-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OvnfuYfFPCMOC02DM09OLTRG2K4DgcIKHPTvexK6nYV1pvG+Dt9U/jc2NWR0VtqP NG9rHp/5pRF6cTPf0uAPZQ== 0001005477-99-004529.txt : 20000211 0001005477-99-004529.hdr.sgml : 20000211 ACCESSION NUMBER: 0001005477-99-004529 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990913 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990929 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETWORKS NORTH INC CENTRAL INDEX KEY: 0000797313 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 112805051 STATE OF INCORPORATION: NY FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-18066 FILM NUMBER: 99719500 BUSINESS ADDRESS: STREET 1: 14 METEOR DR STREET 2: BLDG 18 CITY: ETOBOCOKE ONTARIO STATE: A6 ZIP: 00000 BUSINESS PHONE: 4166756666 MAIL ADDRESS: STREET 1: 14 METEOR DR CITY: ETOBICOKE ONTARIO STATE: A6 FORMER COMPANY: FORMER CONFORMED NAME: NTN CANADA INC DATE OF NAME CHANGE: 19961016 8-K 1 FORM 8-K 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) Item 2. Acquisition or Disposition of Assets - -------------------------------------------------------------------------------- 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 2 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. 3 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 4 Item 7. Exhibits - -------------------------------------------------------------------------------- (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. 5 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 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 7 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 8 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 EX-10.1 2 ASSET PURCHASE AGREEMENT 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. -2- 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"; -3- "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. -4- 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. -5- 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, -6- 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"). -7- (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 -8- 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 -9- 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; -10- (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 -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 -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. -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 -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 -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 -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 -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 -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. -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: -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. ____________________________________ EX-10.2 3 PROMISSORY NOTE 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 ------------------------------------------------------- -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. -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: -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: -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 -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; -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 -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. -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 -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. -11- 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: 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 -2- 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). -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; -4- "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; -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 -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 -7- 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 -8- 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. -9- 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". -10- 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: EX-10.3 4 GENERAL SECURITY AGREEMENT 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 -2- 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. -3- "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 -4- 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. -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 -6- 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 -7- 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 -8- 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 -9- 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 -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 -11- 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. -12- 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: SCHEDULE A Locations of Collateral (Paragraph 5(a)) Jurisdictions of Account Debtors (Paragraph 5(a)) Locations of Real Property (Paragraph 5(a)) None EX-10.4 5 SECURITIES PLEDGE AGREEMENT 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; -2- (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, -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 -4- 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. -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 -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 -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 -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 -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. -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: 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 . EX-10.5 6 CERTIFICATE 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 EX-10.6 7 CERTIFICATE 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 EX-10.7 8 OCCUPANCY AND INDEMNITY AGREEMENT 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: -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 -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); -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. -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 -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 -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 -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: 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; -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: EX-10.8 9 APPLICATION 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. -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 -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, -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; -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. -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. -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; -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, -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, -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. -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. -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 -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 -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. ________________________________________ 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. -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. _________________________________ 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 -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 -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; -4- (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; -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 EX-10.9 10 BILL OF SALE 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, -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. -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: EX-10.10 11 COVENANT 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: -----END PRIVACY-ENHANCED MESSAGE-----