UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended March 31, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from
__________ to ___________
Commission File Number 333-18967
AMERICAN CHAMPION ENTERTAINMENT, INC.
-------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 94-3261987
-------- ----------
(State or Other Jurisdiction or (IRS Employer
Incorporation or Organization) Identification Number)
26203 Production Avenue, Suite 5
Hayward, California 94545
-------------------------
(Address of Principal Executive Offices)
(510) 782-8168
-------------------------
(Registrant's Telephone Number, Including Area Code)
(No Change)
-------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ..X.. No .....
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ..... No ..... Not Applicable ..X..
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Class Outstanding at March 31, 1998
- --------------------- --------------------------------
Common Stock, $.0001 3,832,345 shares
par value
Transitional Small Business Disclosure Format (check one)
Yes ..... No ..X..
Exhibit Index on Page 27
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Form 10-QSB
March 31, 1998
TABLE OF CONTENTS
PART I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet
as of March 31, 1998
Consolidated Statements of Operations for
the three months ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows for the
three month periods ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and analysis of
Financial Condition and Results of Operations
PART II - Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
Exhibit
<PAGE>
PART I -FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets (unaudited)
Current assets:
Cash....................................... $554,169 $1,795,657
Account receivable......................... 220,817 220,817
Loans receivable, related parties.......... 114,723 114,773
Current portion of note receivable 6,401 0
Current portion of film costs.............. 1,200,000 655,500
Prepaid expenses and other................. 80,119 96,556
------------ ------------
Total current assets....................... 2,176,229 2,883,303
Property and equipment, net.................. 253,176 255,423
Other Assets
Film costs, net.............................. 2,359,574 1,789,917
Note receivable 46,458 0
Other assets................................. 31,552 35,152
------------ ------------
$4,866,989 $4,963,795
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses...... $381,047 $199,344
Deferred revenues, current portion......... 244,912 282,056
Loans payable, related parties............. 35,503 37,255
Long-term debt, current portion............ 5,183 5,856
Obligations under capital leases,
current portion.......................... 10,464 10,157
Other...................................... 4,216 4,216
------------ ------------
Total current liabilities.................. 681,325 538,884
------------ ------------
Long-term liabilities:
Deferred revenues.......................... 163,215 261,464
Long-term Debt............................. 57,078 58,343
Obligations under capital leases........... 3,830 6,565
Other...................................... 2,108 4,216
------------ ------------
Total long-term liabilities................ 226,231 330,588
------------ ------------
Stockholders' Equity:
Common stock, $.0001 par value, 3,832,345 o.t. 5,529,419 5,529,419
Common stock warrants...................... 149,500 149,500
Accumulated deficit........................ (1,719,486) (1,584,596)
------------ ------------
Total stockholders' equity ................ 3,959,433 4,094,323
------------ ------------
$4,866,989 $4,963,795
============ ============
</TABLE>
See accompanying notes.
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
REVENUE:
Tuition and related fees......... $126,905 $255,950
Accessories and video sales...... 13,401 22,238
Film income...................... 215,000 --
Interest income.................. 26,692 --
---------- ----------
Total revenue.................... 381,998 278,188
---------- ----------
COSTS AND EXPENSES:
Cost of sales.................... 8,711 14,572
Amortization of film costs....... 73,332 --
Salaries and payroll taxes....... 215,634 193,028
Rent............................. 84,616 124,299
Selling, general and
administrative................. 236,117 55,878
Interest......................... 8,901 50,385
---------- ----------
Total costs and expenses......... 627,311 438,162
---------- ----------
Net Loss From Operations............($245,313) ($159,974)
Gain On Sale Of Studio 115,473 0
Net Loss Before Income Tax (129,840) (159,974)
Income Tax 5,050 0
Net Loss (134,890) (159,974)
Accumulated Deficit (1,719,486) (1,584,596)
Weighted average number of shares
outstanding...................... 3,832,345 2,515,700
========== ==========
Net loss per share................. ($0.04) ($0.06)
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ ($134,890) ($159,974)
Adjustments to reconcile net loss to
net cash used for operating activities:
Gain on sale of studio...................... ($115,473) $0
Depreciation and amortization............... 88,805 12,782
Interest amortization, debt issue costs..... 0 20,998
Rent concession amortization................ (2,108) (1,054)
Decrease in:
Prepaid expenses and other.................... 20,087 4,053
Increase in:
Accounts payable and accrued expenses......... 181,703 (12,761)
Deferred revenues............................. (72,779) (65,358)
----------- -----------
Net cash used for operating activities..... (34,655) (201,314)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. (13,226) --
Payments for film costs......................... (1,187,489) (33,189)
Advances to stockholders........................ 0 (21,278)
Deposits........................................ 0 4,694
----------- -----------
Net cash used for investing activities..... (1,200,715) (49,773)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stocks......... 0 248,020
Deferred Offering costs......................... 0 (91,418)
Proceeds of short-term debts.................... 0 (4,430)
Payments of loans from related parties (1,752) 103,142
Payments on long-term debt...................... (1,938) (11,921)
Principal payments on capital leases............ (2,428) (5,494)
----------- -----------
Net cash provided by financing activities.. (6,118) 237,899
----------- -----------
NET INCREASE IN CASH............................ (1,241,488) (13,188)
CASH, beginning of period....................... 1,795,657 28,763
----------- -----------
CASH, end of period............................. $554,169 $15,575
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................... $8,901 $25,552
State income taxes.......................... $5,050 $800
</TABLE>
NON-CASH TRANSACTIONS
During the three months ended March 31, 1998, the Company sold a karate
studio in which the Company received a note receivable with a net
present value of $52,859 and wrote off deferred revenue of $62,614.
See accompanying notes.
<PAGE>
PART I - FINANCIAL INFORMATION
Notes to Consolidated Financial Statements
Note 1 - Nature of Operations and Summary of Significant Accounting
Policies
Nature of Operations and Consolidation - The consolidated financial
statements include the accounts of American Champion Entertainment, Inc.
(the "Company") and its wholly owned subsidiary, America's Best Karate
("ABK") which owns 100% of American Champion Media, Inc. ("AC Media"). The
Company and AC Media were formed during 1997. Pursuant to an Agreement and
Plan of Merger, dated as of July 14, 1997, the Company entered into a
reorganization transaction pursuant to which the Company acquired all of
the issued and outstanding shares of ABK (the "Reorganization"). The
financial statements included herein give effect to the Reorganization in
which the Company became the successor to ABK. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
AC Media focuses on operating and managing all media-related programs for
the Company. These programs consist of fitness information video tapes,
books and audio tapes and production of educational television programs
for children which emphasize martial arts values and fun. ABK focuses
solely on operating and managing the Company's karate studios which are
located in the San Francisco Bay Area.
Significant accounting policies of the Company are set forth in the
Company's financial statements for the year ended December 31, 1997
included in the Company's Form 10-KSB as filed with the Securities and
Exchange Commission ("SEC") on March 30, 1998.
Note 2 - Basis of Reporting
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and disclosures
required by generally accepted accounting principles for completed
financial statements. In the opinion of management, such statements
include all adjustments (consisting only of normal recurring items) which
are considered necessary for a fair presentation of the financial position
of the Company at March 31, 1998 and the results of its operations and its
cash flows for the three months periods ended March 31, 1998 and 1997.
The accompanying unaudited financial statements should be read in
conjunction with the financial statements and notes for the year ended
December 31, 1997 included in the Company's Form 10-KSB as filed with the
SEC on March 30, 1998.
<PAGE>
Note 3 - Uses of Estimates, Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Significant estimates used in these financial statements
include the recovery of film costs which has a direct relationship to the
net realizable value of the related asset. It is at least reasonably
possible that management's estimate of revenue from films could change in
the near term which could have a material adverse effect on the Company's
financial condition.
Note 4 - Film Costs
Film costs consist of the capitalized costs related to the production of
videos and program for television as follows:
Television program
Adventures With Kanga Roddy $3,529,610
Videos
Montana Exercise Video 148,253
Strong Mind Fit Body 18,042
--------
3,695,905
--------
Less accumulated depreciation 136,331
--------
3,559,574
Less current portion of film costs 1,200,000
--------
Long-term portion of film costs $2,359,574
==========
Production of the first seven episodes of The Adventures of Kanga Roddy was
completed during 1997. Six additional episodes were completed during the three
months ended March 31, 1998. Both videos were completed in 1996, but only the
Strong Mind Fit Body video has been released.
<PAGE>
Note 5 - Related Party Transactions
Advances to stockholders were $114,723 at March 31, 1998.
In November 1996, the Company agreed to pay to two participants
of the Montana Exercise Video the sum of $50,000 from the
proceeds of the intended initial public offering and another
$50,000 will be paid 30 days prior to the release date. These two
participants are stockholders of the Company.
Note 6 - Sale of Karate Studio
During the three months ended March 31, 1998, the Company sold a
karate studio to the general manager. The Company received a note
receivable of $52,859 due in 70 monthly payments of $1,000
including interest imputed at 10%. The Company has guaranteed
payments of the studio lease which are $4,673 per month through
March 2000. The Company retained all advance payments of
enrollment fees which were $156,536 at March 31, 1998; however,
the Company is liable for any future refunds to students enrolled
prior to March 31, 1998. The Company reduced the liability for
advance payments of enrollment fees to $94,000 which is included
in deferred revenue. Management will evaluate this liability
quarterly in light of cancellations to date and expected future
cancellations.
Note 7 - Subsequent Events
Subsequent to the end of the quarter, the Company entered into an
Engagement Agreement with a finder for equity financing. Terms
are yet to be determined.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
Forward Looking Information
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
from liability for forward-looking statements. Certain information included in
this Form 10-QSB and other materials filed or to be filed by the Company with
the Securities and Exchange Commission (as well as information included in
oral statements or other written statements made or to be made by or on behalf
of the Company) are forward-looking, such as statements relating to
operational and financing plans, capital uses and resources, competition, and
demands for the Company's products and services. Such forward-looking
statements involve important risks and uncertainties, many of which will be
beyond the control of the Company. These risks and uncertainties could
significantly affect anticipated results in the future, both short-term and
long-term, and accordingly, such results may differ from those expressed in
forward-looking statements made by or on behalf of the Company. These risks
and uncertainties include, but are not limited to, the acceptance by the
television viewer and public television stations of the television series -
ADVENTURES WITH KANGA RODDY, production delays and/or cost overruns with
respect to such series, changes in external competitive market factors or in
the Company's internal budgeting process which might impact trends in the
Company's results of operations, unanticipated working capital or other cash
requirements, changes in the Company's business strategy or an inability to
execute its strategy due to unanticipated change in the industries in which it
operates; and various competitive factors that may prevent the Company from
competing successfully in the marketplace.
The following section discusses the significant operating changes,
business trends, financial condition, earnings and liquidity that have
occurred in the three-month period ended March 31, 1998. This
discussion should be read in conjunction with the Company's
consolidated financial statements and notes appearing elsewhere in this
report.
Results of Operations
Revenues. For the three months ended March 31, 1998, the Company's
total revenue increased to $381,998, an increase of $103,810 or 37% as
compared to total revenue for the three months ended March 31, 1997 of
$278,188.
The Company's revenues from the operation of its karate studios for
the three months ended March 31, 1998 was $126,905, a decrease of 50% from
revenues of $255,950, for the three months ended March 31, 1997. The decrease
is attributable to the reduction in the number of karate studios. In 1997,
the Company closed five schools, two in Nevada and three in California which
were not operating profitably. On March 31, 1998, the Company sold a studio
to a former employee of the Company for $52,859 which was paid in the form of
a promissory note which provides for 70 monthly payments of $1,000 including
interest.
For the three months ended March 31, 1998, the Company recognized
$215,000 in film income. Film income was derived from the delivery
of six episodes of the television show "Adventures with Kanga Roddy"
to KTEH pursuant to the Distribution Agreement with KTEH dated May 6, 1997
<PAGE>
The Company's interest income of $26,692 was earned from investment of
the proceeds from the Company's initial public offering.
Costs and Expenses. The Company's revenue from its karate studios and
film business were offset by amortization of film costs of $73,332, calculated
in proportion to the revenue generated by the television show in this first
quarter to total expected revenues from the television show.
The Company's expenses for salaries and payroll taxes increased by
$22,606 or 12% for the three months ended March 31, 1998 from $193,028 for the
comparable period in 1997. The increase was mainly the result of increases in
administrative, film production and marketing personnel. Total selling,
general and administrative expenses increased by $180,239 for the three months
ended March 31, 1998 from $55,878 for the comparable period in 1997. This
increase is primarily due to promotional expenses related to the television
show, depreciation of production equipment and legal and accounting fees.
Interest expense decreased $41,484 or 82% for the three months ended
March 31, 1998 from $50,385 for the comparable period in 1997. This decrease
in expense is attributable to the payoff of loans in 1997 with proceeds from
the Company's IPO. Rent expense also decreased to $84,616 for the three month
period ended March 31, 1998 from $124,299 for the comparable period in 1997, a
decrease of 32%. The decrease in rent expense is primarily attributable to
the closure of karate studios.
As a result of the foregoing factors, the Company's net loss decreased
by $25,084 or 16% from $159,974 for the three months ended March 31, 1997 to
$134,890 for the three months ended March 31, 1998. Net loss per share
decreased from $0.06 for the three months ended March 31, 1997 to $0.04 for
the comparable period in 1998. Weighted average number of shares outstanding
increased from 2,515,700 for the three months ended March 31, 1997 to
3,832,345 for the comparable period in 1998 due to the Company's initial public
offering in August 1997.
Liquidity And Capital Resources
Cash decreased for the three months ended March 31, 1998 by $1,241,488
of which $1,200,715 was for investing activities related to the production of
the Adventures With Kanga Roddy show. Net operating cash loss was $34,655 and
the balance of $6,118 was used in financing activities.
As of March 31, 1998, total long-term debt was $62,261 and loans
payable to related parties was $35,503. In addition, deferred revenues were
$244,912 (current portion) and $163,215 (long-term liabilities) at March 31,
1998. Deferred revenues are primarily pre-paid tuition for the karate studios
which cannot be immediately recognized. In connection with the sale of the
studio discussed above, the Company retained all advance payments of tuition
which were $156,536 at March 31, 1998 but adjusted this for future estimated
refunds to students enrolled prior to March 31, 1998 to $94,000. This amount
is included in deferred revenue.
Recent Developments
On April 20, 1998, the Company entered into a Continuing Distribution
Agreement with KTEH for the distribution of 26 more half- hour Kanga Roddy
shows and two one-hour specials. Under the Continuing Distribution Agreement,
KTEH receives the exclusive domestic broadcast rights to the new episodes for
two years and agrees to pay the Company $30,000 for each half-hour program and
$60,000 for each of the two one- half hour shows. In anticipation of its need
for additional working capital to produce the additional 28 episodes of the
Kanga Roddy series, the Company engaged JW Charles Securities, Inc. on April
24, 1998 to assist the Company in identifying sources of financing. There
can be no assurance that such financing will be available, or, if available,
will be on terms satisfactory to the Company or not dilutive of existing
shareholders.
On April 29, 1998, the Company executed a sponsorship agreement with
Sara Lee Corporation, the parent company of Hanes, which provides for Hanes'
corporate sponsorship of the Adventures With Kanga Roddy show. It is
anticipated that basketball legend Michael Jordon will star in the Hanes
campaigns.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 24,1998, the Company filed a Complaint for Declaratory Relief in the
U.S. District Court, Northern District of California, against William Charles
Jeffreys, requesting a judicial determination of the Company's rights in
certain intellectual property associated with the Adventures with Kanga Roddy
show, and that Mr. Jeffreys has no such rights. The Company disputes all
claims of Mr. Jeffreys to an interest in certain of the Company's
intellectual property and intends to vigorously protect its ownership and
rights to such intellectual property.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See the Exhibit Index beginning on page 15.
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN CHAMPION ENTERTAINMENT, INC.
(Registrant)
Dated: May 15, 1998 By: /s/ Anthony K. Chan
Anthony K. Chan, Chief Executive Officer
and Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation
3.2* Bylaws
4.1* Specimen stock certificate
4.2* Warrant Agreement with form of Warrant
4.3* Form of Underwriters' Warrant
5* Opinion of Sheppard, Mullin, Richter & Hampton LLP
10.1* 1997 Stock Plan
10.2* Form of Stock Option Agreement for 1997 Stock Plan
10.3* 1997 Non-Employee Directors Stock Option Plan
10.4* Form of Non-Employee Directors Stock Option Agreement
10.8* Promissory Note dated December 15, 1994 made payable by Messrs.
Chung and Chan and their wives in favor of Michael Triantos M.D.
Inc. Money Purchase and Profit Sharing Pension Plans Trust
10.9* Employment Agreement between the Company and George Chung dated
March 4, 1997, effective upon the closing date of the Offering
10.10* Employment Agreement between the Company and Anthony Chan dated
March 4, 1997, effective upon the closing date of the Offering
10.11* Employment Agreement between the Company and Don Berryessa dated
March 4, 1997, effective upon the closing date of the Offering
10.12* Employment Agreement between the Company, AC Media and Jan
Hutchins dated March 4, 1997, effective upon the closing date of
the Offering
10.13* Convertible Loan Agreement dated as of May 5, 1995, between ABK
and David Y. Lei
10.15* Amended Deal Memo between ABK and Rick Fichter dated February
23, 1997, with respect to payments related to the Kanga Roddy
Series
10.17* Form of Indemnification Agreement
10.19* Letter dated October 29, 1996 from the Company to Tim Pettitt
regarding certain payments to the Montanas
10.20* Distribution Agreement dated June 18, 1996 by and between
America's Best Karate and InteliQuest
10.21* Distribution Agreement, dated May 6, 1997, by and between KTEH,
San Jose Public Television and American Champion Media, Inc.
10.22* Letter Agreement, dated June 1997, between AC Media, Inc. and
Sega of America, Inc.
10.23* Business Loan Agreement between America's Best Karate and Karen
Shen
10.24* Business Loan Agreement between America's Best Karate and Thomas
J. Woo
10.25** Licensing Agent Agreement, dated July 25, 1997, between American
Champion Media, Inc. and Sega of America, Inc.
10.26 Continuous Distribution Agreement dated April 20, 1998 between
KTEH, San Jose and American Champion Media, Inc.
10.27 Sponsorship Agreement dated April 29, 1998 between Sara Lee
Corporation and American Champion Media, Inc.
10.28 Engagement Agreement dated April 24, 1998 between JW Charles
and American Champion Entertainment, Inc.
21.1* Subsidiaries of the Registrant
23.1** Consent of Moss Adams, LLP
27.1 Financial Data Schedule
* Filed as an exhibit with the registrant's Form SB-2 filed with
SEC on March 21, 1997 or Form SB-2/A filed March 3 and
June 20, 1997 and incorporated by reference herein.
** Filed as an exhibit with the registrant's Form 10-KSB filed with
SEC on March 30, 1998 and incorporated by reference herein.
<PAGE>
EXHIBIT 10.26
CONTINUING DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT ("Agreement") is entered into this 20th day of
April 1998 by and between KTEH, San Jose Public Television, a California
Public Benefit corporation with principal offices at 1585 Schallenberger
Road, San Jose, California, 95131 ("KTEH") on the one hand, and American
Champion Media, Inc., a Delaware corporation, with principal offices at
26203 Production Avenue, Suite 5, Hayward, California, 94545, ("ACM") on
the other hand.
Recitals
KTEH and ACM (collectively the "Parties") have successfully completed the
production and distribution of thirteen one half hour episodes of a television
series called "Adventures With Kanga Roddy" (the "Program") and have
negotiated a transaction whereby ACM will produce and KTEH will distribute
twenty six more one half hour episodes and two one hour episodes of the
Program. The parties have separately negotiated a transaction wherein KTEH
will provide technical facilities for the continuing production of the series.
Principal Terms
1. Grant. ACM hereby grants to KTEH the sole and exclusive right for the full
Term and Territory, to exhibit, distribute, advertise, market and otherwise
exploit the Program on Public Broadcast Service ("PBS") affiliated stations for
unlimited plays.
2. Territory. The Territory of the grant herein includes the United States,
its territories and possessions, limited to PBS affiliated stations.
3. Term. The Term of this grant shall commence as of the date of execution
hereof and continue until two (2) years from the initial broadcast of each
episode of the Program by KTEH in the Territory.
4. Royalty. All monies actually received by KTEH from the exploitation of the
rights granted to it hereunder (net of third party distribution fees and
costs) shall be allocated and paid as follows:
(a) KTEH shall be entitled to receive and retain an amount equal to
fifteen percent (15%) of such monies as its distribution fee and to retain an
amount equal to any distribution expenses (as such distribution expenses are
defined in the attached "net proceeds" definition) incurred by KTEH in
connection with such exploitation.
(b) The balance of such monies shall be allocated and paid to ACM.
5. Advance. KTEH agrees to pay to ACM the sum of $900,000 in installments
according to the following schedule. Each payment shall be made on delivery of
acceptable digital masters tapes of the episodes. KTEH will pay ACM $30,000
for each half hour episode delivered to KTEH and $60,000 for each one hour
episode delivered to KTEH. The sums paid pursuant to this paragraph 5 shall be
non-returnable.
6. Other Revenue. In consideration for the advances and royalties paid
hereunder, as well as its ongoing efforts in the creation, production,
marketing and distribution of the Program, KTEH shall be entitled to the
following royalties. All monies actually received by ACM from the exploitation
of the rights hereunder shall be allocated and paid to KTEH as follows:
(a) Eight percent (8%) of gross profit received by ACM, defined as one hundred
percent (100%) of all revenue received by ACM less any applicable fees and
commissions due agents, from the sale and licensing of non-broadcast ancillary
rights of educational products including, but not limited to, video tapes,
books, and music tapes;
(b) Notwithstanding the foregoing paragraph 6(a), five percent (5%) of gross
profit received by ACM less any applicable fees and commissions due agents,
from the sale and licensing of toys and clothing.
(c) Notwithstanding anything to the contrary is this Continuing Distribution
Agreement or any other agreement between the Parties, in the event ACM elects
at any time, now or in the future, to produce, distribute, sell, or license
"Adventures With Kanga Roddy" (or any program substantially similar to it) to
any media now or hereinafter invented, KTEH shall be entitled to five percent
(5%) of ACM's gross profit from such production, distribution, sale or
license. For the avoidance of doubt, this paragraph 6(c) is intended to cover,
among other things, situations in which for a profit broadcast network
acquires the rights to create and/or broadcast future episodes of the Program.
(d) In the event the Program or any episode thereof is not broadcast on any
television station throughout the territory for a period of three (3) years
and is thereafter broadcast in the fourth year on any station, the percentage
of gross profits referred to in paragraphs 6(a) and 6(b), above, shall each be
reduced by two percent (2%). In the event the Program or any episode thereof
is not broadcast on any television station throughout the territory for a
period of four (4) years and is thereafter broadcast on any station, the
percentage of gross profits referred to in paragraphs 6(a) and 6(b), above,
shall each be reduced by three percent (3%). In the event the Program or any
episode thereof is not broadcast on any television station throughout the
territory for a period of five (5) or more years and is thereafter broadcast
at any time on any station, the percentage of gross profits referred to in
paragraphs 6(a) and 6(b), above, shall each be reduced by four percent (4%).
7. Delivery. ACM agrees to make delivery of all 28 episodes of the Program on
or before May 31, 2000. Notwithstanding anything to the contrary contained
elsewhere herein, it is expressly agreed that delivery of the Program to KTEH
will not be complete unless and until appropriate documents showing insurance
and the chain of title and clear ownership of the Program by ACM have been
both delivered to KTEH and approved by KTEH's attorneys (such approval not to
be unreasonably withheld). Such review of said insurance and chain of title
documents by KTEH's attorneys will not, however, relieve ACM of any of its
obligations to KTEH pursuant to the warranties and indemnity clauses hereof.
8. Rights and Exclusivity. It is expressly understood and agreed that,
throughout the Term hereof KTEH shall be the sole and exclusive owner of all
rights to distribute, broadcast and engage in activities related to
broadcasting functions of the Program throughout the Territory. ACM expressly
represents, warrants and agrees that ACM has not prior to the date hereof and
will not hereafter make any grant to any third party which would or might in
any way limit or infringe upon the exclusive rights granted to KTEH hereunder
during the term of this agreement.
9. Primary Market. The Parties hereto intend that the market for the Program
shall be U.S. public television stations. KTEH will use its best efforts to
attain maximum availability of the Program to U.S. public television
households. However, given the unpredictable nature of audience tastes, KTEH
cannot and does not guarantee any particular television rating level for the
Program.
10. Time Slot. KTEH will broadcast the Program in a favorable time slot, which
is appropriate to children's programming. Given the independent nature of U.S.
public television station Programmers, KTEH cannot guarantee the time slot for
the Program on other stations, but will use its best efforts to encourage
other stations to utilize favorable time slots.
11. Third Party License. If, during the Term hereof, an unrelated third party
wishes to exclusively license the Program in the Territory, the Parties agree
to negotiate in good faith for the purposes of modifying or terminating this
Distribution Agreement, it being understood that such modification or
termination will involve compensating KTEH for the relinquishment of its
rights hereunder. Notwithstanding the foregoing, KTEH will have no obligation
to modify or terminate its rights hereunder if such modification or
termination would cause the breach of any contractual commitments KTEH might
have including, but not limited to, contracts with PRG or other public
television stations.
12. First Refusal. Notwithstanding the foregoing paragraph 11, in the event
ACM desires to license any rights in respect of the Program not granted to
KTEH, ACM shall notify KTEH thereof and the Parties hereto shall negotiate in
good faith for a period of thirty (30) days with regard to the terms of such
grant. If the parties cannot agree on such terms, then ACM shall be free to
grant such right to any third party; provided, however, that such third party
grant shall be without any force or effect unless and until ACM has notified
KTEH of the identity of such third party and all of the terms of such grant
and KTEH has failed, within five (5) business days of its receipt of such
notice, to accept such terms itself, it being understood that KTEH shall only
be required to accept monetary terms or other terms which may as easily be
performed by one person as another.
General Terms
1. ACM acknowledges its status as an "independent producer" and, as such,
recognizes that KTEH has no obligation to withhold income taxes or FICA
payments or to make any other deductions from payments made to ACM under this
Agreement. Nothing in this Agreement entitles ACM to any KTEH fringe benefits,
such as insurance or pension contributions, accorded to KTEH employees.
2. Underwriters (funders) -- and the content of underwriter credits -- must be
subject to KTEH's approval, which will not be unreasonably withheld.
Underwriter credits must be in accordance with standard PBS underwriting
guidelines.
3. ACM shall be responsible for the research, writing, producing, directing
and completion of the Program, including, but not limited to: over-seeing the
production schedule to be established, contractual negotiations for talent
and/or for rights to material owned by other parties, coordinating and
supervising the activities of production and post-production staff and crews
and other assigns, and completion/delivery of final product. Any discrepancy
between the terms of this paragraph and the terms of the Facilities Agreement
shall be resolved by reference to the Facilities Agreement which shall control.
(a) KTEH -- in its role as "Presenting Station" will provide reasonable
assistance to ACM within its means to help maximize ACM'S efforts and ensure
ACM'S fulfillment of its obligations under this Agreement.
(b) ACM shall retain creative control of the Program -- its design,
content and execution, and ultimate dispensation. KTEH shall have the right to
inspect at reasonable intervals any/all content produced for the Program, to
screen "rough cuts" and variations thereof, and to require changes to the
content, so as to ensure that Program meets with both KTEH and PBS standards
of content and technical execution, and is factually accurate, objective and
balanced in content. KTEH will also have the right to approve production
credits for the Program to insure they are appropriate for PBS distribution
standards.
(c) The Parties shall cooperate in good faith to resolve any disagreements
affecting creative and/or technical aspects of the Program. However, ACM shall
have sole authority over the creative/technical aspects of the final cuts of
the Program.
5. KTEH shall be responsible for receiving, holding disbursing, and accounting
for all revenue from distributors of the Program in all media throughout the
Territory, and shall manage the disbursement of that revenue as per the
attached Net Proceeds Definition and disbursement schedule. KTEH will release
and report net proceeds to ACM. KTEH will keep or cause to be kept, in
accordance with generally accepted accounting principles, books and records in
which shall be entered accurately each transaction involving distribution and
other exploitation of the Program. All of said books and records shall be
open to reasonable inspection by ACM, subject to reasonable notice to KTEH,
and with the understanding that no such examination shall be done more often
than once per year. Said examination shall not interfere with KTEH's normal
business activities, and shall be conducted during normal business hours. ACM
will keep or cause to be kept, in accordance with generally accepted
accounting principles, books and records in which shall be entered accurately
each transaction involving exploitation of ancillary rights of the Program.
KTEH's right to examine such records shall be on the same terms and conditions
as the inspection rights granted to ACM hereunder.
6. KTEH shall make the following resources and/or services available
(subject to reasonable schedules) to ACM:
(a) With respect to fund raising, KTEH shall provide Executive Producer
counsel and review proposal narratives and budgets at no charge; KTEH's
Corporate Development staff will be made available for direct fund raising
consultation and KTEH agrees to submit to ACM prepared proposals to
foundations and corporations.
(b) With respect to Program distribution, KTEH will serve as the Program's
"Presenting Station" and shall provide liaison, negotiation, and contractual
services with Public Broadcasting Stations and the Program Resources Group.
7. The Program shall be billed in all promotional print, broadcast, and
non-broadcast uses/exhibitions as "Produced in association with Public
Television Station KTEH," the exact wording of which shall be established by
the parties at a later date; and KTEH shall have the right to use the Program
and Program elements for purposes of Program promotion and advertising, uses
relating to entry of the Program into contests and festivals, promotion and
publicity for KTEH - TV in which KTEH - produced or co-produced Programs are
referenced, for use as "pledge gifts" in conjunction with KTEH membership
drives, and for duplication for distributors' reviews and/or similar marketing
uses.
8. ACM represents and warrants that to the best of ACM'S knowledge it has full
power to enter into this Agreement, and all material developed and all
research conducted in connection with the Program are or will be original and
have been or will be lawfully obtained, and that neither the Program or any
part thereof, nor the exercise of any right granted therein, will violate or
infringe upon the trademark, trade name, copyright, right of privacy or
publicity, or any other property right of any person or entity, or defame,
libel, slander or otherwise injure any such person or entity.
(a) ACM shall pay for, or in any other legal way secure all rights,
licenses, and clearances of any third-party materials used in Program
(including, but not limited to archival materials, music, artwork, photography,
preproduced audio transcriptions, and/or preproduced video/film materials.)
(b) With respect to distribution of the Program, ACM shall be responsible
for securing all aforementioned rights, licenses, and clearances necessary for
the local and national distribution of the completed Program to domestic
(United States) public television. ACM will deliver the Program free of any
liens, claims, and encumbrances whatsoever in favor of any other person or
entity, together will all rights necessary to exploit the Program in domestic
public television and other media forms.
(c) Insurance. ACM will secure and maintain in full force and effect at
its sole cost and expense during the Term hereof a standard producer's
liability (errors and omissions) insurance policy issued by an admitted
California insurer with coverage of at least $1,000,000/$3,000,000 with
respect to the Program. Such policy shall name KTEH as an additional insured.
9. KTEH represents and warrants that it has full power to enter into this
Agreement and that it shall secure all rights in the products and services
contributed by KTEH necessary for the production and distribution of the
Program under this Agreement.
10. The parties agree to indemnify and hold each other harmless along with
each officer, director, controlling person, and agent of the parties, from and
against any and all loss, claim, damage, liability, or expense, and any action
in respect thereof, joint or several, together with any reasonable costs or
expenses (including attorneys' fees) incurred by any such person in connection
with any action, suit, proceeding, demand, assessment, or judgment incident to
any of the matters so indemnified against to which any such person may become
subject, due to or arising out of (1) the falsity or inaccuracy of any
representation or warranty herein; (2) any claim or litigation involving any
charge by third persons of violation or infringement of their rights; or (3)
the use of any material furnished by one party to the other hereunder.
11. ACM and KTEH will work with one another to realize the completed Program.
Neither party has entered or will enter into any agreement with any other
party for the production and/or distribution of a childrens' Program based
upon the Kanga Roddy fundamental concept without the consent of the other for
the length of the Term hereof.
12. All right, title and interest in and to any and all footage recorded
hereunder and all reproductions, excerpts or Programs derived therefrom,
together with the performances embodied thereon, shall be and remain the sole
property of ACM, free from any claims whatsoever by anyone including any
claims by KTEH. All trademarks and copyrights in and to any such footage,
characters, excerpts or Program shall be and remain the sole and exclusive
property of ACM. KTEH agrees to cause to be affixed to the Program a copyright
notice as follows: c 1998 (or 1999 or 2000) by American Champion Media, Inc.
13. Each party shall be deemed to be in default hereunder:
(a) If it breaches or defaults in the performance of any material
obligation hereof on its part to be performed, and fails to remedy the same
within a period of 30 days after receipt of written notice from the other
party specifying such breach or default; or
(b) If it files a voluntary petition in bankruptcy or files petitions or
answers seeking liquidation, dissolution or similar relief under the
Bankruptcy Act or the Bankruptcy Reform Act of 1978 or any future Federal
Bankruptcy Act or any other present or future Federal, State or other statute
or law regarding bankruptcy, insolvency or other relief for debtors; or
(c) If a court of competent jurisdiction enters an order, judgment or
decree approving petitions filed against it seeking any liquidation,
dissolution or similar relief under the Bankruptcy Act or the Bankruptcy
Reform Act of 1978 or any future Federal Bankruptcy Act, or any other present
or future applicable Federal, State or other statute or law relating to
bankruptcy, insolvency or other relief for debtors.
(d) Upon the happening of any one or more of the above-mentioned events,
the non-breaching party shall have the right to cancel and terminate this
Agreement. Notwithstanding such termination, each party shall remain fully
liable to the other for any unpaid part of the transaction obligation.
14. No Partnership. Nothing herein contained shall be construed to place the
parties in the relationship of partners nor constitute any party the agent of
any other party, and neither party shall have the power to obligate or bind
the other party in any manner whatsoever.
15. Notice. Any written notice required under any of the provisions of this
Agreement shall be deemed to have been properly served by delivery in person
to either party or by mailing such notice by first class mail to either party
at the respective addresses set forth above, except as such addresses may be
changed by notice in writing to the other party.
16. Interpretation. Regardless of the place of its physical execution, this
Agreement shall in all respects be interpreted, construed and governed by the
laws of the State of California.
17. Modification or Waiver. This Agreement constitutes the complete
understanding of the Parties. This Agreement may not be modified or altered
except by written instrument executed by KTEH and ACM. No waiver of any term
or condition of the Agreement or of any breach of the Agreement or any part
thereof, shall be deemed a waiver of any other term or condition of this
Agreement or of any later breach of the Agreement or any part thereof.
18. Disputes; Attorneys' Fees. In any action under this Agreement,
including litigation, the party which prevails will have all attorneys' fees
and costs paid by the losing party.
19. Assignment. This Agreement shall be binding upon the successors and
assigns of ACM. No assignment of the obligations of KTEH shall be binding upon
ACM without the prior written consent of ACM.
20. Construction. Whenever required by the context of this Agreement, the
singular will include the plural and vice versa; the neuter gender will
include the masculine and feminine and vice versa; and the word "person" will
include a corporation, partnership, firm or other form of association.
21. Counterparts. This Agreement may be executed in two or more counterparts,
and when so executed will have the same force and effect as through all
signatures appeared on one document.
22. Covenant of Further Assurances. The Parties agree to execute any other
documents and perform any other acts which are necessary or appropriate to
carry out the purposes of this Agreement.
23. Continuing Obligation. The obligations of both ACM and KTEH to pay
royalties hereunder shall survive the termination of this Agreement.
24. Severability. If any term or provision of this Agreement is determined to
be illegal or unenforceable, the other terms and provisions will nevertheless
remain effective and will be enforced to the fullest extent permitted by law.
25. Headings. The headings, titles and captions of Articles, Sections,
Subsections and paragraphs contained in this Agreement are inserted only as a
matter of convenience and for reference, and in no way define, limit, extend,
interpret or describe the scope of this Agreement or the intent of any
provisions hereof.
26. Remedies. The remedies of the Parties under this Agreement are
cumulative and shall not exclude any other remedies to which any Party may be
lawfully entitled.
27. Variance in Agreements. This Continuing Distribution Agreement supercedes
the Distribution Agreement between the Parties dated May 6, 1997. Except where
the specific context requires a different interpretation, any variation
between the terms of the two agreements should be governed by the terms
contained herein.
IN WITNESS WHEREOF, the parties have duly executed and duly witness
this Agreement, which includes the Net Proceeds Definition attached hereto, as
of April 20, 1998.
KTEH FOUNDATION
By: /s/ Tom Fanella, President
Name & Title
AMERICAN CHAMPION MEDIA, INC.
By: /s/ Anthony K. Chan, Chief Executive Officer
Name & Title
<PAGE>
NET PROCEEDS DEFINITION
For the purpose of this Agreement, Net Proceeds shall be defined as follows:
1. Net Proceeds as of the end of a calendar quarter shall equal
Cumulative Gross Receipts at the end of that quarter less the Cumulative
Expenses.
2. Cumulative Gross Receipts shall mean all funds through the end of the
calendar quarter received by KTEH from the exploitation of the rights granted
to it by this Agreement, including but not limited to, grants from
foundations, corporate sponsorships and donations, and revenue received from
distribution of the Program under the rights granted to KTEH.
3. Cumulative Expenses shall mean direct distribution expenses and fees
in connection therewith actually paid by KTEH, but shall not include salaries
paid by KTEH to its regular staff.
4. All Net Proceeds received by KTEH shall be allocated as set forth below,
except for tile initial Net Proceeds of $l00, 000 which shall be allocated
entirely to KTEH for its distribution efforts. An accounting report on Net
Proceeds shall be provided by KTEH to ACM, and the related payment if any
shall he made by KTEH to ACM, within 30 days after the end of every calendar
quarter.
a) Fifteen percent (15%) shall be allocated to KTEH
b) Eighty five percent (85%) shall be allocated to ACM
<PAGE>
EXHIBIT 10.27
KANGA RODDY SPONSORSHIP AGREEMENT
This Kanga Roddy Sponsorship Agreement (the "Agreement") dated as of April 29,
1998, between Sara Lee Corporation and it's subsidiary Hanes Corporation
(together referred to as " Sara Lee") and American Champion Entertainment
Media, Inc. ("ACM").
1) Sara Lee wishes to become a sponsor of the television show "Adventures With
Kanga Roddy" (the "Program") produced and copywritten by ACM.
2) As a sponsor of the Program, Sara Lee is entitled to the following
promotional components:
a) One 15-second spot before and one 15-second spot after the Program but
within the half-hour broadcast of the Program by public broadcast television
stations that carry the Program. The two spots will be identical both in
video and audio content, and the content must be pre-approved by KTEH, the
Program's presentation station, to ensure it meets public broadcasting
sponsorship guidelines. These two spots will run with the Program for a
period of six months, beginning with the month of May 1998 and ending with
the month of October 1998 inclusively.
b) Standard affidavits of performance from the public broadcast stations will
be provided by ACM on a quarterly basis.
c) One 30-second commercial to be included in the retail videotapes sales of
the Program. This commercial will be included in the initial run of 15,000
units and thereafter, at Sara Lee's option, in any additional production runs
of the Program's videotapes intended for mass distribution until December 31,
1998.
d) The logo of Hanes to be featured on 75,000 full-color postcards of the
Program to be passed out in all upcoming promotional events.
e) The logo of Hanes to be featured on the Program's Outreach Guide which will
be sent to targeted schools across the country as a learning tool. The date
and volume of this venue is yet to be determined.
f) Hanes will be allowed signage display on one of the following two live
events: i) Kanga Roddy promotional tour, or ii) national talent search. The
date and location of this venue is yet to be determined.
3) For the above promotional components, Sara Lee as a sponsor of the
Program, agrees to pay ACM a non-refundable amount of $95,000.00 and this
amount is payable in two installments: i) $50,000.00 due and payable on May
16, 1998 when the first episode of the Program that carries Sara Lee's
promotional spots will be fed to satellite for distribution by KTEH, and ii)
$45,000.00 due and payable on June 30, 1998.
4) Sara Lee will cause the promotional materials to be delivered to ACM,
especially those that require approval by KTEH, in time for inclusion the
above mentioned activities.
5) ACM retain all of its rights under copyright and trademark laws pertaining
to the Program's intellectual property, whether registered or unregistered,
and any applications by Sara Lee of the Program's logo, name, characters and
likeness, video and audio excerpts must have ACM's approval in writing prior
to such use. Sara Lee will retain all of its rights under copyright and
trademark laws pertaining to any of its intellectual property, including
without limitation, its rights in and to the "Hanes" marks and the various
derivations thereof.
6) All covenants, promises and agreements by or on behalf of the parties
contained in this Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the parties; but nothing in this
Agreement, expressed or implied is intended to confer on any party the right
to assign its rights or obligations hereunder. Nothing in this Agreement,
whether expressed or implied, is intended to confer any rights or remedies
under or by reason of this Agreement on any persons other than the parties to
it and their respective successors and assigns, nor is anything in this
Agreement intended to relieve or discharge the obligation or liability of any
third persons to any party to this Agreement, nor shall any provision give any
third person any right of subrogation or action over or against any party to
this Agreement.
7) This Agreement shall be governed by, and construed and enforced in
accordance with, the law of the State of California.
8) This Agreement sets forth the entire agreement of the parties hereto with
regard to the subject matter hereof and supersedes and replaces all prior or
ontemporaneous agreements, understandings and representations, oral or
written, with regard to such matter.
9) This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date above written.
For Sara Lee Corporation For American Champion Media, Inc.
By: /s/ R. Henry Kleeman By: /s/ Anthony K. Chan
Name: R. Henry Kleeman Name: Anthony K. Chan
Title: Chief Counsel Corporate Title: Chief Executive Officer
And Assistant Secretary
<PAGE>
EXHIBIT 10.28
CORPORATE FINANCE
DEPARTMENT
April 24, 1998
Mr. Anthony Chan
President and CEO
American Champion Entertainment, Inc.
26203 Production Ave., Suite 5
Hayward, CA 94545
Dear Mr. Chan:
This is to confirm our understanding that American Champion
Entertainment, Inc. (the "Company") engaged JW Charles Securities, Inc.
("JWC") beginning on or about April 24, 1998, to act as finder, on the terms
and conditions set forth below (the "Agreement"), in connection with the sale
of up to $3.0 million of the Company's securities (the "Securities") to
certain investors.
1. The Company hereby confirms the appointment of JWC to act as
finder in connection with the Company's proposed sale of the Securities. The
placement and all sales of the Securities shall be made directly by the
Company to the purchasers pursuant to agreements entered into by the
purchasers and the Company.
2. As compensation for JWC's services hereunder, the Company will
pay to JWC a cash fee equal to seven percent (7%) of the aggregate purchase
price of the Securities purchased by or through any investor or intermediary
identified to the Company by JWC in Addendum A hereto (a "JWC Purchaser"),
which Addendum may be revised from time to time during the term of this
Agreement, less the amount of any finder's fee payable by the Company to such
intermediaries in connection with the sale of the Securities. The Company
shall pay each cash fee owed to JWC hereunder upon the closing of the
transaction with a JWC Purchaser for which the cash fee is earned, and it
shall and hereby does authorize the escrow agent for each such transaction to
deduct from the aggregate purchase price of the Securities purchased by a JWC
Purchaser the entire amount of all cash fees so owed and to pay that amount
directly to JWC upon the closing of the transaction. The Company shall also
cause the escrow agreement to require for the breaking of escrow with respect
to a JWC Purchaser the consent of JWC, which consent shall not be unreasonably
withheld and whose consent shall be on its own behalf and in its own interest
only, and not on behalf of or as representative or agent for any purchaser or
other party.
In addition, upon the closing of the transaction contemplated herein,
the Company shall issue to JWC through escrow a warrant entitling JWC or its
designees to purchase 75,000 shares (less the amount of such rights issuable
to intermediaries identified in Addendum A), subject to broadbased
anti-dilutive adjustment, of the Company's common stock at a price per share
equal to one hundred fifteen percent (115%) of the closing market price per
such share on the date of such transaction, subject to broadbased
anti-dilutive adjustment (the "Warrant"). The Company agrees to grant to
holders of the Warrant the same registration rights with respect to the common
shares underlying the Warrant as the Company grants to purchasers of the
Securities. The expense of filings with respect to such rights shall be borne
by the Company. The Warrant shall be exercisable immediately, shall provide
for unlimited "piggyback" registration rights and shall expire 3 years from
the date of its issuance. The form of the Warrant shall be subject to JWC's
final review and approval, which shall not be unreasonably delayed or
withheld.
All information, whether oral or written, given by JWC to the Company in
connection with this Agreement, including but not limited to the identities of
sources and prospects that JWC may introduce, is intended solely for the
benefit and use of the Company in considering the introduction or transaction
to which it relates, and the Company agrees that no person or entity other
than the Company shall be entitled to make use of any information of JWC to be
given hereunder, and no such information shall be used by the Company for any
other purpose or reproduced, disseminated, quoted or referred to by the
Company in communications with third parties at any time, in any manner or for
any purpose, nor may the Company make any public reference to JWC or use
JWC's name in any annual report or any other report or release of the Company
without JWC's prior written consent, except that the Company may, without
JWC's further consent, disclose this Agreement (but not information provided
to the Company by JWC) in the Company's filings with the Securities and
Exchange Commission, if such disclosure is required by law.
3. The Company agrees with JWC that:
(a) The Company will furnish JWC with such information,
including financial statements, with respect to the business, operations,
assets and liabilities of the Company as JWC may reasonably request for use in
connection with its services as a finder hereunder. JWC may rely upon the
accuracy and completeness of all such information without independent
verification.
(b) The Company will be solely responsible for the
contents of the disclosure materials and all other written and oral
communications provided to any actual or prospective purchaser of the
Securities with the approval of the Company, and the Company represents and
warrants that the disclosure materials and such other communications will not,
as of the date of the offer or sale of the Securities, 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 Company
authorizes JWC to deliver the disclosure materials and such other
communications to prospective purchasers of the Securities on behalf of the
Company; provided, however, that by making any such delivery, JWC shall not
be deemed to have verified or warranted the accuracy or completeness thereof
or to have assumed any responsibility therefore, and JWC shall be entitled to
disclaim any such implication.
(c) The Company has been and will continue to be
represented by responsible legal counsel of its own choice, capable in
particular of giving experienced and competent advice concerning the laws,
rules and regulations administered by the U.S. Securities and Exchange
Commission, and of opining to the effect that the Company has complied and
will continue to comply with all requirements promulgated pursuant to the
Securities Act of 1933, as amended (the "Act"), and related state and federal
laws.
(d) The Company will take any action JWC may request from
time to time to ensure that the offer and sale of the Securities fully
complies with the Act and all applicable laws.
(e) Prior to the closing of the sale of the Securities and
the breaking of escrow, the Company shall provide to JWC, at its corporate
headquarters (located at 980 North Federal Highway, Suite 310, Boca Raton, FL
33432, attention: Richard Dunton, Vice President -- Investment Banking) the
following materials:
(i) a list identifying all JWC Purchasers, and the amounts
so purchased;
(ii) two copies of all documents exchanged and agreements
by and between the Company and such JWC Purchasers;
(iii) an acknowledgment substantially in the form attached
hereto as Addendum B, signed by JWC Purchaser, unless such signed
acknowledgment was earlier received by JWC
(iv) the form of the Warrant proposed to be issued pursuant
to paragraph 2 hereof.
4. JWC and the Company hereby acknowledge that JWC is an
independent contractor acting only as a finder for the purpose of making
introductions to the Company of persons who may be interested in purchasing
the Securities as contemplated by this Agreement. The Company further
acknowledges that JWC does not and will not make, and that the Company shall
not have the benefit of, any warranties, either express or implied, with
respect to the character, propriety or financial ability of any person or
entity that JWC may introduce, or with respect to any transaction
contemplated hereunder. The Company agrees that JWC shall have no
responsibility to perform any due diligence with respect to any introduction
or transaction contemplated hereunder, and that the conduct of all such due
diligence shall be entirely the Company's responsibility. It is expressly
understood that, if the Company shall request financial advisory services from
JWC that extend beyond its limited activities as a finder, such as providing a
"fairness opinion" or performing independent investigation, then additional
compensation will become due and payable to JWC for amounts to be negotiated
prior to the performance of such services. Nothing herein shall be construed
to obligate JWC to make a market in the Company's securities or to produce
research reports or make recommendations concerning the Company's securities
for dissemination to public investors or any other prospective purchasers of
the Company's securities or to any other third parties.
5. If, in connection with the services or matters that are the subject
of this Agreement, any "Indemnified Person" (as hereafter defined) becomes
involved in any capacity in any lawsuit, claim or other proceeding, the
Company shall immediately reimburse such Indemnified Person for all legal and
other expenses reasonably incurred by such Indemnified Person in connection
with investigating, preparing to defend and defending such lawsuit, claim or
other proceeding. The Company also agrees to indemnify such Indemnified
Person from and hold it harmless against all losses, claims, damages,
liabilities and expenses to which such Indemnified Person may become subject
(i) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any disclosure materials or any
other written or oral communication provided to any actual or prospective
purchaser of the Securities by the Company or arising out of or based upon
the omission or alleged omission to state therein 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 or (ii)
arising in any manner out of or in connection with the services or matters
which are the subject of this Agreement, including, without limitation, the
offer and sale of the Securities; provided, however, that the Company shall
not be liable under clause (ii) of this subparagraph in respect of any loss,
claim, damage, liability or expense to the extent that it is finally
judicially determined by a court of competent jurisdiction that such loss,
claim, damage or liability resulted directly from the gross negligence or
intentional misconduct of JWC in the performance of its services hereunder.
The Company agrees that the indemnification and reimbursement
commitments set forth in this paragraph 5: (A) shall apply whether or not any
Indemnified Person is a formal party to any such lawsuit, claim or other
proceeding and that such Indemnified Person is entitled to retain separate
counsel of its choice in connection with any of the matters to which such
commitments relate; (B) are in addition to any liability that the Company may
otherwise have to any Indemnified Person; and (C) shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the parties and all Indemnified Persons. The Company
agrees that, unless a final judicial determination is made to the effect
specified in the proviso to clause (ii) in the preceding subparagraph, then
any settlement of a lawsuit, claim or other proceeding against the Company
arising out of the transactions contemplated by this agreement which is
entered into by the Company shall include a release for the benefit of all
Indemnified Persons from the party bringing such lawsuit, claim or other
proceeding, which release shall be subject to the advance approval of JWC.
The Company further agrees that no Indemnified Person shall have any
liability (whether direct or indirect, in contract, tort or otherwise) to the
Company in connection with JWC's engagement hereunder, except for such losses,
claims, damages and liabilities incurred by the Company that are finally
judicially determined by a court of competent jurisdiction to have resulted
directly from the gross negligence or intentional misconduct of such
Indemnified Person. For purposes of this Agreement, the term "Indemnified
Person" shall mean each of JWC and any controlling person, affiliate,
director, officer, employee or agent of JWC.
The Company and JWC agree that if indemnification or reimbursement
sought pursuant to this paragraph 5 is finally judicially determined by a
court of competent jurisdiction to be unavailable, then, the Company and JWC
is the Indemnified Person, the Company and JWC shall contribute to the losses,
claims, damages, liabilities and expenses for which such indemnification or
reimbursement is held unavailable (i) in such proportion as is appropriate to
reflect the relative benefits to the Company, on one hand, and JWC on the
other hand, in connection with the transactions to which such indemnification
or reimbursement relates, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as appropriate to
reflect not only the relative benefits referred to in clause (i) but also the
relative faults of the Company, on the one hand, and JWC on the other, as
well as any other equitable considerations; provided, however, that in no
event shall the amount to be so contributed by JWC exceed the amount of the
fee actually received by JWC hereunder.
6. JWC will not have any rights or obligations in connection with
the placement of the Securities contemplated by this Agreement except as
expressly provided in this Agreement. In no event shall JWC be obligated to
purchase the Securities for its own account. The Company shall have no
obligation to sell any Securities, to any JWC Purchaser or otherwise.
7. The term of JWC's appointment and authorization hereunder shall
extend from the date hereof through July 31, 1998. The provisions of
paragraphs 2, 4, 5, 8 and this paragraph 7 shall survive any termination of
this Agreement. If during a period of twelve (12) months following such
termination, the Company sells any of the Securities or other securities of
the same or a similar class as the Securities through a placement to
purchasers which were introduced to the Company by JWC in its capacity as
finder hereunder, then the Company shall pay to JWC upon the completion of
such a sale a fee equal to the fee equal to the fee which would have been
payable to JWC pursuant to paragraph 2 if the sale occurred during the term of
JWC's appointment and authorization hereunder.
8. The Company represents that there is no other person or entity that
is entitled to a finder's fee, other than intermediaries identified in
Addendum A that may be so entitled, or any type of brokerage commission in
connection with the transactions with JWC Purchasers contemplated by this
Agreement as a result of any agreement or understanding with it, and the
Company further agrees not to enter into such agreement or understanding
during the term of JWC's engagement hereunder.
9. This Agreement may be executed in any number of counterparts by the
parties hereto in separate counterparts (with a telecopied facsimile of a
party's signature being sufficient to bind such party), and each of which
counterparts when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
10. This Agreement shall be construed according to the laws of the
State of Florida and subject to the exclusive jurisdiction of the courts of
said state, without application of the principles of conflicts of laws. The
expenses of the non-breaching party in connection with any litigation
undertaken to enforce or remedy a breach of this agreement, including
reasonable attorney's fees, shall be borne by the breaching party.
If the foregoing correctly sets forth the entire understanding and
agreement between JWC and the Company, please so indicate by signing in the
space provided for that purpose below.
Very truly yours,
JW CHARLES SECURITIES, INC.
By: /s/ Richard D. Dunton
Name: Richard D. Dunton
Title: VP - Corporate Finance Group
Agreed and accepted this 24th day
of April, 1998.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ Anthony K. Chan
Name: Anthony K. Chan
Title: President & CEO
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACT
FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND THE
STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 554,169
<SECURITIES> 0
<RECEIVABLES> 220,817
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,176,229
<PP&E> 253,176
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,866,989
<CURRENT-LIABILITIES> 681,325
<BONDS> 0
0
0
<COMMON> 5,529,419
<OTHER-SE> (1,569,986)
<TOTAL-LIABILITY-AND-EQUITY> 4,866,989
<SALES> 13,401
<TOTAL-REVENUES> 381,998
<CGS> 8,711
<TOTAL-COSTS> (190)
<OTHER-EXPENSES> 618,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,901
<INCOME-CONTINUING> (245,313)
<DISCONTINUED> 0
<EXTRAORDINARY> 115,473
<CHANGES> 0
<INCOME-PRETAX> (129,840)
<INCOME-TAX> 5,050
<NET-INCOME> (134,890)
<EPS-PRIMARY> ($0.04)
<EPS-DILUTED> ($0.04)
</TABLE>
