LOAN AGREEMENT
AGREEMENT made on this 6th day of June, 2002, by and among Tengtu
International Corp., a Delaware corporation ("Debtor"), Orion Capital
Incorporated, an Ontario corporation (the "Shareholder") and Quest Ventures
Ltd., a British Columbia company ("Creditor"). All references to Creditor herein
shall also refer to Creditor's permitted assignee under this Agreement.
In consideration of the mutual covenants and promises contained in
this Agreement, Debtor, Shareholder and Creditor agree:
1. LOAN AGREEMENT. On the terms and subject to the conditions set forth in this
Agreement, Creditor shall loan to Debtor (the "Loan"), and Debtor shall borrow
from Creditor, the sum of FOUR MILLION UNITED STATES DOLLARS (U.S.$4,000,000)
(the "Loan Amount"). The Loan Amount, net of all amounts payable by Debtor to
Creditor hereunder, will be wired to Debtor's bank account pursuant to wiring
instructions provided to Creditor in conjunction with the execution of this
Agreement.
2. LOAN TERMS. In connection with the Loan, Debtor shall duly execute and
deliver to Creditor a Promissory Note containing the terms, and substantially in
the form, set forth in Exhibit A hereto (the "Note").
3. CLOSING. Creditor will, subject to the terms and conditions hereof, and in
reliance upon the written representations and warranties of Debtor, loan to
Debtor and Debtor shall borrow, at a single closing, the Loan Amount. The
closing shall be held (the "Closing") at the offices of Xxxxx & Company,
Barristers & Solicitors, Suite 2800 - 000 Xxxxxxx Xxxxxx, Xxxxxxxxx, XX X0X 0X0,
on such date and at such time as agreed by the parties.
The Loan Amount will be paid to Debtor by certified cheque to be delivered in
Toronto, Ontario and drawn on a Canadian Chartered bank.
4. REPRESENTATIONS AND WARRANTIES
a. Except as set forth in the Schedule of Exceptions annexed hereto
as Exhibit B, Debtor and Shareholder jointly and severally represent and warrant
to Creditor as follows:
i. ORGANIZATION. Debtor is a corporation duly organized, validly
existing and in good standing under the laws of the State 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, the
Note, the GSA (as defined below) and the Pledge and Security Agreement (as
defined below) and to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby.
ii. AUTHORITY; DUE AUTHORIZATION. The execution and delivery by
Debtor of this Agreement, the Note, the GSA and the Pledge and Security
Agreement (collectively, the "Transaction Documents"), and the performance by
Debtor of its obligations under the Transaction Documents to which it is a party
(the "Debtor Transaction Documents"), have been duly and validly authorized by
the Board of Directors of Debtor, and no other action on the part of Debtor or
its shareholders is necessary for the Debtor's execution, delivery and
performance of the Debtor Transaction Documents. The Debtor Transaction
Documents have been duly and validly executed and delivered by Debtor and
constitute the legal, valid and binding obligations of Debtor enforceable
against Debtor in accordance with their terms.
iii. NO CONFLICTS. The execution and delivery by Debtor of the Debtor
Transaction Documents, and the performance by Debtor of its obligations under
the Debtor Transaction Documents and the consummation of the transactions
contemplated thereby will not:
(A) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of Debtor's certificate of incorporation or
by-laws (or other constating documents) of Debtor;
(B) 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
(C) (1) conflict with or result in a violation or breach of, (2)
constitute (with or without notice or lapse of time or both) a default under,
(3) 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 (4) 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.
iv. THE SHARES. The Shares (as defined below) 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 Debtor, and when issued in accordance with the terms of this
Agreement, such shares will be duly authorized, validly issued, fully paid and
nonassessable.
v. GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with any court, governmental agency, regulatory authority or political
subdivision thereof, or any other entity, is required in connection with the
execution, delivery and performance by Debtor of the Debtor Transaction
Documents.
vi. LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation pending (or, to the best knowledge of Debtor,
currently threatened) against Debtor or any Debtor subsidiary, their respective
activities, properties or assets or, to the best of Debtor's knowledge, against
any officer, director or key employee of Debtor or any subsidiary in connection
with such officer's, director's or key employee's relationship with, or actions
taken on behalf of Debtor or any subsidiary. Without limiting the foregoing,
Debtor has no knowledge or belief that there is pending or threatened any claim
or litigation against Debtor contesting its right to produce, manufacture, sell,
use or offer any product, process, method, substance, part or other material or
service presently produced, manufactured, sold, used or offered or planned to be
produced, manufacture, sold, used or offered by Debtor or any of its
subsidiaries. Debtor has no knowledge or belief that there exists, or there is
pending or planned, any patent, invention, device, application or principle,
which would materially adversely affect the condition, financial or otherwise,
or the operations of Debtor or its subsidiaries.
vii. REPORTING COMPANY STATUS. Debtor is a "Reporting Issuer" as
defined in Rule 902(i) of Regulation S, promulgated under the Securities Act,
and has filed all reports required to be filed under the Securities Act and U.S.
Securities Exchange Act of 1934, as amended (the "Exchange Act") with the United
States Securities and Exchange Commission for a period of at least twelve months
preceding the date hereof. All documents filed by the 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 the
Debtor .
viii. AUTHORITY; DUE AUTHORIZATION. The execution and delivery by
Shareholder of this Agreement, the Orion Guarantee (as defined below, and also a
"Transaction Document") and the Pledge and Security Agreement (collectively, the
"Shareholder Transaction Documents"), and the performance by Shareholder of its
obligations hereunder and thereunder, have been duly and validly authorized by
the Board of Directors of Shareholder, and no other action on the part of
Shareholder or its shareholders is necessary for the Shareholder's execution,
delivery and performance of the Shareholder Transaction Documents. Shareholder
has full power and authority to execute and deliver, to perform its obligations
under, and to consummate the transactions contemplated by the Shareholder
Transaction Documents and each Shareholder Transaction Document constitutes a
valid and legally binding obligation of Shareholder, enforceable against it in
accordance with its terms.
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ix. OWNERSHIP OF COMMON STOCK. Shareholder (1) is an "affiliate" of
Debtor (as that term is defined in Rule 144 under the Securities Act of 1933, as
amended), (2) solely owns (beneficially and of record) the number of shares of
Debtor's common stock set forth in Exhibit C hereto, which are to be pledged
pursuant to the Pledge and Security Agreement (the "Pledged Shares"), free and
clear of all liens and other encumbrances, and (3) has owned the Pledged Shares
for the time periods set forth in Exhibit C. Shareholder is not a party or
subject to any stockholder agreement or other arrangement of any kind with
respect to the Pledged Shares.
b. Creditor hereby represents and warrants to Debtor as follows:
i. AUTHORITY; DUE AUTHORIZATION. The execution and delivery by
Creditor of this Agreement and the Pledge and Security Agreement (collectively
the "Creditor Transaction Documents"), and the performance by Creditor of its
obligations thereunder, have been duly and validly authorized, no other
corporate action on the part of Creditor or its respective shareholders being
necessary. The Creditor Transaction Documents have been duly and validly
executed and delivered by Creditor and constitute legal, valid and binding
obligation of Creditor enforceable against Creditor in accordance with their
terms.
ii. Creditor understands that the offering and sale of the Note and
Shares (as defined below) is intended to be exempt from registration under the
U.S. Securities Act of 1933, as amended (the "Securities Act") and/or
regulations thereunder and exempt from registration or qualification under any
state or provincial law, and in accordance therewith, and in furtherance
thereof, Creditor represents, warrants and agrees as follows:
(A) Creditor acknowledges that all documents, records, and books
pertaining to an investment in the Note and Shares that the Creditor believes
necessary for consideration and evaluation of an investment therein have been
made available for inspection by Creditor, and Creditor's attorney(ies),
accountant(s), or advisor(s);
(B) Creditor and/or the Creditor's advisor(s) have had a reasonable
opportunity to ask questions of and receive answers from a person or persons on
behalf of Debtor concerning its business and the terms and conditions of
offering of the Note and Shares and all such questions have been answered to the
full satisfaction of the Creditor and/or the Creditor's advisors, and Creditor
has had the opportunity to obtain any additional information which the Debtor
possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy of the information furnished in connection with
the investment;
(C) No oral or written representations have been made other than as
set forth in this Agreement, the Note or the Pledge and Security Agreement;
(D) Creditor is not investing in the Note or Shares as a result of,
or subsequent to, any advertisement, article, notice or other communication
published in any newspaper, magazine, or similar media or broadcast over
television or radio, or presented at any seminar or meeting, or any solicitation
of a subscription by a person other than a representative of Debtor;
(E) Creditor is an "accredited investor" as defined under Rule 501 of
Regulation D promulgated under the Securities Act;
(F) Creditor is not relying on Debtor with respect to the tax and
other economic considerations of an investment in the Note or Shares;
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(G) Creditor understands, acknowledges and agrees that the Note and
Shares have not been registered under the Securities Act, or any state or
provincial securities law, that transferability of the Note and Shares is
restricted under such laws, Debtor may not permit the transfer of the Note and
Shares except in accordance with an applicable exemption or pursuant to a
registration statement and that consequently Creditor must bear the economic
risks of investment. Creditor will not sell or otherwise transfer the Note
without registration under the Securities Act, or applicable state or provincial
securities laws, or an exemption therefrom. Creditor represents that Creditor is
purchasing the Note and Shares for Creditor's own account, for investment and
not with a view to or in connection with resale or distribution except in
compliance with the Securities Act and applicable state or provincial law.
Creditor has not offered or sold any portion of the Shares or Note being
acquired nor does the Creditor have any present intention of dividing the Shares
or Note with others or of selling, distributing or otherwise disposing of any
portion of the Shares or Note either currently or after the passage of a fixed
or determinable period of time or upon the occurrence or non-occurrence of any
predetermined event or circumstance in violation of the Securities Act or
applicable state or provincial law.
(H) Creditor recognizes that an investment in the Shares involves
substantial risks, including loss of the entire amount of such investment, and
has taken full cognizance of and understands all of the risks related to the
Shares and Note.
(I) Creditor is not a "U.S. Person" as that term is defined by Rule
902 of Regulation S under the Securities Act.
5. CONSIDERATION TO CREDITOR. In consideration of the Loan, Debtor shall, at
Closing, deliver Three Hundred Seventy-Five Thousand (375,000) shares of its
$.01 par value per share common stock (the "Shares") to Creditor, free and clear
of any and all restrictions other than as set forth in xxxxxxxxxxxx 0.x, xxxxx,
in accordance with the terms and conditions of this Agreement.
a. RESTRICTED SECURITIES. Creditor understands that the Note and
Shares are characterized as "restricted securities" under the Securities Act
inasmuch as they are being acquired from Debtor in a transaction not involving a
public offering and that under the Securities Act, and applicable regulations
thereunder, such securities may be resold without registration under the
Securities Act only in certain limited circumstances and Debtor may not permit
the resale of such securities in the absence of registration under the
Securities Act or an applicable exemption from registration. Creditor also
understands that there are restrictions on the resale of the Note and Shares
under British Columbia law. In this connection, Creditor represents that it is
familiar with Rule 144 and Regulation S of the U.S. Securities and Exchange
Commission (the "SEC"), as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
b. LIMITATIONS ON DISPOSITIONS. Creditor acknowledges that, so long
as appropriate, a legend similar to the following may appear on the certificates
representing the Shares:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE TRANSFERRED UNLESS REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
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c. REGISTRATION RIGHTS.
i. REGISTRATION OF SHARES. Debtor shall, within
75 days of the date of this Agreement, file a Registration Statement
with the SEC to register the Shares under the Securities Act (the
Registration Statement"). The Registration Statement shall be
declared effective by the SEC, and the Creditor shall be in a
position to sell its shares thereunder, on or before October 31,
2002. Debtor shall prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of
the Shares and take any and all other actions necessary or
appropriate to maintain the effectiveness of the Registration
Statement until the earlier to occur of (a) such time as Creditor
shall have disposed of all of the Shares, and (b) one year from the
effective date of the Registration Statement (the "Termination
Date"). No stop order shall be issued by the SEC in connection with
the Registration Statement until the Termination Date. Debtor shall
furnish to Creditor such number of copies of a prospectus, including
a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as Creditor shall request in
order to facilitate the disposition of the Shares by Creditor. Debtor
shall qualify the Shares for sale in such states or provinces as
Creditor shall reasonably request. All costs and expenses associated
with the filing, effectiveness and maintenance of the Registration
Statement shall be borne solely by Debtor. If any of the provisions
of this Section 5 are not met, to any degree or for any reason
(including as the result of circumstances beyond the control of
Debtor), except if solely the result of Creditor's own action or
failure to provide Debtor with information within a reasonable time
after it is requested (in which event, Debtor's obligations shall be
tolled only for so long as Creditor's action or failure to provide
information has caused delay), such failure shall be deemed a breach
of this Agreement and shall entitle the Creditor to exercise any and
all rights and remedies available to Creditor under any or all of the
Transaction Documents.
ii. OTHER SALES. With a view to making available to the Creditor the
benefits of Rule 144 promulgated under the Securities Act and any other rule or
regulation of the SEC that may at any time permit Creditor to sell the Shares to
the public without registration, Debtor shall:
(A) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times subsequent to the date hereof;
and
(B) file with the SEC in a timely manner all reports and other
documents required of Debtor under the Securities Act and the Exchange Act; and
(C) furnish to Creditor immediately upon request by Creditor a
written statement by the Debtor that it has complied with the reporting
requirements of Rule 144 and of the Securities Act and the Exchange Act, a copy
of the most recent annual or quarterly report of Debtor, and such other reports
and documents so filed by the Debtor as may be reasonably requested in availing
Creditor of any rule or regulation of the SEC permitting the selling of any of
the Shares without registration;. and (D) furnish to Debtor's transfer agent the
letter of instruction from Debtor's counsel and attachment in the form attached
hereto as Exhibit G, which letter shall not be canceled or withdrawn.
iii. INDEMNIFICATION.
(A) INDEMNIFICATION BY DEBTOR. In connection with each Registration
Statement relating to disposition of Shares, Debtor shall indemnify Creditor,
and Creditor's directors, officers, affiliates, employees, agents and
representatives against any and all losses, claims, damages and liabilities,
joint or several (including any reasonable investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of any
action, suit or proceeding or any claim asserted), to which they, or any of
them, may become subject under the Securities Act, the Securities Exchange Act
or other U.S. Federal or state or Canadian federal or provincial law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement,
prospectus or preliminary prospectus, or such amendment or supplement thereto,
or arise out of or are based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that such indemnity shall
not inure to the benefit of Creditor on account of any losses, claims, damages
or liabilities arising from the sale of Shares if such untrue statement or
omission or alleged untrue statement or omission was made in such Registration
Statement, prospectus or preliminary prospectus, or such amendment or
supplement, in reasonable reliance upon and in strict conformity with
information furnished in writing to Debtor by the Creditor specifically for use
therein. This indemnity agreement shall be in addition to any liability that
Debtor may otherwise have and will survive the termination of this Agreement.
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(B) INDEMNIFICATION BY CREDITOR. In connection with each Registration
Statement, Creditor shall indemnify, to the same extent as the indemnification
provided by Debtor in subparagraph (A) of this section above, Debtor, its
directors and each officer who signs the Registration Statement, but only
insofar as such losses, claims, damages and liabilities arise out of or are
based upon any untrue statement or omission which was made in the Registration
Statement, the prospectus or preliminary prospectus or any amendment thereof or
supplement thereto, in reasonable reliance upon and in strict conformity with
information furnished in writing by Creditor to Debtor specifically for use
therein. In no event shall the liability of Creditor hereunder be greater in
amount than the dollar amount of the net proceeds received by Creditor upon the
sale of Shares giving rise to such indemnification obligation.
(C) CONDUCT OF INDEMNIFICATION PROCEDURE. Any party that proposes to
assert the right to be indemnified hereunder will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or parties
under this Section, notify each such indemnifying party of the commencement of
such action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in this Section shall be available to any party who
shall fail to give notice as provided in this Section if the party to whom
notice was not given was unaware of the proceeding to which such notice would
have related and was prejudiced by the failure to give such notice, but the
omission so to notify such indemnifying party of any such action, suit or
proceeding shall not relieve it from liability that it may have to any
indemnified party for contribution or otherwise than under this Section. In case
any such action, suit or proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in, and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of such counsel, the indemnifying party shall
not be liable to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of investigation
previously incurred by such indemnified party in connection with the defense
thereof. The indemnified party shall have the right to employ its counsel in any
such action, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the employment of counsel by such
indemnified party has been authorized in writing by the indemnifying parties,
(ii) the indemnified party shall have reasonably concluded, based on advice of
counsel, that there may be a conflict of interest between the indemnifying
parties and the indemnified party in the conduct of the defense of such action
(in which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party) or (iii) the
indemnifying parties shall not have employed counsel to assume the defense of
such action within a reasonable time after notice of the commencement thereof,
in each of which cases the fees and expenses of counsel shall be at the expense
of the indemnifying parties. An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without its written
consent.
(D) SPECIFIC PERFORMANCE. Debtor and Creditor acknowledge that
remedies at law for the enforcement of this Section 5.c.iii may be inadequate
and intend that this Section 5.c.iii shall be specifically enforceable.
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6. COVENANTS.
a. AFFIRMATIVE COVENANTS OF DEBTOR AND SHAREHOLDER.
i. Debtor and Shareholder, jointly and severally, covenant and agree
that Debtor will so long as any indebtedness remains outstanding under this
Agreement:
(A) Duly perform the Debtor Transaction Documents.
(B) Furnish Creditor with such information as is required by the
terms and conditions of the Transaction Documents or other documents or
instruments of security referred to in therein and such other information as
Creditor may reasonably request from time to time.
(C) Maintain, at all times, accounts receivable in an aggregate
amount of not less than the Loan Amount.
(D) Maintain a tangible net worth of not less than the Loan Amount,
computed in accordance with generally accepted accounting principles.
(E) Promptly notify Creditor of any condition or event that
constitutes, or with the running of time or the giving of notice will
constitute, a default under any of the Transaction Documents.
(F) At any time on the request of Creditor to execute and deliver to
Creditor, in form reasonably satisfactory to Creditor, such additional
documentation in respect of the indebtedness and liability and obligations of
Debtor to Creditor contemplated under the terms of the Transaction Documents as
Creditor shall reasonably deem necessary or desirable to comply with the
provisions or requirements of Article 9 of the Delaware Uniform Commercial Code
or its British Columbia equivalent, including, without limiting the generality
of the foregoing, appropriate security agreements and financing statements.
(G) Immediately upon request, provide Creditor or such persons as
Creditor directs, with such irrevocable directions, acknowledgments and other
documents or instruments as Creditor may require to ensure that US$2,500,000
from any equity financing conducted by or for the benefit of the Debtor is
delivered directly to Creditor, to be applied on account of the Loan in
accordance with the terms of the Note.
b. NEGATIVE COVENANT OF DEBTOR AND SHAREHOLDER.
i. Debtor and Shareholder, jointly and severally, covenant and agree
that so long as any indebtedness remains outstanding under this Agreement that
Debtor will not, without the prior written consent of Creditor:
(A) Make any material change in the general business objects or
purpose of Debtor.
(B) Sell, lease, transfer or dispose of all, substantially all, or
any material part of the assets or business of Debtor or enter into any merger
or consolidation, except in the ordinary course of business, and except for the
proposed acquisition of an additional interest in Debtor's joint venture and/or
joint venture partner.
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(C) Guarantee, indorse or otherwise become secondarily liable for or
on the obligations of others, except by endorsement for deposit in the ordinary
course of business.
(D) Become or remain obligated for any indebtedness for money loaned,
or for any indebtedness incurred in connection with the acquisition of any
property, real or personal, tangible or intangible, except:
(1) Indebtedness to Creditor.
(2) Current trade, utility or non-extraordinary accounts payable
arising in the ordinary course of the business of Debtor.
(E) Declare or pay any dividends.
(F) Make or allow to remain outstanding any investment in, or any
loans or advances to, any person, firm, corporation or other entity or
association, other than to Debtor's joint venture or joint venture partner.
(G) Sell or assign any account, note or trade acceptance receivable
except to Creditor.
7. SECURITY. To induce Creditor to enter into the Transaction Documents and to
extend credit hereunder and to secure payment when due (whether at stated
maturity, by acceleration or otherwise) of the principal and interest under the
Note, and performance of Debtor's and Shareholder's obligations under the
Transaction Documents, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged:
a. Debtor will execute and deliver the general security agreements,
annexed hereto as Exhibit D, granting a first security interest to Creditor in
all of Debtor's present and after-acquired personal property ("GSA"); and
b. Shareholder will guarantee the prompt performance of Debtor's
obligations under the Transaction Documents, including, without limitation,
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of Debtor's obligations under this Agreement and the Note, in
accordance with the terms of the guarantee annexed hereto as Exhibit E (the
"Orion Guarantee") and the pledge and security agreement annexed hereto as
Exhibit F ("Pledge and Security Agreement") and will execute and deliver same to
Creditor prior to the advance of the Loan.
x. Xxxxxxx O.S. Xxxxxxx will guarantee the prompt performance of
Debtor's obligations under this Agreement to repay US$2,500,000 of the Loan on
or before July 5, 2002, in accordance with the terms of the guarantee annexed
hereto as Exhibit H (the "Xxxxxxx Guarantee") and will execute and deliver same
to Creditor prior to the advance of the Loan.
8. LEGAL OPINION. As a condition precedent to the advance of the Loan by
Creditor, Debtor and Shareholder will cause to be delivered to Creditor a legal
opinion of counsel to Debtor, in form and terms satisfactory to Creditor and its
counsel.
9. EXPENSES. Debtor shall pay all of Creditor's reasonable legal fees and other
expenses incurred in connection with the negotiation and preparation of this
Agreement and conduct of due diligence, such fees and expenses to be deducted
from the Loan Amount.
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10. DEFAULT. Notwithstanding any other provision of this Agreement or any of the
other Transaction Documents, a breach of any representation, warranty or
covenant or a failure of performance by Debtor or Shareholder, or the occurrence
of an event of default under, any of the Transaction Documents shall constitute
a breach, failure of performance and event of default under each and every
Transaction Document, and shall entitle Creditor to all rights and remedies
available under the Transaction Documents, at law or in equity.
11. GENERAL.
a. ASSIGNABILITY. This Agreement may be assigned by Creditor only,
without the consent of Debtor or Shareholder, by delivery of written notice of
same to Debtor and Shareholder within thirty (30) days after the effective date
of such assignment.
b. GOVERNING LAW; JURISDICTION. Any dispute, disagreement, conflict
of interpretation or claim arising out of or relating to this Agreement, the
Note, the Pledge and Security Agreement, or their enforcement, shall be governed
by the laws of the Province of British Columbia. The parties hereby irrevocably
and unconditionally submit, for themselves and their property, to the
nonexclusive jurisdiction of the Courts of Province of British Columbia, in any
action or proceeding arising out of or relating to this Agreement, the Note or
the Pledge and Security 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, or at the option of Creditor, removed to the Province of
British Columbia. Each of the parties 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 or the Pledge and Security
Agreement in or removed to any court referred to above. Each of the parties
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.
c. 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.
d. 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.
e. 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.
f. WAIVER. Any 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.
g. 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:
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If to Debtor:
Tengtu International Corp.
000 Xxxxxx Xxxx
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Xx. Xxxxxxx O.S. Xxxxxxx
Facsimile: 000-000-0000
With a copy to:
Guzov, Xxxxxxxx & Xxxxxx, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Facsimile: 212-688-7273
If to Creditor:
Quest Ventures, Ltd.
Xxxxx 000, 000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, XX X0X 0X0
Attention: A. Xxxxxx Xxxxxxxx
Facsimile: 000-000-0000
With a copy to:
Xxxxx & Company
0000 - 000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX X0X 0X0
Attention: Xxxxxxx X. Xxxxxxx
Facsimile: 000-000-0000
If to Shareholder:
c/o Tengtu International Corp.
000 Xxxxxx Xxxx
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Xx. Xxxxxxx O.S. Xxxxxxx
Facsimile: 000-000-0000
and
Orion Capital Incorporated
000 Xxxxx Xxxxx Xxxxxx
Xxxxx 000X
Xxxxxxxxx, Xxxxxxx X0X 0X0
Attention: Mr. Xxxxxxxx Xxxxxxx
Facsimile: 000-000-0000
-10-
With a copy to:
Guzov, Xxxxxxxx & Xxxxxx, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Facsimile: 212-688-7273
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.
h. LEGAL ADVICE. Debtor and Shareholder acknowledge that they have
had an opportunity to review the Transaction Documents and all the collateral
documents or instruments delivered or instruments delivered thereunder with
independent legal counsel and that after having done so, acknowledge that they
have read and understood all such documents and agree and intend to be legally
bound by them in accordance with their terms.
i. FURTHER ASSURANCES. Debtor and Shareholder acknowledge that
Creditor has entered into this Agreement without the benefit of receiving advice
of any US counsel and that in consideration for same, Debtor and Shareholder
covenant and agree to accommodate and comply with all reasonable requests as
Creditor may make following the advance of the Loan Agreement, including but not
limited to making any amendments or other changes to this Agreement or the other
documents delivered hereunder, to ensure that the intent of this agreement be
carried out in compliance with applicable US law. Further, the Debtor and
Shareholder will from time to time, whether before or after the occurrence of an
Event of Default, do all such acts and things and execute and deliver all such
amendments, supplements, deeds, transfers, assignments and instruments as
Creditor may reasonably require for perfecting Creditor's security interest in
the Pledged Stock and the Collateral under the GSA and in connection with any
realization of same and for exercising all powers, authorities and discretions
conferred upon Creditor. Debtor and Shareholder covenant and agree with the
Creditor to discharge or cause to be discharged forthwith any encumbrances which
may rank in priority to the Creditor's security interest on the Pledged Stock
and the Collateral under the GSA, and to provide Creditor with satisfactory
evidence or other confirmation that any encumbrances or liens against
Shareholder do not encumber the Pledged Stock or the Collateral under the GSA.
-11-
j. DEFINITION OF "KNOWLEDGE". When any reference to the "knowledge"
or "best knowledge" of Debtor or Shareholder is made herein, such knowledge
shall be deemed to include the knowledge gained after due inquiry of the
Debtor's and the Shareholder's respective directors, officers and key employees,
and those of their respective subsidiaries, as well as the knowledge such
directors, officers and key employees would obtain after due inquiry from their
employees and agents.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date set forth above.
DEBTOR: CREDITOR:
TENGTU INTERNATIONAL CORP. QUEST VENTURES LTD.
By: By:______________________________
------------------------------
Name: __________________________ Name: ___________________________
Title: __________________________ Title: ____________________________
SHAREHOLDER:
ORION CAPITAL INCORPORATED
By:__________________________________
Name:________________________________
Title:_________________________________
-12-
EXHIBIT A
FORM OF PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER CANADIAN LAW, AND MAY NOT BE TRANSFERRED UNLESS
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
TENGTU INTERNATIONAL CORP.
US $4,000,000
12% PROMISSORY NOTE
Dated: June 6, 2002
FOR VALUE RECEIVED, Tengtu International Corp., a Delaware
corporation (the "COMPANY"), hereby unconditionally promises to pay to Quest
Ventures Ltd. (together with its assigns, the "HOLDER") on July 5, 2002 the
principal sum of Two Million Five Hundred Thousand US Dollars and on November
30, 2002 (such dates collectively referred to as the "MATURITY DATES") the
principal sum of the One Million Five Hundred Thousand U.S. Dollars (U.S.
$1,500,000), and to pay to the Holder interest on the unpaid principal amount of
this Note as provided in ARTICLE I hereof. This is the Note referred to in the
Loan Agreement by and among Tengtu International Corp., Quest Ventures Ltd. and
Orion Capital Incorporated, dated as of the date hereof, and is secured by the
Pledge and Security Agreement, the General Security Agreement, the Orion
Guarantee and the Xxxxxxx Guarantee among the same parties dated as of the date
hereof. Capitalized terms used but not otherwise defined herein have the
respective meanings given to such terms in ARTICLE IV hereof.
ARTICLE I
PRINCIPAL AND INTEREST
SECTION 1.1 PRINCIPAL. Two Million Five Hundred Thousand Dollars of
the principal amount of this Note shall be paid on July 5, 2002 and the entire
unpaid principal amount of this Note shall be paid on November 30, 2002.
Promptly following the payment in full of this Note, the Holder shall surrender
this Note to the Company for cancellation.
SECTION 1.2 INTEREST. Interest shall accrue (compounded monthly) on
the daily unpaid principal amount of this Note, for each day during the period
from and including the date hereof (the "COMMENCEMENT DATE") to but excluding
the date such Note shall be paid in full, at a rate of twelve percent (12%) per
annum (effective annual rate of 12.68%) (the "INTEREST RATE") and shall be
payable on the last Business Day of each month.
-13-
ARTICLE II
PAYMENTS
SECTION 2.1 PAYMENTS GENERALLY. All payments of principal and
interest to be made by the Company in respect of this Note shall be made in
Dollars by delivery to the Holder, at the address the Holder provides to the
Company, not later than 12:00 noon Vancouver, British Columbia time on the date
on which such payment shall be due. If the due date of any payment in respect of
this Note would otherwise fall on a day that is not a Business Day, such due
date shall be extended to the next succeeding Business Day, and interest shall
be payable on any principal so extended for the period of such extension. All
payments by the Company under this Note will be made without setoff or
counterclaim and free and clear of, and without deductions for, any taxes, fees
or other expenses or claims of any kind.
SECTION 2.2 PREPAYMENTS. At any time, and from time to time, the
Company may, at its option, prepay this Note (in an amount up to but not
exceeding the unpaid principal amount hereof and any accrued interest hereon) in
whole or in part without premium or penalty. All payments hereunder shall apply
first to penalties, costs and expenses of Creditor, then to interest, and then
to principal.
SECTION 2.3 REFINANCING. If during the term of the Loan the Company
completes one or more equity financings or receives any funds or other
consideration on account of accounts receivable due from related parties (as
disclosed in the Company's financial statements for the fiscal year ended
December 31, 2001), all net proceeds received by the Company shall be forthwith
paid over to the Holder and applied on account of the outstanding balance
hereunder, first to costs and charges, then to interest then accrued but unpaid,
and then to principal. Notwithstanding the foregoing, the Company will only be
required to apply the first US$2,500,000 of the net proceeds from any equity
private placement conducted by or on behalf of the Company, provided that such
financing closes on or before July 5, 2002.
ARTICLE III
EVENTS OF DEFAULT
SECTION 3.1 EVENT OF DEFAULT. "EVENT OF DEFAULT", wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any interest in respect of this Note
within two (2) Business Days after it becomes due and payable; or
(b) default in the payment of the outstanding principal amounts of
this Note on the Maturity Dates set forth above; or
(c) a default by the Company or the Shareholder of any of their
obligations under any of the Transaction Documents or any failure in the
satisfaction of the covenants set forth in any of the Transaction Documents; or.
(d) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under Federal bankruptcy law or any
other applicable Federal or state law, or appointing a receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or of
any substantial part of the property of the Company, or ordering the winding up
or liquidation of the affairs of the Company; or
-14-
(e) the institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by the Company to the institution of
bankruptcy or insolvency proceedings against it, or the filing by the Company of
a petition or answer or consent seeking reorganization or relief under Federal
bankruptcy law or any other applicable Federal or state law, or the consent by
the Company to the filing of such petition or to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator or similar official of the Company
or of any substantial part of the property of the Company, or the making by the
Company of an assignment for the benefit of creditors, or the admission by the
Company in writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Company in furtherance of any such
action.
SECTION 3.2 ACCELERATION OF NOTE. If an Event of Default occurs and
is continuing, then and in every such case the Holder may declare the
outstanding principal amount of this Note (including accrued interest as
provided in ARTICLE I hereof) to be due and payable immediately, by a notice in
writing to the Company, and upon any such declaration such principal shall
become immediately due and payable. Notwithstanding the foregoing, if an Event
of Default referenced in paragraph (d) or paragraph (e) of SECTION 3.1 occurs,
the outstanding principal amount of this Note (including accrued interest as
provided in ARTICLE I hereof) shall automatically become due and payable
immediately without any declaration or other action on the part of the Holder.
ARTICLE IV
DEFINITIONS
SECTION 4.1 DEFINITIONS. The following terms shall have the meanings
set forth below:
"BUSINESS DAY" means a day other than Saturday, Sunday or any day on
which banks located in the Province of British Columbia are authorized or
obligated to close.
"DOLLARS" and "$" means lawful money of the United States of America.
"MAXIMUM RATE" means the highest non-usurious rate of interest (if
any) permitted from day to day by applicable law, including but not limited to
that prescribed by Section 347 of the CRIMINAL CODE OF CANADA.
"PERSON" means any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a limited liability company, a trust or other entity.
"TRANSACTION DOCUMENTS" shall have the same meaning as in the Loan
Agreement dated as of the date hereof among the Company, Holder and Orion
Capital Incorporated.
ARTICLE V
USURY LAWS
SECTION 5.1 USURY LAWS. Regardless of any provision contained in this
Note, Holder shall never be deemed to have contracted for, or be entitled to
receive, collect, or apply as interest on this Note (whether termed interest
herein or deemed to be interest by judicial determination or operation of law)
any amount in excess of the Maximum Rate, and, in the event that Holder ever
receives, collects, or applies as interest any such excess, such amount which
would be excessive interest shall be applied to the reduction of the unpaid
principal balance of this Note, and, if the principal balance of this Note is
paid in full, then any remaining excess shall forthwith be paid to the Company.
In determining whether or not the interest paid or payable under any specific
contingency exceeds the highest Maximum Rate, the Company and Holder shall, to
the maximum extent permitted under applicable law, (a) characterize any
non-principal payment (other than payments which are expressly designated as
interest payments hereunder) as an expense or fee rather than as interest, (b)
exclude voluntary or refinancing prepayments and the effect thereof, and (c)
spread the total amount of interest throughout the entire contemplated term of
this Note so that the interest rate is uniform throughout such term.
-15-
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 GOVERNING LAW; JURISDICTION. This Note shall be governed
by, and construed in accordance with, the laws of the Province of British
Columbia, without regard to the conflicts of laws provisions thereof. The
Company hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Courts of the Province of
British Columbia in any action or proceeding arising out of or relating to this
Note, or for recognition or enforcement of any judgment, and hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in the Province of British Columbia. The
Company hereby 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. The Company 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 Note in any
court referred to above, and 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. The Company irrevocably consents to
service of process in the manner provided for notices below. Nothing in this
Agreement will affect the right of the Holder to serve process in any other
manner permitted by law.
SECTION 6.2 SUCCESSORS. All agreements of the Company in this Note
shall bind its successors and permitted assigns. This Note shall inure to the
benefit of the Holder and its permitted successors and assigns. The Company
shall not delegate any of its obligations hereunder without the prior written
consent of Holder.
SECTION 6.3 AMENDMENT, MODIFICATION OR WAIVER. No provision of this
Note may be amended, modified or waived except by an instrument in writing
signed by the Company and the Holder.
SECTION 6.4 LEGEND. This Note, and any note issued in exchange or
substitution for this Note, shall bear the legend appearing on the first page
hereof.
SECTION 6.5 NOTICES. All notices and other communications in respect
of this Note (including, without limitation, any modifications of, or requests,
waivers or consents under, this Note) shall be given or made in writing
(including, without limitation, by telecopy) at the addresses specified in the
Loan Agreement. Except as otherwise provided in this Note, 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.
SECTION 6.6 DELAY OR OMISSION NOT WAIVER. No failure or delay on the
part of the Holder in the exercise of any power, right, or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any right, power or privilege. All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed by an authorized officer thereof as of the date and year first above
written.
TENGTU INTERNATIONAL CORP.
By: __________________________
Name:
Title:
-16-
EXHIBIT B
SCHEDULE OF EXCEPTIONS
SECTION 4.A.III - NO CONFLICT
The Debtor's October 25, 2000 Investment Agreement with Xxxxxx
Private Equity, L.L.C. ("Xxxxxx") contains a capital raising limitation which
prohibits the Debtor from entering into certain transactions in which it issues
securities as well as a right of first offer for any transaction in which the
Debtor raises capital. The Debtor is currently litigating the issue of whether
the Investment Agreement is valid and enforceable. SEE 0.x.xx below.
SECTION 0.X.XX - LITIGATION
On September 12, 2001, Xxxxxx Private Equity, LLC ("Xxxxxx") served
the Debtor with a complaint which was filed in state court in Xxxxxx County,
Georgia which has been removed to the Federal District Court for the Northern
District of Georgia. The complaint was filed in response to the Debtor's August
28, 2001 letter advising Xxxxxx that the Debtor viewed its October 25, 2000
Investment Agreement, along with the accompanying commitment warrants, to be
void and unenforceable.
The complaint alleges that the Debtor breached the Investment
Agreement and commitment warrants by failure to deliver 250,000 shares upon
Xxxxxx'x partial exercise of the commitment warrant and seeks the following
damages: (1) a U.S. $200,000 termination fee under the Investment Agreement, (2)
a cash amount equal to the value of our common stock on the date of partial
exercise of the commitment warrant, (3) damages for late delivery of shares
under the commitment warrant, (4) monetary damages for lost market opportunity
equal to the highest value of our common stock during the term of the breach,
(5) a replacement warrant for 850,000 shares of our common stock, (6) attorney's
fees, (7) additional warrants under a Warrant Anti-Dilution Agreement, and (8)
such other and further relief as the court deems just and proper.
The Debtor submitted a motion to dismiss Xxxxxx'x complaint on
October 30, 2000.
In January, 2002, the Debtor was served with a summons and verified
complaint which was filed in the United States District Court for the Southern
District of New York. The plaintiff in the action is Xxxxx & Associates, P.C.,
the Debtor's former counsel, and the Debtor is the defendant. The verified
complaint alleges that Xxxxx & Associates, P.C. was not paid for certain legal
services provided to the Debtor and seeks a judgment in the amount of
$133,334.12, plus interest at the rate of 1.25%, the costs of the action and
such other relief as the court deems proper. The Debtor believes that it has
meritorious defenses to the claims in the verified complaint and intends to
vigorously defend the action.
In January, 2002, the Debtor was served with a verified complaint
which was filed in the Supreme Court of the State of New York, County of New
York. The plaintiff in the action is Xxxxxxx X. Xxxxx, a principal of Xxxxx &
Associates, P.C. and a Debtor shareholder, and the Debtor is the defendant. The
verified complaint alleges that Xx. Xxxxx submitted a check in the amount of the
exercise price of certain stock options granted to Xxxxx & Associates, P.C. but
that the stock was not delivered. Plaintiff seeks a mandatory injunction
requiring delivery to plaintiff of 114,166 shares of Debtor common stock.
Plaintiff further seeks (1) damages in the sum of $51,941.34, (2) additional
damages for diminution in the value of the common stock from the time it should
have been delivered and (3) punitive damages. The Debtor believes that it has
meritorious defenses to the claims in the verified complaint and intends to
vigorously defend the action.
-17-
On March 15, 2002, Debtor received a "pre-litigation demand for
payment" from a law firm representing VIP Tone, Inc. ("VIP"). The letter
requested payments under a November 16, 2001 agreement with VIP which Debtor had
terminated due to VIP's failure to perform as required by the agreement. On
April 3, 2002, Debtor responded to the pre-litigation demand for payment through
its counsel rejecting each of VIP's assertions and advised VIP of its belief
that it was not entitled to any payments under the parties' agreement. Debtor
further advised that if VIP proceeds to take legal action, Debtor will seek to
recover all monies previously paid to VIP under the agreement.
No written response to the April 3, 2002 letter has been received,
and Debtor has not received any further indication that VIP will pursue legal
action.
-18-
EXHIBIT C
PLEDGED STOCK
CERTIFICATE NUMBER DATE OF ACQUISITION NUMBER OF SHARES
949 June 14, 2001 3,333,333
951 May 15, 2001 3,349,146
962 June 17, 2001 3,333,333
-19-
EXHIBIT D
GENERAL SECURITY AGREEMENTS
GENERAL SECURITY AGREEMENT
THIS AGREEMENT dated June 6, 2002 is between:
TENGTU INTERNATIONAL CORP., a Delaware corporation whose mailing
address is 000 Xxxxxx Xxxx, Xxxxxxx, XX X0X 0X0
(the "Debtor")
AND
QUEST VENTURES LTD., a British Columbia company having an office at
Xxxxx 000, 000 Xxxxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxx Xxxxxxxx X0X 0X0
(the "Secured Party")
PART 1 - SECURITY INTERESTS
1.1 SECURITY INTERESTS. For valuable consideration and as security for the
payment and performance of the Obligations (as later defined) the Debtor hereby
assigns and pledges to the Secured Party, and hereby grants to the Secured Party
a security interest in, all of the Debtor's right, title and interest in and to
the following, whether now owned or hereafter acquired (the "Collateral"):
(a) all goods including equipment in all of its forms,
wherever located, now or hereafter existing, and all parts thereof,
and accessions, accessories, supplies, and operating manuals thereto
(the "Equipment"), all fixtures wherever located, and all inventory
in all of its forms, and all products thereof, wherever located, now
or hereafter existing, including, but not limited to, (i) all raw
materials and work in process therefor, finished goods thereof, and
materials used or consumed in the manufacture or production thereof,
(ii) goods in which the debtor has an interest in mass or a joint or
other interest or right of any kind (including, without limitation,
goods in which the Debtor has an interest or right as consignee), and
(iii) goods which are held for sale or lease, and all accessions
thereto and products thereof (the "Inventory");
(b) all accounts including rights to payment for goods sold
or leased or for services rendered ("Accounts"), rights arising under
contracts, chattel paper, instruments, investment property, letter of
credit rights including rights to proceeds of written letters of
credit, documents, general intangibles (including, without
limitation, rights to tax refunds, but excluding each application to
register any trademark, service xxxx or other xxxx xxxxx to the
filing under applicable law of a verified statement of use (or the
equivalent) for such trademark or service xxxx), and other
obligations of any kind, whether now owned or hereafter acquired,
whether or not arising out of or in connection with the sale or lease
of goods or the rendering of services, and all rights now or
hereafter existing in and to all security agreements, leases and
other contracts securing or otherwise relating to any of such
accounts, rights arising under contracts, chattel paper, instruments,
investment property, letter of credit rights, documents, general
intangibles or obligations;
(c) all books and records of the Debtor pertaining to
any Collateral;
(d) all deposit accounts; and
-20-
(e) all cash and other proceeds of any Collateral
(including, without limitation, proceeds which constitute property of
the types described in clauses (a) through (c) of this Section 1)
and, to the extent not otherwise included, all rights to insurance
including payments under insurance (whether or not the Secured Party
is loss payee thereof), or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to
any of the foregoing Collateral.
1.2 EXCLUSIONS. The security interests granted in this Agreement do not apply or
extend to any lease or other agreement which contains a provision which provides
in effect that such lease or agreement may not be assigned, subleased, charged
or encumbered without the leave, licence, consent or approval of the lessor,
until such leave, licence, consent or approval is obtained and the security
interest created hereby will attach and extend to such lease or agreement as
soon as such leave, licence, consent or approval is obtained.
1.3 NOTIFICATION. Before or after an Event of Default (as later defined) has
occurred, the Secured Party may notify any debtor of the Debtor on a general
intangible, chattel paper, or account, or any obligor on an instrument ("Account
Debtor") to make all payments on Collateral to the Secured Party and the Debtor
acknowledges that the proceeds of all sales, or any payments on or other
proceeds of the Collateral, including but not limited to payments on, or other
proceeds of, the Collateral received by the Debtor from any Account Debtor,
whether before or after notification to such Account Debtor and whether before
or after default under this Agreement will be received and held by the Debtor in
trust for the Secured Party and will be turned over to the Secured Party upon
request and the Debtor will not commingle any proceeds of or payments on the
Collateral with any of the Debtor's funds or property, but will hold them
separate and apart.
1.4 PURCHASE MONEY SECURITY INTERESTS. The security interests created hereby
will constitute purchase money security interests to the extent that any of the
Obligations are monies advanced by the Secured Party to the Debtor for the
purpose of enabling the Debtor to purchase or acquire rights in any of the
Collateral and were so used by the Debtor and a certificate of an officer of the
Secured Party as to the extent that the Obligations are monies so advanced and
used will be prima facie proof of the purchase money security interests
constituted hereby.
PART 2 - OBLIGATIONS SECURED
2.1 OBLIGATIONS. This Agreement secures the payment of all obligations of the
Debtor now or hereafter existing under the Loan Agreement dated as of the date
of this Agreement and the Promissory Note dated as of the date of this Agreement
in the original principal sum of US$4,000,000, and any other loan or security
document from time to time entered into in connection therewith (each being a
"Loan Document"), including this Agreement, whether for principal, interest,
fees, expenses or otherwise (all such obligations of the Debtor being the
"Obligations"). Without limiting the generality of the foregoing, this Agreement
secures the payment of all amounts which constitute part of the Obligations and
would be payable by the Debtor to the Secured Party but for the fact that they
are unenforceable or not allowable due to the existence of a bankruptcy or
similar proceeding involving the Debtor.
-21-
PART 3 - REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES. The Debtor represents and warrants to the
Secured Party the following:
(a) CORPORATE REQUIREMENTS.
(i) the Debtor is a company incorporated under the laws of the
State of Delaware and is in good standing under the laws of
the State of Delaware;
(ii) the Debtor has the corporate power and authority to carry on
the business now being carried on by it, to execute and
deliver this Security Agreement and to create the security
interests created in this Agreement;
(iii) all necessary and requisite corporate proceedings,
resolutions and authorizations have been taken, passed, done
and given by the Debtor and by its directors to authorize,
permit and enable it to execute and deliver this Security
Agreement; and
(iv) the entering into this Security Agreement is not in
contravention of any statute, the organizational or
constitutent documents of the Debtor or any agreement or
other document to which the Debtor is a party;
(b) NO ACTIONS. There are no actions or proceedings pending or,
to the knowledge of the Debtor, threatened which challenge
the validity of this Security Agreement or which might
result in a material adverse change in the financial
condition of the Debtor or which would materially adversely
affect the ability of the Debtor to perform its obligations
under this Security Agreement or any document evidencing any
indebtedness of the Debtor to the Secured Party;
(c) OWNS COLLATERAL. The Debtor owns and possesses all presently
held Collateral and has good title thereto, free from all
security interests, charges, encumbrances, liens and claims,
save only those, if any, shown in Schedule 1;
(d) LOCATION OF COLLATERAL AND OF THE DEBTOR. The only locations
of Collateral (other than Inventory in transit), are the
chief executive office of the Debtor and the other places
the Debtor carries on business, described in Schedule 2;
(e) FINANCIAL INFORMATION. All financial information and
financial statements supplied to the Secured Party by or for
the Debtor:
(i) are not untrue in any material respect;
(ii) have revealed all material facts the omission of which would
make such information or statements misleading;
(iii) disclose all facts which materially adversely affect, or so
far as the Debtor can reasonably foresee will materially
adversely affect, the Debtor's financial condition, the
Collateral or the Debtor's ability to perform its
obligations hereunder; and
(iv) in the case of financial statements, have been prepared in
accordance with generally accepted accounting principles.
3.2 RELIANCE AND SURVIVAL. All representations and warranties of the Debtor made
in this Agreement or in any certificate or other document delivered by or on
behalf of the Debtor for the benefit of the Secured Party are material, will
survive the execution and delivery of this Security Agreement and will continue
in full force and effect without time limit. The Secured Party will be
considered to have relied upon each such representation and warranty in spite of
any investigation made by or on behalf of the Secured Party at any time.
-00-
XXXX 0 - XXXXXXXX XXXXXXXXX
4.1 POSITIVE COVENANTS. The Debtor covenants with the Secured Party the
following:
(a) DEFEND COLLATERAL. It will defend the Collateral against all
claims and demands of all persons claiming the Collateral or
an interest therein at any time;
(b) FINANCIAL STATEMENTS. It will deliver to the Secured Party
within 120 days after the end of each fiscal year of the
Debtor audited financial statements of the Debtor, including
the auditor's report and any notes accompanying such
statements;
(c) LISTS OF ACCOUNTS. If the Collateral includes Accounts, the
Debtor will (if the Secured Party so requests in writing),
deliver to the Secured Party within 30 days of each calendar
month end an aged list of the Accounts as at that particular
month end in a form acceptable to the Secured Party;
(d) PROVIDE INFORMATION. Upon the demand by the Secured Party it
will furnish in writing to the Secured Party all information
requested concerning the Collateral and it will promptly
advise the Secured Party of the serial number, year, make
and model of each serial numbered good at any time included
in the Collateral;
[THE COMPANY HAS NO INSURANCE](e) REPAIR. It will
keep the Collateral in good condition and repair according
to the nature and description thereof respectively and if
the Debtor neglects to keep the Collateral or any part
thereof in good condition and repair then the Secured Party
may from time to time, without any notice to the Debtor in
situations considered by the Secured Party to be emergency
situations and otherwise upon not less than 15 days'
notice, make such repairs as it in its sole discretion
considers necessary;
(f) OTHER INDEBTEDNESS. It will pay and discharge as they become
due all payments due and owing under or concerning any
previous indebtedness created or security given by the
Debtor to any person or corporation and will observe,
perform and carry out all the terms, covenants, provisions
and agreements relating thereto and any default in payment
of any monies due and payable under or relating to any
previous indebtedness or security or in the observance,
performance or carrying out of any of the terms, covenants,
provisions and agreements relating thereto will be
considered to be a default hereunder at the option of the
Secured Party and any and all remedies available to the
Secured Party hereunder by reason of any default hereunder
or by law or otherwise will be immediately available to the
Secured Party upon any default of the Debtor under the
previous indebtedness created or security given by the
Debtor;
(g) RIGHT OF INSPECTION. The Secured Party will have the right
whenever it considers reasonably necessary either by its
officers or authorized agents to enter upon the Debtor's
premises and to inspect the Collateral, all books of account
and records of the Debtor and copies of all returns made
from time to time by the Debtor to boards, agencies or
governmental departments and to make extracts therefrom and
generally to conduct such examinations as it may see fit and
without limiting the generality of the foregoing, the
Secured Party may request information from the attorney,
auditor and other advisors and agents of the Debtor for the
time being concerning the affairs and the conduct of
business of the Debtor and the Debtor hereby irrevocably
authorizes and directs and this will constitute the
sufficient authority and direction to any such attorney,
auditor or other person to disclose to the Secured Party
such information as to any and all matters touching upon the
affairs and conduct of the business of the Debtor whether of
a confidential nature or otherwise and any costs, charges,
expenses and outlays (including attorneys' and expert
witness fees) which the Secured Party may incur pursuant
hereto will be payable immediately by the Debtor to the
Secured Party, will bear interest at the highest rate borne
by any of the other Obligations (not to exceed, however, the
maximum permitted by law) and will, together with such
interest, form part of the Obligations secured by this
Security Agreement;
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(h) COSTS OF ADMINISTRATION. It will pay all costs, charges and
expenses of and incidental to the taking, preparation,
execution and registering notice (and any amendments and
renewals of such notice) of this Security Agreement and in
taking, recovering, keeping possession of or inspecting the
Collateral and any costs, charges, expenses and outlays
(including attorneys' and expert witness fees) which the
Secured Party may incur pursuant hereto will be payable
immediately by the Debtor to the Secured Party, will bear
interest at the highest rate borne by any of the other
Obligations (not to exceed, however, the maximum permitted
by law) and will, together with such interest, form part of
the Obligations secured by this Security Agreement;
(i) COSTS CAUSED BY DEFAULT. If the Debtor makes default in any
covenant to be performed by it hereunder, the Secured Party
may perform any covenant of the Debtor capable of being
performed by the Secured Party and if the Secured Party is
put to any costs, charges, expenses or outlays to perform
any such covenant, the Debtor will indemnify the Secured
Party for such costs, charges, expenses and outlays
(including attorneys' and expert witness fees) which the
Secured Party may incur pursuant hereto will be payable
immediately by the Debtor to the Secured Party, will bear
interest at the highest rate borne by any of the other
Obligations (not to exceed, however, the maximum permitted
by law) and will, together with such interest, form part of
the Obligations secured by this Security Agreement;
(j) COSTS OF EXERCISING REMEDIES. The Debtor will indemnify the
Secured Party for any and all costs, charges, expenses or
outlays arising from the custody, preservation, use or
operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, or arising from the
exercise or enforcement of any of the rights of the Secured
Party hereunder or under applicable law (whether or not
court proceedings are instituted), including the exercise of
rights in bankruptcy or insolvency proceedings involving the
Debtor or the Collateral and/or other reasonable
participation in such bankruptcy or insolvency proceedings
to insure that the Secured Party's rights are not infringed,
and any costs, charges expenses and outlays (including
attorneys' and expert witness fees) which the Secured Party
may incur pursuant hereto will be payable immediately by the
Debtor to the Secured Party, will bear interest at the
highest rate borne by any of the other Obligations (not to
exceed, however, the maximum permitted by law) and will,
together with such interest, form part of the Obligations
secured by this Security Agreement;
(k) NOTICE OF LITIGATION. It will give written notice to the
Secured Party of all litigation before any court,
administrative board or other tribunal affecting the Debtor
or the Collateral or any part thereof;
(l) CORPORATE EXISTENCE ETC. It will at all times maintain its
corporate existence in the State of Delaware; that it will
carry on and conduct its business in a proper, efficient and
businesslike manner and in accordance with good business
practice; and that it will keep or cause to be kept proper
books of account in accordance with sound accounting
practice;
(m) TAXES. It will pay all taxes, rates, levies, charges,
assessments or other impositions whatsoever now or hereafter
rated, charged, assessed, levied or imposed by any lawful
authority or otherwise howsoever on it, on the Collateral or
on the Secured Party in respect of the Collateral or any
part or parts thereof, or any other matter or thing in
connection with this Security Agreement, save and except
when and so long as the validity of such taxes, rates,
levies, charges, assessments or other impositions is in good
faith contested by it, and will, if and when required in
writing by the Secured Party, furnish for inspection the
receipts for any such payments;
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(n) PAYMENTS. It will promptly pay or remit all amounts which if
left unpaid or unremitted might give rise to a lien or
charge on any of the Collateral ranking or purporting to
rank in priority to any security interest created by this
Security Agreement;
(o) FURTHER ASSURANCES.
(i) It will promptly execute, deliver and acknowledge all
further instruments and documents, and take all further
action, that may be necessary or desirable, or that the
Secured Party may request, in order to perfect and protect
any security interest granted hereby or to enable the
Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without
limiting the generality of the foregoing, the Debtor shall:
(A) xxxx conspicuously each document, chattel paper and
agreement assigned hereby indicating that such document,
chattel paper or agreement is subject to the security
interest granted hereby; (B) if any Intangible Collateral
shall be evidenced by a promissory note or other instrument,
chattel paper, investment property or negotiable document,
deliver and pledge to the Secured Party hereunder such note,
instrument, chattel paper, investment property or negotiable
document duly indorsed and accompanied by duly executed
instruments of transfer of assignment, all in form and
substance satisfactory to the Secured Party; (C) execute and
file such financing or continuation statements, or
amendments thereto, and such other instruments or notices,
as may be necessary or desirable, or as the Secured Party
may request; (D) label, xxxx or segregate any tangible
Collateral, and notify bailees such as warehousemen, in a
manner adequate to give notice of the Secured Party's
security interest; and (E) deliver, endorse or xxxx in a
manner satisfactory to Secured Party all certificates of
title evidencing any of the Collateral; all in order to
perfect and preserve the security interest granted or
purported to be granted hereby; (F) if requested, provide a
back-up of all data comprising its website; (G) if Debtor
registers or files a registration application with respect
to any copyright anywhere in the world it will notify the
Secured Party and execute a registrable assignment of the
copyright or such other document as the Secured Party
reasonably may request.
(ii) The Debtor hereby authorizes the Secured Party to file one
or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral
without the signature of the Debtor where permitted by law.
A carbon, photographic or other reproduction of this
Agreement or any financing statement covering the Collateral
or any part thereof shall be sufficient as a financing
statement where permitted by law;
(iii) The Debtor shall furnish to the Secured Party from time to
time statements and schedules further identifying and
describing the Collateral and such other reports in
connection with the Collateral as the Secured Party may
request, all in reasonable detail;
(p) PURCHASE MONIES. If the Secured Party advances money to the
Debtor for the purpose of enabling the Debtor to purchase or
acquire rights in any Collateral the Debtor will use such
money only for that purpose and will promptly provide the
Secured Party with evidence that such money was so applied;
(r) INVESTMENT PROPERTY. If the Collateral at any time includes
investment property, the Debtor will if required by the
Secured Party transfer the investment property into the name
of the Secured Party or the Secured Party's nominee and
until an Event of Default the Secured Party will provide the
Debtor with all notices and other communications received by
it or its nominee as registered owner of such security and
will appoint, or cause its nominee to appoint, the Debtor as
proxy to vote concerning the security.
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(s) SECURED PARTY APPOINTED ATTORNEY-IN-FACT. The Debtor hereby
irrevocably appoints the Secured Party the Debtor's
attorney-in-fact, with full authority in the place and stead
of the Debtor and in the name of the Debtor, the Secured
Party or otherwise, from time to time in the Secured Party's
discretion, to take any action and to execute any instrument
which the Secured Party may deem necessary or advisable to
accomplish the purposes of this Agreement, including,
without limitation: (a) to obtain and adjust insurance
required to be paid to the Secured Party; (b) to ask,
demand, collect, xxx for, recover, compromise, receive and
give acquittance and receipts for monies due and to become
due under or in respect of any Collateral; (c) to receive,
indorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) or
clause (b) above; and (d) to file any claims or take any
action or institute any proceedings which the Secured Party
may deem necessary or desirable for the collection of any of
the Collateral or otherwise to enforce the rights of the
Secured Party with respect to any of the Collateral.
PART 5 - NEGATIVE COVENANTS
5.1 NEGATIVE COVENANTS. The Debtor covenants and agrees with the Secured Party
that it will not, without the prior written consent of the Secured Party:
(a) CHANGE NAME. Change its name;
(b) CHANGE CORPORATE STRUCTURE. Amalgamate, merge its business with
the business of any other person or otherwise change its
corporate structure, except that Debtor may acquire the remaining
43% of its Chinese joint venture that it doesnot already own;
(c) CHANGE LOCATION. Reincorporate in another jurisdiction or change
its principal place of business or the location of its chief
executive office;
(d) PERMIT LIENS, ETC. Permit the Collateral or any part or parts
thereof to become subject to any mortgage, pledge, lien,
encumbrance or security interest, whether made, given or created
by the Debtor or otherwise except as permitted by Schedule 1, if
any;
(e) SELL COLLATERAL. Save as permitted in paragraph 5.2 sell, lease
or otherwise dispose of the Collateral or any part or parts
thereof (and in the event of any sale, lease or other disposition
permitted or consented to the Debtor will pay the proceeds to the
Secured Party);
(f) ABANDON COLLATERAL. Release, surrender or abandon the Collateral
or any part or parts thereof other than in the ordinary course of
business;
(g) MOVE COLLATERAL. Move the Collateral or any part or parts thereof
from its present location or locations (and will promptly advise
the Secured Party of the new location or locations other than in
the ordinary course of business);
(h) ACCESSIONS. Permit any of the Collateral to become an accession
to any property other than other Collateral other than in the
ordinary course of business.
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5.2 SALE OF INVENTORY. Until an Event of Default has occurred and the Secured
Party has determined to enforce the security interests hereby created, the
Debtor may only sell Collateral, other than Equipment, in the ordinary course of
business and provided that all sales will be on commercially reasonable terms.
5.3 SALE OF EQUIPMENT. Until an Event of Default has occurred and the Secured
Party has determined to enforce the security interests hereby created, the
Debtor may sell Equipment:
(a) which is replaced by Equipment of like or superior quality and
capacity ("Replacement Equipment"), or
(b) which is obsolete, worn out or otherwise no longer used or useful
to the Debtor in its business,
and the proceeds of which are either applied to the purchase price of
Replacement Equipment or, subject to the rights of the Bank, paid to the Secured
Party to be held as security for, or applied to reduce, the Obligations, as the
Secured Party sees fit.
PART 6 - DEFAULT AND ENFORCEMENT
6.1 EVENTS OF DEFAULT. The happening of any one of the following events or
conditions will constitute an event of default under this Agreement ("Event of
Default"):
(a) if the Debtor fails to make any payment of principal or
interest when due hereunder or under any Loan Document, and
such failure continues for five (5) business days
thereafter;
(b) if the Debtor defaults in observing or performing any term,
covenant or condition of this Agreement or any Loan
Document, other than the payment of monies as provided for
in subsection (a) hereof, on its part to be observed or
performed and such failure continues for ten (10) business
days thereafter;
(c) Any representation or warranty made by the Debtor or any
Obligor (or any of their officers) under or in connection
with this Agreement or any Loan Document executed in
connection herewith shall prove to have been false or
misleading in any material respect when made;
(d) Any event occurs which with the passage of time or the
giving of notice or both would constitute an Event of
Default under any Loan Document;
(e) Any of the following shall occur to the Debtor or any
Obligor, or any of their subsidiaries or affiliates:
(i) It shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the
benefit of creditors,
(ii) Any proceeding shall be instituted by or against it seeking
to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its
debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for it or for
any substantial part of its property and, in the case of any
such proceeding instituted against it (but not instituted by
it), either such proceeding shall remain undismissed or
unstayed for a period of 30 days, or any of the actions
sought in such proceeding shall occur, (including, without
limitation, the entry of an order for relief against, or the
appointment of a custodian, trustee, receiver or other
similar official for it or for any substantial part of its
property), or
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(iii) It shall take any action to authorize any of the actions
set forth above in clause (ii) of this subsection (e);
(f) Any of the Collateral shall be seized, attached, garnished or
levied upon and such seizure attachment, garnishment or levy
shall not be dissolved within ten days thereafter;
(g) The Collateral shall become subject to any lien or encumbrance
other than liens or encumbrances permitted by a Loan Document;
(h) If in the opinion of the Secured Party a material adverse change
occurs in the financial condition of the Debtor; or
(i) If, in the opinion of the Secured Party, effective control
of the Debtor changes.
An "Obligor", as used in this Section 6.1, shall mean any person other than or
in addition to Debtor who now or hereafter is indebted or obligated with respect
to the Obligations, including, without limitation, any guarantor.
6.2 ACCELERATION. In the event of an actual or deemed entry of an order for
relief with respect to the Debtor under the United States Bankruptcy Code, as
amended, all of the Obligations will immediately become due and payable without
any demand or any notice of any kind to the Debtor. If any other Event of
Default occurs the Secured Party, in its sole and absolute discretion, may
declare all or any part of the Obligations (whether or not by its terms payable
on demand) immediately due and payable, without any further demand or notice of
any kind.
6.3 SECURITY INTERESTS ENFORCEABLE. The occurrence of an Event of Default will
cause the security interests created hereby to become enforceable without the
need for any action or notice on the part of the Secured Party.
6.4 OTHER REMEDIES OF THE SECURED PARTY. If the security interests hereby
created become enforceable, the Secured Party may enforce its rights by any one
or more of the following remedies:
(a) All of the rights and remedies of a secured party under the
Uniform Commercial Code in effect from time to time in
Delaware or under other applicable law, and all other legal
and equitable rights to which the Secured Party may be
entitled, all of which rights and remedies shall be
cumulative and shall be in addition to any other rights or
remedies contained in this Agreement or any of the other
Loan Documents, and none of which shall be exclusive.
(b) The right to take immediate possession of the Collateral,
and to (i) require the Debtor to assemble the Collateral, at
the Debtor's expense, and make it available to the Secured
Party at a place designated by the Secured Party which is
reasonably convenient to both parties, and (ii) enter any
premises where any of the Collateral is located from time to
time and to keep and store the Collateral on said premises
until sold (and if said premises be the Property of the
Debtor, the Debtor agrees not to charge the Secured Party
for storage thereof).
(c) The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further
manufacturing or processing thereof, at public or private
sale or sales, with such notice as may be required by law,
in lots or in bulk, for cash or on credit, all as the
Secured Party, in its sole discretion, may deem advisable.
The Debtor agrees that 10 days written notice to the Debtor
of any public or private sale or other disposition of
Collateral shall be reasonable notice thereof (unless the
Collateral threatens to decline speedily in value, in which
case no notice shall be required), and such sale shall be at
such locations as the Secured Party may designate in said
notice. The Secured Party shall have the right to conduct
such sales on the Debtor's premises, without charge
therefor, and such sales may be adjourned from time to time
in accordance with applicable law. The Secured Party shall
have the right to sell, lease, or otherwise dispose of the
Collateral, or any part thereof, for cash, credit, or any
combination thereof, and the Secured Party may purchase all
or any part of the Collateral at public or, if permitted by
law, private sale and, in lieu of actual payment of such
purchase price, may set off the amount of such price against
the Obligations.
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(d) The Secured Party is hereby granted a license or other right
to use, without charge, the Debtor's labels, patents,
copyrights, rights of use of any name, trade secrets, trade
names, trademarks, and advertising matter, or any property
of a similar nature as it pertains to the Collateral, in
advertising for sale and selling any Collateral and the
Debtor's rights under all licenses and all franchise
agreements shall inure to the Secured Party's benefit.
In exercising, delaying in exercising or failing to exercise, any such right or
remedy the Secured Party will not incur any liability to the Debtor.
6.5 PROCEEDS OF DISPOSITION. The proceeds of the sale, lease or other
disposition of the whole or any part of the Collateral will be applied as
follows, after allowing 2 business days (as that term is defined in Paragraph
7.1(c) below) for collection:
(a) FIRSTLY to pay all costs and expenses of taking possession
and/or sale or lease or otherwise (including any receiver's
remuneration, if any);
(b) SECONDLY to pay such amounts as are necessary to keep in
good standing all liens and charges on the Collateral prior
to the security interests hereby created;
(c) THIRDLY to pay any principal, interest and other monies due
and payable hereunder (in such order as the Secured Party
may require); and
(d) Should any surplus be remaining after payment in full of all
the Obligations, they shall be paid over to the Debtor or to
whomsoever may be lawfully entitled to receive such surplus.
6.6 NO SET-OFF ETC. The Obligations will be paid by the Debtor without regard to
any equities between the Debtor and the Secured Party or any right of set-off,
combination of accounts or cross-claim. Any indebtedness owing by the Secured
Party to the Debtor may be set off or applied against, or combined with, the
Obligations by the Secured Party at any time, either before or after maturity,
without demand upon, or notice to, anyone.
6.7 DEFICIENCY. If the proceeds of the realization of the Collateral are
insufficient to fully pay to the Secured Party the Obligations, the Debtor will
immediately pay such deficiency or cause it to be paid to the Secured Party.
6.8 WAIVER. The Secured Party may waive any breach by the Debtor of any of the
provisions contained in this Security Agreement or any Event of Default,
provided always that no act or omission of the Secured Party will extend to or
be taken in any manner whatsoever to affect any subsequent breach or Event of
Default or the rights resulting therefrom.
6.9 TIME FOR PAYMENT. If the Secured Party demands payment of any Obligations
which are payable on demand or if any Obligations are otherwise due by maturity
or acceleration, it will be considered reasonable for the Secured Party to
exercise its remedies immediately if such payment is not made, and any days of
grace or any time for payment which might otherwise be required to be afforded
to the Debtor by applicable law is hereby irrevocably waived.
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PART 7 - NOTICES
7.1 NOTICES. In this Agreement:
(a) Any notice or communication required or permitted to be
given under the Agreement will be in writing and will be
considered to have been given if delivered by hand,
transmitted by facsimile transmission or mailed by prepaid
registered post in Canada, to the address or facsimile
transmission number of each party set out below:
(i) if to Secured Party:
Quest Ventures Ltd.
Xxxxx 000, 000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxx Xxxxxxxx X0X 0X0
Attention: A. Xxxxxx Xxxxxxxx
Fax No.: (000) 000-0000
(ii) if to Debtor:
Tengtu International Corp.
000 Xxxxxx Xxxx
Xxxxxxx, XX X0X 0X0
Attention: Xxxxxxx O.S. Xxxxxxx
Fax No.: (000) 000-0000
or to such other address or facsimile transmission number
as any party may designate in the manner set out above.
(b) Notice or communication will be considered to have been
received:
(i) if delivered by hand during business hours, upon
receipt by a responsible representative of the
receiver, and if not delivery during business hours,
upon the commencement of the next business day;
(ii) if sent by facsimile transmission during business
hours, upon the sender receiving confirmation of the
transmission, and if not transmitted during business
hours, upon the commencement of the next business day;
and
(iii) if mailed by prepaid registered post in Canada, upon
the fifth business day following posting; except that,
in the case of a disruption or an impending or
threatened disruption in postal services every notice
or communication will be delivered by hand or sent by
facsimile transmission.
(c) In this Agreement "business day" will mean any day
excluding Saturday, Sunday, and any day which is a legal
holiday under the laws of the State of Delaware or is a day
on which banking institutions located in such state are
closed.
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PART 8 - GENERAL
8.1 NO AUTOMATIC DISCHARGE. This Security Agreement will not be or be considered
to have been discharged by reason only of the Debtor ceasing to be indebted or
under any liability, direct or indirect, absolute or contingent, to the Secured
Party.
8.2 DISCHARGE. If at any time there are no Obligations then in existence and the
Debtor is not in default of any of the covenants, terms and provisos on the
Debtor's part contained in this Agreement, then, at the request and at the
expense of the Debtor and upon payment by the Debtor to the Secured Party of the
Secured Party's reasonable discharge fee for discharging a security agreement
the Secured Party will cancel and discharge this Security Agreement and the
security interests granted in this Agreement and the Secured Party will execute
and deliver to the Debtor all such documents as are required to effect such
discharge.
8.3 NO OBLIGATION TO ADVANCE. The Debtor acknowledges and agrees that none of
the preparation, execution or registration of notice of this Security Agreement
will bind the Secured Party to advance the monies hereby secured nor will the
advance of a part of the monies hereby secured bind the Secured Party to advance
any unadvanced portion thereof.
8.4 SECURITY ADDITIONAL. The Debtor agrees that the security interests created
by this Security Agreement are in addition to and not in substitution for any
other security now or hereafter held by the Secured Party.
8.5 NO MERGER. This Security Agreement will not operate so as to create any
merger or discharge of any of the Obligations, or of any assignment, transfer,
guarantee, lien, contract, promissory note, xxxx of exchange or security
interest held or which may hereafter be held by the Secured Party from the
Debtor or from any other person whomsoever. The taking of a judgment concerning
any of the Obligations will not operate as a merger of any of the covenants
contained in this Security Agreement.
8.6 EXTENSIONS. The Secured Party may grant extensions of time and other
indulgences, take and give up security, accept compositions, compound,
compromise, settle, grant releases and discharges, refrain from perfecting or
maintaining perfection of security interests and otherwise deal with the Debtor,
Account Debtors, sureties and others and with the Collateral and other security
interests as the Secured Party may see fit without prejudice to the liability of
the Debtor or the Secured Party's right to hold and realize on the security
constituted by this Security Agreement.
8.7 PROVISIONS REASONABLE. The Debtor acknowledges that the provisions of this
Security Agreement and, in particular, those respecting rights, remedies and
powers of the Secured Party or any Receiver against the Debtor, its business and
any Collateral are commercially reasonable.
8.8 ASSIGNMENT. The Secured Party may, without notice to the Debtor, at any time
assign, transfer or grant a security interest in this Security Agreement and the
security interests hereby granted. The Debtor expressly agrees that the
assignee, transferee or secured party, as the case may be, will have all of the
Secured Party's rights and remedies under this Security Agreement and the Debtor
will not assert any defence, counter-claim, right of set-off or otherwise any
claim which the Debtor now has or hereafter acquires against the Secured Party
in any action commenced by any such assignee, transferee or secured party, as
the case may be, and will pay the Obligations to the assignee, transferee or
secured party, as the case may be, as the Obligations become due.
8.96 APPROPRIATION OF PAYMENTS. Any and all payments made in respect of the
Obligations from time to time and monies realized from any security interests
held therefor (including monies collected in accordance with or realized on any
enforcement of this Security Agreement) may be applied to such part or parts of
the Obligations as the Secured Party may see fit and the Secured Party may at
all times and from time to time change any appropriation as the Secured Party
may see fit.
8.70 NO REPRESENTATIONS. The Debtor acknowledges and agrees that the Secured
Party has made no representations or warranties other than those contained in
this Security Agreement.
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8.11 USE OF COLLATERAL BY DEBTOR. Save as provided in paragraph 1.6, until an
Event of Default occurs the Debtor will be entitled to possess, operate,
collect, use and enjoy the Collateral in any manner not inconsistent with the
terms hereof.
8.12 MODIFICATIONS, ETC. No modification or amendment of this Security Agreement
will be effective unless in writing and executed by the Debtor and the Secured
Party and no waiver of any of the provisions of this Security Agreement will be
effective unless in writing and signed by the party waiving the provision.
8.13 DISCLOSURE OF INFORMATION. The Debtor hereby consents to the Secured Party,
in compliance or purported compliance with any statutory disclosure
requirements, disclosing information about the Debtor, this Security Agreement,
the Collateral and the Obligations to any person the Secured Party believes is
entitled to such information and the Debtor acknowledges and agrees that the
Secured Party may charge and retain a fee and its costs incurred in providing
such information.
8.14 STATUTORY WAIVERS. To the fullest extent permitted by law, the Debtor
waives all of the rights, benefits and protections given by the provisions of
any existing or future statute which imposes limitations upon the powers, rights
or remedies of a secured party or upon the methods of realization of security,
including any seize or xxx or anti-deficiency statute or any similar provisions
of any other statute.
PART 9 - INTERPRETATION
9.1 INCORPORATED DEFINITIONS. In this Security Agreement words which are defined
in the Uniform Commercial CodE in effect in Delaware from time to time (the
"Code") which are not defined in this Agreement will have the meaning set out in
the Code.
9.2 HEADINGS. The headings in this Security Agreement are inserted for
convenience of reference only and will not affect the construction or
interpretation of this Security Agreement.
9.3 SEVERABILITY. If any provision contained in this Security Agreement is
invalid or unenforceable the remainder of this Security Agreement will not be
affected thereby and each provision of this Security Agreement will separately
be valid and enforceable to the fullest extent permitted by law. Without
limiting the generality of the foregoing and regardless of any provision
contained in any Loan Document, the Secured Party shall not be entitled to
receive, collect or apply as interest, and this Agreement shall not secure, any
amount in excess of interest calculated at the maximum non-usurious rate of
interest permitted by applicable law.
9.4 LAWS OF DELAWARE. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware and the Debtor hereby submits
to the non-exclusive jurisdiction of the Courts of Delaware concerning this
Security Agreement.
9.5 JOINT OBLIGATIONS. If more than one person is the Debtor, the agreements of,
and all obligations and covenants to be performed and observed by, the Debtor
hereunder will be the joint and several agreements, obligations and covenants of
each of the persons comprising the Debtor and any request or authorization given
to the Secured Party by any of the persons comprising the Debtor will be
considered to be the joint and several requests or authorizations of each of the
persons comprising the Debtor.
9.6 TIME OF ESSENCE. Time will be of the essence hereof.
9.7 NUMBER AND GENDER. In this Security Agreement, words in the singular include
the plural and vice-versa and words in one gender include all genders.
9.8 ENUREMENT. This Security Agreement will enure to the benefit of and be
binding upon the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.
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PART 10 - WAIVERS
10.1 THE DEBTOR WAIVES (A) THE RIGHT TO TRIAL BY JURY (WHICH THE SECURED PARTY
HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF LOAN DOCUMENT, THE
OBLIGATIONS, OR THE COLLATERAL, (B) PRESENTMENT, DEMAND, AND PROTEST AND NOTICE
OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE,
SETTLEMENT, EXTENSION, OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS,
CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER, AND GUARANTIES AT ANY
TIME HELD BY THE SECURED PARTY ON WHICH THE DEBTOR MAY IN ANY WAY BE LIABLE AND
HEREBY RATIFIES AND CONFIRMS WHATEVER THE SECURED PARTY MAY DO IN THIS REGARD,
(C) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND
OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING THE SECURED
PARTY TO EXERCISE ANY OF THE SECURED PARTY'S REMEDIES, (D) THE BENEFIT OF ALL
VALUATION, APPRAISEMENT, AND EXEMPTION LAWS, AND (E) NOTICE OF ACCEPTANCE
HEREOF. THE DEBTOR ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO THE SECURED PARTY'S ENTERING INTO THIS AGREEMENT AND THAT THE
SECURED PARTY IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH
THE DEBTOR. THE DEBTOR WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE
FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY
WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT.
TO EVIDENCE ITS AGREEMENT the Debtor has executed this Security Agreement on the
date first above written.
TENGTU INTERNATIONAL CORP.
By: __________________________________
Its: Authorized Signatory
SCHEDULE 1
PRIOR SECURITY INTERESTS
o None.
SCHEDULE 0
XXXXXX'X XXXXX(X) XX XXXXXXXX
x Xxxxxxx, XX
DEBTOR'S CHIEF EXECUTIVE XXXXXX
000 Xxxxxx Xxxx
Xxxxxxx, XX X0X 0X0
LOCATION(S) OF COLLATERAL
o Province of Ontario
o Beijing, China
-33-
EXHIBIT E
GUARANTEE
-34-
EXHIBIT F
FORM OF PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT dated as of June 6, 2002, by and
between Orion Capital Incorporated ("Pledgor") and Quest Ventures Ltd.
("Creditor").
WHEREAS, Tengtu International Corp. ("Debtor"), Creditor and Pledgor
are parties to a Loan Agreement, dated June 6, 2002 (the Loan Agreement"); and
WHEREAS, to induce Creditor to enter into the Loan Agreements and to
extend credit thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Pledgor agreed, among
other things, to pledge and grant a security interest in the Collateral (as so
defined herein) as security for the Secured Obligations (as so defined herein);
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Terms defined in the Loan Agreement are used herein as
defined therein. In addition, as used herein:
"Collateral" shall have the meaning ascribed thereto in Section 3
hereof.
"Note" shall mean the promissory note of Debtor issued pursuant to
the Loan Agreement.
"Obligations" shall mean the prompt payment in full when due (whether
at stated maturity, by acceleration or otherwise) of the principal of, interest
and bonus on the Loans made by Creditor to, and the Note held by Creditor of,
the Debtor and all other amounts from time to time owing to Creditor by Debtor
under the Loan Agreement and under the Note, in each case strictly in accordance
with the terms thereof.
"Pledged Stock" shall have the meaning ascribed thereto in Section
3(a) hereof.
"Secured Obligations" shall mean, collectively, (a) the Obligations,
and (b) all obligations of the Debtor and/or the Pledgor under the Transaction
Documents .
"Uniform Commercial Code" shall mean the Uniform Commercial Code as
in effect from time to time in the State of New York.
SECTION 2. REPRESENTATIONS AND WARRANTIES. Pledgor represents and warrants to
Creditor that:
2.01 NO BREACH. None of the execution and delivery of this Agreement,
the consummation of the transactions herein contemplated or compliance with the
terms and provisions hereof will conflict with or result in a breach of, or
require any consent under, any applicable law or regulation, or any order, writ,
injunction or decree of any court or governmental authority or agency, or any
agreement or instrument to which Pledgor is a party or by which Pledgor is bound
or to which Pledgor is subject, or constitute a default under any such agreement
or instrument, or result in the creation or imposition of any lien upon
Pledgor's earnings or assets pursuant to the terms of any such agreement or
instrument.
2.02 ACTION. This Agreement has been duly and validly executed and
delivered by Pledgor and constitutes a legal, valid and binding obligation,
enforceable in accordance with its terms.
2.03 APPROVALS. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency is necessary for the execution, delivery or performance by such Pledgor
of this Agreement or for the validity or enforceability hereof.
-35-
2.04 PLEDGED STOCK.
(a) Pledgor is the sole legal and beneficial owner of the Collateral
in which it purports to grant a security interest pursuant to Section 3 hereof
and no lien or other encumbrance exists or will exist upon such Collateral at
any time (and no right or option to acquire the same exists in favor of any
other Person), except for the pledge and security interest in favor of Creditor
created or provided for herein, which pledge and security interest constitutes a
first priority perfected pledge and security interest in and to all of such
Collateral.
(b) The Pledged Stock represented by the certificates identified
under the name of such Pledgor in Exhibit 1 hereto is duly authorized, validly
existing, fully paid and non-assessable and none of such Pledged Stock is or
will be subject to any contractual or other resale restriction under applicable
securities laws, or any restriction under the charter or by-laws of the Company,
upon the transfer of such Pledged Stock (except for any such restriction
contained herein).
2.05 AFFILIATE STATUS. Pledgor is an "affiliate" of Debtor (as that
term is defined in Rule 144 under the Securities Act of 1933, as amended).
Section 3. THE PLEDGE. As collateral security for the complete and timely
performance of the Secured Obligations, including, without limitation, the
prompt payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Secured Obligations, Pledgor hereby pledges and grants to
Creditor a security interest in all of such Pledgor's right, title and interest
in the following property, whether now owned by such Pledgor or hereafter
acquired and whether now existing or hereafter coming into existence (all being
collectively referred to herein as "Collateral"):
(a) the number of shares of common stock of the Company represented
by the certificates identified in Exhibit 1 hereto, together with the
certificates evidencing the same (collectively, the "Pledged Stock");
(b) all shares, securities, moneys or property representing a
dividend on any of the Pledged Stock, or representing a distribution or return
of capital upon or in respect of the Pledged Stock, or resulting from a
split-up, revision, reclassification or other like change of the Pledged Stock
or otherwise received in exchange therefor, and any subscription warrants,
rights or options issued to the holders of, or otherwise in respect of, the
Pledged Stock;
(c) in the event of any consolidation or merger in which Debtor is
not the surviving corporation, all shares of each class of the capital stock of
the successor corporation formed by or resulting from such consolidation or
merger; and
(d) all proceeds of and to any of the property of such Pledgor
described in the preceding clauses of this Section 3 (including, without
limitation, all causes of action, claims and warranties now or hereafter held by
Pledgor in respect of any of the items listed above) and, to the extent related
to any property described in said clauses or such proceeds, all books,
correspondence, credit files, records, invoices and other papers.
Section 4. FURTHER ASSURANCES; REMEDIES. In furtherance of the grant of the
pledge and security interest pursuant to Section 3 hereof, Pledgor hereby agrees
with Creditor as follows:
4.01 DELIVERY AND OTHER PERFECTION. Pledgor shall:
(a) if any of the shares, securities, moneys or property required to
be pledged by such Pledgor under Section 3 hereof are received by such Pledgor,
forthwith either (i) transfer and deliver to Creditor such shares or securities
so received by such Pledgor (together with the certificates for any such shares
and securities duly endorsed in blank or accompanied by undated stock powers
duly executed in blank) and medallion signature guaranteed, all of which
thereafter shall be held by Creditor, pursuant to the terms of this Agreement
and (ii) take such other action as Creditor shall deem necessary or appropriate
to duly record or perfect the lien created hereunder in such shares, securities,
moneys or property in said Section 3;
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(b) give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other papers that may be
necessary or desirable (in the judgment of Creditor) to create, preserve,
perfect or validate the security interest granted pursuant hereto or to enable
Creditor to exercise and enforce its rights hereunder with respect to such
pledge and security interest, including, without limitation, causing any or all
of the Collateral to be transferred of record into the name of Creditor or its
nominee;
(c) keep full and accurate books and records relating to the
Collateral, and stamp or otherwise xxxx such books and records in such manner as
Creditor may reasonably require in order to reflect the security interests
granted by this Agreement; and
(d) permit representatives of Creditor, upon reasonable notice, at
any time during normal business hours to inspect and make abstracts from its
books and records pertaining to the Collateral, and forward copies of any
notices or communications received by Pledgor with respect to the Collateral,
all in such manner as Creditor may require.
4.02. OTHER FINANCING STATEMENTS AND LIENS. Without the prior written
consent of Creditor, Pledgor shall not file or suffer to be on file, or
authorize or permit to be filed or to be on file, in any jurisdiction, any
financing statement or like instrument with respect to the Collateral in which
Creditor is not named as the sole secured party.
4.03. PRESERVATION OF RIGHTS. Creditor shall not be required to take steps
necessary to preserve any rights against prior parties to any of the Collateral.
4.04. COLLATERAL.
(a) Creditor may have the Pledged Shares reissued in its own name on
the books and records of the Debtor, to be held by Creditor pursuant to this
Agreement.
(b) So long as no Event of Default (as defined in the Note) shall
have occurred and be continuing, the Pledgor shall have the right to exercise
all voting, consensual and other powers of ownership pertaining to the
Collateral for all purposes not inconsistent with the terms of this Agreement,
the other Transaction Documents or any other instrument or agreement referred to
herein or therein, and Creditor agrees to vote the Pledged Shares in accordance
with Pledgor's written instructions.
(c) 4.05. EVENTS OF DEFAULT, ETC. During the period during which an
Event of Default shall have occurred and be continuing:
(a) Creditor shall have all of the rights and remedies with respect
to the Collateral of a secured party under the PERSONAL PROPERTY SECURITY ACT
(British Columbia) (the "BC PPSA") (whether or not said Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such additional
rights and remedies to which a secured party is entitled under the laws in
effect in any jurisdiction where any rights and remedies hereunder may be
asserted, including, without limitation, the right, to the maximum extent
permitted by law, to exercise all voting, consensual and other powers of
ownership pertaining to the Collateral as if Creditor were the sole and absolute
owner thereof (and each Pledgor agrees to take all such action as may be
appropriate to give effect to such right);
(b) Creditor in its discretion may, in its name or in the name of the
Pledgor or otherwise, demand, xxx for, collect or receive any money or property
at any time payable or receivable on account of or in exchange for any of the
Collateral, but shall be under no obligation to do so; and
-37-
(c) Creditor may, with respect to the Collateral or any part thereof
that shall then be or shall thereafter come into the possession, custody or
control of Creditor, sell, lease, assign or otherwise dispose of all or any part
of such Collateral, at such place or places as Creditor deems best, and for cash
or for credit or for future delivery (without thereby assuming any credit risk),
at public or private sale, without demand of performance or notice of intention
to effect any such disposition or of the time or place thereof (except such
notice as is required above or by applicable statute and cannot be waived), all
in accordance with the BC PPSA, and Creditor or anyone else may be the
purchaser, lessee, assignee or recipient of any or all of the Collateral so
disposed of at any public sale (or, to the extent permitted by law, at any
private sale) and thereafter hold the same absolutely, free from any claim or
right of whatsoever kind, including any right or equity of redemption (statutory
or otherwise), of Pledgor, any such demand, notice and right or equity being
hereby expressly waived and released. Creditor may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the sale may be so
adjourned.
4.06. DEFICIENCY. If the proceeds of sale, collection or other
realization of or upon the Collateral pursuant to Section 4.05 hereof are
insufficient to cover the costs and expenses of such realization and the payment
in full of the Secured Obligations, the Pledgor shall remain liable for any
deficiency.
4.07. PRIVATE SALE. Creditor shall incur no liability as a result of
the sale of the Collateral, or any part thereof, at any private sale pursuant to
Section 4.05 hereof conducted in a commercially reasonable manner. Pledgor
hereby waives any claims against the Creditor arising by reason of the fact that
the price at which the Collateral may have been sold at such a private sale was
less than the price that might have been obtained at a public sale or was less
than the aggregate amount of the Secured Obligations, even if Creditor accepts
the first offer received and does not offer the Collateral to more than one
offeree. Pledgor acknowledges that the Pledged Shares are currently "restricted"
under the Securities Act, and may only be sold by the Creditor pursuant to an
effective registration statement under the Securities Act, or an applicable
exemption from registration. Even if the Pledged Shares may be sold in a
"public" sale under the Securities Act, Pledgor acknowledges that the market for
the Pledged Shares may be limited.
4.08 APPLICATION OF PROCEEDS. Except as otherwise herein expressly
provided and except as provided below in this Section 4.08, the proceeds of any
collection, sale or other realization of all or any part of the Collateral
pursuant hereto shall be applied by Creditor:
(a) First, to the payment of the costs and expenses of such
collection, sale or other realization, including reasonable out-of-pocket costs
and expenses of Creditor and the fees and expenses of its agents and counsel,
and all expenses incurred and advances made by Creditor in connection therewith;
(b) Next, to the payment in full of the Secured Obligations; and
(c) Finally, to the payment to the Pledgor, or its successors or
assigns, or as a court of competent jurisdiction may direct, of any surplus then
remaining.
As used in this Section 4, "proceeds" of Collateral shall mean cash,
securities and other property realized in respect of, and distributions in kind
of, Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Pledgor or any issuer of or obligor on
any of the Collateral.
4.09. ATTORNEY-IN-FACT. Without limiting any rights or powers granted
by this Agreement to Creditor while no Event of Default has occurred and is
continuing, upon the occurrence and during the continuance of any Event of
Default Creditor is hereby appointed the attorney-in-fact of Pledgor for the
purpose of carrying out the provisions of this Section 4 and taking any action
and executing any instruments that Creditor may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of the
foregoing, so long as Creditor shall be entitled under this Section 4 to make
collections in respect of the Collateral, Creditor shall have the right and
power to receive, endorse and collect all checks made payable to the order of
either Pledgor representing any dividend, payment or other distribution in
respect of the Collateral or any part thereof and to give full discharge for the
same.
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4.10. PERFECTION. Prior to or concurrently with the execution and
delivery of this Agreement, Pledgor shall deliver to Creditor all certificates
identified in Exhibit 1 hereto, accompanied by undated stock powers duly
executed in blank and medallion signature guaranteed, and a letter of
instruction to the Debtor and its transfer agent, instructing the Debtor and the
transfer agent that the Pledged Shares may only be transferred by the Creditor,
unless and until it receives notice to the contrary from the Creditor.
4.11. TERMINATION. When all Secured Obligations shall have been paid
in full, this Agreement shall terminate, and Creditor shall forthwith cause to
be assigned, transferred and delivered, against receipt but without any
recourse, warranty or representation whatsoever, any remaining Collateral and
money received in respect thereof, to or on the order of Pledgor.
4.12. FURTHER ASSURANCES. Pledgor agrees that, from time to time upon
the written request of Creditor, Pledgor will execute and deliver such further
documents and do such other acts and things as Creditor may reasonably request
in order fully to effect the purposes of this Agreement.
SECTION 5. MISCELLANEOUS.
5.01. NO WAIVER. No failure on the part of Creditor to exercise, and
no course of dealing with respect to, and no delay in exercising, any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise by Creditor of any right, power or remedy hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. The remedies herein are cumulative and are not exclusive
of any remedies provided by law.
5.02. NOTICES. All notices, requests, consents and demands hereunder
shall be in writing and telexed, telecopied or delivered to the intended
recipient at the addresses set forth in the Loan Agreement. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telex or telecopier or personally delivered or,
in the case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
5.03. AMENDMENTS, ETC. The terms of this Agreement may be waived,
altered or amended only by an instrument in writing duly executed by Pledgor and
Creditor. Any such amendment or waiver shall be binding upon the Company,
Creditor, each holder of any of the Secured Obligations and Pledgor.
5.04. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the respective heirs, executors, administrators,
successors and assigns of Pledgor, Creditor and each holder of any of the
Secured Obligations (provided, however, that Pledgor shall assign or transfer
his or her rights hereunder without the prior written consent of Creditor). In
the event that this Agreement is assigned by Creditor, Creditor must first
provide ten (10) days written notice of the assignment to Debtor and Pledgor.
5.05. CAPTIONS. The captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
5.06. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
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5.07 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement shall
be governed by, and construed in accordance with, the laws of the Province of
British Columbia, without regard to the conflicts of laws provisions thereof.
Pledgor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the courts of the Province of
British Columbia, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement, or for recognition or
enforcement of any judgment, and hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in British Columbia, to the extent permitted by law. Pledgor hereby
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. The Company and each Pledgor 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 in any court referred to above, and 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. Pledgor irrevocably
consents to service of process in the manner provided for notices below. Nothing
in this Agreement will affect the right of Creditor to serve process in any
other manner permitted by law.
5.09. AGENTS AND ATTORNEYS-IN-FACT. Creditor may employ agents and
attorneys-in-fact in connection herewith and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
in good faith.
5.10. SEVERABILITY.If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Creditor in order
to carry out the intentions of the parties hereto as nearly as may be possible
and (ii) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Pledge and
Security Agreement to be duly executed and delivered as of the day and year
first above written.
ORION CAPITAL INCORPORATED QUEST VENTURES LTD.
By:_____________________________ By:_____________________________
Title:___________________________ Title:___________________________
-00-
XXXXXXX 0
XXXXXXX XXXXX
CERTIFICATE NUMBER DATE OF ACQUISITION NUMBER OF SHARES
949 June 14, 2001 3,333,333
951 May 15, 2001 3,349,146
962 June 17, 2001 3,333,333
-41-
EXHIBIT G
Letter of Instruction
-42-
GUZOV, XXXXXXXX & XXXXXX, LLC
ATTORNEYS-AT-LAW
000 XXXXXXX XXXXXX 00XX XXXXX
XXX XXXX, XXX XXXX 00000
TELEPHONE: (000) 000-0000 TELEFAX: (000) 000-0000
XXXXX X. XXXXX (NY & NJ BARS)
XXXXXXXX X. XXXXXXXX (NY BAR)
XXXXXX X. XXXXXX (NY BAR)
June 5, 2002
BY FACSIMILE TO 000-000-0000 AND E-MAIL
Ms. Xxxxxxxxx Xxxxx
U.S. Stock Transfer Corp.
0000 Xxxxxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
Re: Tengtu International Corp. - Rule 144 transfer of shares by Quest
Ventures, Ltd.
Dear Xx. Xxxxx:
We are counsel to Tengtu International Corp. ("Tengtu"). We hereby
direct that with respect to the sale of shares of Tengtu International Corp.
("Tengtu") $.01 par value per share common stock represented by certificates
949, 951 and/or 962 (the "Shares"),or any certificate(s) issued to Quest
Ventures, Ltd. as transferee of the Shares, under Rule 144, you may accept an
opinion letter in the form attached from the law firm of Xxxxxxxx, Xxxxxxx &
Xxxxx PLLC and should not seek our opinion as to any such sale.
Very truly yours,
Guzov, Xxxxxxxx & Xxxxxx, LLC
GUZOV, XXXXXXXX & XXXXXX, LLC
cc: Mr. Xxxx Xxx (by facsimile w/encl. to 416-963-9659)
Xxxxx Xxxx, Esq. (by e-mail to XXXXX@XXX.XXX)
-------------
Xxxxxxx Xxxxxxx, Esq. (by e-mail to XXXX_XXXXXXX@XXXXX.XX)
---------------------
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[Date]
BY FACSIMILE TO 000-000-0000
Ms. Xxxxxxxxx Xxxxx
U.S. Stock Transfer Corp.
0000 Xxxxxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
Re: Tengtu International Corp. Rule 144 transfer of shares by Quest
Ventures, Ltd.
Dear Xx. Xxxxx:
We are U.S. counsel to Quest Ventures Ltd. ("Seller"). We write at
the request of Seller for removal of transfer restrictions from _______________
shares (the "Shares") of Tengtu International Corp. ("Tengtu") $.01 par value
per share common stock represented by certificate (the "Shares"). The registered
holder of the Stock is Seller. Seller is holding the Stock as a pledgee pursuant
to the terms of a loan agreement among Tengtu, Seller and Orion Capital
Incorporated (the "Loan Agreement"). We also direct your attention to the June
5, 2002 letter from Guzov, Xxxxxxxx & Xxxxxx, LLC, a copy of which is annexed
hereto, requesting that U.S. Stock Transfer Corp. accept an opinion letter as to
the shares represented by Certificate _______ from our firm.
We have reviewed the following materials which are annexed hereto:
(1) representation letter from Seller, (2) Form 144 executed by Seller and (3)
June __, 2002 opinion letter from Guzov Xxxxxxxx & Xxxxxx, LLC relating to,
INTER ALIA, the holding period of the Shares. Based only on the foregoing, and
without any independent investigation on our part, the Shares may be sold
pursuant to Rule 144.
This opinion is rendered only with regard to the matter set forth
above. No other opinions are intended nor should they be inferred. This opinion
is solely for the information of the addressee set forth above, and is not to be
quoted in whole or in part or otherwise referred to, nor is it to be filed with
any governmental agency or other person without our prior written consent. Other
than the addressee set forth above, no one is entitled to rely on this opinion.
This opinion is based upon our knowledge of the law and facts as of the date
hereof. We assume no duty to communicate with you with respect to any matter
which comes to our attention hereafter.
In rendering our opinion, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us, the conformity to
the originals of all documents submitted to us as certified, photostatic or
conformed copies, and the authenticity of the originals of all such latter
documents.
In rendering our opinion, we have assumed that (i) the documents
described above, as will be received by you, will be true, correct and complete
and have not been amended by oral or written agreement or by conduct of any
party and (ii) Seller has all requisite power and authority and has taken all
necessary action in connection with the transfer of the Stock.
Our examination of the law relevant to the matters covered by this
opinion is limited to the Securities Act of 1933, as amended.
Very truly yours,
Enclosures
cc: Xxxxxx X. Xxxxxx, Esq. (by facsimile w/encl. to 212-688-7273)
-44-
