 and $0.406, 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 February __, 2000.
<PAGE>
TABLE OF CONTENTS
Page
Company 5
Risk Factors 6
Material Changes 10
Incorporation of Certain Documents by Reference 11
Available Information 12
Use of Proceeds 12
Certain Market Information 12
Dividend Policy 13
Issuance of Common Stock to Selling Stockholders 13
Selling Stockholders 14
Plan of Distribution 16
Legal Matters 17
Experts 17
<PAGE>
COMPANY
American Champion Entertainment, Inc. is a holding company, for our
wholly-owned subsidiary, America's Best Karate and its wholly-owned
subsidiary, American Champion Media, Inc. and its wholly-owned subsidiary
American Champion Marketing Group, Inc.
America's Best Karate owns, manages and operates one karate studio in the San
Francisco Bay Area under the name "ABK," that provides karate instruction to
students of all ages and skill levels. American Champion Media is a media
production and marketing company. Through American Champion Media and American
Champion Marketing Group, 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 other
intellectual properties through acquisitions.
* develops, produces and markets various audio tapes, video tapes and
workbooks that specialize in fitness information.
American Champion was incorporated on February 5, 1997 under the laws of
Delaware. American Champion's executive offices are located at 1694 The
Alameda, Suite 100, San Jose, California 95126, and its telephone number is
(408) 288-8199.
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing American Champion. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations. The actual occurrence of the following risks could
adversely affect our business. In such case, the trading price of our common
stock could decline, and you may lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including the risks described below and elsewhere in this prospectus.
We have a history of losses and expect to incur future losses. We sustained
operating losses of $801,416 in the year ended December 31, 1997, $1,923,516
in the year ended December 31, 1998 and $3,403,222 in the nine months ended
September 30, 1999. We expect to incur significant additional operating losses
for the foreseeable future as we continue to develop, produce and market our
media projects, including the Kanga Roddy Series. The development and
production costs (exclusive of marketing costs) for the remaining 12 episodes
of the Kanga Roddy Series we are obligated to deliver is estimated to be $2.6
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 29 episodes of the Kanga Roddy Series.
Based on production of 29 episodes completed to date, we now estimate that the
average cost of developing and producing each episode of the Kanga Roddy
Series is $220,000 and that it will require an additional $2.6 million of
additional financing to complete the remaining 12 episodes of the Kanga Roddy
Series. On September 24, 1999, we sold 7% convertible debentures in the
principal amount of $1,000,000.
We are dependent on the success of the Kanga Roddy Series, and we cannot be
certain that the initial television viewership of the Kanga Roddy Series will
be maintained. We are dependent on the success of the Kanga Roddy Series,
which in turn is dependent upon unpredictable and volatile factors beyond our
control, such as children's preferences. The Kanga Roddy Series is currently
shown on public television stations which reach approximately 40 million
households. Although the Kanga Roddy Series has received positive acclaim and
positive Nielsen ratings on its estimated audience, the show must attract a
significant television audience over a long period of time before we realize
significant revenue and profitability. We cannot be certain that the initial
television viewership of the Kanga Roddy Series will be maintained.
Furthermore, to attract a significant television audience for the Kanga Roddy
Series over a long period of time, we need to complete additional episodes of
the Kanga Roddy Series.
If we are unable to attract a significant television audience for the Kanga
Roddy Series, it is doubtful that any significant licensing or merchandising
opportunities will arise. Our strategy in producing the Kanga Roddy Series
includes the licensing of its characters to others for the merchandising of a
variety of products ranging from toys to apparel. Our ability to successfully
exploit the merchandising opportunities afforded by the Kanga Roddy Series is
dependent on the popularity of the Kanga Roddy Series and the ability of our
characters to provide attractive merchandising features to its customers. If
we are unable to attract a significant television audience for the Kanga Roddy
Series, it is doubtful that any significant licensing or merchandising
opportunities will arise. Even if the Kanga Roddy Series is popular with
television audiences, we cannot be certain that licensing opportunities will
materialize as we must compete with hundreds of owners of creative content who
seek to license their characters and properties to a limited number of
manufacturers and distributors.
Our lack of significant experience with television programming or licensing
and merchandising could adversely affect our business. Prior to American
Champion's involvement with the Kanga Roddy Series, our business was primarily
the operation of its karate studios and the production of fitness video tapes
and we had no experience with the development and production of television
programming or with the licensing and merchandising of products. To date, we
have completed 29 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 following individuals, or of other key
personnel, could adversely affect our business. We are dependent on the efforts
and abilities of Anthony Chan and George Chung, our founders and principal
executive officers, and Jan D. Hutchins, President of American Champion Media.
We have entered into employment agreements, effective as of August 5, 1997, with
such individuals. We are also dependent on the efforts and abilities of Joy
Tashjian, President and CEO of American Champion Marketing Group, a newly formed
and wholly owned subsidiary; with whom we have entered into an employment
agreement effective on June 3, 1999. None of such employment agreements contains
non-competition provisions. See "Management-- Employment Agreements" of
American Champion's Post-Effective Amendment No.1 to its Form SB-2 Registration
Statement. The loss of the services of any of the above individuals, or of other
key personnel, could adversely affect our business. We have obtained "key-man"
life insurance with $1,000,000 coverage for each of Messrs. Chung and Chan.
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 marked by
companies having significantly greater resources than ours. The martial arts
industry is also highly competitive. American Champion's competitors include a
variety of small to medium sized martial arts instructional centers, many of
which may be better established and better financed than ours.
We may have to return America's Best Karate membership fees pursuant to the
terms of our standard contract with our students. Pursuant to the terms of its
standard contract with its students, ABK is required to refund:
(1) all funds received if a student cancels within three (3) days of signing a
membership contract,
(2) all "unearned" funds received in the event the student dies, becomes
permanently disabled, moves more than twenty-five (25) miles away from ABK or
ABK closes for more than thirty (30) consecutive days, and
(3) the outstanding amount of fees set forth in (1) and (2) above prior and up
to the time of sale of our ABK studios.
We do not currently maintain nor does it anticipate maintaining a reserve
account for return of membership fees. As a consequence, we may be unable to
refund membership fees which could adversely affect on our business and
prospects.
Messrs. Chan and Chung are in a position to strongly influence the election of
directors as well as affairs of American Champion. As of the date of this
prospectus, Anthony Chan and George Chung, American Champion's founders and
principal executive officers, collectively beneficially own 752,970 shares of
American Champion's outstanding common stock, representing approximately 12.45%
of the outstanding shares prior to this offering and approximately 10.18% of
the outstanding shares of common stock after this offering (assuming no exercise
of any outstanding options or any warrants). Since holders of common stock do
not have any cumulative voting rights and directors are elected by a majority
vote, Messrs. Chan and Chung are in a position to strongly influence the
election of directors as well as the affairs of American Champion.
We have purchased liability insurance for our karate studios. In the event of
a claim brought by students or instructors injured during karate classes, we
have purchased liability insurance for each of our karate studios in the
amount of $1,000,000 per occurrence and $2,000,000 in the aggregate which we
believe is sufficient for current level of business operations. We cannot be
certain, however, that the present coverage will continue to be available in
the future or that we will be able to retain such coverage at a reasonable
cost. Further, we cannot be certain that such insurance will be sufficient to
cover potential claims, or that adequate, affordable insurance coverage will
be available to us in the future as we expand our operations. A successful
claim against us in excess of the liability limits or relating to an injury
excluded under the policy could adversely affect us.
If we do not continue to fulfill Nasdaq maintenance requirements, our
securities may be delisted from Nasdaq market. American Champion's common
stock is listed on Nasdaq SmallCap Market. The Securities and Exchange
Commission has approved rules imposing criteria for listing of securities on
Nasdaq SmallCap Market, including standards for maintenance of such listing.
For continued listing, a company, among other things, must have $2,000,000 in
net tangible assets, $1,000,000 in market value of securities in the public
float and a minimum bid price of $1.00 per share. We currently have
approximately $5,100,000 in net tangible assets and approximately $20,000,000
in market value of securities in the public float, with a bid price of
approximately $4 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. Our share price
had been under $1.00 per share from August 1999 to end of the year 1999. We
effected a reverse split of our common stock at the rate of 1 for 4 on
January 4, 2000, and currently our bid price is approximately $4 per share.
If we are unable to satisfy the maintenance requirements for Nasdaq SmallCap
Market and our common stock were to trade below the minimum bid price of
$1.00 per share, 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
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.
MATERIAL CHANGES
Between May 19, 1999 and June 7, 1999, American Champion issued to its
management an aggregate of 0.93 million options (adjusted for 1:4 reverse
split on January 4, 2000) pursuant to its 1997 Stock Plan and the Non-Employee
Directors Stock Option Plan. Of such options, 0.84 million were issued to the
officers and directors of American Champion as a group. On January 10, 2000,
American Champion issued 0.63 million share of common stock pursuant to its
2000 Stock Incentive Plan, to its officers and directors of American Champion
as a group. The following table sets forth the options and common stock
issued to certain of American Champion's directors and officers (adjusted for
1:4 reverse split on January 4, 2000):
Name Position Number of Option Date of Grant
George Chung Chairman of the Board 25,000 May 19, 1999
250,000 June 7, 1999
Anthony K. Chan President & CEO 25,000 May 19, 1999
250,000 June 7, 1999
Name Position Number of Shares Date of Grant
of Common Stock
George Chung Chairman of the Board 250,000 January 10, 2000
Anthony K. Chan President & CEO 250,000 January 10, 2000
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; and
2. The description of American Champion's common stock contained in American
Champion's Registration Statement on Form SB-2; and
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; and
4. American Champion's Proxy Statement for the 1999 Annual Meeting of
Stockholders held on May 5, 1999; and
5. American Champion's Annual Report on Form 10-KSB and it's amendment filed on
November 15, 1999 for its fiscal year ended December 31, 1998; and
6. American Champion's Quarterly Report on Form 10-QSB for the quarter period
ended September 30, 1999; and
7. American Champion's Definitive Proxy Statement for a Special Meeting of
Stockholders to be held on December 10, 1999.
The Company will provide without charge to each person to whom a copy of this
prospectus has been delivered, on written or oral request a copy of any or all
of the documents incorporated by reference in this prospectus, other than
exhibits to such documents. Written or oral requests for such copies should be
directed to Anthony K. Chan, American Champion Entertainment, Inc., 1694 The
Alameda, Suite 100, San Jose, California 95126-2219 (telephone: (408)288-8199.
ADDITIONAL INFORMATION AVAILABLE TO YOU
This prospectus is part of a Registration Statement on Form S-3 that we filed
with the Commission. Certain information in the Registration Statement has been
omitted from this prospectus in accordance with the rules of the Commission We
file the annual, quarterly and special reports, proxy statements and other
information with the Commission. You can inspect and copy the Registration
Statement as well as reports, proxy statements and other information we have
filed with the Commission at the public reference room maintained by the
Commission at 450 Fifth Street, NW, Washington, D.C. 20549, and at the
following Regional Offices of the Commission: Seven World Trade Center, New
York, New York 10048, and Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. You can obtain copies from the public reference room
of the Commission at 450 Fifth Street, NW, Washington, D.C. 20549, upon payment
of certain fees. You can call the Commission at 1-800-732-0330 for further
information about the public reference room. We are also required to file
electronic versions of these documents with the Commission, which may be
accessed through the Commission's World Wide Web site at http://www.sec.gov.
Our common stock is quoted on The Nasdaq National Market Reports, proxy and
information statements and other information concerning American Champion may
be inspected at The Nasdaq Stock Market at 1735 K Street, NW, Washington, D.C.
20006.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares offered
hereunder by the selling stockholders. The offering is made to fulfill our
contractual obligations to the selling stockholders to register the common
stock held by or which are issuable to the selling stockholders.
CERTAIN MARKET INFORMATION
American Champion's common stock commenced trading on the Nasdaq SmallCap
Market under the symbol "ACEI" on August 1, 1997. The range of high and low
reported closing sales prices for the common stock as reported by Nasdaq
SmallCap Market since the commencement of trading were as follows:
High Low High Low
(Adjusted for 1:4
reverse split as of
January 4 ,2000)
1997
Third Quarter $5.500 $4.125 $22.00 $16.50
Fourth Quarter $8.000 $4.813 $32.00 $19.25
1998
First Quarter $9.625 $7.750 $38.50 $31.00
Second Quarter $9.563 $6.563 $38.25 $26.25
Third Quarter $7.000 $3.500 $28.00 $14.00
Fourth Quarter $3.625 $0.969 $14.50 $3.876
1999
First Quarter $3.000 $1.063 $12.00 $4.252
Second Quarter $2.438 $0.781 $9.752 $3.124
Third Quarter $1.656 $0.516 $6.624 $2.064
Fourth Quarter $0.313 $1.406 $1.252 $5.624
2000
First Quarter ---- ---- $6.031 $2.125
(as of February 14, 2000)
The prices set forth above reflect inter dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
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 1,012,658 shares of common stock that have been issued or are
issuable, assuming the conversion rate of $1.2344 per share to allow for
fluctuation in market price, upon the conversion of 7% Convertible Debentures
due December 31, 2002 issued by American Champion;
(2) 125,000 shares of common stock that are issuable upon the exercise of
Common Stock Purchase Warrants issued in connection with the debentures;
(3) 10,000 shares of Common Stock that are issued and issuable upon the
exercise of common stock Purchase Warrants issued by AmericanChampion in
connection to the debentures for related legal fees;
(4) 200,000 shares of Common Stock Purchase Warrants issued by American
Champion to financial consultants;
Debentures and Debenture Warrants. On January 5, 2000, we entered into a
Securities Purchase Agreement for the sale of the debentures and debenture
warrants. Pursuant to the agreement, the purchasers purchased $1,250,000 of
American Champion's debentures, and American Champion issued to the purchasers
warrants to purchase up to 125,000 shares of common stock.
The debentures are convertible into a number of shares of American Champion's
common stock based on lower of $2.46875 or 82.5% 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 of the lowest three closing bid
prices of the common stock as reported by Bloomberg, LP for the ten (10)
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 14, 2000 by each of the selling
stockholders assuming the conversion of the debentures of $1,250,000 principal
amount and a conversion rate of $1.234375 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 $1.234375 per share), plus
125,000 shares issuable upon exercise of the debenture warrants as provided in
the debenture; 10,000 shares of Common Stock issuable upon the exercise of
Common Stock Purchase Warrants that were issued by American Champion in
connection to the debentures for legal fees; and 200,000 shares of common
stock issuable upon the exercise of Common Stock Purchase Warrants that were
issued by American Champion to financial consultants. 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 14, 2000 (1) Hereunder Are Sold(1)(2)
Shares That
May be Offered
Name Shares Percent(2) Hereunder Shares Percent
- ---------------------------- ------------ ------------ ---------------------------------------
<S> <C> <C> <C> <C> <C>
Amro International S.A. 455,063 7.00% 455,063 -- --
Endeavour Capital Fund S.A. 455,063 7.00% 455,063 -- --
Esquire Trade and Finance 113,766 1.85% 113,766 -- --
Austinvest Anstalt Balzers 113,766 1.85% 113,766 -- --
Samuel M. Krieger 6,666 * 6,666 -- --
Ronald J. Nussbaum 3,334 * 3,334 -- --
Dalton Kent Securities Group 100,000 1.63% 100,000 -- --
Olympia Partners, LLC. 100,000 1.63% 100,000 -- --
- ------------------------------
* 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 7, 2000 through the conversion of debentures
and the exercise of any debenture warrant, or other right. Pursuant to the
terms of the Securities Purchase Agreement for the sale of the debentures and
debenture warrants, except under certain circumstances, no holder of the
debentures may convert its debentures into common stock, if such conversion
would result in the holder beneficially owning more than 9.99% of the
outstanding common stock. All shares which may be issued on conversion of the
debentures are included in the table notwithstanding such limitation.
Accordingly, the number of shares indicated above as beneficially owned by
certain selling stockholders exceeds the actual number of shares such selling
stockholder may be entitled to on conversion. The actual number of shares of
common stock issuable upon the conversion of the debentures and exercise of
the debenture warrants is subject to adjustment depending on, among other
factors, the future market price of the common stock, and could be materially
less or more than the number estimated in the table.
(2) The percentage interest of each selling stockholder is based on the
number of shares of common stock beneficially owned by such stockholder
divided by the sum of the outstanding shares of common stock (as of February
7, 2000), plus the shares, if any, which would be issued to such stockholder
upon conversion of debentures held or exercise of any warrants. On February
7, 2000, American Champion had 5,904,606 shares outstanding.
(3) The shares hereunder do not include shares which we anticipate to be
sold under a separate registration statement and prospectus.
<PAGE>
PLAN OF DISTRIBUTION
Sales of the shares may be effected by or for the account of the selling
stockholders from time to time in transactions (which may include block
transactions) on the Nasdaq SmallCap Market, in negotiated transactions,
through a combination of such methods of sale, or otherwise, at fixed prices
that may be changed, at market prices prevailing at the time of sale or at
negotiated prices. The selling stockholders may effect such transactions by
selling the shares directly to purchasers, through broker-dealers acting as
agents of the selling stockholders, or to broker-dealers acting as agents for
the selling stockholders, or to broker-dealers who may purchase shares as
principals and thereafter sell the shares from time to time in transactions
(which may include block transactions) on the Nasdaq SmallCap Market, in
negotiated transactions, through a combination of such methods of sale, or
otherwise. In effecting sales, broker-dealers engaged by a selling stockholder
may arrange for other broker-dealers to participate. Such broker-dealers, if
any, may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders and/or the purchasers of the shares
for whom such broker-dealers may act as agents or to whom they may sell as
principals, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions).
The selling stockholders and any broker-dealers or agents that participate
with the selling stockholders in the distribution of the shares may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933. Any
commissions paid or any discounts or concessions allowed to any such persons,
and any profits received on the resale of the shares purchased by them may be
deemed to be underwriting commission or discounts under the Securities Act of
1933.
We have agreed to bear all expenses of registration of the shares other than
legal fees and expenses, if any, of counsel or other advisors of the selling
stockholders. The selling stockholders will bear any commissions, discounts,
concessions or other fees, if any, payable to broker-dealers in connection
with any sale of their shares.
We have agreed to indemnify the selling stockholders, or their transferees or
assignees, against certain liabilities, including liabilities under the
Securities Act of 1933 or to contribute to payments the selling stockholders
or their respective pledgees, donees, transferees or other successors in
interest, may be required to make in respect thereof.
LEGAL MATTERS
The valid issuance of the shares of common stock offered hereby has been
passed upon for American Champion by Sichenzia Ross & Friedman LLP, New York,
New York.
EXPERTS
The balance sheet and financial statements of American Champion Entertainment,
Inc.for the years ended December 31, 1997 and December 31, 1998 have been
incorporated by reference herein and in the registration statement in reliance
upon the reports of Moss Adams LLP, independent certified public accountants,
also incorporated by reference herein, and upon the authority of such firm as
experts in accounting and auditing.
<PAGE>
No dealer, salesperson or other person is authorized to give any information
or to make any representations other than those contained in this prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by American Champion. This prospectus does not
constitute an offer to buy any security other than the securities offered by
this prospectus, or an offer to sell or a solicitation of an offer to buy any
securities by any person in any jurisdiction where such offer or solicitation
is not authorized or is unlawful. Neither delivery of this prospectus nor any
sale hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of American Champion since the date
hereof.
------------------------
TABLE OF CONTENTS
Page
Company 5
Risk Factors 6
Material Changes 10
Incorporation of Certain Documents by Reference 11
Available Information 12
Use of Proceeds 12
Certain Market Information 12
Dividend Policy 13
Issuance of Common Stock to Selling Stockholders 13
Selling Stockholders 14
Plan of Distribution 16
Legal Matters 17
Experts 17
AMERICAN CHAMPION ENTERTAINMENT, INC.
1,347,658 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
_______________
February __, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the estimated expenses of the issuance and
distribution of the securities offered hereby (all such expenses will be borne
by American Champion):
Registration fee $ 1,512.07
Legal fees and expenses 5,000.00
Accounting fees and expenses 1,000.00
Miscellaneous, including Nasdaq listing fees 13,477.00
Total........................................................$ 20,989.07
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
American Champion's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. American
Champion's Bylaws provided that American Champion shall indemnify its officers
and directors and may indemnify its employees and other agents to the fullest
extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made a party
to an action by reason of that fact that he or she was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred by him or her in
connection with such action if he or she acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation and with respect to any criminal action, had no reasonable
cause to believe his or her conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling American
Champion pursuant to the foregoing provisions, American Champion has been
advised that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
<PAGE>
ITEM 16. EXHIBITS
The exhibits filed as part of this Registration Statement are as follows:
Number Description
4.1 Securities Purchase Agreement, dated January 5, 2000, by and
among American Champion and the Buyers as defined therein.
4.2 7% Convertible Debentures due December 31, 2002.
4.3 Common Stock Purchase Warrant.
5.1 Opinion of Sichenzia Ross & Friedman LLP regarding legality of
securities being registered.
23.1 Consent of Sichenzia Ross & Friedman LLP (included in its
opinion filed as Exhibit 5.1).
23.2 Consent of Moss Adams LLP.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Certificate of Incorporation, its Bylaws, or
otherwise, the Registrant has been advised that in the opinion of the
Securities Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
If a claim for indemnification against such liabilities (other than the payment
of the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against a public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement
to:
(i) Include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraph (1)(i) and (1)(ii) do not apply if the registration
statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is incorporated by
reference from periodic reports filed by the registrant pursuant to section 13
or section 15(d) of the Securities Exchange Act of 1934.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Jose, California on the 17th day of February,
2000.
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 17, 2000
- ------------------------- (principal executive officer)
Anthony K. Chan and Director
/s/ George Chung Chairman of the Board and Director February 17, 2000
- -------------------------
George Chung
/s/ William T. Duffy Director February 17, 2000
- -------------------------
William T. Duffy
/s/ Alan Elkes Director February 17, 2000
- -------------------------
Alan Elkes
/s/ E. David Gable Director February 17, 2000
- -------------------------
E. David Gable
/s/ Jan D. Hutchins Director February 17, 2000
- -------------------------
Jan D. Hutchins
/s/ Ronald M. Lott Director February 17, 2000
- -------------------------
Ronald M. Lott
/s/ Joy M. Tashjian Director February 17, 2000
- -------------------------
Joy M. Tashjian
/s/ Mae Lyn Woo Vice President, Chief Operation February 17, 2000
- ------------------------- Officer and Chief Financial Officer
Mae Lyn Woo (principal financial officer)
</TABLE>
<PAGE>
EXHIBIT INDEX
The exhibits filed as part of this Registration Statement are as follows:
Number Description
4.1 Securities Purchase Agreement, dated January 5, 2000, by and
among American Champion and the Buyers as defined therein.
4.2 7% Convertible Debentures due December 31, 2002.
4.3 Common Stock Purchase Warrant.
5.1 Opinion of Sichenzia Ross & Friedman LLP regarding legality of
securities being registered.
23.1 Consent of Sichenzia Ross & Friedman LLP (included in its
opinion filed as Exhibit 5.1).
23.2 Consent of Moss Adams LLP.
EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below, is entered into by and between AMERICAN CHAMPION ENTERTAINMENT,
INC., a Delaware corporation, with headquarters located at 1694 The Alameda,
Suite 100, San Jose, CA 95126-2219 (the "Company"), and each entity named on a
signature page hereto (each, a "Buyer")(each agreement with a Buyer being
deemed a separate and independent agreement between the Company and such Buyer,
except that each Buyer acknowledges and consents to the rights granted to
each other Buyer under such agreement and the Transaction Agreements, as
defined below, referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this Agreement
in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"),
and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, 7% Convertible Debentures of the Company which
will be convertible into shares of Common Stock, $.0001 par value per share of
the Company (the "Common Stock"), upon the terms and subject to the conditions
of such Convertible Debentures, together with the Warrants (as defined below)
exercisable for the purchase of shares of Common Stock (the "Warrant Shares"),
and subject to acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase; Certain Definitions.
(i) The undersigned hereby agrees to purchase from the Company 7%
Convertible Debentures in the principal amount set forth on the Buyer's
signature page of this Agreement (the "Debentures"), out of a total offering
of $1,250,000 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 the
average closing bid price of the Common Stock for the lowest three (3)
trading days (which need not be consecutive) during the ten (10) 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.
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 LLP, Esqs.
Account No.: [To be provided to the Buyer by Krieger & Prager LLP]
RE: American Champion Entertainment 12/99 Transaction
Not later than 5:00 p.m., New York time, on the date which is two (2) New York
Stock Exchange trading days after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Escrow
Agent by facsimile, the Buyer shall deposit with the Escrow Agent the Purchase
Price for the Debentures in currently available funds. Time is of the essence
with respect to such payment, and failure by the Buyer to make such payment,
shall allow the Company to cancel this Agreement.
d. Escrow Property. The Purchase Price and the Debentures and Warrants
delivered to the Escrow Agent as contemplated by Sections 1(b) and (c) hereof
are referred to as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
a. Without limiting Buyer's right to sell the Common Stock pursuant to
the Registration Statement (as that term is defined in the Registration Rights
Agreement defined below), the Buyer is purchasing the Debentures and the
Warrants and will be acquiring the shares of Common Stock issuable upon
conversion of the Debentures (the "Converted Shares") and the Warrant Shares
for its own account for investment only and not with a view towards the public
sale or distribution thereof and not with a view to or for sale in connection
with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described
in this Agreement and the related documents, (iii) able, by reason of the
business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way
by the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its
investment in the Securities.
c. All subsequent offers and sales of the Debentures and the shares of
Common Stock representing the Converted Shares and the Warrant Shares (such
Common Stock sometimes referred to as the "Shares") by the Buyer shall be made
pursuant to registration of the Shares under the 1933 Act or pursuant to an
exemption from registration.
d. The Buyer understands that the Debentures are being offered and sold
to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Debentures. The
Buyer represents and warrants that the address of its principal place of
business is as set forth on the Buyer's signature page of this Agreement.
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Debentures and the offer of
the Shares which have been requested by the Buyer, including Annex V hereto.
The Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers
to any such inquiries. Without limiting the generality of the foregoing, the
Buyer has also had the opportunity to obtain and to review the Company's (1)
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998, (2)
Quarterly Reports on Form 10- QSB for the fiscal quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999, (3) Proxy Statement for the Company's
annual meeting of shareholders held on May 5, 1999 and Proxy Statement for the
Company's special meeting of shareholders held on December 10, 1999, and (4)
Registration Statement on Form S-3 filed with the SEC on December 13, 1999
(the "Company's SEC Documents").
f. The Buyer understands that its investment in the Securities involves a
high degree of risk.
g. The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability
to general principles of equity and to bankruptcy, insolvency, moratorium and
other similar laws affecting the enforcement of creditors' rights generally.
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 November 1, 1998 timely filed all requisite forms, reports and exhibits
thereto with the SEC.
h. Absence of Certain Changes. Since December 31, 1998, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, except as disclosed in the Company's SEC Documents.
Since December 31, 1998, except as provided in the Company's SEC Documents, the
Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent) except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses or waived any rights of material value, whether or not
in the ordinary course of business, or suffered the loss of any material amount
of existing business; (vi) made any changes in employee compensation, except in
the ordinary course of business consistent with past practices; or (vii)
experienced any material problems with labor or management in connection with
the terms and conditions of their employment.
i. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in
the Company's SEC Documents) that has not been disclosed in writing to the
Buyer that (i) would reasonably be expected to have a material adverse effect
on the business, operations or condition (financial or otherwise) or results
of operations of the Company and its subsidiaries, taken as a whole, (ii)
would reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement or any of
the agreements contemplated hereby (collectively, including this Agreement,
the "Transaction Agreements"), or (iii) would reasonably be expected to
materially and adversely affect the value of the rights granted to the Buyer
in the Transaction Agreements.
j. Absence of Litigation. Except as set forth in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of
the Company, threatened against or affecting the Company, wherein an
unfavorable decision, ruling or finding would have a material adverse effect
on the properties, business or financial condition, or results of operation of
the Company and its subsidiaries taken as a whole or the transactions
contemplated by any of the Transaction Agreements or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, any of the Transaction Agreements.
k. Absence of Events of Default. Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has
occurred and is continuing, which would have a material adverse effect on the
business, operations or condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole.
l. Prior Issues. During the twelve (12) months preceding the date
hereof, the Company has not issued any convertible securities. The presently
outstanding unconverted principal amount of each such issuance as of the date
of this Agreement is set forth in Annex V.
m. No Undisclosed Liabilities or Events. The Company has no liabilities
or obligations other than those disclosed in the Company's SEC Documents or
those incurred in the ordinary course of the Company's business since December
31, 1998, and which individually or in the aggregate, do not or would not have
a material adverse effect on the properties, business, condition (financial or
otherwise), or results of operations of the Company and its subsidiaries,
taken as a whole. Except for the transactions contemplated by the Transaction
Agreements, no event or circumstances has occurred or exists with respect to
the Company or its properties, business, condition (financial or otherwise),
or results of operations, which, under applicable law, rule or regulation,
requires public disclosure or announcement prior to the date hereof by the
Company but which has not been so publicly announced or disclosed. There are
no proposals currently under consideration or currently anticipated to be
under consideration by the Board of Directors or the executive officers of the
Company which proposal would (x) change the certificate of incorporation or
other charter document or by-laws of the Company, each as currently in effect,
with or without shareholder approval, which change would reduce or otherwise
adversely affect the rights and powers of the shareholders of the Common Stock
or (y) materially or substantially change the business, assets or capital of
the Company, including its interests in subsidiaries.
n. No Default. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property
is bound.
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 November 1, 1998 made any offer or sales of any security or
solicited any offers to buy any security under circumstances that would
eliminate the availability of the exemption from registration under Rule 506
of Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
p. Dilution. The number of Shares issuable upon conversion of the
Debentures and the exercise of the Warrants may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to
the conversion of the Debentures. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The
board of directors of the Company has concluded, in its good faith business
judgment, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Debentures and upon exercise of the Warrants is binding upon
the Company and enforceable regardless of the dilution such issuance may have
on the ownership interests of other shareholders of the Company, and the
Company will honor every Notice of Conversion (as defined in the Debentures)
relating to the conversion of the Debentures and every Notice of Exercise Form
(as contemplated by the Warrants) relating to the exercise of the Warrants
unless the Company is subject to an injunction (which injunction was not
sought by the Company) prohibiting the Company from doing so.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the Debentures
have not been and are not being registered under the provisions of the 1933
Act and, except as provided in the Registration Rights Agreement, the
Securities have not been and are not being registered under the 1933 Act, and
may not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant
to an exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the
Debentures and the Warrants, and, until such time as the Common Stock has been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective Registration Statement,
certificates and other instruments representing any of the Securities shall
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
c. Registration Rights Agreement. The parties hereto agree to enter into
the Registration Rights Agreement on or before the Closing Date.
d. Filings and Shareholder Consent. (i) The Company undertakes and
agrees to make all necessary filings in connection with the sale of the
Debentures to the Buyer under any United States laws and regulations applicable
to the Company, or by any domestic securities exchange or trading market, and
to provide a copy thereof to the Buyer promptly after such filing.
(ii) Subject to the conditions of the immediately following sentence, the
Company undertakes and agrees to take all steps necessary to have a meeting
and vote of the shareholders of the Company no later than the Meeting Date
(as defined below) regarding authorization of the Company's issuance to the
holders of the Debentures and Warrants of shares of Common Stock in excess of
twenty percent (20%) of the outstanding shares of Common Stock on the date of
this Agreement in accordance with NASDAQ Rule 4310(c)(25)(H). The terms of
the immediately preceding sentence shall apply only once the Company has
issued, after the date of this Agreement, either (x) to the Holder Class
Members of any specific Holder Class, shares of Common Stock which, in the
aggregate equal or exceed seventy-five percent of the Conversion Limit of that
Holder Class (as such terms are defined below), or (y) to any one or more
holders of all Debentures contemplated by this Agreement shares of Common
Stock which, in the aggregate, equal or exceed ten percent (10%) of the
outstanding shares of Common Stock on the date hereof. The earliest date on
which the issuance of such shares contemplated by the immediately preceding
sentence occurs shall constitute, with further notice from a Buyer, a "Meeting
Requirement Date." The term "Meeting Date" means the date which is seventy-five
(75) days after the Meeting Requirement Date. The Company will recommend to
the shareholders that such authorization be granted and will seek proxies from
shareholders not attending the meeting (if such meeting is required to
effectuate such authorization) naming a director or officer of the Company as
such shareholder's proxy and directing the proxy to vote, or giving the proxy
the authority to vote, in favor of such authorization. Upon determination
that the shareholders have voted in favor of such authorization, the Company
shall cause its counsel to issue to the Buyer an unqualified opinion (the
"Authorization Opinion") that such authorization has been duly adopted by all
necessary corporate action of the Company and that the Company will be able to
issue, without restriction as to the number of such shares, all shares of
Common Stock as may be issuable upon conversion of the Debentures and without
any limits imposed by the Cap Regulations (as defined in the Debentures)
adopted on or before and in effect on the date of the Authorization Opinion.
The Authorization Opinion shall state that the Buyer may rely thereon in
connection with the transactions contemplated by this Agreement and the other
Transaction Agreements regarding its holdings of the Debentures. If, for any
reason, (x) the Authorization Opinion is not issued within five (5) business
days after such meeting, (y) the meeting is not held by the Meeting Date or
(z) the requisite shareholder approval is not obtained at the meeting, then in
lieu of issuing any shares in violation of NASDAQ Rule 4310(c)(25)(H) or any
of the other Cap Regulations, the Company shall redeem the outstanding
Unconverted Debentures (as defined in the Debentures) as set forth in Section
6 of the Debenture within thirty (30) days after the Meeting Date.
(iii) In furtherance of the provisions of the immediately preceding
subparagraph (ii) hereof, the Company (a) commits to using its best efforts to
obtain any shareholder authorization contemplated by said subparagraph (ii),
and (b) represents to the Buyer that the Company has obtained the binding
irrevocable commitment or proxy (each, a "Principal Voter Proxy") of each
Principal Voter (as defined below) that such Principal Voter will vote in
favor of any shareholder authorization contemplated by said subparagraph (ii).
Each Principal Voter Proxy shall be issued in favor of the Buyer or the
Buyer's designee and shall state that, among other things, as a result of the
Principal Voter's direct or indirect relationship to the Company on the date
the Principal Voter Proxy is given, such Principal Voter Proxy is deemed
coupled with an interest in favor of the Buyer. A "Principal Voter" is a person
who meets any one or more of the following criteria: (A) a person who is a
director or principal officer of the Company (each, a "Company Principal") and
who, directly or indirectly, holds any shares of Common Stock of the Company;
(B) a spouse of a Company Principal who resides in the household of the
Company Principal (a "Principal's Spouse") and who, directly or indirectly,
holds any shares of Common Stock of the Company, (C) a parent, sibling or
child of a Company Principal who resides in the household of a Company
Principal or of a Principal's Spouse (each, a "Principal's Relative") and who,
directly or indirectly, holds any shares of Common Stock or (D) any other
person or entity, including, without limitation, for profit or non-profit
corporations, partnerships and trusts, whose voting rights regarding Common
Stock of the Company is subject to the direction, control or other influence
of any Company Principal, Principal's Spouse or Principal's Relative. The
Company will deliver such Principal Voter Proxies to the Buyer or the Buyer's
designee within ten (10) business days after the Closing Date.
e. Reporting Status. So long as the Buyer beneficially owns any of the
Debentures, the Company shall file all reports required to be filed by the
Company with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the
Company shall not voluntarily terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company will take
all reasonable action under its control to continue the listing and trading of
its Common Stock (including, without limitation, all Registrable Securities)
on The NASDAQ SmallCap Market and will comply in all material respects with
the Company's reporting, filing and other obligations under the by-laws or
rules of the National Association of Securities Dealers, Inc. ("NASD") or The
NASDAQ SmallCap Market.
f. Use of Proceeds. Unless otherwise consented by the Buyer, the
Company shall use the proceeds from the sale of the Debentures (excluding
amounts paid by the Company for legal fees, finder's fees and escrow fees in
connection with the sale of the Debentures) for internal working capital
purposes, and, except as expressly provided herein, shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person, including any of its
affiliates, or to repay any debt to any of its affiliates.
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 provisions 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 3,168,875 shares
outstanding as of the date hereof and (y) certain options granted or be
granted pursuant to the 1997 Stock Option Plan or the 1997 Non-Employee
Directors Stock Option Plan.
h. Available Shares. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield two hundred percent (200%) of the number of shares of
Common Stock issuable (i) at conversion as may be required to satisfy the
conversion rights of the Buyer pursuant to the terms and conditions of the
Debentures and (ii) upon exercise as may be required to satisfy the exercise
rights of the Buyer pursuant to the terms and conditions of the Warrants.
i. Warrants. The Company agrees to issue to the Buyer on the Closing
Date transferable, divisible warrants (the "Warrants") for the purchase of ten
thousand (10,000) shares of Common Stock for every $100,000 principal of
Debentures purchased by the Buyer. The Warrants shall bear an exercise price
equal to one hundred twenty-five percent (125%) of the Market Price of the
Common Stock on the Closing Date (the "Warrant Exercise Price"). The Warrants
will expire on the third anniversary of the Closing Date. The Warrants shall
be in the form annexed hereto as Annex VI, together with registration rights
as provided in the Registration Rights Agreement.
j. Limitation on Conversions. Anything in the other provisions of this
Agreement or any of the other Transaction Agreements to the contrary
notwithstanding, the following provisions are applicable to conversion
effected under the Debentures:
(i) Attached to this Agreement as Annex VIII is a schedule of all of the
Buyers who were the original signatories to this Agreement (each, an "Original
Holder") and the original principal amount (the "Original Debenture Amount")
of the Debenture issued to each such Original Holder as contemplated by this
Agreement (each, an "Original Debenture"). For identification purposes and
for the purposes of this Section only, Annex VIII also identifies the "Holder
Class" for each Original Debenture. Each Original Debenture will include an
identification of its relevant Holder Class. Any reissue of an Original
Debenture to the Original Holder or to any direct or indirect assignee or
transferee of all or part of such Original Debenture shall include an
identification of the same Holder Class. The Original Holder of each Holder
Class and any other party at any time holding a Debenture of the same Holder
Class are referred to collectively as the "Holder Class Members."
(ii) If and for so long as the Cap Regulations are applicable to limit the
issuance of shares on conversion of the Debentures (but not thereafter), the
number of shares that the Company will issue to all Holder Class Members of a
specific Holder Class on conversion of the Debentures of that Holder Class
shall not, in the aggregate, exceed the Conversion Limit (as defined below).
(iii) As of the Closing Date, the term "Conversion Limit" means the number
of shares equal to (A) 19.99% of the number of outstanding shares of Common
Stock of the Company as of the Closing Date, which number is specified on
Annex V annexed hereto; provided, however, that such number is subject to
adjustment for subsequent stock splits, stock dividends and other similar
actions or transactions affecting the capital formation of the Company),
multiplied by (B) the relevant Holder Class Allocable Share (as defined below).
(iv) If, for any reason whatsoever, there are no Debentures of a specific
Holder Class outstanding (a "Closed Class"), the Company shall promptly give
written notice (the "Closed Class Notice") of such fact to the then holders of
outstanding Debentures of all other Holder Classes. The Closed Class Notice
shall (A) identify the date on which the Holder Class became a Closed Class,
and (B) specify both the number of shares issued, in the aggregate to all
Holder Class Members of the Closed Class (the "Closed Class Issued Shares")
and the most recent Conversion Limit that was applicable to the Closed Class
(the "Closed Class Conversion Limit"). The term "Remaining Shares" means the
excess, if any, of the Closed Class Conversion Limit over the Closed Class
Issued Shares.
(v) The Conversion Limit in effect on the Closing Date or as subsequently
adjusted as provided below shall be adjusted or further adjusted, as the case
may be, on the next date on which there is a new Closed Class which results in
Remaining Shares (a "Closed Class Date"). As of the Closed Class Date, the
Conversion Limit then in effect will be adjusted for each Holder Class as to
which there are still outstanding Debentures to be equal to the sum of (A) the
Conversion Limit in effect immediately prior to the Closed Date, plus (B) the
Remaining Share Conversion Limit (as defined below). The Conversion Limit, as
so adjusted, shall then be deemed to be the Conversion Limit for all Holder
Classes as to which Debentures are still outstanding on the relevant Closed
Class Date, subject to further adjustment, as provided in this subparagraph
(v) in the event there is a subsequent Closed Class Date.
(vi) The "Remaining Share Conversion Limit" means the number of shares
equal to (C) the Remaining Shares, multiplied by (D) the relevant Adjusted
Holder Class Allocable Share (as defined below).
(vii) The term "Holder Class Allocable Share" means the fraction of which
the numerator is the Original Debenture Amount of the relevant Holder Class
and the denominator is the aggregate Original Debenture Amount of all Holder
Classes.
(viii) The term "Adjusted Holder Class Allocable Share" means, with respect
to each Holder Class as to which there are outstanding Debentures on the
Closed Class Date, the fraction of which the numerator is the Original
Debenture Amount of the relevant Holder Class and the denominator is the
aggregate Original Debenture Amount of all Holder Classes as to which there
are there are outstanding Debentures on the Closed Class Date.
(ix) Nothing in this Section 4(j) shall be deemed to (A) permit a transfer
or assignment of the Debenture unless otherwise permitted by other provisions
of this Agreement or the Debenture or (B) limit or otherwise modify the
obligations of the Company to take certain actions or to make certain payments
to the Buyer or other parties (such as but not necessarily limited to, actions
with respect to the meeting contemplated by Section 4(d)(ii) hereof or
payments on redemption of the Debentures), or adversely affect the rights of
the Buyer or such other parties with respect thereto, as provided elsewhere in
this Agreement, the Debentures or any of the other Transaction Agreements.
k. Grant of Security Interest to Buyers.
(i) To secure its obligations to the Buyers and to all direct and indirect
permitted transferees and assignees of their interests in this Agreement and
the other Transaction Agreements, including, but not necessarily limited to,
the Debentures (any one or more of the Buyers and such transferees and
assignees individually and collectively referred to as the "Secured Party"),
the Company (sometimes referred to as the "Debtor") hereby grants, conveys,
transfers and assigns to the Secured Party a security interest in and to the
Collateral (as defined in Annex VII hereto) to the fullest extent permissible
under the Uniform Commercial Code or other governing security interests granted
by debtors or obligors to creditors or obligees as in effect in each
jurisdiction in which the Debtor's property may be found or deemed situate.
(ii) Solely for administrative convenience and not for any other purpose,
each Secured Party has designated Krieger & Prager LLP as agent for the
Secured Party for purposes of execution of and identification on any financing
statement or similar instrument referring to or describing the Collateral.
Such designation shall remain in effect until canceled by such Secured Party;
provided, however, that such cancellation shall not affect the validity of any
action theretofore taken by such agent pursuant to this provision. The Debtor
acknowledges and agrees to honor such designation.
(iii) Additional terms relating to the grant of this security interest are
specified in Annex VII annexed hereto, the terms of which are incorporated
herein by reference as if set forth herein in full.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the Purchase Price for
the Debentures in accordance with Section 1(c) hereof, the Company will
irrevocably instruct its transfer agent to issue Common Stock from time to
time upon conversion of the Debentures in such amounts as specified from time
to time by the Company to the transfer agent, bearing the restrictive legend
specified in Section 4(b) of this Agreement prior to registration of the
Shares under the 1933 Act, registered in the name of the Buyer or its nominee
and in such denominations to be specified by the Buyer in connection with each
conversion of the Debentures. The Company warrants that no instruction other
than such instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 4(a) hereof prior to registration and
sale of the Shares under the 1933 Act will be given by the Company to the
transfer agent and that the Shares shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement, and applicable law. Nothing in
this Section shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities. If
the Buyer provides the Company with an opinion of counsel reasonably
satisfactory to the Company that registration of a resale by the Buyer of any
of the Securities in accordance with clause (1)(B) of Section 4(a) of this
Agreement is not required under the 1933 Act, the Company shall (except as
provided in clause (2) of Section 4(a) of this Agreement) permit the transfer
of the Securities and, in the case of the Converted Shares or the Warrant
Shares, as the case may be, promptly instruct the Company's transfer agent to
issue one or more certificates for Common Stock without legend in such name
and in such denominations as specified by the Buyer.
b. Subject to the completeness and accuracy of the Buyer's
representations and warranties herein, upon the conversion of any Debentures
by a person who is a non-U.S. Person, and following the expiration of any then
applicable Restricted Period (as those terms are defined in Regulation S), the
Company, shall, at its expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue stock certificates without restrictive legend or stop orders in
the name of Buyer (or its nominee (being a non-U.S. Person) or such non-U.S.
Persons as may be designated by Buyer) and in such denominations to be
specified at conversion representing the number of shares of Common Stock
issuable upon such conversion, as applicable. Nothing in this Section 5,
however, shall affect in any way Buyer's or such nominee's obligations and
agreement to comply with all applicable securities laws upon resale of the
Securities.
c. Subject to the provisions of this Agreement, the Company will permit
the Buyer to exercise its right to convert the Debentures in the manner
contemplated by the Debentures.
d. The Company understands that a delay in the issuance of the Shares of
Common Stock beyond the Delivery Date (as defined in the Debentures) could
result in economic loss to the Buyer. As compensation to the Buyer for such
loss, the Company agrees to pay late payments to the Buyer for late issuance
of Shares upon Conversion in accordance with the following schedule (where
"No. Business Days Late" is defined as the number of business days beyond the
Delivery Date):
Late Payment For Each
$10,000 of Debenture Principal
No. Business Days Late Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Buyer's right to
pursue actual damages for the Company's failure to issue and deliver the
Common Stock to the Buyer. Furthermore, in addition to any other remedies
which may be available to the Buyer, in the event that the Company fails for
any reason to effect delivery of such shares of Common Stock by close of
business on the Delivery Date, the Buyer will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company, whereupon the Company and the Buyer shall each be restored to their
respective positions immediately prior to delivery of such Notice of
Conversion.
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:
Sichenzia Ross & Friedman
135 West 50th Street, 20th Floor
New York, NY 10020
Attn: Gregory Sichenzia, Esq.
Telephone No.: (212) 664-1200
Telecopier No.: (212) 664-7329
BUYER: At the address set forth on the signature page of this Agreement.
with a copy to:
Krieger & Prager LLP, Esqs.
39 Broadway, Suite 1440
New York, NY 10006
Attn: Samuel Krieger, Esq.
New York, New York 10016
Telephone No.: (212) 363-2900
Telecopier No.: (212) 363-2999
ESCROW AGENT: Krieger & Prager LLP, Esqs.
39 Broadway, Suite 1440
New York, NY 10006
Attn: Samuel Krieger, Esq.
New York, New York 10016
Telephone No.: (212) 363-2900
Telecopier No.: (212) 363-2999
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Buyer's representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Debentures and payment of
the Purchase Price, and shall inure to the benefit of the Buyer and the
Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
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 January, 2000.
________________________________ ______________________________
Address Printed Name of Subscriber
________________________________
By: __________________________
________________________________ (Signature of Authorized Person)
Telecopier No. _________________ ______________________________
________________________________ Printed Name and Title
________________________________
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its
behalf.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: ____________________________
Title: President & CEO
Date: ____________________
Investors:
Amro International S.A. $500,000.00
The Endeavour Capital Fund S.A. $500,000.00
Esquire Trade and Finance $125,000.00
Austinvest Anstalt Balzers $125,000.00
______________
Total Original Debentures $1,250,000.00
EXHIBIT 4.2
ANNEX I
TO
SECURITIES PURCHASE AGREEMENT
<PROTOTYPE FOR EACH ISSUANCE>
FORM OF DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD,
PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO
REGISTRATION OR EXEMPTION OR SAFE HARBOR THEREFROM.
NNo. 00E- US $
Holder Class:
AMERICAN CHAMPION ENTERTAINMENT, INC.
7% CONVERTIBLE DEBENTURE DUE DECEMBER 31, 2002
THIS DEBENTURE is one of a duly authorized issue of up to $1,250,000 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 December 31, 2002 (the "Maturity Date")
and to pay interest on the principal sum outstanding from time to time in
arrears (i) semi-annually, on the last day of June and December of each year
prior to the Maturity Date, (ii) upon conversion as provided herein or (iii)
on the Maturity Date, at the rate of 7% per annum accruing from the date of
initial issuance of this Debenture. Accrual of interest shall commence on the
first such business day to occur after the date hereof and shall continue to
accrue on a daily basis until payment in full of the principal sum has been
made or duly provided for. Subject to the provisions of Section 4 below (the
terms of which shall govern as if this sentence were not included in this
Debenture), prior to the Maturity Date, interest on this Debenture is payable,
at the option of the Company, in shares of Common Stock of the Company, $.0001
par value ("Common Stock") at the Conversion Rate (as defined below) in effect
on the date of payment, or in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts, at the address last appearing on the Debenture Register of the
Company as designated in writing by the Holder from time to time.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Debentures are exchangeable
for an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments, and Holder shall
execute and deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws and the terms of the Securities
Purchase Agreement (defined below). In the event of any proposed transfer of
this Debenture, the Company may require, prior to issuance of a new Debenture
in the name of such other person, that it receive reasonable transfer
documentation including legal opinions that the issuance of the Debenture in
such other name does not and will not cause a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
4. A. The Holder of this Debenture is entitled, at its option,
subject to the following provisions of this Section 4, to convert this
Debenture at any time into shares of Common Stock of the Company at a
conversion price for each share of Common Stock ("Conversion Rate") equal to
the lower of (i) eighty-two and one-half percent (82.5%) of the Market Price
(as defined below) on the Conversion Date (as defined below) or (ii) one
hundred percent (100%) of the Market Price on the Closing Date (as defined in
the Securities Purchase Agreement). B. Conversion shall be effectuated
by faxing a Notice of Conversion (as defined below) to the Company and the
Company's transfer agent, Continental Stock Transfer & Trust Company, 2
Broadway, New York, NY 10004, telephone (212) 509-4000, facsimile (212)
509-5150, executed by the Holder of this Debenture evidencing such Holder's
intention to convert this Debenture or a specified portion hereof in the form
annexed hereto as Exhibit A. Interest accrued or accruing from the date of
issuance to the date of conversion or to the date contemplated by clause (i)
of the second paragraph of this Debenture shall, at the option of the Holder,
be paid in cash or Common Stock at the Conversion Rate then applicable as of
the Conversion Date or the periodic interest payment date, as the case may be.
No fractional shares of Common Stock or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall
be rounded to the nearest whole share. The date on which notice of conversion
is given (the "Conversion Date") shall be deemed to be the date on which the
Holder faxes or otherwise delivers the conversion notice ("Notice of
Conversion") to the Company so that it is received by the Company on or before
such specified date, provided that, if such conversion would convert the
entire remaining principal of this Debenture, the Holder shall deliver to the
Company the original Debentures being converted no later than five (5)
business days thereafter. Facsimile delivery of the Notice of Conversion
shall be accepted by the Company at facsimile number (408) 288-8098; Attn:
Anthony K. Chan, President. Certificates representing Common Stock upon
conversion will be delivered to the Holder at the address specified in the
Notice of Conversion (which may be the Buyer's address for notices as
contemplated by Section 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 (such fifth business day or seventh business day, as the case
may be, the "Delivery Date") after (i) the date on which the Notice of
Conversion is delivered to the Company as contemplated in this paragraph B or
(ii) the date an interest payment on this Debenture, which the Company has
elected to pay by the issuance of Common Stock, as contemplated herein, was
due.
C. For purposes of this Debenture, the term "Market Price" means the
average closing bid price of the Common Stock for the lowest three (3)
trading days (which need not be consecutive) during the ten (10) 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.
D. Any principal amount of this Debenture not previously converted or
redeemed as of the Maturity Date, shall be deemed to be automatically
converted, without further action of any kind (including, but not necessarily
limited to, the giving of a Notice of Conversion) by the Holder, as of the
Maturity Date at the Conversion Rate applicable on the Maturity Date
("Mandatory Conversion").
E. Notwithstanding any other provision hereof, of the Warrants or of any
of the other Transaction Agreements (as those terms are defined in the
Securities Purchase Agreement), in no event (except (i) with respect to an
automatic conversion, if any, of a Debenture as provided in the Debentures,
(ii) as specifically provided in this Debenture as an exception to this
provision, or (iii) while there is outstanding a tender offer for any or all
of the shares of the Company's Common Stock) shall the Holder be entitled to
convert any Debenture, or shall the Company have the obligation to convert all
or any portion of this Debenture (and the Company shall not have the right to
pay interest on this Debenture), to the extent that, after such conversion,
the sum of (1) the number of shares of Common Stock beneficially owned by the
Holder and its affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unconverted portion of
the Debentures or unexercised portion of the Warrants), and (2) the number of
shares of Common Stock issuable upon the conversion of the Debentures with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 9.99% of
the outstanding shares of Common Stock (after taking into account the shares
to be issued to the Holder upon such conversion). For purposes of the proviso
to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), except as otherwise provided in clause (1)
of such sentence. The Holder, by its acceptance of this Debenture, further
agrees that if the Holder transfers or assigns any of the Debentures to a
party who or which would not be considered such an affiliate, such assignment
shall be made subject to the transferee's or assignee's specific agreement to
be bound by the provisions of this Section 4(E) as if such transferee or
assignee were the original Holder hereof. Nothing herein shall preclude the
Holder from disposing of a sufficient number of other shares of Common Stock
beneficially owned by the Holder so as to thereafter permit the continued
conversion of this Debenture.
5. A. In the event the trading price of the Common Stock is below
fifty cents ($0.50) for fifteen (15) consecutive trading days (the fifteenth
trading day, the "Special Redemption Right Effective Date"), then, beginning
on the following trading day and continuing for as long as such trading price
remains below such level, the Company will have the right to redeem all or any
part of this Debenture in cash for the Special Redemption Price (as defined
below) in accordance with the terms of this Section 5.
B. The term "Special Redemption Price" means the sum of (i) the
outstanding principal of the Debenture multiplied by the Applicable Percentage
(as defined below) and (ii) the accrued interest through the Special
Redemption Payment Date (as defined below).
C. The term "Applicable Percentage" means, if the Special Redemption
Payment Date is (i) within thirty (30) days of the Special Redemption Right
Effective Date, one hundred five percent (105%); (ii) more than thirty (30)
and within sixty (60) days after the Special Redemption Right Effective Date,
one hundred ten percent (110%); (iii) more than sixty (60) and within ninety
(90) days after the Special Redemption Right Effective Date, one hundred
fifteen percent (115%); and (iv) after ninety (90) days after the Special
Redemption Right Effective Date, one hundred twenty percent (120%).
D. The Company shall give at least ten (10) business days' written notice
of such redemption to the Holder (the "Special Notice of Redemption"). The
date so specified in such Special Notice of Redemption shall be the Special
Redemption Payment Date. Anything in the preceding provisions of this Section
5 to the contrary notwithstanding, the Special Redemption Price shall, unless
otherwise agreed to in writing by the Holder after receiving the Special
Notice of Redemption, be paid to the Holder in good funds at least five (5)
but not more than ten (10) business days from the date of the Special Notice
of Redemption, except that, with respect to any Debentures for which a
Special Notice of Redemption is given, the Holder shall have the right,
exercisable by giving a Notice of Conversion is submitted to the Company
within five (5) business days of the Holder's receipt of the Company's Special
Notice of Redemption, to convert any or all of the Debentures sought to be
redeemed (a "Special Redemption Notice Conversion") and the Special
Redemption Notice Conversion shall take precedence over the redemption
contemplated by the Special Notice of Redemption. Such Debentures shall be
converted in accordance with the terms hereof, except that Section 4(E) shall
not apply to a Special Redemption Notice Conversion. Furthermore, in the
event such Special Redemption Price payment is not timely made, the Special
Notice of Redemption shall be null and void and any rights of the Company to
redeem outstanding Debentures under this Section 5 shall terminate. Any
redemption contemplated by this Debenture shall be made only in cash by the
payment of immediately available good funds to the Holder.
6. The Holder recognizes that the Company may be limited in the number of
shares of Common Stock it may issue (a) by virtue of (i) the number of
authorized shares, or (ii) the applicable rules and regulations of the
principal securities market on which the Common Stock is listed or traded,
including, but not necessarily limited to, NASDAQ Rule 4310(c)(25)(H)
(collectively, the "Cap Regulations") or (b) the provisions of Section 4(j) of
the Securities Purchase Agreement (collectively, with the Cap Regulations, the
"Issuance Limitations"). Without limiting the other provisions hereof, (w)
the Company will take all steps reasonably necessary to be in a position to
issue shares of Common Stock on conversion of the Debentures without violating
the Cap Regulations and (x) if, despite taking such steps, the Company still
can not issue such shares of Common Stock without violating the Issuance
Regulations, the Holder of this Debenture (to the extent the same can not be
converted in compliance with the Issuance Regulations (an "Unconverted
Debenture"), shall have the right to require the Company to redeem each
Unconverted Debenture for an amount (the "Cap Redemption Amount"), payable in
cash, equal to (y) one hundred twenty-five and 00/100 percent (125.0%) of the
principal of the Unconverted Debenture, plus (z) all accrued but unpaid
interest on the Debenture through the date of redemption (the "Cap Redemption
Date") specified in the notice from the Holder electing this remedy.
7. Subject to the terms of the Securities Purchase Agreement, dated
January , 2000 (the "Securities Purchase Agreement"), between the Company
and the Holder (or the Holder's predecessor in interest), no provision of this
Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture and all other Debentures now or hereafter issued
of similar terms are direct obligations of the Company.
8. A. The obligations of the Company under this Debenture are
secured under the terms of the Securities Purchase Agreement.
B. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
9. A. The Company agrees that for as long as this Debenture remains
outstanding, the Company will not, without the consent of the Holder, enter
into a merger (other than where the Company is the surviving entity) or
consolidation with another corporation or other entity or a sale or transfer
of all or substantially all of the assets of the Company to another person
(collectively, a "Sale"). If, with such consent, the Company enters into a
Sale and the holders of the Common Stock are entitled to receive stock,
securities or property in respect of or in exchange for Common Stock, then as
a condition of such Sale, the Company and any such successor, purchaser or
transferee will agree that the Debenture may thereafter be converted on the
terms and subject to the conditions set forth above into the kind and amount
of stock, securities or property receivable upon such merger, consolidation,
sale or transfer by a holder of the number of shares of Common Stock into
which this Debenture might have been converted immediately before such merger,
consolidation, sale or transfer, subject to adjustments which shall be as
nearly equivalent as may be practicable. In the event of any such proposed
Sale, (i) the Holder hereof shall have the right to convert by delivering a
Notice of Conversion to the Company within fifteen (15) days of receipt of
notice of such Sale from the Company, but (ii) in the event the Holder hereof
shall elect not to convert, the Company may, on three days' advance written
notice to the Holder, prepay all outstanding principal and accrued interest on
this Debenture by paying to the Holder an amount (the "Redemption Amount", in
available good funds, equal to the sum of (a) one hundred twenty-five and
00/100 percent (125.0%) of the outstanding principal of this Debenture plus
(b) all accrued but unpaid interest thereon through the date such payment is
paid to the Holder, less all amounts required by law to be deducted, upon
which tender of payment following such notice, the right of conversion shall
terminate.
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 9 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.
10. The Company agrees that for as long as this Debenture remains
outstanding, the Company will not, without the consent of the Holder, spin off
or otherwise divest itself of a part of its business or operations or dispose
all or of a part of its assets in a transaction (the "Spin Off") in which the
Company does not receive compensation for such business, operations or assets,
but causes securities of another entity (the "Spin Off Securities") to be
issued to security holders of the Company. If, for any reason, prior to the
Conversion Date or the Redemption Payment Date, the Company, with the consent
of the Holder, consummates a Spin Off, then the Company shall cause (i) to be
reserved Spin Off Securities equal to the number thereof which would have been
issued to the Holder had all of the Holder's Debentures outstanding on the
record date (the "Record Date") for determining the amount and number of Spin
Off Securities to be issued to security holders of the Company (the
"Outstanding Debentures") been converted as of the close of business on the
trading day immediately before the Record Date (the "Reserved Spin Off
Shares"), and (ii) to be issued to the Holder on the conversion of all or any
of the Outstanding Debentures, such amount of the Reserved Spin Off Shares
equal to (x) the Reserved Spin Off Shares multiplied by (y) a fraction, of
which (I) the numerator is the principal amount of the Outstanding Debentures
then being converted, and (II) the denominator is the principal amount of the
Outstanding Debentures.
11. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of
its Common Stock or issues a dividend on its Common Stock consisting of shares
of Common Stock, the Market Price as of the Closing Date shall be equitably
adjusted to reflect such action. By way of illustration, and not in
limitation, of the foregoing (i) if the Company effectuates a 2:1 split of its
Common Stock, thereafter, with respect to any conversion for which the Company
issues the shares after the record date of such split, the Market Price as of
the Closing Date shall be deemed to be one-half of what it had been calculated
to be immediately prior to such split; (ii) if the Company effectuates a 1:10
reverse split of its Common Stock, thereafter, with respect to any conversion
for which the Company issues the shares after the record date of such reverse
split, the Market Price as of the Closing Date shall be deemed to be ten times
what it had been calculated to be immediately prior to such split; and (iii)
if the Company declares a stock dividend of one share of Common Stock for
every 10 shares outstanding, thereafter, with respect to any conversion for
which the Company issues the shares after the record date of such dividend,
the Market Price as of the Closing Date shall be deemed to be the amount of
such Market Price calculated immediately prior to such record date multiplied
by a fraction, of which the numerator is the number of shares (10) for which a
dividend share will be issued and the denominator is such number of shares
plus the dividend share(s) issuable or issued thereon (11).
12. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Debenture or the Shares of Common
Stock issuable upon conversion thereof except under circumstances which will
not result in a violation of the Act or any applicable state Blue Sky or
foreign laws or similar laws relating to the sale of securities.
13. This Debenture shall be governed by and construed in accordance with
the laws of the State of Delaware. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of Wilmington or the state courts of the State of Delaware sitting in the
City of Wilmington in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non coveniens, to the bringing of any
such proceeding in such jurisdictions. To the extent determined by such court,
the Company shall reimburse the Holder for any reasonable legal fees and
disbursements incurred by the Holder in enforcement of or protection of any of
its rights under any of this Debenture.
14. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or interest on
this Debenture and same shall continue for a period of five (5) business days;
or
b. Any of the representations or warranties made by the Company herein,
in the Securities Purchase Agreement, the Registration Rights Agreement (as
defined in the Securities Purchase Agreement) or in any certificate or
financial or other written statements heretofore or hereafter furnished by the
Company in connection with the execution and delivery of this Debenture or the
Securities Purchase Agreement shall be false or misleading in any material
respect at the time made; or
c: Subject to the terms of the Securities Purchase Agreement, the Company
fails to authorize or to cause its Transfer Agent to issue shares of Common
Stock upon exercise by the Holder of the conversion rights of the Holder in
accordance with the terms of this Debenture, fails to transfer or to cause its
Transfer Agent to transfer any certificate for shares of Common Stock issued
to the Holder upon conversion of this Debenture and when required by this
Debenture or the Registration Rights Agreement, and such transfer is otherwise
lawful, or fails to remove any restrictive legend on any certificate or fails
to cause its Transfer Agent to remove such restricted legend, in each case
where such removal is lawful, as and when required by this Debenture, the
Agreement or the Registration Rights Agreement, and any such failure shall
continue uncured for five (5) business days; or
d. The Company shall fail to perform or observe, in any material respect,
any other covenant, term, provision, condition, agreement or obligation of any
Debenture in this series and such failure shall continue uncured for a period
of thirty (30) days after written notice from the Holder of such failure; or
e. The Company shall fail to perform or observe, in any material respect,
any covenant, term, provision, condition, agreement or obligation of the
Company under the Securities Purchase Agreement or the Registration Rights
Agreement and such failure shall continue uncured for a period of thirty (30)
days after written notice from the Holder of such failure (other than a
failure to cause the Registration Statement to become effective no later than
the Required Effective Date, as defined and provided in the Registration
Rights Agreement, as to which no such cure period shall apply); or
f. The Company shall (1) admit in writing its inability to pay its debts
generally as they mature; (2) make an assignment for the benefit of creditors
or commence proceedings for its dissolution; or (3) apply for or consent to
the appointment of a trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
g. A trustee, liquidator or receiver shall be appointed for the Company
or for a substantial part of its property or business without its consent and
shall not be discharged within sixty (60) days after such appointment; or
h. Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company
and shall not be dismissed within sixty (60) days thereafter; or
i. Any money judgment, writ or warrant of attachment, or similar process
in excess of Two Hundred Thousand ($200,000) Dollars in the aggregate shall be
entered or filed against the Company or any of its properties or other assets
and shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty
(60) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
j. Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution or the Company shall by any action or answer approve
of, consent to, or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such
proceeding; or
k. The Company shall have its Common Stock suspended or delisted from an
exchange or over-the-counter market from trading for in excess of ten (10)
trading days.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
15. Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect of any meeting of shareholders or
any rights whatsoever as a shareholder of the Company, unless and to the
extent converted in accordance with the terms hereof.
16. In the event for any reason, any payment by or act of the Company or
the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, then ipso facto the obligation of the Company to pay interest
or perform such act or requirement shall be reduced to the limit authorized
under such law, so that in no event shall the Company be obligated to pay any
such interest, perform any such act or be bound by any requirement which would
result in the payment of interest in excess of the limit so authorized. In
the event any payment by or act of the Company shall result in the extraction
of a rate of interest in excess of a sum which is lawfully collectible as
interest, then such amount (to the extent of such excess not returned to the
Company) shall, without further agreement or notice between or by the Company
or the Holder, be deemed applied to the payment of principal, if any,
hereunder immediately upon receipt of such excess funds by the Holder, with
the same force and effect as though the Company had specifically designated
such sums to be so applied to principal and the Holder had agreed to accept
such sums as an interest-free prepayment of this Debenture. If any part of
such excess remains after the principal has been paid in full, whether by the
provisions of the preceding sentences of this Section 16 or otherwise, such
excess shall be deemed to be an interest-free loan from the Company to the
Holder, which loan shall be payable immediately upon demand by the Company.
The provisions of this Section 16 shall control every other provision of this
Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized.
Dated: __________________, 2000
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: __________________________
Anthony K. Chan
(Print Name)
President & CEO
(Title)
EXHIBIT A
NOTICE OF CONVERSION
OF
7% CONVERTIBLE DEBENTURE DUE DECEMBER , 2002
(To be Executed by the Registered Holder in order to Convert the
Debenture)
The undersigned hereby irrevocably elects to convert $
________________ of the principal
amount of the above Debenture No. ___ into Shares of Common Stock of
AMERICAN CHAMPION ENTERTAINMENT, INC. (the "Company") according to the
conditions thereof, as of the date written below.
Conversion Date*
___________________________________________________________________
Applicable Conversion Price
__________________________________________________________
Signature
__________________________________________________________________________
[Name]
__________________________________________
Address:
__________________________________________________________________________
__________________________________________________________________________
* If this Notice of Conversion represents conversion of the outstanding
principal balance of the Debenture, the original Debenture must be received by
the Company or its transfer agent by the fifth business date following the
Conversion Date.
EXHIBIT 4.3
ANNEX VI
TO
SECURITIES PURCHASE AGREEMENT
<PROTOTYPE FOR EACH ISSUANCE>
FORM OF WARRANT
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT, A "NO ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH
RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF
THE SECURITIES AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH
REGISTRATION.
AMERICAN CHAMPION ENTERTAINMENT, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions.
In consideration of good and valuable consideration, the receipt of which is
hereby acknowledged by AMERICAN CHAMPION ENTERTAINMENT, INC. a Delaware
corporation (the "Company"), 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, 2003 (the
"Expiration Date"), Thousand ( ) fully paid
and nonassessable shares of the Company's Common Stock, par value $.0001 per
share (the "Common Stock") at an initial exercise price per share (the
"Exercise Price") of $ , subject to further adjustment as set
forth herein.
2. Exercise of Warrants.
2.1 General. This Warrant is exercisable in whole or in part at any time
and from time to time at the Exercise Price per share of Common Stock payable
hereunder, payable in cash or by certified or official bank check. Upon
surrender of this Warrant Certificate with the annexed Notice of Exercise Form
duly executed (which Notice of Exercise Form may be submitted either by
delivery to the Company or by facsimile transmission as provided in Section 8
hereof), together with payment of the Exercise Price for the shares of Common
Stock purchased, the Holder shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased.
2.2 Limitation on Exercise. Notwithstanding the provisions of this
Warrant, Securities Purchase Agreement, dated January , 2000 (the
"Securities Purchase Agreement"), between the Company and the Holder (or the
Holder's predecessor in interest) or of the other Transaction Agreements (as
defined in the Securities Purchase Agreement), in no event (except (i) with
respect to an automatic conversion, if any, of a Debenture as provided in the
Debentures, (ii) as specifically provided in this Warrant as an exception to
this provision, or (iii) while there is outstanding a tender offer for any or
all of the shares of the Company's Common Stock) shall the Holder be entitled
to exercise this Warrant, or shall the Company have the obligation to issue
shares upon such exercise of all or any portion of this Warrant, to the extent
that, after such exercise the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Debentures or unexercised portion of the
Warrants), and (2) the number of shares of Common Stock issuable upon the
exercise of the Warrants with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Holder and
its affiliates of more than 9.99% of the outstanding shares of Common Stock
(after taking into account the shares to be issued to the Holder upon such
exercise). For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), except as
otherwise provided in clause (1) of such sentence. The Holder, by its
acceptance of this Warrant, further agrees that if the Holder transfers or
assigns any of the Warrants to a party who or which would not be considered
such an affiliate, such assignment shall be made subject to the transferee's
or assignee's specific agreement to be bound by the provisions of this Section
2.2 as if such transferee or assignee were the original Holder hereof.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and
deliver a new Warrant of like tenor and date and any such lost, stolen,
destroyed or mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise Price is
required pursuant to this Section 6, the Holder shall be entitled to purchase
such number of additional shares of Common Stock as will cause (i) the total
number of shares of Common Stock Holder is entitled to purchase pursuant to
this Warrant, multiplied by (ii) the adjusted Exercise Price per share, to
equal (iii) the dollar amount of the total number of shares of Common Stock
Holder is entitled to purchase before adjustment multiplied by the total
Exercise Price before adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment affecting the Common Stock
of the Company, the provisions of this Section 6 shall be applied as if such
capital adjustment event had occurred immediately prior to the date of this
Warrant and the original Exercise Price had been fairly allocated to the stock
resulting from such capital adjustment; and in other respects the provisions
of this Section shall be applied in a fair, equitable and reasonable manner so
as to give effect, as nearly as may be, to the purposes hereof. A rights
offering to stockholders shall be deemed a stock dividend to the extent of the
bargain purchase element of the rights.
6.3 Adjustment for Spin Off. If, for any reason, prior to the exercise of
this Warrant in full, the Company spins off or otherwise divests itself of a
part of its business or operations or disposes all or of a part of its assets
in a transaction (the "Spin Off") in which the Company does not receive
compensation for such business, operations or assets, but causes securities of
another entity (the "Spin Off Securities") to be issued to security holders of
the Company, then
(a) the Company shall cause (i) to be reserved Spin Off Securities equal to
the number thereof which would have been issued to the Holder had all of the
Holder's unexercised Warrants outstanding on the record date (the "Record
Date") for determining the amount and number of Spin Off Securities to be
issued to security holders of the Company (the "Outstanding Warrants") been
exercised as of the close of business on the trading day immediately before
the Record Date (the "Reserved Spin Off Shares"), and (ii) to be issued to the
Holder on the exercise of all or any of the Outstanding Warrants, such amount
of the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (I) the numerator is the amount of the
Outstanding Warrants then being exercised, and (II) the denominator is the
amount of the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be adjusted
immediately after consummation of the Spin Off by multiplying the Exercise
Price by a fraction (if, but only if, such fraction is less than 1.0), the
numerator of which is the Average Market Price of the Common Stock (as defined
below) for the five (5) trading days immediately following the fifth trading
day after the Record Date, and the denominator of which is the Average Market
Price of the Common Stock on the five (5) trading days immediately preceding
the Record Date; and such adjusted Exercise Price shall be deemed to be the
Exercise Price with respect to the Outstanding Warrants after the Record Date.
As used herein, the term "Average Market Price of the Common Stock" means the
average closing bid price of a share of Common Stock, as reported by
Bloomberg, LP or, if not so reported, as reported on the over-the-counter
market for the relevant period.
7. Transfer to Comply with the Securities Act; Registration Rights.
(a) This Warrant has not been registered under the Securities Act of 1933, as
amended, (the "Act") and has been issued to the Holder for investment and not
with a view to the distribution of either the Warrant or the Warrant Shares.
Neither this Warrant nor any of the Warrant Shares or any other security
issued or issuable upon exercise of this Warrant may be sold, transferred,
pledged or hypothecated in the absence of an effective registration statement
under the Act relating to such security or an opinion of counsel satisfactory
to the Company that registration is not required under the Act. Each
certificate for the Warrant, the Warrant Shares and any other security issued
or issuable upon exercise of this Warrant shall contain a legend on the face
thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this Section.
(b) Reference is made to the Registration Rights Agreement of even date
herewith, to which the Company and the Holder (or Holder's direct or indirect
assignor, if any) are parties (the "Registration Rights Agreement"). The
Warrant Shares are Registrable Securities, as that term is used in the
Registration Rights Agreement. Subject to the provisions of the Registration
Rights Agreement, the Company agrees to file an amendment, which shall
include the Warrant Shares, to its registration statement on Form S-3 (as so
amended, the "Registration Statement"), pursuant to the Act, by the Required
Filing Date and to have the registration of the Warrant Shares completed and
effective by the Required Effective Date (as those terms are defined in the
Registration Rights Agreement).
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails,
as follows:
(i) if to the Company, to:
AMERICAN CHAMPION ENTERTAINMENT, INC.
1694 The Alameda, Suite 100
San Jose, CA 95126-2219
Attn: Anthony K. Chan, President
Telephone No.: (408) 288-8199
Telecopier No.: (408) 288-8098
with a copy to:
Sichenzia Ross & Friedman
135 West 50th Street, 20th Floor
New York, NY 10020
Attn: Gregory Sichenzia, Esq.
Telephone No.: (212) 664-1200
Telecopier No.: (212) 664-7329
(ii) if to the Holder, to:
ATTN:
Telephone No.: ( ) -
Telecopier No.: ( ) -
with a copy to:
Krieger & Prager LLP, Esqs.
39 Broadway
Suite 1440
New York, NY 10006
Attn: Samuel Krieger, Esq.
New York, New York 10016
Telephone No.: (212) 363-2900
Telecopier No. (212) 363-2999
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. Cashless Exercise. Any other provision of this Warrant to the
contrary notwithstanding, if the Effective Date of the Registration Statement
has not occurred on or before the first anniversary of the Closing Date, the
Holder will have the right (in addition to any other rights contemplated by
the Transaction Agreements) to exercise any remaining unexercised portion of
this Warrant (subject, however, to the provisions of Section 2.2 hereof) by
means of "cashless exercise." If the Holder elects a "cashless" exercise, the
Holder shall thereby be entitled to receive a number of shares of Common Stock
equal to (x) the excess of the Current Market Value (as defined below) over
the total cash exercise price of the portion of the Warrant then being
exercised, divided by (y) the Market Price of the Common Stock as of the
Conversion Date. For the purposes of this Section 9, "Current Market Value"
shall be an amount equal to the Market Price of the Common Stock as of the
Conversion Date, multiplied by the number of shares of Common Stock specified
in such Notice of Exercise Form.
10. 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.
11. 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.
12. 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.
13. 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 , 2000.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:_________________________________
Name: Anthony K. Chan
Its: President & CEO
Attest:
________________________
Name: George Chung
Title: Chairman of the Board
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of
, 2000, to purchase shares of the Common Stock, par value
$.0001 per share, of AMERICAN CHAMPION ENTERTAINMENT, INC. and tenders
herewith payment in accordance with Section 1 of said Common Stock
Purchase Warrant.
Please deliver the stock certificate to:
Dated:
By:
___ CASH:$_____________
___ CASHLESS1
Ten thousand (10,000) for every $100,000 principal of Debentures purchased.
Price to be filled in equal to 125% of average closing bid price of Common
Stock for 3 lowest trading days (which need not be consecutive) of 10 trading
days ending on date before Closing Date. Available only if Section 9 is
applicable.
EXHIBIT 5.1
SICHENZIA, ROSS & FRIEDMAN LLP
Attorneys At Law
135 West 50th Street, 20th Floor
New York, New York 10020
_____________________
Telephone: (212) 664-1200
Facsimile: (212) 664-7329
E-Mail: [email protected]
February 15, 2000
VIA ELECTRONIC TRANSMISSION
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: American Champion Entertainment, Inc.
Form S-3 Registration Statement
Ladies and Gentlemen:
We refer to the above-captioned registration statement on Form S-3 (the
?Registration Statement?) under the Securities Act of 1933, as amended (the
?Act?), filed by American Champion Entertainment, Inc., a Delaware corporation
(the ?Company?), with the Securities and Exchange Commission.
We have examined the originals, photocopies, certified copies or other
evidence of such records of the Company, certificates of officers of the
Company and public officials, and other documents as we have deemed relevant
and necessary as a basis for the opinion hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as certified copies or
photocopies and the authenticity of the originals of such latter documents.
Based on our examination mentioned above, we are of the opinion that the
securities being registered to be sold pursuant to the Registration Statement
are duly authorized and will be, when sold in the manner described in the
Registration Statement, legally and validly issued, and fully paid and
nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm in the section ALegal
Matters in the Registration Statement. In giving the foregoing consent, we
do not hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Act, or the rules and regulations of the
Securities and Exchange Commission.
Very truly yours,
/s/ Sichenzia, Ross & Friedman LLP
Sichenzia, Ross & Friedman, LLP
EXHIBIT 23.2
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement of
American Champion Entertainment, Inc. on Form S-8 of our reports on the
consolidated financial statements of American Champion Entertainment, Inc. and
its subsidiaries dated February 11, 1998 and March 11, 1999 (except for note
21, as to which the date is November 11, 1999), appearing in the Annual
Reports on Form 10-KSB and 10-KSB/A of American Champion Entertainment, Inc.
for the years ended December 31, 1997 and December 31, 1998. We also consent
to the reference to us under the caption "Experts".
San Francisco, California
February 15, 2000
