SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 1O-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, 2000
[ ] 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)
1694 The Alameda, Suite 100, San Jose, California 95126
(408) 288-8199
(Registrant's Address of Principal Executive Offices and Telephone Number)
(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 .....
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 .....
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, 2000
------------------------- --------------------------
Common Stock, $.0001 par value 6,368,647 shares
Transitional Small Business Disclosure Format (check one) Yes.... No ..X..
Exhibit Index on Page
AMERICAN CHAMPION ENTERTAINMENT, INC.
Form 10-QSB
March 31, 2000
TABLE OF CONTENTS
PART I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 2000
Consolidated Statements of Operations for
the three month periods ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows for
the three month periods ended March 31, 2000 and 1999
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 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
Exhibits
PART I - FINANCIAL INFORMATION
ITEM 1- Financial Statements - (unaudited)
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
------------ ------------
<S> <C> <C>
Assets (unaudited)
Cash...................... 472,970 ($9,748)
Account receivable....... 490,182 225,937
Loans receivable, related parties.. 114,937 114,937
Prepaid expenses.......... 28,397 48,019
Investments............... 203,110 -
Property and equipment,... 293,861 379,981
Film costs, net........... 7,556,803 6,119,222
Note receivable........... 354,814 80,424
Other assets.............. 132,785 11,360
------------ ------------
Total assets.............. 9,647,859 6,970,131
============ ============
Liabilities
Accounts payable and accrued
expenses................ 591,008 954,775
Note payable, related parties.... - 129,069
Other..................... 3,389 -
Deferred revenues......... 16,920 36,336
Long-term debt............ 597,396 356,543
------------ ------------
Total liabilities......... 1,208,713 1,476,723
Stockholders' Equity:
Preferred stock............. - -
Common stock, paid in capital.... 21,875,447 9,227,888
Common stock warrants............ 0 352,026
Accumulated deficit.............. (13,436,301) (4,086,506)
------------ ------------
Total stockholders' equity ...... 8,439,146 5,493,408
Total liabilities and
stockholders' equity........ 9,647,859 6,970,131
============ ============
</TABLE>
See accompanying notes.
AMERICAN CHAMPION ENTERTAINMENT, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
REVENUE:
Tuition and related fees......... $42,186 $61,351
Accessories and video sales...... 105 -
Film income...................... 1,978 225,637
Interest income.................. 6,578 -
--------------- ---------------
Total revenue.................... 50,847 286,990
COSTS AND EXPENSES:
Cost of sales.................... 775 -
Amortization of film costs....... - 138,252
Salaries and payroll taxes....... 300,474 10,019
Rent............................. 28,907 42,328
Selling, general and
administrative................. 2,945,840 315,831
Debenture conversion expense..... 18,134 -
Interest......................... 21,614 42,716
Beneficial conversion feature
of debentures.................. 264,964 316,198
-------------- ---------------
Total costs and expenses......... 3,580,708 865,344
-------------- ---------------
Net Loss From Operations........... ($3,529,861) ($578,354)
Gain On Sale of Studio............. - -
Net Loss Before Income Tax......... (3,529,861) (578,354)
Income Tax......................... - 40
Net Loss........................... (3,529,861) (578,394)
Accumulated Deficit................ (13,436,301) (4,086,506)
Weighted average number of shares
outstanding (Footnote 1)......... 5,933,431 1,524,318
=============== ===============
Net loss per share (Footnote 1).... ($0.59) ($0.38)
(Footnote 1) Adjusted for 1:4 reverse split of common stock on January 4, 2000.
</TABLE>
See accompanying notes.
WCS51
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ ($3,529,861) ($578,394)
Adjustments to reconcile net loss to
net cash used for operating activities:
Non-cash charge related to beneficial
conversion feature of debentures.......... 264,964 316,198
Depreciation and amortization............... 30,057 168,132
Conversion of debenture interest to common stock.. 11,185 -
Amortization of original issue discount
on long-term debt......................... 18,134 5,432
Securities issued for services.............. 2,365,747 150,000
Amortization of deferred consulting expenses 93,299 -
Decrease (Increase) in:
Accounts receivable........................... (8,733) (188,262)
Prepaid expenses and other.................... (20,937) 8,561
Increase (Decrease) in:
Accounts payable and accrued expenses......... (452,328) (172,071)
Deferred revenues............................. - (41,684)
------------ ------------
Net cash used for operating activities..... (1,228,473) 332,090
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. (3,606) (7,133)
Payments for film costs......................... (11,033) (883,542)
------------ ------------
Net cash used for investing activities..... (14,639) (890,675)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options.. 335,690 -
Proceeds from issuance of warrants.............. - 540,000
Proceeds (Payments) on loans from related parties.. (85,611) (7,968)
Proceeds from exercise of warrants.............. 459,750 -
Proceeds on notes payable....................... 1,250,000 914,096
Payments on notes payable....................... (275,405) (235,874)
Principal payments on capital leases............ (856) -
------------ ------------
Net cash provided by financing activities.. 1,683,568 1,210,254
------------ ------------
NET INCREASE IN CASH............................ 440,456 (12,511)
CASH, beginning of period....................... 32,514 2,763
------------ ------------
CASH, end of period............................. $472,970 ($9,748)
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................... - $42,718
State income taxes.......................... - $40
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Long-term debt converted to equity........... $725,000 $1,103,818
Beneficial conversion feature of debentures.. $264,964 $316,198
Common stock and warrants issued related to
services................................... $2,007,482 -
Common stock warrants issued with debt....... $283,476 $61,125
Stock Warrants issued to consultants......... $358,265 $150,000
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
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.
Revenue Recognition - AC Media - Revenue from films is recognized
on the accrual method. Film costs are amortized using the
individual-film-forecast-computation method which amortizes costs
in the ratio that current gross revenues bear to anticipated total
gross revenues from all sources. The management of AC Media
periodically reviews its estimates of future revenues for each
master and if necessary a revision is made to amortization rates
and a write down to net realizable value may occur.
Concentration of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk
are cash and accounts receivable arising from its normal business
activities. The Company places its cash with high credit quality
financial institutions. The amount on deposit in any one
institution that exceeds federally insured limits is subject to
credit risk. To reduce credit risk, the Company requires advanced
payments from students and thus, no student fees receivable is
recorded.
Film Costs - Film costs consist of the capitalized costs related
to the production of original film masters for videos and
television programs. The net film costs are presented on the
balance sheet at the net realizable value for each master.
Fair Values of Financial Instruments - The carrying value of cash,
receivables, accounts payable and short-term borrowings
approximates fair value due to the short maturity of these
instruments. The carrying value of long-term obligations
approximates fair value since the interest rates either fluctuate
with the lending banks' prime rates or approximate market rate.
None of the financial instruments are held for trading purposes.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Note 1 - Nature of Operations and Summary of Significant Accounting
Policies (continued)
Basic Loss Per Share - Net loss per share is based on the weighted average
outstanding shares issued. Because the Company has a net loss, the common
stock equivalents would have an anti-dilutive effect on earnings per share.
Accordingly, basic earnings per share and diluted earnings per share are the
same.
Income Taxes - Deferred tax assets and liabilities are recognized
for the expected tax consequences of temporary differences between
the tax bases of assets and liabilities and their reported
amounts. The Company and its Subsidiaries file a consolidated tax
return.
Presentation - Because of the Company's reduced activity in its
karate instruction segment, management believes utilizing a
classified balance sheet presentation is no longer appropriate, as
the operating cycle of the media-related segment of the Company is
expected exceed 12 months. Accordingly, an unclassified
presentation is utilized for the accompanying balance sheet, which
is an acceptable method under SFAS No. 53, "Financial Reporting by
Producers and Distributors of Motion Picture Films".
Reclassifications - Certain reclassifications have been made to
the 1999 amounts to conform to the current presentation.
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, 2000 and the results of its operations and its cash flows
for the three months periods ended March 31, 2000 and 1999. The
accompanying unaudited financial statements should be read in
conjunction with the financial statements and notes for the year
ended December 31, 1999 included in the Company's Form 10-KSB as
filed with the SEC on March 30, 2000.
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 and results of
operations.
Note 4 - Film Costs
Film costs consist of the capitalized costs related to the production of
videos and programs for television as follows:
March 31, 2000 1999
-------------- -----------
Television program
The Adventures with Kanga Roddy............. $8,077,669 $8,077,669
Videos
Montana Exercise Video...................... 148,253 148,253
Strong Mind Fit Body........................ 18,042 18,042
----------- -----------
8,243,964 8,243,964
Less accumulated amortization............... 690,831 690,831
----------- -----------
7,553,133 7,553,133
=========== ===========
Production of the first seven episodes of The Adventures with Kanga Roddy was
completed during 1997. The Company completed 9 and 13 additional episodes
during the years ended December 31, 1999 and 1998, respectively. Both
exercise videos were completed in 1996, but only the Strong Mind Fit Body
video has been released.
Note 8 -Beneficial Conversion Feature of Debentures
The Company accounts for the beneficial conversion feature of its 7%
convertible debentures issued during the quarter in accordance with EITF D-60,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion." The application of EITF D-60 resulted in
the recognition of a non-cash charge to interest expense of $264,964 for the
quarter ended March 31, 2000 corresponding increase to additional paid in
capital. These amounts are included in interest expense.
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 television viewers 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 June 30, 1999. 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, 2000, the Company's
total revenue decreased to $50,847, a decrease of $236,143 or 82.3% as
compared to $286,990 for the comparable period in 1999. This decrease is due to
the reduction in the Company's karate studio operation.
Costs and Expenses. There was no amortization of film costs for the
three months ended March 31, 2000, due to no revenue generated from the
television show within this period. Such amortization, if any, is calculated
based upon the proportion to the revenue generated by the television show in
this period compared to total expected revenues from the television show.
The Company's expenses for salaries and payroll taxes increased to
$300,474, an increase of $290,455 for the three months ended March 31, 2000
from $10,019 for the comparable period in 1999. The increase was the combined
result of all salaries and payroll taxes charged to expense instead of
capitalizing to production and an increase in marketing personnel.
Rent expense decreased to $28,907 for the three months ended March 31,
2000, a decrease of $13,421 or 31.7% from $42,328 for the comparable period in
1999. The decrease in rents is due to the closure of karate studios.
Total selling, general and administrative expenses increased to
$2,945,840, an increase of $2,630,009 for the three months ended March 31, 2000
from $315,831 for the comparable period in 1999. This increase is primarily
due to common stock and warrants issued for services and warrants issued with
debt.
Interest expense decreased to $21,614, a decrease of $21,102 or 49.4%
for the three months ended March 31, 2000 from $42,716 for the comparable
period in 1999. The beneficial conversion feature of debenture expense for the
quarter ended March 31, 2000 is a non-cash charge of $264,964 compared with
$316,198 for the comparable period in 1999 related to the convertible
debentures issued within the quarter. The debentures are convertible to common
stock of the Company with the shares to be issued upon conversion based on 75%
of the fair value of the stock at the time of conversion. Since the debt can
be converted at any time, the value of the discount as of the issuance date has
been charged to interest expense with a corresponding increase to additional
paid in capital. The balance of the increase is attributable to the interest
accrued on convertible debentures and certain private loans of the Company.
As a result of the foregoing factors, the Company's net loss increased
to $3,529,861 during the three months ended March 31, 2000 from $578,354 for
the comparable period in 1999. Net loss per share increased to $0.59 for the
three months ended March 31, 2000 from $0.38 for the comparable period in 1999.
Weighted average number of shares outstanding increased to 5,933,431 for the
three months ended March 31, 2000 from 1,524,318 for the comparable period in
1999 primarily due to the conversion of debentures into the Company's common
stock. The outstanding number of shares and net loss per share figures are
adjusted for the 1:4 reverse split of the company's common stock on January 4,
2000.
Liquidity And Capital Resources
Cash increased for the three months ended March 31, 2000 by $440,456 of
which $1,228,473 was net operating cash loss and $14,639 was used in the
production of the Adventures With Kanga Roddy show, while financing activities
resulted in an inflow of $1,683,568.
Deferred consulting fees of $93,299 relate to common stock and warrants
issued to consultants and are being amortized over the term of the consulting
agreements which range from 12 to 24 months.
As of March 31, 2000, total long-term debt was $597,396 and there is no
loan payable to related parties. In addition, deferred revenues were $16,920
at March 31, 2000. Deferred revenues are pre-paid tuition for the karate
studios and booked revenue from sponsorship activities which cannot be
immediately recognized.
Recent Developments
On April 22, 2000, the Company produced a professional boxing event in
the People's Republic of China. The event was broadcast throughout China, and
the television network of Showtime distributed the program in the United States
and Poland via satellite.
On May 9, 2000, the Company's wholly own subsidiary American Champion
Marketing Group, Inc. signed a licensing agreement with Irwin Toy Limited for
the licensing of the characters from the television series "ReBoot". This
program is owned by Mainframe Entertainment, Inc. who has signed a Licensing
Agent Agreement with the Company for the marketing of several of its programs
including "ReBoot".
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There is no on-going legal proceedings during the three
months ended March 31, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
There is no submission of matters to a vote of security
holders during the three months ended March 31, 2000.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See the Exhibit Index beginning on page 16.
(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: March 15, 2000 By: /s/ Anthony K. Chan
------------------------------
Anthony K. Chan, Chief Executive Officer
By: /s/ Mae Lyn Woo
------------------------------
Mae Lyn Woo, Vice President,
Chief Financial Officer &
Chief Operations Officer
INDEX TO EXHIBITS
Exhibit No. Exhibit
1.1(1) Form of Underwriting Agreement
3.1(1) Amended and Restated Certificate of Incorporation dated April 24, 1997
3.11(5) Amended and Restated Certificate of Incorporation dated June 4, 1998
3.2(1) Bylaws
4.1(1) Specimen stock certificate
4.2(1) Warrant Agreement with form of Warrant
4.3(1) Form of Underwriters' Warrant
4.41(4) Securities Purchase Agreement dated July 2, 1998
4.42(4) Form of Debenture dated July 2, 1998
4.43(4) Joint Escrow Instructions
4.44(4) Registration Rights Agreement dated July 2, 1998
4.45(4) Form of Warrant dated July 2, 1998
4.461(7) Securities Purchase Agreement dated January 19, 1999
4.462(7) Form of Debenture dated January 19, 1999
4.463(7) Joint Escrow Instructions dated January 19, 1999
4.464(7) Registration Rights Agreement dated January 19, 1999
4.465(7) Form of Warrant dated January 19, 1999
4.471(9) Securities Purchase Agreement dated June 17, 1999
4.472(9) Form of Debenture dated June 17, 1999
4.473(9) Joint Escrow Instructions dated June 17, 1999
4.474(9) Registration Rights Agreement dated June 17, 1999
4.475(9) Form of Warrants dated June 17, 1999
4.481(10) Securities Purchase Agreement dated September 24, 1999
4.482(10) Form of Debenture dated September 24, 1999
4.483(10) Joint Escrow Instructions dated September 24, 1999
4.484(10) Registration Rights Agreement dated September 24, 1999
4.485(10) Form of Warrants dated September 24, 1999
5(1) Opinion of Sheppard, Mullin, Richter & Hampton LLP
10.1(1) 1997 Stock Plan
10.2(1) Form of Stock Option Agreement for 1997 Stock Plan
10.3(1) 1997 Non-Employee Directors Stock Option Plan
10.4(1) Form of Non-Employee Directors Stock Option Agreement
10.8(1) 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(1) Employment Agreement between the Company and George Chung dated
March 4, 1997, effective upon the closing date of the Offering
10.10(1) Employment Agreement between the Company and Anthony Chan dated
March 4, 1997, effective upon the closing date of the Offering
10.11(1) Employment Agreement between the Company and Don Berryessa dated
March 4, 1997, effective upon the closing date of the Offering
10.12(1) Employment Agreement between the Company, AC Media and Jan
Hutchins dated March 4, 1997, effective upon the closing date of
the Offering
10.13(1) Convertible Loan Agreement dated as of May 5, 1995, between ABK
and David Y. Lei
10.15(1) Amended Deal Memo between ABK and Rick Fichter dated February
23, 1997, with respect to payments related to the Kanga Roddy
Series
10.17(1) Form of Indemnification Agreement
10.19(1) Letter dated October 29, 1996 from the Company to Tim Pettitt
regarding certain payments to the Montanas
10.20(1) Distribution Agreement dated June 18, 1996 by and between
America's Best Karate and InteliQuest
10.21(1) Distribution Agreement, dated May 6, 1997, by and between KTEH,
San Jose Public Television and American Champion Media, Inc.
10.22(1) Letter Agreement, dated June 1997, between AC Media, Inc. and
Sega of America, Inc.
10.23(1) Business Loan Agreement between America's Best Karate and Karen
Shen
10.24(1) Business Loan Agreement between America's Best Karate and Thomas
J. Woo
10.25(2) Licensing Agent Agreement, dated July 25, 1997, between American
Champion Media, Inc. and Sega of America, Inc.
10.26(3) Continuous Distribution Agreement dated April 20, 1998 between
KTEH, San Jose and American Champion Media, Inc.
10.27(3) Sponsorship Agreement dated April 29, 1998 between Sara Lee
Corporation and American Champion Media, Inc.
10.28(3) Engagement Agreement dated April 24, 1998 between JW Charles
and American Champion Entertainment, Inc.
10.29(5) Amendment to Employment Agreement with George Chung, dated July 1,
1998
10.30(5) Amendment to Employment Agreement with Anthony Chan, dated July 1,
1998
10.31(5) Amendment to Employment Agreement with Don Berryessa, dated July 1,
1998
10.32(5) Amendment to Employment Agreement with Jan Hutchins, dated July 1,
1998
10.33(5) Amendment to Employment Agreement with Mae Lyn Woo, dated July 1,
1998
10.34(5) Amendment to Employment Agreement with Kristen Simpson, dated July 1,
1998
10.35(6) International Distribution Agreement with Portfolio Entertainment
dated August 19, 1998
10.36(6) Video Distribution Agreement for the Kanga Roddy Series with Kreative
Video Products dated August 19, 1998
10.37(6) Video Distribution Agreement for the Montana Exercise Video with
Kreative Video Products dated August 21, 1998
10.38(8) Consultant Agreement between Olympia Partners, LLC, Dalton Kent
Securities Group, Inc. and American Champion Entertainment, Inc.
10.39(8) Merchant Licensing Agreement between Timeless Toys and American
Champion Media, Inc.
10.40(8) Loan Agreement between Olympia Partners and American Champion
Entertainment, Inc.
10.41(8) SEGA Agreement termination letter.
10.42(8) Consultant Agreement between American Champion Entertainment, Inc.
and Trademark Management
10.43(11) Termination of Kreative Video Products, Inc.
10.44(11) Video Products distribution agreement between Fast Forward
Marketing, Inc. and American Champion Entertainment. Inc.
10.45(11) Consultant Agreement between Chris Scoggin, LTD. And American
Champion Entertainment, Inc.
10.46(12) Consulting Services Agreement between Consor, Inc., and American
Champion Marketing Group, Inc.
10.47(12) Licensing Agreement between Brighter Child Interactive, LLC and
American Champion Media, Inc.
10.48(13) Licensing Agreement between Prestige Toys and American Champion
Marketing Group, Inc.
10.49(13) Stock Exchange Agreement between Great Wall International Sports
Media Company and American Champion Entertainment, Inc.
10.50 Licensing Agent Agreement between Funschool.com Corporation and
American Champion Marketing Group, Inc. (portions deleted pursuant
to request for confidential treatment)
10.51 Licensing Agent Agreement between Mainframe Entertainment, Inc. and
American Champion Marketing Group, Inc. (portions deleted pursuant
to request for confidential treatment)
10.52 Stock Exchange Agreement between Beijing Wisdom Network Technology
Company, Ltd. and American Champion Entertainment, Inc.
21.1(1) Subsidiaries of the Registrant
27.1 Financial Data Schedule (shown on EDGAR format only)
(1) Filed as an exhibit with the registrant's Form SB-2 filed with the
SEC on March 21, 1997 or Form SB-2/A filed March 3 and June 20, 1997
And incorporated by reference herein.
(2) Filed as an exhibit with the registrant's Form 10-KSB filed with the
SEC on March 30, 1998 and incorporated by reference herein.
(3) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on May 15, 1998 and incorporated by reference herein.
(4) Filed as an exhibit with the registrant's Form S-3 filed with the SEC
On August 3, 1998 and incorporated by reference herein.
(5) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on August 7, 1998 and incorporated by reference herein.
(6) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on November 16, 1998 and incorporated by reference herein.
(7) Filed as an exhibit with the registrant's Form S-3 filed with the SEC
On Feburary 12, 1999 and incorporated by reference herein.
(8) Filed as an exhibit with the registrant's Form 10-KSB filed with the
SEC on March 31, 1999 and incorporated by reference herein.
(9) Filed as an exhibit with the registrant's Form S-3 filed with
the SEC on July 16, 1999 and incorporated by reference herein.
(10) Filed as an exhibit with the registrant's Form S-3 filed with
the SEC on November 5, 1999 and incorporated by reference herein.
(11) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on August 16, 1999 and incorporated by reference herein.
(12) Filed as an exhibit with the registrant's Form 10-QSB filed with the
SEC on November 17, 1999 and incorporated by reference herein.
(13) Filed as an exhibit with the registrant's Form 10-KSB filed with the
SEC on March 30, 2000 and incorporated by reference herein
EXHIBIT 10.50
Licensing Agent Agreement
This Licensing Agent Agreement (the "Agreement") is entered into
on February 10, 2000 by and between American Champion Marketing Group,
Inc., a Delaware corporation with offices at 1694 The Alameda, Suite
100, San Jose, California 95126 ("ACMG") and funschool.com Corporation,
a California corporation with offices at 465 Fairchild Drive, Suite
105, Mountain View, California 94043.
This Agreement is being entered into with respect to the
following facts:
A. funschool.com is the sole owner and has the exclusive right
to license the trademark, brand name, logo, characters, actors
likeness, voice and related properties known as:
i) funschool.com
ii)Browser The Bus
iii)Worm
iv)Globe Boy
v) Gator
vi) Sitting Cow
(collectively called the "Properties") based upon the Internet Sites
"sites"
B. funschool.com desires to appoint ACMG as its exclusive
agent for purposes of licensing and merchandising the Properties for
use on or in connection with all categories of merchandise products
(e.g., clothing, toys, sporting goods, etc. collectively the
"Products"), and ACMG desires to accept such appointment in accordance
with the terms and conditions set forth in this Agreement.
1. Subject to the provisions set forth below in this
paragraph 1, funschool.com hereby appoints ACMG to represent
funschool.com as its exclusive agent for purposes of licensing and
merchandising the Properties to third parties for use on and in
connection with the Products throughout the world (the "Territory").
2. Client shall pay ACMG as consideration for the
aforementioned services a monthly retainer of (deleted pursuant to
request for confidential treatment) per month for the term of 6 months
from February 10, 2000 -July 9, 2000. Any expenses related to travel,
client entertainment, telephone, faxing, in accordance with services
being performed in this agreement, shall be discussed with Client in
advance, and payable by Client upon receipt of invoice.
3. ACMG shall submit each proposed licensing
arrangement to funschool.com in the form of a term sheet providing
reasonable detail as to the proposed transaction. Funschool.com shall
forward to ACMG any proposed changes to terms promptly following
receipt. Based on the terms approved by funschool.com, ACMG shall
prepare or have prepared a merchandise license agreement ("License
Agreement") incorporating the agreed terms and such other terms and
conditions as are customary and reasonable. No license Agreement shall
be entered into without funschool.com's prior consent. funschool.com
shall have approval over the Products and over the material terms of
the License Agreements, which approval shall be exercised in
funschool.com's sole discretion. ACMG hereby waives any claim it may
have that funschool.com did not exercise its approval rights in good
faith with respect to any proposed License Agreement. funschool.com
shall respond to ACMG within twenty-one (21) days with respect to its
approval or disapproval of any proposed License Agreements. All
License Agreements shall be entered into in the name of funschool.com,
with ACMG as the exclusive agent, and shall be executed by
funschool.com and ACMG.
4. ACMG shall do the following with respect to the
properties:
(a) Provide a strategic plan to funschool.com
(b) Seek out, negotiate and present for approval
and execution by funschool.com, business opportunities relative to the
merchandising and licensing of the properties.
(c) Monitor and oversee the licensing, promotion
and marketing programs with all existing or hereinafter acquired third
party licensees ("Licensees").
(d) Whenever necessary, conduct personal visits to
Licensees' manufacturing facilities, to ensure conformance with the
quality control provisions of the License Agreements.
(e) Engage in other such activities as the parties
may mutually agree and use its best efforts to maximize revenue
generated from the exploitation of the rights granted hereunder and to
enhance the value and the reputation of the Properties.
(f) appropriate, attend the Consumer Electronics
Show, the Toy Fair, the annual Licensing Show, MAGIC, American Book
Association, House-wares, SHOPA, MIPCOM, MIP and other trade shows to
exhibit and display the Properties.
5. funschool.com agrees to reimburse ACMG for all
expenses incurred by ACMG in connection with the licensing and
merchandising of the Products which are pre-approved by funschool.com,
including, but not limited to, presentations, press kits, style guides,
art work, design materials, display materials, trade show expenses
specifically related to the Properties (including travel expenses
thereto and promotional materials). Such reimbursement to ACMG shall
be made by funschool.com within 30 days from ACMG's submission of
expense relating to the licensing and merchandising of the Properties
and any travel and legal expenses not specifically related thereto and
that it will receive no compensation except as specified in this
paragraph 7 below.
6. As feasible, funschool.com will attempt to obtain and
maintain appropriate trademark and copyright protection throughout the
Territory with respect to the products. ACMG shall advise funschool.com
in writing of any suspected or known infringement of the Properties.
7. All royalties, fees and revenues from licensee,
distributors and any other parties relating to the Properties in this
agreement shall be remitted directly to funschool.com. ALL monies,
excluding advances and guarantees, received by ACMG, funschool.com
Corporation or any of its agents or affiliated companies, from the
licensing, merchandising or other disposition of the Products utilizing
the Properties or from any other rights granted hereunder ("Gross
Receipts") shall be applied in the following order and priority:
(a) First, ACMG as the exclusive licensing agent, shall
be entitled to (deleted pursuant to request for
confidential treatment) of the Gross Receipts for
Domestic Licensing (United States). For
International Territories ACMG will receive (deleted
pursuant to request for confidential treatment) of
the Gross Receipts.
(b) Second, ACMG shall be reimbursed any outstanding
amount of expenses described in paragraph 5 above.
(c) Third, all sums remaining after the payment to ACMG
of the sums specified in subparagraphs 8(a) and 8(b)
above shall be paid to funschool.com.
(d) Upon the expiration or earlier termination of this
Agreement, ACMG shall (provided the Agreement has not
been terminated for ACMG's fraud, misrepresentation
or other tortuous or illegal conduct) continue to be
entitled to receive the foregoing fee and expenses
with respect to any License Agreements entered into
during the Term for the greater of (i) the actual
Term of each such License Agreement; or (ii) six (6)
months from the date of commencement of each such
License Agreement; provided ACMG continues to service
such License Agreements as provided in paragraph 4
above.
10. "Key Representative". It is hereby acknowledged that
funschool.com is a prior client from Joy Tashjian and
at such a time as Ms. Tashjian may no longer be with
ACMG, funschool.com shall have the right to terminate
it's Agreement with ACMG, funschool.com would remain
obligated to compensate ACMG for all ongoing
commitments in accordance with paragraph 3 of this
document.
The parties have agreed to the terms of this license contained above.
American Champion Marketing Group, Inc. funschool.com
Corporation, Inc.
By: /s/ Joy Tashjian By: /s/ Kristen Johnson
Joy Tashjian Kristen Johnson
President & CEO Executive VP of
Business Development
2/14/00 2/14/00
Exhibit 10.51
Licensing Agent Agreement
This Licensing Agent Agreement (the "Agreement") is entered into
on January 10, 2000 by and between American Champion Marketing Group,
Inc., a Delaware corporation with offices at 1694 The Alameda, Suite
100, San Jose, CA 95126 ("ACMG") and Mainframe Entertainment, Inc., a
Canadian corporation with offices at 2025 West Broadway, Suite 500,
Vancouver, British Columbia, Canada V6J-1Z6 ("Mainframe").
This Agreement is being entered into with respect to the
following facts:
A. Mainframe is the sole owner and has the exclusive right to
license the trademark, brand name, logo, characters, actors likeness,
voice and related properties known as: Re-Boot, Dot's Bots, and Scary
Godmother, subject to the provisions below, (collectively called the
"Properties") based upon the television of the same Properties to be
broadcast and/ or currently being broadcast on television ("Programs").
B. Mainframe desires to appoint ACMG as its exclusive agent
for purposes of licensing and merchandising the Properties for use on
or in connection with all categories of merchandise products (e.g.,
clothing, toys, sporting goods, etc.), services (collectively the
"Products"), and ACMG desires to accept such appointment in accordance
with the terms and conditions set forth in this Agreement. Grant of
rights herein,Products as defined herein, and ACMG's appointment
herein, specifically excludes the following:
(i) The right to produce and distribute animated or live
action television episodes, series, video-grams or films of any length
in any and all media whether known or hereafter devised;
(ii) Agent will receive a reduced commission of (deleted
pursuant to request for confidential treatment) based on Gross Receipts
on the Irwin Toy License Agreement for Re-Boot Property excluding any
royalties or advances collecting or owing that relate to reporting
periods prior to the commencement of the Term hereunder. Agent would
receive a (deleted pursuant to request for confidential treatment)
commission based on Gross Receipts upon execution of any other Master
Toy Agreement or Toy Agreement with any party other then Irwin.
Agent may exploit any secondary toy rights that are not included in the
master toy agreement;
(iii) All forms of computer assisted or optically driven or
interactive media (including CD-ROM, CDI, CD-1, 3D0, DVI or similar
mediums);
(iv) Theme parks, amusement parks, IMAX, or other large-
formed theatrical venues location based entertainment centers, game
centers, motion simulation rides, theatre sales outlets, live
theatrical productions;
(v) All rights that form part of any third party
distribution or broadcast agreements or negotiations entered into by
Mainframe with respect to the programs where such rights are required
by such third party distribution or broadcasters as a condition of
licensing or distributing the Program(s).
(vi) All rights relating to any existing likeness or
retained rights
(vii) All music publishing rights
(viii) All rights related to the sale of stock footage
(ix) Sales in or in connection with facilities owned,
operated, or controlled by Mainframe and its affiliated and/or
subsidiary companies
(x) All revenues associated with the creation of
customized artwork or animation
(xi) Mainframe shall retain the non-exclusive right to
exploit e-commerce
(xii) The provisions of paragraph 2(B) below
1. Subject to the provisions set forth below in this
paragraph 1, Mainframe hereby appoints ACMG to represent Mainframe as
its exclusive agent for purposes of licensing and merchandising the
Properties to third parties for use on and in connection with the
Products throughout the world excluding Japan Singapore, malaysia,
Taiwan, Indonesia, Vietnam, Hong Kong and South Korea (the "Territory")
2 (a). ACMG shall submit each proposed licensing
arrangement to Mainframe for its approval in the form of a term sheet
providing reasonable detail as to the proposed transaction. Mainframe
shall forward to ACMG any proposed changes to terms promptly following
receipt. Based on the terms approved by Mainframe, ACMG shall prepare
or have prepared a merchandise license agreement ("License Agreement")
incorporating the agreed terms and such other terms and conditions as
are customary and reasonable. No license Agreement shall be entered
into without Mainframe's prior written consent. Mainframe shall have
approval over the Products and over the material terms of the License
Agreements, which approval shall be exercised in Mainframe's sole
discretion. ACMG hereby waives any claim it may have that Mainframe
did not exercise its approval rights in good faith with respect to any
proposed License Agreement. Mainframe shall respond to ACMG within
fourteen (14) days with respect to its approval or disapproval of any
proposed License Agreements. Failure by Mainframe to so respond shall
be deemed as disapproval of any such License Agreement. All License
Agreements shall be entered into in the name of Mainframe, with ACMG as
the exclusive agent, and shall be executed by Mainframe and ACMG.
2(b). ACMG acknowledges that with the respect to the
Property "Scary Godmother all rights to so called "collectable" or
"hobby" items which are intended to sell fewer than 15,000 units of any
particular item have been retained by Jill Thompson and/or Strus
Entertainment, Inc. In addition, Thompson has retained all comic book,
hard cover, trade paperback, activity and coloring books, comic strips
and graphic novel publishing rights, as well as the right to produce
calendars, stationary, and greeting cards: and Thompson shall have
meaningful consultation in connection with the creation of style
guides.
3. This Agreement shall be effective as of the date
first abouve mentioned and shall continue for the term of three (3)
years (the "term"). Commencing sixty (60) days prior to the expiration
of the such initial term, ACMG and Mainframe shall negotiate in good
faith with respect to extending the term for some additional period of
time. The initial term and any extension thereof is referred to herein
as the "Term."
4. ACMG shall do the following with respect to the Properties:
(a) Seek out, negotiate and present for approval
and execution by Mainframe, business opportunities relative to the
merchandising and licensing of the Properties.
(b) Monitor and oversee the licensing, promotion
and marketing programs with all existing or hereinafter acquired third
party licensee ("Licensees").
(c) Whenever necessary, conduct personal visits to
Licensees' manufacturing facilities, to ensure conformance with the
quality control trademark and copyright provisions of the License
Agreements.
(d) Engage in other such activities as the parties
may mutually agree and use its best efforts to maximize revenue
generated from the exploitation of the rights granted hereunder and to
enhance the value and the reputation of the Properties
(e) If appropriate, attend the Consumer Electronics
Show, the Toy fair, the annual Licensing Show, MAGIC, American Book
Association, House-wares, SHOPA, MIPCOM, MIP and other trade shows to
exhibit and display the Properties.
(f) Keep accurate books of account and records
concerning this Agreement and all License Agreements.
(g) Fulfill all its obligations under all License
Agreements including but not limited to the collection of royalties,
reports and statements of licensees.
5. Mainframe shall be responsible for all costs
associated with style guides development and any other collateral
materials that Mainframe may deem necessary. Mainframe may, at such
sole discretion, contribute to the cost of certain key marketing and
promotional events such as launches, representation at trade shows, and
special presentations. ACMG shall prepare and submit to Mainframe for
Mainframe's approval, an annual marketing plan setting out ACMG's
proposed activities and costs associated therewith for the marketing
and promotion of the Rights.
6. Mainframe shall have the responsibility at its own
cost and expense for obtaining and maintaining appropriate trademark
and copyright protection throughout the Territory with respect to the
Products. ACMG shall promptly advise Mainframe in writing of any
suspected or known infringement of the Properties which comes to ACMG's
attention.
7. Any compensation for services not already
contemplated by this Agreement shall be separately negotiated between
Mainframe and ACMG.
8. ALL monies, including advances and guarantees,
received by ACMG, Mainframe or any of their respective agents or
affiliated companies, from the licensing, merchandising or other
disposition of the Products utilizing the Properties or from any other
rights granted hereunder, but after deduction of any contractual share
of such monies payable by Mainframe to any broadcasters of the program
("Gross Receipts") shall be applied as follows:
(a) ACMG shall be entitled to (fifty percent) to 50%
commission on all Gross Receipts received exclusive
of any subagents commissions and all of ACMG's
expenses: and
(b) The balance of Gross Receipts shall be retained by or
remitted to mainframe in accordance with the
provisions below.
(c) Upon the expiration or earlier termination of this
Agreement, the agency appointed hereunder shall
terminate immediately provided that ACMG shall
(provided the Agreement has not been terminated for
ACMG's fraud, misrepresentation or other tortuous or
illegal conduct) continue to be entitled to receive
the foregoing fee and expenses with respect to any
License Agreements entered into during the Term for
the greater of (i) the actual Term of each such
License Agreement; or (ii) two (2) years from the
date of commencement of each such License Agreement;
provided ACMG continues to service such License
Agreements as provided in paragraph 4 abouve.
9(a) ACMG shall be obligated to collect all monies due
from the third party licensees in a timely manner.
Upon receipt of monies, all such monies shall be
deposited into a segregated interest-bearing bank
account to be held in trust for Mainframe provided
that ACMG may deduct its fees from such monies at
such a time as it accounts and pays Mainframe all
monies due to Mainframe. ACMG shall provide written
accounts to Mainframe on not less than a quarterly
basis within fifteen (15) days following each
calendar quarter, with the appropriate payment
accompanying each such account.
(b) Mainframe shall have the right upon, seventy-two (72)
hours notice, during reasonable business hours, to
audit, to inspect and take extracts form the books
and records of ACMG relating to this Agreement or any
License Agreement. In the event there is any
discrepancy in favour of Mainframe between the amount
actually paid to Mainframe and the amount due to it,
ACMG shall immediately remit such payment. All costs
of the audit shall be borne to Mainframe, unless the
amount of the discrepancy is five (5%) percent or
more of the amount reported, in which case the cost
of the audit shall be borne to ACMG.
10. Each of the parties (the "indemnifying Party") will
all times defend, indemnify and hold the other (including its
directors, officers, shareholders, partners, agents, employees
and permitted assigns) harmless from and against any and all
claims, damages, loss of profits, liabilities, costs and expenses
(including reasonable attorney's fees) arising out of the
indemnifying Party's breech of any of the covenants,
representations or warranties contained in this Agreement,
including the unauthorized grant or use by ACMG of the
Properties.
11.(a) Mainframe shall have the right to
immediately terminate this Agreement if:
(i) ACMG shall fail to deliver any remittance,
report or statement as and when due hereunder,
but in no event later than ten (10) days
following the date when originally due.
(ii) a petition in bankruptcy or for reorganization
is filed by or against ACMG under any
bankruptcy act now or hereafter in force, or
if ACMG makes and assignment for the benefit of
its creditors, or if a receiver, trustee,
receiver-manager, liquidator or other custodian
is appointed for all or a substantial part of
ACMG's assets, and the order of appointment is
not contest or has been contested but is not
vacated within thirty (30)days; or if ACMG
assigns or encumbers this Agreement in whole or
part contrary to the terms hereof; or if all or
a substantial part of ACMG's assets is
sequested or levied against or attached and the
order of sequestration, levy or attachment is
not contest or has been contested but is not
vacated within thirty (30) days.
(iii) mainframe is merged with an arm's length
company or a majority of Mainframe's shares are
required by an arm's length company and it is a
requirement of any such arrangement that the
rights granted to ACMG hereunder revert to
mainframe or such new company.
(b) Either party hereto shall be deemed in default
hereunder and a non-defaulting party may:
(i) terminate this Agreement on ten (10) days
written notice to the other, unless the default
has been remedied; or
(ii) terminate this Agreement immediately in the
event the default cannot be remedied,
If the defaulting party breeches any material
representation, covenant or warranty made hereunder or
breeches or defaults in the performance of any other
material provision herein on its part to be performed.
12. ACMG hereby assigns and grants to Mainframe, its
successors and assigns, a first priority lien and a continuing
security interest, and a mortgage, pledge and assignment in and
to all of the rights granted to ACMG hereunder and all rights
derived by ACMG pursuant to its exercise of such rights to secure
(a) all sums which Mainframe is entitled to receive or otherwise
be paid hereunder; (b) all rights to which Mainframe is entitled
hereunder; and (c) the performance and observance by ACMG of all
of its obligations now or hereafter existing hereunder to be
performed and observed.
13. This Agreement may not be observed by ACMG without
the prior written consent of Mainframe. Mainframe shall have the
right to assign this Agreement provided it remains liable for its
obligations hereunder to the extent not performed by its
assignee(s) unless agreed to in writing by ACMG which permission
shall not be unreasonably withheld.
14. This Agreement shall be governed by and constructed
in accordance with the laws of the Province of British Columbia
and the laws of Canada applicable therein; and the parties
irrevocably attorn to the exclusive jurisdiction of the courts of
said province with respect to all matters pertaining to this
Agreement.
15. "Key Representative". It is hereby acknowledged that
Mainframe Entertainment is a prior relationship of Joy Tashjian
and at such a time as Ms. Tashjian may no longer be with ACMG,
Mainframe Entertainment shall have the right to terminate it's
Agreement with ACMG. Mainframe Entertainment would remain
obligated to compensate ACMG for all ongoing commissions in
accordance with Paragraph 3 of this document.
The parties have agreed to the terms of this license contained above.
American Champion Marketing Group, Inc. Mainframe Entertainment, Inc.
By: /s/ Joy Tashjian By: /s/ Brett Gannon
Joy Tashjian Brett Gannon_____
(President/CEO) Chief Financial Officer
3/16/00 3/18/00
Exhibit 10.52
AGREEMENT
CONCERNING THE EXCHANGE OF COMMON STOCK
AMONG
AMERICAN CHAMPION ENTERTAINMENT, INC. ("ACEI")
BEIJING WISDOM NETWORK TECHNOLOGY COMPANY, LTD. ("B.A.Network")
and
THE SHAREHOLDERS OF BEIJING WISDOM NETWORK TECHNOLOGY COMPANY, LTD.
TABLE OF CONTENTS
Page No.
ARTICLE 1 - EXCHANGE OF SECURITIES 9
1.1 - Issuance of Shares
9
1.2 - Exemption from Registration
9
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF B.A. Network 9
2.1 - Organization
9
2.2 - Capital
10
2.3 - Subsidiaries
10
2.4 - Directors and Officers
10
2.5 - Financial Statements
10
2.6 - Investigation of Financial Condition
10
2.7 - Compliance with Laws
10
2.8 - Litigation 11
2.9 - Authority 11
2.10 - Ability to Carry Out Obligations
11
2.11 - Full Disclosure
11
2.12 - Material Contracts
11
2.13 - Indemnification
12
2.14 - Transactions with Officers and Directors
12
2.15 - Background of Officers and Directors
12
2.16 - Employee Benefits
13
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF ACEI 13
3.1 - Organization
13
3.2 - Capital
13
3.3 - Subsidiaries
14
3.4 - Directors and Officers
14
3.5 - Financial Statements
14
3.6 - Absence of Changes
14
3.7 - Absence of Undisclosed Liabilities
14
3.8 - Tax Returns
14
3.9 - Investigation of Financial Condition
14
3.10 - Trade Names and Rights 14
3.11 - Compliance with Laws
15
3.12 - Litigation 15
3.13 - Authority 15
3.14 - Ability to Carry Out Obligations
15
3.15 - Validity of ACEI Shares
15
3.16 - Full Disclosure
15
3.17 - Assets
15
3.18 - Material Contracts
16
3.19 - Compliance With SEC Reporting Requirements
16
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS 16
4.1 - Share Ownership 16
4.2 - Investment Intent
16
4.3 - (deleted)
17
4.4 - Legend
17
ARTICLE 5 - COVENANTS 17
5.1 - Investigative Rights
17
5.2 - Conduct of Business
18
ARTICLE 6 - CONDITIONS PRECEDENT TO ACEI'S PERFORMANCE 18
6.1 - Conditions 18
6.2 - Accuracy of Representations
18
6.3 - Performance
18
6.4 - Absence of Litigation
18
6.5 - Acceptance by B.A. Network Shareholders
18
6.6 - Officer's Certificate
19
6.7 - Opinion of Counsel to B.A. Network
19
ARTICLE 7 - CONDITIONS PRECEDENT TO B.A. Network'S PERFORMANCE 19
7.1 - Conditions 19
7.2 - Accuracy of Representations
19
7.3 - Performance
20
7.4 - Absence of Litigation
20
7.5 - Current Status
20
7.6 - Directors of ACEI
20
7.7 - Officers of ACEI 20
7.8 - blank
20
7.9 - Officer's Certificate
20
7.10 - Opinion of Counsel
20
ARTICLE 8 - CLOSING 20
8.1 - Closing
20
ARTICLE 9 - MISCELLANEOUS 21
9.1 - Captions and Headings
21
9.2 - Memos, Attachments and Exhibits
21
9.3 - No Oral Change
21
9.4 - Non-Waiver 22
9.5 - Entire Agreement 22
9.6 - Member to B.A. Network's Board of Directors
22
9.7 - Choice of Law
22
9.8 - Counterparts
22
9.9 - Notices
22
9.10 - (deleted) 23
9.11 - Binding Effect
23
9.12 - Mutual Cooperation
23
9.13 - Announcements 23
9.14 - Expenses 23
9.15 - Survival of Representations and Warranties
23
9.16 - Exhibits
24
EXHIBITS
Exhibit 1.1 Allocation of B.A. Network Shares
Exhibit 2.2 Authorized Capital of B.A. Network
Exhibit 2.4 Directors and Officers of B.A. Network
Exhibit 2.5 B.A. Network Financial Statements
Exhibit 2.12 Material Contracts
Exhibit 3.2 Outstanding options and warrants of ACEI
Exhibit 3.3 Subsidiaries of ACEI
Exhibit 3.4 Directors and Officers of ACEI
Exhibit 3.5 ACEI Financial Statements
Exhibit 7.10 Opinion of Counsel of ACEI
Exhibit A B.A. Network's Revenue Projections
AGREEMENT
AGREEMENT, made as of the 27th day of March ,
2000, by and among American Champion Entertainment, Inc. of the United
States of America, a Delaware corporation ("ACEI"), Beijing Wisdom Network
Technology Company, Ltd., a corporation formed under the laws of the
People's Republic of China ("B.A. Network") and the shareholders of
Beijing Wisdom Network Technology Company, Ltd. (the "Shareholders").
This agreement is subject to review by the U.S. Securities and Exchange
Commission ("SEC") and approval by the shareholders of ACEI, and shall
become effective immediately upon satisfactory review by the SEC and
approval by the shareholders at a meeting of the shareholders of ACEI.
Once approval by shareholders is obtained, ACEI shall notify B.A. Network
of the effectiveness of this agreement within the same day.
WHEREAS, ACEI desires to acquire 80.00% of all of the issued and
outstanding shares of B.A. Network, in exchange for a total value of
$4,672,050 of either ACEI authorized but unissued shares of the common
stock, $.0001 par value (the "Exchange Stock"), or partially in cash; and
such Exchange Stock and cash, shall be granted in three parts:
I. A number of shares equal to $300,000 in value, included in the
Exchange Stock, or $300,000 in cash, is payable to B.A. Network as Part I
of the exchange transaction. B.A. Network shall have to right to choose
between payment in shares or in cash, and B.A. Network shall provide ACEI
official written notice of its choice of payment not later than three
business days after to the date of effectiveness of this agreement.
1.1 If B.A. Network elects to be paid in cash, then ACEI
shall transfer by wire the amount of $300,000 into an
account specified by B.A. Network within ten business
days from the date of effectiveness of this agreement.
1.2 If B.A. Network elects to be paid in shares, then ACEI
shall issue and transfer $300,000 in value of ACEI
shares into a stock account specified by B.A. Network
within ten business days from the date of effectiveness
of this agreement.
1.2.1 The price of the shares shall be based on the
average of the daily closing sales prices from
the date of the Letter of Intent to the date of
effectiveness of this agreement.
1.2.2 The shares shall have registration rights and
become freely tradable without restrictions upon
effectiveness of registration.
II. For the year 2000, ACEI shall grant B.A. Network the amount of
US$1,184,097 in shares of ACEI, or in cash, according to the following
projections, as part II of the exchange transaction. B.A. Network shall
have to right to choose between payment in shares or in cash, and B.A.
Network shall provide ACEI official written notice of its choice of
payment not later than three business days after to the delivery of
reviewed financial statements to ACEI via one of the big five U.S.
accounting firms.
B.A. Network Revenue Projections
2000
2001
2002
(To be annually audited & quarterly reviewed
by acceptable U.S. accounting
firm.)
Exchange Rate - RMB / US$ : 8.3 /
1
Gross Revenue (RMB)
65,000,000
80,000,000
95,000,000
Gross Revenue (US$)
$7,831,325
$9,638,554
$11,445,783
Gross Revenue (US$) x 80.00%
$6,265,060
$7,710,843
$9,156,627
EBITDA (earnings before interests, taxes, depreciation &
amortization)
EBITDA (RMB)
3,250,000
4,000,000
4,750,000
EBITDA (US$)
$391,566
$481,928
$572,289
EBITDA (US$) x 80.00%
$313,253
$385,542
$457,831
18% of Gross Revenue, payable
$1,127,711
$1,387,952
$1,648,193
in ACEI common stock
18% of EBITDA, payable
$56,386
$69,398
$82,410
in ACEI common stock
Total payable in ACEI common stock
$1,184,097
$1,457,349
$1,730,603
Total payments over years 2000 to 2002, to be paid in ACEI
common stock,
$4,372,050
2.1 If B.A. Network elects to be paid in cash, and upon the
delivery of reviewed financial statements to ACEI via
one of the big five U.S. accounting firms, then ACEI
shall make the following quarterly payments:
2.1.1 Within 10 business days, ACEI shall make payment
by wire transfer to an account specified by B.A.
Network of the amount of
(Gross Revenue + EBITDA) x 80% x 18% x 50%
for Gross Revenue and EBITDA amounts that are
less than or equal to the figures in the above
table,
and
(Gross Revenue + EBITDA) x 80% x 18% x 20%
for Gross and EBITDA amounts that are more than
the figures in the above table.
2.1.2 Within 6 months, ACEI shall make payment by wire
transfer to an account specified by B.A. Network
of the amount of
(Gross Revenue + EBITDA) x 80% x 18% x 20%
for Gross Revenue and EBITDA amounts that are
less than or equal to the figures in the above
table,
and
(Gross Revenue + EBITDA) x 80% x 18% x 40%
for Gross and EBITDA amounts that are more than
the figures in the above table.
2.1.3 Within 9 months, ACEI shall make payment by wire
transfer to an account specified by B.A. Network
of the amount of
(Gross Revenue + EBITDA) x 80% x 18% x 20%
for Gross Revenue and EBITDA amounts that are
less than or equal to the figures in the above
table.
2.1.4 Within 12 months, ACEI shall make payment by wire
transfer to an account specified by B.A. Network
of the amount of
(Gross Revenue + EBITDA) x 80% x 18% x 10%
for Gross Revenue and EBITDA amounts that are
less than or equal to the figures in the above
table,
and
(Gross Revenue + EBITDA) x 80% x 18% x 40%
for Gross and EBITDA amounts that are more than
the figures in the above table.
2.2 If B.A. Network elects to be paid in shares, and within
ten business days from the delivery of quarterly
reviewed financial statements to ACEI via one of the big
five U.S. accounting firms, then ACEI shall issue and
transfer the amount of ACEI common stock, based on 80%
X 18% of the Gross Revenue and EBITDA according to the
figures in the above table, into a stock account
specified by B.A. Network. The price of the shares
shall be the average of the closing sales prices of ACEI
shares within the applicable quarter, and be subject to
the following restrictions:
2.2.1 For amounts less than and equal to the above
tabulation, 50% shall not have restrictions, 20%
shall be restricted from sales for 6 months from
the date of issuance, 20% restricted for 9
months, and 10% restricted for 12 months.
2.2.2 For amounts more than the above tabulation, 20%
shall not have restrictions, 40% shall be
restricted from sales for 6 months from the date
of issuance, and 40% shall be restricted for 12
months.
III. As part III of the exchange transaction, ACEI shall issue
shares of ACEI common stock to B.A. Network for the years 2001 and 2002,
based of figures in the above table.
3.1 Within ten business days from the delivery of quarterly
reviewed financial statements to ACEI via one of the big
five U.S. accounting firms, then ACEI shall issue and
transfer the amount of ACEI common stock, based on 80%
X 18% of the Gross Revenue and EBITDA according to the
figures in the above table, into a stock account
specified by B.A. Network.
3.2 The price of the shares shall be the average of the
closing sales prices of ACEI shares within the
applicable quarter, and be subject to the following
restrictions:
3.2.1 For amounts less than and equal to the above
tabulation, 50% shall not have restrictions, 20%
shall be restricted from sales for 6 months from
the date of issuance, 20% restricted for 9
months, and 10% restricted for 12 months.
3.2.2 For amounts more than the above tabulation, 20%
shall not have restrictions, 40% shall be
restricted from sales for 6 months from the date
of issuance, and 40% shall be restricted for 12
months.
WHEREAS, the Shareholders desire to exchange their B.A. Network
shares for the Exchange Stock as set forth herein; and
WHEREAS, B.A. Network desires to assist ACEI in a business
combination which will result in the Shareholders of B.A. Network owning
approximately 16% of the then issued and outstanding shares of ACEI's
Common Stock (with the understanding that since ACEI is currently in an
expansion phase with multiple acquisition candidates in negotiation, the
actual resulting ownership by B.A. Network of ACEI may be significantly
less) and ACEI owning 80.00% of the issued and outstanding shares of B.A.
Network's Capital Stock;
NOW, THEREFORE, in consideration of the mutual promises, covenants
and representations contained herein, the parties hereto agree as follows:
ARTICLE I
Exchange of Securities
1.1 Issuance of Shares. Subject to all of the terms and
conditions of this Agreement, ACEI agrees to issue to the Shareholders the
shares of the Exchange Stock, or partially in cash, as described above in
exchange for 80.00% of all of the outstanding shares of B.A. Network
capital stock owned by the Shareholders, as set forth on Exhibit 1.1.
1.2 Exemption from Registration. Except as specified above for
issuance of shares with registration rights, the parties hereto intend
that the Common Stock to be issued by ACEI to the Shareholder shall be
exempt from the registration requirements of the Securities Act of 1933,
as amended (the "Act") pursuant to Section 4(2) of the Act and the rules
and regulations promulgated thereunder.
ARTICLE 2
Representations and Warranties of B.A. Network
B.A. Network and the Shareholders of B.A. Network represent to ACEI
that:
2.1 Organization. B.A. Network is a corporation duly organized and
validly existing and in good standing under the laws of the People's
Republic of China and has all necessary corporate powers to own its
properties and to carry on its business as now owned and operated by it,
and is duly qualified to do business and is in good standing where its
business requires qualification. (Further legal descriptions of B.A.
Network, if necessary, such as transfer of assets and liabilities of
another entity, etc).
2.2 Capital. The authorized capital stock of B.A. Network is as
set forth on the annexed Exhibit 2.2, a copy of which is annexed hereto
and made a part hereof. The shares currently outstanding are owned by the
Shareholders. All of the issued and outstanding shares of B.A. Network
are duly and validly issued, fully paid, and non-assessable. There are no
outstanding subscriptions, options, rights, warrants, debentures,
instruments, convertible securities, or other agreements or commitments
obligating B.A. Network to issue or to transfer from treasury any
additional shares of its capital stock of any class.
2.3 Subsidiaries. As of the date of this Agreement, B.A. Network
does not have any subsidiaries or own any interest in any other
enterprise.
2.4 (a) Directors and Officers. Exhibit 2.4 to this Agreement, the
text of which is incorporated herein by reference, contains the names and
titles of all directors and officers of B.A. Network as of the date of
this Agreement.
2.5 (b) Financial Statements. The B.A. Network financial
statements are to be audited by a reputable international auditing firm
for the year ending December 31, 1999 which are annexed hereto as Exhibit
2.5 and must be delivered to ACEI prior to the Closing. Such financial
statements are to be complete, accurate and fairly present the financial
condition of B.A. Network as of the date thereof and the results of
operations for the year ending December 31, 1999, for the business of B.A.
Network that has been operated in the normal course.
There are no material liabilities, either fixed or contingent, not
reflected in such financial statements other than contracts or obligations
in the ordinary and usual course of business; and no such contracts or
obligations in the usual course of business constitute liens or other
liabilities which, if disclosed, would materially alter the financial
condition of B.A. Network as reflected in such financial statements. The
financial statements of B.A. Network are incorporated herein by reference
and deemed to be a part hereof.
2.6 Investigation of Financial Condition. Without in any manner
reducing or otherwise mitigating the representations contained herein,
ACEI and/or its attorneys shall have the opportunity to meet with
accountants and attorneys of ACEI to discuss the financial condition of
B.A. Network. B.A. Network shall make available to ACEI and/or its
attorneys all books and records of B.A. Network. If the transaction
contemplated hereby is not completed, all documents received by ACEI
and/or its attorneys shall be returned to B.A. Network and all information
so received shall be treated as confidential.
2.7 Compliance with Laws. B.A. Network has complied with and are
not in violation of applicable national, state or local statutes, laws and
regulations (including, without limitation, any applicable building,
zoning or other law, ordinance or regulation) affecting its properties or
the operation of its business. All national, state and local income tax
returns required to be filed by B.A. Network have been filed and all
required taxes have been paid or an adequate reserve therefor has been
established in the financial statements. B.A. Network's tax returns have
not been audited by any authority empowered to do so.
2.8 Litigation. Neither B.A. Network nor the Shareholders are a
party to any suit, action, arbitration or legal, administrative or other
proceeding, or governmental investigation pending or, to the best
knowledge of B.A. Network and the Shareholders, threatened against or
affecting B.A. Network or the Shareholders, their assets or financial
condition, except for matters which would not have a material effect on
B.A. Network, the Shareholders or their respective properties. Neither
B.A. Network nor the Shareholders are in default with respect to any
order, writ, injunction or decree of any national, state, local or foreign
court, department, agency or instrumentality applicable to it. Neither
B.A. Network nor Shareholders are engaged in any lawsuits to recover any
material amount of moneys due to B.A. Network or Shareholders.
2.9 Authority. The Board of Directors of B.A. Network has
authorized the execution of this Agreement and the consummation of the
transactions contemplated herein, and upon obtaining any necessary
shareholder approval, B.A. Network will have full power and authority to
execute, deliver and perform this Agreement and this Agreement will be a
legal, valid and binding obligation of B.A. Network, enforceable in
accordance with its terms and conditions, except as may be limited by
bankruptcy and insolvency laws and by other laws affecting the rights of
creditors generally.
2.10 Ability to Carry Out Obligations. The execution and delivery
of this Agreement by B.A. Network and the performance by B.A. Network of
its obligations hereunder in the time and manner contemplated will not
cause, constitute or conflict with or result in (a) any breach or
violation of any of the provisions of or constitute a default under any
license, indenture, mortgage, charter, instrument, articles of
incorporation, by-laws, or other agreement or instrument to which B.A.
Network or Shareholders are a party or by which either may be bound, nor
will any consents or authorizations of any party other than those hereto
be required; (b) an event that would permit any party to any agreement or
instrument, to terminate it or to accelerate the maturity of any
indebtedness or other obligation of B.A. Network or Shareholders; or (c)
an event that would result in the creation or imposition of any lien,
charge, or encumbrance on any asset of B.A. Network or Shareholders.
2.11 Full Disclosure. None of the representations and warranties
made by B.A. Network and the Shareholders herein, or in any exhibit,
certificate or memorandum furnished or to be furnished by B.A. Network, or
on its behalf, contains or will contain any untrue statement of material
fact, or omit any material fact, the omission of which would be
misleading.
2.12 Material Contracts. Neither B.A. Network nor the Shareholders
has any material contracts to which either is a party or by which they are
bound, except for those agreements set forth on the annexed hereto as
Exhibit 2.12.
2.13 Indemnification. B.A. Network and the Shareholders agree to
defend and hold harmless ACEI, its officers and directors against and in
respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries and deficiencies, including
interest, penalties and reasonable attorney's fees, that it shall incur or
suffer, which arise out of, result from or relate to any breach of or
failure by B.A. Network to perform any of its respective representations,
warranties, covenants and agreements in this Agreement or in any exhibit
or other instrument furnished or to be furnished by B.A. Network under
this Agreement.
2.14 Transactions with Officers and Directors. Except as otherwise
disclosed in B.A. Network's financial statements dated December 31, 1999
and delivered to ACEI, there have been, and through the date of Closing
there will be (1) no bonuses or unusual compensation to any of the
officers or directors of B.A. Network; (2) no loans, leases or contracts
made to or with any of the officers or directors of B.A. Network; (3) no
dividends or other distributions declared or paid by B.A. Network; and (4)
no purchases by B.A. Network of any of its capital shares.
2.15 Background of Officers and Directors. During the past five
year period, no officer or director of B.A. Network has been the subject
of:
(a) A petition under the U.S. Federal Bankruptcy laws or any
other insolvency law or has a receiver, fiscal agent or similar officer
been appointed by a court for the business or property of such person, or
any partnership in which he was a general partner at or within two years
before the time of such filing, or any corporation or business association
of which he was an executive officer at or within two years before the
time of such filing;
(b) A conviction in the United States in a criminal
proceeding or a named subject of a pending criminal proceeding (excluding
traffic violations and other minor offenses);
(c) Any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him from, or otherwise limiting, the
following activities:
(i) Acting as a futures commission merchant,
introducing broker, commodities trading advisor, commodity pool operator,
floor broker, leverage transaction merchant, any other person regulated by
the United States Commodity Futures Trading Commission or an associated
person of any of the foregoing, or as an investment advisor, underwriter,
broker or dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan association or
insurance company, or engaging in or continuing any conduct or practice in
connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with the
purchase and sale of any security or commodity or in connection with any
violation of U.S. Federal, State or other securities law or commodities
law.
(d) Any order, judgment, decree, not subsequently reversed,
suspended or vacated, of any U.S. Federal, State or local authority
barring, suspending, or otherwise limiting for more than 60 days the right
of such person to engage in any activity described in the preceding sub-
paragraph, or to be associated with persons engaged in any such activity;
(e) a finding by any court of competent jurisdiction in a
civil action or by the United States Securities and Exchange Commission to
have violated any securities law, and the judgment in such civil action or
finding by such Commission has not been subsequently reversed, suspended
or vacated; or
(f) a finding by any court of competent jurisdiction in a
civil action or by the United States Commodity Futures Trading Commission
to have violated any commodities law, and the judgment in such civil
action or finding by such Commission has not been subsequently reversed,
suspended or vacated.
2.16 Employee Benefits. B.A. Network does not have any pension
plan, profit sharing or similar employee benefit plan.
ARTICLE 3
Representations and Warranties of ACEI
ACEI represents and warrants to B.A. Network that:
3.1 Organization. ACEI is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, and has all
necessary corporate powers to own properties and to carry on business.
3.2 Capital. The authorized capital stock of ACEI consists of
40,000,000 shares of Common Stock, par value $.0001 per share and
6,000,000 shares of Preferred Stock, par value $.0001 per share, which may
be issued in one or more series at the discretion of the board of
directors. As of the date of this Agreement, there were approximately
6,000,000 shares of Common Stock outstanding, all of which were fully paid
and non-assessable, and there was no Preferred Stock outstanding. Except
for the Options and common stock purchase warrants as listed in Exhibit
3.2 and convertible debentures that ACEI has sold and that the underlying
common stock are registered on Form S-3's filed with the U.S. Securities
and Exchange Commission in February 2000, there are no outstanding
subscriptions, options, rights, warrants, convertible securities, or other
agreements or commitments obligating ACEI to issue or to transfer from
treasury any additional shares of its capital stock of any class.
3.3 Subsidiaries. ACEI's subsidiaries are identified on Exhibit
3.3, annexed hereto and made a part hereof.
3.4 Directors and Officers. Exhibit 3.4, annexed hereto and hereby
incorporated herein by reference, contains the names and titles of all
directors and officers of ACEI as of the date of this Agreement.
3.5 Financial Statements. Exhibit 3.5, annexed hereto and
incorporated herein by reference, consists of the ACEI audited financial
statements as of December 31, 1998, and unaudited financial statements for
the three month periods ended March 31, 1999 and June 30, 1999.
3.6 Changes Since December 31, 1998. Since December 31, 1998,
there has been not been any adverse change in the financial condition and
operations of ACEI.
3.7 Absence of Undisclosed Liabilities. As of December 31, 1998,
ACEI does not have any material debt, liability, or obligation of any
nature, whether accrued, absolute, contingent, or otherwise, and whether
due or to become due, that is not reflected in ACEI balance sheet as of
December 31, 1998 or as presented in the Notes to the Financial
Statements. There have been no new liabilities incurred since December
31, 1998, except for those described in the reports for the three month
periods ended March 31, 1999 and June 30, 1999 and those incurred in the
ordinary course of business and in connection with this transaction.
3.8 Tax Returns. Within the times and in the manner prescribed by
law, ACEI has filed all federal, state and local tax returns required by
law and has paid all taxes, assessments and penalties due and payable.
The provisions for taxes, if any, reflected in the balance sheet included
in Exhibit 3.5 is adequate for any and all federal, state, county and
local taxes for the period ending on the date of such balance sheet and
for all prior periods, whether or not disputed. There are no present
disputes as to taxes of any nature payable by ACEI.
3.9 Investigation of Financial Condition. Without in any manner
reducing or otherwise mitigating the representations contained herein,
B.A. Network shall have the opportunity to meet with ACEI's accountants
and attorneys to discuss the financial condition of ACEI. ACEI shall make
available to B.A. Network all books and records of ACEI.
3.10 Trade Names and Rights. Except for the subsidiaries of ACEI
as described in Exhibit 3.3 which own trademark and copyrights of
intellectual properties, ACEI does not use any trademark, service mark,
trade name, or copyright in its business, or own any trademarks, trademark
registrations or applications. To the best knowledge of ACEI, no person
owns any trademark, trademark registration or application, service mark,
trade name, copyright, or copyright registration or application the use of
which is necessary or contemplated in connection with the operation of
ACEI's business as a holding company.
3.11 Compliance with Laws. ACEI has complied with and is not in
violation of applicable federal, state or local statutes, laws or
regulations (including, without limitation, any applicable building,
zoning, securities or other law, ordinance, or regulation) affecting its
properties or the operation of its business.
3.12 Litigation. ACEI is not a party to any suit, action,
arbitration, or legal, administrative, or other proceeding, or
governmental investigation pending or, to the best knowledge of ACEI,
threatened against or affecting ACEI or its business, assets or financial
condition. ACEI is not engaged in any legal action to recovery moneys due
to it.
3.13 Authority. The Board of Directors and Shareholders of ACEI
have authorized the execution of this Agreement and the transactions
contemplated herein, and ACEI has full power and authority to execute,
deliver and perform this Agreement and this Agreement is the legal, valid
and binding obligation of ACEI, is enforceable in accordance with its
terms and conditions, except as may be limited by bankruptcy and
insolvency laws and by other laws affecting the rights of creditors
generally.
3.14 Ability to Carry Out Obligations. The execution and delivery
of this Agreement by ACEI and the performance by ACEI of its obligations
hereunder will not cause, constitute, or conflict with or result in (a)
any breach or violation of any of the provisions of or constitute a
default under any license, indenture, mortgage, charter, instrument,
articles of incorporation, by-laws, or other agreement or instrument to
which ACEI is a party, or by which it may be bound, nor will any consents
or authorizations of any party other than those hereto be required; (b) an
event that would permit any party to any agreement or instrument to
terminate it or to accelerate the maturity of any indebtedness or other
obligation of ACEI; or (c) an event that would result in the creation or
imposition of any lien, charge, or encumbrance on any asset of ACEI.
3.15 Validity of ACEI Shares. The shares of ACEI Common Stock to
be delivered pursuant to this Agreement, when issued in accordance with
the provisions of this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable.
3.16 Full Disclosure. None of the representations and warranties
made by ACEI herein, or in any exhibit, certificate or memorandum
furnished or to be furnished by ACEI, or on its behalf, contains or will
contain any untrue statement of material fact, or omit any material fact,
the omission of which would be misleading.
3.17 Assets. ACEI has good and marketable title to all of its
property free and clear of any and all liens, claims and encumbrances,
except as disclosed in its financial statements.
3.18 Material Contracts. Except as otherwise disclosed in this
agreement and in its Report on From 10-KSB for the year ended December 31,
1998 and the three month periods ended March 31, 1999 and June 30, 1999,
ACEI has no material contracts to which it is a party or by which it is
bound.
3.19 Complience With SEC Reporting Requirements. The Common Stock of
ACEI is registered under Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). ACEI has duly filed all materials
and documents required to be filed pursuant to all reporting obligations
under either Section 13(a) or 15(d) of the Exchange Act prior to the
consummation of the transaction contemplated hereby. The Common Stock of
ACEI is currently traded on the Nasdaq SmallCap Market.
ARTICLE 4
Representations and Warranties of Shareholders
4.1 Share Ownership. The Shareholders represent that they hold
shares of B.A. Network's common stock as set forth in Exhibit 2.2 hereof,
and that such shares are owned of record and beneficially by such
shareholders, and such shares are not subject to any lien, encumbrance or
pledge, and are restricted securities as defined in Rule 144 of the
Securities Act of 1933. The Shareholders severally represent that they
hold authority to exchange their shares pursuant to this Agreement.
4.2 Investment Intent. The Shareholders understand and acknowledge
that the shares of Exchange Stock are being offered for exchange in
reliance upon the exemption provided in Section 4(2) of the Securities Act
of 1933 for non-public offerings; and The Shareholders make the following
representations and warranties with the intent that same may be relied
upon in determining the suitability of each such shareholder as a
purchaser of securities. In the event the following representations and
warranties may cause discrepancies from the meanings of above sections I,
II, & III (particularly the descriptions of "not restricted" and "freely
tradable"), then the meanings of above sections I, II, & III shall
prevail.
(a) The Shareholders acknowledge that the Exchange Stock being
acquired solely for the account of such Shareholders, for investment
purposes only, and not with a view towards or for sale in connection with
any distribution thereof, and with no present intention of distributing or
re-selling any part of the Exchange Stock;
(b) The Shareholders agree not to dispose of his Exchange
Stock, or any portion thereof unless and until counsel for ACEI shall have
determined that the intended disposition is permissible and does not
violate the Securities Act of 1933 or any applicable state securities
laws, or the rules and regulations thereunder;
(c) The Shareholders acknowledge that ACEI has made all
documentation pertaining to all aspects of the herein transaction
available to them and to their qualified representatives, if any, and has
offered such person or persons an opportunity to discuss such transaction
with the officers of ACEI;
(d) The Shareholders represent that they have relied solely
upon ACEI's Report on Form 10-KSB for the period ended December 31, 1998
and all other filings made by ACEI with the Securities and Exchange
Commission and independent investigations made by the Shareholders or
their representatives, if any;
(e) The Shareholders represent that they are knowledgeable
and experienced in making and evaluating investments of this nature and
desire to acquire the Exchange Stock on the terms and conditions herein
set forth;
(f) The Shareholders represent that they are able to bear the
economic risk of an investment, as a result of the herein transaction, in
the Exchange Stock;
(g) The Shareholders represent that they understand that an
investment in the Exchange Stock is not liquid, and The Shareholders
represent that they have adequate means of providing for their current
needs and personal contingencies and have no need of liquidity in this
investment; and
(h) The Shareholders represent that they are an "accredited
investor" as that term is defined in Rule 501 of Regulation D, promulgated
under the Securities Act of 1933.
4.3 (deleted)
4.4 Legend. The Shareholders agree that the certificates
evidencing the Exchange Stock acquired pursuant to this Agreement will
have a legend placed thereon stating that the securities have not been
registered under the Act or any state securities laws and setting forth or
referring to the restrictions on transferability and sale of such
securities.
ARTICLE 5
Covenants
5.1 Investigative Rights. From the date of this Agreement until
the Closing Date, ACEI and B.A. Network shall provide to each other, and
such other party's counsels, accountants, auditors and other authorized
representatives, full access during normal business hours and upon
reasonable advance written notice of each party's properties, books,
contracts, commitments and records for the purpose of examining the same.
Each party shall furnish the other party with all information concerning
each party's affairs as the other party may reasonably request.
5.2 Conduct of Business. Prior to the Closing, ACEI and B.A.
Network shall each conduct its business in the normal course, and shall
not sell, pledge, or assign any assets, without the prior written approval
of the other party except in the regular course of business or as part of
the transactions contemplated hereby. Neither ACEI nor B.A. Network shall
amend its Articles of Incorporation or By-laws, declare dividends, redeem
or sell stock or other securities, incur additional or newly funded
liabilities, acquire or dispose of fixed assets, change employment terms,
enter into any material or long term contract, guarantee obligations of
any third party, settle or discharge any balance sheet receivable for less
than its stated amount, pay more on any liability than its stated amount,
or enter into any other transaction other than in the regular course of
business.
ARTICLE 6
Conditions Precedent to ACEI's Performance
6.1 Conditions. ACEI's obligations hereunder shall be subject to
the satisfaction, at or before the Closing, of all the conditions set
forth in this Article 6. ACEI may waive any or all of these conditions in
whole or in part without prior notice; provided, however, that no such
wavier of a condition shall constitute a waiver by ACEI of any other
condition or of any of ACEI's other rights or remedies, at law or in
equity, if B.A. Network or the Shareholders shall be in default of any of
their representations, warranties or covenants under this Agreement.
6.2 Accuracy of Representations. Except as otherwise permitted by
this Agreement, all representations and warranties by Shareholders and
B.A. Network in this Agreement or in any written statement that shall be
delivered to ACEI by B.A. Network under this Agreement shall be true and
accurate on and as of the Closing Date as though made at that time.
6.3 Performance. B.A. Network shall have performed, satisfied, and
complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it, on or before the Closing
Date.
6.4 Absence of Litigation. No action, suit or proceeding before
any court or any governmental body or authority, pertaining to the
transaction contemplated by this Agreement or to its consummation, shall
have been instituted or threatened against B.A. Network or the
Shareholders on or before the Closing Date.
6.5 Acceptance by B.A. Network Shareholders. The holders of an
aggregate of not less than 100% of the issued and outstanding shares of
common stock of B.A. Network shall have agreed to exchange a percentage of
their shares as stipulated in this Agreement, for shares of the Exchange
Stock.
6.6 Officer's Certificate. B.A. Network shall have delivered to
ACEI a certificate, dated the Closing Date, and signed by the President of
B.A. Network, certifying that each of the conditions specified in Sections
6.2 through 6.5 hereof have been fulfilled.
6.7 Opinion of Counsel to B.A. Network. B.A. Network shall have
delivered to ACEI an opinion of its Chinese and United States counsel, as
applicable, dated the Closing date, to the effect that:
(a) B.A. Network is a corporation duly organized, validly
existing and in good standing under the laws of the People's Republic of
China and the City of Beijing;
(b) The authorized capital stock of B.A. Network is as set
forth on the annexed Exhibit 2.2, a copy of which is annexed hereto and
made a part hereof. All issued and outstanding shares are legally issued.
(c) This Agreement has been duly and validly authorized,
executed and delivered and constitutes the legal and binding obligation of
B.A. Network, except as limited by bankruptcy and insolvency laws and by
other laws affecting the rights of creditors generally; and
ARTICLE 7
Conditions Precedent to
B.A. Network's and Shareholders' Performance
7.1 Conditions. B.A. Network's and Shareholders' obligations
hereunder shall be subject to the satisfaction, at or before the Closing,
of all the conditions set forth in this Article 7. B.A. Network and
Shareholders may waive any or all of these conditions in whole or in part
without prior notice; provided, however, that no such waiver of a
condition shall constitute a waiver by B.A. Network and Shareholders of
any other condition or of any of B.A. Network's and Shareholders' rights
or remedies, at law or in equity, if ACEI shall be in default of any of
its representations, warranties or covenants under this Agreement.
7.2 Accuracy of Representations. Except as otherwise permitted by
this Agreement, all representations and warranties by ACEI in this
Agreement or in any written statement that shall be delivered to B.A.
Network and Shareholders by ACEI under this Agreement shall be true and
accurate on and as of the Closing Date as though made at that time.
7.3 Performance. ACEI shall have performed, satisfied, and
complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it, on or before the Closing
Date.
7.4 Absence of Litigation. No action, suit or proceeding before
any court or any governmental body or authority, pertaining to the
transaction contemplated by this Agreement or to its consummation, shall
have been instituted or threatened against ACEI on or before the Closing
Date, except as disclosed herein.
7.5 Current Status. ACEI shall have prepared and filed with the
Securities and Exchange Commission its Annual Report on Form 10-KSB for
the period ended December 31, 1998 and its Quarterly Report on Form 10-QSB
for the three month periods ended March 31, 1999 and June 30, 1999.
7.6 Directors of ACEI. ACEI's Board of Directors shall remain to
serve until a new board is elected at the next annual meeting of
stockholders in the year 2000.
7.7 Officers of ACEI. ACEI's officers shall remain in their office
as per terms of their employment agreements.
7.8 Intentionally Left Blank
7.9 Officers' Certificate. ACEI shall have delivered to B.A.
Network and Shareholders a certificate, dated the Closing Date and signed
by the President of ACEI certifying that each of the conditions specified
in Sections 7.2 through 7.7 have been fulfilled.
7.10 Opinion of Counsel. ACEI shall deliver an opinion of its
counsel in the form annexed hereto as Exhibit 7.10;
ARTICLE 8
Closing
8.1 Closing. The Closing of this transaction shall be held at the
offices of Sichenzia, Ross & Friedman LLP, Esqs., 135 West 50th Street,
New York, New York 10020, or such other place as shall be mutually agreed
upon, on ______________________ , 2000 or such other date as shall be
mutually agreed upon by the parties. At the Closing:
(a) Shareholder shall present the certificates representing
their shares of B.A. Network being exchanged to ACEI, and such
certificates will be duly endorsed in blank;
(b) Shareholders shall receive a certificate or certificates
representing the number of shares of ACEI Common Stock for which the
shares of B.A. Network common stock shall have been exchanged;
(c) ACEI shall deliver an officer's certificate, as described
in Section 7.9 hereof, dated the Closing Date, that all representations,
warranties, covenants and conditions set forth in this Agreement on behalf
of ACEI are true and correct as of, or have been fully performed and
complied with by, the Closing Date;
(d) ACEI shall deliver a resolution of its Board of Directors
of ACEI approving this Agreement and each matter to be approved by the
Directors of ACEI under this Agreement;
(e) ACEI shall deliver an opinion of its counsel, as
described in Section 7.10 hereof, dated the Closing Date;
(f) B.A. Network shall deliver an officer's certificate, as
described in Section 6.6 hereof, dated the Closing Date, that all
representations, warranties, covenants and conditions set forth in this
Agreement on behalf of B.A. Network are true and correct as of, or have
been fully performed and complied with by, the Closing Date.
(g) B.A. Network shall deliver an opinion of its counsel, as
described in Section 6.7 hereof, dated the Closing Date; and
(h) B.A. Network shall deliver resolutions of its Board of
Directors approving this Agreement and each matter to be approved by the
Directors of B.A. Network under this Agreement.
ARTICLE 9
Miscellaneous
9.1 Captions and Headings. The Article and paragraph headings
throughout this Agreement are for convenience and reference only, and
shall in no way be deemed to define, limit, or add to the meaning of any
provision of this Agreement.
9.2 Memos, Attachments & Exhibits. Any memos, attachments &
exhibits signed by the parties are vital segments of this agreement and
are valid and binding between the parties along with this agreement.
9.3 No Oral Change. This Agreement and any provision hereof may
not be waived, changed, modified or discharged orally, but it can be
changed by an agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
9.4 Non-Waiver. Except as otherwise expressly provided herein, no
waiver of any covenant, condition or provision of this Agreement shall be
deemed to have been made unless expressly in writing and signed by the
party against whom such waiver is charged; and (i) the failure of any
party to insist in any one or more cases upon the performance of any of
the provisions, covenants or conditions of this Agreement or to exercise
any option herein contained shall not be construed as a waiver or
relinquishment for the future of any such provisions, covenants or
conditions; (ii) the acceptance of performance of anything required by
this Agreement to be performed with knowledge of the breach of failure of
a covenant, condition or provision hereof shall not be deemed a waiver of
such breach or failure; and (iii) no waiver by any party of one breach by
another party shall be construed as a waiver with respect to any other or
subsequent breach.
9.5 Entire Agreement. This Agreement contains the entire agreement
and understanding between the parties hereto and supersedes all prior
agreements and understandings.
9.6 Member to B.A. Network's Board of Directors. Upon the
effectiveness of this agreement, ACEI shall appoint one member to B.A.
Network's Board of Directors.
9.7 Choice of Law. This Agreement and its application shall be
governed by the laws of the United States of America and by the laws of
the People's Republic of China. Disputes between the parties shall be
settled amicable between the parties. In the event disputes cannot be
settled by the parties themselves, then the matter shall be handed over to
arbitration in a third country to be mutually agreed upon between the
parties.
9.8 Counterparts. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. This
Agreement may be in the English and Chinese languages. In the event of
discrepancies between the two languages, the parties shall amicably
negotiate to settle the disputes.
9.9 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be
deemed to have been duly given on the date of service if served personally
on the party to whom notice is to be given, or on the third day after
mailing if mailed to the party to whom notice is to be given, by first
class mail, registered or certified, postage prepaid, and properly
addressed as follows:
To ACEI:
Mr. Anthony K. Chan
President & CEO
American Champion Entertainment, Inc.
1694 The Alameda, Suite 100
San Jose, CA 95126
U. S. A.
Phone: 1-408-288-8199
Fax: 1-408-288-8098
E-mail: [email protected]
To B.A. Network:
Mr. Lin, Tao
General Manager
Beijing Wisdom Network Technology Company, Ltd.
No. 105 San Huan Bei Road, West Section
Ke Yuan Building, A-809
Heiding District
Beijing
People's Republic of China
Phone: 86-10-8841-5090
Fax: 86-10-8841-4987
E-mail: [email protected]
9.10 (deleted)
9.11 Binding Effect. This Agreement shall inure to and be binding
upon the heirs, executors, personal representatives, successors and
assigns of each of the parties to this Agreement.
9.12 Mutual Cooperation. The parties hereto shall cooperate with
each other to achieve the purpose of this Agreement and shall execute such
other and further documents and take such other and further actions as may
be necessary or convenient to effect the transaction described herein.
9.13 Announcements. ACEI and B.A. Network will consult and
cooperate with each other as to the timing and content of any
announcements of the transactions contemplated hereby to the general
public or to employees, customers or suppliers.
9.14 Expenses. Each party will pay its own legal, accounting and
any other out-of-pocket expenses reasonably incurred in connection with
this transaction, whether or not the transaction contemplated hereby is
consummated. In no event shall one party be liable for any of the
expenses of the other party. ACEI shall be responsible for the expenses
of the audit, by one of the big five U.S. accounting firms, of B.A.
Networks financial statements for the years ended December 31, 1999 and
2000 only.
9.15 Survival of Representations and Warranties. The
representations, warranties, covenants and agreements of the parties set
forth in this Agreement or in any instrument, certificate, opinion or
other writing provided for in it, shall survive the Closing irrespective
of any investigation made by or on behalf of any party.
9.16 Exhibits. As of the execution hereof, the parties hereto have
provided each other with the Exhibits provided for hereinabove, including
any items referenced therein or required to be attached thereto. Any
material changes to the Exhibits shall be immediately disclosed to the
other party.
WHEREFORE, the above agreement is hereby agreed to and accepted as
of the date first above written.
AMERICAN CHAMPION ENTERTAINMENT, INC.
By: /s/ Anthony K. Chan
Anthony K. Chan
President & CEO
BEIJING WISDOM NETWORK TECHNOLOGY COMPANY, LTD.
By: /s/ Lin, Tao
Lin, Tao
General Manager
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<ARTICLE> 5
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<FISCAL-YEAR-END> DEC-31-1999
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