SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) December 23, 1999
-----------------
TENGTU INTERNATIONAL CORP.
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter
Delaware 033-27707 77-0407366
- --------------- ----------- ------------------
(State or Other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification No.)
206-5050 Kingway
Burnaby, British Columbia
Canada VH5 4H2
--------------------------------------------------
Address of Principal Executive Offices) (Zip Code)
(604) 438-9827
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
<PAGE>
ITEM 5 OTHER EVENTS
- ------ ------------
On December 23, 1999, Tengtu International Corp., a Delaware
corporation ("Tengtu") received an investment of U.S.$1,500,000 in exchange for
a four year Floating Convertible Debenture ("Debenture") convertible into shares
of Tengtu's $.01 par value common stock ("Common Stock") and a separate Common
Stock Warrant ("Warrant") for the purchase of 1,500,000 shares of Common Stock.
The purchaser of the Debenture and Warrant is Top Eagle Holdings Limited, a
British Virgin Islands company ("Top Eagle") that is wholly owned by Yugang
International Limited, a Honk Kong company engaged in the trading of audio
visual products and components, industrial equipment, automobile parts,
agricultural products, raw materials and other products in the Central and
Western parts of China.
The Debenture is due December 15, 2003 and provides for accrual of
interest beginning December 15, 2000 at a rate equal to the best lending rate of
The Hong Kong and Shanghai Banking Corporation plus two percent. The Debenture
is convertible into Tengtu's Common Stock at a conversion price of U.S.$.50
during the first year, U.S.$1.00 during the second year, U.S.$2.00 during the
third year and U.S.$4.00 on any date thereafter. The unpaid balance of principal
and interest outstanding at maturity, if any, may be converted by the holder
into Tengtu Common Stock at the then existing market price minus twenty percent.
The Warrant gives the holder the right to purchase 1,500,000 shares of
Tengtu Common Stock at U.S.$1.00 per share during the first year, U.S.$2.00 per
share during the second year and U.S.$4.00 thereafter. The Warrant shall become
void three years after issuance.
In connection with the purchase of the Debenture and Warrant, Tengtu
and Top Eagle entered into an Investor Rights Agreement which provides that on
or before June 15, 2000, Top Eagle may purchase additional convertible
debentures for up to U.S.$3.5 million and receive additional warrants on
substantially the same terms. The Investor Rights Agreement also provides the
holder(s) of the Debenture, Warrant and or the shares issued upon conversion or
exercise thereof, with registration and certain other rights.
<PAGE>
ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS
- ------ ---------------------------------
Financial Statements
- --------------------
Tengtu International Corp. and Subsidiaries
Consolidated Balance Sheet
For the Quarter Ended September 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
As At
Sept. 30, 1999
--------------
ASSETS
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 561,171
Accounts receivable, net of allowance for
doubtful accounts of $209,981 497,099
Due from related party 299,333
Prepaid expenses 47,262
Inventories 38,592
Other receivables 35,358
------------
Total Current Assets 1,478,815
PROPERTY AND EQUIPMENT, net 1,318,182
OTHER ASSETS 13,742
------------
TOTAL ASSETS $ 2,810,739
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,124,270
Due to related party consultants 1,179,549
Other liabilities 47,732
------------
Total Current Liabilities 3,351,551
------------
SHAREHOLDERS' LOAN 357,935
------------
MINORITY INTEREST 551,222
------------
STOCKHOLDERS' DEFICIT
Preferred stock, par value $.01 per share; authorized
10,000,000 shares; issued -0- shares
Common stock, par value $.01 per share; authorized
100,000,000 shares; issued 19,477,607 shares 194,777
Additional paid in capital 8,746,659
Accumulated deficit (10,349,777)
Cumulative translation adjustment (40,844)
------------
(1,449,185)
Less: Treasury stock, at cost, 78,420 common shares (784)
Total Stockholders' Deficit (1,449,969)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,810,739
============
</TABLE>
<PAGE>
Tengtu International Corp. and Subsidiaries
Consolidated Statements of Operations
For the Quarter Ended September30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Jul 1 to
Sept 30, 1999
-------------
<S> <C>
SALES $ 392,004
COST OF SALES 207,468
GROSS INCOME 184,536
------------
OPERATING EXPENSES
Research and development 0
General and administrative 424,709
Advertising 0
Selling 110,872
Depreciation and amortization 10,045
------------
545,626
OTHER INCOME (EXPENSE)
Interest income 402
Other income 0
------------
402
------------
LOSS BEFORE MINORITY INTERESTS $ (360,688)
============
MINORITY INTERESTS IN SUBSIDIARY'S EARNINGS (LOSS)
(26,601)
------------
NET LOSS
$ (334,087)
============
NET LOSS PER COMMON SHARE
[Basic and Diluted] $ (0.02)
WEIGHTED AVERAGE NUMBER OF SHARES 19,477,607
</TABLE>
<PAGE>
Tengtu International Corp. and Subsidiaries
Statement of Stockholders' Deficit
For the Quarter Ended September 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Cumulative Treasury Unamortized Stock-
Common Stock Paid-in Accumu- Transla- Stock Deferred holders'
------------ lated tion at
Shares Amount Capital Deficit Adjustment Cost Compensation Deficit
------ ------ ------- ------- ---------- ---- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance-June 30, 1998 19,297,107 $ 192,972 $8,725,901 $(8,352,743) $(21,385) $(784) $(50,000) $493,961
Issuance of common stock in
exchange for services at fair
value - May 21, 1999 180,500 1,805 20,758 22,563
Amortization of deferred
compensation related to stock
options issued in year ended
June 30, 1997 50,000 50,000
Translation adjustment 16,235 16,235
Net loss - year ended
June 30, 1999 (1,662,947) (1,662,947)
Balance June 30, 1999 19,477,607 194,777 8,746,659 (10,015,690) (5,150) (784) 0 (1,080,188)
Net loss - quarter ended
September 30, 1999 (334,087) (334,087)
Foreign currency adjustment
(35,694) (35,694)
Balance - Sept. 30, 1999 19,477,607 194,777 8,746,659 (10,349,777) (40,844) (784) 0 (1,449,969)
========== ======= ========= ========== ====== === ===== =========
</TABLE>
<PAGE>
Tengtu International Corp. and Subsidiaries
Consolidated Statements of Cash Flows
For the Quarter Ended September 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Sept. 30, 1999
--------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net loss $(334,087)
Adjustments to reconcile net loss
to net cash provided (used) by operating activities:
Depreciation and amortization 53,898
Minority interest in subsidiary (26,601)
Changes in operating assets and liabilities:
Decrease (Increase) in operating assets:
Accounts receivable (59,307)
Prepaid expenses (17,359)
Inventories (4,144)
Other receivables (2,617)
Due from related party 23,954
Other assets 45,698
Increase (Decrease) in operating liabilities:
Accounts payable 50,867
Due to related party consultants 120,000
Other liabilities (17,503)
---------
Net Cash Used by Operating Activities (167,201)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment 0
Net Cash Used by Investing Activities 0
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in shareholders' loan 357,935
Net Cash Provided by Financing Activities 357,935
EFFECT OF EXCHANGE RATE CHANGES ON CASH (35,694)
---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 155,040
CASH AND CASH EQUIVALENTS, beginning of year 406,131
---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 561,171
=========
</TABLE>
<PAGE>
Exhibits
1. Convertible Debenture and Warrant Purchase Agreement dated
December 20, 1999;
2. Investor Rights Agreement dated December 20, 1999;
3. Floating Convertible Debenture dated December 20, 1999;
4. Common Stock Warrant dared December 20, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TENGTU INTERNATIONAL CORP.
(Registrant)
Date: January 4, 1999 By: /S/ PAK KWAN CHEUNG
-------------------
Name: Pak Kwan Cheung
Title: Chairman of the Board of Directors
and Chief Executive Officer
Exhibit (1)
CONVERTIBLE DEBENTURE AND WARRANT PURCHASE AGREEMENT
This Convertible Debenture and Warrant Purchase Agreement (this
"Agreement") is made and entered into as of December 21, 1999 by and between
Tengtu International Corp., a Delaware corporation (the "Company") and Top Eagle
Holdings Limited, a British Virgin Island international business company (the
"Investor").
Whereas, the Company desires to issue to the Investor, and the Investor
desires to purchase from the Company, the Company's convertible debenture, in
the form attached to this Agreement as Exhibit A (the "Convertible Debenture"),
and the Company's common stock warrant, in the form attached to this Agreement
as Exhibit B (the "Warrant"), on the terms and conditions set forth in this
Agreement;
Now, therefore, the parties hereby agree as follows:
1. AGREEMENT TO PURCHASE AND SELL THE CONVERTIBLE DEBENTURE AND THE
WARRANT. The Company agrees to issue to the Investor, and the Investor agrees to
purchase from the Company, at the Closing (as defined below), (a) the Debenture
for an aggregate principal amount of One Million Five Hundred Thousand U.S.
Dollars (US$1,500,000) and (b) the Warrant for US$0 (collectively, the "Purchase
Price"). The Investor will notify the Company of the aggregate principal amount
of Purchase Price in writing not less than two (2) business days prior to the
Closing.
2. CLOSING. The purchase and sale of the Convertible Debenture and the
Warrant will take place at the offices of Hecht & Steckman, P.C., 60 East 42nd
Street, Suite 5101, New York, New York 10165-5101, U.S.A., at 10:00 a.m. New
York time, on December 23, 1999 or at such other time and place as the Company
and the Investor mutually agree upon (which time and place are referred to in
this Agreement as the "Closing"). At the Closing, the Company will deliver to
the Investor the original Convertible Debenture and the original Warrant each
executed by the Company against delivery to the Company by the Investor of the
Purchase Price, paid by wire transfer of immediately available funds to the
account designated by the Company in writing prior to the Closing.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor that, except as set forth in the
Schedule of Exceptions ("Schedule of Exceptions") attached to this Agreement as
Exhibit C (which Schedule of Exceptions, when read together with this Section 3,
shall be deemed to be representations and warranties to the Investor by the
Company under this Section 3), the statements in the following paragraphs of
this Section 3 are all true and complete as of the date hereof:
3.1 Organization, Good Standing and Qualification. The Company
has been duly incorporated and organized, and is validly existing and, except as
set forth in the Schedule of Exceptions, in good standing, under the laws of the
State of Delaware. The Company has the corporate power and authority to enter
into and perform this Agreement, the Convertible Debenture, the Warrant, and
that certain Investor Rights Agreement dated as of the date hereof, between,
inter alia, the Company and the Investor, the form of which is attached to this
Agreement as Exhibit D (the "Investor Rights Agreement"), to own and operate its
properties and assets and to carry on its business as currently conducted. To
the best of its knowledge, the Company is duly qualified and is in good standing
as a foreign corporation to do business in every jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, including, without limitation, British Columbia,
Canada.
<PAGE>
3.2 CAPITALIZATION. The capitalization of the Company
immediately prior to the Closing consists of the following:
(a) COMMON STOCK. A total of one hundred million
(100,000,000) authorized common shares, par value US$0.01 per share (the
"Ordinary Shares"), of which a maximum of twenty million seven-hundred
fifty-seven thousand six hundred seven (20,757,607) shares (including 210,000
shares issued or to be issued pursuant to options exercised by Hecht & Steckman,
P.C. prior to the date hereof, and 750,000 shares to be issued to Zhang Fan Qi,
a Company Director, pursuant to the terms of a July 20, 1999 agreement) are
issued and outstanding.
(b) PREFERRED STOCK. A total of ten million (10,000,000)
authorized preferred shares, par value US$0.01 per share (the "Preferred
Shares"), of which none are issued and outstanding.
(c) OPTIONS, WARRANTS, RESERVED SHARES. The Company
currently has options outstanding for the purchase of 2,650,000 Ordinary Shares.
No single option holder has the option to purchase more than 300,000 Ordinary
Shares. The Compensation Committee of the Company's Board of Directors has
authorized the issuance of options to purchase up to an aggregate of 350,000
Ordinary Shares to an officer, to one of the Company's outside legal counsel and
to a consultant, and has approved in principle an employment agreement with
Comadex Industries, Ltd., a consulting company owned by Pak Kwan Cheung,
Chairman and Chief Executive Officer of the Company (a draft of which is
attached as Exhibit H hereto) providing for the issuance of up to Three Million
(3,000,000) Ordinary Shares and options to purchase up to One Million
(1,000,000) additional Ordinary Shares upon the occurrence of certain events.
Except as set forth above there are no outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements for the purchase or
acquisition from the Company of any Ordinary Shares or Preferred Shares or any
securities convertible into or ultimately exchangeable or exercisable for any
Ordinary Shares or Preferred Shares. No Ordinary Shares or Preferred Shares, or
shares issuable upon exercise or exchange of any outstanding options, warrants
or rights, or other shares issuable by the Company, are subject to any
preemptive rights, rights of first refusal or other rights to purchase such
shares (whether in favor of the Company or any other person), pursuant to any
agreement or commitment of the Company.
(d) AUTHORIZATION. The outstanding Ordinary Shares of the
Company are duly authorized and validly issued, fully paid and nonassessable,
and have been approved by all requisite director, and, if required, shareholder
action.
3.3 SUBSIDIARIES.
(a) GENERAL. Except for the companies described in the
Schedule of Subsidiaries attached to this Agreement as Exhibit E (the
"Subsidiaries"), the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, trust, joint
venture, association or other entity. Each of the Subsidiaries is duly organized
and validly existing under the laws of its jurisdiction of organization or
incorporation as stated in Exhibit E; has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and is duly qualified as a foreign corporation in all
jurisdictions inwhich it is required to be so qualified. The Company's ownership
percentage of each Subsidiary and the capitalization of each Subsidiary is as
stated on Exhibit E. The Company's interest in each Subsidiary (as stated on
Exhibit E) is owned by the Company free and clear of all liens, claims, charges
and encumbrances, and except for holders of the common stock of each Subsidiary
as set forth in Schedule E and pursuant to the terms of the Joint Venture
Agreement July 30, 1996 between Tengtu Enterprises Limited and Beijing Tengtu
Culture and Education Electronic Development Co., Ltd., as amended March 26,
1998, by an agreement between Tengtu International Corp. and Beijing Tengtu
Culture and Education Electronic Development Co., Ltd., with respect to Tengtu
United Electronics Development Co., Ltd., a sino-foreign entity joint venture
duly organized and validly existing with the status of a legal person under the
laws of the PRC (the "China Joint Venture") no person or entity has any right to
participate in, or receive any payment based on any amount relating to, the
revenue, income, value or net worth of the Subsidiaries or any component or
portion thereof, or any increase or decrease in any of the foregoing. Each of
the Subsidiaries engages only in the businesses set out with respect to such
Subsidiary on Exhibit E.
<PAGE>
(b) GOVERNMENT APPROVALS. To the best of the Company's
knowledge, all required approvals, permits, licenses or registrations relating
to the formation and operations of each Subsidiary have been properly obtained,
and each of these approvals, permits, licenses or registrations of each such
company is valid and effective, and as of the date hereof none of them has been
revoked or modified.
(c) COMPLIANCE WITH LAW. To the best of the Company's
knowledge, the scope of business of each Subsidiary and the actual operations
thereof fully comply with all current applicable laws in its jurisdiction of
organization or incorporation and in each jurisdiction in which it is required
to be duly qualified as a foreign corporation or to be otherwise licensed to
conduct business therein.
(d) BEIJING SUBSIDIARY. With respect to TIC Beijing
Electronics Co., Ltd., a Chinese company (the "Beijing Subsidiary"): all of the
registered capital of the Beijing Subsidiary has been fully paid by the Company
and the Beijing Subsidiary has received a capital payment verification
certificate issued by an authorized People's Republic of China ("PRC")
accounting firm confirming that the amounts set forth with respect to such
company in the preceding sentence have been paid in full. The Beijing Subsidiary
has not reduced or increased its registered capital.
(e) China Joint Venture. With respect to the China Joint
Venture, all of the registered capital of the China Joint Venture has been fully
paid by the Company and Beijing Tengtu Culture and Education Electronic
Development Co., Ltd. and the China Joint Venture has received a capital payment
verification certificate issued by an authorized PRC accounting firm confirming
that the amounts set forth with respect to such companies in the preceding
sentence have been paid in full. The China Joint Venture has not reduced or
increased its registered capital.
(f) LAND USE RIGHTS. Neither the China Joint Venture nor
the Beijing Subsidiary has any land use rights in the PRC.
3.4 DUE AUTHORIZATION. All corporate action on the part of the
Company's directors and shareholders necessary for the authorization, execution,
delivery of, and the performance of all obligations of the Company under this
Agreement, the Convertible Debenture, the Warrant and the Investor Rights
Agreement, the authorization, issuance, reservation for issuance and delivery of
all of the Ordinary Shares of the Company issuable upon conversion of the
Convertible Debenture or upon exercise of the Warrant (collectively, the
"Conversion Shares") has been taken or will be taken prior to the Closing, and
this Agreement constitutes, and the Convertible Debenture, the Warrant and the
Investor Rights Agreement, when executed and delivered, will constitute, valid
and legally binding obligations of the Company, enforceable in accordance with
their respective terms. The consummation of the transactions contemplated by
this Agreement, the Convertible Debenture, the Warrant and the Investor Rights
Agreement does not require the making of any amendment to the Certificate of
Incorporation or the By-Laws of the Company, a true, correct and complete copy
of each of which is attached to this Agreement as Exhibit F.
3.5 VALID ISSUANCE OF STOCK.
(a) The Convertible Debenture and the Warrant, when issued
and paid for as provided in this Agreement, will be duly authorized and validly
issued. The Conversion Shares have been duly and validly reserved for issuance
thereof upon conversion of the Convertible Debenture or exercise of the Warrant
and, when issued upon such conversion or exercise in accordance with the
Convertible Debenture or the Warrant, as the case may be, will be duly
authorized and validly issued, fully paid and nonassessable.
(b) Based in part on the representations made by the
Investor in Section 4 hereof and in the Investment Letter attached as Exhibit G
hereto (the "Investment Letter"), the offer and sale of the Convertible
Debenture and the Warrant solely to the Investor in accordance with this
Agreement and (assuming no change in currently applicable law or the Certificate
of Incorporation of the Company, no transfer of the Convertible Debenture or the
Warrant by a holder thereof and no commission or other remuneration is paid or
given, directly or indirectly, for soliciting the issuance of Conversion Shares
upon conversion of the Convertible Debenture or exercise of the Warrant) the
issuance of the Conversion Shares to the Investor will be exempt from the
registration and prospectus delivery requirements of the U.S. Securities Act of
1933, as amended (the "1933 Act").
<PAGE>
3.6 GOVERNMENTAL CONSENTS. To the best of the Company's
knowledge, 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 the Company of this Agreement, the Convertible Debenture, the Warrant and the
Investor Rights Agreement in order to consummate the transactions contemplated
in this Agreement, the Convertible Debenture, the Warrant and the Investor
Rights Agreement to which it is a party.
3.7 LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation pending (or, to the best knowledge of the Company,
currently threatened) against the Company or any Subsidiary, their respective
activities, properties or assets or, to the best of the Company's knowledge,
against any officer, director or key employee of the Company or any Subsidiary
in connection with such officer's, director's or key employee's relationship
with, or actions taken on behalf of, the Company or any Subsidiary. The Company
has no knowledge or belief that there is pending or threatened any claim or
litigation against the Company 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 the Company or any
of its Subsidiaries. The Company 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 the Company or its Subsidiaries.
3.8 STATUS OF PROPRIETARY ASSETS.
(a) STATUS. To the best of its knowledge, the Company and
each of its Subsidiaries has full title and ownership of, or is duly licensed
under or otherwise authorized to use, all patents, patent applications,
trademarks, service marks, trade names, copyrights, mask works, trade secrets,
confidential and proprietary information, designs and proprietary rights (all of
the foregoing collectively hereinafter referred to as the "Proprietary Assets"),
necessary to enable it to carry on its business as now conducted without any
conflict with or infringement of the rights of others. The Schedule of
Exceptions sets forth all of the Company's and the Subsidiaries' Proprietary
Assets. The Company has not received any notice or claim of, nor does it have
any knowledge of, any infringement or misappropriation by the Company or any
Subsidiary of the asserted rights of others. The Company is not aware of any
infringement or misappropriation by others of its or its Subsidiaries'
Proprietary Assets. The Company and each Subsidiary has taken substantially all
reasonable steps necessary or appropriate to establish and maintain its
ownership of its Proprietary Assets. The Company has no actual knowledge that
any of its or its Subsidiaries' key employees is obligated under any contract or
other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Except as set forth on the
Schedule of Exceptions, the Company does not believe it is or will be necessary
to utilize any inventions, trade secrets or proprietary information of any of
its key employees made prior to their employment by the Company or any
Subsidiary, except for inventions, trade secrets or proprietary information that
have been assigned or licensed to the Company.
<PAGE>
(b) LICENSES; Other Agreements. Except for the licenses
and co-operation agreements described in the Schedule of Licenses attached to
this Agreement as Exhibit I or as set forth on the Schedule of Exceptions,
neither the Company nor any Subsidiary has granted, and, to the best of the
Company's knowledge, there are not outstanding, any options, licenses or
agreements of any kind relating to any Proprietary Asset of the Company or any
Subsidiary, nor is the Company or any Subsidiary bound by or a party to any
option, license or agreement of any kind with respect to any of its Proprietary
Assets. Neither the Company nor any Subsidiary is obligated to pay any royalties
or other payments to third parties with respect to the marketing, sale,
distribution, manufacture, license or use of any Proprietary Asset or any other
property or rights other than as set forth in the Schedule of Exceptions.
3.9 COMPLIANCE WITH LAW AND DOCUMENTS. To the best of the
Company's knowledge, neither the Company nor any Subsidiary is in violation or
default of any provisions of its respective charter documents, as amended, and
to the best of the Company's knowledge, except for any violations that
individually and in the aggregate would have no material adverse impact on the
Company's business or its consolidated financial condition, the Company and each
Subsidiary is in compliance with all applicable statutes, laws, regulations and
executive orders of the governmental bodies and agencies having jurisdiction
over the Company's (or any Subsidiary's) or its respective business or
properties. The Company has not received any notice of any violation of any such
statute, law, regulation or order which has not been remedied prior to the
Closing. The execution, delivery and performance of this Agreement, the
Convertible Debenture, the Warrant and the Investor Rights Agreement and the
consummation of the transactions contemplated hereby or thereby will not result
in any such violation or default, or be in conflict with or result in a
violation or breach of, the Certificate of Incorporation or the By-Laws of the
Company, any judgment, order or decree of any court or arbitrator to which the
Company or any Subsidiary is a party or is subject, any agreement or contract of
the Company or any Subsidiary, or, to the Company's best knowledge, a violation
of any statute, law, regulation or order, or an event which results in the
creation of any lien, charge or encumbrance upon any asset of the Company or any
Subsidiary.
3.10 RELATED-PARTY TRANSACTIONS. No employee, officer or
director of the Company or any Subsidiary or member of his or her immediate
family is indebted to the Company or any Subsidiary, nor is the Company or any
Subsidiary indebted (or committed to make loans or extend or guarantee credit)
to any of them, except as otherwise described in the Schedule of Exceptions. To
the best of the Company's knowledge, none of such persons has any direct or
indirect ownership in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation that competes with the Company and its Subsidiaries, except that
employees, officers or directors of the Company and its Subsidiaries and members
of their immediate families may own non-controlling interests in stock of
publicly traded companies that may compete with the Company. To the best of the
Company's knowledge, no such officer or director or any member of their
immediate families is, directly or indirectly, interested in any material
contract with the Company or any Subsidiary.
3.11 PERMITS. To the best of the Company's knowledge, the
Company and each of its Subsidiaries has, or is in the process of obtaining, all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect its business, properties or financial condition
and believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. Neither
the Company nor any Subsidiary is in default in any material respect under any
of such franchises, permits, licenses or other similar authority.
3.12 REGISTRATION RIGHTS AND OTHER SHAREHOLDER RIGHTS. Except
as provided in the Investor Rights Agreement, the Company is not under any
obligation to register under the 1933 Act, any of its currently outstanding
securities or any securities issuable upon exercise or conversion of its
currently outstanding securities nor is the Company obligated to register or
qualify any such securities under the securities laws of any state of the United
States or to list any of its shares in any other jurisdiction. To the best of
the Company's knowledge, except as contemplated in this Agreement or the
Investor Rights Agreement and except for a voting trust arrangement among Pak
Kwan Cheung, Jing Lian, Nan Hai and Xiofeng Lin, President of the Joint Venture
and Beijing Tengtu Culture and Education Electronic Development Co., Ltd. (the
"Voting Group") and Pak Kwan Cheung pursuant to which Pak Kwan Cheung has the
right to vote the shares of the Voting Group, no voting or similar agreements
exist related to the Company's securities which are presently outstanding or
that may hereafter be issued.
<PAGE>
3.13 TITLE TO PROPERTY AND ASSETS. Except as set forth on the
Schedule of Exceptions, the properties and assets the Company and each
Subsidiary owns are owned by it free and clear of all mortgages, deeds of trust,
liens, encumbrances and security interests except for statutory liens for the
payment of current taxes that are not yet delinquent and liens, encumbrances and
security interests which arise in the ordinary course of business and which do
not affect material properties and assets of the Company or such Subsidiary.
With respect to the property and assets it leases, the Company and each
Subsidiary is in material compliance with such leases. The Company owns or
leases all properties and assets necessary to conduct its business and
operations as presently conducted.
3.14 FINANCIAL STATEMENTS. Except as set forth on the Schedule
of Exceptions, the Company has previously furnished to the Investor an audited
consolidated balance sheet as of June 30, 1999 for the Company and the
Subsidiaries and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two fiscal years in the
period the ended (collectively, the "Financial Statements"). The Financial
Statements have been prepared in accordance with GAAP applied on a consistent
basis, and fairly present the consolidated financial position of the Company and
its Subsidiaries as of such date. The Company has no material liabilities
(matured or unmatured, fixed or contingent) other than those set forth on the
Schedule of Exceptions.
3.15 ACTIVITIES SINCE JUNE 30, 1999. Since June 30, 1999,
there has not been:
(a) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company and
its Subsidiaries (as presently conducted and as presently proposed to be
conducted);
(b) any waiver by the Company or its Subsidiaries of a
valuable right or of a material debt owed to any of them;
(c) any material change or amendment to a material
contract or arrangement by which the Company or its Subsidiaries or any of their
respective assets or properties is bound or subject, except as set forth on the
Schedule of Exceptions;
(d) any resignation or termination of any key officers of
the Company or its Subsidiaries, and the Company, to the best of its knowledge,
does not know of the impending resignation or termination of employment of any
such officer;
(e) any declaration or payment of any dividend or other
distribution of the assets of the Company or its Subsidiaries;
(f) any debt, obligation or liability incurred, assumed or
guaranteed by the Company or its Subsidiaries, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of business;
and
(g) any material adverse change in the assets, properties,
financial condition or operating results of the Company or its Subsidiaries.
<PAGE>
3.16 LABOR AGREEMENTS AND ACTIONS. Neither the Company nor any
Subsidiary is bound by or subject to any contract, commitment or arrangement
with any labor union, and, to the best of the Company's knowledge, no labor
union has requested, sought or attempted to represent any employees,
representatives or agents of the Company or any Subsidiary. There is no strike
or other labor dispute involving the Company or any Subsidiary pending nor, to
the best of the Company's knowledge, threatened, nor is the Company aware of any
labor organization activity involving its or its Subsidiary's employees. To the
best of the Company's knowledge, no key employee of the Company or any
Subsidiary is or will be in violation of any judgment, decree or order, or any
term of any employment contract, patent disclosure agreement, or other contract
or agreement relating to the relationship of any such employee with the Company
or any other party because of the nature of the business conducted by the
Company or its Subsidiaries or to the use by the employee of his best efforts
with respect to such business. Except as set forth in the Schedule of
Exceptions, neither the Company nor any Subsidiary is a party to or bound by any
currently effective employment contract (other than contracts that can be
terminated on an at-will basis), deferred compensation agreement, bonus plan,
incentive plan, profit sharing plan, retirement agreement, or other employee
compensation agreement. The Company is not aware that any officer or key
employee, or any group of key employees, intends to terminate their employment
with the Company or any Subsidiary, nor does the Company or any Subsidiary have
a present intention to terminate the employment of any of the foregoing.
3.17 DISCLOSURE. To the best of the Company's knowledge, no
representation, warranty or statement by the Company in this Agreement, or in
any exhibit, schedule, statement or certificate furnished to the Investor
pursuant to this Agreement, when read as a whole, contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements made herein, in light of the circumstances under which they were
made, not misleading.
3.18 PROJECTIONS; MATERIAL FACTS. In connection with the
transactions contemplated by this Agreement, the Company has furnished to the
Investor certain projected budgets, financial statements and forecasts. Such
projected budgets, financial statements and forecasts were prepared by the
Company in good faith based on its best knowledge, information and belief. The
Company knows of no information or fact which has or would have a material
adverse effect on the financial condition, business or business prospects of the
Company which has not been disclosed to the Investor.
3.19 MINUTE BOOKS. Except as set forth in the Schedule of
Exceptions, the minute books of the Company contain a complete summary of all
meetings of directors and stockholders since the time of incorporation and
reflect all transactions referred to in such minutes are accurately described in
all material respects. The Subsidiaries of the Company have not maintained
minute books.
3.20 CONTRACTS AND COMMITMENTS, ETC. Except as set forth in
the Schedule of Exceptions, neither the Company nor any Subsidiary is a party to
any contracts or commitments (or group of related contracts or commitments)
other than contracts entered into in the ordinary course of business and which
do not involve more than US$100,000 or have a term (including renewals or
extensions optional with another party) of more than one year from the date
thereof. For the purpose of this Section 3.20, "ordinary course of business"
shall mean the business conducted by the Company or any Subsidiary as set forth
in the Company's report on Form 10-KSB for the fiscal year ended June 30, 1999
or any business substantially similar to such business. Neither the Company nor
any Subsidiary is in default in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any agreement or
instrument to which any of them is a party which may result in any material
adverse change in the condition, financial or other, of the Company and its
Subsidiaries.
3.21 NO DIRECTED SELLING EFFORTS. The Company has not engaged
in any advertising or any other promotional activity in the United States that
would constitute "Directed Selling Efforts" (as such term is defined in Rule
902(b) of Regulation S of the Securities Act) during the twelve (12) months
immediately preceding the date hereof.
3.22 YEAR 2000. To the best of the Company's knowledge, all
computer systems (including hardware, equipment with embedded computer chips,
software, networks, interfaces and data storage) (the "Systems") used or
incorporated in products manufactured and distributed by the Company and each
Subsidiary, which are material to its respective business, are Year 2000
Compliant. For purposes of this Section 3.22, "Year 2000 Compliance" of a System
means that neither its performance nor functionality will be affected by dates
prior to, during or after the year 2000 and which would have a material adverse
effect on the Company or such Subsidiary.
<PAGE>
3.23 INVESTMENT COMPANY ACT. The Company is not an "investment
company" under the Investment Company Act of 1940, as amended.
3.24 TAX MATTERS.
(a) Except for those filings required for the Company's
fiscal year ending June 30, 1999, the Company and each Subsidiary have filed all
Tax Returns which they are required to file under all applicable laws; all such
Tax Returns are true and accurate and have been prepared in compliance with all
applicable laws; each of the Company and each Subsidiary has paid all Taxes due
and owing by it (whether or not such Taxes are required to be shown on a Tax
Return) and has withheld and paid over to the appropriate taxing authorities all
Taxes which it is required to withhold from amounts paid or owing by it to any
employee, stockholder, creditor or other third party, and since June 30, 1999,
the charges, accruals and reserves for Taxes with respect to the Company
(including any provisions for deferred income taxes) reflected on the books of
the Company are adequate to cover any Tax liability of the Company if its
current tax year were treated as ending on the date hereof.
(b) No Claim has been made by a taxing authority in a
jurisdiction where neither the Company nor any Subsidiary does not file Tax
Returns that such corporation is or may be subject to taxation by the
jurisdiction. There are no foreign, federal, state or local tax audits or
administrative or judicial proceedings pending or being conducted with respect
to the Company or any of its Subsidiaries; no information related to Tax matters
has been requested by any foreign, federal, state or local taxing authority.
There are no material unresolved questions or claims concerning the Tax
liability of the Company or any Subsidiary.
(c) For purposes of this Section 3.24: (i) "Tax" or
"Taxes" means federal, state, county, local, foreign or other income, gross
receipts, ad valorem, franchise, profits, sales or use, transfer, registration,
excise, utility, environmental, communications, real or personal property,
capital stock, license, payroll, wage or other withholding, employment, social
security, severance, stamp, estimated and other taxes of any kind whatsoever
(including, without limitation, deficiencies, penalties, additions to tax and
interest attributable thereto) whether disputed or not; and (ii) "Tax Return"
means any return, information report or filing with respect to Taxes, including
any schedules attached thereto and including any amendment thereof.
3.25 FURTHER REPRESENTATIONS REGARDING ORDINARY SHARES. The
Company is in compliance with all requirements for the continued trading or
quotation of the Ordinary Shares and the Ordinary Shares are currently traded or
quoted on the National Association of Securities Dealers Over the Counter
Bulletin Board Market ("OTCBB"). The Company has not received any notice
regarding, and to the best of its knowledge there is no threat, of the
termination or discontinuance of the eligibility of the Ordinary Shares for such
listing or the commencement of any enforcement action by the United States
Securities and Exchange Commission. The Company does not have, and is not
currently required to have, any shares registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTOR. The
Investor hereby represents and warrants to, and agrees with, the Company that:
4.1 AUTHORIZATION. This Agreement constitutes its valid and
legally binding obligation, enforceable in accordance with its terms. The
Investor represents that it has full power and authority to enter into this
Agreement, the Investor Rights Agreement and the Ancillary Agreements to which
it is a party.
4.2 PURCHASE FOR OWN ACCOUNT. The Convertible Debenture and
the Warrant to be purchased by such Investor hereunder, including the Conversion
Shares, will be acquired for investment for such Investor's own account, not as
a nominee or agent, and not with a view to the public resale or distribution
thereof, and such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. The Investor also
represents that the sole shareholder of such Investor has not been formed for
the specific purpose of acquiring the Convertible Debenture and the Warrant.
<PAGE>
4.3 DISCLOSURE OF INFORMATION. The Investor believes it has
received or has had full access to all the information it considers necessary or
appropriate to make an informed investment decision with respect to the
Convertible Debenture and the Warrant to be purchased by the Investor under this
Agreement. The Investor further has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Convertible Debenture and the Warrant and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to such Investor or to which the Investor had access. The
foregoing, however, does not in any way limit or modify the representations and
warranties made by the Company in Section 3. The Investor has not relied on any
oral representation made by the Company or any Subsidiary, or any officer,
director or employee of the Company or any Subsidiary.
4.4 INVESTMENT EXPERIENCE. The Investor understands that the
purchase of the Convertible Debenture and the Warrant involves substantial risk.
The Investor (a) has experience as an investor in securities of companies in the
development stage and acknowledges that the Investor can bear the economic risk
of the Investor's investment in the Convertible Debenture and the Warrant and
has such knowledge and experience in financial or business matters that the
Investor is capable of evaluating the merits and risks of this investment in the
Convertible Debenture and the Warrant and protecting its own interests in
connection with this investment and/or (b) has a preexisting business
relationship with the Company and certain of its officers, directors or
controlling persons of a nature and duration that enables the Investor to be
aware of the character, business acumen and financial circumstances of such
persons.
4.5 ACCREDITED INVESTOR STATUS. The Investor is an "accredited
investor" within the meaning of Regulation D promulgated under the 1933 Act.
4.6 RESTRICTED SECURITIES. The Investor understands that the
Convertible Debenture and the Warrant and, if applicable, the Conversion Shares,
are characterized as "restricted securities" under the 1933 Act inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering and that under the 1933 Act and applicable regulations thereunder such
securities may be resold without registration under the 1933 Act only in certain
limited circumstances. In this connection, such Investor represents that the
Investor is familiar with Rule 144 of the U.S. Securities and Exchange
Commission (the "SEC"), as presently in effect, and understands the resale
limitations imposed thereby and by the 1933 Act. The Investor understands that
the Company is under no obligation to register any of the securities sold
hereunder except as provided in the Investor Rights Agreement. The Investor
understands that no public market now exists for either of the Convertible
Debenture or the Warrants and that it is uncertain whether a public market will
ever exist for the Convertible Debenture, the Warrant or the Conversion Shares.
4.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, the Investor further agrees not to
make any disposition of all or any portion of the Convertible Debenture, the
Warrant or the Conversion Shares except:
(a) pursuant to a registration statement under the 1933
Act covering such disposition; or
(b) pursuant to an exemption from registration under the
1933 Act, including, without limitation, Rule 144, Rule 144A or Regulation S
thereunder.
4.8 LEGENDS. It is understood that the certificates evidencing
the Convertible Debenture, the Warrant and the Conversion Shares will bear the
respective legends set forth below:
<PAGE>
CONVERTIBLE DEBENTURE
---------------------
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE OR CANADIAN PROVINCE, OR UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THESE SECURITIES ARE RESTRICTED AND MAY NOT BE
OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
ACT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
WARRANT
-------
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR
CANADIAN PROVINCE, OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THESE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD,
PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
CONVERSION SHARES
-----------------
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE OR CANADIAN PROVINCE, OR UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). THESE SECURITIES ARE RESTRICTED AND MAY NOT BE
OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
ACT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
The legends set forth above shall be removed by the Company from any certificate
evidencing the Convertible Debenture, the Warrant or Conversion Shares upon
delivery to the Company of an opinion by counsel, reasonably satisfactory to the
Company, that a registration statement under applicable securities laws is at
that time in effect with respect to the legended security or that such security
can be freely transferred in a public sale without such a registration statement
being in effect and that such transfer will not jeopardize the exemption or
exemptions from registration pursuant to which the Company issued the
Convertible Debenture, the Warrant or Conversion Shares.
4.9 NO RELIANCE ON ORAL STATEMENTS. The Investor, in
purchasing the Convertible Debenture and Warrant, is not relying on any oral
representations, promises or statements made by the Company, any Subsidiary or
any officer, director or employee of the Company or a Subsidiary.
4.10 TRANSFEREE UNDERTAKING. In connection with any
disposition of all or any portion of the Convertible Debenture, the Warrant or
the Conversion Shares (collectively, the "Securities") permitted pursuant to
Section 4.7, the Investors shall obtain an undertaking from each offeree or
purchaser of the Securities pursuant to which the offeree or purchaser shall
represent and warrant the following:
(a) It understands that the Securities have not been
registered under the 1933 Act and that, if in the future it decides to offer,
sell, pledge or otherwise transfer such Securities, such Securities may be
offered, sold, pledged or otherwise transferred only (i) to a person whom the
seller reasonably believes is a qualified institutional buyer in a transaction
meting the requirements of Rule 144A, (ii) in an offshore transaction pursuant
to and in compliance with Regulation S, (ii) pursuant to an exemption from
registration under the 1933 Act provided by Rule 144, if available, or (iv)
pursuant to a registration statement under the 1933 Act covering such
disposition, in all cases in accordance with all applicable securities laws of
any state of the United States or any Canadian province.
<PAGE>
(b) It understands that the Securities will contain a
legend to the following effect unless the Company determines such legend is not
necessary under applicable laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED, AN SUCH SECURITIES MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER SUCH ACT IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION PURSUANT
TO REGULATION S UNDER SUCH ACT OR (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT PROVIDED BY RULE 144, IF AVAILABLE, IN EACH
CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR CANADIAN PROVINCE."
(c) If the oferree or transferee is a qualified
institutional buyer as defined in Rule 144A of the 1933 Act, that it is aware
that the sale to it is being made in reliance on Rule 144A and it is acquiring
the Securities for its own account or for the account of a qualified
institutional buyer.
5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
the Investor under Section 2 of this Agreement are subject to the fulfillment or
waiver, on or before the Closing, of each of the following conditions:
5.1 Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 shall be
true and complete on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
5.2 PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.3 COMPLIANCE CERTIFICATE. The Company shall have delivered
to the Investor at the Closing a certificate signed on its behalf by the
Chairman of the Company's Board of Directors certifying that the conditions
specified in Sections 5.1, 5.2 and 5.3 have been fulfilled and stating that
there shall have been no material adverse change in the business, affairs,
operations, properties, assets or condition of the Company or any of its
Subsidiaries not previously disclosed to the Investor in writing.
5.4 SECURITIES EXEMPTIONS. The offer and sale of the
Convertible Debenture and the Warrant to the Investor pursuant to this Agreement
shall be exempt from the registration requirements of the 1933 Act.
5.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investor, and it shall each have received all such counterpart
originals and certified or other copies of such documents as it may reasonably
request. Such documents shall include (but not be limited to) the following:
(a) CERTIFIED CHARTER DOCUMENTS. A copy of the Certificate
of Incorporation and the By-Laws of the Company (as amended through the date of
the Closing) and a copy of the charter documents of each Subsidiary, certified
by the Chairman of the Company's Board of Directors as true and correct copies
thereof as of the Closing.
<PAGE>
(b) CORPORATE ACTIONS. A copy of the resolutions of the
Board of Directors of the Company evidencing the adoption of resolutions
authorizing the execution, delivery and performance of this Agreement and the
Investor Rights Agreement, the execution, issuance and performance of the
Convertible Debenture and the Warrant and the other matters contemplated hereby
and thereby, certified by an Executive Director of the Company to be true,
complete and correct.
5.6 OPINION OF COMPANY COUNSEL. The Investor shall have
received an opinion from Hecht & Steckman, P.C. in form and substance reasonably
satisfactory to the Investor that:
(a) the Convertible Debenture and Warrant are validly
issued;
(b) upon conversion of the Convertible Debenture or
exercise of the Warrant, the Conversion Shares will be validly issued, fully
paid and non-assessable;
(c) the Company has been duly incorporated and is validly
existing in good standing under the laws of the State of Delaware, has the
corporate authority to enter into and perform this Agreement and the Investor
Rights Agreement and has the corporate power to own and operate its properties
and assets and to carry on its business as currently conducted;
(d) the capitalization of the Company is as set forth
herein;
(e) all corporate action on the part of the Company's
directors and shareholders necessary for the authorization, execution and
delivery of, and the performance of all obligations of the Company under this
Agreement, the Investor Rights Agreement, the Convertible Debenture and the
Warrant has been taken and that this Agreement, the Investor Rights Agreement,
the Convertible Debenture and the Warrant will constitute valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms;
(f) the execution, delivery and performance of this
Agreement, the Convertible Debenture, the Warrant and the Investor Rights
Agreement, and the compliance by the Company with the terms and provisions
thereof do not contravene any law, public rule or regulation or the Certificate
of Incorporation of the Company, and do not require the consent or approval of,
or the giving of notice to, or the registration or filing with or the taking of
any other action in respect of, any governmental or judicial authority or
agency;
(g) the offer and sale of the Convertible Debenture and
Warrant to the Investor in accordance with this Agreement and the issuance of
the Conversion Shares to the Investor will be exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933; and
(h) the Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
5.7 INVESTOR RIGHTS AGREEMENT. The Company, Pak Kwan Cheung,
the Majority Shareholders (as defined in the Investor Rights Agreement) and the
Investor shall have executed and delivered the Investor Rights Agreement.
5.8 RESERVATION OF UNDERLYING STOCK. The Ordinary Shares
issuable on conversion of the Convertible Debenture and the exercise of the
Warrant shall have been duly authorized and reserved for issuance upon such
conversion and exercise.
5.9 COMPLETION OF DUE DILIGENCE. The Investor shall have
completed its legal and financial due diligence, the results of which shall be
reasonably satisfactory to the Investor, and the Company shall have reasonably
cooperated with the Investor in connection therewith.
<PAGE>
5.10 EXHIBITS. The Company shall be provided the completed
Schedule of Exceptions and Exhibit E to the Investor, the form and substance of
each of which shall be acceptable to the Investor in its absolute and sole
discretion.
5.11 INSURANCE. The Company and the Investors shall have
agreed upon an insurance plan for the Company and its Subsidiaries, including
the amount and types of coverage to be put into place.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to the Investor under this Agreement are subject to the
fulfillment or waiver on or before the Closing of each of the following
conditions by the Investor:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investor contained in Section 4 shall be true and complete on
the date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. The Investor shall have
delivered to the Company the Purchase Price in accordance with the provisions of
Section 2.
6.3 Securities Exemptions. The offer and sale of the
Convertible Debenture and the Warrant to the Investor pursuant to this Agreement
shall be exempt from the registration requirements of the 1933 Act.
7. POST-CLOSING COVENANTS OF INVESTOR.
7.1 CONFIDENTIALITY.
(a) The Investor acknowledges that the Company could be
irreparably damaged if confidential information concerning the business and
affairs of the Company were disclosed to or utilized on behalf of any person.
The Investor covenants and agrees to and with the Company that, except as
otherwise provided in this Agreement, it will not, at any time, directly or
indirectly, without the prior written consent of the Company, divulge, or permit
any of its partners, shareholders, directors, officers, employees or agents to
divulge to any person any non-public information concerning the business or
financial or other affairs, or any of the methods of doing business used by the
Company or any of its Subsidiaries, nor release any information provided
pursuant to or concerning this Agreement, the Investor Rights Agreement or any
Ancillary Agreement or the transactions contemplated by this Agreement, the
Investor Rights Agreement or any Ancillary Agreement if such release is intended
for, or may result in, its public dissemination. The foregoing requirements of
confidentiality shall not apply to information: (i) that is now or in the future
becomes freely available to the public through no fault of or action by the
using or disclosing party; (ii) that is in the possession of the using or
disclosing party prior to the time such information was obtained from the
Company or that is independently acquired by the using or disclosing party
without the aid, application or use of such other information; (iii) that is
obtained by the using or disclosing party in good faith without knowledge of any
breach of a secrecy arrangement from a third party; (iv) that is required to be
disclosed by applicable law or order of government agency or self-regulatory
body; or (v) that is disclosed in connection with any bona-fide offer to
purchase any shares in the Company; provided that the proposed transferor
obtains an undertaking from the proposed transferee to keep such information
confidential in accordance with the provision of this Section 7.1 prior to such
disclosure.
(b) The Investor and the Company agree to consult with
each other (and to take into consideration any comments reasonably raised by any
such party) prior to the dissemination of any press release or public
communication concerning this Agreement, the Investor Rights Agreement or any
Ancillary Agreement or the transactions contemplated by this Agreement, the
Investor Rights Agreement or any Ancillary Agreement. Any such press release or
public communication shall be subject to the approval of both the Company and
the Investor.
<PAGE>
(c) This Section 7.1 will survive termination of this
Agreement, the Investor Rights Agreement and the Ancillary Agreements.
8. GENERAL PROVISIONS.
8.1 SURVIVAL OF WARRANTIES; INVESTIGATION. The
representations, warranties and covenants of the Company and the Investor
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing. It shall be no defense to an action
for breach of this Agreement that the Investor or its agents have (or have not)
made investigations into the affairs of the Company or that the Company could
not have known of the misrepresentation or breach of warranty. Damages for
breach of a representation or warranty or other provision of this Agreement
shall not be diminished by alleged tax savings resulting to the complaining
party as a result of the loss complained of.
8.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties, except that the Company may not assign or
transfer any of its rights or obligations under this Agreement.
8.3 GOVERNING LAW; JURISDICTION. This Agreement and the
enforcement thereof shall be governed by and construed under the internal laws
of the State of New York. The parties hereto consent to the non-exclusive
jurisdiction of any New York State or Federal court sitting in the City of New
York and any appellate court from any thereof in any action or proceeding
arising out of or relating to this Agreement.
8.4 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.
8.5 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. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
8.6 NOTICES. Any and all notices required or permitted to be
given to a party pursuant to the provisions of this Agreement will be in writing
and will be effective and deemed to provide such party sufficient notice under
this Agreement on the earliest of the following: (i) at the time of personal
delivery, if delivery is in person; (ii) at the time of transmission by
facsimile, addressed to the other party at its facsimile number specified herein
(or hereafter modified by subsequent notice to the parties hereto), with
confirmation of receipt made by both telephone and printed confirmation sheet
verifying successful transmission of the facsimile; (iii) one (1) business day
after deposit with an express overnight courier for deliveries within a country,
or three (3) business days after such deposit for international deliveries or
(iv) three (3) business days after deposit in mail by certified mail (return
receipt requested) or equivalent for deliveries within a country. For the
purposes of this Section, a delivery between the PRC and Hong Kong shall be
considered an international delivery.
All notices for international delivery will be sent by facsimile or by
express courier. All notices not delivered personally or by facsimile will be
sent with postage and/or other charges prepaid and properly addressed to the
party to be notified at the address or facsimile number indicated for such
party, in the case of the Company, at 206-5050 Kingsway, Burnaby, BC, Canada,V5H
4H2, Attention: Mr. Pak Kwan Cheung, Facsimile: (604) 439-9869, with a copy to
Hecht & Steckman, P.C., 60 East 42nd Street, Suite 5101, New York, NY
10165-5101, Attention: Charles J. Hecht, Esq. or, in the case of the Investor,
c/o Yugang International Ltd., Room 3301-4, China Resources Building, 26 Harbour
Road, Hong Kong, Attention: Mr. Edmond Leung, Facsimile: (852) 2827-5549, or at
such other address or facsimile number as such other party may designate by
giving ten (10) days advance written notice by one of the indicated means of
notice herein to the other parties hereto. Notices by facsimile shall be machine
verified as received.
Any party hereto (and such party's permitted assigns) may by notice so
given change its address for future notices hereunder. Notice shall conclusively
be deemed to have been given in the manner set forth above.
<PAGE>
8.7 COSTS, EXPENSES. Each party hereto shall bear its own
costs in connection with the preparation, execution and delivery of this
Agreement and the Investor Rights Agreement and the issuance of the Convertible
Debenture and the Warrant.
8.8 NO FINDER'S FEES. Except for the finder's fee payable by
the Company to Albert Yao and Echo Shine Limited, whose address is 1401-2 Yue
Shing Commercial Building, 16 Queen Victoria Street, Central, Hong Kong, in an
amount equal to six percent (6%) of the Purchase Price plus six percent (6%) of
the amount paid by the Investor upon exercise of the Warrant, each party
represents that it neither is nor will be obligated for any finder's or broker's
fee or commission in connection with this transaction. The Investor agrees to
indemnify and to hold harmless the Company from any liability for any commission
or compensation in the nature of a finders' or broker's fee (and any asserted
liability) for which the Investor or any of its officers, partners, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless the Investor from any liability for any commission or compensation in
the nature of a finder's or broker's fee (and any asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
8.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.
No delay or omission to exercise any right, power, or remedy accruing to the
Investor, upon any breach, default or noncompliance of the Company under this
Agreement shall impair any such right, power, or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement, by law, or
otherwise afforded to the Investor, shall be cumulative and not alternative.
8.10 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.
8.11 ENTIRE AGREEMENT. This Agreement, together with all
exhibits and schedules hereto, constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, agreements,
understandings duties or obligations between the parties with respect to the
subject matter hereof.
8.12 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of the Investor or the Company, the Company and the
Investor shall execute and deliver such instruments, documents or other writings
as may be reasonably necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
THE COMPANY:
------------
TENGTU INTERNATIONAL CORP.
By:
Name:
Title:
INVESTOR:
---------
TOP EAGLE HOLDINGS LIMITED
By:
Name:
Title:
<PAGE>
CONVERTIBLE DEBENTURE AND WARRANT PURCHASE AGREEMENT
LIST OF EXHIBITS
Exhibit A - Convertible Debenture
Exhibit B - Warrant
Exhibit C - Schedule of Exceptions
Exhibit D - Investor Rights Agreement
Exhibit E - List of Subsidiaries
Exhibit F - Certificate of Incorporation and By-Laws of the Company
Exhibit G - Investment Letter
Exhibit H - Comadex Employment Agreement
EXHIBIT (2)
-----------
INVESTOR RIGHTS AGREEMENT
-------------------------
This Investor Rights Agreement (this "Agreement") is made and entered
into as of December 20, 1999 by and among Tengtu International Corp., a Delaware
corporation (the "Company"), Top Eagle Holdings Limited, a British Virgin
Islands international business company (the "Investor"), and Pak Kwan Cheung
(the "Majority Shareholder").
A. The Investor has agreed to purchase from the Company, and the
Company has agreed to issue to the Investor, a convertible debenture of the
Company (the "Convertible Debenture") and a common stock warrant of the Company
(the "Warrant") on the terms and conditions set forth in that certain
Convertible Debenture and Warrant Purchase Agreement, dated of even date
herewith, by and between the Company and the Investor (as amended, supplemented
or otherwise modified from time to time, the "Purchase Agreement"). Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
for such terms in the Purchase Agreement.
B. The Purchase Agreement provides that the Investor shall be granted
certain information, additional investment and registration rights and other
rights, all as more fully set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
1.1 Financial Information. The Company covenants and agrees
that, for so long as the Investor holds the Convertible Debenture and/or the
Warrant issued under the Purchase Agreement and/or shares of common stock, par
value US$0.01 per share (the "Ordinary Shares"), of the Company issued upon the
conversion of the Convertible Debenture and the exercise of the Warrant (the
"Conversion Shares"), the Company will:
(a) Quarterly Reports. Furnish to the Investor as soon as
practicable, and in any case within ninety (90) days after the end of each
fiscal quarter of the Company (except the last quarter of the Company's fiscal
year), quarterly unaudited consolidated financial statements, including an
unaudited balance sheet, an unaudited statement of income and an unaudited
statement of cash flows, of the Company and the Subsidiaries, together with a
letter from the management of the Company in a form reasonably acceptable to the
Investor disclosing and analyzing the consolidated revenues, operations and
summary financial information of the Company and the Subsidiaries ("Management
Letter") for such quarter and a certificate from the Chief Financial Officer of
the Company (or in the absence of a Chief Financial Officer, a senior officer of
the Company) stating that the unaudited financial statements have been prepared
in accordance with generally accepted accounting principles in the United States
of America ("GAAP"), consistently applied;
(b) Annual Reports. Furnish to the Investor, as soon as
practicable and in any event within ninety (90) days after the end of each
fiscal year of the Company, a Management Letter for such fiscal year, a
consolidated balance sheet as of the end of such fiscal year, a consolidated
statement of income and a consolidated statement of cash flows of the Company
and the Subsidiaries for such year, setting forth in each case in comparative
form the figures from the Company's previous fiscal year, all prepared in
accordance with GAAP and practices, consistently applied, and audited by Moore
Stephens, P.C. or another internationally recognized independent certified
public accountants acceptable to the Investor, accompanied by (i) an opinion
(which, subsequent to the fiscal year ended June 30, 2000 shall be unqualified,
except for qualifications regarding specified contingent liabilities) of such
accounting firm, (ii) an officer's certificate from the Controller of the
Company stating that neither the Company nor any Subsidiary is in default under
any of its other agreements or, if such default exists, specifying the nature
and period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto, and (iii) a
copy of such accounting firm's annual management letter to the board of
directors;
(c) Further Accounting Information. Furnish to the Investor,
promptly upon receipt thereof, any additional reports, management letters or
other detailed information concerning significant aspects of the Company's
operations and financial affairs given to the Company by its independent
accountants (and not otherwise contained in other materials provided hereunder);
(d) Notice of Default. Furnish to the Investor, promptly (but
in any event within ten (10) business days) after the discovery or receipt of
notice of any default under any material agreement to which it or any Subsidiary
is a party or any other material adverse event or circumstances affecting the
Company or any such Subsidiary (including the filing of any material litigation
against the Company or such Subsidiary or the existence of any dispute with any
person which involves a reasonable likelihood of such litigation being
commenced), an officer's certificate from a senior officer of the Company
specifying the nature and period of existence thereof and what actions the
Company and the Subsidiaries have taken and propose to take with respect
thereto;
(e) SEC Filings and Other Releases. Furnish to the Investor a
copy of each registration statement, preliminary prospectus, final prospectus or
other document or regular, special or periodic filing made with the Securities
and Exchange Commission (the "SEC") concurrently with the filing thereof with
the SEC, and, within ten (10) days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders, and copies of all
press releases and other statements made available generally by the Company to
the public concerning material developments in the Company's business;
(f) Annual Budget. Furnish to the Investor within ten (10)
days after adoption thereof, but in any case not less than thirty (30) days
prior to the end of each fiscal year of the Company, an annual budget prepared
on a quarterly basis in consolidated form for the Company and its Subsidiaries
for the next succeeding fiscal year (displaying anticipated statements of
income, changes in financial position and balance sheets); and, promptly upon
preparation thereof, any other significant budgets which the Company prepares
and any revisions of such annual or other budgets; and
(g) Other Information. Promptly furnish to the Investor such
additional financial and other information as the Investor may from time to time
reasonably request.
The Investor agrees to hold all information received pursuant to this
Section 1.1 in confidence and not to use or disclose any of such information
except as permitted in accordance with the terms of Section 7.1 of the Purchase
Agreement.
1.2 Inspection Rights. The Investor shall have the right upon
reasonable notice to visit and inspect any of the properties of the Company or
any Subsidiaries, and to examine the records and books of account of the Company
or any Subsidiary, and to discuss the affairs, finances and accounts of the
Company or any Subsidiaries with its officers, directors or independent
accountants and to review such information as is reasonably requested all at
such reasonable times and as often as may be reasonably requested.
1.3 Termination of Certain Rights. The Company's obligations
under Section 1.1 above will terminate upon the closing of the Company's initial
public offering of shares pursuant to an effective registration statement filed
under the U.S. Securities Act of 1933, as amended (the "Securities Act").
<PAGE>
1.4 Board of Directors. During the period commencing as of the
date hereof and ending on the date on which the Investor has exercised its
conversion rights under the Convertible Debenture and/or exercised its purchase
rights under the Warrant and holds 3,000,000 Ordinary Shares, in the aggregate,
the Investor shall have the right to have a person attend the meetings of the
board of directors of the Company as an observer. Such observer shall not have
the right to vote on any matters before the board of directors of the Company.
At any time after the date on which the Investor has exercised its conversion
rights under the Convertible Debenture and/or exercised its purchase rights
under the Warrant and holds 3,000,000 Ordinary Shares, in the aggregate, or owns
shares equal to at least fifteen percent (15%) of the total shares outstanding,
or has purchased Convertible Debentures (including Additional Debentures, as
defined below) with an aggregate purchase price of at least US$5,000,000, the
Investor shall have the right to appoint one (1) person to the board of
directors of the Company.
2. REGISTRATION RIGHTS.
2.1 Definitions. For purposes of this Section 2 and Sections 3 and 4
hereof:
(a) Form S-1 and Form S-3. The terms "Form S-1" and "Form S-3"
mean such forms under the Securities Act as are in effect on the date hereof,
such other forms available to a registrant similar to the Company or any
successor registration forms under the Securities Act subsequently adopted by
the SEC which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(b) Holder. For purposes of this Section 2 and Sections 3 and
4 hereof, the term "Holder" means any person owning of record Registrable
Securities (as defined below) that have not been sold to the public or pursuant
to Rule 144 promulgated under the Securities Act, or any assignee of record of
such Registrable Securities to whom rights under such Sections have been duly
assigned in accordance with this Agreement; provided, however, that for purposes
of this Agreement, a record holder of the Convertible Debenture convertible
into, or the Warrant pursuant to which the Investor may purchase, such
Registrable Securities shall be deemed to be the Holder of such Registrable
Securities; and provided, further, that the Company shall in no event be
obligated to register the Convertible Debenture and/or the Warrant, and that the
Holder of Registrable Securities will not be required to convert its Convertible
Debenture into Ordinary Shares and/or to exercise its rights under the Warrant
to purchase Ordinary Shares in order to exercise the registration rights granted
hereunder, until immediately before the closing of the offering to which the
registration relates.
(c) Registration Expenses. The term "Registration Expenses"
means all expenses incurred by the Company in complying with Sections 2.2, 2.2
and 2.4 hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company) and the expenses of
underwriters customarily paid by similarly situated companies in connection with
underwritten offerings of equity securities to the public (including any
qualified independent underwriter required in connection with such underwritten
offering), excluding any such fees, commissions and underwriting discounts based
on the proceeds of sales of Registrable Securities by selling Holders. With
respect to expenses incurred in connection with Sections 2.2, 2.3 and 2.4
hereof, "Registration Expenses" shall include reasonable fees and disbursements
of a single special counsel for the Holders.
(d) Registrable Securities. The term "Registrable Securities"
means (1) all Ordinary Shares of the Company issued or issuable upon the
conversion of the Convertible Debenture or the exercise of the Warrant issued
under the Purchase Agreement that are now owned or may hereafter be acquired by
the Investor or the Investor's permitted successors and assigns and (2) any
Ordinary Shares of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
all such Ordinary Shares described in clause (1) of this subsection (b);
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which rights under this Section 2 are not assigned in
accordance with this Agreement or any Registrable Securities sold to the public
or sold pursuant to Rule 144 promulgated under the Securities Act.
<PAGE>
(e) Registrable Securities Then Outstanding. The number of
shares of "Registrable Securities then outstanding" shall mean the number of
Ordinary Shares which are Registrable Securities and (1) are then issued and
outstanding or (2) are then issuable pursuant to the exercise or conversion of
then outstanding and then exercisable options, warrants or convertible
securities.
(f) Registration. The terms "register," "registration" and
"registered" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(g) Registration Statement. The term "Registration Statement"
means any registration statement under the Securities Act for purposes of
effecting a public offering of securities of the Company.
2.2 Demand Registration.
(a) Request by Holders. If the Company shall receive, at any
time after December 31, 2001, a written request from the Holders of at least ten
percent (10%) of the Registrable Securities then outstanding that the Company
file a Registration Statement, covering the registration of Registrable
Securities pursuant to this Section 2.2, then the Company shall, within twenty
(20) days after the receipt of such written request, give written notice of such
request ("Request Notice") to all Holders, and effect, as soon as practicable,
the registration under the Securities Act of all Registrable Securities which
Holders request to be registered and included in such registration by written
notice given by such Holders to the Company within twenty (20) days after
receipt of the Request Notice, subject only to the limitations of this Section
2; provided that the Registrable Securities requested by all Holders to be
registered pursuant to such request must either (i) be at least ten percent
(10%) of all Registrable Securities then outstanding or (ii) have an anticipated
aggregate public offering price (before any underwriting discounts and
commissions) of not less than US $1,000,000. Any Registration effected pursuant
to this Section 2.2 shall be on Form S-1 unless the Holders of more than fifty
percent (50%) of the Registrable Securities to be registered pursuant to such
Registration instruct the Company otherwise.
<PAGE>
(b) Underwriting. If the Holders initiating the registration
request under this Section 2.2 (the "Initiating Holders") intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request made pursuant
to this Section 2.2 and the Company shall include such information in the
written notice referred to in subsection 2.2(a). In such event, the right of any
Holder to include its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Holders holding more than
fifty percent (50%) of the Registrable Securities to be underwritten; provided
that any such underwriting agreement shall not impair the indemnification rights
of the Holders granted under Section 2.8; and provided further, that the
<PAGE>
representations and warranties given by, and the other agreement on the part of,
the Company to and for the benefit of the underwriter(s) shall also be made to
and for the benefit of the Holders; and provided further, that the Company shall
ensure that no underwriter(s) requires any Holder to make any representations or
warranties to, or agreements with, any underwriter(s) in a Registration other
than customary representations, warranties and agreements relating to such
Holder's free and unencumbered title to the Registrable Securities and authority
to enter into the underwriting agreement. Notwithstanding any other provision of
this Section 2.2, if the underwriter(s) advise(s) the Company in writing that
marketing factors require a limitation of the number of securities to be
underwritten then the Company shall so advise all Holders of Registrable
Securities that would otherwise be registered and underwritten pursuant hereto,
and the number of Registrable Securities that may be included in the
underwriting shall be reduced as required by the underwriter(s) and the Company
will include in such registration (i) first, the maximum number of Registrable
Securities requested to be included therein, pro rata among the respective
Holders thereof on the basis of the amount of Registrable Securities requested
to be included in such registration by each such Holder, and (ii) second, the
maximum amount of other securities requested to be included therein (including
any by the Company), pro rata among the holders of such other securities on the
basis of the number of shares requested to be included in such registration by
each such holder. Any Registrable Securities excluded and withdrawn from such
underwriting shall be withdrawn from the registration. For any Holder that is a
partnership or corporation, the partners, retired partners and shareholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "Holder," and any pro rata reduction with respect to such
"Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"Holder," as defined in this sentence.
(c) Maximum Number of Demand Registrations. The Company is
obligated to effect only one (1) such registrations pursuant to this Section
2.2; provided that in the event the Investor invests an aggregate of
US$2,000,000 or more in the Company (through Convertible Debentures, Addition
Debentures or otherwise), the Company shall be obligated to effect a total of
two (2) registrations pursuant to this Section 2.2.
(d) Deferral. Notwithstanding the foregoing, if the Company
shall furnish to the Holders requesting the filing of a Registration Statement
pursuant to this Section 2.2, a certificate signed by the President or Chief
Executive Officer of the Company stating that in the good faith judgment of the
board of directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such Registration Statement to be filed and it
is therefore essential to defer the filing of such Registration Statement, then
the Company shall have the right to defer such filing for a period of not more
than sixty (60) days after receipt of the request of the Initiating Holders;
provided, however, that the Company may not utilize this right more than once in
any twelve (12) month period; and provided further, that during such sixty (60)
day period the Company shall not file a registration statement with respect to
the public offering of securities of the Company or any other selling
shareholder.
(e) Expenses. All Registration Expenses incurred in connection
with a registration pursuant to this Section 2.2, shall be borne by the Company.
Each Holder participating in a registration pursuant to this Section 2.2 shall
bear such Holder's proportionate share (based on the total number of shares sold
in such registration other than for the account of the Company) of all
discounts, commissions or other amounts payable to underwriters or brokers in
connection with such offering.
2.3 Piggyback Registrations. (a) The Company shall notify all Holders
of Registrable Securities in writing at least thirty (30) days prior to filing
any Registration Statement (including, but not limited to, Registration
Statements relating to secondary offerings of securities of the Company, but
excluding Registration Statements relating to any employee benefit plan or a
corporate reorganization) and will afford each such Holder an opportunity to
include in such Registration Statement all or any part of the Registrable
Securities then held by such Holder. Each Holder desiring to include in any such
Registration Statement all or any part of the Registrable Securities held by
such Holder shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing, and in such notice
shall inform the Company of the number of Registrable Securities such Holder
wishes to include in such Registration Statement. The Company thereupon will use
its best efforts as a part of its filing of such Registration Statement to
effect the registration under the Securities Act of all Registrable Securities
which the Company has been so requested to register by the Holder, to the extent
required to permit the disposition of the Registrable Securities so to be
registered. If a Holder decides not to include all of its Registrable Securities
in any Registration Statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent Registration Statement or Registration Statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
<PAGE>
(b) Underwriting. If a Registration Statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering,
then the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting;
provided that any such underwriting agreement shall not impair the
indemnification rights of the Holders granted under Section 2.8; and provided
further, that the representations and warranties given by, and the other
agreements on the part of, the Company to and for the benefit of the
underwriter(s) shall also be made to and for the benefit of the Investor; and
provided further, that the Company shall ensure that no underwriter(s) requires
any Holder to make any representations or warranties to, or agreements with, any
underwriter(s) in a Registration other than customary representations,
warranties and agreements relating to such Holder's title to the Registrable
Securities and authority to enter into the underwriting agreement.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
Company, and second, to each of the Holders requesting inclusion of their
Registrable Securities in such Registration Statement on a pro rata basis based
on the total number of Registrable Securities then held by each such Holder. If
any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least twenty (20) days prior to the effective date of
the Registration Statement. Any Registrable Securities excluded or withdrawn
from such underwriting shall be excluded and withdrawn from the registration.
For any Holder that is a partnership or corporation, the partners, retired
partners and shareholders of such Holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "Holder," and any pro rata
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.
(c) Expenses. All Registration Expenses incurred in connection
with a registration pursuant to this Section 2.3 shall be borne by the Company.
2.4 Registration on Form S-3.
(a) After its initial public offering, the Company shall use
its best efforts to qualify for registration on Form S-3 any comparable or
successor form or forms. After the Company has qualified for the use of Form
S-3, in addition to the rights contained in the foregoing provisions of this
Section 2, the Holders of Registrable Securities shall have the right to request
registrations on Form S-3 (such requests shall be in writing and shall state the
number of shares of Registrable Securities to be disposed of and the intended
methods of disposition of such shares by such Holder or Holders) (the Holders
making such request, hereafter the "Initiating Holders"); provided, however,
that the Company shall not be obligated to effect any such registration if (i)
the Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) on Form S-3 at an aggregate price
to the public of less than US $500,000, or (ii) in the event that the Company
shall furnish the certification described in paragraph 2.4 (c)(ii) hereof (but
subject to the limitations set forth therein).
(b) If a request complying with the requirements of Section
2.4(a) hereof is delivered to the Company, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
<PAGE>
(ii) as soon as practicable, use its best efforts to
effect such registration (including, without limitation,
filing post-effective amendments, appropriate qualifications
under the applicable blue sky or other state securities laws,
and appropriate compliance with the Securities Act) and as
would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified
in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by
the Company within twenty (20) days after such written notice
from the Company is mailed or delivered.
The Company shall not be obligated to effect, or to take any action to
effect, any such Registration pursuant to this Section 2.4:
(A) In any particular jurisdiction in which the Company
would be required solely as a result of such Registration to
execute a general consent to service of process in effecting
such registration, qualification, or compliance, unless the
Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act; and
(B) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of
filing of, and ending on a date one hundred eighty (180) days
after the effective date of, a Company-initiated registration;
provided that the Company is actively employing in good faith
all reasonable efforts to cause such Registration Statement to
become effective.
(c) Subject to the limitations set forth in Section 2.4(a) and
the foregoing clauses (A) and (B), the Company shall file a Registration
Statement covering the Registrable Securities so requested to be registered as
soon as practicable after receipt of the request or requests of the Initiating
Holders; provided, however, that if (i) in the good faith judgment of the board
of directors of the Company, such registration would be seriously detrimental to
the Company and the board of directors of the Company concludes, as a result,
that it is essential to defer the filing of such Registration Statement at such
time, and (ii) the Company shall furnish to such Holders a certificate signed by
the President of the Company stating that in the good faith judgment of the
board of directors of the Company, it would be seriously detrimental to the
Company for such Registration Statement to be filed in the near future and that
it is, therefore, essential to defer the filing of such Registration Statement,
then the Company shall have the right to defer such filing for the period during
which such disclosure would be seriously detrimental, provided that (except as
provided in clause (B) above) the Company may not defer the filing for a period
of more than sixty (60) days after receipt of the request of the Initiating
Holders, and, provided further, that the Company shall not defer its obligation
in this manner more than once in any twelve (12) month period; and provided
further, that during such sixty (60) day period the Company shall not file a
registration statement with respect to the public offering of securities of the
Company.
The Registration Statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 2.4(b), include
other securities of the Company with respect to which registration rights have
been granted, and may include securities of the Company being sold for the
account of the Company.
(d) Underwriting. If the Registration is for an underwritten
offering, the provisions of this Section 2.4(d) and 2.4(e) hereof shall apply to
such Registration. In such event, the right of any Holder to Registration
pursuant to Section 2.4 hereof shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder with respect to
such participation and inclusion) to the extent provided herein. A Holder may
elect to include in such underwriting all or a part of the Registrable
Securities he holds.
<PAGE>
(e) Procedures. If the Company shall request inclusion in any
Registration pursuant to Section 2.4 hereof of securities being sold for its own
account, or if other persons shall request inclusion in any Registration
pursuant to Section 2.4 hereof, the Initiating Holders shall, on behalf of all
Holders, offer to include such securities in the underwriting and may condition
such offer on their acceptance of the further applicable provisions of this
Section 2 (including Section 2.9 hereof). The Company shall (together with all
Holders and other persons proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected for such underwriting
by a majority in interest of the Initiating Holders, which underwriters are
reasonably acceptable to the Company; provided that any such underwriting
agreement shall not impair the indemnification rights of the Holders granted
under Section 2.8; and provided further, that the representations and warranties
given by, and the other agreements on the part of, the Company to and for the
benefit of the underwriter(s) shall also be made to and for the benefit of the
Investors; and provided further, that the Company shall ensure that no
underwriter(s) requires any Holder to make any representations or warranties to,
or agreements with, any underwriter(s) in a Registration other than customary
representations, warranties and agreements relating to such Holder's title to
the Registrable Securities and authority to enter into the underwriting
agreement. Notwithstanding any other provision of this Section 2.4, if the
representative of the underwriters advises the Initiating Holders in writing
that marketing factors require a limitation on the number of shares to be
underwritten, the number of shares to be included in the underwriting or
registration shall be reduced as required by the underwriters and the Company
will include in such registration (i) first, the maximum number of Registrable
Securities requested to be included therein, pro rata among the respective
Holders thereof on the basis of the amount of Registrable Securities requested
to be included in such registration by each such Holder, and (ii) second, the
maximum amount of other securities requested to be included therein (including
any by the Company), pro rata among the holders of such other securities on the
basis of the number of shares requested to be included in such registration by
each such holder. If a person who has requested inclusion in such registration
as provided above does not agree to the terms of any such underwriting, such
person shall be excluded therefrom by written notice from the Company, the
underwriter or the Initiating Holders. The securities so excluded shall also be
withdrawn from the registration. Any Registrable Securities or other securities
excluded shall also be withdrawn from such registration. If shares are so
withdrawn from the registration and if the number of shares to be included in
such registration was previously reduced as a result of marketing factors
pursuant to this Section 2.4, then the Company shall offer to all Holders who
have retained rights to include securities in the registration the right to
include additional securities in the registration in an aggregate amount equal
to the number of shares so withdrawn, with such shares to be allocated among
such Holders requesting additional inclusion on a pro rata basis according to
the number of Registrable Securities then outstanding held by each Holder
requesting registration (including the Initiating Holders).
(f) Expenses. Subject to the foregoing, the Company shall file
a Form S-3 or Form F-3 Registration Statement covering the Registrable
Securities and other securities so requested to be registered pursuant to this
Section 2.4 as soon as practicable after receipt of the request or requests of
the Holders for such registration. The Company shall pay all Registration
Expenses incurred in connection with any registration requested pursuant to this
Section 2.4.
(g) Not Demand Registration. Form S-3 registrations shall not
be deemed to be demand registrations as described in Section 2.2 above.
2.5 Obligations of the Company. Whenever required to effect the
Registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
<PAGE>
(a) Prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities and use reasonable, diligent efforts
to cause such Registration Statement to become effective, and, upon the request
of the Holders of more than fifty percent (50%) of the Registrable Securities
registered thereunder, keep such Registration Statement effective for up to one
hundred eighty (180) days or, if earlier, until the Holder or Holders have
completed the distribution related thereto.
(b) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement.
(c) Furnish to the Holders 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 they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Otherwise use its best efforts to comply with the
Securities Act, the Exchange Act of 1934 (the "Exchange Act") and any other
applicable rules and regulations of the Commission, and make available to the
securities holders; as soon as reasonably practicable, an earning statement
covering the period of at least twelve (12) months after the effective date of
such Registration Statement, which earning statement shall satisfy Section 11(a)
of the Securities Act and any applicable regulations thereunder, including Rule
158.
(e) Use reasonable, diligent efforts to register and qualify
the securities covered by such Registration Statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required solely
as a result of such Registration or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(f) Appoint a qualified independent underwriter, if necessary
under the circumstances or if reasonably requested by the Holders more than
fifty percent (50%) of the Registrable Securities in any Registration made
pursuant to the terms hereof.
(g) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering.
(h) Notify each Holder of Registrable Securities covered by
such Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and at the request of each Holder prepare and furnish to such Holder a
reasonable number of copies of a supplement to or amendment of such prospectus
as may be necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing.
(i) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the Registration Statement with respect
to such securities becomes effective, (1) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (2) a
"comfort" letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
<PAGE>
(j) Use its best efforts to list such Registrable Securities
on each securities exchange on which any equity security of the Company is then
listed, if such securities are already so listed, or, if the Company does not
have a class of equity securities listed on a United States securities exchange,
apply for qualification and use its best efforts to qualify Registrable
Securities being registered for inclusion on the National Market System/NASD.
(k) At any time when a Holder provides notice to the Company
that it intends to make a disposition of its Registrable Shares under a listing
with The Stock Exchange of Hong Kong, use all reasonably and diligent efforts to
list the Company's Ordinary Shares on such securities exchange and comply with
all applicable securities or other laws of the relevant jurisdiction applicable
to such jurisdiction and the rules and regulations of such securities exchange,
and furnish to the Holders such number of copies of prospectuses and such other
documents as they may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by them that are included in such
Registration.
2.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
Section 2.4 that the selling Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them, and
the intended method of disposition of such securities as shall be required to
timely effect the registration of their Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.8 Indemnification. In the event any Registrable Securities are
included in a Registration Statement under Sections 2.2, 2.3 or Section 2.4:
(a) By the Company. To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners, officers,
directors and control persons of each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Exchange
Act against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or any
other securities or other law of any jurisdiction, common law or otherwise,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively, "Violations" and, individually, a
"Violation"):
(1) any untrue statement or alleged untrue statement of a
material fact contained in or incorporated by reference in any Registration
Statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto or any document incorporated by
reference therein;
(2) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or
(3) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, or any other securities or other law of
any jurisdiction, common law or otherwise, or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any such other laws, in connection
with the offering covered by such Registration Statement;
<PAGE>
and the Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 2.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each
selling Holder, severally and not jointly, will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement, each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such Registration Statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities (joint or several) to which the Company or any
such director, officer, controlling person, underwriter or other such Holder,
partner or director, officer or controlling person of such other Holder may
become subject under the Securities Act, the Exchange Act or any other
securities or other law of any jurisdiction, common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
2.8(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; and provided,
further, that the total amounts payable in indemnity by a Holder under this
Section 2.8(b), together with any amounts payable under Section 2.8(c) in
respect of any Violation shall not exceed the net proceeds received by such
Holder in the registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party
under this Section 2.8 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 2.8,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding or if, and for such period,
such indemnified party was required to retain counsel prior to the indemnifying
party's retention of counsel. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of its liability to the indemnified
party under this Section 2.8 only if and to the extent it is prejudicial to its
ability to defend such action, and the omission to so deliver written notice to
the indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 2.8. In no event shall
any indemnity under this Section 2.8(c) exceed the net proceeds received by such
Holder in the registered offering out of which such violation arises.
<PAGE>
(d) Defect Eliminated in Final Prospectus. The foregoing
indemnity agreements of the Company and the Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at the
time the Registration Statement in question becomes effective or the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act, in any case in which
either (1) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 2.8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 2.8 provides
for indemnification in such case, or (2) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
2.8; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such Holder
is responsible for the portion represented by the percentage that the public
offering price of its Registrable Securities offered by and sold under the
Registration Statement bears to the public offering price of all securities
offered by and sold under such Registration Statement, and the Company and other
selling Holders are responsible for the remaining portion; provided, however,
that, in any such case, (A) no such Holder will be required to contribute any
amount in excess of the public offering price of all such Registrable Securities
offered and sold by such Holder pursuant to such Registration Statement; and (B)
no person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
(f) Survival; Release. The obligations of the Company and
Holders under this Section 2.8 shall survive the completion of any offering of
Registrable Securities in a Registration Statement, and otherwise. No
indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which admits fault on behalf of the
indemnified party or which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees or partners of the Holder who agree to be
similarly bound) for up to one hundred eighty (180) days following the effective
date of a Registration Statement of the Company filed under the Securities Act;
provided, however, that such agreement shall be applicable only to the first
such Registration Statement of the Company which covers securities to be sold on
its behalf to the public in an underwritten offering but not to Registrable
Securities sold pursuant to such Registration Statement. In order to enforce the
foregoing covenant, the Company shall have the right to place restrictive
legends on the certificates representing the shares subject to this Section and
to impose stop transfer instructions with respect to the Registrable Securities
and such other shares of each Holder (and the shares or securities of every
other person subject to the foregoing restriction) until the end of such period.
As a condition to each Holder's obligations hereunder, each officer, director
and one percent (1%) stockholder of the Company shall be bound by a similar
lock-up agreement in favor of the Company and the underwriters.
2.10 Limitation on Subsequent Registration Rights. After the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of a majority of the Registrable Securities then outstanding, enter into
any agreement with any holder or prospective holder of any securities of the
Company that would grant such holder demand registration rights senior to, or in
parity with, those granted to the Holders hereunder.
<PAGE>
2.11 Termination of the Company's Obligations. The Company shall have
no obligations pursuant to Sections 2.2, 2.3 or Section 2.4 with respect to (a)
any request or requests for registration made by any Holder on a date more than
seven (7) years after the closing date of the Company's initial public offering
or (b) any Registrable Securities proposed to be sold by a Holder in a
registration pursuant to Sections 2.2, 2.3 or Section 2.4 if, in the opinion of
counsel to the Company, all such Registrable Securities proposed to be sold by a
Holder may be sold in a three-month period without registration under the
Securities Act pursuant to Rule 144(k) under the Securities Act.
2.12 Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Commencing March 31, 2000, make and keep public
information available, as those terms are understood and defined in SEC Rule 144
or any similar or analogous rule promulgated under the Securities Act, at all
times after the effective date of the first registration filed by the Company
for an offering of its securities to the general public;
(b) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
3. RIGHT OF FIRST OFFER; CO-SALE RIGHTS
3.1 General. Each Holder (as defined in Section 2.1(d)) and any party
to whom such Holder's rights under this Section 3 have been duly assigned in
accordance with Section 4.1(b) (each such Holder or assignee being hereinafter
referred to as a "Rights Holder") has the right of first offer to purchase such
Rights Holder's Pro Rata Share (as defined below), of all (or any part) of any
"New Securities" (as defined in Section 3.2) that the Company may from time to
time issue after the date of this Agreement. A Rights Holder's "Pro Rata Share"
for purposes of this right of first offer is the ratio of (a) the number of
Registrable Securities as to which such Rights Holder is the Holder (and/or is
deemed to be the Holder under Section 2.1(d)) to (b) the number of Ordinary
Shares of the Company then outstanding.
3.2 New Securities. "New Securities" shall mean any Ordinary Shares or
preferred shares of the Company, whether now authorized or not, and rights,
options or warrants to purchase such Ordinary Shares or preferred shares, and
securities of any type whatsoever that are, or may become, convertible or
exchangeable into such ordinary or preferred shares; provided, however, that the
term "New Securities" does not include:
(a) any Ordinary Shares (or options, warrants or rights
therefor) granted or issued hereafter to employees, officers, directors,
contractors, consultants or advisers to, the Company or any Subsidiary pursuant
to incentive agreements, share purchase or share option plans, share bonuses or
awards, warrants, contracts or other arrangements that are approved by the Board
of Directors (such number of shares to be calculated net of any repurchase of
such shares by the Company and net of any such expired or terminated options,
warrants or rights and to be proportionally adjusted to reflect any subsequent
share splits, share dividends, recapitalizations, combination of shares or the
like);
<PAGE>
(b) any Ordinary Shares or preferred shares of the Company
(and/or options or warrants therefor) issued or issuable to parties providing
the Company with equipment leases, real property leases, loans, credit lines,
guaranties of indebtedness, cash price reductions or similar financing, under
arrangements approved by the Board of Directors;
(c) any Ordinary Shares or preferred shares issued pursuant to
the acquisition of another corporation or entity by the Company by
consolidation, merger, purchase of all or substantially all of the assets, or
other reorganization in which the Company acquires, in a single transaction or
series of related transactions, all or substantially all of the assets of such
other corporation or entity or fifty percent (50%) or more of the voting power
of such other corporation or entity or fifty percent (50%) or more of the equity
ownership of such other entity;
(d) any Ordinary Shares issued upon conversion of the
Convertible Debenture (or any other convertible debenture issued by the Company
to the Investor pursuant to Section 4.1 of this Agreement) or exercise of the
Warrant (or any other common stock warrant issued by the Company to the Investor
pursuant to Section 4.1 or 4.2 of this Agreement);
(e) any securities issuable upon exercise of any options,
warrants or rights to purchase any securities of the Company outstanding on the
date of this Agreement ("Warrant Securities") and any securities issuable upon
the conversion of any Warrant Securities or upon the exercise or conversion of
any securities, if such securities were first offered to the Rights Holders
hereunder;
(f) any Ordinary Shares or preferred shares issued in
connection with any share split or share dividend; and
(g) any securities offered by the Company to the public
pursuant to a Registration Statement filed under the Securities Act.
3.3 Procedures. In the event that the Company proposes to undertake an
issuance of New Securities, it shall give to each Rights Holder written notice
of its intention to issue New Securities (the "Notice"), describing the type of
New Securities and the price and the general terms upon which the Company
proposes to issue such New Securities. Each Rights Holder shall have ten (10)
days from the date of mailing of any such Notice to agree in writing to purchase
such Rights Holder's Pro Rata Share of such New Securities for the price and
upon the general terms specified in the Notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased (not
to exceed such Rights Holder's Pro Rata Share). If any Rights Holder fails to so
agree in writing within such ten (10) day period to purchase such Rights
Holder's full Pro Rata Share of an offering of New Securities (a "Nonpurchasing
Holder"), then such Nonpurchasing Holder shall forfeit the right hereunder to
purchase that part of his Pro Rata Share of such New Securities that he did not
so agree to purchase.
3.4 Failure to Exercise. In the event that the Rights Holders fail to
exercise in full the right of first offer within such ten (10) day period, then
the Company shall have ninety (90) days after the expiration of such 10-day
period to sell the New Securities with respect to which the Rights Holders'
rights of first offer hereunder were not exercised, at a price and upon general
terms not materially more favorable to the purchasers thereof than specified in
the Company's Notice to the Rights Holders. In the event that the Company has
not issued and sold the New Securities within such ninety (90) day period, then
the Company shall not thereafter issue or sell any New Securities without again
first offering such New Securities to the Rights Holders pursuant to this
Section 3.
3.5 Termination. This right of first offer shall terminate (a)
immediately before the closing of the first underwritten sale of shares of the
Company to the public pursuant to a Registration Statement filed with, and
declared effective by, the SEC under the Securities Act, or (b) upon (1) the
acquisition of all or substantially all the assets of the Company or (2) an
acquisition of the Company by another corporation or entity by consolidation,
merger or other reorganization in which the holders of the Company's outstanding
voting shares immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%) of the voting
power of the corporation or other entity surviving such transaction.
<PAGE>
3.6 Co-Sale Rights.
(a) If the Majority Shareholder proposes to sell any Ordinary
Shares ("Co-Sale Shares") to a third party or affiliated group (the
"Transferee"), the Majority Shareholder shall first give reasonable notice in
reasonable detail to the Investor in sufficient time to allow Investor to
exercise its rights to convert the Convertible Debenture into, or to exercise
its right under the Warrant to purchase, Ordinary Shares of the Company and to
participate in the sale on the same terms and conditions as the Majority
Shareholder. To the extent any prospective purchaser or purchasers refuses to
purchase shares or other securities from the Investor exercising its rights of
co-sale hereunder, the Majority Shareholder shall not sell to such prospective
purchaser or purchasers any Co-Sale Shares unless and until, simultaneously with
such sale, the Majority Shareholder shall purchase the offered shares or other
securities from the Investor. Notwithstanding the foregoing, the provisions of
this Section 3.6 shall not apply to (i) any pledge of Co-Sale Shares made
pursuant to a bona fide loan transaction that creates a mere security interest;
or (ii) any transfer to the ancestors, descendants or spouse or to trusts for
the benefit of such persons of the Majority Shareholder; provided that (A) the
Majority Shareholder shall inform the Investor of such pledgee or transfer prior
to effecting it and (B) the pledgee or transferee shall furnish the Investor
with a written agreement to be bound by and comply with all provisions of this
Section 3.6. Such transferred Co-Sale Shares will remain "Co-Sale Shares"
hereunder, and such pledgee or transferee shall be treated as the "Majority
Shareholder" for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section
3.6(a) shall not apply to (i) the sale of any Co-Sale Shares to the public
pursuant to a registration statement filed with, and declared effective by, the
SEC under the Securities Act, or any sale to the Company, or (ii) any sale of
any Co-Sale Shares pursuant to Rule 144 with the prior written consent of the
Investor, which consent shall not be unreasonably withheld or delayed.
3.7 Reservation of Common Stock. The Company will at all times reserve
and keep available, solely for issuance and delivery upon the conversion of the
Convertible Debenture and the exercise of the Warrant, all Ordinary Shares
issuable from time to time upon such conversion. If at any time the number of
authorized but unissued Ordinary Shares shall not be sufficient to effect the
conversion of the entire outstanding principal amount of the Convertible
Debenture and the exercise of the purchase right under the Warrant, the Company
will use its best efforts to take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued Ordinary
Shares to such number of shares as shall be sufficient for such purposes.
4. ADDITIONAL RIGHTS OF THE INVESTOR.
4.1 Option to Purchase Additional Debentures and Warrants. (a) At any
time on or prior to June 15, 2000, the Investor shall have the right to purchase
one or more additional convertible debentures (each, an "Additional Debenture"
and, collectively, the "Additional Debentures") and, in connection with any such
purchase of an Additional Debenture, to receive a warrant to purchase one
Ordinary Share for each US$1.00 of the principal sum of such Additional
Debenture (each, an "Additional Warrant" and, collectively, the "Additional
Warrants"), from the Company; provided that the initial aggregate principal sum
of the Additional Debentures shall not exceed an amount equal to US$5,000,000
minus the initial principal sum of the Convertible Debenture. Any such
Additional Debenture and Additional Warrant shall be issued by the Company to
the Investor, and purchased by the Investor from the Company, on the same terms
and conditions as are set forth in the Purchase Agreement (for example, each
Additional Debenture and Additional Warrant shall be substantially in the form
of Exhibit A and Exhibit B, respectively, attached to the Purchase Agreement);
provided, however, that (i) the Conversion Price (as defined in the Convertible
Debenture) which is in effect during the period commencing on the date of the
Convertible Debenture and ending on the first anniversary of such date (e.g.,
US$0.50 per share) shall not apply to any Additional Debenture, (ii) the
"Maturity Date" of any Additional Debenture shall be the fourth anniversary of
the date of its issuance by the Company to the Investor, (iii) each Additional
Warrant shall be exercisable immediately as to one-third of the Ordinary Shares
<PAGE>
into which such Additional Warrant can be exchanged, and commencing one year
after the issuance of such Additional Warrant as to two-thirds of the Ordinary
Shares into which such Additional Warrant can be exchanged, but otherwise upon
the terms set forth in the Warrant, (iv) the Additional Warrant shall remain in
effect until the third anniversary of the date of its issuance by the Company to
the Investor, (v) all references in the Purchase Agreement to the Convertible
Debenture, the Warrant and the Closing shall refer to the Additional Debenture,
the Additional Warrant and the closing of such additional purchase and issuance,
(vi) prior to such closing, the Company shall deliver an updated Schedule of
Exceptions to the Investor, (vii) the date set forth in Section 3.15 and 3.16 of
the Purchase Agreement shall refer to the date of the most recent annual
consolidated balance sheet and financial statements of the Company and the
Subsidiaries delivered to the Investor pursuant to Section 1.1(c) of this
Agreement, and (viii) the month referred to in Section 3.22 of the Purchase
Agreement shall refer to the calendar month occurring immediately prior to such
closing. For the avoidance of doubt, each of the conditions set forth in
Sections 5 and 6 of the Purchase Agreement (as they relate to such Additional
Debenture and Additional Warrant) must be satisfied on or before any such
closing.
(b) If the Investor desires to exercise its right to purchase
an Additional Debenture and to receive an Additional Warrant, it shall deliver
written notice to the Company, at any time on or prior to June 15, 2000,
specifying (i) the principal sum of the Additional Debenture that it wishes to
purchase. Promptly upon receiving any such notice from the Investor, and in any
event no later than twenty (20) days thereafter (or such earlier or later date
as the Investor and the Company shall agree in writing) and subject to the
satisfaction of the conditions set forth in Sections 5 and 6 of the Purchase
Agreement, the Company will deliver to the Investor the original Additional
Debenture and the original Additional Warrant against delivery to the Company by
the Investor of an amount equal to the principal sum of the Additional
Debenture. Immediately after any such closing, such Additional Debenture and
Additional Warrant shall be deemed to be included in the respective definitions
of the "Convertible Debenture" and the "Warrant" and any Ordinary Shares issued
upon conversion of such Additional Debenture and/or the exercise of such
Additional Warrant shall be included in the definition of "Conversion Shares"
for purposes of this Agreement.
4.2 Issuance of Special Warrant. So long as the Convertible Debenture
and the Warrant remain outstanding, the Company shall not issue any Ordinary
Shares, or any rights, options or warrants to subscribe for, purchase or
otherwise acquire any Ordinary Shares ("Options"), or any evidence of
indebtedness, shares (other than Ordinary Shares) or other securities
convertible into or exchangeable for Ordinary Shares ("Convertible Securities"),
at a price less than the Conversion Price (as defined in the Convertible
Debenture) in effect at such time. If the event that the Company issues any
Ordinary Shares, Options or Convertible Securities in contravention of its
obligation set forth in the preceding sentence, the Company shall issue to the
Investor a common stock warrant, substantially in the form of Exhibit B attached
to the Purchase Agreement (the "Special Warrant"); provided that (i) the
"Purchase Price" thereunder shall be US$0.30 per share, (ii) the right of the
Investor to exercise its purchase right under the Special Warrant shall expire
on the third anniversary of the issuance date of the Special Warrant, and (iii)
the Special Warrant shall evidence the right of the holder thereof to purchase
an aggregate number of Ordinary Shares equal to one Ordinary Share for each
US$2.00 of the remaining aggregate principal sum of the Convertible Debenture
and the Additional Debentures. Upon its issuance to the Company, the Special
Warrant shall be deemed to be included in the definition of "Warrant" and any
Ordinary Shares issued to the Company upon the exercise of the Special Warrant
shall be included in the definition of "Conversion Shares" for purposes of this
Agreement.
4.3 Co-Investment Right. In the event that the Company plans to expand
its business operations (or those of any Subsidiary) through the development of
new products, increased capitalization (whether through an initial public
offering or otherwise), the entering into of any joint venture, strategic
alliance or other business arrangement with a third party, or otherwise, the
Company agrees to discuss such plan with the Investor and to first offer the
Investor an opportunity to participate in such plan, whether as a direct or
indirect participant or otherwise. The Company agrees to discuss the foregoing
with the Investor in good faith so long as the Convertible Debenture and the
Warrant are in effect and/or the Investor holds any Conversion Shares.
<PAGE>
4.4 Notice Rights. So long as the Convertible Debenture and the Warrant
remain outstanding or the Investor holds any of the Conversion Shares, the
Company shall not take any of the actions described below without providing to
the Investor not less than thirty (30) days prior notice:
(a) Transfer or encumber all or a material portion of the
business (or other assets) of the Company or any Subsidiary, enter into material
contracts (imposing a payment obligation on the Company or any Subsidiary in
excess of US$300,000), acquire the assets or stock of a third party for a
purchase price in excess of US$300,000 or otherwise assume the obligations of a
third party in excess of US$300,000;
(b) Amend any of the charter documents or other internal
regulations of the Company;
(c) Merge the Company or with another entity;
(d) Adopt or amend the annual business plan of the Company or
otherwise make any material change in the Company's business operations;
(e) Adopt or amend any other matters affecting the
organization, the board of directors or management structure, or the business
plan of any Subsidiary;
(f) Adopt or amend any policies governing the distribution of
dividends and distribute any dividends;
(g) Dissolve or otherwise liquidate the Company or any
Subsidiary;
(h) Make any capital expenditures in excess of US$300,000;
(i) Approve financial reports and financial statements of the
Company; or
(j) Initiate, defend, conduct or settle any litigation in
excess of US$300,000.
5. ASSIGNMENT AND AMENDMENT.
5.1 Assignment. The rights of the Holder under this Agreement
may be assigned to any party who acquires either of the Convertible Warrant
and/or the Warrant issued under the Purchase Agreement and/or an equivalent
number (on an as-converted basis) of Registrable Securities issued upon
conversion thereof; provided, however, that any such assignee shall receive such
assigned rights subject to all the terms and conditions of this Agreement,
including, without limitation, the provisions of this Section 5. The Holder
shall provide the Company with written notice promptly after such assignment
stating the name and address of the assignee and identifying the securities of
the Company as to which the rights in question are being assigned.
5.2 Amendment of Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Investor (and/or any of its permitted
successors or assigns) holding the Convertible Debenture, the Warrant and/or
Conversion Shares representing and/or convertible into more than fifty percent
(50%) of all the Investor's Shares (as defined below), and, in the event an
amendment is made to Section 3 or 4.4, the Majority Shareholder. As used herein,
the term "Investor's Shares" shall mean the Ordinary Shares then issuable upon
conversion of the then principal outstanding sum of the Convertible Debenture
and the exercise of the Warrant issued under the Purchase Agreement plus all
then outstanding shares of Conversion Shares that were issued upon the
conversion of the Convertible Debenture and the exercise of the Warrant. Any
amendment or waiver effected in accordance with this Section 5.2 shall be
binding upon the Investor, each Holder, each permitted successor or assignee of
the Investor or such Holder and the Company.
<PAGE>
6. GENERAL PROVISIONS.
6.1 Notices. Any and all notices required or permitted to be
given to a party pursuant to the provisions of this Agreement will be in writing
and will be effective and deemed to provide such party sufficient notice under
this Agreement on the earliest of the following: (i) at the time of personal
delivery, if delivery is in person; (ii) at the time of transmission by
facsimile, addressed to the other party at its facsimile number specified herein
(or hereafter modified by subsequent notice to the parties hereto), with
confirmation of receipt made by both telephone and printed confirmation sheet
verifying successful transmission of the facsimile; (iii) one (1) business day
after deposit with an express overnight courier for deliveries within a country,
or three (3) business days after such deposit for international deliveries or
(iv) three (3) business days after deposit in mail by certified mail (return
receipt requested) or equivalent for deliveries within a country. For the
purposes of this Section, a delivery between the People's Republic of China and
Hong Kong shall be considered an international delivery.
All notices for international delivery will be sent by facsimile or by
express courier. All notices not delivered personally or by facsimile will be
sent with postage and/or other charges prepaid and properly addressed to the
party to be notified at the address or facsimile number indicated for such
party, in the case of the Company or the Majority Shareholder, at 206-5050
Kingsway, Burnaby, BC, Canada, V5H 4H2, Attention: Mr. Pak Cheung, Facsimile:
(604) 438-9729, with a copy to Hecht & Steckman, P.C., 60 East 42nd Street,
Suite 5101, New York, NY 10165-5101, Facsimile: (212) 409-2363, or, in the case
of the Investor, c/o Yugang International Ltd., Room 3301-4, China Resources
Building, 26 Harbour Road, Hong Kong, Attention: Mr. Edmond Leung, Facsimile:
(852) 2827-5549, with a copy of Morrison & Foerster LLP, 23/F., 30 Queens's Road
Central, Hong Kong, Facsimile: (852) 2585-0800 or at such other address or
facsimile number as such other party may designate by giving ten (10) days
advance written notice by one of the indicated means of notice herein to the
other party hereto. Notices by facsimile shall be machine verified as received.
Any party hereto (and such party's permitted assigns) may by notice so
given change its address for future notices hereunder. Notice shall conclusively
be deemed to have been given in the manner set forth above.
6.2 Entire Agreement. This Agreement, together with all the
Exhibits hereto, constitutes and contains the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
6.3 Governing Law; Jurisdiction. This Agreement shall be
governed by and construed exclusively in accordance with the internal laws of
the State of New York, without giving effect to any choice of law rule that
would cause the application of the laws of any jurisdiction other than the
internal laws of the State of New York to the rights and duties of the parties.
The parties hereto consent to the non-exclusive jurisdiction of any New York
State or Federal court sitting in the City of New York and any appellate court
from any thereof in any action or proceeding arising out of or relating to this
Agreement.
6.4 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, then such provision(s) shall
be excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
<PAGE>
6.5 Delays or Omissions. It is agreed that no delay or
omission to exercise any right, power, or remedy accruing to any Holder, upon
any breach, default or noncompliance of the Company or any Majority Shareholder
under this Agreement shall impair any such right, power, or remedy, nor shall it
be construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent, or
approval of any kind or character on any Holder's part of any breach, default or
noncompliance under the Agreement or any waiver on such Holder's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to Holders,
shall be cumulative and not alternative.
6.6 Third Parties. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereto
and their successors and assigns, any rights or remedies under or by reason of
this Agreement.
6.7 Successors And Assigns. Subject to the provisions of
Section 5.1, the provisions of this Agreement shall inure to the benefit of, and
shall be binding upon, the successors and permitted assigns of the parties
hereto, except that the Company may not assign or transfer any of its rights or
obligations under this Agreement.
6.8 Captions. The captions to sections of this Agreement have
been inserted for identification and reference purposes only and shall not be
used to construe or interpret this Agreement.
6.9 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.10 Costs And Attorneys' Fees. In the event that any action,
suit or other proceeding is instituted concerning or arising out of this
Agreement or any transaction contemplated hereunder, the prevailing party shall
recover all of such party's costs and attorneys' fees incurred in each such
action, suit or other proceeding, including any and all appeals or petitions
therefrom.
6.11 Adjustments for Share Splits, Etc. Wherever in this
Agreement there is a reference to a specific number of Ordinary Shares or
preferred shares of the Company of any class or series, then, upon the
occurrence of any subdivision, combination or share dividend of such class or
series of shares, the specific number of shares so referenced in this Agreement
shall automatically be proportionally adjusted to reflect the affect on the
outstanding shares of such class or series of shares by such subdivision,
combination or share dividend.
6.12 Aggregation of Shares. All shares held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first written above.
THECOMPANY:
TENGTU INTERNATIONAL CORP.
By:
Name:
Title:
INVESTOR:
TOP EAGLE HOLDINGS LIMITED
By:
Name:
Title:
MAJORITY SHAREHOLDER:
PAK KWAN CHEUNG
Exhibit (3)
FLOATING CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE
UPON CONVERSION THEREOF HAVE BEEN REGISTERED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE OR CANADIAN
PROVINCE, OR UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THESE SECURITIES ARE RESTRICTED
AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR
TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
December 15, 1999 US$1,500,000
TENGTU INTERNATIONAL CORP.
FLOATING CONVERTIBLE DEBENTURE DUE DECEMBER 15, 2003
THIS DEBENTURE is issued by TENGTU INTERNATIONAL CORP., a corporation
organized and existing under laws of the State of Delaware (the "Company"), and
is designated as its Floating Convertible Debenture Due December 15, 2003.
FOR VALUE RECEIVED, the Company promises to pay to TOP EAGLE HOLDINGS
LIMITED, or its permitted assigns (the "Holder"), the principal sum of One
Million and Five Hundred Thousand Dollars (US$1,500,000.00) on December 15, 2003
(the "Maturity Date") and to pay interest on the principal sum outstanding from
time to time quarterly in arrears at the per annum rate equal to the best
lending rate of The Hongkong and Shanghai Banking Corporation (as in effect from
time to time) plus two percent (2%) (the "Initial Interest Rate"). Accrual of
interest shall commence on the first business day to occur in Hong Kong after
December 15, 2000 and continue until payment in full of the principal sum of
this Debenture has been made or duly provided for. Annual interest payments
shall be due and payable on March 15, June 15, September 15 and December 15 of
each year, commencing with March 15, 2001. If any interest payment date or the
Maturity Date is not a business day in the State of New York, then such payment
shall be made on the next succeeding business day. In the event that the
principal sum of this Debenture, or any other sum due hereunder, is not paid in
full when due and payable, interest shall continue to accrue on the balance of
any unpaid principal sum and any other such amount until such amounts are paid
in full at the same rate as the Initial Interest Rate plus five percent (5%) or
the highest rate permissible under applicable law, whichever is lower.
Accrued interest on this Debenture is payable in cash at the address
last appearing on the Debenture Register of the Company as designated in writing
by the Holder from time to time. Subject to the provisions of Paragraphs 3 and 4
below, the Company will pay the principal of and any accrued but unpaid interest
due on this Debenture on the Maturity Date, less any amounts required by law to
be deducted, to the registered holder of this Debenture as of the tenth day
prior to the Maturity Date and addressed to such holder at the last address
appearing on the Debenture Register. The forwarding of such check, or the
required number of shares of Common Stock of the Company, US$0.01 par value per
share (the "Common Stock"), determined pursuant to the provisions of Paragraph 4
below, shall constitute a payment of principal and interest hereunder and shall
satisfy and discharge the liability for principal and interest on this Debenture
to the extent of the sum represented by such check or the equivalent conversion
price value of such shares of Common Stock (as determined in accordance with
Paragraph 4 below) plus any amounts so deducted.
<PAGE>
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" includes any corporation which shall succeed to
or assume the obligations of the Company hereunder.
(b) The term "Common Stock" includes all stock of any class or classes
(however designated) of the Company, authorized on or after the date
hereof, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on
any shares entitled to preference, and the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for the
election of a majority of directors of the Company (even though the right
so to vote has been suspended by the happening of such a contingency).
This Debenture is subject to the following additional provisions:
1. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and the Holder shall execute
and deliver all reasonably required documentation in connection therewith.
2. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. The Holder shall deliver written
notice to the Company of any proposed transfer of this Debenture. In the event
of any proposed transfer of this Debenture, the Company may require, prior to
issuance of a new Debenture in the name of such other person, that it receive
reasonable transfer documentation including legal opinions in form and substance
reasonably satisfactory to the Company that the issuance of the Debenture in
such other name does not and will not cause a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary. This Debenture has been executed and delivered pursuant to the
Convertible Debenture and Warrant Purchase Agreement dated as of December 20,
1999 between, inter alia, the Company and the original Holder (as amended,
supplemented or otherwise modified form time to time, the "Purchase Agreement"),
and is subject to the terms and conditions of the Purchase Agreement, which are
by this reference, incorporated herein and made a part hereof. Capitalized terms
used and not otherwise defined herein shall have the meanings set forth for such
terms in the Purchase Agreement.
3. The Holder of this Debenture is entitled, at its option, to convert
at any time commencing on the date hereof, the principal amount of this
Debenture or any portion thereof, together with accrued but unpaid interest,
into shares of Common Stock of the Company (the "Conversion Shares") at a
conversion price for each share of Common Stock (the "Conversion Price") equal
to (a) in the case of a conversion requested by the Holder at any time during
the period commencing on the date hereof and ending on the first anniversary of
the date hereof, US$0.50, (b) in the case of a conversion requested by the
Holder at any time during the period commencing on the first day after the first
anniversary of the date hereof and ending on the second anniversary of the date
hereof, US$1.00, (c) in the case of a conversion requested by the Holder at any
time during the period commencing on the first day after the second anniversary
of the date hereof and ending on the third anniversary of the date hereof,
US$2.00, and (d) in the case of a conversion requested by the Holder at any time
during the period commencing on the first day after the third anniversary of the
date hereof and ending on the fourth anniversary of the date hereof, US$4.00.
<PAGE>
4. The entire unpaid principal amount of this Debenture and accrued
interest thereon outstanding on the Maturity Date shall, at the option of the
Holder, convert into Common Stock on the Maturity Date at a Conversion Price
equal to the Market Price minus an amount equal to twenty percent (20%) of such
Market Price; provided, however, that under no circumstances can the number of
Conversion Shares exceed 50.1% of the Common Stock outstanding as of the date of
conversion. For purposes of this Paragraph 4, "Market Price" means the average
closing price for shares of the Common Stock for the twenty (20) trading days
prior to the Maturity Date. In the event that shares of the Common Stock have
not been traded during such twenty (20) day period, the "Market Price" shall
mean the average closing price for shares of the Common Stock for any twenty
(20) consecutive trading days during the six (6) month period immediately prior
to the Maturity Date; and, provided, further, that, if there has been no such
trading activity during such six (6) month period, the Holder and the Company
shall discuss in good faith a mutually satisfactory mechanism for formulating
the "Market Price". The number of shares of Common Stock and the amount of the
Conversion Price are subject to adjustment as provided herein.
5. (a) Conversion shall be effectuated by surrendering this Debenture
to the Company (if such Conversion will convert all outstanding principal),
together with the form of conversion notice attached hereto as Exhibit A (the
"Notice of Conversion '), executed by the Holder of this Debenture evidencing
such Holder's intention to convert this Debenture or a specified portion hereof,
and accompanied, if required by the Company, by proper assignment hereof in
blank. Interest accrued or accruing from the date of issuance to the date of
conversion shall, at the option of the Holder, be paid in cash as set forth
above or in Common Stock upon conversion at the Conversion Price on the
Conversion Date. No fraction of a share or scrip representing a fraction of a
share will be issued on conversion, but the number of shares issuable shall be
rounded to the nearest whole share. The date on which Notice of Conversion is
given (the "Conversion Date") shall be deemed to be the date on which the Holder
faxes the Notice of Conversion duty executed to the Company. Facsimile delivery
of the Notice of Conversion shall be accepted by the Company at facsimile number
(604) 433-7527 Attn.: Chairman and CEO. One or more certificates representing
the number of full shares of Common Stock issuable upon such conversion will be
delivered, at the Company's expense, to the Holder within ten (10) business days
from the date the Notice of Conversion is delivered to the Company. Delivery of
shares of Common Stock upon conversion shall be made to the address specified by
the Holder in the Notice of Conversion. For purposes of this Paragraph 5,
"business days" shall mean days on which commercial banks are open for business
in Hong Kong and New York.
(b) The Company understands that a delay in the issuance of shares of
Common Stock upon a conversion beyond the ten (10) business day period described
in Paragraph 5(a) could result in economic loss to the Holder. As compensation
to the Holder for such loss, the Company agrees to pay late payments to the
Holder for late issuance of shares of Common Stock upon conversion in accordance
with the following schedule (where "No. Business Days Late" is defined as the
number of business days beyond ten (10) business days after the date the Notice
of Conversion is delivered to the Company).
<PAGE>
Late Payment for Each
$5,000 of Principal Amount
No. Business Days Late Being Converted
- ---------------------- ---------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
More than 10 $1,000+$200 for each Business Day
Late beyond 10 Business Days
- --------------------------------------------------------------------------------
The Company shall pay any payments incurred under this Paragraph 5(b)
in immediately available funds upon demand. Nothing herein shall limit the
Holder's right to pursue injunctive relief and/or actual damages for the
Company's failure to issue and deliver Common Stock to the Holder, including,
without limitation, the Holder's actual losses occasioned by any "buy-in" of
Common Stock necessitated by such late delivery. Furthermore, in addition to any
other remedies which may be available to the Holder, in the event that the
Company fails for any reason to effect delivery of such shares of Common Stock
within ten (10) business days from the date the Notice of Conversion is
delivered to the Company, the Holder will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company,
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion, and in
such event no late payments shall be due in connection with such withdrawn
conversion.
(c) If at any time (i) the Company challenges, disputes or denies the
right of the Holder to effect the conversion of this Debenture into Common Stock
or otherwise dishonors or rejects any Notice of Conversion delivered in
accordance with this Paragraph 5 or (ii) any Company stockholder who is not and
has never been an Affiliate (as defined in Rule 405 under the Securities Act of
1933, as amended) of the Holder obtains a judgment or any injunctive relief from
any court or public or governmental authority which denies, enjoins, limits,
modifies, delays or disputes the right of the holder hereof to effect the
conversion of this Debenture into Common Stock, then the Holder shall have the
right, by written notice, to require the Company to promptly redeem this
Debenture for cash at a redemption price equal to one hundred ten percent (110%)
of the outstanding principal amount hereof and all accrued and unpaid interest
hereon. Under any of the circumstances set forth above, the Company shall be
responsible for the payment of all costs and expenses of the Holder, including
reasonable legal fees and expenses, as and when incurred in disputing any such
action or pursuing its rights hereunder (in addition to any other rights of the
Holder), subject in the case of clause (ii) to the Company's right to control
and assume the defense of any such action. In the absence of an injunction
precluding the same, the Company shall issue shares upon a properly noticed
conversion.
(d) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. ' 101 et seq. (the
"Bankruptcy Code"). In the event the Company is a debtor under the Bankruptcy
Code, the Company hereby waives to the fullest extent permitted any rights to
relief it may have under 11 U.S.C. ' 362 in respect of the Holder's conversion
privilege.
6. The Conversion Shares: (a) shall be credited as fully paid; (b)
shall rank pari passu in all respects and form one class with the shares of
Common Stock then in issue and (c) entitle the Holder to be paid an appropriate
proportion of all dividends and other distributions declared, made or paid on
shares of Common Stock in respect of the calendar year in which the relevant
conversion date falls, but not in respect of an earlier financial year.
7. No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of,
and interest on, this Debenture at the time place, and rate, and in the coin or
currency or shares of Common Stock, herein prescribed. This Debenture is a
direct obligation of the Company.
<PAGE>
8. The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the Debenture such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of the
Debenture; and, if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of the entire
outstanding principal amount of this Debenture, in addition to such other
remedies as shall be available to the Holder, the Company will use its best
efforts to take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.
9. (a) In the event the Company shall pay a share dividend or other
distribution payable in shares of Common Stock on the shares of Common Stock, or
the issued shares of Common Stock shall be subdivided, combined or consolidated,
by reclassification or otherwise, into a greater or lesser number of shares of
Common Stock, the Conversion Price in effect immediately prior (and each
Conversion Price in effect subsequent) to such subdivision or combination shall,
concurrently with the effectiveness of such subdivision, combination or
consolidation, be proportionately adjusted. In the case of a share dividend or
other distribution payable in shares of Common Stock such adjustment shall occur
as follows: the Conversion Price that is then in effect (and in effect at any
time thereafter) shall be decreased as of the time of such issuance, or in the
event a record date is fixed, as of the close of business on such record date,
by multiplying the Conversion Price then (and thereafter) in effect by a
fraction (1) the numerator of which is the total number of shares of issued
Common Stock immediately prior to the time of such issuance or the close of
business on such record date, as the case may be, and (2) the denominator of
which is the total number of shares of issued Common Stock immediately prior to
the time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that, if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Conversion Price shall
be adjusted to reflect the actual payment of such dividend or distribution.
(b) Upon the occurrence of each adjustment of the Conversion Price
pursuant to this Paragraph 9, the Company, at its expense, shall promptly cause
independent certified public accountants of recognized standing selected by the
Company to compute such adjustment in accordance with the terms hereof and
prepare a certificate setting forth such adjustment and showing in detail the
facts upon which such adjustment is based. The Company shall forthwith mail a
copy of each such certificate to the Holder and shall, upon the written request
at any time of the Holder, furnish or cause to be furnished to the Holder a like
certificate setting forth all such adjustments and (ii) the Conversion Price at
the time in effect.
10. If the Company shall (a) effect a reorganization, (b) consolidate
with or merge into any other person, or (c) transfer all or substantially all of
its properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company within 24 months from the date of
such transfer (any such transaction being hereinafter sometimes referred to as a
"Reorganization") then, in each such case, the Holder of this Debenture, on the
exercise hereof as provided in Paragraph 3 at any time after the consummation or
effective date of such Reorganization (the "Effective Date"), shall receive, in
lieu of the shares of Common Stock issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which the Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if the
Holder had so exercised this Debenture, immediately prior thereto; provided that
the successor corporation in any such Reorganization described in clause (b) or
(c) above where the Company will not be the surviving entity (the "Acquiring
Company") has agreed prior to such Reorganization in a writing satisfactory in
form and substance to the Holder that this Debenture shall continue in full
force and effect and the terms hereof shall be applicable to the shares of stock
and other securities and property receivable on exercise after the consummation
of such Reorganization, and shall be binding upon the issuer of any such stock
or other securities (including, in the case of any transfer of properties or
assets referred to above, the person acquiring all or substantially all of the
<PAGE>
properties or assets of the Company). If the Acquiring Company has not so agreed
to continue this Debenture, then the Company shall give 30 days' prior written
notice to the Holder of this Debenture of such Reorganization, during which
30-day period (the "Notice Period") the Holder at its option and upon written
notice to the Company shall be able to (i) exercise this Debenture or any part
thereof at an exercise price (the "Discounted Exercise Price") equal to the then
prevailing conversion price hereunder discounted at the Discount Rate (as used
herein the "Discount Rate" shall mean the then prevailing interest rate on U.S.
Treasury Notes issued on (or immediately prior to) the date of such 30-day
notice and maturing on December 15, 2003 (or immediately prior thereto), such
rate to be compounded annually through December 15, 2003, and in no event to be
less than 10% annually); or (ii) on the Effective Date, the Holder of this
Debenture shall be paid an amount (the "Merger Profit Amount") equal to the
difference between the fair market value per share of Common Stock of the
Company being purchased by the Acquiring Company in the Reorganization and the
Discounted Exercise Price described in clause (i) above and the Debenture shall
simultaneously expire. The Merger Profit Amount shall be payable in the same
form as the common stockholders of the Company shall be paid by the Acquiring
Company for their shares of Common Stock of the Company. The fair market value
of any noncash property received from the Acquiring Company upon the
Reorganization shall be determined in good faith by the Board of Directors of
the Company, as approved by the Company's stockholders.
11. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell otherwise dispose of this Debenture or the shares of Common Stock issuable
upon conversion hereof except under circumstances which will not result in a
violation of the Act or any applicable state Blue Sky or foreign laws or similar
laws relating to the sale of securities.
12. This Debenture and the transactions contemplated thereby shall be
governed by and construed in accordance with the laws of the State of New York.
The Company consents to the jurisdiction of the federal courts whose districts
encompass any part of the City of New York or the state courts of the State of
New York sitting in the City of New York in connection with any dispute arising
under this Debenture and the transactions contemplated thereby and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions.
13. The following shall constitute an "Event of Default":
(a)The Company shall default in the payment
of principal or interest on this Debenture and same
shall continue for a period of three (3) days; or
(b) Any of the representations or warranties
made by the Company herein, in the Purchase
Agreement, the Investor Rights Agreement, any
Ancillary Agreement or in any agreement, certificate
or financial or other written statements heretofore
or hereafter furnished by the Company in connection
with the execution and delivery of this Debenture or
the Purchase Agreement shall be false or misleading
in any material respect at the time made; or
(c) The Company fails to issue shares of
Common Stock to the Holder or to cause its Transfer
Agent to issue shares of Common Stock upon exercise
by the Holder of the conversion rights of the Holder
in accordance with the terms of this Debenture, fails
to transfer or to cause its Transfer Agent to
transfer any certificate for shares of Common Stock
issued to the Holder upon conversion of this
Debenture as and when required by this Debenture, and
such transfer is otherwise lawful, or fails to remove
any restrictive legend or to cause its Transfer Agent
to transfer any certificate or any shares of Common
Stock issued to the Holder upon conversion of this
Debenture as and when required by this Debenture, the
Purchase Agreement or the Investor Rights Agreement
and such legend removal is otherwise lawful, and any
such failure shall continue uncured for five (5)
business days; or
<PAGE>
(d) The Company shall fail to perform or
observe, in any material respect, any other covenant,
term, provision, condition, agreement or obligation
of the Company under the Purchase Agreement, the
Investor Rights Agreement, any Ancillary Agreement or
this Debenture and such failure shall continue
uncured for a period of thirty (30) days after
written notice from the Holder of such failure; or
(e) The Company shall (1) admit in writing
its inability to pay its debts generally as they
mature; (2) make an assignment for the benefit of
creditors or commence proceedings for its
dissolution; or (3) apply for or consent to the
appointment of a trustee, liquidator or receiver for
its or for a substantial part of its property or
business; or
(f) A trustee, liquidator or receiver shall
be appointed for the Company or for a substantial
part of its property or business without its consent
and shall not be discharged within sixty (60) days
after such appointment; or
(g) Any governmental agency or any court of
competent jurisdiction at the instance of any
governmental agency shall assume custody or control
of the whole or any substantial portion of the
properties or assets of the Company and shall not be
dismissed within sixty (60) days thereafter; or
(h) Any money judgment, writ or warrant of
attachment, or similar process in excess of Five
Hundred Thousand US Dollars ($500,000) in the
aggregate shall be entered or filed against the
Company or any of its properties or other assets and
shall remain unpaid, unvacated unbonded or unstayed
for a period of sixty (60) days or in any event later
than five (5) days prior to the date of any proposed
sale thereunder; or
(i) Bankruptcy, reorganization, insolvency
or liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against
the Company and, if instituted against the Company,
shall not be dismissed within sixty (60) days after
such institution or the Company shall by any action
or answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations
of, or default in answering a petition filed in any
such proceeding; or
(j) The Company shall have its Common Stock
suspended from trading on an exchange or the Nasdaq
OTCBB for in excess of fifteen (15) trading days or
delisted from trading on an exchange or the Nasdaq
OTCBB for in excess of two (2) trading days; or
(k) Mr. Pak Cheung shall voluntarily cease
to be the Chairman and Chief Executive Officer of the
Company and a member of the Board of Directors of the
Company.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything herein or
in any note or other instruments contained to the contrary notwithstanding, and
the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law;
provided that any payment of this Debenture in connection with an Event of
Default (other than a delisting of its Common Stock pursuant to clause (j)) may
be made, at the Company's election, in cash or in shares of Common Stock, in
such number as would be issued at the Conversion Price on the date the Debenture
becomes due and payable,
<PAGE>
14. Any provision of this Debenture may be amended, waived or modified
upon the written consent of the Company and the Holder.
15. Nothing contained in this Debenture shall be construed as
conferring upon the Holder or any other person the right to vote or to receive
dividends or to consent or receive notice as a shareholder in respect of any
meeting of shareholders or any rights whatsoever as a shareholder of the
Company, unless and to the extent converted in accordance with the terms hereof.
IN WITNESS WHERE OF, the Company has caused this Debenture to be duly
executed by an officer thereunto duly authorized.
Dated : December 15, 1999
TENGTU INTERNATIONAL CORP.
(Corporate Seal)
BY:
NAME:
TITLE:
Attest:
- ----------------------------
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned, the holder of the below-referenced Debenture, hereby
irrevocably elects to convert $ of the principal amount of the Floating
Convertible Debenture Due December 15, 2003 issued by Tengtu International Corp.
(the "Company") into Shares of Common Stock of the Company according to the
conditions and as of the date set forth below.*
Date of Conversion:
Principal Amount to be Converted: __________________________________________
Applicable Conversion Price:
Signature:
[Name]
Address:
* This original Debenture must be received by the Company by the tenth (10th)
Hong Kong business day following the Date of Conversion, if such conversion
represents the remaining principal balance of the Debenture.
Exhibit (4)
TENGTU INTERNATIONAL CORP.
COMMON STOCK WARRANT
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR CANADIAN PROVINCE, OR
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE SECURITIES ARE
RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE ACT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Void after December 15, 2002 Right to Purchase 1,500,000
shares of Common Stock
(subject to adjustment)
PREAMBLE
Tengtu International Corp., a Delaware corporation (the "Company"),
hereby certifies that, for value received, the holder hereof (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company at
any time or from time to time before 5:00 P.M. New York time, on December 15,
2002, fully paid and nonassessable shares of Common Stock, $0.01 par value, of
the Company, at the purchase price per share (the "Purchase Price") of, in the
event of a purchase at any time during the period commencing on the date hereof
and ending on the first anniversary of the date hereof, $1.00, and, in the event
of a purchase at any time during the period commencing on the first day after
the first anniversary of the date hereof and ending on the second anniversary of
the date hereof, $2.00, and, in the event of a purchase at any time during the
period commencing on the first day after the second anniversary of the date
hereof and ending on the third anniversary of the date hereof, $4.00. The number
of shares of Common Stock and the amount of the Purchase Price are subject to
adjustment as provided herein.
This Warrant is the Common Stock Purchase Warrant (this "Warrant"),
evidencing the right to purchase shares of Common Stock of the Company, issued
pursuant to that certain Convertible Debenture and Warrant Purchase Agreement
dated as of the date hereof (as amended, modified or otherwise supplemented from
time to time, the "Purchase Agreement"), between, inter alia, the Company and a
certain investor, copies of which are on file at the principal office of the
Company. Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement. This Warrant
evidences the right to purchase an aggregate of 1,500,000 shares of Common Stock
of the Company, subject to adjustment as provided in this Warrant.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(l) The term "Company" includes any corporation which shall succeed to or
assume the obligations of the Company hereunder.
<PAGE>
(m) The term "Common Stock" includes all stock of any class or classes (however
designated) of the Company, authorized on or after the date hereof, the
holders of which shall have the right, without limitation as to amount,
either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on
any shares entitled to preference, and the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for the
election of a majority of directors of the Company (even though the right
so to vote has been suspended by the happening of such a contingency).
(n) The term "Other Securities" refers to any stock (other than Common Stock)
and other securities of the Company or any other person (corporate or
otherwise) which the Holder of this Warrant at any time shall be entitled
to receive, or shall have received, on the exercise of this Warrant, in
lieu of or in addition to Common Stock, or which at any time shall be
issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 6 or otherwise.
(o) The term "Shares" means the Common Stock issued or issuable upon exercise
of this Warrant.
(p) The term "Securities Act" means the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the
Securities and Exchange Commission thereunder, all as the same shall be in
effect at the time.
(q) The term "Securities and Exchange Commission" or "Commission" refers to the
Securities and Exchange Commission or any other federal agency then
administering the Securities Act.
(r) The term "Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any successor federal statute, and the rules and
regulations of the Securities and Exchange Commission thereunder, all as
the same shall be in effect at the time.
1. Registration Rights.
The rights of the Holder of this Warrant to register this Warrant or
the Shares shall be as stated in the Investor Rights Agreement of even date
herewith.
2. Restricted Stock.
2.1 If, at the time of any transfer or exchange (other than a transfer
or exchange not involving a change in the beneficial ownership of this
Warrant or the Shares) of this Warrant or the Shares, this Warrant or
the Shares shall not be registered under the Securities Act, the
Company may require, as a condition of allowing such transfer or
exchange, that the Holder or transferee of this Warrant or the Shares,
as the case may be, furnish to the Company an opinion of counsel
reasonably acceptable to the Company or a "no action" or similar letter
from the Securities and Exchange Commission to the effect that such
exercise transfer or exchange may be made without registration under
the Securities Act. In the case of such transfer or exchange and in the
case of an exercise of this Warrant if the Shares to be issued
thereupon are not registered pursuant to the Securities Act, the
Company may require a written statement that this Warrant or the
Shares, as the case may be, are being acquired for investment and not
with a view to the distribution thereof. The certificates evidencing
the Shares issued on the exercise of this Warrant shall, if such Shares
are being sold or transferred without registration under the Securities
Act, bear a legend similar to the legend on the first page of this
Warrant.
2.2 (a) The Company shall make and keep public information available,
as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following the
effective date of the first registration of the Company under the
Securities Act of an offering of its securities to the general public.
<PAGE>
(b) The Company shall file with the Commission in a timely manner all
reports and other documents as the Commission may prescribe under Section 13(a)
or 15(d) of the Exchange Act at any time after the Company has become subject to
such reporting requirements of the Exchange Act.
(c) The Company shall furnish to the Holder and/or a prospective
purchaser of this Warrant or the Shares designated by the Holder, forthwith upon
request, (i) a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 under the Securities Act (at any time from
and after 90 days following the effective date of the first registration
statement of the Company for an offering of its securities to the general
public) and of the reporting requirements of the Exchange Act (at any time after
it has become subject to such reporting requirements), (ii) a copy of the most
recent annual or quarterly report of the Company, (iii) any other reports and
documents necessary to satisfy the information-furnishing condition to offers
and sales under Rule 144A under the Securities Act, and (iv) such other reports
and documents as the Holder of this Warrant or the Shares reasonably requests to
avail itself of any rule or regulation of the Commission allowing the Holder to
sell any such securities without registration.
3. Exercise of Warrant.
3.1 Exercise in Full. The Holder of this Warrant may exercise it in
full by surrendering this Warrant, with the form of subscription at the
end hereof duly executed by the Holder, to the Company at its principal
office. The surrendered Warrant shall be accompanied by payment, in
cash or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of
Common Stock called for on the face of this Warrant by the Purchase
Price.
3.2 Partial Exercise. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in
Subsection 3.1 except that the amount obtained by multiplying (a) the
number of shares of Common Stock called for on the face of this Warrant
as shall be designated by the Holder in the subscription at the end
hereof by (b) the Purchase Price. On any such partial exercise, subject
to the provisions of Section 2 hereof, the Company at its expense will
forthwith issue and deliver to or upon the order of the Holder a new
Warrant or Warrants of like tenor, in the name of the Holder or as the
Holder may request, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock equal to the number of
such shares called for on the face of this Warrant minus the number of
such shares designated by the Holder in the subscription at the end
hereof.
3.3 Company Acknowledgment. The Company will, at the time of the
exercise, exchange or transfer of this Warrant, upon the request of the
Holder acknowledge in writing its continuing obligation to afford to
the Holder or transferee any rights (including, without limitation, any
right to registration of the Shares) to which the Holder or such
transferee shall continue to be entitled after such exercise, exchange
or transfer in accordance with the provisions of this Warrant; provided
that, if the Holder of this Warrant shall fail to make any such
request, such failure shall not affect the continuing obligation of the
Company to afford to the Holder or such transferee any such rights.
4. Delivery of Stock Certificates, Etc., on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and
in any event within ten (10) days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes)
will cause to be issued in the name of and delivered to the Holder, or
as the Holder (upon payment by the Holder of any applicable transfer
taxes) may direct, a certificate or certificates for the number of
fully paid and nonassessable Shares to which the Holder shall be
entitled on such exercise. No fractional Share or scrip representing a
fraction of a Share will be issued on exercise, but the number of
Shares issuable shall be rounded to the nearest whole Share.
<PAGE>
5. Adjustment for Reorganization, Consolidation, Merger, Etc.
5.1 Merger, Etc. If the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under
any plan or arrangement contemplating the dissolution of the Company
within twenty-four (24) months from the date of such transfer (any such
transaction being hereinafter sometimes referred to as a
"Reorganization") then, in each such case, the Holder of this Warrant,
on the exercise hereof as provided in Section 3 at any time after the
consummation or effective date of such Reorganization (the "Effective
Date"), shall receive, in lieu of the Shares issuable on such exercise
prior to such consummation or such effective date, the stock and other
securities and property (including cash) to which the Holder would have
been entitled upon such consummation or in connection with such
dissolution, as the case may be, if the Holder had so exercised this
Warrant, immediately prior thereto; provided that the successor
corporation in any such Reorganization described in clause (b) or (c)
above where the Company will not be the surviving entity (the
"Acquiring Company") has agreed prior to such Reorganization in a
writing satisfactory in form and substance to the Holder that this
Warrant shall continue in full force and effect and the terms hereof
shall be applicable to the shares of stock and other securities and
property receivable on exercise after the consummation of such
Reorganization, and shall be binding upon the issuer of any such stock
or other securities (including, in the case of any transfer of
properties or assets referred to above, the person acquiring all or
substantially all of the properties or assets of the Company). If the
Acquiring Company has not so agreed to continue this Warrant, then the
Company shall give 30 days' prior written notice to the Holder of this
Warrant of such Reorganization, during which 30-day period (the "Notice
Period") the Holder at its option and upon written notice to the
Company shall be able to (i) exercise this Warrant or any part thereof
at an exercise price (the "Discounted Exercise Price") equal to the
then prevailing purchase price hereunder discounted at the Discount
Rate (as used herein the "Discount Rate" shall mean the then prevailing
interest rate on U.S. Treasury Notes issued on (or immediately prior
to) the date of such 30-day notice and maturing on December 15, 2002
(or immediately prior thereto), such rate to be compounded annually
through December 15, 2002, and in no event to be less than 10%
annually); or (ii) on the Effective Date, the Holder of this Warrant
shall be paid an amount (the "Merger Profit Amount") equal to the
difference between the fair market value per share of Common Stock of
the Company being purchased by the Acquiring Company in the
Reorganization and the Discounted Exercise Price described in clause
(i) above and the Warrant shall simultaneously expire. The Merger
Profit Amount shall be payable in the same form as the common
stockholders of the Company shall be paid by the Acquiring Company for
their shares of common stock of the Company. The fair market value of
any noncash property received from the Acquiring Company upon the
Reorganization shall be determined in good faith by the Board of
Directors of the Company, as approved by the Company's stockholders.
5.2 Dissolution. Except as otherwise expressly provided in Subsection
5.1, in the event of any dissolution of the Company following the
transfer of all or substantially all of its properties or assets, the
Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property
(including cash, where applicable) receivable by the Holders of this
Warrant after the effective date of such dissolution pursuant to this
Section 6 to a bank or trust company having its principal office in New
York, New York, as trustee for the Holder of this Warrant.
5.3 Continuation of Terms. Except as otherwise expressly provided in
Subsection 5.1, upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) referred to in
this Section 5, this Warrant shall continue in full force and effect
and the terms hereof shall be applicable to the shares of stock and
other securities and property receivable on the exercise of this
Warrant after the consummation of such reorganization, consolidation or
merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of
any such stock or other securities, including, in the case of any such
transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall
have expressly assumed the terms of this Warrant as provided in Section
5.1.
<PAGE>
6. No Impairment. The Company will not, by amendment of its certificate
of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times
in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holders of this Warrant against dilution
or other impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable
therefor on such exercise, (b) will at all times reserve and keep
available out of its authorized capital stock, solely for the purpose
of issue upon exercise of this Warrant as herein provided, such number
of shares of Common Stock as shall then be issuable upon exercise of
this Warrant in full and shall take all such action as may be necessary
or appropriate in order that all shares of Common Stock that shall be
so issuable shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect
to the issue thereof, and (c) will not issue any capital stock of any
class which is preferred as to dividends or as to the distribution of
assets upon voluntary or involuntary dissolution, liquidation or
winding up, unless the rights of the Holder shall be limited to a fixed
sum or percentage of par value in respect of participation in dividends
and in any such distribution of assets.
7. No Dilution.
(a) In the event the Company shall pay a share dividend or
other distribution payable in shares of Common Stock on the shares of Common
Stock, or the issued shares of Common Stock shall be subdivided, combined or
consolidated, by reclassification or otherwise, into a greater or lesser number
of shares of Common Stock, the Purchase Price in effect immediately prior (and
each Purchase Price in effect subsequent) to such subdivision or combination
shall, concurrently with the effectiveness of such subdivision, combination or
consolidation, be proportionately adjusted. In the case of a share dividend or
other distribution payable in shares of Common Stock such adjustment shall occur
as follows: the Purchase Price that is then in effect (and in effect at any time
thereafter) shall be decreased as of the time of such issuance, or in the event
a record date is fixed, as of the close of business on such record date, by
multiplying the Purchase Price then (and thereafter) in effect by a fraction (1)
the numerator of which is the total number of shares of issued Common Stock
immediately prior to the time of such issuance or the close of business on such
record date, as the case may be, and (2) the denominator of which is the total
number of shares of issued Common Stock immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution; provided,
however, that, if such record date is fixed and such dividend is not fully paid
or if such distribution is not fully made on the date fixed therefor, the
Purchase Price shall be recomputed accordingly as of the close of business on
such record date and thereafter the Purchase Price shall be adjusted to reflect
the actual payment of such dividend or distribution.
(b) Upon the occurrence of each adjustment of the Purchase
Price pursuant to this Section 7, the Company shall prepare and deliver to the
Holder a certificate setting forth such adjustment and showing in detail the
facts upon which such adjustment is based.
(c) The form of this Warrant need not be changed because of
any change in the Purchase Price pursuant to this Section 7 and any Warrant
issued after such change may state the same Purchase Price and the same number
of shares of Common Stock as are stated in this Warrant as initially issued.
However, the Company may at any time in its sole discretion (which shall be
conclusive) make any change in the form of this Warrant that it may deem
appropriate and that does not affect the substance thereof. Any Warrant
thereafter issued or countersigned, whether in exchange or substitution for an
outstanding Warrant or otherwise, may be in the form as so changed.
<PAGE>
(d) In case at any time after the date of this Warrant:
(i) The Company shall declare a dividend (or any other distribution)
on its shares of Common Stock payable otherwise than in cash out of its earned
surplus; or
(ii) The Company shall authorize any reclassification of the shares
of its Common Stock, or any consolidation or merger to which it is a party and
for which approval of any shareholders of the Company is required, or the sale
or transfer of all or substantially all of its assets or all or substantially
all of its issued and outstanding stock; or
(iii) Events shall have occurred resulting in the voluntary and
involuntary dissolution, liquidation or winding up of the Company;
then the Company shall cause notice to be sent to the Holder at least twenty
(20) days prior (or ten (10) days prior in any case specified in clause (i)
above, or on the date of any case specified in clause (iii) above) to the
applicable record date hereinafter specified, a notice stating (1) the date on
which a record is to be taken for the purpose of such dividend, distribution or
rights, or, if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record will be entitled to such dividend, distribution
or rights are to be determined or (2) the date on which such reclassification,
consolidation, merger, sale, transfer, initial public offering, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of shares of Common Stock of record shall be
entitled to exchange their shares for securities or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up. Failure to give any such notice of any defect therein
shall not affect the validity of the proceedings referred to in clauses (i),
(ii) and (iii) above.
8. Reporting Requirements.
8.1 Financial Information. Prior to the exercise or expiration of the
right to exercise this Warrant, the Company shall furnish to the
Holder:
(a) as soon as available but in any event within ninety (90)
days after the end of each quarterly accounting period in each fiscal year of
the Company unaudited consolidated balance sheets of the Company and its
subsidiaries for such quarterly period and for the period from the beginning of
the fiscal year to the end of such quarter, and a consolidated balance sheet of
the Company and its subsidiaries as of the end of such quarterly period, setting
forth in each case comparisons to the annual budget and to the corresponding
period in the preceding fiscal year, and all such statements will be prepared in
accordance with generally accepted accounting principles in the United States
("GAAP"), consistently applied;
(b) accompanying the financial statements referred to in
subparagraph (a) above, an officer's certificate from the Controller of the
Company stating that neither the Company nor any of its subsidiaries is in
default under any of its other agreements or, if any or any such default exists,
specifying the nature and period of existence thereof, and what actions the
Company and its subsidiaries have taken and propose to take with respect
thereto;
(c) within ninety (90) days after the end of each fiscal year
of the Company, consolidated statements of income and changes in financial
position of the Company and its subsidiaries for such fiscal year, and a
consolidated balance sheet of the Company and its subsidiaries as of the end of
such fiscal year, setting forth in each case comparisons to the annual budget
and to the preceding fiscal year, all prepared in accordance with GAAP,
consistently applied, and accompanied by (i) an opinion (which, subsequent to
the fiscal year ended June 30, 2000 shall be unqualified, except for
qualifications regarding specified contingent liabilities) of Moore Stephens,
P.C. or another independent accounting firm of recognized national standing
acceptable to the Holder, (ii) an officer's certificate from the Controller of
the Company to the effect set forth in Clause (b) above, and (iii) a copy of
such accounting firm's annual management letter to the board of directors;
<PAGE>
(d) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
of the Company's operations and financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials provided
hereunder);
(e) within ten (10) days after the adoption thereof, but in
any case not less than thirty (30) days prior to the end of each fiscal year of
the Company, an annual budget prepared on a monthly basis for the Company and
its subsidiaries for the succeeding fiscal year (displaying anticipated
statements of income, changes in financial position and balance sheets), and
promptly upon preparation thereof any other significant budgets which the
Company prepares and any revisions of such annual or other budgets;
(f) promptly (but in any event within ten (10) business days)
after the discovery or receipt of notice of any default under any material
agreement to which it or any of its subsidiaries is a party or any other
material adverse event or circumstances affecting the Company or any such
subsidiary (including the filing of any material litigation against the Company
or such subsidiary or the existence of any dispute with any person which
involves a reasonable likelihood of such litigation being commenced), an
officer's certificate from the chief financial officer of the Company specifying
the nature and period of existence thereof and what actions the Company and its
subsidiaries have taken and propose to take with respect thereto;
(g) within ten (10) days after transmission thereof, copies of
all financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and copies of
all registration statements and all regular, special or periodic reports which
it files, or any of its officers or directors file with respect to the Company,
with the Securities and Exchange Commission or with any securities exchange on
which any of the Company's securities are then listed, and copies of all press
releases and other statements made available generally by the Company to the
public concerning material developments in the Company's business; and
(h) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as the Holder may
reasonably request.
Each of the financial statements referred to in subparagraph (a) and (c) above
will be true and correct in all material respects as of the dates and for the
periods stated therein, subject in the case of the unaudited financial
statements to changes resulting from normal year-end audit adjustments.
The Company shall permit the Holder of this Warrant, or agents thereof, at any
reasonable time and from time to time to examine and make copies of and extracts
from the records and books of account of, and visit the properties of, the
Company and any of its subsidiaries, and to discuss the affairs, finances, and
accounts of the Company and any of the subsidiaries with any of their officers
or directors and independent accountants.
8.2 Notice of Record Date, Etc. In case of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
<PAGE>
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Company, or
(d) any proposed issue or grant by the Company of any shares
of stock of any class or any other securities, or any right or option to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities (other than the issue of Shares on the exercise of the
Warrants),
then and in each such event the Company will mail or cause to be mailed to the
Holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, (ii)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up, and
(iii) the amount and character of any stock or other securities, or rights or
options with respect thereto, proposed to be issued or granted, the date of such
proposed issue or grant and the persons or class of persons to whom such
proposed issue or grant is to be offered or made. Such notice shall be mailed at
least 30 days prior to the date specified in such notice on which any such
action is to be taken.
9. Exchange of Warrants. On surrender for exchange of this Warrant,
properly endorsed, to the Company, the Company at its expense will
issue and deliver to or (subject to Section 2) on the order of the
Holder a new Warrant or Warrants of like tenor, in the name of the
Holder or as the Holder (on payment by the Holder or any applicable
transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on
the face or faces of this Warrant.
10. Replacement of Warrants. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this
Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any
such mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu thereof, a new
Warrant of like tenor.
11. Expenses. The Company agrees to pay any and all stamp, transfer and
other similar taxes payable or determined to be payable in connection
with the execution and delivery of this Warrant and the issuance of
this Warrant.
12. Warrant Agent. The Company may, by written notice to the Holder of this
Warrant, appoint an agent having an office in New York, New York, for
the purpose of issuing Shares on the exercise of this Warrants pursuant
to Section 3, exchanging this Warrant pursuant to Section 8, and
replacing this Warrant pursuant to Section 9, or any of the foregoing,
and thereafter any such issuance, exchange or replacement, as the case
may be, shall be made at such office by such agent.
13. Remedies. The Company stipulates that the remedies at law of the Holder
of this Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms
of this Warrant are not and will not be adequate, and that such terms
may be specifically enforced by a decree for the specific performance
of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
<PAGE>
14. Negotiability, Etc. This Warrant is issued upon the following terms, to
all of which the Holder or owner hereof by the taking hereof consents
and agrees:
(a) title to this Warrant may be transferred by endorsement
(by the Holder executing the form of assignment at the end hereof) and delivery
in the same manner as in the case of a negotiable instrument transferable by
endorsement and delivery;
(b) any person in possession of this Warrant properly endorsed
is authorized to represent himself as absolute owner hereof and is empowered to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of his equities or rights in this Warrant in favor of each such bona fide
purchaser, and each such bona fide purchaser shall acquire absolute title hereto
and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
15. Notice, Etc. All notices and other communications from the Company to
the Holder of this Warrant shall be mailed by first class registered or
certified airmail, postage prepaid, at such address as may have been
furnished to the Company in writing by the Holder or, until any
transferee of the Holder furnishes to the Company an address, then to,
and at the address of, the last Holder of this Warrant who has so
furnished an address to the Company.
16. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant is being delivered in the State of
New York and shall be construed and enforced in accordance with and
governed by its laws. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the
terms hereof. This Warrant is being executed as an instrument under
seal. All nouns and pronouns used herein shall be deemed to refer to
the masculine, feminine or neuter, as the identity of the person or
persons to whom reference is made herein may require.
17. Expiration. The right to exercise this Warrant shall expire at 5:00 P.M.,
New York time, on December 15, 2002.
Dated: December 20, 1999 TENGTU INTERNATIONAL CORP.
(Corporate Seal) By:________________________
Name:
Title:
Attest:__________________________
<PAGE>
ATTACHMENT A
NOTICE OF EXERCISE
(To be Executed by the Registered Holder in order to Exercise the Warrant)
The undersigned, the holder of the below-referenced Warrant, hereby irrevocably
elects to purchase ____ shares of Common Stock of Tengtu International Corp.
(the "Company") pursuant to the Common Stock Warrant void after December 15,
2002 issued by the Company according to the conditions and as of the date set
forth below.*
Date of Exercise:
Number of Shares be Purchased: __________________________________________
Applicable Purchase Price:
Signature:
[Name]
Address:
* This original Warrant must accompany this Notice of Exercise.
