Muhammad Ali Stock Certificate

Beautifully engraved SCARCE certificate from the Champburger Corporation issued in 1971. This historic document was printed by the Security-Columbian Banknote Company and has an ornate border around it. This item has the printed signatures of the company’s president (Edward M. Gale) and secretary (Leonard Lurie) and is over 35 years old. We have not seen many of these certificates around.




The Champ!

Champburger was incorporated in 1968 to engage in the fast food service business. With the sponsorship of boxing champion Muhammad Ali, the goal was to establish black owned and operated franchises in black areas. Unfavorable publicity, however, concerning the franchising industry at that time, made lenders reluctant to extend financing to new entrants in the fast food industry, and riots in black areas made it extremely difficult to operate existing franchises in the troubled neighborhoods. By June of 1970, the company had incurred losses of approximately $229,000 for the preceding nineteen months.

The company was named after the famous boxer, Muhammad Ali who was known as " The Champ". Ali, received six percent of the million-dollar Chamburger Corporation's stock which sold publicly at $5 a share for lending his well-known, if somewhat controversial 'name and image (at the time)' to the venture. In addition, he was to receive royalties of one per cent of the firm's annual net sales. Unfortunately for the Champ, the company went down for the count and ended belly up in 1972. Champburger was mentioned in the most recent movie about Muhammad Ali which starred Will Smith.

Boxer Muhammad Ali first won the heavyweight world championship by defeating Sonny Liston in 1964 (while still known as Cassius Clay), then became an international celebrity with his brash, cocky and ever-quotable personality.

Throughout this time, Ali was shrouded in controversies arising from his involvement with Nation of Islam. He had another battle to face the following year. This time outside the ring. The act had been staged two years ago, when Ali was called to serve for the US armed forces. He had failed to pass the mental aptitude test at a military induction center in Florida and classified 1-Y, meaning unfit for service. But later on, the US armed forces required more soldiers for the ongoing Vietnam War and the pass-percentage marks for the soldier’s test had been dropped to 15. All of a sudden, Ali was classified 1-A, meaning fit for service.

On April 28, 1967, his name was announced at the induction center on San Jacinto Street, Houston; ‘Cassius Clay – Army.’ Ali refused to co-operate with the draft and did not join the armed forces saying he was a member of Nation of Islam, which was a pacifist organization. When asked by journalists, he simply replied, "I ain’t got no quarrel with them Viet Congs. No Viet Cong ever called me N......".

The reaction was quick. The so-called patriotic fans and sports journalists precipitated a tremendous outcry against him. Ali was charged for violating the Selective Service Act by the US government and was sentenced to five years imprisonment and fined $1,00,000. On appeal, he could save himself from the jail but the worst thing that happened to him was his exile from the boxing world. The World Boxing Association stripped him of his title and boxing license. Moreover, his passport was impounded by the government to ensure that he did not box abroad.

Reflecting upon this period Sports Illustrated published, "The noise became a din, the drumbeats of holy war. TV and radio commentators, little old ladies… bookmakers, and parish priests, armchair strategists at the Pentagon and politicians all over the place joined in a crescendo of get-Cassius clamer."

Ali, who had earned millions in the ring, was soon in financial trouble. The helpless, but not hopeless guy opened his heart in an interview to Edwin Shrake for Sports Illustrated : "I’m giving up my title, my wealth, may be my future. Many great men have been tested for their religious beliefs. If I pass this test, I’ll come out stronger than ever."

Ali was no longer the titleholder. But to the true boxing fans, he was still the champ. Ali had no fights for three years. It was a big loss for him as he was at the peak of his career then. Meanwhile, he married 17-year-old, Belinda Boyd, a Black Muslim from Chicago. He had first met Boyd when he visited her school in 1961. After his second marriage, Ali had to look for other sources of income, as he wasn’t allowed to box. Soon he found a way. He started giving speeches at colleges and universities. In most of the lectures, he would explain his vision regarding war or segregation of Blacks. His lectures would attract huge audiences. Soon he became the third most charismatic speaker in America, the first two being – US Senators Edmund Muskie and Edward Kennedy.

Although, the income from his lectures fell short of his legal fees, he also tried acting and gave public appearances. He acted as a leading actor in the Broadway Musical Buck White. Moreover, a computer bout between him and Rocky Marciano and a documentation of his life provided enough financial support for Ali.

The only unfortunate thing that happened was his failure in the venture of ‘Champburger’ chain of fast food restaurants.

Stripped of his crown in for refusing induction into the Army, he successfully appealed criminal charges at the Supreme Court, then gradually fought his way back to the title by beating George Foreman in a 1974 Zaire bout. After losing to Leon Spinks in 1978, he became the first man in history to regain the championship three times by defeating the same opponent later that same year, then retired from the sport.

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488 F.2d 948

Fed. Sec. L. Rep. P 94,384

John J. McDONOUGH et al., Plaintiffs-Appellants, v. CHAMPBURGER CORPORATION et al., Defendants-Appellees.

No. 73-1719.

United States Court of Appeals, Fifth Circuit.

Feb. 1, 1974.

Page 949

James J. Sullivan, Jr., Francis J. DiMento, Manuel Z. Sherman, John J. McDonough, Boston, Mass., for plaintiffs-appellants.

Joe N. Unger, Bernard S. Mandler, Miami Beach, Fla., for defendants-appellees.

Before TUTTLE, DYER and MORGAN, Circuit Judges.

Page 950

DYER, Circuit Judge:

Minority stockholders of Champburger Corporation, suing in their own behalf and derivatively in behalf of the company, appeal from the district court's final judgment of involuntary dismissal pursuant to Fed.R.Civ.P. 41(b), based upon a failure of proof at the close of plaintiffs' evidence of a prima facie case of a violation of the federal securities laws or the applicable state common law by the defendants. We affirm.

Champburger was incorporated in 1968 to engage in the fast food service business. With the sponsorhip of boxing champion Muhammad Ali, the goal was to establish black owned and operated franchises in black areas. Unfavorable publicity, however, concerning the franchising industry at that time, made lenders reluctant to extend financing to new entrants in the fast food industry, and riots in black areas made it extremely difficult to operate existing franchises in the troubled neighborhoods. By June of 1970, the company had incurred losses of approximately $229,000 for the preceding nineteen months.

In December of 1969, law partners Courshon and Berk were retained to represent Champburger as special counsel. For a short time in January and February of 1970, they served not only as counsel for but directors of the corporation. By May of the same year, however, they had begun to represent a group of dissident stockholders, and Courshon explored the possibility of a reorganization of Champburger which would result in redirecting the company's assets into an entirely different business. Courshon and a few associates had, in 1968, formed Trans Globe Films, Inc. to engage in the business of leasing motion picture films to television stations. As of 1970, Trans Globe was still a dormant corporation which had no assets other than a few licensing agreements of nominal value. It had no history of operations, and, in fact, had no place of business other than Courshon's law office. In sum, Trans Globe had an idea, but no funds with which to implement it. By contrast, Champburger's corporate purpose appeared to be leading the company toward financial disaster, although the balance sheet of November, 1969, showed assets of several hundred thousand dollars.

At Champburger's annual stockholders' meeting on June 12, 1970, it became apparent that the incumbent management was going to be ousted. The meeting was adjourned until June 18, at which time four of the company's five directors were replaced. The proxies of the dissident stockholders were voted by Berk. Three of the new directors, Spring, Salstein, and Keats, were clients of Courshon and Berk who had been requested by Courshon or another Trans Globe officer to serve on the Champburger board.

On July 23, 1970, the new Board adopted a Plan of Reorganization designed to make the Champburger assets available to Trans Globe. In return for all the outstanding shares of the Trans Globe stockholders, approximately 31% of Champburger's stock was transferred pursuant to an escrow agreement. The agreement provided that shares of Champburger would gradually be released from escrow and delivered to Trans Globe stockholders under a formula based upon Trans Globe's ability to generate earnings. While the Champburger stock was in escrow, however, the agreement gave Courshon power to vote the shares as the voting trustee. When the escrowed stock was added to that which Courshon personally owned, he had voting control of 50.7% of the outstanding stock of Champburger.

On August 3, 1970, Champburger mailed a proxy solicitation to the company's stockholders and recommended approval of the proposed reorganization. Although the Plan was approved by a majority of the stockholders, the company eventually failed.

Page 951

Two Champburger stockholders, appellants McDonough and Clifford, 1 not only disapproved the reorganization as an ill-advised business proposition, but now urge that it was a scheme to defraud the company and its stockholders. The thrust of their attack is that the Plan was a violation of Sec. 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. Sec. 78j(b), and specifically of Rule 10b-5. 2 It is not disputed that the exchange of the Champburger stock for that of Trans Globe was a purchase and sale of securities within the meaning of Sec. 10(b). S.E.C. v. National Securities, Inc., 1969, 393 U.S. 453, 89 S.Ct. 564, 21 L.Ed.2d 668. McDonough's contention that the reorganization was a fraudulent scheme which violated the express prohibitions of Rule 10b-5(a) and (c) is best summarized by the following excerpt from his brief:

. . . Champburger was duped into parting with 375,000 shares of its stock, shares which represented voting control over a corporation with assets worth many hundreds of thousands of dollars, for nothing in return, with the possible exception of a wild, ephemeral dream. * * *

Ordinarily, property owners do not part with their valuables without receiving something of equal value in return, unless they are victims of some type of fraud.

This broadside attack is better understood by examining some of the specific allegations that the proxy solicitation violated Rule 10b-5(b) because of untrue statements and omissions of material fact. 3 McDonough's thesis that the reorganization involved a deceptive course of business is grounded largely on an allegedly clandestine and illegitimate relationship between the officers of Champburger and Trans Globe.

Two of the three purportedly false statements 4 and several of the assertedly material omissions raised in this appeal are directed to the alleged failure of the proxy statement to adequately inform the stockholders of the relationship between Courshon and Berk and the newly elected directors of Champburger. The underlying premise is that if the true relationship were known, the shareholders might not have given their approval to proposed reorganization. Mills v. Electric Auto-Lite Co., 1970, 396 U.S. 375, 384, 90 S.Ct. 616, 24 L.Ed.2d 593; Kohn v. American Metal Climax, Inc., 3 Cir. 1972, 458 F.2d

Page 952

255, 269; S.E.C. v. Texas Gulf Sulphur Co., 2 Cir. 1968, 401 F.2d 833, 849. The two allegedly false statements stem from a single sentence in the proxy statement: "For a brief period of time during January and February, 1970, Messrs. Courshon and Berk were Directors of the Corporation and the firm of Courshon and Berk represented the Corporation." At the trial, McDonough proffered a document which suggested that Courshon was on the Champburger board as late as April of 1970. The evidence also indicated that his law firm had given legal advice to the company in two matters in July or August of 1970. Although we entertain serious doubt that such a showing would be sufficient to demonstrate the untruthfulness of the statements, we are convinced that even if the information is assumed to be false, it is so insignificant, in view of the totality of the transaction as represented by the proxy materials, that there is no reasonable possibility that the judgment of the stockholders might have been affected.

A failure to meet the materiality test is also fatal to each of the alleged omissions suggested by McDonough concerning the relationship between the Champburger and Trans Globe principals. It is asserted that the proxy material was incomplete because it did not indicate that Berk represented the dissident stockholders at the meetings of June 12 and June 18. Another charge is that the statement, "Roger Spring, Robert Salstein and Richard Keats are all clients of the Law Firm of Courshon and Berk and these three individuals are members and comprise a majority of the Board of Directors of the Corporation," was insufficient since it failed to disclose (1) that the three had been asked by Courshon and another Trans Globe official if they would be willing to serve on the board, and (2) that Berk cast the proxies which elected them to office. It is claimed that the management was remiss in failing to report that as early as May of 1970, Courshon had discussed the possible acquisition of Trans Globe by Champburger. Finally, McDonough contends that the proxy material was deficient for not revealing the "conflict of interest" of the directors who commended the Plan to the stockholders.

After having carefully studied the proxy statement, as well as the entire record of the trial in the district court, we are convinced that any reasonable stockholder would be adequately apprised of the close working relationship between the Trans Globe interests and the new management of Champburger. There is no allegation or proof of any financial relationship between the nominees sponsored by Courshon and Trans Globe, and we are unwilling to hold that sponsorship alone is of such significance that it must be disclosed in a proxy statement. We are, therefore, wholly unpersuaded that any of the "omissions" concerning the relationship of the Trans Globe officers to the Champburger directors might have misled the stockholders in violation of Rule 10b-5(b).

Having disposed of the contention that the relationship of the parties who devised and recommended the reorganization was inadequately disclosed, we now must determine whether the Plan was anything other than a good faith, albeit unsuccessful, attempt to save a troubled enterprise. It is true that Champburger gave up control of rapidly diminishing but still substantial assets for little more than a potentially viable business concept. As the district court observed:

There may appear to be something rather unusual about this particular merger when you look at the proxy statement. Trans-Globe is held out as having contract rights of nominal value, that it has no assets, no history or operations, no income and no earnings. It is hardly a situation where Champburger was beguiled or any of its stockholders were beguiled into voting for a merger with Trans-Globe.

Page 953

We agree that stockholder approval of the Plan resulted not from beguilement, but probably from desperation. Apparently the Champburger stockholders, fully aware of the one-sidedness of a deal requiring them to relinquish the use of their assets to a company with no business record, were willing to assume such an extreme risk to avert imminent financial disaster. Under these circumstances, we cannot say that the other information McDonough claims was wrongfully omitted was material. Certainly the details of the licensing agreements could not have been significant since it is undisputed that the contracts were of but nominal value. Even the absence of the last audited balance sheet was not, in this situation, a material omission. We recognize that the Seventh Circuit in Swanson v. American Consumer Industries, Inc., 7 Cir. 1969, 415 F.2d 1326, held that the absence of a balance sheet was one of several omissions which made a proxy statement materially misleading. In the case sub judice, however, the proxy materials noted that Champburger was operating three restaurants, that a fourth was virtually completed, and that the company had approximately $150,000 in cash in its treasury. Since it was clear that the stockholders were asked to give up control of their corporation's substantial assets to an enterprise with almost none, the absence of a detailed financial statement was not a material omission. We are firmly of the view that there has been no showing of a violation of Sec. 10(b) or of Rule 10b-5.

Nothing in the record supports the assertion of a breach of the Champburger directors' fiduciary duties. Finally, there is not a scintilla of evidence of a civil conspiracy. Because neither the reorganization nor the proxy solicitation violated any law, we do not reach the question of damages or the propriety of refusing to permit the suit to be maintained as a class action.

Affirmed.

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1 Although Clifford is a party in this litigation, she was added as a plaintiff in either the second or third amended complaint, and apparently has taken no active part in the lawsuit. On the other hand, McDonough is an attorney who handled the matter pro se until another lawyer entered the case shortly before trial in the district court. To simplify party references, therefore, appellants will hereafter be denominated "McDonough."

2 17 C.F.R. Sec. 240.10b-5 provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

3 Because the securities were not registered under Sec. 12 of the 1934 Act, 15 U.S.C.A. Sec. 78l, the proxy statement is not subject to the more specific regulation of Sec. 14 of the Act, 15 U.S.C.A. Sec. 78n.

4 We dismiss as unmeritorious the contention that the Plan which gave Courshon voting control of the corporation and thereby the power to sell all the company's assets was the equivalent of a sale requiring stockholder approval. The proxy solicitation statement that the reorganization did not require stockholder approval was, therefore, not false.