SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, For Use
of the Commission Only
(As Permitted by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AMERICAN CHAMPION ENTERTAINMENT, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
AMERICAN CHAMPION ENTERTAINMENT, INC.
1694 The Alameda, Suite 100, San Jose, CA 95126
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 8, 2000
San Jose,
California
June 16, 2000
The Annual Meeting of Stockholders of American Champion Entertainment, Inc.
(the "Company"), a Delaware corporation and holding company for America's Best
Karate, a California corporation, which wholly owns American Champion Media,
Inc., a Delaware corporation ("AC Media"), which wholly owns American Champion
Marketing Group, Inc. ("ACMG"), will be held at the company's headquarters at
1694 The Alameda, Suite 100, San Jose, California on Friday, September 8,
2000, at 7:00pm, for the following purposes:
1. To elect seven directors to the Corporation's Board of Directors, each
to hold office until his successor is elected and qualified or until his
earlier resignation or removal (Proposal No. 1); and
2. To approve the Private Equity Line of Credit Agreement dated April 12,
2000 and closed on May 9, 2000, for the future issuance and purchase of shares
of our common stock by Sibson Holdings, Ltd. (Proposal No. 2); and
3. To approve the acquisition of 80% the Beijing Wisdom Network
Technology Company, Ltd., through an exchange of stock and cash
between the two companies per terms in the agreement dated March
27, 2000 and all transactions contemplated thereby (Proposal No.
3); and
4. To ratify the appointment of Moss Adams LLP as the Company's
independent certified public accountants for the 2000 fiscal year
(Proposal No. 4); and
5. To transact such other business as may properly come before
the Annual Meeting and any adjournment or postponement thereof.
The foregoing items of business, including the nominees for
directors, are more fully described in the Proxy Statement which is
attached and made a part of this Notice.
The Board of Directors has fixed the close of business on July
21, 2000 as the record date for determining the stockholders entitled to
notice of and to vote at the Annual Meeting and any adjournment or
postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting in person.
However, whether or not you expect to attend the Annual Meeting in person, you
are urged to mark, date, sign and return the enclosed proxy card as promptly
as possible in the postage-prepaid envelope provided to ensure your
representation and the presence of a quorum at the Annual Meeting. If you send
in your proxy card and then decide to attend the Annual Meeting to vote your
shares in person, you may still do so. Your proxy is revocable in accordance
with the procedures set forth in the Proxy Statement.
By Order of the Board of Directors,
/s/ ANTHONY K. CHAN, SECRETRY
Anthony K. Chan, Secretary
IMPORTANT
---------
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE
OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND SO DESIRE,
YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON. THANK YOU FOR ACTING PROMPTLY
PROXY STATEMENT
OF
AMERICAN CHAMPION ENTERTAINMENT, INC.
1694 The Alameda
Suite 100
San Jose, CA 95126
GENERAL
This Proxy Statement is furnished in connection with the solicitation of the
enclosed proxy by, and on behalf of, the Board of Directors of American
Champion Entertainment, Inc. (the "Company"), a Delaware corporation and
holding company for America's Best Karate, a California corporation, which
wholly owns American Champion Media, Inc., a Delaware corporation ("AC
Media"), which wholly owns American Champion Marketing Group, Inc. ("ACMG"),
for use at the Annual Meeting of Stockholders of the Company to be held at the
company's headquarters at 1694 The Alameda, Suite 100, San Jose, California on
Friday, September 8, 2000, at 7:00pm, (the "Meeting"). Only stockholders of
record on July 21, 2000, (the "Record Date") will be entitled to vote at the
Meeting. At the close of business on the Record Date, the Company had
outstanding 7,013,631 [to be adjusted at filing of definitive proxy] shares of
its $0.0001 par value common stock (the "Common Stock").
Any person giving a proxy in the form accompanying this Proxy Statement has
the power to revoke it prior to its exercise. Any proxy given is revocable
prior to the Meeting by an instrument revoking it or by a duly executed proxy
bearing a later date delivered to the Secretary of the Company. Such proxy is
also revoked if the stockholder is present at the Meeting and elects to vote
in person.
The Company will bear the entire cost of preparing, assembling, printing and
mailing the proxy materials furnished by the Board of Directors to
stockholders. Copies of the proxy materials will be furnished to brokerage
houses, fiduciaries and custodians to be forwarded to the beneficial owners of
the Common Stock. In addition to the solicitation of proxies by use of the
mail, some of the officers, directors and regular employees of the Company may
(without additional compensation) solicit proxies by telephone or personal
interview, the costs of which the Company will bear.
This Proxy Statement and the accompanying form of proxy is being sent or given
to stockholders on or about August 1, 2000.
Stockholders of the Company's Common Stock are entitled to one vote for each
share held. Such shares may not be voted cumulatively.
Each validly returned proxy (including proxies for which no specific
instruction is given) which is not revoked will be voted "FOR" each of the
proposals as described in this Proxy Statement and, at the proxy holders'
discretion, on such other matters, if any, which may come before the Meeting
(including any proposal to adjourn the Meeting).
Determination of whether a matter specified in the Notice of Annual Meeting of
Stockholders has been approved will be determined as follows. Those persons
will be elected directors who receive a plurality of the votes cast at the
Meeting in person or by proxy and entitled to vote on the election.
Accordingly, abstentions or directions to withhold authority will have no
effect on the outcome of the vote. For each other matter specified in the
Notice of Annual Meeting of Stockholders, the affirmative vote of a majority
of the shares of Common Stock present at the Meeting in person or by proxy and
entitled to vote on such matter is required for approval. Abstentions will be
considered shares present in person or by proxy and entitled to vote and,
therefore, will have the effect of a vote against the matter. Broker
non-votes will be considered shares not present for this purpose and will have
no effect on the outcome of the vote. Directions to withhold authority to
vote for directors, abstentions and broker non-votes will be counted for
purposes of determining whether a quorum is present for the Meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees
At the Annual Meeting, the stockholders will elect seven (7) directors
to serve until the next Annual Meeting of Stockholders or until their
respective successors are elected and qualified. The Company presently has
seven (7) directors; however, as provided in the Company's by-laws and its
subsequent amendments, the Company may increase the number of directors to a
total of fifteen (15) directors without amending its by- laws. In the event
any nominee is unable or unwilling to serve as a director at the time of the
Annual Meeting, the proxies may be voted for the balance of those nominees
named and for any substitute nominee designated by the present Board or the
proxy holders to fill such vacancy, or for the balance of the nominees named
without nomination of a substitute, or the size of the Board may be reduced in
accordance with the Bylaws of the Company. The Board has no reason to believe
that any of the persons named below will be unable or unwilling to serve as a
nominee or as a director if elected.
Assuming a quorum is present, the eight nominees receiving the highest number
of affirmative votes of shares entitled to be voted for them will be elected
as directors of the Company for the ensuing year. Unless marked otherwise,
proxies received will be voted "FOR" the election of each of the eight
nominees named below. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received
by them in such a manner as will ensure the election of as many of the
nominees listed below as possible, and, in such event, the specific nominees
to be voted for will be determined by the proxy holders.
Nominee Age Position with the Company Director Since
Anthony K. Chan 45 President, Chief Executive Officer 1997
and Director
George Chung 38 Chairman and Director 1997
William T. Duffy 44 Director 1997
Alan Elkes 54 Director 1997
E. David Gable 50 Director 1997
Jan D. Hutchins 51 Director 1997
Ronald M. Lott 40 Director 1997
The following information with respect to the principal occupation or
employment of each nominee for director, the principal business of the
corporation or other organization in which such occupation or employment is
carried on, and such nominee's business experience during the past five years,
has been furnished to the Company by the respective director nominees.
Anthony K. Chan. Mr. Chan has served as President, Chief Executive Officer,
and a Director of the Company since February 1997, and as Chief Executive
Officer and Chief Financial Officer of America's Best Karate since 1991. From
1985 to 1990, Mr. Chan served as the Director of Chinese Affairs for the
Eisenberg Company, a diversified business enterprise, where Mr. Chan's
principal duty was to negotiate contracts in the People's Republic of China.
Prior to 1985, Mr. Chan was employed by the Bank of America NT & SA as an
economic forecaster. Mr. Chan received his MBA from the University of
California at Berkeley. Mr. Chan's martial arts training began in 1968 in
Hong Kong. He was the first American allowed to train as a professional in
the People's Republic of China. He is a published author and has been
featured in newspapers, magazine covers, television and motion pictures. He
was inducted into the Black Belt Hall of Fame in 1981.
George Chung. Mr. Chung has served as Chairman of the Board and a Director of
the Company since February 1997, and as President of America's Best Karate
since 1991. From 1981 to 1991, Mr. Chung owned and operated a karate studio
in Los Gatos, California. Mr. Chung was inducted into the Black Belt Hall of
Fame in 1983. He is regarded in the martial arts industry as a pioneer in the
modernization of what is known as contemporary martial arts training, which
includes the use of music in both training and performance. He has been
featured in magazines, books, television and motion pictures. He is a
published author and wrote "Defend Yourself," a worldwide published
self-defense system for Sybervision Systems. In 1995, he was awarded a
"Superbowl Ring" from the San Francisco 49ers in recognition for his
outstanding martial arts work with their championship football team.
William T. Duffy. Mr. Duffy served as the Executive Vice President for the
Buffalo Bills in 1999, and had served as Vice-President of Business Operations
and Chief Financial Officer for the San Francisco 49ers from 1996 to 1998. He
was responsible for all non-football related business and provides financial
guidance and support for all the team's football related activities. Mr.
Duffy's previous experience has included serving as Director of Compliance for
the National Football League from October 1993 to May 1996, Treasurer of
Robbie Stadium Corporation from June 1990 to September 1993 and Director of
Finance of the Miami Dolphins from March 1988 to May 1990. Mr. Duffy, a CPA,
is a graduate of Princeton University and received his Masters of Accounting
from New York University.
Alan Elkes. Mr. Elkes has served as Chief Executive Officer of Dalton Kent
Securities Group, Inc., an investment banking and brokerage firm, since June
1996. From September 1994 to June 1996, Mr. Elkes served as Financial and
Operations Manager at a branch office of Corporate Securities Group Inc., an
investment banking and brokerage company. From February 1991 to September
1994, Mr. Elkes owned and operated Minuteman Press, a printing company. Mr.
Elkes began his career in the stock brokerage industry in 1968. He has an
MBA in accounting from St. Johns University in New York and is also a licensed
CPA in the State of New York.
E. David Gable. Mr. Gable, a veteran business leader and entrepreneur, is
Chairman, and a member of the Board of Directors of Carnegie International
Corporation (OTC BB:CAGI) since September 1996 and Chief Operating Officer
from May 1997 to March 1999. From 1988 to 1993 he served as a principal and
president of the All-Star Motor Group, where he helped to grow the company to
$400 million in sales and more than 600 employees. Carnegie is a holding
company specializing in internet, telephony and telecommunications products,
services and distribution, including electronic commerce and electronic
digital interchange. Under Mr. Gable's leadership, Carnegie reported total
income of $8.9 million for the first 6 months of fiscal 1998 ended June 30,
1998, versus $7 million total income for the 12 months ended December 31,
1997.
Jan D. Hutchins. Mr. Hutchins has served as President of AC Media, since
February 1997. From July 1994 to November 1995, Mr. Hutchins was one of a
four person management team for GolfPro International, an emerging company
designing and marketing a terrain- based, personal service robot. From 1993
to 1994, Mr. Hutchins was community services director for the San Francisco
Giants professional baseball team. From 1991 to 1993, Mr. Hutchins
developed, produced and hosted the HOOKED ON GOLF radio program for KNBR 68
in San Francisco. From 1972 to 1991, Mr. Hutchins served in various
capacities in the television field, including news anchor, sports director,
sports anchor/reporter and television host.
Ronald M. Lott. Mr. Lott spent 15 seasons in the National Football League,
playing for the San Francisco 49ers (1981-1990), Los Angeles Raiders
(1991-1992), New York Jets (1993-1994) and the Kansas City Chiefs (1995).
Mr. Lott was selected to play in the Pro Bowl 10 times and won four Superbowl
Championships with the San Francisco 49ers. In 1996, Mr. Lott joined FOX
Sports as a studio analyst and, along with James Brown, Howie Long and Terry
Bradshaw, won an Emmy for their pregame show, FOX NFL Sunday. Mr. Lott is
also very active in civic and community activities. He founded "All-Stars
Helping Kids," a non-profit charity to raise funds for youth organizations,
is involved with the national "Stay in School" program and hosts a number of
events such as golf tournaments and benefits to raise funds for worthwhile
causes. Mr. Lott is also the owner of Ronnie Lott's Club Fitness in San Jose
and Dream Sports, a sports marketing company.
No director or executive officer of the Company has any family
relationship with any other director or executive officer of the Company.
Directors serve until the next annual meeting of stockholders or until
their successors are elected and qualified. Officers serve at the discretion
of the Board of Directors.
Recommendation of the Board for Proposal No. 1:
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES NAMED ABOVE.
PROPOSAL NO. 2
APPROVAL OF A $5,000,000 PRIVATE EQUITY LINE OF CREDIT
At the Annual Meeting, the Company's stockholders are being asked to ratify
the Private Equity Line of Credit Agreement, and the exhibits thereto, dated
Sibson Holdings, Ltd. ("Sibson"), and the transactions contemplated thereby
(collectively the "Offering") including the equity line of credit for a
maximum of $5,000,000 and Common Stock purchase warrants pursuant to.
The following summarizes the terms of the Offering and is qualified in its
entirety by the Agreement itself and the exhibits thereto, a copy of which is
attached hereto as Appendix A and incorporated by reference herein.
Stockholders are encouraged to review the attached Agreement and its exhibits.
Pursuant to the authorization of the Board of Directors of the Company,
management of the Company negotiated and executed the Agreement pursuant to
which Sibson agreed under certain terms and conditions to invest up to
$5,000,000 into the Company by purchasing shares of our common stock over
period of up to 30 months. We may request a draw of that money, subject to a
formula based on the volume-weighted average common stock price and average
trading volume. At the end of a trading period following the draw down
request, we and Sibson will calculate the amount of money that Sibson will
provide to us and the number of shares we will issue to Sibson in return for
that money, based on the formula in the stock purchase agreement.
Sibson will receive a 15% discount to the average of the lowest three bid
prices for the common stock for the 21 trading-day period beginning 15 trading
days prior to and ending 5 trading days after the sale to Sibson and we will
receive the amount of the draw down less an escrow agent fee of $1,500 and a
7% cash placement fee payable to the placement agent, Union Atlantic, LC,
which introduced Sibson to us. Union Atlantic, LC is not obligated to purchase
any of our shares, but as an additional placement fee, we have issued to them
warrants to purchase 50,000 shares of our common stock at an exercise price of
$1.7325 per share. We also have issued to Sibson warrants to purchase 175,000
shares of our common stock at an exercise price of $1.7325 per share. We will
issue warrants to purchase an additional 6,500 shares of common stock,
exercisable at the bid price on the put date, to Sibson for each $100,000 of
the equity line that it funds.
Nasdaq Rule Requiring Stockholder Approval
Because the Company's Common Stock is listed on The Nasdaq SmallCap,
the Company is subject to the Nasdaq's corporate governance rules,
including Rule 4310(c)(25)(H)(i)(d)(2) (the "Nasdaq Rule") which provides
that an issuer must obtain stockholder approval for the sale or issuance
of common stock (or securities convertible into common stock) equal to 20%
or more of the common stock outstanding before the issuance for less than
the greater of book or market value of the stock. The conversion of the
Debentures and/or the exercise of the Warrants may be made at a price less
than the greater of book or market value of the stock and it is also
possible that the Debentures may be convertible and/or the Warrants may be
exercisable into more than 20% of the currently outstanding shares of the
Company's Common Stock. Investors have recognized that the Company may be
limited in the number of shares of Common Stock it may issue, and that the
Common Stock issuable upon conversion of the Debentures and upon exercise
of the Warrants may result in the issuance of shares in excess of the
Nasdaq Rule. Such issuance will require the Company to obtain the consent
of its stockholders.
Unless marked otherwise, proxies received will be voted "FOR" the
approval of this Proposal No. 4. The affirmative vote of the holders of
a majority of the outstanding shares of Common Stock of the Company is
required to approve the this Proposal No. 2.
Recommendation of the Board for Proposal No. 2:
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE $5,000,000 PRIVATE EQUITY
LINE OF CREDIT AND THE SALE OF THE COMPANY'S COMMON STOCK IN THE
TRANSACTIONS PURSUANT TO.
PROPOSAL NO. 3
TO APPROVE THE ACQUISITION OF 80% OF BEIJING WISDOM NETWORK TECHNOLOGY COMPANY,
LTD.
At the Annual Meeting, the Company's stockholders are being asked
to approve the intended acquisition of 80% of the Beijing Wisdom Network
Technology Company, Ltd. ("BA Network"), through an exchange of stock
between the two companies per terms as stated in the Stock Exchange
Agreement (the "Agreement") dated March 27, 2000, signed between the
companies. Details of the exchange is provided as follows:
Issuance of Common Stock of the Company for 80% of the outstanding stock of BA
Network:
a) An initial grant of US$300,000 in either the Company's common
stock or in cash, at the election of BA Network, will be made
at closing of the transaction. If BA Network elects to receive
stock, such shares shall have registration rights, and the
grant will be made based on the average of the daily closing
sales prices from the date of the Letter of Intent to the date
of effectiveness of the Agreement; and
b) Grants of ACEI common stock or the equivalent value in cash,
at the election of BA Network, based on an "earn-out" formula,
for the year 2000, which is "the sum of (Gross Revenue +
EBITDA) x 80% x 18%, upon BA Network's delivery of quarterly
reviewed and yearend audited financial statements. Grants of
either stock or cash are subject to delivery schedules, and in
the case of stock grants certain time restrictions shall also
apply. Details of such schedules and restrictions are defined
in the Agreement attached as Appendix B; and
c) Grants of ACEI common stock based on the same "earn-out"
formula, for the years 2001 and 2002, which is "the sum of
(Gross Revenue + EBITDA) x 80% x 18%, upon BA Network's
delivery of quarterly reviewed and yearend audited financial
statements. Grants of such stock are subject to certain time
restrictions, details of which are defined in the Agreement
attached as Appendix B.
Beijing Wisdom Network Technology Company, Ltd. ("BA Network") is
a limited company established on June 10, 1997 in Beijing with an
operating period of 10 years. The main business of BA Network is computer
and communication network deployment, apartment and office building
security automation and related consulting services.
Under the proposed acquisition based on stock exchange, BA Network
is to have autonomy in daily operations, with the exception of at least
one accounting person staffed by the Company or its assign. BA Network
is to report directly to the Company, subject to the Company's Board
interpretation of appropriateness and with the Company's Board approval
when necessary.
In addition, the Company has engaged a consultant, Beijing Da Yan Da
International Company ("BDYD") for providing to the Company services in
the form of: (i) identifying and evaluating potential acquisition
candidates ("Candidates") within the territories of the People's Republic
of China and Hong Kong, for the Company's acquisition and merger plans;
(ii) advising and facilitating the Company as to negotiations with the
Candidates; (iii) analyzing the impact of applicable local laws and
regulations; (iv) bringing to the attention of the Company possible
business opportunities and evaluating business opportunities generally,
whether or not such opportunities are originated by BDYD or others; and
(v) once a formal contract with acquiree is executed, BDYD will provide
full-time staffing of BDYD accounting personnel at acquiree's office to
oversee accounting procedures for the first 36 months and such BDYD
accounting personnel will report directly to assignee of the Company. At
the successful and effective closure of acquisition and merger
transactions by the Company with parties that are identified by BDYD, the
Company shall pay to BDYD, a finder's fee equal to 10% for services (i)
through (iv) as identified above and 5% for service (v), of the total
"Transaction Value" of the transaction in common shares of the Company,
50% of such shares shall be registered within 60 days from closure of the
transaction and the remaining of such shares shall be restricted under SEC
rule 144. "Transaction Value" shall mean the aggregate value of all
cash, securities and other property and valuable consideration of every
kind given, granted or issued by the Company and its affiliates in
connection within any transaction involving any acquisition, stock or
asset exchange, joint venture or merger between the Company and parties
identified by BDYD. Also, upon the Company's approval by its board of
directors of any "Letter of Intent" with Candidates, but prior to the
actual effectiveness and closure of contract, the Company shall pay BDYD
a non-refundable expense allowance of US$50,000 in freely tradable common
stock to cover BDYD's non-accountable expenses within the facilitation of
the transaction.
<TABLE>
<CAPTION>
Condensed and Consolidated ACEI BA Network Consolidated
Balance Sheet Dec 31, 1999 Dec 31, 1999 ACEI & BA Network
for ACEI and BA Network (AUDITED) US$ (AUDITED) US$ Dec 31, 1999
(Proforma) US$
<S> <C> <C> <C>
Assets:
Cash 32,514 54,371 86,885
Accounts Receivable 481,449 361,446 842,895
Loan Receivables, related parties 114,937 36,145 151,082
Prepaid expenses 7,460 0 7,460
Property and equipment 312,949 46,345 359,294
Investments 203,110 0 203,110
Film cost, net 7,553,133 0 7,553,133
Note receivable 354,814 16,293 371,107
Inventories 0 143,800 143,800
Other Assets 226,084 0 226,084
--------------------------------------------------------------------------------------------
Total Assets 9,286,450 658,399 9,944,849
Liabilities:
Accounts payable & accrued expenses 1,042,577 4,819 1,047,396
Note payable, related parties 84,100 66,038 150,138
Other 4,245 10,140 14,385
Deferred revenues (customer advances) 16,920 53,163 70,083
Taxes payable 0 269,356 269,356
Note payable 450,183 0 450,183
--------------------------------------------------------------------------------------------
Total liabilites 1,598,025 403,516 2,001,541
Minority Interest 50,977 50,977
Stockholders' Equity:
Common stock, paid in capital 17,594,865 60,241 17,655,106
Retained earnings (accum. Deficit) (9,906,440) 194,643 (9,711,797)
--------------------------------------------------------------------------------------------
Total Stockholders' Equity 7,688,425 254,884 7,892,332
--------------------------------------------------------------------------------------------
9,286,450 658.399 9,944,849
============================================================================================
</TABLE>
--------------------------------------
<TABLE>
<CAPTION>
Condensed and Consolidated ACEI BA Network Consolidated
Balance Sheet Dec 31, 1999 Dec 31, 1999 ACEI & BA Network
for ACEI and BA Network (AUDITED) US$ (AUDITED) US$ Dec 31, 1999
(Proforma) US$
<S> <C> <C> <C>
Revenues 665,632 1,216,346 1,881,978
Cost of sales 8,174 817,120 825,294
--------------------------------------------------------------------------------------------
Gross profit 657,458 399,226 1,056,684
Expenses
Selling & administrative expenses 4,421,180 143,814 4,564,994
Interest expenses 208,069 0 208,069
Beneficial conversion of debentures 1,233,684 0 1,233,684
Debenture conversion expense 741,210 0 741,210
Amortization of film costs 450,100 0 450,100
--------------------------------------------------------------------------------------------
Total Expenses 7,054,243 143,814 7,198,057
Income (Loss) before taxes (6,396,785) 255,411 (6,141,374)
Minority Interest 51,082
Income Tax 1,543 84,286 85,829
Net Income (Loss) (6,396,328) 171,125 (6,278,285)
Weighted average number of shares 2,385,622 n.a. 4,254,442
outstanding, adjusted for 1:4
reverse split of common stock on
January 4, 2000
Basic loss per share, adjusted for 1:4 (2.68) (1.48)
reverse split of common stock on
January 4, 2000
The Stock Exchange Agreement is attached as Appendix B.
Recommendation of the Board for Proposal No. 3:
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSED ACQUISITION.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Moss Adams LLP has been selected by the Board of Directors of the
Company to be its independent certified public accountants for the 2000 fiscal
year. Moss Adams LLP has no interest, financial or otherwise, in the Company.
All proxies will be voted FOR ratification of such selection unless
authority to vote for the ratification of such selection is withheld or an
abstention is noted.
Representatives from the accounting firm of Moss Adams LLP will
be present at the Meeting will be afforded the opportunity to make a statement
if they desire to do so and will be available to respond to appropriate
questions.
The Board of Directors of the Company recommends a vote FOR Proposal
No. 4.
Recommendation of the Board for Proposal No. 4:
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF MOSS ADAMS
LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR ENDED DECEMBER 31, 1999.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of May 31, 2000 and as adjusted
to reflect the issuance by the Company of shares of Common Stock upon exercise
of the Warrants, certain information with respect to stock ownership of (i)
all persons known by the Company to be beneficial owners of 5% or more of its
outstanding shares of Common Stock; (ii) each director; and (iii) all
directors and officers as a group, together with their respective percentage
ownership of such shares before the Offering and as adjusted to reflect the
sale of the shares of Common Stock and Warrants offered hereby. Unless
otherwise indicated, the beneficial owners have sole voting and investment
power over the shares of Common Stock listed below.
Number of Percentage of Common Stock Ownership*
Name and Address of Share of
Benfical Owner (1) Common Stock As Adjusted **
Actual
Anthony Chan 678,360 (2) 9.67%
George Chung 670,460 (3) 9.56%
William T. Duffy 43,875 (4) ***
Alan Elkes 86,375 (5) 1.23%
E. David Gable 51,111 (6) ***
Jan D. Hutchins 125,000 (7) 1.78%
Ronald M. Lott 7,000 (8) ***
Mae Lyn Woo 62,250 (9) ***
All officers and directors as a
group (8 persons) 1,723,431 (10) 24.57%
_______________________
*** Represents less than one percent.
(1) The addresses for the directors and executive officers is c/o
American Champion Entertainment, Inc., 1694 The Alameda, Suite 100,
San Jose, California 95126.
(2) Includes 301,875 shares subject to presently exercisable options
granted under our 1997 stock option plan. Does not include 50,000
subject to options which are not presently exercisable or
exercisable within 60 days.
(3) Includes (i) 301,875 shares subject to presently exercisable options
granted under our 1997 stock option plan and (ii) 1,100 shares owned
by Mr. Chung's wife. Does not include 50,000 subject to options
which are not presently exercisable or exercisable within 60 days.
(4) Includes 31,875 shares subject to presently exercisable options
granted under our 1997 stock option plan. Does not include 750
subject to options which are not presently exercisable or
exercisable within 60 days.
(5) Includes (i) 56,875 shares subject to presently exercisable options
granted under our 1997 stock option plan, and (ii) 5,000 shares
subject to presently exercisable warrants. Does not include 750
subject to options which are not presently exercisable or
exercisable within 60 days.
(6) Includes 28,000 shares subject to presently exercisable options
granted under our 1997 stock option plan.
(7) Includes 115,000 shares subject to presently exercisable options
granted under our 1997 stock option plan. Does not include 17,500
subject to options which are not presently exercisable or
exercisable within 60 days.
(8) Includes 7,000 shares subject to presently exercisable options
granted under our 1997 stock option plan. Does not include 750
subject to options which are not presently exercisable or
exercisable within 60 days.
(9) Includes 36,250 shares subject to presently exercisable options
granted under our 1997 stock option plan. Does not include 5,000
subject to options which are not presently exercisable or
exercisable within 60 days.
(10) Includes an aggregate of 883,750 shares subject to presently
exercisable warrants and options granted under our 1997 stock option
plan. Does not include 124,750 subject to options which are not
presently exercisable or exercisable within 60 days.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain summary information with
respect to the compensation paid to the Company's Chief Executive
Officer and President, and the Company's Chairman of the Board, for
services rendered in all capacities to the Company for the period through
December 31, 1999. Other than as listed below, the Company had no
executive officers whose total annual salary and bonus exceeded $100,000
for that fiscal year:
</TABLE>
<TABLE>
<CAPTION>
Name Position Year Salary
(1)
<S> <C> <C> <C>
Anthony K. Chan President, 1999 $ 127,262
Chief 1998 $ 130,828
Executive 1997 $ 101,704
Officer
Geroge Chung Chairman of 1999 $ 127,262
the Board 1998 $ 138,739
1997 $ 107,284
</TABLE>
<TABLE>
<CAPTION>
Long-Term Compensation
Awards Payouts
Restricted Securities LTIP All Other
Other Stock Underlying Payouts Compen
Compen- Award(s) Options/ ($) sation
Name sation Bonus ($) SARs ($)
(#)(1)
<S> <C> <C> <C> <C> <C> <C>
Anthony K. Chan --- --- --- 275,000 --- ---
--- --- --- 20,000 --- ---
--- --- --- 21,875 --- ---
Geroge Chung --- --- --- 275,000 --- ---
--- --- --- 20,000 --- ---
--- --- --- 21,875 --- ---
</TABLE>
________________
(1) Options were granted under the Company's 1997 Stock Plan, and
adjusted for the 1:4 reverse split of the company's common stock on
January 4, 2000.
STOCK OPTIONS GRANTS AND EXERCISES
Option/SAR Grants within 1999
Individual Grants
<TABLE>
<CAPTION>
Securities % of Total
Underlying Option Options Granted Exercise or Base
Name Granted (#) to all persons in Price ($/SH)
Adjusted for 1:4 Fiscal Year Adjusted for 1:4 Expiration Date
reverse split reverse split
<S> <C> <C> <C> <C>
Anthony K. Chan 25,000 2.3% $4.125 5/18/09
250,000 23.5% $3.750 6/06/09
-----------------------------
275,000 25.8%
=============================
George Chung 25,000 2.3% $4.125 5/18/09
250,000 23.5% $3.750 6/06/09
----------------------------
275,000 25.8%
</TABLE>
The following table shows the value at May 31, 2000 of unexercised
options held by the named executive officers:
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-end Option Values
<TABLE>
<CAPTION>
Number of securities Value of unexercised in-the-
underlying unexercised money options at fiscal
options at fiscal year-end year-end
(#) ($)
Name Shares acquired on Value Realized
exercise (#) ($) Exerciseable/unexercisable Exercisable/unexercisable*
<S> <C> <C> <C> <C>
Anthony K. Chan, 0 0 301,875/50,000 $0/$0
President and Chief
Executive Officer
George Chung, 0 0 301,875/50,000 $0/$0
Chairman of the
Board
</TABLE>
---------------------------
* Assumes a fair market value of $2.1250 per share at the close of
January 10, 2000.
The compensation for the Company's key management will be evaluated from time
to time by the Board. The Board may, in its discretion, award these
individuals cash bonuses, options to purchase shares of the Common Stock under
the Company's Equity Incentive Plan and such other compensation, including
equity-based compensation, as the Board, or a committee thereof, shall approve
from time to time.
EMPLOYMENT CONTRACTS
In March 1997, the Company entered into employment agreements, effective as of
August 5, 1997, the closing date of our initial public offering, with each of
Messrs. Chung and Chan pursuant to which Mr. Chung continues to serve as the
Company's Chairman of the Board, and Mr. Chan continues to serve as our
President, Chief Executive Officer and Chief Financial Officer. Each
agreement has a term of five years. Pursuant to the agreements, in 1997 we
paid Messrs. Chung and Chan a base salary of $100,000 and $100,000 per year,
respectively. Each agreement also provides for the following bonuses: (i)
options to purchase 87,500 and 87,500 shares of common stock, respectively,
exercisable at $7.20 per share, which options were granted on July 30, 1997,
and (ii) $200,000, each if all of the warrants issued in our initial public
offering are exercised by the holders thereof within the five-year exercise
period of such warrants. In addition, the executives are also entitled to
certain fringe benefits. If either of Messrs. Chung or Chan is terminated
other than for cause, death or disability, we are obligated to pay such
executive an amount equal to his base salary then in effect for the remaining
term of the agreement.
In March 1997, we and AC Media, entered into a two-year employment
agreement with Jan D. Hutchins effective as of August 5, 1997, the closing
date of our initial public offering, pursuant to which Mr. Hutchins serves
as President of AC Media and is responsible for supervising the production
and marketing of the AC Media's media projects. Pursuant to the agreement
Mr. Hutchins received an annual base salary of $39,600 in 1997. The
employment agreement also provided for the following bonuses: (i) 4,000
shares of common stock; (ii) options to purchase 20,000 shares of common
stock at $7.20 per share, which options were granted on July 30,1997; and
(iii) $100,000 in cash if all of the warrants issued to the public in our
initial public offering are exercised by the holders thereof within two
years of the consummation of the offering. The employment agreement also
provided for certain fringe benefits. If Mr. Hutchins is terminated for
reasons other than for cause, death or disability, we are obligated to pay
Mr. Hutchins an amount equal to his base salary then in effect or the
remaining term of the agreement. None of the above-referenced employment
agreements contain non-competition provisions.
In July 1998, the we amended employment agreements with certain of
our management as follows: The agreements with Messrs. Anthony Chan and
George Chung were amended to provide for annual salaries of $150,000 and
for the granting of 20,000 options per year pursuant to our 1997 stock
option plan; the agreement with Jan D. Hutchins was amended to provide for
an annual salary of $75,000 and for the granting of 10,000 options per
year pursuant to our 1997 stock option plan.
In June 1999, we entered into an employment agreement with Joy M.
Tashjian to serve as the President and CEO of our wholly owned subsidiary
American Champion Marketing Group. The term of employment is through
December 31, 2001 and the annual salary is $150,000. Ms. Tashjian was
granted 350,000 options from our 1997 stock option plan at the execution
of the agreement and another 150,000 options will be granted in June 2000.
1997 Employee Stock Option Plan
Our 1997 employee stock option plan provides for the grant of stock
options (including incentive stock options as defined in Section 422 of
the Internal Revenue Code and non-qualified stock options), stock
appreciation rights and other stock awards (including restricted stock
awards and stock bonuses) to our employees or affiliates or any consultant
or advisor engaged by us who renders bona fide services to us or our
affiliates in connection with our business; provided, that such services
are not in connection with the offer or sale of securities in a capital
raising transaction. The 1997 employee stock option plan is authorized to
issue options or other awards exercisable to purchase up to 7,000,000
shares of our common stock, or 1,750,000 shares after the 1:4 reverse
split of the company's common stock on January 4, 2000.
The 1997 employee stock option plan is administered by the
Compensation Committee of the Board of Directors which will be comprised
of "disinterested persons" within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934. Stock options may be granted by the
Compensation Committee on such terms, including vesting and payment forms,
as it deems appropriate in its direction; provided, that no option may be
exercised later than ten years after its grant, and the purchase price for
incentive stock options and non-qualified stock options shall not be less
than 100% and 85% of the fair market value of the common stock at the time
of grant, respectively.
Stock appreciation rights may be granted by the Compensation
Committee on such terms, including payment forms, as the Compensation
Committee deems appropriate, provided that a stock appreciation right
granted in connection with a stock option shall become exercisable and
lapse according to the same vesting schedule and lapse rules established
for the stock option (which shall not exceed ten years from the date of
grant). A stock appreciation right shall not be exercisable during the
first six months of its term and only when the fair market value of the
underlying common stock exceeds the stock appreciation right's exercise
price and is exercisable subject to any other conditions on exercise
imposed by the Compensation Committee. In the event of a change in control
of us, the Compensation Committee retains the discretion to accelerate the
vesting of stock options and stock appreciation rights and to remove
restrictions on transfer of restricted stock awards. Unless terminated by
the Board of Directors, the 1997 employee stock option plan will continue
until December 2007. Upon the occurrence of an event constituting a change
of control, in the sole discretion of the Compensation Committee, all
options and stock appreciation rights will become immediately exercisable
in full for the remainder of their terms and restrictions on stock granted
pursuant to a restricted stock award will lapse.
1997 Non-Employee Directors Stock Option Plan
Our 1997 non-employee directors stock option plan was adopted by our
Board of Directors and stockholders in March 1997 and became effective
upon the closing of our initial public offering. Options to purchase a
maximum of 800,000 shares of common stock may be granted under the plan,
or 200,000 shares after the company's 1:4 reverse split of its common
shares on January 4, 2000. The plan provides for the automatic grant to
each of our non-employee directors of (i) an option to purchase 5,000
shares of common stock on the date of such director's initial election or
appointment to the Board of Directors, and (ii) an option to purchase
2,000 shares of common stock on each anniversary thereof on which the
director remains on the Board of Directors. The options will have an
exercise price of 100% of the fair market value of the common stock on the
date of grant and have a 10-year term. Initial grants become exercisable
in two equal annual installments commencing on the first anniversary of
date of grant thereof and subsequent grants become fully exercisable
beginning on the first anniversary of the date of grant. Both grants are
subject to acceleration in the event of certain corporate transactions.
Any options which are vested at the time the optionee ceases to be a
director shall be exercisable for one year thereafter. Options which are
not vested automatically terminate in the event the optionee ceases to be
a member of the Board of Directors. Options which are vested on the date
the optionee ceased to be a Director due to death or disability generally
remain exercisable for five years thereafter. If we are a party to a
transaction involving a sale of substantially all our assets, a merger or
consolidation, all then outstanding options under the plan may be
canceled. However, during the 30 day period preceding the effective date
of such transaction, all partly or wholly unexercised options will be
exercisable, including those not yet exercisable pursuant to the vesting
schedule.
TRANSACTIONS INVOLVING OFFICERS, DIRECTORS
AND PRINCIPAL SHAREHOLDERS
Messrs. Chung and Chan are the guarantors of two loans from Karen T.I. Shen
and Thomas Jung Woo originally totaling $27,000 and bearing interest at 14%
per annum which are due and payable in 1999 and 2000, and are the direct
obligors on a loan in the original principal amount of $100,000 from the
Michael Triantos M.D. Inc. Money Purchase and Profit Sharing Pension Plans
Trust which is being treated as a debt of us which loan bears interest at the
rate of 12% per annum.
None of the transactions with officers or shareholders or their affiliates
were made on terms less favorable to us than those available from unaffiliated
parties. In future transactions of this nature, we will ensure that more
favorable terms are not available to it from unaffiliated third parties before
engaging our officers or shareholders or their affiliates.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Proposals of stockholders intended to be presented at next year's
Annual Meeting of Stockholders must be received by Anthony K. Chan, at the
Company's principal offices at 1694 The Alameda, Suite 100, San Jose
California 95126, no later than March 31, 2001.
OTHER PROPOSED ACTION
The Board of Directors is not aware of any other business which will come
before the Meeting, but if any such matters are properly presented, the
proxies solicited hereby will be voted in accordance with the best judgment of
the persons holding the proxies. All shares represented by duly executed
proxies will be voted at the Meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's
Common Stock (collectively, "Reporting Persons") to file with the
Securities and Exchange Commission ("SEC") initial reports of ownership
and changes in ownership of the Company's Common Stock. Reporting Persons
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) reports they file. To the Company's knowledge, based solely
on its review of the copies of such reports received or written
representations from certain Reporting Persons that no other reports were
required, the Company believes that during its fiscal year ended December
31, 1998, all Reporting Persons complied with all applicable filing
requirements.
AVAILABILITY OF CERTAIN DOCUMENTS REFERRED TO HEREIN
THIS PROXY STATEMENT REFERS TO CERTAIN DOCUMENTS OF THE COMPANY THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS ARE AVAILABLE
TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT IS
DELIVERED, UPON ORAL OR WRITTEN REQUEST, WITHOUT CHARGE, DIRECTED TO ANTHONY
K. CHAN, AMERICAN CHAMPION ENTERTAINMENT, INC., 1694 THE ALAMEDA, SUITE 100,
SAN JOSE CALIFORNIA 95126., TELEPHONE NUMBER (408) 288-8199. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, SUCH REQUESTS SHOULD BE MADE BY
AUGUST 31, 2000.
OTHER MATTERS
The Board of Directors knows of no other business that will be
presented to the Annual Meeting. If any other business is properly brought
before the Annual Meeting, proxies in the enclosed form will be voted in
respect thereof as the proxy holders deem advisable.
It is important that the proxies be returned promptly and that your
shares be represented. Stockholders are urged to mark, date, execute and
promptly return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
/s/ ANTHONY K. CHAN, SECRETARY
Anthony K. Chan
Secretary
San Jose, California
June 15, 2000
PROXY
PROXY
AMERICAN CHAMPION ENTERTAINMENT, INC.
PROXY FOR ANNUAL MEETING TO BE HELD ON SEPTEMBER 8, 2000 THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Anthony K. Chan or George Chung, or
either of them, as proxies, each with the power to appoint his substitute,
to represent and to vote all the shares of common stock of American
Champion Entertainment, Inc. (the "Company"), which the undersigned would
be entitled to vote, at the Company's Annual Meeting of Stockholders to be
held on September 8, 2000 and at any adjournments thereof, subject to the
directions indicated on the reverse side hereof.
In their discretion, the Proxies are authorized to vote upon any other
matter that may properly come before the meeting or any adjournments thereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE,
BUT IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION
OF ALL NOMINEES AND FOR THE PROPOSALS LISTED ON THE REVERSE SIDE.
IMPORTANT--This Proxy must be signed and dated on the reverse side.
THIS IS YOUR PROXY CARD
YOUR VOTE IS IMPORTANT!
Dear Stockholder:
We cordially invite you to attend the Annual Meeting of Stockholders
of American Champion Entertainment, Inc. to be held at the headquarters of
American Champion Entertainment, Inc., at 1694 The Alameda, Suite 100, San
Jose, California on Friday, September 8, 2000 at 7:00 p.m. (local time).
Please read the proxy statement which describes the proposals and
presents other important information, and complete, sign and return your
proxy promptly in the enclosed envelope.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1-4
1. ELECTION OF DIRECTORS --
Nominees: For Withhold
Anthony K. Chan [_] [_]
George Chung [_] [_]
William T. Duffy [_] [_]
Alan Elkes [_] [_]
E. David Gable [_] [_]
Jan D. Hutchins [_] [_]
Ronald M. Lott [_] [_]
2. Proposal to approve the Private Equity For Against Abstain
Line of Credit Agreement dated April 12, [_] [_] [_]
2000 and closed on May 9, 2000, for the
future issuance and purchase of shares of
our common stock by Sibson Holdings, Ltd.
3. Proposal to approve the acquisition of For Against Abstain
80% the Beijing Wisdom Network Technology [_] [_] [_]
Company, Ltd., through an exchange of stock
and cash between the two companies per terms
in the agreement dated March 27, 2000 and
all transactions contemplated thereby.
4. Proposal to ratify Moss Adams LLP as For Against Abstain
independent auditors. [_] [_] [_]
If you plan to attend the Annual Meeting please mark this box [_]
Dated:________________, 2000
Signature
__________________________________________________________________________
Name (printed)
__________________________________________________________________________
Title
__________________________________________________________________________
Important: Please sign exactly as name appears on this proxy. When
signing as attorney, executor, trustee, guardian, corporate officer, etc.,
please indicate full title.
APPENDIX A
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
Between
Sibson Holdings, Ltd.
And
American Champion Entertainment, Inc.
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of April 12, 2000
(the "Agreement"), between Sibson Holdings, Ltd., a British Virgin
Islands corporation (the "Investor") and American Champion Entertainment,
Inc., a corporation organized and existing under the laws of the State of
Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor
from time to time as provided herein, and Investor shall purchase, up to
$5,000,000 (the "Aggregate Purchase Price") of the Common Stock (as
defined below); and
WHEREAS, such investments will be made by the Investor as statutory
underwriter of a registered indirect primary offering of such Common Stock
by the Company.
NOW, THEREFORE, the parties hereto agree as follows:
Certain Definitions
* "Bid Price"
shall mean the closing bid price (as reported by Bloomberg L.P.) of the
Common Stock on the Principal Market on the date in question.
* "Capital Shares"
shall mean the Common Stock and any shares of any other class of common
stock whether now or hereafter authorized, having the right to
participate in the distribution of earnings and assets of the Company.
* "Capital Shares Equivalents"
shall mean any securities, rights, or obligations that are convertible
into or exchangeable for or give any right to subscribe for any Capital
Shares of the Company or any warrants, options or other rights to
subscribe for or purchase Capital Shares or any such convertible or
exchangeable securities.
* "Closing"
shall mean one of the closings of a purchase and sale of the Common
Stock pursuant to Section 2.1.
* "Closing Date"
shall mean, with respect to a Closing, the fifth Trading Day following
the end of the Valuation Period related to such Closing, provided all
conditions to such Closing have been satisfied on or before such Trading
Day.
* "Commitment Amount"
shall mean the up to $5,000,000 which the Investor has agreed to provide
to the Company in order to purchase the Put Shares pursuant to the terms
and conditions of this Agreement.
* "Commitment Period"
shall mean the period commencing on the Effective Date and expiring on
the earliest to occur of (x) the date on which the Investor shall have
purchased Put Shares pursuant to this Agreement for an aggregate
Purchase Price of $5,000,000, (y) the date this Agreement is terminated
pursuant to Section 2.4, or (z) the date occurring thirty months (30)
from the date of commencement of the Commitment Period.
* "Common Stock"
shall mean the Company's common stock, par value $.0001 per share.
* "Condition Satisfaction Date"
shall have the meaning set forth in Section 7.2.
* "Effective Date"
shall mean the date on which the SEC first declares effective a
Registration Statement registering the sale by the Company and resale by
the Investor of the Registrable Securities as set forth in Section
7.2(f).
* "Escrow Agent" shall mean the escrow agent designated in the Escrow
Agreement.
* "Escrow Agreement" shall mean the escrow agreement in the form
attached hereto as Exhibit A.
* "Exchange Act"
shall mean the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
* "Investment Amount"
shall mean the dollar amount to be invested by the Investor to purchase
Put Shares with respect to any Put Date as notified by the Company to
the Investor, all in accordance with Section 2.2 hereof.
* "Market Price"
on any given date shall mean the average of the three (3) lowest Bid
Prices (as reported by Bloomberg L.P.) of the Common Stock on any
Trading Day during the Valuation Period relating to such date.
* "Material Adverse Effect"
shall mean any effect on the business, Bid Price, operations,
properties, prospects, or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates,
taken as a whole, and/or any condition, circumstance, or situation that
would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement or the Escrow Agreement in any material
respect.
* "Maximum Put Amount"
shall mean, as of the Put Date, four and one eighth percent (4.125%) of
the weighted average price for the three (3) month period prior to the
Put Date multiplied by total trading volume for the three (3) month
period prior to the Put Date.
* "NASD"
shall mean the National Association of Securities Dealers, Inc.
* "Outstanding"
when used with reference to shares of Common Stock or Capital Shares
(collectively the "Shares"), shall mean, at any date as of which the
number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests
in such Shares; provided, however, that "Outstanding" shall not mean
any such Shares then directly or indirectly owned or held by or for the
account of the Company.
* "Person"
shall mean an individual, a corporation, a partnership, a limited
liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an
agency or instrumentality thereof.
* "Principal Market"
shall mean the NASDAQ National Market, the NASDAQ SmallCap Market, the
American Stock Exchange or the New York Stock Exchange, whichever is at
the time the principal trading exchange or market for the Common Stock.
Principal Market shall not include the OTC Bulletin Board without the
express written consent of the Investor.
* "Purchase Price"
shall mean with respect to Put Shares, eighty-five percent (85%) (the
"Purchase Price Percentage") of the Market Price during the Valuation
Period related to a Put (or such other date on which the Purchase Price
is calculated in accordance with the terms and conditions of this
Agreement).
* "Put" shall mean each occasion the Company elects to exercise its
right to tender a Put Notice requiring the Investor to purchase shares
of the Company's Common Stock, subject to the terms of this Agreement.
* "Put Date"
shall mean the Trading Day during the Commitment Period that a Put
Notice to sell Common Stock to the Investor is deemed delivered pursuant
to Section 2.2(b) hereof.
* "Put Notice"
shall mean a written notice to the Investor setting forth the Investment
Amount that the Company intends to sell to the Investor in the form
attached hereto as Exhibit B.
* "Put Shares"
shall mean all shares of Common Stock or other securities issued or
issuable pursuant to a Put that has occurred or may occur in accordance
with the terms and conditions of this Agreement.
* "Registrable Securities"
shall mean the Put Shares and the Warrant Shares until (i) all Put
Shares and Warrant Shares have been disposed of pursuant to the
Registration Statement, (ii) all Put Shares and Warrant Shares have been
sold under circumstances under which all of the applicable conditions of
Rule 144 (or any similar provision then in force) under the Securities
Act ("Rule 144") are met, (iii) all Put Shares and Warrant Shares have
been otherwise transferred to persons who may trade such shares without
restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not
bearing a restrictive legend or (iv) such time as, in the opinion of
counsel to the Company, all Put Shares and Warrant Shares may be sold
without any time, volume or manner limitations pursuant to Rule 144(k)
(or any similar provision then in effect) under the Securities Act.
* "Registration Rights Agreement"
shall mean the agreement regarding the filing of the Registration
Statement for the sale and resale of the Registrable Securities annexed
hereto as Exhibit C.
* "Registration Statement"
shall mean a registration statement on Form S-3 (if use of such form is
then available to the Company pursuant to the rules of the SEC and, if
not, on such other form promulgated by the SEC, such as Form S-1 or SB-
2, for which the Company then qualifies and which counsel for the
Company shall deem appropriate, and which form shall be available for
the resale by the Investor of the Registrable Securities to be
registered thereunder in accordance with the provisions of this
Agreement, the Registration Rights Agreement, and in accordance with the
intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities
under the Securities Act.
* "SEC"
shall mean the Securities and Exchange Commission.
* "Securities Act"
shall mean the Securities Act of 1933, as amended.
* "SEC Documents"
shall mean the Company's latest Form 10-K or 10-KSB as of the time in
question, all Forms 10-Q or 10-QSB and 8-K filed thereafter, and the
Proxy Statement for its latest fiscal year as of the time in question
until such time as the Company no longer has an obligation to maintain
the effectiveness of a Registration Statement as set forth in the
Registration Rights Agreement.
* "Trading Cushion"
shall mean the mandatory twenty (20) Trading Days between Put Dates,
unless waived by the Investor.
* "Trading Day"
shall mean any day during which the Principal Market shall be open for
business.
* "Valuation Event"
shall mean an event in which the Company at any time prior to the end
of the Commitment Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend on its Capital Shares or makes
any other distribution of its Capital Shares;
(c) issues any additional Capital Shares
("Additional Capital Shares"), otherwise than as provided in the
foregoing Subsections (a) and (b) above or (d) and (e) below, at a price
per share less, or for other consideration lower, than the Bid Price in
effect immediately prior to such issuance, or without consideration
(other than pursuant to this Agreement);
(d) issues any warrants, options or other rights to
subscribe for or purchase any Additional Capital Shares and the price
per share for which Additional Capital Shares may at any time thereafter
be issuable pursuant to such warrants, options or other rights shall be
less than the Bid Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or
exchangeable for Capital Shares and the consideration per share for
which Additional Capital Shares may at any time thereafter be issuable
pursuant to the terms of such convertible or exchangeable securities
shall be less than the Bid Price in effect immediately prior to such
issuance;
(f) makes a distribution of its assets or evidences
of indebtedness to the holders of its Capital Shares as a dividend in
liquidation or by way of return of capital or other than as a dividend
payable out of earnings or surplus legally available for dividends under
applicable law or any distribution to such holders made in respect of
the sale of all or substantially all of the Company's assets (other than
under the circumstances provided for in the foregoing subsections (a)
through (e); or
(g) takes any action affecting the number of
Outstanding Capital Shares, other than an action described in any of the
foregoing Subsections (a) through (f) hereof, inclusive, which in the
opinion of the Company's Board of Directors, determined in good faith,
would have a Material Adverse Effect upon the rights of the Investor at
the time of a Put.
* "Valuation Period"
shall mean the period of twenty-one (21) Trading Days beginning fifteen
(15) Trading Days before the Trading Day on which a Put Notice is deemed
to be delivered and ending five (5) Trading Days after such date;
provided, however, that if a Valuation Event occurs during a Valuation
Period, a new Valuation Period shall begin on the Trading Day
immediately after the occurrence of such Valuation Event and end on the
twenty first (21st) Trading Day thereafter.
* "Warrants" shall mean the 175,000 Common Stock Purchase Warrants in
the form of Exhibit D hereto to be delivered to the Investor at the
initial Closing and up to 325,000 Common Stock Purchase Warrants to be
delivered to the Investor pro-rata determined according to the
Investment Amount in proportion to the Commitment Amount (the "Pro-Rata
Warrants"). "Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.
Purchase and Sale of Common Stock
* Investments.
(a) Puts. Upon the terms and conditions set forth
herein (including, without limitation, the provisions of Article VII
hereof), on any Put Date the Company may make a Put by the delivery of a
Put Notice. The number of Put Shares that the Investor shall receive
pursuant to such Put shall be determined by dividing the Investment
Amount specified in the Put Notice by the Purchase Price for such
Valuation Period; provided, however, the Investor may, at its sole
discretion, purchase up to an additional fifty percent (50%) of the
Maximum Put Amount during any Put Period. The Investment Amount shall
not exceed the Maximum Put Amount on the date of the Put Notice by
notice to the Company prior to the end of the Valuation Period.
(b) Maximum Aggregate Amount of Puts. Anything in this Agreement to the
contrary notwithstanding, unless the Company obtains shareholder approval of
this Agreement pursuant to the applicable corporate governance rules of The
Nasdaq Stock Market, the Company may not make a Put (or issue any additional
shares under Section 2.5) which results in the issuance of more than 19.9% of
the number of shares of Common Stock issued and outstanding on the initial
Closing Date hereof pursuant to all Puts made under the terms of this
Agreement and the exercise of the Warrants.
* Mechanics.
(a) Put Notice. At any time during the Commitment
Period, the Company may deliver a Put Notice to the Investor, subject to
the conditions set forth in Section 7.2; provided, however, that the
Investment Amount for each Put as designated by the Company in the
applicable Put Notice shall be neither less than $100,000 nor more than
the Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put Notice
shall be deemed delivered on (i) the Trading Day it is received by
facsimile or otherwise by the Investor if such notice is received prior
to 12:00 noon Eastern Time, or (ii) the immediately succeeding Trading
Day if it is received by facsimile or otherwise after 12:00 noon Eastern
Time on a Trading Day or at any time on a day which is not a Trading
Day. No Put Notice may be deemed delivered on a day that is not a
Trading Day.
* Closings.
On or before each Closing Date for a Put the Investor shall deliver the
Investment Amount specified in the Put Notice by wire transfer of
immediately available funds to the Escrow Agent. In addition, on or
prior to the Closing Date, each of the Company and the Investor shall
deliver to the Escrow Agent all documents, instruments and writings
required to be delivered or reasonably requested by either of them
pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. Upon receipt of notice from the Escrow
Agent that the Escrow Agent has possession of the Investment Amount, the
Company shall, if possible, deliver the Put Shares to the Investor's
account through the Depository Trust Company DWAC system, per written
account instructions delivered by the Investor to the Company, and if
the Company is not eligible to participate in the DWAC system, to
deliver to the Escrow Agent one or more certificates, as requested by
the Investor, representing the Put Shares to be purchased by the
Investor pursuant to Section 2.1 herein, registered in the name of the
Investor or, at the Investor's option, registered in the name of such
account or accounts as may be designated by the Investor. Payment of
funds to the Company and delivery of the certificates to the Investor
(unless delivered by DWAC) shall occur out of escrow in accordance with
the Escrow Agreement, provided, however, that to the extent the Company
has not paid the fees, expenses, and disbursements of the Investor's
counsel in accordance with Section 13.7, the amount of such fees,
expenses, and disbursements shall be paid in immediately available
funds, at the direction of the Investor, to Investor's counsel with no
reduction in the number of Put Shares issuable to the Investor on such
Closing Date.
* Termination of Investment Obligation.
(a) The obligation of the Investor to purchase
shares of Common Stock shall terminate permanently (including with
respect to a Closing Date that has not yet occurred) in the event that
(i) there shall occur any stop order or suspension of the effectiveness
of the Registration Statement for an aggregate of thirty (30) Trading
Days during the Commitment Period, for any reason other than deferrals
or suspensions in accordance with the Registration Rights Agreement as a
result of corporate developments subsequent to the Effective Date that
would require such Registration Statement to be amended to reflect such
event in order to maintain its compliance with the disclosure
requirements of the Securities Act or (ii) the Company shall at any time
fail to comply with the requirements of Section 6.2, 6.3 or 6.5 or (iii)
the Registration Statement shall not have become effective by July 31,
2000.
(b) The obligation of the Company to sell Put Shares
to the Investor shall terminate if the Investor fails to honor any Put
Notice within two (2) Trading of the Closing Date scheduled for such
Put, and the Company notifies Investor of such termination. Upon such
termination, the Company shall maintain the Registration Statement in
effect for such reasonable period, not to exceed fifteen (15) Trading
Days, as the Investor may request in order to dispose of any remaining
Put Shares. Such termination shall be the Company's sole remedy for the
Investor's failure to honor a Put.
Section 2.5 Additional Shares.
In the event that (a) within five Trading Days of any Closing Date, the
Company gives notice to the Investor of an impending "blackout period"
in accordance with Section 3(f) of the Registration Rights Agreement and
(b) the Bid Price on the Trading Day immediately preceding such
"blackout period" (the "Old Bid Price") is greater than the Bid Price
on the first Trading Day following such "blackout period" (the "New
Bid Price") the Company shall issue to the Investor a number of
additional shares (the "Blackout Shares") equal to the difference
between (y) the product of the number of Registrable Securities
purchased by the Investor on such most recent Closing Date and still
held by the Investor during such "blackout period" that are not
otherwise freely tradable during such "blackout period" and the Old
Bid Price, divided by the New Bid Price and (z) the number of
Registrable Securities purchased by the Investor on such most recent
Closing Date and still held by the Investor during such "blackout
period" that are not otherwise freely tradable during such "blackout
period". If any such issuance would result in the issuance of a number
of shares which exceeds the number set forth in Section 2.1(b), then in
lieu of such issuance, the Company shall pay Investor the closing ask
price of the Blackout Shares on the first Trading Day following the end
of the blackout period in cash within five Trading Days.
* Liquidated Damages.
The parties hereto acknowledge and agree that the obligation to issue
Registrable Securities under Section 2.5 above shall constitute
liquidated damages and not penalties. The parties further acknowledge
that (a) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (b) the amounts
specified in such Sections bear a reasonable proportion and are not
plainly or grossly disproportionate to the probable loss likely to be
incurred by the Investor in connection with the failure by the Company
to timely cause the registration of the Registrable Securities or in
connection with a "blackout period" under the Registration Rights
Agreement, and (c) the parties are sophisticated business parties and
have been represented by legal and financial counsel and negotiated this
Agreement at arm's length.
Representations and Warranties of Investor
Investor represents and warrants to the Company that:
* Intent.
The Investor is entering into this Agreement for its own account and the
Investor has no present arrangement (whether or not legally binding) at
any time to sell the Common Stock to or through any person or entity;
provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or
other specific term and reserves the right to dispose of the Common
Stock at any time in accordance with federal and state securities laws
applicable to such disposition.
* Sophisticated Investor.
The Investor is a sophisticated investor (as described in Rule
506(b)(2)(ii) of Regulation D) and an accredited investor (as defined in
Rule 501 of Regulation D), and Investor has such experience in business
and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of
evaluating the merits and risks of an investment in Common Stock. The
Investor acknowledges that an investment in the Common Stock is
speculative and involves a high degree of risk.
* Authority.
This Agreement has been duly authorized and validly executed and
delivered by the Investor and is a valid and binding agreement of the
Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies
or by other equitable principles of general application.
* Not an Affiliate.
Investor is not an officer, director or "affiliate" (as that term is
defined in Rule 405 of the Securities Act) of the Company.
* Organization and Standing.
Investor is a corporation duly organized, validly existing, and in good
standing under the laws of the British Virgin Islands.
* Absence of Conflicts.
The execution and delivery of this Agreement and any other document or
instrument executed in connection herewith, and the consummation of the
transactions contemplated thereby, and compliance with the requirements
thereof, will not violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on Investor, or, to the
Investor's knowledge, (a) violate any provision of any indenture,
instrument or agreement to which Investor is a party or is subject, or
by which Investor or any of its assets is bound; (b) conflict with or
constitute a material default thereunder; (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty
owed by Investor to any third party; or (d) require the approval of any
third-party (which has not been obtained) pursuant to any material
contract, agreement, instrument, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
* Disclosure; Access to Information.
Investor has received and reviewed all documents, records, books and
other publicly available information pertaining to Investor's investment
in the Company that have been requested by Investor. The Company is
subject to the periodic reporting requirements of the Exchange Act, and
Investor has reviewed copies of any such reports that have been
requested by it.
* Manner of Sale.
At no time was Investor presented with or solicited by or through any
leaflet, public promotional meeting, television advertisement or any
other form of general solicitation or advertising.
* Financial Capacity.
Investor currently has the financial capacity to meet its obligations to
the Company hereunder, and the Investor has no present knowledge of any
circumstances which could cause it to become unable to meet such
obligations in the future.
* Underwriter Liability.
Investor understands that it is the position of the SEC that the
Investor is an underwriter within the meaning of Section 2(11) of the
Securities Act and that the Investor will be identified as an
underwriter of the Put Shares in the Registration Statement.
Representations and Warranties of the Company
The Company represents and Warrants to the Investor that, except as set
forth on the Disclosure Schedule prepared by the Company and attached
hereto:
* Organization of the Company.
The Company is a corporation duly incorporated and existing in good
standing under the laws of the State of Delaware and has all requisite
corporate authority to own its properties and to carry on its business
as now being conducted. The Company does not have any subsidiaries and
does not own more that fifty percent (50%) of or control any other
business entity except as set forth in the SEC Documents. The Company
is duly qualified and is in good standing as a foreign corporation to do
business in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary,
other than those in which the failure so to qualify would not have a
Material Adverse Effect.
* Authority.
(i) The Company has the requisite corporate power and corporate
authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and
the Warrants and to issue the Put Shares, the Warrants and the Warrant
Shares pursuant to their respective terms, (ii) the execution, issuance
and delivery of this Agreement, the Registration Rights Agreement, the
Escrow Agreement and the Warrants by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by
all necessary corporate action and no further consent or authorization
of the Company or its Board of Directors or stockholders is required,
and (iii) this Agreement, the Registration Rights Agreement, the Escrow
Agreement and the Warrants have been duly executed and delivered by the
Company and at the initial Closing (and as to the pro-rata issuance of
Warrants, all applicable Closings), shall constitute valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies
or by other equitable principles of general application. The Company
has duly and validly authorized and reserved for issuance shares of
Common Stock sufficient in number for the issuance of the Put Shares and
for the exercise of the Warrants
* Capitalization.
The authorized capital stock of the Company consists of 40,000,000
shares of Common Stock, $0.0001 par value per share, of which 6,368,647
shares are issued and outstanding as of April 3, 2000 and 6,000,000
shares of preferred stock, par value $0.0001 per share, of which none
have been designated as Series A Preferred Stock, none of which shares
are issued and outstanding. Except for (i) outstanding options and
warrants as set forth in the SEC Documents and (ii) as set forth in the
Disclosure Schedule, there are no outstanding Capital Share Equivalents
nor any agreements or understandings pursuant to which any Capital
Shares Equivalents may become outstanding. The Company is not a party to
any agreement granting registration or anti-dilution rights to any
person with respect to any of its equity or debt securities. All of
the outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable.
* Common Stock.
The Company has registered its Common Stock pursuant to Section 12(b)
or (g) of the Exchange Act and is in full compliance with all reporting
requirements of the Exchange Act, and the Company is in compliance with
all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, the
Principal Market. As of the date hereof, the Principal Market is the
Nasdaq SmallCap Market and the Company has not received any notice
regarding, and to its knowledge there is no threat, of the termination
or discontinuance of the eligibility of the Common Stock for such
listing.
* SEC Documents.
The Company has made available to the Investor true and complete
copies of the SEC Documents. The Company has not provided to the
Investor any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof
by the Company, but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects
with the requirements of the Exchange Act, and rules and regulations of
the SEC promulgated thereunder and the SEC Documents did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included
in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the
SEC or other applicable rules and regulations with respect thereto at
the time of such inclusion. Such financial statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or
(ii) in the case of unaudited interim statements, to the extent they
exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company
as of the dates thereof and the results of operations and cash flows for
the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company
nor any of its subsidiaries has any material indebtedness, obligations
or liabilities of any kind (whether accrued, absolute, contingent or
otherwise, and whether due or to become due) that would have been
required to be reflected in, reserved against or otherwise described in
the financial statements or in the notes thereto in accordance with
GAAP, which was not fully reflected in, reserved against or otherwise
described in the financial statements or the notes thereto included in
the SEC Documents or was not incurred in the ordinary course of business
consistent with the Company's past practices since the last date of such
financial statements.
* Valid Issuances.
When issued and paid for in accordance with the terms hereof or of the
Warrants, the Put Shares and the Warrant Shares will be duly and validly
issued, fully paid, and non-assessable. Neither the sales of the Put
Shares, the Warrants or the Warrant Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the
Registration Rights Agreement, the Escrow Agreement or the Warrants will
(i) result in the creation or imposition by the Company of any liens,
charges, claims or other encumbrances upon the Put Shares, the Warrants
or the Warrant Shares or, except as contemplated herein, any of the
assets of the Company, or (ii) entitle the holders of Outstanding
Capital Shares to preemptive or other rights to subscribe for or acquire
the Capital Shares or other securities of the Company. The Put Shares,
the Warrants and the Warrant Shares shall not subject the Investor to
personal liability to the Company or its creditors by reason of the
possession thereof.
* No Conflicts.
The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the
Put Shares, the Warrants and the Warrant Shares, do not and will not (i)
result in a violation of the Company's Certificate of Incorporation or
By-Laws or (ii) conflict with, or constitute a material default (or an
event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting
or similar agreement to which the Company is a party, or (iii) result in
a violation of any federal, state or local law, rule, regulation, order,
judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any material property
or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or default under any of the
foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as
would not have, individually or in the aggregate, a Material Adverse
Effect). The business of the Company is not being conducted in violation
of any law, ordinance or regulation of any governmental entity, except
for possible violations that either singly or in the aggregate would not
have a Material Adverse Effect. The Company is not required under any
Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or
perform any of its obligations under this Agreement or issue and sell
the Put Shares or the Warrants in accordance with the terms hereof
(other than any SEC, Principal Market or state securities filings that
may be required to be made by the Company subsequent to the initial
Closing, any registration statement that may be filed pursuant hereto,
and any shareholder approval required by the rules applicable to
companies whose common stock trades on the Principal Market); provided
that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
* No Material Adverse Change.
Since September 30, 1999, no Material Adverse Effect has occurred or
exists with respect to the Company, except as disclosed in the SEC
Documents.
* No Undisclosed Events or Circumstances.
Since September 30, 1999, no event or circumstance has occurred or
exists with respect to the Company or its businesses, properties,
prospects, operations or financial condition, that, 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 in the SEC Documents.
* Litigation and Other Proceedings.
Except as disclosed in the SEC Documents, there are no lawsuits or
proceedings pending or, to the knowledge of the Company, threatened,
against the Company or any subsidiary, nor has the Company received any
written or oral notice of any such action, suit, proceeding or
investigation, which could reasonably be expected to have a Material
Adverse Effect. Except as set forth in the SEC Documents, no judgment,
order, writ, injunction or decree or award has been issued by or, to the
knowledge of the Company, requested of any court, arbitrator or
governmental agency which could result in a Material Adverse Effect.
* No Misleading or Untrue Communication.
The Company and, to the knowledge of the Company, any person
representing the Company, or any other person selling or offering to
sell the Put Shares or the Warrants in connection with the transaction
contemplated by this Agreement, have not made, at any time, any oral
communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements, in the
light of the circumstances under which they were made, not misleading.
* Material Non-Public Information.
The Company has not disclosed to the Investor any material non-public
information that (i) if disclosed publicly, would reasonably be expected
to have a material effect on the price of the Common Stock or (ii)
according to applicable law, rule or regulation, should have been
disclosed publicly by the Company prior to the date hereof but which has
not been so disclosed.
* Insurance.
The Company and each subsidiary maintains property and casualty,
general liability, workers' compensation, environmental hazard, personal
injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards
and the Company's historical claims experience. The Company has not
received notice from, and has no knowledge of any threat by, any insurer
(that has issued any insurance policy to the Company) that such insurer
intends to deny coverage under or cancel, discontinue or not renew any
insurance policy presently in force.
* Tax Matters.
The Company and each subsidiary has filed all Tax
Returns which it is required to file under applicable laws; all such Tax
Returns are true and accurate and has been prepared in compliance with all
applicable laws; the Company has paid all Taxes due and owing by it or any
subsidiary (whether or not such Taxes are required to be shown on a Tax
Return) and have withheld and paid over to the appropriate taxing
authorities all Taxes which it is required to withhold from amounts paid
or owing to any employee, stockholder, creditor or other third parties;
and since December 31, 1998, the charges, accruals and reserves for Taxes
with respect to the Company (including any provisions for deferred income
taxes) reflected on the books of the Company are adequate to cover any Tax
liabilities of the Company if its current tax year were treated as ending
on the date hereof.
No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that the Company
or any subsidiary is or may be subject to taxation by that jurisdiction.
There are no foreign, federal, state or local tax audits or
administrative or judicial proceedings pending or being conducted with
respect to the Company or any subsidiary; no information related to Tax
matters has been requested by any foreign, federal, state or local taxing
authority; and, except as disclosed above, no written notice indicating an
intent to open an audit or other review has been received by the Company
or any subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed
or entered into a closing agreement pursuant to 7121 of the Internal
Revenue Code or any predecessor provision thereof or any similar provision
of state, local or foreign law; or (B) has not agreed to or is required to
make any adjustments pursuant to 481 (a) of the Internal Revenue Code or
any similar provision of state, local or foreign law by reason of a change
in accounting method initiated by the Company or any of its subsidiaries
or has any knowledge that the IRS has proposed any such adjustment or
change in accounting method, or has any application pending with any
taxing authority requesting permission for any changes in accounting
methods that relate to the business or operations of the Company. The
Company has not been a United States real property holding corporation
within the meaning of 897(c)(2) of the Internal Revenue Code during the
applicable period specified in 897(c)(1)(A)(ii) of the Internal Revenue
Code.
The Company has not made an election under 341(f) of
the Internal Revenue Code. The Company is not liable for the Taxes of
another person that is not a subsidiary of the Company under (A) Treas.
Reg. 1.1502-6 (or comparable provisions of state, local or foreign law),
(B) as a transferee or successor, (C) by contract or indemnity or (D)
otherwise. The Company is not a party to any tax sharing agreement. The
Company has not made any payments, is obligated to make payments or is a
party to an agreement that could obligate it to make any payments that
would not be deductible under 280G of the Internal Revenue Code.
For purposes of this Section 4.14:
"IRS" means the United States Internal Revenue
Service.
Tax" or "Taxes" means federal, state, county, local,
foreign, or other income, gross receipts, ad valorem,
franchise, profits, sales or use, transfer, registration,
excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or
other withholding, employment, social security, severance,
stamp, occupation, alternative or add-on minimum, estimated
and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and
interest attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or
filing with respect to Taxes, including any schedules
attached thereto and including any amendment thereof.
* Property.
Neither the Company nor any of its subsidiaries owns any real
property. Each of the Company and its subsidiaries has good and
marketable title to all personal property owned by it, free and clear of
all liens, encumbrances and defects except such as do not materially
affect the value of such property and do not materially interfere with
the use made and proposed to be made of such property by the Company;
and to the Company's knowledge any real property and buildings held
under lease by the Company as tenant are held by it under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and intended to be made
of such property and buildings by the Company.
* Intellectual Property.
Each of the Company and its subsidiaries owns or possesses adequate
and enforceable rights to use all patents, patent applications,
trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar
rights and proprietary knowledge (collectively, "Intangibles")
necessary for the conduct of its business as now being conducted. To
the Company's knowledge, except as disclosed in the SEC Documents
neither the Company nor any of its subsidiaries is infringing upon or in
conflict with any right of any other person with respect to any
Intangibles. Except as disclosed in the SEC Documents, no adverse
claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such
claim.
* Internal Controls and Procedures.
The Company maintains books and records and internal accounting
controls which provide reasonable assurance that (i) all transactions to
which the Company or any subsidiary is a party or by which its
properties are bound are executed with management's authorization; (ii)
the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any
subsidiary is a party or by which its properties are bound are recorded
as necessary to permit preparation of the financial statements of the
Company in accordance with U.S. generally accepted accounting
principles.
* Payments and Contributions.
Neither the Company, any subsidiary, nor any of its directors,
officers or, to its knowledge, other employees has (i) used any Company
funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any
direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977,
as amended; or (iv) made any bribe, rebate, payoff, influence payment,
kickback or other similar payment to any person with respect to Company
matters.
* No Misrepresentation.
The representations and warranties of the Company contained in this
Agreement, any schedule, annex or exhibit hereto and any agreement,
instrument or certificate furnished by the Company to the Investor
pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Covenants of the Investor
Investor covenants with the Company that:
* Compliance with Law.
The Investor's trading activities with respect to shares of the
Company's Common Stock will be in compliance with all applicable state
and federal securities laws, rules and regulations and rules and
regulations of the Principal Market on which the Company's Common Stock
is listed. Without limiting the generality of the foregoing, the
Investor agrees that it will, whenever required by federal securities
laws, deliver the prospectus included in the Registration Statement to
any purchaser of Put Shares from the Investor.
Covenants of the Company
* Registration Rights.
The Company shall cause the Registration Rights Agreement to remain in
full force and effect and the Company shall comply in all material
respects with the terms thereof.
* Listing of Common Stock.
The Company hereby agrees to maintain the listing of the Common Stock on
a Principal Market, and as soon as practicable (but in any event prior
to the commencement of the Commitment Period) to list the Put Shares and
the Warrant Shares. The Company further agrees, if the Company applies
to have the Common Stock traded on any other Principal Market, it will
include in such application the Put Shares and the Warrant Shares and
will take such other action as is necessary or desirable in the opinion
of the investor to cause the Common Stock to be listed on such other
Principal Market as promptly as possible. The Company will take all
action to continue the listing and trading of its Common Stock on the
Principal Market (including, without limitation, maintaining sufficient
net tangible assets) and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market and shall provide Investor with copies of any
correspondence to or from such Principal Market which questions or
threatens delisting of the Common Stock, within one Trading Day of the
Company's receipt thereof.
* Exchange Act Registration.
The Company will cause its Common Stock to continue to be registered
under Section 12(g) or 12(b) of the Exchange Act, will use its best
efforts to comply in all respects with its reporting and filing
obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act.
* Legends.
The certificates evidencing the Common Stock to be sold to the Investor
shall be free of restrictive legends.
* Corporate Existence.
The Company will take all steps necessary to preserve and continue the
corporate existence of the Company.
* Additional SEC Documents.
During the Commitment Period, the Company will deliver to the Investor,
as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC, or
else notify the Investor that such documents are available on the EDGAR
system.
* Notice of Certain Events Affecting Registration; Suspension of Right
to Make a Put.
The Company will immediately notify the Investor upon the occurrence of
any of the following events in respect of a registration statement or
related prospectus in respect of an offering of Registrable Securities;
(i) receipt of any request for additional information from the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement the response to which would
require any amendments or supplements to the registration statement or
related prospectus; (ii) the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made
in the Registration Statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in
any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the
case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, and that in the case of the related prospectus, it will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make
available to the Investor any such supplement or amendment to the
related prospectus. The Company shall not deliver to the Investor any
Put Notice during the continuation of any of the foregoing events.
* Expectations Regarding Put Notices.
Within ten (10) days after the commencement of each calendar quarter
occurring subsequent to the commencement of the Commitment Period, the
Company must notify the Investor, in writing, as to its reasonable
expectations as to the dollar amount it intends to raise during such
calendar quarter, if any, through the issuance of Put Notices. Such
notification shall constitute only the Company's good faith estimate and
shall in no way obligate the Company to raise such amount, or any
amount, or otherwise limit its ability to deliver Put Notices. The
failure by the Company to comply with this provision can be cured by the
Company's notifying the Investor, in writing, at any time as to its
reasonable expectations with respect to the current calendar quarter.
* Consolidation; Merger.
The Company shall not, at any time after the date hereof, effect any
merger or consolidation of the Company with or into, or a transfer of
all or substantially all of the assets of the Company to, another entity
(a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Investor such shares
of stock and/or securities as the Investor is entitled to receive
pursuant to this Agreement.
* Non-Usage Fee.
Unless the Company shall issue Put Notices in the minimum amount of
$250,000 during each six months of the Commitment Period, the Company
shall pay the Investor at the end of each such six-month period a non-
usage fee equal to Twenty-Five Thousand Dollars ($25,000) minus ten
percent (10%) of the dollar amount of Puts actually issued during such
period.
Conditions to Delivery of Puts
and Conditions to Closing
* Conditions Precedent to the Obligation of the Company to Issue and
Sell Common Stock.
The obligation hereunder of the Company to issue and sell the Put Shares
to the Investor incident to each Closing is subject to the satisfaction,
at or before each such Closing, of each of the conditions set forth
below.
(a) Accuracy of the Investor's Representation and
Warranties. The representations and warranties of the Investor shall be
true and correct in all material respects as of the date of this
Agreement and as of the date of each such Closing as though made at each
such time.
(b) Performance by the Investor. The Investor shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Investor at or prior to
such Closing, and Investor shall provide a certificate to the Company,
substantially in the form of that delivered by the Investor at the
Closing of the sale of the Initial Shares, to such effect.
* Conditions Precedent to the Right of the Company to Deliver a Put
Notice and the Obligation of the Investor to Purchase Put Shares.
The right of the Company to deliver a Put Notice and the obligation of
Investor hereunder to acquire and pay for the Put Shares incident to a
Closing is subject to the satisfaction, on both (i) the date of delivery
of such Put Notice and (ii) the applicable Closing Date (each a
"Condition Satisfaction Date"), of each of the following conditions:
(a) Closing Certificate. All representations and
warranties of the Company contained herein shall remain true and correct
as of the Closing Date as though made as of such date and the Company
shall have delivered into escrow an Officer's Certificate signed by its
Chief Executive Officer certifying that all of the Company's
representations and warranties herein remain true and correct as of the
Closing Date and that the Company has performed all covenants and
satisfied all conditions to be performed or satisfied by the Company
prior to such Closing;
(b) Blue Sky. The Company shall have obtained all
permits and qualifications required by any state for the offer and sale
of the Common Stock to the Investor and by the Investor as set forth in
the Registration Rights Agreement or shall have the availability of
exemptions therefrom;
(c) Delivery of Put Shares. Delivery into escrow or
to DTC of the Put Shares;
(d) Opinion of Counsel. Receipt by the Investor of
an opinion of counsel to the Company, in the form of Exhibit D hereto;
and
(e) Transfer Agent. Delivery to the Company's
transfer agent of instructions to such transfer agent in form and
substance reasonably satisfactory to the Investor.
(f) Registration of the Common Stock with the SEC.
The Registration Statement shall have previously become effective and
shall remain effective and available for making resales of the Put
Shares and Warrant Shares by the Investor on each Condition Satisfaction
Date and (i) neither the Company nor the Investor shall have received
notice that the SEC has issued or intends to issue a stop order with
respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement,
either temporarily or permanently, or intends or has threatened to do so
(unless the SEC's concerns have been addressed and the Investor is
reasonably satisfied that the SEC no longer is considering or intends to
take such action), and (ii) no other suspension of the use or withdrawal
of the effectiveness of the Registration Statement or related prospectus
shall exist.
(g) Authority. The Company will satisfy all laws and
regulations pertaining to the sale and issuance of the Put Shares.
(h) Performance by the Company. The Company shall
have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement, the
Registration Rights Agreement and the Escrow Agreement to be performed,
satisfied or complied with by the Company at or prior to each Condition
Satisfaction Date.
(i) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority
of competent jurisdiction that prohibits or directly and adversely
affects any of the transactions contemplated by this Agreement, and no
proceeding shall have been commenced that may have the effect of
prohibiting or adversely affecting any of the transactions contemplated
by this Agreement.
(j) Adverse Changes. Since the date of filing of
the Company's most recent SEC Document, no event that had or is
reasonably likely to have a Material Adverse Effect has occurred.
(k) No Suspension of Trading In or Delisting of
Common Stock. The trading of the Common Stock (including, without
limitation, the Put Shares) is not suspended by the SEC or the Principal
Market, and the Common Stock (including, without limitation, the Put
Shares) shall have been approved for listing or quotation on and shall
not have been delisted from the Principal Market. The issuance of shares
of Common Stock with respect to the applicable Closing, if any, shall
not violate the shareholder approval requirements of the Principal
Market. The Company shall not have received any notice threatening to
delist the Common Stock from the Principal Market.
(l) No Knowledge. The Company has no knowledge of
any event more likely than not to have the effect of causing such
Registration Statement to be suspended or otherwise ineffective (which
event is reasonably likely to occur within the thirty (30) Trading Days
following the Trading Day on which such Notice is deemed delivered).
(m) Trading Cushion. The Trading Cushion shall have
elapsed since the next preceding Put Date.
(n) Other. On each Condition Satisfaction Date, the
Investor shall have received and been reasonably satisfied with such
other certificates and documents as shall have been reasonably requested
by the Investor in order for the Investor to confirm the Company's
satisfaction of the conditions set forth in this Section 7.2.
Due Diligence Review; Non-Disclosure of Non-Public Information.
* Due Diligence Review.
The Company shall make available for inspection and review by the
Investor, advisors to and representatives of the Investor (who may or
may not be affiliated with the Investor and who are reasonably
acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor
pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, NASD or other
filing, all SEC Documents and other filings with the SEC, and all other
publicly available corporate documents and properties of the Company as
may be reasonably necessary for the purpose of such review, and cause
the Company's officers, directors and employees to supply all such
publicly available information reasonably requested by the Investor or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to
all questions and other inquiries reasonably made or submitted by any of
them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the
Investor and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the
Registration Statement.
* Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public
information to the Investor, advisors to or representatives of the
Investor unless prior to disclosure of such information the Company
identifies such information as being non-public information and provides
the Investor, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review. The
Company may, as a condition to disclosing any non-public information
hereunder, require the Investor's advisors and representatives to enter
into a confidentiality agreement in form reasonably satisfactory to the
Company and the Investor.
(b) The Company represents that it does not
disseminate non-public information to any investors who purchase stock
in the Company in a public offering, to money managers or to securities
analysts, provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately notify
the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which
it becomes aware, constituting non-public information (whether or not
requested of the Company specifically or generally during the course of
due diligence by such persons or entities), which, if not disclosed in
the prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein
in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 8.2 shall be construed to mean that
such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not
obtain non-public information in the course of conducting due diligence
in accordance with the terms of this Agreement and nothing herein shall
prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities,
that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the
Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not
misleading.
Transfer Agent Instructions
* Transfer Agent Instructions.
Upon each Closing, the Company will issue to the transfer agent for its
Common Stock (and to any substitute or replacement transfer agent for
its Common Stock upon the Company's appointment of any such substitute
or replacement transfer agent) instructions to deliver the Put Shares
without restrictive legends to the Escrow Agent.
* No Legend or Stock Transfer Restrictions.
No legend shall be placed on the share certificates representing the Put
Shares and no instructions or "stop transfer orders," so called,
"stock transfer restrictions," or other restrictions have been or
shall be given to the Company's transfer agent with respect thereto.
* Investor's Compliance.
Nothing in this Article shall affect in any way the Investor's
obligations under any agreement to comply with all applicable securities
laws upon resale of the Put Shares.
Choice of Law
* Governing Law/Arbitration.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made in New York
by persons domiciled in New York City and without regard to its
principles of conflicts of laws. Any dispute under this Agreement or
any Exhibit attached hereto shall be submitted to arbitration under the
American Arbitration Association (the "AAA") in New York City, New
York, and shall be finally and conclusively determined by the decision
of a board of arbitration consisting of three (3) members (hereinafter
referred to as the "Board of Arbitration") selected as according to
the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach
and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any,
which the losing party is required to pay to the other party in respect
of a claim filed. In connection with rendering its decisions, the Board
of Arbitration shall adopt and follow the laws of the State of New York.
To the extent practical, decisions of the Board of Arbitration shall be
rendered no more than thirty (30) calendar days following commencement
of proceedings with respect thereto. The Board of Arbitration shall
cause its written decision to be delivered to all parties involved in
the dispute. The Board of Arbitration shall be authorized and is
directed to enter a default judgment against any party refusing to
participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of
Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the
parties to the dispute, and entitled to be enforced to the fullest
extent permitted by law and entered in any court of competent
jurisdiction. The prevailing party shall be awarded its costs,
including attorneys' fees, from the non-prevailing party as part of the
arbitration award. Any party shall have the right to seek injunctive
relief from any court of competent jurisdiction in any case where such
relief is available. The prevailing party in such injuctive action
shall be awarded its costs, including attorney's fees, from the non-
prevailing party.
Assignment
* Assignment.
Neither this Agreement nor any rights of the Investor or the Company
hereunder may be assigned by either party to any other person except by
operation of law. Notwithstanding the foregoing, upon the prior written
consent of the Company, which consent shall not unreasonably be withheld
or delayed in the case of an assignment to an affiliate of the Investor,
the Investor's interest in this Agreement may be assigned at any time,
in whole or in part, to any other person or entity (including any
affiliate of the Investor) who agrees to make the representations and
warranties contained in Article III and who agrees to be bound hereby.
Notices
* Notices.
All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery,
telegram, or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or
delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated
below (if delivered on a business day during normal business hours where
such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by reputable courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such
communications shall be:
If to American Champion 1694 The Alameda, Suite 100
Entertainment Inc.: San Jose, CA 95126
Attention: Anthony Chan
Telephone: (408) 288-8199
Facsimile: (408) 288-8098
if to the Investor: Sibson Holdings, Ltd.
c/o Dr. Batliner & Partners
Aeulestrasse 74
FI-9490, Vaduz, Liechtenstein
Attention: Hans Gassner
Telephone: 011-
Facsimile: 011-
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 12.1 by giving at least
ten (10) days' prior written notice of such changed address or facsimile
number to the other party hereto.
Miscellaneous
* Counterparts/ Facsimile/ Amendments.
This Agreement may be executed in multiple counterparts, each of which
may be executed by less than all of the parties and shall be deemed to
be an original instrument which shall be enforceable against the parties
actually executing such counterparts and all of which together shall
constitute one and the same instrument. Except as otherwise stated
herein, in lieu of the original documents, a facsimile transmission or
copy of the original documents shall be as effective and enforceable as
the original. This Agreement may be amended only by a writing executed
by all parties.
* Entire Agreement.
This Agreement, the Exhibits hereto, which include, but are not limited
to the Escrow Agreement, the Registration Rights Agreement and the
Warrants, set forth the entire agreement and understanding of the
parties relating to the subject matter hereof and supersedes all prior
and contemporaneous agreements, negotiations and understandings between
the parties, both oral and written relating to the subject matter
hereof. The terms and conditions of all Exhibits to this Agreement are
incorporated herein by this reference and shall constitute part of this
Agreement as is fully set forth herein.
* Survival; Severability.
The representations, warranties, covenants and agreements of the parties
hereto shall survive each Closing hereunder. In the event that any
provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it
materially changes the economic benefit of this Agreement to any party.
* Title and Subtitles.
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this
Agreement.
* Reporting Entity for the Common Stock.
The reporting entity relied upon for the determination of the trading
price or trading volume of the Common Stock on any given Trading Day for
the purposes of this Agreement shall be Bloomberg, L.P. or any successor
thereto. The written mutual consent of the Investor and the Company
shall be required to employ any other reporting entity.
* Replacement of Certificates.
Upon (i) receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of a certificate representing
the Put Shares and (ii) in the case of any such loss, theft or
destruction of such certificate, upon delivery of an indemnity agreement
or security reasonably satisfactory in form and amount to the Company
(which shall not exceed that required by the Company's transfer agent in
the ordinary course) or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its
expense will execute and deliver, in lieu thereof, a new certificate of
like tenor.
* Fees and Expenses.
Each of the Company and the Investors agrees to pay its own expenses
incident to the performance of its obligations hereunder, except that
the Company shall pay the fees, expenses and disbursements of Investors'
counsel in the amount of $15,000 plus $1,500 per Closing of a Put.
* Brokerage.
Each of the parties hereto represents that it has had no dealings in
connection with this transaction with any finder or broker who will
demand payment of any fee or commission from the other party except
Union Atlantic, L.C. whose fee shall be paid by the Company. The Company
on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's
fees on account of services purported to have been rendered on behalf of
the indemnifying party in connection with this Agreement or the
transactions contemplated hereby.
Section 13.9 Publicity. The Company agrees that it will not
issue any press release or other public announcement of the transactions
contemplated by this Agreement without the prior consent of the
Investor, which shall not be unreasonably withheld nor delayed by more
than two (2) Trading Days from its receipt of such proposed release;
provided, however, that if the Company is advised by its outside counsel
that it is required by law or the applicable rules of any Principal
Market to issue any such press release or public announcement, then, it
may do so without the prior consent of the Investor, although it shall
be required to provide prior notice (which may be by telephone) to the
Investor that it intends to issue such press release or public
announcement. No release shall name the Investor without its express
consent.
Section 13.10 Effectiveness of Agreement.
This Agreement shall become effective only upon satisfaction of the
conditions precedent to the Initial Closing set forth in Article I of
the Escrow Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Private
Equity Line of Credit Agreement to be executed by the undersigned,
thereunto duly authorized, as of the date first set forth above.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:
______________________________________
Anthony Chan, President and CEO
SIBSON HOLDINGS, LTD.
By:_______________________________________
Hans Gassner, Director
EXHIBIT A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of April 12,
2000, by and among American Champion Entertainment, Inc., a corporation
incorporated under the laws of the State of Delaware, (the "Company"),
Sibson Holdings, Ltd. ("Investor") and Epstein Becker & Green, P.C., (the
"Escrow Agent"). Capitalized terms used but not defined herein shall have
the meanings set forth in the Private Equity Line of Credit Agreement
referred to in the first recital.
W I T N E S S E T H:
WHEREAS, the Investor will from time to time as requested by the
Company, purchase shares of the Company's Common Stock from the Company as
set forth in that certain Private Equity Line of Credit Agreement (the
"Purchase Agreement") dated the date hereof between the Investor and the
Company, which will be issued as per the terms and conditions contained
herein and in the Purchase Agreement; and
WHEREAS, the Company and the Investor have requested that the Escrow
Agent hold in escrow and then distribute the initial documents and certain
funds which are conditions precedent to the effectiveness of the Purchase
Agreement, and have further requested that upon each exercise of a Put,
the Escrow Agent hold the relevant documents and the applicable purchase
price pending receipt by the Investor of certificates representing the
securities issuable upon such Put;
NOW, THEREFORE, in consideration of the covenants and mutual
promises contained herein and other good and valuable consideration, the
receipt and legal sufficiency of which are hereby acknowledged and
intending to be legally bound hereby, the parties agree as follows:
TERMS OF THE ESCROW FOR THE INITIAL CLOSING
* The parties hereby agree to establish an escrow account with the Escrow
Agent whereby the Escrow Agent shall hold the funds and documents which
are referenced in Section 7.2 of the Purchase Agreement.
* At the Initial Closing, the Company shall deliver to the Escrow Agent:
* the original Warrant certificate representing the initial issuance of
175,000 Warrants in the form of Exhibit D to the Purchase Agreement;
* the original executed Registration Rights Agreement in the form of
Exhibit C to the Purchase Agreement;
* the original executed opinion of _________________, Counsel of the
Company, in the form of Exhibit E to the Purchase Agreement;
* the sum of $15,000;
* the original executed Company counterpart of this Escrow Agreement;
* the original executed Company counterpart of the Purchase Agreement;
and
* a warrant certificate issued to Union Atlantic, L.C. to purchase up to
50,000 shares of Common Stock in identical form to that of the Warrants
(the "UA Warrant").
* Upon receipt of the foregoing, and receipt of executed counterparts
from Investor of the Purchase Agreement, the Registration Rights
Agreement and this Escrow Agreement, the Escrow Agent shall enter the
Exercise Price, Commencement Date and Termination Date of the Warrant
on the face of the Warrant and UA Warrant and immediately transfer the
sum of fifteen thousand dollars ($15,000) to Epstein Becker & Green,
P.C. ("EB&G"), 250 Park Avenue, New York, New York 10177 for the
Investor's legal and administrative costs and arrange to have the
Warrant certificate, the Purchase Agreement, this Escrow Agreement, the
Registration Rights Agreement and the opinion of counsel delivered to
the Investor and the UA Warrant delivered to Union Atlantic, L.C.
TERMS OF THE ESCROW FOR EACH PUT
* Each time the Company shall send a Put Notice to the Investor as
provided in the Purchase Agreement, it shall send a copy, by facsimile,
to the Escrow Agent.
* Each time the Investor shall purchase shares pursuant to a
Put, the Investor shall send the applicable Investment Amount of the
Put Shares to the Escrow Agent on or before the Closing Date for such
Put. The Company shall promptly, but no later than five (5) Trading
Days after receipt of notice from the Escrow Agent that it has the
funds for the Investment Amount cause its Transfer Agent to deliver the
Put Shares to the Investor's account through the Depository Trust
Company and the Pro-Rata Warrants to the Escrow Agent, if possible, or
else to deliver such certificates to the Escrow Agent. In the event
that the certificates representing the Put Shares and Warrants are not
in the Investor's or the Escrow Agent's possession within five (5)
Trading Days of the date of the Escrow Agent's notice, then Investor
shall have the right to demand, by notice, the return of the Investment
Amount, and the Put Notice shall be deemed cancelled. The Escrow Agent
shall enter the Exercise Price, Commencement Date and Termination Date
of each Warrant on the face of each Warrant and deliver such
certificates to the Investor and within one (1) Trading Day of Closing
wire the Investment Amount per the written instructions of the Company
net of:
* a brokerage fee equal to seven percent (7%) of the Investment Amount of
each Put, to Union Atlantic, L.C. and
* One Thousand Five Hundred Dollars ($1,500) as escrow expenses to the
Escrow Agent.
The Escrow Agent shall remit Broker's fee to Broker in accordance with
wire instructions that will be sent to Escrow Agent from Broker.
MISCELLANEOUS
* No waiver or any breach of any covenant or provision herein contained
shall be deemed a waiver of any preceding or succeeding breach thereof,
or of any other covenant or provision herein contained. No extension
of time for performance of any obligation or act shall be deemed an
extension of the time for performance of any other obligation or act.
* All notices or other communications required or permitted
hereunder shall be in writing, and shall be sent by fax, overnight
courier, registered or certified mail, postage prepaid, return receipt
requested, and shall be deemed received upon receipt thereof, as set
forth in the Purchase Agreement.
* This Escrow Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and permitted assigns of the
parties hereto.
* This Escrow Agreement is the final expression of, and contains the
entire agreement between, the parties with respect to the subject
matter hereof and supersedes all prior understandings with respect
thereto. This Escrow Agreement may not be modified, changed,
supplemented or terminated, nor may any obligations hereunder be
waived, except by written instrument signed by the parties to be
charged or by their respective agents duly authorized in writing or as
otherwise expressly permitted herein.
* Whenever required by the context of this Escrow Agreement, the singular
shall include the plural and masculine shall include the feminine.
This Escrow Agreement shall not be construed as if it had been prepared
by one of the parties, but rather as if both parties had prepared the
same. Unless otherwise indicated, all references to Articles are to
this Escrow Agreement.
* The parties hereto expressly agree that this Escrow Agreement shall be
governed by, interpreted under and construed and enforced in accordance
with the laws of the State of New York. Except as expressly set forth
herein, any action to enforce, arising out of, or relating in any way
to, any provisions of this Escrow Agreement shall brought through the
American Arbitration Association at the designated locale of New York,
New York as is more fully set forth in the Purchase Agreement.
* The Escrow Agent's duties hereunder may be altered, amended, modified
or revoked only by a writing signed by the Company, each Investor and
the Escrow Agent.
* The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument
reasonably believed by the Escrow Agent to be genuine and to have been
signed or presented by the proper party or parties. The Escrow Agent
shall not be personally liable for any act the Escrow Agent may do or
omit to do hereunder as the Escrow Agent while acting in good faith,
excepting only its own gross negligence or willful misconduct, and any
act done or omitted by the Escrow Agent pursuant to the advice of the
Escrow Agent's attorneys-at-law (other than Escrow Agent itself) shall
be conclusive evidence of such good faith.
* The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person
or corporation, excepting only orders or process of courts of law and
is hereby expressly authorized to comply with and obey orders,
judgments or decrees of any court. In case the Escrow Agent obeys or
complies with any such order, judgment or decree, the Escrow Agent
shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such decree being subsequently
reversed, modified, annulled, set aside, vacated or found to have been
entered without jurisdiction.
* The Escrow Agent shall not be liable in any respect on account of the
identity, authorization or rights of the parties executing or
delivering or purporting to execute or deliver the Purchase Agreement
or any documents or papers deposited or called for thereunder or
hereunder.
* The Escrow Agent shall be entitled to employ such legal counsel and
other experts as the Escrow Agent may deem necessary properly to advise
the Escrow Agent in connection with the Escrow Agent's duties
hereunder, may rely upon the advice of such counsel, and may pay such
counsel reasonable compensation therefor. The Escrow Agent has
acted as legal counsel for the Investor, and may continue to
act as legal counsel for the Investor, from time to time,
notwithstanding its duties as the Escrow Agent hereunder. The
Company consents to the Escrow Agent in such capacity as legal
counsel for the Investors and waives any claim that such
representation represents a conflict of interest on the part of
the Escrow Agent. The Company understands that the Investor
and the Escrow Agent are relying explicitly on the foregoing
provision in entering into this Escrow Agreement.
* The Escrow Agent's responsibilities as escrow agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the
Company and the Investor. In the event of any such resignation, the
Investors and the Company shall appoint a successor Escrow Agent.
* If the Escrow Agent reasonably requires other or further instruments in
connection with this Escrow Agreement or obligations in respect hereto,
the necessary parties hereto shall join in furnishing such instruments.
* It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the
documents or the escrow funds held by the Escrow Agent hereunder, the
Escrow Agent is authorized and directed in the Escrow Agent's sole
discretion (1) to retain in the Escrow Agent's possession without
liability to anyone all or any part of said documents or the escrow
funds until such disputes shall have been settled either by mutual
written agreement of the parties concerned by a final order, decree or
judgment or a court of competent jurisdiction after the time for appeal
has expired and no appeal has been perfected, but the Escrow Agent
shall be under no duty whatsoever to institute or defend any such
proceedings or (2) to deliver the escrow funds and any other property
and documents held by the Escrow Agent hereunder to a state or federal
court having competent subject matter jurisdiction and located in the
State and City of New York in accordance with the applicable procedure
therefor.
* The Company and the Investor agree jointly and severally to indemnify
and hold harmless the Escrow Agent and its partners, employees, agents
and representatives from any and all claims, liabilities, costs or
expenses in any way arising from or relating to the duties or
performance of the Escrow Agent hereunder or the transactions
contemplated hereby or by the Purchase Agreement other than any such
claim, liability, cost or expense to the extent the same shall have
been determined by final, unappealable judgment of a court of competent
jurisdiction to have resulted from the gross negligence or willful
misconduct of the Escrow Agent.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date written above.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:
Anthony Chan, President and CEO
INVESTOR:
SIBSON HOLDINGS, LTD.
By:
Hans Gassner, Director
ESCROW AGENT:
EPSTEIN BECKER & GREEN, P.C.
By:
Joseph A. Smith,
Authorized Signatory
EXHIBIT B
PUT NOTICE/COMPLIANCE CERTIFICATE
American Champion Entertainment, Inc.
The undersigned hereby certifies, with respect to shares of Common Stock
of American Champion Entertainment, Inc. (the "Company") issuable in
connection with this Put Notice and Compliance Certificate dated
_____________ (the "Notice"), delivered pursuant to Article II of the
Private Equity Line of Credit Agreement dated as of April ___, 2000 (the
"Agreement"), as follows:
1. The undersigned is the duly appointed Chief Executive Officer of
the Company.
2. The representations and warranties of the Company set forth in the
Agreement are true and correct in all material respects as though made
on and as of the date hereof and all SEC Documents are as represented in
Section 4.5 of the Agreement.
3. The Company has performed in all material respects all covenants
and agreements to be performed by the Company on or prior to the date of
this Put Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The Investment Amount is $___________.
The undersigned has executed this Certificate this ____ day of ________,
_____.
AMERICAN CHAMPION
ENTERTAINMENT, INC.
____________________
Chief Executive Officer
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of the ____ day of April,
2000, between Sibson Holdings, Ltd. ("Holder") and American Champion
Entertainment, Inc., a corporation incorporated under the laws of the
State of Delaware (the "Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, pursuant to a Private Equity Line of Credit Agreement dated the
date hereof (the "Purchase Agreement") the Holder has committed to
purchase up to $5,000,000 worth of the Company's Common Stock (terms not
defined herein shall have the meanings ascribed to them in the Purchase
Agreement); and
WHEREAS, the Company desires to grant to the Holder the registration
rights set forth herein with respect to the Put Shares and the Blackout
Shares issuable upon exercise of the Company's Put rights from time to
time and the Warrant Shares (hereinafter referred to as the "Put Shares"
or "Stock" or "Securities" of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Registrable Securities. As used herein the term "Registrable
Security" means the Securities until (i) all Put Shares and Warrant
Shares have been disposed of pursuant to the Registration Statement,
(ii) all Put Shares and Warrant Shares have been sold under
circumstances under which all of the applicable conditions of Rule 144
(or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Put Shares and Warrant Shares have
been otherwise transferred to persons who may trade such Securities
without restriction under the Securities Act, and the Company has
delivered a new certificate or other evidence of ownership for such Put
Shares and Warrant Shares not bearing a restrictive legend or (iv) such
time as, in the opinion of counsel to the Company, all Put Shares and
Warrant Shares may be sold without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act. The term "Registrable Securities"
means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in
corporate structure affecting the Common Stock, such adjustment shall be
deemed to be made in the definition of "Registrable Security" as is
appropriate in order to prevent any dilution or enlargement of the
rights granted pursuant to this Agreement.
Restrictions on Transfer. The Holder acknowledges and understands that
in the absence of an effective Registration Statement authorizing the
resale of the Securities as provided herein, the Securities are
"restricted securities" as defined in Rule 144 promulgated under the
Act. The Holder understands that no disposition or transfer of the
Securities may be made by Holder in the absence of (i) an opinion of
counsel to the Holder, in form and substance reasonably satisfactory to
the Company, that such transfer may be made without registration under
the Securities Act or (ii) such registration.
With a view to making available to the Holder the benefits of Rule
144 under the Securities Act or any other similar rule or regulation of
the Commission that may at any time permit the Holder to sell securities
of the Company to the public without registration ("Rule 144"), the
Company agrees to:
* comply with the provisions of paragraph (c)(1) of Rule 144; and
* file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or
15(d) under the Exchange Act; and, if at any time it is not required to
file such reports but in the past had been required to or did file such
reports, it will, upon the request of any Holder, make available other
information as required by, and so long as necessary to permit sales
of, its Registrable Securities pursuant to Rule 144.
Registration Rights With Respect to the Securities.
* The Company agrees that it will prepare and file with the Securities
and Exchange Commission ("Commission"), within sixty (60) days after
the date hereof, a registration statement (on Form S-1, S-3, or other
appropriate form of registration statement) under the Securities Act
(the "Registration Statement"), at the sole expense of the Company
(except as provided in Section 3(c) hereof), so as to permit a public
offering and resale of the Securities under the Act by Holder.
The Company shall use its best efforts to cause the Registration
Statement to become effective within one hundred twenty (120) days from
the date hereof, or, if earlier, within five (5) days of SEC clearance to
request acceleration of effectiveness. If the Registration Statement is
not declared effective by September 30, 2000, the Holder may terminate
this Agreement and the Purchase Agreement. The number of shares designated
in the Registration Statement to be registered shall be at least 3,500,000
and shall include appropriate language regarding reliance upon Rule 416 to
the extent permitted by the Commission. The Company will notify Holder of
the effectiveness of the Registration Statement within one Trading Day of
such event.
* The Company will maintain the Registration Statement or post-effective
amendment filed under this Section 3 hereof effective under the
Securities Act until the earlier of (i) the date that none of the
Securities are or may become issued and outstanding, (ii) the date that
all of the Securities have been sold pursuant to the Registration
Statement, (iii) the date the holders thereof receive an opinion of
counsel to the Company, which counsel shall be reasonably acceptable to
the Holder, that the Securities may be sold under the provisions of
Rule 144 without limitation as to volume, (iv) all Securities have been
otherwise transferred to persons who may trade such shares without
restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not
bearing a restrictive legend, or (v) all Securities may be sold without
any time, volume or manner limitations pursuant to Rule 144(k) or any
similar provision then in effect under the Securities Act in the
opinion of counsel to the Company, which counsel shall be reasonably
acceptable to the Holder (the "Effectiveness Period").
* All fees, disbursements and out-of-pocket expenses and costs incurred
by the Company in connection with the preparation and filing of the
Registration Statement under subparagraph 3(a) and in complying with
applicable securities and Blue Sky laws (including, without limitation,
all attorneys' fees of the Company) shall be borne by the Company. The
Holder shall bear the cost of underwriting and/or brokerage discounts,
fees and commissions, if any, applicable to the Securities being
registered and the fees and expenses of its counsel. The Holder and its
counsel shall have a reasonable period, not to exceed ten (10) Trading
Days, to review the proposed Registration Statement or any amendment
thereto, prior to filing with the Commission, and the Company shall
provide each Holder with copies of any comment letters received from
the Commission with respect thereto within two (2) Trading Days of
receipt thereof. The Company shall make reasonably available for
inspection by Holder, any underwriter participating in any disposition
pursuant to the Registration Statement, and any attorney, accountant or
other agent retained by such Holder or any such underwriter all
relevant financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by such Holder or any such underwriter, attorney, accountant
or agent in connection with the Registration Statement, in each case,
as is customary for similar due diligence examinations; provided,
however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material non-public information shall be
kept confidential by such Holder and any such underwriter, attorney,
accountant or agent (pursuant to an appropriate confidentiality
agreement in the case of any such Holder or agent), unless such
disclosure is made pursuant to judicial process in a court proceeding
(after first giving the Company an opportunity promptly to seek a
protective order or otherwise limit the scope of the information sought
to be disclosed) or is required by law, or such records, information or
documents become available to the public generally or through a third
party not in violation of an accompanying obligation of
confidentiality; and provided further that, if the foregoing inspection
and information gathering would otherwise disrupt the Company's conduct
of its business, such inspection and information gathering shall, to
the maximum extent possible, be coordinated on behalf of the Holder and
the other parties entitled thereto by one firm of counsel designed by
and on behalf of the majority in interest of Holder and other parties.
The Company shall qualify any of the securities for sale in such
states as such Holder reasonably designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However,
the Company shall not be required to qualify in any state which will
require an escrow or other restriction relating to the Company and/or
the sellers, or which will require the Company to qualify to do
business in such state or require the Company to file therein any
general consent to service of process. The Company at its expense will
supply the Holder with copies of the Registration Statement and the
prospectus included therein and other related documents in such
quantities as may be reasonably requested by the Holder.
* The Company shall not be required by this Section 3 to include a
Holder's Securities in any Registration Statement which is to be filed
if, in the opinion of counsel for both the Holder and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Holder and the
Company) the proposed offering or other transfer as to which such
registration is requested is exempt from applicable federal and state
securities laws and would result in all purchasers or transferees
obtaining securities which are not "restricted securities", as defined
in Rule 144 under the Securities Act.
* No provision contained herein shall preclude the Company from selling
securities pursuant to any Registration Statement in which it is
required to include Securities pursuant to this Section 3.
* If at any time or from time to time after the effective date of the
Registration Statement, the Company notifies the Holder in writing of
the existence of a Potential Material Event (as defined in Section 3(g)
below), the Holder shall not offer or sell any Securities or engage in
any other transaction involving or relating to Securities, from the
time of the giving of notice with respect to a Potential Material Event
until such Holder receives written notice from the Company that such
Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event. If a Potential Material
Event shall occur prior to the date the Registration Statement is
filed, then the Company's obligation to file the Registration Statement
shall be delayed without penalty for not more than thirty (30) days.
The Company must give Holder notice in writing at least two (2)
Trading Days prior to the first day of the blackout period, if lawful
to do so.
* "Potential Material Event" means any of the following: (a) the
possession by the Company of material information that is not ripe for
disclosure in a registration statement, as determined in good faith by
the Chief Executive Officer or the Board of Directors of the Company or
that disclosure of such information in the Registration Statement would
be detrimental to the business and affairs of the Company; or (b) any
material engagement or activity by the Company which would, in the good
faith determination of the Chief Executive Officer or the Board of
Directors of the Company, be adversely affected by disclosure in a
registration statement at such time, which determination shall be
accompanied by a good faith determination by the Chief Executive
Officer or the Board of Directors of the Company that the Registration
Statement would be materially misleading absent the inclusion of such
information.
Cooperation with Company. Holder will cooperate with the Company in all
respects in connection with this Agreement, including timely supplying
all information reasonably requested by the Company (which shall include
all information regarding the Holder and proposed manner of sale of the
Registrable Securities required to be disclosed in the Registration
Statement) and executing and returning all documents reasonably
requested in connection with the registration and sale of the
Registrable Securities and entering into and performing its obligations
under any underwriting agreement, if the offering is an underwritten
offering, in usual and customary form, with the managing underwriter or
underwriters of such underwritten offering. The Holder consents to be
named as a statutory underwriter in the Registration Statement.
Registration Procedures. If and whenever the Company is required by
any of the provisions of this Agreement to effect the registration of
any of the Registrable Securities under the Act, the Company shall
(except as otherwise provided in this Agreement), as expeditiously as
possible, subject to the Holder's assistance and cooperation as
reasonably required:
* prepare and file with the Commission such amendments and supplements to
the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Act with respect to
the sale or other disposition of all securities covered by such
registration statement whenever the Holder of such Registrable
Securities shall desire to sell or otherwise dispose of the same
(including prospectus supplements with respect to the sales of
securities from time to time in connection with a registration
statement pursuant to Rule 415 promulgated under the Act) and (ii) take
all lawful action such that each of (A) the Registration Statement and
any amendment thereto does not, when it becomes effective, contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, not misleading and (B) the Prospectus forming part of the
Registration Statement, and any amendment or supplement thereto, does
not at any time during the Registration Period include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
* prior to the filing with the Commission of any Registration Statement
(including any amendments thereto) and the distribution or delivery of
any prospectus (including any supplements thereto), provide draft
copies thereof to the Holders and reflect in such documents all such
comments as the Holders (and their counsel) reasonably may propose and
(ii) furnish to each Holder such numbers of copies of a prospectus
including a preliminary prospectus or any amendment or supplement to
any prospectus, as applicable, in conformity with the requirements of
the Act, and such other documents, as such Holder may reasonably
request in order to facilitate the public sale or other disposition of
the securities owned by such Holder;
* register and qualify the Registrable Securities covered by the
Registration Statement under such other securities or blue sky laws of
such jurisdictions as the Holder shall reasonably request (subject to
the limitations set forth in Section 3(d) above), and do any and all
other acts and things which may be necessary or advisable to enable
each Holder to consummate the public sale or other disposition in such
jurisdiction of the securities owned by such Holder, except that the
Company shall not for any such purpose be required to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not
so qualified or to file therein any general consent to service of
process;
* list such Registrable Securities on the Primary Market, and any other
exchange on which the Common Stock of the Company is then listed, if
the listing of such Registrable Securities is then permitted under the
rules of such exchange or Nasdaq;
* notify each Holder at any time when a prospectus relating thereto
covered by the Registration Statement is required to be delivered under
the Act, of the happening of any event of which it has knowledge as a
result of which the prospectus included in the Registration Statement,
as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing, and the Company shall prepare and
file a curative amendment under Section 5(a) as quickly as commercially
possible;
* as promptly as practicable after becoming aware of such event, notify
Holder (or, in the event of an underwritten offering, the managing
underwriters) of the issuance by the Commission or any state authority
of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all
lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
* cooperate with the Holder to facilitate the timely preparation and
delivery of certificates for the Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates for
the Registrable Securities to be in such denominations or amounts, as
the case may be, as the Holder reasonably may request and registered in
such names as the Holder may request; and, within three Trading Days
after a Registration Statement which includes Registrable Securities is
declared effective by the Commission, deliver and cause legal counsel
selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to the Holder) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
* take all such other lawful actions reasonably necessary to expedite and
facilitate the disposition by the Holder of its Registrable Securities
in accordance with the intended methods therefor provided in the
prospectus which are customary for issuers to perform under the
circumstances;
* in the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to
the Registration Statement such information as the managers reasonably
agree should be included therein and to which the Company does not
reasonably object and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after it
is notified of the matters to be included or incorporated in such
Prospectus supplement or post-effective amendment; and
* maintain a transfer agent and registrar for its Common Stock.
Indemnification.
* The Company agrees to indemnify and hold harmless the Holder and each
person, if any, who controls the Holder within the meaning of the
Securities Act ("Distributing Holder") against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes
of this Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorneys' fees), to
which the Distributing Holder may become subject, under the Securities
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, or any related
preliminary prospectus, final prospectus or amendment or supplement
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement,
preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information
furnished to the Company by the Distributing Holder, specifically for
use in the preparation thereof. This Section 6(a) shall not inure to
the benefit of any Distributing Holder with respect to any person
asserting such loss, claim, damage or liability who purchased the
Registrable Securities which are the subject thereof if the
Distributing Holder failed to send or give (in violation of the
Securities Act or the rules and regulations promulgated thereunder) a
copy of the prospectus contained in such Registration Statement to such
person at or prior to the written confirmation to such person of the
sale of such Registrable Securities, where the Distributing Holder was
obligated to do so under the Securities Act or the rules and
regulations promulgated thereunder. This indemnity agreement will be
in addition to any liability which the Company may otherwise have.
* Each Distributing Holder agrees that it will indemnify and hold
harmless the Company, and each officer, director of the Company or
person, if any, who controls the Company within the meaning of the
Securities Act, against any losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees) to which the Company or any such officer,
director or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, or any related
preliminary prospectus, final prospectus or amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each
case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, preliminary prospectus, final prospectus or amendment or
supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by such Distributing Holder,
specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which the Distributing
Holder may otherwise have.
* Promptly after receipt by an indemnified party under this Section 6 of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Section 6, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying
party will not relieve the indemnifying party from any liability which
it may have to any indemnified party except to the extent of actual
prejudice demonstrated by the indemnifying party. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified,
assume the defense thereof, subject to the provisions herein stated and
after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section 6 for
any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue
the action to its final conclusion. The indemnified party shall have
the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel
reasonably satisfactory to the indemnified party; provided that if the
indemnified party is the Distributing Holder, the fees and expenses of
such counsel shall be at the expense of the indemnifying party if (i)
the employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to any
such action (including any impleaded parties) include both the
Distributing Holder and the indemnifying party and the Distributing
Holder shall have been advised by such counsel that there may be one or
more legal defenses available to the indemnifying party different from
or in conflict with any legal defenses which may be available to the
Distributing Holder (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of the
Distributing Holder, it being understood, however, that the
indemnifying party shall, in connection with any one such action or
separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable only for the reasonable fees and expenses of
one separate firm of attorneys for the Distributing Holder, which firm
shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made
without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld.
Contribution. In order to provide for just and equitable contribution
under the Securities Act in any case in which (i) the indemnified party
makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or
the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that the express
provisions of Section 6 hereof provide for indemnification in such case,
or (ii) contribution under the Securities Act may be required on the
part of any indemnified party, then the Company and the applicable
Distributing Holder shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all reasonable
attorneys' fees), in either such case (after contribution from others)
on the basis of relative fault as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company on the one hand or
the applicable Distributing Holder on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the
Distributing Holder agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata
allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in this Section 7.
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this Section 7 shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
Notwithstanding any other provision of this Section 7, in no event shall
any (i) Holder be required to undertake liability to any person under this
Section 7 for any amounts in excess of the dollar amount of the net
proceeds to be received by such Holder from the sale of such Holder's
Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) pursuant to any Registration Statement
under which such Registrable Securities are to be registered under the
Securities Act and (ii) underwriter be required to undertake liability to
any person hereunder for any amounts in excess of the aggregate discount,
commission or other compensation payable to such underwriter with respect
to the Registrable Securities underwritten by it and distributed pursuant
to the Registration Statement.
Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery,
telegram, or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or
delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated
below (if delivered on a business day during normal business hours where
such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by reputable courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company:
American Champion Entertainment, Inc.
1694 The Alameda, Suite 100
San Jose, CA 95126
Attention: Anthony Chan
Telephone: (408) 288-8199
Fax: (408) 288-8098
If to the Investor:
Sibson Holdings, Ltd.
c/o Dr. Batliner & Partners
Aeulestrasse 74
FI-9490, Vaduz, Liechtenstein
Telephone: 011-075-236-0404
Fax: 011-075-236-0405
with a copy to:
Epstein Becker & Green, P.C. (shall not constitute notice)
250 Park Avenue.
New York, New York 10177
` Attention: Joseph A. Smith, Esq.
Telephone: (212) 351-4500
Fax: (212) 661-0989
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 8 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the
other party hereto.
Assignment. Neither this Agreement nor any rights of the Holder or the
Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of
any of the Common Stock purchased by the Investor pursuant to the
Purchase Agreement, and (b) upon the prior written consent of the
Company, which consent shall not be unreasonably withheld or delayed in
the case of an assignment to an affiliate of the Holder, the Holder's
interest in this Agreement may be assigned at any time, in whole or in
part, to any other person or entity (including any affiliate of the
Holder) who agrees to be bound hereby.
Additional Covenants of the Company. The Company agrees that at such
time as it meets all the requirements for the use of Securities Act
Registration Statement on Form S-3 it shall file all reports and
information required to be filed by it with the Commission in a timely
manner and take all such other action so as to maintain such eligibility
for the use of such form.
Counterparts/Facsimile. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of
which, when together shall constitute but one and the same instrument,
and shall become effective when one or more counterparts have been
signed by each party hereto and delivered to the other party. In lieu
of the original, a facsimile transmission or copy of the original shall
be as effective and enforceable as the original.
Remedies. The remedies provided in this Agreement are cumulative and
not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way
be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve
the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid,
illegal, void or unenforceable.
Conflicting Agreements. The Company shall not enter into any agreement
with respect to its securities that is inconsistent with the rights
granted to the holders of Registrable Securities in this Agreement or
otherwise prevents the Company from complying with all of its
obligations hereunder.
Headings. The headings in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of
this Agreement.
Governing Law, Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York
applicable to contracts made in New York by persons domiciled in New
York City and without regard to its principles of conflicts of laws.
Any dispute under this Agreement shall be submitted to arbitration under
the American Arbitration Association (the "AAA") in New York City, New
York, and shall be finally and conclusively determined by the decision
of a board of arbitration consisting of three (3) members (hereinafter
referred to as the "Board of Arbitration") selected as according to
the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach
and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any,
which the losing party is required to pay to the other party in respect
of a claim filed. In connection with rendering its decisions, the Board
of Arbitration shall adopt and follow the laws of the State of New York.
To the extent practical, decisions of the Board of Arbitration shall be
rendered no more than thirty (30) calendar days following commencement
of proceedings with respect thereto. The Board of Arbitration shall
cause its written decision to be delivered to all parties involved in
the dispute. The Board of Arbitration shall be authorized and is
directed to enter a default judgment against any party refusing to
participate in the arbitration proceeding with thirty days of any
deadline for such participation. Any decision made by the Board of
Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the
parties to the dispute, and entitled to be enforced to the fullest
extent permitted by law and entered in any court of competent
jurisdiction. The non-prevailing party to any arbitration (as
determined by the Board of Arbitration) shall pay the expenses of the
prevailing party, including reasonable attorneys' fees, in connection
with such arbitration. Any party shall have the right to seek
injunctive relief from any court of competent jurisdiction in any case
where such relief is available.
Severability. If any provision of this Agreement shall for any reason
be held invalid or unenforceable, such invalidity or unenforceablity
shall not affect any other provision hereof and this Agreement shall be
construed as if such invalid or unenforceable provision had never been
contained herein. Terms not otherwise defined herein shall be defined
in accordance with the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year
first above written.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:
Anthony Chan, President and CEO
SIBSON HOLDINGS, LTD.
By: ___
Han Gassner, Director
EXHIBIT D
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE
UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES
ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED,
ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES
ACT.
STOCK PURCHASE WARRANT
To Purchase 175,000 Shares of Common Stock of
AMERICAN CHAMPION ENTERTAINMENT, INC.
THIS CERTIFIES that, for value received, Sibson Holdings, Ltd., (the
"Holder"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time on or after the May 9,
2000 (the "Issuance Date") and on or prior to the close of business
on May 9, 2003 (the "Termination Date") but not thereafter, to
subscribe for and purchase from American Champion Entertainment,
Inc., a Delaware corporation (the "Company"), up to one hundred
seventy-five thousand (175,000) shares (the "Warrant Shares") of
Common Stock, $.0001 par value, of the Company (the "Common
Stock"). The purchase price of one share of Common Stock (the
"Exercise Price") under this Warrant shall be $ 1.7325 (the lower
of (i) one hundred and ten percent (110%) of the average Bid Price
of the Common Stock on the Nasdaq SmallCap Market for the five (5)
Trading Days, immediately prior to the initial Closing Date and (ii)
with respect to pro-rata Warrants only, the Bid Price on the Put
Date). The Exercise Price and the number of shares for which the
Warrant is exercisable shall be subject to adjustment as provided
herein. In the event of any conflict between the terms of this
Warrant and the Private Equity Line of Credit Agreement dated April
12, 2000 pursuant to which this Warrant has been issued (the
"Purchase Agreement"), the Purchase Agreement shall control.
Capitalized terms used and not otherwise defined herein shall have
the meanings set forth for such terms in the Purchase Agreement.
Title to Warrant. Prior to the Termination Date hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder
are transferable, in whole or in part, at the office or agency of the
Company by the holder hereof in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed
hereto properly endorsed.
Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented
by this Warrant will, upon exercise of the rights represented by this
Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
Exercise of Warrant. Except as provided in Section 4 herein, exercise
of the purchase rights represented by this Warrant may be made at any
time or times on or after the Issuance Date hereof, and before the close
of business on the Termination Date hereof. Exercise of this Warrant or
any part hereof shall be effected by the surrender of this Warrant and
the Notice of Exercise Form annexed hereto duly executed, at the office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company) and upon
payment of the Exercise Price of the shares thereby purchased by wire
transfer or cashier's check drawn on a United States bank, the holder of
this Warrant shall be entitled to receive a certificate for the number
of shares of Common Stock so purchased. Certificates for shares
purchased hereunder shall be delivered to the holder hereof within three
(3) Trading Days after the date on which this Warrant shall have been
exercised as aforesaid. This Warrant shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have
been issued, and Holder or any other person so designated to be named
therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised by
payment to the Company of the Exercise Price and all taxes required to
be paid by Holder, if any, pursuant to Section 5 prior to the issuance
of such shares, have been paid. If this Warrant shall have been
exercised in part, the Company shall, at the time of delivery of the
certificate or certificates representing Warrant Shares, deliver to
Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased shares of Common Stock called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant. If
the Registration Statement is not then effective, this Warrant may also
be exercised by means of a "cashless exercise" in which the holder
shall be entitled to receive a certificate for the number of shares
equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share of Common
Stock on the Trading Day preceding the date of such election;
(B) = the Exercise Price of the Warrants; and
(X) = the number of shares issuable upon exercise of the Warrants in
accordance with the terms of this Warrant.
No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the
Exercise Price.
Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company, and such
certificates shall be issued in the name of the holder of this Warrant
or in such name or names as may be directed by the holder of this
Warrant; provided, however, that in the event certificates for shares of
Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall
be accompanied by the Assignment Form attached hereto duly executed by
the holder hereof; and the Company may require, as a condition thereto,
the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.
Closing of Books. The Company will not close its shareholder books or
records in any manner which prevents the timely exercise of this
Warrant.
Transfer, Division and Combination. (a) Subject to compliance with any
applicable securities laws, transfer of this Warrant and all rights
hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this
Warrant at the principal office of the Company, together with a written
assignment of this Warrant substantially in the form attached hereto
duly executed by Holder or its agent or attorney and funds sufficient to
pay any transfer taxes payable upon the making of such transfer. Upon
such surrender and, if required, such payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant
shall promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of shares of Common Stock
without having a new Warrant issued.
(b) This Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by Holder
or its agent or attorney. Subject to compliance with Section 7(a), as
to any transfer which may be involved in such division or combination,
the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
(c) The Company shall prepare, issue and deliver at
its own expense (other than transfer taxes) the new Warrant or Warrants
under this Section 7.
(d) The Company agrees to maintain, at its aforesaid
office, books for the registration and the registration of transfer of
the Warrants.
No Rights as Shareholder until Exercise. This Warrant does not entitle
the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise hereof. Upon the surrender of this
Warrant and the payment of the aggregate Exercise Price, the Warrant
Shares so purchased shall be and be deemed to be issued to such holder
as the record owner of such shares as of the close of business on the
later of the date of such surrender or payment.
Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant certificate or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which shall not include the
posting of any bond), and upon surrender and cancellation of such
Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of
such cancellation, in lieu of such Warrant or stock certificate.
Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action
may be taken or such right may be exercised on the next succeeding day
not a Saturday, Sunday or legal holiday.
Adjustments of Exercise Price and Number of Warrant Shares. (a) Stock
Splits, etc. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to
adjustment from time to time upon the happening of any of the following.
In case the Company shall (i) pay a dividend in shares of Common Stock
or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock in
a reclassification of the Common Stock, then the number of Warrant
Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the holder of this Warrant shall be
entitled to receive the kind and number of Warrant Shares or other
securities of the Company which he would have owned or have been
entitled to receive had such Warrant been exercised in advance thereof.
Upon each such adjustment of the kind and number of Warrant Shares or
other securities of the Company which are purchasable hereunder, the
holder of this Warrant shall thereafter be entitled to purchase the
number of Warrant Shares or other securities resulting from such
adjustment at an Exercise Price per Warrant Share or other security
obtained by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of Warrant Shares purchasable pursuant
hereto immediately prior to such adjustment and dividing by the number
of Warrant Shares or other securities of the Company resulting from such
adjustment. An adjustment made pursuant to this paragraph shall become
effective immediately after the effective date of such event retroactive
to the record date, if any, for such event.
* Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or
into another corporation (where the Company is not the surviving
corporation or where there is a change in or distribution with
respect to the Common Stock of the Company), or sell, transfer or
otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or
acquiring corporation, or any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants
or other subscription or purchase rights) in addition to or in lieu
of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of
Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the number of
shares of common stock of the successor or acquiring corporation or
of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a
holder of the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such event. In case of any such
reorganization, reclassification, merger, consolidation or
disposition of assets, the successor or acquiring corporation (if
other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition
of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined in good
faith by resolution of the Board of Directors of the Company) in
order to provide for adjustments of shares of Common Stock for which
this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 11. For
purposes of this Section 11, "common stock of the successor or
acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any
other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the
arrival of a specified date or the happening of a specified event and
any warrants or other rights to subscribe for or purchase any such
stock. The foregoing provisions of this Section 11 shall similarly
apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.
Voluntary Adjustment by the Company. The Company may at any time during
the term of this Warrant, reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the
Company shall promptly mail by registered or certified mail, return
receipt requested, to the holder of this Warrant notice of such
adjustment or adjustments setting forth the number of Warrant Shares
(and other securities or property) purchasable upon the exercise of this
Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. Such notice, in the
absence of manifest error, shall be conclusive evidence of the
correctness of such adjustment.
Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution, or any right to subscribe for or
purchase any evidences of its indebtedness, any shares of stock of any
class or any other securities or property, or to receive any other
right, or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock
of the Company or any consolidation or merger of the Company with, or
any sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder
(i) at least 30 days' prior written notice of the date on which a record
date shall be selected for such dividend, distribution or right or for
determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 30 days'
prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i)
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and
the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and
the time, if any such time is to be fixed, as of which the holders of
Common Stock shall be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall
be sufficiently given if addressed to Holder at the last address of
Holder appearing on the books of the Company and delivered in accordance
with Section 16(d).
Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares upon the exercise of any purchase rights under
this Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are charged
with the duty of executing stock certificates to execute and issue the
necessary certificates for the Warrant Shares upon the exercise of the
purchase rights under this Warrant. The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Principal Market upon
which the Common Stock may be listed.
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will
at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate
to protect the rights of Holder against impairment. Without limiting
the generality of the foregoing, the Company will (a) not increase the
par value of any shares of Common Stock receivable upon the exercise of
this Warrant above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such
action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant, and (c) use all commercially
reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as
may be necessary to enable the Company to perform its obligations under
this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this
Warrant and the obligations of the Company hereunder.
Before taking any action which would cause an adjustment reducing the
current Exercise Price below the then par value, if any, of the shares
of Common Stock issuable upon exercise of the Warrants, the Company
shall take any corporate action which may be necessary in order that the
Company may validly and legally issue fully paid and non-assessable
shares of such Common Stock at such adjusted Exercise Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable
or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction
thereof.
Miscellaneous.
* Jurisdiction. This Warrant shall be binding upon any successors or
assigns of the Company. This Warrant shall constitute a contract under
the laws of New York without regard to its conflict of law principles
or rules, and be subject to arbitration pursuant to the terms set forth
in the Purchase Agreement.
* Restrictions. The holder hereof acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will
have restrictions upon resale imposed by state and federal securities
laws.
* Nonwaiver and Expenses. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as
a waiver of such right or otherwise prejudice Holder's rights, powers
or remedies, notwithstanding all rights hereunder terminate on the
Termination Date hereof. If the Company willfully fails to comply with
any material provision of this Warrant, the Company shall pay to Holder
such amounts as shall be sufficient to cover any costs and expenses
including, but not limited to, reasonable attorneys' fees, including
those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
* Notices. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
* Limitation of Liability. No provision hereof, in the absence of
affirmative action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof, shall
give rise to any liability of Holder for the purchase price of any
Common Stock or as a stockholder of the Company, whether such liability
is asserted by the Company or by creditors of the Company.
* Remedies. Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this
Warrant and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
* Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to
the benefit of and be binding upon the successors of the Company and
the successors and permitted assigns of Holder. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to
time of this Warrant and shall be enforceable by any such Holder or
holder of Warrant Shares.
* Indemnification. The Company agrees to indemnify and hold harmless
Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon,
incurred by or asserted against Holder in any manner relating to or
arising out of any failure by the Company to perform or observe in any
material respect any of its covenants, agreements, undertakings or
obligations set forth in this Warrant; provided, however, that the
Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or
disbursements are found in a final non-appealable judgment by a court
to have resulted from Holder's negligence, bad faith or willful
misconduct in its capacity as a stockholder or warrantholder of the
Company.
* Amendment. This Warrant may be modified or amended or the provisions
hereof waived with the written consent of the Company and the Holder.
* Severability. Wherever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
* Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this
Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: _________ ___, 200__
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:
Anthony Chan, President and CEO
NOTICE OF EXERCISE
To: American Champion Entertainment, Inc.
(1) The undersigned hereby elects to purchase ________ shares
of Common Stock (the "Common Stock"), of American Champion Entertainment,
Inc. pursuant to the terms of the attached Warrant, and tenders herewith
payment of the exercise price in full, together with all applicable
transfer taxes, if any.
(2) Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in such
other name as is specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
Dated:
______________________________
Signature
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________,
_______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the
name as it appears on the face of the Warrant, without alteration or
enlargement or any change whatsoever, and must be guaranteed by a bank
or trust company. Officers of corporations and those acting in an
fiduciary or other representative capacity should file proper evidence
of authority to assign the foregoing Warrant.
APPENDIX B
AGREEMENT
CONCERNING THE EXCHANGE OF COMMON STOCK
AMONG
AMERICAN CHAMPION ENTERTAINMENT, INC. ("ACEI")
BEIJING WISDOM NETWORK TECHNOLOGY COMPANY, LTD. ("B.A.Network")
and
THE SHAREHOLDERS OF BEIJING WISDOM NETWORK TECHNOLOGY COMPANY, LTD.
TABLE OF CONTENTS
Page
No.
ARTICLE 1 - EXCHANGE OF SECURITIES 9
1.1 - Issuance of Shares 9
1.2 - Exemption from Registration 9
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF B.A. Network 9
2.1 - Organization 9
2.2 - Capital 10
2.3 - Subsidiaries 10
2.4 - Directors and Officers 10
2.5 - Financial Statements 10
2.6 - Investigation of Financial Condition 10
2.7 - Compliance with Laws 10
2.8 - Litigation 11
2.9 - Authority 11
2.10 - Ability to Carry Out Obligations 11
2.11 - Full Disclosure 11
2.12 - Material Contracts 11
2.13 - Indemnification 12
2.14 - Transactions with Officers and Directors 12
2.15 - Background of Officers and Directors 12
2.16 - Employee Benefits 13
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF ACEI 13
3.1 - Organization 13
3.2 - Capital 13
3.3 - Subsidiaries 14
3.4 - Directors and Officers 14
3.5 - Financial Statements 14
3.6 - Absence of Changes 14
3.7 - Absence of Undisclosed Liabilities 14
3.8 - Tax Returns 14
3.9 - Investigation of Financial Condition 14
3.10 - Trade Names and Rights 14
3.11 - Compliance with Laws 15
3.12 - Litigation 15
3.13 - Authority 15
3.14 - Ability to Carry Out Obligations 15
3.15 - Validity of ACEI Shares 15
3.16 - Full Disclosure 15
3.17 - Assets 15
3.18 - Material Contracts 16
3.19 - Compliance With SEC Reporting Requirements 16
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS 16
4.1 - Share Ownership 16
4.2 - Investment Intent 16
4.3 - (deleted) 17
4.4 - Legend 17
ARTICLE 5 - COVENANTS 17
5.1 - Investigative Rights 17
5.2 - Conduct of Business 18
ARTICLE 6 - CONDITIONS PRECEDENT TO ACEI'S PERFORMANCE 18
6.1 - Conditions 18
6.2 - Accuracy of Representations 18
6.3 - Performance 18
6.4 - Absence of Litigation 18
6.5 - Acceptance by B.A. Network Shareholders 18
6.6 - Officer's Certificate 19
6.7 - Opinion of Counsel to B.A. Network 19
ARTICLE 7 - CONDITIONS PRECEDENT TO B.A. Network'S PERFORMANCE 19
7.1 - Conditions 19
7.2 - Accuracy of Representations 19
7.3 - Performance 20
7.4 - Absence of Litigation 20
7.5 - Current Status 20
7.6 - Directors of ACEI 20
7.7 - Officers of ACEI 20
7.8 - blank 20
7.9 - Officer's Certificate 20
7.10 - Opinion of Counsel 20
ARTICLE 8 - CLOSING 20
8.1 - Closing 20
ARTICLE 9 - MISCELLANEOUS 21
9.1 - Captions and Headings 21
9.2 - Memos, Attachments and Exhibits 21
9.3 - No Oral Change 21
9.4 - Non-Waiver 22
9.5 - Entire Agreement 22
9.6 - Member to B.A. Network's Board of Directors 22
9.7 - Choice of Law 22
9.8 - Counterparts 22
9.9 - Notices 22
9.10 - (deleted) 23
9.11 - Binding Effect 23
9.12 - Mutual Cooperation 23
9.13 - Announcements 23
9.14 - Expenses 23
9.15 - Survival of Representations and Warranties 23
9.16 - Exhibits 24
AGREEMENT
AGREEMENT, made as of the 27th day of March ,
2000, by and among American Champion Entertainment, Inc. of the United
States of America, a Delaware corporation ("ACEI"), Beijing Wisdom
Network Technology Company, Ltd., a corporation formed under the laws of
the People's Republic of China ("B.A. Network") and the shareholders of
Beijing Wisdom Network Technology Company, Ltd. (the "Shareholders").
This agreement is subject to review by the U.S. Securities and Exchange
Commission ("SEC") and approval by the shareholders of ACEI, and shall
become effective immediately upon satisfactory review by the SEC and
approval by the shareholders at a meeting of the shareholders of ACEI.
Once approval by shareholders is obtained, ACEI shall notify B.A. Network
of the effectiveness of this agreement within the same day.
WHEREAS, ACEI desires to acquire 80.00% of all of the issued and
outstanding shares of B.A. Network, in exchange for a total value of
$4,672,050 of either ACEI authorized but unissued shares of the common
stock, $.0001 par value (the "Exchange Stock"), or partially in cash; and
such Exchange Stock and cash, shall be granted in three parts:
I. A number of shares equal to $300,000 in value, included in the
Exchange Stock, or $300,000 in cash, is payable to B.A. Network as Part I
of the exchange transaction. B.A. Network shall have to right to choose
between payment in shares or in cash, and B.A. Network shall provide ACEI
official written notice of its choice of payment not later than three
business days after to the date of effectiveness of this agreement.
1.1 If B.A. Network elects to be paid in cash, then ACEI
shall transfer by wire the amount of $300,000 into an
account specified by B.A. Network within ten business
days from the date of effectiveness of this agreement.
1.2 If B.A. Network elects to be paid in shares, then ACEI
shall issue and transfer $300,000 in value of ACEI
shares into a stock account specified by B.A. Network
within ten business days from the date of effectiveness
of this agreement.
1.2.1 The price of the shares shall be based on the average of the
daily closing sales prices from the date of the Letter of Intent to the
date of effectiveness of this agreement.
1.2.2 The shares shall have registration rights and
become freely tradable without restrictions upon
effectiveness of registration.
II. For the year 2000, ACEI shall grant B.A. Network the amount of
US$1,184,097 in shares of ACEI, or in cash, according to the following
projections, as part II of the exchange transaction. B.A. Network shall
have to right to choose between payment in shares or in cash, and B.A.
Network shall provide ACEI official written notice of its choice of
payment not later than three business days after to the delivery of
reviewed financial statements to ACEI via one of the big five U.S.
accounting firms.
B.A. Network Revenue Projections 2000 2001 2002
(To be annually audited & quarterly
reviewed by acceptable U.S. accounting firm.)
Exchange Rate - RMB / US$: 8.3 / 1
Gross Revenue (RMB) 65,000,000 80,000,000 95,000,000
Gross Revenue (US$) $7,831,325 $9,638,554 $11,445,783
Gross Revenue (US$) x 80.00% $6,265,060 $7,710,843 $9,156,627
EBITDA (earnings before interests, taxes, depreciation &
amortization)
EBITDA (RMB) 3,250,000 4,000,000 4,750,000
EBITDA (US$) $391,566 $481,928 $572,289
EBITDA (US$) x 80.00% $313,253 $385,542 $457,831
18% of Gross Revenue, payable $1,127,711 $1,387,952 $1,648,193
in ACEI common stock
18% of EBITDA, payable $56,386 $69,398 $82,410
in ACEI common stock
Total payable in ACEI common stock $1,184,097 $1,457,349 $1,730,603
Total payments over years 2000 to 2002, to be paid in ACEI common stock,
$4,372,050
2.1 If B.A. Network elects to be paid in cash, and upon the
delivery of reviewed financial statements to ACEI via
one of the big five U.S. accounting firms, then ACEI
shall make the following quarterly payments:
2.1.1 Within 10 business days, ACEI shall make payment
by wire transfer to an account specified by B.A.
Network of the amount of
(Gross Revenue + EBITDA) x 80% x 18% x 50%
for Gross Revenue and EBITDA amounts that are
less than or equal to the figures in the above
table,
and
(Gross Revenue + EBITDA) x 80% x 18% x 20%
for Gross and EBITDA amounts that
are more than the figures in the above table.
2.1.2 Within 6 months, ACEI shall make payment by wire transfer to an
account specified by B.A. Network of the amount of
(Gross Revenue + EBITDA) x 80% x 18% x 20%
for Gross Revenue and EBITDA amounts
that are less than or equal to the figures in the above table,
and
(Gross Revenue + EBITDA) x 80% x 18% x 40%
for Gross and EBITDA amounts that
are more than the figures in the above table.
2.1.3 Within 9 months, ACEI shall make payment by wire transfer to an
account specified by B.A. Network of the amount of
(Gross Revenue + EBITDA) x 80% x 18% x 20%
for Gross Revenue and EBITDA amounts
that are less than or equal to the figures in the above table.
2.1.4 Within 12 months, ACEI shall make payment by wire transfer to an
account specified by B.A. Network of the amount of
(Gross Revenue + EBITDA) x 80% x 18% x 10%
for Gross Revenue and EBITDA amounts
that are less than or equal to the figures in the above table,
and
(Gross Revenue + EBITDA) x 80% x 18% x 40%
for Gross and EBITDA amounts that are more than
the figures in the above table.
2.2 If B.A. Network elects to be paid in shares, and within ten business
days from the delivery of quarterly reviewed financial statements to ACEI via
one of the big five U.S. accounting firms, then ACEI shall issue and transfer
the amount of ACEI common stock, based on 80% X 18% of the Gross Revenue and
EBITDA according to the figures in the above table, into a stock account
specified by B.A. Network. The price of the shares shall be the average of
the closing sales prices of ACEI shares within the applicable quarter, and be
subject to the following restrictions:
2.2.1 For amounts less than and equal to the above tabulation, 50% shall not
have restrictions, 20% shall be restricted from sales for 6 months from the
date of issuance, 20% restricted for 9 months, and 10% restricted for 12
months.
2.2.2 For amounts more than the above tabulation, 20% shall not have
restrictions, 40% shall be restricted from sales for 6 months from the date
of issuance, and 40% shall be restricted for 12 months.
III. As part III of the exchange transaction, ACEI shall issue shares of
ACEI common stock to B.A. Network for the years 2001 and 2002, based of
figures in the above table.
3.1 Within ten business days from the delivery of quarterly reviewed
financial statements to ACEI via one of the big five U.S. accounting firms,
then ACEI shall issue and transfer the amount of ACEI common stock, based on
80% X 18% of the Gross Revenue and EBITDA according to the figures in the
above table, into a stock account specified by B.A. Network.
3.2 The price of the shares shall be the average of the closing sales
prices of ACEI shares within the applicable quarter, and be subject to the
following restrictions:
3.2.1 For amounts less than and equal to the above tabulation, 50% shall not
have restrictions, 20% shall be restricted from sales for 6 months from the
date of issuance, 20% restricted for 9 months, and 10% restricted for 12
months.
3.2.2 For amounts more than the above tabulation, 20% shall not have
restrictions, 40% shall be restricted from sales for 6 months from the date
of issuance, and 40% shall be restricted for 12 months.
WHEREAS, the Shareholders desire to exchange their B.A. Network
shares for the Exchange Stock as set forth herein; and
WHEREAS, B.A. Network desires to assist ACEI in a business
combination which will result in the Shareholders of B.A. Network owning
approximately 16% of the then issued and outstanding shares of ACEI's
Common Stock (with the understanding that since ACEI is currently in an
expansion phase with multiple acquisition candidates in negotiation, the
actual resulting ownership by B.A. Network of ACEI may be significantly
less) and ACEI owning 80.00% of the issued and outstanding shares of B.A.
Network's Capital Stock;
NOW, THEREFORE, in consideration of the mutual promises, covenants
and representations contained herein, the parties hereto agree as follows:
ARTICLE I
Exchange of Securities
1.1 Issuance of Shares. Subject to all of the terms and
conditions of this Agreement, ACEI agrees to issue to the Shareholders the
shares of the Exchange Stock, or partially in cash, as described above in
exchange for 80.00% of all of the outstanding shares of B.A. Network
capital stock owned by the Shareholders, as set forth on Exhibit 1.1.
1.2 Exemption from Registration. Except as specified above for
issuance of shares with registration rights, the parties hereto intend
that the Common Stock to be issued by ACEI to the Shareholder shall be
exempt from the registration requirements of the Securities Act of 1933,
as amended (the "Act") pursuant to Section 4(2) of the Act and the rules
and regulations promulgated thereunder.
ARTICLE 2
Representations and Warranties of B.A. Network
B.A. Network and the Shareholders of B.A. Network represent to ACEI
that:
2.1 Organization. B.A. Network is a corporation duly organized and
validly existing and in good standing under the laws of the People's
Republic of China and has all necessary corporate powers to own its
properties and to carry on its business as now owned and operated by it,
and is duly qualified to do business and is in good standing where its
business requires qualification. (Further legal descriptions of B.A.
Network, if necessary, such as transfer of assets and liabilities of
another entity, etc).
2.2 Capital. The authorized capital stock of B.A. Network is as
set forth on the annexed Exhibit 2.2, a copy of which is annexed hereto
and made a part hereof. The shares currently outstanding are owned by the
Shareholders. All of the issued and outstanding shares of B.A. Network
are duly and validly issued, fully paid, and non-assessable. There are no
outstanding subscriptions, options, rights, warrants, debentures,
instruments, convertible securities, or other agreements or commitments
obligating B.A. Network to issue or to transfer from treasury any
additional shares of its capital stock of any class.
2.3 Subsidiaries. As of the date of this Agreement, B.A. Network
does not have any subsidiaries or own any interest in any other
enterprise.
2.4 (a) Directors and Officers. Exhibit 2.4 to this Agreement, the
text of which is incorporated herein by reference, contains the names and
titles of all directors and officers of B.A. Network as of the date of
this Agreement.
2.5 (b) Financial Statements. The B.A. Network financial
statements are to be audited by a reputable international auditing firm
for the year ending December 31, 1999 which are annexed hereto as Exhibit
2.5 and must be delivered to ACEI prior to the Closing. Such financial
statements are to be complete, accurate and fairly present the financial
condition of B.A. Network as of the date thereof and the results of
operations for the year ending December 31, 1999, for the business of B.A.
Network that has been operated in the normal course.
There are no material liabilities, either fixed or contingent, not
reflected in such financial statements other than contracts or obligations
in the ordinary and usual course of business; and no such contracts or
obligations in the usual course of business constitute liens or other
liabilities which, if disclosed, would materially alter the financial
condition of B.A. Network as reflected in such financial statements. The
financial statements of B.A. Network are incorporated herein by reference
and deemed to be a part hereof.
2.6 Investigation of Financial Condition. Without in any manner
reducing or otherwise mitigating the representations contained herein,
ACEI and/or its attorneys shall have the opportunity to meet with
accountants and attorneys of ACEI to discuss the financial condition of
B.A. Network. B.A. Network shall make available to ACEI and/or its
attorneys all books and records of B.A. Network. If the transaction
contemplated hereby is not completed, all documents received by ACEI
and/or its attorneys shall be returned to B.A. Network and all information
so received shall be treated as confidential.
2.7 Compliance with Laws. B.A. Network has complied with and are
not in violation of applicable national, state or local statutes, laws and
regulations (including, without limitation, any applicable building,
zoning or other law, ordinance or regulation) affecting its properties or
the operation of its business. All national, state and local income tax
returns required to be filed by B.A. Network have been filed and all
required taxes have been paid or an adequate reserve therefor has been
established in the financial statements. B.A. Network's tax returns have
not been audited by any authority empowered to do so.
2.8 Litigation. Neither B.A. Network nor the Shareholders are a
party to any suit, action, arbitration or legal, administrative or other
proceeding, or governmental investigation pending or, to the best
knowledge of B.A. Network and the Shareholders, threatened against or
affecting B.A. Network or the Shareholders, their assets or financial
condition, except for matters which would not have a material effect on
B.A. Network, the Shareholders or their respective properties. Neither
B.A. Network nor the Shareholders are in default with respect to any
order, writ, injunction or decree of any national, state, local or foreign
court, department, agency or instrumentality applicable to it. Neither
B.A. Network nor Shareholders are engaged in any lawsuits to recover any
material amount of moneys due to B.A. Network or Shareholders.
2.9 Authority. The Board of Directors of B.A. Network has
authorized the execution of this Agreement and the consummation of the
transactions contemplated herein, and upon obtaining any necessary
shareholder approval, B.A. Network will have full power and authority to
execute, deliver and perform this Agreement and this Agreement will be a
legal, valid and binding obligation of B.A. Network, enforceable in
accordance with its terms and conditions, except as may be limited by
bankruptcy and insolvency laws and by other laws affecting the rights of
creditors generally.
2.10 Ability to Carry Out Obligations. The execution and delivery
of this Agreement by B.A. Network and the performance by B.A. Network of
its obligations hereunder in the time and manner contemplated will not
cause, constitute or conflict with or result in (a) any breach or
violation of any of the provisions of or constitute a default under any
license, indenture, mortgage, charter, instrument, articles of
incorporation, by-laws, or other agreement or instrument to which B.A.
Network or Shareholders are a party or by which either may be bound, nor
will any consents or authorizations of any party other than those hereto
be required; (b) an event that would permit any party to any agreement or
instrument, to terminate it or to accelerate the maturity of any
indebtedness or other obligation of B.A. Network or Shareholders; or (c)
an event that would result in the creation or imposition of any lien,
charge, or encumbrance on any asset of B.A. Network or Shareholders.
2.11 Full Disclosure. None of the representations and warranties
made by B.A. Network and the Shareholders herein, or in any exhibit,
certificate or memorandum furnished or to be furnished by B.A. Network, or
on its behalf, contains or will contain any untrue statement of material
fact, or omit any material fact, the omission of which would be
misleading.
2.12 Material Contracts. Neither B.A. Network nor the Shareholders
has any material contracts to which either is a party or by which they are
bound, except for those agreements set forth on the annexed hereto as
Exhibit 2.12.
2.13 Indemnification. B.A. Network and the Shareholders agree to
defend and hold harmless ACEI, its officers and directors against and in
respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries and deficiencies, including
interest, penalties and reasonable attorney's fees, that it shall incur or
suffer, which arise out of, result from or relate to any breach of or
failure by B.A. Network to perform any of its respective representations,
warranties, covenants and agreements in this Agreement or in any exhibit
or other instrument furnished or to be furnished by B.A. Network under
this Agreement.
2.14 Transactions with Officers and Directors. Except as otherwise
disclosed in B.A. Network's financial statements dated December 31, 1999
and delivered to ACEI, there have been, and through the date of Closing
there will be (1) no bonuses or unusual compensation to any of the
officers or directors of B.A. Network; (2) no loans, leases or contracts
made to or with any of the officers or directors of B.A. Network; (3) no
dividends or other distributions declared or paid by B.A. Network; and (4)
no purchases by B.A. Network of any of its capital shares.
2.15 Background of Officers and Directors. During the past five
year period, no officer or director of B.A. Network has been the subject
of:
(a) A petition under the U.S. Federal Bankruptcy laws or any
other insolvency law or has a receiver, fiscal agent or similar officer
been appointed by a court for the business or property of such person, or
any partnership in which he was a general partner at or within two years
before the time of such filing, or any corporation or business association
of which he was an executive officer at or within two years before the
time of such filing;
(b) A conviction in the United States in a criminal
proceeding or a named subject of a pending criminal proceeding (excluding
traffic violations and other minor offenses);
(c) Any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him from, or otherwise limiting, the
following activities:
(i) Acting as a futures commission merchant,
introducing broker, commodities trading advisor, commodity pool operator,
floor broker, leverage transaction merchant, any other person regulated by
the United States Commodity Futures Trading Commission or an associated
person of any of the foregoing, or as an investment advisor, underwriter,
broker or dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan association or
insurance company, or engaging in or continuing any conduct or practice in
connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the purchase and
sale of any security or commodity or in connection with any
violation of U.S. Federal, State or other securities law or
commodities law.
(d) Any order, judgment, decree, not subsequently reversed,
suspended or vacated, of any U.S. Federal, State or local authority
barring, suspending, or otherwise limiting for more than 60 days the right
of such person to engage in any activity described in the preceding sub-
paragraph, or to be associated with persons engaged in any such activity;
(e) a finding by any court of competent jurisdiction in a
civil action or by the United States Securities and Exchange Commission to
have violated any securities law, and the judgment in such civil action or
finding by such Commission has not been subsequently reversed, suspended
or vacated; or
(f) a finding by any court of competent jurisdiction in a
civil action or by the United States Commodity Futures Trading Commission
to have violated any commodities law, and the judgment in such civil
action or finding by such Commission has not been subsequently reversed,
suspended or vacated.
2.16 Employee Benefits. B.A. Network does not have any pension
plan, profit sharing or similar employee benefit plan.
ARTICLE 3
Representations and Warranties of ACEI
ACEI represents and warrants to B.A. Network that:
3.1 Organization. ACEI is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, and has all
necessary corporate powers to own properties and to carry on business.
3.2 Capital. The authorized capital stock of ACEI consists of
40,000,000 shares of Common Stock, par value $.0001 per share and
6,000,000 shares of Preferred Stock, par value $.0001 per share, which may
be issued in one or more series at the discretion of the board of
directors. As of the date of this Agreement, there were approximately
6,000,000 shares of Common Stock outstanding, all of which were fully paid
and non-assessable, and there was no Preferred Stock outstanding. Except
for the Options and common stock purchase warrants as listed in Exhibit
3.2 and convertible debentures that ACEI has sold and that the underlying
common stock are registered on Form S-3's filed with the U.S. Securities
and Exchange Commission in February 2000, there are no outstanding
subscriptions, options, rights, warrants, convertible securities, or other
agreements or commitments obligating ACEI to issue or to transfer from
treasury any additional shares of its capital stock of any class.
3.3 Subsidiaries. ACEI's subsidiaries are identified on Exhibit 3.3, annexed
hereto and made a part hereof.
3.4 Directors and Officers. Exhibit 3.4, annexed hereto and hereby
incorporated herein by reference, contains the names and titles of all
directors and officers of ACEI as of the date of this Agreement.
3.5 Financial Statements. Exhibit 3.5, annexed hereto and
incorporated herein by reference, consists of the ACEI audited financial
statements as of December 31, 1998, and unaudited financial statements for
the three month periods ended March 31, 1999 and June 30, 1999.
3.6 Changes Since December 31, 1998. Since December 31, 1998,
there has been not been any adverse change in the financial condition and
operations of ACEI.
3.7 Absence of Undisclosed Liabilities. As of December 31, 1998,
ACEI does not have any material debt, liability, or obligation of any
nature, whether accrued, absolute, contingent, or otherwise, and whether
due or to become due, that is not reflected in ACEI balance sheet as of
December 31, 1998 or as presented in the Notes to the Financial
Statements. There have been no new liabilities incurred since December
31, 1998, except for those described in the reports for the three month
periods ended March 31, 1999 and June 30, 1999 and those incurred in the
ordinary course of business and in connection with this transaction.
3.8 Tax Returns. Within the times and in the manner prescribed by
law, ACEI has filed all federal, state and local tax returns required by
law and has paid all taxes, assessments and penalties due and payable.
The provisions for taxes, if any, reflected in the balance sheet included
in Exhibit 3.5 is adequate for any and all federal, state, county and
local taxes for the period ending on the date of such balance sheet and
for all prior periods, whether or not disputed. There are no present
disputes as to taxes of any nature payable by ACEI.
3.9 Investigation of Financial Condition. Without in any manner
reducing or otherwise mitigating the representations contained herein,
B.A. Network shall have the opportunity to meet with ACEI's accountants
and attorneys to discuss the financial condition of ACEI. ACEI shall make
available to B.A. Network all books and records of ACEI.
3.10 Trade Names and Rights. Except for the subsidiaries of ACEI
as described in Exhibit 3.3 which own trademark and copyrights of
intellectual properties, ACEI does not use any trademark, service mark,
trade name, or copyright in its business, or own any trademarks, trademark
registrations or applications. To the best knowledge of ACEI, no person
owns any trademark, trademark registration or application, service mark,
trade name, copyright, or copyright registration or application the use of
which is necessary or contemplated in connection with the operation of
ACEI's business as a holding company.
3.11 Compliance with Laws. ACEI has complied with and is not in
violation of applicable federal, state or local statutes, laws or
regulations (including, without limitation, any applicable building,
zoning, securities or other law, ordinance, or regulation) affecting its
properties or the operation of its business.
3.12 Litigation. ACEI is not a party to any suit, action,
arbitration, or legal, administrative, or other proceeding, or
governmental investigation pending or, to the best knowledge of ACEI,
threatened against or affecting ACEI or its business, assets or financial
condition. ACEI is not engaged in any legal action to recovery moneys due
to it.
3.13 Authority. The Board of Directors and Shareholders of ACEI
have authorized the execution of this Agreement and the transactions
contemplated herein, and ACEI has full power and authority to execute,
deliver and perform this Agreement and this Agreement is the legal, valid
and binding obligation of ACEI, is enforceable in accordance with its
terms and conditions, except as may be limited by bankruptcy and
insolvency laws and by other laws affecting the rights of creditors
generally.
3.14 Ability to Carry Out Obligations. The execution and delivery
of this Agreement by ACEI and the performance by ACEI of its obligations
hereunder will not cause, constitute, or conflict with or result in (a)
any breach or violation of any of the provisions of or constitute a
default under any license, indenture, mortgage, charter, instrument,
articles of incorporation, by-laws, or other agreement or instrument to
which ACEI is a party, or by which it may be bound, nor will any consents
or authorizations of any party other than those hereto be required; (b) an
event that would permit any party to any agreement or instrument to
terminate it or to accelerate the maturity of any indebtedness or other
obligation of ACEI; or (c) an event that would result in the creation or
imposition of any lien, charge, or encumbrance on any asset of ACEI.
3.15 Validity of ACEI Shares. The shares of ACEI Common Stock to
be delivered pursuant to this Agreement, when issued in accordance with
the provisions of this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable.
3.16 Full Disclosure. None of the representations and warranties
made by ACEI herein, or in any exhibit, certificate or memorandum
furnished or to be furnished by ACEI, or on its behalf, contains or will
contain any untrue statement of material fact, or omit any material fact,
the omission of which would be misleading.
3.17 Assets. ACEI has good and marketable title to all of its
property free and clear of any and all liens, claims and encumbrances,
except as disclosed in its financial statements.
3.18 Material Contracts. Except as otherwise disclosed in this
agreement and in its Report on From 10-KSB for the year ended December 31,
1998 and the three month periods ended March 31, 1999 and June 30, 1999,
ACEI has no material contracts to which it is a party or by which it is
bound.
3.19 Complience With SEC Reporting Requirements. The Common Stock of
ACEI is registered under Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). ACEI has duly filed all materials
and documents required to be filed pursuant to all reporting obligations
under either Section 13(a) or 15(d) of the Exchange Act prior to the
consummation of the transaction contemplated hereby. The Common Stock of
ACEI is currently traded on the Nasdaq SmallCap Market.
ARTICLE 4
Representations and Warranties of Shareholders
4.1 Share Ownership. The Shareholders represent that they hold
shares of B.A. Network's common stock as set forth in Exhibit 2.2 hereof,
and that such shares are owned of record and beneficially by such
shareholders, and such shares are not subject to any lien, encumbrance or
pledge, and are restricted securities as defined in Rule 144 of the
Securities Act of 1933. The Shareholders severally represent that they
hold authority to exchange their shares pursuant to this Agreement.
4.2 Investment Intent. The Shareholders understand and acknowledge
that the shares of Exchange Stock are being offered for exchange in
reliance upon the exemption provided in Section 4(2) of the Securities Act
of 1933 for non-public offerings; and The Shareholders make the following
representations and warranties with the intent that same may be relied
upon in determining the suitability of each such shareholder as a
purchaser of securities. In the event the following representations and
warranties may cause discrepancies from the meanings of above sections I,
II, & III (particularly the descriptions of "not restricted" and "freely
tradable"), then the meanings of above sections I, II, & III shall
prevail.
(a) The Shareholders acknowledge that the Exchange Stock being
acquired solely for the account of such Shareholders, for investment
purposes only, and not with a view towards or for sale in connection with
any distribution thereof, and with no present intention of distributing or
re-selling any part of the Exchange Stock;
(b) The Shareholders agree not to dispose of his Exchange
Stock, or any portion thereof unless and until counsel for ACEI shall have
determined that the intended disposition is permissible and does not
violate the Securities Act of 1933 or any applicable state securities
laws, or the rules and regulations thereunder;
(c) The Shareholders acknowledge that ACEI has made all
documentation pertaining to all aspects of the herein transaction
available to them and to their qualified representatives, if any, and has
offered such person or persons an opportunity to discuss such transaction
with the officers of ACEI;
(d) The Shareholders represent that they have relied solely
upon ACEI's Report on Form 10-KSB for the period ended December 31, 1998
and all other filings made by ACEI with the Securities and Exchange
Commission and independent investigations made by the Shareholders or
their representatives, if any;
(e) The Shareholders represent that they are knowledgeable
and experienced in making and evaluating investments of this nature and
desire to acquire the Exchange Stock on the terms and conditions herein
set forth;
(f) The Shareholders represent that they are able to bear the
economic risk of an investment, as a result of the herein transaction, in
the Exchange Stock;
(g) The Shareholders represent that they understand that an
investment in the Exchange Stock is not liquid, and The Shareholders
represent that they have adequate means of providing for their current
needs and personal contingencies and have no need of liquidity in this
investment; and
(h) The Shareholders represent that they are an "accredited
investor" as that term is defined in Rule 501 of Regulation D, promulgated
under the Securities Act of 1933.
4.3 (deleted)
4.4 Legend. The Shareholders agree that the certificates
evidencing the Exchange Stock acquired pursuant to this Agreement will
have a legend placed thereon stating that the securities have not been
registered under the Act or any state securities laws and setting forth or
referring to the restrictions on transferability and sale of such
securities.
ARTICLE 5
Covenants
5.1 Investigative Rights. From the date of this Agreement until
the Closing Date, ACEI and B.A. Network shall provide to each other, and
such other party's counsels, accountants, auditors and other authorized
representatives, full access during normal business hours and upon
reasonable advance written notice of each party's properties, books,
contracts, commitments and records for the purpose of examining the same.
Each party shall furnish the other party with all information concerning
each party's affairs as the other party may reasonably request.
5.2 Conduct of Business. Prior to the Closing, ACEI and B.A.
Network shall each conduct its business in the normal course, and shall
not sell, pledge, or assign any assets, without the prior written approval
of the other party except in the regular course of business or as part of
the transactions contemplated hereby. Neither ACEI nor B.A. Network shall
amend its Articles of Incorporation or By-laws, declare dividends, redeem
or sell stock or other securities, incur additional or newly funded
liabilities, acquire or dispose of fixed assets, change employment terms,
enter into any material or long term contract, guarantee obligations of
any third party, settle or discharge any balance sheet receivable for less
than its stated amount, pay more on any liability than its stated amount,
or enter into any other transaction other than in the regular course of
business.
ARTICLE 6
Conditions Precedent to ACEI's Performance
6.1 Conditions. ACEI's obligations hereunder shall be subject to
the satisfaction, at or before the Closing, of all the conditions set
forth in this Article 6. ACEI may waive any or all of these conditions in
whole or in part without prior notice; provided, however, that no such
wavier of a condition shall constitute a waiver by ACEI of any other
condition or of any of ACEI's other rights or remedies, at law or in
equity, if B.A. Network or the Shareholders shall be in default of any of
their representations, warranties or covenants under this Agreement.
6.2 Accuracy of Representations. Except as otherwise permitted by
this Agreement, all representations and warranties by Shareholders and
B.A. Network in this Agreement or in any written statement that shall be
delivered to ACEI by B.A. Network under this Agreement shall be true and
accurate on and as of the Closing Date as though made at that time.
6.3 Performance. B.A. Network shall have performed, satisfied, and
complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it, on or before the Closing
Date.
6.4 Absence of Litigation. No action, suit or proceeding before
any court or any governmental body or authority, pertaining to the
transaction contemplated by this Agreement or to its consummation, shall
have been instituted or threatened against B.A. Network or the
Shareholders on or before the Closing Date.
6.5 Acceptance by B.A. Network Shareholders. The holders of an
aggregate of not less than 100% of the issued and outstanding shares of
common stock of B.A. Network shall have agreed to exchange a percentage of
their shares as stipulated in this Agreement, for shares of the Exchange
Stock.
6.6 Officer's Certificate. B.A. Network shall have delivered to
ACEI a certificate, dated the Closing Date, and signed by the President of
B.A. Network, certifying that each of the conditions specified in Sections
6.2 through 6.5 hereof have been fulfilled.
6.7 Opinion of Counsel to B.A. Network. B.A. Network shall have
delivered to ACEI an opinion of its Chinese and United States counsel, as
applicable, dated the Closing date, to the effect that:
(a) B.A. Network is a corporation duly organized, validly
existing and in good standing under the laws of the People's Republic of
China and the City of Beijing;
(b) The authorized capital stock of B.A. Network is as set
forth on the annexed Exhibit 2.2, a copy of which is annexed hereto and
made a part hereof. All issued and outstanding shares are legally issued.
(c) This Agreement has been duly and validly authorized,
executed and delivered and constitutes the legal and binding obligation of
B.A. Network, except as limited by bankruptcy and insolvency laws and by
other laws affecting the rights of creditors generally; and
ARTICLE 7
Conditions Precedent to
B.A. Network's and Shareholders' Performance
7.1 Conditions. B.A. Network's and Shareholders' obligations
hereunder shall be subject to the satisfaction, at or before the Closing,
of all the conditions set forth in this Article 7. B.A. Network and
Shareholders may waive any or all of these conditions in whole or in part
without prior notice; provided, however, that no such waiver of a
condition shall constitute a waiver by B.A. Network and Shareholders of
any other condition or of any of B.A. Network's and Shareholders' rights
or remedies, at law or in equity, if ACEI shall be in default of any of
its representations, warranties or covenants under this Agreement.
7.2 Accuracy of Representations. Except as otherwise permitted by
this Agreement, all representations and warranties by ACEI in this
Agreement or in any written statement that shall be delivered to B.A.
Network and Shareholders by ACEI under this Agreement shall be true and
accurate on and as of the Closing Date as though made at that time.
7.3 Performance. ACEI shall have performed, satisfied, and
complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it, on or before the Closing
Date.
7.4 Absence of Litigation. No action, suit or proceeding before
any court or any governmental body or authority, pertaining to the
transaction contemplated by this Agreement or to its consummation, shall
have been instituted or threatened against ACEI on or before the Closing
Date, except as disclosed herein.
7.5 Current Status. ACEI shall have prepared and filed with the
Securities and Exchange Commission its Annual Report on Form 10-KSB for
the period ended December 31, 1998 and its Quarterly Report on Form 10-QSB
for the three month periods ended March 31, 1999 and June 30, 1999.
7.6 Directors of ACEI. ACEI's Board of Directors shall remain to
serve until a new board is elected at the next annual meeting of
stockholders in the year 2000.
7.7 Officers of ACEI. ACEI's officers shall remain in their office
as per terms of their employment agreements.
7.8 Intentionally Left Blank
7.9 Officers' Certificate. ACEI shall have delivered to B.A.
Network and Shareholders a certificate, dated the Closing Date and signed
by the President of ACEI certifying that each of the conditions specified
in Sections 7.2 through 7.7 have been fulfilled.
7.10 Opinion of Counsel. ACEI shall deliver an opinion of its
counsel in the form annexed hereto as Exhibit 7.10;
ARTICLE 8
Closing
8.1 Closing. The Closing of this transaction shall be held at the
offices of Sichenzia, Ross & Friedman LLP, Esqs., 135 West 50th Street,
New York, New York 10020, or such other place as shall be mutually agreed
upon, on ______________________ , 2000 or such other date as shall be
mutually agreed upon by the parties. At the Closing:
(a) Shareholder shall present the certificates representing
their shares of B.A. Network being exchanged to ACEI, and such
certificates will be duly endorsed in blank;
(b) Shareholders shall receive a certificate or certificates
representing the number of shares of ACEI Common Stock for which the
shares of B.A. Network common stock shall have been exchanged;
(c) ACEI shall deliver an officer's certificate, as described
in Section 7.9 hereof, dated the Closing Date, that all representations,
warranties, covenants and conditions set forth in this Agreement on behalf
of ACEI are true and correct as of, or have been fully performed and
complied with by, the Closing Date;
(d) ACEI shall deliver a resolution of its Board of Directors
of ACEI approving this Agreement and each matter to be approved by the
Directors of ACEI under this Agreement;
(e) ACEI shall deliver an opinion of its counsel, as
described in Section 7.10 hereof, dated the Closing Date;
(f) B.A. Network shall deliver an officer's certificate, as
described in Section 6.6 hereof, dated the Closing Date, that all
representations, warranties, covenants and conditions set forth in this
Agreement on behalf of B.A. Network are true and correct as of, or have
been fully performed and complied with by, the Closing Date.
(g) B.A. Network shall deliver an opinion of its counsel, as
described in Section 6.7 hereof, dated the Closing Date; and
(h) B.A. Network shall deliver resolutions of its Board of
Directors approving this Agreement and each matter to be approved by the
Directors of B.A. Network under this Agreement.
ARTICLE 9
Miscellaneous
9.1 Captions and Headings. The Article and paragraph headings
throughout this Agreement are for convenience and reference only, and
shall in no way be deemed to define, limit, or add to the meaning of any
provision of this Agreement.
9.2 Memos, Attachments & Exhibits. Any memos, attachments &
exhibits signed by the parties are vital segments of this agreement and
are valid and binding between the parties along with this agreement.
9.3 No Oral Change. This Agreement and any provision hereof may
not be waived, changed, modified or discharged orally, but it can be
changed by an agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
9.4 Non-Waiver. Except as otherwise expressly provided herein, no
waiver of any covenant, condition or provision of this Agreement shall be
deemed to have been made unless expressly in writing and signed by the
party against whom such waiver is charged; and (i) the failure of any
party to insist in any one or more cases upon the performance of any of
the provisions, covenants or conditions of this Agreement or to exercise
any option herein contained shall not be construed as a waiver or
relinquishment for the future of any such provisions, covenants or
conditions; (ii) the acceptance of performance of anything required by
this Agreement to be performed with knowledge of the breach of failure of
a covenant, condition or provision hereof shall not be deemed a waiver of
such breach or failure; and (iii) no waiver by any party of one breach by
another party shall be construed as a waiver with respect to any other or
subsequent breach.
9.5 Entire Agreement. This Agreement contains the entire agreement
and understanding between the parties hereto and supersedes all prior
agreements and understandings.
9.6 Member to B.A. Network's Board of Directors. Upon the
effectiveness of this agreement, ACEI shall appoint one member to B.A.
Network's Board of Directors.
9.7 Choice of Law. This Agreement and its application shall be
governed by the laws of the United States of America and by the laws of
the People's Republic of China. Disputes between the parties shall be
settled amicable between the parties. In the event disputes cannot be
settled by the parties themselves, then the matter shall be handed over to
arbitration in a third country to be mutually agreed upon between the
parties.
9.8 Counterparts. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. This
Agreement may be in the English and Chinese languages. In the event of
discrepancies between the two languages, the parties shall amicably
negotiate to settle the disputes.
9.9 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be
deemed to have been duly given on the date of service if served personally
on the party to whom notice is to be given, or on the third day after
mailing if mailed to the party to whom notice is to be given, by first
class mail, registered or certified, postage prepaid, and properly
addressed as follows:
To ACEI:
Mr. Anthony K. Chan
President & CEO
American Champion Entertainment, Inc.
1694 The Alameda, Suite 100
San Jose, CA 95126
U. S. A.
Phone: 1-408-288-8199
Fax: 1-408-288-8098
E-mail: [email protected]
To B.A. Network:
Mr. Lin, Tao
General Manager
Beijing Wisdom Network Technology Company, Ltd.
No. 105 San Huan Bei Road, West Section
Ke Yuan Building, A-809
Heiding District
Beijing
People's Republic of China
Phone: 86-10-8841-5090
Fax: 86-10-8841-4987
E-mail: [email protected]
9.10 (deleted)
9.11 Binding Effect. This Agreement shall inure to and be binding
upon the heirs, executors, personal representatives, successors and
assigns of each of the parties to this Agreement.
9.12 Mutual Cooperation. The parties hereto shall cooperate with
each other to achieve the purpose of this Agreement and shall execute such
other and further documents and take such other and further actions as may
be necessary or convenient to effect the transaction described herein.
9.13 Announcements. ACEI and B.A. Network will consult and
cooperate with each other as to the timing and content of any
announcements of the transactions contemplated hereby to the general
public or to employees, customers or suppliers.
9.14 Expenses. Each party will pay its own legal, accounting and
any other out-of-pocket expenses reasonably incurred in connection with
this transaction, whether or not the transaction contemplated hereby is
consummated. In no event shall one party be liable for any of the
expenses of the other party. ACEI shall be responsible for the expenses
of the audit, by one of the big five U.S. accounting firms, of B.A.
Networks financial statements for the years ended December 31, 1999 and
2000 only.
9.15 Survival of Representations and Warranties. The
representations, warranties, covenants and agreements of the parties set
forth in this Agreement or in any instrument, certificate, opinion or
other writing provided for in it, shall survive the Closing irrespective
of any investigation made by or on behalf of any party.
9.16 Exhibits. As of the execution hereof, the parties hereto have
provided each other with the Exhibits provided for hereinabove, including
any items referenced therein or required to be attached thereto. Any
material changes to the Exhibits shall be immediately disclosed to the
other party.
WHEREFORE, the above agreement is hereby agreed to and accepted as of the date
first above written.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By:
Anthony K. Chan
President & CEO
BEIJING WISDOM NETWORK TECHNOLOGY COMPANY, LTD.
By:
Lin, Tao
General Manager
