LOAN AGREEMENT
AGREEMENT made as of the 2nd day of March, 2001, by and between Tengtu
International Corp., a Delaware corporation ("Debtor"), and Orion Capital
Incorporated, a corporation organized under the laws of Ontario ("Creditor").
W I T N E S S E T H :
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WHEREAS, Debtor and Creditor entered into an Amended Loan Agreement
dated December 21, 2000 pursuant to which, among other things, Creditor loaned
Debtor the principal sum of U.S.$1,004,743.93 and Debtor issued Creditor
warrants to purchase 670,000 shares of Debtor's common stock; and
WHEREAS, Debtor and Creditor desire to enter into an additional loan
agreement pursuant to which Creditor will lend Debtor an additional
U.S.$1,000,000.00 on the terms and conditions set forth herein,
NOW, THEREFORE, in consideration of mutual covenants and promises
contained in this agreement, Debtor and Creditor agree:
1. LOAN AGREEMENT. On the terms and subject to the conditions set forth in
this Agreement, Creditor shall loan to Debtor, and Debtor shall borrow
from Creditor, an aggregate amount equal to the sum of
U.S.$1,000,000.00 (the "Loan").
2. LOAN TERMS. In connection with the Loan, Debtor shall duly execute and
deliver to Creditor a Convertible Promissory Note, convertible into
shares (the "Conversion Shares") of the Company's $0.01 par value per
share common stock (the "Common Stock") in the form, set forth in
Exhibit A hereto (the "Note").
3. REPRESENTATIONS AND WARRANTIES.
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(A) Debtor hereby represents and warrants to Creditor as follows:
(1) ORGANIZATION. Debtor is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, and has full corporate
power and authority to conduct its business as and to the extent now conducted
and to own, use and lease its assets and properties. Debtor has full corporate
power and authority to execute and deliver this Agreement and the Note, Warrant
(as defined in Section 4 below), Registration Rights Agreement and the other
documents, instruments and agreements entered into in connection herewith
(together with the Note, the Warrant, and the Registration Rights Agreement, the
"Operative Agreements") and to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby.
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(2) AUTHORITY; DUE AUTHORIZATION. The execution and delivery by Debtor
of this Agreement and the Operative Agreements, and the performance by Debtor of
its obligations hereunder and thereunder, have been duly and validly authorized
by the Board of Directors of Debtor, no other corporate action on the part of
Debtor or its respective shareholders being necessary. Each of the Operative
Agreements has been duly and validly executed and delivered by Debtor and
constitutes, and upon delivery by Debtor of the Note, Warrant, and Registration
Rights Agreement, the Note, Warrant and Registration Rights Agreement will
constitute, legal, valid and binding obligations of Debtor enforceable against
Debtor in accordance with their terms.
(3) NO CONFLICTS. The execution and delivery by Debtor of this
Agreement do not, and the execution and delivery by Debtor of the Operative
Documents, the performance by Debtor of its obligations under this Agreement,
the Operative Documents and the consummation of the transactions contemplated
hereby or thereby will not:
(I) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the certificate of incorporation or by-laws
(or other comparable corporate charter document) of Debtor;
(II) conflict with or result in a violation or breach of any term or
provision of any law or order applicable to Debtor or any of its assets and
properties; or
(III) (a) conflict with or result in a violation or breach of, (b)
constitute (with or without notice or lapse of time or both) a default under,
(c) require Debtor or any other person or entity to obtain any consent, approval
or action of, make any filing with or give any notice to any person or entity as
a result or under the terms of, or (d) result in the creation or imposition of
any lien upon Debtor or any of its assets or properties under, any contract or
license to which Debtor is a party or by which any of its assets and properties
is bound.
(4) NOTE. Except as set forth in the Schedule of Exceptions annexed
hereto as Exhibit C, the issuance of the Note is not subject to any preemptive
rights or rights of first refusal under the Delaware General Corporation Law or
otherwise created by Debtor. The Conversion Shares issuable upon conversion of
the Note have been duly and validly reserved for issuance and are not subject to
any preemptive rights or rights of first refusal under the Delaware General
Corporation Law or otherwise created by the Company, and when issued upon
conversion of the Note in accordance with its terms such shares will be duly
authorized, validly issued, fully paid and nonassessable.
(5) WARRANT. Except as set forth in the Schedule of Exceptions annexed
hereto as Exhibit C, the issuance of the Warrant is not subject to any
preemptive rights or rights of first
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refusal under the Delaware General Corporation Law or otherwise created by
Debtor. The shares of Debtors Common Stock issuable upon exercise of the Warrant
have been duly and validly reserved for issuance and are not subject to any
preemptive rights or rights of first refusal under the Delaware General
Corporation Law or otherwise created by the Company, and when issued upon
exercise of the Warrant in accordance with its terms such shares will be duly
authorized, validly issued, fully paid and nonassessable.
(6) REPORTING COMPANY STATUS. Debtor is a "Reporting Issuer" as defined
in Rule 902(i) of Regulation S and will cause all the materials required to be
filed by it pursuant to Section 13(a) of the U.S. Securities Exchange Act of
1934, as amended (the "Exchange Act") to be filed with the United States
Securities and Exchange Commission for a period of at least three months
following the completion of the Offering. The Common Stock is a class of
securities registered under Section 12(g) of the Exchange Act, and Debtor has
filed all reports and documents required to be filed pursuant to the Exchange
Act for a period of at least 12 months preceding the date hereof, or such
shorter period as it has been required to do so. All documents filed by Debtor
with the United States Securities and Exchange Commission pursuant to the
Exchange Act for its most recent full fiscal year and subsequent thereto are
available from Debtor and should be reviewed by Creditor.
(7) Debtor has not offered any of the Common Stock covered by this
Agreement to any persons in the United States nor to any U.S. person, as defined
in Rule 902(k) of Regulation S, nor to any identifiable group or groups of U.S.
citizens in the United States or abroad.
(8) FINANCIAL STATEMENTS; CHANGES. Creditor acknowledges that it has
reviewed Debtor's financial statements contained in its Form 10-Q filed with the
Securities and Exchange Commission for the quarter ended December 31, 2000.
Since December 31, 2000 there are no material liabilities known to Debtor which
are not disclosed in said financial statements or the notes thereto. Since
December 31, 2000 (except for the execution and delivery of this Agreement and
the transactions to take place pursuant hereto), there has been no material
adverse change in the assets, liabilities, financial condition or business of
Debtor, the effect of which has not in any case or in the aggregate been
materially adverse. Since that date Debtor has not authorized, agreed to pay or
paid any dividends or made any other payments of a material amount other than in
the ordinary course of business.
(B) Creditor hereby represents and warrants to Debtor as follows:
(1) PURCHASE FOR OWN ACCOUNT. The Note to be purchased by the Creditor
hereunder, the Conversion Shares to be issued upon conversion of the Note, the
Warrant and the Common Stock to be issued upon exercise of the Warrant
(collectively the "Securities")
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will be acquired for investment for Creditor's own account, not as a nominee or
agent, and not with a view to the public resale or distribution thereof, and
Creditor has no present intention of selling, granting any participation in, or
otherwise distributing the same. Creditor also represents that Creditor was not
formed for the purpose of investing in Regulation S securities or formed for the
purpose of investing in the Securities. Creditor is not registered as an issuer
under the Securities Act of 1933, as amended (the "1933 Act") and is not
required to be registered with the U.S. Securities and Exchange Commission under
the Investment Company Act of 1940, as amended.
(2) STATUS AS A NON-U.S. COMPANY. No offer to enter into this Agreement
has been made by Debtor to Creditor in the United States. At the times of the
offer and execution of this Agreement Creditor, and all of its 10% or more
equity owners, were located and resided outside the United States.
(3) NO DIRECTED SELLING EFFORTS. To the best knowledge of the
undersigned, this Agreement and the transactions contemplated herein are not
part of a plan or scheme to evade the registration provisions of the 1933 Act,
and the Securities are being purchased for investment purposes by Creditor.
Creditor agrees that all resales of the Securities shall be made in compliance
with the provisions of Regulation S and any other applicable provisions of the
0000 Xxx.
(4) ACCREDITED CREDITOR STATUS. The Creditor is an "accredited
investor" within the meaning of Rule 502 of Regulation D promulgated under the
0000 Xxx.
(5) REGULATION S LIMITATIONS ON DISPOSITIONS. The undersigned agrees to
resell Units purchased in this offering only in accordance with Regulation S,
pursuant to registration under the 1933 Act, or pursuant to an available
exemption from registration; and agrees not to engage in hedging transactions
with regard to such securities unless in compliance with the 1933 Act. Creditor
acknowledges that the Securities have not been registered under the 1933 Act or
qualified under state securities laws of the United States and that the
transferability hereof and thereof within the jurisdiction of the United States
is restricted by the 1933 Act as well as such state laws. Creditor acknowledges
that the Securities are being sold in reliance upon the transaction exemption
afforded by Regulation S in connection with an offshore offer and sale of
securities of Debtor not within or subject to the jurisdiction of the United
States markets. Creditor acknowledges it has received a copy of Regulation S, is
familiar with and understands the terms thereof, and has had the opportunity to
consult with its legal counsel concerning this Agreement and Regulation S.
Creditor acknowledges that if any transfer of the Securities is proposed to be
made in reliance upon an exemption under the 1933 Act, Debtor may require an
opinion of counsel
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satisfactory to Debtor that such transfer may be made pursuant to an applicable
exemption under the 1933 Act. Creditor acknowledges that, so long as
appropriate, a legend similar to the following may appear on the certificates
representing the Common Stock:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED OR
SOLD EXCEPT IN ACCORDANCE WITH REGULATION S OF THE
ACT, PURSUANT TO REGISTRATION UNDER THE ACT, OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM
REGISTRATION.
(6) NO GENERAL SOLICITATION. Creditor has not received any general
solicitation or advertising regarding the offering of the Securities or this
Agreement.
4. COVENANTS.
(1) WARRANT. If at the end of the term of the Loan, or on a date prior to
the end of the term of the Loan on which Debtor prepays the entire
outstanding principal and interest amounts, Creditor has not converted
any of the Loan into Common Stock, in consideration of Creditor's
funding of the Loan, Debtor shall issue to Creditor a Warrant purchase
667,000 shares of Common Stock in the form annexed hereto as Exhibit B.
The exercise price of the Warrant shall be U.S.$.30 per share and it
shall be exercisable for a period of five (5) years from the date of
issuance. Creditor's conversion of any portion of the Note shall result
in a forfeiture of the right to receive the Warrant.
5. REGISTRATION RIGHTS. Creditor shall have registration rights with
respect to the Conversion Shares and the Common Stock into which the
Warrant is exercisable as set forth in the Registration Rights
Agreement annexed hereto as Exhibit D.
6. GENERAL.
(1) ASSIGNABILITY. This Agreement may be assigned by Creditor only.
(2) GOVERNING LAW; JURSIDICTION. Any dispute, disagreement, conflict
of interpretation or claim arising out of or relating to this
Agreement, or its enforcement, shall be governed by the laws of
the State of New York. The
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Debtor hereby irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of the Supreme
Court of the State of New York sitting in New York County and of
the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement, the
Note, the Warrant or the Registration Rights Agreement, or for
recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be
heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each party hereto agrees
that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. Each party
hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection which
it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this
Agreement, the Note, the Warrant or the Registration Rights
Agreement in any court referred to above. Each party hereto
hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court. Each party to this
Agreement irrevocably consents to service of process in the
manner provided for notices below. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process
in any other manner permitted by law. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED
ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.
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(3) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same agreement.
(4) HEADINGS. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(5) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision(s)
shall be excluded from this Agreement and the balance of the
Agreement shall be interpreted as if such provision(s) were so
excluded and shall be enforceable in accordance with its terms.
(6) WAIVER. Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as
a waiver of any such provision or provisions, or prevent that
party thereafter from enforcing each and every other provision of
this Agreement.
(7) NOTICES. All notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent
by facsimile, as follows:
If to Debtor:
Tengtu International Corp.
000-0000 Xxxxxxxx
Xxxxxxx, X.X. Xxxxxx X0X 0X0
Attention: Pak Xxxx Xxxxxx
Facsimile No.: 000-000-0000
and to
Xxxxx & Associates, P.C.
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
Facsimile No: 000-000-0000
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If to Creditor:
Orion Capital Incorporated
Sherway Executive Center
000 Xxxxx Xxxxx Xxxxxx
Xxxxx 000X
Xxxxxxxxx, Xxxxxxx X0X 0X0
Xxxxxx
Attention: Xxxxxxx Xxxxxxx
Facsimile No.: 000-000-0000
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telecopier or personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as aforesaid. Any party hereto may change its address or facsimile
number for notices and other communications hereunder by notice to the other
parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the __ day of March, 2001.
DEBTOR
TENGTU INTERNATIONAL CORP.
By:
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Name: PAK XXXX XXXXXX
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Title: CHIEF EXECUTIVE OFFICER
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CREDITOR
ORION CAPITAL, INCORPORATED
By:
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Name: XXXXXXX XXXXXXX
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Title:
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