EXHIBIT 10.24
LIONS GATE ENTERTAINMENT CORP.
SUBSCRIPTION AGREEMENT FOR UNITS
A completed and originally executed copy of this Subscription must be
delivered to Yorkton Securities Inc. at the following address:
BCE Place, ▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
--------------------------------------------------------------------------------
LIONS GATE ENTERTAINMENT CORP. Issue: Units issued at US$2,550 per Unit.
Number of Units: 648
-----------------------------------------------------------
[NOTE: NUMBER OF UNITS AVAILABLE FOR SUBSCRIPTION IS LIMITED BY SECTION
2(B)]
Total Subscription Price: US$ 1,652,400
--------------------------------------------------
Name and Residential Address of Subscriber:
Name: Future Media Productions, Inc. Residential 25136 Anza Drive
------------------------------ ------------------------
Account No.: Address: ▇▇▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇
----------------------- ---------------------------
Alternate Registration Instructions: If other than in the name of the
Subscriber:
Name: Residential
------------------------------ ------------------------
Account No: Address:
------------------------ ---------------------------
Delivery Instructions: The name and address (including contact name and
telephone number) of the person to whom the certificate representing the
Shares is to be delivered, other than the Subscriber:
Name: ▇▇▇▇▇ ▇▇▇▇▇ Address: 25136 Anza Drive
------------------------------ ---------------------------
Contract Name: ▇▇▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇
--------------------- ---------------------------
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
--------------------- ---------------------------
Account No.
------------------------ ---------------------------
-2-
SUBSCRIPTION AGREEMENT FOR UNITS
THIS AGREEMENT is dated for reference the 21st day of December, 1999.
----
AMONG:
LIONS GATE ENTERTAINMENT CORP., a company having
an address at Suite 3123, Three Bentall Centre,
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇.▇., ▇▇▇ ▇▇▇
(the "Issuer")
AND:
YORKTON SECURITIES INC., a company having an
address at Suite 3100, BCE Place, ▇▇▇ ▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
(the "Agent")
AND:
THE SUBSCRIBER WHOSE NAME AND ADDRESS APPEARS ON THE
EXECUTION PAGE OF THIS AGREEMENT
(the "Subscriber")
WHEREAS:
A. Each Unit of the Issuer ("Unit") consists of one 5.25% convertible
redeemable preferred share, Series A ("Preferred Share") and 425 common share
purchase warrants ("Warrants");
B. The Issuer is offering for issue and sale and the Agent is offering for sale,
on a best efforts basis, the Units at a per Unit price of US$2,550 in accordance
with the terms of this Agreement and an agency agreement dated December 20, 1999
between the Issuer and the Agent (the "Agency Agreement");
C. The Subscriber wishes to purchase Units of the Issuer in accordance with the
terms of this Agreement; and
D. In order to prevent a change of control of the Issuer and in order for the
Issuer to remain "Canadian-controlled" pursuant to the Investment Canada Act,
this Agreement contains certain restrictions on the Subscriber, including in
respect of the number of Units which may be purchased and in respect of the
acquisition of additional securities of the Issuer.
-3-
IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED IN THIS AGREEMENT, THE
PARTIES AGREE AS FOLLOWS:
1. Definitions
-----------
In this Agreement:
(a) "Agency Agreement" means the agency agreement dated December 20, 1999
between the Issuer and the Agent;
(b) "Agent" means Yorkton Securities Inc.;
(c) "Agreement" means this subscription agreement between the Issuer and
the Subscriber;
(d) "Applicable Securities Laws" includes, without limitation,
collectively, all applicable securities, corporate and other laws,
rules, regulations, notices and policies;
(e) "Canadian Selling Jurisdictions" means the provinces of Ontario,
Manitoba, Alberta and British Columbia;
(f) "Closing" means the making of the deliveries contemplated in Section 7
of this Agreement in order to complete the purchase and sale of the
Units contemplated hereby;
(g) "Closing Date" means the date or dates of the Closing, as provided for
in Section 6 of this Agreement;
(h) "Common Shares" means the common shares in the capital of the Issuer;
(i) "Documents" means, collectively:
(i) the Annual Information Form on Form 20-F of the Issuer dated
August 16, 1999 for the year ended March 31, 1999 and the
management's discussion and analysis of financial condition and
results of operations for the year ended March 31, 1999
incorporated by reference therein;
(ii) the comparative audited financial statements of the Issuer as at
and for the years ended March 31, 1999 and 1998, together with
the notes thereto and the auditors' report thereon;
(iii) the report to shareholders containing the unaudited interim
comparative consolidated financial statements for the three
month periods ended June 30, 1999 and 1998, and the three and
six month periods ended September 30, 1999 and 1998; and
-4-
(iv) the Management Information Circular of the Issuer dated August
12, 1999 prepared in connection with the Issuer's annual meeting
of shareholders held on September 22, 1999;
(j) "Exchanges" means collectively, The Toronto Stock Exchange and the
American Stock Exchange;
(k) "Execution Page" means the page or pages at the end of this Agreement
for execution by the parties hereto and marked "Execution Page";
(1) "Final Closing Date" means January 15, 2000 or such earlier date as
may be agreed to in writing by the Agent and the Issuer;
(m) "Financial Statements" means the audited financial statements of the
Issuer for the year ended March 31, 1999 and the unaudited financial
statements for the three months ended June 30, 1999 and the three and
six months ended September 30, 1999;
(n) "Issuer" means Lions Gate Entertainment Corp.;
(o) "Misrepresentation", "material change" and "material fact" shall have
the meanings ascribed thereto under the Applicable Securities Laws of
the Selling Jurisdictions; "distribution" means "distribution" or
"distribution to the public", as the case may be, as defined under the
Applicable Securities Laws of the Selling Jurisdiction; and
"distribute" has a corresponding meaning;
(p) "Offering" means the offering by the Issuer and the Agent, on a best
efforts basis, of up to 13,000 Units;
(q) "Preferred Shares" means the 5.25% convertible redeemable preferred
shares, Series A in the capital of the Issuer;
(r) "Preliminary Prospectus" means the preliminary short form prospectus
of the Issuer dated December 6, 1999 in respect of the distribution of
the Preferred Shares and Warrants comprising the Units, including
(except where otherwise provided) all documents incorporated by
reference therein, and any amendments thereto;
(s) "Prospectus" means the final short form prospectus of the Issuer dated
December 20, 1999 in respect of the distribution of the Preferred
Shares and Warrants comprising the Units, including (except where
otherwise provided) all documents incorporated by reference therein,
and any amendments thereto;
(t) "Public Record" means all information filed by or on behalf of the
Issuer after March 31, 1999 and on or before the cessation of
distribution of the Units with the Securities Commissions, including
without limitation, the Documents, the Preliminary Prospectus and the
Prospectus and any other information filed with
-5-
any Securities Commission in compliance, or intended compliance, with
any Applicable Securities Laws;
(u) "Reference Date" means the reference date of this Agreement being the
date first written above;
(v) "Regulation D" means Regulation D under the U.S. Securities Act;
(w) "Regulation S" means Regulation S under the U.S. Securities Act;
(x) "Securities Commissions" means the securities commissions or similar
regulatory authorities in the Canadian Selling Jurisdictions;
(y) "Selling Jurisdictions" means the Canadian Selling Jurisdictions, the
United States and such other jurisdictions as may be agreed to by the
Issuer and the Agent;
(z) "Subscription Price" means the price to be paid by the Subscriber to
purchase the Units under the Offering, being US$2,550 per Unit;
(aa) "Trust Company" means CIBC Mellon Trust Company in its capacity
as registrar and transfer agent for the Preferred Shares and
Common Shares and as trustee for the Warrants;
(bb) "United States" means the United States as that term is defined
in Regulation S under the U.S. Securities Act;
(cc) "Units" means the units of the Issuer, where each Unit consists
of one Preferred Share and 425 Warrants;
(dd) "U.S. Person" means a "U.S. Person", as that term is defined
in Regulation S under the U.S. Securities Act;
(ee) "U.S. Securities Act" means the Securities Act of 1933, as
amended, of the United States;
(ff) "Warrant Indenture" means the warrant indenture to be dated as
of the Closing Date between the Issuer and the Trust Company, as
trustee, governing the terms and conditions of the Warrants; and
(gg) "Warrants" means the common share purchase warrants of the
Issuer, where each whole Warrant entitles the holder to purchase
one Common Share at a price of US$5.00 prior to January 1, 2004.
2. Subscription for Units
----------------------
(a) On the terms and subject to the conditions set out in this Agreement,
the Subscriber hereby subscribes for, and the Issuer agrees to issue
and sell as herein provided, that number of Units set forth on the
Execution Page, at and for the
-6-
Subscription Price of US$2,550 per Unit, for that total Subscription
Price set forth on the Execution Page.
(b) The Issuer will not accept subscriptions for more than 4,350 Units
from: (i) any Subscriber acting alone; (ii) all Subscribers forming a
"voting group" (as defined in the Investment Canada Act); or (iii) all
Subscribers "acting jointly or in concert" (as defined in the
Securities Act (British Columbia)).
(c) No fractional Units may be purchased by a Subscriber.
(d) At the Closing, Subscribers will be entitled to receive certificates
representing the Preferred Shares and Warrants constituting the Units
purchased, as provided for in Section 7 of this Agreement.
3. Certification and Covenants of the Subscriber
---------------------------------------------
The Subscriber certifies and covenants with the Issuer and the Agent that
as of the Reference Date and the Closing Date (and in respect of Sections
3(b), 3(c), 3(d) and 3(e), for the period referred to below):
(a) Jurisdiction of Control: the Subscriber, or the beneficial purchaser
-----------------------
for whom it is purchasing, is:
(i) [_] "Canadian-controlled" as determined pursuant to subsection
26(1) or 26(2) of the Investment Canada Act and in respect of
which no determination or declaration has been made under
subsection 26(2.1) of that Act (see attached Appendix "A"),
or
(ii) [X] Other: Delaware, USA
----------------------------------------
(state jurisdiction of control)
(b) Restrictions on Acquisitions: the Subscriber hereby covenants that the
----------------------------
Subscriber will not, acting alone, acting as part of a "voting group"
(as defined in the Investment Canada Act) or "acting jointly or in
concert" (as defined in the Securities Act (British Columbia)) with
another person(s):
(i) acquire an interest in Units which would cause the undersigned,
such voting group or such group acting jointly or in concert, to
acquire beneficial ownership of, or to exercise control or
direction over, more than 4,350 Units; or
(ii) acquire an interest in additional securities of the Issuer which
would cause the undersigned, such voting group or such group
acting jointly or in concert, to acquire beneficial ownership of,
or to exercise control or direction over, more than 12.5% of the
outstanding Common Shares (on a fully diluted basis);
-7-
in each case, without the prior written consent of a majority of
the directors of the Issuer.
(c) Restriction on Groups: the Subscriber hereby covenants that the
---------------------
Subscriber will not act as part of a "voting group" (as
defined in the Investment Canada Act) or act "jointly or in
concert" (as defined in the Securities Act (British Columbia))
with another person(s), in any matter relating, directly or
indirectly, to the Issuer;
(d) Restrictions on Soliciting Proxies: the Subscriber hereby
----------------------------------
covenants that, during the period in which the Subscriber has
beneficial ownership of, or exercises control or direction over,
any Preferred Shares or more than 10% of the outstanding Common
Shares (on a fully diluted basis), the Subscriber will not
solicit proxies from any holders of securities of the Issuer, and
will not participate in any solicitation of proxies (other than a
solicitation by management), if such solicitation relates to the
election of directors of the Issuer, provided that (i) the Issuer
is not in default of its covenants contained in Sections
5(z) and/or 5(aa) and/or 5(dd) and (ii) that number of nominees
of the holders of the Series A Preferred Shares equal to the
number of directors which the holders of Series A Preferred
Shares are or would have been entitled to elect, exclusively and
separately as a class, pursuant to the provisions of the
amendment to the articles and memorandum of the Issuer
contemplated by Section 5(z), have been elected as directors of
the Issuer; and
(e) Restrictions on Transfer: the Subscriber hereby agrees that the
------------------------
Subscriber may not sell or otherwise transfer the Units, the
Preferred Shares or the Warrants, without the prior written
approval of the Issuer. The Subscriber acknowledges that such
approval may not be granted if the transferee is not "Canadian-
controlled" and such approval may only be granted subject to
certain conditions, including, without limitation, that the
transferee be bound by the covenants contained in Sections 3(b),
3(c), 3(d) and 3(e) in respect of such securities to be
transferred.
The Subscriber acknowledges and agrees that the foregoing
certification and covenants set out herein are made by the
Subscriber with the intent that they be relied upon in determining its
suitability as a purchaser of Units and the Subscriber hereby agrees
to indemnify the Issuer and the Agent against all losses, claims,
costs, expenses arising from any inaccuracy in or breach by the
Subscriber of the foregoing certification and covenants.
The Subscriber further acknowledges that damages would be an
insufficient remedy for a breach by it of the covenants contained in
Sections 3(b), 3(c), 3(d) and 3(e) and agrees that the Issuer may
apply for and obtain any relief available to it in a court of law or
equity, including injunctive relief, to restrain breach or threat of
breach of the foregoing covenants by the Subscriber or to enforce the
foregoing covenants, in addition to rights the Issuer may have to
damages arising from such breach or threat of breach. In addition, the
Subscriber acknowledges that the Issuer will not register, and will
direct the Transfer Agent of the Issuer's securities not to register,
any proposed transfer of such securities which violates the covenants
in Sections 3(b) and 3(e).
-8-
Notwithstanding any other provision herein, the covenants contained in
Sections 3(b), 3(c), 3(d) and 3(e) shall not operate to prevent the
Subscriber or any member of a "voting group" (as defined in the
Investment Canada Act) of which the Subscriber forms a part or any
person(s) with whom the Subscriber is "acting jointly or in concert" (as
defined in the Securities Act (British Columbia)) from making a take-over
bid for the Issuer in response to a competing take-over bid made for the
Issuer by a person(s) who is not a member of a "voting group" (as defined
in the Investment Canada Act) of which the Subscriber forms a part or a
person(s) with whom the Subscriber is "acting jointly or in concert" (as
defined in the Securities Act (British Columbia)).
Notwithstanding any other provision herein, the covenants contained in
Sections 3(b), 3(c), 3(d) and 3(e) shall survive the Closing Date for a
period ending on the earlier of (i) 3 years from the Closing Date and
(ii) the date on which the Issuer ceases to be "Canadian-controlled" as
determined pursuant to subsection 26(l) or 26(2) of the Investment Canada
Act and in respect of which no determination or declaration has been made
under subsection 26(2.1) of that Act.
4. Further Acknowledgements, Warranties, Representations and Covenants of
----------------------------------------------------------------------
the Subscriber
--------------
The Subscriber acknowledges, warrants and represents to, and covenants
with, the Issuer and the Agent that as of the Reference Date and the
Closing Date:
(a) Legal Capacity: the Subscriber has the legal capacity to enter into,
--------------
execute and deliver this Agreement and this Agreement has been duly
authorized, executed and delivered by, and once accepted by the
Issuer, constitutes a legal, valid and binding agreement of, the
Subscriber enforceable against the Subscriber in accordance with its
terms;
(b) Age of Majority: if an individual, the Subscriber is of the full age
---------------
of majority and is legally competent to execute this Agreement and
to take all action pursuant to it;
(c) Acceptance By the Issuer: the offer made by the Subscriber in this
------------------------
subscription is irrevocable and the offer requires acceptance by the
Issuer and the Subscriber acknowledges that the Issuer may, in its
sole discretion, accept or reject such offer in whole or in part,
including pursuant to Section 2(b);
(d) Legal Advice: the Subscriber acknowledges and agrees that it is
------------
responsible for obtaining such legal advice as it considers
appropriate in connection with the execution, delivery and performance
by it of this Agreement and the transactions contemplated hereunder;
(e) Investment Suitability: the Subscriber, or any beneficial Subscriber
----------------------
on whose behalf the Subscriber is purchasing the Units, has such
knowledge and experience in financial and business affairs as to be
capable of evaluating the merits and risks
-9-
of the investment hereunder and is able to bear the economic risk of
loss of such investment;
(f) Compliance with Local Laws: the purchase by the Subscriber of the
--------------------------
Units subscribed for hereunder will be made in compliance with all
requirements of the applicable laws of the jurisdiction(s) in which it
is resident or to which it is subject and no filings or approvals will
be required by the Subscriber under the laws of such jurisdiction(s)
in connection with the purchase by it of the Units hereunder;
(g) No Representation: No person has made to the Subscriber any written or
-----------------
oral representation:
(i) as to the future price or value of the securities offered
hereunder; or
(ii) that the Units or the securities which constitute the Units
(excluding, for greater certainty, the Common Shares issuable
upon conversion of the Preferred Shares and upon exercise of the
Warrants) will be listed and posted for trading on a stock
exchange or that an application has been made to list and post
such securities for trading on a stock exchange;
(h) No Registration: the Subscriber understands that the Units, the
---------------
Preferred Shares, the Warrants and the Common Shares issuable upon
conversion of the Preferred Shares and upon exercise of the Warrants,
have not been and will not be registered under the U.S. Securities
Act, as amended or the securities laws of any state of the United
States and that the sale contemplated hereby is being made in reliance
on an exemption from such registration requirements and the Subscriber
understands and agrees that the Units, the Preferred Shares, the
Warrants and the Common Shares issuable upon conversion of the
Preferred Shares and upon exercise of the Warrants, may not be traded
in the United States or by or on behalf of a U.S. Person or a person
in the United States unless registered under the U.S. Securities Act
and any applicable state securities laws or unless an exemption from
such registration requirements is available and that certificates
representing the Preferred Shares, the Warrants and the Common Shares
issuable upon conversion of the Preferred Shares and upon exercise of
the Warrants, will bear a legend to such effect; and
(i) The Subscriber is one of the following (please check appropriate
lines):
(i) _______ Not a "U.S. Person": the Subscriber, whether acting as
principal, trustee or agent, is neither a U.S. Person,
nor purchasing the Units as a U.S. Person or for resale
in the United States and the Subscriber confirms that
the Units have not been offered to the Subscriber in the
United States and this Agreement has not been signed in
the United States; or
(ii) _______ U.S. Residents: the Subscriber satisfies one or more of
the categories indicated below (please check appropriate
lines):
-10-
_____ Category 1
Any bank as defined in Section 3(a)(2) of the U.S. Securities Act or
any savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the U.S. Securities Act, whether acting in its
individual or fiduciary capacity; any broker dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934; any
insurance company as defined in Section 2(13) of the U.S. Securities
Act; any investment company registered under the Investment Company
Act of 1940 or a business development company as defined in Section
2(a)(48) thereof; any Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d) of
the Small Business Investment Act of 1958; any plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions, for the
benefit of its employee, if such plan has total assets in excess of
US$5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security ▇▇▇ ▇▇▇▇, if the investment
decision is made by plan fiduciary, as defined in Section 3(21)
thereof, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the
employee benefit has total assets in excess of US$5,000,000, or, if a
self-directed plan, with the investment decisions made solely by
persons that are accredited investors;
_____ Category 2.
Any private business development company as defined in Section
202(a)(22) of the Investment Advisors Act of 1940;
_[X]_ Category 3.
Any organization described in Section 501(c)(3) of the Internal
Revenue Code of 1986, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of
acquiring the Units, with total assets in excess of US$5,000,000;
_____ Category 4.
Any director or executive officer of the Issuer;
_____ Category 5.
Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of such person's purchase of the
Units exceeds US$1,000,000;
Category 6.
Any natural person who had an individual income in excess of
US$200,000 in each of the two most recent years or joint income
with that person's spouse in excess of US$300,000 in each of
-11-
those years and has a reasonable expectation of reaching the
same level in the current year;
_____ Category 7.
Any trust with total assets in excess of US$5,000,000, not
formed for the specific purpose of acquiring the Units,
whose purchase is directed by a sophisticated person as
described in Rule 506(b)(2)(ii) of Regulation D under the
U.S. Securities Act; or
_[X]_ Category 8.
Any entity in which all of the equity owners are accredited
investors.
and the Subscriber makes the additional representations and
warranties contained in Schedule "A" attached to this Agreement.
The Subscriber acknowledges and agrees that the foregoing representations,
warranties and covenants set out herein are made by the Subscriber with
the intent that they be relied upon in determining its suitability as a
purchaser of Units and the Subscriber hereby agrees to indemnify the
Issuer and the Agent against all losses, claims, costs, expenses arising
from any inaccuracy in or breach by the Subscriber of the foregoing
representations, warranties and covenants. The Subscriber further agrees
that by accepting the Units, the Subscriber shall be representing and
warranting that the foregoing representations and warranties are true as
at the Closing Date with the same force and effect as if they had been
made by the Subscriber at the Closing Date. The Subscriber undertakes to
notify the Issuer and the Agent immediately at the address of the Issuer
or the Agent first set forth above of any change in any representation,
warranty or other information relating to the Subscriber set forth herein
which takes place prior to the Closing Date.
5. Warranties, Representations and Covenants of the Issuer
-------------------------------------------------------
The Issuer warrants and represents to, and covenants with the Subscriber
and the Agent that as of the Reference Date and as at the Closing Date:
(a) each of the Issuer and its subsidiaries has been duly incorporated
and organized and is validly existing under the laws of the
jurisdiction of its incorporation and has all requisite corporate
authority and power to carry on its business, as now conducted and as
presently proposed to be conducted by it, and to own, lease, or own
and lease its property and assets (including licenses or other
similar rights) and has all the requisite corporate power and
authority to carry on its business as currently carried on or as
currently proposed to be carried on;
(b) each of the Issuer and its subsidiaries is qualified to carry on
business under the laws of each jurisdiction in which it carries on a
material portion of its business and is duly licensed, registered or
qualified in all jurisdictions in which it owns, leases or operates
any material portion of its property or carries on any material
portion of its business to enable its business and assets to be
owned, leased and
-12-
operated, except to the extent that the failure to so comply or to be
so licensed, registered or qualified would not have a material adverse
effect on the Issuer and its subsidiaries (taken as a whole) and all
such licenses, registrations or qualifications which are material are
valid and existing in good standing in all material respects;
(c) except as otherwise disclosed in the Prospectus, each of the Issuer
and its subsidiaries holds all requisite material licenses,
registrations, qualifications, permits and consents necessary or
appropriate for carrying on its business as currently carried on and
all such licenses, registrations, qualifications, permits and consents
are valid and subsisting and in good standing in all material respects
and none of the same contains any burdensome term, provision,
condition or limitation which has or may have a material adverse
effect upon the operations of the business of the Company and its
subsidiaries (taken as a whole) as currently carried on or as
currently proposed to be carried on;
(d) except as otherwise disclosed in the Prospectus, the Issuer owns all
of the issued and outstanding shares of each of its subsidiaries, in
each case free and clear of all mortgages, liens, charges, pledges,
security interests, encumbrances, claims or demands whatsoever (other
than mortgages, liens, charges, pledges and/or security interests
granted to its principal banker in the ordinary course), and no
person, firm or Issuer has any agreement, option, right or privilege
(whether preemptive or contractual) capable of becoming an agreement,
for the purchase from the Issuer or any of its subsidiaries of any
interest in any of the issued or unissued shares in the capital stock
of any subsidiary other than pursuant to a unanimous shareholders'
agreement among the Issuer, Fox Family Worldwide Inc. and others dated
June 23, 1998;
(e) except as disclosed in the Prospectus, each of the Issuer and its
subsidiaries has valid title to all of its material assets including
all material licenses, free and clear of all charges, hypothecs,
mortgages, encumbrances or other liens (other than mortgages, liens,
charges, pledges and/or security interests granted to its principal
lender and such other subordinated or project-specific lenders and
other permitted liens as its principal lender permits);
(f) the Issuer has full corporate power and authority to enter into this
Agreement and the Warrant Indenture and to perform its obligations set
out herein and therein and this Agreement and the Warrant Indenture
have been, or will be, duly authorized, executed and delivered by the
Issuer and are or will constitute a legal, valid and binding
obligation of the Issuer enforceable against the Issuer in accordance
with their terms, subject to laws relating to creditors' rights
generally and except as rights to indemnity may be limited by
applicable law;
(g) at the Closing Date, the Preferred Shares and the Warrants will be
duly and validly authorized, allotted and reserved for issuance and,
in the case of the Preferred Shares, upon receipt of the purchase
price therefor, will be issued as fully paid and non-assessable shares
in the capital of the Issuer, as the case may
-13-
be, and the Common Shares issuable upon exercise of the Warrants or
conversion of the Preferred Shares will have been allotted and
reserved for issuance;
(h) the Issuer is not in default or breach of, and the execution and
delivery of, and the performance of and compliance with the terms of,
this Agreement and the Warrant Indenture by the Issuer or any of the
transactions contemplated hereby or thereby, does not and will not
result in any breach of, or constitute a default under, and does not
and will not create a state of facts which, after notice or lapse of
time or both, would result in a breach of or constitute a default
under, any term or provision of the charter documents of the Issuer,
by-laws or resolutions of shareholders or directors of the Issuer, or
any indenture, mortgage, note, contract, agreement (written or oral),
instrument, lease or other document to which the Issuer or any of its
subsidiaries is a party or by which any of them is bound, or any
judgment, decree or order or, to the best of the knowledge of the
Issuer, any law, statute, rule or regulation applicable to the Issuer
or any of its subsidiaries, which default or breach might reasonably
be expected to materially adversely affect the business, operations,
capital or condition (financial or otherwise) of the Issuer and its
subsidiaries (taken as a whole) or its assets (on a consolidated
basis);
(i) other than as has been publicly and generally disclosed, there has not
been any material adverse change in the business, operations, capital
or condition (financial or otherwise) or results of the operations of
the Issuer and its subsidiaries (taken as a whole) since March 31,
1999; and since March 31, 1999, there have been no material facts,
transactions, events or occurrences which, to the knowledge of the
Issuer, could materially adversely affect the capital, assets,
liabilities (absolute, accrued, contingent or otherwise), business,
operations or condition (financial or otherwise) or results of the
operations of the Issuer and its subsidiaries (taken as a whole) which
have not been disclosed to the public or in writing to the Subscriber;
(j) the Financial Statements fairly present, in all material respects and
in accordance with generally accepted accounting principles in Canada
consistently applied, the financial position of the Issuer and its
subsidiaries (on a consolidated basis) as at the dates thereof and the
results of the operations of the Issuer and its subsidiaries (on a
consolidated basis) for the periods then ended and reflect all
liabilities (absolute, accrued, contingent or otherwise) of the Issuer
and its subsidiaries (on a consolidated basis) as at the dates
thereof;
(k) except as disclosed in the Financial Statements, there are no actions,
suits, proceedings or inquiries pending or threatened against or
affecting the Issuer or any of its subsidiaries at law or in equity or
before or by any federal, provincial, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality which in any way materially adversely affect, or may
in any way materially adversely affect, the business, operations,
capital or condition (financial or otherwise) of the Issuer and its
subsidiaries (taken as a whole) or its assets (on a consolidated
basis) or which questions the validity of any action taken
-14-
or to be taken by the Issuer pursuant to or in connection with this
Agreement or as contemplated by the Prospectus, or which affects or
may affect the distribution of the Preferred Shares and Warrants
comprising the Units, and the Issuer is not aware of any existing
ground on which such action, suit, proceeding or inquiry might be
commenced with any reasonable likelihood of success;
(l) the information and statements set forth in the Public Record were
true, correct and complete and did not contain any misrepresentation,
as of the date of such information or statement, and the Issuer has
not filed any confidential material change reports still maintained on
a confidential basis;
(m) the Issuer has an authorized share capital of 500,000,000 Common
Shares and 200,000,000 preference shares, of which 30,551,167 Common
Shares and no preference shares were issued and outstanding as at
December 20, 1999 before giving effect to the Offering, and all of
such issued and outstanding shares in the capital of the Issuer are
duly authorized, issued and outstanding as fully paid and non-
assessable shares in the capital of the Issuer. No person, firm or
Issuer (except employees, officers and directors of the Issuer and its
subsidiaries who collectively hold, as at December 13, 1999, options
to acquire approximately 3,511,123 Common Shares) has any agreement
or option, or right or privilege (whether pre-emptive or contractual)
capable of becoming an agreement or option, for the purchase from the
Issuer of any unissued shares of the Issuer except as otherwise
described in the Prospectus and except pursuant to a unanimous
shareholders' agreement among the Issuer, Fox Family Worldwide Inc.
and others dated June 23, 1998;
(n) except as otherwise described in the Prospectus, to the knowledge of
the Issuer no agreement is in force or effect which in any manner
affects the voting or control of any of the securities of the Issuer
or any of its subsidiaries;
(o) no approval, authorization, consent or other order of, and no filing,
registration or recording with, any governmental authority is required
of the Issuer in connection with the execution and delivery or with
the performance by the Issuer of this Agreement except compliance
with the Applicable Securities Laws (including stock exchange
approvals) with regard to the Offering;
(p) the Issuer and its subsidiaries have timely filed all necessary
material tax returns and notices and have paid or made provision for
all applicable taxes of whatever nature for all tax years to the date
hereof to the extent such taxes are material and have become due or
have been alleged to be due; the Issuer is not aware of any material
tax deficiencies or material interest or penalties accrued or
accruing, or alleged to be accrued or accruing, thereon with respect
to itself or its subsidiaries which have not otherwise been provided
for by the Issuer;
(q) except as otherwise disclosed in the Prospectus, the Issuer is not
aware of any legislation which it anticipates will materially and
adversely affect the business, affairs, operations, assets,
liabilities (contingent or otherwise) or prospects of the Issuer and
its subsidiaries considered as a whole;
-15-
(r) the Trust Company has been duly appointed transfer agent and registrar
for the Common Shares of the Issuer and the Preferred Shares at its
principal offices in the cities of Vancouver and Toronto and has
been duly appointed as the Trustee for the Warrants and ▇▇▇▇▇ ▇▇▇▇▇▇
Shareholder Services has been appointed co-transfer agent and co-
registrar for the Common Shares;
(s) no Securities Commission, other securities commission or similar
regulatory authority, Exchange or other exchange in Canada, Europe,
the United Kingdom or the United States has issued any order which is
currently outstanding preventing or suspending trading in any
securities of the Issuer, no such proceeding is, to the knowledge of
the Issuer, pending, contemplated or threatened and the Issuer is not
in default of any material requirement of Applicable Securities Laws
of the Selling Jurisdictions;
(t) the issued and outstanding Common Shares are listed and posted for
trading on the Exchanges and the Common Shares issuable upon exercise
of the Warrants and upon conversion of the Preferred Shares are
conditionally approved for listing on the Exchanges subject to the
fulfillment of all of the requirements of the Exchanges;
(u) the Issuer is in compliance with its timely disclosure obligations
under Applicable Securities Laws in the Selling Jurisdictions and
under the rules of the Exchanges;
(v) the Issuer is a "reporting issuer" or maintains an equivalent standard
in each of the Canadian Selling Jurisdictions within the meaning of
the Applicable Securities Laws in such provinces and is eligible to
participate in the prompt offering qualification system in each of the
Canadian Selling Jurisdictions with a "Current AIF" (within the
meaning of National Policy Statement No. 47) and is not in default of
any requirement in relation thereto in any material respect;
(w) to the knowledge of the Issuer, no officer of the Issuer has a present
intention to sell any material number of securities of the Issuer;
(x) there are no actions, suits, proceedings, investigations or claims,
pending or threatened against the Issuer or any of its subsidiaries in
respect of any benefit acquired by the Issuer or any of its
subsidiaries or any reassessment of any benefit acquired by the Issuer
or any of its subsidiaries under any Canadian federal or provincial
incentive program to promote the television and motion picture
production and distribution industries ("Incentive Program") which
would, if determined adversely to the Issuer or any of its
subsidiaries, have a material adverse effect on the business,
operations, capital or condition (financial or otherwise) of the
Issuer and its subsidiaries (taken as a whole) or its assets (on a
consolidated basis); any material representation or warranty made by
the Issuer and/or its subsidiary in an application for a benefit
issuable under an Incentive Program was true and accurate at the time
said representation or warranty was made by the Issuer and/or
subsidiary;
-16-
(y) on the Closing Date, the Issuer will appoint ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ to the board of directors of the Issuer to
serve as board members until the next annual meeting of the Issuer;
(z) the Issuer will submit to the shareholders of the Issuer a resolution
to approve an amendment to the articles and memorandum of the Issuer at
the next special or annual meeting of shareholders of the Issuer to
provide holders of the Preferred Shares with a right satisfactory to
the Subscriber, acting reasonably, to appoint three members and
nominate a fourth member (who must be a resident of Canada) to the
board of directors of the Issuer for so long as a certain number of
Preferred Shares remain outstanding;
(aa) if the amendment to the articles and memorandum of the Issuer provided
for in Section 5(z) is not approved by the holders of the Common
Shares, the Issuer will include in any slate of nominees proposed for
election by the holders of Common Shares as directors of the Issuer
four nominees of the holders of the Preferred Shares (of whom one must
be a resident of Canada) for so long as a certain number of Preferred
Shares remain outstanding (or the lesser number of nominees
contemplated by the amendment to the articles and memorandum of the
Issuer provided for in Section 5(z), of whom one must be a resident of
Canada, if a fewer number of Preferred Shares remain outstanding) and
if (and to the extent that) the holders of the Common Shares fail to
elect as directors of the Issuer three nominees of the holders of the
Preferred Shares for so long as a certain number of Preferred Shares
remain outstanding, those nominees of the holders of the Preferred
Shares shall nevertheless be entitled to receive notice of, together
with all materials delivered to directors in respect of, and to attend,
each meeting of the directors of the Issuer;
(bb) it will file amended articles and an amended memorandum of the Issuer
to create the Preferred Shares, on terms satisfactory to the
Subscriber, acting reasonably;
(cc) it will grant to any resident of the United States holding more than
US$5 million principal amount of Preferred Shares, where the Common
Shares issuable upon their conversion would not be freely tradeable in
the United States, rights to require the Issuer, up to two times, to
file a registration statement to qualify such Common Shares in the
United States, provided that such rights will be exercisable commencing
12 months after the Final Closing Date and will be at the expense of
the Issuer and provided further that such holders will also be granted
rights to register the Common Shares issuable upon conversion of their
Preferred Shares in any registration statement filed by the Issuer in
the United States in respect of Common Shares; and
(dd) it will grant to the holders of not less than one half of the Preferred
Shares then outstanding the right to designate, by instrument in
writing, the nominees of the holders of the Preferred Shares to be
included in the slate of nominees proposed for election as directors of
the Issuer as contemplated by Sections 5(z)and 5(aa).
-17-
6. Closing
-------
(a) The Closing will take place at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
Vineberg, Suite 1900, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ at
8:00 a.m., Vancouver time on December 23, 1999, or on such date or
dates and at such time or times as the Issuer and the Agent determine
(the "Closing Date"), but in any event no later than January 15, 2000,
unless extended in writing by the parties.
(b) After the Closing, the Issuer is irrevocably entitled to the
Subscription Price, subject to the rights of the Subscriber under this
Agreement and any applicable laws.
7. Payment and Delivery
--------------------
(a) At the Closing, the Agent, on behalf of the Subscriber, will deliver or
will have delivered to the Issuer a bank draft or certified cheque
payable to Lions Gate Entertainment Corp. representing the net aggregate
Subscription Price for the Units subscribed for hereunder and the Issuer
will thereupon deliver to the Agent, on behalf of the Subscriber, a
photocopy of this Agreement confirming the execution hereof by the
Issuer, and issue one or more definitive certificates representing the
Preferred Shares and Warrants constituting the Units subscribed for
hereunder, registered in the Subscriber's name (or in such other name as
set forth under "Alternative Registration Instructions" on the first
page of this Agreement) and will cause to be delivered to the Agent such
definitive certificates.
(b) In the event that the Closing has not occurred by January 15, 2000,
unless extended, or this subscription is not accepted by the Issuer,
this Agreement and the subscription proceeds, together with any other
documents delivered in connection herewith, will be returned to the
Subscriber at the address under "Name and Residential Address of the
Subscriber" on the first page of this Subscription Agreement within ten
business days of the date of such event.
8. Acceptance of Subscription
--------------------------
(a) The Issuer intends to offer for issue and sale an aggregate of up to
13,000 Units at a per Unit price of US$2,550, for an aggregate amount
of up to US$33,150,000 in accordance with the terms of this Agreement
and the Agency Agreement. The Issuer in its sole discretion may accept
or reject this subscription (in whole or in part), including pursuant to
Section 2(b).
(b) If this subscription is rejected, the Subscriber understands that any
funds delivered by the Subscriber to the Agent will be promptly
returned to the Subscriber without deduction or interest. The Subscriber
hereby waives any requirement for the Issuer to communicate its
acceptance of this subscription to the Subscriber. The Issuer will be
deemed to have accepted this offer upon delivery at the Closing Date to
the Subscriber of the certificate representing the Units referred to in
Section 7 above.
-18-
9. Authority of Agent
------------------
The Subscriber irrevocably authorizes the Agent in its sole discretion:
(a) to act as the Subscriber's representative at the Closing, to execute
in its name and on its behalf all required receipts and documents, to
receive a certificate or certificates for the Preferred Shares and
Warrants constituting the Units purchased by the Subscriber and to
terminate this Agreement on its behalf in the event that any condition
precedent to the offering has not been satisfied; and
(b) to vary any time periods, including establishing and/or changing the
Closing Date or the time of Closing.
10. No Assignment
-------------
The Subscriber may not assign all or any part of its interest in or to this
Agreement without the written consent of the Issuer and any purported
assignment without such consent is void.
11. Notice
------
Any notice to be given by any party to another under this Agreement will be
deemed to be properly given when in writing and delivered by hand or
communicated by telecopier, on any business day to the following address
for notice of the intended recipient:
for the Subscriber:
To the address of the Subscriber set out under "Name and Residential
Address of the Subscriber" on the first page of this Agreement.
for the Issuer:
LIONS GATE ENTERTAINMENT CORP.
Suite 3123, Three Bentall Centre
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ Keep
Fax: (▇▇▇)▇▇▇-▇▇▇▇
for the Agent:
YORKTON SECURITIES INC.
Suite 3100
BCE Place, ▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
-19-
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇)▇▇▇-▇▇▇▇
A party may by notice to the other party change its address for notice to
some other address and will so change its address for notice to an address
that is adequate whenever its existing address for notice is not adequate
for delivery by hand.
12. Further Assurances
------------------
The parties hereto each covenant and agree to execute and deliver such
further agreements, documents and writings and provide such further
assurances as may be required by the parties to give effect to this
Agreement and without limiting the generality of the foregoing to do all
acts and things, execute and deliver all documents, agreements and writings
and provide such assurances, undertakings, information and investment
letters as may be required from time to time by all regulatory or
governmental bodies or stock exchanges having jurisdiction over the
Issuer's affairs or as may be required from time to time under the
applicable securities legislation, and any other applicable law.
13. Miscellaneous
-------------
(a) The representations, warranties and covenants contained in this
Agreement, in any Schedule hereto, in any documents to be executed and
delivered pursuant to this Agreement and in any documents executed and
delivered in connection with the completion of the transaction
contemplated herein shall survive the Closing and, notwithstanding the
Closing and any investigations made by or on behalf of the Subscriber,
shall continue in full force and effect for two years from the Closing
Date and any claim in respect thereof, except a claim based on fraud
(which may be made at any time), shall be made in writing within the
time so limited for survival.
(b) This Agreement is and will be deemed to have been made in British
Columbia and for all purposes will be governed exclusively by and
interpreted according to the laws of British Columbia, and the parties
hereby agree to submit to the jurisdiction of the Courts of British
Columbia in connection with any disputes arising hereunder.
(c) Time is of the essence of this Agreement and will be calculated in
accordance with the provisions of the Interpretation Act (British
Columbia).
(d) Except as expressly provided in this Agreement and in the agreements,
instruments and other documents contemplated or provided for herein,
this Agreement contains the entire agreement between the parties with
respect to the sale of the Units and there are no other terms,
conditions, representations or warranties, whether expressed, implied,
oral or written, by statute, by common law, by the Issuer, by the
Subscriber, by the Agent, or by anyone else.
-20-
(e) This Agreement may be amended only in writing signed by each of the
Issuer, the Agent and the Subscriber.
(f) In this Agreement a reference to:
(i) currency means United States currency;
(ii) a statute or code or a specific provision thereof includes every
regulation made pursuant thereto, all amendments to the statute,
code or any such regulation in force from time to time, and any
statute, code or regulation that supplements or supersedes such
statute, code or any such regulation; and
(iii) an entity includes any entity that is a successor of such
entity.
(g) The terms, provisions, representations, warranties and covenants of
the Issuer and the Subscriber, respectively, survive the Closing, the
payment of the Subscription Price, the issue and delivery of the
Preferred Shares and Warrants, the completion of filings contemplated
herein, and all other transactions contemplated herein.
(h) This Agreement may be executed in as many counterparts as may be
necessary, each of which so executed shall be deemed to be an original
and such counterparts together shall constitute one and the same
instrument.
(i) This Agreement enures to the benefit of and is binding upon the
Issuer, the Agent and the Subscriber and their respective successors
and permitted assigns.
(j) The obligations of the parties hereunder are subject to any required
regulatory approvals, if any, being obtained.
The remainder of this page has been intentionally left blank.
-21-
Execution Page
--------------
IN WITNESS WHEREOF the parties have executed this Agreement as of the day,
month and year first above written.
PLEASE COMPLETE THIS SECTION
The undersigned Subscriber hereby subscribes for:
____ 648 _____ Units at a price of US$2,550 per Unit for a total Subscription
Price of: US$ _____________________
Future Media Productions, Inc.
---------------------------------------------------------------
Name of Subscriber (Please print)
---------------------------------------------------------------
Signature of Subscriber
Per: ▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------------------------------
Authorized Signatory (if Subscriber is not an individual)
President /s/ ^^ILLEGIBLE SIGNATURE^^
---------------------------------------------------------------
Title
This subscription is hereby accepted as to ________________________ Units.
LIONS GATE ENTERTAINMENT CORP.
Per: /s/ ^^ILLEGIBLE SIGNATURE^^
------------------------------------------
Authorized Signatory
This subscription is hereby acknowledged and the authority provided in Section 9
is hereby accepted.
YORKTON SECURITIES INC.
Per:
------------------------------------------
Per: Authorized Signatory
-21-
Execution Page
--------------
IN WITNESS WHEREOF the parties have executed this Agreement as of the day,
month and year first above written.
PLEASE COMPLETE THIS SECTION
The undersigned Subscriber hereby subscribes for:
_________ Units at a price of US$2,550 per Unit for a total Subscription Price
of: US$_________________
-------------------------------------------------------------------
Name of Subscriber (Please print)
-------------------------------------------------------------------
Signature of Subscriber
Per:
---------------------------------------------------------------
Authorized Signatory (if Subscriber is not an individual)
-------------------------------------------------------------------
Title
This subscription is hereby accepted as to _____________________ Units.
LIONS GATE ENTERTAINMENT CORP.
Per:
---------------------------------------------------------------
Authorized Signatory
This subscription is hereby acknowledged and the authority provided in Section 9
is hereby accepted.
YORKTON SECURITIES INC.
Per:
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------------------------------------------
Per: Authorized Signatory
-21-
Execution Page
--------------
IN WITNESS WHEREOF the parties have executed this Agreement as of the day, month
and year first above written.
PLEASE COMPLETE THIS SECTION
The undersigned Subscriber hereby subscribes for:
_____ 648 _____ Units at a price of US$2,550 per Unit for a total Subscription
Price of: US$_________________
Future Media Productions, Inc.
----------------------------------------------------------------
Name of Subscriber (Please print)
----------------------------------------------------------------
Signature of Subscriber
Per: ▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------------------------------
Authorized Signatory (if Subscriber is not an individual)
President ^^ILLEGIBLE SIGNATURE^^
----------------------------------------------------------------
Title
This subscription is hereby accepted as to __________________ Units.
LIONS GATE ENTERTAINMENT CORP.
Per:
------------------------------------------------------------
Authorized Signatory
This subscription is hereby acknowledged and the authority provided in Section 9
is hereby accepted.
YORKTON SECURITIES INC.
Per:
------------------------------------------------------------
Per: Authorized Signatory
A-l
SCHEDULE "A" TO SUBSCRIPTION AGREEMENT
U.S. Representations & Warranties
---------------------------------
If the Subscriber falls under one of the categories listed in Section
4(i)(ii) of the Subscription Agreement, by executing the Subscription Agreement,
the Subscriber, on its own behalf and, if applicable on behalf of others for
whom it is contracting, represents, warrants and acknowledges to the Issuer the
following:
(a) the Subscriber is acquiring the Units for its own account, for
investment purposes only and not with a view to any resale,
distribution or other disposition of the Units in violation of the
United States securities laws;
(b) if the Subscriber decides to offer, sell or otherwise transfer any of
the Units, the Preferred Shares, the Warrants or the Common Shares
issuable upon conversion of the Preferred Shares or upon exercise of
the Warrants, it will not offer, sell or otherwise transfer any of
such securities directly or indirectly, unless:
(i) the sale is to the Issuer;
(ii) the sale is made outside the United States in a transaction
meeting the requirements of Rule 904 of Regulation S under the
U.S. Securities Act and in compliance with applicable local
laws and regulations;
(iii) the sale is made pursuant to the exemption from the
registration requirements under the U.S. Securities Act
provided by Rule 144 thereunder and in accordance with any
applicable state securities or "Blue Sky" laws; or
(iv) such securities are sold in a transaction exempt from
registration under the U.S. Securities Act or any applicable
state laws and regulations governing the offer and sale of
securities, and it has prior to such sale furnished to the
Issuer satisfactory evidence of the availability of such
exemption which may, at the Issuer's discretion, include an
opinion of counsel;
(c) the Subscriber understands and agrees that there may be material tax
consequences to the Subscriber of an acquisition or disposition of
the Units, the Preferred Shares, the Warrants or the Common Shares
issuable upon conversion of the Preferred Shares or upon exercise of
the Warrants. The Issuer gives no opinion and makes no
representation with respect to the tax consequences to the Subscriber
under United States, state, local or foreign tax law of the
undersigned's acquisition or disposition of such securities. In
particular, no determination has been made whether the Issuer will be
a "passive foreign investment company" ("PFIC") within the meaning of
Section 1291 of the United States Internal Revenue Code;
A-2
(d) the Subscriber understands and agrees that the financial statements of the
Issuer have been prepared in accordance with Canadian generally accepted
accounting principles, which differ in some respects from United States
generally accepted accounting principles, and thus may not be comparable
to financial statements of United States companies; and
(e) the Subscriber understands that all certificates representing the
Preferred Shares, the Warrants and the Common Shares issuable upon
conversion of the Preferred Shares and upon exercise of the Warrants,
sold in the United States as part of the Offering, and all certificates
issued in exchange for or in substitution of the foregoing securities,
will bear a legend to the following effect:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S.
SECURITIES ACT")NOR THE SECURITIES ACT OF ANY STATE OF THE UNITED STATES.
THESE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, OR OTHERWISE
TRANSFERRED OR ASSIGNED UNLESS THEY ARE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED OR ASSIGNED: (A) TO THE COMPANY, (B) OUTSIDE THE
UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S.
SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER, IF AVAILABLE AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAW, OR (D) PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION
AFTER PROVIDING A SATISFACTORY LEGAL OPINION TO THE COMPANY;
provided that, if any such Preferred Shares, Warrants and Common Shares
issuable upon conversion of the Preferred Shares and upon exercise of the
Warrants, are being sold outside the United States in accordance with Rule
904 of Regulation S, the legend relating to United States securities laws
may be removed by providing a declaration to the Issuer in such form as
the Issuer's counsel from time to time prescribes; and provided, further,
that, if any such securities are being sold under paragraph (C) above, the
legend relating to the United States securities laws may be removed by
delivery to the Issuer, of an opinion of counsel, of recognized standing
reasonably satisfactory to the Issuer's counsel, that such legend is no
longer required under applicable requirements of the U.S. Securities Act
or state securities laws.
A-3
Appendix "A" to Subscription Agreement
Relevant Provisions of the Investment Canada Act
1. Section 3 - Definitions:
"Canadian" means
(a) a Canadian citizen,
(b) a permanent resident within the meaning of the Immigration Act who
has been ordinarily resident in Canada for not more than one year
after the time at which he first became eligible to apply for
Canadian citizenship,
(c) a Canadian government, whether federal, provincial or local, or an
agency thereof, or
(d) an entity that is Canadian-controlled, as determined pursuant to
subsection 26(1) or (2) and in respect of which no determination or
declaration has been made under subsection 26(2.1) or (2.2).
"voting group" means two or more persons who are associated with respect to
the exercise or rights attached to voting interests in an entity by
contract, business arrangement, personal relationship, common control in
fact through the ownership of voting interests, or otherwise, in such a
manner that they would ordinarily be expected to act together on a
continuing basis with respect to the exercise of those rights.
"voting interest", with respect to
(a) a corporation with share capital, means a voting share,
(b) a corporation without share capital, means an ownership interest in
the assets thereof that entitles the owner to rights similar to those
enjoyed by the owner of a voting share, and
(c) a partnership, trust or joint venture, means an ownership interest in
the assets thereof that entitles the owner to receive a share of the
profits and to share in the assets on dissolution.
"voting share" means a share in the capital of a corporation to which is
attached a voting right ordinarily exercisable at meetings of shareholders
of the corporation and to which is ordinarily attached a right to receive a
share of profits, or to share in the assets of the corporation on
dissolution, or both.
2. Section 26(l) to (2.2) - Rules Respecting Control of Entities:
(1) Subject to subsections (2.1) and (2.2), for the purposes of this Act,
(a) where one Canadian or two or more members of a voting group who are
Canadians own a majority of the voting interests of an entity, it is
a Canadian-controlled entity;
A-4
(b) where paragraph (a) does not apply and one non-Canadian or two or more
members of a voting group who are non-Canadians own a majority of the
voting interests of an entity, it is not a Canadian-controlled entity;
(c) where paragraphs (a) and (b) do not apply and a majority of the voting
interests of an entity are owned by Canadians and it can be established
that the entity is not controlled in fact through the ownership of its
voting interests by one non-Canadian or by a voting group in which a
member or members who are non-Canadians own one-half or more of those
voting interests of the entity owned by the voting group, it is a
Canadian entity; and
(d) where paragraphs (a) to (c) do not apply and less than a majority of the
voting interests of an entity are owned by Canadians, it is presumed not
to be a Canadian-controlled entity unless the contrary can be established
by showing that:
(i) the entity is controlled in fact through the ownership of its
voting interests by one Canadian or by a voting group in which a
member or members who are Canadians own a majority of those voting
interests of the entity owned by the voting group, or
(ii) in the case of an entity that is a corporation or limited
partnership, the entity is not controlled in fact through the
ownership of its voting interest and two-thirds of the members of
its board of directors or, in the case of a limited partnership,
two-thirds of its general partners, are Canadians.
(2) Subject to subsection (2.1) and (2.2), where it can be established that a
trust is not controlled in fact through the ownership of its voting
interests, subsection (1) does not apply and the trust is a Canadian-
controlled entity where two-thirds of its trustees are Canadians.
(2.1) Where an entity that carries on or proposes to carry on a specific type
of business activity that is prescribed for the purposes of paragraph
15(a) qualifies as a Canadian-controlled entity by virtue of subsection
(1) or (2), the Minister may nevertheless determine that the entity is
not a Canadian-controlled entity where, after considering any information
and evidence submitted by or on behalf of the entity or otherwise made in
fact by one or more non-Canadians.
(2.2) Where an entity referred to in subsection (2.1) has refused or neglected
to provide, within a reasonable time, information that the Minister or
the Director has requested and that the Minister considers necessary in
order to make a decision under that subsection, the Minister may declare
that the entity is not a Canadian-controlled entity.