LOAN AGREEMENT
AGREEMENT made on this 17th day of November, 2000, by and between
Tengtu International Corp., a Delaware corporation ("Debtor"), and Orion Capital
Incorporated, a corporation organized under the laws of Ontario ("Creditor").
In consideration of the mutual covenants and promises contained in
this agreement, Debtor and Creditor agree:
1. Loan Agreement. On the terms and subject to the conditions set forth in
this Agreement, Creditor shall loan to Debtor, and Debtor shall borrow
from Creditor, the sum of U.S.$500,000 (the "Loan").
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. Representations and Warranties. (A) Debtor hereby represents and
warrants to Creditor as follows:
(1) ORGANIZATION. Debtor is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, and has full corporate
power and authority to conduct its business as and to the extent now conducted
and to own, use and lease its assets and properties. Debtor has full corporate
power and authority to execute and deliver this Agreement, the Note and the
Warrant and to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby.
(2) AUTHORITY; DUE AUTHORIZATION. The execution and delivery by Debtor
of this Agreement, the Note and the Warrant, and the performance by Debtor of
its obligations hereunder and thereunder, have been duly and validly authorized
by the Board of Directors of Debtor, no other corporate action on the part of
Debtor or its respective shareholders being necessary. This Agreement has been
duly and validly executed and delivered by Debtor and constitutes, and upon the
execution and delivery by Debtor of the Note and the Warrant, the Note and the
Warrant will constitute, legal, valid and binding obligations of Debtor
enforceable against Debtor in accordance with their terms.
(3) NO CONFLICTS. The execution and delivery by Debtor of this
Agreement do not, and the execution and delivery by Debtor of the Note and the
Warrant, the performance by Debtor of its obligations under this Agreement, the
Note and the Warrant and the consummation of the transactions contemplated
hereby or thereby will not:
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(I) conflict with or result in a violation or breach of any of
the terms, conditions or provisions of the certificate of incorporation or
by-laws (or other comparable corporate charter document) of Debtor;
(II) conflict with or result in a violation or breach of any
term or provision of any law or order applicable to Debtor or any of its assets
and properties; or
(III) (a) conflict with or result in a violation or breach of,
(b) constitute (with or without notice or lapse of time or both) a default
under, (c) require Debtor or any other person or entity to obtain any consent,
approval or action of, make any filing with or give any notice to any person or
entity as a result or under the terms of, or (d) result in the creation or
imposition of any lien upon Debtor or any of its assets or properties under, any
contract or license to which Debtor is a party or by which any of its assets and
properties is bound.
(4) WARRANT. The issuance of the Warrant (as defined below) is not
subject to any preemptive rights or rights of first refusal under the Delaware
General Corporation Law or otherwise created by the Company. The shares of
common stock issuable upon exercise of the Warrant have been duly and validly
reserved for issuance and are not subject to any preemptive rights or rights of
first refusal under the Delaware General Corporation Law or otherwise created by
the Company, and when issued upon exercise of the Warrant in accordance with its
terms such shares will be duly authorized, validly issued, fully paid and
nonassessable.
(B) Each individual that is a party to this Agreement hereby represents
and warrants to Creditor as follows:
(1) AUTHORITY. Such individual has full power and authority to execute
and deliver, to perform his or her obligations under, and to consummate the
transactions contemplated by this Agreement. This Agreement is a valid and
legally binding obligation of such individual, enforceable against it in
accordance with its terms.
(2) OWNERSHIP OF COMMON STOCK. Such individual (x) is an "affiliate" of
Debtor (as that term is defined in Rule 144 under the Securities Act of 1933, as
amended), (y) solely owns (beneficially and of record) the number of shares of
Common Stock set forth in Schedule 1 hereto, free and clear of all liens and
other encumbrances, and (z) has owned such shares for a least one year prior to
the date hereof. Such individual is not a party or subject to any stockholder
agreement or other arrangement of any kind with respect to the shares of Common
Stock.
(C) Creditor hereby represents and warrants to Debtor that it is an
"accredited investor" as that term is defined in Rule 501 of Regulation D under
the Securities Act of 1933, as amended.
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4. Covenants.
(1) Warrants. In consideration of Creditor's funding of the Loan,
Debtor shall, within ten (10) business days of the Loan Date,
issue to Creditor a warrant to purchase 100,000 shares (the
"Warrant") of its $.01 par value per share common stock (the
"Common Stock"). The Warrant and any documentation relating
thereto shall contain customary terms and conditions (including,
without limitation, customary antidilution provisions) and shall
be in form and substance acceptable to Creditor. The exercise
price of the Warrant shall be U.S.$.50 and the Warrant shall be
exercisable for a period of five (5) years from the date of
issuance.. In the event that (i) Debtor receives a loan with a
term of less than one year from another creditor, (ii) on or
before March 31, 2001, (iii) such creditor receives warrants to
purchase Common Stock in connection with such loan and (iv) the
warrant exercise price times the number of warrants received is
greater than 10% of the principal loan amount, Creditor shall
receive additional warrants such that Creditor and the new
creditor receive the same number of warrants in proportion to the
principal loan amount in accordance with the following example.
In addition, if any other terms or conditions of the warrants
issued to such other creditor are more favorable to such creditor
than the terms of the Warrant, then the Warrant shall promptly be
amended to incorporate the more favorable terms. The additional
warrants shall also have a term of five years.
Example:
Debtor receives a loan of $500,000 and the creditor receives
warrants to purchase 300,000 shares of Common Stock with an
exercise price of $.50.
Calculations
Exercise price of warrants received by new creditor times the
number of warrants received by new creditor ($.50 x 300,000) =
$150,000 ("Warrant Dollar Amount")
New Creditor Warrant Percentage = Warrant Dollar Amount
($150,000) divided by principal amount of new loan ($500,000) =
30%
Excess Percentage = New Creditor Warrant Percentage minus 10% =
20% Additional Warrants = Excess Percentage (20%) times principal
amount of Creditor's Loan ($500,000) divided by exercise price of
Creditor's warrants ($.50) = 200,000
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(2) Registration Rights. Debtor shall, within ten (10) business days
of the Loan Date, enter into an agreement in form and substance
satisfactory to Creditor, granting to Creditor unlimited
piggyback registration rights with respect to the Warrant (and
any additional warrants) and the shares of Common Stock issuable
upon exercise of the Warrant.
(3) Security. To induce Creditor to enter into this Agreement 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 for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, each of the individuals identified in
Schedule 1 hereto hereby jointly and severally guarantees the
prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of Debtors obligations under this
Agreement and the Note and pledges and grants to Creditor a
security interest in all of such individual's right, title and
interest in the number of shares of Common Stock identified
opposite such individuals name on Schedule 1 hereto (the "Stock")
and agrees to deliver to Creditor, within ten days of the date
hereof, the stock certificates (with stock powers executed in
blank) representing such shares and a guarantee, pledge and
security agreement relating thereto containing customary terms
and conditions and otherwise in form and substance satisfactory
to Creditor. The Stock shall be free and clear of all liens or
other encumbrances (other than as contemplated by this Agreement)
and shall immediately be eligible to be freely resold by Creditor
in accordance with the security agreement and under Rule 144
promulgated under the Securities Act of 1933, as amended. The
security agreement will provide, among other things, that
Creditor shall have the right to sell the Stock, or such portion
of the Stock necessary to satisfy any principal and accrued
interest amounts not paid on the due date thereof and that the
balance of the Stock, or cash proceeds, if any, in excess of the
outstanding principal and accrued interest, shall then be
returned to Debtor. If all principal and interest shall have been
paid by Debtor, either at the end of the term of the Note, or
before such time, the Stock shall be returned to Debtor within 10
business days of the receipt of the final payment from Debtor.
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5. General.
(1) Assignability. This Agreement may be assigned by Creditor only.
(2) Governing Law; Jursidiction. Any dispute, disagreement, conflict
of interpretation or claim arising out of or relating to this
Agreement, or its enforcement, shall be governed by the laws of
the State of New York. The Debtor and each individual party to
this Agreement hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of
the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern
District of New York, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this
Agreement or the Note, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York
State or, to the extent permitted by law, in such Federal court.
Each 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 or the Note in 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. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED
ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.
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(3) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same agreement.
(4) Headings. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(5) Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision(s)
shall be excluded from this Agreement and the balance of the
Agreement shall be interpreted as if such provision(s) were so
excluded and shall be enforceable in accordance with its terms.
(6) Waiver. Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as
a waiver of any such provision or provisions, or prevent that
party thereafter from enforcing each and every other provision of
this Agreement.
(7) Notices. All notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent
by facsimile, as follows:
If to Debtor:
C/o Hecht & Steckman, P.C.
60 East 42nd Street, Suite 501
New York, NY 10165-5101
Attention: Darren L. Ofsink
Facsimile No: 212-490-3263
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If to any individual shareholder:
C/o Hecht & Steckman, P.C.
60 East 42nd Street, Suite 501
New York, NY 10165-5101
Attention: Darren L. Ofsink
Facsimile No: 212-490-3263
If to Creditor:
Orion Capital Incorporated
Sherway Executive Center
310 North Queen Street
Suite 103N
Etobicoke, Ontario M9C 5K4
Canada
Attention: John Perkins
Facsimile No.: 416-620-7279
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telecopier or personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as aforesaid. Any party hereto may change its address or facsimile
number for notices and other communications hereunder by notice to the other
parties hereto.
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In Witness Whereof, the parties hereto have executed this Agreement as
of the date set forth above.
DEBTOR
TENGTU INTERNATIONAL CORP.
By:
Name:
Title:
INDIVIDUALS:
-----------------------------
Zhang Fan Qi
-----------------------------
Hai Nan
-----------------------------
Jing Lian
-----------------------------
Xiaofeng Lin
-----------------------------
Pak Cheung
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CREDITOR
ORION CAPITAL, INCORPORATED
By:
Name:
Title:
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SCHEDULE 1
Name Number of Shares Certificate Numbers
---- ---------------- -------------------
Zhang Fan Qi 200,000 882, 883, 884 and 885
Hai Nan 200,000 725
Jing Lian 200,000 722
Xiaofeng Lin 200,000 812
Pak Cheung 200,000 45
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