Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
SEPTEMBER 13, 1999
NETWORKS NORTH, INC.
(Exact Name of Registrant as specified in its charter)
NEW YORK 0-18066 11-2805051
(State of other (Commission (I.R.S. Employer
jurisdiction of incorporation) File Number) Identification No.)
14 METEOR DRIVE, TORONTO, ONTARIO M9W 1A4
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(416) 675-6666
Not applicable
(Former name or former address, if changes since last report)
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Item 2. Acquisition or Disposition of Assets
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On September 13, 1999, pursuant to an Asset Purchase Agreement dated as of
the 10th day of September, 1999 (the "Agreement"), Networks North Inc. (the
"Registrant"), through its wholly-owned subsidiary, 1373224 Ontario Limited (the
"Purchaser"), acquired, effective as of September 13th, 1999, substantially all
of the property and assets (excluding accounts receivable) of GalaVu
Entertainment Inc., ("GalaVu") from the person appointed by the court of
competent jurisdiction as the receiver or receiver and manager of the property,
assets and undertaking of GalaVu (the "Receiver"). A copy of the Agreement is
annexed hereto as Exhibit "10.1", and is incorporated herein by reference
thereto.
Pursuant to the Agreement, the Purchaser acquired substantially all of the
property and assets (excluding accounts receivable) of GalaVu for the
consideration of 100,000 shares of the Company's common stock and a Promissory
Note (the "Note"), which is secured by a general security interest in all of the
Purchaser's present and after-acquired assets. A copy of the Note is annexed
hereto as Exhibit "10.2" and is incorporated herein by reference thereto. The
Note shall be payable in cash or in common shares of the Registrant annually,
for the term consisting of each of the next five fiscal years in an amount equal
to 50% of the earnings before interest, taxes, depreciation and amortization
("EBITDA") of the Purchaser for the immediately preceding annual period with
such amount to be
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adjusted so that the total annual payment required to be made to the Receiver or
Holder of the Note for each fiscal year is an amount equal to 50% of the EBITDA
of the Purchaser for such fiscal year. Pursuant to the provisions of the Note,
the minimum amount to be received annually by the Holder of the Note is as
follows: Fiscal 2000-$300,000, Fiscal 2001-$500,000, Fiscal 2002-$750,000,
Fiscal 2003-$875,000 and Fiscal 2004-$875,000.
The assets acquired from GalaVu were utilized by GalaVu and shall be
utilized by the Purchaser in the same manner, i.e., to provide interactive,
in-room entertainment systems to hotels.
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The following schedules to the Agreement are not annexed hereto, but the
Registrant, upon request, shall provide a copy of any omitted schedule:
Schedule "F" - Excluded Assets
Schedule "J" - Certificates referred to in section 5.2(a)(v) of the
Agreement
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Item 7. Exhibits
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(a) Set forth below is a list of the Exhibits applicable to this Current
Report on Form 8-K, numbered in accordance with Item 601 of Regulation S-K.
10.1 Asset Purchase Agreement, dated September 10, 1999, by and between 1373224
Ontario Limited, Networks North Inc. and Arthur Andersen Inc., to acquire
the property and assets of GalaVu Entertainment Inc., from the person
appointed by the court of competent jurisdiction as the receiver or
receiver and manager of the property, assets and undertaking of GalaVu.
10.2 Promissory Note, dated September 10, 1999, by and between 1373224 Ontario
Limited, as Debtor, and the Holder, as Creditor.
10.3 General Security Agreement, dated September 10, 1999, by between 1373224
Ontario Limited to acquire the property and assets of GalaVu Entertainment
Inc., from the person appointed by the court of competent jurisdiction as
the receiver or receiver and manager of the property, assets and
undertaking of GalaVu.
10.4 Securities Pledge Agreement, dated September 10, 1999, by between 1373224
Ontario Limited to acquire the property and assets of GalaVu Entertainment
Inc., from the person appointed by the court of competent jurisdiction as
the receiver or receiver and manager of the property, assets and
undertaking of GalaVu.
10.5 Certificate to the Escrow Agent certifying that the conditions of Closing
have been satisfied or waived.
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10.6 Certificate to the Escrow Agent certifying that the conditions of Closing
have not been satisfied or waived.
10.7 Occupancy and Indemnity Agreement, dated September 13, 1999, by between
1373224 Ontario Limited to acquire the property and assets of GalaVu
Entertainment Inc., from the person appointed by the court of competent
jurisdiction as the receiver or receiver and manager of the property,
assets and undertaking of GalaVu.
10.8 Order of the Ontario Superior Court of Justice, dated September, 1999,
approving the transactions contemplated herein, and vesting in the
Purchaser the right, title and interest of GalaVu and the Receiver, if
any, in and to the Purchased Assets, free and clear of the right, title
and interest of any other person other than Permitted Encumbrances.
10.9 Bill of Sale, dated September 13, 1999, by between 1373224 Ontario Limited
to acquire the property and assets of GalaVu Entertainment Inc., from the
person appointed by the court of competent jurisdiction as the receiver or
receiver and manager of the property, assets and undertaking of GalaVu.
10.10 Covenant of Networks North Inc., dated September 13, 1999, to allot and
issue and pay to the Bank in writing 100,000 common shares of NETN.
6
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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.
Networks North Inc.
a New York Corporation
By: /s/ Peter Rona
-------------------------------
Peter Rona, President
Date: September 27, 1999
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EXHIBIT INDEX
10.1 Asset Purchase Agreement, dated September 10, 1999, by between 1373224
Ontario Limited to acquire the property and assets of GalaVu Entertainment
Inc., from the person appointed by the court of competent jurisdiction as
the receiver or receiver and manager of the property, assets and
undertaking of GalaVu.
10.2 Promissory Note, dated September 10, 1999, by and between 1373224 Ontario
Limited, as Debtor, and the Holder, as Creditor.
10.3 General Security Agreement, dated September 10, 1999, by between 1373224
Ontario Limited to acquire the property and assets of GalaVu Entertainment
Inc., from the person appointed by the court of competent jurisdiction as
the receiver or receiver and manager of the property, assets and
undertaking of GalaVu.
10.4 Securities Pledge Agreement, dated September 10, 1999, by between 1373224
Ontario Limited to acquire the property and assets of GalaVu Entertainment
Inc., from the person appointed by the court of competent jurisdiction as
the receiver or receiver and manager of the property, assets and
undertaking of GalaVu.
10.5 Certificate to the Escrow Agent certifying that the conditions of Closing
have been satisfied or waived.
10.6 Certificate to the Escrow Agent certifying that the conditions of Closing
have not been satisfied or waived.
10.7 Occupancy and Indemnity Agreement, dated September 13, 1999, by between
1373224 Ontario Limited to acquire the property and assets of GalaVu
Entertainment Inc., from the person appointed by the court of competent
jurisdiction as the receiver or receiver and
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manager of the property, assets and undertaking of GalaVu.
10.8 Order of the Ontario Superior Court of Justice, dated September, 1999,
approving the transactions contemplated herein, and vesting in the
Purchaser the right, title and interest of GalaVu and the Receiver, if
any, in and to the Purchased Assets, free and clear of the right, title
and interest of any other person other than Permitted Encumbrances.
10.9 Bill of Sale, dated September 13, 1999, by between 1373224 Ontario Limited
to acquire the property and assets of GalaVu Entertainment Inc., from the
person appointed by the court of competent jurisdiction as the receiver or
receiver and manager of the property, assets and undertaking of GalaVu.
10.10 Covenant of Networks North Inc., dated September 13, 1999, to allot and
issue and pay to the Bank in writing 100,000 common shares of NETN.
9
1373224 ONTARIO LIMITED
September 10, 1999
Canadian Imperial Bank of Commerce
Special Loans, Head Office
Risk Management Division
Commerce Court West
Toronto, Ontario
Attention: Gerry Soucie, General Manager
Dear Sirs:
1. Offer
1.1 Irrevocable Offer to Purchase Assets
Upon and subject to the terms and conditions set forth herein,
1373224 Ontario Limited (the "Purchaser") hereby offers (hereinafter referred to
as the "Offer") to purchase from the Receiver (as hereinafter defined), all of
the right, title and interest of GalaVu Entertainment Inc. ("GalaVu") in and to
the undertaking and all of the property and assets of the Purchased Business (as
hereinafter defined) of every kind and description and wheresoever situated,
other than the Excluded Assets (the "Purchased Assets").
1.2 Bank Acting as Recipient of this Offer
This Offer is delivered to Canadian Imperial Bank of Commerce (the "Bank"), as
the primary secured creditor of GalaVu. This Offer shall be irrevocable for
acceptance by the Bank until the close of business (5:00 p.m.) on Friday,
September 10, 1999, and irrevocable for acceptance by the Receiver until the
Time of Closing (as hereinafter defined) after which, unless accepted in writing
by the Receiver, this offer shall be revoked and shall then be null and void.
1.3 Acceptance Adopts this Offer
The valid acceptance by the Receiver of this offer shall constitute
an agreement between the Receiver and the Purchaser and the Bank shall have no
liabilities, obligations and duties hereunder save as may be specifically
provided herein.
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2. Interpretation
2.1 Definition
In this Offer, unless the subject matter or context is inconsistent
therewith, the following terms shall have the following meanings:
"Accepted Assets" has the meaning ascribed to that term in section
4.9 hereof;
"Accounts Receivable" means all debts, accounts and claims for
monetary amounts which are, or are accruing, due or owing to GalaVu,
on the Closing Date, excluding all cash of GalaVu on deposit with
the Bank;
"Agreement" means the agreement arising out of the acceptance of
this Offer and all amendments made thereto by written agreement
executed by each of the parties hereto;
"BIA" means the Bankruptcy and Insolvency Act (Canada);
"Business Day" means a day other than a Saturday, Sunday or
statutory holiday in Ontario;
"Claims" means all losses, damages, expenses, liabilities (whether
accrued, actual, contingent, latent or otherwise), claims and
demands of whatever nature and kind including, without limitation,
all legal fees and costs on a solicitor and client basis;
"Closing Date" means September 13, 1999 or such other date as may be
agreed to in writing between the Vendor and the Purchaser;
"Encumbrance" means any encumbrance, lien, charge, hypothec, pledge,
mortgage, title retention agreement, or security interest of any
nature;
"Exchange Act" shall mean the Securities and Exchange Act of 1934,
as amended, or any similar Federal statute, and the rules and
regulations of the SEC promulgated thereunder, all as the same shall
be in effect at the time;
"Excluded Assets" mean GalaVu's right, title or interest in or to
the items described in Schedule "F" attached hereto or as otherwise
excluded pursuant to the Offer or which may be designated as
Excluded Assets by notice from the Purchaser to the Vendor within 45
days after the Closing Date;
"Inventory" means all inventories of GalaVu wheresoever situated
including, without limiting the generality of the foregoing, all
finished goods, work in progress and raw materials;
"Occupancy and Indemnity Agreement" means the occupancy and
indemnity agreement in substantially the form attached hereto as
Schedule "G";
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"Permitted Encumbrances" means the interest of the lessor in
machinery, equipment and vehicles leased by GalaVu for use in the
Purchased Business;
"Purchased Assets" has the meaning set out in sections 1. 1 and 3.
1;
"Purchased Business" means the business currently carried on by
GalaVu and which includes providing pay for view movies in motels
and hotels and software and hardware development;
"Receiver" means that person appointed by a Court of competent
jurisdiction as the receiver or receiver and manager of the
property, assets and undertaking of GalaVu, including an interim
receiver appointed pursuant to Section 47 of the BIA, in its
capacity as receiver or interim receiver and not in any personal
capacity.
"SEC" shall mean the Securities and Exchange Commission, or any
other federal agency then administering the Securities Act;
"Securities Act" shall mean the Securities Act of 1993, as amended,
or any similar Federal statute, and the rules and regulations of the
SEC promulgated thereunder, all as the same shall be in effect at
the time;
"Shares" means the common shares in the capital of Networks North
Inc. ("Networks") to be delivered to the Vendor pursuant to section
3.2(iii);
"Time of Closing" means 2:00 p.m. (Toronto time) on the Closing
Date, or such other time on the Closing Date as the Vendor and the
Purchaser may mutually determine; and
"Vendor" means the Receiver.
2.2 Headings
The division of this Offer into articles and sections and the
insertion of headings are for convenience of reference only and will not affect
the construction or interpretation of this Offer or of the Agreement. The terms
"hereof", "hereunder" and similar expressions refer to this Offer and Agreement
and not to any particular article, section or other portion hereof and include
any agreement supplemental hereto unless something in the subject matter or
context is inconsistent therewith, references herein to articles and sections
are to articles and sections of this Offer and Agreement.
2.3 Number, Gender and Persons
In this Agreement, words importing the singular number only shall
include the plural and vice versa, words importing gender shall include all
genders and words importing persons shall include individuals, corporations,
partnerships, associations, trusts, unincorporated organizations, governmental
bodies and other legal or business entities of any kind whatsoever.
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2.4 Entire Agreement
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral. There are
no conditions, covenants, agreements, representations, warranties or other
provisions, express or implied, collateral, statutory or otherwise, relating to
the subject matter hereof except as herein provided.
2.5 Time of Essence
Time shall be of the essence of this Agreement.
2.6 Applicable Law
This Agreement shall be construed, interpreted and enforced in
accordance with, and the respective rights and obligations of the parties shall
be governed by, the laws of the Province of Ontario and the federal laws of
Canada applicable therein, and each party irrevocably and unconditionally
submits to the non-exclusive jurisdiction of the courts of such province and all
courts competent to hear appeals therefrom.
2.7 Successors and Assigns
This Agreement shall enure to the benefit of and shall be binding on
and enforceable by the parties and, where the context so permits, their
respective successors and permitted assigns. Except as explicitly provided
herein, neither the Vendor nor the Purchaser may assign any of its rights or
obligations hereunder without the prior written consent of the other party.
2.8 Severability
If any provision of this Agreement is determined by a court of
competent jurisdiction to be invalid, illegal or unenforceable in any respect,
such determination shall not impair or affect the validity, legality or
enforceability of the remaining provisions hereof, and each provision is hereby
declared to be separate, severable and distinct.
2.9 Amendments and Waivers
No amendment or waiver of any provision of this Agreement shall be
binding on either party unless consented to in writing by such party. No waiver
of any provisions of this Agreement shall constitute a waiver of any other
provision of this Agreement nor shall any waiver constitute a continuing waiver
unless otherwise provided.
2.10 Currency
Unless otherwise expressly stated herein, all references to dollar
amounts in this Agreement are to Canadian dollars.
<PAGE>
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3. Purchase and Sale
3.1 Purchased Assets
Without limiting the generality of the provisions of Section 1.1
hereof, the Purchased Assets include the right, title and interest of GalaVu and
the Receiver, if any, in and to the following:
(a) all leasehold improvements at all of GalaVu's premises to which
GalaVu is entitled;
(b) all machinery and equipment and all vehicles, tools, spare parts,
handling equipment, furniture, fixtures, furnishings, supplies and
accessories relating to or used in the Purchased Business;
(c) all leases of machinery and equipment relating to or used in the
Purchased Business in respect of which GalaVu is lessee;
(d) the Inventory;
(e) all prepaid expenses and security deposits, including any amounts
paid or held by supplier(s) of cable television, but excluding all
security deposits held by any of GalaVu's landlords;
(f) all new and unused production, shipping and packaging supplies
relating to or used in the Purchased Business;
(g) all Accounts Receivable, including all coins and bills or other
medium of exchange wherever located;
(h) all Accepted Assets to which GalaVu is a party;
(i) all licences, registrations, permits and quotas required to carry on
the Purchased Business in its usual and ordinary course;
(j) all copyrights, registered trade-marks, trade-mark licences, trade
names, and patents; all unregistered trade-marks, trade-mark
licenses, trade names, logos and all patent applications,
trade-marks registration applications owned, used or made by GalaVu
in connection with the Purchased Business including, without
limitation, the right to use the name "GalaVu";
(k) all computer equipment, operating system software, tools and
utilities, application software and databases including, without
limitation, those providing accounting, inventory, as well as any
other management information systems of the Purchased Business,
including without limitation, all source code and object code,
system documentation, instruction and use manuals and any other
written material pertaining to the foregoing, and all intellectual
property rights applicable thereto,
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including, without limitation, all copyrights, licences and
proprietary information relating thereto;
(l) the goodwill of the Purchased Business including, without limiting
the generality of the foregoing:
(i) the exclusive right in favour of the Purchaser to represent
itself as carrying on the Purchased Business in continuation
of and in succession to GalaVu; and
(ii) all records of sales, customer lists and supplier lists of or
used in connection with the Purchased Business, including,
without limiting the generality of the foregoing, inventory
records, customers' inventory records, if any, accounts
receivable records, records pertaining to customers'
requirements, customer contracts, customer invoices,
suppliers' invoices and expense invoices; and
(m) all shares in the capital of GalaVu Entertainment Corp., GalaVu
International Corp., and any other shares owned by GalaVu;
(n) all other property and assets owned by GalaVu or to which it is
entitled in connection with the Purchased Business, but excluding
the Excluded Assets.
3.2 Purchase Price
The purchase price payable to the Vendor for the Purchased Assets
(the "Purchase Price"), shall be paid to the Vendor at the Time of Closing and
shall consist of (i) the sum of $1,200,000; (ii) the note of the Purchaser, in
the form attached as Schedule "A" (the "Note") secured by a general security
interest in all of the Purchaser's present and after-acquired assets, property
and undertaking in the form attached as Schedule "B" (the "GSA") and a guarantee
from Networks of the obligations of the Purchaser, recourse for which is limited
to a pledge of all of the shares of the Purchaser, in the form of the guarantee
and pledge agreement attached as Schedule "C" hereto (each of the foregoing
being collectively hereinafter referred to as the "Security"); and (iii) 100,000
Shares, issued from the treasury of Networks.
(a) At or prior to the delivery of this Offer, the Purchaser shall have
delivered to Blake, Cassels & Graydon (the "Escrow Agent"), (i) a
certified cheque payable to the Escrow Agent, in trust, in the
amount of $1,200,000, (ii) the Note, (iii) a certificate executed by
the Chief Executive Officer of Networks certifying that the 100,000
Shares referred to in paragraph 3.2(iii) have been validly issued
pursuant to duly authorized resolutions of the board of directors of
Networks as fully paid and non-assessable shares in the capital of
Networks free of any lien, encumbrance, or security interest, and
that the issuance and allotment thereof pursuant to paragraph
3.2(iii) hereof has been registered in the books and records of
Networks, and (iv) the Security (items (i), (ii), (iii), and (iv)
being collectively referred to as the "Escrow Funds").
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(b) The Escrow Agent shall hold the cash portion of the Escrow Funds in
an interest bearing account or instrument pending the Time of
Closing, to be distributed in accordance with the terms hereof.
(c) Upon receipt by the Escrow Agent of a certificate executed and
delivered by both the Vendor and the Purchaser, substantially in the
form of the certificate attached as Schedule "D" hereto, certifying
that the conditions of closing set out in section 5 hereof have been
satisfied or waived, the Escrow Agent shall, at the Time of Closing,
without further instructions: (i) pay the amount of the Purchase
Price to the Vendor on account of the Purchase Price including the
delivery of the Note, and the Security; and (ii) pay to the
Purchaser any interest earned upon the cash portion of the Escrow
Funds prior to the Time of Closing.
(d) Upon receipt by the Escrow Agent, at any time following the Time of
Closing of a certificate delivered by the Vendor and the Purchaser,
substantially in the form of the certificate attached as Schedule
"E" hereto, certifying that the conditions of closing set out in
section 5 hereof have not been satisfied or waived, the Escrow Agent
shall forthwith return the Escrow Funds, and any interest earned
upon the cash portion thereof, to the Purchaser, without setoff or
deduction.
(e) In the event that following the Time of Closing, the Escrow Agent
has not received either of the certificates referred to in
paragraphs 3.2(c) or 3.2(d) hereof, the Escrow Agent shall forthwith
make an application to a Judge of the Ontario Superior Court of
Justice, in Toronto, for an Interpleader Order, and shall name both
the Vendor and the Purchaser as respondents to such application and
serve them with notice of all steps and proceedings in connection
therewith.
3.3 Taxes
(a) The Purchaser will be liable for and pay as required by law, in
addition to the Purchase Price, all taxes, duties and fees
whatsoever which are required to be paid by a purchaser in
connection with the transaction contemplated herein, together with
all duties, registration fees or other charges properly payable by
the Purchaser upon or in connection with the conveyance or transfer
of the Purchased Assets, including, without limitation, all taxes
payable pursuant to the Excise Tax Act (Canada), An act respecting
the Quebec sales tax and amending various fiscal legislation,
Ontario retail sales tax and any other tax, duty, levy or fee
payable in any other jurisdiction. Notwithstanding the foregoing,
the Purchaser may provide the Vendor with suitable exemption
certificates indicating the Purchaser's entitlement to an exemption
or exemptions from any tax, which exemption certificates, if in form
and substance acceptable to the Vendor, acting reasonably, will be
accepted by the Vendor in lieu of the Purchaser's obligations
insofar as such tax is concerned. The Purchaser will indemnify and
hold the Vendor, and its employees, officers, directors and agents,
harmless against liability, claim, expense, costs, penalty or loss
suffered by the Vendor by virtue of the Purchaser's failure to pay
any such taxes, duties and fees, whether arising from a reassessment
or otherwise, or by virtue of the Vendor's acceptance of a
certificate of
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exemption; or by virtue of the making of the joint GST and QST
elections referred to in paragraph (b) of this section and will
provide the Vendor with evidence of all payments made hereunder.
(b) Notwithstanding the foregoing, the Vendor and Purchaser shall
jointly make the elections provided for under subsection 167(1.1) of
the Excise Tax Act (Canada) and under section 75 of the Act
respecting Quebec sales tax so that no GST or QST will be payable in
respect of the transactions contemplated herein. The Vendor and
Purchaser shall jointly complete the election forms (form GST-44 and
QST form VD-75) in respect of such elections and the Purchaser shall
file such elections with its GST or QST return, as appropriate, for
the first reporting period in which the GST and QST would, in the
absence of such elections, become payable in connection with the
transactions contemplated herein.
(c) The foregoing provisions of this section 3.3 shall apply mutatis
mutandis to all other applicable federal, provincial and territorial
taxation legislation, with the intent that the Vendor and the
Purchaser shall cooperate fully so as to minimize the taxes
applicable to or payable in connection with the acquisition by the
Purchaser of the Purchased Assets.
3.4 Allocation of Purchase Price
The Purchaser shall be entitled to allocate the Purchase Price among
the Purchased Assets as the Purchaser may determine.
3.5 Repurchase of Accounts Receivable
(a) The Purchaser covenants that following the Closing Date, it will use
its commercially reasonable best efforts to collect the Accounts
Receivable. In the event that 90 days following the Closing Date
(the "Adjustment Date"), the Purchaser shall have collected less
than $1,200,000 in respect of the Accounts Receivable pertaining to
the period ending August 31, 1999 (the "Pre-September Accounts
Receivable"), the Purchaser shall have the right, at the Purchaser's
option, to require the Vendor to pay to the Purchaser the amount of
the deficiency between $1,200,000 and the amount collected by the
Purchaser, and upon payment thereof, the Purchaser shall transfer,
sell and assign to the Vendor all of the Purchaser's right, title
and interest in and to the uncollected Pre-September Accounts
Receivable, together with, or if impractical, the rights of access
to, all books, records and documents evidencing or relating to such
Pre-September Accounts Receivable. Upon the completion of the said
assignment, the Vendor shall be entitled to receive all amounts
subsequently collected in respect of the Pre-September Accounts
Receivable and the Purchaser shall hold any amounts received by it
separate and apart from its other property and subject to a trust in
favour of the Vendor. In the event that the amount collected by the
Purchaser as of the Adjustment Date in respect of the Pre-September
Accounts Receivable, exceeds $1,200,000, the Purchaser shall
forthwith pay such excess amount to the
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Vendor and shall hold such excess amount separate and apart from its
other property and subject to a trust in favour of the Vendor.
(b) The Purchaser agrees to pay to the Vendor as soon as possible
following the Closing Date and in any event by the Adjustment Date,
(i) an amount equal to all expenses paid by GalaVu through its
accounts with CIBC prior to the Closing Date and which relate to the
operations of the Company from September 1, 1999 onwards, other than
payments relating to employees and, other than pre-paid expenses
recorded in the balance sheet of GalaVu as of August 31, 1999 and
(ii) an amount equal to the payments, if any, made by GalaVu through
its accounts with CIBC for film royalties payable for the months of
July and August, 1999.
(c) Any payment required to be made by the Vendor to the Purchaser on
the Adjustment Date in respect of uncollected Pre-September Accounts
Receivable shall be made without set-off, discount, holdback or
deduction except for payments, if any, required to be made by the
Purchaser to the Vendor under paragraph 3.3, this paragraph 3.5 or
in respect of paragraph 4.8 or the Occupancy and Indemnity
Agreement. Similarly, payments required to be made by the Purchaser
to the Vendor under paragraph 3.3, this paragraph 3.5 and under 4.8
or the Occupancy and Indemnity Agreement shall be made without
set-off, discount, holdback or deduction other than amounts payable
by the Vendor to the Purchaser under this paragraph.
(d) Notwithstanding anything to the contrary or the acceptance of this
Offer by the Receiver, the Bank shall be liable to the Purchaser in
respect of the Vendor's obligations to the Purchaser contained in
this paragraph 3.5.
3.6 Right to Audit
The Vendor may, at its own expense, audit the books and records and
financial statements and accounts of the Purchaser in order to confirm the
amount collected by the Purchaser in respect of the Accounts Receivable.
4. Representations, Warranties and Covenants
4.1 Receiver's Representations and Warranties
By acceptance of this Offer the Receiver represents and warrants to
the Purchaser and hereby acknowledges and confirms that the Purchaser is relying
on such representations and warranties in connection with the purchase by it of
the Purchased Assets that:
(a) the Receiver has been duly appointed as receiver or interim receiver
of the property, assets and undertakings of GalaVu pursuant to s. 47
of the B1A with the full right, power and authority to enter into
this Agreement, perform its obligations hereunder and convey all the
right, title and interest of the Receiver in and to the Purchased
Assets;
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(b) the Receiver is not, and as at the Time of Closing, the Receiver
will not be, a non-resident of Canada within the meaning of Section
116 of the Income Tax Act (Canada);
(c) the Receiver has not done any act to encumber or dispose of the
Purchased Assets; and
(d) GalaVu Entertainment Inc. is registered for purposes of Part IX of
the Excise Tax Act (Canada) and Title I of the Act respecting the
Quebec sales tax.
4.2 Survival of the Receiver's Representations, Warranties and Covenants
(a) The representations and warranties of the Vendor set forth in
Section 4.1 will survive the completion of the sale and purchase of
the Purchased Assets herein provided for and, notwithstanding such
completion, will continue in full force and effect for the benefit
of the Purchaser for a period of two years from the date of this
Agreement;
(b) The covenants of the Vendor set forth in this Agreement will survive
the completion of the sale and purchase of the Purchased Assets
herein provided for and, notwithstanding such completion, will
continue in full force and effect for the benefit of the Purchaser
for a period of two years from the date of this Agreement; and
(c) The Purchaser acknowledges that, in entering into this Agreement,
the Receiver is acting solely in its capacity as receiver of the
property, assets and undertaking of GalaVu and any liability of the
Receiver to the Purchaser is limited to the amount of the Purchase
Price received by the Receiver.
4.3 Purchaser's Representations and Warranties
The Purchaser represents and warrants to the Vendor and hereby
acknowledges and confirms that the Vendor is relying on such representations and
warranties in connection with the sale by it of the Purchased Assets that:
(a) the Purchaser is a corporation duly incorporated, organized and
subsisting under the laws of the Province of Ontario;
(b) the Purchaser has good and sufficient power, authority and right to
enter into and deliver this Agreement and to complete the
transactions to be completed by the Purchaser contemplated hereunder
and the Purchaser has taken all necessary corporate action to
authorize the entering into and performance of this Agreement;
(c) this Agreement constitutes a valid and legally binding obligation of
the Purchaser, enforceable against the Purchaser in accordance with
its terms subject to applicable bankruptcy, insolvency,
reorganization and other laws of general application limiting the
enforcement of creditors' rights generally and to the fact
<PAGE>
-11-
that specific performance is an equitable remedy available only in
the discretion of the court;
(d) At the Time of Closing, the Shares:
(i) are validly issued pursuant to duly authorized resolutions of
the board of directors of Networks as fully paid and
non-assessable shares in the capital of Networks free of any
lien, charge, encumbrance, security interest or adverse claim;
(ii) are listed on the NASDAQ ("NASDAQ"); and
(iii) are restricted securities within the meaning of Rule 144
promulgated under the Securities Act and may not be sold
pursuant to Rule 144 for at least 12 months and thereafter may
be sold only pursuant to Rule 144 or to a registration
statement filed under the Securities Act or other applicable
exemption under the Securities Act;
(e) Purchaser has previously delivered or caused to be delivered to
Vendor, complete and correct copies of all reports, statements and
registration statements (including annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and
proxy statements) filed by Networks with the SEC since August 31,
1998 (the "Networks SEC Documents").
(f) Networks is not a reporting issuer for the purposes of Canadian
provincial securities legislation;
(g) The Purchaser is registered for purposes of Part IX of the Excise
Tax Act (Canada) and Title I of the Act respecting the Quebec sales
tax.
(h) The Purchaser is acquiring hereunder all or substantially all of the
property that can reasonably be regarded as being necessary for it
to carry on the business of GalaVu as a business.
4.4 The Purchaser covenants that it will use reasonable efforts, for a period of
twelve months from the Closing Date, to cooperate with the Receiver, to provide
such access to books and records relating to the Purchased Business and to such
employees who may have become employees of the Purchaser but who may have
knowledge of such books and records relating to the Purchased Business as may be
reasonably required by the Receiver in order to fulfil its obligations as
Receiver, at no expense to the Vendor within the first 90 days following the
Date of Closing.
4.5 Survival of Purchaser's Representations, Warranties and Covenants
(a) The representations and warranties of the Purchaser set forth in
Section 4.3 will survive the completion of the sale and purchase of
the Purchased Assets herein provided for and, notwithstanding such
completion, will continue in full force and
<PAGE>
-12-
effect for the benefit of the Vendor for a period of two years from
the date of this Agreement; and
(b) The covenants and indemnifications of the Purchaser set forth in
this Agreement will survive the completion of the sale and purchase
of the Purchased Assets herein provided for and, notwithstanding
such completion, will continue in full force and effect for the
benefit of the Vendor for a period of two years from the date of
this Agreement.
4.6 "As Is, Where Is"
The Purchaser acknowledges that the Vendor is selling and the
Purchaser is purchasing the Purchased Assets on an "as is, where is" and
"without recourse" basis as they shall exist on the date of this Agreement. The
Purchaser further acknowledges that it has entered into this Agreement on the
basis that neither GalaVu nor the Receiver has guaranteed or will guarantee
title to the Purchased Assets that the Purchaser has conducted such inspections
of the condition and title to the Purchased Assets as it deems appropriate and
has satisfied itself with regard to these matters. No representation, warranty
or condition is expressed or can be implied as to title, encumbrance,
description, fitness for purpose, environmental compliance, merchantability,
condition or quality, or in respect of any other matter or thing whatsoever
concerning the Purchased Assets, or the right of the Vendor to sell or assign
same save and except as expressly provided for in this Agreement. Without
limiting the generality of the foregoing, any and all conditions, warranties or
representations expressed or implied pursuant to the Sale of Goods Act (Ontario)
do not apply hereto and have been waived by the Purchaser. The description of
the Purchased Assets contained in this Agreement is for the purpose of
identification only and no representation, warranty or condition has or will be
given by the Vendor concerning the accuracy of such description.
4.7 Third Party Consents
Until such consent is obtained nothing in this Agreement shall
constitute an assignment or attempted assignment of any rights of GalaVu which
are not assignable without the consent of another person if such written consent
has not been obtained. Upon receipt of such consent the applicable rights shall
be deemed to be assigned by this Agreement without any further formality. The
Vendor shall use its reasonable best efforts to assist the Purchaser in
obtaining the consent of any third party to any contract where such consent is
required, provided that the parties acknowledge that the Purchaser shall have
primary responsibility for obtaining such consent and shall diligently proceed
to do so.
Unless and until any such consent is obtained and an assignment of
any such rights is effected, the Vendor shall hold such rights in trust for the
sole benefit of the Purchaser and, in this regard:
(a) the Vendor shall remit to the Purchaser all proceeds and receipts
received by the Vendor in connection with such rights forthwith upon
receipt thereof; and
(b) the Vendor will take such action as may be reasonably required to
enable the Purchaser to administer such rights, including the
ability to enforce such rights.
<PAGE>
-13-
If, after two years from the Closing Date, the required consent
cannot be obtained in respect of any such rights, then such rights shall be
deemed to form part of the Excluded Assets.
4.8 Occupation
In order to permit the orderly removal of the Purchased Assets by
the Purchaser and to assist the Purchaser in maintaining the continuity of the
Purchased Business, the Receiver shall permit the Purchaser to have access to
all of the premises leased or occupied by GalaVu for a period not to exceed 45
days from the closing date, on the terms and conditions set out in the Occupancy
and Indemnity Agreement, to be executed and delivered prior to the Time of
Closing.
4.9 Accepted Assets
The Accepted Assets are all of the Purchased Assets other than the
Excluded Assets listed in Schedule "F" delivered by the Purchaser to the Vendor
prior to the Time of Closing.
5. Conditions
5.1 Conditions for the Benefit of the Purchaser (Time of Closing)
(a) The sale by the Vendor and the purchase by the Purchaser of the
Purchased Assets are subject to the following conditions, which are
for the exclusive benefit of the Purchaser and which are to be
performed or complied with at or prior to the Time of Closing:
(i) the representations and warranties of the Vendor set forth in
Section.4.1 will be true and correct at the Time of Closing
with the same force and effect as if made at and as of such
time;
(ii) the Vendor will have performed or complied with all of the
terms, covenants and conditions of this Agreement to be
performed or complied with by it at or prior to the Time of
Closing;
(iii) the Receiver shall have obtained an order of the Ontario
Superior Court of Justice in substantially the form set out in
Schedule "H" hereto, approving the transactions contemplated
herein, and vesting in the Purchaser the right, title and
interest of GalaVu and the Receiver, if any, in and to the
Purchased Assets, free and clear of the right, title and
interest of any other person other than Permitted Encumbrances
(the "Vesting Order");
(iv) no order shall have been made in favour of, and no action or
proceeding in Canada shall have been commenced by, any person,
firm, company, government, governmental agency, regulatory
body or agency to enjoin, restrict or prohibit the purchase
and sale of the Purchased Assets, in whole or in part,
contemplated hereby or to stay the Vesting Order; and
<PAGE>
-14-
(v) the Receiver and the Purchaser shall have entered into the
Occupancy and Indemnity Agreement.
(b) In case any term or covenant of the Vendor or condition to be
performed or complied with for the benefit of the Purchaser at or
prior to the Time of Closing has not been performed or complied with
at or prior to the Time of Closing, the Purchaser, without limiting
any other right that the Purchaser has, may at its sole option,
either:
(i) rescind this Agreement by notice to the Vendor, and in such
event the Purchaser will be released from all obligations
hereunder and require that the Vendor immediately execute and
deliver to the Purchaser the certificate in the form attached
hereto as Schedule "E"; or
(ii) waive compliance with any such terms, covenant or condition in
whole or in part on such terms as may be agreed upon without
prejudice to any of its rights of rescission in the event of
non-performance of any other term, covenant or condition in
whole or in part; and, if the Purchaser rescinds this
Agreement pursuant to Section 5. 1 (b)(i), the Vendor will
also be released from all obligations hereunder.
5.2 Conditions for the Benefit of the Vendor (Time of Closing)
(a) The sale by the Vendor and the purchase by the Purchaser of the
Purchased Assets are subject to the following conditions, which are
the exclusive benefit of the Vendor and which are to be performed or
complied with at or prior to the Time of Closing:
(i) the representations and warranties of the Purchaser set forth
in Section 4.3 will be true and correct at the Time of Closing
with the same force and effect as if made at any as of such
time;
(ii) the Purchaser will have performed or complied with all the
terms, covenants and conditions of this Agreement to be
performed or complied with by the Purchaser at or prior to the
Time of Closing;
(iii) no order shall have been made in favour of, and no action or
proceeding in Canada shall have been commenced by any person,
firm, company, government, governmental agency, regulatory
body or agency to enjoin, restrict or prohibit the purchase
and sale of the Purchased Assets contemplated hereby or to
stay the Vesting Order;
(iv) the Purchaser shall deliver to the Vendor a certificate
executed by the Chief Executive Officer of Networks as to the
representations and warranties contained in Section 4.3(d),
(e) and (f) , and the covenant of Networks in the form
attached as Schedule "K" hereto;
(v) the Receiver shall have obtained the Vesting Order; and
<PAGE>
-15-
(vi) the Purchaser and the Receiver shall have entered into the
Occupancy and Indemnity Agreement.
(b) In the case any term or covenant of the Purchaser or condition to be
performed or complied with for the benefit of the Vendor at or prior
to the Time of Closing has not been performed or complied with at or
prior to the Time of Closing, the Vendor, without limiting any other
right that the Vendor has, may at its sole option, either:
(i) rescind this Agreement by notice to the Purchaser, and in such
event the Vendor will be released from all obligations
hereunder; or
(ii) waive compliance with any such term, covenant or condition in
whole or in part on such terms as may be agreed upon without
prejudice to any of their rights or rescission in the event of
non-performance of any other term, covenant or condition in
whole or in part.
6. Closing Arrangements
6.1 Closing
(a) The sale and purchase of the Purchased Assets will be completed at
the Time of Closing at the offices of Blake, Cassels & Graydon, 23rd
Floor, Commerce Court West, Toronto, Ontario or such other place as
the Vendor and Purchaser may agree.
(b) At the Time of Closing, provided all of the conditions set out in
Sections 5.1 and 5.2 have been satisfied or waived by the party so
entitled at or prior to such Time of Closing:
(i) the Vendor will deliver to the Purchaser bill(s) of sale in
form and substance satisfactory to the Vendor and the
Purchaser acting reasonably in substantially the form attached
as Schedule "I" hereto transferring to the Purchaser the
right, title and interest of GalaVu and the Receiver, if any,
in and to the Accepted Assets, and a copy of the Vesting
Order;
(ii) the Purchaser will deliver to the Vendor the certificates
referred to in section 5.2(a)(v) hereof and attached hereto as
Schedule "J", a certified cheque or bank draft for provincial
retail sales tax (or suitable purchase exemption certificates
in respect thereof) and goods and services tax payable in
connection with the purchase of the Purchased Assets,; and
(iii) the Escrow Agent shall deliver the Escrow Funds to the Vendor
upon receipt of the executed certificate in the form of
certificate attached as Schedule "D" hereto.
6.2 Delivery of Share Certificate
<PAGE>
-16-
(a) The Purchaser hereby agrees to deliver to the Receiver at the time
of Closing or as soon as possible thereafter, and in any event no
later than 7 days following the Closing Date, a share certificate in
the name of the Receiver or as it may direct in writing representing
the 100,000 Shares referred to in paragraph 3.2(iii).
7. Additional Post-Closing Obligations
7.1 On or before the 45th day following the Closing Date, except as otherwise
provided in the Occupancy and Indemnity Agreement the Purchaser shall deliver to
the Vendor, a schedule, in the form attached hereto as Schedule "F", identifying
those Excluded Assets, which the Purchaser does not agree to purchase from the
Vendor (the "Excluded Assets"). Upon delivery by the Purchaser to the Vendor of
the Schedule of Excluded Assets pursuant to section 7.1 hereof, the Purchaser
shall be deemed to have disclaimed, waived and abandoned all claims, rights,
title and interest in or to the Excluded Assets and the Receiver shall have no
further obligations to the Purchaser with respect thereto.
7.2 In the event that the Purchaser does not deliver to the Vendor a schedule of
Excluded Assets in the form attached hereto as Schedule "F" within 45 days
following the Closing Date, the Purchaser will be deemed to have agreed to
purchase all of the Purchased Assets.
8. Vesting Order
If there should be any appeal or motion for leave to appeal to set
aside the Vesting Order or to vary or amend its terms:
(a) the Purchaser shall have the option, in its sole discretion, to
require that the Vendor defend such appeal(s) at the Vendor's own
expense; and
(b) the Vendor shall indemnify and save the Purchaser harmless from all
reasonable legal expenses incurred by the Purchaser in responding to
any such appeals, provided that the Vendor and Purchaser hereby
agree that the Vendor shall have carriage of the response to any
such appeals, the Purchaser shall provide to the Vendor copies of
all accounts for legal expenses incurred by the Purchaser in
response to such appeals and assign to the Vendor the Purchaser's
right to have such accounts assessed.
Notwithstanding anything to the contrary or the acceptance of this
Offer by the Receiver, the Bank shall be liable to the purchaser in respect of
the Vendor's obligations to the Purchaser under this paragraph 8.
8.2 General
8.3 Further Assurances
Each of the Vendor and the Purchaser will from time to time execute
and deliver all such further documents, assignments and instruments and do all
acts and things as any other
<PAGE>
-17-
party may, either before or after the Closing Date, reasonably require to
effectively carry out or better evidence or perfect the full intent and meaning
of this Agreement.
8.4 Time of the Essence
Time is of the essence of this Agreement.
8.5 Cost
Each of the parties hereto will pay their respective legal and
accounting costs and expenses incurred in connection with the preparation,
execution and delivery of this Agreement and all documents and instruments
executed pursuant hereto and any other costs and expenses whatsoever and
howsoever incurred.
8.6 Public Announcements
No press release, public announcement or other similar notice
concerning the sale and purchase of the Purchased Assets may be made prior to
the Time of Closing by either of the Vendor or the Purchaser without the prior
consent and approval of the Vendor and the Purchaser, (save as may be required
by Networks in accordance with its obligations to or under the Securities Act,
NASDAQ or the SEC), provided that the Vendor and the Bank shall have the right
to review and approve any such press release, announcement or other notice prior
to the Purchaser or Networks issuing the same to the public.
8.7 Notices
Any demand, notice or other communication to be given in connection
with this Agreement will be given in writing and will be given by personal
delivery or by electronic means of communication addressed to the recipient as
follows:
if to the Purchaser:
1373224 Ontario Limited
14 Meteor Drive
Toronto, Ontario
M9W 1A4
Attention: The President
Facsimile: (416) 675-8838
With a copy to:
Gowling, Strathy & Henderson
Suite 4900
Commerce Court West
Toronto, Ontario
M5L 1J3
<PAGE>
-18-
Attention: R. Douglas Kneebone and Richard Epstein
Facsimile: (416) 862-7661
if to the Receiver:
Arthur Andersen Inc.
1900-79 Wellington Street
P.O. Box 29, TD Centre
Toronto, Ontario
M5K 1B9
Attention: Brian Deazeley
Facsimile: (416) 947-7788
if to the Escrow Agent
Blake, Cassels & Graydon
Box 25
Commerce Court West
Toronto, Ontario
M5L 1A9
Attention: David J. Kee
Facsimile: (416) 863-2653
or to such other address, individual or electronic communication number as may
be designated by notice given by a party to the others. Any demand, notice or
other communication given by personal delivery will be conclusively deemed to
have been given on the day of actual delivery thereof and, if given by
electronic communication, on the day of transmittal thereof if given during the
normal business hours of the recipient and on the Business Day during which such
normal business hours next occur if not given during such hours on any day.
8.8 Capacity of Vendor
The Purchaser acknowledges that any Receiver which executes this
Agreement does so solely in its capacity as Receiver, and not in its personal
capacity.
<PAGE>
-19-
8.9 Rights and Obligations of the Escrow Agent
The only obligation of the Escrow Agent hereunder shall be to
disburse the Escrow Funds and interest thereon in the manner herein provided and
the Escrow Agent is expressly relieved of any obligation in respect of the
propriety of any claim made or the validity or genuineness of any document
submitted to it, provided the same shall in the Escrow Agent's reasonable
opinion be in the form provided for such documents in the schedules attached
hereto.
Yours very truly,
1373224 ONTARIO LIMITED
By:_________________________________
Name:
Title:
Networks North Inc., for valuable consideration, hereby covenants to perform,
carry out and deliver all other acts, documents, and agreements to be delivered
or performed by Networks as set forth in the foregoing offer.
Dated this day of September, 1999.
NETWORKS NORTH INC.
By:_________________________________
Name:
Title:
Blake, Cassels & Graydon confirms that it has received the Escrow Funds from the
Purchaser, and accepts the responsibilities of the Escrow Agent as set forth
above, and agrees to perform the same in accordance with their terms.
Dated this day of September, 1999.
BLAKE, CASSELS & GRAYDON
By:_________________________________
Name:
Title:
<PAGE>
-20-
The undersigned accepts the Offer set forth herein this 10th day of September,
1999.
CANADIAN IMPERIAL BANK OF
COMMERCE
By:_________________________________
Name: Gerry L. Soucie
Title: General Manager
The undersigned as Receiver accepts the Offer set forth herein this day of
September, 1999.
____________________________________
PROMISSORY NOTE
September 10, 1999
1. For value received, 1373224 Ontario Limited (the "Company") promises to
pay to Arthur Andersen Inc., or its permitted assigns (the "Holder") or
order at Commerce Court West, Toronto, Ontario, annually on November 30 of
each of the five fiscal years of the Company commencing November 30, 2000,
an amount equal to 50% of EBITDA of the Company for the immediately
preceding annual fiscal year; provided that such payment dates will be
automatically changed in the event that the fiscal year of the Company is
changed so that the payment dates will be those dates which fall 90 days
from the end of the Company's then current fiscal year.
2. For the purposes of this promissory note, EBITDA means, for any period,
the sum of (a) the net income of the Company for such period, plus (b)
interest charges and other debt service charges paid or accrued in respect
of such period, plus (c) income taxes whether paid or deferred which are
deducted in determining the net income for such period, if any, plus (d)
depreciation and amortization expense for such period, all as defined and
determined in accordance with generally accepted accounting principles in
Canada consistently applied; provided that in determining EBITDA for the
first fiscal year of the Company, inter-corporate charges ("Charges") to
the Company made by any company, or firm related to the Company for
services shall not exceed 90% of the annualized expenses of GalaVu
Entertainment Inc. for all similar annualized services incurred during the
period from February 1, 1999 to July 31, 1999 and for the following fiscal
years of the Company, the limit of the Charges shall not exceed the ratio
of the Charges to the total revenues of the Company for the initial fiscal
year applied to the revenues of the Company for each of the following
fiscal years.
3. In the event that the amount payable by the Company to the Holder in
accordance with paragraph 1 is less than the amount indicated below for
such fiscal year, then the Company will pay to the Holder within 30 days
following the issuance of the audited statements of Networks North Inc.
("NETN") for such fiscal year, and in any event no later than 90 days
following the Company's fiscal year end, such amount as will result in the
Holder receiving for such fiscal year the minimum amount indicated below:
-------------------------------------------------------
Fiscal Year Ending Amount
-------------------------------------------------------
2000 $ 300,000
-------------------------------------------------------
2001 $ 500,000
-------------------------------------------------------
2002 $ 750,000
-------------------------------------------------------
2003 $ 875,000
-------------------------------------------------------
2004 $ 875,000
-------------------------------------------------------
<PAGE>
-2-
4. The amounts required to be paid by the Company to the Holder under
paragraph 3, at the option of the Company, exercisable in each fiscal year
may be paid in cash or in common shares of NETN, valued at the weighted
average trading price of shares of common stock of NETN on NASDAQ for the
20 days on which such shares traded on NASDAQ immediately preceding the
date of payment, provided that for the year ending August 31, 2000 the
minimum price per share will not be less than US$5.00. In the event that
the Company elects to pay in common shares then the amount required to be
paid will be converted into United States funds at the noon exchange rate
announced by the Bank of Canada on the second business day in Canada prior
to the date of payment.
5. This promissory note is secured by a security interest over all of the
undertaking, property and assets both present and future of the Company,
subject to Permitted Encumbrances as defined in such security and in
addition the promissory note is secured by a pledge of all of the issued
and outstanding shares from time to time of the Company (collectively, the
"Security").
6. The Company covenants with the Holder that so long as this promissory note
is outstanding it will: (a) furnish such information to the Holder as the
Holder from time to time may request in order to verify the calculation of
EBITDA for any period and permit the Holder at its expense to examine the
books and records of the Company and NETN and its other subsidiaries,
related and associated companies in respect of periods, both prior to and
after the date of this promissory note until all amounts owing pursuant to
this promissory note have been paid to the Holder; (b) carry on the
business carried on by GalaVu Entertainment Inc. and businesses ancillary
thereto and not engage in any other business without the consent of the
Holder, not to be unreasonably withheld; (c) it will not sell or otherwise
dispose of its assets out of the ordinary course of business and will not
merge or amalgamate or enter into any re-organization without the consent
of the Holder, not to be unreasonably withheld; and (d) not enter into any
transaction with a related party which is not on a commercially reasonable
arm's-length basis.
7. Upon default by the Company under the Security or in the payment or
performance of its obligations hereunder, in addition to any other
remedies which may be available, the Holder may upon notice to the Company
accelerate payment of the amounts referred to in paragraph 3 of this
promissory note and may enforce the Security in accordance with the terms
of the Security.
8. Any amounts not paid when due hereunder shall bear interest at the rate of
interest per annum quoted from time to time by Canadian Imperial Bank of
Commerce as its prime interest rate for Canadian dollar commercial loans
in Canada plus 2% per annum.
<PAGE>
-3-
9. The Holder may assign this promissory note to Canadian Imperial Bank of
Commerce ("CIBC") or any company within the CIBC group of companies
without the Company's consent, and may assign the promissory note to
others only with the consent of the Company, such consent not to be
unreasonably withheld. Upon default by the Company in the payment or
performance of its obligations hereunder, this note may be assigned
without the Company's consent.
DATED AT Toronto this 10th day of September, 1999.
1373224 ONTARIO LIMITED
By:_________________________________
Name:
Title:
<PAGE>
-4-
COVENANT
Networks North Inc. ("NETN") for valuable consideration covenants to allot and
issue and pay to the Holder such number of common shares of NETN at such times
as may be required by paragraph 4 of the above promissory note. Such shares will
be (i) validly issued pursuant to duly authorized resolutions of the board of
directors of NETN as fully paid and non-assessable shares in the capital of NETN
free of any lien, charge, encumbrance, security interest or adverse claim; (ii)
listed on NASDAQ ("NASDAQ"); and (iii) restricted securities within the meaning
of Rule 144 promulgated under the Securities Act and may not be sold pursuant to
Rule 144 for at least 12 months and thereafter may be sold only pursuant to Rule
144 or pursuant to a registration statement filed under the Securities Act or
other applicable exemption under the Securities Act; provided however that NETN
agrees that from the date hereof the Holder shall have unlimited tag along
rights in connection with all registration statements filed by NETN from time to
time including the pro rata right to participate with other selling shareholders
based upon the number of shares offered for sale by each holder, with customary
indemnity and contribution provisions from NETN in favour of any underwriters
and such selling shareholder and with all customary expenses of such
registration to be borne by NETN, and the expense for underwriting discounts or
commissions to be borne by such selling shareholder. In addition, NETN covenants
to file, as and when applicable, on a timely basis, all reports required to be
filed by it under the Exchange Act, and if at any time NETN is no longer
required to file such reports, at the request of the Vendor, NETN shall make
publicly available the information specified in subparagraph (c)(2) of Rule 144
of the Securities Act, and take such further action as may be reasonably
required from time to time, to enable the Vendor to transfer the Registrable
Securities without registration under the Securities Act within the limitation
of the exemption provided by Rule 144 or any similar rule or regulation adopted
by the SEC.
DATED AT Toronto this day of September, 1999.
NETWORKS NORTH INC.
By:________________________________
Title:
<PAGE>
-5-
LIMITED RECOURSE GUARANTEE
TO: Name of Creditor: Arthur Anderson Inc., in its capacity as receiver and
manager of GalaVu Entertainment Inc.
Address: 1900 - 79 Wellington Street West
P.O. Box 29, Toronto-Dominion Centre
Toronto, Ontario
M5K 1B9
Attention: Brian Deazeley
Facsimile: (416) 947-7788
RECITALS:
A. 1373224 ONTARIO LIMITED (the "Debtor") is indebted or liable or may become
indebted or liable to ARTHUR ANDERSON INC., in its capacity as receiver and
manager of GalaVu Entertainment Inc.(in such capacity together with its
successors and assigns, the "Creditor") pursuant to the provisions of a
promissory note dated on or about the date hereof, issued by the Debtor to the
Creditor (as such promissory note may be amended, modified, supplemented,
renewed, restated or replaced from time to time, the "Note"); and
B. It is in the interests of NETWORKS NORTH INC. (the "Guarantor") that the
Creditor extend credit to the Debtor, and therefore the Guarantor is prepared to
ensure that in all circumstances all such debts, obligations and liabilities are
duly repaid by the Debtor and for such purpose to issue this Guarantee to the
Creditor;
For valuable consideration, the receipt and sufficiency of which are
hereby conclusively acknowledged by the Guarantor, the Guarantor hereby agrees
in favour of the Creditor as follows:
1. Guarantee. The Guarantor hereby unconditionally and irrevocably guarantees
the prompt payment and performance to the Creditor, forthwith upon demand by the
Creditor, of all indebtedness, liabilities and obligations of the Debtor to the
Creditor, under, pursuant to or in connection with the Note and any unpaid
balance thereof (collectively, the "Obligations"); provided, however, that the
recourse of the Creditor under this Guarantee will be limited solely to
realizing on the security of the shares of the Debtor pledged by the Guarantor
in favour of the Creditor, pursuant to a securities pledge agreement dated as of
even date herewith.
2. Guarantee Unconditional. Subject to Section 1 hereof, the obligations of the
Guarantor under this Guarantee are continuing, unconditional and absolute and,
without limiting the generality of the foregoing, will not be released,
discharged, diminished, limited or otherwise affected by (and the Guarantor
hereby consents to or waives, as applicable, to the fullest extent
<PAGE>
-6-
permitted by applicable law):
(a) any extension, other indulgence, renewal, settlement, discharge,
compromise, waiver, subordination or release in respect of any
Obligation, security, person or otherwise;
(b) any modification or amendment of or supplement to the Obligations,
including any increase or decrease in the principal, the rates of
interest or other amounts payable thereunder;
(c) any release, non-perfection or invalidity of any direct or indirect
security for any Obligation;
(d) any change in the existence, structure, constitution, name, objects,
powers, business, control or ownership of the Debtor or any other
person, or any insolvency, bankruptcy, reorganization or other
similar proceeding affecting the Debtor or any other person or its
assets;
(e) the existence of any claim, set-off or other rights which the
Guarantor may have at any time against the Debtor, the Creditor, or
any other person, whether in connection herewith or any unrelated
transactions;
(f) any invalidity, illegality or unenforceability relating to or
against the Debtor or any provision of applicable law or regulation
purporting to prohibit the payment by the Debtor of the principal or
interest under the Obligations;
(g) any limitation, postponement, prohibition, subordination or other
restriction on the rights of the Creditor to payment of the
Obligations;
(h) any release, substitution or addition of any cosigner, endorser or
other guarantor of the Obligations;
(i) any defence arising by reason of any failure of the Creditor to make
any presentment, demand for performance, notice of non-performance,
protest, and any other notice, including notice of all of the
following: acceptance of this Guarantee, partial payment or
non-payment of all or any part of the Obligations and the existence,
creation, or incurring of new or additional Obligations;
(j) any defence arising by reason of any failure of the Creditor to
proceed against the Debtor or any other person, to proceed against,
apply or exhaust any security held from the Debtor or any other
person for the Obligations, to proceed against, apply or exhaust any
security held from the Guarantor or any other person for this
Guarantee or to pursue any other remedy in the power of the Creditor
whatsoever;
<PAGE>
-7-
(k) any law which provides that the obligation of a guarantor must
neither be larger in amount nor in other respects more burdensome
than that of the principal obligation or which reduces a guarantor's
obligation in proportion to the principal obligation;
(l) any defence arising by reason of any incapacity, lack of authority,
or other defence of the Debtor or any other person, or by reason of
any limitation, postponement, prohibition on the Creditor's right to
payment of the Obligations or any part thereof, or by reason of the
cessation from any cause whatsoever of the liability of the Debtor
or any other person with respect to all or any part of the
Obligations, or by reason of any act or omission of the Creditor or
others which directly or indirectly results in the discharge or
release of the Debtor or any other person or all or any part of the
Obligations or any security or guarantee therefor, whether by
contract, operation of law or otherwise;
(m) any defence arising by reason of any failure by the Creditor to
obtain, perfect or maintain a perfected or prior (or any) security
interest in or lien or encumbrance upon any property of the Debtor
or any other person, or by reason of any interest of the Creditor in
any property, whether as owner thereof or the holder of a security
interest therein or lien or encumbrance thereon, being invalidated,
voided, declared fraudulent or preferential or otherwise set aside,
or by reason of any impairment by the Creditor of any right to
recourse or collateral;
(n) any defence arising by reason of the failure of the Creditor to
marshall any assets;
(o) any defence based upon any failure of the Creditor to give to the
Debtor or the Guarantor notice of any sale or other disposition of
any property securing any or all of the Obligations or any guarantee
thereof, or any defect in any notice that may be given in connection
with any sale or other disposition of any such property, or any
failure of the Creditor to comply with any provision of applicable
law in enforcing any security interest in or lien upon any such
property, including any failure by the Creditor to dispose of any
such property in a commercially reasonable manner;
(p) any dealing whatsoever with the Debtor or other person or any
security, whether negligently or not, or any failure to do so;
(q) any defence based upon or arising out of any bankruptcy, insolvency,
reorganization, moratorium, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against the
Debtor or any other person, including any discharge of, or bar
against collecting, any of the Obligations, in or as a result of any
such proceeding; or
<PAGE>
-8-
(r) any other act or omission to act or delay of any kind by the Debtor,
the Creditor, or any other person or any other circumstance
whatsoever, whether similar or dissimilar to the foregoing, which
might, but for the provisions of this Section 2, constitute a legal
or equitable discharge, limitation or reduction of the Guarantor's
obligations hereunder (other than the payment in full of all of the
Obligations).
The foregoing provisions apply (and the foregoing waivers will be effective)
even if the effect of any action (or failure to take action) by the Creditor is
to destroy or diminish the Guarantor's subrogation rights, the Guarantor's right
to proceed against the Debtor for reimbursement, the Guarantor's right to
recover contribution from any other guarantor or any other right or remedy.
3. Recourse against Debtor. Subject to Section 1 hereof, the Creditor is not
required to exhaust its recourse against the Debtor or others or under any other
security or guarantee before being entitled to payment from the Guarantor under
this Guarantee.
4. Settlement of Accounts. Any account settled or stated between the Creditor
and the Debtor will be accepted by the Guarantor as prima facie evidence that
the amount thereby appearing due by the Debtor to the Creditor is so due.
5. No Waiver. No delay on the part of the Creditor in exercising any of its
options, powers or rights, or partial or single exercise thereof, will
constitute a waiver thereof. No waiver of any of its rights hereunder, and no
modification or amendment of this Guarantee, will be deemed to be made by the
Creditor unless the same will be in writing, duly signed on behalf of the
Creditor, and each such waiver, if any, will apply only with respect to the
specific instance involved, and will in no way impair the rights of the Creditor
or the liabilities of the Guarantor to the Creditor in any other respect at any
other time.
6. Stay of Acceleration. If acceleration of the time for payment, or the
liability of the Debtor to make payment, of any amount specified to be payable
by the Debtor in respect of the Obligations is stayed, prohibited or otherwise
affected upon the insolvency, bankruptcy, reorganization or winding-up of the
Debtor or any moratorium affecting the payment of the Obligations, all such
amounts otherwise subject to acceleration or payment will nonetheless be deemed
for all purposes of this Guarantee to be and to become due and payable by the
Debtor and shall be payable by the Guarantor hereunder forthwith on demand by
the Creditor.
7. Reinstatement. If, at any time, all or any part of any payment previously
applied by the Creditor to any Obligation is or must be rescinded or returned by
the Creditor for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy, or reorganization of the Debtor), such Obligation will,
for the purpose of this Guarantee, to the extent that such payment is or must be
rescinded or returned, be deemed to have continued in existence, notwithstanding
such application by the Creditor, and this Guarantee will continue to be
effective or be reinstated, as the case may be, as to such Obligation, all as
though such application by the Creditor had not been made.
<PAGE>
-9-
8. No Subrogation. Notwithstanding any payment made by the Guarantor under
this Guarantee or any setoff or application of funds of the Guarantor by the
Creditor, the Guarantor will have no right of subrogation to, and waives, to the
fullest extent permitted by law, any right to enforce any remedy which the
Creditor now has or may hereafter have against the Debtor, until all of the
Obligations have been indefeasibly paid in full; and until that time, the
Guarantor waives any benefit of, and any right to participate in, any security,
whether real or personal property, now or hereafter held by the Creditor for the
Obligations.
9. Additional Security. This Guarantee is in addition and without prejudice to
any security of any kind (including other guarantees) now or hereafter held by
the Creditor and any other rights or remedies that the Creditor might have.
10. Governing Law; Attornment. This Guarantee will be governed by and construed
in accordance with the laws of the Province of Ontario. Without prejudice to the
ability of the Creditor to enforce this Guarantee in any other proper
jurisdiction, the Guarantor irrevocably submits and attorns to the non-exclusive
jurisdiction of the courts of such province. To the extent permitted by
applicable law, the Guarantor irrevocably waives any objection (including any
claim of inconvenient forum) that it may now or hereafter have to the venue of
any legal proceeding arising out of or relating to this Guarantee in the courts
of such Province.
11. Successors and Assigns. This Guarantee will extend and enure to the benefit
of the Creditor and its successors and assigns and will be binding upon the
Guarantor and its successors. The Guarantor's obligations hereunder will not be
assigned or delegated. The Creditor may from time to time, and without notice to
or the consent of the Guarantor, assign or transfer all or any of the
Obligations or any interest therein; and, notwithstanding any such assignment or
transfer or any subsequent assignment or transfer thereof, any such Obligation
or part thereof so transferred or assigned will remain an "Obligation" for the
purposes of this Guarantee and any immediate and successive assignee or
transferee of any Obligation or any interest therein will, to the extent of the
interest so assigned or transferred, be entitled to the benefit of, and the
right to enforce, this Guarantee to the same extent as if such person were the
Creditor.
12. Time. Time is of the essence with respect to this Guarantee and the time for
performance of the obligations of the Guarantor under this Guarantee may be
strictly enforced by the Creditor.
13. Severability. If any provision of this Guarantee is determined to be
illegal, unconscionable or unenforceable, all other terms and provisions hereof
will nevertheless remain effective and will be enforced to the fullest extent
permitted by law.
14. Communication. Any communication required or permitted to be given under
this Guarantee will be in writing and will be effectively given if (i) delivered
personally, (ii) sent
<PAGE>
-10-
by prepaid courier service or mail, or (iii) sent prepaid by facsimile
transmission or other similar means of electronic communication, in each case to
the address or facsimile number of the Guarantor or Creditor set out in this
Guarantee. Any communication so given will be deemed to have been given and to
have been received on the day of delivery if so delivered, or on the day of
facsimile transmission or sending by other means of recorded electronic
communication provided that such day is a business day and the communication is
so delivered or sent prior to 4:30 p.m. (local time at the place of receipt).
Otherwise, such communication will be deemed to have been given and to have been
received on the following business day. Any communication sent by mail will be
deemed to have been given and to have been received on the fifth business day
following mailing, provided that no disruption of postal service is in effect.
The Guarantor and the Creditor may from time to time change their respective
addresses or facsimile numbers for notice by giving notice to the other in
accordance with the provisions of this Section.
15. Interpretation. Unless otherwise expressly provided in this Guarantee, if
any matter in this Guarantee is subject to the consent or approval of the
Creditor or is to be acceptable to the Creditor, such consent, approval or
determination of acceptability will be in the sole discretion of the Creditor.
If any provision in this Guarantee refers to any action taken or to be taken by
the Guarantor, or which the Guarantor is prohibited from taking, such provision
will be interpreted to include any and all means, direct or indirect, of taking,
or not taking, such action. The division of this Guarantee into sections and
paragraphs, and the insertion of headings, is for convenience of reference only
and will not affect the construction or interpretation of this Guarantee. Unless
the context otherwise requires, words importing the singular include the plural
and vice versa, and words importing gender include all genders. When used in
this Guarantee, the word "including" (or includes) means "including (or
includes) without limitation". Any reference in this Guarantee to a "Section"
means the relevant Section of this Guarantee. Any reference in this Guarantee to
a "person" will be deemed to include an individual, corporation, partnership,
trust, unincorporated organization, government and the heirs, executors,
administrators or other legal representatives of an individual. Any reference to
a "business day" will be deemed to include any day which is not a Saturday,
Sunday or a statutory holiday in the Province of Ontario.
<PAGE>
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16. Copy of Guarantee. The Guarantor acknowledges receipt of an executed copy of
this Guarantee.
Dated: September 10, 1999.
14 Meteor Drive NETWORKS NORTH INC.
Toronto, Ontario
M9W 1A4
Facsmile: (416) 675-8838 By:____________________________
Attention: The President Name:
Title:
c/s
By:____________________________
Name:
Title:
<PAGE>
DEED OF HYPOTHEC
OF
1373224 ONTARIO LIMITED
TO: Arthur Anderson Inc., in its capacity as receiver and
manager of GalaVu Entertainment Inc.
Address: 1900 - 79 Wellington Street West
P.O. Box 29, Toronto-Dominion Centre
Toronto, Ontario
M5K 1B9
Attention: Brian Deazeley
Facsimile: (416) 947-7788
RECITALS:
A. Pursuant to the provisions of a promissory note dated as of the date hereof
issued by 1373224 ONTARIO LIMITED (together with its successors and assigns, the
"Debtor") to and in favour of ARTHUR ANDERSON INC. in its capacity as receiver
and manager of GalaVu Entertainment Inc. (in such capacity, together with its
successors and assigns, the "Creditor"), the Debtor is indebted and liable to
the Creditor (such note as may from time to time be modified, amended, restated,
renewed, supplemented or replaced, the "Note");
B. To secure the payment and performance of the Obligations (this term, and
other capitalized terms used in this Agreement, have the meanings set forth in
Section 1, unless otherwise defined), the Debtor has agreed to grant to the
Creditor the Hypothec over the Collateral in accordance with the terms of this
Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of
which are acknowledged by the Debtor, the Debtor hereby agrees with the
Creditor, as follows:
1. Defined Terms. In this Agreement, terms defined in the recitals have the
meanings given to such terms in the recitals and the following terms shall have
the respective meanings set out below:
"Accounts" means all accounts receivable, book debts and other forms of
obligations now owned or hereafter received or acquired by or belonging or owing
to the Debtor (including under any trade names, styles or divisions thereof)
whether arising out of property leased by it or services rendered by it or from
any other transaction, whether or not the same involves the lease of property or
performance of services by the Debtor and all of the Debtor's rights in, to and
under all lease orders now held or hereafter received or acquired by it for
property or services, and all of the Debtor's rights to any property represented
by any of the foregoing (including returned or repossessed property and unpaid
lessor's rights) and including all rights to payment for goods sold or leased or
for services rendered which are not evidenced by an instrument or Chattel Paper,
whether or not it has been earned by performance, and all moneys due or to
<PAGE>
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become due to the Debtor under all contracts for the lease of property and/or
the performance of services by it (whether or not yet earned by performance) or
in connection with any other transaction, now in existence or hereafter arising,
including the right to receive the proceeds of said lease orders and contracts,
and all collateral security and guarantees of any kind given by any Person with
respect to any of the foregoing;
"Books and Records" means all books, records, files, papers, disks,
documents and other repositories of data recording in any form or medium,
evidencing or relating to the Accounts which are at any time owned by the Debtor
or to which the Debtor (or any Person on the Debtor's behalf) has access;
"Business Day" means any day other than a Saturday, Sunday or statutory
holiday in the Province of Quebec.
"Charge" means any mortgage, hypothec, prior claim, pledge, lien, charge,
assignment, finance lease, title retention agreement or arrangement, security
interest or other encumbrance of any nature, or any other security agreement or
arrangement creating in favour of any creditor a right in respect of a
particular property;
"Chattel Paper" means one or more than one writing or agreement that
evidence both a monetary obligation and a Charge on or a lease of specific
Goods;
"Collateral" means the subject matter of the Hypothec and for greater
certainty includes all present and future movable property, assets and
undertaking over which the Debtor has granted the Hypothec pursuant to this
Agreement;
"Consumer Goods" means Goods that are used or acquired for use primarily
for personal, family or household purposes;
"Contracts" means all contracts, licenses and agreements to which the
Debtor is now or in the future a party or pursuant to which the Debtor has
acquired rights or in the future acquires rights, as such contracts may from
time to time be amended, supplemented or otherwise modified, including: (a) all
present and future rights of the Debtor to receive moneys due and to become due
to it thereunder or in connection therewith; (b) all present and future rights
of the Debtor to damages arising out of, or for, breach or default in respect
thereof; and (c) all present and future rights of the Debtor to perform and to
exercise all rights and remedies thereunder;
"Default" means the occurrence of any of the following events or
conditions:
(a) default under the Note which continues for more than 30 days after
notice of such default is given by the Creditor to the Debtor; or
(b) the Debtor is in default under the general security agreement
granted by the Debtor in favour of the Creditor on or about the date
hereof (as such general security agreement may be amended, modified,
supplemented, renewed, restated or replaced from time to time).
<PAGE>
-3-
"Document of Title" means any writing that purports to be issued by or
addressed to a Person and purports to cover such Goods in such Person's
possession as are identified or fungible portions of an identified mass, and
that in the ordinary course of business is treated as establishing that the
Person in possession of it is entitled to receive, hold and dispose of the
document and the Goods it covers including any warehouse receipt or bill of
lading, whether or not negotiable;
"Equipment" means all Goods that are not Inventory or Consumer Goods,
including all machinery, equipment and furniture now owned or hereafter acquired
by the Debtor or in which the Debtor now has or hereafter may acquire any right,
title or interest and any and all additions, substitutions and replacements
thereof, wherever located, together with all attachments, components, parts,
equipment and accessories installed therein or affixed thereto;
"Goods" means all corporeal movable property other than Chattel Paper,
Documents of Title, Instruments, Money and Securities;
"Hypothec" means the hypothecs constituted by Section 2;
"Instrument" means a bill, note or cheque within the meaning of the Bills
of Exchange Act (Canada) or any other writing that evidences a right to the
payment of money and is of a type that in the ordinary course of business is
transferred by delivery with any necessary endorsement or assignment, or a
letter of credit and an advice of credit if the letter or advice states that it
must be surrendered upon claiming payment thereunder, but does not include a
writing that constitutes part of Chattel Paper, a Document of Title or
Securities;
"Intangible" means all incorporeal movable property including choses in
action that are not Goods, Chattel Paper, Documents of Title, Instruments or
Securities and Intangible includes Intellectual Property Rights;
"Intellectual Property Rights" means all industrial and intellectual
property rights, including copyrights, patents, trade-marks, industrial designs,
know how and trade secrets and all Contracts related to any such industrial and
intellectual property rights;
"Inventory" means all inventory, wherever located, now owned or hereafter
acquired by the Debtor or in which the Debtor now has or hereafter may acquire
or become entitled to any right, title or interest, including all Goods and
other personal property now or hereafter owned by the Debtor which are held for
sale or lease or are furnished or are to be furnished under a contract of
service or that are raw materials, work in process or materials used or consumed
or to be used or consumed in the Debtor's business or profession, or in the
processing, packaging or shipping of the same, and all finished Goods;
"Money" means a medium of exchange authorized or adopted by the Parliament
of Canada as part of the currency of Canada or by a foreign government as part
of its currency;
"Obligations" means all present and future debts, liabilities and
obligations of the Debtor to the Creditor under, in connection with or pursuant
to the Note and any unpaid balance thereof;
<PAGE>
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"Permits" means all permits, licenses, authorizations, approvals,
franchises, rights-of-way, easements and entitlements that the Debtor has,
requires or is required to have, to own, possess or operate any of its property
or to operate and carry on any part of its business;
"Person" will be broadly interpreted and includes an individual, a
partnership, a corporation, a limited liability company, a trust, a joint
venture, an association, an unincorporated organization, the government of a
country or any political subdivision thereof, any department or agency thereof,
a regulatory agency or any other juridical entity and the heirs, executors,
administrators or other legal representatives of an individual;
"Prime Rate" means the rate announced by Canadian Imperial Bank of
Commerce from time to time as its prime rate for Canadian dollar commercial
loans made in Canada.
"Proceeds" means identifiable or traceable personal or movable property in
any form derived directly or indirectly from any sale, exchange, collection,
disposition or other dealing with Collateral or the proceeds therefrom, and
includes any payment representing insurance recoveries, indemnity or
compensation for loss or damage to Collateral or proceeds therefrom; and
"Securities" means a document that is: (a) issued in bearer, order or
registered form; (b) of a type commonly dealt with upon securities exchanges or
markets or commonly recognized in any area in which it is issued or dealt in as
a medium for investment; (c) one of a class or series or which by its terms is
divisible into a class or series of documents; and (d) evidence of a share,
participation or other interest in property or in an enterprise or is evidence
of an obligation of the issuer.
2. Grant of Hypothec. As general and continuing collateral security for the
payment and performance of all Obligations (including all reasonable costs and
expenses incurred for recovering possession of or conserving the Collateral or
enforcing any remedies or recourses hereunder), the Debtor hereby hypothecates
to and in favour of the Creditor for a principal amount of five million dollars
($5,000,000) in lawful currency of Canada with interest thereon at the rate of
twenty-five per cent per annum (25%) of the above amount in lawful currency of
Canada, the undertaking of the Debtor and of all of its movable property and
assets, corporeal and incorporeal, present and future, including each and every
one of the following:
(i) Accounts;
(ii) Chattel Paper;
(iii) Contracts;
(iv) Documents of Title;
(v) Equipment;
(vi) Goods;
(vii) Instruments;
<PAGE>
-5-
(viii) Intangibles;
(ix) Permits;
(x) Inventory;
(xi) Money;
(xii) Securities; and
(xiii) to the extent not otherwise included, all Proceeds, both present
and future, of any and all of the foregoing;
If any of the Collateral, under the legal provisions applicable thereto, cannot
be hypothecated without a default of the Debtor occurring with respect to such
provisions or without compliance with certain formalities, the Hypothec is
constituted thereon under the suspensive condition of obtaining the required
authorizations or consents or fulfilling the required formalities with respect
to such Collateral, and the Hypothec shall take effect, retroactively as of the
date hereof, at the time such consents or authorizations are obtained or such
formalities have been complied with. The Debtor shall hold such Collateral in
trust for and as mandatary of the Creditor for the full benefit and enjoyment of
the Creditor until such time as the suspensive condition has been fulfilled in
respect of such Collateral.
3. Enforcement of Hypothec; Remedies. During the continuance of a Default:
(a) the Creditor may, at its option, declare that the Hypothec hereby
constituted has become enforceable;
(b) the Creditor shall be entitled, subject to the compulsory formalities
provided by law, if any, to exercise for the benefit of the Creditor any of the
rights and recourses provided for in Chapter V of Title III of Book VI of the
Civil Code of Quebec and in the Code of Civil Procedure of Quebec and all
provisional measures available hereunder or at law; and
(c) the Creditor may thereupon forthwith withdraw the authorization to
collect granted to Debtor pursuant to this Agreement, in accordance with Article
2745 of the Civil Code of Quebec. Upon withdrawing its authorization to collect,
the Creditor may collect, realize, sell or otherwise deal with Accounts,
Contracts and Proceeds or any part thereof in such manner, upon such terms and
conditions and at such time or times, whether before or after default, as may
seem to it advisable and without notice to Debtor. The Creditor shall not be
liable or accountable for any failure to collect, realize, sell or obtain
payment of the Accounts, Contracts and Proceeds or any part thereof and shall
not be bound to institute proceedings for the purpose of collecting, realizing
or obtaining payment of the same or for the purpose of preserving any rights of
the Debtor, the Creditor or any other Person in respect of the same. All moneys
collected or received by the Debtor in respect of the Accounts, Contracts and
Proceeds shall be received as mandatary and agent of the Creditor, and shall be
forthwith paid over to the Creditor. All moneys collected or received by the
Creditor in respect of the Accounts, Contracts and Proceeds may be applied on
account of such parts of the Obligations as to the Creditor seems best or in the
discretion of the
<PAGE>
-6-
Creditor may be released to the Debtor, all without prejudice to the liability
of the Debtor or the Creditor's right to hold and otherwise realize on the
Collateral.
4. Rights of Creditor; Limitations on Creditor's Obligations.
(a) Limitations on Creditor's Liability. The Creditor will not be liable
to the Debtor or any other Person for any failure or delay in exercising any of
the rights of the Creditor under this Agreement (including any failure to take
possession of, collect, sell, lease or otherwise dispose of any Collateral, or
to preserve rights against prior parties). None of the Creditor, any receiver,
or any agent of the Creditor is required to take, or will have any liability for
any failure to take or delay in taking, any steps necessary or advisable to
preserve rights against other Persons under any Collateral in its possession.
Neither the Creditor nor a receiver will be liable for any, and the Debtor will
bear the full risk of all, loss or damage to any and all of the Collateral
(including any Collateral in the possession of the Creditor or any Receiver)
caused for any reason other than the negligence or wilful misconduct of the
Creditor or such Receiver.
(b) Notice to Account Debtors and Contracting Parties. During the
continuance of a Default the Creditor may, and upon the request of the Creditor
during such continuance, the Debtor shall, in compliance with Articles 1641 and
1642 of the Civil Code of Quebec, notify account debtors on the Accounts and
parties to the Contracts, that the Accounts and the Contracts have been
hypothecated to the Creditor and that payments in respect thereof shall be made
directly to the Creditor, the whole without prejudice to the Creditor's rights
pursuant to the Civil Code of Quebec to withdraw authority to collect. The
Creditor may, following the withdrawal of the authorization to collect, in its
own name or in the name of others, communicate with account debtors on the
Accounts and parties to the Contracts to verify with them to its satisfaction
the existence, amount and terms of any Account or any amount payable under any
Contract.
(c) Collections on Accounts, Contracts and Proceeds. The Creditor hereby
authorizes the Debtor to collect the Accounts and payments under the Contracts
in the normal course of its business and for the purpose of carrying on same.
During the continuance of a Default, the Creditor may curtail or terminate said
authority at any time, upon serving upon the Debtor and registering in the
Register of Personal and Movable Real Rights a notice of withdrawal of
authorization to collect. If required by the Creditor at any time during the
continuance of a Default, any payments of Accounts or under Contracts, when
collected by the Debtor, shall be forthwith (and, in any event, within two
Business Days) deposited by the Debtor in the exact form received, duly endorsed
by the Debtor to the Creditor if required, in a special collateral account
maintained by the Creditor, subject to withdrawal by the Creditor, as
hereinafter provided, and, until so deposited, shall be held by the Debtor in
trust for and as mandatary of the Creditor segregated from other funds of the
Debtor. All such amounts while held by the Creditor (or by the Debtor in trust
for the Creditor and as mandatary of the Creditor) and all income in respect
thereof shall continue to be collateral security for the Obligations and shall
not constitute payment thereof until applied as hereinafter provided.
(d) Analysis of Accounts. If a Default has occurred and is continuing, the
Creditor will have the right to analyze and verify the Accounts in any manner
and through any medium that it reasonably considers advisable, and the Debtor
will furnish all such assistance and information as the Creditor may require in
connection therewith. If a Default has occurred and is
<PAGE>
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continuing, the Creditor may in its own name or in the name of others (including
the Debtor) communicate with account debtors on the Accounts and parties to the
Contracts to verify with them to its satisfaction the existence, status, amount
and terms of any Account or any Contract. If a Default has occurred and is
continuing, upon the Creditor's reasonable request and at the expense of the
Debtor, the Debtor will furnish to the Creditor reports showing reconciliations,
aging and test verifications of, and trial balances for, the Accounts.
(e) Maximum Principal Amount. Notwithstanding the maximum principal amount
secured and the maximum applicable interest rate set out in section 2 above, the
Debtor shall only be liable to the Creditor for the actual principal amount
outstanding from time to time and for the actual interest applicable to such
principal amount from time to time in accordance with the Note.
5. Representations and Warranties. The Debtor hereby represents and warrants to
the Creditor that the Debtor's principal place of business and chief executive
office, and the place where it keeps its Books and Records, are at the address
set out in Schedule A to this Agreement and its full legal name is specified on
the signature page of this Agreement. The location of all other existing places
where the Debtor carries on business, or keeps tangible Collateral, the location
of all jurisdictions in which account debtors of the Debtor are located.
6. Covenants. The Debtor covenants and agrees with the Creditor that:
(a) Further Documentation; Hypothecation of Instruments. The Debtor will
from time to time and at its expense, promptly and duly execute and deliver such
further instruments and documents and take such further action as the Creditor
may reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and the Hypothec hereby constituted and of the
rights, powers, remedies and recourses herein granted or by law provided
including the filing of any applications for registration, applications for
correction or any other financing, financing change statements or renewals under
any applicable legislation in effect in any jurisdiction with respect to the
Hypothec created hereby.
(b) Notices. The Debtor will advise the Creditor promptly, in reasonable
detail, of: (i) any change in the name of the Debtor; or (ii) any change in the
location of any place of business or the head office of the Debtor.
7. Waiver. To the extent permitted by applicable law, the Debtor waives all
claims, damages and demands (other than claims, damages and demands resulting
from loss or damage to any and all of the Collateral caused by the gross
negligence or wilful misconduct of the Creditor) it may acquire against the
Creditor arising out of the exercise by the Creditor of any rights or remedies
under this Agreement or at law.
8. Creditor's Appointment as Mandatary. The Debtor hereby irrevocably
constitutes and appoints the Creditor and any officer or agent of the Creditor
its mandatary, with full power of substitution as its mandatary, with full
irrevocable power and authority in the place and name of the Debtor or in its
own name, from time to time in the Creditor's discretion, during the continued
existence of a Default, to take any and all appropriate action and to execute
any and all documents and instruments which, in the opinion of such mandatary,
may be necessary or
<PAGE>
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desirable to accomplish the purposes of this Agreement. Nothing in this Section
affects the right of the Creditor as secured party or any other Person on the
Creditor's behalf, to sign and file or deliver (as applicable) all such
applications for registration or correction, financing statements, financing
change statements, notices, verification agreements and other documents relating
to the Collateral and this Agreement as the Creditor or such other Person
considers appropriate.
9. Application of Proceeds. All Proceeds of Collateral received by the Creditor
may be applied to discharge or satisfy any expenses (including among other
things any Creditor's reasonable remuneration and other expenses of enforcing
the Creditor's rights under this Agreement), Charges, borrowings, taxes and
other outgoings affecting the Collateral or which are considered advisable by
the Creditor to preserve, repair, process, maintain or enhance the Collateral or
prepare it for sale, lease or other disposition, or to keep in good standing any
Charges on the Collateral ranking in priority to any of the Hypothec, or to
sell, lease or otherwise dispose of the Collateral. The balance of such Proceeds
may, at the sole discretion of the Creditor, be held in an interest bearing
account as collateral security for the Obligations and/or be applied to such of
the Obligations in such manner and at such times as the Creditor in its
reasonable discretion considers appropriate and thereafter will be accounted for
as required by law.
10. Continuing Liability of Debtor. The Debtor will remain liable for any
Obligations that are outstanding following realization of all or any part of the
Collateral.
11. Interest. If any amount payable to the Creditor under this Agreement is not
paid when due, the Debtor will pay to the Creditor immediately on demand,
interest on such amount from the date due until paid, at a nominal annual rate
equal at all times to the Prime Rate plus 2%. All amounts payable by the Debtor
to the Creditor under this Agreement, and all interest on all such amounts,
compounded monthly on the last Business Day of each month, will form part of the
Obligations and will be secured by the security interests created by this
Agreement.
12. Severability. If any term, agreement, provision, condition, obligation or
covenant set out in this Agreement is determined to be invalid or unenforceable
by a court of competent jurisdiction from which no further appeal lies or is
taken, that term, agreement, provision, condition, obligation or covenant shall
be deemed to be severed herefrom and the remaining terms, agreements,
provisions, conditions, obligations and covenants of this Agreement shall not be
affected thereby and shall remain valid and enforceable.
13. Cumulative Remedies. The Creditor shall not by any act, delay, indulgence,
omission or otherwise be deemed to have waived any right, remedy or recourse
hereunder or to have acquiesced in any breach of any of the terms and conditions
hereof. Without limiting the generality of the foregoing, this Agreement may not
be waived, amended, supplemented or otherwise modified except by a written
instrument executed by the Debtor and the Creditor. No failure to exercise, nor
any delay in exercising, on the part of the Creditor, any right, power, remedy
or recourse hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power, remedy or recourse hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power,
remedy or recourse. A waiver by the Creditor of any right, power, remedy or
recourse hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Creditor would otherwise have on any future occasion.
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The rights, powers, remedies and recourses herein provided are cumulative, may
be exercised singly, concurrently or successively and are not exclusive of any
other rights, powers remedies and recourses provided by law.
14. Other Security and No Novation. In the event that the Creditor, its
successors or assigns, in addition to the Hypothec created herein, holds any
further additional security on account of the Obligations, or any part thereof,
no single or partial exercise by the Creditor or its successors and assigns of
any of its remedies under this Agreement or under any such additional securities
shall preclude any other and further exercise of any other right, power or
remedy pursuant to this Agreement or pursuant to any of such additional
security. The Creditor shall at all times have the right to proceed against all
or any portion of the Collateral or such additional security in such order and
in such manner as it shall in its discretion deem fit without waiving any rights
which the Creditor may have with respect to any and all of such security, and
the exercise of any such powers or remedies from time to time shall in no way
affect any other powers or remedies which the Creditor may have pursuant to this
Agreement, any such additional security, or in law or in equity or otherwise.
Without limiting the generality of the foregoing, the Debtor hereby acknowledges
and agrees that this Agreement is given in addition to and not in substitution
for any other security given by the Debtor in connection with the Obligations,
without any novation.
Should the Obligations of the Debtor be fully repaid at any time or from
time to time, without the Hypothec hereby created being released and discharged
by the Creditor, the Hypothec herein created shall remain effective and secure
the payment, execution and performance of any new Obligations, to the same
extent and for the amounts herein expressed, as if the existing Obligations had
never been repaid and the Debtor is and will continue to be bound hereby; the
Debtor agreeing that it shall be deemed to have obliged itself again in respect
of any such new Obligations pursuant to this Agreement and the Hypothec herein
created shall secure the payment, performance and execution of any and all such
new Obligations.
15. Dealings by Creditor. The Creditor may grant extensions of time and other
indulgences, take and give up security, accept compositions, grant releases and
discharges and otherwise deal with the Debtor and any other Person, and with any
or all of the Collateral, and with other security and sureties, as it may see
fit, all without prejudice to the Obligations or to the rights of the Creditor
under this Agreement.
16. Communication. Any communication required or permitted to be given under
this Agreement will be given in the manner as provided for in the Purchase
Agreement.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Quebec.
18. Interpretation. The division of this Agreement into sections and paragraphs,
and the insertion of headings, is for convenience of reference only and shall
not affect the construction or interpretation of this Agreement. Unless the
context otherwise requires, words importing the singular include the plural and
vice versa, and words importing gender include all genders. When used in this
Agreement the word "including" means "including without limitation".
<PAGE>
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19. Successors and Assigns. This Agreement shall extend and enure to the benefit
of the Creditor and its successors and assigns and shall be binding upon the
Debtor and its successors and assigns. The Debtor may not assign this Agreement,
or any of its rights or obligations under this Agreement, without the prior
written consent of the Creditor. The Creditor may assign this Agreement, or any
of its rights and obligations under this Agreement, without the prior written
consent of the Debtor.
20. English Language. The parties confirm their express wish that this hypothec
and all documents related thereto be drawn up in English. Les parties confirment
leur volonte expresse de voir la presente hypotheque et tous les documents qui y
sont afferents soient rediges en anglais.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement at Toronto,
Ontario, as of 10th day of September, 1999.
1373224 ONTARIO LIMITED
By:_____________________________________
Name:
Title:
By:_____________________________________
Name:
Title:
ARTHUR ANDERSON INC., in its capacity as
receiver and manager of GalaVu
Entertainment Inc.
By:_____________________________________
Name:
Title:
GENERAL SECURITY AGREEMENT
TO: Name of Creditor: Arthur Anderson Inc., in its capacity as receiver and
manager of GalaVu Entertainment Inc.
Address: 1900 - 79 Wellington Street West
P.O. Box 29, Toronto-Dominion Centre
Toronto, Ontario
M5K 1B9
Attention: Brian Deazeley
Facsimile: (416) 947-7788
RECITALS:
A. 1373224 ONTARIO LIMITED (the "Debtor") is, or may become, indebted or liable
to ARTHUR ANDERSON INC., in its capacity as receiver and manager of GalaVu
Entertainment Inc. (in such capacity, together with its successors and assigns,
the "Creditor").
B. To secure the payment and performance of the Liabilities (this term, and
other capitalized terms used in this Agreement, have the meanings set forth in
Section 1), the Debtor has agreed to grant to the Creditor security interests in
respect of the Collateral in accordance with the terms of this Agreement.
For good and valuable consideration, the receipt and adequacy of
which are acknowledged by the Debtor, the Debtor agrees with and in favour of
the Creditor as follows:
1. Definitions. In this Agreement:
"Accessions", "Account", "Chattel Paper", "Consumer Goods",
"Document of Title", "Equipment", "Goods", "Instrument", "Intangible",
"Inventory" and "Proceeds" have the meanings given to them in the PPSA.
"Books and Records" means all books, records, files, papers, disks,
documents and other repositories of data recording in any form or medium,
evidencing or relating to the Collateral which are at any time owned by the
Debtor or to which the Debtor (or any Person on the Debtor's behalf) has access.
"Business Day" means any day other than a Saturday, Sunday or
statutory holiday in the Province of Ontario.
"Collateral" means all of the present and future undertaking,
Personal Property (including any Personal Property that may be described in any
Schedule to this Agreement or any
<PAGE>
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schedules, documents or listings that the Debtor may from time to time sign and
provide to the Creditor in connection with this Agreement) and real property
(including any real property that may be described in any Schedule to this
Agreement or any schedules, documents or listings that the Debtor may from time
to time sign and provide to the Creditor in connection with this Agreement and
including all fixtures and all buildings placed, installed or erected from time
to time on any such real property) of the Debtor (including all such property at
any time owned, leased or licensed by the Debtor, or in which the Debtor at any
time has any interest or to which the Debtor is or may at any time become
entitled) and all Proceeds thereof, wherever located.
"Contracts" means all contracts, licences and agreements to which
the Debtor is at any time a party or pursuant to which the Debtor has at any
time acquired rights, and includes (i) all rights of the Debtor to receive money
due and to become due to it in connection with a contract, licence or agreement,
(ii) all rights of the Debtor to damages arising out of, or for breach or
default in respect of, a contract, licence or agreement, and (iii) all rights of
the Debtor to perform and exercise all remedies in connection with a contract,
licence or agreement.
"Default" means the occurrence of any of the following events or
conditions:
(a) a default under the Note which continues for more than 30 days after
notice of such default is given by the Creditor to the Debtor;
(b) the Debtor becomes insolvent or bankrupt, or makes or files a
proposal, a notice of intention to make a proposal or an assignment
for the benefit of creditors under the Bankruptcy and Insolvency Act
(Canada) or comparable legislation in Canada or any other
jurisdiction; or, proceedings are initiated under any legislation by
the Debtor seeking its liquidation, winding-up, dissolution or
reorganization or any arrangement or composition of its debts;
(c) a Receiver, trustee, custodian or other similar official is
appointed in respect of the Debtor or any of the Collateral; or
(d) a default by the Debtor under this Agreement.
"Intellectual Property Rights" means all industrial and intellectual
property rights, including copyrights, patents, trade-marks, industrial designs,
know how and trade secrets and all Contracts related to any such industrial and
intellectual property rights.
"Liabilities" means all present and future indebtedness, liabilities
and obligations of the Debtor to the Creditor, under, pursuant to, or in
connection with the Note.
"Money" has the meaning given to it in the PPSA or, if there is no
such meaning given in the PPSA, means a medium of exchange authorized or adopted
by the Parliament of Canada as part of the currency of Canada, or by a foreign
government as part of its currency.
<PAGE>
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"Note" means the promissory note dated as of the date hereof issued
by the Debtor in favour of the Creditor.
"PPSA" means the Personal Property Security Act of the Province of
Ontario, as such legislation may be amended, renamed or replaced from time to
time (and includes all regulations from time to time made under such
legislation).
"Permits" means all permits, licences, authorizations, approvals,
franchises, rights-of-way, easements and entitlements that the Debtor has,
requires or is required to have, to own, possess or operate any of its property
or to operate and carry on any part of its business.
"Permitted Encumbrances" means (i) any Security Interest charging
Personal Property acquired by the Debtor, which is granted or assumed by the
Debtor in favour of the transferor substantially concurrently with and for the
purpose of the acquisition of such Personal Property, in each case where such
Security Interest extends only to the Personal Property acquired and the
Creditor agrees to subordinate the Security Interests created hereunder to any
such Security Interest; (ii) Security Interests granted by the Debtor in
priority to the Security Interests created under this Agreement to any operating
lender of the Debtor (and in respect of such Security Interests, the Creditor
agrees to subordinate the Security Interests created under this Agreement
thereto); (iii) any Security Interests ranking subsequent to the Security
Interests created hereunder; and (iv) any other Security Interests ranking prior
to the Security Interests created under this Agreement with the consent of the
Creditor, such consent not to be unreasonably withheld.
"Person" will be broadly interpreted and includes an individual, a
corporation, a limited liability company, a partnership, a trust, a joint
venture, an association, an unincorporated organization, the government of a
country or any political subdivision thereof, any agency or department of any
such government, a regulatory agency or any other juridical entity and the
heirs, executors, administrators or other legal representatives of an
individual.
"Personal Property" means personal property and includes Accounts,
Books and Records, Chattel Paper, Contracts, Documents of Title, Equipment,
Goods, Instruments, Intangibles (including Intellectual Property Rights and
Permits), Inventory, Money and Securities.
"Prime Rate" means the rate announced by the Canadian Imperial Bank
of Commerce from time to time as its prime rate for Canadian Dollar commercial
loans made in Canada.
"Receiver" means a receiver, a manager or a receiver and manager.
"Securities" has the meaning given to it in the PPSA, or if there is
no such
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meaning given in the PPSA but the PPSA defines "security" instead, it means the
plural of that term.
"Security Interest" means any mortgage, charge, pledge,
hypothecation, lien (statutory or otherwise), assignment, finance lease, title
retention agreement or arrangement, security interest or other encumbrance or
adverse claim of any nature, or any other security agreement or arrangement
creating in favour of any creditor a right in respect of a particular property.
2. Grant of Security Interest. As general and continuing collateral security for
the due payment and performance of the Liabilities, the Debtor mortgages,
charges and assigns to the Creditor, and grants to the Creditor a security
interest in, the Collateral.
3. Limitations on Grant of Security Interest. If the grant of any Security
Interest in respect of any Contract, Intellectual Property Right or Permit under
Section 2 would result in the termination or breach of such Contract,
Intellectual Property Right or Permit, then the applicable Contract,
Intellectual Property Right or Permit will not be subject to any Security
Interest under Section 2 but will be held in trust by the Debtor for the benefit
of the Creditor and, on exercise by the Creditor of any of its rights under this
Agreement following Default, assigned by the Debtor as directed by the Creditor.
In addition, the Security Interests created by this Agreement do not extend to
the last day of the term of any lease or agreement for lease of real property.
Such last day will be held by the Debtor in trust for the Creditor and, on the
exercise by the Creditor of any of its rights under this Agreement following
Default, will be assigned by the Debtor as directed by the Creditor.
4. Attachment; No Obligation to Advance. The Debtor confirms that value has been
given by the Creditor to the Debtor, that the Debtor has rights in the
Collateral (other than after-acquired property) and that the Debtor and the
Creditor have not agreed to postpone the time for attachment of the Security
Interests created by this Agreement to any of the Collateral. The Security
Interests created by this Agreement will have effect and be deemed to be
effective whether or not the Liabilities or any part thereof are owing or in
existence before or after or upon the date of this Agreement. Neither the
execution of this Agreement nor any advance of funds shall oblige the Creditor
to advance any funds or any additional funds.
<PAGE>
-5-
5. Representations and Warranties. The Debtor represents and warrants to the
Creditor that:
(a) the Debtor's principal place of business and chief executive office,
and the place where it keeps its Books and Records, is at the address specified
on the signature page of this Agreement, and its full legal name, and any other
name under which it conducts its business, is specified on the signature page of
this Agreement. The location of all other existing places where the Debtor
carries on business or keeps tangible Personal Property, the location of all
jurisdictions in which account debtors of the Debtor are located, and the
location of all real property owned by the Debtor, are set out in Schedule A to
this Agreement.
(b) Title; No Other Security Interests. Except for (i) Security Interests
created by this Agreement; and (ii) Security Interests in respect of Permitted
Encumbrances, the Debtor owns the Collateral fee and clear of any Security
Interests.
6. Covenants. The Debtor covenants and agrees with the Creditor that:
(a) Further Documentation. The Debtor will from time to time, at the
expense of the Debtor, promptly and duly authorize, execute and deliver such
further instruments and documents, and take such further action, as the Creditor
may request for the purpose of obtaining or preserving the full benefits of, and
the rights and powers granted by, this Agreement (including the filing of any
financing statements or financing change statements under any applicable
legislation with respect to the Security Interests created by this Agreement).
(b) Notices. The Debtor will advise the Creditor promptly, in reasonable
detail, of (i) any change in the location of any place of business (including
additional locations) or the chief executive office of the Debtor, or (ii) any
change in the location of any of the tangible Collateral (including additional
locations), and (iii) any change in the name of the Debtor. The Debtor agrees
not to effect or permit any of the changes referred to in clauses (ii) and (iii)
above unless all filings have been made and all other actions taken that are
required in order for the Creditor to continue at all times following such
change to have a valid and perfected Security Interest in respect of all of the
Collateral.
7. Rights on Default. On Default, all of the Liabilities will, at the option of
the Creditor, become immediately due and payable and the security constituted by
this Agreement will become enforceable, and the Creditor may, personally or by
agent, at such time or times as the Creditor in its discretion may determine, do
any one or more of the following:
(a) Rights under PPSA, etc. Exercise all of the rights and remedies
granted to secured parties under the PPSA and any other applicable statute, or
otherwise available to the Creditor at law or in equity.
(b) Demand Possession. Demand possession of any or all of the Collateral,
in which event the Debtor will, at the expense of the Debtor, immediately cause
the Collateral designated
<PAGE>
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by the Creditor to be assembled and made available and/or delivered to the
Creditor at any place designated by the Creditor.
(c) Take Possession. Enter on any premises where any Collateral is located
and take possession of, disable or remove such Collateral.
(d) Deal with Collateral. Hold, store and keep idle, or operate, lease or
otherwise use or permit the use of, any or all of the Collateral for such time
and on such terms as the Creditor may determine, and demand, collect and retain
all earnings and other sums due or to become due from any Person in respect of
any of the Collateral.
(e) Carry on Business. Carry on, or concur in the carrying on of, any or
all of the business or undertaking of the Debtor and enter on, occupy and use
(without charge by the Debtor) any of the premises, buildings, plant and
undertaking of, or occupied or used by, the Debtor.
(f) Enforce Collateral. Seize, collect, receive, enforce or otherwise deal
with any Collateral in such manner, on such terms and conditions and at such
times as the Creditor deems advisable.
(g) Dispose of Collateral. Realize on any or all of the Collateral and
sell, lease, assign, give options to purchase, or otherwise dispose of and
deliver any or all of the Collateral (or contract to do any of the above), in
one or more parcels at any public or private sale, at any exchange, broker's
board or office of the Creditor or elsewhere, on such terms and conditions as
the Creditor may deem advisable and at such prices as it may deem best, for cash
or on credit or for future delivery.
(h) Court-Approved Disposition of Collateral. Apply to a court of
competent jurisdiction for the sale or foreclosure of any or all of the
Collateral.
(i) Purchase by Creditor. At any public sale, and to the extent permitted
by law on any private sale, bid for and purchase any or all of the Collateral
offered for sale and, upon compliance with the terms of such sale, hold, retain
and dispose of such Collateral without any further accountability to the Debtor
or any other Person with respect to such holding, retention or disposition,
except as required by law. In any such sale to the Creditor, the Creditor may,
for the purpose of making payment for all or any part of the Collateral so
purchased, use any claim for Liabilities then due and payable to it as a credit
against the purchase price.
(j) Collect Accounts. Notify the account debtors or obligors under any
Accounts of the assignment of such Accounts to the Creditor and direct such
account debtors or obligors to make payment of all amounts due or to become due
to the Debtor in respect of such Accounts directly to the Creditor and, upon
such notification and at the expense of the Debtor, enforce collection of any
such Accounts, and adjust, settle or compromise the amount or payment of such
<PAGE>
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Accounts, in such manner and to such extent as the Creditor deems appropriate in
the circumstances.
(k) Transfer of Securities. Transfer any Securities forming part of the
Collateral into the name of the Creditor or its nominee, with or without
disclosing that the Securities are subject to the Security Interests arising
under this Agreement.
(l) Exercise of Rights. Exercise any and all rights, privileges,
entitlements and options pertaining to any Securities forming part of the
Collateral as if the Creditor were the absolute owner of such Securities.
(m) Payment of Liabilities. Pay any liability secured by any Security
Interest against any Collateral. The Debtor will immediately on demand reimburse
the Creditor for all such payments.
(n) Borrow and Grant Security Interests. Borrow money for the maintenance,
preservation or protection of any Collateral or for carrying on any of the
business or undertaking of the Debtor and grant Security Interests on any
Collateral (in priority to the Security Interests created by this Agreement or
otherwise) as security for the money so borrowed. The Debtor will immediately on
demand reimburse the Creditor for all such borrowings.
(o) Appoint Receiver. Appoint by instrument in writing one or more
Receivers of the Debtor or any or all of the Collateral with such rights, powers
and authority (including any or all of the rights, powers and authority of the
Creditor under this Agreement) as may be provided for in the instrument of
appointment or any supplemental instrument, and remove and replace any such
Receiver from time to time. To the extent permitted by applicable law, any
Receiver appointed by the Creditor will (for purposes relating to responsibility
for the Receiver's acts or omissions) be considered to be the agent of the
Debtor and not of the Creditor.
(p) Court-Appointed Receiver. Apply to a court of competent jurisdiction
for the appointment of a Receiver of the Debtor or of any or all of the
Collateral.
(q) Consultants. Require the Debtor to engage a consultant of the
Creditor's choice, or engage a consultant on its own behalf, such consultant to
receive the full cooperation and support of the Debtor and its employees,
including unrestricted access to the premises, books and records of the Debtor;
all reasonable fees and expenses of such consultant shall be for the account of
the Debtor and the Debtor hereby authorizes any such consultant to report
directly to the Creditor and to disclose to the Creditor any and all information
obtained in the course of such consultant's employment.
The Creditor may exercise any or all of the foregoing rights and
remedies without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except as required by applicable law) to or
on the Debtor or any other Person, and the
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Debtor by this Agreement waives each such demand, presentment, protest,
advertisement and notice to the extent permitted by applicable law. None of the
above rights or remedies will be exclusive of or dependent on or merge in any
other right or remedy, and one or more of such rights and remedies may be
exercised independently or in combination from time to time. Without prejudice
to the ability of the Creditor to dispose of the Collateral in any manner which
is commercially reasonable, the Debtor acknowledges that a disposition of
Collateral by the Creditor which takes place substantially in accordance with
the following provisions will be deemed to be commercially reasonable:
(i) Collateral may be disposed of in whole or in part;
(ii) Collateral may be disposed of by public auction, public tender or
private contract, with or without advertising and without any other
formality;
(iii) any purchaser or lessee of Collateral may be a customer of the
Creditor;
(iv) a disposition of Collateral may be on such terms and conditions as
to credit or otherwise as the Creditor, in is sole discretion, may
deem advantageous; and
(v) the Creditor may establish an upset or reserve bid or price in
respect of Collateral.
8. Grant of Licence. For the purpose of enabling the Creditor to exercise its
rights and remedies under Section 7 when the Creditor is entitled to exercise
such rights and remedies, and for no other purpose, the Debtor grants to the
Creditor an irrevocable, non-exclusive licence (exercisable without payment of
royalty or other compensation to the Debtor) to use, assign or sublicence any or
all of the Intellectual Property Rights, including in such licence reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer programs used for the compilation or printout of the same.
9. Application of Proceeds. All Proceeds of Collateral received by the Creditor
or a Receiver may be applied to discharge or satisfy any expenses (including the
Receiver's remuneration and other expenses of enforcing the Creditor's rights
under this Agreement), Security Interests in favour of Persons other than the
Creditor, borrowings, taxes and other outgoings affecting the Collateral or
which are considered advisable by the Creditor or the Receiver to protect,
preserve, repair, process, maintain or enhance the Collateral or prepare it for
sale, lease or other disposition, or to keep in good standing any Security
Interests on the Collateral ranking in priority to any of the Security Interests
created by this Agreement, or to sell, lease or otherwise dispose of the
Collateral. The balance of such Proceeds may, at the sole discretion of the
Creditor, be held as collateral security for the Liabilities or be applied to
such of the Liabilities (whether or not the same are due and payable) in such
manner and at such times as the Creditor considers appropriate and thereafter
will be accounted for as required by law.
10. Continuing Liability of Debtor. The Debtor will remain liable for any
Liabilities
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that are outstanding following realization of all or any part of the Collateral
and the application of the Proceeds thereof.
11. Creditor's Appointment as Attorney-in-Fact. The Debtor constitutes and
appoints the Creditor and any officer or agent of the Creditor, with full power
of substitution, as the Debtor's true and lawful attorney-in-fact with full
power and authority in the place of the Debtor and in the name of the Debtor or
in its own name, from time to time in the Creditor's discretion after a Default,
to take any and all appropriate action and to execute any and all documents and
instruments as, in the opinion of such attorney acting reasonably, may be
necessary or desirable to accomplish the purposes of this Agreement. These
powers are coupled with an interest and are irrevocable until this Agreement is
terminated and the Security Interests created by this Agreement are released.
Nothing in this Section affects the right of the Creditor as secured party or
any other Person on the Creditor's behalf, to sign and file or deliver (as
applicable) all such financing statements, financing change statements, notices,
verification agreements and other documents relating to the Collateral and this
Agreement as the Creditor or such other Person considers appropriate.
12. Interest. If any amount payable to the Creditor under this Agreement is not
paid when due, the Debtor will pay to the Creditor, immediately on demand,
interest on such amount from the date due until paid, at a nominal annual rate
equal at all times to the Prime Rate plus 2%, which annual rate will change
automatically without notice to the Debtor as and when the Prime Rate changes.
All amounts payable by the Debtor to the Creditor under this Agreement, and all
interest on all such amounts, compounded monthly on the last Business Day of
each month, will form part of the Liabilities and will be secured by the
Security Interests created by this Agreement.
13. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction will, as to that jurisdiction, be ineffective
to the extent of such prohibition or unenforceability and will be severed from
the balance of this Agreement, all without affecting the remaining provisions of
this Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction.
14. Rights of Creditor; Limitations on Creditor's Obligations.
(a) Limitations on Creditor's Liability. The Creditor will not be liable
to the Debtor or any other Person for any failure or delay in exercising any of
the rights of the Debtor under this Agreement (including any failure to take
possession of, collect, sell, lease or otherwise dispose of any Collateral, or
to preserve rights against prior parties). Neither the Creditor, a Receiver nor
any agent of the Creditor is required to take, or will have any liability for
any failure to take or delay in taking, any steps necessary or advisable to
preserve rights against other Persons under any Collateral in its possession.
(b) Collections on Accounts and Contracts. The Creditor hereby authorizes
the
<PAGE>
-10-
Debtor to collect the Accounts and payments under the Contracts in the normal
course of the business of the Debtor and for the purpose of carrying on the
same. If required by the Creditor at any time, any payments of Accounts or under
Contracts, when collected by the Debtor, will be forthwith (and, in any event,
within two Business Days) deposited by the Debtor in the exact form received,
duly endorsed by the Debtor to the Creditor if required, in a special collateral
account maintained by the Creditor, and until so deposited, will be held by the
Debtor in trust for the Creditor, segregated from other funds of the Debtor. All
such amounts while held by the Creditor (or by the Debtor in trust for the
Creditor) and all income in respect thereof will continue to be collateral
security for the Liabilities and will not constitute payment thereof until
applied as hereinafter provided. If a Default has occurred and is continuing,
the Creditor may apply all or any part of the amounts on deposit in said special
collateral account on account of the Liabilities in such order as the Creditor
may elect. At the Creditor's request, the Debtor will deliver to the Creditor
any documents evidencing and relating to the agreements and transactions which
gave rise to the Accounts and Contracts, including all original orders, invoices
and shipping receipts.
15. Dealings by Creditor. The Creditor will not be obliged to exhaust its
recourse against the Debtor or any other Person or against any other security it
may hold in respect of the Liabilities before realizing upon or otherwise
dealing with the Collateral in such manner as the Creditor may consider
desirable. The Creditor may grant extensions of time and other indulgences, take
and give up security, accept compositions, grant releases and discharges and
otherwise deal with the Debtor and any other Person, and with any or all of the
Collateral, and with other security and sureties, as the Creditor may see fit,
all without prejudice to the Liabilities or to the rights and remedies of the
Creditor under this Agreement.
16. Communication. Any communication required or permitted to be given under
this Agreement will be in writing and will be effectively given if (i) delivered
personally, (ii) sent by prepaid courier service or mail, or (iii) sent prepaid
by facsimile transmission or other similar means of electronic communication, in
each case to the address or facsimile number of the Debtor or Creditor set out
in this Agreement. Any communication so given will be deemed to have been given
and to have been received on the day of delivery if so delivered, or on the day
of facsimile transmission or sending by other means of recorded electronic
communication provided that such day is a Business Day and the communication is
so delivered or sent prior to 4:30 p.m. (local time at the place of receipt).
Otherwise, such communication will be deemed to have been given and to have been
received on the following Business Day. Any communication sent by mail will be
deemed to have been given and to have been received on the fifth Business Day
following mailing, provided that no disruption of postal service is in effect.
The Debtor and the Creditor may from time to time change their respective
addresses or facsimile numbers for notice by giving notice to the other in
accordance with the provisions of this Section.
17. Release of Information. The Debtor authorizes the Creditor to provide a copy
of this Agreement and such other information as may be requested of the Creditor
by Persons entitled thereto pursuant to any applicable legislation, and
otherwise with the consent of the
<PAGE>
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Debtor.
18. Waivers. To the extent permitted by applicable law, the Debtor
unconditionally and irrevocably waives (i) all claims, damages and demands it
may acquire against the Creditor arising out of the exercise by the Creditor or
any Receiver of any rights or remedies under this Agreement or at law, and (ii)
all of the rights, benefits and protections given by any present or future
statute that imposes limitations on the rights, powers or remedies of a secured
party or on the methods of, or procedures for, realization of security,
including any "seize or sue" or "anti-deficiency" statute or any similar
provision of any other statute. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except by a
written instrument executed by the Creditor. The Creditor will not, by any act
or delay, be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Creditor, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder will preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. A waiver by the Creditor of any right or
remedy hereunder on any one occasion will not be construed as a bar to any right
or remedy which the Creditor would otherwise have on any future occasion.
Neither the taking of any judgment nor the exercise of any power of seizure or
sale will extinguish the liability of the Debtor to pay the Liabilities, nor
will the same operate as a merger or any covenant contained in this Agreement or
of any other liability, nor will the acceptance of any payment or other security
constitute or create any novation.
19. Governing Law; Attornment. This Agreement will be governed by and construed
in accordance with the laws of the Province of Ontario. Without prejudice to the
ability of the Creditor to enforce this Agreement in any other proper
jurisdiction, the Debtor irrevocably submits and attorns to the non-exclusive
jurisdiction of the courts of such province. To the extent permitted by
applicable law, the Debtor irrevocably waives any objection (including any claim
of inconvenient forum) that it may now or hereafter have to the venue of any
legal proceeding arising out of or relating to this Agreement in the courts of
such Province.
20. Interpretation. Unless otherwise expressly provided in this Agreement, if
any matter in this Agreement is subject to the consent or approval of the
Creditor or is to be acceptable to the Creditor, such consent, approval or
determination of acceptability will be in the sole discretion of the Creditor.
If any provision in this Agreement refers to any action taken or to be taken by
the Debtor, or which the Debtor is prohibited from taking, such provision will
be interpreted to include any and all means, direct or indirect, of taking, or
not taking, such action. The division of this Agreement into sections and
paragraphs, and the insertion of headings, is for convenience of reference only
and will not affect the construction or interpretation of this Agreement. Unless
the context otherwise requires, words importing the singular include the plural
and vice versa, and words importing gender include all genders. When used in
this Agreement, the word "including" (or includes) means "including (or
includes) without limitation". Any reference in this Agreement to a "Section"
means the relevant Section of this Agreement.
<PAGE>
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21. Successors and Assigns. This Agreement will enure to the benefit of, and be
binding on, the Debtor and its successors and permitted assigns, and will enure
to the benefit of, and be binding on, the Creditor and its successors and
assigns. The Debtor may not assign this Agreement, or any of its rights or
obligations under this Agreement, without the prior written consent of the
Creditor. The Creditor may assign this Agreement, or any of its rights and
obligations under this agreement, without the prior written consent of the
Debtor.
22. Acknowledgment of Receipt/Waiver. The Debtor acknowledges receipt of an
executed copy of this Agreement and, to the extent permitted by applicable law,
waives the right to receive a copy of any financing statement, financing change
statement or verification statement in respect of any registered financing
statement or financing change statement prepared, registered or issued in
connection with this Agreement.
Dated: September 10, 1999.
1373224 ONTARIO LIMITED
Address: 14 Meteor Drive By: _________________________________
Toronto, Ontario Name:
M9W 1A4 Title:
Attention: The President c/s
Facsimile: (416) 675-8838
--------------
By: _________________________________
Name:
Title:
<PAGE>
SCHEDULE A
Locations of Collateral (Paragraph 5(a))
Jurisdictions of Account Debtors (Paragraph 5(a))
Locations of Real Property (Paragraph 5(a))
None
SECURITIES PLEDGE AGREEMENT
TO: Name of Creditor: Arthur Anderson Inc., in its capacity as receiver and
manager of GalaVu Entertainment Inc.
Address: 1900 - 79 Wellington Street West
P.O. Box 29, Toronto-Dominion Centre
Toronto, Ontario
M5K 1B9
Attention: Brian Deazeley
Facsimile: (416) 947-7788
RECITALS:
A. NETWORKS NORTH INC. (the "Debtor") is, or may become, indebted or liable to
ARTHUR ANDERSON INC., in its capacity as receiver and manager of GalaVu
Entertainment Inc. (in such capacity, together with its successors and assigns,
the "Creditor").
B. To secure the payment and performance of the Liabilities (this term, and
other capitalized terms used in this Agreement, have the meanings set forth in
Section 1), the Debtor has agreed to grant to the Creditor security interests
over the Collateral in accordance with the terms of this Agreement.
For valuable consideration, the receipt and adequacy of which are
acknowledged by the Debtor, the Debtor agrees with the Creditor as follows:
1. Definitions. In this Agreement:
"Books and Records" means all books, records, files, papers, disks,
documents and other repositories of data recording in any form or medium,
evidencing or relating to the Collateral which are at any time owned by the
Debtor or to which the Debtor (or any Person on the Debtor's behalf) has access.
"Business Day" means any day other than a Saturday, Sunday or
statutory holiday in the Province of Ontario.
"Collateral" means the collateral described in Section 2 of this
Agreement, including the Pledged Securities and all Proceeds thereof.
"Corporation" means 1373224 Ontario Limited.
"Default" means the occurrence of any of the following events or
conditions:
(a) the Debtor does not pay any of the Liabilities when due;
<PAGE>
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(b) the Debtor becomes insolvent or bankrupt, or makes or files a
proposal, a notice of intention to make a proposal or an assignment
for the benefit of creditors under the Bankruptcy and Insolvency Act
(Canada) or comparable legislation in Canada or any other
jurisdiction; a petition in bankruptcy is filed against the Debtor;
or, proceedings are initiated under any legislation by or against
the Debtor seeking its liquidation, winding-up, dissolution or
reorganization or any arrangement or composition of its debts; or
(c) a Receiver, trustee, custodian or other similar official is
appointed in respect of the Debtor or any of the Collateral.
"Guarantee" means the limited recourse guarantee dated on or about
the date hereof granted by the Debtor to the Creditor in respect of the debts,
liabilities and obligations of the Corporation to the Creditor.
"Liabilities" means all present and future indebtedness, liabilities
and obligations of the Debtor to the Creditor under the Guarantee.
"Permitted Encumbrances" means any Security Interests granted by the
Debtor to secure financing for the Corporation, with the consent of the
Creditor, such consent not to be unreasonably withheld (and in respect of such
Security Interests, the Creditor agrees to subordinate the Security Interests
created under this Agreement thereto).
"Person" will be broadly interpreted and includes an individual, a
corporation, a limited liability company, a partnership, a trust, a joint
venture, an association, an unincorporated organization, the government of a
country or any political subdivision thereof, any agency or department of any
such government, a regulatory agency or any other juridical entity and the
heirs, executors, administrators or other legal representatives of an
individual.
"PPSA" means the Personal Property Security Act of the Province of
Ontario, as such legislation may be amended, renamed or replaced from time to
time (and includes all regulations from time to time made under such
legislation).
"Pledged Securities" means the securities listed in Schedule A.
"Prime Rate" means the rate quoted by the Canadian Imperial Bank of
Commerce from time to time as its prime rate for Canadian Dollar commercial
loans made in Canada.
"Proceeds" has the meaning given to that term in the PPSA.
"Security Interest" means any mortgage, charge, pledge,
hypothecation, lien (statutory or otherwise), assignment, finance lease, title
retention agreement or arrangement,
<PAGE>
-3-
security interest or other encumbrance or adverse claim of any nature, or any
other security agreement or arrangement creating in favour of any creditor a
right in respect of a particular property.
2. Grant of Security Interest. As general and continuing collateral security for
the due payment and performance of the Liabilities, the Debtor hereby assigns
and pledges to and in favour of the Creditor, and the Debtor hereby grants to
the Creditor a continuing security interest in:
(a) the Pledged Securities, together with any replacements thereof and
substitutions therefor, additions thereto, and all certificates and instruments
evidencing or representing such securities;
(b) all interest and dividends, whether in cash, kind or stock, received or
receivable upon or in respect of any of the Pledged Securities and all moneys or
other property payable or paid on account of any return or repayment of capital
in respect of any of the Pledged Securities or otherwise distributed in respect
thereof or which will in any way be charged to, or payable or paid out of, the
capital of the Corporation on account of the Pledged Securities;
(c) all other property that may at any time be received or receivable by or
otherwise distributed to the Debtor in respect of, or in substitution for, or in
exchange for, any of the foregoing; and
(d) all cash, securities and other proceeds of the foregoing and all rights and
interests of the Debtor in respect thereof or evidenced thereby, including all
moneys received from time to time by the Debtor in connection with the sale or
other disposition of any of the Pledged Securities; provided, however, that the
Debtor will not sell or otherwise dispose of any of the Pledged Securities or
purport to do any of the foregoing without the prior written consent of the
Creditor.
In the event the Debtor acquires additional shares in the capital of
the Corporation after the date hereof, the Debtor will forthwith upon receipt by
the Debtor, deliver to the Creditor any share certificates representing such
after-acquired shares. The term "Pledged Securities" shall be deemed to include
all such after-acquired shares.
3. Delivery of Pledged Securities. The certificates representing the Pledged
Securities duly endorsed by the appropriate Person in blank for transfer or
accompanied by stock powers of attorney satisfactory to the Creditor will
forthwith be delivered to and remain in the custody of the Creditor or its
nominee. The Debtor will also deliver to the Creditor a certified copy of a
resolution of the directors or shareholders of the Corporation consenting to the
transfers contemplated by this Agreement, including any prospective transfer of
the Collateral by the Creditor upon a realization on the security constituted
hereby in accordance with this Agreement. All Pledged Securities may, at the
option of the Creditor, be registered in the name
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of the Creditor or its nominee.
4. Attachment; No Obligation to Advance. The Debtor confirms that value has been
given by the Creditor to the Debtor, that the Debtor has rights in the
Collateral (other than after-acquired property) and that the Debtor and the
Creditor have not agreed to postpone the time for attachment of the Security
Interests created by this Agreement to any of the Collateral.
5. Title; No Security Interests. The Debtor represents and warrants to the
Creditor that except for (i) Security Interests created by this Agreement; and
(ii) Security Interests in respect of Permitted Encumbrances, the Debtor owns
the Collateral fee and clear of any Security Interests.
6. Voting Rights. Unless a Default has occurred and is continuing, the Debtor
will be entitled to exercise all voting power from time to time exercisable in
respect of the Pledged Securities and give consents, waivers and ratifications
in respect thereof; provided, however, that no vote will be cast or consent,
waiver or ratification given or action taken which would be prejudicial to the
interests of the Creditor or which would have the effect of reducing the value
of the Pledged Securities as security for the Liabilities or imposing any
restriction on the transferability of any of the Pledged Securities. Immediately
upon the occurrence and during the continuance of any Default, all such rights
of the Debtor to vote and give consents, waivers and ratifications will cease
and the Creditor will be entitled to exercise all such voting rights and to give
all consents, waivers and ratifications.
7. Dividends; Interest. Unless a Default has occurred and is continuing, the
Debtor will be entitled to receive any and all cash dividends, interest and
other forms of cash distribution on the Pledged Securities which it is otherwise
entitled to receive, but any and all stock and/or liquidating dividends,
distributions of property, returns of capital or other distributions made on or
in respect of the Pledged Securities, whether resulting from a subdivision,
combination or reclassification of the outstanding capital stock of the
Corporation or received in exchange for the Pledged Securities or any part
thereof or as a result of any merger, consolidation, acquisition or other
exchange of assets to which the Corporation may be a party or otherwise, and any
and all cash and other property received in exchange for any Collateral, will be
and become part of the Collateral subject to the Security Interest created by
this Agreement and, if received by the Debtor, will forthwith be delivered to
the Creditor or its nominee (accompanied, if appropriate, by proper instruments
of assignment and/or stock powers of attorney executed by the Debtor in
accordance with the Creditor's instructions) to be held subject to the terms of
this Agreement; and if the Pledged Securities have been registered in the name
of the Creditor or its nominee, the Creditor will execute and deliver (or cause
to be executed and delivered) to the Debtor all such dividend orders and other
instruments as the Debtor may request for the purpose of enabling the Debtor to
receive the dividends or other payments which the Debtor is authorized to
receive and retain pursuant to this Section 7. If a Default has occurred and is
continuing, all rights of the Debtor pursuant to this Section 7 will cease and
the Creditor will have the sole and exclusive right and authority to receive and
retain the cash dividends, interest and other forms of cash distribution which
the Debtor would otherwise be authorized to retain pursuant to this Section 7.
<PAGE>
-5-
Any money and other property paid over to or received by the Creditor pursuant
to the provisions of this Section 7 will be retained by the Creditor as
additional Collateral hereunder and be applied in accordance with the provisions
hereof.
8. Rights on Default. On Default, all of the Liabilities will, at the option of
the Creditor, become immediately due and payable and the security constituted by
this Agreement will become enforceable, and the Creditor may, personally or by
agent, at such time or times as the Creditor in its discretion may determine, do
any one or more of the following:
(a) Rights under PPSA, etc. Exercise all of the rights and remedies
granted to secured parties under the PPSA and any other applicable statute, or
otherwise available to the Creditor at law or in equity.
(b) Dispose of Collateral. Realize on any or all of the Collateral and
sell, lease, assign, give options to purchase, or otherwise dispose of and
deliver any or all of the Collateral (or contract to do any of the above), in
one or more parcels at any public or private sale, at any exchange, broker's
board or office of the Creditor or elsewhere, on such terms and conditions as
the Creditor may deem advisable and at such prices as it may deem best, for cash
or on credit or for future delivery.
(c) Court-Approved Disposition of Collateral. Apply to a court of
competent jurisdiction for the sale or foreclosure of any or all of the
Collateral.
(d) Purchase by Creditor. At any public sale, and to the extent permitted
by law on any private sale, bid for and purchase any or all of the Collateral
offered for sale and, upon compliance with the terms of such sale, hold, retain
and dispose of such Collateral without any further accountability to the Debtor
or any other Person with respect to such holding, retention or disposition,
except as required by law. In any such sale to the Creditor, the Creditor may,
for the purpose of making payment for all or any part of the Collateral so
purchased, use any claim for Liabilities then due and payable to it as a credit
against the purchase price.
(e) Transfer of Pledged Securities. Transfer all or part of the Collateral
into the name of the Creditor or its nominee, with or without disclosing that
the Pledged Securities are subject to the Security Interests arising under this
Agreement.
(f) Vote Pledged Securities. Vote any or all of the Pledged Securities
(whether or not transferred to the Creditor or its nominee) and give or withhold
all consents, waivers and ratifications in respect thereof and otherwise act
with respect thereto as though it were the outright owner thereof.
(g) Exercise Other Rights. Exercise any and all rights of conversion,
exchange, subscription or any other rights, privileges or options pertaining to
any of the Pledged Securities as if it were the absolute owner thereof,
including the right to exchange at its discretion any and
<PAGE>
-6-
all of the Pledged Securities upon the merger, consolidation, reorganization,
recapitalization or other readjustment of the Corporation or upon the exercise
by the Corporation or the Creditor of any right, privilege or option pertaining
to any of the Pledged Securities, and in connection therewith, to deposit and
deliver any and all of the Pledged Securities with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms and
conditions as it may determine, all without liability except to account for
property actually received by the Creditor.
The Creditor may exercise any or all of the foregoing rights and
remedies without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except as required by applicable law) to or
on the Debtor or any other Person, and the Debtor by this Agreement waives each
such demand, presentment, protest, advertisement and notice to the extent
permitted by applicable law. None of the above rights or remedies will be
exclusive of or dependent on or merge in any other right or remedy, and one or
more of such rights and remedies may be exercised independently or in
combination from time to time. Without prejudice to the ability of the Creditor
to dispose of the Collateral in any manner which is commercially reasonable, the
Debtor acknowledges that a disposition of Collateral by the Creditor which takes
place substantially in accordance with the following provisions will be deemed
to be commercially reasonable:
(i) Collateral may be disposed of in whole or in part;
(ii) Collateral may be disposed of by public auction, public tender or
private contract, with or without advertising and without any other
formality;
(iii) any purchaser of Collateral may be a customer of the Creditor;
(iv) a disposition of Collateral may be on such terms and conditions as
to credit or otherwise as the Creditor, in is sole discretion, may
deem advantageous; and
(v) the Creditor may establish an upset or reserve bid or price in
respect of Collateral.
9. Sale of Securities. The Creditor is authorized, in connection with any offer
or sale of any Pledged Securities, to comply with any limitation or restriction
as it may be advised by counsel is necessary to comply with applicable law,
including compliance with procedures that may restrict the number of prospective
bidders and purchasers, requiring that prospective bidders and purchasers have
certain qualifications, and restricting prospective bidders and purchasers to
Persons who will represent and agree that they are purchasing for their own
account or investment and not with a view to the distribution or resale of such
Pledged Securities. The Debtor further agrees that compliance with any such
limitation or restriction will not result in a sale being considered or deemed
not to have been made in a commercially reasonable manner, and the Creditor will
not be liable or accountable to the Debtor for any discount allowed by reason of
the fact that such Pledged Securities are sold in compliance with any such
limitation or
<PAGE>
-7-
restriction.
10. Application of Proceeds. All Proceeds of Collateral received by the Creditor
may be applied to discharge or satisfy any expenses (including the expenses of
enforcing the Creditor's rights under this Agreement), Security Interests in
favour of Persons other than the Creditor, borrowings, taxes and other outgoings
affecting the Collateral or which are considered advisable by the Creditor to
protect, preserve, repair, process, maintain or enhance the Collateral or
prepare it for sale or other disposition, or to keep in good standing any
Security Interests on the Collateral ranking in priority to any of the Security
Interests created by this Agreement, or to sell, lease or otherwise dispose of
the Collateral. The balance of such Proceeds may, at the sole discretion of the
Creditor, be held as collateral security for the Liabilities or be applied to
such of the Liabilities (whether or not the same are due and payable) in such
manner and at such times as the Creditor considers appropriate and thereafter
will be accounted for as required by law.
11. Creditor's Appointment as Attorney-in-Fact. The Debtor constitutes and
appoints the Creditor and any officer or agent of the Creditor, with full power
of substitution, as the Debtor's true and lawful attorney-in-fact with full
power and authority in the place of the Debtor and in the name of the Debtor or
in its own name, from time to time in the Creditor's discretion after a Default,
to take any and all appropriate action and to execute any and all documents and
instruments as, in the opinion of such attorney acting reasonably, may be
necessary or desirable to accomplish the purposes of this Agreement. These
powers are coupled with an interest and are irrevocable until this Agreement is
terminated and the Security Interests created by this Agreement are released.
Nothing in this Section affects the right of the Creditor as secured party, or
any other Person on the Creditor's behalf, to sign and file or deliver (as
applicable) all such financing statements, financing change statements, notices,
verification agreements and other documents relating to the Collateral and this
Agreement as the Creditor or such other Person considers appropriate.
12. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction will, as to that jurisdiction, be ineffective
to the extent of such prohibition or unenforceability and will be severed from
the balance of this Agreement, all without affecting the remaining provisions of
this Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction.
13. Rights of Creditor; Limitations on Creditor's Obligations. The Creditor will
not be liable to the Debtor or any other Person for any failure or delay in
exercising any of the rights of the Debtor under this Agreement (including any
failure to take possession of, collect, sell, lease or otherwise dispose of any
Collateral, or to preserve rights against prior parties). Neither the Creditor
nor any agent of the Creditor is required to take, or will have any liability
for any failure to take or delay in taking, any steps necessary or advisable to
preserve rights against other Persons under any Collateral in its possession.
14. Dealings by Creditor. The Creditor will not be obliged to exhaust its
recourse
<PAGE>
-8-
against the Debtor or any other Person or against any other security it may hold
in respect of the Liabilities before realizing upon or otherwise dealing with
the Collateral in such manner as the Creditor may consider desirable. The
Creditor may grant extensions of time and other indulgences, take and give up
security, accept compositions, grant releases and discharges and otherwise deal
with the Debtor and any other Person, and with any or all of the Collateral, and
with other security and sureties, as the Creditor may see fit, all without
prejudice to the Liabilities or to the rights and remedies of the Creditor under
this Agreement.
15. Communication. Any communication required or permitted to be given under
this Agreement will be in writing and will be effectively given if (i) delivered
personally, (ii) sent by prepaid courier service or mail, or (iii) sent prepaid
by facsimile transmission or other similar means of electronic communication, in
each case to the address or facsimile number of the Debtor or Creditor set out
in this Agreement. Any communication so given will be deemed to have been given
and to have been received on the day of delivery if so delivered, or on the day
of facsimile transmission or sending by other means of recorded electronic
communication provided that such day is a Business Day and the communication is
so delivered or sent prior to 4:30 p.m. (local time at the place of receipt).
Otherwise, such communication will be deemed to have been given and to have been
received on the following Business Day. Any communication sent by mail will be
deemed to have been given and to have been received on the fifth Business Day
following mailing, provided that no disruption of postal service is in effect.
The Debtor and the Creditor may from time to time change their respective
addresses or facsimile numbers for notice by giving notice to the other in
accordance with the provisions of this Section.
16. Waivers. To the extent permitted by applicable law, the Debtor
unconditionally and irrevocably waives (i) all claims, damages and demands it
may acquire against the Creditor arising out of the exercise by the Creditor of
any rights or remedies under this Agreement or at law, and (ii) all of the
rights, benefits and protections given by any present or future statute that
imposes limitations on the rights, powers or remedies of a secured party or on
the methods of, or procedures for, realization of security, including any "seize
or sue" or "anti-deficiency" statute or any similar provision of any other
statute. None of the terms or provisions of this Agreement may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Creditor. The Creditor will not, by any act or delay, be deemed
to have waived any right or remedy hereunder or to have acquiesced in any
Default or in any breach of any of the terms and conditions hereof. No failure
to exercise, nor any delay in exercising, on the part of the Creditor, any
right, power or privilege hereunder shall operate as a waiver thereof. No single
or partial exercise of any right, power or privilege hereunder will preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Creditor of any right or remedy hereunder on any one
occasion will not be construed as a bar to any right or remedy which the
Creditor would otherwise have on any future occasion.
17. Amalgamation. If the Debtor is a corporation, the Debtor acknowledges that
if it amalgamates with any other corporation or corporations, then (i) the
Collateral and the Security Interests created by this Agreement will extend to
and include all the property and assets of the amalgamated corporation and to
any property or assets of the amalgamated corporation thereafter
<PAGE>
-9-
owned or acquired, (ii) the term "Debtor", where used in this Agreement, will
extend to and include the amalgamated corporation, and (iii) the term
"Liabilities", where used in this Agreement, will extend to and include the
Liabilities of the amalgamated corporation.
18. Governing Law; Attornment. This Agreement will be governed by and construed
in accordance with the laws of the Province of Ontario. Without prejudice to the
ability of the Creditor to enforce this Agreement in any other proper
jurisdiction, the Debtor irrevocably submits and attorns to the non-exclusive
jurisdiction of the courts of such province. To the extent permitted by
applicable law, the Debtor irrevocably waives any objection (including any claim
of inconvenient forum) that it may now or hereafter have to the venue of any
legal proceeding arising out of or relating to this Agreement in the courts of
such Province.
19. Interpretation. Unless otherwise expressly provided in this Agreement, if
any matter in this Agreement is subject to the consent or approval of the
Creditor or is to be acceptable to the Creditor, such consent, approval or
determination of acceptability will be in the sole discretion of the Creditor.
If any provision in this Agreement refers to any action taken or to be taken by
the Debtor, or which the Debtor is prohibited from taking, such provision will
be interpreted to include any and all means, direct or indirect, of taking, or
not taking, such action. The division of this Agreement into sections and
paragraphs, and the insertion of headings, is for convenience of reference only
and will not affect the construction or interpretation of this Agreement. Unless
the context otherwise requires, words importing the singular include the plural
and vice versa, and words importing gender include all genders. When used in
this Agreement, the word "including" (or includes) means "including (or
includes) without limitation". Any reference in this Agreement to a "Section"
means the relevant Section of this Agreement.
20. Successors and Assigns. This Agreement will enure to the benefit of, and be
binding on, the Debtor and its successors and permitted assigns, and will enure
to the benefit of, and be binding on, the Creditor and its successors and
assigns. The Debtor may not assign this Agreement, or any of its rights or
obligations under this Agreement, without the prior written consent of the
Creditor. The Creditor may assign this Agreement, or any of its rights or
obligations under this Agreement without the prior written consent of the
Debtor.
21. Acknowledgment of Receipt/ Waiver. The Debtor acknowledges receipt of an
executed copy of this Agreement and, to the extent permitted by applicable law,
waives the right to receive a copy of any financing statement, financing change
statement or verification statement in respect of any registered financing
statement or financing change statement prepared, registered or issued in
connection with this Agreement.
Dated: September 10, 1999.
<PAGE>
-10-
NETWORKS NORTH INC.
Address: 14 Metero Drive By: _________________________________
Toronto, Ontario Name:
M9W 1A4 Title:
Attention: The President c/s
Facsimile: (416) 674-8838
By: _________________________________
Name:
Title:
<PAGE>
SCHEDULE A
PLEDGED SECURITIES
Description of Securities
100 common shares of 1373224 Ontario Limited, as of the date hereof constituting
all of the issued and outstanding shares in the capital of 1373224 Ontario
Limited, represented by certificate number 01 .
CERTIFICATE
TO: BLAKE, CASSELS & GRAYDON (the "Escrow Agent")
This Certificate is delivered pursuant to section 3.2(c) of the
Irrevocable Offer to Purchase Assets dated September o, 1999 delivered by o (the
"Irrevocable Offer"). Unless otherwise specifically stated herein, all
capitalized terms used herein have the meaning set out in the Irrevocable Offer.
Each of the Purchaser and the Vendor hereby certify that all of the
conditions of closing set out in section 5 of the Irrevocable Offer have been
satisfied or waived. Each of the undersigned hereby acknowledge and agree that
the Escrow Agent shall be entitled to rely upon this Certificate in releasing
the Escrow Funds in accordance with the terms of the Irrevocable Offer.
o
Dated: ___________________________ Per: _________________________________
Name:
Title
I have authority to bind the Corporation
Dated: ___________________________ Per: _________________________________
Name:
Title
I have authority to bind the Corporation
SCHEDULE "E"
CERTIFICATE
TO: BLAKE, CASSELS & GRAYDON (the "Escrow Agent")
This Certificate is delivered pursuant to section 3.2(d) of the
Irrevocable Offer to Purchase Assets dated September o, 1999 delivered by o (the
"Irrevocable Offer"). Unless otherwise specifically stated herein, all
capitalized terms used herein have the meaning set out in the Irrevocable Offer.
Each of the Purchaser and the Vendor hereby certifies that all of
the conditions of closing set out in section 5 of the Irrevocable Offer have not
been satisfied or waived. Each of the Vendor and the Purchaser hereby
acknowledge and agree that the Escrow Agent shall be entitled to rely upon this
Certificate in releasing the Escrow Funds in accordance with the terms of the
Irrevocable Offer.
o
Dated: ___________________________ Per: _________________________________
Name:
Title
I have authority to bind the Corporation
Dated: ___________________________ Per: _________________________________
Name:
Title
I have authority to bind the Corporation
SCHEDULE "G"
OCCUPANCY AND INDEMNITY AGREEMENT
THIS AGREEMENT dated as of the 13th day of September 1999.
B E T W E E N :
ARTHUR ANDERSON INC., in its capacity as Interim Receiver
of GalaVu Entertainment Inc., and not in its personal capacity
(hereinafter referred to as the "Receiver")
-and -
1373224 ONTARIO LIMITED
(hereinafter referred to as "Purchaser")
WHEREAS:
A. GalaVu Entertainment Inc. ("GalaVu") was the tenant of the Toronto
Premises, the Markham Premises, the London Premises and the Dartmouth
Premises (as hereinafter defined);
B. Arthur Andersen Inc. was appointed as Interim Receiver of the property,
undertaking and assets of GalaVu pursuant to an order of Ontario Superior
Court of Justice dated September 13, 1999 (the "Order");
C. The Purchaser has agreed to purchase the Purchased Assets from the
Receiver on the basis that the Purchaser shall be entitled to occupy the
Premises for the Occupancy Period, and the Receiver has agreed to permit
such occupation on the terms and conditions set out in this Agreement;
D. All capitalized terms shall have the meanings given to them in the
Purchase Agreement, unless otherwise defined herein or unless the context
otherwise requires.
NOW THEREFORE for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I - INTERPRETATION
1.1 Interpretation In this Agreement, the following terms shall have the
following meanings:
<PAGE>
-2-
(a) "Agreement" means this Agreement including the Schedules to this
Agreement as it or they may be amended, supplemented or restated
from time to time, and the expressions "hereof", "herein",
"hereunder", "hereby" and similar expressions refer to this
Agreement and not to any particular Section or other portion of this
Agreement;
(b) "Hazardous Substances" means any substance or material that is or
becomes prohibited, controlled or regulated by an governmental
authority whether federal, provincial, regional, municipal or local,
including, without limitation, any paints, solvents, PCB's,
asbestos, contaminants, pollutants, dangerous substances, toxic
substances, designated substances, controlled products, wastes,
hazardous wastes, subject wastes, hazardous materials, dangerous
goods or petroleum, its derivatives, by-products, or other
hydrocarbons, all as defined in or pursuant to any laws,
regulations, bylaws, guidelines, policies, approvals, permits or
orders rendered by any governmental authority;
(c) "Occupancy Period" means the period between the Closing Date and the
Vacancy Date;
(d) "Premises" means the premises leased by GalaVu and situated at 3816A
Victoria Park Avenue, Willowdale, Ontario, M2H 3H7 (the "Toronto
Premises"), 7800 Woodbine Avenue, Suite 300, Markham, Ontario, L3R
2N7 (the "Markham Premises"), 470 Rideout Street North, London,
Ontario (the "London Premises") and 780 Windmill Road, Suite 302,
Dartmouth, Nova Scotia, B3B 1T3 (the "Dartmouth Premises");
(e) "Proceeds of Sale" means the gross proceeds of sale of the Purchased
Assets;
(f) "Purchase Agreement" means the purchase agreement set out in the
offer dated September 10, 1999 from the Purchaser and accepted by
the Receiver on September 13, 1999;
(g) "Purchased Assets" means the right, title and interest, if any, of
the Receiver and GalaVu in and to the assets of GalaVu purchased by
the Purchaser from the Receiver pursuant to the Purchase Agreement;
(h) "Vacancy Date" means, subject to section 2.3 hereof, the earliest
date following receipt by the Receiver of the Vacancy Notice in
respect of a particular Premises to which the Receiver must pay rent
for that particular Premises pursuant to the Order and in any event
no later than October 31, 1999;
(i) "Vacancy Notice" means the notice in writing from the Purchaser to
the Receiver specifying a Vacancy Date in respect of a particular
Premises provided that in the case of any Premises where there will
be tangible Excluded Assets thereat as of
<PAGE>
-3-
the Vacancy Date, such notice shall be given not less than 15 days
prior to the Vacancy Date, together with a list of such tangible
Excluded Assets.
1.2 Heading The division of this Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation of this Agreement.
1.3 Number and Gender Unless the context requires otherwise, words importing the
singular include the plural and vice versa and words importing gender include
all genders.
1.4 Sections and Schedule References Unless the context requires otherwise,
references in this Agreement to Sections or Schedules are to Sections or
Schedules of this Agreement.
1.5 Schedule The following Schedule is attached to and forms part of this
Agreement:
Schedule "A" - Indemnity
ARTICLE 2 - OCCUPATION OF THE GALAVU PREMISES
2.1 Right to Occupancy The Purchaser shall have the exclusive right (subject to
Sections 2.3 and 2.4 hereof) to occupy the Premises and to conduct thereon the
business formerly carried on by GalaVu and remove the Purchased Assets during
the Occupancy Period, subject to the following terms and conditions:
(1) during the Occupancy Period, the Purchaser shall ensure that all
employees (whether its own or that of others engaged by the
Purchaser to assist it in the conduct of its business) on the
Premises at any time are covered by workmen's compensation and by
all such other insurance as would be appropriate in the
circumstances;
(2) during the Occupancy Period, the Purchaser shall, at its own
expense, provide public liability insurance, on terms reasonably
acceptable to the Receiver;
(3) during the Occupancy Period, the Purchaser shall, at its own
expense, provide damage insurance in respect of the Premises, on
terms reasonably acceptable to the Receiver;
(4) during the Occupancy Period, the Purchaser shall be responsible for
and forthwith pay all occupancy costs for the Premises, including
without limitation, all rent, business taxes, property taxes,
insurance, common area expenses and utility charges, (including,
gas, water, heat, hydro, and telephone);
<PAGE>
-4-
(5) the Purchaser shall surrender possession of the Premises on the
Vacancy Date, and the Purchaser shall ensure that the Premises are
left in a clean, "broomswept" condition as approved by the Receiver
on or before the Vacancy Date;
(6) the Purchaser shall use and occupy the Premises only for the
purposes of carrying on the business formerly carried on by GalaVu
and removing or arranging for the removal of the Purchased Assets
during the Occupancy Period, and for no other purpose;
(7) the Purchaser shall arrange for the disposal bins required to leave
the Premises in a clean, "broomswept" condition and the Purchaser
shall pay the costs and expenses of the removal of the disposal bins
from the Preemies on the Vacancy Date;
(8) the Purchaser acknowledges and agrees that it and other Persons
removing the Purchased Assets from the Premises will comply with all
health and safety, environmental and any other pertinent legislation
and regulations relating to the removal of such assets from the
Premises and the Purchaser shall provide qualified inspectors for
the dismantling and removal of such assets by the Purchaser and any
other Persons who have made arrangements with the Purchaser to
remove assets from the Premises;
(9) the Purchaser shall ensure that the activities of the Purchaser and
its agents, employees, licensees, contractors, officers, directors
and invitees (including members of the public) on the Premises
during the Occupancy Period, do not breach any law, by-law,
regulation or order of any federal, provincial, municipal or other
governmental or regulatory authority and remove the Purchased Assets
in compliance with the conditions for removal set out herein; and
(10) the Purchaser shall deliver an indemnity to the Receiver in the form
attached as Schedule "A" hereto.
2.2 Removal of Purchased Assets. The Purchaser acknowledges that the removal of
the Purchased Assets from the Premises shall be at the Purchaser's sole cost and
risk.
2.3 Occupancy Agreement The Parties hereto acknowledge and agree that in the
event that the lease between GalaVu and the landlord for any particular Premises
shall have terminated or expired prior to the Vacancy Date, the Purchaser shall
have no right to occupy or access such Premises beyond the date on which any
such lease shall terminate or expire, and that the Vacancy Date in respect of
any such particular Premises shall be deemed to be the date of termination or
expiration of the lease in respect thereof.
<PAGE>
-5-
2.4 Rights to Access
(1) The Receiver shall have the right to access the Premises at any time
during the Occupancy period, during regular business hours.
(2) The Purchaser acknowledges and agrees that the Excluded Assets may
be removed from the Premises during the Occupancy Period and that
the Receiver and any purchaser of the Excluded Assets (and any of
such Purchaser's agents, employees and contractors) shall have the
right to access any of the Excluded Assets (including, without
limitation, the books and records of GalaVu relating thereto) during
regular business hours for the purpose of inspecting, removing or
preparing for the removal of the Excluded Assets from the Premises
so long as the Purchaser is present at the premises. The parties
hereto acknowledge and agree that none of the landlords' assets
shall be removed from the Premises without the consent of the
relevant landlord.
2.5 Acknowledgement of Liability The Purchaser hereby acknowledges and agrees
that it shall be responsible for (i) any damage to the Premises or the Excluded
Assets during the Occupancy Period, caused by the acts or omissions of the
Purchaser, its employees, contractors, licensees, agents or invitees; (ii) any
damage to the Premises or the Excluded Assets as a result of the removal of the
Purchased Assets, including any environmental spills or discharge arising from
or associated with such removal; and (iii) any damages or claims arising out of
the injury or death at the Premises suffered by any of the Purchaser's
employees, contractors, licensees, agents or invitees during the Occupancy
Period, or as a result of the removal of such Purchased Assets. For greater
certainty, the Purchaser acknowledges that it shall be responsible for any
damages or claims arising out of any injury or death suffered by any employee,
contractor, licensee, agent or invitee of the Purchaser or any party whose
services the Purchaser has requested. The Purchaser will protect and hold
harmless the Receiver from any liability or costs (including legal expenses on a
solicitor and client basis) of any kind arising from any damage, environmental
spills or discharge and any failure or alleged failure by the Purchaser to
comply with the provisions of this Agreement and will provide the Receiver with
an indemnity in the form set out in Schedule "A" hereto upon execution of this
Agreement.
ARTICLE 3 - CONDITIONS PRECEDENT
3.1 General Conditions Precedent. The obligations of the parties hereto are
subject to fulfilment of the following conditions precedent on the Closing Date:
(1) the Purchase Agreement will have been executed and delivered by all
the parties thereto:
(2) the Approval Order will have been obtained; and
<PAGE>
-6-
(3) there will be no injunction or restraining order issued, and no
pending or threatening claim, action or litigation or proceeding,
judicial or administrative, by any person enjoining or preventing
the performance of the obligations set out in this Agreement or the
Purchase Agreement.
ARTICLE 4 - GENERAL PROVISIONS
4.1 Notices.
(1) Any notice or other communication given or made under or in connection with
this Agreement shall be in writing and shall be effectively given and made if
(i) delivered personally, or (ii) sent by prepaid courier service or mail, in
each case to the applicable address set out below:
(a) if to the Receiver, to:
Arthur Andersen Inc.
4 King Street West
Suite 1050
Toronto, Ontario M5H 1B6
Attention: Brian Deazeley
Facsimile No.: (416) 947-7788
(b) if to the Purchaser, to:
1373224 Ontario Limited
14 Meteor Drive
Toronto, Ontario
M9W 1A4
Attention: President
Facsimile No.: (416) 675-8838
(2) Any such communication so given or made shall be deemed to have been given
or made and to have been received on the day of delivery, if delivered, provided
that such day is a Business Day and the communication is so delivered or sent
prior to 5:30 p.m. on such day. Otherwise, such communication shall be deemed to
have been given and made and to have been received on the next following
Business Day. Any such communication sent by mail shall be deemed to have been
given and made and to have been received on the fifth Business Day following the
mailing thereof; provided, however, that no such communication shall be mailed
<PAGE>
-7-
during any actual or apprehended disruption of postal services. Any such
communication given or made in any other manner shall be deemed to have been
given or made and to have been received only upon actual receipt.
(3) Either party may from time to time change its address under this Section 4.1
by notice to the other party given in the manner provided by this Section.
4.2 Further Assurances. Each party shall, at the expense of the other party,
promptly do, execute, deliver or cause to be done, executed and delivered all
further acts, documents and things in connection with this Agreement that the
other party may reasonably require, for the purposes of giving effect to this
Agreement, provided, however, that (a) the Receiver shall not be obligated to
provide any further assurance which could result in personal liability to the
Receiver unless the Purchaser provides an appropriate indemnity to the Receiver
for any costs, losses or damages it may incur in connection therewith; and (b)
the obligation of the Receiver to comply with this provision shall only survive
and be in existence for so long as the Receiver is the Receiver, and has not
been discharged pursuant to an Order of the Court.
4.3 Successors and Assigns. This Agreement shall enure to the benefit of, and be
binding on, the parties and their respective successors and permitted assigns.
neither party may assign or transfer, whether absolutely, by way of security or
otherwise, all or any part of its respective rights or obligations under this
Agreement without the prior consent of the other party.
4.4 Entire Agreement. This Agreement constitutes the entire agreement between
the parties pertaining to the subject matter of this Agreement and supersedes
all prior agreements, understandings, negotiations and discussions, whether oral
or written. There are no conditions, warranties, representations or other
agreements between the parties in connection with the subject matter of this
Agreement (whether oral or written, express or implied, statutory or otherwise)
except as specifically set out in this Agreement.
4.5 Amendment. No amendment of this Agreement will be effective unless made in
writing and signed by the parties.
4.6 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such prohibition or unenforceability and shall be severed from
the balance of this Agreement, all without affecting the remaining provisions of
this Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction; provided, however that the substance of this Agreement
remains materially unaffected.
4.7 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which taken together
shall be deemed to constitute on and the same instrument. Counterparts may be
executed either in original or faxed form and the parties adopt any signatures
received by a receiving fax machine as original signatures of the parties;
provided, however, that any party providing its signature in such
<PAGE>
-8-
manner shall promptly forward to the other party an original of the signed copy
of this Agreement which was so faxed.
4.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable in that Province and shall be treated, in all respects, as an Ontario
contract.
4.9 Limited Liability. The Purchaser acknowledges and agrees that in all matters
pertaining to this Agreement, including without limitation, in its section,
Arthur Andersen Inc. is acting solely in its capacity as Interim Receiver of
GalaVu Entertainment Inc., and as such, its liability as a consequence of this
Agreement will be in its capacity as interim Receiver, and it will have no
personal or corporate liability of any kind, whether in contract or in tort. The
Purchaser further acknowledges and agrees that any liability of the Interim
Receiver under this Agreement will be limited in amount to the proceeds of sale
received by the Interim Receiver pursuant to the Purchase Agreement.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date first
written above.
AUTHUR ANDERSEN INC., in its
capacity as Interim Receiver
of GalaVu Entertainment Inc.
and not in its personal
capacity
By:__________________________________
Name:
Title:
1373224 ONTARIO LIMITED
By:__________________________________c/s
Name:
Title:
<PAGE>
SCHEDULE "A'
INDEMNITY
TO: ARTHUR ANDERSEN INC.
AND TO: ARTHUR ANDERSEN INC., in its capacity as Interim Receiver of the
Property, Undertaking and Assets of GalaVu Entertainment Inc. (the
"Receiver")
RE: Leased premises municipally known as Suite 300, 7800 Woodbine
Avenue, Markham, Ontario and 3816A Victoria Park Avenue, Willowdale,
Ontario, 470 Rideout Street North, London, Ontario and 780 Windmill
Road, Suite 302, Dartmouth, Nova Scotia (collectively the
"Premises")
- --------------------------------------------------------------------------------
All capitalized terms used herein have the meanings ascribed thereto in the
Offer to Purchase dated September 10, 1999 between 1373224 Ontario Limited and
the Receiver, and the Occupancy and Indemnity Agreement dated September 13, 1999
between 1373224 Ontario Limited and the Receiver (the "Occupancy and Indemnity
Agreement").
IN CONSIDERATION of the Receiver permitting the undersigned to occupy the
Premises during the Occupancy Period, the undersigned hereby indemnifies and
agrees to save harmless each of Arthur Andersen Inc., and the Receiver and their
respective officers, directors and employees from and against all manner of
claims, demands, liabilities, debts, dues, actions, causes of actions, suits,
proceedings, judgments, expenses, damages and disbursements (including without
limitation, legal fees on a solicitor and client basis) of any nature arising
from or as a result of or in any way connected with:
(a) any damage to the Premises or the Excluded Assets during the Occupancy
Period caused by or resulting from any action or failure to act by the
undersigned or any of its agents, employees, licensees, contractors,
officers, directors and invitees;
(b) any injury or death suffered by any of the Purchaser's employees, agents,
licensees, contractors or invitees while on the Premises at any time
during the Occupancy Period caused by or resulting from any action or
failure to act by the undersigned or any of its agents, employees,
licensees, contractors, officers, directors and invitees;
(c) the failure of the undersigned to vacate the Premises on or before the
Vacancy Date (as defined in the Occupancy and Indemnity Agreement), and to
leave the Premises in a clean, "broomswept" condition as approved by the
Receiver on or before the Vacancy Date;
(d) the removal of the Purchased Assets from the Premises and damages to the
Premises, including any environmental spills or discharge arising from
such removal, and any injury or death suffered by any person during such
removal process;
<PAGE>
-2-
(e) all occupancy costs for the Premises during the Occupancy Period; and
(f) any breach by the undersigned of the provisions of the Occupancy and
Indemnity Agreement.
For greater certainty, and without limiting the generality of the foregoing the
undersigned agrees to indemnify and save harmless Arthur Andersen Inc. and the
Receiver from any claims made by or damages suffered by any of the landlords of
the Premises (the "Landlords") (including any claims for rent or other amounts
payable under the lease or any other agreement between Arthur Andersen Inc., or
the Receiver and the Landlords for any of the Premises) as a result of the
undersigned failing to vacate the Premises on the Vacancy Date.
DATED this 13th day of September, 1999
1373224 ONTARIO LIMITED
By:_______________________________c/s
Name:
Title:
SCHEDULE "H"
Court File No.:
ONTARIO SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY
COMMERCIAL LIST
IN THE MATTER OF THE BANKRUPTCY AND
INSOLVENCY ACT, R.S.C. 1985, C. B-3, as amended
AND IN THE MATTER OF GALAVU ENTERTAINMENT INC.,
THE HONOURABLE ) , THE DAY
)
JUSTICE ) OF SEPTEMBER, 1999
B E T W E E N:
CANADIAN IMPERIAL BANK OF COMMERCE
Applicant
- and -
GALAVU ENTERTAINMENT INC.
Respondent
O R D E R
THIS APPLICATION, made by Canadian Imperial Bank of Commerce, for,
inter alia, an order appointing Arthur Andersen Inc. as Interim Receiver of the
assets, property and undertaking of GalaVu Entertainment Inc. (the "Company")
pursuant to s.47 of the Bankruptcy and Insolvency Act ("BIA") was heard this day
at 393 University Avenue, Toronto, Ontario.
<PAGE>
-2-
ON READING the Notice of Application herein, the affidavit of
Jennifer Logan-Klassen sworn September 10, 1999 and the affidavit of Gerry
Soucie sworn September 10, 1999, and on hearing the submissions of counsel for
the Applicant and the Company.
Confirmation of Service
1. THIS COURT ORDERS that the time for and necessity of service of the Notice of
Application and the Application Record herein is hereby abridged, that this
Application is properly returnable before the Court, that all parties entitled
to notice of this Application have been duly served with Notice of this
Application, and that further service thereof is hereby dispensed with.
Appointment and Powers
2. THIS COURT ORDERS that Arthur Andersen Inc. ("Interim Receiver"), having an
office in the City of Toronto, in the Municipality of Metropolitan Toronto, be
and it is hereby appointed Interim Receiver under section 47(1) of the BIA with
full control and power over all aspects of the assets, property and undertaking
of the Company (the "Property") and with authority to receive, protect, dispose
of and sell the Property or any part thereof, and to act at once until further
order of this Court.
3. THIS COURT ORDERS that the Company and its past and present directors,
officers, employees, servants, shareholders, lawyers (subject to issues of
privilege), accountants, consultants, agents and any and all other persons
having notice of this order, deliver the Property to the Interim Receiver
together with all books, documents, contracts, papers and records of every
nature and kind whatsoever relating to the Property and the obligations and
liabilities of the Company, and further that such persons grant to the Interim
Receiver full access to and use of accounting, data processing and computer
facilities relating thereto, provided that such
<PAGE>
-3-
persons shall be required to deliver up copies of such material to the Interim
Receiver only upon payment of their fair and reasonable cost of making such
copies.
4. THIS COURT ORDERS that without limiting the generality of paragraph 2 above,
and without requiring the Interim Receiver to do so, the Interim Receiver shall
be at liberty:
(a) to take possession and control of the Property and to carry on the
business of the Company;
(b) to take such steps to receive, protect, dispose of and sell the
Property as deemed appropriate by the Interim Receiver;
(c) to make arrangements with such agents, assistants and employees as
the Interim Receiver may consider necessary or desirable to secure
their assistance in the exercise of the Interim Receiver's powers
and the performance of its duties hereunder;
(d) to institute and prosecute all suits, proceedings, and actions in
and before the Courts and administrative bodies, and any and all
arbitration proceedings as may in its judgment be necessary for the
proper protection, preservation, disposition or sale of the Property
and likewise to defend all suits, proceedings, arbitration
proceedings and actions instituted against it as the Interim
Receiver and to appear in and conduct the prosecution and defence of
any suits, proceedings, arbitrations and actions now pending in any
Court or administrative body or before any arbitrator against the
Company relating to the Property including such appeals as the
Interim Receiver shall deem proper and advisable in respect of any
order,
<PAGE>
-4-
decision, or judgment pronounced in any such suits, proceedings,
arbitrations or actions;
(e) to receive and collect all monies now or hereafter owing to the
Company and to enforce all security held by the Company in respect
thereof;
(f) to extend the time for payment of any monies due to the Company with
or without security and to settle or compromise any such
indebtedness;
(g) to apply for any permits, licenses, approvals or permissions as may
be required by any governmental authority;
(h) to take such steps as the Interim Receiver deems necessary or
desirable to preserve and protect the Property including, making
payments to persons having mortgages, charges or encumbrances;
(i) to settle and pay any claims which may be made or brought against
the Company on such terms and in such manner as the Interim Receiver
deems necessary or advisable;
(j) to execute in the name of and on behalf of the Company all necessary
bills of sale, conveyances, deeds and documents of whatsoever nature
which the Interim Receiver considers to be necessary or incidental
to the exercise of the powers granted hereby;
(k) to vote any shares and exercise any rights the Company may have as a
shareholder with resect to any shares included in the Property;
<PAGE>
-5-
(l) to make an assignment of all of the Property for the general benefit
of the Company's creditors pursuant to the BIA, and to act as
trustee in bankruptcy of the Company;
(m) to abandon any lease and any ancillary agreements relating to any
leased premises; and
(n) to sell, transfer, or assign, whether on credit, by private tender,
public auction or otherwise, or to lease or mortgage the Property or
any part or parts thereof out of the ordinary course of business,
without compliance with Part V of the Personal Property Security Act
(Ontario) or similar legislation in other Provinces or Territories
in Canada, or any other notice, statutory or otherwise, which a
creditor or other party may be required to issue in order to dispose
of the collateral of a debtor, and the Interim Receiver is hereby
relieved of any obligation to issue any such notices; and
(o) to take any steps, enter into any agreements or incur any
obligations necessary or incidental to the exercise of the aforesaid
powers.
5. THIS COURT ORDERS that the Interim Receiver shall be at liberty to retain
counsel to advise it in connection with any matters associated with its
appointment and the performance by it of its duties and the exercise of its
powers hereunder and pay the fees and disbursements of its counsel.
6. THIS COURT ORDERS that the Interim Receiver may, from time to time, bring
motions before this Court for advice and directions in the exercise of its
powers and the performance of its duties hereunder and may apply to this court
for its discharge at such time as may be appropriate.
<PAGE>
-6-
Employees
7. THIS COURT ORDERS that the employment of all persons employed by the Company
is by this order hereby terminated and the Interim Receiver is not the employer
of the employees of the Company and shall not be liable to any of the employees
of the Company for any wages (as "wages" are defined in the Employment Standards
Act (Ontario) or similar legislation in other provinces) including severance
pay, termination pay and vacation pay or any other obligations of the Company to
its employees, except for such wages as the Interim Receiver may specifically
agree to pay. Further, by the granting of this order, the business of the
Company has not been sold and will continue to be the business of the Company
until it is sold in whole or in part by the Interim Receiver or otherwise. In
this paragraph, "sells" includes leases, transfers and any other manner of
disposition, and "sold" and "sale" have corresponding meanings.
8. THIS COURT ORDERS that the Interim Receiver is at liberty to employ such
agents, consultants and individuals to assist in the discharge of its duties and
responsibilities herein, on such terms as the Interim Receiver may in its
discretion deem appropriate, and such employment, engagement or retainer shall
not constitute the Interim Receiver or the Applicant a successor employer to the
Company pursuant to any legislation or at common law with respect to such
employees or otherwise make the Interim Receiver or the Applicant liable to such
employees for any liabilities of the Company to them or expose the Interim
Receiver or the Applicant to liability for such employees arising from or
relating to their previous employment by the Company.
Accounting for Receipts and Disbursements
9. THIS COURT ORDERS that the Interim Receiver shall pass its accounts and shall
pay the balances in its hands as this Court may direct.
<PAGE>
-7-
10. THIS COURT ORDERS the Interim Receiver's remuneration and any expenses which
may be properly made or incurred by the Interim Receiver in connection with the
exercise of its powers and the performance of its duties hereunder (including
any fees and disbursements of its counsel, on a solicitor and his own client
scale) shall be allowed to the Interim Receiver in the passing of its accounts
and, except as otherwise provided in this Order, shall form a charge on the
Property ranking in priority to all existing charges and encumbrances on the
Property, in favour of the Applicant and all subsequent secured creditors, but
subject to the rights of secured creditors having priority over the charges of
the Applicant, if any.
11. THIS COURT ORDERS that the costs of the Applicant in the preparation of this
Application, in the commencement of this Application and up to and inclusive of
the hearing of this Application and the entry of this order, be assessed as
between a solicitor and his own client, and be paid by the Interim Receiver as
part of its expenses.
12. THIS COURT ORDERS that the Interim Receiver shall be at liberty, from time
to time, to pay costs and other expenses relating to the Property, including its
own remuneration and disbursements, from monies in its hands. Any amounts so
applied against the Interim Receiver's remuneration and expenses shall
constitute advances against the amounts allowed on the passing of the Interim
Receiver's accounts.
Stay of Proceedings
13. THIS COURT ORDERS that no suits, actions, applications or administrative
proceedings, self-help remedies, or any other acts, proceedings, rights or
private remedies including, without limitation:
(a) any right of distraint or termination of any lease;
<PAGE>
-8-
(b) any right of termination of any contract of insurance for the
Property or any portion thereof or in which the Company is a named
or an unnamed insured or from which the Company may derive a
benefit;
(c) any right of termination, acceleration, suspension, modification,
cancellation or alteration of any arrangement or agreement, whether
written or oral, to which the Company is a party or in which the
Company has an interest, whether as principal, agent, nominee or
assignee, or pertaining to the Property, including, without
limitation, any security agreement, mortgage, contract, letter of
credit, guarantee, management agreement, lease, shareholders'
agreement, operating agreement, license, service agreement,
agreement of purchase and sale, supply agreement for the supply of
goods or services to or by the Company, insurance contract, warranty
service contract, distribution agreement, or conditional sales
contract;
(d) any right of distress or repossession, in relation to amounts due or
accruing due or in respect thereof;
(e) any right or entitlement to any construction, repair, storage or
other lien relating to the Property or its proceeds;
(f) any right to issue a petition pursuant to the BIA;
shall be taken, commenced, continued or asserted against the Interim Receiver,
the Company or the Property by any creditors, customers, clients, suppliers,
contractors, lenders, landlords (including, without limitation, equipment
lessors and lessors of real property), sub-landlords, tenants, sub-tenants,
licensors, licensees, governments of any nation, province, state or municipality
or any other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government in Canada or elsewhere
and any corporation or other entity owned or controlled by or which is the agent
of any of the foregoing,
<PAGE>
-9-
or by any other person, firm, corporation or entity wherever situate or
domiciled (collectively, "Persons" and, individually, "Person"), without the
specific written consent of the Interim Receiver or leave of this Court first
being obtained on seven days notice to the Interim Receiver.
14. THIS COURT ORDERS that all Persons with notice of this order be and they are
hereby enjoined from disturbing or interfering with the use by the Interim
Receiver of utility services presently used by the Company in connection with
the Property, including the furnishing of gas, heat, electricity, water, and
telephone (including telephone, facsimile or other communications services at
the present numbers used by the Company) in respect of any of the Property and
the providers of such utilities are hereby enjoined from cutting off, or
discontinuing or altering any such services without the specific written consent
of the Interim Receiver or the leave of this Court first being obtained on seven
days notice to the Interim Receiver, subject to the obligation of the Company or
Interim Receiver to pay for such utilities or services provided to the Company
or the Receiver, subsequent to the actual occupation by the Interim Receiver of
the Premises to which such utilities or services are supplied, but not arrears.
15. THIS COURT ORDERS that, notwithstanding any provision hereof, all Persons
having arrangements or agreements, whether written or oral, with the Company,
are hereby restrained from accelerating, terminating, suspending, modifying,
determining or cancelling such arrangements or agreements, notwithstanding any
provisions therein contained to the contrary, without the prior written consent
of the Interim Receiver or leave of this Court first being obtained on seven
days notice to the Interim Receiver. All such Persons shall continue to perform
and observe the terms, conditions and provisions contained in such agreements on
their part to be performed or observed. Without limiting the generality of the
foregoing, all Persons be and they are restrained until further Order of this
Court from terminating, suspending, modifying, cancelling, disturbing or
otherwise interfering in any way with the present or future occupation by the
Company or the Interim Receiver or its licensees or assigns, of any premises
leased, subleased or occupied by the Company, and the landlords of premises
leased or subleased by the Company are hereby specifically restrained from
taking any steps to terminate any lease,
<PAGE>
-10-
sublease, occupancy or other agreement to which the Company is a party, whether
by notice of termination or otherwise, or to terminate any ancillary agreements
or arrangements, without the prior written consent of the Interim Receiver or
leave of this Court, subject to the obligation of the Interim Receiver to pay
occupation rent for the period commencing with the date of this Order for leased
premises actually occupied by the Interim Receiver, but not arrears, in
accordance with the terms of the particular lease for such premises, or at the
option of the Interim Receiver in advance on the first (1st) and fifteenth
(15th) day of the month in equal instalments, or as otherwise may be negotiated
by the Interim Receiver from time to time. If any such occupation rent for any
such leased premises remains outstanding for more than fifteen (15) days after
writtn notice of non-payment has been given by the relevant landlord by
telecopier to the Interim Receiver, the stay of proceedings with respect to such
premises shall cease to have effect.
Borrowing Powers
16. THIS COURT ORDERS that the Interim Receiver shall be at liberty and is
hereby empowered to borrow monies from Canadian Imperial Bank of Commerce
without personal liability from time to time as it may consider necessary, not
to exceed $500,000 in principal amount in the aggregate, at such rate or rates
of interest as it deems advisable and for such period or periods as it may be
able to arrange, for the purpose of exercising its powers and performing its
duties. The Interim Receiver is authorized to pledge, assign or give security or
securities on any of the Property and/or its proceeds which shall be subject to
the priority of the Applicant's security, the rights of the secured creditors
ranking in priority to the Applicant, and to the charge in favour of the Interim
Receiver granted in this Order.
17. THIS COURT ORDERS that the monies authorized to be borrowed by this Order
shall be evidenced by a certificate or certificates substantially in the form of
the draft certificate attached as Schedule "A" to this Order and shall be in the
nature of revolving credit which the Interim Receiver may pay off or re-borrow
within the limits of the authority hereby conferred.
<PAGE>
-11-
18. THIS COURT ORDERS that all monies from time to time borrowed by the Interim
Receiver pursuant to this Order or to any further Order of this Honourable Court
and all Receiver's certificates representing the same or any other part thereof
shall rank pari passu unless the holders of such certificates agree otherwise.
19. THIS COURT ORDERS that any security granted by the Interim Receiver in
connection with its borrowings shall not be enforced without leave of this
Honourable Court first being obtained.
Environmental
20. THIS COURT ORDERS AND DECLARES that the Interim Receiver is not an owner of
any property or assets for any purpose including the purposes of Environmental
Legislation as defined below. "Environmental Legislation" is any legislation for
the protection of the environment including, without limitation, the Canadian
Environmental Protection Act, R.S.C. 1985, c.16 (4th Supp.), the Environmental
Protection Act, R.S.O. 1990, c. E-19, the Ontario Water Resources Act, R.S.O.
1990, c. O-40, the Occupational Health and Safety Act, R.S.O. 1990, c. O-1, the
regulations thereunder or any other statute, regulation or rule of law or equity
under any federal, provincial or other jurisdiction whatsoever.
21. THIS COURT ORDERS that the Interim Receiver shall not be deemed to have
taken possession of any real property owned or leased by the Company, for any
purpose including the purposes of Environmental Legislation, by reason only of
the Interim Receiver's action in entering upon any such property for the purpose
of obtaining access to the books and records of the Company.
<PAGE>
-12-
Sale of Assets
22. THIS COURT ORDERS that the Interim Receiver is authorized and directed to
accept the offer to purchase dated September 10, 1999 executed by 1373224
Ontario Limited in the form attached as Exhibit "D" to the Affidavit of Jennifer
Logan-Klassen sworn September 10, 1999 (the "Offer") filed, and the sale of the
assets of the Company by the Interim Receiver, on the terms and conditions
contained in such Offer, is hereby approved.
23. THIS COURT ORDERS that the Interim Receiver is authorized and directed to
complete the transactions contemplated in the Offer, to execute and deliver any
transfers, assignments, bills of sale, documents or instruments and agreements
contemplated therein or as may be appropriate or necessary to complete the sale
of the Purchased Assets as therein defined to 1373224 Ontario Limited (the
"Transfer Documents"). Furthermore, the Interim Receiver shall be deemed to be
the Vendor for all purposes thereunder.
24. THIS COURT ORDERS that effective on delivery by the Interim Receiver of the
Transfer Documents to 1373224 Ontario Limited, and upon the terms and conditions
set out in the Offer, all estate, right, title, interest, and benefit of the
Interim Receiver and the Company, if any, in and to the Purchased Assets as
therein defined shall vest in 1373224 Ontario Limited free and clear of all
liens, charges, encumbrances, mortgages, security interests, executions, trusts,
deemed trusts, levies, taxes, options, agreements, assignments, claims and
rights whatsoever, (including any or all of the foregoing created by or pursuant
to any orders made in these proceedings), other than the Permitted Encumbrances,
as defined in the Offer, and this Court hereby declares that the transactions
contemplated by the Offer are exempt from the provisions of the Bulk Sales Act
(Ontario) or any similar legislation in any other province or territory of
Canada.
25. THIS COURT ORDERS that the vesting of the Purchased Assets in 1373224
Ontario Limited as provided herein is without prejudice to the claims of the
Applicant, and any
<PAGE>
-13-
other creditors of the Company to the net proceeds of the sale of the Purchased
Assets received by the Interim Receiver pursuant to the Offer, and all liens,
charges, encumbrances, mortgages and security interests in the Purchased Assets,
other than the Permitted Encumbrances as defined in the Offer, shall continue in
the net proceeds received by the Interim Receiver pursuant to the Offer, in the
same priority as they had with respect to the Purchased Assets, subject to the
priority provision of paragraph 10 hereof with respect to the charge in favour
of the Interim Receiver.
Miscellaneous
26. THIS COURT ORDERS that the liability of the Interim Receiver which it may
incur as a result of its appointment or as a result of the performance of its
duties hereunder, save and except gross negligence, shall be limited in the
aggregate to the proceeds realized in cash from the disposition of the Property
or part thereof after the remuneration and disbursements of the Interim Receiver
and any costs or obligations incurred by the Interim Receiver or by any other
person in connection with the performance of its duties hereunder have been
repaid.
27. THIS COURT HEREBY seeks and requests the aid and recognition of any Court or
administrative body in any Province of Canada, any Canadian Federal Court or
administrative body and any federal or state Court or administrative body in the
United States of America or elsewhere to assist the Interim Receiver and its
agents to carry out the terms of this order including the making of such vesting
orders as may be requisite or desirable to complete the disposition of such of
the Property as may be within the jurisdiction of such courts or administrative
bodies, in addition to the provisions of s. 188 of the BIA. The Interim Receiver
shall be at liberty and is hereby authorized and empowered to apply, without
notice to the Company, as it may consider necessary or desirable to any other
Courts or administrative bodies, whether in Canada, the United States or
elsewhere, for orders recognizing the appointment of the Interim Receiver in
such other jurisdictions. All Courts and administrative bodies of all such
jurisdictions are hereby respectfully requested to make such orders and provide
such assistance
<PAGE>
-14-
to the Interim Receiver, as an officer of the Court as they may deem necessary
or appropriate for the purposes for which the Interim Receiver was appointed.
________________________________________
<PAGE>
SCHEDULE "A"
Amount $ Receiver's Certificate
TO:__________________________
1. This is to certify that the undersigned, Arthur Andersen Inc., as the Interim
Receiver of the assets and property (the "Property") of GalaVu Entertainment
Inc. pursuant to the Order of the Honourable [ ], of the Ontario Superior
Court of Justice dated the [ ] (hereinafter called the "Order"),
acknowledges that as such Interim Receiver it is indebted to the holder of this
Certificate in the sum of ___________ Dollars ($___________) in lawful money of
Canada.
2. The principal sum of ($ ) represented by this Certificate is payable
from the ________, 199_, on demand with interest thereon (both after as well as
before maturity) at the Canadian Imperial Bank of Commerce prime interest rate,
as reported or announced from time to time or failing such reporting or
announcement, at the rate established by it on an unsecured demand loan in the
City of Toronto, Province of Ontario in Canadian dollars to its most
credit-worthy commercial customers, plus two per cent 2% per annum.
3. The principal sum of ($ ) together with interest thereon as aforesaid
is by the terms of the Order, together with the principal sums and interest
thereon of all other Receiver's Certificates issued by the Receiver pursuant to
the Order or to any further Order of the Court, a fixed specific charge on the
Property ranking in priority to all charges and encumbrances on the Property
save and except the charges in favour of Canadian Imperial Bank of Commerce, the
charges in favour of all secured creditors ranking in priority to Canadian
Imperial Bank of Commerce, if any, and the charges in favour of the Interim
Receiver as set out in the Order subject to the right of the Receiver to be
indemnified out of the Property with respect to its liabilities, expenses and
its own remuneration properly incurred.
<PAGE>
-2-
4. All sums payable in respect of principal and interest under this Certificate
are payable at the office of Arthur Andersen Inc., Toronto, Ontario.
5. In case default shall be made in payment of interest on this Certificate and
such default shall continue, the principal and any interest thereon of this
Certificate may be declared immediately due and payable by the holder hereof.
This Certificate shall not be enforced without leave of the Court, on motion
made on notice to the Interim Receiver.
6. All liability in respect of the whole or any part of the principal sum for
which this Certificate is issued and for further interest thereon shall at any
time or from time to time be terminated on tender to the holder hereof of the
whole or such part of such principal sum with interest accrued thereon as
aforesaid to the date of such tender.
7. The Receiver does not undertake and is not under any personal liability to
pay any sum in respect of which it may issue Certificates under the terms of the
Order.
DATED at Toronto this day of September, 1999.
ARTHUR ANDERSEN INC.
Interim Receiver of
GalaVu Entertainment Inc.
_________________________________
<PAGE>
Court File No.:
ONTARIO SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY
COMMERCIAL LIST
IN THE MATTER OF THE BANKRUPTCY AND
INSOLVENCY ACT, R.S.C. 1985, c. B-3, as amended
AND IN THE MATTER OF GALAVU ENTERTAINMENT INC.
B E T W E E N :
CANADIAN IMPERIAL BANK OF COMMERCE
Applicant
- and -
GALAVU ENTERTAINMENT INC.
Respondent
NOTICE OF APPLICATION
TO THE RESPONDENT
A LEGAL PROCEEDING HAS BEEN COMMENCED by the applicant. The claim
made by the applicant appears on the following page.
THIS APPLICATION will come on for hearing before a judge presiding
over the Commercial List on Monday, September 13, 1999 at 9:30 a.m. or as soon
after that time as the matter can be heard at 393 University Avenue, Toronto,
Ontario.
IF YOU WISH TO OPPOSE THIS APPLICATION, you or an Ontario lawyer
acting for you must forthwith prepare a notice of appearance in Form 38A
prescribed by the Rules of Civil Procedure, serve it on the applicant's lawyer
or, where the applicant does not have
<PAGE>
-2-
a lawyer, serve it on the applicant, and file it, with proof of service, in this
court office, and you or your lawyer must appear at the hearing.
IF YOU WISH TO PRESENT AFFIDAVIT OR OTHER DOCUMENTARY EVIDENCE TO
THE COURT OR TO EXAMINE OR CROSS-EXAMINE WITNESSES ON THE APPLICATION, you or
your lawyer must, in addition to serving your notice of appearance, serve a copy
of the evidence on the applicant's lawyer or, where the applicant does not have
a lawyer, serve it on the applicant, and file it, with proof of service, in the
court office where the application is to be heard as soon as possible, but not
later than 2 p.m. on the day before the hearing.
IF YOU FAIL TO APPEAR AT THE HEARING, JUDGMENT MAY BE GIVEN IN YOUR
ABSENCE AND WITHOUT FURTHER NOTICE TO YOU. If you wish to oppose this
application but are unable to pay legal fees, legal aid may be available to you
by contacting a local Legal Aid office.
Date September 13, 1999 Issued by _____________________________
Local Registrar
Address of court office:
393 University Avenue
Toronto, Ontario
M5G 1E6
TO: GALAVU ENTERTAINMENT INC.
7800 Woodbine Avenue
Suite 300
Markham, Ontario
L3R 2N7
<PAGE>
-3-
APPLICATION
1. The applicant makes application for:
(a) an Order appointing Arthur Andersen Inc. as interim receiver (the
"Interim Receiver") of the assets, property and undertaking of the
Respondent, and for other relief as set out in the draft Order
attached as Schedule "A";
(b) an Order authorizing and directing the Interim Receiver to accept
the offer dated September 10, 1999 by 1373224 Ontario Limited (the
"Offer") to purchase certain of the assets, property, and
undertaking of the Respondent (the "Purchased Assets");
(c) an Order vesting all right, title, and interest of the Interim
Receiver and Respondent, if any, in and to the Purchased Assets, in
1373224 free and clear of all claims of the Interim Receiver, the
Respondent, and creditors of the Respondent, other than the
Permitted Encumbrances, as defined in the Offer;
(d) an Order abridging the time and/or dispensing with service of notice
of this Application; and
(e) such further and other relief as may to this Honourable Court seems
just.
2. The grounds for the application are as follows:
(a) the Applicant is GalaVu's largest secured creditor and is owed in
excess of $19,000,000;
<PAGE>
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(b) the Applicant has demanded payment by GalaVu of its indebtedness and
has sent a notice to GalaVu under subsection 244(1) of the
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended (the
"BIA");
(c) all of the assets, property and undertaking of GalaVu are subject to
the security in favour of the Applicant to which the aforesaid
notice relates;
(d) the appointment of the Interim Receiver is necessary for the
protection of the Respondent's estate and the interest of the
Applicant;
(e) the Respondent has engaged in an extensive and lengthy process of
soliciting offers to purchase its assets and negotiating a sale of
its business;
(f) the logical culmination of that process is the acceptance of the
Offer which represents the best available alternative;
(g) the appointment of the Interim Receiver and acceptance of the Offer
will enable the business of GalaVu to be sold as a going concern and
maximize recoveries for all stakeholders;
(h) s. 47 of the BIA; and
(i) such further and other grounds as counsel may advise.
3. The following documentary evidence will be used at the hearing of the
application:
(a) the affidavit of Jennifer Logan-Klassen sworn September 10, 1999,
and the exhibits attached thereto;
<PAGE>
-5-
(b) the affidavit of Gerry Soucie sworn September 10, 1999, and the
exhibits attached thereto;
(c) such further and other material as counsel may advise and this
Honourable Court may permit.
Date: September 13, 1999 BLAKE, CASSELS & GRAYDON
Barristers & Solicitors
Box 25, Commerce Court West
Toronto, Ontario
M5L 1A9
Lisa S. Corne
T: (416) 863-3896
F: (416) 863-2653
Solicitors for the Applicant
SCHEDULE I
BILL OF SALE
THIS BILL OF SALE (the "Agreement") dated September 13, 1999.
B E T W E E N:
Arthur Anderson Inc. in its capacity as Interim Receiver
of the assets of GalaVu Entertainment Inc.,
and not in its personal capacity
(the "Vendor")
and
1373224 Ontario Limited
(the "Purchaser")
WHEREAS Arthur Anderson Inc. was appointed as Interim Receiver (the
"Interim Receiver") of the assets of GalaVu Entertainment Inc. ("GalaVu")
pursuant to an order of the Ontario Superior Court of Justice dated September
13, 1999;
AND WHEREAS pursuant to an agreement dated as of September 13, 1999
between the Vendor and the Purchaser (the "Purchase Agreement"), the Vendor
agreed to sell and the Purchaser agreed to purchase all of the right, title and
interest of GalaVu and the Vendor, if any, in and to the Purchased Assets on the
terms described in the Purchase Agreement.
AND WHEREAS all initially capitalized terms used in this Agreement
will have the meanings ascribed to them in the Purchase Agreement unless
otherwise defined in this Agreement or unless the context otherwise requires.
NOW THEREFOR THIS AGREEMENT WITNESSETH that in consideration of
$1.00 now paid by the Purchaser to the Vendor and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the parties, the parties hereto agree as follows:
1. Sale. The Vendor hereby sells, assigns and conveys to the Purchaser, and the
Purchaser purchases from the Vendor all of the right, title and interest if any,
of the Interim Receiver and GalaVu in and to the Purchased Assets, other than
those Excluded Assets identified on Schedule "A" hereto.
2. As Is, Where Is. The Purchaser acknowledges that it is relying entirely upon
its own judgment, investigation and inspection in proceeding with the
transaction contemplated hereunder and that it has entered into the Purchase
Agreement and this Agreement on the basis that the Vendor does not warrant title
to the Purchased Assets. Without limiting the foregoing, the Purchaser
acknowledges and agrees that it is purchasing the Purchased Assets on an "as is,
<PAGE>
-2-
where is" basis, that it accepts such property in its current state, condition
and location and that the Vendor has made no representations, warranties, terms,
conditions, understandings or collateral agreements, express or implied,
statutory or otherwise, with respect to the title, merchantability, condition,
description, fitness for purpose, quality, quantity or any other thing,
affecting any of the Purchased Assets or in respect of any other matter or thing
whatsoever except as expressly stated herein. The Purchaser acknowledges that,
notwithstanding any other provision of this Agreement or the representations and
warranties contained in Section 4.1 of the Purchase Agreement, the sale,
transfer and assignment of the Vendor's right, title and interest, if any, in
and to the Purchased assets is subject to the terms of any license or any other
agreement comprising or relating to the Purchased Assets, including, without
limitation, (i) any consents of any other party, (ii) any restrictions on
disclosure or assignability of any agreements, and (iii) any provisions relating
to confidentiality and rights of first refusal for the benefit of any other
party to any agreements. The Purchaser acknowledges that it will be responsible
for making its own arrangements with any other party which may be required in
relation to any of the Purchased Assets, and the Vendor agrees that it will use
its reasonable efforts to assist the Purchaser to make arrangements with any
such other parties.
3. Limited Liability. The Purchaser acknowledges and agrees that in all matters
pertaining to this Agreement, including without limitation, in its execution,
Arthur Andersen Inc. is acting solely in its capacity as Interim Receiver of the
assets of GalaVu., and as such, it will have no personal or corporate liability
of any kind, whether in contract or in tort. The Purchaser further acknowledges
and agrees that any liability of the Interim Receiver under this Agreement or
the Purchase Agreement will be limited in amount to the net proceeds received by
the Interim Receiver from the sale of the Purchased Assets.
4. Non-Merger. The parties agree that all covenants, agreements and other
provisions in the Purchase Agreement to be performed after the Time of Closing
and all representations and warranties will survive closing and will not merge
therewith, subject to any express limitation or restriction in the Purchase
Agreement to the contrary.
5. Successors and Assigns. This Agreement shall enure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and will be treated, in all
respects, as an Ontario contract.
7. Further Assurances. Each party will at its own expense, promptly do, execute,
deliver or cause to be done, executed and delivered all such further acts or
documents in connection with this Agreement that the other party may reasonably
require for the purposes of giving effect to this Agreement; provided, however,
that the obligation of the Interim Receiver to comply with this provision shall
only survive and be in existence for as long as the Interim Receiver is the
interim receiver or receiver of GalaVu.
8. Amendment. No amendment to this Agreement will be effective unless made in
writing and signed by the parties hereto.
<PAGE>
-3-
9. Severability. Any provision in this Agreement which is prohibited or
unenforceable in any jurisdiction will, as to that jurisdiction be ineffective
to the extent of such prohibition or unenforceability and will be severed from
the balance of this Agreement, all without affecting the remaining provisions of
this Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction; provided, however, that the substance of the Agreement
remains materially unaffected.
10. Counterparts. This Agreement may be executed in two counterparts, each of
which shall be considered an original and both of which taken together will be
deemed to constitute one and the same instrument. Counterparts may b executed
either in original or faxed form and the parties adopt any signatures received
by a receiving fax machine as original signatures of the parties; provided,
however, that any party providing its signature in such manner will promptly
forward to any other party an original of the signed copy of this Agreement
which was so faxed.
IN WITNESS WHEREOF the Interim Receiver and the Purchaser have
executed this Agreement as of the date first above written.
ARTHUR ANDERSON INC. in its capacity as Interim
Receiver of the assets of GalaVu Entertainment
Inc.
By: ________________________________________c/s
Name:
Title:
1373224 ONTARIO INC.
By: ________________________________________c/s
Name:
Title:
SCHEDULE "K"
COVENANT
Networks North Inc. ("NETN") for valuable consideration covenants to allot and
issue and pay to the Receiver or as the Receiver may direct in writing 100,000
common shares of NETN in accordance with the Purchase Agreement dated September
10, 1999 between 1373224 Ontario Limited and the Receiver (as therein defined).
Such shares will be (i) validly issued pursuant to duly authorized resolutions
of the board of directors of NETN as fully paid and non-assessable shares in the
capital of NETN free of any lien, charge, encumbrance, security interest or
adverse claim; (ii) listed on NASDAQ ("NASDAQ"); and (iii) restricted securities
within the meaning of Rule 144 promulgated under the Securities Act and may not
be sold pursuant to Rule 144 for at least 12 months and thereafter may be sold
only pursuant to Rule 144 or pursuant to a registration statement filed under
the Securities Act or other applicable exemption under the Securities Act;
provided however that NETN agrees that from the date hereof the Holder shall
have unlimited tag along rights in connection with all registration statements
filed by NETN from time to time including the pro rata right to participate with
other selling shareholders based upon the number of shares offered for sale by
each holder, with customary indemnity and contribution provisions from NETN in
favour of any underwriters and such selling shareholder and with all customary
expenses of such registration to be borne by NETN, and the expense for
underwriting discounts or commissions to be borne by such selling shareholder.
In addition, NETN covenants to file, as and when applicable, on a timely basis,
all reports required to be filed by it under the Exchange Act, and if at any
time NETN is no longer required to file such reports, at the request of the
Vendor, NETN shall make publicly available the information specified in
subparagraph (c)(2) of Rule 144 of the Securities Act, and take such further
action as may be reasonably required from time to time, to enable the Vendor to
transfer the Registrable Securities without registration under the Securities
Act within the limitation of the exemption provided by Rule 144 or any similar
rule or regulation adopted by the SEC.
DATED AT Toronto this day of September, 1999.
NETWORKS NORTH INC.
By:__________________________
Title:
