Document:

Untitled Page

		
			

				

				Exhibit 10.2

				

				

			

		

		
			SHAREHOLDERS AGREEMENT

						

					

		

		
			SHAREHOLDERS AGREEMENT made as of the 18th day of September, 2002.

				

				AMONG:

					

				                                                                        876498 ALBERTA LTD.

				                                                                        (hereinafter called “Arnold”)

			

		

		

		

		

		

		
			OF THE FIRST PART

			

		

		
			- and -

				

			

		

		
			                                                                        SIEG BADKE

				                                                                        (hereinafter called “Badke”)

			

		

		
			OF THE SECOND PART

			

		

		
			- and -

				

			

		

		
			                                                                        MICHAEL FITZGERALD

				                                                                        (hereinafter called “Fitzgerald “)

			

		

		
			OF THE THIRD PART

			

		

		
			- and -

				

			

		

		
			                                                                        STELLAR MEDIA CORP.

				                                                                        (hereinafter called “Hahn”)

			

		

		
			OF THE FOURTH PART

			

		

		
			-and -

				

			

		

		
			                                                                        DORAL EZ INVESTMENTS INC

				                                                                        (hereinafter called “Zecha”)

			

		

		
			OF THE FIFTH PART

			

		

		
			- and -

				

			

		

		
			                                                                        PURE PLAY MEDIA HOLDINGS INC.

				                                                                        (hereinafter called the “Corporation”)

			

		

		
			OF THE SIXTH PART

		

		

		

		

		
			
				
					

				

			

		

		

		

		

		

		

		

		

		

		

		

		

		

		

		

		
			

			

		

		

		

		
			

			WHEREAS the Parties believe it to be in the best interest of the Corporation and the shareholders thereof to enter into this Agreement with respect to, among other things, the manner in which the business and affairs of the Corporation shall be conducted, the manner in which the operations of the

			

			

			

			

			Page 1

			

			

			

			

			Corporation shall be financed and the respective rights and obligations of the parties arising out of or in connection with the ownership of shares in the capital of the Corporation;
			

			NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties agree as follows.

				

				

			

		

		
			ARTICLE 1- INTERPRETATION

			

		

		
			1.1                    Defined Terms

			

			As used in this Agreement and in the recitals above, unless something in the subject matter or context is inconsistent therewith, the following terms have the following meanings:

			

			“Accountant” shall mean the accountant of the Corporation.

			

			“Act” means the Corporations Code of the State of Nevada.

			

			“Affiliate” has the meaning specified in the Act.

			

			“Agreement” means this shareholders agreement and all schedules and instruments in amendment or confirmation of it; “hereof”, “hereto” and “hereunder” and similar expressions mean and refer to this Agreement and not to any particular Article, Section or other subdivision; “Article”, “Section” or other subdivision of this Agreement followed by a number means and refers to the specified Article, Section or other subdivision of this Agreement.

			

			“Annual Business Plan” has the meaning specified in Section 3.5.

			

			“Articles” means the certificate and articles of incorporation of the Corporation as such Articles may from time to time be amended, replaced or superseded in accordance with the provisions of this Agreement.

			

			“Associate” has the meaning specified in the Act.

			

			“Board of Directors” means, at any time, the board of directors of the Corporation constituted in accordance with the provisions of this Agreement and “Director” means any member thereof who has been elected or appointed to the Board of Directors in accordance with the provisions of this Agreement.

			

			“Business” means the business presently or heretofore carried on by the Corporation consisting of the production, distribution, sale and licensing of adult video content.

			

			“Business Day” means a day other than a Saturday or Sunday or a statutory holiday in the State of California.

				

				

			

		

		
			Page 2

			

		

		
			

			

			

			

			“By-laws” means the by-laws of the Corporation as enacted at the date hereof as such By-laws may from time to time be amended in accordance with the provisions of this Agreement.
			

			“Capitalization Date” means the date on which all principal, interest and other moneys owing by the Corporation to Doral EZ Investments Inc. pursuant to the Loan Agreement have been paid in full.

			

			“Corporation” means Pure Play Media, Inc. and includes any successor corporation resulting from any merger, amalgamation, reorganization, arrangement or other combination of Pure Play Media, Inc. and any other Person.

			

			“Date of Closing” means the date upon which a Sale Transaction is scheduled to occur, determined in accordance with the provisions of Article 6, Article 7 or Article 8, as the case may be, or such other date as the Vendor and Purchaser under the Sale Transaction mutually agree.

			

			“Debt” means, in relation to any Person:

			             (a)       all indebtedness of such Person for borrowed money;

				

				             (b)      all indebtedness of such Person for the deferred purchase price of property or services represented by a promissory note or other evidence of indebtedness;

				

				             (c)       all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person;

				

				             (d)      all obligations under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases in respect of which such Person is liable as lessee;

				

				             (e)       all reimbursement obligations, contingent or otherwise, in respect of letters of credit issued at the request of such Person; and

				

				             (f)       all Debt Guaranteed by such Person.

			

			

			

			“Debt Guaranteed” by any Person means all Debt of the kinds referred to in (a) through (e) of the definition of Debt which is directly or indirectly guaranteed by such Person, or which such Person has agreed (contingently or otherwise) to purchase or otherwise acquire, or in respect of which such Person has otherwise assured or agreed to indemnify a creditor against loss.

			

			“Encumbrances” means mortgages, pledges, security interests and any other encumbrances of any kind,

			

			“Extraordinary Resolution” means:

			             (a)       in the case of an action that by Law or the terms of this Agreement requires the approval of the Directors only, an action to which:

				

				

			

		

		
			Page 3

		

		
			

			

			

			

			
				
					(i)         at a properly constituted meeting of the Board of Directors at least two-thirds of the Directors then in office have given their approval by resolution; or

						

						(ii)        all of the Directors have consented by an instrument or instruments in writing; and

				

			

			

			             (b)      in the case of an action that by Law or the terms of this Agreement requires the approval of the Shareholders, an action to which:

			

			
				
					(i)         at a properly constituted meeting of Shareholders the holders of Shares entitled to at least 60 % of the votes of all Shares have voted in favour of the action; or

						

						(ii)        all of the Shareholders have consented by an instrument or instruments in writing.

				

			

			

			“Fair Market Value” means the fair market value of the Shares determined in accordance with the provisions of Article 10

			

			“Fiscal Year” means the twelve calendar month fiscal period of the Corporation commencing on the 1st day of January of each year and ending on the last day of December of the next succeeding year.

			

			“GAAP” means, at anytime, accounting principles generally accepted in the United States of America at such time.

			

			“Immediate Family” means, with respect to a natural Person, the spouse, parents, children, grandchildren and siblings of such Person.

			

			“Inactive Shareholder” means a Shareholder who is deemed to be an Inactive Shareholder pursuant to Section 8.1(a)

			

			“Income Tax Act” means the Internal Revenue Code of the United States of America.

			

			“Laws” means all statutes, codes, ordinances, decrees, rules, regulations, municipal by-laws, judicial or arbitral or administrative or ministerial or departmental or regulatory judgments, orders, decisions, rulings or awards, policies, voluntary restraints, guidelines, or any provisions of such laws, including general principles of common and civil law and equity, binding on or affecting the Person referred to in the context in which such word is used; and “Law” means any one of the foregoing.

			

			“Loan Agreement” means the agreement of even date herewith between the Corporation as borrower and Doral EZ Investments Inc. as lender respecting a loan in the principal amount of $1,000,000.

				

				

			

		

		
			Page 4

		

		
			

			

			

			

			“Ninn Worx Purchase Agreement” means the agreement of even date herewith between the Corporation as purchaser and Hope Ranch FX, Inc. (“Hope Ranch”) as vendor respecting the purchase and sale of certain equipment, prepaid expenses, customer contracts and goodwill of the business previously carried on by Hope Ranch with the business or style name of “Ninn Worx”.

		
			

			“Option Agreements” shall mean the agreement of even date herewith between Arnold as option holder and Zecha as optionee and the agreement of even date herewith between Hahn as option holder and Zecha as optionee in each case to acquire up to 900 common shares in the capital of the Corporation subject to the conditions set out therein.

			

			“Parties” means, collectively, the Corporation and the Shareholders and “Party” means any one of them.

			

			“Permanent Incapacity” means, with respect to any person, the condition which will be deemed to exist where:

			

			             (a)       such person has been declared bankrupt by a court of final and competent jurisdiction;

			

			             (b)      such person has made an assignment for the benefit of creditors; or

			

			             (c)       such person has been declared by a court of competent jurisdiction to be mentally incompetent and such declaration has not, at the relevant time, been revoked;

			

			“Permitted Transferee” means, in relation to any Person, any one or more of:

				

				             (a)       the Issue of the Person and any Spouse of the Person;

			

			             (b)      a trust, the sole beneficiaries of which are the Person or the Issue of the Person or any Spouse of the Person, provided that the terms of any trust relating to Shares or securities of a Shareholder include a valid condition precedent that such Shares or securities shall vest in the beneficiary of such trust only if such beneficiary has complied with the provisions of Section 5.2; and

			

			             (c)       a corporation, partnership, limited partnership, all of the voting securities or other ownership interests of which are owned by the Person or the Issue of the Person or any Spouse of the Person free and clear of all Encumbrances.

			

			“Person” means an individual, partnership, corporation, trust, unincorporated association, joint venture, governmental entity or other entity.

			

			“Place of Closing” means the principal offices of the Corporation or such other place as the Vendor and the Purchaser under a Sale Transaction mutually agree.

				

				

				

			

		

		
			Page 5

		

		
			

			

			

			

			“Principal” means 876498 Alberta Ltd. with respect to Arnold, Stellar Media Corp. with respect to Hahn and Michael Fitzgerald with respect to Fitzgerald.
			

			“Proportionate Interest” means at any time with respect to any Shareholder, the proportion that the number of Shares held by such Shareholder bears to the total number of Shares held by all Shareholders.

			

			“Purchased Shares” in respect of a Sale Transaction, has the meaning specified in Article 6, Article 7 or Article 8, as the case may be.

			

			“Purchaser” means any Party hereto who elects or is required to purchase Shares of another Party hereto pursuant to a Sale Transaction.

			

			“Sale Transaction” means a purchase and sale of Shares between or among Parties hereto pursuant to the provisions of Article 6, Article 7 or Article 8, as the case may be.

			

			“Shareholders” means, collectively, Arnold, Badke, Hahn, Fitzgerald and Zecha and any Permitted Transferee or other Person who acquires Shares in accordance with the provisions of this Agreement and “Shareholder” means any of the foregoing.

			

			“Shares” means the shares in the capital of the Corporation, including any securities convertible into or exchangeable for such shares, any warrants or options to purchase such shares and any other equity or voting interests in the Corporation.

			

			“Third Party Offer” means a bona fide offer in writing for the purchase of Shares from a person (the “Third Party”) with whom all of the Shareholders are reasonably considered to be acting at arms length and which person is demonstrably capable of completing the purchase of the Shares contemplated by this Agreement, and pursuant to which:

			

			             (a)          no property other than the Shares is to be transferred;

			

			             (b)         the sole consideration for the Shares is a stated dollar amount per Share payable in cash at closing;

			

			             (c)          there are no terms or considerations which are so unique or unusual as to be impossible to satisfy on a commercially reasonable basis; and

			

			             (d)         loans and guarantees are to be dealt with in a manner consistent with the treatment required in a purchase of Shares subject to this Agreement.

			

			“Time of Closing” means 10:00 a.m. or such other time on the Date of Closing as the Vendor and the Purchaser under a Sale Transaction mutually agree.

				

				

				

				

			

		

		
			Page 6

		

		
			

			

			

			

			“Transfer” means the sale, assignment, transfer, conveyance, gift, devise or other disposition of any Shares.

		
			

			“Triggering Event” has the meaning specified in Section 8.1(a)

			

			“Valuation Date” means in respect of a Triggering Event, the last day of the month immediately preceding such Triggering Event;

			

			“Vendor” means any Party hereto who elects or is required to sell Shares to another Party hereto pursuant to a Sale Transaction.

			

			1.2                    Gender and Number

					

				Any reference in this Agreement to gender shall include all genders, and words importing the singular number only shall include the plural and vice versa.

			

			1.3                    Headings

			

			The provision of a Table of Contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in the construction or interpretation of this Agreement.

				

				1.4                    Currency

					

				All references in this Agreement to monetary amounts, unless otherwise specifically indicated, are in lawful currency of the United States of America.

			

			

			1.5                    Severability

			

			Any Article, Section or other subdivision of this Agreement or any other provision of this Agreement which is, or becomes, illegal, invalid or unenforceable shall be severed from this Agreement and be ineffective only to the extent of such illegality, invalidity or unenforceability and shall not affect or impair the remaining provisions hereof Without limiting the generality of the foregoing, each obligation of the Corporation or any corporate shareholder under this Agreement is subject to the Act or such corporate Shareholder’s governing corporate statue, as the case may be.

				

				1.6                    Entire Agreement

					

				This Agreement constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written of the Parties.

				

				1.7                    Amendment

					

				This Agreement may only be amended, modified or supplemented by a written agreement signed by all of the Parties.

				

				

				

			

		

		
			Page 7

			

			

		

		
			

			

			

			

			1.8                   Waiver
			

			No waiver of any of the provisions of this Agreement by any Party shall be deemed to constitute a waiver of such provision by any other Party or a waiver by such Party of any other provision (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided in writing duly executed by the Party to be bound thereby.

				

				1.9                    Governing Law

			

			             (a)       This Agreement shall be governed by and in accordance with the Laws of the State of California and the Laws of the United States of America applicable therein which apply to contracts made and to be performed entirely in the State of California.

			

			             (b)      The Parties hereby irrevocably attorn and submit to the non-exclusive jurisdiction of the Courts in the State of California.

				

				1.10                  Inclusion and Duplication

					

				Where the word “including” or “includes” is used in this Agreement it means “including (or includes) and without limitation”. Where the phrase “the aggregate of’, “the total of’, “the sum of’ or a phrase of similar meaning is used in this Agreement, it means “the aggregate (or total or sum), without duplication of’.

				

				1.11                  Determination of Materiality

					

				In this Agreement, except where specifically stated otherwise, whether any act, occurrence, conduct, event or state of affairs is “material”, “adverse” or “materially adverse” or any grammatical variation of such words shall be determined by acting reasonably.

				

				1.12                  Accounting Terms

					

				All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP.

				

				1.13                  Statutory References

					

				Any references herein to any Law, or act of any governmental entity shall be construed as a reference thereto as enacted at the date hereof as such law, by-law, rule, regulation, order or act may be amended, re-enacted or superseded from time to time.

				

				

			

		

		
			ARTICLE 2- ORGANIZATION OF THE CORPORATION

					

				

		

		
			2.1                    Articles and By-Laws of the Corporation

					

				Each Shareholder shall vote its Shares and take all other actions necessary to ensure that the Articles and By-Laws of the Corporation do not, from time to time, conflict with this Agreement.

				

				

			

		

		
			Page 8

		

		
			

			

			

			

			

			2.2                   Business of the Corporation

				

			The Corporation has been formed and will function for the sole purpose of the Business.
			

		

		
			

			2.3                   Share Ownership

			

			At the date hereof, each Shareholder holds Shares as follows:

				
						Shareholder

						
						Total Shares

						
						Proportionate

								Interest

					
	
						Arnold

						
						1,600

						
						16%

					
	
						Badke

						
						500

						
						5%

					
	
						Hahn

						
						1,600

						
						16%

					
	
						Fitzpatrick

						
						2,000

						
						20%

					
	
						Zecha

						
						4,300

						
						43%

					
	
						Total

						
						10,000

						
						100%

					

			

			

			2.4                   Share Certificates
			

			All share certificates representing Shares issued by the Corporation shall have the following legend endorsed thereon:

			

			
				
					 ‘The shares represented by this certificate are subject to an Agreement made between all the Shareholders of the Corporation and may not be dealt with, except in compliance with the terms and conditions of the said Agreement.”

				

			

			

			2.5                   Shareholders Agreement

			

			Each Shareholder and each Person who intends to become a Shareholder through a transfer of additional securities in accordance with this Agreement or otherwise shall be required to execute and deliver to the Corporation a counterpart copy of this Agreement or a written agreement in form and substance satisfactory to the parties under which it agrees to be bound by the terms and conditions hereof before becoming a Shareholder.

				

				

				

				

				

				

			

		

		
			Page 9

		

		
			

			

			

			

			2.6               Actions in Accordance with Agreement

				

			Each of the Shareholders agrees to exercise the votes attaching to its Shares at all times and to use its best efforts to cause its nominees to the Board of Directors to act at all times in order that the provisions of this Agreement shall govern the affairs of the Corporation to the maximum extent permitted by Law. In the event of any conflict between the provisions of this Agreement and the provisions of the Articles or By-Laws, each of the Shareholders agrees to take or cause to be taken such steps and proceedings as may be required under the Act or otherwise to amend such Articles or By-Laws to resolve such conflict so that the provisions of this Agreement shall at all times prevail to the maximum extent permitted by Law.

			

			

		

		
			ARTICLE 3- MANAGEMENT OF THE CORPORATION

		

		
			

			3.1                   Business Management and Corporate Action

			

			             (a)        Subject to Section 3.1(b), the Directors shall manage the business and affairs of the Corporation in accordance with the Act. Unless otherwise expressly provided in this Agreement, all decisions of the Board of Directors and of the Shareholders shall be decided by a majority of votes cast or by such greater percentage of votes as may be required by the Act.

			

			             (b)        The taking of any of the following decisions or actions or the implementation of any of the following matters by the Corporation shall, in addition to any other approval required by Law, require the prior approval of the Shareholders, by Extraordinary Resolution:

			

			
				
					Corporate Changes

									

								(i)         the amending of the Articles, except for a change of name or change of the registered office of the Corporation;

						

						(ii)        the amending or revocation of the By-laws in whole or in part or enactment of any additional by-law;

						

						Share Capital

								

							(iii)       the allotment, reservation, setting aside or issue of any Shares or other securities of the Corporation or the granting of any rights, warrants or options to purchase, acquire or otherwise obtain any unissued Shares or other securities of the Corporation;

						

						(iv)       the declaration or payment of any dividend or other distribution on or in respect of any Shares or other securities of the Corporation except as provided in Section 4.7;

				

			

			

			

			

				

			

		

		
			Page 10

		

		
			

			

			

			

			
				
					(v)        the purchase, redemption or acquisition by the Corporation of any Shares or other securities of the Corporation other than the purchase for cancellation of Shares from a Shareholder in accordance with the provisions of this Agreement;

						

						(vi)       any payment or distribution out of any stated capital account of the Corporation, except in respect of any reduction of any stated capital account of the Corporation;

						

						Debt Financing

									

								(vii) the incurring of:

						

					

					
						(A)       any Debt by the Corporation in excess of $10,000 in any single transaction or $50,000 in any series of transactions within a 12 month period unless provided for in the Annual Business Plan;

							

							(B)       any Debt Guaranteed by the Corporation; or

							

							(C)       any obligation on behalf of any Person pursuant to any agreement, commitment or understanding, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of any part or all of any indebtedness of such Person for borrowed money;

							

						

					

					(viii) the repayment of any Debt owing by the Corporation to any of the Shareholders, save and except for the indebtedness and liability of the Corporation owing to Doral EZ Investments Inc. pursuant to the Loan Agreement or Fitzgerald pursuant to the Ninn Worx Purchase Agreement;

						

						(ix) the granting of any Encumbrance over the assets of the Corporation;

						

						Financial Matters

									

								(x)        the approval of:

						

					

					
						(A)       the Annual Business Plan or any modification thereto; and

							

							(B)       the manner of obtaining any additional funds required for any purpose specified in an Annual Business Plan, as described in Article 4

					

				

			

			

			

			

				

				

			

		

		
			Page 11

		

		
			

			

			

			

		

		
			
				
					(xi)       the approval of the Financial Statements;

						

						(xii)       the conduct by the Corporation of any material business activity or operations other than:

						

					

				

				
					
						(A)       the Business, any business contemplated under an Annual Business Plan; or

							

							(B)       any activity which is reasonably ancillary to or complementary with the foregoing;

							

						

					

				

				
					(xiii) the:

						

					

				

				
					
						(A)       sale, lease or exchange of any assets out of the ordinary course of Business;

							

							(B)       making of any investment, loan, or advance; or

							

							(C)       purchase lease or acquisition of any property from any Person; in each case for aggregate proceeds in excess of $10,000 in any one transaction or series of related transactions or for aggregate proceeds in excess of $50,000 in any Fiscal Year, except as contemplated by an Annual Business Plan;

							

						

					

				

				
					Fundamental Changes

									

								(xiv)      the taking of any act, step or proceeding including any sale or disposition of any property or assets of the Corporation for the purpose of or leading to the liquidation, dissolution or winding up of the Corporation;

						

						(xv)      the sale, lease, exchange or other disposition of all or substantially all of the assets; or

						

						(xvi)      the acknowledging of the insolvency of the Corporation, the making of a voluntary assignment under applicable bankruptcy and insolvency legislation, or the consenting to the appointment of a receiver, receiver-manager, monitor or other Person acting in a similar capacity by any secured creditor of the Corporation.

				

			

		

		
			

			

				

				

				

				

				

			

		

		
			Page 12

		

		
			

			

			

			

			             (c)        Prior to the Capitalization Date all of the decisions or actions set out in Section 3.1(b) or the implementation thereof shall require the approval of Zecha in addition to the approval by Extraordinary Resolution as set out in Section 3.1(b).

		
			

			3.2                    Directors of the Corporation

			

			             (a)        Prior to the Capitalization Date, the Board of Directors shall consist of seven Directors of whom Zecha shall have the right to nominate four Directors and Arnold, Hahn and Fitzgerald shall each have the right to nominate on*’ Director. After the Capitalization Date the Board of Directors shall consist of four Directors of whom Arnold, Hahn, Fitzgerald and Zecha shall each be entitled to nominate one Director. The initial Directors of the Corporation shall include Richard Arnold, Brent Hahn, Michael Fitzgerald and Erwin Zecha, Each Shareholder shall vote at all meetings of Shareholders, and shall use its best efforts to cause its nominee Directors on the Board of Directors to act in such manner as to ensure that each nominee of each Shareholder is elected or appointed and maintained in office as a Director in accordance with this Agreement.

			

			             (b)        In the event that a nominee Director of any Shareholder resigns or is removed from the Board of Directors, such Shareholder who is not fully represented shall forthwith deliver or cause to be delivered to the Corporation a resignation and release of such nominee Director in the form of the resignation and release as reasonably required by counsel to the Corporation.

			

			             (c)        If a vacancy on the Board of Directors arises for any reason whatsoever, such vacancy shall be filled by the election or appointment of a Director nominated by the Shareholder entitled to nominate a replacement in accordance with Section 3.2

			

			             (d)        The quorum for a meeting of the Board of Directors shall be a majority of the Directors . At least five days prior written notice of any meeting of the Board of Directors must be given unless all of the Directors waive such notice.

			

			             (e)        No amount shall be payable by way of salary, bonus or otherwise to any Director for acting as such. Each Director shall be entitled to be reimbursed for reasonable out-of-pocket traveling and subsistence expenses incurred while attending meetings of, or otherwise being engaged in the business of, the Board of Directors.

			

			             (f)         If any Shareholder ceases to own any Shares, then the Shareholder or any related Principal of the Shareholder shall immediately cease to be a director, officer and employee of the Corporation unless otherwise approved by Extraordinary Resolution.

			

			3.3                    Shareholders

			

			The quorum for a meeting of Shareholders shall be two Shareholders present or represented by proxy and holding 50.1 % of the votes of the Shareholders entitled to vote at such meeting.

				

				

				

			

		

		
			Page 13

		

		
			

			

			

			

			3.4                   Officers
			

			Unless determined otherwise by Extraordinary Resolution, the officers of the Corporation shall be the following persons:

			

				
						President

						
						Sieg Badke

					
	
						Vice-President

						
						Brent Hahn

					
	
						Treasurer

						
						Brent Hahn

					
	
						Secretary

						
						Brent Hahn

					

			

			

			3.5                    Annual Business Plan

			

			

			             (a)        The Board of Directors shall cause a draft annual business plan to be prepared by management of the Corporation for each Fiscal Year for consideration by the Board of Directors no later than 60 days prior to the beginning of such Fiscal Year. Such draft annual business plan shall be prepared in accordance with GAAP and shall contain a detailed monthly financial budget. Such budget shall consist of a pro forma consolidated balance sheet, consolidated income statement and consolidated statement of changes in financial position of the Corporation for such Fiscal Year, shall be accompanied by a statement of all capital expenditures to be incurred during such Fiscal Year, and shall be supported by the explanations, notes and information upon which the projections underlying such annual business plan have been based.

			

			             (b)        The draft annual business plan, as reviewed and approved by the Board of Director with such amendments and modifications as it determines in accordance with Section 3.1, shall become the Annual Business Plan for such Fiscal Year. In the event that the Board of Directors is unable to settle and approve an Annual Business Plan in whole or in part prior to the commencement of a Fiscal Year, the expenditure programme contained in the existing Annual Business Plan shall continue to apply to the extent of such disagreement until a complete Annual Business Plan is approved by Board of Directors.

			

			3.6                    Books and Records

					

				Proper books of account shall be kept by the Corporation and entries shall be made therein of all matters, terms, transactions and things as are usually written and entered into books of account in accordance with GAAP. Each Shareholder or its nominee or other authorized agent or representative shall have free access at all times to examine and copy such books and records. Each Party shall at all times furnish to the other Parties correct information, accounts and statements of and concerning all transactions pertaining to the Corporation without any concealment or suppression.

				

				

			

		

		
			ARTICLE 4- FINANCIAL MATTERS

					

				

		

		
			4.1                    Shareholder Loans

					

					

				

		

		
			Page 14

		

		

		

		
			

			

			

			

			

			             (a)        The Corporation shall be funded in the first instance by loans made to the Corporation by Doral EZ Investments Inc. in the aggregate principal amount of $1,000,000 (the “Initial Loan”). The terms and conditions of the Initial Loan including representations and warranties, positive and negative covenants and advance conditions shall be set out in the Loan Agreement. The Initial Loan shall be secured by a first charge on the assets of the Corporation save and except for the security granted to Fitzgerald pursuant to the Ninn Worx Purchase Agreement.

		

		             (b)        The parties acknowledge that the Corporation shall be indebted to Fitzgerald in the principal amount of $300,000 (the “Purchase Loan”) pursuant to the Ninn Worx Purchase Agreement, on the terms and conditions set out therein. The Purchase Loan shall be secured on the property and assets of Hope Ranch transferred to the Corporation as they exist on the date of transfer. The security granted to Fitzgerald shall rank in priority to the security granted to Doral EZ Investments Inc. in respect of such transferred property and assets.

		

		4.2                    Institutional Financing

				

			After utilizing the advances made pursuant to the Initial Loan and the Purchase Loan, if the Corporation requires additional funds for any purpose specified in an Annual Business Plan, the Corporation shall obtain such additional funds, to the extent possible by borrowing from an institutional lender upon the security of the assets of the Corporation.

		

		4.3                    Guarantees

		

		No Shareholder shall be required to guarantee any of the debts or obligations of the Corporation save and except for the Initial Loan. Richard Arnold and Brent Hahn shall each severally guarantee 1/3 of the principal amount of the Initial Loan. The Corporation shall guarantee Pure Play Media, Inc’s performance of the Fitzgerald Employment Agreement entered into contemporaneously herewith and incorporated by reference herein.

		

		4.4                    Repayment of Shareholder Loans and Corporate Distributions, etc.

		

		After making provisions for working capital and funding the ongoing debts and obligations of the Corporation, funds which are determined by the board to be available for a corporate distribution shall be distributed by the Corporation in the order of priority set out below. No amount shall be paid or distributed in respect of any category unless all amounts owing in respect of all prior categories have been satisfied and paid in full. The corporate distributions shall be made in the following order of priority:

		             (a)        to repay the interest and principal amount outstanding pursuant to the Initial Loan in that order of priority;

		

		             (b)        to repay the principal amount of the Purchase Loan; and

		

		             (c)        any remaining amounts shall be used to pay dividends in accordance with Section 4.7 or otherwise as determined by Extraordinary Resolution.

			

			

		

		
			Page 15

		

		
			

			

			

			

			4.5                    Banking
			

			             (a)        Any cheques, promissory notes, drafts, acceptances or bills of exchange may be signed by:

			

			
				
					(i)         Badke alone for amounts less than or equal to $10,000.00; or

						

						(ii)        Not less than two of Badke, Arnold and Hahn together for amounts greater than $10,000.00,

				

			

			

			             (b)        All bank accounts relating to the business of the Corporation shall be opened and maintained in the name of the Corporation or in such other name as the Board of Directors may from time to time unanimously agree upon.

			

			             (c)        Unless otherwise provided herein, all monies received from time to time for the Corporation shall be deposited immediately into its bank to the credit of the Corporation’s account in the same drafts, cheques, bills, cash or other form in which it is received and all disbursements on account of the Corporation shall only be made by cheque drawn on such bank.

			

			             (d)        The Corporation shall maintain insurance in such amounts, in respect of such risks and with insurers as determined by the Board including, without limitation, and at the option of the board, appropriate bonding in respect of its officers.

			

			4.6                    Accountants

					

				The Accountants of the Corporation shall be appointed by a majority of board, or such other firm of accountants as the Shareholders of the Corporation shall from time to time appoint in accordance with the terms hereof

				

				4.7                    Dividend Policy

					

				Subject to the provisions of Section 4.4, the Corporation shall declare and pay a dividend within 120 days of each fiscal year in an amount equal to not less than 25% of the after tax earnings of the Corporation for such year.

				

				4.8                    Issuance of Additional Securities

					

				If the issuance of additional Shares or other securities has been approved pursuant to Section 3. 1, then subject to compliance with the provisions of Section 4.9 and 4.10 and applicable Law, the Board of Directors may in its discretion issue such number of Shares or other securities of the Corporation authorized under the Articles or the Act (the “Offered Securities”) at such price (not less than the fair value thereof as determined by the Board of Directors) and upon such terms and conditions and to such Persons as it determines to be in the best interests of the Corporation.

				

				

				

			

		

		
			Page 16

			

			

			

		

		
			

			

			

			

			4.9                    Pre-emptive Right Regarding Additional Securities

		
			

			             (a)        Unless the Shareholders otherwise unanimously agree in writing, the Corporation shall deliver an offering notice to each Shareholder in writing (the “Offering Notice”) each time the Board of Directors decides to issue Offered Securities. The Offering Notice shall specify:

			

			
				
					(i)         the total number or principal amount, as the case may be, of Offered Securities which are being offered;

						

						(ii)        the rights, privileges, restrictions, terms and conditions of such Offered Securities; and

						

						(iii)       the consideration for which each of such Offered Securities are being offered, which consideration shall be the same for all of such Offered Securities.

				

			

			

			             (b)        Each Shareholder shall have the option, exercisable within 30 days after receipt of an Offering Notice (the “Option Period”) by written notice given to the Corporation (the “Subscription Notice”), to subscribe for its rateable portion of the Offered Securities based on its Proportionate Interest.

			

			             (c)        If a Shareholder fails to deliver a Subscription Notice for the Offered Securities in accordance with this Section 4.9 within the Option Period, then any rights which such Shareholder may have had to subscribe for any of the Offered Securities shall be extinguished.

			

			             (d)        Each Subscription Notice shall, subject to Section 4.10 constitute a binding agreement by the Shareholder to subscribe for and take up, and by the Corporation to issue and sell to such Shareholder, the number or principal amount of Offered Securities subscribed for therein upon the terms and conditions specified in the Offering Notice.

			

			             (e)        Each Shareholder may at any time during the Option Period request the Corporation to identify the Shareholders who have elected to acquire Offered Securities and the number or principal amount of Offered Securities such Shareholders have elected to acquire, and the Corporation shall respond to such request prior to the expiry of the Option Period.

				

				

				

				

				

				

				

			

		

		
			Page 17

		

		
			

			

			

			

			4.10                  Issue of Available Securities to Third Parties

		
			

			If subscriptions for less than all of the Offered Securities are received pursuant to Section 4.9, then the Corporation shall be entitled to allot and issue the remaining securities (the “Available Securities”) within 90 days following the expiry of the Offer Period to any Person or Persons at the same or a higher price (in cash) and otherwise upon the same terms and conditions as were set forth in the Offering Notice relating to such Offered Securities and as required pursuant to this Agreement.

				

				

			

		

		
			ARTICLE 5- SHARE OWNERSHIP AND RESTRICTIONS ON TRANSFER

					

				

		

		
			5.1                    Restrictions on Transfer

					

				             (a)        Except in accordance with this Agreement, no Shareholder shall, directly or indirectly, in any manner Transfer or create an Encumbrance on all or any portion of the Shares owned by it, without the express prior written consent of all Shareholders first being obtained.

		

		

		
			

			

			             (b)        The Parties hereby acknowledge the terms of the Option Agreements and consent to the transfer of Shares from Zecha to Arnold and Hahn as provided therein and agree that any such transfer or transfers shall be made without the obligation to provide the other Shareholders a right of purchase as provided herein.

			

			5.2                    Permitted Transferees

			

			Subject to the provisions of this Section 5.2, each Shareholder shall be entitled, upon prior written notice to the Corporation and the other Shareholders, to transfer the whole or any part of its Shares to any Permitted Transferee of the Shareholder. No such transfer shall be or become effective until such Permitted Transferee executes and delivers to the Corporation a counterpart copy of this Agreement or a written agreement in form and substance satisfactory to the other Parties agreeing to be bound by the terms and conditions hereof formerly applicable to the transferor of such Shares. No such transfer shall release or discharge the transferor from any of its liabilities or obligations under this Agreement until it becomes effective and, then, only to the extent provided herein.

				

				

			

		

		
			ARTICLE 6- THIRD PARTY OFFER; RIGHT OF FIRST REFUSAL

			

		

		
			6.1                    Third Party Offer

			

			

			             (a)        If a Third Party Offer is made and the holders of 70% of the Shares (the “Offerees”) agree by instrument or instruments in writing to accept such offer;

			

			
				
					(i)         the Offerees shall promptly give written notice to the other Shareholders (the “Offerors”) stating their desire to sell the Shares owned by the Offerees in accordance with the Third Party Offer, a true copy of which shall accompany the notice;

				

			

			

				

			

		

		
			Page 18

		

		
			

			

			

			

		

		
			
				
					(ii)        the Offerors may elect to either:

						

					

				

				
					
						(A)       purchase all the Shares owned by the Offerees for cash at a price equal to the price per Share provided in the Third Party Offer and on terms no more favourable to the Offerors than those set out in the Third Party Offer; or

							

							(B)       sell all of the Shares owned by the Offerors on the terms set out in the Third Party Offer;

							

						

					

				

				
					Such election may be made by the Offerors by giving written notice to the Offerees and the Secretary of the Corporation on or before the 15th Business Day (the “Acceptance Date”) following receipt of the notice from the Offerees. if no such election is received by the Offerees and the Secretary of the Corporation from the Offerors, the Offerors shall be deemed to have elected to sell the Shares owned by the Offerors pursuant to the Third Party Offer;

						

						(iii)       if the Offerors elect to purchase all the Shares owned by the Offerees, then such purchase shall be subject to the general sale provisions of Article 9 of this Agreement, and shall be closed on or before the 30th Business Day following the Acceptance Date; and

						

						(iv)       if prior to the Acceptance Date, the Offerors elect or all [are] deemed to have elected not to purchase all the Shares owned by the Offerees the Offerees may arrange for the sale of all, but not less than all the Shares on terms set out in the Third Party Offer, provided that the sale is consummated on or before the 30th Business Day after the Acceptance Date.

				

			

		

		
			

			             (b)        If the Offerors accept the offer of the Offerees within the time stipulated, they shall purchase on a pro rata basis (unless they otherwise agree and so stipulate in their notice of acceptance) all of the Shares owned by the Offerees upon the same terms and conditions as are contained in the Third Party Offer.

			

			             (c)        If one or more of the Offerors is prepared to purchase its pro rata portion of the Shares (the “Accepting Party” or “Accepting Parties”, as the case may be), but the other Offerors are not so prepared, then the Accepting Party or Accepting Parties shall have the first right and option to purchase all of the Shares of the Offerees on a pro rata basis equal to the number of Shares held by the Accepting Parties, upon the same terms and conditions as are contained in the Third Party Offer.

				

				

				

				

				

			

		

		
			Page 19

		

		
			

			

			

			

			6.2                    Right of First Refusal
			

			If any Shareholder (the “Offeror”) receives a Third Party Offer to purchase all of the Shares owned by the Offeror (the “Purchased Shares”):

			

			             (a)        The Offeror shall by notice in writing (the “Sale Notice”) make an offer to the other Shareholders (the “Offerees”) to sell the Purchased Shares to the Offerees at the same price and on the same terms and conditions of the Third Party Offer and the Offeror shall provide with the Sale Notice such information concerning the business experience, expertise and financial condition of the Third Party as is reasonably available to the Offeror.

			

			             (b)        The Offerees shall have the right, exercisable by giving notice (the “Acceptance Notice”) to the Offeror within 15 Business Days after their receipt of the Sale Notice (the “Acceptance Period”) to purchase all of the Offered Shares in accordance with the terms hereof, If an Acceptance Notice is not given by the Offerees within the Acceptance Period then the Offeror may sell the Purchased Shares to the Third Party in accordance with the terms of the Third Party Offer. If no such sale is completed by the Offeror within 30 Business Days following the expiration of the Acceptance Period, the Offeror shall again offer such Shares to the Offerees in the manner provided herein before any Share may be transferred to any Third Party and such process shall be repeated so often as any Shareholder desires to transfer any Shares pursuant to this Section.

			

			             (c)        The delivery by the Offeror of a Sale Notice shall be irrevocable and, upon delivery by the Offerees of an Acceptance Notice, the Offeror shall be bound to sell, and the Offerees shall be bound to purchase the Offered Shares in accordance with the terms hereof

			

			             (d)        No disposition to any Third Party pursuant to this section shall be or become effective until such Third Party executes and delivers a counterpart copy of this Agreement or a written agreement in form and substance satisfactory to the other Parties agreeing to be bound by the terms and conditions hereof formerly applicable to the Shareholder.

				

				

			

		

		
			ARTICLE 7- TRANSFERS TO OTHER SHAREHOLDERS; COMPULSORY BUY-SELL

				PROVISIONS

					

				

		

		
			7.1                    Offer to Purchase

		

		
			

			

			If any Shareholder (the “Offering Shareholder”) desires to purchase the Shares owned by the remaining Shareholders (the “Remaining Shareholders”), the Offering Shareholder shall make an offer (the “Shotgun Offer”) in writing to the Remaining Shareholders to purchase all, but not less than all, of the Shares owned by the Remaining Shareholders. The Offering Shareholder shall specify in the Shotgun Offer the terms of the purchase and sale including the price (the “Designated Price”) to be paid for each Share owned by the Remaining Shareholders. The Designated price for all shares pursuant to said Shotgun Offer shall be not less than the Fair Market Value as provided in Article 10.

				

				

			

		

		
			Page 20

		

		
			

			

			

			

			7.2                   Acceptance or Counteroffer by Remaining Shareholders
			

			             (a)         Within 30 days after the receipt by the Remaining Shareholders of the Shotgun Offer from the Offering Shareholder pursuant to Section 7.1, each Remaining Shareholder shall advise the Offering Shareholder in writing either:

			

			
				
					(i)         that the Remaining Shareholder accepts the Shotgun Offer made by the Offering Shareholder to purchase the Shares owned by the Remaining Shareholder on the terms and conditions set out in the Shotgun Offer; or

						

						(ii)        that the Remaining Shareholder elects to purchase Shares owned by the Offering Shareholder on the terms and conditions set forth in the Shotgun Offer, mutatis mutandis, in which case the Remaining Shareholder shall specify whether the Remaining Shareholder:

						

					

					
						(A)       elects to make such purchase on the condition that it is able to acquire all of such Shares;

							

							(B)       elects to make such purchase on the condition that it is able to acquire only its rateable portion of such Shares; or

							

							(C)       elects to make such purchase and is prepared to purchase all of such Shares or only its rateable portion thereof depending on the response of the other Shareholders.

					

				

			

			

			             (b)        If the Remaining Shareholders elect to purchase the Shares of the Offering Shareholder and each is prepared to purchase only its rateable portion thereof, or if only one Remaining Shareholder has both elected to purchase such Shares and is prepared to purchase all such Shares, then:

			

			
				
					(i)         it or they shall thereupon be conclusively deemed to have made an offer to purchase the Shares of the Offering Shareholder on the terms and conditions, including the Designated Price, set out in the Shotgun Offer mutatis mutandis, and the Offering Shareholder shall be conclusively deemed to have accepted such offer of the Remaining Shareholders; and

						

						(ii)        where the Remaining Shareholders have made such election, each Remaining Shareholder shall purchase from the Offering Shareholder its rateable portion of such Offering Shareholder’s Shares based on the proportion that the number of Shares of the Remaining Shareholder

				

			

			

				

				

				

			

		

		
			Page 21

		

		
			

			

			

			

		

		
			
				
					is of the total number of Shares held by all the Remaining Shareholders (but such Remaining Shareholders may agree among themselves to purchase the Shares of the Offering Shareholder in different proportions and such purchase may be made by any of the Remaining Shareholders jointly or by any one of them alone.)

				

			

		

		
			

			             (c)        If one or more of the Remaining Shareholders do not accept the Shotgun Offer to purchase all of the Shares of the Offering Shareholder, then:

			

			
				
					(i)         all the Remaining Shareholders shall be conclusively deemed to have accepted the Shotgun Offer to purchase their Shares on the terms and conditions set out in the Shotgun offer; and

						

						(ii)        the Offering Shareholder shall purchase from each Remaining Shareholder its Shares.

				

			

			

			             (d)        The Shareholders who have accepted or been deemed to have accepted an offer under this Section 7.2 shall be the “Vendor” and the Shareholder who have elected or are required to purchase Shares under this Section 7.2 shall be the “Purchaser”.

			

			7.3                    Terms of Shotgun Offer

					

				The terms of the Shotgun Offer must provide that the sole consideration for the Shares is a stated dollar amount per Share payable in cash on closing and must not contain any terms or considerations which are so unique or unusual so as to be impossible to satisfy on a commercially reasonable basis. The purchase price for the Shares of the Vendor (the “Purchased Shares”) shall be an amount equal to the product obtained by multiplying the Designated Price by the number of Purchased Shares (the “Purchase Price”).

			

			

			

			7.4                    Closing

					

				The purchase and sale of the Purchased Shares resulting from the acceptance or deemed acceptance of the offer pursuant to Section 7.2 (a “Sale Transaction”) shall be completed at the Time of Closing and the Place of Closing on the date which is 30 days following the date of such acceptance or deemed acceptance (the “Date of Closing”). The Sale Transaction shall be effected in accordance with the general sale provisions set forth in Article 9.

				

				

			

		

		
			ARTICLE 8- CESSATION OF INVOLVEMENT IN THE CORPORATION

					

				

		

		
			8.1                    Inactive Shareholders

		

		

		
			

			

			             (a)        A Shareholder shall be deemed to be an Inactive Shareholder immediately following the occurrence of any of the following events (each a “Triggering Event”):

				

				

			

		

		
			Page 22

			

		

		
			

			

			

			
				
					(i)        if a Shareholder or related Principal of a Shareholder dies;

						

						(ii)        if a Shareholder or related Principal of a Shareholder suffers Permanent Incapacity;

						

						(iii)       if a Shareholder or related Principal of a Shareholder voluntarily retires as an employee of the Corporation or if the employment of the Shareholder or the related Principal is terminated by the Corporation for legal cause; or

						

						(iv)       if the employment of the Shareholder or related Principal of a Shareholder is terminated other than as provided in Sections 8. 1(a)(i), 8. 1(a)(ii) and 8. l(a)(iii).

				

			

			

			             (b)        Each Shareholder or the legal personal representatives of the Shareholder, (the “Representative”), as the case may be, shall give notice in writing to the Corporation promptly following the occurrence of a Triggering Event.

			

			             (c)        From and after the date that a Shareholder becomes an Inactive Shareholder, the right of such Shareholder to nominate any Directors shall be suspended and any nominee Director of such Inactive Shareholder shall resign from the Board of Directors; and the votes of such Shareholder or its nominee Directors or both of them, as the case may be, shall be excluded for purposes of determining whether a decision, action or matter has been approved by Extraordinary Resolution.

			

			             (d)        Any determination that the employment of a Shareholder or related Principal of a Shareholder has been terminated for legal cause shall require approval by Extraordinary Resolution, provided that in this instance the Shareholder that is affected by the determination shall not be entitled to vote and the Shares owned by such Shareholder shall be excluded when calculating the percentage of votes required to approve the determination.

			

			             (e)        The Corporation shall have no liability to any Shareholder or any related Principal of a Shareholder arising from the termination of their employment with the Corporation either hereunder or under any employment agreement except for payment of any amount payable pursuant to this Section.

				

				

			

			
			

			
			

			

				

				

			

		

		
			Page 23

		

		
			

			

			

			

			8.2                   Irrevocable Option to Purchase Shares of Inactive Shareholder

		
			

			             (a)          Each Shareholder hereby grants to the other Shareholders an irrevocable option, which option shall not be revoked by the death of such Shareholder, (the “Purchase Option”), exercisable in the event that it becomes an Inactive Shareholder, to purchase all but not less than all of the Shares owned by the Shareholder (the “Purchased Shares”), provided that such Purchase Option shall not apply to any Shares of a deceased Shareholder following the death of its Principal that are bequeathed by such Shareholder upon its death to the 3urviving spouse of the Shareholder, or otherwise devolve absolutely upon, a surviving spouse of the Shareholder who has complied with the provisions of Section 5.2 , within 60 days following the death of the Shareholder or the related Principal of the Shareholder.

			

			             (b)        The Corporation shall deliver a notice to each Shareholder other than the Inactive Shareholder (the “Remaining Shareholders”) promptly following the receipt of notice of, or otherwise becoming aware of a Triggering Event. The Purchase Option shall be exercisable by the Remaining Shareholders at any time within 60 days following receipt of notice of the Triggering Event upon notice in writing (the “Exercise Notice”) to the Inactive Shareholder or its Representative and the Corporation.

			

			             (c)        If the Remaining Shareholders elect to exercise the Purchase Option, they shall be purchase the Purchased Shares pro rata in the ratio of their Proportionate Interests or in such other proportions as the Remaining Shareholders may mutually agree and such purchase may be made by one or more Remaining Shareholders jointly or by any one of them alone. The Remaining Shareholders shall also be entitled, at their sole option, exercisable by Extraordinary Resolution (excluding for purposes thereof the Shares owned by the Inactive Shareholder) within the Option Period, to require the Corporation to purchase the Purchased Shares for cancellation by designating the Corporation as the Party entitled to purchase the Purchased Shares. The Remaining Shareholders shall specify the manner in which such Purchased Shares are to be acquired in the Exercise Notice and the Party or Parties so specified shall be the Purchaser hereunder.

			

			8.3                    Compulsory Purchase by Corporation

					

				If a Shareholder becomes an Inactive Shareholder pursuant to Section 8. 1(a)(i) or 8. 1(a)(ii), and the Remaining Shareholders do not exercise the Purchase Option or require the Corporation to purchase the Purchased Shares pursuant to Section 8.2, the Inactive Shareholder or its Representative shall have the right, upon notice to the Corporation (the “Compulsory Purchase Notice”) within 30 days following the expiry of the Option Period (the “Compulsory Purchase Period”), to require the Corporation to purchase the Purchased Shares.

				

				

				

				

				

				

				

			

		

		
			Page 24

			

		

		
			

			

			

			

			8.4                   Purchase Price for Shares
			

			The purchase price (the “Purchase Price”) for the Purchased Shares of the Inactive Shareholder (the “Vendor”) shall be the product obtained by multiplying the number of Purchased Shares by the Fair Market Value of each Share determined in accordance with the provisions of Article 10. If the Triggering Event results from the events set out in any of Section 8.1 (a)(iii), the Purchase Price otherwise determined under this Section 8.4 shall be reduced by 30% unless the Triggering Event is the voluntary resignation of the Shareholder or related Principal of a Shareholder as an employee of the Corporation that occurs more than five years after the date of this Agreement in which case there shall be no reduction in the Purchase Price.

			

			8.5                    Closing

					

				             (a)        The closing of the transaction of purchase and sale contemplated by this Article (a “Sale Transaction”) shall take place at the Place of Closing at the Time of Closing on the date (in this Article, the “Date of Closing”) which shall, unless the Vendor and Purchaser otherwise agree, be the latest of:

			

			

			

			
				
					(i)         the date of which is 90 days after the relevant Triggering Event;

						

						(ii)        the date which is seven days following the receipt of all necessary governmental releases or approvals required to be obtained in order to effect a valid transfer of the Purchased Shares (and the Parties covenant and agree to use their best efforts to obtain such consents, releases or approvals);

						

						(iii)       the date which is 30 days after the Purchase Price is finally determined in accordance with the provisions of Article 10; and

						

						(iv)       if the Shareholder becomes an Inactive Shareholder because of the death of the Shareholder or its Principal and Corporation is the Purchaser, the date which is ten days following the date upon which the Corporation receives the proceeds of insurance, if any, payable on the life of the deceased Shareholder or Principal.

				

			

			

			             (b)        The Sale Transaction shall be effected in accordance with the general sale provisions of Article 9.

			

			8.6                    Suspension of Certain Provisions

					

				Following a Triggering Event pursuant to Section 8.1(a), an Inactive Shareholder shall only be (9 entitled to transfer its Shares in accordance with this Article and the provisions of Article 6, and Article 7 shall be suspended and inoperative with respect to such Inactive Shareholder.

				

				

				

			

		

		
			Page 25

			

		

		
			

			

			

			

		

		
			ARTICLE 9 – PROCEDURE FOR SALE OF SHARES

					

				

		

		
			9.1                    Application of Sale Provisions

					

				Except as may otherwise be expressly provide in this Agreement, the provision of this Article shall apply to any sale of shares of the Corporation between or among Shareholders or, to the extent applicable, between Shareholders and the Corporation pursuant to the provisions of this Agreement.

		

		
			

			

			9.2                    Defined Terms

					

				For the purpose of this Article, the terms “Vendor”, “Purchaser”, “Date of Closing”, “Time of Closing”, “Purchase Price” and “Purchased Shares” with respect to any Sale Transaction shall have the meanings attributed to them in Article 6, Article 7 and Article 8 as the case may be.

			

			

			9.3                    Obligations of Vendor

					

				At or prior to the time of Closing, the Vendor shall:

			

			

			             (a)        assign and transfer to the Purchaser the Purchased Shares and deliver the share certificate(s) representing the Purchased Shares duly endorsed for transfer to the Purchaser or as directed by it;

			

			             (b)        deliver to the Corporation signed resignations of the Vendor and its nominees, if any, as Directors, officers and employees of the Corporation, as the case may be;

			

			             (c)        do all other things required in order to deliver good and marketable title to the Purchased Shares to the Purchaser free and clear of any Encumbrances whatsoever (including the delivery of any releases of any governmental entity and declarations of transmission);

			

			             (d)        deliver to the Corporation a release by each of the Vendor and its nominees, if any, of all claims against the Corporation with respect to any matter or thing up to and including the Time of Closing in their capacities as a director, officer, shareholder, employee or creditor of the Corporation, as the case may be, (except for any claims which might arise out of the Sale Transaction)

			

			             (e)        if applicable, either provide the Purchaser with evidence reasonably satisfactory to the Purchaser that the Vendor is not then a non-resident of Canada or provide the Purchaser with a certificate pursuant to Subsection 116(2) of the Canadian Income Tax Act with a certificate limit in the amount not less than the Purchased Price for the Purchased Shares; and

			

			             (f)         deliver to the remaining Shareholders a release by the Vendor and its nominees in their capacity as a Director, officer and Shareholder of the Corporation of all of their claims against each remaining Shareholder and their respective nominees, if any, in their capacities as a shareholder, director or officer of the Corporation, (except for any Claims which might arise out of the Sale Transaction).

				

				

				

			

		

		
			Page 26

		

		
			

			

			

			

			9.4                     Release of Guarantees etc.
			

			If, at the Time of Closing, the Vendor, a Principal of the Vendor or any other Person for and behalf of the Vendor, shall have any guarantees, securities or covenants lodged with any Person to secure any indebtedness, liability or obligation of the Corporation or the remaining Shareholders, save and except for the Initial Loan, then the remaining Shareholders shall use their reasonable best efforts to deliver up or cause to be delivered up to the Vendor or cancel or cause to be cancelled all of such guarantees, securities and covenants at the Time of Closing. If, notwithstanding such reasonable best efforts, the delivery up or cancellation of any such guarantee, security or covenant is not obtained, save and except for the Initial Loan, the remaining Shareholders shall deliver to the Vendor, the Principal and such other Person an indemnity in writing, in form reasonably satisfactory to counsel for the Vendor, indemnifying them against any and all claims which may be or which shall have been paid, suffered or incurred by them with respect to the said guarantee, security or covenant.

			

			9.5                    Deliveries to Vendor

					

				At or prior to the Time of Closing each of remaining Shareholders shall:

			

			

			             (a)        deliver to each of the Vendor and its nominees, if any, a release by it, in its capacity as a director, officer and shareholder of the Corporation, of all of its claims against the Vendor and its nominees in its capacity as a Shareholder, Director or officer of the Corporation, (except for any claims which may arise out of the Sale Transaction) ; and

			

			             (b)        cause the Corporation to deliver to each of the Vendor and its nominees a release by the Corporation of all its claims against each of the Vendor and its nominees with respect to any matter or thing arising as a result of the Vendor or its nominees being a shareholder, Director or office of the Corporation, as the case may be, (except for any claims which might arise out of the Sale Transactions).

				

				9.6                    Repayment of Debts

					

				If, at the Time of Closing, the Corporation is indebted to the Vendor in an amount recorded on the books of the Corporation and verified by the Auditor, the Corporation shall repay such amount to the Vendor at the Time of Closing. If, at the Time of Closing, the Vendor is indebted to the Corporation in an amount recorded on the books of the Corporation and verified by the Accountants, the Vendor shall repay such amount to the Corporation at the Time of Closing and, if the Vendor fails to make such repayment, the Purchaser shall be entitled to pay the amount of such indebtedness to the Corporation from the Purchase Price and the amount of the Purchase Price payable to the Vendor shall be reduced accordingly.

				

				

				

				

				

			

		

		
			Page 27

			

			

		

		
			

			

			

			9.7                    Payment of Purchase Price

				

			The Purchase Price shall be paid by the Purchaser in full by cash or certified cheque at the Time of Closing.

		

		9.8                    Non-compliance with Conditions

				

			If at the Time of Closing:

		

		             (a)        the Purchased Shares are not free and clear of all encumbrances; or

		

		             (b)        if evidence or a certificate referred to in Section 9.3 is not forthcoming, the Purchaser may, without prejudice to any other rights which it may have, purchase the Purchased Shares subject to such Encumbrances or in the absence of such evidence or certificate, and, in that event, the Purchaser shall, at the Time of Closing,

		

		             (c)        assume all obligations and liabilities with respect to such Encumbrances; or

		

		             (d)        if applicable, make the payment of tax required under Section 116 of the Canadian Income Tax Act, as the case may be; and in each such case the Purchase Price payable by the Purchaser for the Purchased Shares shall be satisfied, in whole or in part, as the case may be, by such assumption or payment and the amount so assumed or paid shall be deducted from the cash portion of the Purchase Price payable at the Time of Closing.

			

			9.9                    Non-Completion by Vendor

				

			If, at the Time of Closing, the Vendor fails to complete the Sale Transaction, the Purchaser shall have the right if not in default under this Agreement, without prejudice to any other rights which it may have, upon payment of the Purchased Price payable to the Vendor at the Time of Closing to the credit of the Vendor in the main branch of the Corporation’s bankers, to execute and deliver, on behalf of and in the name of the Vendor, such deeds, transfers, share certificates, resignations or other documents that may be necessary to complete the Sale Transaction and each Shareholder, to the extent it may be a Vendor hereunder, hereby irrevocably appoints any Shareholder who becomes a Purchaser in a Sale Transaction its attorney in fact in accordance with laws of the state of Nevada, with no restriction or limitation in that regard and declaring that this power of attorney may be exercised during any subsequent legal incapacity on its part.

			

			

			

			

			

			

			

			

		

		
			Page 28

			

		

		

		

		

		9.10                 Non-Completion by Purchaser
		

		If, at the Time of Closing, the Purchaser fails to complete a Sale Transaction, the Vendor (the “New Purchaser”) shall have the right (without prejudice to any other rights which it may have), at its option, exercisable within a period of 30 days following the Date of Closing of such Sale Transaction upon notice to the Purchaser (the “New Vendor”), to purchase from the New Vendor all the Shares owned by the New Vendor for an amount per Share equal to 75% of the Purchase Price per Share payable pursuant to the Sale Transaction which the New Vendor has neglected or refused to perform, less all costs incurred by the New Purchaser in connection with the failure by the New Vendor to complete the Sale Transaction, and all references in the foregoing Sections of this Article to the “Vendor” and the “Purchaser” respectively shall be deemed to be references to the New Vendor and the New Purchaser respectively.

		

		9.11                  Restriction on Business

				

			If the provisions of any of Article 6, Article 7 or Article 8 hereof become applicable, then from such date until the Time of Closing (as defined in the particular Article) the Shareholders shall not do, nor cause, nor permit to be done anything except that which is in the ordinary course of business of the Corporation.

		

		

		9.12                  No Joint Liability

				

			For greater certainty, the Parties hereto acknowledge and agree that where a Sale Transaction involves more than one Purchaser, the Purchasers in such Sale Transaction are not jointly liable for the payment of the Purchase Price for the Purchased Shares and any indebtedness purchased hereunder, but are only liable for their proportionate share thereof

		

		

		9.13                  Consents

				

			The Parties acknowledge that the completion of any Sale Transaction shall be subject, in any event, to the receipt of all necessary governmental and regulatory consents and approvals to the transfer of Shares contemplated thereby.

			

			

		

		
			ARTICLE 10- FAIR MARKET VALUE

					

				

		

		
			10.1                  Purchase Price for Shares

					

				The provisions of this Article shall apply with respect to any determination of Fair Market Value required to be made pursuant to this Agreement.

				

				

				

				

				

			

		

		
			Page 29

		

		
			

			

			

			

			10.2                 Meaning of Fair Market Value

		

		

		

		

		For purposes of this Agreement, “Fair Market Value” means the price per Share, determined by the Accountant or Valuator pursuant to this Article as of the relevant Valuation Date and expressed in terms of money or money’s worth, that would be received upon a sale of all of the issued and outstanding Shares in a single transaction. The determination of the Fair Market Value of the Shares shall be made as if the Corporation were a “going concern” without any discount for a minority interest or any premium for control and shall exclude any proceeds of insurance on the life of a Principal.

			

			10.3                  Estimate of Fair Market Value

				

			             (a)        Immediately following the receipt of an Offer to Purchase under Section 7. 1, or a Compulsory Purchase Notice under Section 8.3, as the case may be, the Corporation shall instruct the Accountant to prepare and deliver to the Vendor and Purchaser under the Sale Transaction, within a period to 30 days from the date of its appointment by the Corporation, a report setting forth the Accountant’s estimate as to the Fair Market Value of the Shares and the basis upon which such estimate has been calculated (the “Accountant’s Report”).

		

		

		             (b)        If the estimate of the Fair Market Value of the Shares set forth in the Accountant’s Report is acceptable to the Vendor and the Purchaser and agreed to in writing within a period often days following the delivery of the Accountant’s Report to the Vendor and Purchaser, it shall become the Fair Market Value of the Shares for purposes of the Sale Transaction to which it relates.

		

		             (c)        If the statement of the Fair Market Value set forth in the Accountant’s Report is unacceptable to the Vendor or Purchaser they shall negotiate expeditiously and in good faith during such ten day period to arrive at a mutually agreeable Fair Market Value. If such agreement is reached, the amount so determined and agreed shall become the Fair Market Value of the Shares for purposes of the Sale Transaction to which it relates.

		

		             (d)        If the Vendor and Purchaser are unable to agree as to the Fair Market Vale of the Shares within such ten day period, the Vendor and Purchaser shall each immediately thereafter designate a Person who is at arm’s length to the Parties as their representative and the Persons so selected shall jointly appoint a third Person who is at arm’s length to the Parties and their selected representative. The Persons so chosen shall select an independent qualified business valuator by majority decision (a “Valuator”) for final determination as to the Fair Market Value of the Shares.

		

		             (e)        The Valuator so selected shall determine the Fair Market Value of the Shares as quickly as practicable after the date of its selection having regard to the factors identified in Section 10.2. The Valuator may also have regard to any representations which either of the Vendor or the Purchaser wish to make. The Valuator shall deliver its report concerning the Fair Market Value of the Shares to the Vendor and Purchaser (the “Valuator Report”) and such report shall be conclusive

			

			

			

		

		
			Page 30

		

		

		

		

		

		and binding on the Vendor and Purchaser. The Fair Market Value so determined shall become the Fair Market Value of the Share for purposes of the Sale Transaction. In determining the Fair Market Value of the Shares the Valuator shall also be considered as an expert and shall not be construed as acting as and arbitrator.
		

		             (f)         The costs and expenses of the Accountant incurred in connection with preparation of the Accountant’s Report shall be paid by the Corporation. If the Fair Market Value of the Shares as determined by the Valuator is within 5% plus or minus the Fair Market Value of the Shares as determined by the Accountants, then the costs and expenses of the Valuation incurred in connection with preparation of the Valuator’s Report shall he shared equally by the Vendor and Purchaser. If the Fair Market Value of the Shares as determined by the Valuator is not within 5% plus or minus of the Fair Market Value of the Shares as determined by the Accountants, then the cost and expenses of the Valuation incurred in connection with the preparation of the Valuator’s Report shall be bourne solely by the Party who was adversely affected by the determination. The Purchaser may, at its option, deduct the portion of such costs and expenses payable by the Vendor from the Purchase Price and pay such amounts directly to the Valuator.

			

			

		

		
			ARTICLE 11- MISCELLANEOUS

					

				

		

		
			11.1                  Term of Agreement

		

		

		

		             (a)        This Agreement shall terminate:

		

		
			
				(i)         with respect to a Party hereto as of the later of the date upon which that Party ceases to be a Shareholder; and

					

					(ii)        with respect to all Parties on the date one Shareholder owns all of the Shares.

			

		

		

		             (b)        The termination of this Agreement shall have no effect upon any obligation of any Party to make payment for any Shares purchased pursuant to the provisions hereof or of any other amounts owing by it hereunder prior to the date of such termination.

		

		11.2                  Notices

		

		Any notice, direction or other instrument required or permitted to be given hereunder shall be in writing (including telecopier, telex or any other means of communication by which words are capable of being visibly and instantaneously reproduced at a distant point of reception) and given by delivering or sending it by telecopy or other similar means of communication addressed:

		

		             (a)        if to 876498 ALBERTA LTD. , at:

			

			                                       2077 Laurelwood Dr.

			                                       Oakville, Ontario Canada

			                                       L6H4S8

			

			

		

		
			Page 31

		

		

		

		

		

		                                       Attention:  Richard Arnold

		                                       Telephone:        905 337 7943

		                                       Facsimile:         905 337 7943

		

		             (b) if to SIEG BADKE, at:

		

		                                       19800 Nordhof Place

		                                       Chatsworth, CA 91311

		

		                                       Attention:          Sieg Badke

		                                       Telephone:        818 717 5355

		                                       Facsimile:         818 717 5360

		

		             (c)        if to MICHAEL FITZGERALD, at:

		

		                                       5038 Clavel Court

		                                       Woodland Hills, CA 91364

		

		                                       Attention:          Michael Fitzgerald

		                                       Telephone:        818 340 7771

		                                       Facsimile:         TBA

		

		             (d) if to STELLAR MEDIA CORP. , at:

		

		                                       11027 – 87th Ave.

		                                       Edmonton, Alta.

		                                       T6G2P9

		

		                                       Attention:    Terry Hahn

		                                       Telephone:  780 903 0948

		                                       Facsimile:   780 433 4939

		

		             (e) if to DORAL EZ INVESTMENT3 INC. , at:

		

		                                       3482 9th Line

		                                       Innisfil, Ontario Canada L9S 3Z9

		

		                                       Attention:          ERWIN ZECHA

		                                       Telephone:        705 431 7177

		                                       Facsimile:         705 43 1 8284

		

		

		

		

		

		
			Page 32

		

		
			

			

			

			

			             (f)             if to the Corporation, at:

			

			                                       19800 Nordhoff Place

			                                       Chatsworth, CA 91311

			

			                                       Attention:          Richard Arnold, Brent Hahn

			                                       Telephone:         818 717 5355

			                                       Facsimile:          818 717 5360

		

		Any such notice, direction or other instrument given as aforesaid shall be deemed to have been effectively given, if sent by telecopier or other similar form of telecommunications on the next Business Day following such transmission or, if delivered, to have been received on the date of such delivery. Any Party may change its address for service from time to time by notice given in accordance with the foregoing and any subsequent notice shall be sent to the party at its changed address.

		

		11.3                  Publicity

				

			Save as required by law or by any stock exchange, none of the Parties shall issue any press release or make any other public statement or announcement relating to or connected with or arising out of this Agreement or the matters contained herein, without obtaining the prior written approval of the other Parties to the contents and the manner of presentation and publication thereof If disclosure is required by law or by any stock exchange, the disclosing Party shall consult in advance with the other Parties and attempt in good faith to reflect other Parties’ concerns in the required disclosure.

		

		

		11.4                  Time of the Essence

				

			Time shall be of the essence of this Agreement.

		

		

		11.5                  Third Party Beneficiaries

				

			Each Party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any Person, other than the Parties hereto, and no Person, other than the Parties hereto, shall be entitled to rely on the provisions hereof in any action, suit, proceeding, hearing or other forum.

		

		

		11.6                  Expenses

				

			All costs and expenses (including the fees and disbursements of legal counsel, investment advisors and auditors) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such expenses.

			

			

			

			

			

		

		
			Page 33

		

		
			

			

			

			

			11.7                 Enurement

		

		

		This Agreement shall enure to the benefit of and be binding upon the Parties hereto and their respective heirs, executors, successors and assigns and any Person becoming a Party to this Agreement.

		

		11.8                  Execution in Counterparts

				

			This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument,

		

		

		11.9                  Execution by Facsimile

				

			This Agreement may be executed by any Party by facsimile and if so executed shall be legal, valid and binding on any Party executing in such manner.

		

		

		11.10                Assignment

				

			Except as provided in this Section, none of the rights or obligations hereunder shall be assignable or transferable by any Party without the prior written consent of the other Parties. Any assignment or attempted assignment contrary to the provisions of this Section 11.10 shall be null and void.

		

		

		11.11                Legal Proceedings

				

			Any Party bringing suit based on this Agreement shall reasonably attempt to do so under seal, however the inability or unwillingness of any Court to seal the record shall not be interpreted as preventing any Party from disclosing those matters as it deems reasonably beneficial in litigating any matter related to this Agreement.

		

		

		11.12                Non-Merger

				

			Except as otherwise expressly provided in this Agreement, the covenants, representations and warranties of the Parties contained in this Agreement shall not merge on and shall survive the Closing and shall continue in full force and effect.

			

			

			

			///

		

		///

		

		///

				

				

				

				

				

				

			

		
			Page 34

			

		

		

		

		

		

		

		

		

		

		

		

		

		IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seals as of the date first above written.

		

		

		876498 ALBERTA LTD

			

		                                                                                     By:      /s/ Richard Arnold

		                                                                                                Richard Arnold, President

		

		                                                                                                ______________________________

		                                                                                                Witness

		

		

		SIEG BADKE                                                            By:      /s/ Seig Badke

		                                                                                                Sieg Badke

		

		                                                                                                ______________________________

		                                                                                                Witness

		

		

		STELLAR MEDIA CORP.                                       By:      /s/ Brent Hahn

		                                                                                                Brent Hahn, President

		

		                                                                                                ______________________________

		                                                                                                Witness

		

		

		MICHAEL FITZGERALD                                        By:      /s/ Michael Fitzgerald

		                                                                                                Michael Fitzgerald

		

		                                                                                                ______________________________

		                                                                                                Witness

		

		

		DORAL EZ INVESTMENTS INC.                          By:      /s/ Erwin Zecha

		                                                                                                Erwin Zecha, President

		

		                                                                                                ______________________________

		                                                                                                Witness

		

		

		PURE PLAY MEDIA HOLDINGS, INC.                By:      /s/ Richard Arnold

		                                                                                                Authorized Signing Officer

		

		                                                                                                _______________________________

		                                                                                                Witness

		

		

		

		

		
			Page 35Untitled Page

		
			

				

				Exhibit 10.3

				

				

			

		

		
			LOAN AGREEMENT

						

						

					

		

		
			THIS AGREEMENT made as of the 19th day of September, 2002.

				

				BETWEEN:

		

		

		

		
			

			
				
					
						PURE PLAY MEDIA, INC.

							(hereinafter called the Borrower’)

					

				

			

			OF THE FIRST PART

		

		
			                                                       - and -

		

		
			

			                               DORAL EZ INVESTMENTS INC.

				                               (hereinafter called the “Lender”)

			OF THE SECOND PART

			

			WHEREAS the Borrower has been incorporated to carry on the business of producing, distributing, selling and licensing adult video content;

			

			AND WHEREAS the Borrower is desirous of borrowing from the Lender and the Lender is desirous of making loans to the Borrower on the terms and conditions hereinafter set out and for those purposes as hereinafter set out;

			

			NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby covenant and agree as follows:

				

				

			

		

		
			Article 1- INTERPRETATION

		

		
			

			1.1       Definitions

			

			For the purposes of this Agreement:

			

			“Advance Date” means that date on which the Loan is advanced by the Lender to the Borrower;

			

			“Advances” means all advances made by the Lender to the Borrower pursuant to the Loan;

			

			“Agreement”, “hereto”, “herein”, “hereof”, “hereby”, “hereunder” and similar expressions refer to this Loan Agreement and not to any particular section or other portion hereof and include any and every instrument supplemental or ancillary hereto and the expressions “article” or “section” followed by a number mean and refer to the specified article or section of this Agreement.

			

			“arm’s length” has the same meaning as those words are interpreted in the [Income Tax Act (Canada) from time to time;

			

			

			

			

			

			

		

		
			-2-

		

		
			

				

			

			“business day” means a day other than Saturday, Sunday or a statutory holiday in the Province of Ontario or the State of California;

			

			“Charged Property” means and includes all the undertaking, property and assets of the Borrower expressed herein or by any instrument supplemental hereto or thereto to be mortgaged, hypothecated, pledged, charged, ceded and/or transferred to the Lender by the Borrower or in which a security interest is granted, or intended so to be, in favour of the Lender by the Borrower;

			

			“control” and “controlled” has the same meaning as the definitions of the words “associate” and “associated” in the Business Corporations Act (Ontario) and “controlling” has a comparable meaning;

			

			“Employment Contracts” means the employment contracts made between the Borrower and each of the Principals;

			

			“Event of Default” means any of the events specified in Section 6.1, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act;

			

			“generally accepted accounting principles” or (“GAAP”) means the generally accepted accounting principles recommended by the American Institute of Chartered Accountants, as the same may be amended, replaced or restated from time to time;

			

			“GSA” means the general security agreement to be executed and delivered by the Borrower to the Lender as security for the Indebtedness;

			

			“Indebtedness” includes all principal and interest (including interest on overdue interest) and other amounts payable pursuant to the Loan and the Security from time to time outstanding;

			

			“Lapsing Date” means the date which is 12 months after the date of the first Advance made pursuant to this Agreement;

			

			“Loan” has the meaning given thereto in Section 2.1 hereof;

			

			“Maturity Date” means that date which is four years after the date of the first Advance made pursuant to this Agreement;

			

			“Ninn Worx Purchase Agreement’ means the agreement of even date herewith between the Borrower as purchaser and Michael Fitzgerald as vendor respecting the purchase and sale of certain equipment, prepaid expenses, customer contracts and goodwill of the business previously carried on by Michael Fitzgerald with the business or style name of “Nina Worx”.

			

			“Note” means the promissory note executed and delivered by the Borrower to the Lender with respect to the Advance substantially in the same form as the draft note attached hereto as Schedule A;

			

			

			

			

			

			

		

		
			-3-

		

		
			

				

				“Permitted Encumbrances” means any one or more of the following ranking in priority to the Security:

			

			
				(a)        liens for taxes, assessments or governmental charges or levies not at the time due and delinquent or the validity of which is being contested by the Borrower, in good faith and by proper legal proceedings which effectively postpone enforcement of any such lien;

					

					(b)        a lien under any judgment rendered or claim filed against the Borrower which the Borrower is contesting in good faith by proper legal proceedings provided that such proceedings effectively postpone enforcement of any such lien;

					

					(c)        with respect to any property of the Borrower, the reservations, limitations, provisos and conditions, if any, expressed in any original grants from the State of California, registered easements and statutory exceptions to title, which do not, in the opinion of counsel for the Lender, impair the use or marketability of such property subject to such reservations;

					

					(d)        liens or rights of distress reserved in, or exercisable under, any lease for rent or for compliance with the terms of such lease;

					

					(e)        any mortgage, hypothecation, charge, security interest or other encumbrance granted by the Borrower to Michael Fitzgerald as security for payment of the principal sum of $300,000 pursuant to the Ninn Worx Purchase Agreement on the property and assets of Michael Fitzgerald as they exist on the date of acquisition by the Borrower;

					

					(f)         any purchase-money security interest, as that term is defined in the California General Security Agreement 30:26 or any comparable security; and

					

					(g)        any charge, mortgage, claim, security interest or other encumbrance owed by the Borrower to some other person to which the Lender has agreed in writing to postpone to;

			

			

			“person” includes an individual, a partnership, joint venture, a trust, an unincorporated organization or any other association, a corporation and a government or any department or agency thereof and any other entity recognized by law;

			

			“Principals” means Richard Arnold, Brent Hahn and Michael Fitzgerald and “Principal” means any one of them;

			

			“Receiver” has the meaning given thereto in Section 7.10 hereof;

			

			“Security” means the GSA, the Note and any other instrument or agreement which purports to secure the Indebtedness;

			

			

			

			

			

			

		

		
			-4-

		

		
			

				

			

			“Shareholders Agreement” means the agreement made by all shareholders of the Borrower with respect to the business and affairs of the Borrower and dated the same date as the date hereof;

			

			“Subsidiary” means any corporation of which there is owned, directly or indirectly, by or for the benefit of the Borrower, or by or for the benefit of any corporation in like relationship to the Borrower, voting shares which in the aggregate entitle the holders thereof to cast more than 50% of the votes which may be cast by the holders of outstanding voting shares of such first-mentioned corporation for the election of its directors and includes any corporation in like relationship to a Subsidiary and “Subsidiaries” has a similar extended meaning; and

			

			1.2       U.S. Dollars

			

			All dollar amounts referred to in this Agreement are in the lawful money of the United States of America unless otherwise provided.

			

			1.3       Extended Meanings

			

			In this Agreement, where the context requires, the singular number includes the plural and vice versa, the masculine gender includes the feminine and neuter genders and vice versa.

					

				1.4       Headings

			

			

			All headings are included solely for convenience of reference and are not intended to be full or accurate descriptions of the contents thereof.

			

			1.5       Schedules

			

			The following schedules are incorporated herein and form part of this Agreement.

				            Schedule “A”    Note

				            Schedule “B”    List of Shareholders

			

			1.6       Financial Terms and Accounting Rules

			

			All financial terms employed and calculations provided for herein shall, unless otherwise specifically provided, be interpreted and applied in accordance with generally accepted accounting principles, applied on a consistent basis and applicable on both a consolidated, or combined if appropriate, and unconsolidated basis.

			

			ARTICLE 2- THE LOAN

			

			2.1       Loan

			

			Subject to the terms and conditions hereunder and relying upon the representations and warranties herein set forth, the Lender agrees to lend an aggregate maximum principal amount of the equivalent to $1,000,000,US funds in Canadian funds available any time prior to the Lapsing

			

			

			

			

			

			

		

		
			-5-

		

		
			

				

				Date in Advances of $100,000 or multiples thereof, on at least five days notice prior to the proposed date of each such Advance, all of which shall be available to the Borrower on a non-revolving basis which amounts the Borrower hereby agrees to pay on the Maturity Date or as otherwise provided herein. Notwithstanding the foregoing, the principal amount of the Loan outstanding at any time together with all interest, fees and other amounts payable hereunder in connection therewith shall become due and payable upon the occurrence of an Event of Default and upon demand being made therefor by the Lender in accordance with the terms and conditions hereof and the Security. The Borrower shall make a payment on account of principal on the first anniversary of the date of the first Advance in an amount equal to 7% of the outstanding principal amount of the Loan at that time.

			

			2.2       Conditions Precedent to the Loan

			

			The Lender’s obligation to advance the Loan is conditional upon and subject to the satisfaction of the following conditions precedent, the satisfaction of which shall be in the sole determination of the Lender on the Advance Date:

			

			
				(a)        in the event that the Borrower desires to receive the Advance it shall first deliver to the Lender at least five days prior written notice requesting the Advance;

					

					(b)        the Borrower shall have delivered to the Lender a signed copy of each of the following documents:

					

				

				
					(i)         this Agreement;

						

						(ii)        the Note;

						

						(iii)       the GSA;

						

						(iv)       the Shareholders Agreement; and

						

						(v)        the Employment Contracts;

						

					

				

				(c)        the Borrower shall have submitted to the Lender a detailed budget and business plan of the Borrower for at least a 12 month period which shall at least include the date set for the Advance in form and content satisfactory to the Lender;

					

					(d)        the Borrower shall have delivered to the Lender, in form satisfactory to the Lender, a fully executed copy of such other documents as the Lender may reasonably require;

					

					(e)        the Borrower shall have delivered to the Lender, in form satisfactory to the Lender, a certificate of a senior officer of the Borrower that the representations and warranties set out in this Agreement are true and correct as at such time;

			

			

			

			

			

			

			

		

		
			-6-

		

		
			

				

			

			
				(f)         there shall have been no default by the Borrower hereunder or under the Security;

					

					(g)        the Security shall have been duly and validly authorized, executed, delivered and registered where required;

					

					(h)        all necessary corporate action shall have been taken by the directors and shareholders of the Borrower to authorize the execution and delivery of this Agreement, the Security and all other documentation required in connection with this transaction.

			

			

			2.3       Funding Limitation

			

			Provided it has not been in default of funding and notwithstanding all of the conditions for advancing the Loan have been satisfied by the Borrower, the Lender shall have no obligation to advance the Loan or any part thereof after the Lapsing Date.

			

			The Borrower acknowledges that the completion of the Advance shall not be deemed to be waiver or acceptance by the Lender of any condition precedent, and shall not be deemed to be a waiver of any rights the Lender might have for breach of such condition.

			

			2.4       Interest on the Loan

			

			
				(a)        The principal amount of the Loan outstanding hereunder from time to time together with any due and unpaid interest thereon shall bear interest at the Loan Interest Rate per annum, calculated and compounded yearly in arrears on each yearly anniversary during the term hereof, provided that the first payment shall be calculated for the period commencing on the date the first Advance to and including the last day of the next calendar quarter and the last payment shall be calculated for the period commencing on the first day of the calendar quarter and ending before the Maturity Date.

					

					(b)        In this Agreement, the Loan Interest Rate shall mean:

					

				

				
					(i)         during the period commencing on the date of this Agreement and ending on the earlier of:

						

					

					
						(A)       12 months after the date of the first Advance made pursuant to this Agreement; and

							

							(B)       an Event of Default;

							

							nil % per annum; and

							

						

					

					(ii)        during the period commencing thereafter before and after the Maturity Date, 7% per annum;

				

			

			

			

			

			

			

			

		

		
			-7-

		

		
			

				

			

		

		
			
				(c)                Interest shall be due on overdue interest and on such part of the principal amount of the Loan as remains outstanding from time to time at the Loan Interest Rate, as well after as before maturity, default and judgment.

			

		

		
			

			2.5       Accrued Interest

					

				Notwithstanding the foregoing any interest payment which is due and payable may be postponed and may accrue at the option of the Lender at the prevailing interest rate if the making of such interest payment by the Borrower would result in the working capital of the Borrower falling below the working capital requirements of the Borrower approved by the Lender.

			

			2.6       Prepayment

					

				The Borrower shall have the right to prepay the principal amount of all or any part of the Loan at any time without notice or bonus provided that all interest which has accrued to the date of such prepayment in respect of the Loan and the amount so prepaid, and all fees which had become payable prior to the date of such prepayment, are paid at the time of such prepayment.

			

			2.7       Default Interest

					

				Should the Borrower at any time default in any payment of principal or interest hereunder, it shall pay interest on the amount of interest and/or principal in default at the rate per annum at such time set out in Section 2.4(b)(ii), at the same time and place as provided for the payment of interest generally hereunder, such interest to be payable both before and after judgment and maturity, until payment in full.

			

			2.8       Place and Manner of Payment

					

				Payment of the principal and/or interest due on any date shall be made by the Borrower to the Lender by cheque or bank draft, at the City of Mississauga, or at such other place in Ontario as the Lender may direct in writing. Payment shall be credited to the Borrower on the day of receipt only if received prior to 2:00 p.m. and only if the day of receipt is a business day and otherwise shall be credited on the next business day following receipt. The receipt of such cheque shall satisfy and discharge the liability for the principal and/or interest to the extent of the sums represented thereby unless such cheque is not paid on presentation. All payments shall be made in Canadian Funds.

			

			2.9       No Set-Off

			

			The obligations of the Borrower to make all payments of principal and interest and all other amounts due hereunder shall be absolute and unconditional and shall not be affected by any circumstance, including, without 1 imitation, any set-off, compensation, counter-claim, recoupment, defence or other right which the Borrower may have against the Lender or anyone else for any reason whatsoever.

			

			2.10     Restrictions on Distributions

			

			As long as any Indebtedness remains outstanding any funds of the Borrower not required for working capital or other purposes as set out in the relevant budget and business plan or otherwise

			

			

			

			

			

			

		

		
			-8-

		

		
			

				

			

			and which are otherwise available for distribution to the shareholders of the Borrower shall not be distributed to the shareholders as such and shall be used and applied towards repayment of the Indebtedness.

				

			

		

		
			ARTICLE 3 - REPRESENTATIONS AND WARRANTIES

			

		

		
			3.1       Representations and Warranties

			

			The Borrower represents and warrants to the Lender, and acknowledges that the Lender is relying on such representations and warranties in entering into this Agreement and in making any Advances hereunder, as follows:

			

			
				(a)        Status. The Borrower has been duly incorporated and organized and is a valid and subsisting corporation under the laws of the State of California, and has full capacity and power to carry on its business and to own and lease its property; the Borrower has the corporate power and is duly authorized to borrow the moneys herein contemplated and to enter into, execute, deliver and perform this Agreement and the Security and holds all necessary licences, permits and consents to carry on such business in all jurisdictions in which it does so;

					

					(b)        Non-Violation of Other Instruments and Authorization.

					

				

				
					(i)         The borrowing of money by the Borrower, the entering into and performance of this Agreement, the Security and any other agreement additional or collateral hereto or thereto do not conflict and will not conflict with, and does not result, and will not result with the passage of time or otherwise in a breach or violation of, or constitute a default under, its articles of incorporation, as amended, or its by-laws or any of the covenants or the provisions contained in any agreement to which it is a party or by which it or its assets are or may be bound or to which it or its assets are or may be subject and does not require the consent or approval of any person; and

						

						(ii)        All necessary steps and proceedings have been taken and all consents have been obtained to authorize the entering into, delivery and performance of this Agreement and to create and authorize the issuance, delivery and performance of the Security;

						

					

				

				(c)        Valid Obligations. This Agreement and the Security constitute valid and binding obligations of the Borrower enforceable against it in accordance with their respective terms, provided that the enforceability thereof may be limited by:

					

				

				
					(i)         bankruptcy, insolvency, liquidation, reorganization, reconstruction or other laws affecting the enforcement of creditors’ rights generally; and

				

			

			

			

			

			

			

			

		

		
			-9-

		

		
			

				

			

			
				
					(ii)        general principles of equity (regardless of whether enforcement is considered to be proceedings at law or in equity) and no representation is given as to any specific remedy that may be granted, imposed or rendered only in the discretion of a court of equity, including remedies such as those of specific performance and injunction;

						

					

				

				(d)        No Default. The Borrower is not in default in the performance or observance of any of the obligations, covenants or conditions contained in any material contract, agreement or other instrument to which it is a party or by which it is bound;

					

					(e)        Financial Condition. The Borrower is newly incorporated and as such has no material financial history except as has been fully disclosed to the Lender;

					

					(f)         No Actions. There are no actions, suits or judicial or arbitral proceedings pending or to the knowledge of the Borrower threatened against the Borrower in any court or other authority;

					

					(g)        Real Property. The Borrower does not own any real or immovable property;

					

					(h)        Equipment. All equipment owned or used by the Borrower has been properly maintained and is in good working order and for the purposes of ongoing operation, subject to ordinary wear and tear;

					

					(i)         Orders or Notices. There are no outstanding orders, notices, or similar requirements relating to the Borrower or its assets issued by any building, environmental, fire, health, labour or police authorities or from any other federal, provincial or municipal authority and there are no matters under discussion with any such authorities relating to orders, notices or similar requirements.

					

					(j)         Compliance with Laws. The Borrower is not in breach of any by-law, law, statute, regulation, rule or order, of any authority relating in any way to the operation of its business, and there are no restrictions or other agreements affecting its undertaking, property and assets except as disclosed by Permitted Encumbrances;

					

					(k)        Judgements and Executions.  There are no judgements or executions filed or pending against the Borrower or its property;

					

					(1)        Insolvency Proceedings. The Borrower:

					

				

				
					(i)         is not insolvent; and

						

						

						

						

						

					

				

			

			

			

			

		

		
			-10-

		

		
			

				

			

		

		
			
				
					(ii)        has not committed an act of bankruptcy, proposed a compromise or arrangement of its creditors generally, made any assignment for the benefit of creditors, or taken any proceedings with respect to a compromise or arrangement or to have a receiver appointed over any part of its assets; and

						

						(iii)       has not had any receiving order under the provisions of the Bankruptcy and Insolvency Act (Canada) filed against it, had any petition for such an order served upon it, and there are no proceedings in effect or threatened under the provisions of the Winding-Up Act (Canada) or the Companies’ Creditors Arrangement Act (Canada), nor has any receiver, receiver and manager, monitor, custodian or official with similar powers been appointed by court order or privately respecting the Borrower or any of its assets or property;

						

					

				

			

			
				(m)       Leases. The Borrower is in good standing under all leases to which it is a party and no right currently exists in any lessor or lessee thereunder to terminate any such lease and each such lease is valid and binding;

					

					(n)        Employee Payments. The Borrower has withheld from each payment to any of its officers, directors and employees the amount of taxes, including, but not limited to income tax and other deductions required to be withheld therefrom and has paid the same to the proper tax or other receiving officers within the time required under any applicable legislation. The Borrower is not subject to any claim by its employees arising from salary or benefits which would rank pari passu with, or prior to, the charges of the Security, all such salary and benefits being paid when and as due;

					

					(o)        Material Liabilities.  There are no material liabilities of the Borrower of any kind whatsoever, whether or not accrued and whether or not determined or determinable, contingent or otherwise, in respect of which the Borrower is or may become liable on or after the date of this Agreement which have not been fully disclosed in writing to the Lender;

					

					(p)        Location of Assets. The assets of the Borrower are located in the State of California and in no other place or places;

					

					(q)        Insurance. The property and assets of the Borrower are insured against loss and damage as required by the Lender from time to time acting reasonably all such insurance policies are in good standing, and the Borrower is not in default with respect to any of the provisions contained in any such insurance policy and has not failed to give any notice or present any claim under any insurance policy in due and timely fashion;

					

					(r)        Intellectual Property. Subject to Permitted Encumbrances, the Borrower owns free of adverse claims, all of the trademarks, trade names, copyrights, patents (whether issued or for which an application has been filed), industrial designs, know-how, trade secrets,

			

		

		
			

			

			

			

			

			

		

		
			-11-

		

		
			

				

			

		

		
			
				licences, or rights in any of the same (the “Intellectual Property”), required for or used in the conduct of its business, and all registrations in respect of any trade marks or patents, grant, or will grant when issued, valid and enforceable rights to the Borrower, without material conflict with the rights or claimed rights of others and all such Intellectual Property is in good standing and registered as applicable;

					

					(s)        Pension Plan. The Borrower does not have a pension plan or fund, and has not made any commitment, verbal or written, to establish any pension fund or plan. For greater certainty, the Borrower has no unfunded liabilities under any pension plan;

					

					(t)         Authorized and Issued Capital. The authorized capital of the Borrower consists of an unlimited number of Common Shares of which the only issued and outstanding shares of the Corporation are 10,000 Common Shares. All issued and outstanding shares in the capital of the Borrower are fully paid and non-assessable;

					

					(u)        Options and Calls. There are no agreements, calls, commitments, options, subscriptions, warrants or other rights or privileges, either oral or written, to require the Borrower to issue additional shares in the capital of the Borrower, whether upon the conversion of other securities or otherwise;

					

					(v)        Title to Shares. The persons set out on Schedule B hereto are all of the shareholders of the Borrower are registered as their names appear in Schedule B and hold the shares set out opposite their respective names beneficially;

					

					(w)       Material Contracts. Except as disclosed to the Lender in writing, the Borrower is not a party to or bound by any material contract or commitment, whether oral or written, relating to or affecting its business. All such material contracts are in full force and effect, unamended in writing, by usage or otherwise, and they include all the presently outstanding material contracts entered into by the Borrower in the course of carrying on its business and all quotations, offers, orders or tenders for such contracts which remain open for acceptance. No material default or event or condition which, after the giving of notice or the passage of time or both, would constitute a default, exists in respect thereof on the part of any of the parties thereto. The Borrower has the capacity, including the necessary personnel, equipment and supplies to perform all of its obligations thereunder.

					

					(x)        Collective Agreements and Benefits Plans. Except as already disclosed to the Lender in writing, the Borrower is not bound by or a party to:

					

				

			

			
				
					(i)         any collective bargaining agreement, or

						

						(ii)        any benefit plan, including, without limiting the generality of the foregoing, any pension, bonus, deferred or incentive compensation, profit sharing, stock option, retirement, group insurance, death benefit, vacation, health and welfare or other fringe benefit plans,

				

			

		

		

		

		

		

		

		

		

		
			-12-

		

		

			

		

		
			
				trust agreements, policies, practices or other arrangements adopted or maintained by or on behalf of the Borrower for any of its employees, officers or directors relating to its business;

					

				

			

			(y)        No Bargaining Rights. No trade union, council of trade unions, employee bargaining agency or affiliated bargaining agent:

				

			

			
				(i)         holds bargaining rights with respect to any of the Borrower’s employees by way of certification, interim certification, voluntary recognition, designation or successor rights;

					

					(ii)        has applied to be certified as the bargaining agent of any of the Borrower’s employees; or

					

					(iii)       has applied to have the Borrower declared a related employer pursuant to the Labour Relations Act (Ontario);

					

				

			

			(z)        Workers’ Compensation. There are no outstanding assessments or experience rating charges against the Borrower pursuant to the Workers’ Compensation Act (Ontario) nor is the Borrower liable for any charges pursuant to the said Act.

				

				(aa)      Conduct of Business. Except as disclosed by the Borrower in writing to the Lender:

				

			

			
				(i)         The Borrower is not a party to or bound by any contract or commitment to pay any royalty, licence fee or management fee (other than fees for professional services to the Borrower’s auditors) to any person, corporation or other entity;

					

					(ii)        There is no indebtedness due and owing to the Borrower by any director, officer, shareholder or employee of the Borrower, or any person not dealing at arm’s length with any such person within the meaning of the Income Tax Act (Canada);

					

					(iii)       The Borrower is tip to date in the filing of annual returns and all other returns and documents required to be filed by it pursuant to applicable legislation and the corporate, accounting and other records required by applicable legislation to be kept by the Borrower have been completely and properly written up and kept;

					

					(iv)       No dividend has been declared and no distribution has been made in respect of any of the shares of the Borrower;

			

		

		
			

			

			

			

			

			

			

			

			

		

		
			-13-

		

		
			

				

			

		

		
			
				
					(v)        All federal and state tax returns, and all other tax returns of the Borrower required by law to be filed, have been duly filed and all Taxes shown by said returns or otherwise assessed which are due and payable have been paid. There are no actions, suits, proceedings, investigations, audits or claims now threatened or pending or in progress against the Borrower in respect of any taxes.

						

					

				

			

			
				(bb) Full Disclosure. The information furnished to the Lender by the Borrower in connection with this Agreement and the Loan does not contain any untrue statement of a material fact and does not omit to state any material fact necessary to make the statements made, in the context in which made, not false or misleading. There is no fact or contingency which the Borrower has not disclosed to the Lender in writing which:

					

				

			

			
				
					(i)         might have a material adverse effect on the property and assets of the Borrower, the conduct of the Borrower’s business or the condition (financial or otherwise) or prospects of the Borrower; or

						

						(ii)        could reasonably be expected to be material to an intending lender or to an intending purchaser of shares in the capital of the Borrower.

				

			

		

		
			

			3.2       Leasehold Property and Environmental Representations and Warranties

			

			The Borrower also specifically represents and warrants to the Lender, and acknowledges that the Lender is relying on such representations and warranties in entering into this Agreement and in making any Advance hereunder, that the Borrower does not materially violate and has not ever materially violated any applicable laws, by-laws, regulations, governmental decrees or ordinances (including without limitation, all applicable federal, provincial and municipal or local laws, by-laws, regulations, decrees or ordinances) with respect to the management, control, reporting, disposal and transportation of contaminants, pollutants, oil, hazardous materials and waste.

			

			3.3       Survival of Representations, Warranties and Covenants

			

			The Borrower agrees that the covenants, agreements, representations and warranties of the Borrower set forth in this Agreement and in any certificate or other document delivered hereunder by or on behalf of the Borrower, notwithstanding any investigation made by the Lender or its counsel or any other representative of the Lender or the making of the Advance hereunder or any other thing or matter;

			

			
				(a)        are material;

					

					(b)        shall be deemed to be relied upon by the Lender or by any subsequent holder of the Security;

			

		

		

		

		

		

		

		

		

		
			-14-

		

		

			

		

		
			(c)        shall survive the execution and delivery of this Agreement and the Security; and

				

				(d)        shall continue in full force and effect until all of the Indebtedness has been repaid.

				

			

		

		
			ARTICLE 4- SECURITY

				

			

		

		
			4.1       Security

			

		

		
			

			To secure the due and punctual payment of the Indebtedness and to secure the due and punctual performance of the Borrower’s other obligations hereunder, the Borrower shall execute and deliver to the Lender the GSA and the Note. The Security will be subordinate only to the Permitted Encumbrances.

			

			4.2       Discharge

			

			Once the Borrower has paid all Indebtedness and satisfied all of its obligations hereunder, at the written request and at the expense of the Borrower, the Borrower shall be entitled to receive a discharge of all charges and liens under the Security and such deeds or other instruments as are required to discharge the charges and liens therein.

			

			4.3       Expropriation

			

			If the Borrower receives notice that any part of its property or assets included in the Security has been or is to be expropriated or taken by similar proceedings, the Borrower shall forthwith deliver to the Lender a written notice setting out particulars of the expropriation. The Borrower shall further cause all proceeds payable in respect of such expropriation or taking to be paid to the Lender to be applied as repayment of the Indebtedness applied firstly to outstanding fees hereunder and thereafter to interest and thereafter to principal and then to any other amounts accrued and unpaid hereunder, to the extent of the funds received.

				

			

		

		
			ARTICLE 5- COVENANTS

		

		
			

			5.1       Positive Covenants

			

			The Borrower hereby covenants and agrees with the Lender that, so long as any of the Indebtedness remains unpaid:

			

			
				(a)        To Pay Indebtedness. The Borrower will well, duly and punctually pay or cause to be paid to the Lender the Indebtedness at the dates, times and places, and in the manner provided for herein;

					

					(b)        Notice of Removal of Assets.  If at any time, or from time to time, the Borrower desires to remove any of its property and assets to any jurisdiction other than a jurisdiction in which the Security is validly registered to create a charge on that property, the Borrower will, prior to removing such assets, give the Lender 30 days prior written notice

			

		

		

		

		

		
			

			

			

		

		
			-15-

		

		
			

				

			

		

		
			
				thereof, accompanied by a full description of such assets and the proposed situs thereof and shall deliver, prior to the removal of such assets, such documents and instruments filed or registered pursuant to applicable law, if required, as may be necessary to preserve and perfect the Lender’s security interest therein and the priority in respect thereof in such other jurisdiction in form and content satisfactory to the Lender and the Lender may require, in its sole discretion, an opinion from solicitors for the Borrower as to the due registration of the Security in such jurisdiction and that the Lender’s security position is not prejudiced by such removal of assets;

					

					(c)        Notice of Litigation. The Borrower will give the Lender prompt written notice of any:

					

				

			

			
				
					(i)         action, suit, litigation or other proceeding which is commenced or threatened against the Borrower and which involves a claim or potential claim in excess of $10,000 (including an estimate of legal fees that are likely to be incurred by the claimant, and the Borrower’s probable legal fees); and

						

						(ii)        any claim which is not fully covered by insurance except for deductible amounts approved by the Lender; and

						

						(iii)       any claims for costs for environmental clean-up, or orders to effect any environmental clean-up;

						

					

				

			

			
				(d)        Notice of Material Change. The Borrower will give the Lender prompt written notice of any material change in the business or condition of the Borrower, financial or otherwise, or of any material loss, destruction or damage of or to any properties or assets of the Borrower;

					

					(e)        To File Financial Statements and Certificate of No Defaults. The Borrower shall furnish to the Lender:

					

				

			

			
				
					(i)         within 90 days after the end of each of its fiscal years, audited financial statements including the following:

						

					

				

				
					
						(A)       an audited balance sheet of the Borrower, prepared in accordance with generally accepted accounting principles applied on a consistent basis, as at the end of such year, signed by two directors;

							

							(B)       audited statements of profit and loss of the Borrower, surplus and source and application of funds, prepared in accordance with generally accepted accounting principles applied on a consistent basis for such year, including therewith relevant information regarding dealings with controlled companies; and

					

				

			

		

		
			

			

			

			

			

			

			

		

		
			-16-

		

		
			

				

			

		

		
			
				
					
						(C)       a report of the Borrower’s auditors thereon containing no reservation of opinion and subject to no qualification which the Lender finds unacceptable;

							

						

					

				

				
					(ii)        within 60 days prior to the end of each of its fiscal years, annual pro forma balance sheets, profit and loss and cash flow statements for the next year and such other reports as the Lender may reasonably request; and

						

						(iii)       at least 60 days prior to the end of each of its fiscal years, an annual business plan and operation budget approved by the Lender for the next fiscal year that includes anticipated or planned operating and capital expenditures of the Borrower, together with a broad forward business overview for the two fiscal years following the next fiscal year including pro forma balance sheets, profit and loss and cash flow statements;

						

					

				

			

			
				(f)         Other Information. The Borrower will promptly furnish the Lender with such other information respecting the Borrower, its properties, assets and anticipated contracts, acquisitions, investments and other matters and information relating to the Borrower and its business, as the Lender may from time to time reasonably request;

					

					(g)        To Maintain Existence. The Borrower will at all times maintain its corporate existence;

					

					(h)        To Carry on Business and Abide by Government Regulations. The Borrower will carry on its business in a proper and efficient manner, and will keep or cause to be kept proper books of account and make or cause to be made therein true and faithful entries of all material dealings and transactions in relation to its business, and will at all times abide by all laws, by-laws, regulations, orders, decrees and the like regarding the properties, assets and operation of the business of the Borrower.

					

					(i)         To Insure.

					

				

			

			
				
					(i)         Insurance Coverage. The Borrower will take out and maintain, with insurer(s) acceptable to the Lender and at its own expense, insurance coverage as acceptable to the Lender acting reasonably.

						

						(ii)        Renewal Receipt. No later than 30 days prior to the expiry of any insurance policy required hereby, the Borrower shall deliver to the Lender a renewal receipt, binder or new policy replacing such expiring insurance policy, or otherwise satisfy the Lender that such insurance has been renewed.

				

			

		

		

		

		

		

		

		

		

		

		

		

		

		

		
			-17-

		

		

			

		

		
			
				(iii)       Application of Proceeds. At the request of the Lender the Borrower shall cause the insurance money under all policies required hereunder to be made payable to the Lender in accordance with its interests or shall otherwise deal with such policies in such manner as to enable any insurance money payable hereunder to be collected by the Lender which may, in its sole discretion, elect to have such insurance money applied to replace or repair the relevant assets or towards prepayment of the moneys advanced hereunder whether then due or not. The Borrower shall from time to Lime do, sign, execute or endorse all transfers, assignments, cheques, loss claims, receipts, writings and things necessary or desirable for such purposes and for such purposes the Borrower hereby irrevocably appoints the Lender its attorney to do, sign, execute and endorse such transfers, assignments, cheques, loss claims, receipts, writings and things in the name of the Borrower and on its behalf as the Lender may deem necessary or advisable;

					

				

			

			(j)         Employee Payments. The Borrower will withhold from each payment to any of its officers, directors and employees the amount of all source deductions, including, but not limited to income tax and other deductions required to be withheld therefrom and will pay the same to the proper tax or other receiving authorities within the time required under any applicable legislation;

				

				(k)        Further Assurances. At any and all times the Borrower will, at its expense, do, execute, acknowledge, deliver, file and register or will cause to be done, executed, acknowledged, delivered, filed and registered all and every such further acts, deeds, conveyances, mortgages, transfers and assurances as the Lender reasonably requires, for the purpose of giving effect to this Agreement and the Security;

				

				(1)        Payment of Costs and Expenses. The Borrower and the Lender shall each pay their respective costs, charges and expenses (including legal fees and disbursements on a solicitor and his own client basis and accounting and other professional fees) of or incurred by either of them in connection with the preparation, negotiation and execution of documents and the performance of all necessary due diligence and other review in connection with the Loans and the Security taken in pursuant hereof. The Borrower shall pay or reimburse the Lender and its agents for all reasonable costs, charges and expenses of or incurred by the Lender from time to time in connection with the recovery or enforcement of repayment of the Indebtedness or any part thereof or in connection with the enforcement or realization of any of the Security and any amount not so paid shall bear interest at the annual rate of interest of 12% per annum calculated and compounded monthly and shall be payable out of any funds coming into the possession of the Lender in priority to the Indebtedness;

				

				(m)       Use of Proceeds. The Borrower will use the proceeds of the Loan only for the purpose of:

		

		

		

		

		

		

		

		

		

		

		
			-18-

		

		

			

		

		
			
				(i)         its working capital requirements;

					

					(ii)        paying or reimbursing any party for all reasonable costs, charges and expenses (including legal fees and disbursements on a solicitor and his own client basis and accounting and other professional fees) of or incurred by the Borrower in connection with the preparation, negotiation and execution of documents and the performance of all necessary due diligence and other review in connection with the Loans and the Security taken in pursuance hereof

					

				

			

			(n)        Change of Address. The Borrower shall provide the Lender with not less than 30 days prior written notice of any change of address of any office or other business location of the Borrower and of the location of the new business premises where the Borrower undertakes its business at any time;

				

				(o)        Notice of Default. The Borrower shall give prompt written notice to the Lender of any Event of Default hereunder, of any event which, with notice or lapse of time or both, would constitute an Event of Default; and

				

				(p)        Bank Account. The Borrower shall open a new bank account which shall at all times be separate and apart from the Borrower’s operating account(s), shall deposit the proceeds of the Loan into such account and shall maintain the balance of the Loan at all times in such account.

		

		
			

			5.2       Negative Covenants

			

			The Borrower hereby covenants and agrees with the Lender that so long as any of the Indebtedness remains outstanding, without the prior written consent of the Lender, it will not:

			

			
				(a)        Not to Sell Assets or Enter Into Amalgamations and Mergers.

					

				

				
					(i)         sell any of its property, assets or undertaking as an entirety or substantially as an entirety;

						

						(ii)        sell or dispose of plant, machinery and equipment, except in accordance with the provisions hereof, or

						

						(iii)       amalgamate or merge or enter into any statutory arrangement with any other corporation or entity;

						

					

				

				(b)        As to Encumbrances. Do any act to encumber its property or assets, or create or permit to exist any mortgage, hypothec, charge, pledge, lien or encumbrance, or other security interest, whether by fixed or floating charge, upon its undertaking, property or assets or any part or parts thereof, except the Security and Permitted Encumbrances;

					

					

					

					

				

			

		

		

		

		

		
			-19-

		

		

			

		

		
			(c)        Restriction on Sale and Leasebacks. Sell, assign or dispose of any property in any transaction or series of transactions which will conclude with a reacquisition by the Borrower of the same or similar property:

				

			

			
				(i)         subject to any encumbrance to which such property was not therebefore subject; or

					

					(ii)        pursuant to a conditional sale agreement or other title retention agreement including a financing transaction or capital lease arrangement save and except for Permitted Encumbrances;

					

				

			

			(d)        Not to Enter Lease. Enter into or assume or otherwise become a party to any lease as tenant, other than leases in the ordinary course of business, renewals of leases existing on the date hereof on substantially the same terms, or leases constituting Permitted Encumbrances;

				

				(e)        Restrictions on Payables Repayment of Subordinated Debt. Make any payment in respect of trade payables in the ordinary course of business at any time when the Borrower shall be in default hereunder or the payment would render the Borrower in default;

				

				(f)         Not to Assign Shares. Permit, approve or consent to the assignment, sale, transfer or issuance of any of the shares in the share capital of the Borrower other than as specifically permitted in the Shareholders Agreement;

				

				(g)        Sale of Property. Sell, transfer, convey, lease or otherwise dispose of any part of its property or assets, except in the ordinary course of business;

				

				(h)        Corporate Changes.  Change its name, merge or amalgamate or consolidate with any other corporation;

				

				(i)         Executive Management Remuneration. Fix, pay or change any bonus, fee or other commission paid or payable to executive management, to any shareholder of the Borrower or to any person not dealing at arm’s length with any of the shareholders of the Borrower other than as set out in the Shareholders Agreement;

				

				(j)         Financial Assistance. Provide financial assistance, whether by guarantee or otherwise, to any Subsidiary of the Borrower, to any shareholder of the Borrower or to any person not dealing at arm’s length with any shareholder of the Borrower;

				

				(k)        Material Changes. Make any material change in the nature of its business;

				

				(1)        Non-arm’s Length Transactions. Enter into any transaction with any of its shareholders or any person not dealing at arm’s length with any of its shareholders;

		

		
			

		

		

		

		

		

		

		

		

		
			-20-

		

		

			

		

		
			(m)       Misuse of Proceeds of the Loans. Use any of the proceeds of the Loan in any other manner not permitted by this Agreement;

				

				(n)        Corporate Distributions. Declare any dividends so long as any of the Indebtedness remains outstanding otherwise than in accordance with this Agreement and with the approval of the Lender;

				

				(o)        Subsidiaries. Acquire or create, or agree to acquire or create, any Subsidiary or business;

				

				(p)        Amendments to Share Provisions. Create any new classes of shares or add, change or remove any rights, privileges, restrictions and conditions in respect of all or any of its shares, whether issued or unissued; or

				

				(q)        Purchase for Cancellation and Redemption. Purchase for cancellation any of the Common Shares otherwise than in accordance with this Agreement or the Shareholders Agreement.

				

			

		

		
			ARTICLE 6- DEFAULT AND ENFORCEMENT

		

		
			

			6.1       Events of Default

			

			Each and every of the following shall be an Event of Default under this Agreement:

			

			
				(a)        If the Borrower makes default in payment of the Indebtedness as and when the same becomes due under any provision hereof provided that such default remains unremedied for five days after written notice of default is given by the Lender to the Borrower;

					

					(b)        If the Borrower neglects to carry out or observe any covenant or condition (other than those relating to the payment of any Indebtedness) hereunder or under the Security, provided that:

					

				

				
					(i)         the Borrower shall have 30 days after receipt of notice from the Lender to make good such default before the Borrower shall be in default hereunder; and

						

						(ii)        if such default cannot be cured within such 30 day period but is capable of being cured in a timely manner, and the Borrower so advises the Lender prior to the termination of such 30 day period, and if the Lender in its sole discretion is satisfied that the Borrower is diligently proceeding to cure such default, the Borrower shall have an additional 30 days to make good such default before the Borrower shall be in default hereunder;

				

			

			

			

			

			

			

			

			

		

		
			-21-

		

		
			

				

			

		

		
			
				(c)        If the Borrower ceases, or threatens to cease, carrying on its business or if a petition is filed, an order is made or a resolution is passed for the winding-up or liquidation of the Borrower;

					

					(d)        If the Borrower becomes unable to pay its debts generally as they become due or makes a bulk sale of its assets or a general assignment for the benefit of its creditors or a proposal under the Bankruptcy and Insolvency Act (Canada) or if a bankruptcy petition is filed or presented with respect to the Borrower and is not removed or discharged prior to the time when any party thereunder has the right to realize against the property and assets of the Borrower, or if a custodian or a sequestrator or a receiver or receiver and manager or any other officer with similar powers is appointed, by court order or privately, of its properties, or any part thereof which is, in the opinion of the Lender, a substantial part thereof;

					

					(e)        if any proceedings respecting the Borrower are commenced under the Companies’ Creditors Arrangement Act (Canada) or under the Winding-Up Act (Canada) or any legislation or other provision of law providing for similar effect;

					

					(f)         If an encumbrancer of any of the property of the Borrower takes possession of the property of the Borrower or any part thereof which is, in the opinion of the Lender, a substantial part thereof or if a distress or execution or any similar process is levied or enforced against and remains unsatisfied for such period as would permit such property or such part thereof to be sold or seized thereunder, or if a judgment or order is obtained against the Borrower which, in the reasonable opinion of the Lender, materially and adversely affects the ability of the Borrower to carry on its business or a substantial part thereof, or if such judgment or order is for the payment of money, and has not been satisfied within 20 days of the date that such judgment or order is issued;

					

					(g)        If default occurs under any obligation of the Borrower to repay borrowed money or interest thereon to any person and such default is not rectified within the period provided for rectification in any governing agreement or there is any breach by the Borrower of any agreement between the Borrower and any person to whom the Borrower is indebted, provided that such breach entitles the other party to exercise its rights under such agreement, and that such breach is not remedied within the time provided therefor in such agreement;

					

					(h)        If any of the representations and warranties contained herein or in any of the Security prove to have been false or misleading in any material respect on the date hereof or the date of making of any Advance or become false or misleading at any time during the term hereof, each representation and warranty being deemed to be continuously restated with a current effective date during each day of the term hereof,

					

					(i)         If the Borrower is in default under the Security or any other written agreement entered into with or in favour of the Lender at any time;

					

					(j)         If, without the prior written consent of the Lender, there is any change in the legal or beneficial ownership of any of the outstanding shares in the share capital of the

			

		

		

		

		

		

		

		

		

		

		

		
			-22-

		

		

			

		

		
			Borrower, except as permitted and in accordance with the Shareholders Agreement, whether or not such is voluntary or involuntary, by operation of law, order of the Court or otherwise or if any of the outstanding shares of the Borrower are pledged, charged, sold, assigned, transferred, or otherwise encumbered or if additional shares of the Borrower are issued, such that any of the foregoing cause a change in control of the Borrower to a person not controlling the Borrower as of the date hereof, control for the purposes of this subsection having the meaning as defined in the Business Corporations Act (Ontario), unless any such change is made in accordance with the provisions of the Shareholders Agreement;

				

				(k)        If, in the opinion of the Lender, there is material adverse change in the financial condition, ownership or operation of the Borrower; or

				

				(1)        If there is a breach, at any time and in any material respect, by the Borrower of the provisions of any applicable law, regulation, by-law, ordinance or work order of any lawful authority, whether federal, provincial, municipal, local or otherwise affecting any of the property and assets of the Borrower, or any activity or operation carried out by the Borrower, provided that such default remains unremedied for 30 days after written notice of default is given by the lawful authority of the Lender to the Borrower; or

				

				(m)       If two or more of the Principals cease to be employees of the Borrower without the prior written consent of the Lender.

		

		
			

			6.2       Acceleration on Default

			

			Upon the occurrence of an Event of Default, the Lender may, in addition to any other rights or remedies provided for herein or in the Security or at law or in equity, declare the Indebtedness to be immediately due and payable and the same shall forthwith become immediately due and payable and the Borrower shall forthwith pay to the Lender the Indebtedness in its entirety.

			

			6.3       Waiver of Default

			

			The Lender may at any time waive in writing any Event of Default which may have occurred, provided that no such waiver shall extend to or be taken in any manner whatsoever to affect any subsequent Event of Default or the rights or remedies resulting therefrom. No delay or failure by the Lender to exercise any right or remedy hereunder shall impair any such right or remedy or shall be construed to be a waiver of any Event of Default hereunder or under the Security or acquiescence therein.

			

			6.4       Remedies Cumulative

			

			Each of the remedies available to the Lender is agreed by the Borrower to be a separate remedy and in no way is a limitation on any one or more of the other remedies otherwise available to the Lender. The rights and remedies herein expressly specified or in the Security are cumulative and not exclusive. The Lender may in its sole discretion exercise any and all rights, powers, remedies and recourses available herein or in the Security or any other remedy available to it, and such rights, powers and remedies and recourses may be exercised concurrently or individually without the necessity of any election.

		

		

		

		

		

		

		

		
			-23-

		

		

			

			6.5       Notice of Intent to Enforce

				

			Notwithstanding the 30 day period to the Borrower to remedy defaults, as provided in Section 6.1(b), the Lender may, contemporaneously with or during such 30 day period, give the Borrower the 10 day Notice of Intention to Enforce the Security required by the Bankruptcy and Insolvency Act (Canada), as amended, it being the intention of the parties that, at the Lender’s option, the 15 day period to cure defaults, and the 10 day Notice of Intention to Enforce the Security, may run concurrently.

			

		

		
			ARTICLE 7- ENFORCEMENT OF SECURITY

		

		
			

			7.1       Remedies

			

			Whenever any Security has become enforceable in accordance with its terms, but subject to the provisions hereof:

				

			

			
				(a)        The Lender may proceed to enforce its rights by any action, suit, remedy or proceeding authorized or permitted by law or by equity including, without limitation:

					

				

				
					(i)         filing such proofs of claim and other papers or documents as may be necessary or advisable in order to have its claims lodged in any bankruptcy, winding-up or other judicial proceeding relative to the Borrower; and

						

						(ii)        proceed in any court of competent jurisdiction for the appointment of a Receiver; and

						

						(iii)       proceed in any court of competent jurisdiction for the sale or foreclosure of all or any part of the collateral; and

						

					

				

				(b)        The Lender may enter into and upon and take possession of all or any part of the property and assets of the Borrower with full power to carry on, manage and conduct the business, and operations of the Borrower including:

					

				

				
					(i)         the power to borrow moneys or advance its own moneys for the purpose of such business operations, the maintenance and preservation of the property and assets of the Borrower or any part thereof, the payment of taxes, wages and other charges ranking in priority to the Indebtedness and current operating expenses incurred not more than 60 days prior to such taking of possession (and the moneys so borrowed or advanced shall be repaid by the Borrower on demand and until repaid shall bear interest at the rate of 18% per annum calculated monthly, in arrears) and to receive the revenues, incomes, issues and profits of the property and assets of the Borrower and to pay therefrom all its expenses, charges and advances in carrying on such business operations or otherwise, and

				

			

			

				

				

				

			

		

		

		

		

		
			-24-

		

		

			

		

		
			
				all taxes, assessments and other charges against the property and assets of the Borrower ranking in priority to the Indebtedness or payment of which may be necessary to preserve the property and assets of the Borrower, and to apply the remainder of the moneys so received in accordance with the provisions hereof,

					

					(ii)        the power to carry on or concur in the carrying on of all or any part of the business or undertaking of the Borrower and to the exclusion of all others, including the Borrower, enter upon, occupy and use all or any of the premises, buildings, plant and undertaking of or occupied or used by, the Borrower and use any or all of the tools, machinery, equipment and intangible assets of the Borrower for such time as the Lender sees fit, free of charge, to carry on the business of the Borrower and, if applicable, manufacture or complete the manufacture of any inventory and to pack and ship the finished product. The Lender shall not be liable to the Borrower for any negligence in so doing or in respect of any rent, charges, depreciation or damage in connection with such actions;

					

				

			

			(c)        The Lender may either after entry as provided herein, or without any entry, sell and dispose of all the property and assets of the Borrower, either as a whole or in separate parcels at public auction or by tender or by private contract at such time and on such terms and conditions, having first given such notice of the time and place of such sale, as it thinks proper. The Lender may make such sale whether by auction, tender or private contract, either for cash, upon credit, or in exchange for bonds, debentures, stocks or other securities of another corporation or partly for one and partly for the other upon such reasonable conditions as to terms of payment as it deems proper, and upon any such sale shall be obliged to account to the Borrower only in relation to moneys actually received and only at the time of receipt. The Lender shall have the right to rescind or vary any contract of sale that may have been entered into, to resell with or under any of the powers conferred herein, to adjourn any such sale from time to time, and to execute and deliver to the purchaser or purchasers of such property, or any part thereof, good and sufficient deed or deeds for the same, the Lender being hereby irrevocably constituted an attorney of the Borrower for the purpose thereof Any such sale made as aforesaid shall be a perpetual bar both in law and equity against the Borrower and its assigns and all other persons claiming such property or any part or parcel thereof, by, from, through, or under the Borrower or its assigns and the proceeds of any such sale shall be distributed in the manner hereinafter provided;

				

				(d)        The Lender, or any agent or representative thereof, may become the purchaser at any sale of the property and assets of the Borrower whether made tinder the power of sale herein contained or pursuant to foreclosure or other judicial proceeding;

				

				(e)        The Lender may seize, collect, realize, dispose of, enforce, release to third parties or otherwise deal with the property and assets of the Borrower or any part thereof in such manner, upon such terms and conditions and at such time or times as seems advisable to it and

		

		
			

			

			

			

			

			

			

		

		
			-25-

		

		
			

				

			

			
				without notice to the Borrower (except as otherwise required by any applicable law), and may charge on its own behalf, and pay to others, sums for costs and expenses incurred (including legal fees and expenses on a solicitor and his own client scale and receivers’ and accounting fees) in or in connection with seizing, collecting, realizing, disposing of, enforcing or otherwise dealing with the property and assets of the Borrower and in connection with the protection and enforcement of the right of the Lender hereunder (including without limitation, in connection with advice with regard to any of the foregoing) and the amount of such sums shall become part of the Indebtedness, and shall bear interest at the rate of 18% per annum calculated and compounded monthly in arrears until paid;

					

					(f) The Lender may make any commercially reasonable repair, processing, or preparation of the property and assets of the Borrower for disposition;

					

					(g)        Where the Lender has taken possession of the property and assets of the Borrower as herein provided, retain the property and assets of the Borrower in whole or in part for such period of time as is commercially reasonable and may retain the property and assets of the Borrower in whole or in part in accordance with the procedure set out in the Personal Property Security Act (Ontario) and such retention shall reduce the amount of the Indebtedness by an amount equal to the fair market value of the property and assets of the Borrower so retained: and

					

					(h)                The Lender may grant renewals, extensions of time and other indulgences take and give up securities, accept compositions, grant releases and discharges, perfect or fail to perfect any securities, release any part of the property and assets of the Borrower to third parties and otherwise deal or fail to deal with the Borrower, debts of the Borrower, guarantors, sureties and others and with the property and assets of the Borrower and other securities as the Lender may see fit, all without prejudice to the liability of the Borrower to the Lender or the Lender’s rights and powers under this Agreement or the Security.

			

			

			7.2       Remedies Not Exclusive

			

			No remedy for the enforcement of the rights of the Lender shall be exclusive of or depend on any other remedy but any one or more remedies may from time to time be exercised independently or in combination.

			

			7.3       Remedies Not Prejudiced by Delay

			

			No delay or omission of the Lender to exercise any remedy shall impair any such remedy or shall be construed to be a waiver of any Event of Default hereunder or under the Security or be construed as acquiescence therein.

			

			7.4       Remedies Reasonable

			

			The Borrower hereby expressly acknowledges and agrees that the provisions hereof with respect to enforcement and realization upon the property and assets of the Borrower are, in the circumstances, commercially reasonable and not manifestly unreasonable.

		

		

		

		

		

		

		

		

		
			-26-

		

		

			

			7.5              Borrower to Yield Possession

				

			The Borrower agrees that forthwith upon any demand following an Event of Default it will assemble and deliver to the Lender possession of all of the property and assets of the Borrower at such place as may be specified by the Lender. The Borrower agrees to yield up possession of the property and assets of the Borrower and the conduct of its business in connection therewith to the Lender on demand whenever the Lender shall have a right of entry under the provisions hereof and agree not to put any obstacles in the way of but to facilitate by all legal means the actions of the Lender hereunder, and not to interfere with the carrying out of the powers hereby granted to it, and the Borrower shall forthwith, by and through its officers and directors, execute such documents and transfers as may be necessary to place the Lender in legal possession of the property and assets of the Borrower and its business in connection therewith and thereupon all the powers and functions, rights and privileges of each and every of its directors and officers shall cease and determine with respect to the property and assets of the Borrower unless specifically continued in writing by the Lender or unless the property has been restored to it.

		
			

			7.6       Lender Entitled to Perform Covenants

					

				If the Borrower fails to perform any covenant on its part herein contained, the Lender may in its sole discretion perform any of the covenants capable of being performed by it and, if any such covenant requires the payment or expenditure of money, the Lender may make payments or expenditure with its own funds, or with money borrowed by or advanced to it for such purpose, but be under no obligation to do so; and all sums so expended or advanced shall be at once payable by the Borrower on demand and shall bear interest at the rate of 18% per annum calculated and compounded monthly in arrears until paid, and shall be payable out of any funds coming into the possession of the Lender in priority to the Indebtedness but no such performance or payment shall be deemed to relieve the Borrower from any default hereunder.

			

			7.7       The Lender as Agent of Borrower and Power of Attorney

			

			If the Security becomes enforceable, then the Borrower hereby irrevocably appoints the Lender to be its attorney for it and in its name and on its behalf to execute and carry out any deeds, documents, transfers, conveyances, assignments, assurances, consents and thing which the Borrower ought to, or may, sign, execute and do hereunder and generally to use its name in the exercise of all or any of the powers hereby conferred on the Lender, with full power of substitution and revocation. In the exercise of all of its right hereunder, the Lender shall be, so far as concerns responsibility for its action or inaction, the agent of the Borrower.

			

			7.8       For the Protection of the Lender

			

			In realizing upon the property and assets of the Borrower, the Lender shall not be responsible for any loss occasioned by any demand, collection, enforcement, sale or other realization thereof or the failure to demand, collect, enforce or sell any portion thereof, and the Lender shall not be bound to protect the property and assets of the Borrower from depredating in value and shall not be bound to institute proceedings for any such purposes or for the purpose of preserving any rights of the Borrower, the Lender or any other person, firm or borrower in respect of the property and assets of the Borrower. The Lender shall not be liable or responsible for any loss or damage whatsoever which may accrue in consequence of any such failure whether resulting from

				

				

				

				

			

		

		

		

		

		
			-27-

		

		

			

			the negligence of the Lender or any of its officers, servants, agents, solicitors, attorneys, Receivers or otherwise. In addition, the Lender shall not, nor shall its servants, agents or Receivers be liable by reason of any entry into possession of the property and assets of the Borrower or any part thereof to account as a mortgagee in possession or for anything except actual receipts or be liable for any loss on realization nor for any act or omission for which a mortgagee in possession might be liable. Upon any sale or realization of the property and assets of the Borrower by way of public auction, the Lender may become purchaser free from any right or equity of redemption, which right or equity is expressly waived by the Borrower and the Lender may, in paying the purchase price, apply so much of the obligations of the Borrower hereunder on account of the purchase price as may be necessary for such purpose.

		
			

			7.9       Lender’s Agents

					

				The Lender may appoint any agent or representative to exercise any of its rights hereunder.

			

			7.10     Appointment of Receiver

					

				If the Security becomes enforceable, the Lender may appoint one or more receivers or managers or receivers and managers of the property and assets of the Borrower, or any part thereof or may institute proceedings in any court of competent jurisdiction for the appointment of such a receiver (any such receiver or manager or receiver and manager being herein called the “Receiver”), and may remove any Receiver so appointed and appoint another in his stead, and the following provisions shall take elect:

				

			

			
				(a)        such appointment may be made at any time after the Security has become enforceable and either before or after the Lender has entered into or taken possession of the property and assets of the Borrower or any part thereof and such appointment may be revoked upon the direction in writing of the Lender and

					

					(b)        each Receiver shall be vested with all or any of the powers and discretions of the Lender at law and in equity; and

					

					(c)        each Receiver may carry on the business of the Borrower or any part thereof and may exercise all the powers conferred upon the Lender hereby; and

					

					(d)        the Lender may from time to time fix the remuneration of each Receiver, which remuneration shall be reasonable and direct the payment thereof out of the property and assets of the Borrower or the proceeds thereof in priority to payment of the Indebtedness; and.

					

					(e)        the Lender may from time to time require any Receiver to give security for the performance of his duties and may fix the nature and amount thereof but shall not be bound to require such security; and

					

					(f)         each Receiver may, with the consent in writing of the Lender borrow money for the purpose of carrying on the business of the Borrower or for the maintenance of the property and assets of the Borrower or any part or parts thereof or for any other part approved by the Lender and may issue security on the property and assets of the Borrower in priority to the

			

			

			

			

			

			

			

			

		

		
			-28-

		

		
			

				

			

			
				Security and in the amounts from time to time required to carry out the duties of the Receiver appointed hereunder which shall bear interest as shall be reasonably determined by the Receiver; and

					

					(g)        unless otherwise directed by the Lender all moneys from time to time received by such Receiver shall be paid over to the Lender; and

					

					(h)        each Receiver shall so far as concerns responsibility for his acts and omissions in exercising all or any of the powers and discretions conferred upon him hereunder be deemed to be the agent of the Borrower and not of the Lender and the Lender shall not be responsible for any act or default of any Receiver; and

					

					(i)         no Receiver need be appointed, ratified or supervised in any way by a court and the Lender may, but is not bound to, require the receiver to give security for the performance of his duties.

			

			

			7.11     Application of Funds

					

				Except as otherwise herein provided, the moneys arising from any enforcement of the Security shall be applied as follows:

			

			
				(a)        firstly, in payment of, or reimbursement to the Lender of, the expenses, disbursements and advances of the Lender (including the fees and expenses of any Receiver, agent or representative appointed pursuant hereto or under the Security and any legal fees with respect thereto, on a solicitor and client basis) incurred or made in connection with the enforcement of this Agreement or the realization of the Security;

					

					(b)        secondly, in payment of interest on overdue interest, interest on the Indebtedness and, in the case of accrued and unpaid interest, in reverse order of maturity and all such other amounts that may be due and owing hereunder or under the Security;

					

					(c)        thirdly, in payment of all principal unpaid and outstanding with respect to the Loan; and

					

					(d)        the surplus, if any, shall be paid to the Borrower or its assigns.

			

			

			7.12     Deficiency

			

			If the moneys received by the Lender or any Receiver are insufficient to repay to the Lender all moneys due to it as set out in the foregoing Sections 7.11(a), (b) and (c), the Borrower shall forthwith pay or cause to be paid to the Lender such deficiency.

			

			7.13     Validity of Sale

			

			No person dealing with the Lender or its servants or agents or with any Receiver need inquire whether the Security has become enforceable or whether the powers which the lender or any Receiver is purporting to exercise have become exercisable or whether any money remains due

			

			

			

			

			

			

		

		
			-29-

		

		
			

				

				on the security of the property and assets of the Borrower or as to the necessity or expedience of the stipulations and conditions subject to which any sale, lease or disposition are made or otherwise as to the propriety or regularity of any sale or any other dealing by the Lender with the property and assets of the Borrower or to see to the application of any moneys paid to the Lender and, in the absence of fraud on the part of such person, such dealings shall be deemed, so far as regards the safety and protection of such person, to be within the powers hereby conferred and to be valid and effective accordingly.

			

			7.14     Effect of Appointment of Receiver

			

			Upon the Borrower receiving notice from the Lender of the taking of possession of the property and assets of the Borrower or the appointment of any Receiver all powers, functions, rights and privileges of each of the directors and officers of the Borrower with respect to the property and assets of the Borrower shall cease unless specifically continued by the written consent of the Lender.

				

			

		

		
			ARTICLE 8 - GENERAL CONTRACT PROVISIONS

		

		
			

			8.1       Notice

			

			Any demand or notice to he given by any party hereto to any other party shall be in writing and may be given by personal delivery or, except during any period when postal service is interrupted, by prepaid registered mail or by telex, telecopy or by other means of instantaneous transmission that produces a permanent copy (‘other communication’) addressed as follows:

				

			

			
				to the Borrower, addressed to it at:

					

					Pure Play Media Inc

					19800 Nordhoff Place

					Chatsworth, CA 91311

					Attention:          Seig Badke

					Telephone:        818 717 5355

					Facsimile:         818 717 5360

						

					to the Lender, addressed to it at:

					

					Doral EZ Investments Inc.

					3482 9~1 line

					Innisfil, Ontario Canada

					L9S 3Z9

					Attention:          Erwin Zecha

					Telephone:        905 845 8597

					Facsimile:         905 845 3677

			

			

			

			

			

			

			

			

			

		

		
			-30-

		

		
			

				

				and shall be deemed to have been received by the party to whom it was addressed:

			

			
				
					(i)         if given by registered mail, on the date falling four business days following the date upon which it was deposited in the post office with postage and cost of registration prepaid; and

						

						(ii)        if personally delivered to an adult during normal business hours, when so delivered; and

						

						(iii)       if given by other communication, three business hours after transmission and confirmation of receipt,

				

			

			

			provided that either of the parties may change the address or person designated from time to time, by notice in writing to the other party hereto.

			

			8.2       Law Applicable

					

				This Agreement shall be construed in accordance with the laws of the State of California and the laws of the United States of America applicable therein and shall be treated in all respects as a California contract.

			

			8.3       Assignment

					

				This Agreement shall enure to the benefit of, and shall be binding upon, the parties hereto and their respective successors and permitted assigns. This Agreement shall not be assigned by the Borrower without the Lender’s prior written consent, which consent may be unreasonably withheld or delayed. This Agreement may be assigned by the Lender, in which event the Borrower shall attorn in all respects to such assignment and the assignee thereof.

			

			8.4       Business Day

			

			If under the provisions of this Agreement any amount is to be paid or any act or thing is to be taken other than on a business day, then such amount shall be paid or such act or thing or step shall be done or taken on the next business day.

			

			8.5       Further Assurance

			

			Notwithstanding the making of any Advance hereunder, the Borrower agrees, at the request of the Lender, to sign such further and other documents and to do and perform, and cause to be done and performed, such further and other acts as may be necessary or desirable to give effect to the provisions of this Agreement.

			

			8.6       Severability

			

			If any provision herein is determined to be void, voidable or unenforceable, in whole or in part by the decision of any court of competent jurisdiction, which determination is not appealed or appealable for any reason whatsoever, the provision in question shall not affect or impair or be deemed to affect or impair the enforceability of validity of any other provision hereof and such

			

			

			

			

			

			

			

		

		
			-31-

		

		
			

				

				unenforceable or invalid provision or portion thereof shall be severed from the remainder of this Agreement. All the provisions hereof are hereby declared to be separate, severable and distinct.

			

			       IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first above written.

				

				

				

				PURE PLAY MEDIA, INC.                                      DORAL EZ INVESTMENTS INC.

					

					

					

				Per:      /s/ Brent Hahn                                                  Per:      /s/ Erwin Zecha

				Authorized Signing Officer                                            Authorized Signing Officer

		

		
			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

		

		
			-32-

		

		
			

				

			

		

		
			SCHEDULE A

						

						PROMISSORY NOTE

						

					

		

		
			$1,575,000                                                                                                             Due in Accordance

				                                                                                                                           With Loan Agreement

		

		
			

			
				

				            FOR VALUE RECEIVED the undersigned promises to pay to or to the order of Doral EZ Investments Inc. (the "Lender") at Mississauga, Ontario, at the times and in the manner set forth in a loan agreement dated September 19, 2002 between the undersigned and the Lender (the "Loan Agreement"):

					

					            (a)                the principal amount of $1,575,000 in lawful money of
							Canada
					or so much thereof as may be advanced and outstanding pursuant to the Loan Agreement;

					            (b)               all interest accrued on such principal amount outstanding from time to time and all interest accrued on overdue interest calculated and payable in like currency at the rate applicable thereto as stipulated in the Loan Agreement; and 

					            (c)                all other amounts owing by the undersigned to the Lender pursuant to the Loan Agreement.

				

				            This promissory note is issued pursuant to the Loan Agreement to evidence the principal amounts advanced, any repayments on account thereof and the unpaid balance of the principal amount outstanding from time to time.  The President of the Lender is hereby authorized to endorse on the schedule annexed hereto, or on any continuation schedule which may at any time be attached hereto, the date and amount of each advance, and each payment of principal on account thereof, together with the unpaid balance of the principal amount outstanding owing by the undersigned to the Lender pursuant to the Loan Agreement.  Each such endorsement shall be prima facie evidence of the amounts so advanced and repaid and, in the absence of manifest mathematical error, this promissory note shall be conclusive evidence of the amount of the undersigned's liability to the Lender for the unpaid balance of the principal amount outstanding owing by the undersigned to the Lender pursuant to the Loan Agreement.  In the event of default of the payment in accordance with the terms of this promissory note, the undersigned shall pay all costs incurred by the holder in enforcing and collecting on this promissory note, including legal costs on a solicitor and client basis.

				

				            Notwithstanding the due date specified in this promissory note, in the event of default by the undersigned pursuant to the Loan Agreement, the principal sum remaining unpaid together with all interest accrued thereon shall immediately become due and payable, without demand or other further notice.

				

				            The undersigned hereby waives presentment, protest and notice of every kind and waives any defences based on indulgences which may be granted by the holder to any party liable thereon.

					

					            DATED this 23rd day of September, 2002.

					

					                                                                                    PURE PLAY MEDIA, INC.

						

						

					                                                                                    Per:    /s/ Richard Arnold

					                                                                                          Authorized Signing Officer

				

					

					

				

				

				

				

				

				

			

		

		
			
				LOAN ADVANCES AND PAYMENTS

			

		

		
			

				
						

						DATE

						
						

						Amount Advanced

						
						

						Amount Paid

						
						Outstanding

							Principal Balance

						
						Recording

								Officer's Initials

					
	
						
								September 23, 2002
						

						
						$1,575,000 (CDN)

						
						__

						
						$1,575,000 (CDN)

						
						.

					
	
						

						
						

						
						

						
						

						
						

					
	
						

						
						

						
						

						
						

						
						

					
	
						

						
						

						
						

						
						

						
						

					
	
						

						
						

						
						

						
						

						
						

					
	
						

						
						

						
						

						
						

						
						

					
	
						

						
						

						
						

						
						

						
						

					
	
						

						
						

						
						

						
						

						
						

					

			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

			

		

		

		

		

		

		
			-33-

		

		

			

		

		
			SCHEDULE B

						

					SHAREHOLDERS OF THE BORROWER

		

		
			

		

		
			

		

		
			

			•to be attached

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}]]