EXHIBIT 2.6 - RELEASE AND RECONSTITUTION AGREEMENT
THIS AGREEMENT dated for reference the 22nd day of November, 2002,
BETWEEN:
COMERICA BANK - CALIFORNIA, of 0000 Xxxxxxxx Xxxxxxxxx, 0xx Xxxxx, Xxx
Xxxxxxx, Xxxxxxxxxx, 00000-0000, XXX (the "Bank")
OF THE FIRST PART
AND:
PEACE ARCH ENTERTAINMENT GROUP INC., a company duly incorporated under
the laws of British Columbia, having an address at 0xx Xxxxx, 00 Xxxx
0xx Xxxxxx, Xxxxxxxxx, X.X. X0X 0X0 ("Guarantor")
OF THE SECOND PART
WHEREAS:
A. The Guarantor entered into a Guarantee in favour of the Bank dated as of
November 27, 2000 (the "Guarantee") guaranteeing the debts and obligations
of Janus Productions U.K. Limited trading as Studio Eight Releasing (the
"Debtor") under a Loan and Security Agreement dated as of November 27, 2000
(the "Loan Agreement") between the Bank and the Debtor relating to the
financing of the television series entitled Big Sound (the "Series") in the
amount of US$ 2,074,750 (the "Loan").
B. The Debtor has partially repaid the Loan, but it has not fully met its
obligations to the Bank under the Loan Agreement and the debt is past due.
The remaining balance of the debt, interest and allowed costs under the
Loan Agreement, and any amendments thereto, shall be referred to herein as
the "Bank Debt".
C. The Bank has a security interest in and to the Series to secure repayment
of the Loan, but, if the Bank were to call the Guarantee, the Bank would be
in a subordinate position to certain secured creditors of the Guarantor.
D. The Guarantor is attempting to enter into a set of transactions that would
have the effect of recapitalizing the Guarantor (the "Transaction"),
however, the Transaction will not proceed without a resolution of the
Guarantor's obligations under the Guarantee.
WHEREFORE, the parties hereto wish to enter into this agreement on the following
terms and conditions on the following terms and conditions:
1. RELEASE OF GUARANTEE AGAINST THE GUARANTOR
Notwithstanding any provision to the contrary in the Guarantee, subject to
section 2 of this agreement, the Bank hereby expressly and irrevocably releases
the Guarantor from and against any and all its obligations under the Guarantee
(the "Release"). Nothing in this section diminishes or releases the Bank's
rights or security interests against the Debtor or against the Series under the
Loan Agreement or other related agreements (except the Guarantee).
2. RECONSTITUTION OF GUARANTEE AGAINST NEWCO
The Release is expressly conditional upon (a) the Guarantor assigning and
transferring all the Guarantor's right, title and interest in and to its
business, assets and undertaking (the "Pre-Existing Peace Arch Business") as
they exist immediately prior to the closing of the Transaction to a wholly-owned
subsidiary of the Guarantor ("NewCo") and (b) upon such conveyance, the
Guarantor causing NewCo to execute and deliver all such documents and
instruments and do and perform such acts as the Bank considers necessary or
expedient for NewCo to assume the Guarantee ("NewCo Guarantee"), with the
Guarantor thereupon being released from liability to the Bank in respect of the
Guarantee in accordance with the terms herein. The Bank shall forebear from
calling the NewCo Guarantee until after December 31, 2005.
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3. MANAGEMENT OF SECURED ASSETS AND BUSINESS
Upon closing of the Transaction, the Guarantor or such other subsidiary shall
manage the Pre-Existing Peace Arch Business in accordance with good and prudent
business practice with a view to maximizing the recovery of value from the
Pre-Existing Peace Arch Business and maximizing the application of such proceeds
to reduction of the Bank Debt after satisfaction of prior security interests in
accordance with registered priority against the Guarantor.
4. CONVERTIBLE INSTRUMENT
The Guarantor shall deliver on or before the closing of the Transaction a
convertible instrument in favour of the Bank setting out terms such that if
there is any amount of the Bank Debt which remains outstanding as of December
31, 2005, the Bank will, for a period of ninety days thereafter, have the right
to convert (subject to applicable securities laws and stock exchange approvals)
such unpaid amount to publicly traded Class B Subordinate Voting Shares in the
capital of the Guarantor (or any successor class of such shares that are
publicly traded in the capital of Guarantor) at the price of $5.00 CDN per
share.
5. CONFIDENTIALITY
This Agreement , its existence and its terms, are confidential and may not be
disclosed by any party 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 or court order.
6. ENFORCEABILITY
If any provision of this Agreement shall be deemed by any court of competent
jurisdiction or held to be invalid or void or unenforceable in whole or in part
in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions herein in any jurisdiction.
7. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the Province of British Columbia and of Canada applicable therein and shall be
treated in all respects as a British Columbia contract.
8. HEADINGS
The headings to the provisions of this Agreement are inserted for convenience of
reference only and shall not form part of nor affect the interpretation of this
agreement.
9. WAIVER
The Bank may waive any breach by the Guarantor of the provisions of this
agreement or any default in the observance or performance of any covenant or
condition required to be observed or performed by the Guarantor, under the terms
of this agreement; provided, however, that no act or omission by the Bank shall
extend to or be taken in any manner whatsoever to affect any subsequent breach
or default or the rights resulting therefrom.
10. NOTICE
Any notice, payment, direction or other instrument or communication required or
permitted to be given under the provisions of this agreement will be in writing
and may be given by delivery of the same or by mailing the same by prepaid
registered or certified mail, addressed as follows:
If to the Guarantor, at:
PEACE ARCH ENTERTAINMENT GROUP INC.
00 Xxxx 0xx Xxxxxx, Xxxxxxxxx, X.X. X0X 0X0
Xxxxxx
Attention: Xx. Xxxxxx Xxxxx, Chief Executive Officer
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If to Comerica Bank, at:
COMERICA BANK - CALIFORNIA
0000 Xxxxxxxx Xxxxxxxxx, 0xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx,
00000-0000,
XXX
Any notice, payment or direction or other instrument or communication aforesaid
will, if delivered, be deemed to have been given and received when delivered
and, if mailed, on the fifth business day following the date of mailing,
executed in the event of a disruption of the postal service existing at the time
of mailing or within five days thereof, in which event notice will be deemed to
be received only when actually received.
11. ADDRESS CHANGE
Any party may at any time give the other party notice in writing of any change
of address of the party giving such notice and from and after the giving of such
notice, the address or addresses therein specified will be deemed to be the
address of such party for the purpose of delivery of any notice, payment,
direction or other instrument or communication thereunder.
12. BINDING NATURE
This agreement is binding upon and enures to the benefit of the parties hereto
and their respective heirs, executors, administrators, successors and assigns.
13. TIME OF THE ESSENCE
Time is of the essence of this agreement.
14. ENTIRE AGREEMENT
This agreement constitutes the entire agreement between the parties and
supersedes all previous expectations, understandings, communications,
representations and agreements, whether verbal or written, between the parties
hereto with respect to the subject matter contained herein.
15. INDEPENDENT LEGAL ADVICE
Each of the parties has received independent legal advice with respect to the
execution of this Agreement and all related documentation and each party
confirms that they have entered into this Agreement of their own free will.
16. COUNTERPART
This Agreement may be signed by the parties hereto in as many counterparts as
may be necessary, each of which, so signed, will be deemed to be an original and
such counterparts together will constitute one and the same instrument and
notwithstanding the date of execution will be deemed to be dated as of the day
and year first above written.
17. NO PARTNERSHIP
Nothing in this Agreement shall be deemed to constitute a partnership or
joint-venture between the parties hereto. None of the parties shall have the
right to incur any debts nor make any commitments for the other.
18. CONDITION PRECEDENT
The legal effect of this agreement is conditional upon the financial closing of
a Transaction prior to or on January 31, 2003.
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IN WITNESS WHEREOF this agreement has been executed as of the day and year first
above written.
The Corporate Seal of )
PEACE ARCH ENTERTAINMENT GROUP INC. )
was hereunto affixed in the presence of: )
) c/s
/s/ Xxxxxx Xxxxx )
-------------------------------
Authorized Signatory )
)
The Corporate Seal of )
COMERICA BANK - CALIFORNIA )
was hereunto affixed in the presence of: )
)
)
/s/ Authorized Signatory )
-----------------------------
Authorized Signatory )
) c/s
/s/ Authorized Signatory )
-------------------------
Authorized Signatory
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