Exhibit 2.7
EXHIBIT 2.7 - TERM SHEET
This term sheet sets out the terms of the transactions agreed to between Peace
Arch Entertainment Group Inc. ("PEACE ARCH"), a company duly incorporated under
the laws of the Province of British Columbia, CPC Communications Inc. ("CPC"), a
company duly incorporated under the laws of the Province of Ontario, and Xxxxxxx
Xxxxxx personally and on behalf of the Accredited Investors described in clause
2 ("XXXXXX"), an attorney duly practising under the laws of the Province of
Ontario (Peace Arch, CPC, GFT and Xxxxxx are sometimes collectively referred to
as the "parties"). For valuable consideration, the receipt of which is
acknowledged, the parties have agreed as follows:
1. The price for Peace Arch shares for purposes of the transactions
contemplated hereby will be CDN$0.30 per share.
2. Xxxxxx will cause not less than four accredited investors ("accredited" as
defined in the Ontario Securities Act) (the "Accredited Investors") to
irrevocably subscribe and pay CDN$1,500,000 for, in cash, 5,000,000 Class B
Subordinate Voting treasury shares of Peace Arch.
3. CPC will convey or cause to be conveyed to Peace Arch, effective December
20, 2002 (or as soon thereafter as allowed under GAAP), a portfolio of film
production company assets and amounts receivable currently held in CPC or a
subsidiary, such combined assets having a total net value of not less than
CDN$2,500,000. These assets are summarized below:
A. Production Assets
PRODUCTION COMPANY NAME OF FILM PROJECT (TOGETHER THE "FILMS")
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GFT Absolon Films Inc. ("Absolon "Absolon" starring Xxxxxxxxxxx Xxxxxxx
Xx.")
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GFT Crime Spree Films Inc. ("Crime "Crime Spree" starring Xxxxxx Xxxxxxxxx and Xxxxxx Xxxxxx
Spree Co.")
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GFT Rough Rider Films Inc. ("Rough "Partners In Action" starring Xxxxxx Xxxxxxx
Rider Co.")
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GFT Limit Films Inc. ("Limit Co.") "The Limit" starring Xxxxxx Xxxxxx
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GFT Detention Films Inc. "Detention" starring Xxxx Xxxxxxxx
("Detention Co.")
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All of the issued and outstanding shares in each of Absolon Co., Crime
Spree Co., Rough Rider Co., Limit Co. and Detention Co. (collectively, the
"Prodcos"), which are single-purpose companies, are owned 100% by CPC or a
subsidiary of CPC. Prior to Closing, CPC shall cause to be transferred 100%
of the shares of the Prodcos to GFT Entertainment Inc, a clean company
without any liabilities. On Closing, Peace Arch shall acquire 100% of the
shares of GFT Entertainment Inc.
B. Assigned Receivable Assets:
B. 1 Federal and Ontario Tax credit receivables due to the ProdCos,
estimated at CDN$ 280,000
B.2 Interim Collateral Deposit of approximately CDN$ 300,000 directed to be
received from Royal Bank of Scotland
B.3 Ownership of loan due to Greenlight Entertainment Inc. from GFT Limit
Films Inc. as set out in the agreement dated as of September 18, 2002 (the
"Loan") in the amount of US$959,713. CPC shall ensure that GEI shall not do
anything to compromise the Loan prior to Closing and shall ensure a security
interest (approved by Peace Arch) is registered in favour of Peace Arch (or a
subsidiary) in the appropriate priority and registry upon Closing.
B.4 Assignment of the first CDN$408,000 due CPC or its subsidiary in
respect of proceeds of France exploitation of Crime Spree (the "Assigned French
Proceeds"). Provided Peace Arch has received actual cash from the Assigned
Receivable Assets in the amount of C$ 2,500,000, then with respect to any monies
received in excess of $ 2,500,000 from the Assigned Receivable Assets (the
"Excess") or the net profits received by any of the ProdCos ("Net Profits"),
Peace Arch shall cause such ProdCo to remit forthwith such Excess or Net Profits
to CPC until an amount equal to the Assigned French Proceeds actually received
has been recouped by CPC. Thereafter, any further Net Profits will be the
property of Peace Arch or its subsidiaries.
C. In relation to the assets to be acquired, CPC, the sole shareholder of
Greenlight Film and Television Inc. ("GFT"), shall obtain consents for Peace
Arch's use of the word "Greenlight" or "GFT" in its corporate name and Peace
Arch's employment of GFT staff and shall grant the right to Peace Arch to
continue the ongoing business and development activities of GFT;
Upon Closing, the Production Assets and Assigned Receivable Assets will be
conveyed to Peace Arch in consideration for the issuance of 8,333,333 Class B
Subordinate Voting treasury shares of Peace Arch, subject to applicable
securities regulations and stock exchange rules. To the extent possible, such
asset transfers will be done on a tax-free rollover basis. Prior to Closing, no
changes shall be made to any agreement which may affect the assets being
conveyed above except as contemplated herein without the written approval of
Peace Arch.
4. At the Peace Arch AGM presently scheduled for January 20, 2003, the
transactions will be considered for approval by the shareholders of Peace
Arch. Upon shareholder approval of the transactions or upon Closing (to be
determined at the AGM), the directors of Peace Arch shall resign, except to
the extent that CPC and Xxxxxx desire to retain any of the existing
directors as such, and the resigning directors shall be replaced by
nominees of CPC and Xxxxxx, provided such nominees are acceptable to the
securities regulatory authorities and stock exchanges having jurisdiction
and qualify under the British Columbia Company Act (the "Act").
5. On Closing, Xxxx Xxxxxx shall, subject to being acceptable to the
securities regulatory authorities and stock exchanges having jurisdiction
and qualifying under the Act, become the most senior executive officer of
Peace Arch with overall management authority, subject to and reporting to
the Board of Directors of Peace Arch in accordance with the terms of his
engagement agreement set out in Schedule "A" hereto.
6. It is hereby agreed that the debt, liabilities and obligations of Peace
Arch to Fremantle Media Enterprises Ltd. and Comerica Bank be resolved in
accordance with the agreements set out and attached in Schedules "B" and
"C" hereto, such agreements to be put in long-form agreements, if required,
either before or after the Closing.
7. The documentary and financial closing of the transactions contemplated
hereby (the "Closing") shall take place as soon as possible following the
shareholders of Peace Arch having approved the transactions at the annual
general meeting (the "AGM"), it being acknowledged that such AGM is
presently scheduled to take place on January 20, 2003, but in no event
shall Closing take place later than January 31, 2003.
8. Notwithstanding the actual date of Closing of the transaction, such
transaction shall be effective as of December 20, 2002 (or as soon
thereafter as allowed under GAAP), for all accounting purposes.
9. This term sheet and the agreement between the parties in respect of the
transactions contemplated hereby (the "Agreement"), its existence and its
terms, are confidential and may not be disclosed by the parties to any
person, except to their respective directors, senior management and
professional advisors on a "need-to-know" basis, provided in each case that
such persons are under an equivalent duty of confidentiality, and except as
may be required pursuant to any statutory or securities regulatory or stock
exchange requirement, provided that CPC and Xxxxxx shall have an
opportunity to review and comment upon any such required disclosure.
10. Each of the parties shall bear its own expenses in connection with carrying
out the terms of this Agreement.
11. This Agreement and the transactions contemplated hereby are conditional
upon and subject to approval by Peace Arch's Shareholders, and the
obtaining of any regulatory and stock exchange approvals, which in each
case Peace Arch will use its commercially reasonable efforts to obtain.
Subject to these conditions, this Agreement is final and binding on the
parties hereto.
12. This Agreement is written in the name of CPC on the understanding that CPC
may form one or more subsidiaries to carry out its terms. Furthermore, the
parties acknowledge that the structuring of the transaction contemplated in
paragraph 3 will be adjusted so as to take into account the advice of the
parties' advisors on such matters as tax, tax credits, securities,
accounting, and legal matters. The parties shall act in good faith and on
reasonable commercial grounds in this regard.
13. Peace Arch shall ensure that, prior to Closing, neither it nor any of its
subsidiaries make any material operating, financing or investing decisions
without CPC's written approval, including without limitation, changes in
personnel and issuance of stock options. Peace Arch represents and warrants
to CPC that there are no threatened or pending lawsuits against it or its
subsidiaries other than as disclosed in Schedule "D" hereto, that it has
the full power and authority to enter into this transaction subject to the
conditions set out
in 11. herein. These representations and warranties are for the sole
benefit of CPC and any of them may be waived by CPC at any time.
14. CPC shall ensure that, prior to Closing, none of the Prodcos make any
material financing or investing decisions without Peace Arch's written
approval. CPC represents and warrants to Peace Arch that each of the
productions being undertaken by the Prodcos are all materially on budget,
that there are no outstanding or threatened lawsuits against the Prodcos or
the Films, that, other than disclosed herein, there are no material
charge-holders, lien-holders or security interest holders against the
Prodcos at this date, nor will there be on Closing and that it has the full
power and authority to enter into this transaction and to convey the assets
herein conveyed to Peace Arch. These representations and warranties are
each given for the sole benefit of Peace Arch and any of them may be waived
by Peace Arch at any time.
15. Pending the Closing, the parties shall negotiate in good faith and settle
the terms of a more formal agreement embodying the terms of this Term Sheet
and other industry terms, conditions, representations, warranties and
covenants standard to such a formal agreement, failing which this Term
Sheet shall remain valid and binding on each of the parties, subject only
to paragraph 11 above.
16. This agreement shall be governed in accordance with the laws of British
Columbia.
Xxxxx agreed to and accepted this 18th day of December, 2002
PEACE ARCH ENTERTAINMENT GROUP INC.
By: /s/ Xxxxxx Xxxxx
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CPC COMMUNICATIONS INC.
By: /s/ Xxxx Xxxxxx
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XXXXXXX XXXXXX
By: /s/ Xxxxxxx Xxxxxx
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