LOAN AGREEMENT

 

THIS LOAN AGREEMENT (this "Agreement") is executed as of April 21, 2008 (the "Effective Date") by and among Well Chance Investments Limited, a company incorporated in the British Virgin Islands (the "Company") and Newport Capital Asset Management Group, a California corporation ("Newport") (each a "Party" and collectively the "Parties").

 

WHEREAS, the Company recently completed a reverse merger (the "Merger") with Legend Media, Inc., a Nevada corporation ("Legend"), whereby the Company became the wholly-owned subsidiary and operating business of Legend (the "Transaction");

 

WHEREAS, as additional funding for the Company's fees and expenses for the Transaction and a post-merger Equity Financing, the Company wishes to borrow two hundred thousand dollars ($200,000) from Newport as a short term bridge loan; and

 

WHEREAS, Newport is willing to provide such financing on terms and conditions as set forth herein.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable considerationA, the receipt and sufficiency of which are hereby acknowledged, the Company and Newport, intending to be legally bound, agree as follows:

 

ARTICLE 1

DEFINITIONS

 

1.1  Defined terms. Certain capitalized terms used in this Agreement shall have the specific meanings defined below:

 

"Business Day" means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State of California are authorized or required by law or other governmental action to close;

 

"Equity Financing" means the issuance and sale after the date hereof of equity or equity-linked securities by the Company or Legend to investors (other than investors who are stockholders of the Company on the date hereof), which issuance and sale results in gross proceeds to the Company of at least three million dollars ($3,000,000).

 

ARTICLE 2

THE LOAN

 

2.1  Loan. According to the terms and subject to the conditions of this Agreement, Newport shall make a single-installment loan to the Company on the Effective Date in the amount of $200,000 (the "Loan"). The Loan shall be evidenced by a secured convertible promissory note in the form attached hereto as Exhibit A ("Note"), duly executed on behalf of the Company and dated as of the Effective Date.

 

 

2.2  Repayment. The Company shall repay the Loan to Newport pursuant to the following repayment terms:

 

(a) Repayment in the Event of Equity Financing. In the event that there is a closing of an Equity Financing, then full repayment of all outstanding amounts of Loan Principal, Initial Loan Premium and Additional Loan Fee (if applicable) owed to Newport as of the closing date of the Equity Financing shall be delivered by the Company to Newport no later than five Business Days after the closing date of the Equity Financing. The full repayment amount that the Company shall be required to deliver to Newport in the event of a closing of an Equity Financing shall be calculated in accordance with the terms set forth in Sections 2.3(b), 2.3(c) and 2.3(d) below.

 

(b) Initial Payment Period Repayments. The total amount due and payable to Newport (regardless of whether or not there is a closing of an Equity Financing) if such repayment is delivered to Newport on or before the 120^th calendar day after the Effective Date shall be the sum of the Loan (the "Loan Principal") plus a loan fee of 30% of the amount of the Loan Principal (the "Initial Loan Premium"). For example, if the Loan Principal were $200,000, then the Loan Principal and Initial Loan Premium would be a total of $260,000. Any funds received by Newport as a partial repayment of the Loan ("Partial Repayment") on or before the 120^th calendar day after the Effective Date shall be applied toward repayment as follows:

 

(i) 76.9% of the Partial Repayment shall be applied toward payment of the remaining outstanding Loan Principal owed by the Company as of the date of such Partial Repayment; and

 

(ii) 23.1% of the Partial Repayment shall be applied toward payment of the remaining outstanding Initial Loan Premium as of the date of such Partial Repayment.¹ 

 

(c) Prepayment. The Company may from time to time prepay all or any portion of the Loan. The Company shall give Newport at least three Business Days prior written notice of its intention to prepay the Loan, specifying the date of payment and the total amount of the Loan to be paid on such date.

(d) Subsequent Period Repayments. In the event that full repayment of all outstanding amounts of Loan Principal and Initial Loan Premium is not made by the Company on or before the 120^th calendar day after the Effective Date, then, in addition to the remaining outstanding Loan Principal and Initial Loan Premium due, the total amount due and payable to Newport shall also include an additional loan fee that shall be a percentage of the remaining outstanding Loan Principal at the time repayment is made ("Additional Loan Fee"). The applicable Additional Loan Fee if repayments are made on the 121^st calendar day after the Effective Date and for the 29-day period ("Initial 30-day Period") thereafter, shall be ten percent (10%) of the remaining outstanding Loan Principal at the time repayment is made. In addition, the Additional Loan Fee percentage amount shall increase by ten percent (10%) for the 30-day period subsequent to the Initial 30-day Period and shall continue to increase by two percent (2%) for each 30-day period thereafter until the Company makes full repayment of all of the remaining outstanding Loan Principal, Initial Loan Premium, and Additional Loan Fee owed to Newport as of the date on which the full repayment is made. (The Initial 30-day Period and all subsequent 30-day periods are hereinafter collectively referred to as the "Subsequent Periods".) Any Partial Repayments delivered to Newport during Subsequent Periods shall be applied proportionately toward repayment in accordance with the amounts of: (i) the remaining outstanding Loan Principal; (ii) the remaining outstanding Initial Loan Premium; and (iii) the applicable Additional Loan Fee due on the date of repayment as follows:² 

 

 

(i) the portion of the Partial Repayment that shall be applied to the remaining outstanding Loan Principal due shall equal the product of P multiplied by the quotient of A divided by T (as such variables are defined in the Variable Index set forth in footnote 2);

(ii) the portion of the Partial Repayment to be applied to the remaining outstanding Initial Loan Premium shall equal the product of P multiplied by the quotient of B divided by T (as such variables are defined in the Variable Index set forth in footnote 2); and

(iii) the portion of the Partial Repayment to be deducted from the outstanding Additional Loan Fee due shall equal the product of P multiplied by the quotient of C divided by T (as such variables are defined in the Variable Index set forth in footnote 2).³ 

 

(e) Failure to Pay. In the event that full repayment is not received on or before the 180^th calendar day after the Effective Date, then the Loan shall be subject to the Event of Default provisions set forth in Sections 6.1 and 6.2 herein, and the total amount due and payable to Newport shall include all remaining unpaid amounts of the Loan Principal and Initial Loan Premium and shall also include and continue to accrue the Additional Loan Fee (as described in Section 2.2(d)) during the Subsequent Periods until full repayment is received by Newport.

 

 

2.3      Conversion.

(a) Conversion Price. All (but not less than all) of the outstanding Loan Principal, Initial Loan Premium and Additional Loan Fee (if applicable) may be converted at any time by Newport into common stock, $.001 par value per share ("Common Stock"), of Legend based upon the following (as applicable, the "Conversion Price"):

(i) In the event the conversion takes place within 120 days of the Effective Date, the conversion price per share of Common Stock shall be $4.50;

(ii) In the event the conversion takes place between 121 and 150 days after the Effective Date, the conversion price per share of Common Stock shall be $5.50; and

(iii) In the event the conversion takes place 150 or more days after the Effective Date, the conversion price per share of Common Stock shall be $6.50.

(b) Conversion Procedure.

(i) Notice of Conversion. If Newport elects to convert the Loan Principal, Initial Loan Premium and Additional Loan Fee (if applicable) pursuant to Section 2.3, Newport shall deliver to the Company written notice of its conversion ("Conversion Notice") at least 10 business days (but no more than 30 days) prior to the date of such conversion. The Conversion Notice shall set forth (A) the Loan Principal, Initial Loan Premium and Additional Loan Fee (if applicable) to be converted (which shall be all, but not less than all, of the Loan Principal, Initial Loan Premium and Additional Loan Fee (if applicable) outstanding on the conversion date), (B) the date on which such conversion will occur and (C) the name or names to appear on the certificate(s) representing the shares of Common Stock and the number of shares for each certificate if more than one is to be issued.

(ii) Delivery of Stock Certificates; Surrender of Note. As promptly as practicable after the conversion of the Loan, the Company shall cause Legend to issue and deliver to Newport a certificate(s) for the number of full shares of Common Stock issuable upon such conversion. Upon the conversion of the Loan, Newport shall surrender the Note, duly endorsed, at the principal office of the Company.

(iii) Fractional Shares. No fractional shares of the Common Stock shall be issued upon conversion of the Loan. In lieu of Legend issuing any fractional shares to Newport upon the conversion of the Loan, the number of shares of Common Stock to be issued shall be rounded down to the nearest whole number of shares.

 

 

ARTICLE 3

CONDITIONS PRECEDENT TO THE LOAN

 

3.1  Conditions on the Effective Date. The obligation of Newport to make the Initial Loan pursuant to Section 2.1 shall be subject to the satisfaction of the conditions set forth in this Section. If the conditions set forth in this Section 3.1 are not met on or prior to the Effective Date, then Newport shall have no obligation to make the Loan.

 

(a)  The Company shall have duly executed and delivered to Newport the Note representing the Loan.

 

(b)  The Company shall have duly authorized, executed, and delivered to Newport a security agreement in the form attached hereto as Exhibit B (the "Security Agreement") to secure the repayment of the Loan and granting Newport a continuing security interest in all presently existing and hereafter acquired assets and property of the Company of whatever nature and wherever located (except for any such assets for which, by the terms of any agreement in existence on the date hereof, does not permit the granting of a security interest, in which case the Company shall grant to Newport in the Security Agreement a security interest in all proceeds received by the Company generated by such assets) (the "Security Interest"). The Parties acknowledge that the Security Interest shall be of the same priority as the security interest previously granted to RMK pursuant to the Financing.

 

(c)  Newport shall have received on or before the Effective Date an Officer's Certificate in the form attached hereto as Exhibit C, dated as of the Effective Date.

 

(d)  RMK shall have duly executed and delivered to Newport the Side Agreement Regarding Security Interest in the form attached hereto as Exhibit D pursuant to which RMK agrees that the Security Interest has the same priority as security interests previously granted to RMK pursuant to the Financing.

 

(e)  Legend shall have duly executed and delivered to Newport the Warrant.

 

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

 

4.1  Due Incorporation and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the British Virgin Islands, with full and adequate power to carry on and conduct its business as presently conducted, and is duly licensed or qualified in all foreign jurisdictions wherein the failure to be so qualified or licensed would reasonably be expected to have a material adverse effect on the business of the Company.

 

4.2  Due Authorization. The Company has full right, power and authority to enter into this Agreement, to make the borrowings hereunder and execute and deliver the Note as provided herein and to perform all of its duties and obligations under this Agreement and the Note. The execution and delivery of this Agreement will not, nor will the observance or performance of any of the matters and things herein or therein set forth, violate or contravene any provision of law or the Company's Bylaws or Certificate of Incorporation. All necessary and appropriate corporate action on the part of the Company has been taken to authorize the execution and delivery of this Agreement. On the Effective Date, the Company will deliver to Newport a copy of the written resolutions by or the minutes of the meeting of the Company's Board of Directors authorizing the Company to enter into this Agreement, to make the borrowings as provided herein, and to perform all of its duties and obligations under this Agreement.

 

 

4.3  Enforceability. This Agreement has been validly executed and delivered by the Company and constitutes the legal, valid and binding obligations of the Company enforceable against it in accordance with its respective terms, subject to applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' right and to the availability of the remedy of specific performance.

 

4.4  Capitalization. All of the Company's authorized and outstanding equity securities (including securities convertible into equity securities) are identified on Schedule A attached hereto. Other than as set forth on Schedule A, there are no outstanding shares of capital stock or any options, warrants or other preemptive rights, rights of first refusal or similar rights to purchase equity securities of the Company.

 

4.5  Subsidiaries. The Company owns no securities of any other entity, and there are no outstanding shares of capital stock or any options, warrants or other preemptive rights, rights of first refusal or similar rights to purchase equity securities of any other entity.

 

4.6  Compliance with Laws. The nature and transaction of the Company's business and operations and the use of its properties and assets do not, and during the term of this Agreement shall not, violate or conflict with in any material respect any applicable law, statute, ordinance, rule, regulation or order of any kind or nature.

 

4.7  Absence of Conflicts. The execution, delivery and performance by the Company of this Agreement, and the transactions contemplated hereby, do not constitute a breach or default, or require consents under, any agreement, permit, contract or other instrument to which the Company is a party, or by which the Company is bound or to which any of the assets of the Company is subject, or any judgment, order, writ, decree, authorization, license, rule, regulation, or statute to which the Company is subject, and, except as set forth in the Security Agreement, will not result in the creation of any lien upon any of the assets of the Company.

 

4.8  Litigation and Taxes. There is no litigation or governmental proceeding pending, or to the best knowledge of the Company after due inquiry, threatened, against the Company. The Company has duly filed all applicable income or other tax returns and has paid all material income or other taxes when due. There is no controversy or objection pending, or to the best knowledge of the Company after due inquiry, threatened in respect of any tax returns of the Company.

 

4.9  No Omissions or Misstatements. None of the information included in this Agreement, other documents or information furnished or to be furnished by the Company, or any of its representations, contains any untrue statement of a material fact or is misleading in any material respect or omits to state any material fact. Copies of all documents referred to in herein have been delivered or made available to Newport and constitute true and complete copies thereof and include all amendments, schedules, appendices, supplements or modifications thereto or waivers thereunder.

 

 

ARTICLE 5

COVENANTS

 

5.1  Negative Covenants of the Company. The Company covenants and agrees that, from the Effective Date until the date on which Newport receives full repayment of all remaining outstanding amounts of the Loan Principal, Initial Loan Premium, and Additional Loan Fee (and, in any event, during such time as any portion of the Loan or any applicable Initial Loan Premium, and Additional Loan Fee (if applicable) thereon is outstanding), without the consent of Newport, the Company will not:

 

(a)  except for the Company's or Legend's future acquisition of or merger with Chinese media advertising companies, merge or consolidate with or into any other corporation or sell or otherwise convey a majority of its assets;

 

(b)  engage in any business other than the business conducted or reasonably planned to be conducted by the Company on the Effective Date;

 

(c)  declare, set aside or pay any dividend or other distribution on any of its capital stock; or

 

(d)  amend its Certificate of Incorporation or Bylaws in any manner that adversely affects the rights associated with this Agreement.

 

5.2  Affirmative Covenants of the Company. The Company covenants and agrees that, from the Effective Date until the date on which Newport receives full repayment of all remaining outstanding amounts of the Loan Principal, Initial Loan Premium, and Additional Loan Fee (and, in any event, during such time as any portion of the Loan or any applicable Initial Loan Premium and Additional Loan Fee (if applicable) thereon is outstanding), the Company shall:

 

(a)  operate its business only in the ordinary course and maintain its properties and assets in good repair, working order and condition;

 

(b)  cause to be done all things reasonably necessary to maintain, preserve and renew its corporate existence and all material licenses, authorizations and permits necessary to conduct its businesses; and

 

(c)  comply with all applicable laws, rules and regulations of all governmental authorities, the violation of which could reasonably be expected to have a material adverse effect on its business, properties or prospects.

 

 

ARTICLE 6

DEFAULT

 

6.1  Events of Default. The occurrence of the events described in either Sections 6.1(a) or 6.1(b), if not cured within a 10 Business Day cure period from the date of such default, or the occurrence of the events described in Section 6.1(c) and 6.1(d), for which there shall be no cure period (each event an "Event of Default"), if any, shall constitute an Event of Default of the Company:

 

(a)  a material breach of any representation, warranty, covenant or other provision of this Agreement, the Note, or the Security Agreement;

 

(b)  (i) the application for the appointment of a receiver or custodian for the Company or the property of the Company, (ii) the entry of an order for relief or the filing of a petition by or against the Company under the provisions of any bankruptcy or insolvency law, (iii) any assignment for the benefit of creditors by or against the Company, or (iv) the Company becomes insolvent;

 

(c)  the Company's failure to make full repayment of the Loan (including all remaining outstanding Loan Principal and applicable outstanding Initial Loan Premium and Additional Loan Fee), as described in this Agreement or the Note, to Newport on or before the 180^th day after the Effective Date; and

 

(d)  in the event that there is a closing of an Equity Financing, the Company's failure to deliver full repayment of the Loan (including all remaining outstanding Loan Principal and applicable outstanding Initial Loan Premium and Additional Loan Fee) to Newport within five Business Days of the closing date of the Equity Financing as set forth and in accordance with Section 2.2(a) herein.

 

6.2  Effect of Default. Upon the occurrence of any Event of Default that is not cured within any applicable cure period, Newport may elect, by written notice delivered to the Company, to take any or all of the following actions: (a) declare this Agreement terminated and the outstanding amounts under the Note to be forthwith due and payable, whereupon the entire unpaid Loan Principal, together with all of the unpaid applicable outstanding Initial Loan Premium and Additional Loan Fee (if applicable) owed to Newport, and all other cash obligations hereunder, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Company, anything contained herein or in any of the Note to the contrary notwithstanding, and (b) exercise any and all other remedies provided hereunder or available at law or in equity upon the occurrence and continuation of an Event of Default. In addition, during the occurrence of any Event of Default, the Company shall not make any payment on any other outstanding indebtedness of the Company (other than indebtedness of the Company to which Newport holds a majority of principal under the Loan) unless the Parties have agreed in writing to subordinate this Agreement and the Note hereunder.

 

 

ARTICLE 7

WARRANT

 

7.1      Issuance of Warrant. On the Effective Date, the Company shall cause Legend to issue to Newport a Common Stock Purchase Warrant (the "Warrant") substantially in the form attached hereto as Exhibit E. The Warrant shall be immediately exercisable upon issuance and shall be exercisable until the third anniversary of the issuance date of the Warrant. The Warrant exercise price shall equal $2.50 per share, subject to adjustments as set forth in Section 2 of the Warrant (the "Initial Exercise Price"). The total number of shares underlying the Warrant that Newport may receive shall equal up to 40,000 shares of Common Stock.

7.2       Registration of Shares Underlying Warrant. 

 

(a) If, at any time commencing on the Effective Date until the second anniversary thereof, the Company or Legend prepares and files a Registration Statement under the Securities Act or otherwise registers securities under the Securities Act as to any of its securities (other than under a Registration Statement pursuant to Form S-8 or Form S-4) (each such filing, a "Registration Document"), the Company will give written notice, at least 20 calendar days prior to the filing of such Registration Document, to the holder of the Warrant of its intention to do so. The Company shall cause Legend to include all of the shares underlying the Warrant (the "Registrable Securities") in such Registration Documents with respect to which the Company has received written requests for inclusion therein within 15 calendar days of actual receipt of the Company's notice.

 

(b) In the event of an underwritten registered offering in which the managing underwriter(s) advise the Company or Legend in writing that in their opinion the number of Registrable Securities exceeds the number of securities which can be sold therein without adversely affecting the marketability of the offering, the Company will cause Legend to include in such registration the number of Registrable Securities requested to be included which in the opinion of such underwriter(s) can be sold without adversely affecting the marketability of the offering, pro rata among the respective holders thereof on the basis of the amount of Registrable Securities owned by each such holder.

 

ARTICLE 8

MISCELLANEOUS

 

8.1  Successors and Assigns. Subject to the exceptions specifically set forth in this Agreement, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective executors, administrators, heirs, successors and assigns of the parties. This Agreement may be assigned solely by Newport provided that Newport complies with all applicable federal and state securities laws. In the event of an assignment by Newport, each of the parties to this Agreement acknowledge and agree that Newport's assignee is assigned and takes over all rights, obligations, responsibilities, duties, remedies, powers and privileges under this Agreement from Newport.

 

8.2  Further Assurances. Each party to this Agreement agrees to promptly produce and execute such other documents or agreements as may be necessary or desirable for the execution and implementation of this Agreement, Newport's assignment of this Agreement (if applicable), and the consummation of the transactions contemplated thereby.

 

8.3  Titles and Subtitles. The titles and subtitles of the Sections of this Agreement are used for convenience only and shall not be considered in construing or interpreting this agreement.

 

8.4  Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be delivered personally or by facsimile (receipt confirmed electronically) or shall be sent by a reputable express delivery service or by certified mail, postage prepaid with return receipt requested, addressed as follows:

 

 

8.7  Remedies. No delay or omission by Newport in exercising any of its rights, remedies, powers or privileges hereunder or at law or in equity and no course of dealing between Newport and the undersigned or any other person shall be deemed a waiver by Newport of any such rights, remedies, powers or privileges, even if such delay or omission is continuous or repeated, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise thereof by Newport or the exercise of any other right, remedy, power or privilege by Newport. The rights and remedies of Newport described herein shall be cumulative and not restrictive of any other rights or remedies available under any other instrument, at law or in equity.

 

8.8  Counterparts. This Agreement may be executed in separate counterparts each of which will be an original and all of which taken together will constitute one and the same agreement.

 

8.9  Facsimile. This Agreement may be executed using facsimiles of signatures, and a facsimile of a signature shall be deemed to be the same, and equally enforceable, as an original of such signature.

 

* * * * *

 

 

IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be executed on the date first set forth above.

 

WELL CHANCE INVESTMENTS LIMITED By: /s/ Jeffrey Dash                                                  Jeffrey Dash  Chief Executive Officer  NEWPORT CAPITAL ASSET MANAGEMENT By: /s/ John Vasquez                                                John Vasquez President/Managing Director

 

 

 

 

 

See attached.

 

See attached.

FORM OF OFFICER'S CERTIFICATE

Intentionally Omitted

 

Intentionally Omitted

 

 

See attached.